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: Are the proposed amendments to extend the maturity date on the loan as part of the loss utilization arrangement acceptable?
Position: YES
Reasons: meets the technical requirements of the provisions
XXXXXXXXXX
2011-042248
XXXXXXXXXX , 2012
Dear XXXXXXXXXX :
Re: Supplemental Advance Income Tax Ruling
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX , wherein you requested amendments to advance income tax ruling (2008-028462) (the “Original Ruling”) which was issued on XXXXXXXXXX, 2009 .
You advise us that, as described in paragraphs 38 and 39 of the 2009 Original Ruling, the Eco/Aco Loan was repaid and the Eco Preferred Shares were redeemed, and the Bco/Aco Loan was repaid, and the Bco Preferred Shares were redeemed. You also advise that the Cco/Aco Loan described in the Original Ruling remains outstanding and that this supplemental ruling is to provide for the extension of the maturity date of that loan so that this part of the loss consolidation ruled on in the Original Ruling can continue to be utilized for longer than originally anticipated. As a result, the Cco/Aco Loan will be utilized for approximately XXXXXXXXXX years since inception before its use is wound up as described in paragraph 40 of the Original Ruling.
Definitions
In this letter, unless otherwise expressly stated, all capitalized terms have the meanings specified in the Original Ruling.
Updated Facts
1. The facts are as set out in paragraph 1-3, 8-14 and 16 of the Original Ruling except that:
(a) The issued and outstanding shares of Bco, as described in paragraph 9 of the Original Ruling are now as follows: XXXXXXXXXX common shares, XXXXXXXXXX Series XXXXXXXXXX preferred shares, and XXXXXXXXXX Series XXXXXXXXXX Preferred Shares, all of which are owned by Aco; and
(b) The issued and outstanding shares of Cco, as described in paragraph 14 of the Original Ruling are now as follows: XXXXXXXXXX common shares, XXXXXXXXXX Class XXXXXXXXXX Series XXXXXXXXXX preferred shares, XXXXXXXXXX Class XXXXXXXXXX Series XXXXXXXXXX preferred shares, and XXXXXXXXXX Cco Preferred Shares, all of which are owned by Bco.
2. With respect to paragraph 15 of the Original Ruling: The taxation year of Cco ends on XXXXXXXXXX . At the end of its XXXXXXXXXX taxation year, Cco did not have any non-capital losses available to it, nor does it expect to have any non-capital losses available to it in XXXXXXXXXX . However, Cco had available to it additional deductions of at least $XXXXXXXXXX of the Act as at the end of its XXXXXXXXXX taxation year and expects to have at least $XXXXXXXXXX of such deductions as at the end of its XXXXXXXXXX taxation year.
3. With respect to paragraph 17 of the Original Ruling: Based on its existing assets and resources, Aco is in a position to pay interest on the Cco/Aco Loan without relying on the dividends payable on the Additional Bco Preferred Shares.
4. With respect to paragraph 18 of the Original Ruling: It is expected that Aco will have sufficient annual income for tax purposes, before claiming discretionary deductions, to fully utilize the interest expense as described in paragraph 36 of the Original Ruling.
5. Paragraphs 4-7 of the Original Ruling have not been updated as Eco is not relevant to the proposed amendments.
Proposed Amendments
6. The following new paragraph is added above paragraph 40 of the Original Ruling: “40a. Before the current maturity date of the Cco/Aco Loan, Aco and Cco will enter into an agreement pursuant to which the maturity date of the Cco/Aco Loan will be extended to a date that is on or before XXXXXXXXXX (the “Extended Maturity Date”).
7. In the first line of paragraph 40 of the Original Ruling, the words “Within the three year period following the implementation of the Proposed Transactions…” are deleted and replaced with the words “On or prior to the Extended Maturity Date…”
8. Additional Information to be added as new paragraph 57 of the Original Ruling:
Under the laws of the Province of XXXXXXXXXX which govern the Cco/Aco Loan, there will not be, as a result of the proposed amendments to the Cco/Aco Loan as described in paragraphs 40a above:
(a) a novation in respect of any portion of the Cco/Aco Loan;
(b) a substitution of all or any portion of the Cco/Aco Loan by a new loan; or
(c) a discharge, rescission or extinguishment of all or any portion of the Cco/Aco Loan.
Purpose of the Proposed Amendments
9. The purpose of the proposed amendments is to extend the loss consolidation structure so as to reduce Aco’s expected taxable income over the extended term of the Cco/Aco Loan by the amount of interest to be paid by it on the Cco/Aco Loan in order to utilize Cco’s policy reserves.
Rulings
Provided that the preceding statements and the statements contained in the Original Ruling constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions and proposed amendments, and purposes of the Proposed Transactions and proposed amendments, we hereby confirm that the Original Ruling, as modified by this letter, will continue to be binding on the Canada Revenue Agency ("CRA") subject to the same limitations and qualifications set out therein, except that the Original Ruling will continue to be binding on the CRA provided that the Proposed Transactions, as amended by the proposed amendments in 6 and 7 above, are completed by XXXXXXXXXX .
As a consequence of the extension of the Cco/Aco Loan described in the proposed amendment in 6 above and new paragraph 40a of the Original Ruling, we rule that the extension of the maturity date of the Cco/Aco Loan, in and by itself, will not result in a “disposition”, as this term is defined in paragraph 248 of the Act, of the Cco/Aco Loan by Cco.
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 laws of the Province of XXXXXXXXXX governing the Cco/Aco Loan, specifically whether the Proposed amendments result in an extinguishment or discharge of the Cco/Aco Loan and its substitution by a new obligation under such laws;
(b) any other tax consequences relating to any facts or proposed transactions referred to herein other than those specifically described in the ruling given above.
Yours truly,
XXXXXXXXXX
For Director
Financial Industries Division
Income Tax Rulings Directorate
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