30 November 1995 Income Tax Severed Letter 9625081 - SHAREHOLDER BENEFIT, TRANSFER OF CONTROL TO SON

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:

whether a transfer of controlling interest from father to son results in a benefit

Position:

depends on whether there is a premium on that interest

Reasons:

unable to determine fmv of interest but ruling issued with proviso that ruling valid unless there is a fmv increase

XXXXXXXXXX							3-962508
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX 1996

Dear Sir:

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

XXXXXXXXXX was incorporated on XXXXXXXXXX pursuant to the XXXXXXXXXX is a taxable Canadian corporation and a Canadian-controlled private corporation which, as used here and subsequently, have the meanings assigned by subsections 89(1) and 125(7), respectively. XXXXXXXXXX is an investment holding company.

The authorized share capital of XXXXXXXXXX consists of the following:

An unlimited number of Class XXXXXXXXXX common shares of no par value. These shares are retractable, voting, non-participating, redeemable at $XXXXXXXXXX per share and bear a non-cumulative dividend rate of XXXXXXXXXX% per annum on the redemption amount per share.

An unlimited number of Class XXXXXXXXXX voting common shares of no par value.

The issued and outstanding shares of XXXXXXXXXX are held by their holders as capital property as follows:

XXXXXXXXXX Class XXXXXXXXXX common shares are held by XXXXXXXXXX and have a paid-up capital of $XXXXXXXXXX per share.

XXXXXXXXXX Class XXXXXXXXXX common shares are held by XXXXXXXXXX and have a paid-up capital of $XXXXXXXXXX per share.

The terms "capital property" and "paid-up capital", as used here and subsequently, have the meanings assigned by section 54 and subsection 89(1), respectively.

XXXXXXXXXX was incorporated on XXXXXXXXXX pursuant to the XXXXXXXXXX is a taxable Canadian corporation and a Canadian-controlled private corporation. XXXXXXXXXX is an active company that carries on the business of XXXXXXXXXX

The authorized share capital of XXXXXXXXXX consists of the following:

An unlimited number of XXXXXXXXXX% cumulative, non-redeemable, non-voting preference shares without par value.

An unlimited number of common shares without par value.

The issued and outstanding shares of XXXXXXXXXX are held by their holders as capital property as follows:

Preference Shares

XXXXXXXXXX

Common Shares

XXXXXXXXXX

XXXXXXXXXX

Proposed Transaction

XXXXXXXXXX will effect a stock split of its outstanding common shares whereby one Class XXXXXXXXXX common share presently issued and outstanding will be split into XXXXXXXXXX Class XXXXXXXXXX common shares and the stated capital per share will be reduced from $XXXXXXXXXX per share to $XXXXXXXXXX per share.

It is your view that there will be no change in the fair market value of the Class XXXXXXXXXX or Class XXXXXXXXXX common shares of XXXXXXXXXX as a result of the stock split.

Purpose of the Proposed Transaction

The purpose of the proposed transaction is to ensure that XXXXXXXXXX will acquire de jure control of XXXXXXXXXX and the XXXXXXXXXX Group of Companies. XXXXXXXXXX presently has de facto control of the XXXXXXXXXX Group of Companies.

Ruling 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 and

the fair market value of the Class XXXXXXXXXX and Class XXXXXXXXXX common shares of XXXXXXXXXX does not change as a result of the stock split described in paragraph 7 above,

we confirm that the provisions of subsection 15(1) will not be applied as a result of the proposed transaction described above, in and by itself.

The above ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act.

The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and is binding provided the proposed transaction is completed by XXXXXXXXXX

Comment

Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed the determination of the fair market value of any shares referred to herein.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch