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.
In our view the above ruling is a good one to publish as it is not unduly complicated and involves two issues that are very topical (i.e. crystallizing the capital gains exemption and avoiding the application of paragraph 85(1)(e.2)).
We have included a copy of your edited ruling and have "red-circled" any spelling or grammatical errors that we noticed. We also offer a number of suggested changes for your consideration. These are summarized below and are also written on the draft.
- 1. We suggest "Opco" be called "Holdco", as it is a holding company.
- 2. We suggest "Oldco" be called "Opco" since it is an operating company.
- 3. In the second sentence in paragraph 3 we suggest "residents of Canada" read resident in Canada" as that is how the phrase is used throughout the Act.
- 4. Consideration should be given to including the incorporation date for Opco as it would eliminate any concerns regarding the impact of V-day on the operation of paragraph 84.1(2)(a.1).
- 5. It is clear from the ruling itself how the adjusted cost base to Mr. X for purposes of subsection 84.1(1) XXX was determined under paragraph 84.1(2)(a.1), his can be a somewhat controversial issue at times and we suggest that paragraph 13 simply state that "...The aggregate stated capital of the Class A colon shares of Newco will be equal to the adjusted cost base for purposes of subsection 84.1(l)...as determined under paragraph 84.1(2)(a.1) of the Act. As a result, the last sentence in subparagraph 16(c) should be amended to read "The aggregate stated capital of the Class A and Class B common shares of Amalco will be equal to the aggregate stated capital of the Class A and Class B common shares of Newco respectively."
- 6. The statement at the end of paragraph 12 that no shares be issued on the incorporation of Newco is necessary for us to be able to give a clean paragraph 85(1)(e.2) ruling. It is not clear whether all provincial corporate acts allow for an incorporation to be effective prior to shares being issued. Therefore we suggest that the province of incorporation of Newco be stated in the proposed transactions.
- 7. The first line of subparagraph 13(c) should be amended as attached.
We hope our comments are of assistance.
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