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. Are the proprietary (or membership) rights obtained by policyholders at the time they acquired an insurance policy capital property?
2. If the proprietary rights are capital property, are they also personal-use property?
Position:
1. The proprietary rights will be considered to be capital property which in all probability have an adjusted cost base of nil.
2. The proprietary rights are not personal-use property.
Reasons:
1. Following the Sirois decision.
2. XXXXXXXXXX
XXXXXXXXXX 964157
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your XXXXXXXXXX, ruling request and additional information provided to us in your letter dated XXXXXXXXXX, submitted by you, on behalf of XXXXXXXXXX.
You have advised that to the best of your knowledge, none of the issues involved in the ruling request is being considered by a Tax Services Office or Taxation Centre in connection with a tax return already filed and none of the issues is under objection or appeal.
Our understanding of the facts and proposed transactions is as follows:
FACTS
1. XXXXXXXXXX is a private unlimited company without share capital. It is governed by the provisions of the XXXXXXXXXX.
2. The Canadian Branch does not carry on any business in Canada other than XXXXXXXXXX.
3. XXXXXXXXXX.
4. XXXXXXXXXX is an independent mutual organization owned by its members (the "Members"). A member is defined in the XXXXXXXXXX to be the legal holder of one or more policies of insurance which are described in these Articles. However, someone can only be a Member once even though he/she may own more than one policy of insurance. Any right to membership ("Membership Right") in XXXXXXXXXX lapses upon the policy conferring such right itself lapsing or maturing or being transferred to another insurance company.
XXXXXXXXXX
5. The benefit of a Membership Right in XXXXXXXXXX includes the right to vote at annual general meetings, special meetings, the right to any information for those meetings and other information about XXXXXXXXXX. Membership Rights are not transferable or tradeable separate from the policy conferring the membership. Every Member has one vote regardless of the nature or number of policies issued by XXXXXXXXXX which he or she holds. Membership gives the policyholders the ability to ultimately control the management of XXXXXXXXXX to which they look for discharge of their policy liabilities.
6. As of XXXXXXXXXX, there were about XXXXXXXXXX Members resident in Canada, representing about XXXXXXXXXX% of total membership.
PROPOSED TRANSACTIONS
7. Under the XXXXXXXXXX demutualization scheme, XXXXXXXXXX intends to transfer its world-wide business undertakings and assets to a number of companies that will become wholly-owned subsidiaries of XXXXXXXXXX. XXXXXXXXXX is a company which is to be incorporated under the XXXXXXXXXX. XXXXXXXXXX will issue common shares or pay cash to the Members of XXXXXXXXXX in satisfaction of their Membership Rights in XXXXXXXXXX. It will also make a public issue of common shares. All common shares of XXXXXXXXXX will be listed, and traded, XXXXXXXXXX.
8. Policyholders of XXXXXXXXXX will cease to be Members of XXXXXXXXXX. A policyholder will receive in consideration for his/her Membership Rights common shares in XXXXXXXXXX that can be traded XXXXXXXXXX. Canadian Members will receive shares XXXXXXXXXX.
9. All Canadian Members will receive a fixed amount of consideration for the surrender of their Membership Rights of approximately XXXXXXXXXX.
10. In addition, Canadian Members holding participating policies will receive additional amounts linked to the size of their participating interest (XXXXXXXXXX), subject to a minimum amount as consideration XXXXXXXXXX.
11. It is estimated that XXXXXXXXXX% of the Canadian policyholders will receive XXXXXXXXXX.
12.
XXXXXXXXXX
13. All current insurance policies, both participating and non-participating, and all policy provisions will remain intact and unchanged after the transfer of all or substantially all of the business undertakings and assets XXXXXXXXXX.
14. XXXXXXXXXX will transfer all or substantially all of the business undertakings and assets used in carrying on the XXXXXXXXXX. Consideration for the transfer will XXXXXXXXXX.
15. Each Canadian Member of XXXXXXXXXX will be offered shares, in XXXXXXXXXX, on the terms set out in the XXXXXXXXXX, in recognition of their Membership Rights if they make an express XXXXXXXXXX as indicated in 8 above.
XXXXXXXXXX
If a Member cannot be located, such proceeds will be held in the trust until such time as the Member can be located.
16. XXXXXXXXXX
17. You advised that the Office of the Superintendent of Financial Institutions Canada has approved the transfer XXXXXXXXXX.
18. You advised that each provincial securities commission has provided an exemption from the prospectus requirements of the relevant securities legislation XXXXXXXXXX to Canadian Members.
19. XXXXXXXXXX
20. XXXXXXXXXX
21. You also advised that the participating
XXXXXXXXXX
PURPOSE OF THE PROPOSED TRANSACTIONS
The purpose of the proposed transactions is to demutualize XXXXXXXXXX.
RULINGS GIVEN
Provided that our understanding of the facts and proposed transactions as outlined above is correct and provided that XXXXXXXXXX and any other relevant agreements and documents are substantially the same as the XXXXXXXXXX, agreements and documents in place at the date this advance income tax ruling is issued, we confirm the following:
A. Each Member who disposes of his/her Membership Rights in XXXXXXXXXX, as described in paragraphs 7 and 8 above, will be disposing of a capital property as defined in section 54 of the Act.
B. The cash or the fair market value of shares received by each Member for the disposition of his/her Membership Rights, as described in paragraphs 9 and 10 above, will be included in the proceeds of disposition of their Membership Rights XXXXXXXXXX as defined in section 54 of the Act.
C. Pursuant to subsection 52(1) of the Act an amount equal to the value of the shares received by a Member in consideration for the disposition of his/her Membership Rights, as described in paragraphs 7 to 10 above, which is required to be included in computing the income of the Member, will be added in computing the cost to the Member of such shares except to the extent that the amount was otherwise added to the cost or included in computing the adjusted cost base to the Member of the shares.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada, Taxation and are binding on the Department provided the Proposed Transactions XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account any proposed amendments thereto.
Yours truly,
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
6
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