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:
In-house loss utilization scheme involving an "option" to purchase depreciable property. Depreciable property currently being leased by option holder.
Position:
Since all parties were related, the scheme was not subject to GAAR. The transactions were all legally effective.
Reasons:
See Income Tax Technical News No. 3 dated January 30, 1995.
XXXXXXXXXX 962817
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. In your letters of XXXXXXXXXX you provided additional information in respect of the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
To the best of your knowledge and that of the taxpayers involved:
(i)none of the issues involved in the requested rulings is being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and
(ii)none of the issues involved in the requested rulings is the subject of any notice of objection or is under appeal.
Unless otherwise stated all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
In this letter, the following terms have the meanings specified:
(a)"adjusted cost base" ("ACB") has the meaning assigned to that term in section 54 of the Act;
(b)"CBCA" means the Canada Business Corporations Act and, where applicable, its predecessor statutes;
(c)"capital property" has the meaning assigned to that term in section 54 of the Act;
(d)"depreciable property" has the meaning assigned by subsection 13(21) of the Act;
(e)"non-capital loss" has the meaning assigned by subsection 111(8) of the Act;
(f) XXXXXXXXXX;
(g)"paid-up capital" ("PUC") has the meaning assigned to that term by subsection 89(1) of the Act;
(h)"private corporation" has the meaning assigned to that term by subsection 89(1) of the Act;
(i)"related" has the meaning assigned by subsection 251(2) of the Act;
(j)"specified financial institution" ("SFI") has the meaning assigned to that term by subsection 248(1) of the Act;
(k)"taxable Canadian corporation" ("TCC") has the meaning assigned to that term by subsection 89(1) of the Act; and
(l)"taxable dividend" has the meaning assigned to that term by subsection 89(1) of the Act.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1.XXXXXXXXXX was incorporated on XXXXXXXXXX and its head office is located at XXXXXXXXXX. XXXXXXXXXX is a private corporation and a TCC.
2.XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX, a U.S. corporation. XXXXXXXXXX is indirectly wholly owned by XXXXXXXXXX
3.XXXXXXXXXX was incorporated under Maryland corporate law and is a U.S. corporation. Approximately XXXXXXXXXX% of the issued and outstanding common shares of XXXXXXXXXX are beneficially owned by XXXXXXXXXX company. Approximately XXXXXXXXXX% of the issued and outstanding common shares of XXXXXXXXXX are beneficially owned by XXXXXXXXXX company. The balance of the issued and outstanding common shares of XXXXXXXXXX are publicly traded and there are no other significant shareholders.
4.XXXXXXXXXX are both indirect wholly-owned subsidiaries of XXXXXXXXXX. Through XXXXXXXXXX indirectly owns approximately XXXXXXXXXX% of XXXXXXXXXX
5. XXXXXXXXXX
6.XXXXXXXXXX is a corporation incorporated under the CBCA and its head office is located at XXXXXXXXXX. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX ("Holdco"), which is a corporation incorporated under the CBCA. Holdco, in turn, is an indirect wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX are related since both are indirectly controlled by XXXXXXXXXX
7. XXXXXXXXXX The sole trustee of the Trust since the date of settlement has been XXXXXXXXXX. XXXXXXXXXX are not related to the trustee of the Trust or to any beneficiaries of the Trust.
8.By agreement dated XXXXXXXXXX agreed to purchase from XXXXXXXXXX all of the assets and property related to XXXXXXXXXX assigned the right to purchase certain of the assets to the Trust and XXXXXXXXXX was directed to complete the sale of these assets to the Trust. XXXXXXXXXX is not related to XXXXXXXXXX
9.The assets purchased by the Trust from XXXXXXXXXX included land, buildings and manufacturing facilities (the "Purchased Assets"). The total purchase price of the Purchased Assets was allocated as follows:
Land $ XXXXXXXXXX
Land Improvements XXXXXXXXXX
Buildings XXXXXXXXXX
XXXXXXXXXX
Equipment and Machinery XXXXXXXXXX
$XXXXXXXXXX
The Trust funded the purchase of the Purchased Assets by issuing interest bearing Notes to various public financial institutions and by issuing Trust Certificates to XXXXXXXXXX. The Trust Certificates represent beneficial interests in the Trust.
By agreement dated XXXXXXXXXX agreed to lease (the "Lease") the Purchased Assets from the Trust for a XXXXXXXXXX term. Under the terms of the Lease, XXXXXXXXXX had three options available upon expiration of the Lease:
i)Purchase the Purchased Assets at a predetermined price equal to the cost of the property to the Trust;
ii)Terminate the Lease and abandon the Purchased Assets; or
iii)Renew for a further term.
In addition to the options available on termination, XXXXXXXXXX also had the option to purchase the Purchased Assets at a predetermined amount at any time prior to the expiration of the Lease.
10.XXXXXXXXXX and the Trust filed an election under the provisions of subsection 16.1(1) of the Act with respect to the Purchased Assets. The fair market value of the Purchased Assets at that particular time was $XXXXXXXXXX as described in paragraph 9 above.
11. XXXXXXXXXX
XXXXXXXXXX
12.As described in paragraph 9 above, the Lease required XXXXXXXXXX to pursue one of three options available upon the expiration of the Lease. On XXXXXXXXXX gave notice that it elected, on expiry of the Lease, to pursue the purchase option (the "Option"). XXXXXXXXXX has retained the right to exercise the Option at certain times prior to the Lease expiry date. XXXXXXXXXX The Option represents capital property to XXXXXXXXXX
On XXXXXXXXXX purchased all of the Notes of the Trust held by other lenders and became the sole Note holder and sole Trust Certificate holder. Pursuant to an agreement dated XXXXXXXXXX, the maturity date of the Notes was amended to XXXXXXXXXX, and it was provided that if XXXXXXXXXX were to exercise the Option, it would do so not later than XXXXXXXXXX. Failure to either exercise the Option by XXXXXXXXXX, or complete certain remaining work on XXXXXXXXXX would constitute an Event of Default under the Notes and certain other operative project documents.
13.The price to be paid to the Trust by XXXXXXXXXX upon the exercise of the Option (the "Exercise Price") is approximately $XXXXXXXXXX. XXXXXXXXXX has obtained an independent appraisal of the estimated fair market value of the Fixed Assets as at XXXXXXXXXX. The appraisal report indicates a fair market value of approximately $XXXXXXXXXX on that date. Accordingly, the fair market value of the Option is approximately $XXXXXXXXXX
14.XXXXXXXXXX has non-capital losses carried forward as follows:
XXXXXXXXXX
In addition, XXXXXXXXXX has non-deducted XXXXXXXXXX expense of approximately $XXXXXXXXXX. Due to the change in control described in paragraph 15 below, the XXXXXXXXXX non-capital loss of $XXXXXXXXXX is not available to shelter any income that will arise as a result of the proposed disposition of the Option as described in paragraph 25 below.
15.Since XXXXXXXXXX (the "Acquisition Date"), Holdco has been an indirect wholly-owned subsidiary of XXXXXXXXXX. Immediately prior to the Acquisition Date, all the issued and outstanding shares of Holdco were owned by XXXXXXXXXX and its wholly-owned U.S. subsidiary, XXXXXXXXXX. On the Acquisition Date, XXXXXXXXXX transferred their entire interests in Holdco to XXXXXXXXXX relevant affiliate. At the particular time on the Acquisition Date when these shares were transferred, XXXXXXXXXX and its affiliates owned less than XXXXXXXXXX% of the voting shares of XXXXXXXXXX. As a result, there was an acquisition of control of XXXXXXXXXX for purposes of the Act (the "change in control") and XXXXXXXXXX recognized a short taxation year for purposes of the Act ending on XXXXXXXXXX. Immediately after the change in control, XXXXXXXXXX affiliates acquired additional voting common shares of XXXXXXXXXX and since that time have held greater than XXXXXXXXXX% of the voting shares of XXXXXXXXXX
XXXXXXXXXX non-capital losses ($XXXXXXXXXX in aggregate), as described in paragraph 14 above, represent non-capital losses arising after the change of control and will be available to offset the gain that would be recognized by XXXXXXXXXX on the proposed transfer of the Option to XXXXXXXXXX as described in paragraph 25 below. XXXXXXXXXX non-capital loss of $XXXXXXXXXX, as described in paragraph 14 above, arose prior to the change of control and would not be available to offset such gain.
16.XXXXXXXXXX did not enter into the Lease with the Trust in contemplation of the proposed transactions described below. In addition, neither XXXXXXXXXX or the Trust has acquired any property or entered into any prior arrangement in contemplation of the proposed transactions described below.
17.The proposed transactions described above are not being carried out in contemplation of a sale of any or all of the assets or shares of any corporations described therein to an arm's length person for proceeds of disposition which are less than their fair market value.
18.On XXXXXXXXXX entered into an agreement with XXXXXXXXXX for the lease and sale of XXXXXXXXXX is not related to
XXXXXXXXXX
The lease and sale of XXXXXXXXXX is not part of the series of transactions or events that includes the dividend resulting from the redemption of preferred shares described in paragraph 22 below. Even if the sale of XXXXXXXXXX could be considered to form part of the series of transactions that includes the redemption of the Newco preferred shares, XXXXXXXXXX proceeds of disposition for XXXXXXXXXX will not be less than the fair market value of the XXXXXXXXXX
PROPOSED TRANSACTION
19.XXXXXXXXXX will pay a negotiated fee of $XXXXXXXXXX U.S. to XXXXXXXXXX as consideration for XXXXXXXXXX entering into the transactions. The fee will be paid on the closing of the transactions described below and will be included in the calculation of taxable income for XXXXXXXXXX in the year received.
20.XXXXXXXXXX will incorporate a corporation ("Newco") as an unlimited liability company under the laws of XXXXXXXXXX. Newco will be a private corporation and a TCC. The authorized share capital of Newco will include common shares and preferred shares. The preferred shares will have no par value, will be non-voting and will be redeemable and retractable for an amount equal to the fair market value of the consideration received by the company on the issue of the shares. The terms and conditions of the preferred shares will have an internal price adjustment clause which will provide that the redemption amount of the shares will be, in aggregate, equal to the fair market value of the Option transferred estimated to be $XXXXXXXXXX
XXXXXXXXXX will initially subscribe for 1 common share in Newco for $XXXXXXXXXX
21.XXXXXXXXXX will transfer the Option to Newco in exchange for preferred shares of Newco having an aggregate redemption amount and fair market value equal to the fair market value of the Option. No other consideration will be received by XXXXXXXXXX in respect of this transaction. With respect to this transfer, XXXXXXXXXX and Newco will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6) of the Act, to have the provisions of subsection 85(1) of the Act apply. For the purposes of subsection 85(1) of the Act, the amount agreed to in the election in respect of the Option will not be less than the least of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) of the Act. The Trustee of the Trust has agreed to consent to the transfer of the Option and acknowledge the right of the holder of the Option to exercise the Option in accordance with the provisions of paragraph 14 of the Lease and to acquire the Fixed Assets in accordance with the provisions of paragraph 15 of the Lease.
Newco will add to the stated capital account maintained for its preferred shares an amount equal to the fair market value of the Option.
22.Newco will redeem the preferred shares held by XXXXXXXXXX for an amount equal to their fair market value (the "Redemption Price") and as payment of the Redemption Price Newco will issue to XXXXXXXXXX a non-interest bearing promissory note (the "Note") payable on demand having a principal amount and fair market value equal to the Redemption Price estimated to be $XXXXXXXXXX. XXXXXXXXXX will accept the Note as full payment for the Redemption Price of the preferred shares of Newco so redeemed. The principal amount of the Note will be adjustable to parallel the price adjustment clause provisions in the preferred shares of Newco as described in paragraph 20 above. The recourse of a holder of the Note is limited to the Option and the Note is repayable at the option of the obligor thereunder either with cash or the Option.
23.On the third day following the day on which Newco acquires the Option from XXXXXXXXXX as described in paragraph 21 above XXXXXXXXXX will enter into an agreement relating to the hereunder described transactions. XXXXXXXXXX will sell the issued and outstanding common share which it holds in Newco toXXXXXXXXXX for fair market value, which is estimated to be $XXXXXXXXXX As a result, Newco will become a wholly-owned subsidiary of XXXXXXXXXX
24.XXXXXXXXXX, being the sole shareholder of Newco, will then cause Newco to be wound up in accordance with the applicable provisions of the corporate law and subsection 88(1) of the Act. Upon the winding-up of Newco, the Option will be distributed to, and the liability under the Note will be assumed by XXXXXXXXXX and Newco will be dissolved.
For greater certainty, the cost to XXXXXXXXXX of the Option acquired from Newco on the wind-up will be equal to the ACB of the Option to Newco immediately before the wind-up and XXXXXXXXXX will not be entitled to any bump in accordance with paragraphs 88(1)(c) and (d) of the Act.
25.Immediately following the time in which XXXXXXXXXX acquires the Option from Newco upon the winding-up of Newco as described in paragraph 24 above, XXXXXXXXXX will demand payment of the Note from XXXXXXXXXX will transfer the Option to XXXXXXXXXX in full satisfaction of the Note. Other than the settlement and cancellation of the Note, there will be no consideration paid by XXXXXXXXXX for the Option.
While it is a virtual certainty that XXXXXXXXXX will transfer the Option to XXXXXXXXXX in satisfaction of the Note, there is no legal obligation compelling XXXXXXXXXX to do so. XXXXXXXXXX will have the right to repay the Note either in cash or by a transfer of the Option to XXXXXXXXXX. Upon acquisition of the Option by XXXXXXXXXX will agree to indemnify XXXXXXXXXX for certain risks of owning the Option including environmental, occupational health and safety, personal injury and capital taxes.
26.XXXXXXXXXX will then exercise the Option by paying the exercise price in cash, will acquire the Fixed Assets from the Trust and will continue to use the Fixed Assets, with the exception of the XXXXXXXXXX as described in paragraph 18 above, in the XXXXXXXXXX business.
27.XXXXXXXXXX is, on the basis that it is related to a corporation described in paragraph (e) of the definition of SFI, an SFI.
The preference shares of Newco issued to XXXXXXXXXX as consideration for the Option, as described in paragraph 21 above, is an extraordinary event not in the ordinary course of XXXXXXXXXX business.
28.None of the shares of Newco has been or will be, at any time during the implementation of the proposed transactions described herein:
(a) the subject of any undertaking that is referred to in subsection 112(2.2) of the Act as a "guarantee agreement";
(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5) of the Act; or
(c) the subject of a dividend rental arrangement as that term is defined in subsection 248(1) of the Act.
PURPOSE OF THE PROPOSED TRANSACTION
29.XXXXXXXXXX wishes to exercise the Option and to utilize non-capital losses within the XXXXXXXXXX controlled group of Canadian companies to obtain a cost base in the Fixed Assets equal to their current fair market value. Although XXXXXXXXXX are subject to common control, an amalgamation of these two corporations is not desired for non-tax business and liability concerns.
RULINGS GIVEN
Provided that the above statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and that the proposed transactions are carried out as set forth herein, the following rulings are given:
A.Provided that XXXXXXXXXX and Newco jointly file an election pursuant to subsection 85(1) of the Act in respect of the transfer of the Option by XXXXXXXXXX to Newco as described in paragraph 21 above, the provisions of subsection 85(1) of the Act, other than paragraph 85(1)(e.2), will apply to such transfer such that the agreed amount in respect of the Option will be deemed to be the proceeds of disposition to XXXXXXXXXX of the Option and the cost of the Option to Newco.
B.The provisions of subsection 85(2.1) of the Act will apply to reduce the PUC of the preferred shares of Newco referred to in paragraph 21 above by the amount by which:
(a)the aggregate PUC of the preferred shares of Newco otherwise determined as a result of the acquisition by Newco of the Option from XXXXXXXXXX
exceeds
(b)the cost to Newco of the Option as referred to in Ruling A above.
C.As a result of the redemption by Newco of its preferred shares held by XXXXXXXXXX as described in paragraph 22 above:
(a) By virtue of paragraphs 84(3)(a) and 84(3)(b) of the Act, Newco will be deemed to have paid, and XXXXXXXXXX will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the preferred shares of Newco exceeds the PUC thereof; and
(b) The taxable dividend deemed to have been received by XXXXXXXXXX as a result of the redemption referred to herein will be deductible by XXXXXXXXXX in computing its taxable income pursuant to subsection 112(1) of the Act. For greater certainty, the provisions of subsections 112(2.1), (2.2) and (2.4) of the Act will not apply to deny the subsection 112(1) deduction in respect of such dividends.
D.By virtue of the definition of "substantial interest" as set out under paragraph 191(2)(a) of the Act, XXXXXXXXXX will have a substantial interest in Newco immediately before the redemption of the preferred shares of Newco as described in paragraph 22 above. Consequently, no tax will be payable under either section 187.2 or section 191.1 of the Act in respect of the dividend deemed to be paid by Newco to XXXXXXXXXX upon the redemption of the preferred shares of Newco since such dividend will be an "excepted dividend" within the meaning assigned by paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act in the capacity of XXXXXXXXXX as the recipient of the particular dividend, and shall be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act in the capacity of Newco as the payer of the particular dividend.
E.As a result of the transfer of the Option from XXXXXXXXXX to XXXXXXXXXX upon the settlement of the Note as described in paragraph 25 above, XXXXXXXXXX will, subject to the provisions of paragraph 69(1)(b) of the Act, receive proceeds of disposition for the Option equal to the principal amount owing under the Note and by virtue of subsection 13(5.3) of the Act, the amount by which such proceeds of disposition exceeds the cost of the Option to XXXXXXXXXX shall be deemed to be an excess referred to in subsection 13(1) of the Act in respect of XXXXXXXXXX for the year and shall be included in computing XXXXXXXXXX income for the year.
F.Paragraph 13(7)(e) of the Act will not be applicable to the transfer of the Option from XXXXXXXXXX to XXXXXXXXXX as described in paragraph 25 above.
G.Provided that the fair market value of the Option at the time it is acquired by XXXXXXXXXX from Newco is not less than the principal amount of the Note, the settlement and cancellation of the Note as described in paragraph 25 above will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1) of the Act.
H.As a result of XXXXXXXXXX exercising the Option as described in paragraph 26 above, the provisions of subsection 49(3) of the Act will apply to deem the Fixed Assets to have been acquired by XXXXXXXXXX at a cost equal to the aggregate of the Exercise Price and the ACB to XXXXXXXXXX of the Option. For greater certainty, as a result of the transfer of the Option from XXXXXXXXXX to XXXXXXXXXX upon the settlement of the Note as described in paragraph 25 above, the cost to XXXXXXXXXX of the Option will, subject to the provisions of paragraph 69(1)(a) of the Act, be equal to the principal amount owing under the Note.
I.Pursuant to subparagraph 1100(2)(a)(vi) of the Regulations, no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of any property included in the Fixed Assets so acquired by XXXXXXXXXX from the Trust which is depreciable property.
J.The provisions of subsections 15(1), 56(2) and 246(1) of the Act will not apply as a result of the proposed transactions described herein, in and by themselves.
K.As a result of the proposed transactions, in and by themselves, subsection 245(2) of the Act will not be applied to redetermine the tax consequences confirmed in the rulings given.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, and is binding on Revenue Canada, Customs, Excise and Taxation provided that the proposed transactions are completed by XXXXXXXXXX
The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
1.You have informed us, in paragraphs 20 and 22 above, that as part of a price adjustment clause with respect to the fair market value of the Option which is relevant to the redemption amount of the preferred shares of Newco and the principal amount of the Note, the share provisions relating to such shares and the terms of the Note pertaining to the principal amount will provide for an automatic adjustment, where necessary, to the redemption amount of the preferred shares and the principal amount of the Note.
Nothing in this letter should be interpreted as confirming that,
(a)for purposes of the Act, any adjustment made pursuant to any such price adjustment clause in respect of a transaction subsequent to the time of such transaction will be effective, retroactively, to the time of such transaction, or
(b)for the purposes of the Act, any amount paid pursuant to any such price adjustment clause, in respect of a transaction subsequent to the time of such transaction will be an additional payment of the redemption or purchase price of any shares redeemed or repurchased.
The operation of a price adjustment clause is not a proposed transaction and, consequently, advance rulings are not given by the Department in respect thereof. The Department's general position with respect to price adjustment clauses in agreements is set out in Interpretation Bulletin IT-169 dated August 6, 1974.
2.It is our view that the negotiated fee, as described in paragraph 19 above, that XXXXXXXXXX will pay to XXXXXXXXXX as consideration for XXXXXXXXXX entering into the proposed transactions described above will not be deductible in computing the taxable income for XXXXXXXXXX nor will it be included in the cost or capital cost, as the case may be, of any particular property acquired by XXXXXXXXXX as part of the proposed transactions described above.
3.Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed:
(a)Any tax implications arising as a result of the transactions described in paragraph 18 above with respect to the lease and sale of the XXXXXXXXXX to XXXXXXXXXX;
(b)Whether the portion of the Fixed Assets that represent the XXXXXXXXXX would have constituted depreciable property had it been acquired by XXXXXXXXXX from XXXXXXXXXX and, consequently, whether the XXXXXXXXXX was eligible for the election filed by XXXXXXXXXX and the Trust under subsection 16.1(1) of the Act as described in paragraph 10 above;
(c) The determination of the fair market value or ACB of any particular asset or the PUC of any shares referred to herein. In particular, we have not reviewed or agreed that the fair market value of the Option is $XXXXXXXXXX as represented by you; or
(d)Any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Opinions
Provided that our understanding of the facts and proposed transactions described herein is correct and further provided that proposed paragraph 55(3)(a) and subsection 55(3.01) of the Act are enacted in substantially the same form as proposed in the Notice of Ways and Means Motion to Amend the Income Tax Act and Related Statues which was tabled by the Minister of Finance on November 20, 1996, then it is our opinion that by virtue of paragraph 55(3)(a) of the Act, the provisions of subsection 55(2) of the Act will not apply to the deemed dividend referred to in ruling B, in and by itself, provided that there is not:
(i)a disposition of property (other than
(A)money disposed of on the payment of a dividend or on a reduction of the paid-up capital of a share, and
(B)property disposed of for proceeds that are not less than its fair market value)
to a person or partnership with whom XXXXXXXXXX would not be related immediately before the particular time,
(ii)a significant increase (other than as a consequence of a disposition of shares of the capital stock of a corporation for proceeds of disposition that are not less than their fair market value) in the total direct interest in any corporation of one or more persons or partnerships who were unrelated persons immediately before the particular time,
(iii)a disposition, to a person or partnership who was an unrelated person immediately before the particular time, of
(A)shares of the capital stock of the corporation that paid the dividend (referred to in this paragraph as the dividend payer), or
(B)property more than 10% of the fair market value of which was, at any time during the course of the series, derived from shares of the capital stock of the dividend payer,
(iv)after the time the dividend was received, a disposition, to a person or partnership who was an unrelated person immediately before the particular time, of
(A)shares of the capital stock of the dividend recipient, or
(B)property more than 10% of the fair market value of which was, at any time during the course of the series, derived from shares of the capital stock of the dividend recipient, and
(v)a significant increase in the total of all direct interests in the dividend payer of one or more persons or partnerships who were unrelated persons immediately before the particular time,
which is part of a transaction or event or a series of transactions or events, determined with reference to subsection 248(10) of the Act, that includes the proposed transactions described in this letter. For greater certainty, the proposed transactions described in paragraphs 19 to 26 above, in and by themselves, will not be considered to result in any of the events described in (i) to (v) above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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