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.
XXXXXXXXXX 3-961125
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of the above-noted taxpayers. We also acknowledge your letter of XXXXXXXXXX and our telephone conversations in connection herewith.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by a district office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.
Definitions
In this letter unless otherwise expressly stated:
(a)"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1 as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) XXXXXXXXXX;
(c)"adjusted cost base" has the meaning assigned by section 54;
(d)"Canadian-controlled private corporation" has the meaning assigned by subsection 125(7);
(e)"capital property" has the meaning assigned by section 54;
(f)"cost amount" has the meaning assigned by subsection 248(1);
(g)"distribution" has the meaning assigned by subsection 55(1);
(h)"dividend rental arrangement" has the meaning assigned by subsection 248(1);
(i)"guarantee agreement" has the meaning assigned by subsection 112(2.2);
(j)"paid-up capital" has the meaning assigned by subsection 89(1);
(k)"RDTOH" means "refundable dividend tax on hand" which has the meaning assigned by subsection 129(3);
(l)"series of transactions or events" has the meaning assigned by subsection 248(10);
(m)"specified financial institution" has the meaning assigned by subsection 248(1); and
(n)"taxable Canadian corporation" has the meaning assigned by subsection 89(1).
Our understanding of the facts and of the proposed transactions is as follows:
FACTS
1.XXXXXXXXXX was incorporated under the XXXXXXXXXX is a Canadian-controlled private corporation and a taxable Canadian corporation.
2.The authorized share capital of XXXXXXXXXX consists of common shares without par value, of which XXXXXXXXXX are issued and outstanding.
XXXXXXXXXX
The shares of XXXXXXXXXX are capital property to XXXXXXXXXX
XXXXXXXXXX and they are all residents of Canada for purposes of the Act.
3.XXXXXXXXXX address is XXXXXXXXXX and its tax account number is XXXXXXXXXX
The shareholders of XXXXXXXXXX their addresses and social insurance numbers ("SIN") are as follows:
SHAREHOLDER ADDRESS SIN
XXXXXXXXXX
XXXXXXXXXX and its shareholders file their tax returns at the XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre.
4.XXXXXXXXXX will have RDTOH at the time of the commencement of the proposed transactions described herein.
5.The business of
XXXXXXXXXX
The real estate inventory of XXXXXXXXXX has been sold to arm's-length purchasers at fair market value in the ordinary course of business of XXXXXXXXXX in the Project will be sold to persons dealing at arm's length with XXXXXXXXXX for consideration that consists only of money or indebtedness that is not convertible into other property before the proposed transactions described herein.
6.The assets of XXXXXXXXXX have an estimated fair market value of $XXXXXXXXXX made up of cash, term deposit and interest income receivable. The liabilities of XXXXXXXXXX will consist of sundry accounts payable and income taxes payable of approximately $XXXXXXXXXX
7.The types of property for the purposes of a "distribution" of XXXXXXXXXX immediately before the transfer of property described in paragraph 19 below, will be classified into one type of property, cash or near-cash property, including cash, term deposit and interest receivable.
8.Neither of the corporations to be incorporated by XXXXXXXXXX ("Holdco XXXXXXXXXX") and XXXXXXXXXX ("Holdco XXXXXXXXXX"), as described in paragraphs 14 and 16 below, nor any corporation to which either of those corporations will be related, will be a specified financial institution.
9.There are not, and will not be at any time prior to the completion of the proposed transactions, any agreements or undertakings which constitute or include a "guarantee agreement" in respect of the issued shares of any corporation described herein.
10.None of XXXXXXXXXX Holdco XXXXXXXXXX or Holdco XXXXXXXXXX has, or will have, entered into a "dividend rental arrangement" in respect of the issued shares of any corporation described herein.
11.None of the issued shares of any corporation described herein were issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).
12.No property has or will become property of, and no liabilities have been or will be incurred by XXXXXXXXXX in contemplation of and before the series of transactions described herein other than cash or near cash property received by XXXXXXXXXX on the sale of its real estate inventory described in paragraph 5 above.
PROPOSED TRANSACTIONS
13.XXXXXXXXXX will pay a dividend to each of XXXXXXXXXX which in aggregate will be equal to XXXXXXXXXX times the amount of XXXXXXXXXX RDTOH.
14.The XXXXXXXXXX will incorporate a corporation under the XXXXXXXXXX ("Holdco XXXXXXXXXX"). Holdco XXXXXXXXXX will be a taxable Canadian corporation and a Canadian-controlled private corporation.
15.Each of XXXXXXXXXX will transfer all the XXXXXXXXXX common shares that they hold to Holdco XXXXXXXXXX. As sole consideration for such transfer, Holdco XXXXXXXXXX will issue to each of XXXXXXXXXX common shares and a promissory note in the amount of $XXXXXXXXXX
16.The XXXXXXXXXX will incorporate a corporation under the XXXXXXXXXX ("Holdco XXXXXXXXXX"). Holdco XXXXXXXXXX will be a taxable Canadian corporation and a Canadian-controlled private corporation.
17.Each of XXXXXXXXXX will transfer all the XXXXXXXXXX common shares that they hold to Holdco XXXXXXXXXX. As sole consideration for such transfer, Holdco XXXXXXXXXX will issue to each of XXXXXXXXXX common shares and a promissory note in the amount of $XXXXXXXXXX
18.In connection with each transfer of shares described in paragraphs 15 and 17 above, the transferor and transferee will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will, in each case, be equal to the adjusted cost base to the particular transferor immediately before the transfer, which amount will be less than the fair market value of such shares. Each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will add to its legal paid- up capital of its common shares the amount of $XXXXXXXXXX
19.Following the transactions described in paragraphs 14, 15 and 16 above, the shareholders of XXXXXXXXXX will pass a special resolution to authorize the dissolution of XXXXXXXXXX and to authorize a request to the registrar of companies to strike XXXXXXXXXX off the register pursuant to the XXXXXXXXXX.
As part of the dissolution of XXXXXXXXXX will distribute all of its assets, being only cash or near cash property, and satisfy its liabilities as follows:
(a) XXXXXXXXXX will distribute such of its assets to Holdco XXXXXXXXXX and Holdco XXXXXXXXXX that are not required to satisfy any remaining liabilities of XXXXXXXXXX;
(b)XXXXXXXXXX will, with its remaining assets, pay its liabilities; and
(c)XXXXXXXXXX will distribute any assets remaining to Holdco XXXXXXXXXX and Holdco XXXXXXXXXX.
On each of the distributions of the assets of XXXXXXXXXX each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will receive XXXXXXXXXX% of the assets distributed.
20.As a result of the distribution of the properties of XXXXXXXXXX described in paragraph 19 above, the fair market value of the cash or near-cash property received by each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX, will be equal to the proportion of the fair market value of all of the cash or near-cash property owned by XXXXXXXXXX immediately before the transfer, that:
(a)the fair market value, immediately before the transfer, of all the shares of the capital stock of XXXXXXXXXX owned by Holdco XXXXXXXXXX or Holdco XXXXXXXXXX, as the case may be, at that time
is of
(b)the fair market value immediately before the transfer of all the issued shares of the capital stock of XXXXXXXXXX at that time.
21.The distribution of the assets of XXXXXXXXXX as described in paragraph 19 above will be delayed pending the receipt of a clearance certificate pursuant to subsection 159(2). The formal dissolution of XXXXXXXXXX will be delayed pending the receipt of the dividend refund due to XXXXXXXXXX The cash received by XXXXXXXXXX from the dividend refund will be paid immediately to Holdco XXXXXXXXXX and Holdco XXXXXXXXXX in the same proportion as described in paragraph 20 above and XXXXXXXXXX will then be dissolved.
Purpose of the Proposed Transactions
22. XXXXXXXXXX no longer wish to carry on the business XXXXXXXXXX together and the purpose of the proposed transactions is to allow them to go their separate ways and carry on their own separate businesses.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following:
A.As a result of the winding-up of XXXXXXXXXX as described in paragraph 19 above, and the payments to Holdco XXXXXXXXXX and Holdco XXXXXXXXXX, as described in paragraph 21 above, pursuant to paragraph 88(2)(b) and subsection 84(2), each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will be deemed to have received a winding-up dividend on its shares of XXXXXXXXXX equal to the amount by which the aggregate of the net fair market value of the property distributed by XXXXXXXXXX on its winding-up, including the payments described in paragraph 21, to Holdco XXXXXXXXXX or Holdco XXXXXXXXXX, as the case may be, exceeds the paid-up capital of such shares.
B.The deemed dividends referred to in ruling A above, to the extent that they are taxable dividends, will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received.
C.The provisions of subsection 55(2) will not apply to the dividends described in Ruling A above, by virtue of the application of paragraph 55(3)(b) provided that, as part of the series of transactions that includes the proposed transactions described herein, there is no:
(a)disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i); or
(b)acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii)
which has not been described herein.
D.No taxes under Part IV of the Act will be payable by either Holdco XXXXXXXXXX or Holdco XXXXXXXXXX in respect of a dividend described in Ruling A above except as provided in paragraph 186(1)(b).
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and are binding provided that the proposed transactions are completed before XXXXXXXXXX
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
1.In the event of a subsequent disposition of any shares of Holdco XXXXXXXXXX or Holdco XXXXXXXXXX, nothing in this letter should be construed as implying that the transactions described herein will not, for the purposes of paragraph 110.6(7)(a), be considered to be part of a series of transactions or events which includes such subsequent disposition of shares of Holdco XXXXXXXXXX or Holdco XXXXXXXXXX, as the case may be.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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