2005 Ruling 2005-0147131R3 - Continuance from XXXXXXXXXX to XXXXXXXXXX

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 the continuance of a corporation from XXXXXXXXXX to XXXXXXXXXX is a disposition of the shares or the underlying assets & liabilities.

Position: No

Reasons: The governing legislation of the two jurisdictions provides for this.

XXXXXXXXXX  							2005-014713

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (the "Taxpayer")

This is in reply to your letter of XXXXXXXXXX in which you ask for an advance income tax ruling on behalf of the above taxpayer.

Definitions

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1 as amended to the date hereof. All statute references in this letter are to the Act unless otherwise indicated.

(b) "Adjusted cost base" has the meaning assigned by section 54.

(c) "BCo" means XXXXXXXXXX.

(d) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985 C. C-44.

(e) "CCo" means XXXXXXXXXX.

(f) "Controlled foreign affiliate" has the meaning assigned by subsection 95(1).

(g) "CRA" means the Canada Revenue Agency.

(h) "DCo" means XXXXXXXXXX.

(i) "Paid-up capital" has the meaning assigned by subsections 89(1) and 248(1).

(j) "Foreign affiliate" has the meaning assigned by subsection 95(1).

(k) "Regulations" means Income Tax Regulations, Consolidated Regulations of Canada, Chapter 945 as amended to the date hereof.

(l) "Taxpayer" means XXXXXXXXXX.

Facts

1. The Taxpayer is incorporated under the CBCA and XXXXXXXXXX. The Taxpayer is a taxable Canadian corporation and a public corporation as those terms are defined in subsection 89(1). The common shares of the Taxpayer are posted for trading on the XXXXXXXXXX stock exchanges. The Taxpayer is a XXXXXXXXXX company with consolidated assets of about US$XXXXXXXXXX. The Taxpayer's consolidated interests are principally engaged in the XXXXXXXXXX. The head office of the Taxpayer is located at XXXXXXXXXX. The Taxpayer files its returns at the XXXXXXXXXX Taxation Centre, and is served by the XXXXXXXXXX Tax Services Office. The business of the Taxpayer is XXXXXXXXXX.

2. BCo is a subsidiary wholly-owned corporation of the Taxpayer. BCo is a capital stock corporation existing under the laws of XXXXXXXXXX and is a tax resident of XXXXXXXXXX under Canadian and XXXXXXXXXX common law principles. BCo is a foreign affiliate and controlled foreign affiliate of the Taxpayer. BCo has two classes of outstanding shares: common and preferred. The common shares are voting and fully participating in the annual profits and the ultimate surplus of the company upon liquidation and dissolution of the company. The preferred shares are redeemable and retractable at a fixed price that equals their subscription price and stated capital amount, non-voting, and accrue a non-cumulative XXXXXXXXXX% dividend right. There are XXXXXXXXXX outstanding BCo common shares held by the Taxpayer and XXXXXXXXXX outstanding BCo preferred shares held by the Taxpayer. The attributes of the outstanding common shares are: an aggregate adjusted cost base of CXXXXXXXXXX in the hands of the Taxpayer, and the records of BCo show an aggregate stated capital account (for XXXXXXXXXX corporate law purpose) and paid-up capital (for Canadian income tax purposes) of US$ XXXXXXXXXX. The attributes of the outstanding preferred shares are: an aggregate adjusted cost base of C$ XXXXXXXXXX in the hands of the Taxpayer, and the records of BCo show an aggregate stated capital account (for XXXXXXXXXX corporate law purposes) and paid-up capital (for Canadian income tax purposes) of US$ XXXXXXXXXX. The Taxpayer holds all BCo preferred and common shares on capital account.

3. CCo is a subsidiary wholly-owned corporation of BCo. CCo is a capital stock corporation existing under the laws of XXXXXXXXXX and is a tax resident of XXXXXXXXXX under Canadian and XXXXXXXXXX common law principles. CCo is a foreign affiliate and controlled foreign affiliate of the Taxpayer. CCo has two classes of outstanding shares: common and preferred. The common shares are voting and fully participating in the annual profits and the ultimate surplus of the company upon liquidation and dissolution of the company. The preferred shares are redeemable and retractable at a fixed price that equals their subscription price and stated capital amount, non-voting, and participate in dividends equally with the common shares. There are XXXXXXXXXX outstanding CCo common shares held by BCo and XXXXXXXXXX outstanding CCo preferred shares held by BCo. The attributes of the outstanding common shares are: an aggregate adjusted cost base of US$ XXXXXXXXXX in the hands of BCo, and the records of CCo show an aggregate stated capital account (for XXXXXXXXXX corporate law purposes) and paid-up capital (for Canadian income tax purposes) of US$ XXXXXXXXXX. The attributes of the outstanding preferred shares are: an aggregate adjusted cost base of US$ XXXXXXXXXX in the hands of BCo, and the records of CCo show an aggregate stated capital account (for XXXXXXXXXX corporate law purposes) and paid-up capital (for Canadian income tax purposes) of US$ XXXXXXXXXX. BCo holds all CCo preferred and common shares on capital account.

4. DCo is a XXXXXXXXXX company that exists under XXXXXXXXXX law and is a tax resident of XXXXXXXXXX under Canadian and XXXXXXXXXX tax law principles. CCo owns XXXXXXXXXX% of the outstanding shares of DCo. BCo owns XXXXXXXXXX% of the shares of DCo. XXXXXXXXXX and BCo owns a nominal shareholding to maintain DCo as a corporation under XXXXXXXXXX corporate law. DCo is treated as a corporation for the Canadian foreign affiliate rules. DCo uses the United States dollar as the functional currency for XXXXXXXXXX income tax law, its annual financial statements, and for Canadian surplus balance calculations under section 5907 of the Regulations. XXXXXXXXXX DCo is a foreign affiliate and controlled foreign affiliate of the Taxpayer. The outstanding DCo shares held by CCo have an aggregate adjusted cost base of US$ XXXXXXXXXX in the hands of CCo. The records of DCo show an aggregate capital account (for XXXXXXXXXX corporate law purposes) of US$ XXXXXXXXXX. CCo holds all DCo shares on capital account. The business of DCo is XXXXXXXXXX. DCo currently has about US$ XXXXXXXXXX of cash on hand that has been derived from its XXXXXXXXXX business.

Proposed Transactions

5. On or about the XXXXXXXXXX, BCo will continue its existence out of the jurisdiction of XXXXXXXXXX and continue its existence into the jurisdiction of XXXXXXXXXX. In the course of the continuance,

(a) no new class of shares of the continued corporation will be created and no additional shares will be issued by the corporation;

(b) no material change will be made to the rights and conditions attached to the issued and outstanding common shares in the capital of the continued corporation;

(c) BCo's existence will be preserved; that is, no new corporation will be created;

(d) BCo's assets and liabilities will remain with BCo;

(e) BCo will become a corporation governed by the laws of XXXXXXXXXX as if it had always been incorporated thereunder;

(f) the continuance will not result in any express or deemed exchange, disposition, redemption, cancellation or re-issuance of the outstanding shares of the corporation under the corporate legislation of either XXXXXXXXXX or XXXXXXXXXX ; and

(g) the aggregate stated capital account for the issued and outstanding preferred and common shares of the continued corporation before the continuance will become the aggregated stated capital account for the outstanding preferred and common shares of the corporation after the continuance.

6. The board of directors of BCo will have a meeting on or about XXXXXXXXXX in XXXXXXXXXX at which time all of the actions in respect of the continuance will be ratified so that BCo becomes tax resident in XXXXXXXXXX for Canadian common law purposes.

7. On or about the XXXXXXXXXX, CCo will continue its existence out of the jurisdiction of XXXXXXXXXX and continue its existence into the jurisdiction of XXXXXXXXXX. In the course of the continuance,

(a) no new class of shares of the continued corporation will be created and no additional shares will be issued by the corporation;

(b) no material change will be made to the rights and conditions attached to the issued and outstanding common shares in the capital of the continued corporation;

(c) CCo's existence will be preserved; that is, no new corporation will be created;

(d) CCo's assets and liabilities will remain with CCo;

(e) CCo will become a corporation governed by the laws of XXXXXXXXXX as if it had always been incorporated thereunder;

(f) the continuance will not result in any express or deemed exchange, disposition, redemption, cancellation or re-issuance of the outstanding shares of the corporation under the corporate legislation of either XXXXXXXXXX or XXXXXXXXXX; and

(g) the aggregate stated capital account for the issued and outstanding preferred and common shares of the continued corporation before the continuance will become the aggregated stated capital account for the outstanding preferred and common shares of the corporation after the continuance.

8. The board of directors of CCo will have a meeting on or about XXXXXXXXXX in XXXXXXXXXX at which time all of the actions in respect of the continuance will be ratified so that CCo becomes tax resident in XXXXXXXXXX for Canadian common law purposes.

Purpose of the Proposed Transactions

The proposed continuance into XXXXXXXXXX described in (5) and (7) above will be done because XXXXXXXXXX is a more appropriate holding company regime.

Other Information

To the best of your knowledge, and that of the Taxpayer, none of the issues involved in this advance income tax ruling is:

a. in an earlier return of the Taxpayer or a person related to it;

b. being considered or under assessment by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayer or a person related to it;

c. under objection by the Taxpayer or a person related to it;

d. before the courts, and no judgement has been issued which may be under appeal; or

e. the subject of a ruling previously issued by the Directorate.

Rulings Given

Provided the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, and provided the proposed transactions are completed in the manner described above, our rulings are as follows:

A. The continuance of BCo from XXXXXXXXXX to XXXXXXXXXX as described in (5) above will not, in and of itself, result in a disposition for purposes of the Act of the assets or settlement of the liabilities of BCo or the disposition of any share of BCo held by the Taxpayer for purposes of the Act.

B. The continuance of CCo from XXXXXXXXXX to XXXXXXXXXX as described in (7) above will not, in and of itself, result in a disposition for purposes of the Act of the assets or settlement of the liabilities of CCo or disposition of any share of CCo held by BCo.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX.

Comments

Nothing in this letter should be construed as confirmation of the income tax consequences of any of the transactions described in this letter other than as specifically described under the heading "Rulings Given" above. In addition, nothing in this letter should be construed as confirmation, express or implied, that the CRA has reviewed or agreed to:

a. the country of residence at any time of BCo, CCo or DCo for the purposes of the Act or a particular income tax convention which may be in force between Canada and another country;

b. the determination of the fair market value or adjusted cost base of any property or the amount of stated capital or paid-up capital of any share referred to in this letter; or

c. the income tax consequences in XXXXXXXXXX or XXXXXXXXXX.

This document is based solely on the facts and proposed transactions described above. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

Yours truly,

XXXXXXXXXX
for Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch