1998 Ruling 9800323 - DIVIDEND

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
XXXXXXXXXX 980032
XXXXXXXXXX

Attention: XXXXXXXXXX

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

Further to our conversation of XXXXXXXXXX, the following amendments will be made to the advance income tax ruling issued on XXXXXXXXXX, 1997 ( our reference 972663)(the "Ruling"):

1. Paragraph 22 of the Ruling will be amended by deleting the words "on or after XXXXXXXXXX, and by inserting the words "up to" before $XXXXXXXXXX.

2. Paragraph 23 of the Ruling will be amended by deleting the words "of $XXXXXXXXXX, representing the" and replacing them with "in an amount equal to the".

3. The fourth sentence of paragraph 24 will be deleted and will be replaced by the following:

"XXXXXXXXXX will invest an amount equal to the total dividends it receives of up to $XXXXXXXXXX (aggregate of the dividend received from XXXXXXXXXX under paragraph 22 above and the dividend received from XXXXXXXXXX under paragraph 23 above) by subscribing for Newco common shares."

4. Paragraph 25 of the Ruling will be amended by inserting the words "up to" before $XXXXXXXXXX. The following sentence will be added to Paragraph 25: "Pursuant to subsection 26(5) of the CBCA, the holders of common shares of XXXXXXXXXX will adopt a special resolution approving an increase in the stated capital account maintained for the issued and outstanding common shares of XXXXXXXXXX equal to the capital contribution made by Newco. XXXXXXXXXX will not issue any common shares to Newco as consideration for the capital contribution."

5 The second sentence in paragraph 26 will be deleted.

6. Paragraph 27 will be deleted and will be replaced by the following two paragraphs:

"27. Subsequent to paragraph 25 above and pursuant to subsection 38(1) of the CBCA, the holders of common shares of XXXXXXXXXX will adopt a special resolution to reduce the stated capital of the issued and outstanding common shares of XXXXXXXXXX to the amount of stated capital that existed immediately prior to the commencement of the proposed transactions (being $XXXXXXXXXX). No amount will be paid to the holders of the common shares of XXXXXXXXXX in connection with the reduction of the paid-up capital. Furthermore, no common shares of XXXXXXXXXX will be canceled as a result of this transaction. For accounting purposes, XXXXXXXXXX will record the reduction in stated capital as an increase in its retained earnings. It is our understanding that this is in accordance with generally accepted accounting principles. "

"28. Pursuant to section 210 of the CBCA, XXXXXXXXXX will cause Newco to be wound-up."

7. The last paragraph of paragraph 30 of the Ruling will be amended by deleting the words "$XXXXXXXXXX of".

8. The Ruling is amended by adding thereto, immediately after ruling "D", the following ruling:

"D.1 The reduction of the paid-up capital of the common shares of XXXXXXXXXX as described in paragraph 27 above, will not result in a disposition, within the meaning of the definition of disposition in section 54, of those shares."

9. The Ruling is amended by adding thereto, immediately after ruling "D.1", the following ruling:

"D.2 Provided that XXXXXXXXXX receive no amount from XXXXXXXXXX as a result of the reduction of the paid-up capital of the common shares of XXXXXXXXXX, as described in paragraph 27 above, no amount will be deducted, pursuant to the provisions of subparagraph 53(2)(a)(ii), when calculating the adjusted cost base of the common shares of XXXXXXXXXX held by XXXXXXXXXX as a result of the reduction of the paid-up capital. The paid-up capital of the common shares of XXXXXXXXXX will be reduced by the amount of the stated capital reduction."

We advise that, subject to the other conditions stated in the Ruling, we confirm that the rulings given in the advance income tax ruling dated December 12, 1997 together with those given herein will be binding on the Department provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

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

??

- 3 -

.../cont'd

.../cont'd