2019 Ruling 2018-0772921R3 - Loss utilization

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 Regulation 1102(14) will apply to deem the property transferred to be property of the same prescribed class. 2. Whether subparagraph 13(7)(e)(ii) will apply to each of the proposed transfers.

Position: 1. Yes. 2. Yes.

Reasons: Similar to ruling 2017-0693691R3.

XXXXXXXXXX							2018-077292

XXXXXXXXXX, 2019

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request (the “Request”)
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an Advance Income Tax Ruling on behalf of the above named taxpayer. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the Request:

(i) is in an earlier return of the taxpayer or a related person;

(ii) is being considered by a Tax Services Office or Taxation Center in connection with a previously filed tax return of the taxpayer or a related person;

(iii) is under objection by the taxpayer or a related person;

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

(v) is the subject of an advance income tax ruling previously issued by the Directorate.

The taxpayer has also represented that the proposed transactions described herein will not result in any taxpayer described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

In this letter, the singular should be read as plural and vice versa where the circumstances so require, all monetary amounts are expressed in Canadian dollars, and unless otherwise indicated or the context otherwise requires, the following terms have the meanings specified:

“Aco” means XXXXXXXXXX, as described in Paragraph 1;

“Aco Common Shares” is defined in Paragraph 3;

“Act” means the Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph, and clause or subclause, is a reference to the relevant provision;

“adjusted cost base” or “ACB” has the meaning assigned by section 54;

“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;

“arm’s length” has the meaning assigned by subsection 251(1);

XXXXXXXXXX;

“Bco” means XXXXXXXXXX, as described in Paragraph 10;

“Bco Common Shares” is defined in Paragraph 5;

“Bco Note” is defined in Paragraph 31;

“Bco Reorganization Shares” is defined in Paragraph 20;

“Bco Share Exchange” is defined in Paragraph 21;

“capital cost allowance” or “CCA” has the meaning assigned by Regulation 1100;

“capital gain” has the meaning assigned by section 39;

“capital loss” has the meaning assigned by section 39;

“capital property” has the meaning assigned by section 54;

“Cco” means XXXXXXXXXX, as described in Paragraph 7;

“class 14.1 property” means depreciable property of class 14.1 of Schedule II of the Regulations;

“cost amount” has the meaning assigned by subsection 248(1);

“CRA” means the Canada Revenue Agency;

“cumulative eligible capital” or “CEC” has the meaning assigned by subsection 14(5), as it applied at the time immediately before January 1, 2017;

“depreciable property” has the meaning assigned by subsection 13(21);

“disposition” has the meaning assigned by subsection 248(1);

“eligible capital expenditure” or “ECE” has the meaning assigned by subsection 14(5), read as it did immediately before 2017;

“eligible capital property” has the meaning assigned by section 54 (as it applied before January 1, 2017);

“eligible dividend” has the meaning assigned by subsection 89(1);

“eligible property” has the meaning assigned by subsection 85(1.1);

“FMV” means the highest price expressed in terms of money or money's worth, available in an open and unrestricted market between knowledgeable, informed, and prudent parties acting at arm's length, neither party being under any compulsion to transact;

“Low rate income pool” or “LRIP” has the meaning assigned by subsection 89(1);

“Newco” is defined in Paragraph 18;

“Newco Common Shares” is defined in Paragraph 18;

“Newco Note” is defined in Paragraph 33;

“Newco Preferred Shares” is defined in Paragraph 18;

“paid-up capital” or “PUC” has the meaning assigned by subsection 89(1);

“Paragraph” or “Paragraphs” refers to a numbered paragraph or paragraphs of this letter;

“proceeds of disposition” has the meaning assigned by section 54;

“Proposed Transactions” means the transactions described in Paragraphs 18 to 40;

XXXXXXXXXX;

“Regulation” or “Regulations” means the Income Tax Regulations, C.R.C., c. 945, as amended to the date hereof;

“related person” has the meaning assigned by subsection 251(2);

“series of transactions or events” includes the transactions or events referred to in subsection 248(10);

“Share Exchange Agreement” is defined in Paragraph 21;

“specified financial institution” has the meaning assigned by subsection 248(1);

“taxable Canadian corporation” has the meaning assigned by subsection 89(1);

“Trademarks” is defined in Paragraph 14;

“Trademark License Agreements” is defined in Paragraph 28; and

“undepreciated capital cost” or “UCC” has the meaning assigned by subsection 13(21).

FACTS

Facts relating to Aco

1. Aco is the corporation resulting from the amalgamation of a predecessor corporation, XXXXXXXXXX, and certain other corporations. Aco is governed by the XXXXXXXXXX , is a public corporation and is a taxable Canadian corporation. Aco’s tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed with the XXXXXXXXXX Tax Centre. Aco’s address is: XXXXXXXXXX.

2. Aco is a XXXXXXXXXX:

i. XXXXXXXXXX;

ii. XXXXXXXXXX;

iii. XXXXXXXXXX; and

iv. XXXXXXXXXX.

3. As at XXXXXXXXXX, Aco had XXXXXXXXXX common shares issued and outstanding representing all of its issued voting shares (the “Aco Common Shares”). The Aco Common shares are listed on the XXXXXXXXXX.

4. As at XXXXXXXXXX, Aco also had XXXXXXXXXX issued and outstanding Cumulative Redeemable First Preferred Shares issued in various series which are listed on the XXXXXXXXXX.

5. Aco holds XXXXXXXXXX% of the common shares of Bco (the “Bco Common Shares”). As at XXXXXXXXXX, the ACB to Aco of its Bco Common Shares was $XXXXXXXXXX and their PUC was $XXXXXXXXXX.

6. The remaining XXXXXXXXXX% of the Bco Common Shares are held by Cco.

7. Cco is a taxable Canadian corporation and is a subsidiary of Aco which provides certain management services to Bco and other members of the Aco group of corporations. Aco owns all of the common shares issued and outstanding of Cco. Bco owns all of the issued and outstanding preferred shares of Cco.

8. The Bco Common Shares constitute capital property for each of Aco and Cco.

9. As of the date of this letter, Aco has approximately $XXXXXXXXXX of capital loss carryforwards.

Facts relating to Bco

10. Bco is the corporation resulting from the amalgamation of a predecessor corporation, XXXXXXXXXX, and certain other corporations. Bco is governed by the XXXXXXXXXX and is a taxable Canadian corporation. Bco’s tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Tax Centre.

11. Bco provides the services described in Paragraph 2(i) directly or indirectly through its subsidiaries.

12. As at XXXXXXXXXX, Bco had XXXXXXXXXX Bco Common Shares issued and outstanding, representing all of its voting shares.

13. As of the date of this letter, Bco has no LRIP balance and has approximately $XXXXXXXXXX of capital loss carryforwards.

14. Bco owns a number of XXXXXXXXXX registered trademarks which it uses in the course of carrying on its business. The Proposed Transactions described herein concern XXXXXXXXXX of these trademarks (the “Trademarks”), XXXXXXXXXX.

15. The Trademarks are as follows:

Name			Registration Number(s) issued by the
			Canadian Intellectual Property Office

XXXXXXXXXX		XXXXXXXXXX

16. The Trademarks were all owned by Bco immediately before XXXXXXXXXX with the following exceptions:

i. XXXXXXXXXX;

ii. XXXXXXXXXX;

iii. XXXXXXXXXX; and

iv. XXXXXXXXXX.

17. All of the Trademarks, other than those described in Paragraphs 16(i)-(iv), were eligible capital property to Bco immediately before XXXXXXXXXX.

17.1 None of the Trademarks described in in Paragraph 16(i)-(iv) are:

i. property that is tangible or, for civil law, corporeal property;

ii. property that was not acquired by Bco for the purpose of gaining or producing income from business;

iii. property in respect of which any amount is deductible (otherwise than as a result of being a class 14.1 property) in computing Bco’s income from business; or

iv. property in respect of which any amount is not deductible in computing Bco’s income from business because of any provision of the Act (other than paragraph 18(1)(b)) or the Regulations.

17.2 The Trademarks constitute depreciable property for Bco and have an aggregate FMV of $XXXXXXXXXX. The FMV of the Trademarks was determined by the valuations department of XXXXXXXXXX. The value range arrived at by XXXXXXXXXX was $XXXXXXXXXX.

17.3 The Trademarks are identified intangible assets, are separable from the business to which they belong, and may be sold apart from the sale of Bco’s business as a going concern.

17.4 The total eligible capital expenditures incurred by Bco with respect to the Trademarks was XXXXXXXXXX. As of XXXXXXXXXX, Bco’s class 14.1 property had a UCC of $XXXXXXXXXX

PROPOSED TRANSACTIONS

The Proposed Transactions below will be undertaken in the following order.

Incorporation of Newco

18. Aco will incorporate a new taxable Canadian corporation under the XXXXXXXXXX (“Newco”).

The authorized share capital of Newco will consist of one class of an unlimited number of voting and fully participating common shares (the “Newco Common Shares”), and of one class of an unlimited number of non-voting redeemable preferred shares (the “Newco Preferred Shares”).

Each Newco Preferred Share will be redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an aggregate amount equal to the FMV of the property received for the issuance of the shares, divided by the number of Newco Preferred Shares issued as consideration for such property, and will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% of the redemption amount of the share at that time. The Newco Preferred Shares will rank in priority over the Newco Common Shares. The terms of the Newco Preferred Shares will include a price adjustment clause.

19. On incorporation, Aco will subscribe for XXXXXXXXXX Newco Common Share in exchange for $XXXXXXXXXX. An amount equal to $XXXXXXXXXX will be added to the stated capital of the Newco Common Shares in respect of this transaction.

Reorganization of Bco

20. The articles of incorporation of Bco will be amended to create one new class of an unlimited number of non-voting preferred shares, redeemable and retractable at an amount equal to the redemption amount (the “Bco Reorganization Shares”). The Bco Reorganization Shares will be redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an aggregate amount equal to the FMV of the Trademarks, and will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% of the redemption amount of the share at that time. The Bco Reorganization Shares will rank in priority over the Bco Common Shares. The terms of the Bco Reorganization Shares will include a price adjustment clause.

21. Pursuant to a share exchange agreement between Aco and Bco (the “Share Exchange Agreement”), Aco will exchange a number of Bco Common Shares having a FMV equal to the FMV of the Trademarks for newly authorized and issued Bco Reorganization Shares (the “Bco Share Exchange”) having an aggregate FMV equal to the FMV of the Trademarks.

22. The terms of the Share Exchange Agreement will include a price adjustment clause. In the event that the FMV of the Trademarks is determined by the CRA to be higher or lower than the FMV agreed upon by Aco and Bco, the redemption value of the Bco Reorganization Shares and the number of Bco Common Shares exchanged by Aco will be adjusted pro tanto pursuant to the terms of the Bco Reorganization Shares and of the Share Exchange Agreement, respectively. Moreover, in the event that the FMV of the Bco Common Shares is determined by the CRA to be higher or lower than the FMV agreed upon by Aco and Bco, the number of Bco Common Shares exchanged by Aco will be adjusted pro tanto pursuant to the terms of the Share Exchange Agreement.

23. Bco will add to the stated capital account maintained for the Bco Reorganization Shares an amount equal, in aggregate, to the paid-up capital of the exchanged Bco Common Shares immediately before the Bco Share Exchange, being an amount equal to the proportion of the paid-up capital of all the Bco Common Shares that the FMV of the Trademarks is of the FMV of all the Bco Common Shares, which will be approximately $XXXXXXXXXX, and will reduce the stated capital account maintained for the Bco Common Shares exchanged by an equivalent amount.

24. An election under subsection 85(1) will not be filed in respect of the Bco Share Exchange.

Transfer of the Bco Reorganization Shares to Newco

25. Immediately after the Bco Share Exchange, Aco will transfer to Newco all of its Bco Reorganization Shares in consideration for XXXXXXXXXX Newco Common Shares, having a FMV equal to the Bco Reorganization Shares. An amount of $XXXXXXXXXX will be added to the stated capital of the Newco Common Shares in respect of this transaction.

26. Aco will jointly elect with Newco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Bco Reorganization Shares. The agreed amount in respect of the Bco Reorganization Shares transferred will be equal to the ACB of such shares to Aco at the time of disposition.

Transfer of the Trademarks to Newco

27. Bco will transfer the Trademarks to Newco in consideration for Newco Preferred Shares having a redemption value and FMV equal to the FMV of the Trademarks transferred.

28. Bco and Newco will enter into XXXXXXXXXX agreements pursuant to which Newco will provide Bco with an exclusive right to use and sub-license the Trademarks transferred as described in Paragraph 27 in consideration for the payment of a royalty in an amount equal to the amount that would be agreed to between arm’s length parties (the “Trademark License Agreements”).

29. Bco will jointly elect with Newco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of Trademarks described in Paragraph 27. The agreed amount in respect of such transfer will be $XXXXXXXXXX.

30. Bco will make XXXXXXXXXX royalty payment to Newco pursuant to the Trademark License Agreements prior to the winding-up of Newco described in Paragraph 36.

Redemption of the Bco Reorganization Shares

31. On XXXXXXXXXX the transfer of the Trademarks to Newco described in Paragraph 27, Bco will redeem all of the Bco Reorganization Shares held by Newco and will issue to Newco in consideration therefor, a demand non-interest bearing promissory note (the “Bco Note”) having a principal amount and FMV equal to the aggregate redemption amount and FMV of the Bco Reorganization Shares so redeemed. Newco will accept the Bco Note as full satisfaction for the redemption price of its Bco Reorganization Shares so redeemed.

Bco will designate the dividend resulting from the redemption of the Bco Reorganization Shares held by Newco to be an eligible dividend for purposes of subsection 89(14).

32. The terms of the Bco Note will include a price adjustment clause. In the event that the FMV of the Bco Reorganization Shares redeemed is determined by the CRA to be lower or higher than the FMV agreed upon by Bco and Newco, the principal amount of the Bco Note will be adjusted pro tanto pursuant to the terms of such Bco Note price adjustment clause.

Redemption of the Newco Preferred Shares

33. On XXXXXXXXXX the transfer of the Trademarks to Newco described in Paragraph 27, Newco will redeem all of the Newco Preferred Shares held by Bco and will issue in consideration therefor, a demand non-interest bearing promissory note (the “Newco Note”) having a principal amount and FMV equal to the aggregate redemption amount and FMV of the Newco Preferred Shares so redeemed. Bco will accept the Newco Note as full satisfaction for the redemption price of its Newco Preferred Shares so redeemed.

Newco will designate the dividend resulting from the redemption of the Newco Preferred Shares held by Bco to be an eligible dividend for purposes of subsection 89(14).

34. The terms of the Newco Note will include a price adjustment clause. In the event that the FMV of the Newco Preferred Shares redeemed is determined by the CRA to be lower or higher than the FMV agreed upon by Newco and Bco, the principal amount of the Newco Note will be adjusted pro tanto pursuant to the terms of such Newco Note price adjustment clause.

Settlement of the Bco Note and the Newco Note

35. The debts owing under the Bco Note held by Newco and the Newco Note held by Bco will be extinguished by compensation. At the time of settlement, the principal amount and FMV of the Bco Note will be equal to the principal amount and FMV of the Newco Note.

Winding-up of Newco

36. XXXXXXXXXX after the transfer of the Trademarks described in Paragraph 27, Newco will be wound-up into Aco. A conveyance of all assets and assumption of all liabilities will be executed, resulting in the Trademarks being transferred to Aco and Aco becoming a party to the Trademark License Agreements in replacement of Newco. The dissolution of Newco will be effected as soon as practically possible.

37. [Reserved].

38. Bco will make XXXXXXXXXX royalty payment to Aco pursuant to the Trademark License Agreements prior to the transfer of the Trademarks to Bco described in Paragraph 39.

Transfer of the Trademarks to Bco

39. XXXXXXXXXX after the winding-up of Newco described in Paragraph 36, Aco will transfer the Trademarks to Bco in consideration for Bco Common Shares having a FMV equal to the FMV of the Trademarks. The terms of the asset transfer agreement giving effect to such transfer will include a price adjustment clause.

40. Aco will jointly elect with Bco, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Trademarks. The agreed amount in respect of the transfer will be $XXXXXXXXXX.

41. [Reserved].

ADDITIONAL INFORMATION

42. The agreed amount for the purposes of the subsection 85(1) election described in Paragraph 39 will be less than the amount of the aggregate ACB of the Bco Reorganization Shares issued pursuant to the Share Exchange Agreement.

43. Neither Newco nor Aco will claim CCA in respect of the Trademarks as a result of the Proposed Transactions.

44. None of the shares issued by Newco or Bco will be at any time during the implementation of the Proposed Transactions:

a. the subject of any undertaking that is referred to in subsection 112(2.2) as a “guarantee agreement”;

b. the subject of a dividend rental arrangement within the meaning referred to in subsection 112(2.3); or

c. a share that is issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).

45. None of Aco, Bco or Newco is or will be at the time of the Proposed Transactions a specified financial institution.

45.1 For all purposes of the Act, including filing its return of income or any prescribed forms, Aco will apply subsections 13 and 20 (and any regulations made for the purpose of paragraph 20(1)(a)) on the basis that the capital cost to Aco of the Trademarks acquired from Newco on the winding-up of Newco as described in Paragraph 36 will be deemed by subparagraph 13(7)(e)(ii) to be equal to the capital cost of the Trademarks to Newco before the winding-up for the same purposes, being $XXXXXXXXXX.

45.2 For all purposes of the Act, including filing its return of income or any prescribed forms, Bco will apply subsections 13 and 20 (and any regulations made for the purpose of paragraph 20(1)(a)), on the basis that the capital cost to Bco of the Trademarks acquired from Aco as described in Paragraph 39 will be deemed by subparagraph 13(7)(e)(ii) to be $XXXXXXXXXX, being equal to the aggregate of the $XXXXXXXXXX capital cost of the Trademarks to Aco, as determined under paragraph 13(7)(e), and ½ of the amount of the $XXXXXXXXXX capital gain realized by Aco on the transfer.

PURPOSE OF THE PROPOSED TRANSACTIONS

46. The purpose of the Proposed Transactions is to facilitate a tax-efficient use of Aco and Bco’s available capital losses within the affiliated group. Aco and Bco are not expected to realize a significant capital gain in the near future. This loss utilization plan should permit Aco and Bco to utilize some or all of their capital losses to offset all of the capital gains realized on each disposition of the Trademark, while at the same time permitting Bco to reacquire the Trademarks at an increased cost amount on which it will be entitled to claim additional CCA.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, additional information and purpose of the Proposed Transactions, and provided further that the Proposed Transactions are carried out as described above, our rulings are as follows:

A. The provisions of subsection 51(1) will apply, and the provisions of subsection 51(2) will not apply, to the Bco Share Exchange.

B. Provided the appropriate elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and provided the transfer constitutes a disposition of eligible property, the provisions of subsection 85(1) will apply to:

i. the transfer by Aco of its Bco Reorganization Shares to Newco described in Paragraph 25;

ii. the transfer by Bco of the Trademarks to Newco described in Paragraph 27; and

iii. the transfer by Aco of the Trademarks to Bco described in Paragraph 39;

such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor’s proceeds of disposition and the transferee’s cost thereof pursuant to paragraph 85(1)(a).

For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers.

C. The provisions of subsection 84(3) will apply on the redemption of the Bco Reorganization Shares held by Newco described in Paragraph 31, to deem Bco to have paid and Newco to have received a dividend on the Bco Reorganization Shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such Bco Reorganization Shares immediately before such redemption.

D. The provisions of subsection 84(3) will apply on the redemption of the Newco Preferred Shares held by Bco described in Paragraph 33, to deem Newco to have paid and Bco to have received a dividend on the Newco Preferred Shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such Newco Preferred Shares immediately before such redemption.

E. The deemed dividends received by Newco and Bco, as described in Rulings C and D:

i. will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the recipient of such dividend;

ii. will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1) and, for greater certainty, the provisions of subsection 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;

iii. will be excluded from the proceeds of disposition of the relevant shares by virtue of paragraph (j) of the definition of “proceeds of disposition” in section 54;

iv. by virtue of subsection 112(3), will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received; and

v. will not be subject to tax under Part IV.1 and Part VI.1.

F. The cost to Bco of the Newco Note will be equal to the FMV of the Newco Note at the time of receipt.

G. The cost to Newco of the Bco Note will be equal to the FMV of the Bco Note at the time of receipt.

H. The settlement of the Bco Note and the Newco Note, described in Paragraph 35, will not give rise to a “forgiven amount” within the meaning of subsection 80(1) or 80.01(1), and neither Bco nor Newco will realize any gain or sustain any loss as a result of such settlement.

I. Provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) as part of a series of transactions or events that includes any of the Proposed Transactions, by virtue of paragraph 55(3)(a) the provisions of subsection 55(2) will not apply to the taxable dividends described in Rulings C and D. For greater certainty, the Proposed Transactions described herein, in and by themselves, will not be considered to result in any disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

J. The provisions of subsection 88(1) will apply on the winding-up of Newco into Aco as described in Paragraph 36. The capital cost to Aco of the Trademarks acquired on the winding-up will be, for the purposes of determining its capital gain on the transfer of the Trademarks to Bco as described in Paragraph 39, by virtue of subparagraph 88(1)(c)(ii) equal to their cost amount, being $XXXXXXXXXX.

K. Prior to the transfer by Bco of the Trademarks to Newco as described in Paragraph 27:

i. All of the Trademarks other than those described in Paragraphs 16(i)-(iv) will constitute class 14.1 property of Bco by reason of paragraph (b) of the description thereof, for the purposes of sections 13 and 20;

ii. The Trademarks described in Paragraphs 16(i)-(iv) will constitute class 14.1 property of Bco by reason of paragraph (c) of the description thereof, for the purposes of sections 13 and 20.

L. With respect to the transfer of the Trademarks described in Paragraphs 27, 36 and 39:

i. Regulation 1102(14) will apply to deem the Trademarks, transferred to the particular transferee, to be property of the same prescribed class as that of the respective transferor immediately before the transfer, being class 14.1 property;

ii. Provided that the conditions specified in paragraph 1100(2.2)(f) or (g) of the Regulations are satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be added under Regulation 1100(2)(a) in respect of the Trademarks; and

iii. Regulation 1102(20) will not apply to the Proposed Transactions.

M. The provisions of subparagraph 13(7)(e)(ii) will apply to the transfer by Bco of the Trademarks to Newco described in Paragraph 27, such that subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and (p), section 13, section 20 and any regulations made for the purpose of paragraph 20(1)(a), the capital cost of the Trademarks to Newco will be $XXXXXXXXXX, being equal to the total of the XXXXXXXXXX capital cost of the Trademarks to Bco immediately before the transfer and ½ of the amount of the $XXXXXXXXXX capital gain realized by Bco on the transfer.

N. The provisions of subparagraph 13(7)(e)(ii) will apply to the transfer of the Trademarks from Newco to Aco as a result of the winding-up of Newco described in Paragraph 36, such that subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and (p), section 13, section 20 and any regulations made for the purpose of paragraph 20(1)(a), the capital cost of the Trademarks to Aco will be $XXXXXXXXXX, being equal to the capital cost of the Trademarks to Newco.

O. The provisions of subparagraph 13(7)(e)(ii) will apply to the transfer by Aco of the Trademarks to Bco described in Paragraph 39, such that subject to subsection 70(13), for the purposes of paragraphs 8(1)(j) and (p), section 13, section 20 and any regulations made for the purpose of paragraph 20(1)(a), the capital cost of the Trademarks to Bco will be $XXXXXXXXXX, being equal to the aggregate of the $XXXXXXXXXX capital cost of the Trademarks to Aco and ½ of the amount of the $XXXXXXXXXX capital gain realized by Aco on the transfer.

P. The provisions of subsections 15(1) and 246(1) will not apply to any of the Proposed Transactions, in and by themselves.

Q. The provisions of subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R9 dated April 23, 2019. They are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX, unless otherwise specified.

The above 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, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise confirmed, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(01) the PUC of any share or the ACB or FMV of any property referred to herein, or the outstanding balance of any tax accounts, such as capital losses, for any of the corporate entities described herein;

(02) the GST implications of any of the Proposed Transactions; or

(03) any other tax consequence relating to the Facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

Nothing in this letter should be construed as a confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred or 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 or in the event of 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.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

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