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 a proposed reorganization meets the requirements of 55(3)(b)
Position: Yes.
Reasons: Meets the requirements of the law
XXXXXXXXXX 2005-012606
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
(all of which are hereinafter referred to collectively as "The Group").
This is in reply to your letter of XXXXXXXXXX, which was substantially restated in your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the Group. We acknowledge your numerous e-mails in respect of this ruling.
To the best of your knowledge and that of The Group, none of the issues involved in this ruling:
(a) relates to an earlier income tax return of The Group or a person related to The Group;
(b) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of The Group or a person related to The Group;
(c) is under objection by The Group or a person related to The Group;
(d) is before the courts; or
(e) is the subject of a ruling previously considered by the Directorate.
Except where specifically otherwise indicated, words and phrases in this letter have the same meaning for the purposes of this ruling application as are ascribed to such words and phrases in the Income Tax Act, R.S.C. 1985, c. C-44, as amended.
DEFINITIONS
The following taxpayers are referred to in this ruling request:
(a) "A Co." means XXXXXXXXXX which is described in Paragraph 21;
(b) XXXXXXXXXX;
(c) "The Group" has the meaning specified above;
(d) "B Co." means XXXXXXXXXX which is described in Paragraph 25;
(e) "C Co." means XXXXXXXXXX which is described in Paragraph 31;
(f) "D Co." means XXXXXXXXXX which is described in Paragraph 27;
(g) "E Co." means XXXXXXXXXX which is described in Paragraph 23;
(h) XXXXXXXXXX;
(i) "F Co." means XXXXXXXXXX which is described in Paragraph 34;
(j) "G Co." means XXXXXXXXXX;
(k) "H Co." means XXXXXXXXXX which is described in Paragraph 35;
(l) XXXXXXXXXX;
(m) "J Co." means XXXXXXXXXX which is described in Paragraph 33;
(n) "Child" XXXXXXXXXX" refers to XXXXXXXXXX;
(o) XXXXXXXXXX;
(p) "Child XXXXXXXXXX" means XXXXXXXXXX;
(q) XXXXXXXXXX;
(r) XXXXXXXXXX;
(s) XXXXXXXXXX;
(t) "K Co." means XXXXXXXXXX;
(u) XXXXXXXXXX;
(v) "L Co." means XXXXXXXXXX;
(w) "Holdco A" means XXXXXXXXXX which is described in Paragraph 11;
(x) XXXXXXXXXX;
(y) XXXXXXXXXX;
(z) XXXXXXXXXX;
(aa) "X" means XXXXXXXXXX;
(bb) "M Co." means XXXXXXXXXX;
(cc) XXXXXXXXXX;
(dd) XXXXXXXXXX;
(ee) XXXXXXXXXX;
(ff) "Newco A" refers to a corporation to be incorporated;
(gg) XXXXXXXXXX;
(hh) XXXXXXXXXX;
(ii) XXXXXXXXXX;
(jj) XXXXXXXXXX;
(kk) "New Trust A" refers to a trust to be settled as described in Paragraph 48;
(ll) XXXXXXXXXX;
(mm) XXXXXXXXXX;
(nn) XXXXXXXXXX;
(oo) XXXXXXXXXX;
(pp) XXXXXXXXXX;
(qq) "Uco" means XXXXXXXXXX which is described in Paragraph 28;
(rr) "Z" means XXXXXXXXXX;
(ss) "Holdco XXXXXXXXXX refers to a corporation to be incorporated as described in Paragraph 44;
(tt) "Y" means XXXXXXXXXX;
(uu) "Subholdco A" refers to a corporation to be incorporated as described in Paragraph 47;
(vv) XXXXXXXXXX;
(ww) XXXXXXXXXX;
(xx) XXXXXXXXXX;
(yy) XXXXXXXXXX;
(zz) "O Co." means XXXXXXXXXX which is described in Paragraph 14;
(aaa) "P Co." means the corporation to be formed upon the amalgamation of O Co., E Co., B Co. and D Co. as described in Paragraph 63;
(bbb) "Q Co." means XXXXXXXXXX which is described in Paragraph 30;
(ccc) "R Co." means XXXXXXXXXX which is described in Paragraph 24;
(ddd) "S Co." means XXXXXXXXXX which is described in Paragraph 19;
(eee) "T Co." means XXXXXXXXXX which is described in Paragraph 18;
(fff) "Trust A" means XXXXXXXXXX which is described in Paragraph 6;
(ggg) XXXXXXXXXX;
(hhh) XXXXXXXXXX
(iii) XXXXXXXXXX.
The following terms have the meanings specified:
(a) "Act" means the Income Tax Act (Canada), 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 of the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";
(b) "adjusted cost base" (also referred to as "ACB") has the meaning assigned by section 54 of the Act;
(c) "agreed amount" in respect of a property means the amount that a transferor and transferee have agreed upon in a joint election under subsection 85(1);
(d) "Assumed Liabilities" has the meaning specified in Paragraph 69;
(e) XXXXXXXXXX;
(f) "Canadian-controlled private corporation" has the meaning assigned by subsection 125(7) of the Act;
(g) "capital dividend account" has the meaning assigned by subsection 89(1) of the Act;
(h) "capital gain" has the meaning assigned by paragraph 39(1)(a) of the Act;
(i) "capital property" has the meaning assigned by section 54 of the Act;
(j) "CBCA" means the Canada Business Corporations Act R.S.C. 1985, c. C44;
(k) "Bco Dividends" has the meaning specified in Paragraph 52;
(l) "Dco Dividends" has the meaning specified in Paragraph 51;
(m) "Eco Dividends" has the meaning specified in Paragraph 53;
(n) "CRA" means the Canada Revenue Agency;
(o) "commercial obligation" has the meaning assigned by subsection 80(1) of the Act;
(p) "cost amount" has the meaning assigned by subsection 248(1) of the Act;
(q) "depreciable property" has the meaning assigned by subsection 13(21) of the Act;
(r) "disposition" has the meaning assigned by subsection 248(1) of the Act;
(s) "distribution" has the meaning assigned by subsection 55(1) of the Act;
(t) "Dividend Property" has the meaning specified in Paragraph 51;
(u) "dividend refund" has the meaning assigned by subsection 129(1) of the Act;
(v) "dividend rental arrangement" has the meaning assigned by subsection 248(1) of the Act;
(w) "eligible property" has the meaning assigned by subsection 85(1.1) of the Act;
(x) "excluded dividend" has the meaning assigned by subsection 191(1) of the Act;
(y) "fair market value" or "FMV" means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;
(z) "forgiven amount" has the meaning assigned by subsection 80(1) of the Act;
(aa) "guarantee agreement" has the meaning assigned by subsection 112(2.2) of the Act;
(bb) "Holdco A Note" has the meaning specified in Paragraph 73;
(cc) XXXXXXXXXX;
(dd) XXXXXXXXXX;
(ee) XXXXXXXXXX;
(ff) "Holdco Dividends" has the meaning specified in Paragraph 55;
(gg) "Income Interest Amount" has the meaning specified in Paragraph 50;
(hh) XXXXXXXXXX;
(ii) "Holdco Property" has the meaning specified in Paragraph 55;
(jj) "Miscellaneous Business Assets" has the meaning specified in Paragraph 64;
(kk) "Miscellaneous Investment Assets" has the meaning specified in Paragraph 64;
(ll) XXXXXXXXXX;
(mm) "Newco A Promissory Note" has the meaning specified in Paragraph 50;
(nn) XXXXXXXXXX;
(oo) XXXXXXXXXX;
(pp) XXXXXXXXXX;
(qq) XXXXXXXXXX;
(rr) "O Co. Dividends" has the meaning specified in Paragraph 54;
(ss) XXXXXXXXXX;
(tt) "paid-up capital" (also referred to as "PUC") has the meaning assigned by subsection 89(1) of the Act;
(uu) "Paragraph" refers to a numbered paragraph in this ruling;
(vv) XXXXXXXXXX;
(ww) XXXXXXXXXX;
(xx) "private corporation" has the meaning assigned by subsection 89(1) of the Act;
(yy) "proceeds of disposition" has the meaning assigned by subsection 54 of the Act;
(zz) "Uco Shares" has the meaning specified in Paragraph 29;
(aaa) "Proposed Transactions" means the transactions described in Paragraphs 43 to 77;
(bbb) "Redemption Amount" has the meaning specified in Paragraph 72;
(ccc) "related persons" has the meaning assigned by subsection 251(2) of the Act;
(ddd) "safe income on hand" in respect of a particular share of a corporation at a particular time means the portion of the unrealized gain inherent in such share of the corporation at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events that includes the Proposed Transactions described herein;
(eee) "Safe income dividends" has the meaning specified in Paragraphs 37 and 38;
(fff) "series of transactions or events" includes the related transactions or events referred to in subsection 248(10) of the Act;
(ggg) "specified financial institution" has the meaning assigned by subsection 248(1) of the Act;
(hhh) XXXXXXXXXX;
(iii) "specified investment business" has the meaning assigned by subsection 125(7) of the Act;
(jjj) "specified shareholder" has the meaning assigned by subsection 248(1) of the Act;
(kkk) "stated capital" and "stated capital account" each has the respective meaning assigned thereto by the XXXXXXXXXX;
(lll) "Subholdco A Note" has the meaning specified in Paragraph 72;
(mmm)XXXXXXXXXX;
(nnn) XXXXXXXXXX;
(ooo) XXXXXXXXXX;
(ppp) XXXXXXXXXX;
(qqq) "substantial interest" has the meaning assigned by subsection 191(2) of the Act;
(rrr) XXXXXXXXXX;
(sss) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act; and
(ttt) "taxable dividend" has the meaning assigned by subsection 89(1) of the Act.
Our understanding of the facts, proposed transactions, purposes of the proposed transactions and certain additional information is as follows:
FACTS
1. [Reserved].
2. Child XXXXXXXXXX is a resident of Canada. XXXXXXXXXX.
3. XXXXXXXXXX.
4. XXXXXXXXXX.
5. Z is a resident of Canada. XXXXXXXXXX.
6. Trust A is an inter-vivos trust created by settlement and trust agreement dated XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. Its address is XXXXXXXXXX. The settlor of Trust A was XXXXXXXXXX and its trustees are Z, XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. The relevant terms of Trust XXXXXXXXXX can be summarised as follows:
Income Beneficiaries: XXXXXXXXXX ,
(a) in the case of Trust A, to Child XXXXXXXXXX , the XXXXXXXXXX Spouse of X, XXXXXXXXXX ,
XXXXXXXXXX
Capital Beneficiaries: XXXXXXXXXX The capital beneficiaries are:
(a) in the case of Trust A XXXXXXXXXX Child XXXXXXXXXX ;
XXXXXXXXXX
10. XXXXXXXXXX.
11. Holdco A is a company incorporated pursuant to the laws of XXXXXXXXXX . Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. Its address is XXXXXXXXXX. XXXXXXXXXX. The only issued and outstanding shares of Holdco A are XXXXXXXXXX common shares. These shares are owned by Trust A. The aggregate stated capital and PUC of these shares is $XXXXXXXXXX. The aggregate adjusted cost base of these shares is $XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. O Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. Its address is XXXXXXXXXX.
15. All of the XXXXXXXXXX issued and outstanding XXXXXXXXXX Shares in the capital of O Co. were transferred to Z XXXXXXXXXX. These are the only issued and outstanding voting shares in the capital of O Co. XXXXXXXXXX.
16. XXXXXXXXXX.
XXXXXXXXXX.
17. XXXXXXXXXX Holdco A, XXXXXXXXXX owns one non-voting XXXXXXXXXX Common share in the capital of O Co. XXXXXXXXXX.
18. T Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX. O Co. owns XXXXXXXXXX Common shares in the capital of T Co., which are the only issued and outstanding shares of T Co. XXXXXXXXXX.
19. S Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX T Co. owns XXXXXXXXXX of the XXXXXXXXXX issued and outstanding Common shares in the capital of S Co. XXXXXXXXXX.
20. M Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX S Co. holds XXXXXXXXXX Common shares in the capital of M Co., which are the only issued and outstanding shares of M Co.
21. A Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX O Co. owns XXXXXXXXXX Common shares in the capital of A Co., being all of its issued and outstanding shares. XXXXXXXXXX.
22. XXXXXXXXXX. is a company incorporated under the laws of the XXXXXXXXXX. All of the issued and outstanding shares in the capital of XXXXXXXXXX are owned by A Co.
23. E Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX There are XXXXXXXXXX issued and outstanding Common shares and XXXXXXXXXX issued and outstanding XXXXXXXXXX shares. There are no other issued and outstanding shares. All of the issued and outstanding Common shares are owned by O Co. XXXXXXXXXX. All of the issued and outstanding XXXXXXXXXX shares were transferred to Z XXXXXXXXXX.
24. R Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. All of the issued and outstanding shares of R Co. are owned by Y.
25. B Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX E Co. owns all of the issued and outstanding Class XXXXXXXXXX shares, XXXXXXXXXX Class XXXXXXXXXX shares, and XXXXXXXXXX non-voting Class XXXXXXXXXX shares. R Co. owns XXXXXXXXXX non-voting Class XXXXXXXXXX shares of B Co. XXXXXXXXXX is estimated to be $XXXXXXXXXX.
26. XXXXXXXXXX.
XXXXXXXXXX.
27. D Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX.
28. Uco is a company incorporated pursuant to the laws of Canada. XXXXXXXXXX.
29. D Co. XXXXXXXXXX and XXXXXXXXXX (the "Uco Shares"). XXXXXXXXXX The Uco Shares are capital property of D Co. XXXXXXXXXX.
30. Q Co. is a company existing under the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX Common share XXXXXXXXXX issued and outstanding, and XXXXXXXXXX held by D Co. XXXXXXXXXX.
31. C Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. All of the issued and outstanding shares of C Co. are owned by D Co. C Co. XXXXXXXXXX as bare trustee and nominee owner for D Co.
32. D Co. owns other investment assets.
33. J Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. All of the issued and outstanding shares are owned by E Co.
34. F Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX E Co. holds XXXXXXXXXX shares and XXXXXXXXXX Common shares, which are all of the issued and outstanding shares of the corporation. XXXXXXXXXX.
35. H Co. is a company incorporated pursuant to the laws of XXXXXXXXXX. Its tax account number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. XXXXXXXXXX. It has XXXXXXXXXX issued and outstanding XXXXXXXXXX shares owned by F Co. XXXXXXXXXX.
36. Certain intercorporate cash dividends have been paid out of safe income on hand by various of the corporations described above since it was decided by the individual members of the Group, on XXXXXXXXXX, to effect the reorganization contemplated in the Proposed Transactions. It is expected that before the reorganization contemplated in the Proposed Transactions has been completed other intercorporate dividends out of safe income will be paid by various of the corporations described above. Some or all of these safe income intercorporate dividends ("Safe Income Dividends") have been or will be paid to some or all of the Holdco. Some of the funds received by the Holdco as a consequence of the Safe Income Dividends have been paid or will be paid by the Holdco as dividends to the Trust and have been paid or will be paid by the Trust to beneficiaries of the Trust. You have indicated that none of the members of the Group took the declaration and payment of the Safe Income Dividends into account in deciding to implement the proposed butterfly.
37. Certain intercorporate dividends in kind will have been paid or will be paid out of safe income (also, "Safe Income Dividends") resulting in a dividend or dividends to XXXXXXXXXX the Trust. The property used to pay the dividend in kind was or will be transferred by the Trust XXXXXXXXXX to the Child XXXXXXXXXX who is XXXXXXXXXX a beneficiary or beneficiaries of the Trust XXXXXXXXXX. Subsequently, the property used or that will be used to pay the dividend in kind will be transferred to Z. The property used or that will be used to pay the dividend in kind is a XXXXXXXXXX. You have indicated that none of the members of the Group took the declaration and payment of the Safe Income Dividends into account in deciding to implement the proposed butterfly.
38. Intercorporate receivables among or between various of the corporations described above have been incurred or discharged since the Proposed Transactions were first contemplated. It is expected that before the Proposed Transactions have been completed, other intercorporate receivables will be incurred or discharged.
39. XXXXXXXXXX.
40. XXXXXXXXXX.
41. XXXXXXXXXX.
42. XXXXXXXXXX.
Incorporations of all new corporations
43. XXXXXXXXXX new corporations have been incorporated. The incorporations are described in the following paragraphs.
Incorporation of Holdco XXXXXXXXXX
44. Z incorporated Holdco XXXXXXXXXX pursuant to the XXXXXXXXXX. The authorized share capital of Holdco XXXXXXXXXX consists of an XXXXXXXXXX. The primary provisions attributable to these classes of shares is as follows:
class XXXXXXXXXX shares - each class XXXXXXXXXX share is non-participating and (i) is XXXXXXXXXX
class XXXXXXXXXX shares- each class XXXXXXXXXX share is non-participating and (i) is redeemable XXXXXXXXXX
XXXXXXXXXX
common shares - each common share is a fully participating share and entitles the holder to one vote.
45. Z subscribed for and was issued XXXXXXXXXX class XXXXXXXXXX shares in the capital of Holdco XXXXXXXXXX for an aggregate subscription price of $XXXXXXXXXX.
46. D Co. incorporated XXXXXXXXXX new corporation, Newco A, XXXXXXXXXX, pursuant to the XXXXXXXXXX The primary provisions attributable to these classes of shares is as follows:
class XXXXXXXXXX shares - each class XXXXXXXXXX share is non-participating and (i) is redeemable XXXXXXXXXX
class XXXXXXXXXX shares - each class XXXXXXXXXX share is non-participating and (i) is redeemable and XXXXXXXXXX
XXXXXXXXXX
common shares - each common share is a fully participating share and entitles the holder to one vote.
D Co. subscribed for and was issued XXXXXXXXXX shares and XXXXXXXXXX common shares in the capital of XXXXXXXXXX Newco for an aggregate subscription price in each case of $XXXXXXXXXX.
47. Holdco A incorporated Subholdco A, XXXXXXXXXX. The primary provisions attributable to these classes of shares is as follows:
class XXXXXXXXXX shares - each class XXXXXXXXXX share is non-participating and (i) is redeemable XXXXXXXXXX
class XXXXXXXXXX shares - each class XXXXXXXXXX share is non-participating and (i) will be redeemable XXXXXXXXXX
XXXXXXXXXX
common shares - each common share is a fully participating share and entitles the holder to one vote.
XXXXXXXXXX Holdco A, XXXXXXXXXX subscribed for XXXXXXXXXX class XXXXXXXXXX shares, XXXXXXXXXX, in the capital of each of Subholdco AXXXXXXXXXX for an aggregate subscription price, in each case, of $XXXXXXXXXX.
PROPOSED TRANSACTIONS
48. [Reserved].
49. XXXXXXXXXX.
Transfer of a certain number of Uco shares to the Newco.
50. D Co. will transfer to XXXXXXXXXX Newco a certain number of Uco shares such that, XXXXXXXXXX, a capital gain is realized XXXXXXXXXX
XXXXXXXXXX Newco will issue one common share and a non-interest-bearing demand promissory note (the "Newco A Promissory Note", XXXXXXXXXX in payment for the transfer of the Uco shares.
D Co. and XXXXXXXXXX Newco will file a joint election in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer. The agreed amount for the purposes of such election in each case will be an amount that will result in the required capital gain. The agreed amount will not exceed the amount permitted under paragraph 85(1)(c), nor will it be less than the amount permitted under paragraph 85(1)(b).
The amount to be added to the stated capital account maintained for the common shares of the Newco issued as consideration for the Uco shares to D Co. will be equal to the aggregate paid-up capital attributed to such transferred shares. For greater certainty, the stated capital addition for such common shares will not exceed the maximum amount that would be added to the paid-up capital of such shares, having regard to section 84.1.
51. D Co. will declare and pay a taxable dividend or dividends and a dividend or dividends from its capital dividend account on its XXXXXXXXXX shares (collectively, the "D Co. Dividends") in an amount that is equal to the XXXXXXXXXX.
52. B Co. will declare and pay a taxable dividend or dividends and a dividend or dividends from its capital dividend account on its XXXXXXXXXX shares (collectively the "B Co. Dividends") equal in amount to the amount of the D Co. Dividends. XXXXXXXXXX.
53. E Co. will declare and pay a taxable dividend or dividends and a dividend or dividends from its capital dividend account on its XXXXXXXXXX shares (collectively the "E Co. Dividends") equal in amount to the amount of the B Co. Dividends. XXXXXXXXXX.
54. O Co. will declare and pay a taxable dividend or dividends and a dividend or dividends from its capital dividend account on its XXXXXXXXXX shares (collectively the "O Co. Dividends") equal in amount to the amount of the E Co. Dividends. XXXXXXXXXX.
55. XXXXXXXXXX Holdco will declare and pay a taxable dividend or dividends and a dividend or dividends from its capital dividend account on XXXXXXXXXX shares (XXXXXXXXXX") equal in amount to XXXXXXXXXX the amount of the O Co. Dividends. The Holdco Dividend will be paid using cash (the "Holdco Property").
Distribution of all or substantially all of the property of the Trust in satisfaction of the beneficial interests of the income and capital beneficiaries of the Trust
56. XXXXXXXXXX, the trustees of XXXXXXXXXX the Trust will pay an amount to Z equal to XXXXXXXXXX the amount of the Holdco Dividends in satisfaction of Z's income interests in the Trust. The payment will be made using the Holdco Property. In the income tax returns for XXXXXXXXXX the Trust, the trustees of XXXXXXXXXX the Trust will designate the payments as taxable dividends pursuant to subsection 104(19) to the extent of any taxable dividend or dividends received by the Trust from the Holdco as part of the Holdco Dividend.
57. XXXXXXXXXX, the trustees of XXXXXXXXXX the Trust will distribute all or substantially all of the remaining property of XXXXXXXXXX the Trust to capital beneficiaries of the Trusts, XXXXXXXXXX being the Child for which the Trust is named. As part of the distribution, XXXXXXXXXX Child will assume all obligations of the XXXXXXXXXX Trust.
Settlement of XXXXXXXXXX and the Gift of Z's Property to New Trust A, XXXXXXXXXX
57A. Z will settle XXXXXXXXXX, New Trust A, XXXXXXXXXX. The trustees of XXXXXXXXXX the New Trust will be Z, XXXXXXXXXX. Z will be the sole income beneficiary and a capital beneficiary of XXXXXXXXXX New Trust. The provisions of the New Trust may also provide that, during the life of Z, that the trustees of the New Trust may encroach on the capital of the New Trust for the benefit of the Child for whom the New Trust is named. The capital of XXXXXXXXXX New Trust remaining on the demise of Z will be payable as follows: to Child XXXXXXXXXX in the case of New Trust A, XXXXXXXXXX, there will be gifts over to the issue of XXXXXXXXXX Child XXXXXXXXXX, XXXXXXXXXX.
58. Z will make a gift of certain property to XXXXXXXXXX the New Trust. The value of the property gifted will be equal to or less than an amount that is equal to the Income Interest Amount. The property gifted will be composed exclusively of the Holdco Property.
Transfer of XXXXXXXXXX Shares in capital of O Co. and XXXXXXXXXX shares in capital of E Co. owned by Z to Holdco D
59. Z will transfer all of XXXXXXXXXX Shares in the capital of O Co. and all of XXXXXXXXXX shares in the capital of E Co. to Holdco XXXXXXXXXX in exchange for XXXXXXXXXX common shares in the capital of Holdco XXXXXXXXXX. Z and Holdco XXXXXXXXXX will file a joint election in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to such transfer. The agreed amount for the purposes of such election in each case will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1) and (ii). The agreed amount will not exceed the amount permitted under paragraph 85(1)(c), nor will it be less than the amount permitted under paragraph 85(1)(b).
The amount to be added to the stated capital account maintained for the Holdco XXXXXXXXXX common shares issued as consideration for the XXXXXXXXXX Shares in the capital of O Co. and XXXXXXXXXX shares in the capital of E Co. transferred by Z to Holdco XXXXXXXXXX will be equal to the aggregate paid-up capital attributed to such transferred shares. For greater certainty, the stated capital addition for such common shares will not exceed the maximum amount that would be added to the paid-up capital of such shares, having regard to section 84.1.
60. The aggregate stated capital, paid up capital and aggregate adjusted cost base to Z of each class of issued and outstanding shares of Holdco XXXXXXXXXX she owns will be as follows:
(a) Shareholder: Z
Class: Common
Number: XXXXXXXXXX
Stated Capital: XXXXXXXXXX
PUC: XXXXXXXXXX
ACB: XXXXXXXXXX
(b) Shareholder: Z
Class: B
Number: XXXXXXXXXX
Stated Capital: $XXXXXXXXXX
PUC: $XXXXXXXXXX
ACB: $XXXXXXXXXX
XXXXXXXXXX
61. XXXXXXXXXX.
XXXXXXXXXX.
62. XXXXXXXXXX.
Amalgamation of certain corporations
63. O Co., E Co., B Co., and D Co., will amalgamate pursuant to the amalgamation provisions of the XXXXXXXXXX to form P Co. XXXXXXXXXX The provisions of the XXXXXXXXXX common shares and the XXXXXXXXXX shares of P Co. will be exactly the same, respectively, as the provisions of the XXXXXXXXXX Common shares and the provisions of the XXXXXXXXXX Shares of O Co. and the provisions of the XXXXXXXXXX shares of P Co. will be exactly the same as the provisions of the XXXXXXXXXX shares of E Co., save and except that the XXXXXXXXXX shares of P Co. will rank equally with the XXXXXXXXXX shares of P Co. in the payment of dividends, on liquidation, dissolution and winding-up, and on a return of capital. XXXXXXXXXX Holdco A, XXXXXXXXXX will receive XXXXXXXXXX non-voting XXXXXXXXXX common share in the share capital of P Co. on the amalgamation. Holdco XXXXXXXXXX will receive XXXXXXXXXX shares and XXXXXXXXXX shares in the capital of P Co. on the amalgamation.
64. After the amalgamation described in Paragraph 63, P Co. will own the following assets:
- XXXXXXXXXX common shares of A Co., being all of the issued and outstanding shares of A Co.;
- XXXXXXXXXX common shares T Co., being all of the issued and outstanding shares of T Co.;
- XXXXXXXXXX common share of Q Co., being the only issued and outstanding share of Q Co.;
- XXXXXXXXXX;
- certain cash and near-cash property;
- certain miscellaneous investment assets (individually, a "Miscellaneous Investment Asset" and collectively, the "Miscellaneous Investment Assets");
- all of the issued and outstanding shares of C Co. XXXXXXXXXX as bare trustee and nominee owner for P Co.;
- possibly, certain miscellaneous business assets (individually a "Miscellaneous Business Asset" and collectively, the "Miscellaneous Business Assets");
- all of the issued shares of the Newco and the Newco Promissory Note;
- XXXXXXXXXX Common shares of J Co., being all of the issued and outstanding shares of J Co.; and
- XXXXXXXXXX shares and XXXXXXXXXX Common shares of F Co., being all of the issued and outstanding shares of F Co.
65. After the amalgamation described in Paragraph 63, the aggregate stated capital and aggregate paid up capital of each class of issued and outstanding shares of P Co. and the aggregate adjusted cost base to each shareholder of each class of issued and outstanding shares of P Co. will be as follows:
(a) Shareholder: Holdco A
Class: XXXXXXXXXX
common
Number: XXXXXXXXXX
Stated Capital: XXXXXXXXXX
PUC: XXXXXXXXXX
ACB: XXXXXXXXXX
XXXXXXXXXX
Classification of property of P Co.
66. Immediately prior to the transfers of property described in Paragraph 68 below, the property of P Co. will be classified into three types of property, for the purposes of the definition "distribution" in subsection 55(1), as follows:
(a) cash or near-cash property, comprising all the current assets of P Co., including any cash;
(b) investment property, comprising all of the assets of P Co., other than cash or near-cash, any income from which would, for the purposes of the Act, be income from property or a specified investment business;
(c) business property, comprising all of the assets of P Co., other than property described in (a) and (b) above, any income from which would, for the purposes of the Act, be income from a business (other than a specified investment business).
For the purposes of the Proposed Transactions, any tax accounts or other tax related amounts, such as loss carryforwards, capital dividend account and refundable dividend tax on hand, will not be considered as property of P Co.
67. P Co. has "significant influence" (within the meaning of that term as assigned by section 3050 of the CICA Handbook.) over XXXXXXXXXX all corporations controlled, directly or indirectly, by these corporations (the "Look-through Subsidiaries"). Consequently, P Co. will be required to use the consolidated look-through method for determining the appropriate proportion of each of the three types of properties that the shares of the Look-through Subsidiaries held by P Co. represent.
(a) In determining, on a consolidated look-through basis, the net fair market value of P Co.'s cash or near-cash property, investment property and business property immediately before the transfer of property described in Paragraph 68 below, liabilities of P Co. and of any corporation over which P Co. has the ability to exercise significant influence will be allocated to, and deducted in the calculation of, the net fair market value of each such type of property of such corporation in the following manner:
(i) In determining, immediately before the transfer described in Paragraph 68 below, the net fair market value of each type of property of a particular corporation over which P Co. has the ability to exercise significant influence (the Look-through Subsidiaries), the liabilities of the particular corporation (the Look-through Subsidiaries) other than any amount owing to P Co. will be allocated to, and deducted in the calculation of, the net fair market value of a type of property of the particular corporation in the following manner:
(A) Current liabilities of the particular corporation will be allocated to the cash or near-cash property of that corporation in the proportion that the fair market value of each such property is of the fair market value of all cash or near-cash property owned by that corporation. To the extent that the total current liabilities so allocated exceed the total fair market value of all cash or near-cash property of that particular corporation, that corporation will be considered to have a negative amount of cash or near-cash property.
Provided that the net fair market value of the cash or near-cash property of the particular corporation is positive, the net fair market value of all accounts receivable, inventories and prepaid expenses of the particular corporation that are initially classified in accordance with Paragraph (a) above as cash or near-cash property that will relate to a business that will be carried on by the Holdcos and that will be collected or consumed in the ordinary course of that business will then be reclassified as business property where the net fair market value is positive. Consequently, the resulting net fair market value of all cash or near-cash property will be reduced by the total net fair market value (where it is positive) of such accounts receivable, inventories and prepaid expenses;
(B) Liabilities, other than current liabilities, of the particular corporation that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its fair market value. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a type of property, as described herein, exceeds the total fair market value of that type of property of that corporation, that corporation will be considered to have a negative amount of that type of property; and
(C) Any other remaining liabilities of the particular corporation will then be allocated to the cash or near-cash property, investment property and business property of that corporation based on the relative net fair market value of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in steps (i)(A) and (i)(B) above. However, where a corporation is considered to have a negative amount of a type of property because of step (i)(A) or (i)(B) above, for the purposes of allocating those remaining liabilities, the net fair market value of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property; and
(ii) In determining, on a consolidated look-through basis, the net fair market value of each type of property of P Co. immediately before the transfer of property described in Paragraph 68 below, P Co. will include the appropriate pro-rata share of the net fair market value (or such negative amount due to steps (i)(A) and (i)(B) above) of each type of property of any corporation over which P Co. has the ability to exercise significant influence (the Look-through Subsidiaries), and any liabilities of P Co. will be allocated to, and deducted in the calculation of, the net fair market value of each type of property of P Co. in the following manner:
(A) Current liabilities of P Co. will be allocated to the cash or near-cash property of P Co. in the proportion that the fair market value of each such property is of the fair market value of all cash or near-cash property of P Co. The allocation of current liabilities, as described herein, will not, however, exceed the total fair market value of the cash or near-cash property of P Co.
Accounts receivable, inventories and prepaid expenses that are initially classified in accordance with Paragraph (a) above as cash or near-cash property that will relate to a business that will be carried on by the Holdcos and that will be collected or consumed in the ordinary course of that business will then be reclassified as business assets. Consequently, the resulting net fair market value of all cash or near-cash property will be reduced by the total net fair market value of such accounts receivable, inventories and prepaid expenses. The total net fair market value of such accounts receivable, inventories and prepaid expenses will be added to the fair market value of the business property;
(B) Liabilities, other than current liabilities, of P Co. that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its fair market value. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net fair market value of such type of property after the allocation of liabilities to a particular property as described herein; and
(C) If any liabilities remain after the allocations described in steps (ii)(A) and (ii)(B) above are made, such remaining liabilities will then be allocated to the cash or near-cash property, investment property and business property, if any, of P Co. based on the relative net fair market value of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in steps (ii)(A) and (ii)(B) above. However, where a corporation is considered to have a negative amount of a type of property because of step (ii)(A) or (ii)(B) above, for the purposes of allocating those remaining liabilities, the net fair market value of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property.
Distribution of the property of P Co. to Subholdcos
68. Immediately following the classification of P Co.'s three types of property as described in Paragraph 66 above, P Co. will transfer contemporaneously, to XXXXXXXXXX Subholdco A, XXXXXXXXXX a pro-rata portion of the net fair market value of each type of property then owned by P Co., as determined in accordance with Paragraph 67 above, such that immediately following such transfers, the net fair market value of each type of property so transferred to each of Subholdco A, XXXXXXXXXX as the case may be, will be equal to or will approximate that proportion of the net fair market value of that particular type of property of P Co. immediately before such transfers of property described herein that:
(a) the aggregate fair market value, immediately before the transfer, of all of the P Co. shares owned by XXXXXXXXXX Holdco A, XXXXXXXXXX at that time, as the case may be, is of
(b) the aggregate fair market value, immediately before the transfer, of all the issued and outstanding shares of P Co. at that time.
For the purposes of giving effect to the proportionate distribution of types of property, the Safe Income Dividends previously received by the Holdco will not be deemed to form part of the assets owned by P Co., immediately prior to the distribution and will not be deemed to have been received by the respective Subholdcos as part of their proportionate share of any of the three types of property of P Co.
For the purposes of this paragraph, the expression "approximates that proportion" means the discrepancy from that proportion, if any, that would not exceed one percent (1%) determined as a percentage of the FMV of the property that each Subholdco has received compared to what it would have received had it received its appropriate pro-rata share of P Co.'s property.
69. As consideration for the property received by XXXXXXXXXX Subholdco A, XXXXXXXXXX from P Co. as described above, XXXXXXXXXX Subholdco A, XXXXXXXXXX, will:
(a) assume a pro-rata portion of any liabilities (the "Assumed Liabilities") owing by P Co. at the time of the transfers; and
(b) issue to P Co. XXXXXXXXXX of its XXXXXXXXXX shares having an aggregate fair market value equal to the aggregate fair market value of the all the property transferred by P Co. to such corporation less the amount of the Assumed Liabilities assumed.
70. XXXXXXXXXX the Subholdco will jointly elect with P Co. in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of eligible property received by Subholdco A, XXXXXXXXXX , from P Co. The agreed amount for the purposes of each such election will not be less than the lesser of the amounts described in subparagraphs 85(1)(c.i)(i) and (ii), in the case of property described in paragraph 85(1)(c.1). For greater certainty, the agreed amount for any capital property included in the subsection 85(1) election, referred to herein, will not be less than the amount of any liabilities assumed as consideration therefor, and will not exceed the fair market value of each such property.
The amount to be added to the stated capital account maintained for the XXXXXXXXXX shares issued by each Subholdco, as consideration for the property of P Co. transferred by P Co. as described in Paragraph 68 above, will equal the amount by which the aggregate of the adjusted cost base to each Subholdco exceeds the amount of the Assumed Liabilities assumed by such corporation. For greater certainty, the stated capital addition for such shares in each case will not exceed the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 85(2.1).
Redemption by Subholdco of all shares held by P Co.
71. Each of the Subholdcos will redeem the XXXXXXXXXX shares held by P Co. for an amount equal to their fair market value (the "Redemption Amount"). As consideration, each Subholdco will issue a non-interest-bearing demand note (the "Subholdco A Note", XXXXXXXXXX in favour of P Co., each of which will acknowledge an indebtedness in an amount equal to the aggregate Redemption Amount of its XXXXXXXXXX shares that it issued to P Co. P Co. will accept the Subholdco Note in full payment of the XXXXXXXXXX Redemption Amount of the XXXXXXXXXX shares of XXXXXXXXXX Subholdco.
Winding-up of Subholdco into XXXXXXXXXX Holdco
72. Necessary resolutions will be passed to dissolve the Subholdco.
73. Pursuant to the resolutions to dissolve the Subholdco, XXXXXXXXXX Subholdco will transfer all of its property to its XXXXXXXXXX Holdco and XXXXXXXXXX Holdco will assume all of the liabilities of its XXXXXXXXXX Subholdco. XXXXXXXXXX Holdco will assume the liability of XXXXXXXXXX Subholdco under the Subholdco Note and will issue in acknowledgement of such liability, its own non-interest-bearing demand note (the "Holdco A NoteXXXXXXXXXX As a result, XXXXXXXXXX Holdco will owe P Co. an amount equal to the principal amount of the respective Subholdco Note.
Winding-up of P Co.
74. Necessary resolutions will be passed to dissolve P Co. Pursuant to the resolutions to dissolve P Co., P Co. will assign and distribute the Holdco A Note to Holdco A, XXXXXXXXXX As a result of the assignment and distribution of the Holdco A Note to Holdco A, XXXXXXXXXX by P Co., the obligations of XXXXXXXXXX of Holdco A, XXXXXXXXXX under XXXXXXXXXX note will be cancelled.
Voluntary dissolution of P Co.
75. After all of the steps indicated above have been effected, such that P Co. will not have any remaining property, P Co. will dissolve voluntarily. The dissolution of Pco. may be delayed until receipt of a clearance certificate from CRA pursuant to subsection 159(2). This may not occur until some time considerably later than the transactions described in Paragraph 74.
76. After all of the steps indicated above have been effected, such that the Subhodco will not have any remaining property, the Subholdco will dissolve voluntarily. The dissolution of the Subholdco may be delayed until receipt of a clearance certificate from CRA pursuant to subsection 159(2). This may not occur until some time considerably later than the transactions described in Paragraph 74.
76A. XXXXXXXXXX New Trust will loan to XXXXXXXXXX Holdco a sum or sums of money for which each Holdco will issue a demand promissory note. The promissory note may be interest-bearing. Each Holdco and XXXXXXXXXX New Trust will also enter into a security agreement pursuant to which each Holdco will grant a security interest in XXXXXXXXXX securing payment of the Holdco promissory note or notes.
Shareholders' agreements between the XXXXXXXXXX in respect of shares in A Co and in respect of the shares in certain other corporations.
77. The Holdco, XXXXXXXXXX may enter into a shareholders' agreement in respect of the shares owned by the Holdco in the share capital of A Co, T Co., Q Co., J Co. and F Co.
XXXXXXXXXX
78. XXXXXXXXXX.
79. Unless otherwise specified, the Proposed Transactions described herein will occur in the order in which they are set out above and such Proposed Transactions will commence on the date agreed to by the parties. XXXXXXXXXX.
None of P Co., Holdco A, XXXXXXXXXX , S Co., A Co., B Co., D Co., E Co. and Uco is or will be at the time of the Proposed Transactions, a specified financial institution.
None of the shares of P Co., Holdco A, XXXXXXXXXX , B Co., D Co., and E Co. referred to in this ruling request have been, or will be, at any time or during the implementation of the Proposed Transactions described herein:
(a) the subject of any undertaking that is a guarantee agreement;
(b) a share that is issued or acquired as part of a series of transactions of the type described in subsection 112(2.5); or,
(c) the subject of a dividend rental arrangement.
PURPOSES OF THE PROPOSED TRANSACTION
The purposes of the proposed transaction are to avoid the deemed disposition of the capital property of the Trusts which will occur on the XXXXXXXXXX anniversary date of the settlement of the Trusts and to ensure that each individual member of the Group owns XXXXXXXXXX respective interest in the Group through a corporation or corporations which XXXXXXXXXX wholly-owns directly.
RULINGS
Provided that the preceding statements constitute a 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, our rulings are as set forth below.
A. The distribution of the Holdco Property by each of Trust A, XXXXXXXXXX to Z in satisfaction of XXXXXXXXXX income interest in XXXXXXXXXX Trust A, XXXXXXXXXX, as described in Paragraph 56 above, will be subject to the provisions of subsection 106(3). Accordingly, paragraph 106(2)(a) will not apply to this transaction.
B. Subsection 107(2) of the Act will apply to the distribution described in Paragraph 57 above by XXXXXXXXXX Trust A, XXXXXXXXXX to XXXXXXXXXX Child XXXXXXXXXX, of the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX, such that the application of subsection 107(2), in conjunction with subsection 107(1) and paragraph (a) of the definition of "cost amount" in subsection 108(1) of the Act, will give rise to the following tax consequences:
(i) XXXXXXXXXX Trust A, XXXXXXXXXX will be deemed to have disposed of the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX, for proceeds of disposition equal to their cost amount immediately before the distribution;
(ii) XXXXXXXXXX Child XXXXXXXXXX will be deemed to have acquired the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX, so distributed at a cost equal to the aggregate of the cost amount of these shares to XXXXXXXXXX Trust immediately before the distribution and the amount, if any, by which the ACB of XXXXXXXXXX Child's capital interest exceeds the cost amount to XXXXXXXXXX Child of such capital interest immediately before the distribution. The ACB of the capital interest of Child XXXXXXXXXX will be nil; therefore, XXXXXXXXXX of Child XXXXXXXXXX will be deemed to have acquired the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX, at a cost equal to the cost amount of the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX , to XXXXXXXXXX Trust A, XXXXXXXXXX; and
(iii) XXXXXXXXXX Child XXXXXXXXXX will be deemed to have disposed of XXXXXXXXXX capital interest in each of Trust A, XXXXXXXXXX, for proceeds equal to the amount, if any, by which the cost of the XXXXXXXXXX shares of Holdco A, XXXXXXXXXX received as determined in (ii) above exceeds the total of all amounts, each of which is an eligible offset (as defined in subsection 108(1)) of XXXXXXXXXX Child XXXXXXXXXX at that time in respect of such capital interest.
C. The provisions of subsection 85(1) will apply to the transfer of the XXXXXXXXXX Shares in the capital of O Co. and the XXXXXXXXXX shares in the capital of E Co. held by Z to Holdco XXXXXXXXXX as described in Paragraph 59 above, such that the agreed amount in respect of such transfers will be deemed to be Z's proceeds of disposition and Holdco XXXXXXXXXX cost of acquisition. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
In respect of each of the transfers described above, subsection 84.1(1) will not apply to reduce the paid-up capital of the shares issued by Holdco XXXXXXXXXX to Z on such transfer.
D. Upon the occurrence of the amalgamation of O Co., E Co., B Co., and D Co. to form P Co. as described in Paragraph 63 above:
(a) the provisions of subsection 87(1) will apply; and
(b) provided that the shares of the predecessor corporations are held by a particular holder thereof as capital property, the provisions of subsection 87(4) (excluding paragraphs 87(4)(c) to (e)) will apply to such holder, such that the holder will be considered to have received shares of P Co. in consideration for the disposition by such holder of the shares of the predecessor corporation and will be deemed to have disposed of such shares for proceeds equal to, and to have acquired the P Co. Shares at a cost equal to the ACBs to the holder of such shares immediately before the amalgamation.
E. Pursuant to subsection 87(2.1), the non-capital losses of O Co., E Co., B Co., and D Co. will be deemed to be non-capital losses of P Co. Paragraph 256(7)(b) will deem there not to be an acquisition of control of any of O Co., E Co., B Co., and D Co.
F. The provisions of subsection 85(1) will apply to the transfers of eligible property held by P Co. to XXXXXXXXXX the Subholdco as described in Paragraph 68 above such that the agreed amount in respect of each such transfer will be deemed to be P Co.'s proceeds of disposition and the XXXXXXXXXX Subholdco's cost of such property. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers.
Subsection 85(2.1) will not apply to reduce the paid-up capital of the shares issued by the respective Subholdco to P Co. on such transfer.
F.1 The taxable dividends received by B Co., E Co., O Co., Holdco A, XXXXXXXXXX, as described in Paragraphs 51, 52, 53 and 54 above:
(i) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person that receives such dividend;
(ii) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income in the year in which such a dividend is received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);
(iii) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is received;
(iv) will not be subject to tax under Part IV except to the extent that such payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend; and
(iv) will not be subject to tax under Part IV.1 or VI.1.
G. As a result of the redemption by XXXXXXXXXX the Subholdco of all the shares held by P Co. as described in Paragraph 71, and as a result of the distributions by P Co. in the course of its winding-up, as described in Paragraph 74:
(a) by virtue of paragraphs 84(3)(a) and 84(3)(b), each of the Subholdcos will be deemed to have paid, and P Co. will be deemed to have received, respectively, a taxable dividend on the XXXXXXXXXX shares of Subholdco A, XXXXXXXXXX , equal to the amount, if any, by which the aggregate amount paid on each such redemption exceeds the PUC in respect of such XXXXXXXXXX shares immediately before the redemption;
(b) by virtue of paragraph 88(2)(b) and subsection 84(2), P Co. will be deemed to have paid, and XXXXXXXXXX Holdco A, XXXXXXXXXX will be deemed to have received, a taxable dividend on the XXXXXXXXXX common shares, equal to the proportion of the amount by which the aggregate FMV of the property of P Co. distributed to XXXXXXXXXX Holdco A, XXXXXXXXXX on the winding-up exceeds the amount by which the PUC of the XXXXXXXXXX common shares is reduced as a result of the distribution, that the number of the XXXXXXXXXX common shares held by Holdco A, XXXXXXXXXX , is of the number of issued shares of that class outstanding immediately before that time;
(c) by virtue of paragraph 88(2)(b) and subsection 84(2), P Co. will be deemed to have paid, and Holdco XXXXXXXXXX will be deemed to have received, a taxable dividend on the XXXXXXXXXX shares and the XXXXXXXXXX shares, equal to the amount by which the aggregate FMV of the property of P Co. distributed to Holdco XXXXXXXXXX on the winding-up exceeds the amount by which the PUC of such shares is reduced as a result of the distribution; and
(d) the taxable dividends described in (a), (b) and (c) above:
(i) 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;
(ii) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income in the year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);
(iii) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;
(iv) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;
(v) will not be subject to tax under Part IV except to the extent that such payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend; and
(v) will not be subject to tax under Part IV.1 or VI.1.
H. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is not:
(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii); or
(e) an acquisition of property in the circumstances described in subparagraph 55(3.1)(c) or (d);
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 G and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
I. Subsection 88(1) will apply to the windings-up of the Subholdco into the Holdco as described in Paragraph 73 above.
I.1 Paragraph 40(3.4)(a) will deem P Co.'s capital losses on the disposition of property to the Subholdco as described in Paragraphs 68 and 69 above to be nil at the time of such disposition. However, subparagraph 40(3.4)(b)(v) will deem such capital losses to occur immediately before the winding-up of P Co. begins as described in Paragraph 74 above.
J. The cancellation of the Holdco Note as described in Paragraph 74 above will not, in and of itself, result in a forgiven amount.
K. None of the Proposed Transactions will result in an acquisition of control of O Co., P Co., Uco any of the predecessors of P Co., or any corporation controlled by P Co. or its predecessors.
L. The provisions of subsection 15(1) and 56(2) will not apply to the Proposed Transactions described in Paragraphs 63 through 76, in and by themselves.
M. Subsection 245(2) will not apply to the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed herein.
Notwithstanding the foregoing, we confirm that Ruling A and Ruling B are independently valid and binding in the event that only the transactions described in Paragraphs 50 to 57, inclusive, occur.
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, 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) XXXXXXXXXX;
(b) the paid-up capital of any share, the adjusted cost base or fair market value of any property, or the safe income on hand in respect of any share referred to herein;
(c) 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 includes other transactions or events that are not described in this letter.
Yours truly,
XXXXXXXXXX
Manager
Corporate Reorganizations Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2005
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2005
Email this Content