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: Is any part of the delivery of a troy ounce of gold and, if applicable cash as referred therein, in satisfaction for each XXXXXXXXXX of principal amount of XXXXXXXXXX notes subject to Canadian non-resident withholding tax pursuant to paragraph 212(1)(b) of the Act?
Position: No
Reasons: The notes constitute the forward sale of gold.
XXXXXXXXXX 2009-032688
XXXXXXXXXX , 2009
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling with respect to the above-noted taxpayer (the "Taxpayer"). We also acknowledge the additional information provided to us in your letters of submission dated XXXXXXXXXX .
This letter is based solely on the facts and Proposed Transactions described below. Any documentation submitted in respect of your request does not form part of the facts and Proposed Transactions 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 involved in this advance income tax ruling request are:
(i) in an earlier tax return of the Taxpayer or of a related person;
(ii) being considered by a Tax Services Office or a Taxation Centre in connection with a previously-filed tax return of the Taxpayer or of a related person;
(iii) under objection by the Taxpayer or by a related person;
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(v) the subject of a ruling previously issued to the Taxpayer or a related person by the Income Tax Rulings Directorate.
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 Transactions and the purpose of the Proposed Transactions is as follows:
Definitions
(a) "arm's length" has the meaning assigned by section 251;
(b) "Notes" mean the XXXXXXXXXX notes described in 4, 5 and 6 below;
(c) "Proposed Transactions" means the transactions described in 10 below;
(d) "public corporation" has the meaning assigned by subsection 89(1);
(e) "Purchasers" mean the XXXXXXXXXX who purchased the Notes as described in 4 below;
(f) "Repayment Dates" mean the XXXXXXXXXX installment dates over a XXXXXXXXXX -year period as described in 5 below;
(g) "Spot Price" means the afternoon fixing price expressed in U.S. dollars per troy ounce of refined gold for good delivery on the London Bullion Market on the Repayment Dates;
(h) "taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(i) "U.S." means the United States of America.
Facts
1. The Taxpayer is a taxable Canadian corporation and a public corporation. Its common shares are listed for trading on the XXXXXXXXXX Stock Exchange.
2. The Taxpayer's tax affairs are administered by the XXXXXXXXXX Tax Services Office and it files its tax returns at the XXXXXXXXXX Taxation Centre.
3. The Taxpayer is a gold exploration and mine development company. Its fiscal period ends on XXXXXXXXXX of each year and its mailing address is XXXXXXXXXX .
4. On XXXXXXXXXX , the Taxpayer closed a private placement of XXXXXXXXXX principal amount of XXXXXXXXXX notes (the "Notes"). Of the total issue, XXXXXXXXXX of Notes were purchased and are currently held by XXXXXXXXXX (the "Purchasers"). The Notes are non-assignable except with the prior consent of the Taxpayer.
5. The Notes are repayable by the Taxpayer delivering to the Purchasers one troy ounce of gold for each XXXXXXXXXX principal amount of Notes purchased, from the future production from its XXXXXXXXXX mine, payable in XXXXXXXXXX installments over a XXXXXXXXXX -year period (the "Repayment Dates"). The Notes provide that if on any of the Repayment Dates the Spot Price of gold is less than XXXXXXXXXX per troy ounce, the Taxpayer will deliver to the Purchasers, in addition to each amount of gold delivered, a cash payment per troy ounce of gold delivered equal to XXXXXXXXXX XXXXXXXXXX .
6. Under the terms of the Notes, the Taxpayer will be required to deliver a total of XXXXXXXXXX troy ounces of gold, with XXXXXXXXXX troy ounces of gold to be delivered to Purchasers on XXXXXXXXXX , a total of XXXXXXXXXX troy ounces of gold to be delivered in each of XXXXXXXXXX and XXXXXXXXXX , and a total of XXXXXXXXXX troy ounces of gold to be delivered in XXXXXXXXXX , with the final delivery due on XXXXXXXXXX .
7. Each of the Purchasers will have an account with XXXXXXXXXX to which the physical gold will be delivered. Furthermore, each of the XXXXXXXXXX Purchasers deals at arm's length with the Taxpayer.
8. The Notes are secured by the Taxpayer's XXXXXXXXXX mines located near XXXXXXXXXX and by a general security interest on the Taxpayer's personal property located at, or related to, such mines.
9. The proceeds of the issue of the Notes will be expended by the Taxpayer primarily for XXXXXXXXXX Mine. As of XXXXXXXXXX , the Taxpayer was not producing gold from any of its properties and did not hold any gold in inventory.
Proposed Transactions
10. On the Repayment Dates, the Taxpayer will deliver to the Purchasers the required amounts of gold and, if applicable, cash, with the first Repayment Date occurring on XXXXXXXXXX .
Additional Information
11. The Notes are agreements for the forward sale of gold and as such are non-interest bearing. The Notes create a buyer-seller relationship and constitute a contract to deliver an amount of gold at the fixed price of XXXXXXXXXX with a specified delivery date in the future.
12. The Taxpayer will be delivering the gold to satisfy an obligation under a contractual arrangement to deliver the same in return for consideration previously paid to the Taxpayer. Under the terms of the Notes, the Taxpayer has a fixed obligation to deliver a total of XXXXXXXXXX troy ounces of gold to the Purchasers irrespective of the value of gold at the time of delivery. Specifically, the Taxpayer is obligated to deliver to the Purchasers a troy ounce of gold having a value of at least XXXXXXXXXX for each XXXXXXXXXX of prepayment for a total delivery of XXXXXXXXXX ounces. Should the value of gold at the time of delivery be less than XXXXXXXXXX the Taxpayer is required to make up any shortfall by a cash payment.
13. The Spot Price for a troy ounce of gold has been greater than XXXXXXXXXX for every day since XXXXXXXXXX , and is currently greater than XXXXXXXXXX .
Purpose of the Proposed Transactions
14. The purpose of the Proposed Transactions is to satisfy the Taxpayer's obligations to deliver to the Purchasers, on the Repayment Dates, the number of troy ounces of gold and such additional amount of cash, if any, as provided for in the Notes.
Ruling
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions and purpose of the Proposed Transactions, and provided further that the Proposed Transactions are completed in the manner described above, we rule as follows:
No part of the repayment of the Notes to the Purchasers by the delivery of a troy ounce of gold and, if applicable, cash, as referred to in 5 and 12 above, for each XXXXXXXXXX principal amount of Notes purchased will be subject to Canadian non-resident withholding tax pursuant to paragraph 212(1)(b) of the Act.
The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and is binding on the CRA provided that the Proposed Transactions are commenced by XXXXXXXXXX .
The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
Comments
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 fair market value or adjusted cost base of any property referred to herein; or
(b) any tax consequences in relation to any facts or to the Proposed Transactions referred to herein other than that specifically described in the ruling given.
Yours truly,
XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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