2023 Ruling 2022-0958601R3 - Post Butterfly Transactions

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: Whether certain proposed post-butterfly transactions will trigger the butterfly denial rules in subsection 55(3.1).

Position: No.

Reasons: The taxpayers’ representations that the Proposed Transactions are not part of the same series of transactions as the Sequential Butterfly are reasonable and supported by the facts.

XXXXXXXXXX									2022-095860

XXXXXXXXXX, 2023

Dear XXXXXXXXXX:

Advance Income Tax Ruling
Re: XXXXXXXXXX

We are writing in response to your request dated XXXXXXXXXX for an advance income tax ruling on behalf of the above-noted taxpayers (the “Taxpayers”).

We understand that to the best of your knowledge and that of the Taxpayers, none of the Proposed Transactions or issues involved in this Ruling are the same as or substantially similar to transactions or issues that are:

i. in a previously filed return of the Taxpayers or a related person and;

A. being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayers or a related person;

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. the subject of an advance income tax ruling previously considered by the Income Tax Rulings Directorate in relation to the Taxpayers or a related person.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with the request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

The address, tax account number, Tax Services Office and the Tax Centre of the Taxpayer are as follows:

XXXXXXXXXX

Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act, RSC 1985, c 1 (5th Supp), as amended (the “Act”), or, where appropriate, the Income Tax Regulations C.R.C., c. 945, as amended (the “Regulations”) and all terms and conditions used herein that are defined in the Act or Regulations have the meaning given in such definition unless otherwise indicated. All references to monetary amounts are in Canadian dollars.

DEFINITIONS

In this letter, unless otherwise noted, the following terms have the meanings specified herein. All references in the singular include the plural. Except for terms defined in this section, all capitalized terms in this letter are defined in the Initial Ruling

“A” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“AA Co” means XXXXXXXXXX, a third-party corporate shareholder of Xco that is not related to the other shareholders of Xco and that is not involved in the Proposed Transactions.

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

“Aco Amalco” means the corporation resulting from the Fifth Amalgamation, as described in Paragraph 296 of the Initial Ruling;

“affiliated person” has the meaning assigned by section 251.1;

“A Family Trust” means XXXXXXXXXX as described in Paragraph 187 of the Initial Ruling;

“A Joint Spousal Trust” means XXXXXXXXXX as described in Paragraph 189 of the Initial Ruling;

“arm’s length” has the meaning assigned by section 251;

“A Son” means XXXXXXXXXX an individual who is resident in Canada for the purposes of the Act, the son of A and managing director for Aco Amalco;

“A Son Company” means XXXXXXXXXX, a corporation incorporated under the BCA2, as described in Paragraph 11;

“A Son Family Trust” means XXXXXXXXXX, with A Son as trustee and A Son, A Son Spouse and their children as beneficiaries;

“A Son Spouse” means XXXXXXXXXX, an individual resident in Canada for the purposes of the Act, a beneficiary of A Son Family Trust and a shareholder of A Son Company;

“A Spouse” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“BCA1” means the XXXXXXXXXX, as amended;

“BCA2” means the XXXXXXXXXX, as amended;

“BCA3” means the XXXXXXXXXX, as amended;

“Butterfly” means either the First Butterfly, Second Butterfly or Third Butterfly described in the Initial Ruling, as applicable;

“CCPC” means “Canadian-controlled private corporation” and has the meaning assigned by subsection 125(7) of the Act;

“CRA” means the Canada Revenue Agency;

“D” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“DC1 Amalco” means the corporation resulting from the First Amalgamation, as described in Paragraph 203 of the Initial Ruling;

“DC2 Amalco” means the corporation resulting from the Third Amalgamation, as described in Paragraph 244 of the Initial Ruling;

“DC3 Amalco” means the corporation resulting from the Fourth Amalgamation, as described in Paragraph 282 of the Initial Ruling;

“Dco Amalco” means the corporation resulting from the Eighth Amalgamation, as described in Paragraph 315 of the Initial Ruling;

“D Family Trust” means the XXXXXXXXXX, with D and D Spouse as trustees, and the current beneficiaries being D, D Spouse and their children.;

“D Spouse” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“E” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“Eco Amalco” means the corporation resulting from the Last Amalgamation, as described in Paragraph 318 of the Initial Ruling;

“E Family Trust” means the XXXXXXXXXX, with E and E Spouse as trustees and E, E Spouse and their children as the current beneficiaries;

“Eighth Amalgamation” means the amalgamation of Dco and DC3 Amalco, as described in Paragraph 315 of the Initial Ruling;

“E Spouse” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“FMV” or “fair market value” means the amount, expressed in money terms, that is 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, and contracting for a taxable purchase and sale, expressed in terms of cash;

“Fifth Amalgamation” means the amalgamation of Aco, DC1 Amalco and DC2 Amalco, as described in Paragraph 296 of the Initial Ruling;

“Initial Ruling” means the CRA Ruling’s Letter 2020-084806, dated XXXXXXXXXX;

“Last Amalgamation” means the amalgamation of Eco and TC5, as described in Paragraph 318 of the Initial Ruling;

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

“Paragraph” means a numbered or lettered paragraph of this letter and when specifically indicated, a paragraph of the Initial Ruling;

“P-Note 1” means the non-interest-bearing promissory note payable on demand that will be issued by Dco Amalco to Eco Amalco as described in Paragraph 45;

“P-Note 2” means the interest-bearing promissory note, bearing interest at an XXXXXXXXXX% per annum rate that will be issued by Dco Amalco to Eco Amalco as described in Paragraph 45. P-Note 2 will be due within three years of the closing of the Proposed Transactions;

“PUC” means “paid-up capital” as that term is defined in subsection 89(1) of the Act;

“Proposed Transactions” means the transactions described in Paragraphs 45 to 54;

“related person”, or persons related to each other, has the meaning assigned by subsection 251(2);

“Safe Income” means, with respect to a taxable dividend described in paragraph 55(2.1)(a) that is received by a dividend recipient from a dividend payer, the amount of income earned or realized by a corporation — after 1971 and before the safe income determination time with respect to the transaction, event or series of transactions or events — that could reasonably be considered to contribute to the capital gain that would have been realized upon a disposition at FMV, made immediately before the dividend, of the share on which the dividend was received;

“Sequential Butterflies” means the First Butterfly, the Second Butterfly and the Third Butterfly, referred to collectively;

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

“Tco” means XXXXXXXXXX, a public corporation created under the BCA3, the shares of which are publicly traded;

“Xco” means XXXXXXXXXX, a corporation incorporated under the BCA1, as described in Paragraph 163 of the Initial Ruling;

“Yco” means XXXXXXXXXX, a corporation incorporated under the BCA1, as described in Paragraph 170 of the Initial Ruling;

“Yco Management Employee 1” is an individual resident in Canada for the purposes of the Act who owns shares in a holding corporation owning shares in Yco and who also owns shares directly in Yco;

“Yco Management Employee 2” means an employee of Yco who is an individual resident in Canada for the purposes of the Act and who is not related to Yco;

“Yco Management Employee 3” means an employee of Yco who is an individual resident in Canada for the purposes of the Act and who is not related to Yco;

“Yco Management Employee 4” means an employee of Yco who is an individual resident in Canada for the purposes of the Act and who is not related to Yco;

“Yco Management Employee 5” means an employee of Yco who is an individual resident in Canada for the purposes of the Act and who is not related to Yco; and

“Yco Management Employee 6” means an employee of Yco who is an individual resident in Canada for the purposes of the Act and who is not related to Yco.

FACTS

Individuals

1. A, A Son, A Son Spouse, D and E are each an individual resident in Canada for the purposes of the Act.

2. A, D and E are not related persons.

3. A Son is related to A but is not related to D and E.

Corporations

Aco Amalco

4. Aco Amalco is the corporation resulting from the Fifth Amalgamation. The predecessors to Aco Amalco were Aco and DC1 Amalco. The predecessors to DC1 Amalco were Fco, Gco, Hco, Ico and Jco.

5. Aco Amalco is a private investor. It also provides management services to related entities.

6. Aco Amalco is a TCC and a CCPC and has a XXXXXXXXXX taxation year end.

7. The share capital of Aco Amalco is the same as the share capital of Aco described in Paragraph 14.1 of the Initial Ruling and as modified by Paragraphs 185 to 189 of the Initial Ruling.

8. The issued and outstanding shares of the capital stock of Aco Amalco are owned as follows:

	Shareholder			Number	Class
	A				XXXXX		Class A Shares
	A Family Trust		XXXXX		Class B Shares
	A Joint Spousal Trust	XXXXX		Preferred Shares

9. A, A Family Trust and A Joint Spousal Trust hold their shares in Aco Amalco as capital property.

10. Aco owns XXXXXXXXXX Class A shares in the capital of Xco.

A Son Company

11. A Son Company was incorporated on XXXXXXXXXX under the BCA2.

12. A Son Company is a private investor.

13. A Son Company is a TCC and a CCPC and has a XXXXXXXXXX taxation year end.

14. The issued and outstanding shares of the capital stock of A Son Company are owned as follows:

	Shareholder			   Number		Class
	A Son				   XXXXX		Class A Common Voting Shares
	A Son				   XXXXX		Class E Non-Voting Preferred Shares
	A Son				   XXXXX		Class G Voting Common Shares
	A Son				   XXXXX		Class H Non-Voting Preferred Shares
	A Son				   XXXXX		Class J Non-Voting Preferred Shares
	A Son 		         XXXXX		Class L Non-Voting Preferred Shares
	A Son Spouse		   XXXXX		Class B Non-Voting Common Shares
	A Son Spouse		   XXXXX		Class I Non-Voting Preferred Shares
	A Son Spouse		   XXXXX		Class K Non-Voting Preferred Shares
	A Son Spouse		   XXXXX		Class L Non-Voting Preferred Shares
	A Son Family Trust XXXXX   XXXXX		Class C Non-Voting Commond Shares

15. A Son holds his shares in A Son Company as capital property.

16. A Son Company owns XXXXXXXXXX Class A Common Shares in the capital of Xco.

Dco Amalco

17. Dco Amalco is the corporation resulting from the Eighth Amalgamation. The predecessors to Dco Amalco are Dco and DC3 Amalco. The predecessors to DC3 Amalco are Kco and Lco.

18. Dco Amalco is a private investor.

19. Dco Amalco is a TCC and a CCPC and has an XXXXXXXXXX taxation year end.

20. The share capital of Dco Amalco is the same as the share capital of Dco as described in Paragraph 30.1 of the Initial Ruling.

21. The issued and outstanding shares of the capital stock of Dco Amalco are owned as follow:

Shareholder		Number	Class
D Family Trust	XXXXX		Class A voting common shares
D			XXXXX		Class D non-voting preferred shares with a par value of $XXXXX/share
D			XXXXX		Class G non-voting preferred shares with a par value of $XXXXX/share

22. D and D Family Trust hold their shares in Dco Amalco as capital property.

23. Dco Amalco owns XXXXXXXXXX Class A Common shares of Xco.

Eco Amalco

24. Eco Amalco is the corporation resulting from the Last Amalgamation. The predecessors to Eco Amalco are Eco and TC5.

25. Eco Amalco is a private investor.

26. Eco Amalco is a TCC and a CCPC and has an XXXXXXXXXX taxation year end.

27. The share capital of Eco Amalco is the same as the share capital of Eco as described in Paragraph 36.1 of the Initial Ruling.

28. The issued and outstanding shares of the capital stock of Eco Amalco are owned as follows:

	Shareholder			Number	Class
	E Family Trust		XXXXX		common shares

29. E Family Trust holds its shares in Eco Amalco as capital property.

30. Eco Amalco owns XXXXXXXXXX Class A Common shares of Xco.

Xco

31. Xco was incorporated on XXXXXXXXXX under the BCA1.

32. Xco is a holding company that invested in Yco.

33. Xco has a XXXXXXXXXX taxation year end, it is a TCC and a CCPC.

34. The authorized share capital of Xco consists of an unlimited number of Class A Common Shares, Class B common shares and Class C and Class D redeemable preferred shares. The only shares issued and outstanding are the Class A Common Shares. The Class A Common Shares are voting, entitled to receive dividends at the discretion of the directors subject to the remaining fair market value of the net assets being at least equal to the redemption price of the Class C and D redeemable preferred shares. Upon winding-up or liquidation the holders of the Class A Common Shares are entitled to receive, pari passu with the Class B common shares and subject to the rights of the holders of shares having priority over the Class A Common Shares and Class B common shares, the pro rata amount of the remaining assets of the company. The issued and outstanding shares of the capital stock of Xco are owned as follows:

	Shareholder			Number	Class
	Aco Amalco			XXXXX		Class A Common Shares
	Dco Amalco			XXXXX		Class A Common Shares
	Eco Amalco			XXXXX		Class A Common Shares
	A Son Company		XXXXX		Class A Common Shares
	AA Co				XXXXX		Class A Common Shares

35. Aco Amalco, A Son Company, Dco Amalco, Eco Amalco and the other non-related shareholder hold their shares in Xco as capital property.

36. Xco’s assets are comprised of cash and XXXXXXXXXX Class A common shares in the capital stock of Yco, representing approximately XXXXXXXXXX% of the voting shares of Yco.

37. Xco’s liabilities are comprised of amounts payable to its shareholders.

Yco

38. Yco was incorporated on XXXXXXXXXX under the BCA1.

39. Yco is an operating company that XXXXXXXXXX.

40. Yco is a TCC and a CCPC and has a XXXXXXXXXX taxation year end.

41. The authorized share capital of Yco consists of an unlimited number of Class A Common Shares, Class B common shares and Class C and Class D redeemable preferred shares. The only shares issued and outstanding are the Class A Common Shares. The Class A Common Shares are voting, entitled to receive dividends at the discretion of the directors subject to the remaining fair market value of the net assets being at least equal to the redemption price of the Class C and D redeemable preferred shares. Upon winding-up or liquidation the holders of the Class A Common Shares are entitled to receive, pari passu with the Class B common shares and subject to the rights of the holders of shares having priority over the Class A Common Shares and Class B common shares, the pro rata amount of the remaining assets of the company. The issued and outstanding shares of the capital stock of Yco are owned as follows:

	Shareholder			      Number	Class
	Xco				      XXXXX		Class A Common Shares
	Yco Management Employee 1's
	holding company			XXXXX		Class A Common Shares
	Yco Management Employee 1	XXXXX		Class A Common Shares
	Yco Management Employee 2	XXXXX		Class A Common Shares
	Yco Management Employee 3	XXXXX		Class A Common Shares
	Yco Management Employee 4	XXXXX		Class A Common Shares
	Yco Management Employee 5	XXXXX		Class A Common Shares
	Yco Management Employee 6	XXXXX		Class A Common Shares

42. Xco and the other non-related shareholders hold their shares in Yco as capital property.

43. Yco’s assets are comprised of XXXXXXXXXX.

44. Yco’s liabilities are comprised of XXXXXXXXXX.

PROPOSED TRANSACTIONS

Unless otherwise indicated, the proposed transactions will take place in the following order as soon as possible after receipt of this letter.

45. Dco Amalco will acquire the XXXXXXXXXX Class A common shares of Xco held by Eco Amalco in consideration for two promissory notes, in the amounts of $XXXXXXXXXX (“P-Note 1”) and $XXXXXXXXXX (“P-Note 2”).

46. Yco will pay the following cash dividends to its shareholders and will designate the dividends to be eligible dividends:

	Shareholder			      Number	Class
	Xco				      XXXXX		Class A Common Shares
	Yco Management Employee 1's
	holding company			XXXXX		Class A Common Shares
	Yco Management Employee 1	XXXXX		Class A Common Shares
	Yco Management Employee 2	XXXXX		Class A Common Shares
	Yco Management Employee 3	XXXXX		Class A Common Shares
	Yco Management Employee 4	XXXXX		Class A Common Shares
	Yco Management Employee 5	XXXXX		Class A Common Shares
	Yco Management Employee 6	XXXXX		Class A Common Shares

47. Xco will resolve to alter its share capital to add a new class of non-voting, except as provided under BCA1, preferred shares (Class E) with a redemption amount of $XXXXXXXXXX per share, a cumulative dividend entitlement of XXXXXXXXXX% per annum and redeemable at the option of Xco within three years. The Class E preferred shares will have priority dividend and liquidation rights over the common shares. For the purpose of subsection 191(4) of the Act, each of the Class E redeemable shares will, at the time of issue, have a specified amount of $1 per share established in the share terms, which specified amount shall not exceed the fair market value of the consideration for its issuance.

48. Xco will repurchase XXXXXXXXXX of its Class A common shares held by Dco Amalco in consideration for:

a) $XXXXXXXXXX in cash;

b) a non-interest-bearing promissory note in the amount of $XXXXXXXXXX; and

c) XXXXXXXXXX Class E preferred shares with a redemption amount of $XXXXXXXXXX. The PUC and ACB of these Class E preferred shares will be XXXXXXXXXX.

$XXXXXXXXXX of the deemed dividend that will arise as a result of this share repurchase will be designated as an eligible dividend.

49. The existing shareholders’ agreement will be amended to provide Dco with the right to elect one member of the board of directors of Xco until such time as the Class E preferred shares of Xco are redeemed.

50. A Son Company will subscribe for XXXXXXXXXX Class A Common Shares of Xco in consideration for $XXXXXXXXXX.

51. After the Proposed Transactions described in Paragraphs 45 to 50 the issued and outstanding shares of the capital stock of Xco will be owned as follows:

	Shareholder			Number	Class
	Aco Amalco			XXXXX		Class A Common Shares
	A Son Company		XXXXX		Class A Common Shares
	AA Co 			XXXXX		Class A Common Shares
	DCo Amalco			XXXXX		Class E Preferred Shares

52. Xco will use the funds received from A Son Company for the subscription of shares, described in Paragraph 50, to repay the promissory note issued as partial consideration for the repurchase of Class A Common Shares of Xco described in Paragraph 48.

53. Dco Amalco will repay the P-Note 1 in the amount of $XXXXXXXXXX issued as partial consideration for the acquisition of Class A Common Shares held by Eco Amalco described in Paragraph 45.

54. Xco will redeem the XXXXXXXXXX Class E Preferred Shares held by Dco Amalco prior to XXXXXXXXXX, subject to certain legal and commercial restrictions related to Xco remaining solvent and sufficient cash flow to complete the redemption payment.

OTHER REPRESENTATIONS

55. Eco Amalco will realize a capital gain on the disposition of the shares of Xco to Dco Amalco described in Paragraph 45. Eco Amalco may claim a reasonable reserve in respect of the unpaid portion of the proceeds of disposition pursuant to subparagraph 40(1)(a)(iii).

56. It is anticipated that there will be some Part IV tax payable on the dividends paid by Yco to Xco, as described in Paragraph 46. The dividends paid by Yco to Xco will not exceed the safe income of the Yco shares at the time of the dividend payment.

57. The repurchase of the Class A common shares held by Dco Amalco in the capital stock of Xco, as described in Paragraph 48 should result in a deemed dividend, pursuant to subsection 84(3).

a) The dividend paid by Yco is expected to give rise to a dividend refund which will result in Part IV tax payable by Xco equal to its share of the dividend refund. Therefore, given Dco Amalco is connected with Xco immediately prior to the repurchase (with the meaning assigned by section 186), it is anticipated that there will also be some Part IV tax payable by Dco Amalco on the deemed dividend.

b) The deemed dividend realized by Dco Amalco is anticipated to exceed the safe income in respect of the shares repurchased. The excess amount of the dividend will be considered to be proceeds of disposition of the shares pursuant to paragraph 55(2)(b).

58. It is anticipated that the cumulative dividends on the Class E preferred shares will be paid out of the future safe income of Xco and, therefore, such dividends should be deductible by Dco Amalco under subsection 112(1) of the Act. Part IV tax will apply to the cumulative dividends received. To the extent there is insufficient safe income in Xco to support the cumulative dividends paid to Dco Amalco, and to the extent DCo Amalo pays taxable dividends to its shareholders, subsection 55(2) will apply to recharacterize the cumulative dividends paid to DCo Amalco on the Class E shares to a capital gain. Part VI.1 tax will apply to Xco on the payment of the cumulative dividends to the extent such dividends exceed the dividend allowance of Xco.

59. The future redemption of the Class E preferred shares will result in a deemed dividend to Dco Amalco which should be deductible under subsection 112(1) of the Act (subject to the applicability of subsection 55(2) of the Act) and will be subject to Part IV tax, since Dco Amalco will no longer be connected with Xco at that time. Subsequent to the redemption of the Class E shares, to the extent DCo Amalo pays taxable dividends to its shareholders, subsection 55(2) will apply to recharacterize the deemed dividend received by DCo Amalco on the redemption of the Class E shares to a capital gain. There will be no safe income attributable to the Class E preferred shares. Part VI.1 tax should not apply on the redemption of the preferred shares to Xco on the basis the exception in subsection 191(4) should apply.

60. The Proposed Transactions will not be completed in contemplation of, or as part of the series of transactions or events that includes, the Sequential Butterflies. Each of the Proposed Transactions would have occurred regardless of whether the Sequential Butterflies were completed, with modifications required, and the Sequential Butterflies would have occurred regardless of whether the Proposed Transactions were subsequently implemented. The Proposed Transactions do not benefit from the Sequential Butterflies and the Sequential Butterflies will not be impacted in any manner whatsoever by the Proposed Transactions.

PURPOSE OF THE PROPOSED TRANSACTIONS

61. At the time of the Sequential Butterflies, Xco was a stable self-sustaining investment for Dco Amalco and Eco Amalco and there was no intent to significantly change the nature of its activities or to make significant capital investments. Xco has seen growth in its business, resulting from the XXXXXXXXXX. This growth permitted Xco to start considering making new investments in XXXXXXXXXX, resulting in Xco being approached about certain business investment opportunities XXXXXXXXXX. These opportunities typically involve significant capital investment. Dco Amalco and Eco Amalco are not interested in pursuing these significant new investment opportunities and the purpose of the Proposed Transactions is to enable Dco Amalco and Eco Amalco to exit their investment in Xco.

62. The purpose of the acquisition by Dco Amalco of the Xco shares owned by Eco Amalco for two promissory notes as described in Paragraph 45, is to provide capital gains treatment on the disposition of these Xco shares. If Xco instead redeemed the Xco shares owned by Eco Amalco the deemed dividends realized on redemption would be subject to Part IV tax.

63. The purpose of the cash dividends described in Paragraph 46 is to distribute cash accumulated from the operations of Yco to the various shareholders of Yco in proportion to their shares.

64. The purpose of the transactions described in Paragraphs 47 to 49 is for Xco to repurchase through redemption a portion of the Xco shares owned by Dco Amalco, while deferring the repurchase of a portion of the Xco shares owned by Dco Amalco until Xco and Yco are able to generate sufficient cash flow to redeem the remaining shares.

65. The purpose of the share subscription by A Son Company described in Paragraph 50 is to help fund the repayments of the promissory notes proposed in Paragraphs 52 and 53.

RULING

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, transactions, additional information and the purposes of the Proposed Transactions; and provided the Proposed Transactions are completed in the manner described above; we confirm the following:

Provided that, as part of a series of transactions or events that includes the Proposed Transactions, there is not:

a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);

b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

d) an acquisition of a share in the circumstances described in subparagraph 55(3.1)(b)(iii); or

e) an acquisition of property in circumstances described in paragraphs 55(3.1)(c) or (d);

which has not been described in this letter, subsection 55(3.1) of the Act will not apply to deny the exemption under paragraph 55(3)(b) of the Act as provided for in Ruling E of the Initial Ruling in respect of the taxable dividends referred to in Ruling B of the Initial Ruling as a result of the Proposed Transactions.

This ruling is given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022, and is binding on the CRA, provided that the Proposed Transactions are completed no later than six (6) months after the date of this letter. The above ruling is based on the law as it reads at the date of this letter and does not take into account any proposed amendments to the Act and the Regulations, which if enacted, could have an effect on the ruling.

COMMENTS

Unless otherwise expressly confirmed in the above ruling, 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:

(a) the fair market value or adjusted cost base of any property referred to herein or the paid-up capital in respect of any share referred to herein;

(b) the outstanding balance of various tax accounts such as “non-eligible refundable dividend tax on hand” as defined in subsection 129(4), “eligible refundable dividend tax on hand” as defined in subsection 129(4), “general rate income pool” as defined in subsection 89(1), any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(c) the safe-income attributable to any shares of any corporation;

(d) any provincial tax consequences of the Proposed Transaction; or

(e) any other income tax consequence relating to the facts, additional information or Proposed Transaction, or any transaction or event taking place either prior or subsequent to the Proposed Transaction, whether described in this letter or not, other than those specifically described in the ruling given above, including whether the Proposed Transaction would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

Yours truly,

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