7 July 1999 Income Tax Severed Letter 9904553 - Supplementary to 982448

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.

SUMMARY: Supplementary to 982448—ITA-55(3)(a), 55(3)(b)—Advance income tax ruling–Amendments to advance income tax rulingissued in 1998.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX XXXXXXXXXX 1-990455 XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX Advance Income Tax Ruling

This is in reference to your letters of XXXXXXXXXX, in which you advised us of changes to the proposed transactions described in our letter of XXXXXXXXXX, 1998 our file number 3-982448 (the “Ruling”). Terms defined in the Ruling to have a certain meaning have the same mean when used in this letter.

You advised that due to the uncertainty as to the tax consequences that may arise as a result of the application of proposed subsection 212.2(1), announced by the Department of Finance in a special release on December 15, 1998, the proposed transactions described in paragraphs 44 to 54 in the Ruling did not occur by XXXXXXXXXX. The proposed transactions described in paragraphs 44 to 53 and 55 to 74 will be carried out before XXXXXXXXXX.

The proposed transactions described in paragraphs 44 to 53, if they had been carried out on XXXXXXXXXX, would have resulted in a reduction to the retained earnings of XXXXXXXXXX by an amount equal to the excess of the fair market value of the Amalco shares over book value under generally accepted accounting principles. XXXXXXXXXX, in that case, would not have had sufficient “equity” for purposes of subsection 18(4) and interest expense on the debt owing by XXXXXXXXXX to XXXXXXXXXX of US$XXXXXXXXXX would have been disallowed. The companies in the XXXXXXXXXX Group would not have had sufficient time to make alternative arrangements with respect to this loan by arranging for the refinancing with an arm's length party before XXXXXXXXXX. Therefore, the proposed transaction described in paragraph 54 of the Ruling was to be undertaken to match the debt owing to XXXXXXXXXX with the equity in XXXXXXXXXX.

As the proposed transactions in paragraphs 44 to 53 will be undertaken in XXXXXXXXXX, the impact on XXXXXXXXXX and XXXXXXXXXX “equity” will not have an effect for purposes of subsection 18(4) until the fiscal years of XXXXXXXXXX and XXXXXXXXXX in XXXXXXXXXX. This will allow the XXXXXXXXXX Group to obtain refinancing for the US$XXXXXXXXXX owing to XXXXXXXXXX from arm's-length sources or to retire this debt from the proceeds of the disposition of XXXXXXXXXX Division and the transfer of the debt from XXXXXXXXXX to XXXXXXXXXX will not be required.

As a result of your request, the proposed transaction described in paragraph 54 of the Ruling will be deleted.

We confirm that the above changes will not affect the rulings given in the Ruling and will continue to be binding as indicated therein.

Yours truly,

for Director

Reorganization and International Division

Income Tax Rulings and Interpretations Directorate

Policy and Legislation Branch