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:
1)XXXXXXXXXX are the shares XXXXXXXXXX short-term preferred shares and taxable preferred shares.
2)If there is a specified amount for purposes of 191(4) is the deemed dividend up to the specified amount considered to be an excluded dividend and an excepted dividend.
Position:
1)Yes they would be short-term preferred shares and taxable preferred shares if the price paid to a shareholder in respect of a share is in excess of the greater of the fair market value of such share at the date the agreement was entered into and the fair market value of such shares at the time of its acquisition
2)Yes provided the specified amount does not exceed the fair market value of the shares immediately before the agreement is entered into.
Reasons: see officer analysis
XXXXXXXXXX 3-960956
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX and facsimiles of XXXXXXXXXX and subsequent phone calls requesting an advance income tax ruling concerning the above mentioned taxpayer.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1.XXXXXXXXXX is a public corporation and a taxable Canadian corporation. The terms public corporation and taxable Canadian corporation have the meanings as defined in subsection 89(1) of the Income Tax Act (Canada) (the "Act").
2.XXXXXXXXXX was formed on the amalgamation of
XXXXXXXXXX
fiscal year-end falls on the XXXXXXXXXX.
3.XXXXXXXXXX carries on directly and through its subsidiaries in
XXXXXXXXXX
4.The authorized share capital of XXXXXXXXXX consists of XXXXXXXXXX shares, XXXXXXXXXX shares (XXXXXXXXXX) and XXXXXXXXXX shares
XXXXXXXXXX
5.The issued and fully paid capital of XXXXXXXXXX consists of XXXXXXXXXX shares and XXXXXXXXXX shares.
XXXXXXXXXX
6. XXXXXXXXXX
7.Approximately XXXXXXXXXX% of the voting XXXXXXXXXX shares are owned by XXXXXXXXXX or by corporations controlled by XXXXXXXXXX.
8.The paid-up capital ("PUC") of the XXXXXXXXXX shares is approximately $XXXXXXXXXX and of the XXXXXXXXXX shares approximately $XXXXXXXXXX The term paid-up capital has the meaning as defined in subsection 89(1) of the Act.
9.As at XXXXXXXXXX the total shareholder's equity in XXXXXXXXXX was approximately $XXXXXXXXXX (share capital of approximately $XXXXXXXXXX and retained earnings of approximately $XXXXXXXXXX). Included in XXXXXXXXXX retained earnings is approximately $XXXXXXXXXX attributable to its share earnings on investments accounted for using the equity method of accounting and $XXXXXXXXXX of appraisal surplus.
10.The PUC of the XXXXXXXXXX shares is approximately $XXXXXXXXXX The difference is due to the application of subsection 85(2.1) of the Act to reduce the PUC of the XXXXXXXXXX shares issued by XXXXXXXXXX as partial consideration paid by it on the purchase of the common shares of XXXXXXXXXX.
11.As at XXXXXXXXXX accumulated profits is also approximately $XXXXXXXXXX at that time due to the same items described in paragraph 9 above.
12.The XXXXXXXXXX shares and XXXXXXXXXX shares are not short-term preferred shares nor taxable preferred shares within the meaning in subsection 248(1) of the Act.
XXXXXXXXXX is not a "private holding corporation" or a "financial intermediary corporation" within the meanings assigned to those terms by subsection 191(1) of the Act, or a corporation that would have been a "financial intermediary corporation" but for paragraphs (h) and (i) of the definition thereof.
13.To the best of your knowledge, and that of XXXXXXXXXX none of the issues involved in this ruling request are under objection or appeal nor are they being considered by any district tax services office or taxation centre in connection with any returns previously filed.
Proposed Transactions
14. XXXXXXXXXX
XXXXXXXXXX
Purpose of Proposed Transactions
XXXXXXXXXX
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions, and notwithstanding paragraph 17 above, should the Offer Price paid to a shareholder in respect of a Share be in excess of the greater of the fair market value of such Share at the time the agreement was entered into and the fair market value of such Share at the time of its acquisition by XXXXXXXXXX determined without reference to the Offer, we confirm the following:
A.the Share will constitute a "short-term preferred share" and a "taxable preferred share", within the meanings assigned to these terms by subsection 248(1) of the Act;
B.that portion of the dividend deemed to have been paid by XXXXXXXXXX to such shareholder in respect of the acquisition of the Share pursuant to the Offer, equal to the amount by which the Specified Amount referred to in paragraph 16(d) above exceeds the "paid-up capital" of such Share, will be deemed for purposes of Part VI.1 and section 187.2 of the Act to be an "excluded dividend" and an "excepted dividend", provided that such Specified Amount does not exceed the fair market value of the Share immediately before the Expiry Time.
This ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 29, 1990 and are binding on Revenue Canada, Taxation provided that the proposed transactions described herein are completed by XXXXXXXXXX.
Nothing in this ruling should be construed as implying that Revenue Canada, Taxation has agreed to or reviewed the determination of XXXXXXXXXX accumulated profits, adjusted equity or the fair market value or PUC of the Shares nor have we determined that the Shares referred to herein are not or will not be short-term preferred shares or taxable preferred shares immediately before the Offer.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995
Email this Content