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.
XXXXXXXXXX 3-980008
T. Harris
Attention: XXXXXXXXXX
January 14, 1998
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
As requested, we are writing further to our telephone conversation of January 7, 1998, regarding your request for an advance income tax ruling on behalf of the above-noted taxpayers. At issue is whether the proposed transfer by XXXXXXXXXX to the Transferee in contemplation of the proposed butterfly distribution will qualify as a “permitted exchange” within the meaning of subsection 55(1) of the Income Tax Act (the “Act”).
As discussed during our telephone conversation, we do not believe that XXXXXXXXXX proposed transfer of XXXXXXXXXX shares to the Transferee will constitute a permitted exchange for the purposes of section 55 of the Act since the conditions set out in either of subparagraphs (b)(ii) or (iii) of the definition of “permitted exchange” will not be met in respect of this transfer. With respect to subparagraph (b)(ii) of the definition, you have acknowledged in your letter of December 18, 1997 that this condition will not be met since XXXXXXXXXX will not be transferring all of her shares of XXXXXXXXXX to the Transferee. In addition, to satisfy the condition in subparagraph (b)(iii) of the definition, it is necessary for the fair market value of the shares of the Transferee acquired by each “participant” (XXXXXXXXXX ) to comply with the formula set out in that subparagraph. As noted in the Explanatory Notes to Bill C-59 which were issued by the Department of Finance in November 1994, “where not all of the shares of the distributing corporation owned by a participant immediately before the exchange are transferred to the acquiror on the exchange, all of the shareholders of the distributing corporation (other than shareholders holding only shares of a specified class) must participate in the exchange on a rata basis.”
We trust that this is the information that you require. We look forward to hearing from you once you have had an opportunity to consider our views on this matter.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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.../cont'd
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