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. Whether the subsidiaries of XXXXXXXXXX would qualify for the exemption under paragraph 149(1)(d.4),
2. Whether the ownership test in paragraph 149(1)(d.4) is on the basis of a single holding of shares or capital or on the basis of two or more separate holdings.
Position:
1. Yes, provided that the XXXXXXXXXX is a corporation as described in paragraph 149(1)(d.3).
2. It may be a combination of holdings.
Reasons:
1. This ruling is given on the basis that the XXXXXXXXXX is a corporation as described in paragraph 149(l)(d,3). It is a factual determination whether a corporation qualifies for the paragraph 149(1)(d.3) exemption.
2. This approach is consistent with our position in paragraph 5 of IT-347R2 that the ownership test in former paragraph 149(1)(d) of the Act could be on the basis of two or more separate holdings.
XXXXXXXXXX
XXXXXXXXXX 990020
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge receipt of your letters of XXXXXXXXXX.
You advise that to the best of your knowledge and that of the taxpayers referred to above, none of the issues involved in the ruling request is:
I. in an earlier return of the taxpayers or related persons;
II. being considered by a taxation services office or a taxation centre in connection with a previously filed tax return of the taxpayers or related persons;
III. under objection by the taxpayers or related persons;
IV. before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
V. the subject of a ruling previously issued by the Directorate.
In this letter, unless otherwise indicated, all statutory references are to the provisions of the Income Tax Act (R.S.C. 1985, 5th Supplement, C.1, as amended) (the "Act"), and the following terms have the meanings specified:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
d) XXXXXXXXXX
e) XXXXXXXXXX
f) XXXXXXXXXX
g) XXXXXXXXXX
h) XXXXXXXXXX
i) XXXXXXXXXX
j) XXXXXXXXXX
k) XXXXXXXXXX
l) XXXXXXXXXX
m) XXXXXXXXXX
Our understanding of the facts, proposed transactions and their purposes is set out below.
FACTS
Corporate structure
1.
XXXXXXXXXX
2. XXXXXXXXXX is an agent of the government of the Province.
3. The purposes and objects of XXXXXXXXXX.
4. XXXXXXXXXX are companies incorporated under the XXXXXXXXXX.
5. All the shares of XXXXXXXXXX are owned by the Province, and all of the shares of XXXXXXXXXX are owned by XXXXXXXXXX.
6. XXXXXXXXXX are not agents of the government of the Province.
7.
XXXXXXXXXX
8. XXXXXXXXXX was established as a corporation by XXXXXXXXXX.
9. XXXXXXXXXX is not an agent of the government of the Province.
10. XXXXXXXXXX does not have shareholders or members and it is governed by a board of XXXXXXXXXX directors. XXXXXXXXXX of the directors of XXXXXXXXXX are appointed by the Province and XXXXXXXXXX directors are appointed by XXXXXXXXXX, and all of the directors must be elected officials (in the case of XXXXXXXXXX appointments) or a member of the Province's Legislative Assembly (in the case of the provincial appointments). Provincial appointments are made by the Lieutenant Governor in Council
11. XXXXXXXXXX was incorporated under the XXXXXXXXXX. It has no assets or liabilities. The shares of XXXXXXXXXX were acquired by XXXXXXXXXX to serve as the entity to which the employees of XXXXXXXXXX will be transferred.
12. XXXXXXXXXX was incorporated under theXXXXXXXXXX. It has no assets or liabilities. The shares of XXXXXXXXXX were acquired by XXXXXXXXXX to serve as the entity to which the employees involved in the provision of the XXXXXXXXXX will be transferred.
Existing operations ofXXXXXXXXXX
13. XXXXXXXXXX was organized to operate, manage and maintain a XXXXXXXXXX
14.
XXXXXXXXXX
15. XXXXXXXXXX entered into an operating agreement with XXXXXXXXXX (the "XXXXXXXXXX Operating Agreement"), as required and authorized by XXXXXXXXXX.
16. Under the XXXXXXXXXX Operating Agreement, XXXXXXXXXX is required, inter alia:
a) to acquire and make available to XXXXXXXXXX the physical assets that are required by XXXXXXXXXX for the effective provision of XXXXXXXXXX service;
b) to incorporate the capital and operating budget submitted by XXXXXXXXXX as part of the annual budget submission to the XXXXXXXXXX and the board of XXXXXXXXXX and obtain approval thereof; and
c) to reimburse XXXXXXXXXX for all expenditures made by it pursuant to the operating agreement which are consistent with the approved budgets.
17. Under the XXXXXXXXXX Operating Agreement, XXXXXXXXXX, inter alia:
a) manages, operates and maintains the XXXXXXXXXX in accordance with the operations plan approved by XXXXXXXXXX;
b) provides trained and competent operating and maintenance staff to XXXXXXXXXX;
c) ensures that its servants, employees, agents, contractors and others doing business with XXXXXXXXXX comply with service policies agreed to with XXXXXXXXXX from time to time;
d) negotiates all labour and service contracts of XXXXXXXXXX;
e) maintains and carries out a planned maintenance program in respect of the XXXXXXXXXX and other assets available for use in the XXXXXXXXXX;
f) XXXXXXXXXX; and
g) keeps records and provides financial information to XXXXXXXXXX.
Existing operations of XXXXXXXXXX
18. XXXXXXXXXX was organized to operate, manage and maintain a XXXXXXXXXX.
19.
XXXXXXXXXX
20. XXXXXXXXXX entered into an operating agreement with XXXXXXXXXX (the "XXXXXXXXXX Operating Agreement") as required and authorized by the XXXXXXXXXX, to provide the services necessary to the operation of XXXXXXXXXX.
21. Under the XXXXXXXXXX Operating Agreement, XXXXXXXXXX is required, inter alia:
a) to provide to XXXXXXXXXX the physical assets required for the provision ofXXXXXXXXXX services under the agreement;
b) to incorporate the capital and operating budget of the XXXXXXXXXX; and
c) to pay on behalf of or reimburse XXXXXXXXXX for all expenditures made or incurred by it in performance of the operating agreement which are consistent with the approved budgets.
22. Under the XXXXXXXXXX Operating Agreement, XXXXXXXXXX, inter alia:
a) develops the objectives, policies, performance standards and service specifications for the XXXXXXXXXX;
b) manages, operates and maintains the XXXXXXXXXX in accordance with the operations plan;
c) provides such trained and competent personnel as are required to operate and maintain XXXXXXXXXX required in the provision of the XXXXXXXXXX;
d) ensures that its servants, employees, agents, contractors and others engaged by XXXXXXXXXX comply with the objectives, policies, and performance standards adopted for delivery of XXXXXXXXXX service;
e) negotiates and enters all contracts required to fulfil the terms of the operating agreement;
f) maintains and carries out a planned maintenance program in respect of the XXXXXXXXXX and other assets made available by XXXXXXXXXX;
g) XXXXXXXXXX; and
h) keeps records and provides financial information to XXXXXXXXXX.
Existing operations of XXXXXXXXXX
23.
XXXXXXXXXX
24.
XXXXXXXXXX
25.
XXXXXXXXXX
Existing XXXXXXXXXX
26.
XXXXXXXXXX
27. XXXXXXXXXX; all of the assets, both fixed facilities and XXXXXXXXXX, are owned by XXXXXXXXXX and the operations are funded by the XXXXXXXXXX under the terms of an agreement with the XXXXXXXXXX.
28. XXXXXXXXXX services are provided by private agencies under contract with
XXXXXXXXXX
Existing XXXXXXXXXX
29.
XXXXXXXXXX
30.
XXXXXXXXXX
31.
XXXXXXXXXX
32.
XXXXXXXXXX
Purpose of the XXXXXXXXXX
33. The purpose of the XXXXXXXXXX is to provide a XXXXXXXXXX.
34.
XXXXXXXXXX
a) is operated by the XXXXXXXXXX or by its subsidiaries or contractors,
b) may include, without limitation, XXXXXXXXXX, and
c) XXXXXXXXXX.
35.
XXXXXXXXXX
36. You advise that XXXXXXXXXX are currently exempt from tax under Part I pursuant to paragraph 149(1)(d) of the Act.
37. Pursuant to our ruling XXXXXXXXXX ("Ruling") dated XXXXXXXXXX, 1998, we confirmed that the XXXXXXXXXX would be considered a public body performing a function of government in Canada within the meaning of paragraph 149(1)(c) of the Act and thus be exempt from Part I tax on its taxable income. That ruling did not address whether the XXXXXXXXXX was also a corporation that is described in paragraph 149(1)(d.3) of the Act. While we are unable to rule that the XXXXXXXXXX is a corporation described in paragraph 149(1)(d.3) of the Act since this transaction has already taken place, you advise as a fact that the XXXXXXXXXX so qualifies as such.
PROPOSED TRANSACTIONS
38. As indicated in the Ruling, all assets and liabilities of XXXXXXXXXX will become the assets and liabilities of the XXXXXXXXXX.
39. All assets and liabilities of the provincial government that are located in the XXXXXXXXXX, as indicated in the Ruling, become the assets and liabilities of the XXXXXXXXXX.
40. Pursuant to XXXXXXXXXX all of the shares of XXXXXXXXXX will be transferred to and vest in the XXXXXXXXXX.
41.
XXXXXXXXXX
42. Included in the assets and liabilities of XXXXXXXXXX to be transferred to the XXXXXXXXXX are the following:
a) the assets of XXXXXXXXXX that are provided to XXXXXXXXXX under the XXXXXXXXXX Operating Agreement (excluding the XXXXXXXXXX and associated debt which are to remain with the Province);
b) the rights and obligations of XXXXXXXXXX under each of the XXXXXXXXXX Operating Agreement and the XXXXXXXXXX Operating Agreement as consequentially amended;
c) the assets of XXXXXXXXXX that are used in the provision of the XXXXXXXXXX; and
d) approximately XXXXXXXXXX% of the shares of XXXXXXXXXX owned by XXXXXXXXXX representing the portion associated with the provision of XXXXXXXXXX.
43. XXXXXXXXXX will employ the employees of XXXXXXXXXX necessary for the provision of the XXXXXXXXXX. The employees of XXXXXXXXXX will be transferred on or before XXXXXXXXXX from XXXXXXXXXX to XXXXXXXXXX.
44.
XXXXXXXXXX
45. Included in the assets and liabilities of the XXXXXXXXXX to be transferred to the XXXXXXXXXX are the assets involved in the provision of the XXXXXXXXXX.
46. XXXXXXXXXX will employ the employees who provide the XXXXXXXXXX. These employees will be transferred on or before XXXXXXXXXX.
47.
XXXXXXXXXX
48. The XXXXXXXXXX has no expertise in the operation of a XXXXXXXXXX and accordingly proposes to enter a contract with the XXXXXXXXXX to have the XXXXXXXXXX provide managerial and support services on behalf of the XXXXXXXXXX.
49. The acquisition by the XXXXXXXXXX of the shares of XXXXXXXXXX from the Province, the transfer of the XXXXXXXXXX to XXXXXXXXXX, and the transfer of the XXXXXXXXXX to XXXXXXXXXX are part of an overall transfer of programs to the XXXXXXXXXX which also includes the following:
a) XXXXXXXXXX
b) XXXXXXXXXX
c) XXXXXXXXXX
PURPOSE OF PROPOSED TRANSACTIONS
50. The purpose of the proposed transactions is to transfer the responsibility within the XXXXXXXXXX for:
a) XXXXXXXXXX;
b) XXXXXXXXXX;
c) XXXXXXXXXX.
RULING GIVEN
Provided that the preceding statements constitute a complete accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that all the proposed transactions are carried out as described above, we confirm the following:
Following the completion of the proposed transactions, each of XXXXXXXXXX will be exempt from tax under Part I pursuant to paragraph 149(1)(d.4) of the Act.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996 and is binding on Revenue Canada provided the transactions are carried out by XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1999
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© Sa Majesté la Reine du Chef du Canada, 1999
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