7 July 2007 Income Tax Severed Letter 2007-0242911R3 - Supplemental ruling 2007-022609

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.

SUMMARY: Supplemental ruling 2007-022609—ITA-85.1(3), 95(1), 250(6)—Advance income tax ruling—Amendments to advance income tax ruling 2007-0226091R3 issued in 2007.

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: Changes to the proposed transactions described in the advance income tax ruling no. 2007-022609.

POSITION: Confirmation that, subject to the conditions, limitations, qualifications and comments set out therein, the original ruling given in 2007-022609 will continue to be binding on the CRA except that the rulings should be read without the words describing the foreign corporation that will not be incorporated and except that in Ruling B the corporations will be foreign affiliates of each Canadian Family Holdco. We have changed the opinion to add the assumption that a purchaser and a seller of the shares of XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco#2 will deal at arm's length in case of a sale by a XXXXXXXXXX Family Holdco as provided in the shareholders agreements.

REASONS: The shares of XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco #2 are indirectly held by the Canadian Family Holdcos instead of the Family Trusts.

XXXXXXXXXX 2007-024291

XXXXXXXXXX, 2007

Dear Sir:

Re: Supplemental Advance Income Tax Ruling

XXXXXXXXXX—Tax Number BN XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)

This is in reply to your letter of XXXXXXXXXX in which you requested confirmation that certain changes to the advance income tax ruling we issued on XXXXXXXXXX, 2007 to XXXXXXXXXX (our file No. E2007-022609, hereinafter referred to as the “Ruling”) would not affect the rulings and the opinion given therein.

As a result of your letter, the following changes to the Ruling are made.
• 1. Paragraph 11 of the Ruling is changed to read as follows:
• One (1) new company will be incorporated pursuant to the laws of XXXXXXXXXX (“XXXXXXXXXX Holdco #2”) and one (1) new company will be incorporated as an XXXXXXXXXX corporation under the laws of XXXXXXXXXX (“XXXXXXXXXX Holdco #1).
• 2. Paragraph 12 of the Ruling is changed to delete c) and to delete any reference to “XXXXXXXXXX Holdco #3” in d) and in e).
• 3. Paragraph 14.1 is added to the Ruling after paragraph 14 and reads as follows:
• Four (4) new corporations will be constituted under Canadian law, namely the XXXXXXXXXX (individually a “Canadian Family Holdco” and collectively “Canadian Family Holdcos”). The Canadian Family Holdcos will be resident for purposes of the Act.
• 4. Paragraph 15 of the Ruling is changed to read as follows:
Each Family Trust # 1 and # 2 will subscribe for all of the common shares of the capital stock of one Canadian Family Holdco, as follows:
• a) The H Family Trust # 1 and # 2 will subscribe for, respectively, XXXXXXXXXX% and XXXXXXXXXX% of the common shares of the XXXXXXXXXX Canadian Family Holdco;
• b) The L Family Trust # 1 and # 2 will subscribe for, respectively, XXXXXXXXXX% and XXXXXXXXXX% of the common shares of the XXXXXXXXXX Canadian Family Holdco;
• c) The J Family Trust # 1 and # 2 will subscribe for, respectively, XXXXXXXXXX% and XXXXXXXXXX% of the common shares of the XXXXXXXXXX Canadian Family Holdco; and
• d) The A Family Trust # 1 and # 2 will subscribe for, respectively, XXXXXXXXXX% and XXXXXXXXXX% of the common shares of the XXXXXXXXXX Canadian Family Holdco.
• 5. Paragraph 15.1 is added to the Ruling after paragraph 15 and reads as follows:
Each Canadian Family Holdco will subscribe to all of the common shares of a XXXXXXXXXX Family Holdco as follows:
• a) The XXXXXXXXXX Canadian Family Holdco will subscribe for XXXXXXXXXX% of the common shares of the H XXXXXXXXXX Family Holdco;
• b) The XXXXXXXXXX Canadian Family Holdco will subscribe for XXXXXXXXXX% of the common shares of the L XXXXXXXXXX Family Holdco;
• c) The XXXXXXXXXX Canadian Family Holdco will subscribe for XXXXXXXXXX% of the common shares of the J XXXXXXXXXX Family Holdco; and
• d) The XXXXXXXXXX Canadian Family Holdco will subscribe for XXXXXXXXXX% of the common shares of the A XXXXXXXXXX Family Holdco.
• 6. The first sentence of Paragraph 16 of the Ruling is changed to delete any reference to “XXXXXXXXXX Holdco #3”.
• 7. The second sentence of Paragraph 17 of the Ruling is changed to delete any reference to “XXXXXXXXXX Holdco #3”.
• 8. Paragraph 18 is changed to read as follows:
One or more shareholders agreements will be entered into among the Shareholders, the Canadian Holdcos, XXXXXXXXXX Holdco #1, XXXXXXXXXX Holdco #2, the Canadian Family Holdcos, the XXXXXXXXXX Family Holdcos and the Family Trusts (the “Shareholders Agreements”), which will provide, inter alia, that upon the retirement or death of certain Shareholders,
• a) the shares held by the XXXXXXXXXX Family Holdco (which bears the retiring or deceased Shareholder's name) in XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco #2 may be purchased either by Opco or by some or all of the remaining XXXXXXXXXX Family Holdcos for a price to be determined in, or by a formula set forth in, the Shareholders Agreements; and
• b) the shares held by the retiring or deceased shareholder's Canadian Holdco in Opco may be purchased by some or all of the remaining Canadian Holdcos.
• c) In the case where XXXXXXXXXX is the retiring or deceased Shareholder, his Shareholders Agreement will provide that the shares held by his Canadian Holdco in Opco may be purchased by some or all of the remaining Canadian Holdcos and the shares held by his XXXXXXXXXX Family Holdco in XXXXXXXXXX Holdco #1 and XXXXXXXXXX

Holdco #2 may be purchased by either Opco or by some or all of the remaining XXXXXXXXXX Family Holdcos.

You advised us that, apart from the amendments to the Proposed Transactions described above, there are no other changes to the Facts and Proposed Transactions described in the Ruling. You advised us that the Facts, Proposed Transactions and Purpose of the Proposed Transactions described in the Ruling, as amended by this letter, will constitute a complete and accurate disclosure of all relevant facts and transactions. Considering the above, we hereby confirm that, subject to the conditions, limitations, qualifications and comments set out in the Ruling, as amended by this letter, rulings A and C will continue to be binding on the Canada Revenue Agency but should be read without any reference to “XXXXXXXXXX Holdco #3”. Furthermore, ruling B should be replaced by:

B. Immediately after the issuance of shares described in paragraph 16, each of XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco #2 will be a foreign affiliate within the meaning of subsection 95(1) of the Act, in respect of each of the Canadian Family Holdcos.

The Opinion included in the Ruling issued on XXXXXXXXXX, 2007 should be read without any reference to “XXXXXXXXXX Holdco #3” and the first sentence of the first paragraph should be replaced by:

On the assumption that the shares held by the XXXXXXXXXX Family Holdcos in the capital stock of XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco #2 are capital properties of the XXXXXXXXXX Family Holdcos and on the assumption that the purchaser of these shares sold by a XXXXXXXXXX Family Holdco deals at arm's length with that XXXXXXXXXX Family Holdco, a sale of any or all of the shares held by a XXXXXXXXXX Family Holdco, as contemplated by the Shareholders Agreements, would result in a capital gain or a capital loss, if any.

The first sentence of the second paragraph of the said Opinion should be replaced by:

In our opinion, paragraphs 95(2)(c), (c.2), (d), (d.1), (e), (e.1), (e.3) to (e.5) and (f.4) and 88(3)(a), as those paragraphs are proposed to be amended (as the case may be), will not apply to the situation described in paragraph 18 of the Proposed Transactions, if the purchaser of the shares of XXXXXXXXXX Holdco #1 and XXXXXXXXXX Holdco #2 sold by a XXXXXXXXXX Family Holdco deals at arm's length with that XXXXXXXXXX Family Holdco.

Yours truly,

XXXXXXXXXX

for the Director

International and Trusts Division

Income Tax Rulings Directorate

Legislative Policy and Regulatory Affairs Branch