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:
A previous ruling was issued based on our administrative position that a XXXXXXXXXX% discount on shares issued pursuant to a dividend investment plan would not result in the application of subsection 15(1). The benefit could not be excluded by paragraph 15(1)(c) since not all shareholders were able to exercise that right (the U.S. shareholders were not able to do so because the shares were not listed in the U.S.). An amendment to add a class of shares to the plan was proposed and the same ruling was requested.
Position:
Since shares could now be issued to U.S. residents (shares now listed in the U.S.), the subsection 15(1) ruling was provided on the basis that paragraph 15(1)(c) would exclude the benefit.
Reasons: Wording of provision
XXXXXXXXXX 3-962071
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the above taxpayer. We also acknowledge your letter of XXXXXXXXXX.
To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling is being considered by a Tax Services Office and/or a Taxation Centre in connection with an income tax return previously filed and none of the issues contained herein is under objection or appeal.
Unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act").
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX is a taxable Canadian corporation and a public corporation within the meaning of subsection 89(1). XXXXXXXXXX is controlled by XXXXXXXXXX a Canadian-controlled private corporation within the meaning of subsection 125(7).
2. The authorized share capital of XXXXXXXXXX consists of an unlimited number of preference shares, issuable in series, an unlimited number of XXXXXXXXXX Shares and an unlimited number of XXXXXXXXXX Shares. XXXXXXXXXX Shares and XXXXXXXXXX Shares rank equally on a per share basis in respect of all dividends. Upon liquidation, the holders of each of the XXXXXXXXXX Shares and XXXXXXXXXX Shares are entitled to a return of their stated capital and thereafter share equally in the remaining assets of the company. The XXXXXXXXXX Shares are convertible into XXXXXXXXXX Shares on a one-for-one basis at the option of the holder.
3. The issued and outstanding share capital of the corporation consists of XXXXXXXXXX Shares, all of which are owned by XXXXXXXXXX and XXXXXXXXXX Shares which are listed on the XXXXXXXXXX.
4. XXXXXXXXXX is primarily a holding and management company whose subsidiaries own and operate the XXXXXXXXXX In addition, XXXXXXXXXX indirectly owns an interest in XXXXXXXXXX.
5. XXXXXXXXXX.
6. XXXXXXXXXX the Board of Directors of XXXXXXXXXX implemented a policy of semi-annual dividends and approved the implementation of a Dividend Re- investment Plan ("DRIP"), which was the subject of advance income tax ruling #921379 dated XXXXXXXXXX (the "Original Ruling").
7. The DRIP currently provides that all shareholders have the right to apply cash dividends to the purchase of XXXXXXXXXX Shares of XXXXXXXXXX provided that they are not prohibited from doing so under the laws of the country in which they reside XXXXXXXXXX Shareholders resident in, or citizens of, the United States may not participate in the DRIP since the shares are not registered under the Securities Act of 1933 of the United States.
8. The purchase price per share of a XXXXXXXXXX Share issued pursuant to the DRIP is equal to XXXXXXXXXX% of the weighted average of the closing price for XXXXXXXXXX Shares on the XXXXXXXXXX Stock Exchange on the XXXXXXXXXX trading days, XXXXXXXXXX immediately preceding the dividend payment date in question, to the extent that each of those XXXXXXXXXX days occurs no more than XXXXXXXXXX days prior to the dividend payment date. No broker commission is payable. Under the DRIP, where a shareholder elects to participate, XXXXXXXXXX will forward all of the participating shareholder's cash dividend (net of the appropriate tax withheld under Part XIII with respect to a shareholder not resident in Canada), to XXXXXXXXXX (the "Agent") which acts as agent for the participants. The Agent will invest such funds in the purchase of XXXXXXXXXX Shares issued by XXXXXXXXXX from treasury. All such funds will be fully invested, with fractional shares being accumulated and shown in the participant's account.
9. On XXXXXXXXXX announced that it intends to file a prospectus with the Securities and Exchange Commission to offer its shares outside of Canada.
XXXXXXXXXX
10. XXXXXXXXXX the shareholders approved, among other items:
(a) the creation of a new class of XXXXXXXXXX Shares and the necessary amendments to the rights of the existing classes of shares and the constrained shares provisions, and
(b) amendments to the DRIP to extend the plan to holders of the XXXXXXXXXX Shares and to permit cash dividends (net of the appropriate amount of tax withheld under Part XIII, subject to any applicable Tax Convention, with respect to a shareholder who is not resident in Canada) paid in respect of each class of shares to be reinvested in additional shares of that class, or in certain circumstances, in shares of other classes.
11. XXXXXXXXXX will file Articles of Amendment to create the new XXXXXXXXXX Shares and amend the share rights of the existing classes of shares to provide that:
(a) XXXXXXXXXX Shares, XXXXXXXXXX Shares and XXXXXXXXXX Shares will rank equally with respect to dividend payments.
(b) Stock dividends to each shareholder will be paid in the same class of share as is held, subject to the right of the holder of XXXXXXXXXX Shares to elect to receive XXXXXXXXXX Shares (provided that the holder is a Canadian holder) or XXXXXXXXXX Shares in lieu of XXXXXXXXXX Shares and the right of the holder of XXXXXXXXXX Shares to elect to receive XXXXXXXXXX Shares (provided that the holder is a Canadian holder) or XXXXXXXXXX Shares.
(c) XXXXXXXXXX Shares will be convertible into either XXXXXXXXXX Shares (provided that the holder is a Canadian holder) or XXXXXXXXXX Shares at the option of the holder.
(d) XXXXXXXXXX Shares will be convertible into XXXXXXXXXX Shares at the option of the holder. Prior to the transfer of XXXXXXXXXX Shares to a non-Canadian holder, the transferor will be required to, or will be deemed to, convert such shares into XXXXXXXXXX Shares.
(e) A holder of Non-Voting Shares who provides XXXXXXXXXX with a declaration in satisfactory form that the holder is a Canadian holder may convert the shares into XXXXXXXXXX Shares. All such conversions are on a share for share basis.
XXXXXXXXXX Shares, XXXXXXXXXX Shares, and XXXXXXXXXX Shares will rank equally in the event of liquidation, dissolution or winding up of XXXXXXXXXX subject to the preferential rights of any class ranking in priority to these classes.
XXXXXXXXXX
The term "Canadian holder", as used herein and subsequently, is defined in the share constraint provisions of XXXXXXXXXX articles.
XXXXXXXXXX files its federal income tax returns at the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Taxation Services Office.
Proposed Transactions
The following amendments to the DRIP will be made, subject to the receipt of this ruling:
The DRIP will permit shareholders who are resident in, or citizens of, the United States to participate in the DRIP and reinvest in XXXXXXXXXX Shares or XXXXXXXXXX Shares only after the relevant class of shares has been registered under the Securities Act of 1933 of the United States.
A holder of XXXXXXXXXX Shares will be permitted to reinvest cash dividends, at the holder's option, in XXXXXXXXXX Shares, XXXXXXXXXX Shares (provided the holder is a Canadian holder) or XXXXXXXXXX Shares. Any such reinvestment in XXXXXXXXXX Shares is subject to the requirement that such reinvestment may not result in an increase of the percentage of outstanding equity shares represented by the XXXXXXXXXX Shares as a class.
A holder of XXXXXXXXXX Shares will be permitted to reinvest cash dividends, at the holder's option, in XXXXXXXXXX Shares (provided that the holder is a Canadian holder) or XXXXXXXXXX Shares.
The DRIP will be extended to holders of XXXXXXXXXX Shares who will be permitted to reinvest cash dividends in XXXXXXXXXX Shares.
Holders of XXXXXXXXXX Shares or XXXXXXXXXX Shares may elect to have a particular cash dividend invested in only one class of shares. Holders of XXXXXXXXXX Shares or XXXXXXXXXX Shares who fail to make an election regarding the class of shares they wish to invest in or select more than one class of shares shall be deemed to the extent eligible to do so, to have elected to invest in shares of the same class that they held.
The notice period for participation or termination of participation of a shareholder in the DRIP will be reduced to XXXXXXXXXX days before the dividend payment date.
A participant will be permitted to elect to reinvest only a portion of the holder's cash dividend in shares and to receive the balance in cash, provided that the election is made at least XXXXXXXXXX days prior to the particular dividend payment date. Shareholders who fail to insert a percentage of the amount of shares of a class with respect to which they wish to participate shall be deemed to have elected to participate in the DRIP with respect to all of the shares of that class held by them.
The price per share of the XXXXXXXXXX Shares issued pursuant to the DRIP will be equal to XXXXXXXXXX% of the weighted average trading price per share XXXXXXXXXX Shares on the XXXXXXXXXX Stock Exchange on the XXXXXXXXXX trading days XXXXXXXXXX Shares traded immediately preceding the dividend payment dated in question, to the extent that each of those XXXXXXXXXX days occurs no more than XXXXXXXXXX days prior to the dividend payment date.
The price per share of the Non-Voting Shares issued pursuant to the DRIP will be equal to XXXXXXXXXX% of the weighted average trading price per share XXXXXXXXXX Shares on both the XXXXXXXXXX Stock Exchange and (after converting prices into Canadian dollars) the XXXXXXXXXX Stock Exchange, in both cases on the XXXXXXXXXX trading days of that particular exchange XXXXXXXXXX Shares traded immediately preceding the dividend payment date in question, to the extent that each of those XXXXXXXXXX days occurs no more than XXXXXXXXXX days prior to the dividend payment date.
The price per share of the XXXXXXXXXX Shares issued pursuant to the DRIP will be equal to XXXXXXXXXX% of the weighted average trading price per share of the XXXXXXXXXX Shares and the XXXXXXXXXX Shares XXXXXXXXXX of the relevant class of shares on the XXXXXXXXXX Stock Exchange and the XXXXXXXXXX Stock Exchange (converted in the latter case into Canadian dollars) on the XXXXXXXXXX trading days of that particular exchange XXXXXXXXXX of the relevant class of shares traded immediately preceding the dividend payment date in question, to the extent that each of those XXXXXXXXXX days occurs no more than XXXXXXXXXX days prior to the dividend payment date.
XXXXXXXXXX
Dividends designated by a non-resident participant for reinvestment under the DRIP will be reduced by the appropriate non-resident withholding tax under Part XIII, subject to any applicable tax convention.
All other provisions of the DRIP described in the Original Ruling remain unchanged.
Purpose of the Proposed Transactions
The purpose of the DRIP continues to be to allow XXXXXXXXXX to raise additional equity capital through the issue of shares to existing shareholders and to provide shareholders with an economical way to increase their investment in XXXXXXXXXX The purpose of the amendments proposed to the DRIP are to reflect the proposed creation and issuance of XXXXXXXXXX Shares pursuant to the planned offering of these shares on foreign markets and to provide the participants with more flexibility in their investment decisions.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purpose of the proposed transactions, we confirm the following:
The amount by which the fair market value on the date of purchase of any XXXXXXXXXX Share, XXXXXXXXXX Share or XXXXXXXXXX Share purchased by the Agent on behalf of a shareholder participant pursuant to the DRIP exceeds the purchase price paid for such share pursuant to the provisions of the DRIP, as described in paragraph 13.(h) above, will not be included in computing the income of the shareholder participant on whose behalf the share is purchased as a benefit conferred by XXXXXXXXXX on such shareholder pursuant to the provisions of subsection 15(1) by virtue of paragraph 15(1)(c).
The provisions of subsection 246(1) will not be applied as a result of the amendments to the DRIP or the reinvestment of dividends thereunder.
The cost to a shareholder participant of any shares acquired by such shareholder participant under the DRIP will be the actual amount paid for those shares on his behalf by the Agent, as described in paragraph 13.(h) above.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.
The above 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 by XXXXXXXXXX and that the DRIP remains in full force and is not amended.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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