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.
XXXXXXXXXX.
2. XXXXXXXXXX
Parent has recently incorporated a U.S. holding company (“Holdco”). A Canadian holding company (“CanHoldco”) is to be incorporated. Parent will sell the shares of Holdco to CanHoldco. Parent will elect under subsection 85(1) to roll the common shares of Opco to CanHoldco. CanHoldco in turn will sell the shares of Opco to Holdco for additional shares of Holdco. We were asked to rule that the cost of the additional common shares of Holdco to be acquired by CanHoldco will be equal to the cost of the common shares of Opco to CanHoldco.
Position:
1. XXXXXXXXXX.
2. We ruled that the cost of the additional common shares of Holdco to CanHoldco acquired by CanHoldco will be determined pursuant to paragraph 85.1(3)(b).
Reasons:
1. XXXXXXXXXX .
2. The provisions of subsection 85.1(3) would apply.
XXXXXXXXXX
XXXXXXXXXX 981171
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX (“Parent”)
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX and the subsequent telephone conversations between yourself and XXXXXXXXXX of our Directorate requesting an advance income tax ruling on behalf of the above noted taxpayer.
You have advised that to the best of your knowledge, except as noted below in paragraph 17, none of the issues raised in this letter are being considered by a Tax Services Office and/or Taxation Centre in connection with any tax return already filed by the taxpayer, or any person related to the taxpayer, nor are any of these issues under objection, appeal, or before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not expired.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th suppl.) c.1, as amended from time to time and consolidated to July 10, 1998 (herein referred to as the “Act”).
Unless otherwise expressly stated any references to an amount of money is expressed in United States (“U.S.”) dollars.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is set out as follows:
FACTS
1. Parent is a Canadian resident XXXXXXXXXX company that carries on a XXXXXXXXXX. Parent is a public corporation and a taxable Canadian corporation within the meaning assigned by subsection 89(1). Parent files its income tax returns in the XXXXXXXXXX Tax Centre. Parent otherwise deals with the XXXXXXXXXX Tax Services Office.
2. In XXXXXXXXXX, Parent acquired all of the outstanding shares of XXXXXXXXXX (“Opco”), XXXXXXXXXX. Subsequently, from time to time, Parent has subscribed for additional shares in Opco. Prior to XXXXXXXXXX, Opco conducted a XXXXXXXXXX Opco is resident in the U.S. for income tax purposes.
3. Beginning in XXXXXXXXXX, Parent undertook a strategy to transfer almost all of its U.S. XXXXXXXXXX to Opco in a series of XXXXXXXXXX agreements.
XXXXXXXXXX
The XXXXXXXXXX business now remaining in the U.S. XXXXXXXXXX is primarily comprised of a XXXXXXXXXX. Prior to XXXXXXXXXX, employees of Parent provided all of the services required by Opco under a services agreement and Parent owned essentially all of the real and other property required to provide those services.
4. Parent owns all of the outstanding common shares of Opco. Opco has outstanding XXXXXXXXXX common shares with a stated value of $XXXXXXXXXX each against which Opco has recorded capital contributions from Parent of $XXXXXXXXXX. Opco has retained earnings of $XXXXXXXXXX. The approximate fair market value of the common shares is believed to be in excess of $XXXXXXXXXX. Parent's adjusted cost base of the common shares is $XXXXXXXXXX.
5. Prior to XXXXXXXXXX Parent owned all of the outstanding preferred shares of Opco. Opco had outstanding XXXXXXXXXX redeemable preferred shares with an aggregate stated value and redemption value of $XXXXXXXXXX. Parent's adjusted cost base of the preferred shares was $XXXXXXXXXX. You have advised that all of the outstanding preferred shares of Opco were redeemed on XXXXXXXXXX at their redemption value of XXXXXXXXXX.
6.
XXXXXXXXXX.
7.
XXXXXXXXXX.
8.
XXXXXXXXXX.
9. Parent has recently incorporated a wholly-owned U.S. resident general purpose subsidiary corporation under the laws of XXXXXXXXXX and which is a resident in the U.S. for income tax purposes (“Holdco”). Parent has subscribed for XXXXXXXXXX common shares of Holdco at $XXXXXXXXXX per share.
10. You have advised that the amount of Opco’s exempt surplus, within the meaning assigned by subsection 5907(1) of the Regulations, determined at the time of the proposed sale, as described in paragraph 12 below, by Parent of the common shares of Opco to CanHoldco, defined in paragraph 11 below, will be less than the aggregate of the proceeds of disposition to Parent of the common shares of Opco.
PROPOSED TRANSACTIONS
11. Parent will incorporate a wholly-owned Canadian subsidiary under the XXXXXXXXXX and will subscribe for common shares for nominal consideration (“CanHoldco”). CanHoldco will be a taxable Canadian corporation within the meaning assigned by subsection 89(1).
XXXXXXXXXX.
12. Parent will dispose of all of the common shares of Opco which Parent owns and the shares of Holdco acquired as a result of paragraph 9 above to CanHoldco in exchange for additional common shares of CanHoldco.
XXXXXXXXXX.
13. Immediately thereafter, CanHoldco will dispose of all of the common shares of Opco acquired from Parent to Holdco in exchange for additional common shares of Holdco.
14.
XXXXXXXXXX.
15. Parent and CanHoldco will jointly elect pursuant to subsection 85(1), in prescribed form and within the prescribed time in subsection 85(6), such that the amount agreed on in the election will be equal XXXXXXXXXX on the date of the transaction described in paragraph 12 above.
16. Parent will elect, pursuant to subsection 93(1), in prescribed manner and within the prescribed time in respect of all shares of the capital stock of Opco which will be disposed of to CanHoldco, as described in paragraph 12 above, at an aggregate amount equal to the total of Opco’s exempt surplus. For purposes of the election under subsection 93(1), the aggregate amount designated shall be allocated on a prorata basis to all of the shares of Opco disposed of by Parent to reduce the proceeds of disposition otherwise determined XXXXXXXXXX.
OTHER
17.
XXXXXXXXXX
PURPOSE OF PROPOSED TRANSACTIONS
Inserting Holdco into the corporate structure provides two major operating advantages to Parent and Opco:
a) XXXXXXXXXX;
b) XXXXXXXXXX.
RULINGS GIVEN
Provided the foregoing statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions we confirm the following:
A. CanHoldco will be a corporation within the meaning assigned by subsection 248(1).
B. The provisions of subsection 85(1) will apply with the result that the agreed amount in the joint election in respect of the common shares of Opco, as described in paragraph 15 of the proposed transactions, will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to Parent and the cost thereof to CanHoldco.
C. Provided that the common shares of Opco which are transferred by Parent, as described in paragraph 12 of the proposed transactions, are capital property within the meaning assigned by section 54 they will not cease to be capital property by reason only of the transfer by Parent to CanHoldco.
D. The cost of the additional common shares of Holdco to CanHoldco acquired by CanHoldco, as described in paragraph 13 of the proposed transactions, will be determined in accordance with the provisions of paragraph 85.1(3)(b).
E. Subsection 245(2) will not be applied as a result of the proposed transactions, in and of themselves, to redetermine the tax consequences confirmed in the Rulings given above.
The above Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and are binding on Revenue Canada provided that the proposed transactions are completed by XXXXXXXXXX.
The above Rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
XXXXXXXXXX.
Yours truly,
Section Manager
XXXXXXXXXX
Income Tax Rulings and
Interpretation Directorate
Policy and Legislation Branch
2
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.../cont’d
.../cont’d
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