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:
1. Will subsection 98(5) apply in respect of the dissolution of the XXXXXXXXXX Partnership?
2. Do we have a policy concern regarding the recently completed transactions and the manner in which a bump in the ACB of partnership interests in the XXXXXXXXXX Partnership were attained (i.e. instead of having XXXXXXXXXX buy the shares of the old partner (XXXXXXXXXX) directly, XXXXXXXXXX incorporated newco ("XXXXXXXXXX") to purchase the shares of XXXXXXXXXX and then amalgamated XXXXXXXXXX to form XXXXXXXXXX as the new partner of the XXXXXXXXXX Partnership)?
Position:
1. Yes.
2. No policy concerns.
Reasons:
1. (See Officer's Analysis working papers for additional discussion) The requirements of 98(5) are met in the proposed winding-up of the XXXXXXXXXX Partnership (XXXXXXXXXX) In the past we have always viewed the partners in a partnership to be carrying on the business of the partnership. XXXXXXXXXX Partnership's business included the activities of the XXXXXXXXXX Partnership and one of XXXXXXXXXX Partnership's assets is its interest in the XXXXXXXXXX Partnership. When XXXXXXXXXX receives the assets of the XXXXXXXXXX Partnership, (including the interest in the XXXXXXXXXX Partnership) XXXXXXXXXX will use them in the same business as the XXXXXXXXXX Ptp did before its dissolution. Therefore, the technical requirements of 98(5) appear to have been met.
2. (See Officer's Analysis working papers for additional discussion) They availed themselves of the provisions of proposed 87(11). No apparent mischief in doing it this way.
XXXXXXXXXX 963381
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Rulings
This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above mentioned taxpayer in connection with the proposed transactions described below.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. XXXXXXXXXX was formed by articles of amalgamation dated XXXXXXXXXX, and is a corporation subject to the laws of XXXXXXXXXX. It is a taxable Canadian corporation within the meaning of that term in subsection 89(1) of the Income Tax Act (Canada) (the "Act") and has a XXXXXXXXXX year end. XXXXXXXXXX tax account number is XXXXXXXXXX and it files its income tax returns at the XXXXXXXXXX Tax Services Office.
2. XXXXXXXXXX is an indirect wholly-owned subsidiary of XXXXXXXXXX.
3. XXXXXXXXXX is a corporation subject to the laws of Canada and was formed on the amalgamation on XXXXXXXXXX. XXXXXXXXXX is a taxable Canadian corporation within the meaning of that term in subsection 89(1) of the Act. Its tax account number is not yet available and it will file its income tax returns at the XXXXXXXXXX Tax Services Office. XXXXXXXXXX had a year end on XXXXXXXXXX as a consequence of the amalgamation.
4. All of the issued shares of XXXXXXXXXX are owned by XXXXXXXXXX. The only significant asset of XXXXXXXXXX is a partnership interest in the XXXXXXXXXX Partnership described below in paragraph 8.
5. XXXXXXXXXX was a corporation incorporated under the laws of Canada in XXXXXXXXXX, which at the time was a subsidiary of XXXXXXXXXX, a company incorporated in XXXXXXXXXX. As a consequence, XXXXXXXXXX amalgamated with a XXXXXXXXXX subsidiary in Canada to form XXXXXXXXXX, directly or indirectly owns all of the shares of XXXXXXXXXX.
6. XXXXXXXXXX was incorporated on XXXXXXXXXX, under the laws of Canada. All of the issued shares of XXXXXXXXXX were owned by XXXXXXXXXX. It was incorporated as the acquisition vehicle to acquire the shares of XXXXXXXXXX (as described below in paragraph 10).
7. XXXXXXXXXX.
8. The current partners of the XXXXXXXXXX Partnership are XXXXXXXXXX. The XXXXXXXXXX Partnership has a XXXXXXXXXX year end.
9. From the time of its formation until XXXXXXXXXX, the assets of the XXXXXXXXXX Partnership generally consisted of:
- inventory, accounts receivable and intangible assets XXXXXXXXXX and
- the right to acquire any interest that XXXXXXXXXX may acquire in a proposed joint venture with XXXXXXXXXX or one of its affiliates. (Such proposed joint venture is referred to herein as the "XXXXXXXXXX" and is further described immediately below.)
XXXXXXXXXX
XXXXXXXXXX
10. XXXXXXXXXX
XXXXXXXXXX
11. As a result of the transactions undertaken on XXXXXXXXXX, the assets of the XXXXXXXXXX Partnership changed in the following respects:
XXXXXXXXXX
12. On XXXXXXXXXX amalgamated to form XXXXXXXXXX. It is proposed that a designation be made in respect of this amalgamation pursuant to proposed subsection 87(11) of the Act (as tabled in the House of Commons by the Minister of Finance in June, 1996). Pursuant to draft paragraph 87(11)(b) of Act, this amalgamation will allow for a "bump" in XXXXXXXXXX adjusted cost base of the partnership interest acquired in the XXXXXXXXXX Partnership, upon the amalgamation of XXXXXXXXXX. It is estimated that the amount of this bump will be $XXXXXXXXXX.
In addition, the partnership agreement governing the XXXXXXXXXX Partnership was amended to the extent necessary to reflect the fact that XXXXXXXXXX was no longer involved in the partnership and that the partners were related corporations.
13. To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling are being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and none of the issues are under appeal or objection.
PROPOSED TRANSACTIONS
14. The partners of the XXXXXXXXXX Partnership will make capital contributions to the partnership on a pro rata basis in the aggregate amount of approximately $XXXXXXXXXX. These funds will be used by the partnership to repay the XXXXXXXXXX Loan.
15. XXXXXXXXXX will enter into an agreement with XXXXXXXXXX to dissolve and XXXXXXXXXX will agree to transfer all of its property to XXXXXXXXXX and XXXXXXXXXX will agree to assume all of XXXXXXXXXX liabilities. Pursuant to this agreement, XXXXXXXXXX will dissolve and as part of the dissolution XXXXXXXXXX will transfer its interest in the XXXXXXXXXX Partnership to XXXXXXXXXX. At the time of that transfer, the XXXXXXXXXX Partnership will be dissolved by operation of law. Upon the dissolution of the XXXXXXXXXX Partnership, XXXXXXXXXX will own any properties, and will have assumed any liabilities, that were properties or liabilities of the XXXXXXXXXX Partnership immediately prior to the time of dissolution. XXXXXXXXXX will immediately use these properties to carry on alone the same business and activity as that carried on by the XXXXXXXXXX Partnership before it dissolved.
PURPOSE OF THE PROPOSED TRANSACTIONS
16. XXXXXXXXXX would like to simplify its corporate structure and carry on directly the business presently operated by the XXXXXXXXXX Partnership.
17. The transaction has been structured to satisfy the conditions of subsection 98(5) by winding-up XXXXXXXXXX into XXXXXXXXXX.
RULINGS
18. Provided the above statements of fact and proposed transactions are accurate and constitute complete disclosure of all of the relevant facts and proposed transactions, and assuming the proposed transactions are carried out as described above, we confirm the following:
The provisions of subsection 98(5) of the Act will apply in respect of the dissolution of the XXXXXXXXXX Partnership, as described above in paragraph 15.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and is binding provided the proposed transactions are completed by XXXXXXXXXX. The ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, we are not commenting on the income tax results of the completed transactions described above in the Facts of this letter.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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