2004 Ruling 2004-0096191R3 - Minor changes to loss consolidation ruling

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: Minor changes to loss consolidation ruling

Position: Confirmed rulings given in ruling 2002-013308

Reasons: Minor changes do not affect rulings

XXXXXXXXXX 2004-009619

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Supplementary Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX requesting certain changes to our advance income tax ruling number 2002-013308 dated XXXXXXXXXX, 2002 as amended by our letter 2003-005381 dated XXXXXXXXXX, 2004 (collectively, the "Ruling"). Capitalized terms used in this letter have the meanings given to them in the Ruling and all Paragraph numbers are references to Paragraphs in the Ruling.

Changes to Proposed Transactions

You advised that the Proposed Transactions described in Paragraphs 19 to 25 have been implemented. As noted in our letter 2003-005381, the Proposed Transactions described in Paragraphs 41 to 80 will no longer be implemented. Paragraph 81 will be implemented after those described in Paragraph 40.

The Ruling required that all steps in the Proposed Transactions be completed by XXXXXXXXXX. The Opco Group has, over the last two years, realized incomes less than those originally forecast. It is possible to utilize losses in Newlossco1 within the time frame as contemplated in the Ruling. However, it is not possible, at this time to determine, which company in the Opco Group will generate income to effectively utilize the Newlossco 2 losses. Accordingly, you wish to extend the Ruling, as it relates to Newlossco2, to XXXXXXXXXX.

In order to reflect the above changes, the description of the Proposed Transactions in the Ruling is amended as follows:

1. The Newlossco 1 Note and the Newlossco 2 Note respectively owing by Newlossco 1 and Newlossco 2 to Opco currently mature on XXXXXXXXXX. These Notes will be extended to XXXXXXXXXX. The existing terms of the Notes will be unchanged.

2. Paragraph 26 is amended to read as follows:

"26. On XXXXXXXXXX, each of Newlossco1 and Newlossco2 will issue interest-free demand notes payable (the "Newlossco1 Note A" and the "Newlossco2 Note A", respectively) to Opco for cash in the amount of the non-capital losses of each of Newlossco1 and Newlossco2 at that time (which will approximate the interest expense incurred by each of Newlossco1 and Newlossco2 on the Newlossco1 Note and Newlossco2 Note, respectively)."

3. Paragraph 27 is amended to read as follows:

"27. On XXXXXXXXXX, the cash received from the issuance of the Newlossco1 Note A and Newlossco2 Note A will be used by each of Newlossco1 and Newlossco2 to pay amounts owing, including interest expense owing to Opco."

4. Paragraph 36 is amended to read as follows:

"36. On XXXXXXXXXX ("ZZCo"), an indirect wholly-owned subsidiary of Opco will acquire all of the shares of Newlossco1 and the Newlossco1 Note A from Opco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco1 and other considerations. Newlossco 2 will remain a subsidiary of Opco as it is not possible to identify a Canadian corporation in the Opco Group that can currently utilize the non-capital losses in Newlossco 2.

5. Paragraph 38 is amended to read as follows:

"38. Following the acquisition by ZZCo of all the shares of Newlossco1, ZZCo and Newlossco1 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("NewZZCO") in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the shares of Newlossco1) will become property of NewZZCo by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except the Newlossco1 Note A) will become liabilities of NewZZCo by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of ZZCo) will be cancelled on the merger. The shares of ZZCo owned by its shareholders immediately before the merger will become shares of NewZZCo to those shareholders immediately after the merger."

1. Paragraph 39 is amended to read as follows:

"39. Newlossco 2 will not amalgamate at this time.

Confirmation

Notwithstanding the above changes, we confirm that Ruling A, Rulings D(1) to (7), Ruling E as it relates to Paragraphs 33 and 34, Ruling F as it relates to the amalgamations described in Paragraphs 38, Ruling G as it relates to Paragraphs 40 and 81, Ruling H, Ruling I as it relates to Paragraph 32, Ruling J as it relates to Paragraph 35, Ruling K as it relates to Paragraph 36, Rulings L(1) and (2), Ruling M as it relates to Paragraphs 38, Ruling N as it relates to Paragraph 26, and Rulings O, P, and Q, as given in the Ruling, will continue to be binding on the Canada Revenue Agency subject to the same limitations and qualifications set out therein, provided that the proposed transactions are completed on or before XXXXXXXXXX.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch