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: See issue sheet.
Position: See issue sheet.
Reasons: See issue sheet.
XXXXXXXXXX 3-990262
Attention: XXXXXXXXXX
XXXXXXXXXX , 1999
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings. We also acknowledge your letters of XXXXXXXXXX and our various telephone conversations.
We understand that to the best of your knowledge and that of XXXXXXXXXX, none of the issues involved in this advance ruling request 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, the following terms have the meanings specified:
(a) XXXXXXXXXX, as described in subparagraph 43(b) below;
(b) "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, subparagraph or clause is a reference to the relevant provision of the Act;
(c) "adjusted cost base" has the meaning assigned by section 54;
(d) XXXXXXXXXX, as described in paragraph 35 below;
(e) "Amalco" means the Canadian corporation described in paragraph 67 below;
(f) "arm's length" has the meaning assigned by section 251;
(g) "XXXXXXXXXX" means the Canadian corporation described in paragraph 63 below;
(h) "Bank Loans" means the borrowings described in paragraph 88 below;
(i) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 1 below;
(j) XXXXXXXXXX;
(k) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 24 below;
(l) "XXXXXXXXXX Subco" means the Canadian corporation described in paragraph 53 below;
(m) "XXXXXXXXXX Subco Common Shares" means the common shares of XXXXXXXXXX Subco described in paragraph 53 below;
(n) "XXXXXXXXXX Subco Redemption Amount" means the aggregate redemption amount of the XXXXXXXXXX Subco Reorganization Shares, as described in paragraph 73 below;
(o) "XXXXXXXXXX Subco Redemption Note" means the note payable described in paragraph 74 below;
(p) "XXXXXXXXXX Subco Reorganization Shares" means the preferred shares of XXXXXXXXXX Subco described in paragraph 53 below;
(q) "XXXXXXXXXX" means various interests, held directly or indirectly by XXXXXXXXXX in securities of entities in which XXXXXXXXXX holds a minority interest and which XXXXXXXXXX has agreed to transfer to Newco prior to the Investor Transaction and as more particularly described in paragraph 78 below;
(r) "XXXXXXXXXX Note" means the note payable described in paragraph 16 below;
(s) "XXXXXXXXXX Note" means the note payable described in paragraph 17 below;
(t) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 6 below and also the corporation formed on the amalgamation of XXXXXXXXXX and Amalco, described in paragraph 68 below;
(u) "XXXXXXXXXX New Common Shares" means the common shares of XXXXXXXXXX described in paragraph 71 below;
(v) "XXXXXXXXXX Notes" means the notes payable described in paragraph 80 below;
(w) "XXXXXXXXXX Receivable" is as defined in paragraph 78 below;
(x) "XXXXXXXXXX Redemption Amount" means the aggregate redemption amount of the XXXXXXXXXX Reorganization Shares issued on the Share Exchange, as described in paragraph 71 below;
(y) "XXXXXXXXXX Redemption Note" means the note payable described in paragraph 75 below;
(z) "XXXXXXXXXX Reorganization Shares" means the special shares of XXXXXXXXXX described in paragraph 71 below;
(aa) "XXXXXXXXXX Subco" means the Canadian corporation described in paragraph 52 below;
(bb) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(r)(ii) below;
(cc) "Butterflied Assets" means the assets described in paragraph 73 below;
(dd) "Butterfly Proportion" means the proportion that (i) the fair market value of the business property of XXXXXXXXXX Subco (determined on a consolidated look-through basis) immediately following the Butterfly Reorganization (net of the amount of XXXXXXXXXX Subco's consolidated liabilities allocable to such property determined in accordance with paragraph 41 below) is of (ii) the fair market value of the business property of XXXXXXXXXX (determined on a consolidated look-through basis) immediately prior to the Butterfly Reorganization (net of the amount of XXXXXXXXXX consolidated liabilities allocable to such property determined in accordance with paragraph 41 below);
(ee) "Butterfly Reorganization" means the transactions described in paragraphs 71 to 76 below;
(ff) "Butterfly Transfer" means the transfers of property as described in paragraph 39 below;
(gg) "CBCA" means the Canada Business Corporations Act;
(hh) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 19 below;
(ii) "XXXXXXXXXX Majority Shareholders" means XXXXXXXXXX;
(jj) XXXXXXXXXX;
(kk) "Canadian corporation" has the meaning assigned by subsection 89(1);
(ll) "capital property" has the meaning assigned by section 54;
(mm) "Class B Shares" means the shares of Newco described in paragraph 83 below;
(nn) "cost amount" has the meaning assigned under subsection 248(1);
(oo) "Consolidated XXXXXXXXXX Note" means the note payable described in paragraph 65 below;
(pp) "Consolidated Group" has the meaning assigned by paragraph 39 below;
(qq) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 26 below;
(rr) "XXXXXXXXXX Business Division" means the division of XXXXXXXXXX described in paragraph 29 below;
(ss) "distribution" has the meaning assigned by subsection 55(1);
(tt) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(uu) "eligible property" has the meaning assigned by subsection 85(1.1);
(vv) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(f) below;
(ww) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(s)(i) below;
(xx) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 51 below;
(yy) "XXXXXXXXXX Holdco" means XXXXXXXXXX, as described in paragraph 49 below;
(zz) "XXXXXXXXXX US" means XXXXXXXXXX, as described in paragraph 50, below;
(aaa) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(bbb) "Fund" means the XXXXXXXXXX, as described in subparagraph 43(k) below;
(ccc) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(ddd) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(o) below;
(eee) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(r)(i) below;
(fff) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(p)(ii) below;
(ggg) "Investor" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX and a subsidiary controlled corporation of XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX;
(hhh) "Investor XXXXXXXXXX Businesses" has the meaning assigned by paragraph 89 below;
(iii) Reserved;
(jjj) "XXXXXXXXXX means XXXXXXXXXX;
(kkk) "XXXXXXXXXX Units" means the outstanding limited partnership units of XXXXXXXXXX as referred to in subparagraph 43(m) below;
(lll) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(i) below;
(mmm) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(o) below;
(nnn) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(h) below;
(ooo) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 45 below;
(ppp) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 24 below;
(qqq) "XXXXXXXXXX Holdco" means the Canadian corporation described in paragraph 25 below,
(rrr) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(s) below;
(sss) "XXXXXXXXXX " means XXXXXXXXXX, as described in subparagraph 43(r) below;
(ttt) "XXXXXXXXXX " means XXXXXXXXXX, as described in subparagraph 43(q) below;
(uuu) "XXXXXXXXXX Holdco" means XXXXXXXXXX as described in paragraph 37 below;
(vvv) "XXXXXXXXXX Opco" means XXXXXXXXXX as described in paragraph 37 below;
(www) "XXXXXXXXXX US" means XXXXXXXXXX as described in paragraph 38 below;
(xxx) "XXXXXXXXXX US Holdco" means XXXXXXXXXX. as described in paragraph 38 below;
(yyy) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(d) below;
(zzz) "Newco" means XXXXXXXXXX, as described in paragraph 54 below;
(aaaa) "Newco Notes" means the notes payable described in paragraph 79 below;
(bbbb) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(p) below;
(cccc) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 30 below;
(dddd) "XXXXXXXXXX" means XXXXXXXXXX. as described in subparagraph 43(d) below;
(eeee) "XXXXXXXXXX" means XXXXXXXXXX. as described in paragraph 43(e) below;
(ffff) Reserved;
(gggg) Reserved;
(hhhh) "XXXXXXXXXX Business Division" means the division of XXXXXXXXXX described in paragraph 30 below;
(iiii) "paid-up capital" has the meaning assigned by subsection 89(1);
(jjjj) "Partnership" means XXXXXXXXXX, as described in subparagraph 43(c) below;
(kkkk) "Plan" means the XXXXXXXXXX plan maintained by XXXXXXXXXX and certain of its subsidiaries, as described in clause 43(s)(ii) below;
(llll) "principal amount" has the meaning assigned by subsection 248(1);
(mmmm) "private corporation" has the meaning assigned by subsection 89(1);
(nnnn) "XXXXXXXXXX" means the companies described in paragraph 30 below;
(oooo) "XXXXXXXXXX Shares" means the shares of the XXXXXXXXXX, as described in subparagraph 66(b) below;
(pppp) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(b) below;
(qqqq) "public corporation" has the meaning assigned by subsection 89(1);
(rrrr) Reserved;
(ssss) "restricted financial institution" has the meaning assigned by subsection 248(1);
(tttt) "Regulations" means the Income Tax Regulations issued pursuant to the Act;
(uuuu) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 46(d) below;
(vvvv) "Retained XXXXXXXXXX Businesses" has the meaning assigned by paragraph 89 below;
(wwww) "XXXXXXXXXX" means the XXXXXXXXXX, as described in subparagraph 43(m) below;
(xxxx) "series of transactions or events" has the meaning assigned by subsection 248(10);
(yyyy) "Share Exchange" has the meaning assigned in paragraph 71 below;
(zzzz) "XXXXXXXXXX Agreement" means the agreement XXXXXXXXXX described in paragraph 84 below;
(aaaaa) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(p)(i) below;
(bbbbb) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(r)(iii) below;
(ccccc) "specified class" has the meaning assigned by subsection 55(1);
(ddddd) "specified shareholder" has the meaning assigned by subsection 248(1) as modified by subsections 55(3.2) and (3.3);
(eeeee) "XXXXXXXXXX" means XXXXXXXXXX., as described in subparagraph 43(i) below;
(fffff) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(p)(ii) below;
(ggggg) "stated capital account" has the meaning assigned by section 26 of the CBCA;
(hhhhh) "subsidiary controlled corporation" has the meaning assigned by subsection 248(1);
(iiiii) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
(jjjjj) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(kkkkk) "taxable dividend" has the meaning assigned by subsection 89(1);
(lllll) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 12 below;
(mmmmm) "XXXXXXXXXX Loan" means the loan described in paragraph 15 below;
(nnnnn) "XXXXXXXXXX Subco" means the Canadian corporation described in paragraph 55 below;
(ooooo) "XXXXXXXXXX Subco II" means the Canadian corporation described in paragraph 55 below;
(ppppp) "XXXXXXXXXX" means XXXXXXXXXX as described in paragraph 34 below;
(qqqqq) Reserved;
(rrrrr) "XXXXXXXXXX Note" means the note payable described in paragraph 78 below;
(sssss) "XXXXXXXXXX Securities" means the securities described in paragraph 78 below;
(ttttt) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 47 below;
(uuuuu) Reserved;
(vvvvv) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 35 below;
(wwwww) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 16 below;
(xxxxx) "XXXXXXXXXX Note" means the note payable described in paragraph 16 below;
(yyyyy) "Transferred Shares" means the shares described in paragraph 77 below;
(zzzzz) "XXXXXXXXXX" means XXXXXXXXXX operating as XXXXXXXXXX, as described in subparagraph 43(l) below;
(aaaaaa) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 36 below;
(bbbbbb) "XXXXXXXXXX" means XXXXXXXXXX, as described in clause 43(s)(iii) below;
(cccccc) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 48 below;
(dddddd) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 46(b) below;
(eeeeee) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 46(b) below;
(ffffff) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(h) below;
(gggggg) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 21 below;
(hhhhhh) "XXXXXXXXXX" means XXXXXXXXXX, as described in subparagraph 43(c) below;
(iiiiii) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 7 below;
(jjjjjj) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 7 below;
(kkkkkk) "XXXXXXXXXX" means XXXXXXXXXX, as described in paragraph 37 below; and
(llllll) "XXXXXXXXXX means XXXXXXXXXX, as described in paragraph 38 below.
FACTS
XXXXXXXXXX and XXXXXXXXXX Structures
1. XXXXXXXXXX was incorporated in XXXXXXXXXX and is governed by the CBCA. It is a public corporation and a taxable Canadian corporation.
2. XXXXXXXXXX.
3. As at XXXXXXXXXX had XXXXXXXXXX common shares issued and outstanding representing all of its issued voting shares. XXXXXXXXXX also has XXXXXXXXXX issued and outstanding XXXXXXXXXX Preferred Shares issued in various series. All of these series of shares are non-voting.
4. Several arm's length holders of XXXXXXXXXX preferred shares own more than 10% of the issued and outstanding shares of a series of preferred shares of XXXXXXXXXX. As a result, they are "specified shareholders" of XXXXXXXXXX and thus also of XXXXXXXXXX for purposes of the Act.
5. As at XXXXXXXXXX had outstanding long-term debt issued in various series with various terms to maturity with an aggregate principal amount of approximately $XXXXXXXXXX.
6. XXXXXXXXXX.
7. As at XXXXXXXXXX had XXXXXXXXXX common shares issued and outstanding, representing all of the issued voting shares. XXXXXXXXXX owns directly XXXXXXXXXX common shares (approximately XXXXXXXXXX%) and owns indirectly, the remaining XXXXXXXXXX common shares through XXXXXXXXXX (approximately XXXXXXXXXX%). XXXXXXXXXX has also issued preferred shares in the Canadian market. All of the preferred shares are non-voting, fixed value and non-participating, and are not convertible into common shares. All of the preferred shares are shares of a specified class.
The adjusted cost base and the paid-up capital of the XXXXXXXXXX common shares held by XXXXXXXXXX and XXXXXXXXXX are as follows:
Number of Estimated Estimated
Shareholder Shares held Adjusted Cost Base Paid-up capital
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX .
8. XXXXXXXXXX.
9. The fair market value of the common shares of XXXXXXXXXX directly held by XXXXXXXXXX at XXXXXXXXXX will exceed the adjusted cost base to XXXXXXXXXX of such shares and the paid-up capital of such shares.
10. The fair market value of the common shares of XXXXXXXXXX which are directly held by XXXXXXXXXX will exceed the adjusted cost base to XXXXXXXXXX of such shares and the paid-up capital of such shares.
11. Several arm's length holders of XXXXXXXXXX preferred shares own more than 10% of the issued and outstanding shares of a series of the preferred shares of XXXXXXXXXX. As a result, they are "specified shareholders" of XXXXXXXXXX for purposes of the Act.
12. XXXXXXXXXX was incorporated in XXXXXXXXXX and is governed by the CBCA. It is a taxable Canadian corporation and a subsidiary controlled corporation of XXXXXXXXXX.
13. As at XXXXXXXXXX had the following shares issued and outstanding with the following share attributes:
(a) XXXXXXXXXX owns XXXXXXXXXX shares which entitle the holder to receive dividends out of the retained earnings of XXXXXXXXXX Business Division (described below);
(b) XXXXXXXXXX owns XXXXXXXXXX Preferred Shares and XXXXXXXXXX Preferred Shares, which entitle the holder to receive fixed cumulative annual dividends of $XXXXXXXXXX per share out of the retained earnings of XXXXXXXXXX Business Division (described below); and
(c) XXXXXXXXXX owns XXXXXXXXXX shares and XXXXXXXXXX shares which entitle the holders to receive a quarterly fixed cumulative dividend at a rate equal to XXXXXXXXXX, plus any dividends declared on the XXXXXXXXXX shares, as a class, out of the retained net income of the XXXXXXXXXX Business Division (described below). Such shares were issued as part of a tax loss consolidation transaction between XXXXXXXXXX and XXXXXXXXXX that is described in advance tax ruling XXXXXXXXXX .
14. The fair market value of the shares in the capital stock of XXXXXXXXXX will be equal to or exceed the adjusted cost base to XXXXXXXXXX and XXXXXXXXXX of such shares and the paid-up capital of such shares.
The shares of XXXXXXXXXX derive more than 10% of their value from the common shares of XXXXXXXXXX.
Outstanding Intercompany Debts
15. XXXXXXXXXX.
16. XXXXXXXXXX.
XXXXXXXXXX is a taxable Canadian corporation and a wholly-owned subsidiary of XXXXXXXXXX.
17. XXXXXXXXXX.
Direct and Indirect Business Operations of XXXXXXXXXX
18. XXXXXXXXXX.
19. XXXXXXXXXX is a taxable Canadian corporation and a public corporation governed by XXXXXXXXXX .
20. XXXXXXXXXX.
21. XXXXXXXXXX.
22. XXXXXXXXXX.
23. XXXXXXXXXX would have acquired the XXXXXXXXXX shares referred to in paragraph 21 above whether or not the proposed transactions described herein were undertaken. The proposed transactions described herein would have been undertaken even if such shares of XXXXXXXXXX had not been acquired.
24. XXXXXXXXXX is a taxable Canadian corporation and a public corporation that is governed by the CBCA. XXXXXXXXXX.
25. XXXXXXXXXX.
Such acquisition would have occurred regardless of whether the proposed transactions described herein were undertaken.
26. XXXXXXXXXX is a taxable Canadian corporation and a private corporation that is governed by the laws of XXXXXXXXXX.
27. As at XXXXXXXXXX will own common shares and XXXXXXXXXX will own common shares of XXXXXXXXXX (collectively, an approximately XXXXXXXXXX% equity interest). Acquisitions of common shares of XXXXXXXXXX by XXXXXXXXXX would have occurred regardless of whether the proposed transactions described herein would be undertaken.
28. XXXXXXXXXX.
29. XXXXXXXXXX.
30. XXXXXXXXXX.
31. XXXXXXXXXX.
32. Reserved.
33. Reserved.
34. Reserved.
35. XXXXXXXXXX is a taxable Canadian corporation and a subsidiary controlled corporation of XXXXXXXXXX that is governed by the laws of XXXXXXXXXX is a management holding company which holds all of the shares of XXXXXXXXXX.
36. XXXXXXXXXX is a taxable Canadian corporation and a subsidiary controlled corporation of XXXXXXXXXX that is governed by the CBCA.
XXXXXXXXXX
37. XXXXXXXXXX Holdco is a taxable Canadian corporation and a wholly-owned corporation of XXXXXXXXXX that is governed by the CBCA. XXXXXXXXXX Holdco owns all of the shares of XXXXXXXXXX ("XXXXXXXXXX Opco"), a taxable Canadian corporation that is governed by the CBCA.
38. XXXXXXXXXX US Holdco is a taxable Canadian corporation that is governed by the CBCA. XXXXXXXXXX US Holdco owns XXXXXXXXXX% of the interests in XXXXXXXXXX US, XXXXXXXXXX owns directly XXXXXXXXXX% of the shares of XXXXXXXXXX US Holdco.
Types of Property of XXXXXXXXXX
39. The types of property for the purposes of the distribution of XXXXXXXXXX , immediately before the transfers of property described in paragraph 73 below (the "Butterfly Transfer"), will be determined on a consolidated look-through basis by including the appropriate pro-rata share of assets of any corporation or partnership over which XXXXXXXXXX has the ability to exercise significant influence (the "Consolidated Group") and will be properties of the following types:
(a) cash or near-cash property comprising of all the current assets for financial statement purposes of the Consolidated Group including any cash, deposits, accounts receivable, inventory, rights arising from prepaid expenses (hereinafter referred to as "prepaid expenses");
(b) business property including goodwill and intangible assets relating to the business of the Consolidated Group, comprising of all of the assets of the Consolidated Group, 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, if any, comprising of all of the assets of the Consolidated Group, 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.
40. For this purpose, XXXXXXXXXX will be considered to have significant influence over a particular corporation or partnership if it has the ability to exercise significant influence, within the guidelines provided by Section 3050 of the CICA Handbook, over that corporation or partnership or if any other corporation or partnership over which XXXXXXXXXX has significant influence has significant influence over the particular corporation or partnership. This will include any assets which XXXXXXXXXX has announced it wishes to sell but in respect of which no legally binding sale agreement has been entered into. Where a legally binding sale agreement has been entered into, such assets will be treated as cash or near-cash property.
41. In determining, on a consolidated basis, the net fair market value of its cash or near-cash property, business property, and any investment property immediately before the Butterfly Transfer, liabilities of XXXXXXXXXX will be deducted in the calculation of the net fair market value of each such type of property of XXXXXXXXXX in the following manner:
(a) current liabilities of XXXXXXXXXX will be allocated to cash or near-cash property 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 amount of current liabilities as described herein will exceed the aggregate fair market value of the current assets of XXXXXXXXXX
(b) liabilities of XXXXXXXXXX, 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
(c) any liabilities ("excess unallocated liabilities"), that remain after the allocations described in steps (a) and (b) are made (including excess current liabilities), will then be allocated to the business property and any investment property of XXXXXXXXXX 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.
42. For greater certainty:
(a) any tax accounts, such as deferred taxes or balances of any capital losses or non-capital losses of the Consolidated Group , will not be considered to be a property or liability, as the case may be, and
(b) any income taxes payable, including any such amounts payable under any proposed assessment, will be classified as a current liability
for the purposes of the proposed transactions described herein.
43. In determining the types of property of XXXXXXXXXX:
(a) XXXXXXXXXX and certain of its directly and indirectly held "look-through" corporations are members of joint ventures or partnerships which, in each case, carry on a business activity directly related to the businesses of XXXXXXXXXX or the look-through corporation. Where XXXXXXXXXX or the look-through corporation has a joint venture interest or a general partnership interest, the consolidated look-through approach will be used. Where XXXXXXXXXX or the look-through corporation has a limited partnership interest, the consolidated look-through approach will be used, except as expressly otherwise described herein, only in cases where XXXXXXXXXX on a consolidated basis can exercise significant influence over the affairs of the partnership.
(b) XXXXXXXXXX.
(c) XXXXXXXXXX is a taxable Canadian corporation and a subsidiary wholly- owned corporation of XXXXXXXXXX holds XXXXXXXXXX% of the limited partnership units in the Partnership, a limited partnership formed under the laws of the province of XXXXXXXXXX. The balance of the limited partnership units are owned by a subsidiary controlled corporation of XXXXXXXXXX and the shares of the general partner are owned by a subsidiary wholly-owned corporation of XXXXXXXXXX. The Partnership carries on the business of XXXXXXXXXX directs the operations of the Partnership pursuant to a management services agreement. The limited partnership interest held by XXXXXXXXXX will be classified on a look-through basis as to the types of property in the Partnership.
(d) XXXXXXXXXX is a taxable Canadian corporation and a subsidiary controlled subsidiary corporation of XXXXXXXXXX.
(e) XXXXXXXXXX.
(f) XXXXXXXXXX.
(g) XXXXXXXXXX.
(h) XXXXXXXXXX.
(i) XXXXXXXXXX.
(j) XXXXXXXXXX
XXXXXXXXXX has made loans to certain of its employees. These loans are non-interest- bearing and form part of the overall compensation package of the employees. The value of the benefit derived by the employees from these loans is included as a taxable benefit on the T4s issued to the employees each year. These loans will be classified as business properties.
(k) XXXXXXXXXX.
(l) XXXXXXXXXX.
(m) XXXXXXXXXX.
(n) Fixed Assets
(i) XXXXXXXXXX and certain of its look-through entities own various buildings used primarily to XXXXXXXXXX Since the interests in these buildings is used primarily for business purposes, such interest will be classified as business property.
(ii) XXXXXXXXXX also currently leases some office space from an arm's length landlord. Where the amount of space being leased is in excess of XXXXXXXXXX current needs, such space is subleased to third parties. Since the space that is subleased was generally either previously occupied by XXXXXXXXXX or is potentially needed for future expansion, XXXXXXXXXX entire leasehold interest will be classified as business property.
(iii) XXXXXXXXXX.
(iv) XXXXXXXXXX and certain of its look-through entities have interests in real property that have been used and continue to be used by XXXXXXXXXX or such look-through entities. Where, based on square footage, the properties are principally used by XXXXXXXXXX or the look-through entity, the properties will be classified as business property.
(v) Certain look-through entities (e.g. XXXXXXXXXX) have in the past acquired land for future expansion of their business operations. In some circumstances, the expansion plans have been abandoned and such vacant lands are currently held for resale pending the locating of an acceptable purchaser. Since in all circumstances, the vacant land was initially acquired for future expansion and either continues to be held for such expansion or for resale, these interests in vacant lands will be classified as business property.
(o) XXXXXXXXXX.
(p) XXXXXXXXXX.
(i) XXXXXXXXXX.
(ii) XXXXXXXXXX.
(q) XXXXXXXXXX.
XXXXXXXXXX is an indirect wholly-owned subsidiary corporation of XXXXXXXXXX. As these assets were acquired in the ordinary course of business by XXXXXXXXXX, the leases will be classified as business property and all of XXXXXXXXXX current assets will be classified as cash or near-cash property.
(r) XXXXXXXXXX.
(i) XXXXXXXXXX is a direct wholly-owned subsidiary corporation of XXXXXXXXXX.
(ii) XXXXXXXXXX.
(iii) XXXXXXXXXX.
Each of XXXXXXXXXX investments in XXXXXXXXXX is critical to the continued growth and development of XXXXXXXXXX business. Such interests will be classified as business property.
(s) XXXXXXXXXX.
(i) XXXXXXXXXX.
(ii) XXXXXXXXXX.
(iii) XXXXXXXXXX.
(iv) XXXXXXXXXX owns a number of residential homes in XXXXXXXXXX which are leased only to employees of XXXXXXXXXX working in the area. XXXXXXXXXX has a policy of providing rental accommodations to these employees in light of the remoteness of the location and the scarcity of available housing. Some of the housing units are currently vacant and are held for sale and will be sold as soon as a purchaser can be located. These residential homes will be classified as a business property.
44. As a result of the determination described herein and the allocation of liabilities as described in paragraph 41 above, XXXXXXXXXX types of property for purposes of the Butterfly Transfer will consist only of business property.
Other XXXXXXXXXX Assets
45. XXXXXXXXXX is a taxable Canadian corporation and a public corporation that is governed by the CBCA. XXXXXXXXXX.
46. As at XXXXXXXXXX held both directly and indirectly the following shares relating to XXXXXXXXXX:
(a) XXXXXXXXXX owns directly XXXXXXXXXX common shares of XXXXXXXXXX (an approximately XXXXXXXXXX% equity interest);
(b) XXXXXXXXXX (a subsidiary controlled corporation of XXXXXXXXXX ) owns directly XXXXXXXXXX common shares of XXXXXXXXXX (an approximately XXXXXXXXXX% equity interest). XXXXXXXXXX owns directly all of the XXXXXXXXXX common shares issued and outstanding of XXXXXXXXXX and XXXXXXXXXX owns directly all of the XXXXXXXXXX preferred shares issued and outstanding of XXXXXXXXXX;
(c) XXXXXXXXXX owns directly XXXXXXXXXX Series B common shares of XXXXXXXXXX; and
(d) XXXXXXXXXX (a subsidiary controlled corporation of XXXXXXXXXX ) owns directly XXXXXXXXXX common shares of XXXXXXXXXX (an approximately XXXXXXXXXX% equity interest). XXXXXXXXXX owns directly all of the XXXXXXXXXX common shares issued and outstanding of XXXXXXXXXX.
47. XXXXXXXXXX is a taxable Canadian corporation and a public corporation that is governed by the CBCA. XXXXXXXXXX.
48. As at XXXXXXXXXX owned directly XXXXXXXXXX common shares of XXXXXXXXXX (an approximately XXXXXXXXXX% equity interest). XXXXXXXXXX (a subsidiary wholly-owned corporation of XXXXXXXXXX ) owns directly XXXXXXXXXX common shares of XXXXXXXXXX (an approximately XXXXXXXXXX% equity interest). XXXXXXXXXX owns directly all of the issued and outstanding common shares of XXXXXXXXXX.
49. XXXXXXXXXX Holdco is a taxable Canadian corporation and a direct wholly-owned subsidiary of XXXXXXXXXX that is governed by the CBCA. XXXXXXXXXX Holdco owns XXXXXXXXXX% of the shares of XXXXXXXXXX US.
50. XXXXXXXXXX US is a corporation governed by the laws of XXXXXXXXXX.
51. XXXXXXXXXX Canada is a taxable Canadian corporation and a direct wholly owned subsidiary of XXXXXXXXXX that is governed by the CBCA. XXXXXXXXXX.
Corporations Incorporated for Proposed Transactions
52. Prior to the implementation of the proposed transactions, XXXXXXXXXX will incorporate a new corporation ("XXXXXXXXXX Subco") under the CBCA. XXXXXXXXXX Subco will be a taxable Canadian corporation.
The authorized share capital of XXXXXXXXXX Subco will consist of an unlimited number of common shares without nominal or par value. XXXXXXXXXX will subscribe for one common share of XXXXXXXXXX Subco for $XXXXXXXXXX on incorporation.
53. Prior to the implementation of the proposed transactions, XXXXXXXXXX will incorporate a new corporation ("XXXXXXXXXX Subco") under the CBCA. XXXXXXXXXX Subco will be a taxable Canadian corporation.
The authorized share capital of XXXXXXXXXX Subco will consist of an unlimited number of common shares (the "XXXXXXXXXX Subco Common Shares") and redeemable and retractable preferred shares (the "XXXXXXXXXX Subco Reorganization Shares"). One XXXXXXXXXX Subco Common Share of XXXXXXXXXX Subco will be issued to XXXXXXXXXX for $XXXXXXXXXX on incorporation.
Each XXXXXXXXXX Subco Reorganization Share will be redeemable at any time at the option of the issuer and retractable at any time at the option of the holder for an aggregate amount ("Redemption Amount") equal to the fair market value of the property received for the issuance of the shares, net of any liabilities assumed by the issuer at the time of issuance divided by the number of XXXXXXXXXX Subco Reorganization Shares issued as consideration for such property. The XXXXXXXXXX Subco Reorganization Shares will be non-voting.
54. Prior to the implementation of the proposed transactions, XXXXXXXXXX incorporated a corporation ("Newco") under the CBCA that is a taxable Canadian corporation. The shares of Newco have been owned by XXXXXXXXXX from XXXXXXXXXX and Newco is qualified as a "XXXXXXXXXX" company.
The authorized share capital of Newco will include an unlimited number of Class XXXXXXXXXX, Class XXXXXXXXXX and Class XXXXXXXXXX common shares without nominal or par value. The Class XXXXXXXXXX Shares will entitle its holder to nominal preferential dividends and will be participating on a liquidation of Newco and convertible into a class of common shares of Newco (i.e. Class XXXXXXXXXX shares) with attributes essentially identical to those of the Class XXXXXXXXXX common shares of Newco held by XXXXXXXXXX holds XXXXXXXXXX Class XXXXXXXXXX shares of Newco.
55. Prior to the implementation of the proposed transactions, XXXXXXXXXX will incorporate two new corporations ("XXXXXXXXXX Subco" and "XXXXXXXXXX Subco II") under the CBCA. XXXXXXXXXX Subco and XXXXXXXXXX Subco II will each be a taxable Canadian corporation.
The authorized share capital of each of XXXXXXXXXX Subco and XXXXXXXXXX Subco II will include an unlimited number of common shares without nominal or par value. One common share each of XXXXXXXXXX Subco and XXXXXXXXXX Subco II will be issued to XXXXXXXXXX for $XXXXXXXXXX on incorporation.
56. Except as described herein, no debts have been or will be incurred or paid and no property has been or will be acquired by XXXXXXXXXX Subco or Amalco (as described below) or any company controlled by any of those companies in contemplation of the proposed transactions described below, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (vi).
57. None of the XXXXXXXXXX Subco Reorganization Shares or the XXXXXXXXXX Reorganization Shares (as described below) is or will be subject to a guarantee agreement, within the meaning referred to in subsection 112(2.2).
58. None of the XXXXXXXXXX Subco Reorganization Shares or the XXXXXXXXXX Reorganization Shares 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).
59. None of the XXXXXXXXXX Subco Reorganization Shares or the XXXXXXXXXX Reorganization Shares is or will be subject to a dividend rental arrangement.
60. None of XXXXXXXXXX or any corporation controlled by XXXXXXXXXX will be a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).
61. No changes to the share capital structure of XXXXXXXXXX are contemplated before the date of the commencement of the proposed transactions with the exception of changes that would result from the refinancing, conversion or new issuance of preferred shares and the ordinary operations of XXXXXXXXXX Shareholder Dividend Reinvestment and Stock Purchase Plan, Employees' Savings Plan, the exercise of XXXXXXXXXX stock options by officers and key employees and the purchase by XXXXXXXXXX of its common shares pursuant to a normal course issuer bid.
62. All of the shares referred to above owned by XXXXXXXXXX are held as capital property by XXXXXXXXXX, respectively.
63. XXXXXXXXXX, as well as other companies in which XXXXXXXXXX have a direct or indirect interest, continually consider a diverse range of potentially significant possible transactions as part of their ordinary course of activities. XXXXXXXXXX has recently acquired approximately a XXXXXXXXXX percent economic interest in XXXXXXXXXX . This acquisition has occurred in the ordinary course of the activities of XXXXXXXXXX and the investment would have been undertaken even if the proposed Butterfly Reorganization were not undertaken.
XXXXXXXXXX .
Other than as described in this ruling request none of these transactions or potential transactions have been considered or are currently being considered in contemplation of the proposed transactions described herein.
64. Neither XXXXXXXXXX Subco nor XXXXXXXXXX is a restricted financial institution.
PROPOSED TRANSACTIONS
65. XXXXXXXXXX will repay to XXXXXXXXXX the XXXXXXXXXX Note by transferring to XXXXXXXXXX the XXXXXXXXXX Note, which has a principal amount and fair market value (exclusive of accrued interest up to the date of the repayment, which accrued interest on both notes will be settled in cash) equal to the principal amount of the XXXXXXXXXX Note.
As a result, the amount owing by XXXXXXXXXX to XXXXXXXXXX will increase from approximately $XXXXXXXXXX to approximately $XXXXXXXXXX (referred to herein as the "Consolidated XXXXXXXXXX Note").
66. (a) XXXXXXXXXX will transfer to XXXXXXXXXX Subco, all of the assets relating to the XXXXXXXXXX Business Division. In consideration, XXXXXXXXXX Subco will assume the liabilities of the XXXXXXXXXX Business Division and issue to XXXXXXXXXX common shares with a fair market value not exceeding the fair market value of the assets transferred less the amount of liabilities assumed at the time of the transfer.
XXXXXXXXXX will jointly elect with XXXXXXXXXX Subco in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each eligible property relating to the XXXXXXXXXX Business Division. The agreed amount in respect of each eligible property transferred will be as follows:
(i) in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);
(ii) in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii);
(iii) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii);
however, the amount elected in respect of any particular property will not be less than $XXXXXXXXXX.
The fair market value of each eligible property transferred will exceed or be equal to the agreed amount.
XXXXXXXXXX Subco will add an amount to its stated capital account in respect of the common shares issued equal to the aggregate of the cost amounts of the property transferred from XXXXXXXXXX less the amount of the liabilities of XXXXXXXXXX assumed by XXXXXXXXXX Subco.
The liabilities assumed will be allocated to specific properties transferred. The amount of liabilities to be allocated to a property transferred pursuant to subsection 85(1) will not exceed the agreed amount in respect of that property. The amount of liabilities allocated to property other than a property transferred pursuant to subsection 85(1) will not exceed the fair market value in respect of that property.
XXXXXXXXXX and XXXXXXXXXX Subco will jointly elect to have the provisions of section 22 apply to the transfer of the accounts receivable relating to the XXXXXXXXXX Business Division on the transfer of the XXXXXXXXXX Business Division assets to XXXXXXXXXX Subco.
(b) XXXXXXXXXX will transfer to XXXXXXXXXX Subco II all of its shares of the XXXXXXXXXX (the "XXXXXXXXXX Shares") held by XXXXXXXXXX . In consideration for the transfer, XXXXXXXXXX Subco II will issue to XXXXXXXXXX common shares with a fair market value not exceeding the fair market value of the XXXXXXXXXX Shares at the time of the transfer.
XXXXXXXXXX will jointly elect with XXXXXXXXXX Subco II in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX Shares. The agreed amount in respect of the XXXXXXXXXX Shares transferred will be equal to the cost amount of such shares to XXXXXXXXXX at the time of disposition, which will be less than the fair market value of the XXXXXXXXXX Shares at that time.
XXXXXXXXXX Subco II will add an amount to the stated capital account in respect of the XXXXXXXXXX Subco II common shares issued as consideration for the transfer of the XXXXXXXXXX Shares not to exceed the aggregate paid-up capital of the XXXXXXXXXX Shares transferred.
The transactions described in subparagraph 66(b) may occur prior to the transactions described in paragraph 65 and subparagraph 66(a)
67. XXXXXXXXXX Subco and XXXXXXXXXX (hereinafter, at all times, referred to as the "predecessor corporations") will undertake a "triangular amalgamation" under the provisions of the CBCA to form a corporation ("Amalco") in such a manner that:
(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become property of Amalco by virtue of the amalgamation;
(b) all of the liabilities (except any amount payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation, including the amount owed by XXXXXXXXXX to XXXXXXXXXX under the Consolidated XXXXXXXXXX Note, will become liabilities of Amalco by virtue of the amalgamation; and
(c) XXXXXXXXXX will receive shares of the capital stock of Amalco and XXXXXXXXXX will receive shares of the capital stock of XXXXXXXXXX by virtue of the amalgamation in the following manner:
(i) XXXXXXXXXX will receive common shares of Amalco for its common shares of XXXXXXXXXX Subco and its Class A XXXXXXXXXX shares, Class A XXXXXXXXXX shares, XXXXXXXXXX Preferred Shares and XXXXXXXXXX Preferred Shares of XXXXXXXXXX;
(ii) XXXXXXXXXX will receive additional common shares of XXXXXXXXXX for its Class B shares of XXXXXXXXXX, and in consideration for issuing such shares, XXXXXXXXXX will receive additional common shares of Amalco; and
(iii) all the shares of XXXXXXXXXX Subco and XXXXXXXXXX will be cancelled on the amalgamation.
Amalco will add to the stated capital account maintained for its common shares an amount equal to $XXXXXXXXXX.
XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the paid-up capital of the Class B shares of XXXXXXXXXX owned by XXXXXXXXXX immediately before the amalgamation.
68. XXXXXXXXXX and Amalco (hereinafter, at all times, referred to as "predecessor corporations") will undertake a vertical short form amalgamation under the provisions of the CBCA to form a new corporation (XXXXXXXXXX or the new corporation resulting from the amalgamation will be referred to as XXXXXXXXXX as the context dictates) in such a manner that:
(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become property of XXXXXXXXXX by virtue of the amalgamation;
(b) all of the liabilities (except any amount payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation, including the Consolidated XXXXXXXXXX Note, will become liabilities of XXXXXXXXXX by virtue of the amalgamation;
(c) the XXXXXXXXXX Loan will be cancelled and the common shares of XXXXXXXXXX held by Amalco immediately prior to the amalgamation will be cancelled by virtue of the amalgamation; and
(d) all of the shares of Amalco held by XXXXXXXXXX immediately prior to the amalgamation will be cancelled by virtue of the amalgamation and the shares of XXXXXXXXXX owned by its shareholders immediately before the amalgamation will become shares of XXXXXXXXXX owned by those shareholders immediately after the amalgamation.
69. Reserved.
70. Reserved.
Butterfly Transaction
71. XXXXXXXXXX will amend its articles of incorporation under the CBCA, to create a new class of voting and fully participating common shares (the "XXXXXXXXXX New Common Shares") and a new class of non-voting, redeemable and retractable special shares (the "XXXXXXXXXX Reorganization Shares"). XXXXXXXXXX will exchange each of its common shares of XXXXXXXXXX for one XXXXXXXXXX New Common Share and one XXXXXXXXXX Reorganization Share (the "Share Exchange"). Immediately following the Share Exchange, all of the previously issued and outstanding common shares of XXXXXXXXXX will be cancelled. Elections under subsection 85(1) will not be filed in respect of the Share Exchange.
The aggregate redemption amount ("XXXXXXXXXX Redemption Amount") of the XXXXXXXXXX Reorganization Shares issued on the Share Exchange will be equal to the Butterfly Proportion of the fair market value of all the issued common shares and preferred shares of XXXXXXXXXX, immediately before the Share Exchange.
Each XXXXXXXXXX Reorganization Share will be redeemable and retractable for an amount equal to the XXXXXXXXXX Redemption Amount divided by the number of XXXXXXXXXX Reorganization Shares issued on the Share Exchange and will entitle the holder thereof to a non-cumulative cash dividend equal to XXXXXXXXXX% of the redemption amount of the share at that time. The XXXXXXXXXX Reorganization Shares will be non-voting.
The terms and conditions of the XXXXXXXXXX New Common Shares will be the same as those of the existing common shares.
XXXXXXXXXX will add to the stated capital accounts maintained for the XXXXXXXXXX New Common Shares and the XXXXXXXXXX Reorganization Shares an amount equal, in aggregate, to the paid-up capital of the common shares of XXXXXXXXXX held by XXXXXXXXXX immediately before the Share Exchange. The stated capital of the outstanding common shares of XXXXXXXXXX will be allocated between the XXXXXXXXXX New Common Shares and the XXXXXXXXXX Reorganization Shares based on the proportion that the fair market value of the XXXXXXXXXX New Common Shares and the XXXXXXXXXX Reorganization Shares, as the case may be, is of the total fair market value of all new shares issued.
72. XXXXXXXXXX will transfer to XXXXXXXXXX Subco all of the XXXXXXXXXX Reorganization Shares held by XXXXXXXXXX. In consideration for the transfer, XXXXXXXXXX Subco will issue to XXXXXXXXXX Subco Common Shares with a fair market value not exceeding the fair market value of the XXXXXXXXXX Reorganization Shares at the time of the transfer.
XXXXXXXXXX will jointly elect with XXXXXXXXXX Subco in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX Reorganization Shares. The agreed amount in respect of the XXXXXXXXXX Reorganization Shares transferred will be equal to the cost amount of such shares to XXXXXXXXXX at the time of disposition, which will be less than the fair market value of the XXXXXXXXXX Reorganization Shares at that time.
XXXXXXXXXX Subco will add an amount to the stated capital account in respect of the XXXXXXXXXX Subco Common Shares issued as consideration for the transfer of the XXXXXXXXXX Reorganization Shares not to exceed the paid-up capital of the XXXXXXXXXX Reorganization Shares transferred.
73. Immediately after the transfer of the XXXXXXXXXX Reorganization Shares to XXXXXXXXXX Subco, XXXXXXXXXX will transfer, at fair market value, to XXXXXXXXXX Subco all of the shares it then owns of XXXXXXXXXX, and certain other assets (collectively the "Butterflied Assets"). In consideration for the transfer, XXXXXXXXXX Subco may assume liabilities of XXXXXXXXXX and will issue XXXXXXXXXX Subco Reorganization Shares, with an aggregate redemption amount (the "XXXXXXXXXX Subco Redemption Amount") equal to the aggregate fair market value of the transferred property at the time of transfer less the amount of liabilities assumed. As a result of such transfer, the net fair market value of the business property received by XXXXXXXXXX Subco will be equal to the Butterfly Proportion of the net fair market value of all of the business property owned by XXXXXXXXXX immediately before the transfer.
XXXXXXXXXX will jointly elect with XXXXXXXXXX Subco in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of XXXXXXXXXX that is an eligible property transferred to XXXXXXXXXX Subco. The agreed amount in respect of each of the eligible properties transferred will be as follows:
(i) in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);
(ii) in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii);
(iii) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii);
except that in no case shall the amount determined under paragraphs (i), (ii) and (iii) above be less than $XXXXXXXXXX in respect of any eligible property. In addition, in no case will the amount of assumed liabilities, if any, applicable to a Butterflied Asset exceed the agreed amount in respect thereof.
XXXXXXXXXX Subco will add an amount to the stated capital account in respect of the XXXXXXXXXX Subco Reorganization Shares so issued 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 XXXXXXXXXX Subco exceeds the liabilities assumed by XXXXXXXXXX Subco.
74. XXXXXXXXXX Subco will purchase for cancellation the XXXXXXXXXX Subco Reorganization Shares held by XXXXXXXXXX in consideration for the issuance by XXXXXXXXXX Subco to XXXXXXXXXX of a non-interest-bearing demand note (the "XXXXXXXXXX Subco Redemption Note") having a principal amount and fair market value equal to the XXXXXXXXXX Subco Redemption Amount.
75. XXXXXXXXXX will purchase for cancellation the XXXXXXXXXX Reorganization Shares held by XXXXXXXXXX Subco in consideration for the issuance by XXXXXXXXXX to XXXXXXXXXX Subco of a non-interest-bearing demand note (the "XXXXXXXXXX Redemption Note") having a principal amount and fair market value equal to the XXXXXXXXXX Redemption Amount.
76. The XXXXXXXXXX Subco Redemption Note will be set off against the XXXXXXXXXX Redemption Note in full satisfaction of the obligations under each of the notes and the notes will be cancelled.
Transfers to XXXXXXXXXX
77. XXXXXXXXXX will transfer to XXXXXXXXXX, all of the shares it then owns of XXXXXXXXXX (collectively the "Transferred Shares"). In consideration for the transfer, XXXXXXXXXX will issue to XXXXXXXXXX common shares with a fair market value not exceeding the fair market value of the Transferred Shares at the time of the transfer.
XXXXXXXXXX will jointly elect with XXXXXXXXXX in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Transferred Shares. The agreed amount in respect of the transfer of the Transferred Shares will be equal to or exceed the cost amount of such shares to XXXXXXXXXX at the time of the disposition, which will not exceed the fair market value of the Transferred Shares at that time.
XXXXXXXXXX will add an amount to the stated capital account in respect of its common shares issued as consideration for the transfer of the Transferred Shares not to exceed the aggregate paid-up capital of the Transferred Shares.
Transfers to Newco
78. XXXXXXXXXX will transfer to Newco, the XXXXXXXXXX In consideration for the transfer, Newco will issue to XXXXXXXXXX:
(i) a demand promissory note bearing interest at a commercial rate, with a principal amount equal to an amount that is equal to or greater than XXXXXXXXXX aggregate adjusted cost base of the XXXXXXXXXX Securities at the time of the transfer, but less than the fair market value of the XXXXXXXXXX Securities (the "XXXXXXXXXX Note"); and
(ii) Class XXXXXXXXXX common shares of Newco with a fair market value not exceeding the fair market value of the XXXXXXXXXX Securities at the time of the transfer less the amount of the XXXXXXXXXX Note.
XXXXXXXXXX will jointly elect with Newco in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX Securities. The agreed amount in respect of the transfer of the XXXXXXXXXX Securities transferred will be equal to the principal amount of the XXXXXXXXXX Note which amount will not exceed the fair market value of the XXXXXXXXXX Securities nor will it be less than the amount permitted under paragraph 85(1)(b).
Newco will add an amount to the stated capital account in respect of its Class XXXXXXXXXX common shares issued as consideration for the transfer of the XXXXXXXXXX Securities equal to the aggregate of (i) the aggregate paid-up capital of the transferred shares of XXXXXXXXXX.
79. XXXXXXXXXX will borrow an amount from an arm's-length Canadian financial institution and XXXXXXXXXX will in turn loan the proceeds of the loan to Newco. The indebtedness of Newco to XXXXXXXXXX will be evidenced by one or more promissory notes, each with a commercial interest rate, which rate will not be less than the rate at which XXXXXXXXXX will pay to the arm's-length Canadian financial institution, and repayment terms and an aggregate principal amount equal to the amount of cash borrowed (the "Newco Notes"). Such principal amount will be less than the adjusted cost base of the XXXXXXXXXX New Common Shares at that time.
XXXXXXXXXX will transfer to Newco all of the XXXXXXXXXX New Common Shares held by XXXXXXXXXX. In consideration for the transfer, Newco will:
(i) pay to XXXXXXXXXX the cash proceeds of the Newco Notes; and
(ii) issue to XXXXXXXXXX Class XXXXXXXXXX common shares with a fair market value not exceeding the fair market value of the XXXXXXXXXX New Common Shares at the time of the transfer less the amount of the cash proceeds of the Newco Note.
XXXXXXXXXX will jointly elect with Newco in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX New Common Shares. The agreed amount in respect of the transfer of the XXXXXXXXXX New Common Shares transferred will be equal to their cost amount to XXXXXXXXXX at the time of the disposition, which will be less than the fair market value of the XXXXXXXXXX New Common Shares at that time.
Newco will add an amount to the stated capital account in respect of its Class XXXXXXXXXX common shares issued as consideration for the transfer of the XXXXXXXXXX New Common Shares not to exceed the excess, if any, of the aggregate paid-up capital of the XXXXXXXXXX New Common Shares over the cash consideration paid by Newco.
XXXXXXXXXX will use the cash proceeds received from the transfer of the XXXXXXXXXX New Common Shares to repay the amount borrowed from the financial institution.
Transfer to XXXXXXXXXX
80. Newco will borrow an amount from an arm's-length Canadian financial institution and Newco will in turn loan the proceeds of the loan to XXXXXXXXXX . The indebtedness of XXXXXXXXXX to Newco will be evidenced by one or more promissory notes, each with a commercial interest rate, which rate will not be less than the rate of interest designated on the XXXXXXXXXX Note, and repayment terms and an aggregate principal amount equal to the amount of cash borrowed (the "XXXXXXXXXX Notes"). The aggregate principal amount of the XXXXXXXXXX Notes will be less than the adjusted cost base of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) at that time.
Newco will transfer to XXXXXXXXXX the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) held by Newco. In consideration for the transfer, XXXXXXXXXX will:
(i) pay to Newco the cash proceeds of the XXXXXXXXXX Notes; and
(ii) issue to Newco XXXXXXXXXX New Common Shares with a fair market value not exceeding the fair market value of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) less the amount of the cash proceeds of the XXXXXXXXXX Notes.
Newco will jointly elect with XXXXXXXXXX in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable). The agreed amount in respect of the transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) transferred will be equal to their cost amount to Newco at the time of the disposition, which will be less than the fair market value of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) at that time.
XXXXXXXXXX will add an amount to the stated capital account in respect of its XXXXXXXXXX New Common Shares issued as consideration for the transfer of all of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) equal to the aggregate of (i) the aggregate paid-up capital of the transferred shares of XXXXXXXXXX and (ii) the aggregate of the cost amount to Newco of the other assets representing the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) over (iii) the amount of the cash consideration paid by XXXXXXXXXX.
Newco will use the cash proceeds received from the transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) to repay the amount borrowed from the financial institution.
Newco Option Agreement
81. The XXXXXXXXXX will provide Newco with the option (XXXXXXXXXX ) to acquire from XXXXXXXXXX or XXXXXXXXXX Subco (as applicable) all or any part of the remaining XXXXXXXXXX% interest in XXXXXXXXXX Holdco or of the remaining XXXXXXXXXX% interest in XXXXXXXXXX US Holdco for an exercise price equal to $XXXXXXXXXX plus the greater of:
(a) the estimated fair market value of the shares acquired; and
(b) an amount computed by reference to XXXXXXXXXX cumulative equity capital contributions to the relevant entity from the closing date to the exercise date of the option
subject to an overall limit also computed by reference to XXXXXXXXXX cumulative equity capital contributions to the relevant entity.
82. Reserved.
Investor Transaction and Repayment
83. The Investor will subscribe for an agreed upon number of a separate class of shares of Newco (the "XXXXXXXXXX Shares") for cash. The number of XXXXXXXXXX Shares of Newco acquired by the Investor will constitute XXXXXXXXXX% of the common shares of Newco after taking into account this subscription.
Newco will add an amount equal to the subscription price to its stated capital account maintained for its XXXXXXXXXX common shares issued to the Investor.
84. The XXXXXXXXXX will govern the relationship between XXXXXXXXXX and the Investor, in their capacity as shareholders of Newco, and will become effective at the time of the transaction described in paragraph 83 above. The XXXXXXXXXX will provide for general governance issues including the composition of the Board of Directors of Newco, the appointment of executives, required approvals for certain events and rights of first refusal and other circumstances in which the Investor's shares of Newco could potentially be transferred to XXXXXXXXXX or vice versa.
85. Newco will use a portion of the amount received as subscription proceeds in paragraph 83 above to repay the principal amount of the XXXXXXXXXX Note described in paragraph 78 above.
86. Newco will use a portion of the amount received as subscription proceeds in paragraph 83 above to subscribe for additional XXXXXXXXXX New Common Shares for an amount equal to the amount owing on the Consolidated XXXXXXXXXX Note.
XXXXXXXXXX will add an amount equal to the subscription price to its stated capital account maintained for its XXXXXXXXXX New Common Shares.
87. XXXXXXXXXX will use the amount received as subscription proceeds in paragraph 86 above to repay the principal amount of the Consolidated XXXXXXXXXX Note assumed by XXXXXXXXXX on the amalgamation referred to in paragraph 68 above.
Financing Arrangement
88. After the completion of the proposed transactions, it is contemplated that XXXXXXXXXX will repay all or a portion of the XXXXXXXXXX Note owing to Newco through the use of profits, cash received from the sale of assets and periodic borrowings from third party lending institutions. Upon receipt of such funds, Newco will use such funds to repay all or a portion of the Newco Note owing to XXXXXXXXXX.
PURPOSE OF THE PROPOSED TRANSACTIONS
89. The overall purpose of the proposed transactions is to permit various assets to be removed from XXXXXXXXXX (collectively, the "Retained XXXXXXXXXX Businesses") by way of a distribution prior to an investor making an indirect investment in the remaining businesses of XXXXXXXXXX (collectively, the "Investor XXXXXXXXXX Businesses"). The Investor will not obtain an interest in the Retained XXXXXXXXXX Businesses except as expressly described herein.
90. The purpose of the proposed transaction in paragraph 65 above is to transfer indebtedness of XXXXXXXXXX from XXXXXXXXXX to XXXXXXXXXX. Such indebtedness is to be repaid as part of the proposed transactions and this transaction will simplify the cash flows on such repayment.
91. The purpose of the proposed transaction in subparagraph 66(a) above is to ensure that the XXXXXXXXXX Business Division is carried on in a separate entity from the corporation carrying on the XXXXXXXXXX business.
92. The purpose of the proposed transactions in paragraphs 67 and 68 above is to merge the businesses of XXXXXXXXXX. The merger will be carried out using a triangular amalgamation followed by the amalgamation of XXXXXXXXXX and Amalco, as opposed to a direct amalgamation of XXXXXXXXXX. The use of a triangular amalgamation, as opposed to a direct amalgamation between XXXXXXXXXX, is undertaken solely for bona fide purposes other than to obtain a tax benefit under the Act. The merger of XXXXXXXXXX is required since each of XXXXXXXXXX currently owns assets that form part of the Investor XXXXXXXXXX Businesses and the Retained XXXXXXXXXX Businesses and it is simpler to merge the entities and then separate the Retained XXXXXXXXXX Businesses from the Investor XXXXXXXXXX Businesses in a single step.
93. The purpose of the transactions described in paragraphs 71 to 76 above is to effect the distribution of the assets of XXXXXXXXXX in the form of a "spin-off".
94. The transfer by XXXXXXXXXX to Newco of the XXXXXXXXXX Securities described in paragraph 78 above is to allow the Investor to acquire an indirect interest in the XXXXXXXXXX Securities in addition to an interest in the Investor XXXXXXXXXX Businesses.
95. The purpose of the transfer of the XXXXXXXXXX New Common Shares (which represent the Investor XXXXXXXXXX Businesses) to Newco referred to in paragraph 79 above is so that Newco will be the vehicle in which the Investor will make its investment. The use of Newco as the investment vehicle is beneficial for the following reasons:
(a) the Investor will acquire a separate class of common shares of the investment vehicle (since the Investor would not want to "blend" its paid-up capital with the existing paid-up capital of the Class XXXXXXXXXX common shares held by XXXXXXXXXX). The use of Newco will not require any permanent changes to the share capital of XXXXXXXXXX;
(b) the overall debt capacity of Newco and XXXXXXXXXX will be greater than the debt capacity of XXXXXXXXXX as a stand-alone entity. (Since debt of Newco will not represent a direct charge on the assets of XXXXXXXXXX, this will also allow XXXXXXXXXX to maintain a higher credit rating than if all the Newco debt was assumed by XXXXXXXXXX); and
(c)
XXXXXXXXXX.
96. The transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) to XXXXXXXXXX by Newco referred to in paragraph 80 above will enable all of the direct and indirect business interests of XXXXXXXXXX to be owned by the same entity, which is preferential to XXXXXXXXXX from a management and corporate governance perspective. In addition, the issuance of the XXXXXXXXXX Note will provide partial funding for payments required to be made by Newco on the Newco Note.
97. The purpose of the proposed transaction in paragraph 81 above, is to accommodate the Investor which is currently prohibited from holding more than a XXXXXXXXXX. Each of XXXXXXXXXX US Holdco and XXXXXXXXXX Holdco indirectly operates such a business. As a result of the Investor owning a XXXXXXXXXX % interest in XXXXXXXXXX after the transactions described herein, XXXXXXXXXX cannot hold more than a XXXXXXXXXX % interest in XXXXXXXXXX US Holdco or XXXXXXXXXX Holdco. The option agreement described in paragraph 81 above provides a mechanism through which the Investor can ultimately increase its investment in XXXXXXXXXX US Holdco and XXXXXXXXXX Holdco XXXXXXXXXX.
98. Reserved.
99. Reserved.
100. The purposes of the transactions referred to in paragraphs 83 to 86 above are for the Investor to acquire its interest in Newco and for Newco and XXXXXXXXXX to repay debt owed to XXXXXXXXXX.
101. The purpose of the transfers of shares by XXXXXXXXXX to XXXXXXXXXX, as described in paragraphs 77 and 78, and the transfers of the XXXXXXXXXX by XXXXXXXXXX to XXXXXXXXXX Subco II, as described in subparagraph 66(b) is to provide XXXXXXXXXX with additional flexibility in respect of financing matters.
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 section 80 will not apply to eitherXXXXXXXXXX by virtue of the transfer by XXXXXXXXXX of the XXXXXXXXXX Note in repayment of the XXXXXXXXXX Note, and neither XXXXXXXXXX will realize a gain for the purposes of the Act by virtue of such transfer or repayment.
B. On the transfer of each eligible property of XXXXXXXXXX to XXXXXXXXXX Subco described in subparagraph 66(a) above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX Subco in their joint election in respect of the transferred properties will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to XXXXXXXXXX Subco.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in subparagraph 66(a) above.
C. The provisions of paragraphs 1100(2.2)(e) and 1102(14)(d) of the Regulations will apply in respect of depreciable property transferred by XXXXXXXXXX to XXXXXXXXXX Subco as described in subparagraph 66(a) above.
D. On the transfer of each of the XXXXXXXXXX Shares of XXXXXXXXXX to XXXXXXXXXX Subco II described in subparagraph 66(b) above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX Subco II in their joint election in respect of the transferred properties will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to XXXXXXXXXX Subco II.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in subparagraph 66(b) above.
E. On the amalgamation of XXXXXXXXXX and XXXXXXXXXX Subco described in paragraph 67 above, the provisions of:
(a) subsection 87(1) will apply;
(b) subsection 87(4) will apply, such that:
(i) XXXXXXXXXX will be deemed by paragraph 87(4)(a) to have disposed of its shares of XXXXXXXXXX for proceeds of disposition equal to its adjusted cost base of such shares immediately before the amalgamation;
(ii) XXXXXXXXXX will be deemed by paragraph 87(4)(a) to have disposed of its shares of XXXXXXXXXX and XXXXXXXXXX Subco for proceeds of disposition equal to its respective adjusted cost base of such shares, immediately before the amalgamation;
(iii) XXXXXXXXXX will be deemed by paragraph 87(4)(b) to have acquired its common shares of Amalco for an amount equal to the aggregate proceeds of disposition referred to in paragraph (ii) above; and
(iv) XXXXXXXXXX will be deemed by paragraph 87(4)(b) to have acquired the common shares of XXXXXXXXXX issued to it by virtue of the amalgamation for an amount equal to the proceeds described in (i) above.
(c) subsection 87(7) will apply to a debt or other obligation of XXXXXXXXXX Subco and XXXXXXXXXX immediately before the amalgamation that became a debt or other obligation of Amalco where the amount payable by Amalco on the maturity of the debt or other obligation, as the case may be, is the same as the amount that would have been payable by the predecessor corporation on its maturity, and therefore the provisions of section 80 will not apply.
F. On the amalgamation of XXXXXXXXXX and Amalco described in paragraph 68 above, the provisions of:
(a) subsection 87(1) will apply, by virtue of subsection 87(1.1);
(b) subsection 87(4) will apply, such that:
(i) XXXXXXXXXX will be deemed by paragraph 87(4)(a) to have disposed of its shares of XXXXXXXXXX for proceeds of disposition equal to its adjusted cost base of such shares immediately before the amalgamation; and
(ii) XXXXXXXXXX will be deemed by paragraph 87(4)(b) to have acquired its common shares of the new corporation formed on the amalgamation for an amount equal to the aggregate proceeds of disposition referred to in paragraph (i) above;
(c) section 87(7) will apply to a debt or other obligation of XXXXXXXXXX and Amalco immediately before the amalgamation that became a debt or other obligation of the new corporation formed on the amalgamation where the amount payable by the new corporation on the maturity of the debt or other obligation, as the case may be, is the same as the amount that would have been payable by the predecessor corporation on its maturity and therefore the provisions of section 80 will not apply;
(d) pursuant to the provisions of subsection 80.01(3), the settlement of the XXXXXXXXXX Loan upon the amalgamation of XXXXXXXXXX and Amalco described in paragraph 68 above, will be deemed to have been settled immediately before the time that is immediately before the amalgamation by a payment made by XXXXXXXXXX and received by XXXXXXXXXX of an amount equal to the amount that would have been XXXXXXXXXX cost amount of the indebtedness at that time subject to the requirements of paragraphs 80.01(3)(a) and (b); and
(e) the cancellation of the shares of Amalco held by XXXXXXXXXX by virtue of the amalgamation will not give rise to a gain or loss to XXXXXXXXXX and the cancellation of the shares of XXXXXXXXXX held by Amalco by virtue of the amalgamation will not give rise to a gain or loss to Amalco.
G. The provisions of paragraphs 1100(2.2)(e) and 1102(14)(d) of the Regulations will apply in respect of depreciable property acquired by the new corporation formed on the amalgamation described in paragraph 68 above.
H. Provided the XXXXXXXXXX common shares are capital property to XXXXXXXXXX and XXXXXXXXXX does not make an election pursuant to subsection 85(1) with respect to the Share Exchange, subsection 86(1) will apply to the exchange of all such shares held by XXXXXXXXXX, as described in paragraph 71 above, such that:
(a) the cost of the XXXXXXXXXX Reorganization Shares and the XXXXXXXXXX New Common Shares received by XXXXXXXXXX on the Share Exchange will respectively be deemed by paragraph 86(l)(b) to be an amount equal to that proportion of the adjusted cost base to XXXXXXXXXX, immediately before the Share Exchange, of XXXXXXXXXX common shares that
(i) the fair market value, immediately after the Share Exchange, of the XXXXXXXXXX Reorganization Shares or the XXXXXXXXXX New Common Shares, as the case may be,
is of
(ii) the fair market value, immediately after the Share Exchange, of all of the XXXXXXXXXX Reorganization Shares and XXXXXXXXXX New Common Shares received by XXXXXXXXXX for XXXXXXXXXX common shares of XXXXXXXXXX; and
(b) pursuant to paragraph 86(1)(c), XXXXXXXXXX will be deemed to have disposed of its common shares of XXXXXXXXXX for proceeds of disposition equal to the cost to XXXXXXXXXX of the XXXXXXXXXX Reorganization Shares and the XXXXXXXXXX Common Shares determined in (a) above.
For greater certainty, subsection 86(2) will not apply to the Share Exchange.
I. No dividend will be deemed to arise, by virtue of either of subsection 84(1) or (3), as a result of the Share Exchange.
J. On the transfer of the XXXXXXXXXX Reorganization Shares from XXXXXXXXXX to XXXXXXXXXX Subco described in paragraph 72 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX and XXXXXXXXXX Subco in their joint election in respect of the transfer of the XXXXXXXXXX Reorganization Shares will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to XXXXXXXXXX Subco.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 72 above.
K. On the transfer of each eligible property of XXXXXXXXXX to XXXXXXXXXX Subco described in paragraph 73 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX and XXXXXXXXXX Subco in their joint election in respect of the transferred properties will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to XXXXXXXXXX Subco.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 73 above.
L. On the purchase for cancellation of the XXXXXXXXXX Subco Reorganization Shares held by XXXXXXXXXX , as described in paragraph 74 above, and of the XXXXXXXXXX Reorganization Shares held by XXXXXXXXXX Subco, as described in paragraph 75 above, the amount, if any, by which the amount paid for the purchase of the particular shares exceeds the paid-up capital of the particular shares immediately before the purchase:
(a) will be deemed pursuant to paragraph 84(3)(a) to be a dividend paid by the issuer of such shares;
(b) will be deemed pursuant to paragraph 84(3)(b) to be a dividend received by the holder of such shares;
(c) 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 (b) above will be excluded from the proceeds of disposition of the shares;
(d) to the extent a dividend described in (b) 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, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(e) Part IV.1 of the Act will not apply to the deemed dividend described in (b) above because the dividend will be an excepted dividend pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1; and
(f) Part VI.1 of the Act will not apply to the deemed dividend described in (a) above because the dividend will be an excluded dividend pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
M. Provided that as part of the series of transactions or events that includes the proposed transactions described herein, there is not:
(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii); or
(c) an acquisition of any shares of a distributing corporation in the circumstances described in subparagraph 55(3.1)(b)(iii).
which has not been described herein, then 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 L above, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
N. The provisions of subsection 80(1) will not apply to the set-off and cancellation of the XXXXXXXXXX Subco Redemption Note against the XXXXXXXXXX Redemption Note as described in paragraph 76 above, and neither XXXXXXXXXX Subco nor XXXXXXXXXX will realize a gain or incur any loss as a result of such set-off and cancellation.
O. On the transfer of the Transferred Shares from XXXXXXXXXX to XXXXXXXXXX described in paragraph 77 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX in their joint election in respect of the transfer of the Transferred Shares will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to XXXXXXXXXX.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 77 above.
P. On the transfer of the XXXXXXXXXX Securities from XXXXXXXXXX to Newco described in paragraph 78 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX and Newco in their joint election in respect of the transfer of the XXXXXXXXXX Securities will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to Newco.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 78 above.
Q. On the transfer of the New XXXXXXXXXX Common Shares from XXXXXXXXXX to Newco described in paragraph 79 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by XXXXXXXXXX and Newco in their joint election in respect of the transfer of the New XXXXXXXXXX Common Shares will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to XXXXXXXXXX and the cost thereof to Newco.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 79 above.
R. Provided that Newco continues to hold the XXXXXXXXXX New Common Shares for the purpose of gaining or producing income and provided that Newco has a legal obligation to pay interest on the Newco Notes, Newco will be entitled to deduct, in computing its income for a taxation year, the lesser of (i) the interest paid or payable (depending on the method regularly followed by Newco in computing its income for purposes of the Act) on the Newco Notes in respect of that taxation year, and (ii) a reasonable amount in respect thereof pursuant to paragraph 20(1)(c).
S. On the transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) from Newco to XXXXXXXXXX described in paragraph 80 above, the provisions of subsection 85(1) will apply with the result that the amount agreed upon by Newco and XXXXXXXXXX in their joint election in respect of the transfer of the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receivable) will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to Newco and the cost thereof to XXXXXXXXXX.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in paragraph 80 above.
T. Provided that XXXXXXXXXX continues to hold the XXXXXXXXXX Securities (other than the XXXXXXXXXX Receiivable) for the purpose of producing income and provided that XXXXXXXXXX has a legal obligation to pay interest on the XXXXXXXXXX Notes or the Bank Loans, as applicable, XXXXXXXXXX will be entitled to deduct, in computing its income for a taxation year, the lesser of (i) the interest paid or payable (depending on the method regularly followed by XXXXXXXXXX in computing its income for purposes of the Act) on the XXXXXXXXXX Notes- or the Bank Loans, as applicable, in respect of that taxation year, and (ii) a reasonable amount in respect thereof pursuant to paragraph 20(1)(c).
U. Subsection 256(7) will apply with respect to the proposed acquisitions, redemption and cancellation of shares described above, with the result that no person or group of persons will be regarded as having acquired control of XXXXXXXXXX or any corporation controlled by any of such corporations, for purposes of the provisions of the Act referred to in the preamble to such subsection.
V. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not be applied as a result of the proposed transactions, in and by themselves, except that this ruling does not apply to the transactions described in paragraph 81 above.
W. Subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves to redetermine the tax consequences 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 currently 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 Revenue Canada 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) that the XXXXXXXXXX Business Division represents a separate business from any other business carried on by XXXXXXXXXX and that, as a consequence, XXXXXXXXXX and XXXXXXXXXX Subco were entitled to make the joint election under subsection 22(1) described in paragraph 63 above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
7
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