2005 Ruling 2005-0158931R3 - 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 proposed transactions

Position: Changes to certain rulings given in ruling 2002-013308

Reasons: Minor changes do not affect basis for rulings

XXXXXXXXXX 2005-015893

XXXXXXXXXX, 2005

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 and our letter 2004-009619 dated XXXXXXXXXX, 2004 (collectively, the "Amended Ruling"). Capitalized terms used in this letter have the meanings given to them in the Amended Ruling.

You advised that all steps contemplated in the Amended Ruling, except for the acquisition by Bco of the shares of Newlossco2 and the Newlossco2 Note A described in Paragraph 36 and the amalgamation described in Paragraph 39, have been completed as described in the Amended Ruling. Newlossco2 is currently a wholly-owned subsidiary of Opco. It was contemplated that Newlossco2 would be sold to and amalgamated with a taxable Canadian corporation in the Opco Group on or before XXXXXXXXXX. However, there is currently no taxable Canadian corporation in the Opco Group that can use the non-capital losses of Newlossco2. Accordingly, the proposed transactions will have to be amended as described below.

Changes to Proposed Transactions

The third sentence of Paragraph 36 of the Amended Ruling is deleted.

Paragraph 39 of the Amended Ruling is amended as follows:

39. Newlossco2 will, on or before XXXXXXXXXX, be amalgamated with Opco pursuant to section 184 of the CBCA to form one corporation ("New Opco"), in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the shares of Newlossco2) will become property of New Opco by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except Newlossco2 Note A) will become liabilities of New Opco by virtue of the merger; and

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

New Rulings

A. Upon the amalgamation of Opco and Newlossco2 described in Paragraph 39:

1. the amalgamation will be a merger as described in subsection 87(1);

2. the provisions of subsection 87(1.1) will apply to deem the shareholders of Opco to have received shares of the capital stock of New Opco by virtue of the merger as consideration for the disposition of the shares of the capital stock of Opco;

3. the provisions of subsection 87(2.1) will apply to deem New Opco to be the same corporation as, and a continuation of, each of Newlossco2 and Opco, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis and subject to the rules contained in section 111, the non-capital losses of Newlossco2 will be available to be utilized by New Opco; and

4. the provisions of paragraph 87(2)(a) will apply to deem New Opco to be a new corporation, the first taxation year of which commences immediately after the amalgamation, and the predecessor corporations will be deemed to have taxation years ended immediately prior to the amalgamation.

B. No forgiven amount, within the meaning of subsections 80(1) and 80.01(1), will arise as a result of the settlement of the Newlossco2 Note A on the amalgamation of Newlossco2 and Opco described in Paragraph 39 above.

C. Subsections 15(1), 56(2), and 246(1) will not apply as a result of the amalgamation of Newlossco2 and Opco described in Paragraph 39 above, in and by itself.

D. The provisions of subsection 245(2) will not apply, as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The rulings above are binding on the Canada Revenue Agency subject to the same limitations and qualifications set out in the Amended Ruling, 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 Planning Branch