2014 Ruling 2013-0510911R3 - Extension of time of loss consolidation mechanism

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: Extension of the duration of the loss consolidation mechanism for which a favourable ruling was given under 2009-033257.

Position: Extension granted.

Reasons: There was no change with respect to the Act, to our previous positions or to case law. Therefore the mechanism described in ruling 2009-033257 is still acceptable.

XXXXXXXXXX
2013-051091

XXXXXXXXXX, 2014

Sir,

RE: Extension of the Advance Income Tax Ruling -2009-033257
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an extension of time before winding-up the mechanism implemented for loss utilization purposes, as described in paragraph 22 of the Advance Income Tax Ruling 2009-033257 (the "Ruling") issued on XXXXXXXXXX, 2010. We also acknowledge your emails of XXXXXXXXXX.

You informed us of the following changes to the "Identification of the Parties" section of the Ruling:

1. Paragraph (c) should read as follows:

"HA" means a corporation resulting from the amalgamation of XXXXXXXXXX and XXXXXXXXXX on XXXXXXXXXX. HA is governed by the QCA and referred to in Paragraph 1 hereof;

2. Paragraphs (e) and (h) should be deleted.

3. Paragraph (j) should read as follows:

"HA3" means XXXXXXXXXX, a private holding corporation governed by Canadian corporate law that is owned by CA1 and is referred to in Paragraph 8 hereof;

4. Paragraph (aa) should read as follows:

"Mrs. B" means XXXXXXXXXX, a Canadian resident, the spouse of Mr. B and sister of Mr. A;

5. Paragraph (bb) should read as follows:

"PHA" means a corporation resulting from the amalgamation of XXXXXXXXXX and XXXXXXXXXX on XXXXXXXXXX. PHA is governed by the CBCA and referred to in Paragraph 7;

You informed us of the following changes to the "Facts" section of the Ruling:

6. The fourth sentence of Paragraph 1 should be changed to delete "and HASub2 together".

7. As PHA does not own any shares of the capital stock of HA and as Mr. A now holds XXXXXXXXXX Class G shares of the capital stock of HA, the chart of the issued share capital of HA in Paragraph 1 should be modified accordingly.

8. The shareholders of HASub hold a different number of Class F Preferred Shares of the capital stock of HASub. Therefore, the column of the chart of the issued share capital of HASub in Paragraph 3 should be modified with respect to the Class F Preferred shares. That column should read as follows:

Mr. A XXXXXXXXXX
Mrs. A XXXXXXXXXX
CA1 XXXXXXXXXX
CA2 XXXXXXXXXX
CA3 XXXXXXXXXX

9. The last paragraph of Paragraph 4 (after the chart) should be deleted and should be replaced by the following:

Each of Mr. B and Mrs. B is a member of a related group that owns equally XXXXXXXXXX% of all the voting rights of the outstanding voting shares of the capital stock of HB. HB's sole permanent establishment is in the Province of XXXXXXXXXX.

10. In the chart of Paragraph 7, the reference to HA1 holding XXXXXXXXXX% of the shares of the capital stock of PHA should be deleted and replaced by a reference to each of Mr. A and Mrs. A holding XXXXXXXXXX% of the shares of the capital stock of PHA.

11. Paragraph 8 should be changed to delete "HA1" in the first sentence and to delete the second sentence.

12. In the fourth sentence of Paragraph 9, the reference to "XXXXXXXXXX%" should be changed to "XXXXXXXXXX%". The following new sentence should be added after the fourth sentence:

The balance of XXXXXXXXXX% of the common shares issued and outstanding is owned by a TCC which is XXXXXXXXXX% owned by Mr. B and Mrs. B.

13. The second paragraph of Paragraph 9 should read as follows:

As at XXXXXXXXXX, Lossco has a non-capital loss balance of approximately $XXXXXXXXXX, of which $XXXXXXXXXX is not restricted by the acquisition of control rules in subsection 111(5) and 88(1.1). Lossco's sole permanent establishment is in the Province of XXXXXXXXXX.

14. At the end of Paragraph 9, a new paragraph should be added which should read as follows:

On XXXXXXXXXX, Lossco amalgamated to form "Lossco" with its subsidiary wholly-owned corporation, XXXXXXXXXX, which is inactive and is a TCC. As at XXXXXXXXXX, XXXXXXXXXX had a non-capital loss balance of $XXXXXXXXXX of which $XXXXXXXXXX is not restricted by the acquisition of control rules in subsections 111(5) and 88(1.1).

15. In Paragraph 11, the reference to "subparagraph 251(2)(c)(ii)" should be replaced by "subparagraph 251(2)(c)(iii)".

You informed us that the parties want to extend the duration of the loss utilisation mechanism for a supplementary period of three years. Therefore, the preamble of Paragraph 22 in the Ruling, which is part of the Proposed Transactions, should be changed as follows:

Once the interest income has reached or exceeded the amount required to utilize Lossco's available tax attributes, but not later than XXXXXXXXXX years after the implementation of the proposed transactions, the following transactions may be implemented:

A paragraph should be added in the "Other representations" section after Paragraph 24 and before Paragraph 25. That new paragraph will read as follows: "It is not expected that HASub and HBSub will incur a non-capital loss in each of the taxation years during which the loss consolidation transactions implemented will be in place."

We confirm that the Ruling and the Supplemental Ruling provided on XXXXXXXXXX, 2010 will continue to be binding on the Canada Revenue Agency, subject to the conditions set out in the Ruling, even with the changes to the Identification of the parties, the Facts and the Proposed Transactions as described in this letter.

Yours truly,

XXXXXXXXXX
for Director
Reorganization Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch