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: Whether Canada retains the right to tax the gain on shares of a Canadian corporation sold by a non-resident under the applicable treaty.
Position: No.
Reasons: Application of the treaty.
XXXXXXXXXX
XXXXXXXXXX
2011-040329
XXXXXXXXXX, 2012
Dear XXXXXXXXXX
Re: XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided in subsequent correspondence and various telephone conversations. You have advised us that to the best of your knowledge and that of the taxpayers involved, none of the issues involved in this letter are:
(a) in an earlier tax return of Sellco1 or a related person,
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of Sellco1 or a related person,
(c) under objection or appeal by Sellco1 or a related person,
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or
(e) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
In this letter, all statutory references are to the Act and all monetary amounts are in Canadian dollars unless otherwise specified.
DEFINITIONS
In this letter, the following terms have the meanings specified herein:
"ABC Assets" means XXXXXXXXXX.
"ABC Assets Note" means the Canadian-dollar-denominated, non-interest-bearing, prepayable at will and repayable on demand promissory note issued by Canco to Sellco1.
"ABC Obligation 1" means Sellco2's share (Keepco1's share, after the transfer described in Paragraph 38), representing $XXXXXXXXXX, of the $XXXXXXXXXX non-interest-bearing, joint and several obligations of Sellco2 and Sellco1 XXXXXXXXXX repayable no later than XXXXXXXXXX .
"ABC Obligation 2" means Sellco1's share (Canco's share after the transfer described in Paragraph 40), representing $XXXXXXXXXX, of the $XXXXXXXXXX non-interest-bearing, joint and several obligations of Sellco2 and Sellco1 XXXXXXXXXX repayable no later than XXXXXXXXXX.
"ACB" means adjusted cost base within the meaning of the Act.
"Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supplement) as amended.
"agreed amount" means the amount that a transferor and transferee have agreed upon in a joint election under subsection 85(1) in respect of a transfer of eligible property.
"XXXXXXXXXX PA" means the Partnership Act (XXXXXXXXXX).
"Amalco" means XXXXXXXXXX, the entity formed by the amalgamation of Sellco1, Sellco2, Sellco6, Sellco7 and Sellco8. Amalco is a ULC.
"amount" has the meaning assigned by subsection 248(1).
"arm's length" has the meaning assigned by section 251. For the purposes of applying section 212.1, arm's length also has the extended meaning under subsection 212.1(3).
"Assumed Debts" means the Sellptp Note, the Foreignco1 Facility and any other indebtedness owing by Amalco other than indebtedness held by entities that will be subsidiaries of Amalco after the transactions in Paragraph 77 plus the third party obligations of Amalco that are not directly related to the XYZ Business.
"Buyer" means XXXXXXXXXX
"CRA" means the Canada Revenue Agency.
"Canadian partnership" has the meaning assigned in subsection 102(1).
"Canadian resource property" has the meaning assigned in subsection 66(15).
"Canco" means XXXXXXXXXX. Canco will file its tax returns at the XXXXXXXXXX Tax Centre, and will be audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX.
"Canco Note" means the promissory note issued by Canco to Amalco. The Canco Note will be denominated in Canadian dollars, non-interest-bearing, prepayable at will, and repayable on demand, and will have a principal amount equal to the FMV of the Keep Assets less the amount of the Assumed Debts.
"cost amount" has the meaning assigned by subsection 248(1).
"Country 1" means XXXXXXXXXX.
"Country 1 Currency" means Country 1 dollars.
"Country 2" means XXXXXXXXXX.
"eligible property" has the meaning assigned by subsection 85(1.1).
"exempt surplus" has the meaning assigned by the Regulations.
"FAPI" means foreign accrual property income as defined in subsection 95(1).
"FMV" means fair market value.
"Facility" means XXXXXXXXXX facility owned XXXXXXXXXX% by Sellptp, XXXXXXXXXX % by Sellco6, XXXXXXXXXX % by Sellco7 and XXXXXXXXXX % by unrelated third parties.
"First Act" means XXXXXXXXXX, as amended. XXXXXXXXXX.
"Foreign Parent" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX all of the issued and outstanding equity of which is listed XXXXXXXXXX .
"Foreignco1" XXXXXXXXXX, a corporation formed under the laws of XXXXXXXXXX .
"Foreignco1 Debenture 1" means the debenture held by Foreignco1 that was issued by Sellco1 in XXXXXXXXXX evidencing the principal amount owing on XXXXXXXXXX of Country 1 Currency $XXXXXXXXXX and bearing interest at a rate of XXXXXXXXXX % payable semiannually.
"Foreignco1 Debenture 2" means the debenture held by Foreignco1 that was issued by Sellco1 in XXXXXXXXXX evidencing the principal amount owing on XXXXXXXXXX of Country 1 Currency $XXXXXXXXXX and bearing interest at a rate of XXXXXXXXXX % payable semiannually.
"Foreignco1 Debts" means intercompany balances owing by Sellco1 to Foreignco1 excluding the Foreignco1 Debenture 1 and Foreignco1 Debenture 2.
"Foreignco1 Facility" means the credit facility between Foreignco1 as lender, and Sellco1 (Amalco after the amalgamation of the predecessor corporations), as borrower. Indebtedness created under the facility will be denominated in Canadian dollars, prepayable at will, repayable on demand, and will bear interest. The maximum amount of credit under the facility will be $XXXXXXXXXX.
"Foreignco2" means XXXXXXXXXX, a corporation formed under the laws of XXXXXXXXXX.
"Foreignco2 Notes" means one or more promissory notes issued by Foreignco2 to Sellco1. The Foreignco2 Notes will be denominated in Country 1 Currency, non-interest-bearing, prepayable at will, and repayable on demand.
"Foreignco3" means XXXXXXXXXX, a corporation formed under the laws of Country 2 on XXXXXXXXXX.
"Foreignco4" means XXXXXXXXXX, a corporation formed under the laws of XXXXXXXXXX, all of the issued and outstanding shares of which are owned by Foreignco1.
"Foreignco4 Deposit" means amounts of approximately $XXXXXXXXXX and approximately $XXXXXXXXXX respectively advanced to Foreignco4 by Sellco5 and Keepco2.
"Foreignco4 Note" means a Country 1 Currency denominated, interest bearing, intercompany indebtedness owing by Keepco6 to Foreignco4.
"Foreignco6" means XXXXXXXXXX, a corporation formed under the laws of Country 2.
"Foreignco6 Preferred Shares" means XXXXXXXXXX Class A preferred shares of Foreignco6 that are held by Sellco1 (Amalco after the amalgamation of the predecessor corporations). Those shares have a par value of XXXXXXXXXX per share, have a preferential dividend entitlement, are redeemable, and are voting.
"Foreignco7" means XXXXXXXXXX .
"Foreignco8" means XXXXXXXXXX .
"forgiven amount" has the meaning assigned by subsection 80(1).
"Fourth Act" means XXXXXXXXXX, as amended.
"Immovable Property" means "immovable property" under the provisions of the Treaty.
"Keep Assets" means the assets of Amalco or any of its Subsidiaries that are not XYZ Assets, excluding the ABC Assets Note.
"Keep Shares" means the preferred shares of Amalco initially issued to Foreignco3 as described in Paragraph 71. The Keep Shares will be non-voting, redeemable at will, retractable on demand, and will have a non-cumulative dividend entitlement.
"Keepco1" means XXXXXXXXXX , a XXXXXXXXXX formed under the First Act on XXXXXXXXXX . Keepco1 will file its tax returns at the XXXXXXXXXX Tax Centre and will be audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Keepco2" means XXXXXXXXXX
"Keepco3" means XXXXXXXXXX . Keepco3 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office . Its federal business number is XXXXXXXXXX .
"Keepco5" means XXXXXXXXXX . Keepco5 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Keepco6" means XXXXXXXXXX , a corporation formed under the laws of XXXXXXXXXX .
"Keepco7" means XXXXXXXXXX , a corporation formed under the laws of XXXXXXXXXX . Keepco7 indirectly owns an investment in a plant located in XXXXXXXXXX .
"Keepco7 Note" means a Country 1 Currency denominated, non-interest-bearing intercompany indebtedness owing by Sellco1 to Keepco7.
"Keepco8" means XXXXXXXXXX , a corporation formed under the Second Act. Keepco8 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Keepco9" means XXXXXXXXXX . Keepco9 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX . Keepco9's principal business is XXXXXXXXXX .
"Keepco10" means XXXXXXXXXX , a corporation formed under the laws of XXXXXXXXXX . Keepco10's principal business is XXXXXXXXXX in Country 1.
"Keepjv" means the XXXXXXXXXX that was created by an arrangement between Sellptp and XXXXXXXXXX on XXXXXXXXXX. Sellco1 is taking the position that Keepjv is not a partnership and the tax returns are filed on that basis. Sellptp and XXXXXXXXXX both own a XXXXXXXXXX % XXXXXXXXXX interest in Keepjv. XXXXXXXXXX.
"Keepptp1" means XXXXXXXXXX which is a partnership formed in XXXXXXXXXX. The business of Keeppt1 is to participate in XXXXXXXXXX .
"Keepptp2" means the XXXXXXXXXX which was formed in XXXXXXXXXX properties previously held by XXXXXXXXXX and contributed to Keepptp2 as consideration for partnership interests and a XXXXXXXXXX . Sellco1 (Amalco after the amalgamation of the predecessor corporations) owns a XXXXXXXXXX % equity interest in Keepptp2 and XXXXXXXXXX holds the remaining XXXXXXXXXX % interest. XXXXXXXXXX .
"Keepptp3" means the XXXXXXXXXX in which Sellco1 (Amalco after the amalgamation of the predecessor corporations) owns a XXXXXXXXXX % equity interest. Keepptp3 was formed under an agreement executed XXXXXXXXXX between a predecessor of Sellco1 and an arm's length corporation, XXXXXXXXXX . XXXXXXXXXX .
"LLC" means a limited liability company XXXXXXXXXX .
"New Common Shares" means the common shares of Amalco, which will be: (i) voting, (ii) entitled to dividends if and when declared by the Board of Directors, and (iii) entitled to the assets of Amalco upon liquidation subject to any preferential rights of any other class of shares.
"New Country 1 Corp" means XXXXXXXXXX .
"Non-Resident" means a person that is a non-resident of Canada for the purposes of the Act.
"Paragraph" means a numbered paragraph in this letter.
"Partnership Agreement" means the XXXXXXXXXX which governs Sellptp. Pursuant to the Partnership Agreement, Sellco1 is the Managing Partner of Sellptp, and is the true and lawful attorney and agent of each partner with respect to the affairs of the partnership with broad powers to carry on the partnership business and to cause the partnership to perform any and all other acts customary to the carrying on of the partnership's business. Pursuant to the Partnership Agreement, all tax amounts of the partnership shall be allocated at the end of the partnership's fiscal period by Sellco1 in its reasonable discretion, having regard to considerations of commercial reasonableness and economic benefits and burdens accruing to and borne by each partner, or by consent of the partners. The Partnership Agreement expressly provides for the continuation of the partnership notwithstanding a number of events including the transfer or assignment of partnership interests or the replacement of a partner.
"permanent establishment" in respect of a corporation means the permanent establishment of the corporation for purposes of the treaty that is relevant to that corporation.
"predecessor corporation" means, with respect to Amalco, Sellco1, Sellco2, Sellco6, Sellco7 and or Sellco8.
"Preferred Shares" means the Class A, Class B, Class C, and Class D preferred shares of Sellco1 with the following terms: (i) Class A: non-voting, redeemable, retractable and entitled to a dividend if and when declared by the Board of Directors, (ii) Class B: non-voting, redeemable, retractable, and entitled to a non-cumulative dividend equal to XXXXXXXXXX % of the redemption amount; (iii) Class C: non-voting, redeemable, retractable, and entitled to a non-cumulative dividend; and (iv) Class D: non-voting, redeemable, retractable, and entitled to a noncumulative dividend. The redemption amount and ACB of the Preferred Shares is as follows:
Redemption Amount ACB
Class A $XXXXXXXXXX $XXXXXXXXXX
Class B $XXXXXXXXXX $XXXXXXXXXX
Class C $XXXXXXXXXX $XXXXXXXXXX
Class D $XXXXXXXXXX $XXXXXXXXXX
"Proposed Transactions" means those transactions described in the Proposed Transactions section of this letter.
"PUC" means paid-up capital as defined in subsection 89(1).
"Regulations" means the Income Tax Regulations, CRC. c. 945.
"Related" refers to related persons as defined in subsection 251(2).
"safe-income on hand" in respect of a particular share of a corporation at a particular time, means the portion of the unrealized gain inherent in such share of the corporation at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events that includes the Proposed Transactions;
"safe-income determination time" has the meaning assigned by subsection 55(1).
"Second Act" means the XXXXXXXXXX , as amended.
"Second Treaty" means XXXXXXXXXX , as amended.
"Sellco1" means XXXXXXXXXX , a corporation resulting from the amalgamation of XXXXXXXXXX with a wholly-owned subsidiary, XXXXXXXXXX . Sellco1 is a ULC. The business segments of Sellco1 are (listed in order of Sellco1's estimates of FMV from highest to lowest):
1. XXXXXXXXXX
XXXXXXXXXX .
The assets used in this business are primarily comprised of XXXXXXXXXX .
XXXXXXXXXX and, prior to commencement of any of the transactions, are held by Sellco2 and Sellco1 (noting that as part of the transactions in the rulings these assets are being transferred to Keepco1 and to Canco). These assets are categorized as XXXXXXXXXX .
"Sellco1 Note" means a Country 1 Currency denominated, non-interest-bearing, intercompany indebtedness owing by Sellco1 (Amalco after the amalgamation of the predecessor corporations) to Keepco6 in the amount of approximately Country 1 Currency $XXXXXXXXXX prior to the repayment described in this letter.
"Sellco2" means XXXXXXXXXX .
"Sellco3" refers XXXXXXXXXX . Its principal business address is at XXXXXXXXXX . Sellco3 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Sellco4" refers to XXXXXXXXXX . Its principal business address is at XXXXXXXXXX . Sellco4 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Sellco5" refers to XXXXXXXXXX post conversion of XXXXXXXXXX to a limited liability company in Paragraph 36. Sellco5 is a corporation formed under the laws of XXXXXXXXXX , and is a wholly-owned subsidiary of Sellco1.
"Sellco6" means XXXXXXXXXX . Sellco6 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Sellco6 Note" means a non-interest-bearing debt owing by Sellco6 to Sellptp in the amount of approximately $XXXXXXXXXX .
"Sellco7" refers XXXXXXXXXX . Sellco7 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Sellco7 Note" means a non-interest-bearing debt owing by Sellco7 to Sellptp in the amount of approximately $XXXXXXXXXX .
"Sellco8" means XXXXXXXXXX . (XXXXXXXXXX after the conversion described in Paragraph 45). Sellco8 files its tax returns at the XXXXXXXXXX Tax Centre, and is audited from the XXXXXXXXXX Tax Services Office. Its federal business number is XXXXXXXXXX .
"Sellptp" means XXXXXXXXXX , a partnership formed on XXXXXXXXXX under XXXXXXXXXX PA and governed by the terms of the Partnership Agreement. Its principal business address is at XXXXXXXXXX . Sellptp is in the business of XXXXXXXXXX .
"Sellptp Note" means a non-interest-bearing debt owing by Sellco1 (Amalco after the amalgamation of the predecessor corporations) to Sellptp.
"XXXXXXXXXXCo" means XXXXXXXXXX .
"specified financial institution" has the meaning assigned by subsection 248(1).
"subsidiary wholly-owned corporation" has the meaning assigned by subsection 87(1.4) or subsection 248(1) as the context requires.
"Tax Benefit" has the meaning assigned by subsection 245(1).
"taxable Canadian corporation" has the meaning assigned by subsection 89(1).
"taxable Canadian property" has the meaning assigned by subsection 248(1).
"taxable capital gain" has the meaning assigned by subsection 248(1).
"taxation year" has the meaning assigned by subsection 249(1).
"Third Act" means XXXXXXXXXX, as amended.
"Treaty" means the Convention between Canada and Country 2 for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, as amended.
"ULC" means an unlimited liability company XXXXXXXXXX.
"XYZ" means XXXXXXXXXX .
"XYZ Assets" means the assets forming part of the XYZ Business including the shares of Sellco3, Sellco4, Sellco6, Sellco7, certain assets owned by Sellco2, Sellco5 and Sellco1, and following the Proposed Transactions, the shares of Amalco, Sellco3, Sellco4, Sellco5, XXXXXXXXXXCo and New Country 1 Corp. The primary assets of this business are XXXXXXXXXX .
"XYZ Business" means the business of XXXXXXXXXX .
FACTS
1. Foreignco1 is an indirect subsidiary of Foreign Parent. Foreignco1 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty.
2. Foreignco2 is a subsidiary wholly-owned corporation of Foreignco1. Foreignco2 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty.
3. Foreignco3 is a subsidiary wholly-owned corporation of Foreignco2. Foreignco3 is a Non-Resident. For purposes of the Treaty, Foreignco3 does not have a permanent establishment in Canada and is a resident of Country 2.
4. Sellco1 is a taxable Canadian corporation. The outstanding share capital of Sellco1 consists of the common shares owned by Foreignco3 and the Preferred Shares owned by Sellco2. The PUC of the common shares is equal to $XXXXXXXXXX and their ACB is equal to $XXXXXXXXXX . Foreignco3 acquired the common shares of a predecessor of Sellco1 on XXXXXXXXXX from Foreignco2 which had acquired them from Foreignco1. Foreignco3 subsequently transferred the shares of that predecessor of Sellco1 to another predecessor of Sellco1. Both predecessors were amalgamated on XXXXXXXXXX to form Sellco1 and Foreignco3 received the common shares of Sellco1 on that date. Sellco1 has non-interest-bearing amounts payable on demand owing to Keepco5, Keepco6, Keepco7, Keepco8, Keepptp1, Foreignco1, Sellptp and Sellco5.
5. Sellco2 is a taxable Canadian corporation, was formed by amalgamation under the First Act, and is a wholly-owned subsidiary of Sellco1. Sellco2 has a fiscal and taxation year-end of XXXXXXXXXX . Sellco2's assets include the ABC Assets and Sellco2's liabilities include the ABC Obligation 1. Substantially all of Sellco2's assets, other than shares of subsidiaries, are used in the XYZ Business. Sellco2 has an intercompany balance owing to Keepco3, to Sellco3 and to Sellco4.
6. Keepco1 is a taxable Canadian corporation. Sellco2 owns all the issued and outstanding shares of Keepco1. It has a fiscal and taxation year-end of XXXXXXXXXX . Keepco1 was formed to facilitate the Proposed Transactions.
7. Canco is a taxable Canadian corporation and a wholly-owned subsidiary of Sellco1. The only issued and outstanding share of Canco is a common share having a FMV, ACB and PUC of $XXXXXXXXXX . It has a fiscal and taxation year-end of XXXXXXXXXX .
8. Keepco8 is a taxable Canadian corporation. XXXXXXXXXX. It has a fiscal and taxation year-end of XXXXXXXXXX . Keepco8 was formed to hold certain XXXXXXXXXX land.
9. Keepptp1 is a partnership that holds XXXXXXXXXX . Sellco1 (Amalco after the amalgamation of the predecessor corporations) and Sellco8 own XXXXXXXXXX % of the interests in Keepptp1.
10. Sellco3 is a taxable Canadian corporation formed under the Third Act, all the issued and outstanding shares of which are held by Sellco2. Its taxation years end on XXXXXXXXXX . All or substantially all of Sellco3's assets are used in the XYZ Business.
11. Sellco4 is a taxable Canadian corporation formed under the Third Act, all the issued and outstanding shares of which are held by Sellco2. Its taxation years end on XXXXXXXXXX . All or substantially all of Sellco4's assets are used in the XYZ Business.
12. Keepco3 is a taxable Canadian corporation that was continued under the First Act, and is a wholly-owned subsidiary of Sellco2. The only issued and outstanding shares of Keepco3 are common shares. It has a fiscal and taxation year-end of XXXXXXXXXX . Keepco3's principal business XXXXXXXXXX. Keepco3's assets include XXXXXXXXXX voting common shares of Sellco8. Keepco3 owes an intercompany amount in excess of $XXXXXXXXXX to Sellco2.
13. Sellco8 is a taxable Canadian corporation continued under the Second Act. It has a fiscal and taxation year-end of XXXXXXXXXX . Sellco8's principal asset is a XXXXXXXXXX % equity interest in Sellptp. The share capital of Sellco8 consists of: (i) XXXXXXXXXX voting common shares owned by Keepco3, (ii) XXXXXXXXXX non-voting common shares owned by Sellco2, (iii) XXXXXXXXXX Special A non-voting shares owned by Sellco2, and (iv) XXXXXXXXXX non-voting preferred shares owned by Sellco1.
14. Keepco9 is a taxable Canadian corporation formed under the Third Act, and is a wholly-owned subsidiary of Sellco1. It has a fiscal and taxation year-end of XXXXXXXXXX . Keepco9 owes an amount in excess of $XXXXXXXXXX to Sellco1.
15. Sellptp is a Canadian partnership and its fiscal period ends on XXXXXXXXXX of each year. The partners of Sellptp and their equity interests are as follows (i) Sellco1 - XXXXXXXXXX %, (ii) Sellco8 - XXXXXXXXXX %, (iii) Keepco5 - XXXXXXXXXX %, and (iv) Sellco2 - XXXXXXXXXX %. Sellptp's principal assets include a XXXXXXXXXX % equity interest in Keepjv, shares of Keepco5, Sellco6 and Sellco7, the Sellptp Note, the Sellco6 Note and the Sellco7 Note XXXXXXXXXX .
16. [Reserved]
17. Keepco5 is a taxable Canadian corporation that was formed under the Second Act, and is a wholly-owned subsidiary of Sellptp. The only issued and outstanding shares of Keepco5 are common shares. It has a fiscal and taxation year-end of XXXXXXXXXX . Keepco5's assets consist of 1) a XXXXXXXXXX % equity interest in Sellptp and 2) an intercompany receivable from Sellco1 in the amount of $XXXXXXXXXX .
18. Sellco6 is a taxable Canadian corporation that was formed under the First Act, and is a wholly-owned subsidiary of Sellptp. It has a fiscal and taxation year-end of XXXXXXXXXX . All or substantially all of Sellco6's assets are used in the XYZ Business.
19. Sellco7 is a taxable Canadian corporation that was formed under the First Act, and is a wholly-owned subsidiary of Sellptp. It has a fiscal and taxation year-end of XXXXXXXXXX . All or substantially all of Sellco7's assets are used in the XYZ Business.
20. Keepjv is an unincorporated joint venture in which Sellptp has a XXXXXXXXXX % equity interest.
21. Keepptp3 is a Canadian partnership in which Sellco1 has a XXXXXXXXXX % equity interest.
22. Keepptp2 is a Canadian partnership in which Sellco1 has a XXXXXXXXXX % equity interest.
23. Sellco5 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty. Sellco5 holds a Foreignco4 Deposit, and its principal business is a component of the XYZ Business. Sellco5 owes an intercompany balance to Keepco2.
24. Keepco2 is a corporation formed under the laws of XXXXXXXXXX , and is a wholly-owned subsidiary of Sellco5. Keepco2 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty. Keepco2 holds a Foreignco4 Deposit.
25. Keepco6 is a wholly-owned subsidiary of Sellco1. The only issued and outstanding shares of Keepco6 consist of common shares and preferred shares. Keepco6 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty. Keepco6's principal business XXXXXXXXXX , and it holds the Sellco1 Note. Keepco6's assets include XXXXXXXXXX. Keepco 6 owes the Foreignco4 Note to Foreignco4.
26. Keepco7 is a wholly-owned subsidiary of Sellco1. The issued and outstanding shares of Keepco7 are common shares. Keepco7 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty. Keepco7 holds the Keepco7 Note.
27. Keepco10 is a wholly-owned subsidiary of Keepco9. Keepco10 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 1 for purposes of the Second Treaty.
28. Foreignco6 is a Non-Resident, does not have a permanent establishment in Canada, and is a resident of Country 2 for purposes of the Treaty. All of the Foreignco6 Preferred Shares are held by Sellco1. Approximately XXXXXXXXXX % of the ordinary shares of Foreignco6 are held by Foreignco7 (which is XXXXXXXXXX % owned by Keepco7 and the remaining XXXXXXXXXX % is held outside of the Canadian group of companies) and the remaining XXXXXXXXXX % of the ordinary shares are held by Foreignco8 (all the shares of which are held outside of the Canadian group of companies).
29. All of the shares being disposed of as part of the Proposed Transactions are held as capital property, and will be disposed of for consideration not exceeding their FMV.
PRE-COMMENCEMENT STEPS
30. XXXXXXXXXX , Sellco1 amalgamated with a wholly-owned subsidiary that held partnership interests in Sellptp.
31. [Reserved].
32. Sellco1 transferred all of the issued and outstanding common shares of Canco to Foreignco3 in consideration for $XXXXXXXXXX .
33. Sellco1 formed XXXXXXXXXXCo and New Country 1 Corp as wholly-owned subsidiaries and received common shares of XXXXXXXXXXCo and member interests of New Country 1 Corp on their incorporation.
34. Sellco1 repaid approximately Country 1 Currency XXXXXXXXXX of the Sellco1 Note to Keepco6. Sellco1 realized a taxable capital gain (due to foreign exchange) on the repayment.
35. Keepco6 repaid the Foreignco4 Note.
36. Sellco5 was converted from a corporation XXXXXXXXXX . The conversion was carried out pursuant to the laws of XXXXXXXXXX , and did not result in the dissolution of Sellco5 or disposition of its assets. Sellco5 is deemed to be the same entity after the conversion as it was before the conversion, and the shares of Sellco5 held by Sellco1 prior to the conversion were be deemed converted into ownership interests in Sellco5 as converted.
37. Sellco2 conveyed ABC Assets to Keepco1 in consideration for XXXXXXXXXX common shares of Keepco1. Sellco2 and Keepco1 will jointly elect in prescribed form and within the time allowed by subsection 85(7) to have the rules of subsection 85(1) apply to the transfer of the ABC Assets that qualify as eligible property to Sellco2. The agreed amount was $XXXXXXXXXX which is the minimum amount that may be elected under subsection 85(1).
The increase to the PUC of the common shares of Keepco1 did not exceed the maximum amount that can be added to the PUC of such shares, having regard to subsection 85(2.1).
38. Sellco2 conveyed an intercompany receivable from Keepco3 that has a FMV of $XXXXXXXXXX to Keepco1 and Keepco1 has the right to enforce payment of the full amount of that receivable. In exchange for the intercompany receivable, Keepco1 assumed Sellco2's rights and obligations under the ABC Obligation 1 and issued 1 common share of Keepco1. Although it is not currently anticipated that any material income, gain or loss will arise from the transfer, Sellco2 and Keepco1 jointly elected in prescribed form and within the time allowed by subsection 85(7) to have the rules of subsection 85(1) apply to the transfer of the intercompany receivable from Keepco3. The agreed amount was equal to the FMV of the intercompany receivable, which was equal to $XXXXXXXXXX .
The increase to the paid-up capital of the common shares of Keepco1 did not exceed the maximum amount that can be added to the paid-up capital of such shares, having regard to subsection 85(2.1).
39. Sellco1 conveyed ABC Assets to Canco in consideration for the ABC Assets Note having a principal amount equal to the FMV of the ABC Assets.
40. Sellco1 conveyed an intercompany receivable from Keepco9 with a FMV of $XXXXXXXXXX to Canco and Canco has the right to enforce payment of the full amount of that receivable. In exchange for the intercompany receivable, Canco will assume Sellco1's rights and obligations under the ABC Obligation 2.
41. Sellco5 transferred its Foreignco4 Deposit to Keepco2 in exchange for additional common shares of Keepco2.
42. Keepco5 paid a dividend in the amount of $XXXXXXXXXX to Sellptp with payment made by Keepco5 assigning/distributing intercompany amounts receivable from Sellco2 and Sellco1 in the amounts of $XXXXXXXXXX and $XXXXXXXXXX respectively. The partners of Sellptp (i.e. Sellco1, Keepco5, Sellco8 and Sellco2) may each make one or more designations under paragraph 55(5)(f) in respect of the dividend.
43. Keepco5 paid a stock dividend in the amount of $XXXXXXXXXX to Sellptp with payment to be made by issuing newly issued common shares and the stated capital and PUC of the common shares was increased by $XXXXXXXXXX . The partners of Sellptp (i.e. Sellco1, Keepco5, Sellco8 and Sellco2) may each make one or more designations under paragraph 55(5)(f) in respect of the dividend.
44. Sellptp distributed the shares of Keepco5 to Sellco1 as a return of partnership capital. As a result, Sellptp A realized a taxable capital gain.
45. Sellco8 was continued as a ULC under the First Act. The continuation did not result in the dissolution of Sellco8 or disposition of its assets. Sellco8 is deemed to be the same corporation after the continuation as it was before the continuation and the shares of
Sellco8 held by Sellco1 and Sellco2 prior to the continuation were not redeemed, acquired or cancelled or otherwise exchanged for new shares of Sellco8.
46. [Reserved]
47. Keepco2 paid a dividend approximately equal to its exempt surplus (net of any taxable deficit) with payment to be made by Keepco2 issuing a note to Sellco5. The note was denominated in Country 1 Currency, non-interest-bearing, prepayable at will, and repayable on demand, and was partially settled immediately thereafter by way of offset against the intercompany balance owing from Sellco5 to Keepco2. The principal balance of the note exceeded the intercompany balance and additional shares of Keepco2 were issued to settle the remaining principal balance of the note.
48. Sellco5 transferred XXXXXXXXXX common shares of Keepco2 to Sellco1 in exchange for an intercompany obligation. The remaining shares of Keepco2 were transferred to Sellco1 as a dividend. The intercompany obligation was denominated in Country 1 Currency, non-interest-bearing, prepayable at will, and repayable on demand and was offset against all or a portion of the existing intercompany balance owing by Sellco1 to Sellco5. The taxable portion of the gain realized by Sellco5 on the disposition of the Keepco2 shares was FAPI.
49. Sellco1 distributed the shares of Keepco2 to Foreignco3 as a dividend in kind.
50. [Reserved]
Elimination of Inter-Company Debts, Payments of Safe-income on Hand Dividends and Exempt Surplus Dividends, and Contributions of Capital
50.1. Foreignco1 and Sellco1 entered into the Foreignco1 Facility agreement.
50.2. Certain intercompany balances were transferred for FMV consideration such that most remaining intercompany accounts were between parent and subsidiary entities.
51. [Reserved]
52. Keepco3 paid a dividend in an amount equal to its approximate safe-income on hand with payment made by Keepco3 issuing a note to Sellco2 having a principal amount equal to $XXXXXXXXXX and by Keepco3 issuing shares to Sellco2 as a stock dividend in the amount of $XXXXXXXXXX . The note was denominated in Canadian dollars, non-interest-bearing, prepayable at will, and repayable on demand, and was settled immediately thereafter by Keepco3 by way of offset against the intercompany balance owing from Sellco2 to Keepco3. An amount equal to the excess of the safe-income on hand of Keepco3 over the amount of the principal of the note described in this Paragraph was added to the stated capital account maintained in respect of the common shares of Keepco3. Sellco2 may make one or more designations under paragraph 55(5)(f) in respect of the dividend.
53. Keepco9 paid a dividend in an amount equal to its approximate safe-income on hand. Payment was made by Keepco9 issuing common shares to Sellco1. The amount of the stock dividend was equal to Keepco9's approximate safe-income on hand. Sellco1 may make one or more designations under paragraph 55(5)(f) in respect of the dividend.
54. [Reserved]
55. [Reserved]
56. Keepco8 paid a dividend in an amount equal to its intercompany balance receivable from Sellco1 with payment to be made by Keepco8 issuing a note to Sellco1. The note was denominated in Canadian dollars, non-interest-bearing, prepayable at will, and repayable on demand, and was settled immediately thereafter by Keepco8 by way of offset against the intercompany balance owing from Sellco1 to Keepco8. Sellco1 may make one or more designations under paragraph 55(5)(f) in respect of the dividend.
57. Keepco6 paid a dividend in an amount equal to $XXXXXXXXXX from its exempt surplus (net of any taxable deficit) with payment to be made by Keepco6 issuing a note to Sellco1. The note was denominated in Country1 Currency, non-interest-bearing, prepayable at will, and repayable on demand, and was settled immediately thereafter by way of offset against the Sellco1 Note. Sellco1 realized a taxable capital gain (due to foreign exchange) on the partial repayment of the Sellco1 Note.
58. Keepco7 paid a dividend equal to the intercompany balance due from Sellco1 with payment made by Keepco7 issuing a note to Sellco1. The note was denominated in Country 1 Currency, non-interest-bearing, prepayable at will, and repayable on demand, and was settled immediately thereafter by way of offset against the Keepco7 Note. Sellco1 realized a taxable capital gain (due to foreign exchange) on the repayment of the Keepco7 Note. Sellco1 may elect under proposed paragraph 5901(2)(b) of the Regulations in respect of the distribution.
59. [Reserved]
60. Sellco1 repaid the intercompany balance owing to Keepptp1 in the amount of approximately $XXXXXXXXXX with a cash repayment.
61. Keepptp1 distributed the proceeds from the repayment described in paragraph 60, XXXXXXXXXX % to Sellco1 and XXXXXXXXXX % to Sellco8.
Asset Reorganization
62. Sellco5 disposed of its assets, other than XYZ Assets or the shares of Keepco2, for FMV non-share consideration to an arm's length party.
63. Keepptp1 was dissolved and Sellco1 will assume for nominal consideration all of Keepptp1's rights and obligations.
64. [Reserved]
PROPOSED TRANSACTIONS
65. Sellptp will distribute all its shares of Sellco6 and Sellco7 and a XXXXXXXXXX % interest in the Facility to Sellco1 as a return of capital.
65.1. Sellco3 will pay a dividend in an amount equal to its inter-company balance receivable from Sellco2, with payment to be made by Sellco3 issuing a note to Sellco2. The note will be denominated in Canadian dollars, non-interest-bearing, prepayable at will, and repayable on demand, and will be settled immediately thereafter by Sellco3 by way of offset against the intercompany balance owing from Sellco2 to Sellco3. Sellco2 may make one or more designations under paragraph 55(5)(f) in respect of the dividend.
65.2. Sellco4 will pay a dividend in an amount equal to its inter-company balance receivable from Sellco2 with payment to be made by Sellco4 issuing a note to Sellco2. The note will be denominated in Canadian dollars, non-interest-bearing, prepayable at will, and repayable on demand, and will be settled immediately thereafter by Sellco4 by way of offset against the intercompany balance owing from Sellco2 to Sellco4. Sellco2 may make one or more designations under paragraph 55(5)(f) in respect of the dividend.
66. Sellco1 and Sellco2 will enter into certain XXXXXXXXXX contracts with XXXXXXXXXXCo on arm's-length terms pursuant to which XXXXXXXXXXCo will have the right to acquire XYZ from Sellco1 and XXXXXXXXXX
67. Sellco1 will transfer shares of Keepco6, Keepco7 and transfer the Foreignco6 Preferred Shares to Foreignco2 in exchange for the Foreignco2 Notes with aggregate principal amounts equal to the FMV of the Keepco6 shares, the Keepco7 shares, and the Foreignco6 Preferred Shares. An election under 93(1) may, if applicable, be made in respect of these transfers.
68. Sellco1 will draw an amount on the Foreignco1 Facility and it will repay in full the outstanding balances (principal, interest and early redemption premium, where applicable) on the Foreigncol Debentures, the Foreignco1 Debts, and the remaining balance outstanding on the Sellco1 Note. In addition, Sellco1 will transfer the Foreignco2 Notes to Foreignco1 as partial repayment of the outstanding balance due by Sellco1 on the Foreignco1 Facility. It is currently anticipated that Sellcol will realize a taxable capital gain (due to foreign exchange) on the repayment of the Foreigncol Debentures and the Sellco1 Note.
Amalgamation
69. Keepco3 sold its voting common shares of Sellco8 to Sellco2 and received as consideration a note with a principal amount equal to the FMV of the sold shares. The note is denominated in Canadian dollars, non-interest-bearing, prepayable at will and repayable on demand.
70. Sellco1, Sellco2, Sellco6, Sellco7and Sellco8 will be amalgamated to form Amalco with the result that:
(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger becomes property of Amalco by virtue of the merger,
(b) all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger become liabilities of Amalco by virtue of the merger, and
(c) all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before the merger, namely Foreignco3, receive shares of the capital stock of Amalco because of the merger.
Split-Up Transactions
71. The share capital of Amalco will be reorganized into two classes of shares; the New Common Shares and the Keep Shares. Foreignco3 will dispose of all the shares of Amalco that it owns to Amalco and those shares will be cancelled. Foreignco3 will receive Keep Shares and New Common Shares in exchange. The redemption amount and FMV of the Keep Shares will be equal to the FMV of the Keep Assets, of the ABC Assets Note less the amount of the Assumed Debts.
72. [Reserved]
73. [Reserved].
74. Foreignco3 owns the Keep Shares on account of capital. Foreignco3 will transfer the Keep Shares to Canco in exchange for additional Canco Shares. Foreignco3 and Canco will jointly elect in prescribed form and within the time allowed by subsection 85(6) to have the rules of subsection 85(1) apply to the transfer of the Keep Shares to Canco and the agreed amount in the joint election will be equal to the FMV of the Keep Shares.
Canco will add to its stated capital account maintained for its common shares the agreed amount. For greater certainty, the increase to the paid-up capital of the common shares of Foreignco3 will not exceed the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 212.1(1).
75. Keepco6 will transfer certain XXXXXXXXXX contracts to New Country 1 Corp and other assets to New Country 1 Corp or Sellco5 in exchange for consideration consisting of cash.
76. Amalco will transfer the Keep Assets to Canco in exchange for the Canco Note and the assumption of the Assumed Debts. It is currently anticipated that the transfer of the Keep Assets will result in a net taxable capital gain and or income that will be reported by Amalco in its taxation year that will end as a result of the acquisition of control described in Paragraph 78.
77. Amalco will purchase the Keep Shares from Canco for cancellation in exchange for an obligation to pay an amount equal to the aggregate principal amounts of the Canco Note, the ABC Assets Note. The repurchase obligation will be set off against the Canco Note, the ABC Assets Note and each of the repurchase obligation, the Canco Note, the ABC Assets Note will be extinguished. Under the First Act, the Keep Shares are cancelled at the time they are acquired by Amalco.
Sale to Third Party
78. Foreignco3 will sell the New Common Shares to the Buyer in exchange for cash in the amount of $XXXXXXXXXX plus adjustments (the total amount paid should not exceed $XXXXXXXXXX ).
78.1. Foreignco3 deals at arm's length with Buyer.
79. Amalco will obtain a valuation opinion in respect of certain assets transferred in the Proposed Transactions, and is in the process of determining the ACB, cost amount and/or PUC of the relevant assets.
80. The common shares exchanged by Foreignco3 in Paragraph 71 will be taxable Canadian property at the time of the exchange.
81. The Keep Shares transferred to Canco as described in Paragraph 75 will derive at the time of each respective disposition more than 50% of their FMV from XXXXXXXXXX situated in Canada (i.e. XXXXXXXXXX , XYZ Assets, and certain other equipment used in the businesses carried on by Amalco and its Subsidiaries) in which the business of Sellco 1, Amalco and their subsidiaries is carried on.
The remaining property of Amalco and its Subsidiaries is related to XXXXXXXXXX . Amalco, either directly or through its Subsidiaries, is actively engaged in the business of XXXXXXXXXX , and the XYZ Business. Neither Amalco nor any of its Subsidiaries are in the business of buying and selling XXXXXXXXXX any XXXXXXXXXX form of real or immovable property for speculative purposes.
82. The New Common Shares of Amalco disposed of by Foreignco3 as described in Paragraph 78 will derive at the time of the disposition all or substantially all of their FMV from XXXXXXXXXX property situated in Canada (the XYZ Assets) in which the business of Amalco and its subsidiaries is carried on.
83. It is anticipated that each of the entities receiving a dividend as part of the Proposed Transactions will be considered a specified financial institution solely as a result of paragraphs (f) or (g) of the definition of specified financial institution in subsection 248(1). However, none of the entities acquired any of the relevant shares in the ordinary course of business as contemplated by subsections 112(2.1) and 258(4).
84. Amalco is not a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary" corporation in subsection 191(1).
85. None of the corporations involved in the Proposed Transactions has or will have entered into a "dividend rental arrangement" as defined by subsection 248(1) with respect to any of the shares upon which dividends are declared or paid in the course of the Proposed Transactions.
86. No guarantee agreement, within the meaning ascribed by subsection 112(2.2) has been entered into in respect of any of the shares upon which dividends are declared or paid in the course of the Proposed Transactions.
87. None of the shares upon which dividends are declared or paid in the course of the Proposed Transactions have been or will be issued or acquired as part of a transaction or series of transactions of the type described in subsection 112(2.5).
88. [Reserved]
89. Sometime subsequent to the conveyance of the Keep Assets to Canco, as described in Paragraph 76, Sellptp may be dissolved on either a taxable or a tax-deferred basis.
90. [Reserved]
91. [Reserved]
92. The Sellco7 Note, the Sellco6 Note, and all or part of the indebtedness between Sellco5 and Amalco will be repaid some time prior to the transfer of the Keep Assets. In addition, other inter-company balances will be settled through various transactions. The repayments should not impact any of the Rulings requested.
93. Sellco3, Sellco4, and XXXXXXXXXXCo will be continued under the Fourth Act as ULCs. The continuation and the conversion to ULCs will not result in the dissolution of any of the entities. Each entity will be deemed to be the same corporation after the continuation as it was before the continuation and the shares of each of Sellco3, Sellco4, and XXXXXXXXXXCo will not be redeemed, acquired or cancelled or otherwise exchanged for new shares.
PURPOSE OF THE PROPOSED TRANSACTIONS
The principal purpose of the Proposed Transactions as a whole is to dispose of the XYZ Assets to the third party. For commercial and tax reasons, a disposition of Amalco after the transfer of the Keep Assets is the preferred means of disposing of the XYZ Assets. The specific purpose of each of the transactions can be summarized as follows:
(a) The Foreinco1 Facility is being put in place to: (i) facilitate the repayment of Foreignco1 Debenture 1 and Foreignco1 Debenture 2, the Foreignco1 Debts and the Sellco1 Note, and (ii) to provide on-going financing for the Canadian operations of the group without foreign exchange exposure.
(b) The amalgamation described in the definition of Sellco1 was undertaken to simplify the Canadian structure and consolidate the tax attributes of the amalgamated entities.
(c) The transaction described in Paragraphs 36 is being undertaken for Country 1 tax purposes.
(d) The transactions described in Paragraphs 37-41, 47-49, 62, 65, 67, 69 and 71-77 are required to separate the XYZ Assets and the Keep Assets.
(e) The transaction described in Paragraphs 42, 43 and 44 are being undertaken to eliminate the incestuous interests between Sellptp and Keepco5 whereby Sellptp holds XXXXXXXXXX % of the shares of Keepco5, and Keepco5 holds a XXXXXXXXXX % interest in Sellptp. XXXXXXXXXX.
(f) The continuation of Sellco8 under the First Act described in Paragraph 45 is being undertaken to: (i) facilitate the amalgamation described in Paragraph 70, and (ii) for Country 1 tax purposes XXXXXXXXXX.
(g) The following payments are made to eliminate the intercompany balances between Sellco2 and Sellco3 and between Sellco2 and Sellco4:
(i) the payment described in Paragraph 65.1 by Sellco3 of a dividend to Sellco2 and the resulting elimination of an intercorporate receivable; and
(ii) the payment described in Paragraph 65.2 by Sellco4 of a dividend out of its safe-income on hand to Sellco2 and the resulting elimination of an intercorporate receivable.
(h) The objective of the sale described in Paragraph 62 by Sellco5 of its assets other than XYZ Assets or the shares of Keepco2 to an arm's length party was commercial.
(i)The objective of the dissolution of Keepptp1 described in Paragraph 63 is to simplify the corporate structure as the partnership has ceased carrying on its business.
(j) The transactions described in Paragraph 66 are required for commercial and regulatory reasons to ensure the XXXXXXXXXX are held in a separate entity following the Amalgamation.
(k) The amalgamation of the predecessor corporations described in Paragraph 70 is aimed at consolidating interests in Sellptp prior to their transfer to Canco (on the amalgamation, the partner other than Amalco is Keepco5).
(l) The transactions described in Paragraphs 34, 35, 50.1-61 and 68 are required to settle intercompany debts prior to the sale of Amalco to a third party as well as, in certain instances, increase the adjusted cost based of shares of certain Subsidiaries.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the pre-commencements steps, the proposed transactions, the other information and the purpose of the proposed transactions, and that the pre-commencements steps and the proposed transactions herein described are completed in the manner contemplated above, our rulings are as follows:
A. A forgiven amount will not arise on:
(a) the assumption by Keepco1 of the rights and obligations of Sellco2 under the ABC Obligation 1 as consideration for the conveyance of an intercompany receivable from Keepco3 as described in Paragraph 38; and
(b) the assumption by Canco of the rights and obligations of Sellco1 under the ABC Obligation 2 as consideration for the conveyance of an intercompany receivable from Keepco9 as described in Paragraph 40.
B. In connection with the amalgamation of Sellco1, Sellco2, Sellco6, Sellco7 and Sellco8, the provisions of section 87 will apply to Amalco and the provisions of subsection 87(4), other than paragraphs 87(4)(c), (d) and (e), will apply to Foreignco3 and no deemed dividend under subsection 84(3) will arise, as a result of the elimination of the shares held by any of the predecessor corporations in any other predecessor corporation, including the Preferred Shares, or shares of Sellco2 and Sellco8. The cancellation of the following shares on the amalgamation will not give rise to a gain or loss:
(a) the Preferred Shares of Sellco1 held by Sellco2;
(b) the shares of Sellco2 held by Sellco1;
(c) the non-voting common shares owned by Sellco2 in Sellco8;
(d) the shares of Sellco6 held by Sellco1;
(e) the shares of Sellco7 held by Sellco1;
(f) the shares of Sellco8 held by Sellco1.
C. The partners in Sellptp will not be considered to have disposed of all or part of their partnership interests in that partnership as a result of the distribution of the Keepco5 shares described in Paragraph 44.
D. On the exchange of the shares of Amalco by Foreignco3, as described in Paragraph 71, the provisions of subsection 86(1) will apply and the provisions of subsections 86(2) and (2.1) will not apply to the disposition of each share for one Keep Share and one New Common Share provided that:
(a) Foreignco3 holds the shares of Amalco as capital property; and
(b) Foreignco3 and Amalco do not file an election under subsection 85(1) in respect of the exchange,
such that:
(c) Foreignco3 will be deemed by paragraph 86(1)(b) to have acquired the Keep Share and the New Common Share at a cost equal to the proportion of the adjusted cost base to Foreignco3 of such Amalco share immediately before the exchange that:
(A) the FMV, immediately after the exchange, of the Keep Share and one New Common Share, as the case may be, received by the particular Participant;
is of
(B) the FMV, immediately after that exchange, of all the shares of Amalco acquired by Foreignco3 on the exchange; and
(d) pursuant to paragraph 86(1)(c), Foreignco3 will be deemed to have disposed of its shares of Amalco for aggregate proceeds of disposition equal to the aggregate cost to Foreignco3 of the Keep Shares and the New Common Shares received by Foreignco3 as determined in (c) above.
E. The following gains will be exempt from tax under the Act by virtue of Article 13 of the Treaty:
(a) the gain realized by Foreignco3 on the transfer of the Keep Shares to Canco described in Paragraph 74; and
(b) the gain realized by Foreignco3 on the disposition of the New Common Shares described in Paragraph 78.
F. As a result of the purchase by Amalco of the Keep Shares described in Paragraph 77, by virtue of subsection 84(3):
(a) Amalco will be deemed to have paid, and Canco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by Amalco in respect of its purchase of the Keep Shares owned by Amalco exceeds the PUC of such class of shares immediately before the purchase;
(b) The taxable dividend described in (a) above:
(i) will be included in computing the income of Canco, pursuant to subsection 82(1) and paragraph 12(1)(j);
(ii) will be deductible by Canco pursuant to subsection 112(1) in computing its taxable income in the year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);
(iii) will be excluded in determining the proceeds of disposition to Canco of the shares so purchased and cancelled pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;
(iv) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the Keep Shares;
(v) will not be subject to tax under Part IV except to the extent that Amalco is entitled to a dividend refund for its taxation year in which it paid such dividend; and
(vi) will not be subject to tax under Part IV.1 or VI.1.
G. Subsection 55(2) will not apply to the deemed dividends described in ruling F(a) above.
H. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings above.
These rulings are 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 pre-commencements steps and the Proposed Transactions are completed no later than six months of the date of this letter. The rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of:
(a) the FMV or the ACB of any particular asset, including the source from which the shares described in this letter derive their value or the PUC of any such share;
(b) the determination of the outstanding balance of various tax accounts such as safe-income on hand or exempt surplus;
(c) any tax consequences relating to the facts, pre-commencements steps and Proposed Transactions other than those specifically described in the above rulings; and
(d) whether the Keep Shares or the New Common Shares derive more than 50% of their value from immovable property in which the business of Sellco1 or Amalco or one of their subsidiaries is carried on.
An invoice for our fees in connection with this Ruling Request will be forwarded to you under separate cover.
XXXXXXXXXX
For Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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