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 3-962676
XXXXXXXXXX
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 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)"ACB" means "adjusted cost base" as that expression is defined in section 54 and subsection 248(1);
(c)XXXXXXXXXX;
(d)"NRO" means "non-resident-owned investment corporation" as that expression is defined in subsection 133(8);
(e)XXXXXXXXXX
(f)"private corporation" has the meaning assigned by subsection 89(1);
(g)"PUC" means "paid-up capital" as that expression is defined in subsection 89(1); and
(h)"taxable Canadian corporation" has the meaning assigned by subsection 89(1).
FACTS
1.XXXXXXXXXX is a private corporation and a taxable Canadian corporation governed by the laws of the province of XXXXXXXXXX was formed on the amalgamation of XXXXXXXXXX and is a resident of Canada for the purposes of the Act.
2.XXXXXXXXXX authorized capital consists of an unlimited number of common shares without par value.
3.The issued share capital of XXXXXXXXXX consists of XXXXXXXXXX common shares all of which are held by XXXXXXXXXX common shares of XXXXXXXXXX have a stated capital and PUC equal to $XXXXXXXXXX and an ACB to XXXXXXXXXX.
4.XXXXXXXXXX is a corporation incorporated on XXXXXXXXXX under the laws of the province of XXXXXXXXXX has elected pursuant to the provisions of section 133, and within the time specified in paragraph (e) of the definition of a "non-resident-owned investment corporation", to be taxed as a NRO.
5.XXXXXXXXXX authorized capital consists of an unlimited number of common shares without par value.
6.The issued share capital of XXXXXXXXXX consists of XXXXXXXXXX common shares all of which are held by XXXXXXXXXX common shares of XXXXXXXXXX have a stated capital and PUC equal to $XXXXXXXXXX and an ACB to XXXXXXXXXX.
7.XXXXXXXXXX is not resident in Canada for purposes of the Act or for purposes of the Convention.
8.XXXXXXXXXX a public company in the United Kingdom, is the ultimate parent of XXXXXXXXXX acquired control of a parent company of XXXXXXXXXX from XXXXXXXXXX.
9.The taxation year for both XXXXXXXXXX and is the same as its fiscal period for accounting purposes. On XXXXXXXXXX, control of XXXXXXXXXX was acquired and subsection 249(4) applied such that the taxation year of XXXXXXXXXX ended immediately before that time, on XXXXXXXXXX.
10.On XXXXXXXXXX distributed $XXXXXXXXXX of capital to XXXXXXXXXX Funds for the distribution were derived from existing cash resources. On XXXXXXXXXX distributed $XXXXXXXXXX of capital to XXXXXXXXXX Both of these distributions were made in accordance with and in the manner described in an Advance Income Tax Ruling requested on XXXXXXXXXX and issued by the Department on XXXXXXXXXX our file No. 942736, and extended by our letter of XXXXXXXXXX, our file No. 951547 (the "1994 Ruling").
The proposed transactions in the 1994 Ruling were to include distributions of up to $XXXXXXXXXX However, no distributions other than the $XXXXXXXXXX described herein were made.
11.In XXXXXXXXXX loaned funds of approximately $XXXXXXXXXX to XXXXXXXXXX for a note that is due on XXXXXXXXXX days notice or on XXXXXXXXXX and bearing interest at the prescribed rate set by Revenue Canada.
PROPOSED TRANSACTIONS
12.Pursuant to XXXXXXXXXX the shareholder of XXXXXXXXXX will pass a special resolution to reduce the stated capital of the XXXXXXXXXX issued and outstanding common shares of XXXXXXXXXX by an amount of up to $XXXXXXXXXX The reduction of the stated capital and PUC of the common shares of XXXXXXXXXX will be effected by the distribution to XXXXXXXXXX of an amount of cash equal to the amount of the reduction in stated capital and PUC. The source of funds for the payment on the reduction of the stated capital and PUC of XXXXXXXXXX common shares will be the repayment of the loan to XXXXXXXXXX described paragraph 11 above.
13.Following the reduction of the stated capital and PUC of XXXXXXXXXX common shares, XXXXXXXXXX will make a distribution of an amount up to $XXXXXXXXXX to its shareholder, XXXXXXXXXX The distribution will be made as follows:
(a)by the payment of one or more amounts, that in aggregate will be no less than $XXXXXXXXXX but no more than $XXXXXXXXXX, as a reduction of the stated capital and PUC of the XXXXXXXXXX common shares of XXXXXXXXXX held by XXXXXXXXXX; and
(b)by the payment of one or more amounts, that in aggregate will be no more than $XXXXXXXXXX less the amount distributed as a reduction of the stated capital and PUC of the XXXXXXXXXX common shares of XXXXXXXXXX described in (a), as a taxable dividend paid to XXXXXXXXXX on the common shares of XXXXXXXXXX
Pursuant to XXXXXXXXXX the shareholder of XXXXXXXXXX will pass a special resolution to reduce the stated capital of the XXXXXXXXXX issued and outstanding common shares of XXXXXXXXXX by an amount of up to $XXXXXXXXXX
XXXXXXXXXX will withhold and remit to the Receiver General an amount pursuant to subsection 212(2) in respect of all amounts distributed to XXXXXXXXXX as a taxable dividend paid on its common shares.
The source of funds for the distribution of $XXXXXXXXXX paid on the reduction of the stated capital and PUC of the XXXXXXXXXX common shares and the taxable dividend described above will be the $XXXXXXXXXX received from XXXXXXXXXX, on the reduction of the stated capital of its common shares held by XXXXXXXXXX, and existing surplus funds held by XXXXXXXXXX
14.No shares are to be surrendered by any shareholder or purchased by either of XXXXXXXXXX as a result of or in contemplation of the proposed transactions described herein.
PURPOSE OF TRANSACTIONS
15.The purpose of the proposed transactions is to repatriate excess capital in XXXXXXXXXX to its non-resident parent, XXXXXXXXXX The capital of XXXXXXXXXX is being reduced to a level that the non-resident parent of XXXXXXXXXX considers as appropriate to support the XXXXXXXXXX Canadian operations.
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.The provisions of subsection 84(4) will not apply to deem XXXXXXXXXX to have paid a dividend on its common shares as a result of the reduction of capital as described in paragraph 12 above, as the amount paid by XXXXXXXXXX to XXXXXXXXXX on the reduction of the stated capital and PUC of its common shares will not exceed the amount by which the PUC of the common shares has been reduced.
B.The provisions of subsection 84(4) will not apply to deem XXXXXXXXXX to have paid a dividend on its common shares as a result of the reduction of capital as described in paragraph 13 above, as the amount paid by XXXXXXXXXX to XXXXXXXXXX on the reduction of the stated capital and PUC of its common shares will not exceed the amount by which the PUC of the common shares has been reduced.
C.The provisions of subparagraph 53(2)(a)(ii) will apply to reduce the ACB of the common shares of XXXXXXXXXX held by XXXXXXXXXX upon the payment to be made by XXXXXXXXXX on the reduction of the stated capital and PUC of the issued shares of XXXXXXXXXX described in paragraph 12 above.
D.The provisions of subparagraph 53(2)(a)(ii) will apply to reduce the ACB of the common shares of XXXXXXXXXX held by XXXXXXXXXX upon the payment to be made by XXXXXXXXXX on the reduction of the stated capital and PUC of the issued shares of XXXXXXXXXX described in paragraph 13 above.
E.The proposed transactions described herein, in and of themselves, will not result in XXXXXXXXXX ceasing to qualify as an NRO.
F.The provisions of subsection 212(2) will not apply in respect of the amounts distributed to XXXXXXXXXX on the reduction of the stated capital and PUC of the XXXXXXXXXX common shares held by XXXXXXXXXX described in paragraph 13 above.
G.Subsection 245(2) will not be applied to the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
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.
Nothing in this letter should be construed as confirmation that Revenue Canada has reviewed or accepted
(a)the determination of the adjusted cost base or the paid-up capital of any shares, or
(b)any tax consequences arising from the facts or proposed transactions described herein other than those specifically confirmed in the rulings given.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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