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 3-963328
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX in which you requested advance income tax rulings on behalf of the above-noted taxpayer. We acknowledge our telephone conversations in connection herewith.
To the best of your knowledge, and that of the taxpayers named herein, none of the issues involved in this advance income tax ruling request is under objection or appeal or is being considered by any tax services office or taxation centre of Revenue Canada in connection with any income tax return already filed.
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;
(c)"CBCA" means Canada Business Corporation Act;
(d)"Canadian corporation" has the meaning assigned by subsection 89(1);
(e)"capital property" has the meaning assigned by section 54;
(f)"cost amount" has the meaning assigned under subsection 248(1);
(g)"dividend rental arrangement" has the meaning assigned by subsection 248(1);
(h)"eligible property" has the meaning assigned by subsection 85(1.1);
(i)"forgiven amount" has the meaning assigned by subsections 80(1) or 80.01(1);
(j)"guarantee agreement" has the meaning assigned by subsection 112(2.2);
(k)"ITAR" means the Income Tax Application Rules;
(l)"paid-up capital" has the meaning assigned by subsection 89(1);
(m)"predecessor corporation" has the meaning assigned by subsection 87(1);
(n)"principal amount" has the meaning assigned by subsection 248(1) except that where the debt or obligation was outstanding at January 1, 1972, for the purposes of section 80, has the meaning assigned by subsection 26(1.1) of the ITAR;
(o)"private corporation" has the meaning assigned by subsection 89(1);
(p)"public corporation" has the meaning assigned by subsection 89(1);
(q)"series of transactions or events" has the meaning assigned by subsection 248(10);
(r)"specified financial institution" has the meaning assigned under subsection 248(1);
(s)"stated capital account" has the meaning assigned by section 26 of the CBCA;
(t)"taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(u)"taxable dividend" has the meaning assigned by subsection 89(1).
FACTS
1.XXXXXXXXXX is a taxable Canadian corporation and a public corporation. XXXXXXXXXX formerly had the name of XXXXXXXXXX The reorganization was subject of an advance income tax ruling issued on XXXXXXXXXX 1996, our reference 3-960432 (the "Advance Ruling"). XXXXXXXXXX directly and through subsidiary companies operates in XXXXXXXXXX.
All companies in the XXXXXXXXXX Group are specified financial institutions because of the existence of XXXXXXXXXX within the group.
As a result of the reorganization of XXXXXXXXXX and for financing and security reasons, XXXXXXXXXX has substantial borrowings. One of the major sources of income to XXXXXXXXXX is dividends from its subsidiaries which results in income but non-taxable losses for purposes of the Act.
XXXXXXXXXX has a XXXXXXXXXX year-end. XXXXXXXXXX non-capital losses projected for XXXXXXXXXX are as follows:
XXXXXXXXXX
It is anticipated that XXXXXXXXXX will incur further non-capital losses in XXXXXXXXXX.
2.XXXXXXXXXX is a taxable Canadian corporation and a public corporation and was continued under the CBCA. XXXXXXXXXX and also holds interests directly or indirectly in XXXXXXXXXX, certain subsidiaries principally involved in inter-group financing and in U.S. resident subsidiaries operating XXXXXXXXXX in the U.S. XXXXXXXXXX holds XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX.
The fair market value of the XXXXXXXXXX shares is estimated to be $XXXXXXXXXX. The paid-up capital of XXXXXXXXXX is estimated to have been $XXXXXXXXXX. The adjusted cost base of the XXXXXXXXXX shares to XXXXXXXXXX cannot be determined definitively until XXXXXXXXXX due to the implications arising from the Plan of Arrangement implemented on XXXXXXXXXX. The adjusted cost base of the XXXXXXXXXX shares is currently estimated to be $XXXXXXXXXX.
3.XXXXXXXXXX is a taxable Canadian corporation and a public corporation. XXXXXXXXXX was continued under the CBCA. XXXXXXXXXX holds XXXXXXXXXX% of the issued and outstanding common shares of XXXXXXXXXX.
4.The ACB of the XXXXXXXXXX common shares to XXXXXXXXXX is estimated to be approximately $XXXXXXXXXX and their fair market value is approximately $XXXXXXXXXX. No formal valuation of the XXXXXXXXXX shares has been made.
5.XXXXXXXXXX is a diversified holding company with subsidiaries in XXXXXXXXXX. XXXXXXXXXX holds approximately XXXXXXXXXX% of the common shares of XXXXXXXXXX.
6.XXXXXXXXXX is a taxable Canadian corporation and a public corporation. XXXXXXXXXX is incorporated under the CBCA and at XXXXXXXXXX had XXXXXXXXXX common shares issued and outstanding. XXXXXXXXXX owns XXXXXXXXXX shares representing approximately XXXXXXXXXX% of the voting common shares of XXXXXXXXXX; the remaining XXXXXXXXXX% are widely held and publicly trading primarily on the XXXXXXXXXX Stock Exchange. The shares have an ACB to XXXXXXXXXX of $XXXXXXXXXX and an estimated fair market value of $XXXXXXXXXX. No valuation of the XXXXXXXXXX shares has been done.
7. XXXXXXXXXX
XXXXXXXXXX has a XXXXXXXXXX taxation year-end and it is expected to earn taxable income in XXXXXXXXXX and succeeding taxation years.
8.XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX was incorporated under the CBCA and is a wholly owned subsidiary of XXXXXXXXXX. XXXXXXXXXX has its head office in XXXXXXXXXX. XXXXXXXXXX is a holding company with subsidiaries in XXXXXXXXXX. XXXXXXXXXX indirectly holds XXXXXXXXXX per cent of the shares of XXXXXXXXXX.
The adjusted cost base of the XXXXXXXXXX shares to XXXXXXXXXX is approximately $XXXXXXXXXX and the fair market value of these shares is estimated to be approximately $XXXXXXXXXX. No formal valuation of these shares has been made.
XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
9.XXXXXXXXXX is a taxable Canadian corporation incorporated under the CBCA. XXXXXXXXXX carries on the XXXXXXXXXX in Canada.
XXXXXXXXXX has a XXXXXXXXXX taxation year-end and it is expected to earn taxable income in XXXXXXXXXX and succeeding taxation years.
10.XXXXXXXXXX was a taxable Canadian corporation incorporated under the CBCA. XXXXXXXXXX was a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX was a holding company which held shares of subsidiaries directly or indirectly operating in XXXXXXXXXX.
On XXXXXXXXXX sold its interest in XXXXXXXXXX in an arm's-length disposition. On XXXXXXXXXX were amalgamated. The amalgamated company is called XXXXXXXXXX.
The adjusted cost base of the XXXXXXXXXX shares to XXXXXXXXXX is approximately $XXXXXXXXXX and the fair market value of these shares is estimated to be approximately $XXXXXXXXXX. No formal valuation of these shares has been made.
XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
11.XXXXXXXXXX is a taxable Canadian corporation incorporated under the CBCA. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX directly and indirectly owns the XXXXXXXXXX in Canada.
XXXXXXXXXX has a XXXXXXXXXX taxation year-end and it is expected to earn taxable income in XXXXXXXXXX and succeeding taxation years.
12.XXXXXXXXXX is a taxable Canadian corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a finance company principally for intra-group transactions.
All of the XXXXXXXXXX issued and outstanding common shares of XXXXXXXXXX are held by XXXXXXXXXX, a wholly-owned subsidiary of XXXXXXXXXX.
XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
13.None of Newlossco 1, Newlossco 2, Newlossco 3, Holdco 1 or Wind-upco 1 (corporations described in paragraph 17 below), or Newlossco 4, Newlossco 5, Newlossco 6, Holdco 2 or Wind-upco 2 (corporations described in paragraph 40 below) or Newlossco 7, Newlossco 8, Newlossco 9, Holdco 3 or Wind-upco 3 (corporations described in paragraph 63 below) will receive a dividend on a share other than a share that was not acquired in the ordinary course of the business of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Holdco 1, Holdco 2, Holdco 3, Wind-upco 1, Wind-upco 2 or Wind-upco 3 within the meaning referred to in subsection 112(2.1).
14.None of the shares of any of the corporations referred to herein is or will be subject to a guarantee agreement.
15.None of the shares of any of the corporations referred to herein has been or will be subject to a dividend rental agreement.
16.None of the shares of any of the corporations referred to herein has been or will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).
PROPOSED TRANSACTIONS
17.Based on current projections of taxable income, it is contemplated that the following transactions may be implemented.
XXXXXXXXXX will incorporate new corporations ("Newlossco 1, Newlossco 2, Newlossco 3, Holdco 1 and Wind-upco 1") under the CBCA. Each of Newlossco 1, Newlossco 2, Newlossco 3, Holdco 1 and Wind-upco 1 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 1, Newlossco 2, Newlossco 3, Holdco 1 and Wind-upco 1 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 1, Newlossco 2, Newlossco 3, Holdco 1 and Wind-upco 1 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
18.XXXXXXXXXX will transfer to Holdco 1, at fair market value, all of the shares it holds of XXXXXXXXXX (collectively, the "Shares"). In consideration for the transfer, Holdco 1 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the Shares at the time of the transfer.
The estimated fair market values and adjusted cost bases of the Shares as at XXXXXXXXXX were as follows:
Estimated
Adjusted Fair
Shareholding Cost Base Market Value
$ XXXXXXXXXX
XXXXXXXXXX
19.XXXXXXXXXX will jointly elect with Holdco 1 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Shares. The agreed amount in respect of the property transferred will be the lesser of the fair market value of the property at the time of the disposition and its cost amount at that time.
Holdco 1 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
20.XXXXXXXXXX will transfer to each of Newlossco 1, Newlossco 2 and Newlossco 3, at fair market value, XXXXXXXXXX of its Holdco 1 common shares. In consideration for the transfers, each of Newlossco 1, Newlossco 2 and Newlossco 3 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 1 Note", the "Newlossco 2 Note" and the "Newlossco 3 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 1 Note may be of a greater amount depending on the adjusted cost base of the XXXXXXXXXX shares immediately before the transfer described in paragraph 18 above.
The Newlossco 1 Note, the Newlossco 2 Note and the Newlossco 3 Note will each carry an interest rate of XXXXXXXXXX% per annum and have a term not to exceed XXXXXXXXXX years and certain prepayment options.
21.XXXXXXXXXX will jointly elect with each of Newlossco 1, Newlossco 2 and Newlossco 3 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Shares. The agreed amount in respect of the Shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Shares.
Each of Newlossco 1, Newlossco 2 and Newlossco 3 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
22.In XXXXXXXXXX will transfer to Wind-upco 1, at fair market value, all of the preferred shares that it holds in Newlossco 1, Newlossco 2 and Newlossco 3. As sole consideration Wind-upco 1 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 1, Newlossco 2 and Newlossco 3 at that time.
23.XXXXXXXXXX will jointly elect with Wind-upco 1 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 1, Newlossco 2 and Newlossco 3. The agreed amount in respect of the preferred shares of Newlossco 1, Newlossco 2 and Newlossco 3 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 1 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
24.Each of Newlossco 1, Newlossco 2 and Newlossco 3 will transfer to Wind-upco 1, at fair market value, its shares in Holdco 1. In consideration for the transfers, Wind-upco 1 will assume the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note issued to XXXXXXXXXX and will issue to each of Newlossco 1, Newlossco 2 and Newlossco 3 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco 1 shares transferred by the particular transferee over the amount of the Newlossco 1 Note, Newlossco 2 Note or Newlossco 3 Note, as the case may be.
25.Wind-upco 1 will jointly elect with each of Newlossco 1, Newlossco 2 and Newlossco 3 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco 1 shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 1 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
26.To ensure that no interest expense accumulates in Wind-upco 1, Wind-upco 1 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its three notes receivable.
27.Each of Newlossco 1, Newlossco 2 and Newlossco 3 will select the date on which its taxation year will end. Each of Newlossco 1, Newlossco 2 and Newlossco 3 will file corporate income tax returns for its first taxation year. Each of Newlossco 1, Newlossco 2 and Newlossco 3 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 1 Note, Newlossco 2 Note or Newlossco 3 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
28.XXXXXXXXXX will acquire additional common shares of each of Newlossco 1, Newlossco 2 and Newlossco 3 for cash consideration in the amount of the non-capital losses of each of Newlossco 1, Newlossco 2 and Newlossco 3 at that time (which amount will approximate the interest expense incurred by each of Newlossco 1, Newlossco 2 and Newlossco 3 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 1, Newlossco 2 and Newlossco 3 to pay interest expense which is owing to XXXXXXXXXX.
29.Each of Newlossco 1, Newlossco 2 and Newlossco 3 will redeem its preferred shares held by Wind-upco 1 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 1, Newlossco 2 and Newlossco 3 ("Newlossco 1 Note A", "Newlossco 2 Note A" and "Newlossco 3 Note A").
30.Wind-upco 1 will redeem its preferred shares held by each of Newlossco 1, Newlossco 2 and Newlossco 3 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 1 preferred shares held by each of Newlossco 1, Newlossco 2 and Newlossco 3 ("Wind-upco 1 Note 1", "Wind-upco 1 Note 2" and "Wind-upco 1 Note 3").
31.Subsequent to the redemptions described in paragraph 29 and 30 above, the Newlossco 1 Note A will be set off against the Wind-upco 1 Note 1, the Newlossco 2 Note A will be set off against the Wind-upco 1 Note 2 and the Newlossco 3 Note A will be set off against the Wind-upco 1 Note 3 and all the notes will be cancelled.
32.XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 1 and Newlossco 2 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 1 and Newlossco 2 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 1 and Newlossco 2. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
33.Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 1 and Newlossco 2, XXXXXXXXXX and Newlossco 1 and Newlossco 2 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 1 and Newlossco 2) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
34.XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 3 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 3 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 3. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
35.Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 3, XXXXXXXXXX and Newlossco 3 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 3) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
36.XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 1 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 1 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 18 through 35 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 1.
37.Following the wind-up of Wind-upco 1, XXXXXXXXXX will, under section 210 of the CBCA, cause Holdco 1 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Holdco 1 be wound up will be passed. In addition, a general conveyance of assets, which consists of only the Shares, will be executed between XXXXXXXXXX and Holdco 1.
38.At such time as the cost amount to XXXXXXXXXX of its XXXXXXXXXX Ordinary Shares is determined, XXXXXXXXXX will acquire additional XXXXXXXXXX Ordinary Shares for cash such that the cost amount to XXXXXXXXXX of all of its XXXXXXXXXX Ordinary Shares immediately after such acquisition will be equal to the lesser of:
(i)the cost amount to XXXXXXXXXX of its XXXXXXXXXX Ordinary Shares immediately after the share-for-share exchange on XXXXXXXXXX (the "Exchange") but before the purchase for cancellation described in paragraph 94 of the Advance Ruling, and
(ii)the aggregate cost amount to XXXXXXXXXX of all its property, other than its shares of XXXXXXXXXX, immediately before the Exchange less the total amount of all liabilities of XXXXXXXXXX immediately before the Exchange and less the amount, if any, by which the cost amount to XXXXXXXXXX of its shares of XXXXXXXXXX exceeded their fair market value immediately before the Exchange.
XXXXXXXXXX will borrow the funds to acquire the XXXXXXXXXX Ordinary Shares.
XXXXXXXXXX will add to the stated capital account maintained for its Ordinary Shares an amount equal to the amount necessary to increase the paid-up capital of the Ordinary Shares to the paid-up capital of the Ordinary Shares immediately before the Exchange less the paid-up capital of any Ordinary Shares acquired from dissenters.
39.Immediately following the acquisition of the additional XXXXXXXXXX Ordinary Shares by XXXXXXXXXX will pay a dividend on its Ordinary Shares equal to the amount of the cash received from XXXXXXXXXX on the acquisition by XXXXXXXXXX of the additional XXXXXXXXXX Ordinary Shares. The proceeds of the dividend received from XXXXXXXXXX will be utilized to repay the borrowings incurred for the acquisition of the additional XXXXXXXXXX Ordinary Shares.
No additional amount will be included in the contributed surplus of XXXXXXXXXX as a result of the transactions described herein.
40.XXXXXXXXXX will incorporate new corporations ("Newlossco 4, Newlossco 5, Newlossco 6, Holdco 2 and Wind-upco 2") under the CBCA. Each of Newlossco 4, Newlossco 5, Newlossco 6, Holdco 2 and Wind-upco 2 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 4, Newlossco 5, Newlossco 6, Holdco 2 and Wind-upco 2 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 4, Newlossco 5, Newlossco 6, Holdco 2 and Wind-upco 2 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
41.XXXXXXXXXX will transfer to Holdco 2, at fair market value, the Shares. In consideration for the transfer, Holdco 2 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the Shares at the time of the transfer.
The adjusted cost bases of the Shares as at time of the transfer will be as follows:
Adjusted
Shareholding Cost Base
$ XXXXXXXXXX
XXXXXXXXXX
The fair market value of each of the Shares at the time of the transfer will exceed the adjusted cost bases of each of the Shares and is estimated to be no less than their estimated fair market value on XXXXXXXXXX.
42.XXXXXXXXXX will jointly elect with Holdco 2 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Shares. The agreed amount in respect of the property transferred will be the lesser of the fair market value of the property at the time of the disposition and its cost amount at that time.
Holdco 2 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
43.XXXXXXXXXX will transfer to each of Newlossco 4, Newlossco 5 and Newlossco 6, at fair market value, XXXXXXXXXX of its Holdco 2 common shares. In consideration for the transfers, each of Newlossco 4, Newlossco 5 and Newlossco 6 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 4 Note", the "Newlossco 5 Note" and the "Newlossco 6 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 4 Note, the Newlossco 5 Note and the Newlossco 6 Note will each carry an interest rate of XXXXXXXXXX% per annum and have a term not to exceed XXXXXXXXXX years and certain prepayment options.
44.XXXXXXXXXX will jointly elect with each of Newlossco 4, Newlossco 5 and Newlossco 6 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Shares. The agreed amount in respect of the Shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Shares.
Each of Newlossco 4, Newlossco 5 and Newlossco 6 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
45.In XXXXXXXXXX will transfer to Wind-upco 2, at fair market value, all of the preferred shares that it holds in Newlossco 4, Newlossco 5 and Newlossco 6. As sole consideration Wind-upco 2 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 4, Newlossco 5 and Newlossco 6 at that time.
46.XXXXXXXXXX will jointly elect with Wind-upco 2 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 4, Newlossco 5 and Newlossco 6. The agreed amount in respect of the preferred shares of Newlossco 4, Newlossco 5 and Newlossco 6 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 2 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
47.Each of Newlossco 4, Newlossco 5 and Newlossco 6 will transfer to Wind-upco 2, at fair market value, its shares in Holdco 2. In consideration for the transfers, Wind-upco 2 will assume the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note issued to XXXXXXXXXX and will issue to each of Newlossco 4, Newlossco 5 and Newlossco 6 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco 2 shares transferred by the particular transferee over the amount of the Newlossco 4 Note, Newlossco 5 Note or Newlossco 6 Note, as the case may be.
48.Wind-upco 2 will jointly elect with each of Newlossco 4, Newlossco 5 and Newlossco 6 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco 2 shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 2 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
49.To ensure that no interest expense accumulates in Wind-upco 2, Wind-upco 2 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its three notes receivable.
50.Each of Newlossco 4, Newlossco 5 and Newlossco 6 will select the date on which its taxation year will end. Each of Newlossco 4, Newlossco 5 and Newlossco 6 will file corporate income tax returns for its first taxation year. Each of Newlossco 4, Newlossco 5 and Newlossco 6 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 4 Note, Newlossco 5 Note or Newlossco 6 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
51.XXXXXXXXXX will acquire additional common shares of each of Newlossco 4, Newlossco 5 and Newlossco 6 for cash consideration in the amount of the non-capital losses of each of Newlossco 4, Newlossco 5 and Newlossco 6 at that time (which amount will approximate the interest expense incurred by each of Newlossco 4, Newlossco 5 and Newlossco 6 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 4, Newlossco 5 and Newlossco 6 to pay interest expense which is owing to XXXXXXXXXX.
52.Each of Newlossco 4, Newlossco 5 and Newlossco 6 will redeem its preferred shares held by Wind-upco 2 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 4, Newlossco 5 and Newlossco 6 ("Newlossco 4 Note A", "Newlossco 5 Note A" and "Newlossco 6 Note A").
53.Wind-upco 2 will redeem its preferred shares held by each of Newlossco 4, Newlossco 5 and Newlossco 6 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 2 preferred shares held by each of Newlossco 4, Newlossco 5 and Newlossco 6 ("Wind-upco 2 Note 1", "Wind-upco 2 Note 2" and "Wind-upco 2 Note 3").
54.Subsequent to the redemptions described in paragraph 52 and 53 above, the Newlossco 4 Note A will be set off against the Wind-upco 2 Note 1, the Newlossco 5 Note A will be set off against the Wind-upco 2 Note 2 and the Newlossco 6 Note A will be set off against the Wind-upco 2 Note 3 and all the notes will be cancelled.
55.New XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 4 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 4 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 4. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
56.Following the acquisition by New XXXXXXXXXX of all the issued and outstanding shares of Newlossco 4, New XXXXXXXXXX and Newlossco 4 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX 2") in such manner that:
(a) all of the property (except the shares of Newlossco 4) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX 2 by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX 2 by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of New XXXXXXXXXX) will be cancelled on the merger. The shares of New XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX 2 to those shareholders immediately after the merger.
57.New XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 5 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 5 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 5. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
58.Following the acquisition by New XXXXXXXXXX of all the issued and outstanding shares of Newlossco 5, New XXXXXXXXXX and Newlossco 5 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX 2") in such manner that:
(a) all of the property (except the shares of Newlossco 5) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX 2 by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX 2 by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of New XXXXXXXXXX) will be cancelled on the merger. The shares of New XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX 2 to those shareholders immediately after the merger.
59.XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 6 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 6 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 6. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
60.Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 6, XXXXXXXXXX and Newlossco 6 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 6) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
61.XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 2 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 2 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 41 through 60 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 2.
62.Following the wind-up of Wind-upco 2, XXXXXXXXXX will, under section 210 of the CBCA, cause Holdco 2 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Holdco 2 be wound up will be passed. In addition, a general conveyance of assets, which consists of only the Shares, will be executed between XXXXXXXXXX and Holdco 2.
63.XXXXXXXXXX will incorporate new corporations ("Newlossco 7, Newlossco 8, Newlossco 9, Holdco 3 and Wind-upco 3") under the CBCA. Each of Newlossco 7, Newlossco 8, Newlossco 9, Holdco 3 and Wind-upco 3 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 7, Newlossco 8, Newlossco 9, Holdco 3 and Wind-upco 3 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 7, Newlossco 8, Newlossco 9, Holdco 3 and Wind-upco 3 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
64.XXXXXXXXXX will transfer to Holdco 3, at fair market value, the Shares. In consideration for the transfer, Holdco 3 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the Shares at the time of the transfer.
The adjusted cost bases of the Shares as at time of the transfer will be as follows:
Adjusted
Shareholding Cost Base
$ XXXXXXXXXX
XXXXXXXXXX
The fair market value of each of the Shares at the time of the transfer will exceed the adjusted cost bases of each of the Shares and is estimated to be no less than their estimated fair market value on XXXXXXXXXX.
65.XXXXXXXXXX will jointly elect with Holdco 3 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Shares. The agreed amount in respect of the property transferred will be the lesser of the fair market value of the property at the time of the disposition and its cost amount at that time.
Holdco 3 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
66.XXXXXXXXXX will transfer to each of Newlossco 7, Newlossco 8 and Newlossco 9, at fair market value, XXXXXXXXXX of its Holdco 3 common shares. In consideration for the transfers, each of Newlossco 7, Newlossco 8 and Newlossco 9 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 7 Note", the "Newlossco 8 Note" and the "Newlossco 9 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 7 Note, the Newlossco 8 Note and the Newlossco 9 Note will each carry an interest rate of XXXXXXXXXX% per annum and have a term not to exceed XXXXXXXXXX years and certain prepayment options.
67.XXXXXXXXXX will jointly elect with each of Newlossco 7, Newlossco 8 and Newlossco 9 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Shares. The agreed amount in respect of the Shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Shares.
Each of Newlossco 7, Newlossco 8 and Newlossco 9 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
68.Prior to the end of the first taxation year, in XXXXXXXXXX, of Newlossco 7, Newlossco 8 and Newlossco 9, XXXXXXXXXX will transfer to Wind-upco 3, at fair market value, all of the preferred shares that it holds in Newlossco 7, Newlossco 8 and Newlossco 9. As sole consideration Wind-upco 3 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 7, Newlossco 8 and Newlossco 9 at that time.
69.XXXXXXXXXX will jointly elect with Wind-upco 3 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 7, Newlossco 8 and Newlossco 9. The agreed amount in respect of the preferred shares of Newlossco 7, Newlossco 8 and Newlossco 9 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 3 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
70.Each of Newlossco 7, Newlossco 8 and Newlossco 9 will transfer to Wind-upco 3, at fair market value, its shares in Holdco 3. In consideration for the transfers, Wind-upco 3 will assume the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note issued to XXXXXXXXXX and will issue to each of Newlossco 7, Newlossco 8 and Newlossco 9 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco 3 shares transferred by the particular transferee over the amount of the Newlossco 7 Note, Newlossco 8 Note or Newlossco 9 Note, as the case may be.
71.Wind-upco 3 will jointly elect with each of Newlossco 7, Newlossco 8 and Newlossco 9 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco 3 shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 3 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amount of the properties transferred.
72.To ensure that no interest expense accumulates in Wind-upco 3, Wind-upco 3 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its three notes receivable.
73.Each of Newlossco 7, Newlossco 8 and Newlossco 9 will select the date on which its taxation year will end. Each of Newlossco 7, Newlossco 8 and Newlossco 9 will file corporate income tax returns for its first taxation year. Each of Newlossco 7, Newlossco 8 and Newlossco 9 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 7 Note, Newlossco 8 Note or Newlossco 9 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
74.XXXXXXXXXX will acquire additional common shares of each of Newlossco 7, Newlossco 8 and Newlossco 9 for cash consideration in the amount of the non-capital losses of each of Newlossco 7, Newlossco 8 and Newlossco 9 at that time (which amount will approximate the interest expense incurred by each of Newlossco 7, Newlossco 8 and Newlossco 9 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 7, Newlossco 8 and Newlossco 9 to pay interest expense which is owing to XXXXXXXXXX.
75.Each of Newlossco 7, Newlossco 8 and Newlossco 9 will redeem its preferred shares held by Wind-upco 3 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 7, Newlossco 8 and Newlossco 9 ("Newlossco 7 Note A", "Newlossco 8 Note A" and "Newlossco 9 Note A").
76.Wind-upco 3 will redeem its preferred shares held by each of Newlossco 7, Newlossco 8 and Newlossco 9 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 3 preferred shares held by each of Newlossco 7, Newlossco 8 and Newlossco 9 ("Wind-upco 3 Note 1", "Wind-upco 3 Note 2" and "Wind-upco 3 Note 3").
77.Subsequent to the redemptions described in paragraph 75 and 76 above, the Newlossco 7 Note A will be set off against the Wind-upco 3 Note 1, the Newlossco 8 Note A will be set off against the Wind-upco 3 Note 2 and the Newlossco 9 Note A will be set off against the Wind-upco 3 Note 3 and all the notes will be cancelled.
78.New XXXXXXXXXX 2 will acquire the XXXXXXXXXX% share interest in Newlossco 7 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 7 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 7. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
79.Following the acquisition by New XXXXXXXXXX 2 of all the issued and outstanding shares of Newlossco 7, New XXXXXXXXXX 2 and Newlossco 7 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX 3") in such manner that:
(a) all of the property (except the shares of Newlossco 7) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX 3 by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX 3 by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of New XXXXXXXXXX 2) will be cancelled on the merger. The shares of New XXXXXXXXXX 2 owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX 3 to those shareholders immediately after the merger.
80.New XXXXXXXXXX 2 will acquire the XXXXXXXXXX% share interest in Newlossco 8 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 8 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 8. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
81.Following the acquisition by New XXXXXXXXXX 2 of all the issued and outstanding shares of Newlossco 8, New XXXXXXXXXX 2 and Newlossco 8 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX 3") in such manner that:
(a) all of the property (except the shares of Newlossco 8) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX 3 by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX 3 by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of New XXXXXXXXXX 2) will be cancelled on the merger. The shares of New XXXXXXXXXX 2 owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX 3 to those shareholders immediately after the merger.
82.New XXXXXXXXXX will acquire the XXXXXXXXXX% share interest in Newlossco 9 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 9 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 9. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to paragraph 85(4)(a).
83.Following the acquisition by New XXXXXXXXXX of all the issued and outstanding shares of Newlossco 9, New XXXXXXXXXX and Newlossco 9 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX 2") in such manner that:
(a) all of the property (except the shares of Newlossco 9) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX 2 by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX 2 by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of New XXXXXXXXXX) will be cancelled on the merger. The shares of New XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX 2 to those shareholders immediately after the merger.
84.XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 3 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 3 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 64 through 83 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 3 prior to XXXXXXXXXX.
85.Following the wind-up of Wind-upco 2, XXXXXXXXXX will, under section 210 of the CBCA, cause Holdco 2 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Holdco 2 be wound up will be passed. In addition, a general conveyance of assets, which consists of only the Shares, will be executed between XXXXXXXXXX and Holdco 2.
PURPOSE OF THE PROPOSED TRANSACTIONS
86.The purpose of the proposed transactions is to transfer a portion of XXXXXXXXXX non-capital losses to related corporations within the XXXXXXXXXX Group of companies, for cash. As a result of the reorganization referred to in the Advance Ruling and for financing and security reasons it has been necessary to have certain substantial borrowings at the XXXXXXXXXX level. The major source of income of XXXXXXXXXX is taxable dividends from subsidiaries which are deductible from income of XXXXXXXXXX for the purpose of computing its taxable income, and as a result XXXXXXXXXX will incur non-capital losses even though it has income for accounting purposes.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the overall purposes of the proposed transactions, we confirm the following:
A.Provided that:
(1) each of Newlossco 1, Newlossco 2, and Newlossco 3 holds its proportion of the shares of Holdco 1 for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco 1; and
(2) each of Newlossco 1, Newlossco 2 and Newlossco 3 has a legal obligation to pay interest in respect of the Newlossco 1 Note in the case of Newlossco 1, the Newlossco 2 Note in the case of Newlossco 2 and the Newlossco 3 Note in the case of Newlossco 3;
each of Newlossco 1, Newlossco 2 and Newlossco 3 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 1, Newlossco 2 and Newlossco 3 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
B.Provided that:
(1) each of Newlossco 4, Newlossco 5, and Newlossco 6 holds its proportion of the shares of Holdco 2 for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco 2; and
(2) each of Newlossco 4, Newlossco 5 and Newlossco 6 has a legal obligation to pay interest in respect of the Newlossco 4 Note in the case of Newlossco 4, the Newlossco 5 Note in the case of Newlossco 5 and the Newlossco 6 Note in the case of Newlossco 6;
each of Newlossco 4, Newlossco 5 and Newlossco 6 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 4, Newlossco 5 and Newlossco 6 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
C.Provided that:
(1) each of Newlossco 7, Newlossco 8, and Newlossco 9 holds its proportion of the shares of Holdco 3 for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco 3; and
(2) each of Newlossco 7, Newlossco 8 and Newlossco 9 has a legal obligation to pay interest in respect of the Newlossco 7 Note in the case of Newlossco 7, the Newlossco 8 Note in the case of Newlossco 8 and the Newlossco 9 Note in the case of Newlossco 9;
each of Newlossco 7, Newlossco 8 and Newlossco 9 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 7, Newlossco 8 and Newlossco 9 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
D.The provisions of subsection 85(1) will apply to:
(i) the transfer of the Shares from XXXXXXXXXX to Holdco 1 described in paragraph 18 above;
(ii) the transfers of the Holdco 1 common shares to each of Newlossco 1, Newlossco 2 and Newlossco 3 described in paragraph 20 above;
(iii) the transfer of the preferred shares of each of Newlossco 1, Newlossco 2 and Newlossco 3 held by XXXXXXXXXX to Wind-upco 1 described in paragraph 22 above;
(iv) the transfer of the Holdco 1 common shares held by each of Newlossco 1, Newlossco 2 and Newlossco 3 to Wind-upco 1 described in paragraph 24 above;
(v) the transfer of the Shares from XXXXXXXXXX to Holdco 2 described in paragraph 41 above;
(vi) the transfers of the Holdco 2 common shares to each of Newlossco 4, Newlossco 5 and Newlossco 6 described in paragraph 43 above;
(vii) the transfer of the preferred shares of each of Newlossco 4, Newlossco 5 and Newlossco 6 held by XXXXXXXXXX to Wind-upco 2 described in paragraph 45 above;
(viii)the transfer of the Holdco 2 common shares held by each of Newlossco 4, Newlossco 5 and Newlossco 6 to Wind-upco 2 described in paragraph 47 above;
(ix) the transfer of the Shares from XXXXXXXXXX to Holdco 3 described in paragraph 64 above;
(x) the transfers of the Holdco 3 common shares to each of Newlossco 7, Newlossco 8 and Newlossco 9 described in paragraph 66 above;
(xi) the transfer of the preferred shares of each of Newlossco 7, Newlossco 8 and Newlossco 9 held by XXXXXXXXXX to Wind-upco 3 described in paragraph 68 above;
(xii) the transfer of the Holdco 3 common shares held by each of Newlossco 7, Newlossco 8 and Newlossco 9 to Wind-upco 3 described in paragraph 70 above;
with the result that the amount agreed upon by each transferor and transferee in their joint election in respect of the transferred shares will, in each case, be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to the transferor and the cost thereof to the transferee.
E.On the redemptions by each of Newlossco 1, Newlossco 2 and Newlossco 3 of its preferred shares held by Wind-upco 1 described in paragraph 29 above; by Wind-upco 1 of its preferred shares held by each of Newlossco 1, Newlossco 2 and Newlossco 3 described in paragraph 30 above; by each of Newlossco 4, Newlossco 5 and Newlossco 6 of its preferred shares held by Wind-upco 2 described in paragraph 52 above; by Wind-upco 2 of its preferred shares held by each of Newlossco 4, Newlossco 5 and Newlossco 6 described in paragraph 53 above; by each of Newlossco 7, Newlossco 8 and Newlossco 9 of its preferred shares held by Wind-upco 3 described in paragraph 75 above; by Wind-upco 3 of its preferred shares held by each of Newlossco 7, Newlossco 8 and Newlossco 9 described in paragraph 76 above;
(i) the issuer of the share will be deemed, pursuant to paragraph 84(3)(a), to have paid at that time a dividend equal to the amount, if any, by which the amount paid to redeem the particular share exceeds the paid-up capital of the particular share immediately before the redemption;
(ii) the holder of the share will be deemed, pursuant to paragraph 84(3)(b), to have received at that time a dividend equal to the amount, if any, by which the amount received on the redemption of the particular share exceeds the paid-up capital of the particular share immediately before the redemption;
(iii) to the extent that a dividend described in (ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(iv) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividends pursuant to subsection 112(3);
(v) Part IV.l will not impose any tax liability on Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Wind-upco 1, Wind-upco 2 or Wind-upco 3 as a result of the deemed dividend referred to in (ii) above because such dividend will be a dividend described in paragraph (b) of the definition of "excepted dividend" in section 187.1; and
(vi) Part VI.l will not impose any tax liability on Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Wind-upco 1, Wind-upco 2 or Wind-upco 3 as a result of the deemed dividend referred to in (i) above because such dividend will be a dividend described in paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
F.Upon the amalgamation of XXXXXXXXXX and Newlossco 1 and Newlossco 2 described in paragraph 33 above; XXXXXXXXXX and Newlossco 3 described in paragraph 35 above; New XXXXXXXXXX and Newlossco 4 described in paragraph 56 above; New XXXXXXXXXX and Newlossco 5 described in paragraph 58; XXXXXXXXXX and Newlossco 6 described in paragraph 60 above; New XXXXXXXXXX 2 and Newlossco 7 described in paragraph 79 above; New XXXXXXXXXX 2 and Newlossco 8 described in paragraph 81 above and New XXXXXXXXXX and Newlossco 9 described in paragraph 83 above:
(a) the provisions of subsections 87(1) and 87(1.1) will apply;
(b) the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX, New XXXXXXXXXX 2 and New XXXXXXXXXX 3 to be the same corporation as, and a continuation of, each of Newlossco 1, Newlossco 2 and XXXXXXXXXX, each of Newlossco 4 and New XXXXXXXXXX, and each of Newlossco 7 and New XXXXXXXXXX 2, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 1 and Newlossco 2, Newlossco 4 and Newlossco 7 will be available to be utilized by New XXXXXXXXXX, New XXXXXXXXXX 2 and New XXXXXXXXXX 3, respectively, in its taxation year commencing at the time of the respective amalgamation;
(c)the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX, New XXXXXXXXXX 2 and New XXXXXXXXXX 3 to be the same corporation as, and a continuation of, each of Newlossco 3 and XXXXXXXXXX, each of Newlossco 5 and New XXXXXXXXXX, and each of Newlossco 8 and New XXXXXXXXXX 2, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 3, Newlossco 5 and Newlossco 8 will be available to be utilized by New XXXXXXXXXX, New XXXXXXXXXX 2 and New XXXXXXXXXX 3, respectively, in its taxation year commencing at the time of the respective amalgamation; and
(d)the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX and New XXXXXXXXXX 2 to be the same corporation as, and a continuation of, each of Newlossco 6 and XXXXXXXXXX and each of Newlossco 9 and New XXXXXXXXXX, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 6 and Newlossco 9 will be available to be utilized by New XXXXXXXXXX and New XXXXXXXXXX 2, respectively, in its taxation year commencing at the time of the respective amalgamation.
G.After the winding-up of:
(i)Wind-upco 1 into XXXXXXXXXX described in paragraph 36 above is completed;
(ii)Holdco 1 into XXXXXXXXXX described in paragraph 37 above is completed;
(iii)Wind-upco 2 into XXXXXXXXXX described in paragraph 61 above is completed;
(iv)Holdco 2 into XXXXXXXXXX described in paragraph 62 above is completed;
(v)Wind-upco 3 into XXXXXXXXXX described in paragraph 84 above is completed; and
(vi)Holdco 3 into XXXXXXXXXX described in paragraph 85 above is completed
the provisions of subsection 88(1) will apply to each winding-up such that:
(i) each property of Wind-upco 1, Holdco 1, Wind-upco 2, Holdco 2, Wind-upco 3 and Holdco 3 distributed to XXXXXXXXXX on the particular winding-up will be deemed by paragraph 88(1)(a) to have been disposed of by Wind-upco 1, Holdco 1, Wind-upco 2, Holdco 2, Wind-upco 3 or Holdco 3, as the case may be, for proceeds of disposition determined under that paragraph;
(ii) the shares in the capital stock of each of Wind-upco 1, Holdco 1, Wind-upco 2, Holdco 2, Wind-upco 3 and Holdco 3 held by XXXXXXXXXX immediately before the particular winding-up will be deemed by paragraph 88(1)(b) to have been disposed of by XXXXXXXXXX for proceeds determined under that paragraph; and
(iii) each property of Wind-upco 1, Holdco 1, Wind-upco 2, Holdco 2, Wind-upco 3 and Holdco 3 distributed to XXXXXXXXXX on the particular winding-up will be deemed, by paragraph 88(1)(c) to have been acquired by XXXXXXXXXX for an amount equal to the amount deemed by paragraph 88(1)(a) to be Wind-upco 1's, Holdco 1's, Wind-upco 2's, Holdco 2's, Wind-upco 3's or Holdco 3's, as the case may be, proceeds of disposition of the property and no more.
H.By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to deem any portion of the dividends described in Ruling E above to be proceeds of disposition, provided that there is no:
(i)disposition of any property to a person to whom Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Holdco 1, Holdco 2, Holdco 3, Wind-upco 1, Wind-upco 2 or Wind-upco 3 is not related, or
(ii)significant increase in the interest (whether by means of equity or debt) in any corporation of any person to whom Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Holdco 1, Holdco 2, Holdco 3, Wind-upco 1, Wind-upco 2 or Wind-upco 3 is not related,
which is part of a series of transactions or events that includes the proposed transactions described herein.
I.No forgiven amount will arise as a result of the settlements described in paragraphs 26, 49 and 72, provided that:
(a)the fair market value of the one Wind-upco 1 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note described in paragraph 26 above, and the amount of the increase in the fair market value of other shares of Wind-upco 1 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note;
(b)the fair market value of the one Wind-upco 2 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note described in paragraph 49 above, and the amount of the increase in the fair market value of other shares of Wind-upco 2 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note; and
(c)the fair market value of the one Wind-upco 3 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note described in paragraph 72 above, and the amount of the increase in the fair market value of other shares of Wind-upco 3 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note.
J.The set-off and cancellation of the notes described in paragraphs 31, 54 and 77 above will not give rise to a forgiven amount.
K.Paragraph 12(1)(x) will have no application in respect of the proposed transactions described in paragraphs 32, 34, 55, 57, 59, 78, 80 and 82 above.
L.Subsections 15(1), 56(2), and 246(1) will not apply to the proposed transactions in and of themselves.
M.The provisions of subsection 245(2) will not apply, as a result of 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 reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
OPINIONS
1.In the event that proposed subsections 40(3.3), 40(3.4) and 40(3.5) are enacted in substantially the same form as contained in the Notice of Ways and Motion tabled in the House of Commons by the Minister of Finance on June 20, 1996, it is our opinion that these subsections will apply to deem that XXXXXXXXXX loss from the disposition of the shares of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Newlossco 9 to be nil and as a result of the amalgamation described in paragraphs 33, 35, 56, 58, 60, 79, 81 and 83 above, the denied capital losses will not be available to XXXXXXXXXX or any other person and will not increase the adjusted cost base of any property.
2.In the event that proposed paragraphs 80(2)(g) and (g.1) are enacted in substantially the same form as contained in the Notice of Ways and Means Motion tabled in the House of Commons by the Minister of Finance on June 20, 1996, and provided that:
(a)the increase in the fair market value of all of the shares of Wind-upco 1 held by XXXXXXXXXX, as a consequence of the settlement of the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note by the issuance of 1 preferred share by Wind-upco 1 as described in paragraph 26 above, is equal to the principal amount of the Newlossco 1 Note, Newlossco 2 Note and Newlossco 3 Note;
(b)the increase in the fair market value of all of the shares of Wind-upco 2 held by XXXXXXXXXX, as a consequence of the settlement of the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note by the issuance of 1 preferred share by Wind-upco 2 as described in paragraph 49 above, is equal to the principal amount of the Newlossco 4 Note, Newlossco 5 Note and Newlossco 6 Note; and
(c)the increase in the fair market value of all of the shares of Wind-upco 3 held by XXXXXXXXXX, as a consequence of the settlement of the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note by the issuance of 1 preferred share by Wind-upco 3 as described in paragraph 72 above, is equal to the principal amount of the Newlossco 7 Note, Newlossco 8 Note and Newlossco 9 Note
it is our opinion that no forgiven amount will arise as a result of the settlements described herein.
1.Our favourable rulings should not be construed as confirmation that we have agreed to the adjusted cost base or fair market value of any property.
2.It is our opinion that any amount paid or payable by XXXXXXXXXX in respect of money borrowed from a chartered bank to acquire the common shares of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Newlossco 9 described in paragraphs 28, 51 and 74 above will not deductible in computing the income of XXXXXXXXXX as the borrowed money will not be used for the purpose of earning income from a business or property.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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