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: Request for confirmation from CRA that events subsequent to the issuance of advance income tax ruling 2012-0437881 would not affect the ruling given.
Position: The subsequent events do not affect the validity of the ruling given.
Reasons: See below.
XXXXXXXXXX
2013-051535
XXXXXXXXXX, 2013
Dear XXXXXXXXXX:
Re: Supplemental Advance Income Tax Ruling
XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX, wherein you requested an amendment to advance income tax ruling 2012-0437881 (the "Ruling"), issued on XXXXXXXXXX, 2012.
As a result of your request, the following amendment is made to the Ruling to include the following additional information:
Facts
Paragraph 2 is amended to add the following:
Bco operates XXXXXXXXXX business divisions: XXXXXXXXXX ("G Division"), XXXXXXXXXX ("H Division"), XXXXXXXXXX ("I Division"), and XXXXXXXXXX ("J Division").
Proposed Transactions
The following is added after paragraph 39:
Bco will be restructured to segregate Bco's operations into XXXXXXXXXX corporations in order to accommodate the different business operations, facilitate them and to harmonize Bco's Canadian corporate structure with the existing structure of its ultimate parent company. The contemplated reorganization will be effective as of XXXXXXXXXX, for the I Division and J Division and in XXXXXXXXXX for the G Division. Bco will retain the H Division.
The fair market value of Bco would be proportionally distributed between the XXXXXXXXXX operational divisions while keeping the same share capital value owned by Aco before and after the restructuring.
Bco, through its H Division, will generate sufficient income to absorb the interest expense resulting from the loss consolidation transactions. Aco will incorporate a new corporation ("Fco") under the Canada Business Corporations Act. Aco will subscribe for XXXXXXXXXX common shares for Fco for consideration of $XXXXXXXXXX. Bco will transfer its assets from the J Division under subsection 85(1) of the Act in consideration for preferred shares of Fco with a redemption value equal to the fair market value of the assets transferred less any liabilities assumed.
Aco will transfer common shares of Bco having a fair market value equivalent to the value of the J Division's related assets less any assumed liabilities transferred to Fco pursuant to subsection 85(1) of the Act in consideration for common shares. Fco will redeem its preferred shares held by Bco for their redemption value and will issue a promissory note as consideration.
Bco will redeem its common shares held by Fco for their redemption value and will issue a promissory note as consideration. The promissory notes will be set off against each other in both Bco and Fco.
The above division restructuring steps will be repeated for each of the new divisions, namely, I Division ("Ico") as of XXXXXXXXXX and G Division ("Gco") in XXXXXXXXXX.
Representations
The following is added after paragraph 44:
The fair market value of the existing Bco will be distributed proportionally between the shares of Bco, Fco, Ico and Gco. The accounting and tax adjusted cost base of the current Bco shares will be distributed proportionally between the shares of Bco, Fco, Gco and Ico. XXXXXXXXXX operational divisions of Bco will be transferred, respectively, to Fco, Gco and Ico without immediate tax consequences. It is important to note that the value of the corporate group will remain unchanged.
No new business activities will be created within the corporate group as only existing operations will be transferred into sister corporations so that the different existing activities are carried through four divisions. Moreover, the proposed Bco restructuring transactions will be made in a tax deferred manner and will not have the effect of creating new tax obligations.
Considering the above, we hereby confirm that, subject to the conditions, limitations, qualifications and comments set out in the Ruling, as amended by this letter, the advance income tax ruling given in the Ruling will continue to be binding on the Canada Revenue Agency.
Yours truly,
XXXXXXXXXX
For Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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