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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Loss Consolidation on transfer of interest income within a related group of corporations
Position:
Rulings given
Reasons:
3-952626
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, and facsimiles of XXXXXXXXXX and a letter from XXXXXXXXXX requesting an advance income tax ruling for
XXXXXXXXXX
To the best of your knowledge and that of the above-noted companies, none of the issues involved in the requested rulings have been or are being considered by a District Tax Services Office and/or a Taxation Centre in connection with a tax return that has already been filed or is under objection and/or appeal.
Facts
1.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX a U.S. corporation. It is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Income Tax Act (Canada) (the "Act"), respectively. It was formed by amalgamation on XXXXXXXXXX and has authorized share capital of an unlimited number of common shares and an unlimited number of non-cumulative redeemable preference shares. At this time, there are outstanding XXXXXXXXXX common shares. XXXXXXXXXX is a holding company and has a XXXXXXXXXX year end.
XXXXXXXXXX is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
2.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX. It is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act respectively. It was formed by amalgamation on XXXXXXXXXX. The authorized share capital of XXXXXXXXXX consists of an unlimited number of common shares. There are XXXXXXXXXX common shares issued.
XXXXXXXXXX manufactures and leases XXXXXXXXXX and has a XXXXXXXXXX year end.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
3.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act, respectively. It was formed on XXXXXXXXXX on the amalgamation of XXXXXXXXXX has authorized share capital of an unlimited number of common shares and an unlimited number of non-cumulative redeemable preference shares. At this time, there are outstanding XXXXXXXXXX common shares, all of which are owned by XXXXXXXXXX.
XXXXXXXXXX provides financial services and XXXXXXXXXX and has a XXXXXXXXXX year end.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
XXXXXXXXXX amalgamated on XXXXXXXXXX. The amalgamated company continues to have the same name as XXXXXXXXXX and the same Tax Services Office. It is also anticipated that the business assets of the former XXXXXXXXXX will be transferred to a newly created subsidiary using the provisions of subsection 85(1).
4.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX a U.S. corporation. It is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act, respectively. It was formed on XXXXXXXXXX. The authorized share capital of XXXXXXXXXX consists of an unlimited number of common shares.
XXXXXXXXXX
XXXXXXXXXX and has a XXXXXXXXXX year end.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
XXXXXXXXXX acquired 100% of the shares of another company from a third party in XXXXXXXXXX. Cash to fund this purchase was provided by an non-interest bearing demand loan from XXXXXXXXXX.
5.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX. It is incorporated in Ontario and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act, respectively. It was formed on XXXXXXXXXX. The authorized share capital of XXXXXXXXXX consists of an unlimited number of common shares. There are XXXXXXXXXX common shares issued.
XXXXXXXXXX and has a XXXXXXXXXX year end.
XXXXXXXXXX was wound up XXXXXXXXXX pursuant to subsection 88(1) of the Act.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
6.XXXXXXXXXX currently has non-capital loss carry forwards of approximately $XXXXXXXXXX currently has non-capital loss carry forwards of approximately $XXXXXXXXXX. These loss carry forwards expire according to the following schedule:
XXXXXXXXXX
XXXXXXXXXX
7.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX is in turn a wholly-owned subsidiary of XXXXXXXXXX a Canadian corporation, which is a wholly-owned subsidiary of XXXXXXXXXX a U.S. corporation. XXXXXXXXXX is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act, respectively. It was formed on XXXXXXXXXX and has authorized share capital of an unlimited number of common shares and an unlimited number of Class A special shares. At this time, there are outstanding XXXXXXXXXX common shares.
XXXXXXXXXX and has a XXXXXXXXXX year end.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
8.XXXXXXXXXX is a wholly-owned Canadian subsidiary of XXXXXXXXXX a U.S. corporation. It is federally incorporated and is a taxable Canadian corporation and a private corporation, as defined in paragraphs 89(1)(i) and 89(1)(f) of the Act, respectively. It was formed by amalgamation on XXXXXXXXXX. It has authorized share capital of XXXXXXXXXX common shares, XXXXXXXXXX% non-cumulative special shares and an unlimited number of XXXXXXXXXX% non-cumulative non-voting Class B special shares. At this time, there are outstanding XXXXXXXXXX common shares owned by XXXXXXXXXX and XXXXXXXXXX Class B special shares owned by XXXXXXXXXX.
XXXXXXXXXX is a holding company and has a XXXXXXXXXX year end.
It is located in XXXXXXXXXX and is served by the XXXXXXXXXX Tax Services Office. Its Revenue Canada account number is XXXXXXXXXX.
9.XXXXXXXXXX is a U.S corporation and does not carry on business in Canada. Its shares are owned by XXXXXXXXXX another U.S. corporation, which also owns the shares of XXXXXXXXXX the parent of XXXXXXXXXX provides XXXXXXXXXX.
10.XXXXXXXXXX interest-bearing note of approximately $XXXXXXXXXX receivable from XXXXXXXXXX did not incur any debt in funding this loan. XXXXXXXXXX used the proceeds from this loan for the purpose of earning income from its business.
11.XXXXXXXXXX had interest bearing loans of approximately $XXXXXXXXXX a non-interest bearing loan of approximately $XXXXXXXXXX and non-interest bearing loans of approximately $XXXXXXXXXX did not incur any debt in funding these loans. XXXXXXXXXX used the proceeds from these loans for the purpose of earning income from their businesses. The amount of the loans to XXXXXXXXXX vary monthly depending on the cash flow of XXXXXXXXXX.
Proposed Transactions
12.XXXXXXXXXX will borrow approximately $XXXXXXXXXX from a bank as a "daylight loan" and repay its loan of approximately $XXXXXXXXXX from XXXXXXXXXX.
13.XXXXXXXXXX will loan this $XXXXXXXXXX (approximately) to XXXXXXXXXX on a demand interest free basis. This loan will be secured by the loan referred to in 14 below.
14.XXXXXXXXXX will, on a demand basis, loan this $XXXXXXXXXX (approximately) to XXXXXXXXXX at an interest rate of XXXXXXXXXX will use the funds to repay the bank loan referred to in 12 above.
15.On a date subsequent to that of 13 above, XXXXXXXXXX will obtain a daylight bank loan in the amount of approximately $XXXXXXXXXX and will use these funds to repay XXXXXXXXXX.
16.XXXXXXXXXX will borrow approximately $XXXXXXXXXX from a bank as a daylight loan and will repay its loan of approximately $XXXXXXXXXX from XXXXXXXXXX.
17.XXXXXXXXXX will loan the funds received in 15 and 16 above to XXXXXXXXXX on a demand interest free basis. This loan will be secured by the loan referred to in 18 and 19 below.
18.XXXXXXXXXX will make a demand loan of approximately $XXXXXXXXXX to XXXXXXXXXX at an interest rate of XXXXXXXXXX will repay the bank loan referred to in 15 above.
19.XXXXXXXXXX will make a demand loan of approximately $XXXXXXXXXX to XXXXXXXXXX at an interest rate of XXXXXXXXXX will use the funds to repay the bank loan referred to in 16 above.
20.At such time as XXXXXXXXXX losses have been utilized (including the losses of XXXXXXXXXX as a result of the wind up of XXXXXXXXXX), it is anticipated that the loans referred to in 13 and 17 above will be repaid.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to allow XXXXXXXXXX to utilize its losses, which were incurred while the company was controlled by the XXXXXXXXXX group of companies, before they expire.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions, we rule as follows:
A.Provided that XXXXXXXXXX were entitled to claim a deduction under subsections 20(1)(c) of the Act in respect of the original borrowings, pursuant to subsection 20(3) of the Act they will be entitled to deduct the interest paid or payable in the year (depending the method regularly followed in computing their income) on the loans from XXXXXXXXXX in respect of the refinancing in 14, 18 and 19 above.
B.The provisions of subsections 15(1), 56(2), 246(1) of the Act and paragraphs 69(1)(a) and (b) of the Act will not apply to the proposed transactions, in and by themselves.
C.The provisions of subsection 245(2) of the Act will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any tax implications of the facts and proposed transactions.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 issued by Revenue Canada, Taxation on September 28, 1990 and are binding provided that the proposed transactions are completed by XXXXXXXXXX. This ruling is based on the Act as it currently reads and does not take into account any proposed amendments.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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