30 November 1995 Ruling 9637623 - AMALGAMATION OF DISTRIBUTING CORP

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: application of 55(3.1)(d)

Position: yes, but

Reasons: corporations related with each before amalgation

XXXXXXXXXX						3-963762
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings on behalf of the above-noted taxpayers. We also acknowledge your letter of XXXXXXXXXX and our telephone conversations in connection herewith.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by a district office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.

Definitions

In this letter unless otherwise expressly stated:

(a)"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1 as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b)XXXXXXXXXX;

(c)"Canadian-controlled private corporation" has the meaning assigned by subsection 125(7);

(d)"capital property" has the meaning assigned by section 54;

(e)"cost amount" has the meaning assigned by subsection 248(1);

(f)"distribution" has the meaning assigned by subsection 55(1);

(g)"paid-up capital" has the meaning assigned by subsection 89(1); and

(h)"taxable Canadian corporation" has the meaning assigned by subsection 89(1).

Our understanding of the facts and of the proposed transactions is as follows:

FACTS

1.XXXXXXXXXX is a corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a Canadian-controlled private corporation and a taxable Canadian corporation.

2.The issued and outstanding shares of XXXXXXXXXX are held as follows:

Number of Class of
Shareholders Shares Shares

XXXXXXXXXX

The Class XXXXXXXXXX preferred shares have a redemption amount and paid-up capital of $XXXXXXXXXX per share.

The shares of XXXXXXXXXX are capital property to each of its shareholders. All the shareholders of XXXXXXXXXX are residents of Canada for purposes of the Act.

3.A proportion of the properties of XXXXXXXXXX was distributed to a shareholder in XXXXXXXXXX as part of the proposed transactions ruled on by the Department in our letter of XXXXXXXXXX, 1995, our file No. 3-963174 (the "Initial Ruling").

XXXXXXXXXX carries on the XXXXXXXXXX business remaining after the distribution of its properties described in the Initial Ruling.

4.XXXXXXXXXX is a corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a Canadian-controlled private corporation and a taxable Canadian corporation.

The issued and outstanding shares of XXXXXXXXXX are held as follows:

Number of Class of
Shareholders Shares Shares

XXXXXXXXXX

5.XXXXXXXXXX is a corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a Canadian-controlled private corporation and a taxable Canadian corporation.

The issued and outstanding shares of XXXXXXXXXX are held as follows:

Number of Class of
Shareholders Shares Shares

XXXXXXXXXX

6.The shares of XXXXXXXXXX are capital property to each of its shareholders. All the shareholders of XXXXXXXXXX are residents of Canada for purposes of the Act.

XXXXXXXXXX are related persons and will file their income tax returns as associated corporations for purposes of the Act.

XXXXXXXXXX and all are residents of Canada for the purpose of the Act.

PROPOSED TRANSACTIONS

7.XXXXXXXXXX (referred to in this paragraph as "predecessor corporations") will amalgamate under the provisions of the XXXXXXXXXX, to form a new corporation ("XXXXXXXXXX II") with the following results:

(a)all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of XXXXXXXXXX II by virtue of the merger;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of XXXXXXXXXX II by virtue of the merger; and

(c) all the shareholders (except any predecessor corporation) of the predecessor corporations before the merger will receive capital stock of XXXXXXXXXX II by virtue of the merger in the following manner:

(i)each shareholder of the predecessor corporations who holds preferred shares will receive preferred shares of the capital stock of XXXXXXXXXX II, having a redemption price equal to the redemption price of the shares of the respective predecessor corporation, immediately before the merger, with the same rights and attributes of the shares of the respective predecessor corporation; and

(ii)each shareholder of XXXXXXXXXX who holds Class XXXXXXXXXX common shares will receive common shares of the capital stock of XXXXXXXXXX II.

The stated capital of the shares of XXXXXXXXXX II, immediately after the issue of such shares on the amalgamation, will not exceed the aggregate of the paid-up capital of the shares of the predecessor corporations immediately before the merger (excluding the paid-up capital in respect of shares held by any other predecessor corporation).

8.XXXXXXXXXX will file articles of amendment pursuant to the XXXXXXXXXX to create a class of preferred shares that are non-voting, redeemable and retractable for an amount equal to the fair market value of the consideration received on their issuance, having a right to non-cumulative dividends at a rate not to exceed XXXXXXXXXX% per annum on the amount for which the shares are issued, with a par value of $XXXXXXXXXX per share and which will be subject to a price adjustment clause with respect to their redemption and retraction amount (the "Class XXXXXXXXXX preferred shares").

9.XXXXXXXXXX will redeem and cancel its Class XXXXXXXXXX preferred shares and Class XXXXXXXXXX preferred shares held by XXXXXXXXXX which will result in a deemed dividend that XXXXXXXXXX will elect, pursuant to subsection 83(2), to have been paid from its capital dividend account.

XXXXXXXXXX will issue to XXXXXXXXXX as consideration for the redemption of its Class XXXXXXXXXX preferred shares and Class XXXXXXXXXX preferred shares a non-interest-bearing demand promissory note having a principal amount equal to the redemption amount of the preferred shares redeemed.

10.Each of XXXXXXXXXX will exchange all of the XXXXXXXXXX Class XXXXXXXXXX common shares held by them for Class XXXXXXXXXX preferred shares of XXXXXXXXXX with a fair market value equal to the fair market value of the Class XXXXXXXXXX common shares immediately before the exchange pursuant to the provisions of subsection 51(1).

XXXXXXXXXX will add to the stated capital account maintained for its Class XXXXXXXXXX preferred shares an amount equal to the aggregate of the paid-up capital of the Class XXXXXXXXXX preferred shares and Class XXXXXXXXXX preferred shares exchanged.

11.XXXXXXXXXX will be settled under the laws of the province of XXXXXXXXXX, upon the following terms and conditions:

XXXXXXXXXX

12.Following the exchange described in paragraph 10 above, each of XXXXXXXXXX (a corporation with XXXXXXXXXX as its sole shareholder), XXXXXXXXXX will subscribe for Class XXXXXXXXXX common shares of XXXXXXXXXX in the following manner:

Number of shares Amount paid for
Shareholder subscribed shares

XXXXXXXXXX

PURPOSES OF THE PROPOSED TRANSACTIONS

13.The purposes of the proposed transactions are to:

(a)allow for the combination of the businesses carried on by XXXXXXXXXX following the transactions in the Initial Ruling; and

(b)to carry out a freeze of the value of the Class XXXXXXXXXX common shares held by each XXXXXXXXXX and to allow for participation by the children of XXXXXXXXXX in the future growth of XXXXXXXXXX

RULING

Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the proposed transactions described herein, in and by themselves, will not affect ruling B in the Initial Ruling and such ruling will continue to be binding in the manner indicated in the Initial Ruling.

This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and is binding provided that the proposed transactions are completed before XXXXXXXXXX.

This ruling is based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.

COMMENTS

Nothing in this letter should be construed as implying that the Department has agreed to or accepted any tax consequences arising from the facts or proposed transactions described above other than those expressly confirmed in the ruling given.

Yours truly,

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