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: Amendments to Proposed Transactions described in Ruling 2004-010485.
Position: Amendments do not adversely affect any of the rulings given.
Reasons: The law.
XXXXXXXXXX 2005-014861
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling 2004-010485
Pursuant to your letter of XXXXXXXXXX, you requested that certain changes be made to advance income tax ruling 2004-010485 that was issued in respect of the above named taxpayers on XXXXXXXXXX, 2005 (the "Original Ruling"). You confirm that none of the Proposed Transactions described in the Original Ruling have been undertaken and, except as described below, there are no changes to the Facts and Proposed Transactions as described in the Original Ruling.
In connection with your request, we confirm that the following amendments have been made to the Original Ruling:
(a) In the DEFINITIONS section, (ll), (mm) and (ss) are deleted.
(b) Paragraph 14 is deleted.
(c) Paragraphs 17 to 20 inclusive are replaced in their entirety by the following:
17. DC-Sub-1 will sell all of its DC-Sub-1 Pubco Shares for their fair market value on the open market to persons with whom it deals at arm's length. Similarly, DC-Sub-2 will sell all of its DC-Sub-2 Pubco Shares for their fair market value on the open market to persons with whom it deals at arm's length. DC-Sub-1 and DC-Sub-2 will each receive only cash consideration for the share dispositions contemplated by this Paragraph.
The disposition of the DC-Sub-1 Pubco Shares and DC-Sub-2 Pubco Shares will result in a capital gain to each of DC-Sub-1 and DC-Sub-2 and thus an income tax liability will result in each corporation. Each of DC-Sub-1 and DC-Sub-2 may invest the cash so received on the share dispositions. If such investments are made, each of DC-Sub-1 and DC-Sub-2 will ensure they acquire and hold exactly the same type of property, in proportion to the cash consideration received by each such corporation on the share dispositions, until the implementation of all of the Proposed Transactions is complete. For greater certainty, such investments will consist of indebtedness that is not convertible into any other property.
18. DC-Sub-1 may, following the sale of its DC-Sub-1 Pubco Shares as described in Paragraph 17, and subject to DC-Sub-1 having a sufficient capital dividend account balance at that time, declare and pay a capital dividend to DC pursuant to subsection 83(2), in an amount that does not exceed the amount included in its capital dividend account as a result of the sale of the DC-1-Pubco Shares described in Paragraph 17. Such capital dividend shall be declared and paid at the same time as the capital dividend is declared and paid by DC-Sub-2, as described in Paragraph 19, and for greater certainty, will be in proportion to the cash consideration received by each such corporation on the share dispositions as described in Paragraph 17.
19. DC-Sub-2 may, following the sale of the DC-Sub-2 Pubco Shares as described in Paragraph 17, and subject to DC-Sub-2 having a sufficient capital dividend account balance at that time, declare and pay a capital dividend to DC pursuant to subsection 83(2), in an amount that does not exceed the amount included in its capital dividend account as a result of the sale of the DC-2-Pubco Shares described in Paragraph 17. Such capital dividend shall be declared and paid at the same time as the capital dividend is declared and paid by DC-Sub-1, as described in Paragraph 18, and for greater certainty, will be in proportion to the cash consideration received by each such corporation on the share dispositions as described in Paragraph 17.
20. If capital dividends are paid by DC-Sub-1 and DC-Sub-2 as contemplated in Paragraphs 18 and 19, upon receipt of such dividends, DC will, subject to its having a sufficient capital dividend account balance at that time, declare and pay capital dividends pursuant to subsection 83(2) on the issued and outstanding Class A and common shares in an amount equal to the aggregate amount of dividends issued in Paragraphs 18 and 19. Such dividends will be paid to Transferee-1 and Transferee-2 in proportion to their shareholdings.
(d) In Paragraph 22 and in Ruling D to the words "common shares of Subco" are replaced by the words "DC-Sub-1 Pubco Shares and DC-Sub-2 Pubco Shares".
(e) In Paragraphs 22 and 32, Ruling D and the first paragraph of the OTHER COMMENTS section, each reference to "Paragraph 20" is replaced by "Paragraph 17".
(f) In the first line of the second paragraph of Paragraph 32, the reference to the words "and Subco" is deleted.
(g) In the fourth line of the second paragraph of Paragraph 32, the reference to the words "common shares of Subco" is replaced by the words "Pubco Shares".
(h) In the second paragraph of Paragraph 32, the last sentence commencing with the words "The incorporation of Subco..." is deleted.
(i) In Paragraph 33, the references to Paragraphs 17 and 18 are deleted.
(j) In Paragraphs 34 and 35, the reference to the word "Subco" is deleted.
(k) In Paragraph 39, the first sentence commencing with the words "Following the completion of the Proposed Transactions..." is replaced with "Following the completion of the Proposed Transactions, and subject to any capital dividends that may have been previously declared and paid as described in Paragraphs 18, 19 or 20, as the case may be, Amalco-1 and Amalco-2 may pay dividends out the remaining cash consideration held by such corporation that arose from the disposition of the Pubco Shares described in Paragraph 17."
(l) In Ruling A, subparagraphs (c) and (d) are deleted.
(m) In the OTHER COMMENTS section the last sentence commencing with the words "If such an amendment is ever enacted..." is replaced with "However, if such an amendment is enacted and is applicable to the sale of the DC-Sub-1 Pubco Shares by DC-Sub-1 and the sale of the DC-Sub-2 Pubco Shares by DC-Sub-2, as described in Paragraph 17, the sales of such shares, should not in and by themselves, cause paragraphs 55(3.1)(c) and (d) to apply to preclude paragraph 55(3)(b) from applying to cause subsection 55(2) not to apply to the dividends described in Ruling B".
We confirm that the Original Ruling, as amended herein, remains binding on the Canada Revenue Agency and is subject to the same limitations and qualifications as described in the Original Ruling.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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