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: Butterfly - Split-up
Position: No unusual items
Reasons:
XXXXXXXXXX
XXXXXXXXXX 3-982372
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings. We also acknowledge your letter of XXXXXXXXXX and our various telephone conversations.
We understand that to the best of your knowledge and that of the taxpayers involved none of the issues involved in the requested rulings is being considered by a tax services office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.
Definitions
In this letter unless otherwise expressly stated:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) "adjusted cost base" has the meaning assigned by section 54;
(c) "Canadian corporation" has the meaning assigned by subsection 89(1);
(d) "capital dividend account" has the meaning assigned by subsection 89(1);
(e) "capital property" has the meaning assigned by section 54;
(f) "cost amount" has the meaning assigned under subsection 248(1);
(g) "depreciable property" has the meaning assigned by subsection 13(21);
(h) "distribution" has the meaning assigned by subsection 55(1);
(i) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(j) "eligible capital property" has the meaning assigned by section 54;
(k) "eligible property" has the meaning assigned by subsection 85(1.1);
(l) "financial intermediary corporation" has the meaning assigned by subsection 191(1);
(m) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(n) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(o) XXXXXXXXXX;
(p) "paid-up capital" has the meaning assigned by subsection 89(1);
(q) "predecessor corporation" has the meaning assigned by subsection 87(1);
(r) "private corporation" has the meaning assigned by subsection 89(1);
(s) "RDTOH" means the expression "refundable dividend tax on hand" as defined in subsection 129(3);
(t) "series of transactions or events" has the meaning assigned by subsection 248(10);
(u) "specified financial institution" has the meaning assigned under subsection 248(1);
(v) "specified investment business" has the meaning assigned by subsection 125(7);
(w) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(x) "taxable dividend" has the meaning assigned by subsection 89(1); and
(y) "taxable preferred shares" has the meaning assigned by subsection 248(1).
FACTS
1. XXXXXXXXXX are brothers and are both residents of Canada for purposes of the Act.
XXXXXXXXXX are equal shareholders in XXXXXXXXXX is the parent of XXXXXXXXXX corporations that operate XXXXXXXXXX and related businesses. XXXXXXXXXX owns the real estate used by these corporations in their businesses.
XXXXXXXXXX have always acted in concert to control XXXXXXXXXX and will act in concert to control Amalco (a new corporation formed on the amalgamation of XXXXXXXXXX as described in paragraph 20 below) for the period until the purchase for cancellation of Amalco's common shares described in paragraph 32 below.
2. The corporate group of companies are as follows:
Jurisdiction Fiscal Business
Name of Corporation incorporated year-end Number
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Each of the above corporations is a taxable Canadian corporation, a private corporation and deals with the XXXXXXXXXX Tax Services Office regarding its income tax return.
3. XXXXXXXXXX holds various real properties used by XXXXXXXXXX in their respective businesses and a property held primarily for investment purposes.
The properties held by XXXXXXXXXX are located in XXXXXXXXXX and are described as follows:
Location Referred to hereinafter as:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
4. The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
The Series A preferred shares are redeemable at $XXXXXXXXXX per share, entitled to two votes per share and non-cumulative dividends at the rate of XXXXXXXXXX % per annum of the amount of their paid-up capital.
5. XXXXXXXXXX assets consist of the shares of XXXXXXXXXX and loans receivable from its subsidiaries and other related parties.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
The Class A preferred shares are non-voting, redeemable and entitled to non-cumulative dividends at the rate of XXXXXXXXXX % per annum of the amount of their paid-up capital.
6. XXXXXXXXXX owns and operates a XXXXXXXXXX assets consist of cash, accounts receivable, inventory, assets used in the business and goodwill.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
XXXXXXXXXX
7. XXXXXXXXXX owns and operates a XXXXXXXXXX assets consist of cash, accounts receivable, inventory, assets used in the business and goodwill.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
XXXXXXXXXX
8. XXXXXXXXXX owns and operates a XXXXXXXXXX assets consist of cash, accounts receivable, inventory, assets used in the business and goodwill.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
The one common share of XXXXXXXXXX held by XXXXXXXXXX was required by the terms of the franchise agreement between XXXXXXXXXX requires that each of its franchisors have a controlling shareholder.
9. XXXXXXXXXX owns and operates a XXXXXXXXXX consist of cash, accounts receivable, inventory, assets used in the business and goodwill.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
10. XXXXXXXXXX owns and operates an XXXXXXXXXX assets consist of cash, accounts receivable, inventory, assets used in the business and goodwill.
The issued and outstanding shares of XXXXXXXXXX are held as follows:
Number of Class of Paid-up Adjusted
Shareholder Shares Shares Capital Cost Base
XXXXXXXXXX
11. The shares of each of XXXXXXXXXX are capital property to each of their respective shareholders.
12. The types of property for the purposes of a distribution pursuant to subsection 55(1), of Amalco, immediately before the transfers of property described in paragraph 28 below (the "Butterfly Transfer"), will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which Amalco has the ability to exercise significant influence and will be properties of the following types:
(a) cash or near-cash property comprising of all of the current assets of each corporation including any cash, deposits, accounts receivable, inventory, and rights arising from prepaid expenses (hereinafter referred to as "prepaid expenses");
(b) business property, comprising of all of the assets of each corporation, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from a business other than a specified investment business; and
(c) investment property, comprising of all of the assets of each corporation, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from property or from a specified investment business.
For this purpose, Amalco will be considered to have significant influence over a corporation if it has the ability to exercise significant influence, within the guidelines provided by section 3050 of the CICA Handbook, over that corporation or over any corporation which has significant influence over that corporation.
13. In determining, on a consolidated basis, the net fair market value of its cash or near-cash property, business property and investment property immediately before the Butterfly Transfer, liabilities of Amalco, also determined on a consolidated basis by including the appropriate pro rata share of the liabilities of each corporation over which Amalco has significant influence, will be deducted in the calculation of the net fair market value of each such type of property of Amalco in the following manner:
(a) current liabilities of Amalco determined on a consolidated basis, will be allocated to cash or near-cash property (including cash, accounts receivable, inventory and prepaid expenses) in the proportion that the fair market value of each such property is of the fair market value of all cash or near-cash property. The allocation of current liabilities as described herein will not exceed the aggregate fair market value of all near-cash property of Amalco;
(b) any accounts receivable, inventory and prepaid expenses initially classified in accordance with (a) herein as cash or near-cash property, that will relate to a business that was carried on by Amalco and that will be collected, sold or consumed by Subco XXXXXXXXXX or Subco XXXXXXXXXX (corporations set up as described in paragraph 25 below) in the ordinary course of their business, will then be reclassified as a business property, and the net fair market value thereof, determined after the allocation of current liabilities described in (a) herein, will be included in the net fair market value of business property and will not be included in the net fair market value of cash or near-cash property;
(c) liabilities of Amalco, determined on a consolidated basis, other than current liabilities, that relate, to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its fair market value. Liabilities that pertain to a type of property, but not to a particular property, will then be allocated to that type of property, but not in excess of the net fair market value of such type of property after the allocation of liabilities to a particular property, as described herein; and
(d) any liabilities ("excess unallocated liabilities"), determined on a consolidated basis, that remain after the allocations described in steps (a) and (c) are made (including excess current liabilities, if any), will then be allocated to the cash or near-cash property, business property, and investment property of Amalco on a consolidated basis based on the relative net fair market value of each type of property prior to the allocation of such excess unallocated liabilities.
14. Except as described herein, no debts have been or will be incurred or paid, and no property has been or will be acquired by Amalco, or a predecessor corporation of Amalco, or by a corporation controlled by either Amalco or a predecessor thereof in contemplation of the proposed transactions described below.
15. XXXXXXXXXX, Holdco XXXXXXXXXX and Holdco XXXXXXXXXX (two corporations to be incorporated as described in paragraph 21 below) are not specified financial institutions.
16. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) is or will be subject to a guarantee agreement, within the meaning referred to in subsection 112(2.2).
17. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) has been or will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).
18. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) is or will be subject to a dividend rental arrangement.
19. Neither XXXXXXXXXX nor XXXXXXXXXX has a balance in its RDTOH or capital dividend account at the end of its taxation year on XXXXXXXXXX nor will either have any RDTOH prior to the end of its taxation year in which the transactions described herein are completed.
PROPOSED TRANSACTIONS
20. XXXXXXXXXX and XXXXXXXXXX (referred to in this paragraph as "predecessor corporations") will amalgamate under the provisions of the XXXXXXXXXX to form a new corporation ("Amalco") in such manner that:
(a) all the property (except amounts receivable from any predecessor corporation) of the predecessor corporations immediately before the merger will become property of Amalco by virtue of the merger;
(b) all the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco by virtue of the merger; and
(c) all the shareholders of the predecessor corporations before the merger will receive shares of the capital stock of Amalco by virtue of the merger.
On the amalgamation, the holders of the common shares of the predecessor corporations, XXXXXXXXXX, will each receive XXXXXXXXXX common shares of Amalco, which common shares will have a fair market value equal to the aggregate fair market value immediately before the amalgamation of the common shares and preferred shares of XXXXXXXXXX. The stated capital of the common shares of Amalco, immediately after the issue of such shares on the amalgamation, will not exceed the aggregate of the paid-up capital of the common shares and preferred shares of the predecessor corporations immediately before the merger.
21. Each of XXXXXXXXXX will incorporate a new corporation ("Holdco XXXXXXXXXX" and "Holdco XXXXXXXXXX", respectively) under the XXXXXXXXXX. Each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will be a Canadian-controlled private corporation and a taxable Canadian corporation.
The authorized share capital of each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will consist of:
(a) an unlimited number of common shares which are fully participating and entitled to one vote per share; and
(b) an unlimited number of Class A preferred shares, which will be redeemable and retractable for an amount equal to the fair market value of the consideration received by the corporation for the issuance of such shares, entitled to non-cumulative dividends at a rate of XXXXXXXXXX % per month on the redemption amount at the discretion of its directors, and carry one vote per share.
XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of Holdco XXXXXXXXXX for $XXXXXXXXXX and XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of Holdco XXXXXXXXXX for $XXXXXXXXXX on the incorporation of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX, respectively.
22. XXXXXXXXXX will transfer all of the Amalco shares that he owns to Holdco XXXXXXXXXX. As sole consideration for such transfer, Holdco XXXXXXXXXX will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by XXXXXXXXXX to Holdco XXXXXXXXXX. Holdco XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the paid-up capital of the shares transferred.
23. Holdco XXXXXXXXXX and XXXXXXXXXX will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to the adjusted cost base to XXXXXXXXXX immediately before the transfer, which amount will be less than the fair market value of such shares.
24. XXXXXXXXXX will transfer all of the Amalco shares that he owns to Holdco XXXXXXXXXX. As sole consideration for such transfer, Holdco XXXXXXXXXX will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by XXXXXXXXXX to Holdco XXXXXXXXXX. Holdco XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the paid-up capital of the shares transferred.
25. Holdco XXXXXXXXXX and XXXXXXXXXX will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to the adjusted cost base to XXXXXXXXXX immediately before the transfer, which amount will be less than the fair market value of such shares.
26. Each of Holdco XXXXXXXXXX and Holdco XXXXXXXXXX will incorporate a new corporation ("Subco XXXXXXXXXX" and "Subco XXXXXXXXXX", respectively) under the XXXXXXXXXX. Each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will be a Canadian-controlled private corporation and a taxable Canadian corporation.
The authorized share capital of each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will consist of:
(a) an unlimited number of common shares which are fully participating and entitled to one vote per share; and
(b) an unlimited number of Class A preferred shares, which will be redeemable and retractable for an amount equal to the fair market value of the consideration received by the corporation for the issuance of such shares, entitled to non-cumulative dividends at a rate of XXXXXXXXXX % per month on the redemption amount at the discretion of its directors, and carry one vote per share.
Holdco XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of Subco XXXXXXXXXX for $XXXXXXXXXX and Holdco XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of Subco XXXXXXXXXX for $XXXXXXXXXX on the incorporation of Subco XXXXXXXXXX and Subco XXXXXXXXXX, respectively.
27. Prior to the Butterfly Transfer, Amalco will sell at fair market value to XXXXXXXXXX the property described as XXXXXXXXXX for consideration consisting only of money or indebtedness that is not convertible into other property, or of any combination thereof. XXXXXXXXXX will hold XXXXXXXXXX as an investment property.
As a result of the sale of XXXXXXXXXX to XXXXXXXXXX, Amalco will hold only cash or near-cash property and business property at the time of the Butterfly Transfer.
The sale ofXXXXXXXXXX may result in an amount payable pursuant to section 123.3 by Amalco and an amount included in Amalco's capital dividend account.
28. Amalco will sell, at fair market value; to:
(a) Subco XXXXXXXXXX a portion of its cash or near-cash property and business property including all or substantially all of the shares of XXXXXXXXXX; and
(b) Subco XXXXXXXXXX a portion of its cash or near-cash property and business property including all or substantially all of the shares of XXXXXXXXXX.
As a result of such transfers, the net fair market value of the cash or near-cash property and business property received by each of Subco XXXXXXXXXX and Subco XXXXXXXXXX, determined in the manner described in paragraph 12 above (after allocating and deducting liabilities, in the manner described in paragraph 13 above), will be equal to the proportion of the net fair market value of each type of property of Amalco, determined in the manner described in paragraph 12 above (after allocating and deducting, in the manner described in paragraph 13 above, the liabilities of Amalco), immediately before the transfer, that:
(a) the aggregate of the fair market value, immediately before the transfer, of all shares of the capital stock of Amalco owned by Holdco XXXXXXXXXX, in the case of the transfer of property to Subco XXXXXXXXXX, and Holdco XXXXXXXXXX, in the case of the transfer of property to Subco XXXXXXXXXX, at that time
is of
(b) the fair market value immediately before the transfer of all of the issued shares of the capital stock of Amalco at that time.
In consideration for such transfers, each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will issue Class A preferred shares and assume a portion of the liabilities of Amalco. The Class A preferred shares issued by each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will have a redemption amount equal to the fair market value of the properties at the time of the transfer less the amount of liabilities assumed by that transferee. The liabilities assumed by each of Subco XXXXXXXXXX and Subco XXXXXXXXXX, in respect of eligible properties transferred, will not exceed the aggregate of the agreed amounts in respect of such properties.
Each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will add to the stated capital account maintained for its Class A preferred shares an amount equal to the amount by which the aggregate of the cost amounts, in the case of eligible properties, and the fair market value, in the case of other properties, of the properties transferred to that transferee exceeds the liabilities assumed by that transferee.
29. Amalco and each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will jointly elect, in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of Amalco that is an eligible property and is transferred to each of Subco XXXXXXXXXX and Subco XXXXXXXXXX. The agreed amount for the purposes of subsection 85(1) in respect of such property will be:
(a) where the particular property is inventory or capital property (other than depreciable property of a prescribed class), the lesser of the cost amount of the property to Amalco immediately before the transfer and the fair market value of such property; and
(b) where the particular property is depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii).
The fair market value of each property will equal or exceed the agreed amount in respect thereof.
30. Immediately after the transfer of the assets to Subco XXXXXXXXXX and Subco XXXXXXXXXX, each of Subco XXXXXXXXXX and Subco XXXXXXXXXX will redeem its Class A preferred shares owned by Amalco and will each issue to Amalco a non-interest-bearing demand promissory note (the "Subco XXXXXXXXXX Note" and "Subco XXXXXXXXXX Note") each having a principal amount and fair market value equal to the redemption price of the Class A preferred shares of Subco XXXXXXXXXX or Subco XXXXXXXXXX, as the case may be.
31. Subco XXXXXXXXXX and Subco XXXXXXXXXX will then be wound up, each into its respective parent, Holdco XXXXXXXXXX and Holdco XXXXXXXXXX. As a result of the wind-ups, the Subco XXXXXXXXXX Note will become a liability of Holdco XXXXXXXXXX and the Subco XXXXXXXXXX Note will become a liability of Subco XXXXXXXXXX.
32. Following the wind-up of Subco XXXXXXXXXX and the wind-up of Subco XXXXXXXXXX as described in paragraph 30 above, Amalco will purchase for cancellation, at fair market value, its common shares held by Holdco XXXXXXXXXX and Holdco XXXXXXXXXX.
Amalco will issue to Holdco XXXXXXXXXX as consideration for the purchase of its common shares a non-interest-bearing demand promissory note having a principal amount equal to the fair market value of the shares purchased ("Amalco Note 1").
Amalco will issue to Holdco XXXXXXXXXX as consideration for the purchase of its common shares a non-interest-bearing demand promissory note having a principal amount equal to the fair market value of the shares purchased ("Amalco Note 2").
33. The Subco XXXXXXXXXX Note will be set off against the Amalco Note 1 and the Subco XXXXXXXXXX Note will be set off against the Amalco Note 2 and the notes will then be cancelled.
34. Amalco will then be dissolved.
PURPOSE OF THE PROPOSED TRANSACTIONS
35. The purpose of the proposed transactions is to allow XXXXXXXXXX and XXXXXXXXXX to divide the assets of XXXXXXXXXX and XXXXXXXXXX so that each may be able to pursue their separate and different investment and estate planning objectives independently of each other.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following:
A. The provisions of subsection 85(1) will apply to the transfer:
(i) by XXXXXXXXXX of the shares of Amalco to Holdco XXXXXXXXXX described in paragraph 22 above;
(ii) by XXXXXXXXXX of the shares of Amalco to Holdco XXXXXXXXXX described in paragraph 24 above; and
(iii) by Amalco of its properties that are eligible properties to each of Subco XXXXXXXXXX and Subco XXXXXXXXXX described in paragraph 28 above;
such that, the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).
For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers.
B. On the redemption of the Subco XXXXXXXXXX Class A preferred shares and Subco XXXXXXXXXX Class A preferred shares, as described in paragraph 30 above, and the purchase for cancellation of Amalco's common shares held by Holdco XXXXXXXXXX and Holdco XXXXXXXXXX, as described in paragraph 32 above, the amount, if any, by which the amount paid to redeem or purchase such shares exceeds the paid-up capital of such shares immediately before the redemption:
(i) will be deemed pursuant to paragraph 84(3)(a) to be a dividend paid by the issuer of such shares;
(ii) will be deemed pursuant to paragraph 84(3)(b) to be a dividend received by the holder of such shares.
(iii) to the extent that a dividend described in (ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received; and
(iv) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividends pursuant to subsection 112(3).
C. Part IV.1 of the Act will not apply to the deemed dividends described in Ruling B above because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1.
D. Part VI.1 of the Act will not apply to the deemed dividends described in Ruling C above because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
E. By virtue of the provisions of paragraph 55(3)(b), the provisions of subsection 55(2) will not apply to the deemed dividends described in Ruling B above, provided that, as part of the series of transactions that includes the proposed transactions described herein, there is no:
(i) disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(ii) acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(iii) acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(iv) acquisition of property in the circumstances described in paragraph 55(3.1)(d)
which has not been described herein.
F. The provisions of subsection 88(1) will apply to the winding-up of Subco XXXXXXXXXX into Holdco XXXXXXXXXX and Subco XXXXXXXXXX into Holdco XXXXXXXXXX described in paragraph 31 above.
G. The settlement by way of set off of the Subco XXXXXXXXXX Note and Amalco Note 1 and the Subco XXXXXXXXXX Note and Amalco Note 2 described in paragraph 33 above will not give rise to a forgiven amount.
H. The common shares of Amalco will not, as a result of the proposed transactions described herein, in and by themselves, become taxable preferred shares.
I. The provisions of subsections 15(1), 56(2) and 246(1), will not apply to the proposed transactions, in and of themselves.
J. Subsection 245(2) will not be applied to the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and are binding provided that the proposed transactions are completed before XXXXXXXXXX.
These rulings are based on the Act as it reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
Nothing in this letter should be construed as implying that the Department has agreed to or accepted:
(a) the determination of the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares, or
(b) any tax consequences arising from the facts or proposed transactions described above other than those specifically confirmed in the rulings given.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
15
.../cont’d
.../cont’d
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