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.Whether amendments to trust indenture result in new debt?
2.Even if not a new debt, does the fact that, as a result of the method chosen by the taxpayer to follow through on its voluntary offer to redeem the debentures, the taxpayer becomes obligated to redeem the debentures within 5 years from date of the debenture's original issue, cause a loss of the exemption from withholding tax under Part XIII with respect to payments of accrued interest at time of the redemption?
Position:
1.No. The debenture is disposed of when the redemption occurs and the cash is paid out.
2.No. Exemption still considered to apply to payments of accrued interest on date of redemption.
Reasons:
1.Not a new debt under civil code. It is not considered that the changes go "to the very root of the contract", there is merely a modification.
2.The impetus for the amendements to the trust indenture comes from the taxpayer and the takeover principals, not from the non-resident debentureholders. After a complete review of the facts and pertinent documentation, we have concluded that the negotiations leading to the subject amendments merely represent the method chosen by the issuer of the debt to eliminate the position of the debentureholders so that the contemplated amalgamation may run smoothly.
XXXXXXXXXX 970220
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: XXXXXXXXXX
We are writing in response to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above noted taxpayer. We also acknowledge your letters of XXXXXXXXXX and our several telephone conversations.
To the best of your knowledge and that of XXXXXXXXXX none of the issues involved in the requested ruling is being considered by a tax services office or a taxation centre in connection with a tax return and none of the issues involved in the requested rulings in respect of that particular applicant is under appeal or objection.
However, XXXXXXXXXX has had discussions with the XXXXXXXXXX Tax Services office with the view of seeking an opinion with respect to issues which are the subject of this letter. No opinion was provided by the XXXXXXXXXX TSO.
Except as otherwise noted, all statutory references in this ruling application are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th Supplement) C.1, as amended (the "Act").
Definitions
In this letter, unless otherwise expressly stated or the context otherwise requires:
"Act": means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), as amended.
"affiliate": has the meaning ascribed thereto in the XXXXXXXXXX or the CBCA, as the circumstances may require.
"Amalgamation": means the amalgamation of the XXXXXXXXXX under the CBCA in view of proceeding with the compulsory acquisition of the XXXXXXXXXX Shares under subsection 206(2) of the CBCA.
"associate": has the meaning ascribed thereto in the XXXXXXXXXX or the CBCA, as the circumstances may require.
"CBCA": means the Canada Business Corporations Act (R.S.C. 1985, c. C-44).
XXXXXXXXXX
"XXXXXXXXXX Shares": means the Multiple Voting Shares and the Subordinate Voting Shares of the share capital of XXXXXXXXXX issued and outstanding.
"Debentures": means the XXXXXXXXXX% Convertible Unsecured Subordinated Debentures of XXXXXXXXXX.
"Debentureholder": means a holder of Debentures.
XXXXXXXXXX
XXXXXXXXXX
"Offer": means the offer made to purchase all of the XXXXXXXXXX Shares in the offer dated XXXXXXXXXX, as extended, the terms and conditions of which are set forth in the said offer and the offering circular relating thereto, as described in paragraph 4.
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
"Shareholder": means a holder of XXXXXXXXXX Shares.
"Supplemental Indenture": means the draft indenture supplemental to the Trust Indenture and which will be submitted for approval at a Debenture holders meeting.
XXXXXXXXXX
"Trust Indenture": means the Trust Indenture providing for the issue of up to $XXXXXXXXXX aggregate principal amount of XXXXXXXXXX% Convertible Unsecured Subordinated Debentures due XXXXXXXXXX and entered into between XXXXXXXXXX, as trustee.
XXXXXXXXXX
Facts
1. XXXXXXXXXX
2. XXXXXXXXXX
3. XXXXXXXXXX
4. XXXXXXXXXX
XXXXXXXXXX
5.The Debentures were issued on XXXXXXXXXX and come to maturity on XXXXXXXXXX. The general terms and conditions are the following:
(a) the Debentures bear interest at the rate of XXXXXXXXXX% per annum, payable XXXXXXXXXX of each year;
(b) the Debentures are non secured and are convertible into Subordinate Voting Shares of XXXXXXXXXX at a rate of XXXXXXXXXX
(c) the Debentures are not redeemable prior to XXXXXXXXXX. Thereafter, the Debentures are redeemable prior to maturity, at the option of XXXXXXXXXX, at a price equal to the principal amount thereof, with accrued and unpaid interest on the principal amount of the Debentures so redeemed from, and including the last interest payment date to which interest shall have been paid or made available for payment on the Debentures to, but not including the date fixed for redemption provided that the current market price of the Subordinate Voting Shares at the date on which the notice of redemption for the Debentures is given is not less than a fixed price decreasing over a period of XXXXXXXXXX. The Trust Indenture further authorizes XXXXXXXXXX to pay the redemption price for the Debentures so redeemed in Subordinate Voting Shares on the redemption of these Debentures or at maturity, subject to certain specified conditions.
XXXXXXXXXX
(d) at maturity, the Debentures are redeemable at a redemption price of XXXXXXXXXX% of their principal amount plus any accrued and unpaid interest;
(e) under the terms of the Debentures or any agreement relating thereto, XXXXXXXXXX may not under any circumstances be obliged to pay more than XXXXXXXXXX% of the principal amount of the Debentures within 5 years from their date of issue except in the circumstances permitted by subparagraph 212(1)(b)(vii) of the Act.
6. XXXXXXXXXX
7. XXXXXXXXXX
8. XXXXXXXXXX
9. XXXXXXXXXX
10. XXXXXXXXXX
11. XXXXXXXXXX
12. XXXXXXXXXX
Proposed Transactions
13.XXXXXXXXXX shall sign a Supplemental Indenture giving effect to the proposed amendments to the Debentures and shall redeem all of the outstanding Debentures before filing articles of amendment to give effect to the Amalgamation. Under theAmalgamation, all holders of outstanding Subordinate Voting Shares XXXXXXXXXX will receive for such Subordinate Voting Shares a consideration in the form of preferred shares of the amalgamated corporation. These preferred shares will be redeemed not later than the business day following their issue at a price of $XXXXXXXXXX per share, being the same price in cash as the price offered for such Subordinate Voting Shares under the Offer.
14. XXXXXXXXXX
15. XXXXXXXXXX
16. XXXXXXXXXX
17. XXXXXXXXXX
18. XXXXXXXXXX
Purpose Of The Proposed Transactions
The approval by the Debentureholders XXXXXXXXXX and the subsequent redemption of all the outstanding Debentures will dispose of the uncertainty and of the legal proceedings relating to the claim of certain Debentureholders as to their entitlement to vote on the Amalgamation and will enable XXXXXXXXXX to seek approval of its Shareholders alone before proceeding with the Amalgamation.
XXXXXXXXXX
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we confirm the following:
A.The amendments to the Debentures described in paragraph 14, in and by themselves, will not result in a disposition of property, as this term is defined in section 54 of the Act, for a holder of such Debentures.
B.Provided that the interest paid or credited to a non-resident person in respect of the Debentures, described in paragraph 5 above, qualifies for the exemption from tax payable pursuant to subparagraph 212(1)(b)(vii) of the Act prior to the proposed amendments, it will not cease to be subject to subparagraph 212(1)(b)(vii) of the Act by reason only of the proposed amendments to the terms and conditions of the Debentures, as described in paragraph 14 and for purposes of subsection 214(7) of the Act a Debenture will continue to be an excluded obligation, as that term is defined in subsection 214(8) of the Act.
These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada, Taxation provided that the proposed transactions described herein are completed by XXXXXXXXXX.
Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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