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. Will subsection 107(2.1) apply to the distribution of property by Subco to Trust, resulting in a capital loss to Subco? 2. Will the GAAR apply?
Position: 1. Yes. 2. No.
Reasons: 1. The application of subsection 107(2.1) on the final distribution is not subject to challenge in these circumstances. 2. This is not the type of transaction to which the GAAR would apply, no avoidance transaction.
XXXXXXXXXX
2009-033090 XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX , 2010
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX , requesting an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge the information you provided during our telephone conversations XXXXXXXXXX and your subsequent submission of XXXXXXXXXX .
We understand that, to the best of your knowledge and that of the taxpayers, none of the issues involved in the ruling request is:
(i) in an earlier tax return of the taxpayers or a related person;
(ii) being considered by a tax services office or a tax centre in connection with a tax return already filed by the taxpayers or a related person;
(iii) under objection by the taxpayers or a related person;
(iv) before the courts or,
(v) the subject of a ruling previously issued by the Directorate to the taxpayers or a related person.
This document is based solely on the facts and proposed transactions described below. The documentation submitted with 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.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.
The following terms and taxpayers referred to throughout this document will have the following meaning:
"ACB" has the meaning assigned to the expression "adjusted cost base" in section 54;
"capital gain" has the meaning assigned by section 39;
"capital loss" has the meaning assigned by section 39;
"CBCA" means the Canada Business Corporations Act, R.S.C. 1985 c. C.44, as amended to the date hereof;
"CRA" means the Canada Revenue Agency;
"eligible property" has the meaning assigned by subsection 85(1.1);
"Excess Income" means, as defined in section 1.1 of the Trust I Contract of Trust, the amount, if any, by which the aggregate of : (i) the net income of Trust I for a taxation year, as determined in accordance with the provisions of the Act (other than paragraph 82(1)(b) and subsection 104(6)) and excluding Net Realized Capital Gains; and (ii) the amount, if any, by which the Net Realized Capital Gains of Trust I for a taxation year exceed the amount thereof that would not be subject to tax in the Trust I by reason of the carry forward from prior taxation years of net capital losses of the Trust to the extent not previously deducted, exceeds the amounts (other than any amount determined under Section 10.2 of the Trust I Contract of Trust) that became payable pursuant to the terms hereof by Trust I to its Unitholders during the taxation year;
"FMV" means fair market value;
"GPco" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX . GPco was formerly the general partner of LP I, LP II, LP III, LP V, LP VI, LP VII, LP VIII, LP IX, LP X, Master LP and Holding LP before the transactions described in paragraphs 11 and 12;
"GPco I" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP I. GPco I is a wholly-owned subsidiary of Sisterco;
"GPco II" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP II. GPco II is a wholly-owned subsidiary of Sisterco;
"GPco III" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP III. GPco III is a wholly-owned subsidiary of Sisterco;
"GPco V" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP V. GPco V is a wholly-owned subsidiary of Sisterco;
"GPco VI" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP VI. GPco VI is a wholly-owned subsidiary of Sisterco;
"GPco VII" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP VII. GPco VII is a wholly-owned subsidiary of Sisterco;
"GPco VIII" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP VIII. GPco VIII is a wholly-owned subsidiary of Sisterco;
"GPco IX" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP IX. GPco IX is a wholly-owned subsidiary of Sisterco;
"GPco X" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of LP X. GPco X is a wholly-owned subsidiary of Sisterco;
"GPco Holding" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of Holding LP. GPco Holding is a wholly-owned subsidiary of Sisterco;
"GPco Master" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX which is the general partner of Master LP. GPco Master is a wholly-owned subsidiary of Sisterco;
"Holdco I" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX . Holdco I holds XXXXXXXXXX the Trust I Property I XXXXXXXXXX LP I;
"Holdco II" means XXXXXXXXXX , a corporation incorporated under the CBCA. Holdco II holds XXXXXXXXXX the Trust I Property II XXXXXXXXXX LP II;
"Holdco III" means XXXXXXXXXX , a corporation incorporated under the CBCA. Holdco III holds XXXXXXXXXX the Trust I Property III XXXXXXXXXX LP III;
"Holding LP" means XXXXXXXXXX , a limited partnership with a fiscal period end of XXXXXXXXXX , formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"Holding LP Units" means the Class A limited partner units of Holding LP that were issued to Parent and Trust I, as described in paragraphs 14, 23 and 25 respectively;
"inter vivos trust" has the meaning assigned by subsection 108(1);
"LP I" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP II" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP III" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP V" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP VI" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP VII" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP VIII" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"LP IX" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX . LP IX owns XXXXXXXXXX ;
"LP X" means XXXXXXXXXX , a limited partnership formed under the laws of the province of XXXXXXXXXX . LP X owns XXXXXXXXXX ;
"LPco" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX . LPco formerly held one Class B limited partner unit in each of the LP Purchasers, Master LP and Holding LP before the transactions described in paragraphs 13 and 20;
"LPs Purchasers" means LP I, LP II, LP III, LP V, LP VI, LP VII and LP VIII;
"LPs Purchasers LP Units" means the Class A limited partner units issued by each of the LP Purchasers to Trust I, as described in paragraph 16;
"Master LP" means XXXXXXXXXX , a limited partnership with a fiscal period end of XXXXXXXXXX , formed under the laws of the province of XXXXXXXXXX to acquire, invest in and XXXXXXXXXX ;
"Master LP Units" means the Class A limited partner units of Master LP that were issued to Trust I, as described in paragraph 21;
"XXXXXXXXXX Interest Partnership" means Parent's XXXXXXXXXX % XXXXXXXXXX interest in the XXXXXXXXXX before the transfer to Holding LP described in paragraph 25;
"net capital loss" has the meaning assigned by subsection 111(8);
"Net Realized Capital Gains" means, as defined in section 1.1 of the Trust I Contract of Trust, the amount for any period, if any, by which the capital gains of Trust I for the period exceeds the aggregate of the amount of any capital losses of Trust I for the period determined in accordance with the Act;
"New Parent" means the resulting corporation from the amalgamation of Parent and Subco, as described in paragraph 39;
"New XXXXXXXXXX " means XXXXXXXXXX trust that was established on XXXXXXXXXX , with a contribution of $XXXXXXXXXX by XXXXXXXXXX . The initial trustee of New XXXXXXXXXX is XXXXXXXXXX . The head and registered office of New XXXXXXXXXX is located at XXXXXXXXXX .
"New Trust V" means a trust established under the laws of XXXXXXXXXX for the exclusive benefit of Trust I XXXXXXXXXX ;
"New Trust VI" means a trust established under the laws of XXXXXXXXXX for the exclusive benefit of Trust I XXXXXXXXXX ;
"New Trust VII" means a trust established under the laws of XXXXXXXXXX for the exclusive benefit of Trust I XXXXXXXXXX ;
"New Trust VIII" means a trust established under the laws of XXXXXXXXXX for the exclusive benefit of Trust I XXXXXXXXXX ;
XXXXXXXXXX ;
"Parent" means XXXXXXXXXX corporation continued under the laws of XXXXXXXXXX;
"Parent's Partnerships" means the following partnerships in which Parent has an interest:
XXXXXXXXXX
"Parent's Partnership Units" mean the following partnership units of the Parent's Partnerships:
XXXXXXXXXX
XXXXXXXXXX ;
XXXXXXXXXX ;
XXXXXXXXXX ;
"XXXXXXXXXX GP" means XXXXXXXXXX , a corporation all shares of which are owned by New XXXXXXXXXX ;
"XXXXXXXXXX LP" means XXXXXXXXXX , a limited partnership created on XXXXXXXXXX with New XXXXXXXXXX and XXXXXXXXXX GP as the initial limited partner and general partner, respectively;
"XXXXXXXXXX LP Units" means the Class A limited partner units of XXXXXXXXXX LP that were initially issued to Holding LP and Master LP, as described in paragraph 28;
"XXXXXXXXXX " has the meaning assigned by subsection 248(1);
"XXXXXXXXXX " has the meaning assigned by subsection 248(1);
"Sisterco" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX . Sisterco is the sole shareholder of GPco I, GPco II, GPco III, GPco V, GPco VI, GPco VII, GPco VIII, GPco IX, GPco X, GPco Master and GPco Holding;
"Subco" means XXXXXXXXXX , a corporation incorporated under the laws of the province of XXXXXXXXXX , and a wholly-owned subsidiary of Parent;
"Subco Loan" means the amount Trust I lent to Subco on an interest bearing basis, as described in paragraph 7, and partly repaid;
"Subco Note" means the non-interest bearing promissory note to be issued by Subco to Trust I, as described in paragraphs 31 and 32;
"Subco's XXXXXXXXXX Taxation Year" means the taxation year of Subco that will be deemed to end immediately before the amalgamation of Subco and Parent, as described in paragraph 39;
"taxable Canadian corporation" has the meaning assigned by subsection 89(1);
"taxable capital gain" has the meaning assigned by section 38;
"Trust I" means XXXXXXXXXX , a trust established under the laws of the province of XXXXXXXXXX pursuant to the Trust I Contract of Trust;
"Trust I Contract of Trust" means the XXXXXXXXXX amended and restated contract of trust of Trust I dated XXXXXXXXXX ;
"Trust I Corporations" means Holdco I, Holdco II and Holdco III, all the issued and outstanding shares of which were owned by Trust I before the transfer described in paragraph 21;
"Trust I Corporations Shares" means all the issued and outstanding shares of the Trust I Corporations;
"Trust I Investments" means the LPs Purchasers LP Units, Trust I Corporations Shares and Trust I LPs Units;
"Trust I LPs" means LP IX and LP X, all the limited partnership units of which were owned by Trust I before the transfer described in paragraph 21;
"Trust I LPs Units" means all the limited partner's units of the Trust I LPs;
"Trust I Property I" means XXXXXXXXXX ;
"Trust I Property II" means XXXXXXXXXX ;
"Trust I Property III" means XXXXXXXXXX ;
"Trust I Property V" means XXXXXXXXXX ;
"Trust I Property VI" means XXXXXXXXXX ;
"Trust I Property VII" means XXXXXXXXXX ;
"Trust I Property VIII" means XXXXXXXXXX ;
"Trust I Units" means the units of Trust I;
"Trust I Units Income Portion" means the portion of the Trust I XXXXXXXXXX Distribution that will be paid out of (i) income for tax purposes of Trust I for its XXXXXXXXXX taxation year and (ii) the non-taxable portion of capital gains realized in that year;
"Trust I Units Proceeds of Disposition Portion" means the excess of the aggregate FMV of the properties distributed on the Trust I XXXXXXXXXX Distribution over the Trust I Units Income Portion;
"Trust I XXXXXXXXXX Distribution" means the distribution by Trust I for its XXXXXXXXXX taxation year, as described in paragraph 36;
"Unitholders" means the unitholder(s) of Trust I from time to time.
Our understanding of the facts, the proposed transactions, and the purpose of the proposed transactions is as follows:
FACTS
1. Parent is a taxable Canadian corporation and XXXXXXXXXX based in XXXXXXXXXX , which owns XXXXXXXXXX .
2. Subco is a taxable Canadian corporation with a XXXXXXXXXX taxation year end. Its head office is located at XXXXXXXXXX and it deals with the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre.
3. Subco's sole business purpose is the holding of all the issued and outstanding units of Trust I. XXXXXXXXXX .
4. Trust I is an inter vivos trust engaged in XXXXXXXXXX through its interest in Holding LP.
5. The head office address of Trust I is XXXXXXXXXX and it deals with the Tax Services Office and Taxation Centre in XXXXXXXXXX . Trust I has a fiscal year ending on XXXXXXXXXX and has been a resident of Canada since its establishment.
6. Pursuant to an arm's length disposition XXXXXXXXXX in XXXXXXXXXX , Trust I realized capital gains XXXXXXXXXX of $XXXXXXXXXX and $XXXXXXXXXX , respectively. The purchase price on the sale of $XXXXXXXXXX was satisfied XXXXXXXXXX .
7. $XXXXXXXXXX of the cash proceeds received from the XXXXXXXXXX sale described in paragraph 6 above, were loaned to Subco by Trust I (the Subco Loan).
8. Trust I paid its Excess Income for the taxation year ended XXXXXXXXXX (which for greater certainty included the income from the sale of XXXXXXXXXX described in paragraph 6) to Subco, the sole Unitholder at that time, pursuant to section 10.2 of the Trust I Contract of Trust by reducing the balance of the Subco Loan by a corresponding amount. Trust I deducted, in computing its income for that year, an amount equal to its income for tax purposes for that year that became payable to Subco in the year. Subco included a corresponding amount in computing its income for its taxation year ended XXXXXXXXXX .
9. Trust I designated its net taxable capital gains (as determined under subsection 104(21.3)) of approximately $XXXXXXXXXX for the XXXXXXXXXX taxation year to be deemed to be a taxable capital gain for the year of Subco.
10. For each of its taxation years ended XXXXXXXXXX and XXXXXXXXXX , Trust I paid its Excess Income by reducing the balance of the Subco Loan by a corresponding amount. Trust I deducted, in computing its income for each year, an amount equal to its income for tax purposes as became payable to Subco in the year, and Subco included a corresponding amount in computing its income for each taxation year respectively.
11. On XXXXXXXXXX , GPco transferred its general partner interest in each of the LPs Purchasers and Trust I LPs to GPco I, GPco II, GPco III, GPco V, GPco VI, GPco VII, GPco VIII, GPco IX, GPco X, as the case may be, for nominal consideration.
12. On XXXXXXXXXX , GPco transferred its general partner interest in Master LP and Holding LP to GPco Master and GPco Holding respectively, for nominal consideration.
13. On XXXXXXXXXX , LPco transferred its one Class B limited partner unit in Master LP to Trust I in consideration for the assumption of a $XXXXXXXXXX debt of Master LP.
14. On XXXXXXXXXX , Parent transferred its XXXXXXXXXX to Holding LP in consideration for Holding LP Units.
15. Holding LP, through GPco Holding, and Parent will be jointly electing, in prescribed form and within the time referred to in subsection 96(4), to have subsection 97(2) apply to the transfer of each eligible property. The agreed amount in respect of each eligible property will not be less than the FMV of the consideration received (other than the Holding LP Units).
16. On XXXXXXXXXX , Trust I transferred the Trust I Property I, Trust I Property II, Trust I Property III, Trust I Property V, Trust I Property VI, Trust I Property VII and Trust I Property VIII (collectively, the "Trust I Rollover Properties"), including for greater certainty, XXXXXXXXXX and the other assets (including accounts receivable) XXXXXXXXXX to the LPs Purchasers in consideration for the LPs Purchasers LP Units and the assumption by each of the LPs Purchasers of the XXXXXXXXXX relating to the XXXXXXXXXX acquired by each one of them. XXXXXXXXXX .
17. Each of the LPs Purchasers, through their respective general partner, and Trust I will be jointly electing, in prescribed form and within the time referred to in subsection 96(4), to have subsection 97(2) apply to the transfer of each eligible property. The agreed amount in respect of each eligible property will not be less than the FMV of the consideration received (other than the LPs Purchasers LP Units). XXXXXXXXXX , as described in paragraph 16 above, which was transferred at FMV realizing taxable capital gains of approximately $XXXXXXXXXX , all the properties were intended to be transferred on a tax deferred basis.
18. Concurrent with the transfer of the Trust I Rollover Properties, as described in paragraph 16 above, Trust I transferred XXXXXXXXXX .
19. XXXXXXXXXX
20. On XXXXXXXXXX , each of the LP Purchasers and Holding LP redeemed the one Class B limited partner unit held by LPco for consideration of $XXXXXXXXXX resulting in the cancellation of the accounts receivable owed from each of the LP Purchasers and Holding LP respectively.
21. On XXXXXXXXXX , Trust I transferred to Master LP, all the LPs Purchaser LP Units, the Trust I Corporations Shares, the Trust I LPs Units and any remaining operating assets, but excluding the Subco Loan and its beneficial interest in New Trust V, New Trust VI, New Trust VII and New Trust VIII, in consideration for Master LP Units and the assumption by Master LP of any remaining liabilities of Trust I.
22. Master LP, through GPco Master, and Trust I will be jointly electing, in prescribed form and within the time referred to in subsection 96(4), to have subsection 97(2) apply to the transfer of each eligible property. The agreed amount in respect of each eligible property will not be less than the FMV of the consideration received (other than the Master LP Units). The transfer of the LPs Purchaser LP Units was intended to result in a taxable capital gain of approximately $XXXXXXXXXX.
23. On XXXXXXXXXX , Trust I transferred the Master LP Units to Holding LP in consideration for Holding LP Units.
24. Holding LP, through GPco Holding, and Trust I will be jointly electing, in prescribed form and within the time referred to in subsection 96(4), to have subsection 97(2) apply to the transfer of each eligible property. The agreed amount in respect of each eligible property will not be less than the FMV of the consideration received (other than the Holding LP Units).
25. On XXXXXXXXXX , Parent transferred the XXXXXXXXXX Interest Partnership to Holding LP in consideration for Holding LP Units.
26. Holding LP, through GPco Holding, and Parent will be jointly electing, in prescribed form and within the time referred to in subsection 96(4), to have subsection 97(2) apply to the transfer of each eligible property. The agreed amount in respect of each eligible property will not be less than the FMV of the consideration received (other than the Holding LP Units).
27. XXXXXXXXXX
28. XXXXXXXXXX , Holding LP sold the XXXXXXXXXX Interest Partnership and XXXXXXXXXX to XXXXXXXXXX LP in consideration for cash and XXXXXXXXXX LP Units. In addition, Master LP sold all of the LP Purchasers LP Units, the Trust I Corporations Shares, the Trust I LPs Units and any of its remaining operating assets to XXXXXXXXXX LP in consideration for XXXXXXXXXX LP Units.
29. Immediately after the sale described in paragraph 28 above, Holding LP and Master LP transferred all their respective XXXXXXXXXX LP Units to New XXXXXXXXXX in consideration for units of New XXXXXXXXXX on a XXXXXXXXXX basis.
PROPOSED TRANSACTIONS
30. Subco will repay $XXXXXXXXXX of the principal amount of the Subco Loan to Trust I.
31. Trust I will transfer, at FMV, all its Holding LP Units to Subco in consideration for a non-interest bearing promissory note (Subco Note). A capital gain may be realized by Trust I on the disposition of the Holding LP Units.
32. The principal amount of the Subco Note will be equal to the FMV of the Holding LP Units transferred by Trust I.
33. Trust I's remaining assets at that time will consist of the Subco Loan (including any unpaid interest thereon), the Subco Note, the beneficial interest in New Trust V, New Trust VI, New Trust VII and New Trust VIII and cash in the amount of $XXXXXXXXXX .
34. Pursuant to section 6.26 of the Trust I Contract of Trust, Trust I will purchase for cancellation all but XXXXXXXXXX units of the outstanding units of Trust I held by Subco ("Subco Cancelled Units"). Trust I will distribute the Subco Loan and the Subco Note in satisfaction of the amount payable by virtue of the cancellation of the Subco Cancelled Units. It is expected that the principal amount and FMV of the Subco Loan and Subco Note at the time of distribution by Trust I will equal the principal amount and FMV of the same debt outstanding at that time by Subco.
35. It is intended that Subco (or New Parent as successor of Subco) will continue to hold the remaining XXXXXXXXXX units of Trust I for an undetermined period of time. Trust I's remaining assets after the cancellation of units as described in paragraph 34 above, will consist of the beneficial interest in New Trust V, New Trust VI, New Trust VII and New Trust VIII, having XXXXXXXXXX FMV, and cash in the amount of $XXXXXXXXXX .
36. The amount of the Trust I Units Income Portion allocated to New Parent (as successor of Subco) in respect of the Trust I XXXXXXXXXX Distribution will be equal to the total of Trust I income for tax purposes for its XXXXXXXXXX taxation year (which includes taxable capital gains realized on the transfers XXXXXXXXXX described in paragraph 16 above, on the transfer of the Trust I Investments described in paragraph 21 above, on the transfer of the Master LP Units described in paragraph 23 above and on the transfer of the Holding LP Units described in paragraph 31 above) and an amount equal to the amount that will be designated by Trust I pursuant to subsection 104(21) in respect of New Parent (as successor of Subco), as described in paragraph 42 below.
37. As a result of the distribution of the Subco Loan and the Subco Note referred to in paragraph 34 above, the debt obligations payable by Subco to Trust I evidenced by the Subco Loan and Subco Note will be extinguished as a matter of law under the civil code of XXXXXXXXXX .
38. It is expected that Subco will realize a capital loss of approximately $XXXXXXXXXX on the cancellation of the Subco Cancelled Units described in paragraph 34 above, as it is expected that the ACB of these units at the time of disposition will be greater than the Trust I Units Proceeds of Disposition Portion.
39. Not less than XXXXXXXXXX after the cancellation of the Subco Cancelled Units, as described in paragraph 34 above, Subco will amalgamate with Parent to form New Parent. Pursuant to paragraph 87(2)(a), the taxation year of Subco shall be deemed to end immediately before the amalgamation.
40. In filing its tax return for Subco's XXXXXXXXXX Taxation Year, Subco will request, in prescribed form and within the time referred to in subsection 152(6), to carry back a portion of the net capital loss realized in that year (subject to paragraph 111(1)(b)), described in paragraph 38 above, to its taxation year that ended XXXXXXXXXX . It is expected that the amount of the carry-back will be equal to the net taxable capital gains realized by Subco for that year.
41. In filing Trust I's income tax return for the XXXXXXXXXX taxation year end, Trust I will deduct pursuant to paragraph 104(6)(b), in computing the income for the year, an amount equal to the income for tax purposes for that year (but for paragraph 104(6)(b)) as became payable to Subco. New Parent (as successor of Subco) will include, pursuant to paragraph 104(13)(a), such amount in computing the income for its taxation year ending XXXXXXXXXX .
42. Trust I will designate pursuant to subsection 104(21) in respect of New Parent (as successor of Subco) that the net taxable capital gains for the XXXXXXXXXX taxation year of Trust I is payable to Subco be deemed to be a taxable capital gain of New Parent from the disposition of capital property by New Parent for its XXXXXXXXXX taxation year.
43. Sisterco will sell all of the shares of GPco Holding to New Parent for nominal consideration. GPco Holding will be wound up in accordance with section 88(1) of the Act and all assets of GPco Holding will be transferred to New Parent.
44. Similarly, Sisterco will sell all of the shares of GPco Master to New Parent for nominal consideration. GPco Master will be wound up in accordance with section 88(1) of the Act and all assets of GPco Master will be transferred to New Parent.
45. As a result of paragraph 43 and 44 above, Holding LP and Master LP respectively will cease to exist and assets of each of Holding LP and Master LP will become those of New Parent.
PURPOSE OF THE PROPOSED TRANSACTIONS
The purpose of the proposed transactions is to distribute substantially all of the remaining assets of Trust I to New Parent in order to simplify the corporate structure and facilitate the management and ownership of the investment in New XXXXXXXXXX .
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given, our rulings are as follows:
A. Trust I shall be entitled to deduct from its income for its XXXXXXXXXX taxation year, pursuant to paragraph 104(6)(b) an amount corresponding to its income for tax purposes in that year that is payable in the taxation year to Subco and subparagraph 104(6)(b)(iv) will not apply to limit such deduction. New Parent, as successor to Subco, shall include such amount in computing its income for the relevant taxation year pursuant to subsection 104(13).
B. To the extent that Trust I makes the designation described in paragraph 42 in its return of income for the taxation year, an amount corresponding to the taxable capital gain realized on the dispositions referred to in paragraph 36, will be deemed to be a taxable capital gain of New Parent pursuant to subsection 104(21).
C. Clause 53(2)(h)(i.1)(A) and subclause 53(2)(h)(i.1)(B)(I) will apply such that the ACB of the Trust I Units to Subco will not be reduced for the amount included in New Parent's income (as successor to Subco), as described in Ruling A and Ruling B above, and for an amount equal to the amount described in Ruling B that is designated by Trust I under subsection 104(21), respectively.
D. Subsection 107(2.1) of the Act will apply to determine the tax consequences applicable to the cancellation of the Subco Cancelled Units (described in paragraph 34) for both Trust I and Subco.
E. To the extent that the ACB to Subco of the Subco Cancelled Units exceeds Trust I Units Proceeds of Disposition Portion, as described in paragraph 38, subsection 40(3.4) will not apply to any capital loss realized by Subco on the disposition of the Trust I Units.
F. Provided the principal amount and FMV of the Subco Loan and Subco Note at the time of distribution by Trust I will equal the principal amount and FMV of the same debt outstanding at that time by Subco, as described in paragraph 34, the cancellation of the Subco Cancelled Units (described in that paragraph) will not give rise to a forgiven amount for Subco for purposes of section 80 of the Act.
G. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to re-determine the tax consequences confirmed in the Rulings given above.
Caveats
Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions described herein. For greater certainty, the CRA has not considered, confirmed or made a determination in respect of:
(a) whether Subco is, at any particular time, a XXXXXXXXXX as defined in subsection 248(1);
(b) whether Trust I is, at any particular time, XXXXXXXXXX within the XXXXXXXXXX as defined in subsection 248(1);
(c) whether the transfer of properties described in paragraphs 15, 17, 22 and 24, will meet the requirements under subsection 97(2);
(d) whether the proposed amalgamation of Subco and Parent, as described in paragraph 39, will meet the requirements under section 87;
(e) whether the principal amount and the FMV of the debt on the proposed distribution of the Subco Loan and the Subco Note by Trust I will equal the principal amount and the FMV of the debt outstanding at that time by Subco;
(f) whether New XXXXXXXXXX will, at any time, be a XXXXXXXXXX ; and
(g) any income tax considerations associated with the additional information, as described in paragraphs 43 to 45 above.
In addition, nothing in this letter should be construed as implying that the CRA has agreed to or reviewed:
(h) the determination of the ACB or FMV of any property referred to herein;
(i) the amount of any capital gain or capital loss or any other amount referred to herein;
(j) whether or not any persons referred to in this ruling deal at arm's length;
(k) whether any of the LP Purchasers, Holding LP or Master LP are Canadian partnerships within the meaning of subsection 102(1) at any particular time; and
(l) any tax consequences relating to the facts and proposed transactions described herein other than those described in the Rulings given above.
The above advance income tax rulings, which are based on the Act and Income Tax Regulations to the Act in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed within six months of the date of this letter.
Yours truly,
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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