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: 1. Are the tax-exempt status of the First Nations adversely affected as a result of the sale-leaseback transaction? 2. Will 12(1)(x) apply to include the amounts in the tax-exempts? 3. Is a joint election under 16.1 valid? 4. Are the LP's entitled to claim CCA? 5. Is Parentco allowed to deduct the Donated amounts under section 9? 6. Are the trusts' subject to tax under Part XII.2? 7. Is 75(2) applicable to attribute the income to the tax-exempsts?
Position: 1. no 2. yes 3.yes 4. yes 5. yes 6.yes 7. yes
Reasons: 1. still meets 149(1)(c) 2. benefit is to the tax-exempt 3. Words of the section 4. LPs own the assets 5. Parentco donated to encourage goodwill and further their business interests in the region.6.no entity acquired its interest from another beneficiary. 7. rules applicable trust.
XXXXXXXXXX 2006-020136
XXXXXXXXXX , 2007
Dear XXXXXXXXXX:
Re: XXXXXXXXXX ("Subco") BN XXXXXXXXXX
XXXXXXXXXX ("Parentco")
XXXXXXXXXX (the "Project")
XXXXXXXXXX ("A Co")
XXXXXXXXXX ("X Entity")
Advance Income Tax Ruling
This is in reply to your letter dated XXXXXXXXXX, and further to your amending letter of XXXXXXXXXX, wherein you requested an advance income tax ruling in connection with the proposed transactions described below. These proposed transactions will be undertaken by XXXXXXXXXX ("Subco"), a subsidiary of XXXXXXXXXX ("Parentco"), together with XXXXXXXXXX ("A Co") and XXXXXXXXXX ("X Entity"), in relation to the XXXXXXXXXX (the "Project") located in XXXXXXXXXX. We also acknowledge the numerous telephone conversations and electronic correspondences with XXXXXXXXXX.
You confirm that to the best of your knowledge, none of the issues involved in the ruling request is:
(a) in an earlier return of any of Subco, Parentco, A Co or X Entity (collectively, the "Applicants") or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the Applicants or a related person;
(c) under objection by any of the Applicants or a related person;
(d) the subject of a ruling previously considered by the Income Tax Rulings Directorate, with the exception of a related prior ruling regarding the tax-exempt status of XXXXXXXXXX ("B Group") and XXXXXXXXXX ("C Group"), and which is relevant to Ruling A, below; nor
(e) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.
Definitions:
In this Ruling, the following terms have the meanings specified below, unless otherwise expressly stated:
(a) "A Co" means a corporate entity organized as a non-share corporation under the Canada Corporations Act, R.S.C. 1970, Chapter C-32, which represents, and acts as a legal agent and bare nominee for the A Entity;
(b) "A Entity" means the B Group and the C Group;
(c) "A LP" means a limited partnership established by XXXXXXXXXX, as general partner, and the A Trust, as limited partner, under the XXXXXXXXXX;
(d) "A Trust" means the trust established by and for the sole benefit of the A Entity;
(e) "Act" means the Income Tax Act, R.S.C. 1985, Chapter 1 (5th Supp.), as amended to the date of this letter and, unless otherwise stated, every reference in this letter to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(f) "Assets" means certain of the property and assets comprising the XXXXXXXXXX, as will be more specifically set out in the Purchase Agreement;
(g) "available for use" has the meaning assigned by subsections 13(27) and (28) of the Act as modified for the purposes of the investment tax credit rules by subsection 127(11.2) of the Act;
(h) "B Group" means the members, or persons who are entitled to be members, of the XXXXXXXXXX;
(i) "C Group" means the the members, or persons who are entitled to be members, of the XXXXXXXXXX;
(j) "Contributions" means contributions in the aggregate amount of $XXXXXXXXXX expected to be made by XXXXXXXXXX to Joint Entity as legal agent and bare nominee for A Co (as to the amount of $XXXXXXXXXX) and X Entity (as to the amount of $XXXXXXXXXX) to fund in part the acquisition of the XXXXXXXXXX;
(k) "CRA" means the Canada Revenue Agency;
(l) "Development Agreement" means the XXXXXXXXXX among the Province, Subco and Parentco made as of XXXXXXXXXX;
(m) "Donated Amounts" means a total of $XXXXXXXXXX donated equally to A Co (in the amount of $XXXXXXXXXX) and the X Entity (in the amount of $XXXXXXXXXX) by Parentco;
(n) "Fedco" means XXXXXXXXXX, a corporation incorporated pursuant to the Canada Business Corporations Act, R.S.C. 1985, Chapter C-44, all of the issued and outstanding shares of which will be owned by the S Trust;
(o) XXXXXXXXXX;
(p) XXXXXXXXXX;
(q) XXXXXXXXXX;
(r) "Indian Act" means the Indian Act, R.S.C. 1985, Chapter I-5, as amended;
(s) XXXXXXXXXX;
(t) XXXXXXXXXX;
(u) "Joint Entity" means XXXXXXXXXX, a corporation incorporated under the Canada Business Corporations Act, R.S.C. 1985, Chapter C-44, all of the issued and outstanding shares of which will be owned by A Co and X Entity;
(v) XXXXXXXXXX;
(w) XXXXXXXXXX;
(x) "Lease Agreements" means the lease agreements to be entered into by Subco, as lessee, and A LP, S LP and Joint Entity, as lessors, pursuant to which Subco will lease the Assets;
(y) XXXXXXXXXX
(z) "Management Contract" means the management agreement dated XXXXXXXXXX and entered into among Subco, A LP, S LP and Joint Entity pursuant to which Subco will provide management services to A LP and S LP in respect of the Assets;
(aa) XXXXXXXXXX;
(bb) "Mineral Deposits" mean Subco's right, title and interest in the minerals (XXXXXXXXXX) that are the subject of the Mining Lease;
(cc) "Mining Lease" means mining lease XXXXXXXXXX made as of XXXXXXXXXX between the Province and Subco issued to Subco under XXXXXXXXXX;
(dd) "Minister" means the XXXXXXXXXX;
(ee) "Parentco" means XXXXXXXXXX and its predecessors;
(ff) "prescribed property" has the meaning assigned by section 8200 of the Regulations;
(gg) "Project" means the XXXXXXXXXX;
(hh) "Province" means the Province of XXXXXXXXXX;
(ii) "public corporation" has the meaning assigned by subsection 89(1) of the Act;
(jj) "Purchase Agreement" means the agreement of purchase and sale pursuant to which A LP and S LP will acquire the Assets from Subco, with bare legal title to the Assets to be held by Joint Entity as legal agent and bare nominee;
(kk) XXXXXXXXXX;
(ll) "Regulations" mean the Income Tax Regulations, Consolidated Regulations of Canada, Chapter 945, as amended;
(mm) "S LP" means XXXXXXXXXX, a limited partnership established by Fedco, as general partner, and S Trust as limited partner, under the XXXXXXXXXX;
(nn) "S Trust" means, the XXXXXXXXXX, a trust established for the benefit of, inter alia, X Entity and XXXXXXXXXX;
(oo) "specified leasing property" has the meaning assigned by subsection 1100(1.11) of the Regulations;
(pp) "Subco" means XXXXXXXXXX;
(qq) "Surface Lease" means XXXXXXXXXX;
(rr) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;
(ss) "Trusts" means the A Trust and the S Trust; and
(tt) "X Entity" means the XXXXXXXXXX .
FACTS
1. Subco is a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX . Subco has a taxation year-end of XXXXXXXXXX and it files its income tax returns with the XXXXXXXXXX Tax Centre. It is serviced by the XXXXXXXXXX Tax Services Office.
2. Subco was formerly owned by XXXXXXXXXX, which was acquired by Parentco in XXXXXXXXXX. All of the shares of Subco are currently owned directly or indirectly by Parentco.
3. Parentco is a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX . It has a normal taxation year-end of XXXXXXXXXX .
4. XXXXXXXXXX.
5. XXXXXXXXXX.
6. XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. For purposes of all the transactions described herein, A Co will act solely as bare legal agent and nominee for the A Entity, and will not transact any business or hold any property in its own right.
10. XXXXXXXXXX.
11. In XXXXXXXXXX, Parentco and Subco commenced negotiations with A Co and the XXXXXXXXXX with respect to the Project. The culmination of these negotiations was the execution of the XXXXXXXXXX. The XXXXXXXXXX set out all of the terms, conditions, undertakings and obligations of the respective parties in respect of the Project.
12. On XXXXXXXXXX, the Province granted the Mining Lease to Subco pursuant to XXXXXXXXXX. On XXXXXXXXXX, the Province granted the Surface Lease to Subco under XXXXXXXXXX.
13. Subco has rights under the Mining Lease to a series of XXXXXXXXXX deposits (i.e., the Mineral Deposits) XXXXXXXXXX.
14. Concurrently with the execution of the Mining Lease on XXXXXXXXXX, Subco, Parentco and the Province entered into the Development Agreement. The Development Agreement sets out the commitments, obligations and understandings reached by the parties with respect to the Project. At the time the Development Agreement was executed, Parentco and Subco estimated the capital investment in the Project and related facilities would be in the order of XXXXXXXXXX.
15. The Development Agreement also provided the following estimates:
(i) XXXXXXXXXX;
(ii) During the various operating phases, the Project will create the following employment levels in the Province:
(A) mine and XXXXXXXXXX;
(B) R&D program - XXXXXXXXXX;
(C) XXXXXXXXXX; and
(D) XXXXXXXXXX;
(iii) XXXXXXXXXX;
(iv) XXXXXXXXXX.
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. The general principles agreed to in the Letter of Understanding include:
(i) Collectively, XXXXXXXXXX and A Co shall realize a return equivalent to a fixed rate of XXXXXXXXXX percent annually on the Contributions for the duration of the initial lease period;
(ii) Collectively, XXXXXXXXXX and A Co shall realize a return equivalent to a fixed rate of XXXXXXXXXX percent annually on the Contributions for the period following the initial lease term to completion of commercial production;
(iii) Subco will assist A Co and the XXXXXXXXXX in negotiating and obtaining debt financing for the portion of the cost of the Assets not funded by the Contributions;
(iv) Subco will enter into a lease arrangement that will cover the cost of debt servicing and repayment, the property insurance and other carrying charges associated with the ownership of the Assets;
(v) Subco will have the obligation for care and maintenance of the Assets;
(vi) Subco will assume any liability for environmental, removal and rehabilitation risks associated with the Assets;
(vii) The initial term of the Lease will be XXXXXXXXXX from the commencement of production;
(viii) The Lease will provide for provision of a XXXXXXXXXX per year payment to each of the lessors from the commencement of production to completion of the initial and subsequent lease terms;
(ix) The lessors will cover the cost of administration and internal overhead expenditures; and
(x) Subco will provide the opportunity for XXXXXXXXXX participation in the site services contracts for operations and maintenance, in accordance with the XXXXXXXXXX.
19. XXXXXXXXXX.
20. On XXXXXXXXXX and A Co submitted a draft application to XXXXXXXXXX for financial assistance to support their participation in the XXXXXXXXXX. In the XXXXXXXXXX Application, the applicants described the common goal of the XXXXXXXXXX, A Co and Subco as to best utilize the tools at their disposal to help achieve three primary objectives:
(i) improve sustainability;
(ii) optimize opportunities for XXXXXXXXXX participation in business; and
(iii) strengthen the underlying economic structures of the XXXXXXXXXX Communities.
21. XXXXXXXXXX.
22. The XXXXXXXXXX Application states that the XXXXXXXXXX will have a capital cost of approximately $XXXXXXXXXX of which $XXXXXXXXXX is to be funded by A Co and the XXXXXXXXXX (as to $XXXXXXXXXX each) and the remainder will be funded by means of an interest-bearing loan from Subco.
23. Of the $XXXXXXXXXX provided by each of these groups, XXXXXXXXXX is requested to provide $XXXXXXXXXX. In recognition of the reputational enhancement and other benefits flowing from the provision of financial assistance to A Co and X Entity, Parentco has agreed to donate $XXXXXXXXXX to each of these groups so that they may participate in the XXXXXXXXXX.
24. On XXXXXXXXXX, the Province was requested to issue a letter to Subco confirming that Subco is entitled to sell the Assets to A LP and S LP. On XXXXXXXXXX, the Province responded to this request and indicated that, subject to certain due diligence requirements and Subco's consideration of certain additional issues, the Province was prepared to forward Subco's request to Cabinet.
25. In accordance with the Letter of Understanding, effective XXXXXXXXXX, as represented by the Minister, entered into an amended XXXXXXXXXX with each of X Entity and A Co whereunder XXXXXXXXXX committed to funding in the amount of $XXXXXXXXXX to each of X Entity and A Co pursuant to XXXXXXXXXX upon detailed terms and conditions set forth in each of the XXXXXXXXXX.
PROPOSED TRANSACTIONS
26. The proposed transactions are described below. Certain of these steps have been completed in accordance with the terms and conditions of the XXXXXXXXXX, however, no commercial transactions have been undertaken to date.
27. Joint Entity, as legal agent and bare nominee for A Co and X Entity, will receive the Contributions in the amount of $XXXXXXXXXX. In the future, additional contributions may be sought for the acquisition of additional assets related to the XXXXXXXXXX under similar terms and conditions.
28. Parentco will donate a further $XXXXXXXXXX to each of A Co and X Entity. This donation will be made in order to generate favourable publicity and other reputational benefits for Parentco and Subco. In particular, this donation will be made for marketing, promotional and business development purposes to encourage XXXXXXXXXX to view the Project in a positive light and to support possible future similar projects involving Parentco and Subco.
29. The A Entity, being the B Group and the C Group, jointly settled the A Trust for the benefit of the A Entity.
30. Under the terms and conditions of the A Trust:
(a) all trustees of the A Trust shall be required at all times to be resident in Canada;
(b) the A Entity settled the A Trust and will be the sole contributors (either directly or through its agent and nominee, A Co) of property to the A Trust;
(c) A Trust will hold property for the sole benefit of the A Entity;
(d) all the beneficiaries of the A Trust will be persons resident in Canada;
(e) no beneficiary of the A Trust will be a partnership or another trust;
(f) under no circumstances will any person be able to acquire an interest in the A Trust from another person; and
(g) upon the termination of the A Trust, the property of the A Trust will revert to the A Entity.
31. A Co will be directed by each member of the A Entity to transfer its respective share of the Contributions (referred to in 25 and 27, above) and its share of the Donated Amounts (referred to in paragraph 28, above) to the A Trust. Accordingly, the A Trust will receive a total of $XXXXXXXXXX from A Co on behalf of the A Entity.
32. A LP was established by XXXXXXXXXX, as general partner, and A Trust, as limited partner. XXXXXXXXXX. will subscribe for a XXXXXXXXXX% share, and A Trust will subscribe for the remaining XXXXXXXXXX% share in A LP. The subscription by A Trust in A LP will be satisfied by the funds received from XXXXXXXXXX and Parentco, as referred to in 31 above.
33. The XXXXXXXXXX settled a trust for the benefit of X Entity. The trust is the S Trust.
34. Under the terms and conditions of the S Trust:
(a) all trustees of the S Trust shall be required at all times to be resident in Canada;
(b) the XXXXXXXXXX settled the S Trust but the S Trust may accept contributions of property from the X Entity;
(c) the S Trust will hold property for the benefit of, inter alia, X Entity and XXXXXXXXXX;
(d) all the beneficiaries of the S Trust will be persons resident in Canada;
(e) no beneficiary of the S Trust will be a partnership or another trust;
(f) under no circumstances will any person be able to acquire an interest in the S Trust from another person; and
(g) upon the termination of the S Trust, the property of the S Trust will revert to the X Entity.
35. X Entity will transfer its share of the Contributions (referred to in 25 and 27 above) and its share of the Donated Amounts (referred to in paragraph 28 above) to the S Trust. Accordingly, the S Trust will receive a total of $XXXXXXXXXX from the X Entity.
36. S LP was established by Fedco, as general partner, and the S Trust, as limited partner. Fedco will subscribe for a XXXXXXXXXX% share, and the S Trust will subscribe for a XXXXXXXXXX% share in S LP. The subscription by the S Trust in S LP will be satisfied by the funds that were received from XXXXXXXXXX and Parentco, as referred to in 35 above.
37. In accordance with the general principles outlined in the Letter of Understanding and the XXXXXXXXXX, Subco, together with A LP and S LP, will enter into the Purchase Agreements pursuant to which each of A LP and S LP will acquire from Subco for fair market value full beneficial ownership of XXXXXXXXXX% of the Assets using a combination of its own funds (from the settlement) and funds borrowed from Subco on arm's length commercial terms. The Assets include XXXXXXXXXX in respect of which Subco is eligible for an investment tax credit ("ITC") XXXXXXXXXX. Bare legal title to the Assets will be held by Joint Entity, as agent and nominee for A LP and S LP. The Assets to be transferred under the Purchase Agreements were acquired by Subco for the purpose of processing ore to a stage not beyond the prime metal stage.
38. Also in accordance with the general principles outlined in the Letter of Understanding and the XXXXXXXXXX, Subco, A LP and S LP will enter into the Lease Agreements pursuant to which A LP and S LP will lease the Assets to Subco. Lease payments under the Lease Agreements will be received by Joint Entity, as agent and nominee for A LP and S LP. The Lease Agreements will provide that Subco will be solely responsible for the operation, maintenance and upkeep of the Assets and will be solely liable for any environmental, remedial or other costs or liabilities that may arise in respect of the Assets. Consequently, A LP and S LP will have no active role in the utilization of the Assets by Subco. A LP and S LP will, however, be responsible for their own administration and related costs.
39. Subco will provide management services to A LP and S LP pursuant to the terms of the Management Contract.
40. Each of A LP and S LP will file a joint election with Subco under section 16.1 of the Act so that Subco can claim depreciation on the specified leasing property owned by A LP and S LP, respectively. None of the Assets will be prescribed property for the purposes of the election under section 16.1 of the Act.
41. All revenues and expenses received or paid by Joint Entity under the transactions described in paragraphs 37 to 40 above, will be received or paid only as agent and nominee for A LP and S LP. Joint Entity will have no significant independent powers or responsibilities and will take no such action without instructions from its principals. Joint Entity will not transact any business or hold any property in its own right.
42. Each of A LP and S LP will compute its income taking into account all deductions available to it but will ensure that the respective income of A LP and S LP is not reduced below $XXXXXXXXXX by virtue of these deductions
43. The terms of the A Trust indenture currently provide that the trustees will make an amount payable, as that term is modified by subsection 104(24) of the Act, to the B Group and the C Group on the last day of each calendar year equal to the amount, if any, by which the net income of the A Trust as determined under the Act exceeds the aggregate of any amounts that have not been paid or made payable to the B Group and the C Group in such year, the amount that has been attributed to the the B Group and the C Group under subsection 75(2) of the Act for such year and $XXXXXXXXXX. As a result, the trustees of A Trust will make amounts payable to the B Group and the C Group sufficient to ensure that the taxable income of the A Trust for each year is $XXXXXXXXXX.
44. The terms of S Trust indenture will be amended to provide that the trustees will make an amount payable, as that term is modified by subsection 104(24) of the Act, to the X Entity on the last day of each calendar year equal to the amount, if any, by which the net income of the S Trust as determined under the Act exceeds the aggregate of any amounts that have not been paid or made payable to the X Entity in such year, the amount that has been attributed to the X Entity under subsection 75(2) of the Act for such year and $XXXXXXXXXX. As a result, the trustees of S Trust will make amounts payable to the X Entity sufficient to ensure that the taxable income of the S Trust for each year is $XXXXXXXXXX.
45. Each of A LP and S LP will enter into a Lease Operation and Lease Administration Agreement ("LOLA") with Subco under which for an annual fee of $XXXXXXXXXX, A LP and S LP will undertake to provide services relating to the administration of the Lease for the benefit of Subco including the services of:
(i) verifying annual lease payments;
(ii) verifying annual vendor take-back loan repayments;
(iii) verifying compliance with applicable excise and sales tax collection and remittance obligations;
(iv) verifying annual estimated operating costs respecting Assets; and
(v) such other administrative services and duties as may be agreed upon between Subco and A LP and S LP to ensure timely performance and compliance with all contractual and statutory financial obligations arising pursuant to the performance of the Lease.
46. Subco will include the Assets in class XXXXXXXXXX for the purposes of claiming capital cost allowance.
47. Subco will claim the investment tax credit on those Assets that constitute XXXXXXXXXX and that became available for use prior to their sale to A LP and S LP.
48. Parentco will deduct the donations to A Co and X Entity in computing its income under section 9 of the Act.
PURPOSE OF THE PROPOSED TRANSACTIONS
49. The purpose of the proposed transactions is three-fold:
(i) to enable the members of A Co and the XXXXXXXXXX to participate in the Project in furtherance of Parentco's and Subco's obligations under the XXXXXXXXXX;
(ii) to achieve the objectives of the XXXXXXXXXX Program promoting sustainable growth through participation in commercial undertakings that produce direct and indirect benefits to those groups and that are consistent with sustainable development, natural resources and XXXXXXXXXX; and
(iii) to provide Subco with the opportunity to obtain favourable financing for infrastructure required to carry out the Project which Project benefits all levels of government through tax revenues and employment.
RULINGS GIVEN
Provided that the preceeding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions and the purpose of the proposed transactions, and provided the proposed transactions are completed in the manner described above, we rule as follows:
A. The proposed transactions will not alter or adversely affect, in and of itself, the tax-exempt status of the B Group or the C Group, XXXXXXXXXX, or the tax exempt status of X Entity under the Act. Accordingly, none of the B Group, the C Group or the X Entity will be subject to tax under the Act on any income or capital gains included in their income pursuant to paragraph 12(1)(x), subsection 75(2) or subsection 104(13) of the Act, as ruled on below, as a result of the proposed transactions.
B. Paragraph 12(1)(x) will apply to include the amounts of the Contributions in the income of the B Group, the C Group and X Entity.
C. The proposed transactions in 26 to 48 will not result, in respect of the Contributions, in the application of paragraph 12(1)(x) of the Act nor will subsections 13(7.1) and (7.2) of the Act apply to Parentco, Subco, any affiliate of either company, A LP, S LP, A Trust, S Trust or to any property of such persons purchased with the Contributions.
D. Income or loss from the investment of its respective share of the Contributions and the Donated Amounts (as described in 31 above), or from property substituted therefor, and any taxable capital gain or allowable capital loss from the actual or deemed disposition of such Contributions and the Donated Amounts, or property substituted therefor, shall be deemed to be income or a loss, or a taxable capital gain or allowable capital loss, as the case may be, of the B Group and the C Group pursuant to subsection 75(2) of the Act. Income deemed in this manner to be income of the B Group and the C Group will be excluded from the income of the A Trust.
E. Income or loss from the investment of its respective share of the Contributions and the Donated Amounts (as described in 35 above), or from property substituted therefor, and any taxable capital gain or allowable capital loss from the actual or deemed disposition of such Contributions and the Donated Amounts, or property substituted therefor, shall be deemed to be income or a loss, or a taxable capital gain or allowable capital loss, as the case may be, of the X Entity pursuant to subsection 75(2) of the Act. Income deemed in this manner to be income of the X Entity will be excluded from the income of the S Trust.
F. Provided the interest paid or payable is reasonable and that the borrowed money continues to be used for the purpose of earning income from a business or property, and further that A LP and S LP have and continue to have a legal obligation to pay interest on borrowed money used for the purpose of earning income as described in 37 above, A LP and S LP will be entitled to deduct, pursuant to paragraph 20(1)(c) of the Act, the interest paid or payable (depending on the method regularly followed by A LP and S LP in computing their income) in respect of a year in computing their income for the year.
G. The B Group and the C Group will not be designated beneficiaries of the A Trust as defined in section 210 of the Act. Accordingly, the A Trust will not be required to pay tax under Part XII.2 of the Act provided that the A Trust complies with subsection 210.3(1) of the Act and no designated beneficiary as defined in section 210 of the Act is appointed as a beneficiary of the A Trust.
H. The X Entity will not be a designated beneficiary of the S Trust as defined in section 210 of the Act. Accordingly, the S Trust will not be required to pay tax under Part XII.2 of the Act provided that the S Trust complies with subsection 210.3(1) of the Act and no designated beneficiary as defined in section 210 of the Act is appointed as a beneficiary of the S Trust.
I. Provided the joint election under section 16.1 of the Act made by Subco and each of A LP and S LP is in accordance with and subject to the limitations contained in Part XI and Schedule II of the Regulations, Subco will be entitled to claim capital cost allowance ("CCA") on the specified leasing property owned by A LP and S LP that is the subject of the election under section 16.1 of the Act.
J. Subco will transfer the Assets to A LP and S LP at fair market value. A LP and S LP will be entitled to CCA on the Assets pursuant to paragraph 20(1)(a) of the Act in accordance with and subject to the limitations and restrictions contained in Part XI and Schedule II of the Regulations.
K. Subco will be entitled to the investment tax credit available in respect of the Assets that were XXXXXXXXXX, at the time that they were acquired by Subco provided such Assets were available for use before their sale to A LP and S LP.
L. Any income from the property of the A Trust earned in a taxation year in respect of which subsection 75(2) of the Act does not apply, including, in particular, income on reinvested income and the business income earned by the A LP, that becomes payable in a taxation year to A Co may be deducted pursuant to subsection 104(6) of the Act in computing the income of the A Trust for the year and will be included pursuant to subsection 104(13) of the Act in computing the income of the B Group and the C Group.
M. Any income from the property of the S Trust earned in a taxation year in respect of which subsection 75(2) of the Act does not apply, including, in particular, income on reinvested income and the business income earned by the S LP, that becomes payable in a taxation year to the X Entity may be deducted pursuant to subsection 104(6) of the Act in computing the income of the S Trust for the year and will be included pursuant to subsection 104(13) of the Act in computing the income of the X Entity.
N. Parentco will be entitled to deduct the Donated Amounts in computing income under section 9 of the Act.
O. Subsection 245(2) of the Act will not be applicable as a result of the proposed transactions, in and by themselves, to redetermine the consequences confirmed in the rulings given above.
The above rulings are given subject to the 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.
The above rulings are based on the law as it presently reads and do not take into account any proposed amendmends to the Act, that if enacted, could have an effect on the rulings provided herein.
Nothing in this advance income tax ruling letter should be construed as implying that CRA has accepted, approved or confirmed any income tax implications of the above-noted facts, proposed transactions, purpose of the proposed transactions and additional information, other than those specifically described in the rulings given above. In particular, we do not express any opinions on the following:
i) the capital cost of any property or of the Assets;
ii) whether the Assets would constitute a property eligible for investment tax credit and for inclusion in Class 41 of Schedule II of the Regulations.
In addition, we have not reviewed or confirmed the values for the adjusted cost base, proceeds of disposition, capital cost, undepreciated capital cost or fair market value of the Assets or any other properties.
XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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