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: Will the asset consolidation and the consequential amendment of the terms of the XXXXXXXXXX Shares result in an acquisition, redemption, cancellation or disposition of those shares for purposes of the Act.
Position: No
Reasons: The asset consolidation does not result in any changes to the inherent bundle of rights that the shareholders of the XXXXXXXXXX Shares hold, and does not result in the cessation, divestiture, alienation, or transfer of the incidents of ownership of the XXXXXXXXXX Shares. Furthermore, in this case, the changes to the share attributes are not viewed as significant enough so as to constitute a constructive disposition of those shares.
XXXXXXXXXX 2008-029917
XXXXXXXXXX , 2009
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Taxpayer")
We are replying to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling with respect to the above-noted taxpayer. We also acknowledge the additional information provided to us by email on XXXXXXXXXX and by telephone on XXXXXXXXXX .
This letter is based solely on the facts and the proposed transaction described below. Any documentation submitted in respect of your request does not form part of the facts and proposed transaction and any references thereto are provided solely for the convenience of the reader.
To the best of your knowledge and that of the Taxpayer, none of the issues contained in this ruling request are:
(i) dealt with in an earlier return of the Taxpayer or a related person;
(ii) being considered by a Tax Services Office or Taxation Centre of Canada Revenue Agency ("CRA") in connection with a previously filed tax return of the Taxpayer or a related person;
(iii) under objection by the Taxpayer or a related person;
(iv) subject to a ruling previously issued by the Income Tax Rulings Directorate to the Taxpayer or a related person; or
(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transaction and the purpose of the proposed transaction is as follows:
Definitions
In this letter, the following terms have the meanings specified below:
a) "Amended Formula" means the formulae described in XXXXXXXXXX of the Taxpayer XXXXXXXXXX ;
b) "Asset Consolidation" means XXXXXXXXXX ;
c) XXXXXXXXXX ;
d) "CRA" means the Canada Revenue Agency;
e) XXXXXXXXXX ;
f) "Reserves" has the meaning assigned to 'reserve' by subsection 204.8(1) of the Act; and
g) "XXXXXXXXXX Shares" means the Class A Shares, XXXXXXXXXX of the Taxpayer, collectively.
Facts
1. The Taxpayer is a corporation formed XXXXXXXXXX in XXXXXXXXXX . The Taxpayer's head office is located at XXXXXXXXXX . The Taxpayer's Taxation Centre and Tax Services Office are XXXXXXXXXX and XXXXXXXXXX , respectively.
2. The Taxpayer is:
i) a registered labour-sponsored venture capital corporation under the Act; and
ii) XXXXXXXXXX .
3. The authorized capital of the Taxpayer consists of an unlimited number of Class A Shares, XXXXXXXXXX and an unlimited number of Class B Shares.
4. As at XXXXXXXXXX , the Taxpayer had approximately $XXXXXXXXXX in net assets and approximately XXXXXXXXXX issued and outstanding Class A Shares which included approximately XXXXXXXXXX .
5. The Class A Shares of the Taxpayer are offered XXXXXXXXXX to residents of XXXXXXXXXX .
6. Investors are eligible to receive a labour-sponsored fund tax credit under section 127.4 of the Act. XXXXXXXXXX .
7. Part XII.5 of the Act, provides, in general terms, that investors must generally repay those tax credits if the shares are redeemed, acquired or cancelled by the Taxpayer within eight years from the date an investor acquires them.
8. The fundamental investment objective of the Class A Shares, XXXXXXXXXX is to preserve and return an investor's initial subscription price paid for such series of Class A Shares on or about the date XXXXXXXXXX . The investment strategy of the Class A Shares, XXXXXXXXXX is to invest solely in XXXXXXXXXX operating in XXXXXXXXXX and in Reserves. XXXXXXXXXX .
9 The fundamental investment objective of the Class A Shares, XXXXXXXXXX is to preserve and return an investor's initial subscription price paid for such Class A Shares on or about XXXXXXXXXX or XXXXXXXXXX , depending on when the Class A Shares, XXXXXXXXXX were purchased. The investment strategy of the Class A Shares, XXXXXXXXXX is to invest in XXXXXXXXXX and in Reserves.
Proposed Transaction
10. It is proposed that the Taxpayer will effect the Asset Consolidation by amending the articles of the Taxpayer such that the rights and restrictions attached to the XXXXXXXXXX Shares will incorporate the Amended Formula XXXXXXXXXX to reflect the Asset Consolidation.
11. The amendment to the articles of the Taxpayer will not affect any other rights, privileges or restrictions to the XXXXXXXXXX Shares.
12. The net asset value per share of each of the XXXXXXXXXX Shares immediately following the proposed transaction, as calculated by the Amended Formula, will not be materially different from the XXXXXXXXXX Shares immediately prior to the proposed transaction, as calculated by the original formula.
13. The number of XXXXXXXXXX Shares outstanding immediately prior to the proposed transaction shall remain the same immediately following the proposed transaction.
14. No XXXXXXXXXX Shares issued and outstanding immediately prior to the Asset Consolidation will be acquired, redeemed or cancelled by the Taxpayer as a result of the proposed transaction. Except for dissenting shareholders, XXXXXXXXXX Shareholders will not be entitled to receive any proceeds of disposition in connection with or as a result of the proposed transaction.
15. The Taxpayer will have XXXXXXXXXX Shares. The entitlement of each shareholder of XXXXXXXXXX .
16. The assets in XXXXXXXXXX will continue to meet the fundamental investment objective of XXXXXXXXXX Shares. Furthermore, each investment strategy will remain the same for the respective XXXXXXXXXX and will not be amended as a result of the proposed transaction.
17. No eligible investments held within the XXXXXXXXXX will be at risk of divestment as a direct result of the proposed transaction. Similarly, the proposed transaction will not put at risk the capital placed in eligible investments, restrict the Taxpayer from making investments in the ordinary course, nor allow an investor to withdraw their investment from the Taxpayer.
18. The Asset Consolidation is subject to the prior approval by special resolution (XXXXXXXXXX % vote) of the Class A Shares, XXXXXXXXXX . Class A Shares, XXXXXXXXXX Shareholders approved the Asset Consolidation at an annual and special meeting held on XXXXXXXXXX .
19. The Asset Consolidation received all necessary securities regulatory approvals.
Purpose of the Proposed Transaction
20. The purpose of the proposed transaction is to:
i) achieve cost savings by combining and reducing the fixed costs and expenses associated with running individual series (akin to funds) within the Taxpayer and spreading such costs over a larger capital base to reduce the overall impact of the cost on the series and on their shareholders;
ii) improve liquidity and resources to enhance the ability to participate in larger transactions and to fund follow-on investments; and
iii) improve the Taxpayer's competitive position to attract the strongest investment opportunities.
21. If achieved, this will create a larger, more efficient investment pool to improve the prospects for achieving the Taxpayer's investment objective.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and purpose of the proposed transaction, and provided further that the proposed transaction is completed in the manner described above, we rule as follows:
A. For purposes of the Act, the implementation of the proposed transaction, in and of itself, will not result in the XXXXXXXXXX Shares being acquired, redeemed, or cancelled by the Taxpayer, nor will it result in the existing shareholders of the XXXXXXXXXX Shares being considered to have disposed of their XXXXXXXXXX Shares, respectively.
B. The implementation of the proposed transaction, in and of itself, will not result in tax being payable under Part XII.5 of the Act by the shareholders of the XXXXXXXXXX Shares.
C. The implementation of the proposed transaction, in and of itself, will not result in tax being required to be withheld by the Taxpayer pursuant to subsection 211.8(2) of the Act.
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 transaction is completed by XXXXXXXXXX .
The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
Nothing in this letter should be construed as implying that the CRA has reviewed or is making a determination or ruling in respect of:
(a) the determination of the fair market value of any property referred to herein, or a shareholder's equity, stated capital or PUC in respect of any share referred to herein;
(b) any tax consequences to the Taxpayer or to the shareholders of XXXXXXXXXX Shares, where such shareholders exercise their right to dissent from the resolution effecting the Asset Consolidation pursuant to XXXXXXXXXX ; or
(c) any tax consequences in relation to any facts or proposed transaction referred to herein other than those specifically described in the rulings given.
Yours truly,
XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
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