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.
XXXXXXXXXX 992062
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX ("Amalco")
This is in reply to your letter ofXXXXXXXXXX, and your facsimile received on XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer.
STATUTORY DEFINITIONS
In this letter, the following terms have the meanings specified:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended to the date hereof, and unless otherwise stated, every reference to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) "adjusted cost base" has the meaning assigned in section 54;
(c) "capital property" has the meaning assigned in section 54;
(d) "paid-up capital" has the meaning assigned in subsection 89(1);
(e) "private corporation" has the meaning assigned in subsection 89(1);
(f) "public corporation" has the meaning assigned in subsection 89(1); and
(g) "taxable Canadian corporation" has the meaning assigned in subsection 89(1).
Our understanding of the facts, proposed transactions and purposes of proposed transactions is as follows:
FACTS
1. XXXXXXXXXX (the "Corporation") was a corporation incorporated under the laws of Canada and was a private corporation and a taxable Canadian corporation.
2. Corporation was engaged in the business of XXXXXXXXXX (the "Business").
3. Corporation filed articles of amendment which were effective XXXXXXXXXX to increase the authorized capital of the Corporation by creating an unlimited number of special shares (the "Special Shares").
4. The authorized capital of Corporation consisted of an unlimited number of Special Shares and an unlimited number of common shares (the "Old Common Shares"), of which XXXXXXXXXX Special Shares and XXXXXXXXXX Old Common Shares were outstanding. The holders of the Old Common Shares were as follows:
XXXXXXXXXX.
5. Corporation recently raised $XXXXXXXXXX through a private placement of Special Shares with investors ("Investors").
6. The relevant provisions attached to the Special Shares can be summarized as follows:
(a) the holder of Special Shares has the right to convert the Special Shares at any time into Old Common Shares and Old Common Share purchase warrants ("Warrants") on the basis of XXXXXXXXXX. Each whole Warrant entitles the holder to acquire one (1) Old Common Share at a price of $XXXXXXXXXX per share;
(b) any Special Shares which have not been converted by the holder will be automatically converted by Corporation on behalf of the holder into Old Common Shares and Warrants on the earlier of (i) the fifth day following the date of issuance of a receipt for a final prospectus of Corporation or a successor corporation by the securities regulatory authority in the Province in Canada in which a holder of Special Shares is resident qualifying, among other things, the Old Common Shares and Warrants issuable upon conversion of the Special Shares; and (ii) XXXXXXXXXX; and
(c) if Corporation has not completed a merger by way of amalgamation, reverse take-over, share exchange or otherwise with a public company acceptable to XXXXXXXXXX. and Corporation on or before XXXXXXXXXX and if a receipt for a final prospectus has not been issued by a securities regulatory authority in the Province in Canada in which a holder of Special Shares is resident by XXXXXXXXXX, the holders of Special Shares resident in such province shall be entitled to convert their Special Shares into XXXXXXXXXX Old Common Shares and XXXXXXXXXX Warrants for each Special Share.
7. XXXXXXXXXX was incorporated, pursuant to the Business Corporations Act (XXXXXXXXXX), on XXXXXXXXXX. The Articles of Incorporation of XXXXXXXXXX were amended on XXXXXXXXXX, to delete the private company restrictions. The common shares in the capital of XXXXXXXXXX were listed for trading on the XXXXXXXXXX Exchange.
8. XXXXXXXXXX.
9. On XXXXXXXXXX, Corporation amalgamated, pursuant to the provisions of the Canada Business Corporations Act, with XXXXXXXXXX to form Amalco. The amalgamation of Corporation with XXXXXXXXXX, a company whose shares were already listed for trading on the XXXXXXXXXX exchange, was undertaken as it was considered a faster and less expensive process than if Corporation had listed its own shares on the XXXXXXXXXX exchange.
10. Amalco is authorized to issue an unlimited number of Amalco Common Shares ( the "New Common Shares"), an unlimited number of Amalco Series A Special Shares (the "A Shares") and an unlimited number of Amalco Series B Special Shares (the "B Shares").
11. Upon the amalgamation: each shareholder of Corporation who held one Old Common Share received an A Share; each shareholder of Corporation who held a Special Share received a B Share; and each shareholder of XXXXXXXXXX who held a common share received a New Common Share. All the shares of Corporation and XXXXXXXXXX were cancelled. The aggregate stated capital of Amalco is equal to the aggregate stated capital of Corporation and XXXXXXXXXX immediately prior to such time.
12. The A Shares are convertible into New Common Shares. The relevant provisions attaching to the A Shares can be summarized as follows:
(a) the holder of A Shares has the right to convert the A Shares at any time into New Common Shares on the basis of one (1) New Common Share for each A Share converted; and
(b) any A Shares which have not been converted by the holder will be automatically converted by Corporation on behalf of the holder into New Common Shares on the earlier of (i) the fifth day following the date of issuance of a receipt for a final prospectus of Amalco or a successor corporation by the securities regulatory authority in the Province in Canada in which a holder of A Shares is resident qualifying, among other things, the New Common Shares issuable upon conversion of the A Shares; and (ii) XXXXXXXXXX.
The B Shares are convertible into New Common Shares and share purchase warrants (the "New Warrants").
The relevant provisions attaching to the B Shares can be summarized as follows:
(a) the holder of B Shares has the right to convert the B Shares at any time into New Common Shares and New Warrants on the basis of one (1) New Common Share and XXXXXXXXXX of one New Warrant for each B Share converted. Each whole New Warrant will entitle the holder to acquire one (1) New Common Share at a price of $XXXXXXXXXX per share; and
(b) any B Shares which have not been converted by the holder will be automatically converted by Amalco on behalf of the holder into New Common Shares and New Warrants on the earlier of (i) the fifth day following the date of issuance of a receipt for a final prospectus of Amalco or a successor corporation by the securities regulatory authority in the Province in Canada in which a holder of B Shares is resident qualifying, among other things, the New Common Shares and New Warrants issuable upon conversion of the B Shares; and (ii)XXXXXXXXXX.
PROPOSED TRANSACTIONS
13. Amalco proposes to file a final prospectus and to receive a receipt from the applicable securities regulatory authorities on a date referred to as the "Final Prospectus Date".
14. The holders of A Shares and the holders of B Shares will convert, or have converted for them, all of their A Shares and/or B Shares in accordance with the provisions attaching to such shares on a date (the "Conversion Date") which shall be not later than the earlier of the date that is five days subsequent to the Final Prospectus date and XXXXXXXXXX.
15. Pursuant to XXXXXXXXXX and the provisions attaching to the A Shares, B Shares and New Common Shares, the amount which will be added to the stated capital account maintained in respect of the New Common Shares upon the conversion of the B Shares will be equal to the stated capital account maintained in respect of the B Shares immediately before the conversion and the amount which will be added to the stated capital account in respect of the New Common Shares upon the conversion of the A Shares will be equal to the stated capital account maintained in respect of the A Shares immediately before the conversion.
PURPOSE OF THE PROPOSED TRANSACTIONS
16. The proposed transactions are being undertaken to facilitate the financing of the Business and to provide liquidity to the Investors. The issuance by Corporation of Special Shares which were convertible into Old Common Shares and Old Warrants was done XXXXXXXXXX B Shares XXXXXXXXXX. Similarly, the A Shares of Amalco were issued to the holders of Old Common Shares to XXXXXXXXXX.
17. To the best of your knowledge and the knowledge of the taxpayers, none of the issues relevant to the rulings being requested is:
(a) raised in an earlier return of the taxpayers or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person;
(c) under objection by the taxpayers or a related person;
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
(e) the subject of a ruling previously issued to the taxpayers by Revenue Canada.
RULINGS
Provided that the above statements constitute a complete and accurate disclosure of all the relevant facts, purposes of the proposed transactions and proposed transactions, we rule as follows:
A. Provided that the A Shares represent capital property to the holder, subsection 51(1) will apply to the conversion of A Shares into New Common Shares described in paragraph 14 above such that the conversion will be deemed not to be a disposition of the A Shares.
B. Provided that the B Shares represent capital property to the holder, the provisions of section 86, other than subsection 86(2), will apply to the conversion of the B Shares held by the holder into New Common Shares and New Warrants on the Conversion Date.
C. The increase in the paid-up capital of the New Common Shares as a result of the conversion of the B Shares into New Common Shares on the Conversion Date will, pursuant to subsection 86(2.1), be equal to the paid-up capital of the B Shares so converted less the fair market value of any New Warrants at the time such New Warrants are issued on the Conversion Date.
D. Pursuant to subsection 84(5), for purposes of subsection 84(3) of the Act the amount paid by Amalco to a particular holder whose B Shares are converted on the Conversion Date will be equal to the aggregate of: (i) the increase in the paid-up capital of the Common Shares, as determined in accordance with ruling C, by virtue of the issuance of Common Shares to the particular holder; and (ii) the fair market value on the Conversion Date of the New Warrants received by the holder.
E. The proceeds of disposition deemed to be received by a holder of B Shares upon the conversion of B Shares into New Common Shares and New Warrants will be reduced by the amount of any dividend deemed to be received by the holder on the Conversion Date pursuant to subsection 84(3) of the Act.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada, Taxation on December 30, 1996, and are binding provided that the proposed transactions are implemented before XXXXXXXXXX.
The above rulings are based on the Act in its present form and do not take into account any proposed amendment to the Act, which if enacted, could have an effect on the rulings provided herein.
Nothing in these rulings should be construed as implying that Revenue Canada has reviewed, accepted or otherwise agreed to :
(a) the determination of the adjusted cost base, the fair market value, or the paid-up capital of any shares referred to herein; or
(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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