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: Internal "spin-off" reorganization relying on the paragraph 55(3)(a) exception from the application of subsection 55(2).
Position: Favourable Rulings Given.
Reasons: The requirements of the law have been met.
XXXXXXXXXX 2004-008153
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX, as amended by your letter dated XXXXXXXXXX, and your other correspondence, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. You have advised us that to the best of your knowledge and that of the taxpayers involved none of the issues involved in this ruling request are:
(i) in an earlier return of the taxpayer or a related person;
(ii) being considered by a tax services office ("TSO") or taxation centre ("TC") in connection with a previously filed tax return of the taxpayers or a related person;
(iii) under objection by 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.
The taxpayers have also represented that the proposed transactions described herein will not result in any taxpayer described herein being unable to pay its existing outstanding tax liabilities.
DEFINITIONS:
In this letter, unless otherwise specified, all monetary amounts are expressed in Canadian dollars and the following terms have the meanings specified below:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision, and the Income Tax Regulations thereunder are referred to as the "Regulations";
(b) "adjusted cost base" has the meaning assigned by section 54;
(c) "affiliated persons" has the meaning assigned by subsection 251.1(1);
(d) "arm's length" has the meaning assigned by section 251;
(e) "Cansub1" means XXXXXXXXXX as described more fully in Paragraph 6;
(f) "Cansub2" means XXXXXXXXXX as described more fully in Paragraph 9;
(g) XXXXXXXXXX;
(h) "Cansub3" means XXXXXXXXXX as described more fully in Paragraph 10;
(i) "capital property" has the meaning assigned by section 54;
(j) "CBCA" means the Canada Business Corporations Act;
(k) "Cdn Subco" means the new corporation to be incorporated by Parent pursuant to the CBCA as described in Paragraph 45;
(l) "XXXXXXXXXX Shares" means the XXXXXXXXXX shares of Forco1 as described in Paragraph 13;
(m) "XXXXXXXXXX Shares" means the XXXXXXXXXX shares of Forco1 as described in Paragraph 13;
(n) "XXXXXXXXXX preferred shares" means the XXXXXXXXXX preferred shares of Cdn Subco as described in Paragraph 45;
(o) "CRA" means Canada Revenue Agency;
(p) "Daylight Loan" means the loan to Parent as described in Paragraph 40;
(q) XXXXXXXXXX;
(r) "Distributing" means XXXXXXXXXX as described more fully in Paragraph 1 and, where applicable, its predecessor company, XXXXXXXXXX;
(s) "Distributing Demand Note" means a non-interest bearing demand note having a principal amount and fair market value equal to the fair market value of the common shares of Distributing in respect of whose cancellation the note was issued by Distributing as consideration;
(t) "Distributing Sub Debt" means the amount owing by Distributing to Parent as described in Paragraph 12;
(u) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(v) "Early Redemption Premium" means the premium payable by Distributing in respect of the early redemption of the Distributing Sub Debt as described in Paragraph 12;
(w) "eligible property" has the meaning assigned by subsection 85(1.1);
(x) "excluded dividend" has the meaning assigned by subsection 191(1);
(y) "exempt dividends" has the meaning assigned by subsection 93(3);
(z) XXXXXXXXXX;
(aa) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(bb) "Forco1" means XXXXXXXXXX as described in Paragraph 13;
(cc) "Forco2" means XXXXXXXXXX as described in Paragraph 16;
(dd) "Forco3" means XXXXXXXXXX as described in Paragraph 18;
(ee) "Forco4" means XXXXXXXXXX as described in Paragraph 19;
(ff) "Forco5" means XXXXXXXXXX as described in Paragraph 20;
(gg) "Forco6" means XXXXXXXXXX as described in Paragraph 21;
(hh) "Forco7" means XXXXXXXXXX as described in Paragraph 22;
(ii) XXXXXXXXXX;
(jj) "Forco8" means XXXXXXXXXX as described in Paragraph 5;
(kk) "Forco9" means XXXXXXXXXX, a corporation incorporated pursuant to the laws of XXXXXXXXXX;
(ll) "Forco10" means XXXXXXXXXX, a corporation incorporated pursuant to the XXXXXXXXXX;
(mm) "Forco11" means XXXXXXXXXX as described in Paragraph 25;
(nn) "Forco12" means XXXXXXXXXX a wholly-owned subsidiary of Forco2;
(oo) XXXXXXXXXX;
(pp) XXXXXXXXXX;
(qq) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(rr) XXXXXXXXXX;
(ss) "Initial XXXXXXXXXX Ruling" has the meaning referred to in Paragraph 14;
(tt) XXXXXXXXXX;
(uu) XXXXXXXXXX;
(vv) XXXXXXXXXX;
(ww) XXXXXXXXXX;
(xx) XXXXXXXXXX;
(yy) XXXXXXXXXX;
(zz) XXXXXXXXXX;
(aaa) XXXXXXXXXX;
(bbb) "Newco" means the new corporation to be incorporated by Distributing pursuant to the CBCA as described in Paragraph 46;
(ccc) "Newco Common Shares" means the common shares of Newco as described in Paragraph 46;
(ddd) "Newco Preferred Shares" means the preferred shares of Newco as described in Paragraph 46;
(eee) XXXXXXXXXX;
(fff) "paid up capital" has the meaning assigned by subsection 89(1);
(ggg) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;
(hhh) "Parent" means XXXXXXXXXX as described in Paragraph 2;
(iii) "Parent Note" means the non-interest bearing demand promissory note payable by Parent as described in Paragraph 50;
(jjj) XXXXXXXXXX;
(kkk) "principal amount" has the meaning assigned by subsection 248(1);
(lll) "private corporation" has the meaning assigned by subsection 89(1);
(mmm) "proceeds of disposition" has the meaning assigned by section 54;
(nnn) "Proposed Transactions" means the transactions described in Paragraphs 40 to 87;
(ooo) "public corporation" has the meaning assigned by subsection 89(1) and section 141;
(ppp) XXXXXXXXXX;
(qqq) "Second XXXXXXXXXX Ruling" has the meaning referred to in Paragraph 15;
(rrr) "series of transactions or events" has the meaning assigned by subsection 248(10);
(sss) "XXXXXXXXXX Debentures XXXXXXXXXX" has the meaning referred to in Paragraph 14;
(ttt) "XXXXXXXXXX Debentures XXXXXXXXXX" has the meaning referred to in Paragraph 15;
(uuu) XXXXXXXXXX;
(vvv) "spin off preferred shares" means the non-voting preferred shares to be issued by Transferee as described in Paragraph 44;
(www) "subsidiary controlled corporation" has the meaning assigned by subsection 248(1);
(xxx) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
(yyy) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(zzz) "taxable dividend" has the meaning assigned by subsection 89(1);
(aaaa) "taxation year" has the meaning assigned by section 249;
(bbbb) XXXXXXXXXX;
(cccc) "Transferee" means the new corporation to be incorporated by Parent pursuant to the CBCA as described in Paragraph 44;
(dddd) "Transferee Demand Note" means a non-interest bearing demand note having a principal amount and fair market value equal to the fair market value of the spin-off preferred shares issued by Transferee in respect of whose redemption the note was issued by Transferee as consideration;
(eeee) XXXXXXXXXX;
(ffff) XXXXXXXXXX;
(gggg) XXXXXXXXXX; and
(hhhh) XXXXXXXXXX.
FACTS
1. Distributing is a XXXXXXXXXX under the laws of Canada. Distributing is a public corporation, taxable Canadian corporation, XXXXXXXXXX. Distributing was formed on the amalgamation, effective XXXXXXXXXX, of the Predecessors of Distributing. Distributing is a subsidiary controlled corporation of Parent. The authorized capital of Distributing includes common shares, and XXXXXXXXXX. Only common shares, and XXXXXXXXXX preferred shares, of Distributing are issued and outstanding. The common shares and XXXXXXXXXX preferred shares of Distributing are owned by Parent and the XXXXXXXXXX preferred shares of Distributing are traded on the XXXXXXXXXX. The common shares and XXXXXXXXXX preferred shares of Distributing are capital property to Parent. Distributing's CRA tax account number is XXXXXXXXXX and it files its tax returns with the XXXXXXXXXX TC and otherwise deals with the XXXXXXXXXX TSO.
2. Parent was incorporated under the XXXXXXXXXX. Parent is a taxable Canadian corporation and a public corporation. XXXXXXXXXX. The common shares of the capital stock of Parent are listed on the XXXXXXXXXX. Parent's CRA tax account number is XXXXXXXXXX and it files its tax returns with the XXXXXXXXXX TC and otherwise deals with the XXXXXXXXXX TSO.
3. Distributing carries on the business of XXXXXXXXXX.
4. XXXXXXXXXX.
5. XXXXXXXXXX For example, Forco8 is a subsidiary wholly-owned corporation of Distributing resident in the XXXXXXXXXX. Forco8 owns all or a majority of the issued and outstanding shares of a XXXXXXXXXX subsidiary and certain other subsidiaries.
6. Cansub1 is incorporated pursuant to the XXXXXXXXXX and is a public corporation and a taxable Canadian corporation. Only common shares of Cansub1 are issued and outstanding. Distributing owns approximately XXXXXXXXXX% of the issued and outstanding common shares of Cansub1 XXXXXXXXXX.
7. Distributing originally acquired approximately XXXXXXXXXX% of the common shares of Cansub1 in XXXXXXXXXX. XXXXXXXXXX, the fair market value of the common shares of Cansub1 owned by Distributing was approximately $XXXXXXXXXX as at XXXXXXXXXX. The shares of Cansub1 held by Distributing are capital property, XXXXXXXXXX. The adjusted cost base to Distributing of its common shares of Cansub1 is approximately $XXXXXXXXXX.
8. One of the Predecessors of Distributing, XXXXXXXXXX, borrowed $XXXXXXXXXX from arm's length third parties on XXXXXXXXXX by way of issuing to such third parties a debenture which sets out the terms and conditions of the borrowing (the "XXXXXXXXXX"). Pursuant to such debenture, the XXXXXXXXXX bears interest at XXXXXXXXXX% per annum, payable half yearly until XXXXXXXXXX, and thereafter, the XXXXXXXXXX bears interest at the 90 day Banker's Acceptance Rate plus XXXXXXXXXX%, payable XXXXXXXXXX until the XXXXXXXXXX matures on XXXXXXXXXX. On the amalgamation of the Predecessors of Distributing to form Distributing, the XXXXXXXXXX became a liability of Distributing. The XXXXXXXXXX is a direct unsecured subordinated obligation of Distributing in accordance with the terms of the debenture pursuant to which the XXXXXXXXXX was issued. The proceeds of the XXXXXXXXXX were used to buy portfolio investments for the purpose of earning income therefrom. XXXXXXXXXX.
9. Cansub2 is incorporated pursuant to XXXXXXXXXX, is a taxable Canadian corporation and a subsidiary controlled corporation of Distributing. Cansub2 carries on the business in Canada of XXXXXXXXXX. As at XXXXXXXXXX, the fair market value of the XXXXXXXXXX common shares of Cansub2 owned by Distributing was estimated to be $XXXXXXXXXX. The XXXXXXXXXX common shares of Cansub2 are capital property of Distributing. The adjusted cost base to Distributing of its XXXXXXXXXX common shares of Cansub2 is approximately $XXXXXXXXXX. XXXXXXXXXX.
10. Cansub3 is incorporated pursuant to the XXXXXXXXXX, is a holding company, a taxable Canadian corporation and a subsidiary wholly-owned corporation of Distributing. Only common shares of Cansub3 are issued and outstanding and XXXXXXXXXX. As at XXXXXXXXXX, the fair market value of the common shares of Cansub3 was estimated to be $XXXXXXXXXX. The common shares of Cansub3 are capital property of Distributing. The adjusted cost base to Distributing of such shares is $XXXXXXXXXX.
11. (Reserved).
12. In XXXXXXXXXX Distributing borrowed $XXXXXXXXXX from Parent (the "Distributing Sub Debt"). The Distributing Sub Debt bears interest from XXXXXXXXXX to XXXXXXXXXX at the rate of XXXXXXXXXX% per annum payable XXXXXXXXXX. Following XXXXXXXXXX, interest will be payable at a rate per annum equal to the 90-day Banker's Acceptance Rate plus XXXXXXXXXX%, payable XXXXXXXXXX until the maturity of the loan on XXXXXXXXXX. The Distributing Sub Debt is a direct unsecured subordinated obligation of Distributing. Subject to certain conditions, the Distributing Sub Debt is redeemable by Distributing at any time for a price set out in the Distributing Sub Debt instrument, together with accrued and unpaid interest to the date fixed for redemption. If the Distributing Sub Debt is redeemed prior to XXXXXXXXXX, the redemption price is the face amount of the Distributing Sub Debt plus a premium XXXXXXXXXX.
13. Forco1 is a holding company incorporated pursuant to the laws of XXXXXXXXXX. Forco1 is a subsidiary wholly-owned corporation of Distributing and is not resident in Canada for purposes of the Act. Forco1 only has two classes of common shares issued and outstanding, being, XXXXXXXXXX common shares (the "XXXXXXXXXX Shares") and XXXXXXXXXX common shares (the "XXXXXXXXXX Shares"). XXXXXXXXXX Shares of Forco1 are capital property of Distributing. As at XXXXXXXXXX, the aggregate fair market value of the XXXXXXXXXX Shares was estimated to be $XXXXXXXXXX and the aggregate fair market value of the XXXXXXXXXX Shares was estimated to be $XXXXXXXXXX. The adjusted cost base to Distributing of the XXXXXXXXXX Shares and the XXXXXXXXXX Shares respectively is approximately $XXXXXXXXXX and $XXXXXXXXXX.
14. Distributing acquired all of the XXXXXXXXXX Shares in connection with the incorporation of Forco1 in XXXXXXXXXX. XXXXXXXXXX, Distributing borrowed money from XXXXXXXXXX ("XXXXXXXXXX") by way of issuing senior debentures to XXXXXXXXXX (the "XXXXXXXXXX"). XXXXXXXXXX.
15. XXXXXXXXXX, Distributing borrowed money from XXXXXXXXXX (as defined in Paragraph 14) by way of issuing senior debentures to XXXXXXXXXX (the "XXXXXXXXXX"). XXXXXXXXXX.
16. Forco2 is a holding company incorporated pursuant to the laws of XXXXXXXXXX. Forco2 is a subsidiary controlled corporation of Forco1 and is not resident in Canada for purposes of the Act. Forco1 owns all of the common shares issued by Forco2. XXXXXXXXXX.
17. XXXXXXXXXX.
18. Forco3 is a XXXXXXXXXX incorporated pursuant to the laws of XXXXXXXXXX . Forco3 is a subsidiary of Forco12 XXXXXXXXXX.
19. Forco4 is incorporated pursuant to the laws of XXXXXXXXXX and XXXXXXXXXX.
20. Forco5 is a XXXXXXXXXX incorporated pursuant to the laws of XXXXXXXXXX. Forco5 is a wholly-owned subsidiary of Forco12 XXXXXXXXXX.
21. Forco6 is incorporated pursuant to the laws of XXXXXXXXXX. Forco6 is a subsidiary wholly-owned corporation of Forco5 XXXXXXXXXX.
22. Forco7 is incorporated pursuant to the laws of XXXXXXXXXX. Forco7 is a subsidiary wholly-owned corporation of Forco5 XXXXXXXXXX.
23. In XXXXXXXXXX, Distributing borrowed XXXXXXXXXX from XXXXXXXXXX and issued XXXXXXXXXX a subordinated debenture representing such borrowings (the "XXXXXXXXXX"). XXXXXXXXXX.
24. XXXXXXXXXX.
25. Forco11 is incorporated pursuant to the laws of XXXXXXXXXX. Forco11 is a subsidiary wholly-owned corporation of Forco6 XXXXXXXXXX.
26. XXXXXXXXXX.
27. XXXXXXXXXX.
28. XXXXXXXXXX.
29. XXXXXXXXXX.
30. XXXXXXXXXX.
31. XXXXXXXXXX.
32. XXXXXXXXXX.
33. XXXXXXXXXX.
34. XXXXXXXXXX.
35. XXXXXXXXXX.
36. The aggregate fair market value of the Distributing XXXXXXXXXX preferred shares is approximately $XXXXXXXXXX. The aggregate fair market value of the common and XXXXXXXXXX shares of Distributing is currently approximately $XXXXXXXXXX. After the completion of the Proposed Transactions, the aggregate fair market value of the common and XXXXXXXXXX shares of Distributing will be approximately $XXXXXXXXXX.
37. XXXXXXXXXX.
38. XXXXXXXXXX.
39. XXXXXXXXXX You maintain that these transactions either were completed, or, if implemented, will be completed, irrespective of whether or not the Proposed Transactions are completed. You also maintain that the Proposed Transactions will be undertaken regardless of whether the transactions described in this paragraph have been or will be implemented.
PROPOSED TRANSACTIONS
40. Parent will borrow, from an arm's length financial institution, an amount equal to XXXXXXXXXX (the "Daylight Loan").
41. XXXXXXXXXX.
42. XXXXXXXXXX.
43. Distributing will exercise its right to redeem the Distributing Sub Debt in accordance with its terms. Distributing will satisfy its payment obligations on the redemption of the Distributing Sub Debt by issuing to Parent additional common shares of its capital stock with a fair market value equal to the aggregate redemption price thereof referred to in Paragraph 12, including the Early Redemption Premium.
44. Parent will incorporate Transferee pursuant to the CBCA. The authorized capital of Transferee will include the "spin off preferred shares" in addition to common shares. The holders of spin off preferred shares will be entitled to receive a fixed preferential non-cumulative dividend at a specified rate and such shares are redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an amount (the "redemption amount") equal to
(i) in any case of spin off preferred shares issued other than for the transfer of Cansub1 shares as described in Paragraph 68, the fair market value of the particular property received by Transferee in consideration for the issuance of the particular spin off shares, and
(ii) in the case of spin off preferred shares issued for the transfer of Cansub1 shares described in Paragraph 68, the amount by which the aggregate fair market value of the Cansub1 shares transferred to Transferee exceeds the amount of cash consideration paid by Transferee for the Cansub1 shares,
divided by the number of spin off preferred shares so issued. On a redemption of a spin off preferred share, the redemption amount shall be paid to the holder together with any declared but unpaid dividends on such share.
Parent will subscribe for a common share in the capital of Transferee for a nominal amount. Transferee will be a taxable Canadian corporation that is a wholly-owned subsidiary of Parent.
45. Parent will incorporate Cdn Subco pursuant to the CBCA. The authorized capital of Cdn Subco will include a class of preferred shares (the "XXXXXXXXXX preferred shares") in addition to common shares. The XXXXXXXXXX preferred shares will be non-voting and non-participating, and will have a cumulative annual dividend entitlement equal to XXXXXXXXXX% payable XXXXXXXXXX. The XXXXXXXXXX preferred shares will be redeemable at the option of Cdn Subco and retractable at the option of the holder, for an aggregate redemption or retraction price (as applicable) equal to their subscription price plus any unpaid dividends. On the winding-up or liquidation of Cdn Subco, the holders of XXXXXXXXXX preferred shares will be entitled to receive an amount equal to the redemption price out of the remaining assets of Cdn Subco after any liabilities of Cdn Subco have been paid. The dividend and liquidation entitlement of the XXXXXXXXXX preferred shares will have priority over the dividend and liquidation entitlement, respectively, of the common shares of Cdn Subco. In all cases, Cdn Subco may satisfy its obligation to pay the redemption/retraction price of the XXXXXXXXXX preferred shares by way of the assignment and delivery of the Parent Note to be issued to Cdn Subco by Parent as described in Paragraph 50 below. On incorporation, Parent will subscribe for a common share in the capital of Cdn Subco for a nominal amount. Cdn Subco will be a taxable Canadian corporation and a wholly-owned subsidiary of Parent.
46. If, at the time the Proposed Transactions are implemented, XXXXXXXXXX, the Proposed Transactions described in this Paragraph and Paragraphs 47 to 48 will occur. Distributing will incorporate Newco pursuant to the CBCA. The authorized capital of Newco will include non-voting preferred shares (the "Newco Preferred Shares") in addition to voting common shares (the "Newco Common Shares"). On incorporation, Distributing will subscribe for a common share in the capital of Newco for a nominal amount. Newco will be a taxable Canadian corporation and a wholly-owned subsidiary of Distributing.
47. Distributing will transfer all the issued and outstanding XXXXXXXXXX Shares to Newco. In consideration for such transfer, Newco will issue to Distributing a number of Newco Preferred Shares with a fair market value equal to the adjusted cost base to Distributing of the XXXXXXXXXX Shares, and a number of common shares with a fair market value equal to the amount by which the fair market value of the XXXXXXXXXX Shares exceeds the adjusted cost base to Distributing of the XXXXXXXXXX Shares. Newco will add to its stated capital account (i) in respect of the Newco Preferred Shares an amount which does not exceed that proportion of the agreed amount set out in the election to be completed by Distributing and Newco pursuant to section 85 in respect of this transfer, as described in Paragraph 48, that the fair market value of the Newco Preferred Shares is of the fair market value of the XXXXXXXXXX Shares and (ii) in respect of the Newco Common Shares an amount which does not exceed that proportion of the agreed amount set out in the election to be completed by Distributing and Newco pursuant to section 85 in respect of this transfer, as described in Paragraph 48, that the fair market value of the Newco Common Shares is of the fair market value of the XXXXXXXXXX Shares.
48. Distributing and Newco will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of XXXXXXXXXX Shares described in Paragraph 47. The agreed amount will not be less than the adjusted cost base to Distributing of the XXXXXXXXXX Shares nor greater than the fair market value thereof.
49. Distributing will transfer to Cdn Subco all the issued and outstanding XXXXXXXXXX Shares, XXXXXXXXXX, in consideration for the issuance by Cdn Subco to Distributing of a number of XXXXXXXXXX preferred shares with an aggregate redemption amount equal to the fair market value of such XXXXXXXXXX Shares, XXXXXXXXXX. Cdn Subco will add to its stated capital account in respect of its XXXXXXXXXX preferred shares so issued an amount equal to the fair market value of the XXXXXXXXXX Shares, XXXXXXXXXX.
50. Cdn Subco will transfer to Parent all of the XXXXXXXXXX Shares, XXXXXXXXXX, held by it in consideration for the issuance by Parent to Cdn Subco of a non-interest bearing promissory note (the "Parent Note") that is payable on demand that has a principal amount equal to the aggregate fair market value of the XXXXXXXXXX Shares, XXXXXXXXXX, so transferred. XXXXXXXXXX.
51. Parent will transfer to Transferee all the XXXXXXXXXX Shares, XXXXXXXXXX, in consideration for the issuance by Transferee to Parent of additional common shares with an aggregate fair market value equal to the aggregate fair market value of the XXXXXXXXXX Shares, XXXXXXXXXX, so transferred to it. Transferee will add to its stated capital account in respect of its common shares an amount equal to the aggregate fair market value of the XXXXXXXXXX Shares, XXXXXXXXXX.
52. Parent will agree to, and will make, capital contributions each year in respect of the common shares of Cdn Subco owned by it in a total amount equal to the amount of dividends required to be paid by Cdn Subco on the XXXXXXXXXX preferred shares in the year in accordance with the terms thereof for so long as the XXXXXXXXXX preferred shares are outstanding. In accordance with Canadian generally accepted accounting principles, these capital contributions will not be reported as income of Cdn Subco in its financial statements.
53. Cdn Subco will use the amounts received as capital contributions as described in Paragraph 52 to pay dividends on the XXXXXXXXXX preferred shares to Distributing each year in accordance with the terms thereof. XXXXXXXXXX.
54. At the time that Distributing intends to repay all or a portion of the XXXXXXXXXX, Parent will make a capital contribution to Cdn Subco in respect of the common shares of Cdn Subco equal to the amount of any accrued and unpaid dividends on the XXXXXXXXXX preferred shares; Cdn Subco will redeem all or the required number of XXXXXXXXXX preferred shares and, in settlement of the redemption price, Cdn Subco will assign to Distributing all or the required portion of the Parent Note.
55. If Distributing has transferred the XXXXXXXXXX Shares to Newco as described in Paragraphs 46 to 48, the Proposed Transactions described in this Paragraph and Paragraphs 56 to 59 will need to occur. Parent will transfer to Transferee that number of issued and outstanding common shares of Distributing which have an aggregate fair market value equal to the fair market value of the Newco Common Shares, in consideration for the issue by Transferee to Parent of additional common shares. Transferee will add to its stated capital account in respect of its common shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Parent and Transferee pursuant to section 85 in respect of this transaction as described in Paragraph 86.
56. Distributing will transfer to Transferee its Newco Common Shares, in consideration for the issue by Transferee to Distributing of a number of spin off preferred shares having an aggregate fair market value equal to the aggregate fair market value of the Newco Common Shares so transferred. Transferee will add to its stated capital account in respect of its spin off preferred shares an amount which does not exceed the agreed amount set out in the election to be completed by Distributing and Transferee pursuant to section 85 in respect of this transaction as described in Paragraph 86.
57. Distributing will purchase for cancellation its common shares acquired by Transferee as a result of the transfer described in Paragraph 55 in consideration for the issue by Distributing to Transferee of a Distributing Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the common shares of Distributing so purchased for cancellation.
58. Transferee will redeem its spin off preferred shares acquired by Distributing as a result of the transfer described in Paragraph 56 in consideration for the issue by Transferee to Distributing of a Transferee Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the spin off preferred shares of Transferee so redeemed.
59. The principal amount owing by Distributing to Transferee under the Distributing Demand Note issued to it as described in Paragraph 57 will be set off against the principal amount owing by Transferee to Distributing under the Transferee Demand Note issued to it as described in Paragraph 58 in full satisfaction of the respective obligations under each of these notes and such notes will be cancelled.
60. Parent will transfer to Transferee that number of issued and outstanding common shares of Distributing which have an aggregate fair market value equal to the aggregate fair market value of the shares of Cansub3 held by Distributing XXXXXXXXXX, in consideration for the issue by Transferee to Parent of additional common shares having an aggregate fair market value equal to the aggregate fair market value of such transferred property. Transferee will add to its stated capital account in respect of its common shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Parent and Transferee pursuant to section 85 in respect of this transfer as described in Paragraph 86.
61. Distributing will transfer to Transferee the common shares of Cansub3 XXXXXXXXXX, in consideration for the issue by Transferee to Distributing of a number of spin off preferred shares having an aggregate fair market value equal to the aggregate fair market value of such transferred property. Transferee will add to its stated capital account in respect of its spin off preferred shares an amount which does not exceed the agreed amount set out in the joint election, if any, to be completed by Distributing and Transferee pursuant to section 85 in respect of this transaction as described in Paragraph 86 hereof.
62. Distributing will purchase for cancellation its common shares acquired by Transferee as a result of the transfer described in Paragraph 60 in consideration for the issue by Distributing to Transferee of a Distributing Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the common shares of Distributing so purchased for cancellation.
63. Transferee will redeem its spin off preferred shares that were issued to Distributing as a result of the transfer described in Paragraph 61 in consideration for the issue by Transferee to Distributing of a Transferee Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the spin off preferred shares of Transferee so redeemed.
64. The principal amount owing by Distributing to Transferee under the Distributing Demand Note issued to it as described in Paragraph 62 will be set off against the principal amount owing by Transferee to Distributing under the Transferee Demand Note issued to it as described in Paragraph 63 in full satisfaction of the respective obligations under each of these notes and such notes will be cancelled.
65. XXXXXXXXXX.
66. Parent will subscribe for additional common shares of Transferee with a fair market value equal to XXXXXXXXXX. Parent will satisfy its obligation to pay for those shares with the proceeds from the Daylight Loan described in Paragraph 40. Transferee will add to its stated capital account in respect of its common shares an amount equal to the subscription price thereof.
67. Parent will transfer to Transferee that number of issued and outstanding common shares of Distributing which have an aggregate fair market value equal to the amount by which the aggregate fair market value of the shares of Cansub1 held by Distributing exceeds XXXXXXXXXX, in consideration for the issue by Transferee to Parent of additional common shares having an aggregate fair market value equal to such transferred property. Transferee will add to its stated capital account in respect of its common shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Parent and Transferee pursuant to section 85 in respect of this transaction as described in Paragraph 86.
68. Distributing will transfer to Transferee the common shares of Cansub1 in consideration for cash in an amount equal to XXXXXXXXXX and the issue by Transferee to Distributing of a number of spin off preferred shares having an aggregate fair market value equal to the aggregate fair market value of the common shares of Cansub1 less the amount of cash consideration paid by it to Distributing. For greater certainty, XXXXXXXXXX. Transferee will add to its stated capital account in respect of its spin off preferred shares an amount which does not exceed the amount by which the agreed amount set out in the joint election to be completed by Distributing and Transferee pursuant to section 85 in respect of this transaction as described in Paragraph 86 exceeds the amount of the cash consideration paid by it to Distributing for the transfer of the shares of Cansub1 to Transferee.
69. Distributing will use the cash from the disposition of the Cansub1 shares to repay XXXXXXXXXX. Parent will use the money borrowed by it under the XXXXXXXXXX to repay the Daylight Loan.
70. Distributing will purchase for cancellation its common shares acquired by Transferee as a result of the transfer described in Paragraph 67 in consideration for the issue by Distributing to Transferee of a Distributing Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the common shares of Distributing so purchased for cancellation.
71. Transferee will redeem its spin off preferred shares that were acquired by Distributing as a result of the transfer described in Paragraph 68 in consideration for the issue by Transferee to Distributing of a Transferee Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the spin off preferred shares of Transferee so redeemed.
72. The principal amount owing by Distributing to Transferee under the Distributing Demand Note issued to it as described in Paragraph 70 will be set off against the principal amount owing by Transferee to Distributing under the Transferee Demand Note issued to it as described in Paragraph 71 in full satisfaction of the respective obligations under each of these notes and such notes will be cancelled.
73. Parent will transfer to Transferee that number of issued and outstanding common shares of Distributing which have an aggregate fair market value equal to the fair market value of the shares of Cansub2 held by Distributing XXXXXXXXXX, in consideration for the issue by Transferee to Parent of additional common shares which have an aggregate fair market value equal to the fair market value of the property so transferred to it. Transferee will add to its stated capital account in respect of its common shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Parent and Transferee pursuant to section 85 in respect of this transfer as described in Paragraph 86.
74. Distributing will transfer to Transferee the common shares of Cansub2 XXXXXXXXXX, in consideration for the issue by Transferee to Distributing of a number of spin off preferred shares which have an aggregate fair market value equal to the fair market value of the common shares of Cansub2 and Cansub2 Notes so transferred to it. Transferee will add to its stated capital account in respect of its spin off preferred shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Distributing and Transferee pursuant to section 85 in respect of this transfer as described in Paragraph 86.
75. Distributing will purchase for cancellation its common shares that were acquired by Transferee as a result of the transfer as described in Paragraph 73 in consideration for the issue by Distributing to Transferee of a Distributing Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the common shares of Distributing so purchased for cancellation.
76. Transferee will redeem its spin off preferred shares that were acquired by Distributing as a result of the transfer as described in Paragraph 74 in consideration for the issue by Transferee to Distributing of a Transferee Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the spin off preferred shares of Transferee so redeemed.
77. The principal amount owing by Distributing to Transferee under the Distributing Demand Note issued to it as described in Paragraph 75 will be set off against the principal amount owing by Transferee to Distributing under the Transferee Demand Note issued to it as described in Paragraph 76 in full satisfaction of the respective obligations under each of these notes and such notes will be cancelled.
78. Parent will transfer to Transferee XXXXXXXXXX the issued and outstanding common shares of Distributing in consideration for the issue by Transferee to Parent of additional common shares of Transferee which have an aggregate fair market value equal to the fair market value of the common shares of Distributing so transferred to it. Transferee will add to its stated capital account in respect of its common shares an amount which does not exceed the agreed amount set out in the joint election to be completed by Parent and Transferee pursuant to section 85 in respect of this transfer as described in Paragraph 86.
79. Distributing will transfer to Transferee a number of the XXXXXXXXXX Shares such that the aggregate fair market value of the XXXXXXXXXX Shares so transferred by Distributing to Transferee is equal to the aggregate fair market value of the common shares of Distributing transferred by Parent to Transferee as described in Paragraph 78 above. As consideration for the transfer of the XXXXXXXXXX Shares by Distributing to Transferee, Transferee will issue to Distributing a number of spin off preferred shares having an aggregate fair market value equal to the fair market value of the XXXXXXXXXX Shares so transferred to it. Transferee will add to its stated capital account in respect of its spin off preferred shares an amount which does not exceed the aggregate of the agreed amounts set out in the joint election to be completed by Distributing and Transferee pursuant to section 85 in respect of this transfer as described in Paragraph 86.
80. Distributing will purchase for cancellation its common shares that were acquired by Transferee as a result of the transfer described in Paragraph 78 in consideration for the issue by Distributing to Transferee of a Distributing Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the common shares of Distributing so purchased for cancellation.
81. Transferee will redeem its spin off preferred shares that were acquired by Distributing as a result of the transfer described in Paragraph 79 in consideration for the issue by Transferee to Distributing of a Transferee Demand Note having a principal amount and fair market value equal to the aggregate fair market value of the spin off preferred shares of Transferee so redeemed.
82. The principal amount owing by Distributing to Transferee under the Distributing Demand Note issued to it as described in Paragraph 80 will be set off against the principal amount owing by Transferee to Distributing under the Transferee Demand Note issued to it as described in Paragraph 81 in full satisfaction of the respective obligations under each of these notes and such notes will be cancelled.
83. XXXXXXXXXX.
84. XXXXXXXXXX.
85. XXXXXXXXXX.
86. Parent and Transferee will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to each transfer of common shares of Distributing by Parent to Transferee as described in Paragraph 55, if applicable, and the transfers described in Paragraphs 60, 67, 73, 78 XXXXXXXXXX. The agreed amount in respect of these transfers will be equal to the adjusted cost base to Parent of such shares at the time immediately before the particular transfer. With respect to the transfer of the Newco Common Shares, if applicable, as described in Paragraph 56; the transfer of the common shares of Cansub1 as described in Paragraph 68; the transfer of the shares of Cansub2 XXXXXXXXXX as described in Paragraph 74; and XXXXXXXXXX transfer of XXXXXXXXXX Shares of Forco1 to Transferee as described in Paragraphs 79 XXXXXXXXXX, Distributing and Transferee will jointly elect in prescribed form and within the time permitted under section 85, to have the provisions of subsection 85(1) apply to such transfers. With respect to the transfer of the shares of Cansub3 XXXXXXXXXX as described in Paragraph 61, Distributing and Transferee may jointly elect in prescribed form and within the time permitted under section 85, to have the provisions of subsection 85(1) apply to such transfer. XXXXXXXXXX.
87. (Reserved).
88. XXXXXXXXXX.
89. None of the XXXXXXXXXX preferred shares, Newco Preferred Shares, Newco Common Shares, spin off preferred shares or the common shares of Distributing are or will be, at any time throughout the series of transactions that includes the Proposed Transactions described herein:
(a) the subject of a dividend rental arrangement;
(b) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or
(c) are issued for consideration that is or includes:
(i) an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or
(ii) any right of the type described in subparagraph 112(2.4)(b)(ii).
In addition, none of the Newco Preferred Shares, Newco Common Shares, spin off preferred shares or the common shares of Distributing are or will be, at any time throughout the series of transactions that includes the Proposed Transactions described herein, the subject of a guarantee agreement.
90. (Reserved).
91. Neither Distributing, Parent, Cdn Subco or Transferee is or will be at any time a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).
92. Distributing, Parent, Cdn Subco, Newco and Transferee are and will be throughout the series of transactions that includes the Proposed Transactions affiliated persons.
93. You maintain that none of the transactions or events described in the facts portion of this letter will form part of the series of transactions that includes the Proposed Transactions as none of these transactions or events were completed in contemplation of the Proposed Transactions.
PURPOSE OF PROPOSED TRANSACTIONS
94. The overall purpose of the Proposed Transactions is to effect an internal reorganization in respect of which Distributing's direct interests in Cansub1, Cansub2 and Cansub3 and Forco1 (and thereby its indirect interest in Forco2, Forco3, Forco4, Forco5, Forco6 and Forco11, among others) are transferred to Transferee. XXXXXXXXXX.
XXXXXXXXXX.
The purpose of the incorporation of Cdn Subco as described in Paragraph 45 and Distributing transferring the XXXXXXXXXX Shares to Cdn Subco, as described in Paragraph 49 and the capital contributions by Parent to Cdn Subco and the payment of dividends on the XXXXXXXXXX preferred shares, as described in Paragraphs 52 and 53 respectively, is to ensure that XXXXXXXXXX.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as set forth below.
A. XXXXXXXXXX.
B. (Reserved).
C. (Reserved).
D. Provided that a joint election under subsection 85(1) by Distributing and Newco is made in prescribed form and within the time permitted with respect to the disposition of XXXXXXXXXX Shares by Distributing to Newco as described in Paragraph 47, the provisions of subsection 85(1) will apply to such disposition with the result that Distributing's proceeds of disposition and Newco's cost of the XXXXXXXXXX Shares will be deemed to be the agreed amount set out in the election, the provisions of paragraph 85(1)(e.2) will not apply to such disposition, and pursuant to paragraph 85(1)(g), Distributing's cost of the Newco Preferred Shares will be equal to the lesser of the fair market value of the Newco Preferred Shares and the agreed amount contained in such election, and pursuant to paragraph 85(1)(h), Distributing's cost of the Newco Common Shares will be equal to the amount, if any, by which the agreed amount contained in such election exceeds the cost of the Newco Preferred Shares.
E. Provided that a joint election under subsection 85(1) by Parent and Transferee is made in prescribed form and within the time permitted under section 85 with respect to each disposition of common shares of Distributing by Parent to Transferee as described in Paragraph 55, if applicable, and Paragraphs 60, 67, 73, 78 XXXXXXXXXX hereof, the provisions of subsection 85(1) will apply to each such disposition with the result that Parent's proceeds of disposition, and Transferee's cost, of such common shares will be deemed to be the agreed amount set out in the election, and the provisions of paragraph 85(1)(e.2) will not apply to such disposition.
F. Provided that a joint election under subsection 85(1) by Distributing and Transferee is made in prescribed form and within the time permitted under section 85 with respect to the disposition of Newco Common Shares, if applicable, common shares of Cansub3, XXXXXXXXXX, common shares of Cansub1, Cansub2, XXXXXXXXXX and XXXXXXXXXX disposition of XXXXXXXXXX Shares to Transferee as described in Paragraph 56, if applicable, and Paragraphs 61, 68, 74, 79 XXXXXXXXXX, the provisions of subsection 85(1) will apply to each such disposition with the result that Distributing's proceeds of disposition, and Transferee's cost, of the shares or other property, as the case may be, will be deemed to be the agreed amount set out in the election, and the provisions of paragraph 85(1)(e.2) will not apply to such disposition.
G. With regard to the purchase for cancellation by Distributing of its common shares held by Transferee as described in Paragraph 57, if applicable, and Paragraphs 62, 70, 75, 80 XXXXXXXXXX, as the case may be:
(a) Distributing will be deemed by paragraph 84(3)(a) to have paid and Transferee will be deemed by paragraph 84(3)(b) to have received a dividend equal to the amount by which the principal amount of the Distributing Demand Note issued by Distributing to Transferee in consideration for such purchase for cancellation exceeds the amount of paid-up capital attributable to such common shares;
(b) the amount of such dividend will be included in computing Transferee's income pursuant to subsection 82(1) and paragraph 12(1)(j);
(c) pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, the amount of such deemed dividend will be excluded in computing Transferee's proceeds of disposition of the common shares;
(d) Transferee will be permitted to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received, and such deduction will not be prohibited by any of subsection 112(2.1), 112(2.2), 112(2.3), or 112(2.4);
(e) no tax under Part IV will be payable by Transferee in respect of such deemed dividend;
(f) no tax under Part IV.1 will be payable by Transferee in respect of such deemed dividend because the dividend will be an "excepted dividend" within the meaning of section 187.1 by virtue of paragraph (b) thereof; and
(g) no tax under Part VI.1 will be payable by Distributing in respect of such deemed dividend because the dividend will be an "excluded dividend" within the meaning of subsection 191(1) by virtue of paragraph (a) thereof.
H. With regard to the redemption of spin off preferred shares by Transferee as described in Paragraph 58, if applicable, and Paragraphs 63, 71, 76, 81 XXXXXXXXXX, as the case may be:
(a) Transferee will be deemed by paragraph 84(3)(a) to have paid and Distributing will be deemed by paragraph 84(3)(b) to have received a dividend equal to the amount, if any, by which the principal amount of the Transferee Demand Note issued by Transferee to Distributing in consideration for such redemption exceeds the amount of paid-up capital attributable to such spin off preferred shares;
(b) the amount of such dividend will be included in computing Distributing's income pursuant to subsection 82(1) and paragraph 12(1)(j);
(c) pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, the amount of such deemed dividend will be excluded in computing Distributing's proceeds of disposition of such spin off preferred shares;
(d) Distributing will be permitted to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received, and such deduction will not be prohibited by any of subsection XXXXXXXXXX 112(2.2), 112(2.3) or 112(2.4);
(e) no tax under Part IV will be payable by Distributing in respect of such deemed dividend;
(f) no tax under Part IV.1 will be payable by Distributing in respect of such deemed dividend because the dividend will be an "excepted dividend" within the meaning of section 187.1 by virtue of paragraph (b) thereof; and
(g) no tax under Part VI.1 will be payable by Transferee in respect of such deemed dividend because the dividend will be an "excluded dividend" within the meaning of subsection 191(1) by virtue of paragraph (a) thereof.
I. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is no disposition or significant increase in interest as described in subparagraphs 55(3)(a)(i) to (v), then by virtue of paragraph 55(3)(a), subsection 55(2) will not apply to the taxable dividends referred to in Rulings G and H above. For greater certainty, the Proposed Transactions, in and by themselves, will not be considered to result in any disposition or increase in interest described in subparagraphs 55(3)(a)(i) to (v).
J. The provisions of section 80 will not apply to the set-off and cancellation of any of the Distributing Demand Notes or any of the Transferee Demand Notes as described in Paragraphs 59, 64, 72, 77, 82 XXXXXXXXXX.
K. The cost to Distributing of a Transferee Demand Note issued to it, as described in Paragraphs 58, 63, 71, 76, 81 XXXXXXXXXX and the cost to Transferee of a Distributing Demand Note issued to it as described in Paragraphs 57, 62, 70, 75, 80 XXXXXXXXXX will, in each case, upon the issuance thereof, be equal to the principal amount thereof. Moreover, no amount will be included, or deducted, in computing the income of Distributing or Transferee upon the set off and payment of the principal amount of each such Transferee Demand Note or Distributing Demand Note referred to in Ruling J.
L. Subparagraph 256(7)(a)(i) will apply with respect to:
(a) XXXXXXXXXX
(b) the acquisition of common shares in Newco, Cansub3, and Cansub2 and the acquisition of XXXXXXXXXX Shares of Forco1 by Transferee as described in Paragraphs 56, 61, 74, 79 XXXXXXXXXX, respectively;
with the result that no person or group of persons will be regarded as having acquired control of such corporation or any corporation controlled by any of such corporations as a result of the above described share acquisitions for purposes of the provisions of the Act referred to in the preamble of section 256(7).
M. XXXXXXXXXX.
N. XXXXXXXXXX.
O. To the extent that Distributing can trace XXXXXXXXXX to its acquisition of the XXXXXXXXXX, Distributing will be considered to have used XXXXXXXXXX to repay XXXXXXXXXX on the repayment of such loan as described in Paragraph 69 within the meaning of subsection 20(3), and therefore, to the extent of such tracing, will be deemed to have used XXXXXXXXXX for the same purposes as XXXXXXXXXX was used.
P. To the extent that Distributing can trace the XXXXXXXXXX Debentures XXXXXXXXXX to its acquisition of XXXXXXXXXX Shares, Distributing will be entitled to trace the XXXXXXXXXX Debentures XXXXXXXXXX to the XXXXXXXXXX preferred shares referred to in Paragraph 49, and dividends paid or payable to Distributing in respect of the XXXXXXXXXX preferred shares described in Paragraph 53 will be income from a business or property of Distributing within the meaning of subparagraph 20(1)(c)(i).
Q. Provided that Parent has a legal obligation to pay interest on XXXXXXXXXX , as described in Paragraph 69 hereof, and Parent continues to hold the common shares of Transferee, as described in Paragraph 66 hereof, in computing Parent's income for a taxation year from a business or property, Parent will be entitled pursuant to paragraph 20(1)(c) and subsection 20(3) to deduct the lesser of (i) the interest paid or payable (depending on the method regularly followed by Parent in computing its income for the purposes of the Act) in respect of the year on the XXXXXXXXXX or (ii) a reasonable amount in respect thereof.
R. (Reserved).
S. By virtue of subsection 40(3.3) and paragraph 40(3.4)(a), any loss realized by Distributing on the disposition of the XXXXXXXXXX Shares described in Paragraph 49 will be deemed to be nil and the amount of such loss as otherwise determined under the Act (without reference to paragraph 40(2)(g) and subsection 40(3.4) but for greater certainty, taking into account the application of subsection XXXXXXXXXX), will, for the purposes of paragraph 40(3.4)(b), be deemed to be a loss of Distributing from the disposition of the XXXXXXXXXX Shares at the time that is immediately before the first time, after the disposition, that any of the events described in paragraph 40(3.4)(b) occurs.
T. By virtue of subsection 40(3.3) and paragraph 40(3.4)(a), any loss realized by Distributing on the disposition of the common shares of Cansub3 described in Paragraph 61 will be deemed to be nil and the amount of such loss as otherwise determined under the Act (without reference to paragraph 40(2)(g) and subsection 40(3.4) but for greater certainty, taking into account the application of subsection 112(3)), will, for the purposes of paragraph 40(3.4)(b), be deemed to be a loss of Distributing from the disposition of the common shares of Cansub3 at the time that is immediately before the first time, after the disposition, that any of the events described in paragraph 40(3.4)(b) occurs.
U. With regard to the payment of dividends on the XXXXXXXXXX preferred shares as described in Paragraph 53 and subject to the application of subsection 55(2):
(a) Distributing will be required to include the amount of such dividends in computing its income pursuant to subsection 82(1) and paragraph 12(1)(j);
(b) Distributing will be permitted to deduct the amount of each such dividend in computing its taxable income for the taxation year in which such dividend is received, and such deduction will not be prohibited by any of XXXXXXXXXX 112(2.2), 112(2.3) or 112(2.4);
(c) no tax under Part IV will be payable by Distributing in respect of such dividend;
(d) no tax under Part IV.1 will be payable by Distributing in respect of such dividend because the dividend will be an "excepted dividend" within the meaning of section 187.1 by virtue of paragraph (b) thereof; and
(f) no tax under Part VI.1 will be payable by Cdn Subco in respect of such dividend because the dividend will be an "excluded dividend" within the meaning of subsection 191(1) by virtue of paragraph (a) thereof.
V. No amount will be included in computing the income of Cdn Subco pursuant to section 9, or paragraphs 12(1)(c) or 12(1)(x) in respect of the capital contributions to Cdn Subco described in Paragraph 52 hereof.
W. (Reserved).
X. Subsection 18(9.1) will apply to the payment of the Early Redemption Premium by Distributing described in Paragraph 43.
Y. The provisions of subsection 15(1), 56(2), 56(4), 69(4), and 246(1) will not apply as a result of the Proposed Transactions described in Paragraphs 44, 51, 55 to 64, 67, 68, 70 to 84 and 86, in and by themselves.
Z. Subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences in the rulings given.
The above Rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the Proposed Transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:
(a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein, XXXXXXXXXX;
(b) the application of subsection 55(2) to any taxable dividend other than those specifically covered by Ruling I;
(c) XXXXXXXXXX;
(d) whether any property referred to herein has been acquired for an income earning purpose or XXXXXXXXXX;
(e) XXXXXXXXXX; or
(f) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that include such other transactions or events that are not described in this letter.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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