30 November 1996 Ruling 9723253 - DISTERSS PREFERRED SHARES

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. Five year period re: DPS is being calculated from the date of the original ruling (XXXXXXXXXX, 1997).

2. Dividend will be paid on the date the DPS are actually issued which will cover the period from XXXXXXXXXX, 1997 to the date the shares are actually issued.

3. Interest charges on the debts will be waived for that same period.

Position:

1. OK
2. OK
3. OK

Reasons:

See 9433013 and 9626433

XXXXXXXXXX							972325
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your correspondence of XXXXXXXXXX wherein you had requested certain modifications to the advance income tax ruling issued to your firm on behalf of XXXXXXXXXX (our file 970917) on XXXXXXXXXX, 1997. Your correspondence is also intended to clarify certain facts relating to the aforementioned ruling.

In accordance with your request, subparagraph 11(d) of the Proposed Transactions is amended to read as follows:

(d) retractable at $XXXXXXXXXX per share plus accrued unpaid dividends less any amounts previously returned to the shareholder as a return of capital (the "Retraction Amount"), upon the occurrence of a Designated Event, as described in paragraph 18, below, or, in any event, on XXXXXXXXXX; and,

Paragraph 14 of the Proposed Transactions is amended to read as follows:

Newco will purchase its proportion (XXXXXXXXXX%) of the Mortgage Loan, as well as the related security, from XXXXXXXXXX. Upon the purchase, XXXXXXXXXX will waive all interest accrued for the period commencing on XXXXXXXXXX and ending on the date of the purchase. The purchase price will be equal to the principal amount of the proportionate amount of the Mortgage Loan then outstanding and will be paid in cash using the proceeds of the daylight loan. It will be agreed between Newco and XXXXXXXXXX that interest will continue to accrue on the Mortgage Loan, however, interest accruing for the initial two months following the date of the purchase of the Mortgage Loan from XXXXXXXXXX will not be payable by XXXXXXXXXX on the Mortgage Loan for as long as Newco holds the Mortgage Loan. Thereafter, Newco may waive, in advance, all or part of its right to receive interest from XXXXXXXXXX with respect to the Mortgage Loan until the occurrence of a Designated Event, as described in paragraph 18 below, or, in any event, until XXXXXXXXXX. If, on XXXXXXXXXX, all dividends have been paid on the Preferred Shares, the initial two months of accrued interest will be cancelled immediately prior to the transfer of the Mortgage Loan from Newco to XXXXXXXXXX.

The purpose for the accrual of the initial two months of interest of interest is to provide XXXXXXXXXX with access to the old security at an amount in excess of the amount of any indebtedness under the Mortgage Loan in the event that XXXXXXXXXX requires the Preferred Shares to be acquired for an amount in excess of the amount of the indebtedness under the Mortgage Loan and to compensate XXXXXXXXXX for expected time delays associated with the retraction of the Preferred Shares pursuant to a Designated Event.

New paragraph 15.1, as follows, is added to the Facts contained in the aforementioned income tax ruling:

15. 1 On the day that the Preferred Shares are issued, Newco will declare and pay a dividend on the Preferred Shares. The amount of the dividend will be calculated as if the Preferred Shares had been issued on XXXXXXXXXX.

Subparagraph 17(i) of the Proposed Transactions described in the aforementioned income tax ruling is amended to read as follows:

XXXXXXXXXX will be required, at the request of XXXXXXXXXX, to purchase all or some of the Newco Preferred Shares from XXXXXXXXXX for a purchase price equal to the Retraction Price of the Preferred Shares. The purchase price will be paid in cash.

To secure the obligation of XXXXXXXXXX to purchase the Preferred Shares from XXXXXXXXXX and to pay the purchase price, Newco will hypothecate and cross collateralize the Mortgage Loan to XXXXXXXXXX as additional security. In the event that such security is called upon, the Mortgage Loan will be transferred to XXXXXXXXXX in satisfaction thereof.

Subparagraph 25(ii) of the income tax ruling is amended as follows:

(ii) XXXXXXXXXX.

The rulings provided are amended as follows:

A. The Preferred Shares, as described in paragraph 11 of the Proposed Transactions, to be issued by Newco to XXXXXXXXXX, and, if applicable, sold to Subsequent Acquirer as described in paragraph 27 of the Proposed Transactions will be:

(i) shares described in subparagraph (e)(iii) of the definition of "term preferred share" in subsection 248(1) of the Act for a period commencing on the date of their issuance and ending not later than XXXXXXXXXX; and

(ii) "exempt shares" pursuant to paragraph (c) of the definition thereof in subsection 112(2.6) of the Act during that same period:

and, accordingly, subsections 112(2.1), (2.2), (2.3) and (2.4) of the Act will not apply to deny XXXXXXXXXX or a Subsequent Acquirer, as the case may be, a deduction under subsections 112(1) or 138(6) of the Act for dividends received or deemed to have been received by it on such Preferred Shares during that same period.

We confirm that these amendments to the Proposed Transactions will not affect the advance income tax rulings initially provided or the amended ruling provided in our correspondence to yourself dated XXXXXXXXXX. Further, the rulings provided are binding upon the Department provided that the proposed transactions are completed on or prior to XXXXXXXXXX.

We trust that this is the information which you require.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch