Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Where prior to a spin-off butterfly where CCo is a distributing corporation, CCo's parent ACo enters into a settlement agreement with XXXXXXXXXX /DCo with respect to XXXXXXXXXX , whether such settlement agreement would be caught by paragraph 55(3.1)(a) of the Income Tax Act ("Act")?
Position: No.
Reasons: The right to receive cash accrued to CCo and the right to receive a "change of control" premium accrued to ACo (which is not a distributing corporation) under such settlement agreement.
XXXXXXXXXX 2004-008030
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. In your emails of XXXXXXXXXX, you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations.
To the best of your knowledge, and that of the taxpayers involved, none of the issues involved in this ruling request is
(i) in an earlier return of one of the taxpayers or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of one of the taxpayers or a related person;
(iii) under objection by one of the taxpayers or a related person;
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
Definitions
In this letter, the following terms have the meanings specified:
(a) XXXXXXXXXX;
(b) "ACo" means XXXXXXXXXX, as described in Paragraph 1;
(c) "ACo Common Shares" means the common shares in the capital stock of ACo so described in Paragraph 4;
(d) "ACo Preferred Shares" means the XXXXXXXXXX Preferred Shares of ACo XXXXXXXXXX, so described in Paragraph 5;
(e) "ACo Subco" means the Canadian corporation described in Paragraph 30;
(f) "ACo Subco Common Shares" means the common shares of ACo Subco described in Paragraph 30;
(g) "ACo Subco Note" means the note payable described in Paragraph 54;
(h) "ACo Subco Preferred Shares" means the preferred shares of ACo Subco described in Paragraph 30;
(i) "ACo Subco Redemption Amount" means the aggregate redemption amount of the ACo Subco Preferred Shares, as described in Paragraph 53;
(j) "acquiror" has the meaning assigned by the definition of "specified corporation" in subsection 55(1);
(k) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;
(l) "adjusted cost base" has the meaning assigned by section 54;
(m) "affiliated persons" has the meaning assigned by subsection 251.1(1);
(n) "allowable capital loss" has the meaning assigned by paragraph 38(1)(b);
(o) "XXXXXXXXXX/Fco" means XXXXXXXXXX, as described in Paragraph 26;
(p) "arm's length" has the meaning assigned by section 251;
(q) "BCo" means XXXXXXXXXX, as described in Paragraph 9;
(r) "BCo Butterfly " means the transactions described in Paragraphs 51 to 56;
(s) "BCo Butterfly Proportion" means the fraction A/B where:
A is the fair market value of the BCo Subco Common Shares to be transferred to ACo Subco referred to in Paragraph 53 immediately before such transfer; and
B is the net fair market value of all property owned by Bco immediately before the transfer of BCo Subco Common Shares to ACo Subco referred to in Paragraph 53;
(t) "BCo Common Shares" means the common shares of BCo described in Paragraph 11;
(u) "BCo New Common Shares" means the common shares of BCo described in Paragraph 51;
(v) "BCo Note" means the note payable described in Paragraph 55;
(w) "BCo Redemption Amount" means the aggregate redemption amount of the BCo Reorganization Shares issued on the BCo Share Exchange, as described in Paragraph 51;
(x) "BCo Reorganization Shares" means the preferred shares of BCo described in Paragraph 51;
(y) "BCo Share Exchange" has the meaning assigned in Paragraph 51;
(z) "BCo Subco" means the Canadian corporation described in Paragraph 31;
(aa) "BCo Subco Common Shares" means the common shares of BCo Subco described in Paragraph 31;
(bb) "BCo Subco Note" means the note payable described in Paragraph 48;
(cc) "BCo Subco Preferred Shares" means the preferred shares of BCo Subco described in Paragraph 31;
(dd) "BCo Subco Redemption Amount" means the aggregate redemption amount of the BCo Subco Preferred Shares, as described in Paragraph 47;
(ee) "XXXXXXXXXX/ECo" means XXXXXXXXXX, as described in Paragraph 26;
(ff) "Canadian corporation" has the meaning assigned by subsection 89(1);
(gg) "capital gain" has the meaning assigned by subsection 39(1);
(hh) "capital loss" has the meaning assigned by subsection 39(1);
(ii) "capital property" has the meaning assigned by section 54;
(jj) "CBCA" means the Canada Business Corporations Act;
(kk) "CCo" means XXXXXXXXXX, as described in Paragraph 14;
(ll) "CCo Board" means the Board of Directors of Cco;
(mm) "CCo Butterfly" means the transactions described in Paragraphs 45 to 50;
(nn) "CCo Butterfly Proportion" means the fraction A/B where:
A is the fair market value of the XXXXXXXXXX/DCo Shares to be transferred to BCo Subco referred to in Paragraph 47 immediately before such transfer; and
B is the net fair market value of all property owned by CCo immediately before the transfer of XXXXXXXXXX/ DCo Shares to BCo Subco referred to in Paragraph 47;
(oo) "CCo Common Shares" means the common shares of CCo described in Paragraph 15;
(pp) "CCo/XXXXXXXXXX/DCo Agreements" means the agreements described in Paragraph 27;
(qq) "CCo New Common Shares" means the common shares of CCo described in Paragraph 45;
(rr) "CCo Note" means the note payable described in Paragraph 49;
(ss) "CCo Preferred Shares" means the XXXXXXXXXX, as described in Paragraphs 17 to 21;
(tt) "CCo Redemption Amount" means the aggregate redemption amount of the CCo Reorganization Shares issued on the CCo Share Exchange, as described in Paragraph 45;
(uu) "CCo Reorganization Shares" means the preferred shares of CCo described in Paragraph 45;
(vv) "CCo Share Exchange" has the meaning assigned in Paragraph 45;
(ww) "CRA" means the Canada Revenue Agency;
(xx) "cost amount" has the meaning assigned by subsection 248(1);
(yy) "disposition" has the meaning assigned by subsection 248(1);
(zz) "distribution" has the meaning assigned by subsection 55(1);
(aaa) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(bbb) "eligible property" has the meaning assigned by subsection 85(1.1);
(ccc) "XXXXXXXXXX/GCo" means XXXXXXXXXX, as described in Paragraph 33;
(ddd) "fair market value" means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale;
(eee) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(fff) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(ggg) "Loss Consolidation" means the loss consolidation arrangement implemented in XXXXXXXXXX as described in Paragraph 13;
(hhh) "XXXXXXXXXX/DCo" means XXXXXXXXXX, as described in Paragraph 23;
(iii) "XXXXXXXXXX/DCo Shares" means the shares of XXXXXXXXXX/DCo held by CCo, as described in Paragraph 25;
(jjj) "New ACo" means the corporation resulting from the amalgamation of ACo, BCo Subco and ACo Subco, as described in Paragraph 57;
(kkk) "paid-up capital" has the meaning assigned by subsection 89(1);
(lll) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;
(mmm)"principal amount" has the meaning assigned by subsection 248(1);
(nnn) "proceeds of disposition" has the meaning assigned by section 54;
(ooo) "Proposed Transactions" means the transactions referred to in Paragraphs 45 to 59;
(ppp) "public corporation" has the meaning assigned by subsection 89(1);
(qqq) "Put" means the put option described in Paragraph 26;
(rrr) "Regulations" refers to the Income Tax Regulations;
(sss) "related persons" has the meaning assigned by section 251;
(ttt) "restricted financial institution" has the meaning assigned by subsection 248(1);
(uuu) "series of transactions or events" has the meaning assigned by subsection 248(10);
(vvv) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 17;
(www) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 18;
(xxx) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 19;
(yyy) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 20;
(zzz) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 21;
(aaaa) "XXXXXXXXXX Shares" means the XXXXXXXXXX Preferred Shares, XXXXXXXXXX of CCo, as described in Paragraph 21;
(bbbb) "specified class" has the meaning assigned by subsection 55(1);
(cccc) "specified corporation" has the meaning assigned by subsection 55(1);
(dddd) "specified financial institution" has the meaning assigned by subsection 248(1);
(eeee) "specified shareholder" has the meaning assigned by subsection 248(1) as modified by subsections 55(3.2) and (3.3);
(ffff) "stated capital account" has the meaning assigned by section 26 of the CBCA;
(gggg) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 87(1.4);
(hhhh) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(iiii) "taxable dividend" has the meaning assigned by subsection 89(1); and
(jjjj) "Trust" means the arm's length trust as described in Paragraph 10.
Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. ACo is the corporation resulting from the amalgamation of XXXXXXXXXX (which was originally incorporated under the CBCA in XXXXXXXXXX) and its XXXXXXXXXX subsidiary wholly-owned corporations, XXXXXXXXXX, which amalgamation was effective on XXXXXXXXXX. ACo is governed by the CBCA and is a public corporation and a taxable Canadian corporation. ACo's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.
2. ACo is a XXXXXXXXXX corporation. ACo has organized its management structure into the following XXXXXXXXXX business operations:
XXXXXXXXXX.
3. In XXXXXXXXXX, ACo was the distributing corporation and a specified corporation in a butterfly transaction which was the subject matter of ruling XXXXXXXXXX.
4. As at XXXXXXXXXX, ACo had XXXXXXXXXX common shares issued and outstanding representing all of its issued voting shares (the "ACo Common Shares"). The ACo Common Shares are listed on XXXXXXXXXX. ACo has a shareholders rights plan in effect.
5. ACo also has XXXXXXXXXX issued and outstanding XXXXXXXXXX Preferred Shares XXXXXXXXXX which are listed on XXXXXXXXXX (the "ACo Preferred Shares").
6. Based on a review of the shareholders' register, and to the knowledge of ACo's directors and senior officers, no shareholder owns more than 10% of the issued and outstanding ACo Common Shares or series of ACo Preferred Shares.
7. ACo owns all of the common shares of BCo. ACo has issued and currently has outstanding long-term notes in various series with various terms to maturity and with an aggregate principal amount of approximately $XXXXXXXXXX.
8. ACo has incurred significant capital losses XXXXXXXXXX.
Facts Relating to Bco
9. BCo is a taxable Canadian corporation that was incorporated in XXXXXXXXXX under the CBCA. BCo is a holding corporation which owns all of the common shares of CCo. BCo's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.
10. As at XXXXXXXXXX , BCo had outstanding XXXXXXXXXX common shares, XXXXXXXXXX common shares, XXXXXXXXXX Shares and XXXXXXXXXX Shares. The BCo XXXXXXXXXX voting common shares were all held by ACo. The BCo XXXXXXXXXX voting common shares were all held by an arm's length trust (the "Trust"), the beneficiaries of which were affiliates of XXXXXXXXXX. The BCo XXXXXXXXXX Shares were all held by ACo and were non-voting. In XXXXXXXXXX, ACo acquired the BCo XXXXXXXXXX voting common shares from the Trust for cash proceeds of approximately $XXXXXXXXXX, such that ACo held all of the issued and outstanding shares of BCo.
11. On XXXXXXXXXX, BCo undertook a reorganization of capital in which ACo exchanged all of its shares of BCo for XXXXXXXXXX newly-issued common shares of BCo (the "BCo Common Shares"). As of XXXXXXXXXX, BCo had outstanding XXXXXXXXXX BCo Common Shares, all of which are owned by ACo.
12. BCo has indebtedness of $XXXXXXXXXX outstanding, which is owed to XXXXXXXXXX, a partnership of which ACo and XXXXXXXXXX (a subsidiary wholly-owned corporation of CCo) are the sole partners.
13. BCo and CCo implemented a loss consolidation arrangement in 2002 which was the subject matter of an advance income tax ruling XXXXXXXXXX (the "Loss Consolidation"). The Loss Consolidation has been partially unwound.
Facts Relating to CCo
14. CCo is the corporation resulting from the amalgamation of XXXXXXXXXX and its XXXXXXXXXX subsidiary wholly-owned corporations, XXXXXXXXXX, which amalgamation was effective on XXXXXXXXXX. CCo is governed by the CBCA. CCo provides directly or indirectly through its subsidiaries, XXXXXXXXXX. CCo is a public corporation and a taxable Canadian corporation. CCo's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.
15. CCo has outstanding XXXXXXXXXX common shares, representing all of its voting shares (the "CCo Common Shares"), all of which are owned directly by BCo.
16. CCo also has XXXXXXXXXX issued and outstanding XXXXXXXXXX Preferred Shares issued XXXXXXXXXX (the "CCo Preferred Shares"). The CCo Preferred Shares are non-voting; their other relevant terms and conditions are described in Paragraphs 17 to 21. The CCo Preferred Shares are listed on XXXXXXXXXX Stock Exchange. There has been no reduction in the paid-up capital XXXXXXXXXX of CCo Preferred Shares since their issuance.
17. XXXXXXXXXX.
18. XXXXXXXXXX.
19. XXXXXXXXXX.
20. XXXXXXXXXX.
21. XXXXXXXXXX.
22. XXXXXXXXXX.
Facts Relating to XXXXXXXXXX/DCo
23. XXXXXXXXXX/DCo is a public corporation and a taxable Canadian corporation.
24. As at XXXXXXXXXX/DCo had XXXXXXXXXX common shares (the "XXXXXXXXXX/DCo Common Shares") and XXXXXXXXXX/DCo XXXXXXXXXX shares (the "XXXXXXXXXX/DCo XXXXXXXXXX Shares") issued and outstanding. The XXXXXXXXXX/DCo XXXXXXXXXX Shares are non-voting common shares that are convertible into XXXXXXXXXX/DCo Common Shares and participate equally with respect to dividends payable on the XXXXXXXXXX/DCo Common Shares. The XXXXXXXXXX/DCo Common Shares are listed on XXXXXXXXXX Stock Exchange.
25. CCo owns approximately XXXXXXXXXX/DCo Common Shares and all of the issued and outstanding XXXXXXXXXX /DCo XXXXXXXXXX Shares, or approximately XXXXXXXXXX% of the issued and outstanding equity of XXXXXXXXXX/DCo (the "XXXXXXXXXX/DCo Shares"). The XXXXXXXXXX/DCo Shares were acquired in XXXXXXXXXX. CCo has a pre-emptive right that allows it to maintain its percentage ownership of XXXXXXXXXX/DCo through equity subscription.
26. XXXXXXXXXX/DCo owns XXXXXXXXXX% of the voting shares of XXXXXXXXXX ("XXXXXXXXXX/ECo"), which operates as a XXXXXXXXXX. CCo owns the remaining shares of XXXXXXXXXX/ECo. In XXXXXXXXXX, CCo granted XXXXXXXXXX/DCo a put option to sell its shares of XXXXXXXXXX/ECo to CCo (the "Put"). On XXXXXXXXXX/DCo exercised the Put (XXXXXXXXXX/DCo previously announced its intention to do so in XXXXXXXXXX). The closing of the sale pursuant to the exercise of the put option is scheduled for XXXXXXXXXX and the purchase price thereunder will be $XXXXXXXXXX. At the time of the exercise of the Put, CCo was not aware of any possible transaction between XXXXXXXXXX/DCo and XXXXXXXXXX ("XXXXXXXXXX/FCo") (described in Paragraph 28), and CCo had made no decision regarding a potential sale of the XXXXXXXXXX/DCo Shares.
27. XXXXXXXXXX/DCo and CCo have been parties to various arrangements pursuant to which each of them enjoys distribution rights for certain products and services, access to intellectual property and access to services, processes and expertise (the CCo/XXXXXXXXXX/DCo Agreements").
28. On XXXXXXXXXX/DCo announced a proposed arrangement pursuant to which XXXXXXXXXX/DCo would acquire all of the issued and outstanding shares of XXXXXXXXXX/FCo, a taxable Canadian corporation and a public corporation that provides XXXXXXXXXX services. XXXXXXXXXX.
29. On XXXXXXXXXX/DCo and ACo entered into a settlement agreement to settle the litigious and related matters between them (the "Settlement Agreement"). Some of the key provisions of the Settlement Agreement are as follows:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX.
Corporations Incorporated for Proposed Transactions
30. Prior to the implementation of the Proposed Transactions, ACo will incorporate a new taxable Canadian corporation ("ACo Subco") under the CBCA.
The authorized share capital of ACo Subco will consist of one class of an unlimited number of voting and fully participating common shares (the "ACo Subco Common Shares") and one class of an unlimited number of non-voting redeemable and retractable preferred shares (the "ACo Subco Preferred Shares").
Each ACo Subco Preferred Share will be redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an aggregate amount equal to the fair market value of the property received for the issuance of the shares, net of any liabilities assumed by the issuer at the time of issuance divided by the number of ACo Subco Preferred Shares issued as consideration for such property and will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% of the redemption amount of the share at that time having priority over the ACo Subco Common Shares.
No shares of ACo Subco will be issued on incorporation.
31. Prior to the implementation of the Proposed Transactions, BCo will incorporate a new taxable Canadian corporation ("BCo Subco") under the CBCA.
The authorized share capital of BCo Subco will consist of one class of an unlimited number of voting and fully participating common shares (the "BCo Subco Common Shares") and one class of an unlimited number of non-voting redeemable and retractable preferred shares (the "BCo Subco Preferred Shares").
Each BCo Subco Preferred Share will be redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an aggregate amount equal to the fair market value of the property received for the issuance of the shares, net of any liabilities assumed by the issuer at the time of issuance divided by the number of BCo Subco Preferred Shares issued as consideration for such property and will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% of the redemption amount of the share at that time having priority over the BCo Subco Common Shares.
No shares of BCo Subco will be issued on incorporation.
32. XXXXXXXXXX.
33. XXXXXXXXXX. The decision to enter into the foregoing transactions was independent of the decision to enter into the Proposed Transactions and the obligation of CCo to complete the foregoing transactions is not dependent upon whether the Proposed Transactions are completed.
34. XXXXXXXXXX. The decision to enter into the foregoing transactions was independent of the decision to enter into the Proposed Transactions and the obligation of CCo to complete the foregoing transactions is not dependent upon whether the Proposed Transactions are completed.
35. BCo, CCo or companies in which they have a direct or indirect interest are considering, or may in the future consider, acquisitions or other transactions that are unrelated to the Proposed Transactions.
36. The transactions referred to in Paragraphs 26 and 32 to 35 would be undertaken irrespective of whether the Proposed Transactions are undertaken. Similarly, the Proposed Transactions would be undertaken irrespective of such transactions. For greater certainty, none of such transactions has been or will be undertaken in contemplation of the Proposed Transactions.
37. Except as described herein, no debts have been or will be incurred or paid and no property has been or will be acquired by BCo or CCo, or any company controlled by BCo or CCo in contemplation of the proposed transactions described below, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).
38. None of the ACo Subco Preferred Shares, BCo Subco Preferred Shares, BCo Reorganization Shares or CCo Reorganization Shares, is or will be subject to a guarantee agreement, within the meaning referred to in subsection 112(2.2).
39. None of the ACo Subco Preferred Shares, BCo Subco Preferred Shares, BCo Reorganization Shares or CCo Reorganization Shares, has been or will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).
40. None of the ACo Subco Preferred Shares, BCo Subco Preferred Shares, BCo Reorganization Shares or CCo Reorganization Shares, is or will be subject to a dividend rental arrangement.
41. Except as described herein, no changes to the share capital structure of BCo or CCo are contemplated before the date of the commencement of the Proposed Transactions, with the exception of changes that would result from the refinancing, conversion or new issuance of preferred shares. Any such preferred shares issued will be shares of a specified class.
42. Neither of BCo or CCo or any corporation controlled by BCo or CCo, is, or will be, at any time before the completion of the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).
43. None of BCo, CCo, ACo Subco or BCo Subco is, or will be, at any time before the completion of the Proposed Transactions, a restricted financial institution or a specified financial institution.
44. The shares of BCo held by ACo, the shares of CCo held by BCo, and the XXXXXXXXXX/DCo Shares held by CCo are held as capital property.
Each of BCo, CCo, ACo Subco and BCo Subco will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.
Proposed Transactions
The transactions described in Paragraphs 45 to 59 will be undertaken in the order described below, except that the amendment of the articles of BCo described in Paragraph 51 will be undertaken immediately after the amendment of the articles of CCo referred to in Paragraph 45.
CCo Butterfly Transaction
45. The articles of incorporation of CCo will be amended to create one new class of an unlimited number of voting and fully participating common shares (the "CCo New Common Shares") and one new class of an unlimited number of non-voting preferred shares, redeemable and retractable at the redemption amount (the "CCo Reorganization Shares").
The terms and conditions of the CCo New Common Shares will be the same as those of the existing CCo Common Shares.
BCo will exchange each of its CCo Common Shares for one newly authorized and issued CCo New Common Share and one newly authorized and issued CCo Reorganization Share (the "CCo Share Exchange") having an aggregate fair market value equal to the aggregate fair market value of the CCo Common Shares so exchanged, immediately before the CCo Share Exchange. The aggregate redemption amount (the "CCo Redemption Amount") and fair market value of the CCo Reorganization Shares issued on the CCo Share Exchange will be equal to the CCo Butterfly Proportion of the aggregate fair market value of all of the issued and outstanding common shares and preferred shares of CCo, immediately before the CCo Share Exchange. Each CCo Reorganization Share will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX % per annum of the redemption amount of the share at that time having priority over the CCo New Common Shares.
CCo will add to the stated capital accounts maintained for the CCo New Common Shares and the CCo Reorganization Shares an amount equal, in aggregate, to the paid-up capital of the CCo Common Shares that BCo transferred to CCo, immediately before the CCo Share Exchange. For greater certainty, that paid-up capital of the CCo Common Shares will be allocated between the CCo New Common Shares and the CCo Reorganization Shares based on the proportion that the fair market value of the CCo New Common Shares or the CCo Reorganization Shares, as the case may be, is of the aggregate fair market value of all new shares issued.
Immediately following the CCo Share Exchange, all of the previously issued and outstanding common shares of CCo will be cancelled. Elections under subsection 85(1) will not be filed in respect of the CCo Share Exchange.
46. Immediately after the CCo Share Exchange described in Paragraph 45, BCo will transfer to BCo Subco all of its CCo Reorganization Shares. As consideration for the transfer, BCo Subco will issue to BCo XXXXXXXXXX BCo Subco Common Shares having an aggregate fair market value equal to the aggregate redemption amount and fair market value at that time of the CCo Reorganization Shares that BCo transferred to BCo Subco described herein.
BCo will jointly elect with BCo Subco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the CCo Reorganization Shares. The agreed amount in respect of the CCo Reorganization Shares transferred will be equal to the cost amount of such shares to BCo at the time of disposition, which will be less than the fair market value of the CCo Reorganization Shares at that time.
BCo Subco will add to the stated capital account of the BCo Subco Common Shares issued as consideration for the transfer of the CCo Reorganization Shares an amount not to exceed the paid-up capital of the CCo Reorganization Shares that BCo transferred to BCo Subco at that time.
47. Immediately before the transfer by CCo of its XXXXXXXXXX/DCo Shares to BCo Subco described herein, the property of CCo will be determined as though there was one type of property, as contemplated by subsection 55(3.02), on a net basis. For greater certainty, any tax accounts, such as the balance of any non-capital losses and net capital losses will not be considered property in determining the net fair market value of the property of CCo for the purposes of the Proposed Transactions.
Immediately after the transfer by BCo of its CCo Reorganization Shares to BCo Subco described in Paragraph 46, CCo will transfer its XXXXXXXXXX/DCo Shares to BCo Subco. As consideration for the transfer, BCo Subco will issue BCo Subco Preferred Shares to CCo having an aggregate redemption amount (the "BCo Subco Redemption Amount") equal to the aggregate fair market value at that time of the XXXXXXXXXX/DCo Shares that CCo transferred to BCo Subco. There are no liabilities relating to the XXXXXXXXXX/DCo Shares that will be assumed on such transfer.
For greater certainty, immediately after the transfer by CCo of its XXXXXXXXXX/DCo Shares to BCo Subco described herein, the net fair market value of the property (i.e. the XXXXXXXXXX/DCo Shares) received by BCo Subco will be equal to that proportion of the net fair market value of all property of CCo, determined immediately before such transfer that:
(a) the fair market value of the CCo Reorganization Shares owned by BCo Subco, immediately before such transfer,
is of
(b) the aggregate fair market value of all of the issued and outstanding shares of CCo immediately before such transfer.
CCo will jointly elect with BCo Subco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX/DCo Shares. The agreed amount in respect of the XXXXXXXXXX/DCo Shares transferred will be equal to or greater than the cost amount of such shares to CCo at the time of disposition, which will be less than the fair market value of the transferred XXXXXXXXXX /DCo Shares at that time.
BCo Subco will add an amount to the stated capital account in respect of the BCo Subco Preferred Shares issued as consideration for the transfer of the XXXXXXXXXX/DCo Shares not to exceed the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 85(2.1).
48. BCo Subco will redeem all of the BCo Subco Preferred Shares held by CCo and will issue to CCo in consideration therefor, a demand non-interest bearing promissory note (the "BCo Subco Note") having a principal amount and fair market value equal to the aggregate redemption amount and fair market value of the BCo Subco Preferred Shares so redeemed. CCo will accept the BCo Subco Note as full satisfaction for the redemption price of its BCo Subco Preferred Shares so redeemed with the risk of the note being dishonoured.
49. CCo will redeem all of the CCo Reorganization Shares held by BCo Subco and will issue in consideration therefor, a demand non-interest bearing promissory note (the "CCo Note") having a principal amount and fair market value equal to the aggregate redemption amount and fair market value of the CCo Reorganization Shares so redeemed. BCo Subco will accept the CCo Note as full satisfaction for the redemption price of its CCo reorganization Shares so redeemed with the risk of the note being dishonoured.
50. BCo Subco will satisfy the principal amount of the BCo Subco Note by transferring to CCo the CCo Note that will be accepted by CCo in full payment of BCo Subco's obligation. Concurrently, CCo will satisfy the principal amount of the CCo Note by transferring to BCo Subco the BCo Subco Note that will be accepted by BCo Subco in full payment of CCo's obligation. The BCo Subco Note and the CCo Note will both be marked paid in full and cancelled.
BCo Butterfly Transaction
51. The articles of incorporation of BCo will be amended to create one new class of an unlimited number of voting and fully participating common shares (the "BCo New Common Shares") and one new class of an unlimited number of non-voting preferred shares, redeemable and retractable at the redemption amount (the "BCo Reorganization Shares").
The terms and conditions of the BCo New Common Shares will be the same as those of the existing BCo Common Shares.
ACo will exchange each of its BCo Common Shares for one newly authorized and issued BCo New Common Share and one newly authorized and issued BCo Reorganization Share (the "BCo Share Exchange") having an aggregate fair market value equal to the aggregate fair market value of the BCo Common Shares so exchanged, immediately before the BCo Share Exchange. The aggregate redemption amount (the "BCo Redemption Amount") and fair market value of the BCo Reorganization Shares issued on the BCo Share Exchange will be equal to the BCo Butterfly Proportion of the aggregate fair market value of all of the issued and outstanding common shares of BCo, immediately before the BCo Share Exchange. Each BCo Reorganization Share will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% per annum of the redemption amount of the share at that time having priority over the BCo New Common Shares.
BCo will add to the stated capital accounts maintained for the BCo New Common Shares and the BCo Reorganization Shares an amount equal, in aggregate, to the paid-up capital of the BCo Common Shares that ACo transferred to BCo, immediately before the BCo Share Exchange. For greater certainty, that paid-up capital of the BCo Common Shares will be allocated between the BCo New Common Shares and the BCo Reorganization Shares based on the proportion that the fair market value of the BCo New Common Shares or the BCo Reorganization Shares, as the case may be, is of the aggregate fair market value of all new shares issued.
Immediately following the BCo Share Exchange, all of the previously issued and outstanding common shares of BCo will be cancelled. Elections under subsection 85(1) will not be filed in respect of the BCo Share Exchange.
52. Immediately after the BCo Share Exchange described in Paragraph 51, ACo will transfer to ACo Subco all of its BCo Reorganization Shares. As consideration for the transfer, ACo Subco will issue to ACo XXXXXXXXXX ACo Subco Common Shares having an aggregate fair market value equal to the aggregate redemption amount and fair market value at that time of the BCo Reorganization Shares that ACo transferred to ACo Subco described herein.
ACo will jointly elect with ACo Subco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the BCo Reorganization Shares. The agreed amount in respect of the BCo Reorganization Shares transferred will be at least equal to the cost amount of such shares to ACo at the time of disposition, which will be less than the fair market value of the BCo Reorganization Shares at that time.
ACo Subco will add to the stated capital account of the ACo Subco Common Shares issued as consideration for the transfer of the BCo Reorganization Shares an amount not to exceed the paid-up capital of the BCo Reorganization Shares that ACo transferred to ACo Subco at that time.
53. Immediately before the transfer by BCo of its BCo Subco Common Shares to ACo Subco described herein, the property of BCo will be determined as though there was one type of property, as contemplated by subsection 55(3.02), on a net basis. For greater certainty, any tax accounts, such as the balance of any non-capital losses and net capital losses will not be considered property in determining the net fair market value of the property of BCo for the purposes of the Proposed Transactions.
Immediately after the transfer by ACo of its BCo Reorganization Shares to ACo Subco described in Paragraph 52, BCo will transfer its BCo Subco Common Shares to ACo Subco. As consideration for the transfer, ACo Subco will issue ACo Subco Preferred Shares to BCo having an aggregate redemption amount (the "ACo Subco Redemption Amount") equal to the aggregate fair market value at that time of the BCo Subco Common Shares that BCo transferred to ACo Subco. There are no liabilities relating to the BCo Subco Common Shares that will be assumed on such transfer.
For greater certainty, immediately after the transfer by BCo of its BCo Subco Common Shares to ACo Subco described herein, the net fair market value of the property (i.e. the BCo Subco Common Shares) received by ACo Subco will be equal to that proportion of the net fair market value of all property of BCo, determined immediately before such transfer that:
(a) the fair market value of the BCo Reorganization Shares owned by ACo Subco, immediately before such transfer,
is of
(b) the aggregate fair market value of all of the issued and outstanding shares of BCo immediately before such transfer.
BCo will jointly elect with ACo Subco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the BCo Subco Common Shares. The agreed amount in respect of the BCo Subco Common Shares transferred will be equal to the cost amount of such shares to BCo at the time of disposition, which will be less than the fair market value of the transferred BCo Subco Common Shares at that time.
ACo Subco will add an amount to the stated capital account in respect of the ACo Subco Preferred Shares issued as consideration for the transfer of the BCo Subco Common Shares not to exceed the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 85(2.1).
54. ACo Subco will redeem all of the ACo Subco Preferred Shares held by BCo and will issue to BCo in consideration therefor, a demand non-interest bearing promissory note (the "ACo Subco Note") having a principal amount and fair market value equal to the aggregate redemption amount and fair market value of the ACo Subco Preferred Shares so redeemed. BCo will accept the ACo Subco Note as full satisfaction for the redemption price of its ACo Subco Preferred Shares so redeemed with the risk of the note being dishonoured.
55. BCo will redeem all of the BCo Reorganization Shares held by ACo Subco and will issue in consideration therefor, a demand non-interest bearing promissory note (the "BCo Note") having a principal amount and fair market value equal to the aggregate redemption amount and fair market value of the BCo Reorganization Shares so redeemed. ACo Subco will accept the BCo Note as full satisfaction for the redemption price of its BCo Reorganization Shares so redeemed with the risk of the note being dishonoured.
56. ACo Subco will satisfy the principal amount of the ACo Subco Note by transferring to BCo the BCo Note that will be accepted by BCo in full payment of ACo Subco's obligation. Concurrently, BCo will satisfy the principal amount of the BCo Note by transferring to ACo Subco the ACo Subco Note that will be accepted by ACo Subco in full payment of BCo's obligation. The ACo Subco Note and the BCo Note will both be marked paid in full and cancelled.
Post-Butterfly Transactions
57. ACo, BCo Subco and ACo Subco will (hereinafter at all times referred to as "predecessor corporations") will undertake a vertical short form amalgamation under the provisions of the CBCA to form a new corporation ("New ACo") in such a manner that:
(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become property of the new corporation by virtue of the amalgamation;
(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation, will become liabilities of the new corporation by virtue of the amalgamation;
(c) the ACo Subco Common Shares held by ACo immediately prior to the amalgamation and the BCo Subco Common Shares held by ACo Subco immediately prior to the amalgamation will be cancelled by virtue of the amalgamation; and
(d) the shares of ACo held by its shareholders immediately before the amalgamation will become shares of the new corporation owned by those shareholders immediately after the amalgamation.
Other Possible Post-Butterfly Transactions
58. New ACo may convert the XXXXXXXXXX/DCo Class A Shares into XXXXXXXXXX/DCo Common Shares pursuant to their terms.
59. New ACo may sell to one or more third parties some or all the shares of XXXXXXXXXX/DCo held by it.
Purpose of the Proposed Transactions
60. The overall purpose of the Proposed Transactions is to move the XXXXXXXXXX/DCo Shares within the related ACo group on a tax-deferred basis in order to facilitate loss consolidation within the related group. The ACo group is currently considering its options in respect of its investment in the XXXXXXXXXX/DCo Shares, which have an accrued gain. The Proposed Transactions will allow some or all of the taxable capital gain realized on a taxable disposition of the XXXXXXXXXX/DCo Shares to be included in the income of New ACo, rather than CCo, for the purposes of the Act, allowing such taxable capital gain to be set-off with the allowable capital losses of New ACo.
61. The purpose of the transactions described in Paragraphs 45 to 50 is to effect a butterfly spin-off by CCo. The purpose of the transactions described in Paragraphs 51 to 56 is to effect a butterfly spin-off by BCo.
62. The purpose of the transactions described in Paragraph 57 is to permit the XXXXXXXXXX/DCo Shares to be held by New ACo directly in order to maximize New ACo's flexibility in respect of any disposition of the XXXXXXXXXX/DCo Shares.
Rulings
Provided that the preceding statements constitute complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:
A. The provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the CCo Share Exchange described in Paragraph 45 and the BCo Share Exchange described in Paragraph 51, such that:
(a) the cost of the CCo Reorganization Shares and the CCo New Common Shares received by BCo on the CCo Share Exchange will, respectively, be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate adjusted cost base to BCo, immediately before the CCo Share Exchange, of BCo's CCo Common Shares that
(i) the fair market value, immediately after the CCo Share Exchange, of the CCo Reorganization Shares and the CCo New Common Shares, as the case may be,
is of
(ii) the fair market value, immediately after the CCo Share Exchange, of all of the CCo Reorganization Shares and the CCo New Common Shares received by BCo for BCo's CCo Common Shares;
(b) pursuant to paragraph 86(1)(c), BCo will be deemed to have disposed of its CCo Common Shares for proceeds of disposition equal to the aggregate cost to BCo of the CCo Reorganization Shares and the CCo New Common Shares as determined in (a) above;
(c) the cost of the BCo Reorganization Shares and the BCo New Common Shares received by ACo on the BCo Share Exchange will, respectively, be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate adjusted cost base to ACo, immediately before the BCo Share Exchange, of Aco's BCo Common Shares that
(i) the fair market value, immediately after the BCo Share Exchange, of the BCo Reorganization Shares and the BCo New Common Shares, as the case may be,
is of
(ii) the fair market value, immediately after the BCo Share Exchange, of all of the BCo Reorganization Shares and the BCo New Common Shares received by ACo for ACo's BCo Common Shares; and
(d) pursuant to paragraph 86(1)(c), ACo will be deemed to have disposed of its BCo Common Shares for proceeds of disposition equal to the aggregate cost to ACo of the BCo Reorganization Shares and the BCo New Common Shares as determined in (c) above.
B. No dividend will be deemed to arise, by virtue of either of subsection 84(1) or 84(3), as a result of the CCo Share Exchange described in Paragraph 45 and the BCo Share Exchange described in Paragraph 51.
C. The provisions of subsection 85(1) will apply to:
(a) the transfer by BCo of its CCo Reorganization Shares to BCo Subco described in Paragraph 46;
(b) the transfer by CCo of its XXXXXXXXXX /DCo Shares to BCo Subco described in Paragraph 47;
(c) the transfer by ACo of its BCo Reorganization Shares to ACo Subco described in Paragraph 52; and
(d) the transfer by BCo of its BCo Subco Common Shares to ACo Subco described in Paragraph 53;
such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).
For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers.
D. Subsection 84(3) will apply on the redemption
(a) of the BCo Subco Preferred Shares held by CCo described in Paragraph 48, to deem BCo Subco to have paid and CCo to have received; and
(b) of the CCo Reorganization Shares held by BCo Subco described in Paragraph 49, to deem CCo to have paid and BCo Subco to have received;
a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate paid-up capital in respect of such shares immediately before such redemption, and any such dividend
(c) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;
(d) will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1) and, for greater certainty, the provisions of subsection 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;
(e) will be excluded from the proceeds of disposition of the shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 of the Act;
(f) by virtue of subsection 112(3) of the Act, will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received; and
(g) will not be subject to tax under Part IV.1 and Part VI.1 of the Act on the basis that such dividend will be an excepted dividend by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act and an excluded dividend by virtue of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act, as each of the recipients will have a substantial interest, within the meaning assigned by paragraph 191(2)(a) of the Act, in the payer corporation at the time such taxable dividend is paid.
E. Subsection 84(3) will apply on the redemption
(a) of the ACo Subco Preferred Shares held by BCo described in Paragraph 54, to deem ACo Subco to have paid and BCo to have received; and
(b) of the BCo Reorganization Shares held by ACo Subco described in Paragraph 55, to deem BCo to have paid and ACo Subco to have received;
a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate paid-up capital in respect of such shares immediately before such redemption, and any such dividend
(c) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;
(d) will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1) and, for greater certainty, the provisions of subsection 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;
(e) will be excluded from the proceeds of disposition of the shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 of the Act;
(f) by virtue of subsection 112(3) of the Act, will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received; and
(g) will not be subject to tax under Part IV.1 and Part VI.1 of the Act on the basis that such dividend will be an excepted dividend by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act and an excluded dividend by virtue of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act, as each of the recipients will have a substantial interest, within the meaning assigned by paragraph 191(2)(a) of the Act, in the payer corporation at the time such taxable dividend is paid.
F. Provided that as part of the series of transactions or events that includes the Proposed Transactions described herein, there is not:
(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(c) an acquisition of any shares of a distributing corporation in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii);
(d) an acquisition of property in the circumstances described in subparagraph 55(3.1)(c) or (d);
(e) a distribution by CCo to a corporation that is not an acquiror before the day that is three years after the day on which the CCo Reorganization Shares are exchanged for the BCo Subco Common Shares described in Paragraph 46; or
(f) a distribution by New Aco before the day that is three years after the day on which the CCo Reorganization Shares are exchanged for the BCo Subco Common Shares described in Paragraph 46;
which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in ruling D above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
G. Provided that as part of the series of transactions or events that includes the Proposed Transactions described herein, there is not:
(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(c) an acquisition of any shares of a distributing corporation in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii);
(d) an acquisition of property in the circumstances described in subparagraph 55(3.1)(c) or (d);
(e) a distribution by BCo to a corporation that is not an acquiror before the day that is three years after the day on which the BCo Reorganization Shares are exchanged for the ACo Subco Common Shares described in Paragraph 52; or
(f) a distribution by New Aco before the day that is three years after the day on which the BCo Reorganization Shares are exchanged for the ACo Subco Common Shares described in Paragraph 52;
which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in ruling E above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
H. The repayments of
(a) the BCo Subco Note held by CCo described in Paragraph 50;
(b) the CCo Note held by BCo Subco described in Paragraph 50;
(c) the ACo Subco Note held by BCo described in Paragraph 56;
(d) the BCo Note held by ACo Subco described in Paragraph 56;
will not give rise to a "forgiven amount" within the meaning thereof in subsection 80(1) or 80.01(1), and neither BCo, CCo, ACo Subco nor BCo Subco will realize a gain or incur any loss as a result of such repayments.
I. Provided the XXXXXXXXXX/DCo Shares, CCo Common Shares and BCo Common Shares, as the case may be, constitute capital property to their respective holders immediately prior to the commencement of the Proposed Transactions, the Proposed Transactions will not, in and by themselves, cause the XXXXXXXXXX/DCo Shares, BCo New Common Shares, BCo Reorganization Shares, BCo Subco Common Shares, CCo New Common Shares or CCo Reorganization Shares to be received pursuant to the Proposed Transactions to not be capital property to their respective holders.
J. On the amalgamation of ACo, ACo Subco and BCo Subco described in Paragraph 57, the provisions of:
(a) subsection 87(1) will, by virtue of subsection 87(1.1) apply;
(b) provided that the shares of ACo were capital property to the holders thereof immediately before the amalgamation, the provisions of subsection 87(4), other than paragraphs (c), (d), and (e) thereof, will apply, such that:
(i) each such ACo shareholder will be deemed by paragraph 87(4)(a) to have disposed of its shares of ACo for proceeds of disposition equal to its adjusted cost base of such shares immediately prior to the amalgamation; and
(ii) each such ACo shareholder will be deemed by paragraph 87(4)(b) to have acquired its shares of the new corporation formed on the amalgamation at a cost equal to the proceeds of disposition described in paragraph (i) above;
(c) the cancellation of the shares of ACo Subco held by ACo by virtue of the amalgamation will not give rise to a gain or loss to ACo and the cancellation of the shares of BCo Subco held by ACo Subco by virtue of the amalgamation will not give rise to a gain or loss to ACo Subco;
(d) section 87(7) will apply to a debt or other obligation of ACo that became a debt or other obligation of the new corporation formed on the amalgamation where the amount payable by the new corporation on the maturity of the debt or other obligation, as the case may be, is the same as the amount that would have been payable by the predecessor corporation on its maturity and therefore the provisions of section 80 will not apply; and
(e) subsection 87(4.2) will apply for the purposes of applying Parts IV.I and VI.I and the definitions of "short-term preferred share" and "taxable preferred share" in subsection 248(1), such that:
(i) a new ACo Preferred Share will be deemed to have been issued at the time the old ACo Preferred Share was issued;
(ii) a new ACo Preferred Share will be deemed to have been acquired at the time the old ACo Preferred Share was acquired;
(iii) New ACo shall be deemed to be the same corporation as, and a continuation of, the predecessor ACo;
(iv) an election made under subsection 191.2(1) by the predecessor ACo with respect to the old ACo Preferred Shares of a particular series shall be deemed to be an election made by New ACo with respect to the new ACo Preferred Shares of that series.
K. The provisions of subsections 15(1), 56(2), 56(4), 69(4), 69(11) and 246(1) will not apply to any of the Proposed Transactions, in and by themselves.
L. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by CRA on May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Opinion
In the event that the proposed amendment to add subsection 55(3.4) is enacted substantially in the form proposed in the Legislative Proposals released by the Department of Finance on February 27, 2004, it is then our opinion that a person who holds 10% or more of a class of CCo Preferred Shares will not constitute a specified shareholder of CCo for the purpose of paragraph 55(3.1)(b)(i) and paragraph 55(3.2)(h) as it applies for the purpose of subparagraph 55(3.1)(b)(iii).
The foregoing opinion is not ruling and, in accordance with the practice referred to in Information Circular 70-6R5, is not binding on the CRA.
Nothing in this ruling should be construed as implying that CRA has agreed to or reviewed:
(a) the determination of the fair market value or the cost amount of any particular asset or the paid-up capital of any shares referred to herein; and
(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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