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:
Are shares term preferred shares & Taxable preferred shares.
Position:No.
Reasons: legislation
XXXXXXXXXX 961624
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter dated XXXXXXXXXX wherein you requested an advance income ruling on behalf of the above-referenced taxpayers.
Except as otherwise noted, all statutory references in this ruling application are references to the provisions of the Income Tax Act (the "Act") R.S.C. 1985 (5th Supp) c.1 as amended to the date hereof.
Our understanding of the statements of facts and proposed transactions is as follows:
Facts
1.XXXXXXXXXX is a corporation which is a "taxable Canadian corporation" and a "public corporation" for the purposes of subsection 89(1). XXXXXXXXXX is principally in the business of XXXXXXXXXX is neither a "specified financial institution" nor a "restricted financial institution" as those terms are defined in subsection 248(1).
2.XXXXXXXXXX files its tax returns at the XXXXXXXXXX Taxation Centre and is serviced from the XXXXXXXXXX Tax Services Office. XXXXXXXXXX tax account number is XXXXXXXXXX.
3.XXXXXXXXXX is a "taxable Canadian corporation" whose sole undertaking is XXXXXXXXXX Its share capitalization consists entirely of voting and non-voting common shares. Through a combination of voting and non-voting common shares, XXXXXXXXXX owns XXXXXXXXXX of the equity capital of XXXXXXXXXX, but exercises XXXXXXXXXX of the voting rights attaching to all voting shares of XXXXXXXXXX The remaining voting and non-voting common shares of XXXXXXXXXX are owned by a party who deals at arm's length with XXXXXXXXXX and which is in the business of, XXXXXXXXXX is neither a "public corporation" nor a "private corporation" for the purposes of subsection 89(1).
4. XXXXXXXXXX.
5. XXXXXXXXXX.
6.The arrangement between XXXXXXXXXX is governed by a series of agreements
XXXXXXXXXX
7.Although there is no requirement to do so, XXXXXXXXXX has adopted an informal policy of paying all of its net cash-flow (i.e. after the payment of applicable expenses, income taxes, debt service costs and payments to retire outstanding debt) to its shareholders. Such amounts are paid on a XXXXXXXXXX basis. The issued and outstanding shares of XXXXXXXXXX have no fixed or determinable entitlements and constitute "common shares" within the meaning of subsection 248(1).
8.To the best of your knowledge and that of XXXXXXXXXX none of the issues in respect of which rulings are herein requested is currently under consideration by a tax services office or taxation centre in connection with a tax return or notice of objection already filed.
Proposed Transactions
9.XXXXXXXXXX will incorporate a new corporation, XXXXXXXXXX ("Newco"), under the XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of Newco ("Voting Shares"). The Articles of Incorporation of Newco will be such that it will be limited in its undertakings to the ownership of shares of XXXXXXXXXX, amounts of Canadian currency and securities issued by the Government of Canada.
10.XXXXXXXXXX will sell to Newco all of the shares of XXXXXXXXXX that it owns in consideration for both Voting Shares and non-voting common shares of Newco (the "Non-Voting Shares"). The proportion of Voting Shares is estimated to be XXXXXXXXXX% of the shares that are issued to XXXXXXXXXX The Voting Shares will be voting under all circumstances. The Non-Voting Shares will entitle holders to elect no more than XXXXXXXXXX of the directors of Newco and will entitle the holder to otherwise vote only in respect of any proposed amendment to the Articles of Incorporation of Newco, or to approve the dissolution of Newco. Any amendment to the Articles of Incorporation will require an affirmative majority of the Voting Shares and the Non-Voting Shares, each voting as a separate class. The dissolution of Newco may be initiated by a request of the holders of no less than XXXXXXXXXX% of the issued and outstanding Voting Shares and Non-Voting Shares and only with the approval of in excess of XXXXXXXXXX% of the votes attaching to all of the Voting and Non-Voting Shares, voting without class distinction.
11.The Voting Shares and the Non-Voting Shares will otherwise not have any fixed entitlements and will share rateably in any corporate distribution. The Non-Voting Shares will thereby be "common shares" for the purposes of subsection 248(1).
12.Following the acquisition of the Voting Shares and the Non-Voting Shares, XXXXXXXXXX as the sole shareholder of Newco, will effect a resolution reducing the stated capital of the Voting Shares and the Non-Voting Shares to a nominal amount so as to preclude any future reductions or returns of capital.
13.XXXXXXXXXX will sell XXXXXXXXXX Shares
XXXXXXXXXX
14.The directors of Newco anticipate setting out a non-binding policy that they will apply all available funds on hand to the payment of dividends.
15.There will be no arrangements or entitlements in respect of the XXXXXXXXXX Shares other than as disclosed herein.
Purpose of Proposed Transactions
XXXXXXXXXX wishes to raise additional capital by reorganizing it's ownership in XXXXXXXXXX through an exchange of its shares of XXXXXXXXXX for shares of Newco which is followed by the sale to investors of the Non-Voting Shares of Newco.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we confirm the following:
A.The Non-Voting Shares will not constitute "term preferred shares" to Purchasers for the purposes of subsection 112(2.1).
B.The Non-Voting Shares will not constitute "taxable preferred shares" to Purchasers for the purposes of Part IV.1 nor Part Vl.1.
These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and are binding on Revenue Canada, Taxation provided that the proposed transactions described herein are completed by XXXXXXXXXX.
Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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