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: Application of partnership rules to proposed internal transfer of business into a new partnership for purposes of securing external financing. In particular: 1) Is the Parent Loan additional consideration for the transfer of certain assets? 2) Is the Parent Loan a distribution? 3) Is the Parent Loan part of a series? 4) Does GAAR apply?
Position: 1. No; 2. No; 3. No. 4. No.
Reasons: 1. Taxpayer provided legal opinion supporting that Parent Loan is a loan under XXXXXXXXXX law; FMV of the transferred assets equal to FMV of units acquired; and agreements are on arm's length commercial terms; 2) Parent Loan is a loan under provincial law; Parent Loan is not an amount in lieu of a distribution because LP is a newly formed partnership with no income or capital prior to the Proposed Transactions; no indirect tax benefits achieved; no intention to reduce a capital gain or increase a capital loss; Parent Loan is not a short term loan and therefore our administrative position described in CTF 2022 does not apply; 3) no series because single contribution and loans do not form a series of loans and contributions, and the Proposed Transactions do not artificially or temporarily increase ACB or ARA of a limited partnership interest in respect of the contribution; 4) Assuming a tax benefit and an avoidance transaction, there is no abuse/misuse; the Parent Loan is not a disguised distribution, nor consideration; the Proposed Transactions do not appear to result in an outcome that 97(2), 52(2)(c)(v), 40(3.13) and 96(2.7) seek to prevent or defeat the underlying rationale of those provisions, or circumvent those provisions in a manner that frustrates the OSP of those provisions. There is no deferral of tax or the creation or maintenance of tax attributes (ACB) in a manner that the applicable provisions do not contemplate or that results in a misuse or abuse of such provisions.
XXXXXXXXXX 2022-093826
XXXXXXXXXX, 2023
Dear XXXXXXXXXX:
RE: Advance Income Tax Ruling Request – Partnership Financing Transaction
XXXXXXXXXX
We are writing in response to your request for an advance income tax ruling dated XXXXXXXXXX as amended by letters received XXXXXXXXXX (the “Ruling Request”) on behalf of the above-noted Taxpayers. We also acknowledge the additional information provided in various email correspondence, as well as the information provided during telephone conversations.
We understand that, to the best of your knowledge and that of the Taxpayers involved, none of the Proposed Transactions or issues involved in this Ruling request are the same or substantially similar to transactions or issues that are:
(i) in a previously filed tax return of the Taxpayers or a related person and:
a. being considered by the CRA in connection with such return;
b. under objection by the Taxpayers or a related person;
c. the subject of a current or completed court process involving the Taxpayers or a related person; or
(ii) except as provided herein, the subject of a ruling request in respect of the Taxpayers or related persons previously considered by the Income Tax Rulings Directorate.
The Taxpayers have also confirmed that the Proposed Transactions described herein will not result in the Taxpayers or any person related to the Taxpayers being unable to pay any of their outstanding tax liabilities.
This document is based solely on the Facts and Proposed Transactions described below. The documentation submitted with your request and any information provided by correspondence or telephone conversations does not form part of the Facts and Proposed Transactions except as expressly referred to herein, and any references to the documentation are otherwise provided solely for the convenience of the reader.
Unless otherwise stated:
(i) all references to a statute are to the relevant provision of the Income Act R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended;
(ii) all terms and conditions used in this Ruling request that are defined in the Act (or in the Regulations) have the meaning given in such definition;
(iii) all references to monetary amounts are in Canadian dollars; and
(iv) the singular should be read as plural and vice versa where the circumstances so require.
I. DEFINITIONS
The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:
XXXXXXXXXX;
“Asset Purchase Agreement” means the agreement between the Partnership and XXXXXXXXXX LP which sets out the terms and conditions for, inter alia, the transfer of the XXXXXXXXXX assets by the Partnership to XXXXXXXXXX LP;
XXXXXXXXXX;
“BCA” means XXXXXXXXXX
“Bidco” means XXXXXXXXXX, a taxable Canadian corporation incorporated under the BCA which acquired all of the shares in the capital of Pubco on XXXXXXXXXX and which amalgamated with Pubco to form Parent;
“Brand Assets” means the Parent Brand Assets and the Partnership Brand Assets;
“Brand Holding LP” means a new limited partnership to be established pursuant to the laws of the Province of XXXXXXXXXX having the Partnership as the limited partner and GPCo3 as the general partner;
“Brand LP” means a new limited partnership to be established pursuant to the laws of the XXXXXXXXXX, having the Partnership as the initial limited partner and GPCo4 as the general partner;
“Brand Licensing Agreements” means the agreements to be entered into between Brand Holding LP and Brand LP, and between Brand Holding LP and the Partnership, as described in paragraphs 55 and 56 below;
“Canadian corporation” has the meaning assigned by subsection 89(1) of the Act;
“Canadian partnership” has the meaning assigned by subsection 102(1) of the Act;
XXXXXXXXXX;
“CRA” means the Canada Revenue Agency;
“Credit Agreement” means that Credit Agreement entered into on XXXXXXXXXX between Parent Shareholder, Bidco, the Partnership, the lenders thereto and XXXXXXXXXX (as Administrative Agent), pursuant to which Parent and the Partnership are co-borrowers. Currently, approximately US$XXXXXXXXXX is owing under the Credit Agreement of which Parent is the primary obligor, and approximately US$XXXXXXXXXX is owing under the Credit Agreement of which the Partnership is the primary obligor;
“Debtholders” means the beneficial holders of the XXXXXXXXXX Debt from time to time;
“eligible derivative” has the meaning assigned by subsection 10.1(5) of the Act;
“Existing XXXXXXXXXX” means the XXXXXXXXXX which will be issued and outstanding prior to the transfer of the XXXXXXXXXX assets to XXXXXXXXXX LP and which constitute a liability of the Partnership;
“fair market value” or “FMV” means the highest price available in an open and unrestricted market between informed and prudent parties dealing at arm’s length and under no compulsion to act, expressed in terms of cash;
“First Brand Purchase Agreement” means the agreement to be entered into between Parent and the Partnership which sets out the terms and conditions for, inter alia, the transfer of the Parent Brand Assets from Parent to the Partnership;
XXXXXXXXXX;
“GPCo1” means the new Canadian corporation to be incorporated under the BCA as described in paragraph 12 which will be the general partner of XXXXXXXXXX Holding LP;
“GPCo2” means the new Canadian corporation to be incorporated under the BCA as described in paragraph 14 which will be the general partner of XXXXXXXXXX LP;
“GPCo3” means the new Canadian corporation to be incorporated under the BCA as described in paragraph 16 which will be the general partner of Brand Holding LP;
“GPCo4” means the new Canadian corporation to be incorporated under the BCA as described in paragraph 18 which will be the general partner of Brand LP;
“Intellectual Property” means all patents and patent applications, registered trademarks or service marks, brand names, trade dress, know how, registered copyrights and applications for registration of copyrights, Trade Secrets, domain names, social media accounts and other intellectual property, whether registered or unregistered, including unregistered copyrights in software and source code and applications to register any of the foregoing;
“XXXXXXXXXX LP” means the new limited partnership to be established pursuant to the laws of the XXXXXXXXXX as described in paragraph 15, having the Partnership as the initial limited partner and GPCo2 as the general partner;
“XXXXXXXXXX Debt” means the senior secured indebtedness to be incurred by XXXXXXXXXX LP, in the form of promissory notes and/or a credit agreement, the terms of which are more particularly described in paragraphs 35 to 40 below;
“XXXXXXXXXX Holding LP” means a new limited partnership to be established pursuant to the laws of the XXXXXXXXXX as described in paragraph 13, having the Partnership as the limited partner and GPCo1 as the general partner;
“XXXXXXXXXX Licensing Agreements” means the agreements to be entered into between the Partnership and XXXXXXXXXX Holding LP, and between XXXXXXXXXX Holding LP and XXXXXXXXXX LP, as described in paragraphs 53 and 54 below;
XXXXXXXXXX;
“Parent” means XXXXXXXXXX;
“Parent Brand Assets” means all patents, trademarks, service marks, brand names, copyrights, designs and logos that include the name “XXXXXXXXXX” (including all pending applications), and the “XXXXXXXXXX” domain name (and any similar domain name) and other similar intellectual property owned by Parent;
“Parent Loan” means an interest-bearing loan to be made by XXXXXXXXXX LP to Parent as described in paragraphs 43 to 47 below;
“Parent Shareholder” means XXXXXXXXXX, a taxable Canadian corporation which owns all of the issued and outstanding shares in the capital of Parent;
“XXXXXXXXXX Agreements” means those XXXXXXXXXX agreements entered into between the Partnership XXXXXXXXXX;
XXXXXXXXXX;
“Partnership” means XXXXXXXXXX, an XXXXXXXXXX partnership;
“Partnership Brand Assets” means all patents, trademarks, service marks, brand names, copyrights, designs and logos that include the name “XXXXXXXXXX” (including all pending applications), and the “XXXXXXXXXX” domain name (and any similar domain name) and other similar intellectual property owned by the Partnership, but excluding the Partnership XXXXXXXXXXs Contributed Intellectual Property;
XXXXXXXXXX;
“Partnership Services” means the services provided by the Partnership (or any affiliate of the Partnership) of providing XXXXXXXXXX;
“Partnership XXXXXXXXXX Services Agreement” means the agreement to be entered into between the Partnership and XXXXXXXXXX LP as described in paragraphs 48 to 50 below;
XXXXXXXXXX;
“Precedent Financing Transactions” has the meaning set out in paragraph 34 below;
“private corporation” has the meaning assigned by subsection 89(1) of the Act;
“Proposed Transactions” means those transactions set out in paragraphs 12 to 61 below;
“Pubco” means XXXXXXXXXX, the corporation the shares of which were acquired by Bidco XXXXXXXXXX and which is a predecessor to Parent;
“Regulations” means Income Tax Regulations, C.R.C., c.945, as amended;
“Retained Employees” means all of the employees of the Partnership’s XXXXXXXXXX Program Business;
XXXXXXXXXX;
“XXXXXXXXXX” means certain assets of the Partnership used in connection with the XXXXXXXXXX Business, including without limitation (i) all rights to establish, create, organize, initiate, participate, operate, assist, benefit from, promote or otherwise be involved in or associated with, in any capacity, the XXXXXXXXXX Program; (ii) all rights including all payment rights under the Transferred XXXXXXXXXX Agreements; and (iii) the XXXXXXXXXX;
“XXXXXXXXXX Business” means the business of carrying on the XXXXXXXXXX;
“Second Brand Purchase Agreement” means the agreement to be entered into between the Partnership and Brand LP which sets out the terms and conditions for, inter alia, the transfer of the Brand Assets from the Partnership to Brand LP as described in paragraph 28;
“series of transactions” has the meaning assigned by subsection 248(10) of the Act;
“Subco 1” means XXXXXXXXXX, a corporation incorporated under the BCA;
“Subco 2” means XXXXXXXXXX, a corporation incorporated under the BCA;
“Subco 3” means XXXXXXXXXX, a corporation incorporated under the BCA;
XXXXXXXXXX;
“Subco 3 XXXXXXXXXX Services Agreement” means the agreement to be entered into between Subco 3 and XXXXXXXXXX LP as described in paragraphs 51 and 52 below;
“Subco 3 Services” means the services provided by Subco 3 of XXXXXXXXXX including XXXXXXXXXX;
“taxable Canadian corporation” has the meaning set out in subsection 89(1) of the Act;
XXXXXXXXXX;
“Transferred XXXXXXXXXX Agreements” means those XXXXXXXXXX Agreements which are transferred and assigned to XXXXXXXXXX LP as described in paragraph 24 below;
“Transferred Cash” means the cash required to fund a reserve account on the issuance of the XXXXXXXXXX Debt as described in paragraph 41; and
“US$” means United States dollars.
II. FACTS
The Parent Group
1. Parent is a taxable Canadian corporation and a resident of Canada for purposes of the Act. XXXXXXXXXX. Parent is not a private corporation and is not controlled by a non-resident of Canada or by a group of non-residents of Canada. The taxation year end of Parent is XXXXXXXXXX. Parent’s registered address is XXXXXXXXXX.
2. Parent owns all of the issued and outstanding shares in the capital of Subco 2. Subco 2 is a taxable Canadian corporation and a resident of Canada for purposes of the Act. Subco 2 carries on the business of XXXXXXXXXX. The taxation year end of Subco 2 is XXXXXXXXXX.
3. Parent owns all of the issued and outstanding shares in the capital of Subco 3. Subco 3 is a taxable Canadian corporation and a resident of Canada for purposes of the Act. Subco 3 carries on a business of selling Subco 3 Services. The taxation year end of Subco 3 is XXXXXXXXXX.
4. Parent owns all of the issued and outstanding shares in the capital of Subco 1. Subco 1 is a taxable Canadian corporation and a resident of Canada for purposes of the Act. The taxation year end of Subco 1 is XXXXXXXXXX. Subco 1’s registered address is XXXXXXXXXX.
5. Parent and Subco 1 own XXXXXXXXXX%, respectively, of the general partnership units in the Partnership. The Partnership is a general partnership established under the laws of the XXXXXXXXXX. The fiscal period of the Partnership ends on XXXXXXXXXX of each year. The Partnership’s address is XXXXXXXXXX. The Partnership files its return with the XXXXXXXXXX and is served by the XXXXXXXXXX. For greater certainty, Parent is not a limited partner of the Partnership, within the meaning of subsection 40(3.14) or subsection 96(2.4) of the Act and is not a specified member of the Partnership, within the meaning of subsection 248(1) of the Act.
6. The Partnership directly carries on the XXXXXXXXXX. In connection with the XXXXXXXXXX, the Partnership uses the Brand Assets, which are comprised of the Partnership Brand Assets (owned by the Partnership) and the Parent Brand Assets (owned by the Parent).
The XXXXXXXXXX
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX
10. XXXXXXXXXX.
11. XXXXXXXXXX.
III. PROPOSED TRANSACTIONS
Reorganization Transactions
Establishment of New Entities
12. The Partnership will incorporate GPCo1 under the BCA. The Partnership will subscribe for shares of GPCo1 for an amount equal to the FMV of such shares. All of the shares in the capital of GPCo1 will be owned by the Partnership and will be held as capital property. GPCo1 will be a taxable Canadian corporation and a resident of Canada for the purposes of the Act. The taxation year end of GPCo1 will be XXXXXXXXXX.
13. The Partnership and GPCo1 will form XXXXXXXXXX Holding LP as a limited partnership under the laws of the XXXXXXXXXX, which will be a Canadian partnership for the purposes of the Act. The Partnership will subscribe for one limited partnership unit of XXXXXXXXXX Holding LP and GPCo1 will subscribe for one general partnership unit of XXXXXXXXXX Holding LP, in each case for an amount equal to the FMV of such units. The partnership units of XXXXXXXXXX Holding LP will be held by Partnership and GPCo1 as capital property. The fiscal period of XXXXXXXXXX Holding LP will end on XXXXXXXXXX of each year.
14. XXXXXXXXXX Holding LP will incorporate GPCo2 under the BCA. XXXXXXXXXX Holding LP will subscribe for shares of GPCo2 for an amount equal to the FMV of such shares. All of the shares in the capital of GPCo2 will be owned by XXXXXXXXXX Holding LP and will be held as capital property. GPCo2 will be a taxable Canadian corporation and a resident of Canada for purposes of the Act. The taxation year end of GPCo2 will be XXXXXXXXXX.
15. The Partnership and GPCo2 will form XXXXXXXXXX LP as a limited partnership under the laws of the XXXXXXXXXX, which will be a Canadian partnership for the purposes of the Act. The Partnership will subscribe for one limited partnership unit of XXXXXXXXXX LP and GPCo2 will subscribe for one general partnership unit of XXXXXXXXXX LP, in each case for an amount equal to the FMV of such units. The partnership units of XXXXXXXXXX LP will be held by Partnership and GPCo 2 as capital property. The fiscal period of XXXXXXXXXX LP will end on XXXXXXXXXX of each year.
16. The Partnership will incorporate GPCo3 under the BCA. The Partnership will subscribe for shares of GPCo3 for an amount equal to the FMV of such shares. All of the shares in the capital of GPCo4 will be owned by the Partnership and held as capital property. GPCo3 will be a taxable Canadian corporation and a resident of Canada for purposes of the Act. The taxation year end of GPCo3 will be XXXXXXXXXX.
17. The Partnership and GPCo3 will form Brand Holding LP as a limited partnership under the laws of the XXXXXXXXXX, which will be a Canadian partnership for the purposes of the Act. The Partnership will subscribe for one limited partnership unit of Brand Holding LP and GPCo3 will subscribe for one general partnership unit of Brand Holding LP, in each case for an amount equal to the FMV of such units. The partnership units of Brand Holding LP will be held by the Partnership and GPCo3 as capital property. The fiscal period of Brand Holding LP will end on XXXXXXXXXX of each year.
18. Brand Holding LP will incorporate GPCo4 under the BCA. Brand Holding LP will subscribe for shares of GPCo4 for an amount equal to the FMV of such shares. All of the shares in the capital of GPCo4 will be owned by Brand Holding LP and held as capital property. GPCo4 will be a taxable Canadian corporation and a resident of Canada for purposes of the Act. The taxation year end of GPCo4 will be XXXXXXXXXX.
19. The Partnership and GPCo4 will form Brand LP as a limited partnership under the laws of the XXXXXXXXXX, which will be a Canadian partnership for the purposes of the Act. The Partnership will subscribe for one limited partnership unit of Brand LP and GPCo4 will subscribe for one general partnership unit of Brand LP, in each case for an amount equal to the FMV of such units. The partnership units of Brand LP will be held by the Partnership and GPCo4 as capital property. The fiscal period of Brand LP will end on XXXXXXXXXX of each year.
20. In order to satisfy bankruptcy-remote requirements applicable to the financing, GPCo1, GPCo2, GPCo3 and GPCo4 will each have an independent director, and the consent of such independent director will be required before XXXXXXXXXX Holding LP, Brand Holding LP, Brand LP or XXXXXXXXXX LP may commence voluntary insolvency proceedings or take certain other significant actions not permitted under the terms of the XXXXXXXXXX Debt, described below.
Transfer of the XXXXXXXXXX assets to XXXXXXXXXX LP
21. Pursuant to the Asset Purchase Agreement, the Partnership will transfer to XXXXXXXXXX LP (i) all of the XXXXXXXXXX assets used in the XXXXXXXXXX Business, and (ii) the Transferred Cash. In consideration, XXXXXXXXXX LP will (i) issue XXXXXXXXXX additional limited partnership units in XXXXXXXXXX LP to the Partnership; and (ii) assume liabilities attributable to the XXXXXXXXXX Business (other than the obligations in respect of XXXXXXXXXX, or existing obligations to provide other services such XXXXXXXXXX. XXXXXXXXXX LP will be a Canadian partnership immediately after the transfer. The FMV of the XXXXXXXXXX additional limited partnership units will have a FMV equal to the aggregate FMV of the XXXXXXXXXX assets and the amount of the Transferred Cash less the amount of the liabilities assumed. The Asset Purchase Agreement contains a price adjustment clause at article 2.3 to implement the intention of the parties to transfer the XXXXXXXXXX assets at a purchase price equal to the FMV of the XXXXXXXXXX assets purchased as at the date of closing. The XXXXXXXXXX additional limited partnership units of XXXXXXXXXX LP will be held by the Partnership as capital property.
22. The XXXXXXXXXX will consist primarily of contracts, intellectual property and other intangible property and goodwill. No employees will be transferred to XXXXXXXXXX LP in connection with the transfer of the XXXXXXXXXX Business (see paragraph 50 below). The XXXXXXXXXX will be transferred under the Asset Purchase Agreement to the Partnership in two separate transfers. In particular, the Partnership will first transfer a Transferred XXXXXXXXXX Agreement, followed by the transfer of the remaining XXXXXXXXXX (and the Transferred Cash) one day after the initial transfer. For greater certainty, the subsection 97(2) will not apply to any XXXXXXXXXX Asset that is an eligible derivative (but only if subsection 10.1(6) applies to the Partnership).
23. Parent (on behalf of the partners of the Partnership) and GPCo2 will elect jointly in prescribed form and within the time limits referred to in subsection 96(4) to have the rules of subsection 97(2) apply to the transfer of the XXXXXXXXXX assets that are capital property or inventory to XXXXXXXXXX LP. The amount agreed upon in such election in respect of a property transferred will be equal to (i) the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) in respect of inventory or capital property other than depreciable property of a prescribed class; and (ii) the lesser of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii) in respect of depreciable property of a prescribed class; provided that the elected amount in respect of any particular asset (a) will not be less than the amount of liabilities assumed in respect of that asset; (b) will not be greater than the fair market value of that asset; and (c) may be greater than the amounts described in (i) and (ii) above if so determined by the Partnership.
24. As part of the transactions described in paragraph 21 above, certain of the XXXXXXXXXX Agreements (the “Transferred XXXXXXXXXX Agreements”) will be assigned by the Partnership to XXXXXXXXXX LP. XXXXXXXXXX LP will thereafter be entitled to all rights and will perform all obligations under such agreements. In particular, after the transfer of the XXXXXXXXXX Business to XXXXXXXXXX LP, the XXXXXXXXXX will commence to make payments to XXXXXXXXXX LP under the Transferred XXXXXXXXXX Agreements, XXXXXXXXXX LP will XXXXXXXXXX. The Partnership will also remain liable to perform obligations under certain Transferred XXXXXXXXXX Agreements if XXXXXXXXXX LP breaches its obligations thereunder, and /or guarantee the obligations of XXXXXXXXXX LP. XXXXXXXXXX Agreements which are not Transferred XXXXXXXXXX Agreements will remain at the Partnership and the Partnership will contract with XXXXXXXXXX LP for XXXXXXXXXX.
Transfer of the Parent Brand Assets to the Partnership
25. Pursuant to the First Brand Purchase Agreement, Parent will transfer the Parent Brand Assets to the Partnership in consideration for additional general partnership units of the Partnership. The FMV of the additional general partnership units of the Partnership acquired by Parent on the transfer will be equal to the FMV of the Parent Brand Assets transferred. The Parent Brand Assets will be held by Parent as capital property before the transfer.
26. Contemporaneously with the transfer described in paragraph 25, Subco 1 will subscribe for additional general partnership units of the Partnership for cash, in order to maintain the XXXXXXXXXX% ownership percentages. The subscription price paid by Subco 1 will be equal the FMV of the additional general partnership units acquired. A price adjustment clause will be added to the unit subscription such that Subco 1 will pay FMV for the additional general partnership units (being XXXXXXXXXX% of the fair market value of the Parent Brand Assets). It is expected that Parent will subscribe for additional common shares of Subco 1 in order for Subco 1 to have the cash needed to pay for the unit subscription.
27. Parent and Subco 1 (on behalf of the partners of the Partnership) will elect jointly in prescribed form and within the time limits referred to in subsection 96(4) to have the rules of subsection 97(2) apply to the transfer of the Parent Brand Assets that are capital property or inventory to the Partnership. The amount agreed upon in such election in respect of a property transferred will be equal to (i) the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) in respect of inventory or capital property other than depreciable property of a prescribed class; and (ii) the lesser of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii) in respect of depreciable property of a prescribed class; provided that the elected amount in respect of any particular asset will not be greater than the fair market value of that asset.
Transfer of the Brand Assets to Brand LP
28. Pursuant to the Second Brand Purchase Agreement, the Partnership will transfer the Brand Assets to Brand LP. In consideration, Brand LP will issue XXXXXXXXXX additional limited partnership units in Brand LP to the Partnership. The Brand Assets will be held by the Partnership as capital property or inventory before the transfer. No employees will be transferred to Brand LP in connection with the transfer of the Brand Assets. The FMV of the Brand LP units acquired by the Partnership on the transfer will be equal to the FMV of the Brand Assets transferred.
29. Parent (on behalf of the partners of the Partnership) and GPCo4 will elect jointly in prescribed form and within the time limits referred to in subsection 96(4) to have the rules of subsection 97(2) apply to the transfer of the Brand Assets that are capital property or inventory to Brand LP. The amount agreed upon in such election in respect of a property transferred will be equal to (i) the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) in respect of inventory or capital property other than depreciable property of a prescribed class; and (ii) the lesser of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii) in respect of depreciable property of a prescribed class; provided that the elected amount in respect of any particular asset (a) will not be greater than the fair market value of that asset; and (b) may be greater than the amounts described in (i) and (ii) above if so determined by the Partnership.
Transfer of XXXXXXXXXX LP to XXXXXXXXXX Holding LP
30. The Partnership will (i) transfer one limited partnership unit of XXXXXXXXXX LP to Parent for cash equal to the fair market value of that unit; and (ii) transfer the remaining XXXXXXXXXX limited partnership units of XXXXXXXXXX LP to XXXXXXXXXX Holding LP in consideration for XXXXXXXXXX additional limited partnership units in XXXXXXXXXX Holding LP. The limited partnership interest of XXXXXXXXXX LP will be held by the Partnership as capital property before the transfer. The FMV of the additional XXXXXXXXXX Holding LP limited partnership units acquired by the Partnership on the transfer, will be equal to the FMV of the XXXXXXXXXX LP limited units transferred.
31. Parent (on behalf of the partners of the Partnership) and GPCo1 will jointly elect in prescribed form and within the time limits referred to in subsection 96(4) to have the rules of subsection 97(2) apply to the transfer of the limited partnership interests in XXXXXXXXXX LP to XXXXXXXXXX Holding LP. The amount agreed upon in such election will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
Transfer of Brand LP to Brand Holding LP
32. The Partnership will transfer the XXXXXXXXXX limited partnership units of Brand LP to Brand Holding LP in consideration for XXXXXXXXXX additional limited partnership units in Brand Holding LP. The limited partnership units of Brand LP will be held by the Partnership as capital property before the transfer. The FMV of the additional XXXXXXXXXX Brand Holding LP limited partnership units acquired by the Partnership on the transfer, will be equal to the FMV of the Brand LP limited units transferred.
33. Parent (on behalf of the partners of the Partnership) and GPCo3 will jointly elect in prescribed form and within the time limits referred to in subsection 96(4) to have the rules of subsection 97(2) apply to the transfer of the limited partnership interests in Brand LP to Brand Holding LP. The amount agreed upon in such election will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
Financing Transactions
Issuance of the XXXXXXXXXX Debt
34. The XXXXXXXXXX Debt, and the terms of this financing more generally, will be modelled on a number of other recent financings transactions (the “Precedent Financing Transactions”) undertaken with XXXXXXXXXX in XXXXXXXXXX.
35. XXXXXXXXXX LP will incur the XXXXXXXXXX Debt in the aggregate principal amount up to US$XXXXXXXXXX. The XXXXXXXXXX Debt will bear interest at a fixed or floating annual interest rate, and will be payable XXXXXXXXXX. The interest rate may be increased by a specified margin while the XXXXXXXXXX Debt is outstanding from time to time if the “loan to value” ratio no longer meets a specified predetermined threshold. The XXXXXXXXXX Debt will mature XXXXXXXXXX years after issuance. The XXXXXXXXXX Debt will be denominated in US dollars and will be issued to persons who deal at arm’s length with XXXXXXXXXX LP for purposes of the Act.
36. Similar to the Precedent Financing Transactions, there are a number of special cash flow provisions which are intended to provide Debtholders with access to the cash from the operations of XXXXXXXXXX LP (and Brand LP if needed) on a bankruptcy-remote basis. In general terms, this will be accomplished through the deposit of revenues and other cashflows into segregated bank accounts, from which interest and principal will be paid.
37. The XXXXXXXXXX Debt will be secured by all of the assets of XXXXXXXXXX LP including the segregated bank accounts described in the paragraph above. In addition, the XXXXXXXXXX Debt will be guaranteed by (i) Brand LP, which will secure its guarantee with all of its assets; (ii) Brand Holding LP, which will secure its guarantee with all of its assets; (iii) the Partnership, which will secure its guarantee with the partnership units of XXXXXXXXXX Holding LP and Brand Holding LP, and the shares of GPCo1 and GPCo3 owned by it; (iv) Parent, which will secure its guarantee with the limited partnership unit of XXXXXXXXXX LP owned by it; and (v) XXXXXXXXXX Holding LP, which will secure its guarantee with all of its assets. Parent Shareholder may also guarantee the XXXXXXXXXX Debt on an unsecured basis.
38. XXXXXXXXXX LP will pay a commercially reasonable guarantee fee to Brand LP. XXXXXXXXXX LP will agree that the guarantors have full and unfettered subrogation rights as against it in the event that the guarantees are called upon and the XXXXXXXXXX Debt is paid in full.
39. The XXXXXXXXXX Debt will contain typical commercial protections for the Debtholders that are customary for similar financings, including representations and warranties, positive and negative covenants, collateral, and specific provisions relating to the insolvency of the Partnership. In particular, and among other things, the partnerships will be subject to negative covenants in respect of dispositions of collateral. There will also be mandatory redemptions of the XXXXXXXXXX Debt required (at par or with a redemption premium) in certain circumstances including debt issues, asset sales, and change of control.
40. Among other things, an event of default will be deemed to occur if the Partnership creates, owns or operates another XXXXXXXXXX in competition with the XXXXXXXXXX, subject to agreed exceptions for acquired businesses. As well, an event of default includes (i) the failure of Parent to directly or indirectly own XXXXXXXXXX% of equity interests in the Partnership, (ii) the failure of the Partnership to directly own a majority of equity interests (other than the general partner interest) in XXXXXXXXXX Holding LP, (iii) the failure of the Partnership to directly own a majority of equity interests (other than the general partner interest) in Brand Holding LP, (iv) the failure of XXXXXXXXXX Holding LP to directly own XXXXXXXXXX% of equity interests in XXXXXXXXXX LP (other than the general partner and LP interest in XXXXXXXXXX LP held by Parent), (v) the failure of Brand Holding LP to directly own XXXXXXXXXX% of equity interests in Brand LP (other than the general partner) and (vi) the failure of Parent to directly or indirectly own a majority of equity interests in each general partner of the partnerships mentioned in this paragraph.
41. XXXXXXXXXX LP will use (i) the proceeds from the issuance of the XXXXXXXXXX Debt to fund the Parent Loan to Parent in a principal amount equal to the aggregate principal amount borrowed under the XXXXXXXXXX Debt; and (ii) the Transferred Cash to fund a reserve account.
42. Parent will reimburse XXXXXXXXXX LP for the financing fees payable in respect of the issuance of the XXXXXXXXXX Debt. An election will be filed by XXXXXXXXXX LP pursuant to subsection 12(2.2).
The Parent Loan
43. The Parent Loan will have a principal amount equal to the aggregate principal amount borrowed under the XXXXXXXXXX Debt, will be denominated in US dollars, will bear interest at an annual rate equal to the annual rate payable by XXXXXXXXXX LP in respect of the XXXXXXXXXX Debt plus a nominal spread and will be repayable at the time or times that the XXXXXXXXXX Debt must be repaid.
44. Unlike the XXXXXXXXXX Debt, the Parent Loan will be unsecured, will not be subject to cash flow provisions, and will have less detailed covenants, representations and warranties and events of default than the XXXXXXXXXX Debt. As well, Parent will have the right to defer payment of all or part of the interest owing under the Parent Loan, with compound interest accruing thereon.
45. The Parent Loan will be assigned as security to the Debtholders.
46. It is the expectation that Parent will repay the Parent Loan on the maturity date (or such earlier date on which the XXXXXXXXXX Debt is repaid), and that the Parent Loan will not remain outstanding on or after the date that the XXXXXXXXXX Debt is repaid or otherwise settled.
47. All or a portion of the proceeds of the Parent Loan will be used to repay indebtedness owing by Parent as primary obligor under the Credit Agreement. The proceeds of the Parent Loan will not be used by Parent to make a capital contribution or loan to the Partnership or any partnership in which it holds a direct or indirect interest.
Partnership XXXXXXXXXX Services Agreement
48. Concurrently with and as part of the execution of the Asset Purchase Agreement, the Partnership and XXXXXXXXXX LP will enter into the Partnership XXXXXXXXXX Services Agreement with respect to the services to be rendered by the Partnership to XXXXXXXXXX LP, and the services to be rendered by XXXXXXXXXX LP to the Partnership. The Partnership XXXXXXXXXX Services Agreement will be on arm’s length commercial terms and will have a nominal FMV to the Partnership and XXXXXXXXXX LP.
49. XXXXXXXXXX.
50. Pursuant to the Partnership XXXXXXXXXX Services Agreement, the Partnership will also agree to provide management services to XXXXXXXXXX LP on a cost plus basis, including, without limitation, accounting, secretarial, legal, labour relations and information technology services. The Partnership will continue to employ the Retained Employees, and it will provide the services of these employees to XXXXXXXXXX LP (to permit XXXXXXXXXX LP to provide the services it has agreed to provide) in return for a reimbursement equal to cost. The Partnership will continue to be responsible for XXXXXXXXXX.
Subco 3 XXXXXXXXXX Services Agreement
51. Concurrently with and as part of the execution of the Asset Purchase Agreement, Subco 3 and XXXXXXXXXX LP will enter into the Subco 3 XXXXXXXXXX Services Agreement with respect to the services to be rendered by XXXXXXXXXX LP to Subco 3 and the services to be rendered by Subco 3 to XXXXXXXXXX LP. The Subco 3 XXXXXXXXXX Services Agreement will be on arm’s length commercial terms and will have a nominal FMV to the Partnership and XXXXXXXXXX LP.
52. XXXXXXXXXX.
XXXXXXXXXX Licensing Agreements
53. Concurrently with and as part of the execution of the Asset Purchase Agreement, the Partnership, XXXXXXXXXX Holding LP and XXXXXXXXXX LP will enter into the XXXXXXXXXX Licensing Agreements with respect to the licensing of intellectual property between XXXXXXXXXX LP and XXXXXXXXXX Holding LP, and the sublicensing of intellectual property between XXXXXXXXXX Holding LP and the Partnership. The XXXXXXXXXX Licensing Agreements will be on arm’s length commercial terms and will have a nominal FMV to the Partnership, XXXXXXXXXX Holding LP and XXXXXXXXXX LP.
54. Pursuant to the terms of the XXXXXXXXXX Licensing Agreements: (i) XXXXXXXXXX LP will grant to XXXXXXXXXX Holding LP an exclusive, irrevocable, renewable worldwide license (with the right to sublicense) to use the Partnership XXXXXXXXXX; and (ii) XXXXXXXXXX Holding LP will grant the Partnership an exclusive, irrevocable, renewable worldwide sublicense to use the Partnership XXXXXXXXXX. The Partnership will pay a commercially reasonable quarterly license fee to XXXXXXXXXX Holding LP, and XXXXXXXXXX Holding LP will pay a commercially reasonable quarterly licensing fee to XXXXXXXXXX LP. Although XXXXXXXXXX Holding LP does not require the use of this XXXXXXXXXX, the back to back nature of these arrangements are intended to further support the bankruptcy-remote aspects of the financing.
Brand Licensing Agreements
55. Concurrently with and as part of the execution of the Second Brand Purchase Agreement, Brand LP and Brand Holding LP, and the Partnership and Brand Holding LP, will enter into the Brand Licensing Agreements with respect to (i) the licensing of the Brand Assets from Brand LP to Brand Holding LP; and (ii) the sublicensing of the Brand Assets from Brand Holding LP to the Partnership. The Brand Licensing Agreements will be on arm’s length commercial terms and will have a nominal FMV to the Partnership, Brand Holding LP and Brand LP.
56. Pursuant to the terms of Brand Licensing Agreements: (i) Brand LP will grant to Brand Holding LP an exclusive, irrevocable, renewable worldwide license (with the right to sublicense) to use the Brand Assets, and (ii) Brand Holding LP will grant to the Partnership an exclusive, irrevocable, renewable, worldwide sublicense to use the Brand Assets. The Partnership will pay a commercially reasonable license fee to Brand Holding LP and Brand Holding LP will pay a commercially reasonable license fee to Brand LP. The back to back nature of these arrangements is intended to further support the bankruptcy-remote aspects of the financing. The Partnership may sublicense the right to use all or part of the Brand Assets to one or more of its affiliates.
Operation of the XXXXXXXXXX Business
57. XXXXXXXXXX.
58. XXXXXXXXXX.
59. XXXXXXXXXX.
60. XXXXXXXXXX.
61. XXXXXXXXXX.
62. XXXXXXXXXX. To consolidate taxable income and non-capital losses between Parent, the Partnership and the XXXXXXXXXX Business, a limited partnership, rather than a corporation, was selected to operate the XXXXXXXXXX Business. It is the expectation that XXXXXXXXXX LP, Brand LP, XXXXXXXXXX Holding LP, and Brand Holding LP will not incur losses for tax purposes.
63. When Bidco amalgamated with Pubco to form Parent in XXXXXXXXXX a designation was filed pursuant to paragraph 88(1)(d) (which designation has since been amended in minor respects). However, no amount was designated in respect of the general partnership interests in the Partnership or the shares of Subco 1, both of which were owned by Pubco at the time of the acquisition or any other interest in a partnership held directly or indirectly by Pubco through one or more subsidiaries. In addition, the Proposed Transactions were not contemplated at the time of the acquisition of Pubco.
64. The Partnership has received a legal opinion that expresses the view that an XXXXXXXXXX limited partnership should be able to transact business with a limited partner, and that an XXXXXXXXXX limited partnership should be able to make a loan to its limited partner under the Partnership Act (XXXXXXXXXX). Furthermore, the XXXXXXXXXX Limited Partnership Agreement provides the general partner the power to make loans to one or more of the limited partners or their affiliates at XXXXXXXXXX.
65. As at the date of this letter, Parent has no intention or expectation to dispose of its general partnership interest in the Partnership; the Partnership has no intention or expectation to dispose of its limited partnership interest in XXXXXXXXXX Holding LP and Brand Holding LP; XXXXXXXXXX Holding LP has no intention or expectation of to dispose of its partnership interest in XXXXXXXXXX LP; Brand Holding LP has no intention or expectation to dispose of its limited partnership interest in Brand LP.
66. Parent (on behalf of the Partnership), Subco1 (on behalf of the Partnership), GPCo2 (on behalf of XXXXXXXXXX LP), GPCo 4 (on behalf of Brand LP), GPCo1 (on behalf of XXXXXXXXXX Holding LP), GPCo3 (on behalf of Brand Holding LP) will make the elections under subsection 97(2) described in paragraphs 23, 27, 29 and 31, as the case may be, on behalf of the members of the applicable partnership and will have the authority to act for such partnership.
67. The Parent Loan is not an indirect distribution of the income or capital of the Partnership, in the circumstances described in the Facts and Proposed Transactions, above.
68. Immediately before incurring the XXXXXXXXXX Debt, XXXXXXXXXX LP will have little or no income and little or no capital other than the capital contributed by the Partnership to XXXXXXXXXX LP as described in paragraph 21.
69. XXXXXXXXXX Holding LP, Brand Holding LP, XXXXXXXXXX LP, Brand LP or any person or partnership that does not deal at arm’s length with any one of them, will not make a loan or repay capital to the Partnership or to any person that does not deal at arm’s length with the Partnership, where such loan or repayment forms part of a series of loans or other transactions and repayments that includes the contributions of capital made by the Partnership described in the Proposed Transactions above, and the Parent Loan.
70. XXXXXXXXXX Holding LP, Brand Holding LP, XXXXXXXXXX LP, Brand LP or any person or partnership that does not deal at arm’s length with any one of them, will not make a loan to the Partnership or to a person or partnership that does not deal at arm’s length with the Partnership, and the Partnership or a person or partnership that does not deal at arm’s length with the Partnership will not become indebted to XXXXXXXXXX Holding LP, Brand Holding LP, XXXXXXXXXX LP, Brand LP or any person or a person that does not deal at arm’s length with any one of them, where such loan or indebtedness is made or arises as part of a series of contributions and such loans or other transactions that includes the contributions of capital made by the Partnership described in the Proposed Transactions above, and the Parent Loan.
V. PURPOSES OF THE PROPOSED TRANSACTIONS
71. The purpose of the Proposed Transactions is to facilitate a new financing by Parent on terms and conditions more favorable than those which might be available to Parent by issuing the XXXXXXXXXX Debt directly, and having such XXXXXXXXXX Debt guaranteed by the Partnership (secured by the XXXXXXXXXX assets and the Brand Assets).
72. The separation of the XXXXXXXXXX Business in a new entity under the Partnership, the separation of the Brand Assets in a new entity under the Partnership, and the issuance of the XXXXXXXXXX Debt by a new single-purpose vehicle which is bankruptcy remote, are required as a commercial matter to mirror the terms of the Precedent Financing Transactions and to meet the expectations of investors in these types of debt instruments. If these market requirements did not exist, the XXXXXXXXXX Debt could have been issued directly by Parent, and guaranteed by the Partnership (secured by the XXXXXXXXXX assets and the Brand Assets).
73. The reason that one limited partnership unit of XXXXXXXXXX LP is being transferred to Parent as described in paragraph 30, is to ensure that Parent is deemed to be related to XXXXXXXXXX LP for purposes of the Excise Tax Act (Canada).
74. The purpose of the Proposed Transactions is not to reduce a capital gain or increase a capital loss on a future disposition of any partnership interest mentioned herein.
75. The purpose of the Proposed Transactions is not to monetize the XXXXXXXXXX assets or to monetize the Brand Assets (otherwise than as set out in the Proposed Transactions), nor to facilitate the sale of those assets to an unrelated and/or unaffiliated party.
VI. RULINGS
Provided that
a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the Purpose of the Proposed Transactions,
b) the Proposed Transactions are completed in the manner described above, and
c) there are no other transactions which may be relevant to the Rulings requested,
we rule as follows:
A. Subject to subsection 69(11), provided that the requisite election is made and filed within the prescribed time, the provisions of subsection 97(2), and consequently paragraphs 85(1)(a) to (f) read in the manner set out in paragraph 97(2)(a), will apply to the transfer by the Partnership to XXXXXXXXXX LP of the XXXXXXXXXX assets which are held by the Partnership as capital property or inventory, as described in paragraph 21 above. For greater certainty, the proceeds of the Parent Loan will not be considered additional consideration in respect of such transfer.
B. Subject to subsection 69(11), provided that the limited partnership units in XXXXXXXXXX LP are property described in the preamble of subsection 97(2) of the Partnership, and provided that the requisite election is made and filed within the prescribed time, the provisions of subsection 97(2), and consequently paragraphs 85(1)(a) to (f) read in the manner set out in paragraph 97(2)(a), will apply to the transfer by the Partnership to XXXXXXXXXX Holding LP of the limited partnership interests in XXXXXXXXXX LP, as described in paragraph 30 above.
C. Subject to subsection 69(11), provided that the requisite election is made and filed within the prescribed time, the provisions of subsection 97(2), and consequently paragraphs 85(1)(a) to (f) read in the manner set out in paragraph 97(2)(a), will apply to the transfer by Parent to the Partnership of the Parent Brand Assets which are held by the Parent as capital property or inventory, as described in paragraph 25 above. For greater certainty, the proceeds of the Parent Loan will not be considered additional consideration in respect of such transfer.
D. Subject to subsection 69(11), provided that the requisite election is made and filed within the prescribed time, the provisions of subsection 97(2), and consequently paragraphs 85(1)(a) to (f) read in the manner set out in paragraph 97(2)(a), will apply to the transfer by the Partnership to Brand LP of the Brand Assets which are held by the Partnership as capital property or inventory, as described in paragraph 28 above. For greater certainty, the proceeds of the Parent Loan will not be considered additional consideration in respect of such transfer.
E. Subject to subsection 69(11), provided that limited partnership units of Brand LP are property described in the preamble of subsection 97(2) of the Partnership, and provided that the requisite election is made and filed within the prescribed time, the provisions of subsection 97(2), and consequently paragraphs 85(1)(a) to (f) read in the manner set out in paragraph 97(2)(a), will apply to the transfer by the Partnership to Brand Holding LP of the limited partnership interests in Brand LP, as described in paragraph 32 above.
F. The proceeds of the Parent Loan will not be considered to be received by Parent on account or in lieu of payment of, or in satisfaction of, a distribution by XXXXXXXXXX LP, XXXXXXXXXX Holding LP or the Partnership for the purposes of subparagraph 53(2)(c)(v).
G. The provisions of subsections 40(3.13) and 96(2.7) will not apply, by virtue of the Parent Loan, to deem any amount contributed to the capital of the Partnership, XXXXXXXXXX LP, Brand LP, Brand Holding LP or XXXXXXXXXX Holding LP in connection with the Proposed Transactions (including pursuant to the Asset Purchase Agreement, the First Brand Purchase Agreement, the Second Brand Purchase Agreement and the transactions described in paragraphs 30 and 32) not to have been made.
H. Subject to subsection 18(9) and section 67, amounts paid by the Partnership to XXXXXXXXXX LP under the Partnership XXXXXXXXXX Services Agreement as consideration for XXXXXXXXXX will be an expense deductible by the Partnership in computing its income in accordance with subsection 9(1).
I. Subject to subsection 18(9) and section 67, amounts paid by Subco 3 to XXXXXXXXXX LP under the Subco 3 XXXXXXXXXX Services Agreement as consideration for XXXXXXXXXX will be an expense deductible by Subco 3 in computing its income in accordance with subsection 9(1).
J. Amounts received by XXXXXXXXXX LP in a taxation year under the Partnership XXXXXXXXXX Services Agreement as consideration for XXXXXXXXXX will be included in computing XXXXXXXXXX LP’s income in accordance with subsection 9(1) or paragraph 12(1)(a). XXXXXXXXXX LP may deduct a reasonable amount as a reserve under paragraph 20(1)(m) in respect of XXXXXXXXXX in a later taxation year.
K. Amounts received by XXXXXXXXXX LP in a taxation year under the Subco 3 XXXXXXXXXX Services Agreement as consideration for XXXXXXXXXX LP to Subco 3’s Members will be included in computing XXXXXXXXXX LP’s income in accordance with subsection 9(1) or paragraph 12(1)(a). XXXXXXXXXX LP may deduct a reasonable amount as a reserve under paragraph 20(1)(m) in respect of XXXXXXXXXX in a later taxation year.
L. Amounts received by XXXXXXXXXX LP in a taxation year under the XXXXXXXXXX Agreements as consideration for XXXXXXXXXX will be included in computing XXXXXXXXXX LP’s income in accordance with subsection 9(1) or paragraph 12(1)(a). XXXXXXXXXX LP may deduct a reasonable amount as a reserve under paragraph 20(1)(m) in respect of XXXXXXXXXX in a later taxation year.
M. Subject to subsection XXXXXXXXXX, amounts received by the Partnership in a taxation year from XXXXXXXXXX LP in payment for XXXXXXXXXX Partnership Services will be included in computing the Partnership’s income in accordance with subsection 9(1) or paragraph 12(1)(a). The Partnership may deduct a reasonable amount as a reserve under paragraph 20(1)(m) in respect of Partnership Services that are rendered in a later taxation year.
N. Subject to subsection XXXXXXXXXX, amounts received by Subco 3 in a taxation year from XXXXXXXXXX LP in payment XXXXXXXXXX for Subco 3 Services will be included in computing Subco 3’s income in accordance with subsection 9(1) or paragraph 12(1)(a). Subco 3 may deduct a reasonable amount as a reserve under paragraph 20(1)(m) in respect of Subco 3 Services that are rendered in a later taxation year.
O. Subject to subsection 18(9), amounts paid by XXXXXXXXXX LP to the Partnership in respect of XXXXXXXXXX Partnership Services will be an expense deductible by XXXXXXXXXX LP in computing its income in accordance with subsection 9(1).
P. Subject to subsection 18(9), amounts paid by XXXXXXXXXX LP to Subco 3 in respect of XXXXXXXXXX Subco 3 Services will be an expense deductible by XXXXXXXXXX LP in computing its income in accordance with subsection 9(1).
Q. The provisions of subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the Rulings given above.
Except as expressly stated, the Rulings provided herein do not imply acceptance, approval or confirmation of any income tax implications of the Facts, Proposed Transactions or Additional Information. In particular, nothing in this letter should be interpreted as confirming that the CRA has agreed to, reviewed or has made any determination, either expressly or implicitly, in respect of:
a) whether any amount paid in respect of the XXXXXXXXXX Debt or the Parent Loan is deductible in computing the income of the payor, including but not limited to paragraph 20(1)(c);
b) the calculation of the at-risk-amount in respect of any partnership interest;
c) the income or capital nature of any asset, payment or other transaction;
d) the FMV or adjusted cost base of any property or the paid-up capital of any shares referred to herein;
e) the calculation and tax treatment of any foreign exchange gains or losses;
f) the reasonableness or FMV of any fees or expenditures referred to herein;
g) whether any loan (other than the Parent Loan) or other advance made by any partnership is a distribution of the partnership’s income or capital;
h) any other tax consequence relating to the Facts, Proposed Transactions, or any transaction or event taking place either prior to or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the Rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.
The above Rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions described above are commenced and entered into on or before XXXXXXXXXX.
Nothing in this letter should be construed as a confirmation, express or implied, that, for the purpose of any of the opinions given above, any adjustment to the FMV of the properties transferred or the consideration received, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer. Furthermore, none of the opinions 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.
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.
If the Facts, the Proposed Transactions or the Additional Information as described above change after the date of this letter and prior to the completion of the Proposed Transactions, the Rulings provided may not apply unless a subsequent ruling letter is issued.
Although we received certain documents relating to the Proposed Transactions for review, our Rulings above are based solely on the Facts and representations contained herein.
Yours truly,
XXXXXXXXXX
for Director
Partnerships and Corporate Financing Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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