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: Whether property of which consist principally of immovable property in Canada, for the purposes of paragraph 3 of Article XIII of the Canada-Spain Convention, where Canco 1 and Canco 2 invest indirectly through a trust in a limited partnership that constructs and operates XXXXXXXXXX
Position: No
Reasons: The property of Canco 1 and Canco 2 do not consist principally of immovable property situated in Canada because the property of Canco 1 and Canco 2 is property through which each carry on a business, indirectly through a trust and a limited partnership, and the property does not consist principally of rental property.
XXXXXXXXXX 2004-008079
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
We are writing in response to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX ("Foreignco 1") and XXXXXXXXXX ("Foreignco 2") (collectively, the "Taxpayers").
To the best of your knowledge, and that of the Taxpayers involved, none of the issues contained herein is:
i) in an earlier income tax return of the Taxpayers or a related person;
ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed income tax return of the Taxpayers or a related person;
iii) under objection by the Taxpayers or a related person;
iv) before any Court; and
v) the subject of a Ruling previously considered by the Income Tax Rulings Directorate.
Herein "Act" means the Income Tax Act, R.S.C. 1985 c.1 (5th Supplement), as amended to the date hereof and "Convention" means the Canada-Spain Tax Convention.
Facts
1. Foreignco 1 is a corporation that is a non-resident of Canada for purposes of the Act and a resident of Spain for purposes of the Convention.
2. Foreignco 2 is a corporation that is a non-resident of Canada for purposes of the Act and a resident of Spain for purposes of the Convention.
3. Foreignco 1 and Foreignco 2 are both XXXXXXXXXX.
4. Foreignco 1 and Foreignco 2 have tendered a bid to construct and operate XXXXXXXXXX.
5. XXXXXXXXXX.
Proposed Transactions
6. Each of Foreignco 1 and Foreignco 2 will incorporate a limited liability corporation under the terms of the XXXXXXXXXX ("Canco 1" and "Canco 2", respectively).
7. Foreignco 1 will own all of the issued and outstanding shares of Canco 1 and Foreignco 2 will own all of the issued and outstanding shares of Canco 2.
8. A trust, resident in Canada for the purposes of the Act, will be established having Canco 1 as one of its beneficiaries ("Trust 1"). There may be other beneficiaries of Trust 1.
9. Another trust, resident in Canada for the purposes of the Act, will be established having Canco 2 as one of its beneficiaries ("Trust 2"). There may be other beneficiaries of Trust 2.
10. The trustee or trustees of Trust 1 and Trust 2 will be resident(s) of Canada for the purposes of the Act.
11. The only assets of Canco 1 will be some funds distributed by Trust 1, its beneficial interest in Trust 1, and any loans to Trust 1 and/or to one or more of the LPs described in paragraph 13.
12. The only assets of Canco 2 will be some funds distributed by Trust 2, the beneficial interest in Trust 2, and any loans to Trust 2 and/or to one or more of the LPs described in paragraph 13.
13. A limited partnership ("LP") will be established pursuant to the laws of the Province of XXXXXXXXXX to carry on the business of constructing, operating and maintaining each XXXXXXXXXX.
14. Trust 1 and Trust 2 will each subscribe for an equal number of units in each LP. Trust 1 and Trust 2 will collectively own a majority of each LP, as measured by the fair market value of the units.
15. There will be other limited partners in the LPs.
16. The only assets of each of Trust 1 and Trust 2 will be the units of, and any loans to, the LPs held by the trusts and any funds allocated and distributed by the LPs.
17. The general partner of all the LPs will be a corporation incorporated under the terms of the Companies Act (XXXXXXXXXX )("Canco 3").
18. Canco 3 will be jointly owned either directly or indirectly by Foreignco 1 and Foreignco 2 and possibly by other limited partner(s).
19. XXXXXXXXXX.
20. The only assets of each LP will be the assets necessary to operate and maintain its XXXXXXXXXX. These assets may include XXXXXXXXXX purchased by the LP upon which the XXXXXXXXXX will be situated. The LP may rent to third parties any XXXXXXXXXX in excess of its needs to operate its XXXXXXXXXX.
21. In the event that the assets of an LP do include rental property, including any excess land referred to in paragraph 20, the total property of the LP will not consist principally of rental property (i.e. the excess land referred to in paragraph 20 and any other rental property will not represent more than XXXXXXXXXX% of the fair market value of the total property of the particular LP).
Purpose of Proposed Transactions
22. The purpose of the proposed transactions is to provide flexibility for the eventual sale of some and not all of the XXXXXXXXXX and at the same time not jeopardize the capital gain tax exemption provided by paragraph 3 of Article XIII of the Convention.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule that:
A. The shares of the capital stock of Canco 1 will not be shares of a company the property of which consists principally of immovable property in Canada, for the purposes of paragraph 3 of Article XIII of the Convention; and
B. The shares of the capital stock of Canco 2 will not be shares of a company the property of which consists principally of immovable property in Canada, for the purposes of paragraph 3 of Article XIII of the Convention.
The above rulings are given subject to the general limitations and qualifications stated in Information Circular 70-6R5 dated May 17, 2002, and is 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 could have an effect on the provided rulings if enacted into law.
Nothing in this Ruling should be construed as implying that the CRA has agreed to or reviewed:
1. Whether an investment in any particular LP, or an investment in any particular XXXXXXXXXX by an LP, is a "tax shelter", as defined subsection 237.1(1) of the Act;
2. XXXXXXXXXX;
3. Any tax consequences with respect to any unknown beneficiaries of Trust 1 and Trust 2, referred to in paragraphs 8 and 9, and any unknown limited partners of any LP, referred to in paragraph 15 (and we note that the rulings given do not extend to any unknown beneficiaries and unknown limited partners);
4. Any trust indentures, financing documents and arrangements, and partnership agreements, relating to paragraphs 10, 11, 12 and 13 in particular. Consequently, we express no view with respect to any tax consequences related to such documents.
Additionally, nothing in this Ruling should be construed as implying that the CRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions other than those specifically set out in the Rulings Given.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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