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. Whether the variation will, in and of itself, result in a resettlement of the trust or disposition (as defined in subsection 248(1)) of the existing common shares of corporation held by the trust or any other assets held by the trust? 2. Whether the variation will, in and of itself, result in a disposition of the income or capital interest of any beneficiary of the trust for purposes of subsections 106(2) and 107(1) and the definition of "disposition" in subsection 248(1)? 3. Whether, subject to subsection 107(2.001), subsection 107(2) will apply to the trust distribution of the common shares of the corporation to the beneficiaries of the trust, in partial satisfaction of their capital interests in the trust? 4. Whether subsections 56(2), 105(1), and 246(1) will not be applicable solely as a consequence of the proposed transactions? 5. Whether section 245 will be applicable to re-determine the tax consequences of the proposed transactions? 6. Whether section 86 will apply to certain proposed transactions so that those transactions will occur on a tax-deferred basis? 7. Whether the deemed disposition of the Class B preferred shares will result in any tax liability to the trust?
Position: 1. No, 2. No, 3. Yes, 4. No, 5. No, 6. No, 7. No ruling given
Reasons: 1. and 2. - Variation, in and of itself, is limited in scope to adding administrative and discretionary powers only. 3 to 6 - Consistent with rulings previously issued. 7. - We do not rule on FMV.
XXXXXXXXXX
2012-046484
Attention: XXXXXXXXXX
XXXXXXXXXX, 2013
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, and subsequent modifications of XXXXXXXXXX requesting an advance income tax ruling in respect of the above-named taxpayers. We also acknowledge our numerous phone conversations and emails XXXXXXXXXX.
We understand that, to the best of your knowledge, and that of the taxpayers, none of the issues involved in the ruling request are:
(i) in an earlier return of the taxpayers or a related person;
(ii) being considered by a tax services office or 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 except as expressly referred to herein and any references thereto are otherwise 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. All monetary amounts are expressed in Canadian dollars.
DEFINITIONS
In this letter unless otherwise expressly stated:
a) "Adjusted cost base" ("ACB") has the meaning assigned by section 54;
b) "XXXXXXXXXX" means a corporate member of the Group, a resident of Canada and a CCPC;
c) "Board of Directors" means the board of directors of Opco;
d) "Canadian controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);
e) "Capital Interest" has the meaning assigned by subsection 108(1);
f) "Common Shares" means the issued and outstanding common shares of Opco, as described in paragraph 20;
g) "CRA" means the Canada Revenue Agency;
h) "Daughter's Children" means Grandchild1, Grandchild2 and Grandchild3 collectively;
i) "FMV" means fair market value;
j) "Group" means a group comprised of the Trust, Opco, XXXXXXXXXX;
k) "Income Interest" has the meaning assigned by subsection 108(1);
l) "Inter Vivos Trust" has the meaning assigned by subsection 108(1);
m) "XXXXXXXXXX" means a corporate member of the Group, a resident of Canada and a CCPC;
n) "XXXXXXXXXX" means a corporate member of the Group, a resident of Canada and a CCPC;
o) "New Shares" means the Class A common shares, Class B common shares, Class D common shares, Class W common shares, Class A preferred shares and Class B preferred shares which Opco will be authorized to issue, as described in paragraph 46;
p) "Personal Trust" has the meaning assigned by subsection 248(1);
q) "Proceeds of Disposition" has the meaning assigned by section 54;
r) "Proposed Transactions" means the proposed transactions in paragraphs 41 to 62 below;
s) "Opco" means XXXXXXXXXX, as described below in paragraph 18;
t) "Shareholder" means a holder of outstanding Common Shares;
u) "Son's Children" means Grandchild4, Grandchild5, and Grandchild6 collectively;
v) "Trust" means the XXXXXXXXXX as described below in paragraph 27;
w) "Trust Deed" means the deed of settlement dated XXXXXXXXXX, executed by Father, Son and Daughter and as it may be further amended and restated from time to time;
x) "Trustees" has the meaning in paragraph 32 below;
y) "Trust Fund" has the meaning assigned by clause XXXXXXXXXX of the Trust Deed; and
z) "XXXXXXXXXX" means a corporate member of the Group, a resident of Canada and a CCPC.
Our understanding of the relevant facts, Proposed Transactions and purposes of the Proposed Transactions is as follows:
FACTS
1. The late XXXXXXXXXX ("Father") was the father of Daughter and Son. Father passed away on XXXXXXXXXX.
2. XXXXXXXXXX ("Daughter") is a child of the late Father. Daughter's birth date is XXXXXXXXXX.
3. XXXXXXXXXX ("Son") is a child of the late Father. Son's birth date is XXXXXXXXXX.
4. XXXXXXXXXX ("Grandchild1") is a child of Daughter. Grandchild1's birth date is XXXXXXXXXX.
5. XXXXXXXXXX ("Grandchild2") is a child of Daughter. Grandchild2's birth date is XXXXXXXXXX.
6. XXXXXXXXXX ("Grandchild3") is a child of Daughter. Grandchild3's birth date is XXXXXXXXXX.
7. XXXXXXXXXX ("Grandchild4") is a child of Son. Grandchild4's birth date is XXXXXXXXXX.
8. XXXXXXXXXX ("Grandchild5") is a child of Son. Grandchild5's birth date is XXXXXXXXXX.
9. XXXXXXXXXX ("Grandchild6") is a child of Son. Grandchild6's birth date is XXXXXXXXXX.
10. XXXXXXXXXX ("Great-Grandchild1") is a child of Grandchild1. Great-Grandchild1's birth date is XXXXXXXXXX.
11. XXXXXXXXXX ("Great-Grandchild2") is a child of Grandchild1. Great-Grandchild2's birth date is XXXXXXXXXX.
12. XXXXXXXXXX ("Great-Grandchild3") is a child of Grandchild3. Great-Grandchild3's birth date is XXXXXXXXXX.
13. XXXXXXXXXX ("Great-Grandchild4") is a child of Grandchild3. Great-Grandchild4's birth date is XXXXXXXXXX.
14. XXXXXXXXXX ("Great-Grandchild5") is a child of Grandchild4. Great-Grandchild5's birth date is XXXXXXXXXX.
15. XXXXXXXXXX ("Great-Grandchild6") is a child of Grandchild5. Great-Grandchild6's birth date is XXXXXXXXXX.
16. XXXXXXXXXX ("Great-Grandchild7") is a child of Grandchild5. Great-Grandchild7's birth date is XXXXXXXXXX.
17. XXXXXXXXXX ("Great-Grandchild8") is a child of Grandchild6. Great-Grandchild8's birth date is XXXXXXXXXX.
18. Opco was incorporated under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX. Opco is a CCPC and a resident of Canada. The XXXXXXXXXX of Opco are Daughter and Son. The XXXXXXXXXX of Opco are Son and Grandchild3.
19. Opco has only one class of common shares with XXXXXXXXXX common shares authorized carrying one vote per share. Opco also has one class of preference shares with XXXXXXXXXX authorized (none issued) carrying no votes.
20. The XXXXXXXXXX issued and outstanding Common Shares are as follows:
Shareholder Class of Shares Number of Shares
Daughter Common XXXXXXXXXX
Grandchild1 Common XXXXXXXXXX
Grandchild2 Common XXXXXXXXXX
Grandchild3 Common XXXXXXXXXX
Son Common XXXXXXXXXX
Grandchild4 Common XXXXXXXXXX
Grandchild5 Common XXXXXXXXXX
Grandchild6 Common XXXXXXXXXX
Trust Common XXXXXXXXXX
21. Included in Daughter's XXXXXXXXXX Common Shares are XXXXXXXXXX Common Shares that were transferred to Daughter pursuant to subsection 70(6) from her husband as a consequence of his death on XXXXXXXXXX.
22. The Trust is a majority shareholder of Opco holding approximately XXXXXXXXXX% of the Common Shares, namely, XXXXXXXXXX Common Shares of the XXXXXXXXXX issued and outstanding Common Shares.
23. Daughter currently receives dividend income from two sources; the first is as a shareholder of Opco and the second is as an income beneficiary of the Trust. For the fiscal year ended XXXXXXXXXX, Daughter received $XXXXXXXXXX as a shareholder of Opco and $XXXXXXXXXX as an income beneficiary of the Trust.
24. Son currently receives dividend income from two sources; the first is as a shareholder of Opco and the second is as an income beneficiary of the Trust. For the fiscal year ended XXXXXXXXXX, Son received $XXXXXXXXXX as a shareholder of Opco and $XXXXXXXXXX as an income beneficiary of the Trust.
25. For the fiscal year ended XXXXXXXXXX, each of the Son's Children and Daughter's Children received dividends of $XXXXXXXXXX in the aggregate, based on each being a shareholder of XXXXXXXXXX Common Shares.
26. As of XXXXXXXXXX, the FMV of the XXXXXXXXXX Common Shares was approximately $XXXXXXXXXX and approximately XXXXXXXXXX% of this FMV was attributable to the Common Shares held by the Trust. The ACB of the Common Shares held by the Trust is $XXXXXXXXXX. As such, the Trust has a significant accrued capital gain in respect of the Common Shares, which would be triggered on its 21st anniversary date due to the application of subsection 104(4).
27. The Trust is an Inter Vivos Trust and a Personal Trust which was settled by Father, pursuant to the Trust Deed, on XXXXXXXXXX. The Trust is resident in Canada, for the purposes of the Act.
28. Pursuant to paragraph XXXXXXXXXX of the Trust Deed, the Trust is also irrevocable.
29. On settling the Trust on XXXXXXXXXX, Father transferred XXXXXXXXXX Common Shares to the Trust. This transaction occurred at a value of approximately $XXXXXXXXXX per share.
30. On XXXXXXXXXX Father transferred a further XXXXXXXXXX common shares of Opco to the Trust at approximately $XXXXXXXXXX per share.
31. On XXXXXXXXXX Father transferred a further XXXXXXXXXX Common Shares to the Trust at approximately $XXXXXXXXXX per share bringing the total to XXXXXXXXXX Common Shares being held by the Trust.
32. The original Trustees of the Trust were Father, Daughter and Son. The current Trustees of the Trust are Daughter and Son.
33. Pursuant to clause XXXXXXXXXX of the Trust Deed, the Trust beneficiaries are Son, Daughter, and their respective issue.
34. Each of Son and Daughter are income beneficiaries of the Trust during their respective lifetimes. Neither Son nor Daughter are capital beneficiaries and the Trustees have no authority to make capital distributions to anyone while either Son or Daughter lives.
35. The 21st anniversary of the settlement of the Trust will occur on XXXXXXXXXX.
36. No person to whom subsection 75(2) was applicable at any particular time is in existence at the date of this letter.
37. Pursuant to paragraph XXXXXXXXXX of the Trust Deed:
The Trustees shall hold the Trust Fund and shall keep it invested until the date of distribution. Until the date of distribution, the Trustees shall pay XXXXXXXXXX percent (XXXXXXXXXX%) of the annual net income derived from the Trust Fund in monthly or other convenient instalments to or for the benefit of each of Son and Daughter during their respective lifetimes. From and after the death of the first of Son and Daughter to die, XXXXXXXXXX percent (XXXXXXXXXX%) of such annual net income shall be divided among and paid to the issue of such deceased beneficiary, from time to time alive, in equal shares per stirpes.
38. Pursuant to clause XXXXXXXXXX of the Trust Deed:
"date of distribution" means the date of death of the survivor of Son and Daughter.
39. Pursuant to paragraph XXXXXXXXXX of the Trust Deed:
At the date of distribution, the Trustees shall pay and transfer XXXXXXXXXX percent (XXXXXXXXXX%) of the Trust Fund then remaining in their hands to or for the benefit of the issue of Son then living in equal shares per stirpes and XXXXXXXXXX percent (XXXXXXXXXX%) of the Trust Fund then remaining in their hands to or for the benefit of the issue of Daughter then living in equal shares per stirpes.
40. As at XXXXXXXXXX, the Trust held other assets consisting of cash and term deposits.
PROPOSED TRANSACTIONS
All of the Proposed Transactions set out below will occur in sequence and prior to XXXXXXXXXX:
41. The Trustees of the Trust will make an application to the XXXXXXXXXX Superior Court of Justice (the "Court") under the Variation of Trusts Act XXXXXXXXXX, as amended to vary the terms of the Trust (the "Variation") to provide for the following:
a) Adding administrative powers which will enable the Trustees to implement the distributions described in paragraph 53 below; and
b) Amending the Trust Deed in order to authorize a capital encroachment to permit the distributions described in paragraph 53 below prior to the last to die of Son and Daughter.
42. All adult beneficiaries of the Trust will consent to the Variation. The Court will be requested to approve the Variation on behalf of minor, unascertained and unborn beneficiaries. The Office of the Children's Lawyer ("OCL") will also be served with the Variation application. The OCL will represent the prospective interests of the minor, unascertained and unborn beneficiaries and will advise the Court whether the proposed solution is in the best interests of that group.
43. Daughter and Son will not receive any consideration whatsoever in return for consenting to the Proposed Transactions.
44. The OCL requires that upon receipt of an Order of the XXXXXXXXXX Superior Court of Justice approving the Variation, the Trustees shall pay the amount of $XXXXXXXXXX (the "Funds"), on a one time basis, to the Accountant of the Superior Court of Justice, to be held until the date of distribution, and, at the date of distribution, the Funds, together with any accumulated income thereon, shall be divided into such number of equal parts as is necessary to do the following:
(i) XXXXXXXXXX of such equal parts shall be paid or transferred to the issue of Son in equal shares per stirpes provided that the following individuals shall be deemed to have predeceased the date of distribution for the purposes of the said division:
(A) Grandchild4;
(B) Grandchild5; and
(C) Grandchild6;
(ii) XXXXXXXXXX of such equal parts shall be paid or transferred to the issue of Daughter in equal shares per stirpes provided that the following individuals shall be deemed to have predeceased the date of distribution for the purposes of the said division:
(A) Grandchild1;
(B) Grandchild2; and
(C) Grandchild3;
provided that, failing any such issue being alive, the Funds, together with the accumulated income thereon, shall be paid or transferred to the next of kin of the closest degree of Father alive at the date of distribution in equal shares and, for greater certainty, in that case, those of the individuals named in (i)(A), (B) and (C) and (ii)(A), (B) and (C) above who are then alive shall not be excluded from the distribution. In order to satisfy this requirement and an additional $XXXXXXXXXX to cover the OCL's costs:
a) The Trust shall borrow $XXXXXXXXXX, from Opco, by way of a non-interest bearing promissory note due XXXXXXXXXX or any time prior at the option of the Trust; and
b) Upon receipt of the $XXXXXXXXXX, the Trust shall pay $XXXXXXXXXX to the OCL and $XXXXXXXXXX to the solicitors for the OCL, which for trust law purposes shall be considered an encroachment on capital.
45. The amount paid by the Trust to the OCL will not at any time be paid back, either in whole or in part, to the Trust.
46. Opco will reorganize its share capital and will file Articles of Amendment in order to:
a) Delete the authorized but unissued non-voting preference shares in their entirety as well as all rights and restrictions attaching thereto;
b) Create an unlimited number of Class A common shares, voting (as to XXXXXXXXXX votes per share), carrying the right to dividends declarable at the discretion of the Board of Directors;
c) Create an unlimited number of Class B common shares, voting (as to XXXXXXXXXX votes per share), carrying the right to dividends declarable at the discretion of the Board of Directors;
d) Create an unlimited number of Class D common shares, voting (as to XXXXXXXXXX votes per share), carrying the right to dividends declarable at the discretion of the Board of Directors;
e) Create an unlimited number of Class W common shares, voting (as to XXXXXXXXXX votes per share), carrying the right to dividends declarable at the discretion of the Board of Directors;
f) Create XXXXXXXXXX Class A preferred shares which shall be non-voting, carrying annual dividends in the aggregate amount of $XXXXXXXXXX, redeemable and retractable as described in Article XXXXXXXXXX, respectively, of the Articles of Amendment (the "Redemption Amount Class A"). It is intended that the first $XXXXXXXXXX of dividends will be paid by way of a redemption of the corresponding amount of Class A preferred shares. No such redemption will occur prior to XXXXXXXXXX. No dividends may be paid on any other class of shares to the extent they will cause Opco to not be able to redeem its Class A preferred shares at their Redemption Amount-Class A. A price adjustment clause will be included in the terms of the Class A preferred shares;
g) Create an unlimited number of Class B preferred shares, the terms of which shall be voting (as to XXXXXXXXXX votes per share), redeemable and retractable as described in Article XXXXXXXXXX, respectively, of the Articles of Amendment (the "Redemption Amount-Class B"). Subject to the rights of the Class A preferred shares, no dividends may be declared on any other class of shares to the extent they will cause Opco to not be able to redeem its Class B preferred shares at their Redemption Amount-Class B; and
h) Provide that and subject to the terms of any specific class of shares dividends may be paid at the discretion of the Board of Directors on any one class of shares to the exclusion of any other class of shares.
47. The rights and restrictions attaching to the following shares will provide that:
i. The Class B common shares shall be entitled to one (1) additional vote for each issued and outstanding share on any special resolution to change the location of the registered office of Opco;
ii. The Class D common shares shall be entitled to XXXXXXXXXX additional votes for each issued and outstanding share on any special resolution to change the location of the registered office of Opco;
iii. The Class W common shares shall be entitled to XXXXXXXXXX additional votes for each issued and outstanding share on any special resolution to change the location of the registered office of Opco; and
iv. The Common shares shall be entitled to XXXXXXXXXX additional votes for each issued and outstanding share on any special resolution to change the location of the registered office of Opco.
48. Daughter will exchange her XXXXXXXXXX Common Shares for XXXXXXXXXX Class D common shares.
49. Son will exchange his XXXXXXXXXX Common Shares for XXXXXXXXXX Class W common shares.
50. The Trust will exchange its XXXXXXXXXX Common Shares for XXXXXXXXXX Class A common shares, XXXXXXXXXX Class B common shares, XXXXXXXXXX Class A preferred shares and XXXXXXXXXX Class B preferred shares. The Class A preferred shares will have a FMV of $XXXXXXXXXX and their aggregate ACB will be determined pursuant to paragraph 86(1)(b).
51. The Son's Children will each exchange their XXXXXXXXXX Common Shares for XXXXXXXXXX Class A common shares.
52. The Daughter's Children will each exchange their XXXXXXXXXX Common Shares for XXXXXXXXXX Class B common shares.
53. In accordance with the powers afforded to them under the Variation, the Trustees will cause the Trust to distribute on a tax-deferred basis, all of its XXXXXXXXXX Class A common shares and XXXXXXXXXX Class B common shares in partial satisfaction of their capital interests, as to XXXXXXXXXX Class A common shares to each of the Son's Children and XXXXXXXXXX Class B common shares to each of the Daughter's Children.
54. On XXXXXXXXXX, by virtue of the above transactions, the only assets of Trust will be:
a) XXXXXXXXXX Class A preferred shares of Opco with FMV of $XXXXXXXXXX; and
b) XXXXXXXXXX Class B preferred shares of Opco.
55. All shareholders of Opco will enter into a Shareholders Agreement (the "Agreement").
56. In accordance with the Agreement the shareholders will resolve that annual dividends will be paid by Opco in amounts sufficient to keep all of the respective parties referred to above whole (i.e. Daughter and Son will maintain the same income previously derived from their respective Income Interest in the Trust through dividends by way of sharing equally on the dividends received by the Trust on its XXXXXXXXXX Class A preferred shares).
57. The Agreement will state that in accordance with the terms of the Class A preferred shares, annual aggregate dividends of $XXXXXXXXXX will be paid (i.e. such that Daughter and Son will continue to receive indirectly through their respective Income Interests in the Trust and by virtue of the Class A preferred dividends, the aggregate indirect dividends they received for the fiscal period XXXXXXXXXX). The Agreement will stipulate that the first $XXXXXXXXXX of Class A Preferred dividends will be paid by way of a redemption of the corresponding amount of Class A preferred shares with one outstanding Class A preferred share remaining after the redemption. No such redemption will occur prior to XXXXXXXXXX.
58. The Son's Children and Daughter's Children will also receive dividends on their shares (Class A Common for the Son's Children and Class B common for the Daughter's Children) in accordance with past practice as shareholders of Opco in their own right. This will result in each of them receiving a dividend of $XXXXXXXXXX in the aggregate annually (paid in quarterly installments of $XXXXXXXXXX). Similarly, Daughter and Son will also receive dividends on their direct shareholdings of Opco (Class D common and Class W common respectively) in accordance with past practice as shareholders in their own right. This would result in Daughter and Son each receiving aggregate annual dividends of $XXXXXXXXXX and $XXXXXXXXXX respectively.
59. If Son passes away before Daughter, then after his death and until Daughter's death, the dividends otherwise payable to Son on his share of the income from the Class A preferred shares of Opco will be divided in accordance with paragraph XXXXXXXXXX of the Trust Deed, in other words divided among and paid to the issue of Son from time to time alive in equal shares per stirpes. If Daughter passes away before Son, then after her death and until Son's death, the dividends otherwise payable to Daughter on her share of the income from the Class A preferred shares of Opco will be divided in accordance with paragraph XXXXXXXXXX of the Trust Deed, in other words divided among and paid to the issue of Daughter from time to time alive in equal shares per stirpes.
60. Until the death of the last to die of Son and Daughter, the dividends defined in paragraphs XXXXXXXXXX of the Agreement are fixed. All common shareholders may also be entitled to a "Special Dividend" as defined in paragraph XXXXXXXXXX of the Agreement based on a financial score sheet formula tied to the financial strength of Opco.
61. Upon the death of the last to die of Son and Daughter, the Agreement becomes inoperative and any outstanding Class A preferred shares of Opco at such time will be redeemed for their Redemption Amount-Class A.
62. Upon the death of the last to die of Son and Daughter, the remaining assets of the Trust at that time will be distributed in accordance with paragraph XXXXXXXXXX of the Trust Deed. After this distribution, the Trust will be wound up.
PURPOSE OF PROPOSED TRANSACTIONS
63. Overall, the purpose of the Proposed Transactions is to obtain approval of the Court for the Variation to allow for a distribution by the Trust to its beneficiaries prior to XXXXXXXXXX of all of its Class A and Class B common shares of Opco on a tax deferred basis as permitted under subsection 107(2) and to leave all beneficiaries of the Trust economically whole with respect to their respective capital and income entitlements as stipulated under the terms of the Trust Deed as was intended by the settlor of the Trust.
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. The Variation, as described in paragraph 41 above and if approved by the Court, will not, in and of itself, result in a resettlement of the Trust or disposition of the property held by the Trust.
B. The Variation, as described in paragraph 41 above and if approved by the Court, will not, in and of itself, result in a disposition of the Income Interest or Capital Interest of any beneficiary of the Trust for purposes of subsections 106(2) and 107(1) and the definition of "disposition" in subsection 248(1).
C. Subject to subsection 107(2.001), subsection 107(2) will apply to the distribution of the Class A and Class B common shares of Opco to the Son's Children and the Daughter's Children respectively, in partial satisfaction of their capital interests in the Trust, as described in paragraph 53 above.
D. Provided that there is a disposition at law on the exchange of Common Shares by a Shareholder for New Shares, as described in paragraphs 48 to 52 above, the provisions of subsection 86(1) will apply and the provisions of subsection 86(2) will not apply to the disposition provided that:
(a) the Shareholder holds the Common Shares as capital property; and
(b) the Shareholder and Opco do not file an election under subsection 85(1) or (2) in respect of the exchange,
such that:
(c) the cost to the Shareholder of any New Shares of a class receivable by the Shareholder for the Shareholder's Common Shares as described in paragraphs 48 to 52 above will be deemed by paragraph 86(1)(b) to be equal to the proportion of the ACB to the Shareholder of the Common Shares immediately before the disposition that:
(i) the FMV, immediately after the disposition, of the New Shares of that class receivable by the Shareholder for the Common Shares,
is of
(ii) the FMV, immediately after the disposition, of all New Shares receivable by the Shareholder for the Common Shares; and
(d) pursuant to paragraph 86(1)(c), the Shareholder will be deemed to have disposed of the Shareholder's Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the Shareholder of all New Shares receivable by the Shareholder for the Shareholder's Common Shares as determined in (c) above.
E. Subsections 56(2), 105(1) and 246(1) will not be applicable solely as a consequence of the Proposed Transactions.
F. Section 245 will not be applicable to re-determine the tax consequences set out in the rulings provided above.
Nothing in this letter should be construed as implying that the CRA has reviewed, confirmed or otherwise considered:
a) the application of subsection 70(6) to the transfer described in paragraph 21 above;
b) the application of subsection 75(2) to any property held by Trust;
c) the determination of the paid-up capital of any share or the FMV or ACB of any property referred to herein; and) any tax consequences relating to the facts and the Proposed Transactions described herein other than those specifically described in the rulings given above.
The CRA has not in the context of the rulings considered, confirmed or made any determination in respect of whether the Variation will result in the creation of a new trust under the laws of a province.
Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred and the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses.
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,
XXXXXXXXXX
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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