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: Corporate Group Loss Utilization Scheme
Position: Similar to 3-963328
Reasons: n/a
XXXXXXXXXX 3-992412
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling
We are writing in response to your letter of XXXXXXXXXX in which you requested advance income tax rulings on behalf of the above-noted taxpayer. We acknowledge our telephone conversations in connection herewith.
To the best of your knowledge, and that of the taxpayers named herein, none of the issues involved in this advance income tax ruling request is under objection or appeal or is being considered by any tax services office or taxation centre of Revenue Canada in connection with any income tax return already filed.
DEFINITIONS
In this letter unless otherwise expressly stated:
(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) "ACB" means "adjusted cost base" as that expression is defined in section 54;
(c) "CBCA" means Canada Business Corporations Act;
(d) "Canadian corporation" has the meaning assigned by subsection 89(1);
(e) "capital property" has the meaning assigned by section 54;
(f) "cost amount" has the meaning assigned under subsection 248(1);
(g) "disposition" has the meaning assigned by section 54;
(h) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(i) "eligible property" has the meaning assigned by subsection 85(1.1);
(j) "forgiven amount" has the meaning assigned by subsections 80(1) or 80.01(1);
(k) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(l) "non-capital loss" has the meaning assigned by subsection 111(8);
(m) "paid-up capital" has the meaning assigned by subsection 89(1);
(n) "predecessor corporation" has the meaning assigned by subsection 87(1);
(o) "principal amount" has the meaning assigned by subsection 248(1) except that where the debt or obligation was outstanding at January 1, 1972, for the purposes of section 80, has the meaning assigned by subsection 26(1.1) of the ITAR;
(p) "private corporation" has the meaning assigned by subsection 89(1);
(q) "public corporation" has the meaning assigned by subsection 89(1);
(r) "series of transactions or events" has the meaning assigned by subsection 248(10);
(s) "specified financial institution" has the meaning assigned under subsection 248(1);
(t) "stated capital account" has the meaning assigned by section 26 of the CBCA;
(u) "taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(v) "taxable dividend" has the meaning assigned by subsection 89(1).
FACTS
XXXXXXXXXX
1. XXXXXXXXXX is a taxable Canadian corporation and a public corporation incorporated under the CBCA.
XXXXXXXXXX
2. The companies in the XXXXXXXXXX Group were previously specified financial institutions XXXXXXXXXX. The companies in the XXXXXXXXXX Group are no longer specified financial institutions.
3. XXXXXXXXXX is authorized to issue an unlimited number of common shares and an unlimited number of XXXXXXXXXX preferred shares and XXXXXXXXXX preferred shares. As at XXXXXXXXXX, there were no XXXXXXXXXX preferred shares outstanding.
4. XXXXXXXXXX had approximately XXXXXXXXXX common shares issued and outstanding as at XXXXXXXXXX which are widely held in Canada and the United States by approximately XXXXXXXXXX shareholders. No one shareholder beneficially holds more than 10% of the XXXXXXXXXX common shares.
5. XXXXXXXXXX had XXXXXXXXXX preferred shares, XXXXXXXXXX, issued and outstanding as at XXXXXXXXXX which are widely held in Canada and the United States by approximately XXXXXXXXXX shareholders. No one shareholder beneficially holds more than 10% of the XXXXXXXXXX preferred shares.
6. XXXXXXXXXX is projected to incur non-capital losses in XXXXXXXXXX as follows:
XXXXXXXXXX
XXXXXXXXXX
7. XXXXXXXXXX ("Holdco") is a taxable Canadian corporation and a public corporation incorporated under the CBCA. Holdco is a wholly-owned subsidiary of XXXXXXXXXX with a XXXXXXXXXX taxation year-end. XXXXXXXXXX presently owns all XXXXXXXXXX of Holdco's issued and outstanding common shares with an ACB of $XXXXXXXXXX and an estimated fair market value of $XXXXXXXXXX. (No formal valuation of the Holdco shares has been made.)
8.
XXXXXXXXXX
9. Holdco was to have been wound up as described in the proposed transactions described in our letter of XXXXXXXXXX , file number 3-963328. However, to carry out the proposed transactions, as described herein, XXXXXXXXXX will not wind up Holdco but will use the Holdco shares for the transfers to each of the Newlosscos in order to carry out the proposed loss utilization scheme.
XXXXXXXXXX
10. XXXXXXXXXX is a taxable Canadian corporation and a public corporation. XXXXXXXXXX was continued under the CBCA. XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
XXXXXXXXXX
XXXXXXXXXX
11. XXXXXXXXXX is a taxable Canadian corporation and a public corporation incorporated under the CBCA. The issued and outstanding shares of XXXXXXXXXX are held by XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
12.
XXXXXXXXXX
XXXXXXXXXX
13. XXXXXXXXXX is a taxable Canadian corporation and a public corporation incorporated under the CBCA. As at XXXXXXXXXX had XXXXXXXXXX common shares issued and outstanding of which XXXXXXXXXX shares are owned by XXXXXXXXXX, representing approximately XXXXXXXXXX %, and the remaining XXXXXXXXXX % are widely held and publicly trading primarily on the XXXXXXXXXX Stock Exchange.
14.
XXXXXXXXXX
XXXXXXXXXX
15. XXXXXXXXXX is a taxable Canadian corporation incorporated under the CBCA. XXXXXXXXXX has its executive office in XXXXXXXXXX indirectly holds XXXXXXXXXX % of the issued and outstanding common shares of XXXXXXXXXX has a XXXXXXXXXX taxation year-end.
16. XXXXXXXXXX is a holding company with subsidiaries in XXXXXXXXXX are expected to earn income in XXXXXXXXXX and the subsequent years.
XXXXXXXXXX
17. XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX expects to earn taxable income over the next few years.
XXXXXXXXXX
18. XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX expects to earn taxable income in the year XXXXXXXXXX and in succeeding taxation years.
XXXXXXXXXX
19. XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX is an indirect subsidiary of XXXXXXXXXX expects to earn taxable income in XXXXXXXXXX and succeeding taxation years.
XXXXXXXXXX
20. XXXXXXXXXX is a taxable Canadian corporation incorporated under the CBCA. XXXXXXXXXX expects to generate taxable income in XXXXXXXXXX and succeeding taxation years.
21. [Reserved.]
22. None of the shares of any of the corporations referred to herein is or will be subject to a guarantee agreement.
23. None of the shares of any of the corporations referred to herein has been or will be subject to a dividend rental agreement.
24. None of the shares of any of the corporations referred to herein 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).
PROPOSED TRANSACTIONS
25. Based on current projections of taxable income, it is contemplated that the following transactions will be implemented.
XXXXXXXXXX will incorporate new corporations ("Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4 and Wind-upco 1") under the CBCA. Each of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4 and Wind-upco 1 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4 and Wind-upco 1 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4 and Wind-upco 1 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
26. XXXXXXXXXX will transfer to each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4, at fair market value, 1/4 of its Holdco common shares. In consideration for the transfers, each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 1 Note", the "Newlossco 2 Note", the "Newlossco 3 Note" and the "Newlossco 4 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Holdco shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 1 Note, the Newlossco 2 Note, the Newlossco 3 and the Newlossco 4 Note will each carry an interest rate of XXXXXXXXXX% per annum and have a term not to exceed XXXXXXXXXX years and certain prepayment options.
27. XXXXXXXXXX will jointly elect with each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Holdco shares.
Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Holdco shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
28. In XXXXXXXXXX will transfer to Wind-upco 1, at fair market value, all of the preferred shares that it holds in Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4. As sole consideration Wind-upco 1 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 at that time.
29. XXXXXXXXXX will jointly elect with Wind-upco 1 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4. The agreed amount in respect of the preferred shares of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 1 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
30. Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will transfer to Wind-upco 1, at fair market value, its shares in Holdco. In consideration for the transfers, Wind-upco 1 will assume the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note and Newlossco 4 Note issued to XXXXXXXXXX and will issue to each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco shares transferred by the particular transferee over the amount of the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note or Newlossco 4 Note, as the case may be.
31. Wind-upco 1 will jointly elect with each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 1 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
32. To ensure that no interest expense accumulates in Wind-upco 1, Wind-upco 1 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note and Newlossco 4 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its four notes receivable.
33. Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will select the date on which its taxation year will end. Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will file corporate income tax returns for its first taxation year. Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note or Newlossco 4 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
34. XXXXXXXXXX will acquire additional common shares of each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 for cash consideration in the amount of the non-capital losses of each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 at that time (which amount will approximate the interest expense incurred by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 to pay interest expense which is owing to XXXXXXXXXX.
35. Each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will redeem its preferred shares held by Wind-upco 1 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 ("Newlossco 1 Note A", "Newlossco 2 Note A", "Newlossco 3 Note A" and "Newlossco 4 Note A").
36. Wind-upco 1 will redeem its preferred shares held by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 1 preferred shares held by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 ("Wind-upco 1 Note 1", "Wind-upco 1 Note 2", "Wind-upco 1 Note 3" and "Wind-upco 1 Note 4").
37. Subsequent to the redemptions described in paragraph 35 and 36 above, the Newlossco 1 Note A will be set off against the Wind-upco 1 Note 1, the Newlossco 2 Note A will be set off against the Wind-upco 1 Note 2, the Newlossco 3 Note A will be set off against the Wind-upco 1 Note 3 and the Newlossco 4 Note A will be set off against the Wind-upco 1 Note 4 and all the Notes will be cancelled.
38. XXXXXXXXXX will acquire the 100% share interest in Newlossco 1, Newlossco 2 and Newlossco 3 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 1, Newlossco 2 and Newlossco 3 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 1, Newlossco 2 and Newlossco 3. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
39. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 1, Newlossco 2 and Newlossco 3, XXXXXXXXXX and Newlossco 1, Newlossco 2 and Newlossco 3 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 1, Newlossco 2 and Newlossco 3) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
40. XXXXXXXXXX will acquire the 100% share interest in Newlossco 4 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 4 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 4. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
41. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 4, XXXXXXXXXX and Newlossco 4 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 4) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
42. XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 1 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 1 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 26 through 41 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 1.
43. XXXXXXXXXX will incorporate new corporations ("Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Wind-upco 2") under the CBCA. Each of Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Wind-upco 2 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Wind-upco 2 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8 and Wind-upco 2 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
44. XXXXXXXXXX will transfer to each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8, at fair market value, 1/4 of its Holdco common shares. In consideration for the transfers, each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 5 Note", the "Newlossco 6 Note", the "Newlossco 7 Note" and the "Newlossco 8 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Holdco shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 5 Note, the Newlossco 6 Note, the Newlossco 7 and the Newlossco 8 Note will each carry an interest rate of XXXXXXXXXX % per annum and have a term not to exceed two years and certain prepayment options.
45. XXXXXXXXXX will jointly elect with each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Holdco shares.
Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Holdco shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
46. In XXXXXXXXXX will transfer to Wind-upco 2, at fair market value, all of the preferred shares that it holds in Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8. As sole consideration Wind-upco 2 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 at that time.
47. XXXXXXXXXX will jointly elect with Wind-upco 2 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8. The agreed amount in respect of the preferred shares of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 2 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
48. Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will transfer to Wind-upco 2, at fair market value, its shares in Holdco. In consideration for the transfers, Wind-upco 2 will assume the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note and Newlossco 8 Note issued to XXXXXXXXXX and will issue to each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco shares transferred by the particular transferee over the amount of the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note or Newlossco 8 Note, as the case may be.
49. Wind-upco 2 will jointly elect with each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 2 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
50. To ensure that no interest expense accumulates in Wind-upco 2, Wind-upco 2 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note and Newlossco 8 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its four notes receivable.
51. Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will select the date on which its taxation year will end. Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will file corporate income tax returns for its first taxation year. Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note or Newlossco 8 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
52. XXXXXXXXXX will acquire additional common shares of each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 for cash consideration in the amount of the non-capital losses of each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 at that time (which amount will approximate the interest expense incurred by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 to pay interest expense which is owing to XXXXXXXXXX.
53. Each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will redeem its preferred shares held by Wind-upco 2 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 ("Newlossco 5 Note A", "Newlossco 6 Note A", "Newlossco 7 Note A" and Newlossco 8 Note A").
54. Wind-upco 2 will redeem its preferred shares held by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 2 preferred shares held by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 ("Wind-upco 2 Note 1", "Wind-upco 2 Note 2", "Wind-upco 2 Note 3" and "Wind-upco 2 Note 4").
55. Subsequent to the redemptions described in paragraph 53 and 54 above, the Newlossco 5 Note A will be set off against the Wind-upco 2 Note 1, the Newlossco 6 Note A will be set off against the Wind-upco 2 Note 2, the Newlossco 7 Note A will be set off against the Wind-upco 2 Note 3 and the Newlossco 8 Note A will be set off against the Wind-upco 2 Note 4 and all the Notes will be cancelled.
56. XXXXXXXXXX will acquire the 100% share interest in Newlossco 5, Newlossco 6 and Newlossco 7 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 5, Newlossco 6 and Newlossco 7 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX % of the amount of the non-capital losses of Newlossco 5, Newlossco 6 and Newlossco 7. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
57. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 5, Newlossco 6 and Newlossco 7, XXXXXXXXXX and Newlossco 5, Newlossco 6 and Newlossco 7 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 5, Newlossco 6 and Newlossco 7) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
58. XXXXXXXXXX will acquire the 100% share interest in Newlossco 8 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 8 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 8. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
59. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 8, XXXXXXXXXX and Newlossco 8 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 8) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
60. XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 2 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 2 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 44 through 59 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 2.
61. XXXXXXXXXX will incorporate new corporations ("Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12 and Wind-upco 3") under the CBCA. Each of Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12 and Wind-upco 3 will be a taxable Canadian corporation. On incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of each of Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12 and Wind-upco 3 for an amount of $XXXXXXXXXX in each case.
Each of Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12 and Wind-upco 3 will have a taxation year-end of XXXXXXXXXX, unless their respective year-ends terminate prematurely as a result of an amalgamation or wind-up.
62. XXXXXXXXXX will transfer to each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12, at fair market value, 1/4 of its Holdco common shares. In consideration for the transfers, each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will issue to XXXXXXXXXX an interest-bearing note of approximately $XXXXXXXXXX (the "Newlossco 9 Note", the "Newlossco 10 Note", the "Newlossco 11 Note" and the "Newlossco 12 Note") and XXXXXXXXXX preferred shares, which will have a redemption price defined at any point in time to be equal to the excess of the fair market value of the proportion of the Holdco shares received by the particular transferee over the amount of the note issued by that transferee.
The Newlossco 9 Note, the Newlossco 10 Note, the Newlossco 11 and the Newlossco 12 Note will each carry an interest rate of XXXXXXXXXX% per annum and have a term not to exceed two years and certain prepayment options.
63. XXXXXXXXXX will jointly elect with each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the fair market value of the property transferred and its cost amount at that time, and will not be less than the amount of the Newlossco Note issued by the transferee of the Holdco shares.
Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will add to the respective stated capital account maintained for its preferred shares an amount of $XXXXXXXXXX. The amount by which the fair market value of the proportion of the Holdco shares received by the particular transferee exceeds the aggregate of the stated capital amount and the amount of the note issued by that particular transferee will be recorded as contributed surplus in respect of the particular transferee's preferred shares issued to XXXXXXXXXX.
64. In XXXXXXXXXX will transfer to Wind-upco 3, at fair market value, all of the preferred shares that it holds in Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12. As sole consideration Wind-upco 3 will issue to XXXXXXXXXX common shares with a fair market value equal to the fair market value of the preferred shares of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12at that time.
65. XXXXXXXXXX will jointly elect with Wind-upco 3 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the preferred shares of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12. The agreed amount in respect of the preferred shares of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 transferred will be the lesser of the fair market value of the preferred shares transferred and their cost amount at that time.
Wind-upco 3 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
66. Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will transfer to Wind-upco 3, at fair market value, its shares in Holdco. In consideration for the transfers, Wind-upco 3 will assume the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note and Newlossco 12 Note issued to XXXXXXXXXX and will issue to each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 preferred shares, which will have a redemption price equal to excess of the fair market value of the Holdco shares transferred by the particular transferee over the amount of the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note or Newlossco 12 Note, as the case may be.
67. Wind-upco 3 will jointly elect with each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of the Holdco shares. The agreed amount in respect of the shares transferred will be the lesser of the fair market value of the property transferred and their cost amount at that time.
Wind-upco 3 will add to the stated capital account maintained for its preferred shares an amount not to exceed the aggregate of the cost amounts of the properties transferred.
68. To ensure that no interest expense accumulates in Wind-upco 3, Wind-upco 3 will issue a redeemable and retractable preferred share with a redemption price and stated capital equal to the aggregate principal amounts of the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note and Newlossco 12 Note assumed to XXXXXXXXXX. As consideration, XXXXXXXXXX will surrender its four notes receivable.
69. Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will select the date on which its taxation year will end. Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will file corporate income tax returns for its first taxation year. Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will have incurred a non-capital loss essentially equal to the interest expense on the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note or Newlossco 12 Note, as the case may be, held by XXXXXXXXXX for that taxation year.
70. XXXXXXXXXX will acquire additional common shares of each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 for cash consideration in the amount of the non-capital losses of each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 at that time (which amount will approximate the interest expense incurred by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 on the respective note). The proceeds of these share acquisitions will permit each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 to pay interest expense which is owing to XXXXXXXXXX.
71. Each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will redeem its preferred shares held by Wind-upco 3 for a demand non-interest-bearing note with a principal amount and fair market value equal to the redemption price of the respective preferred shares of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 ("Newlossco 9 Note A", "Newlossco 10 Note A", "Newlossco 11 Note A" and "Newlossco 12 Note A").
72. Wind-upco 3 will redeem its preferred shares held by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 for demand non-interest-bearing notes with a principal amount and fair market value equal to the redemption price of the Wind-upco 3 preferred shares held by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 ("Wind-upco 3 Note 1", "Wind-upco 3 Note 2", "Wind-upco 3 Note 3" and "Wind-upco 3 Note 4").
73. Subsequent to the redemptions described in paragraph 71 and 73 above, the Newlossco 9 Note A will be set off against the Wind-upco 3 Note 1, the Newlossco 10 Note A will be set off against the Wind-upco 3 Note 2, the Newlossco 11 Note A will be set off against the Wind-upco 3 Note 3 and the Newlossco 12 Note A will be set off against the Wind-upco 3 Note 4 and all the Notes will be cancelled.
74. XXXXXXXXXX will acquire the 100% share interest in Newlossco 9, Newlossco 10 and Newlossco 11 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 9, Newlossco 10 and Newlossco 11 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 9, Newlossco 10 and Newlossco 11. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
75. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 9, Newlossco 10 and Newlossco 11, SL&H and Newlossco 9, Newlossco 10 and Newlossco 11 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 9, Newlossco 10 and Newlossco 11) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
76. XXXXXXXXXX will acquire the 100% share interest in Newlossco 12 held by XXXXXXXXXX for fair market value consideration consisting of cash. This value will reflect interest rates, the estimated time of utilization of the non-capital losses of Newlossco 12 and other considerations, and is estimated for purposes of this ruling to be XXXXXXXXXX% of the amount of the non-capital losses of Newlossco 12. The capital loss which XXXXXXXXXX will realize on this disposition will be deemed to be nil, pursuant to subsection 40(3.6).
77. Following the acquisition by XXXXXXXXXX of all the issued and outstanding shares of Newlossco 12, XXXXXXXXXX and Newlossco 12 will be amalgamated pursuant to section 184 of the CBCA to form one corporation ("New XXXXXXXXXX") in such manner that:
(a) all of the property (except the shares of Newlossco 12) of the predecessor corporations immediately before the merger will become property of New XXXXXXXXXX by virtue of the merger;
(b) all of the liabilities of the predecessor corporations immediately before the merger will become liabilities of New XXXXXXXXXX by virtue of the merger; and
(c) all of the shares of the predecessor corporations (except those of XXXXXXXXXX) will be cancelled on the merger. The shares of XXXXXXXXXX owned by its shareholders immediately before the merger will become shares of New XXXXXXXXXX to those shareholders immediately after the merger.
78. XXXXXXXXXX will, under section 210 of the CBCA, cause Wind-upco 3 to be wound up. A resolution of the shareholder, XXXXXXXXXX, authorizing and requiring that Wind-upco 3 be wound up will be passed after the transfer of assets and redemption of shares as described in paragraphs 62 through 77 above. In addition, a general conveyance of assets and assumption of liabilities will be executed between XXXXXXXXXX and Wind-upco 3.
79. Following the wind-up of Wind-upco 3, XXXXXXXXXX will, provided that proposed transactions as described herein are no longer to be carried out, cause Holdco to be wound up pursuant to section 210 of the CBCA. In addition, a general conveyance of assets, which will consists of only the shares of XXXXXXXXXX will be executed between XXXXXXXXXX and Holdco.
PURPOSE OF THE PROPOSED TRANSACTIONS
80. The purpose of the proposed transactions is to transfer a portion of XXXXXXXXXX non-capital losses to related corporations within the XXXXXXXXXX Group of companies, for cash. As a result of the reorganization referred to in the Ruling and for financing and security reasons it has been necessary to have certain substantial borrowings at the XXXXXXXXXX level. The major source of income of XXXXXXXXXX is taxable dividends from subsidiaries which are deductible from income of XXXXXXXXXX for the purpose of computing its taxable income, and as a result XXXXXXXXXX will incur non-capital losses even though it has income for accounting purposes.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the overall purposes of the proposed transactions, we confirm the following:
A. Provided that:
(1) each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 holds its proportion of the shares of Holdco for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco; and
(2) each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 has a legal obligation to pay interest in respect of the Newlossco 1 Note in the case of Newlossco 1, the Newlossco 2 Note in the case of Newlossco 2, Newlossco 3 Note in the case of Newlossco 3 and the Newlossco 4 Note in the case of Newlossco 4;
each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
B. Provided that:
(1) each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 holds its proportion of the shares of Holdco for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco; and
(2) each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 has a legal obligation to pay interest in respect of the Newlossco 5 Note in the case of Newlossco 5, the Newlossco 6 Note in the case of Newlossco 6, Newlossco 7 Note in the case of Newlossco 7 and the Newlossco 8 Note in the case of Newlossco 8;
each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
C. Provided that:
(1) each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 holds its proportion of the shares of Holdco for the purpose of gaining or producing income (other than income which is exempt from taxation) from the shares of Holdco; and
(2) each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 has a legal obligation to pay interest in respect of the Newlossco 9 Note in the case of Newlossco 9, the Newlossco 10 Note in the case of Newlossco 10, Newlossco 11 Note in the case of Newlossco 11 and the Newlossco 12 Note in the case of Newlossco 12;
each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).
D. The provisions of subsection 85(1) will apply to:
(i) the transfers of the Holdco common shares to each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 described in paragraph 26 above;
(ii) the transfer of the preferred shares of each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 held by XXXXXXXXXX to Wind-upco 1 described in paragraph 28 above;
(iii) the transfer of the Holdco common shares held by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 to Wind-upco 1 described in paragraph 30 above;
(iv) the transfers of the Holdco common shares to each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 described in paragraph 44 above;
(v) the transfer of the preferred shares of each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 held by XXXXXXXXXX to Wind-upco 2 described in paragraph 46 above;
(vi) the transfer of the Holdco common shares held by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 to Wind-upco 2 described in paragraph 48 above;
(vii) the transfers of the Holdco common shares to each of Newlossco 9 Newlossco 10, Newlossco 11 and Newlossco 12 described in paragraph 62 above;
(viii) the transfer of the preferred shares of each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 held by XXXXXXXXXX to Wind-upco 3 described in paragraph 64 above;
(ix) the transfer of the Holdco common shares held by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 to Wind-upco 3 described in paragraph 66 above;
with the result that the amount agreed upon by each transferor and transferee in their joint election in respect of the transferred shares will, in each case, be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to the transferor and the cost thereof to the transferee.
E. On the redemptions by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 of its preferred shares held by Wind-upco 1 described in paragraph 35 above; by Wind-upco 1 of its preferred shares held by each of Newlossco 1, Newlossco 2, Newlossco 3 and Newlossco 4 described in paragraph 36 above; by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 of its preferred shares held by Wind-upco 2 described in paragraph 53 above; by Wind-upco 2 of its preferred shares held by each of Newlossco 5, Newlossco 6, Newlossco 7 and Newlossco 8 described in paragraph 54 above; by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 of its preferred shares held by Wind-upco 3 described in paragraph 71 above; by Wind-upco 3 of its preferred shares held by each of Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 described in paragraph 72 above;
(i) the issuer of the share will be deemed, pursuant to paragraph 84(3)(a), to have paid at that time a dividend equal to the amount, if any, by which the amount paid to redeem the particular share exceeds the paid-up capital of the particular share immediately before the redemption;
(ii) the holder of the share will be deemed, pursuant to paragraph 84(3)(b), to have received at that time a dividend equal to the amount, if any, by which the amount received on the redemption of the particular share exceeds the paid-up capital of the particular share immediately before the redemption;
(iii) to the extent that a dividend described in (ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(iv) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividends pursuant to subsection 112(3);
(v) Part IV.l will not impose any tax liability on Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12, Wind-upco 1, Wind-upco 2 or Wind-upco 3 as a result of the deemed dividend referred to in (ii) above because such dividend will be a dividend described in paragraph (b) of the definition of "excepted dividend" in section 187.1; and
(vi) Part VI.l will not impose any tax liability on Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Newlossco 10, Newlossco 11, Newlossco 12, Wind-upco 1, Wind-upco 2 or Wind-upco 3 as a result of the deemed dividend referred to in (i) above because such dividend will be a dividend described in paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
F. Upon the amalgamation of XXXXXXXXXX and Newlossco 1, Newlossco 2 and Newlossco 3 described in paragraph 39 above; XXXXXXXXXX and Newlossco 4 described in paragraph 41 above; New XXXXXXXXXX and Newlossco 5, Newlossco 6 and Newlossco 7 described in paragraph 57 above; New XXXXXXXXXX and Newlossco 8 described in paragraph 59; Fording and Newlossco 9, Newlossco 10 and Newlossco 11 described in paragraph 75 above; New XXXXXXXXXX and Newlossco 12 described in paragraph 77 above:
(a) the provisions of subsections 87(1) and 87(1.1) will apply;
(b) the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX and New XXXXXXXXXX to be the same corporation as, and a continuation of, each of Newlossco 1, Newlossco 2, Newlossco 3 and XXXXXXXXXX, each of Newlossco 5, Newlossco 6, Newlossco 7 and New XXXXXXXXXX, and each of Newlossco 12 and New XXXXXXXXXX, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 1, Newlossco 2 and Newlossco 3; Newlossco 5, Newlossco 6 and Newlossco 7; and Newlossco 12 will be available to be utilized by New XXXXXXXXXX, New XXXXXXXXXX and New XXXXXXXXXX, respectively, in its taxation year commencing at the time of the respective amalgamation;
(c) the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX and New XXXXXXXXXX to be the same corporation as, and a continuation of, each of Newlossco 4 and XXXXXXXXXX, each of Newlossco 8 and New XXXXXXXXXX, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 4 and Newlossco 8 will be available to be utilized by New XXXXXXXXXX and New XXXXXXXXXX , respectively, in its taxation year commencing at the time of the respective amalgamation; and
(d) the provisions of subsection 87(2.1) will apply to deem New XXXXXXXXXX to be the same corporation as, and a continuation of, each of Newlossco 9, Newlossco 10 and Newlossco 11 for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis, the non-capital losses of Newlossco 9, Newlossco 10 and Newlossco 11 will be available to be utilized by New XXXXXXXXXX in its taxation year commencing at the time of the respective amalgamation.
G. After the winding-up of:
(i) Wind-upco 1 into XXXXXXXXXX described in paragraph 42 above is completed;
(ii) Wind-upco 2 into XXXXXXXXXX described in paragraph 60 above is completed;
(iii) Wind-upco 3 into XXXXXXXXXX described in paragraph 78 above is completed; and
(vi) Holdco into XXXXXXXXXX described in paragraph 79 above is completed
the provisions of subsection 88(1) will apply to each winding-up such that:
(i) each property of Wind-upco 1, Wind-upco 2, Wind-upco 3 and Holdco distributed to XXXXXXXXXX on the particular winding-up will be deemed by paragraph 88(1)(a) to have been disposed of by Wind-upco 1, Wind-upco 2, Wind-upco 3 or Holdco, as the case may be, for proceeds of disposition determined under that paragraph;
(ii) the shares in the capital stock of each of Wind-upco 1, Wind-upco 2, Wind-upco 3 and Holdco held by XXXXXXXXXX immediately before the particular winding-up will be deemed by paragraph 88(1)(b) to have been disposed of by XXXXXXXXXX for proceeds determined under that paragraph; and
(iii) each property of Wind-upco 1, Wind-upco 2, Wind-upco 3 and Holdco distributed to XXXXXXXXXX on the particular winding-up will be deemed, by paragraph 88(1)(c) to have been acquired by XXXXXXXXXX for an amount equal to the amount deemed by paragraph 88(1)(a) to be Wind-upco 1's, Wind-upco 2's, Wind-upco 3's or Holdco's, as the case may be, proceeds of disposition of the property and no more.
H. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply in respect of the taxable dividends described in Ruling E above, provided that as part of the series of transactions or events as part of which the dividends were received, there is no disposition or significant increase in interest as described in subparagraphs 55(3)(a)(i) to (v) which has not been described herein as a proposed transaction.
I. No forgiven amount will arise as a result of the settlements described in paragraphs 32, 50 and 68, provided that:
(a) the fair market value of the one Wind-upco 1 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note and Newlossco 4 Note described in paragraph 37 above, and the amount of the increase in the fair market value of other shares of Wind-upco 1 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 1 Note, Newlossco 2 Note, Newlossco 3 Note and Newlossco 4 Note;
(b) the fair market value of the one Wind-upco 2 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note and Newlossco 8 Note described in paragraph 55 above, and the amount of the increase in the fair market value of other shares of Wind-upco 2 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 5 Note, Newlossco 6 Note, Newlossco 7 Note and Newlossco 8 Note; and
(c) the fair market value of the one Wind-upco 3 preferred share issued to XXXXXXXXXX, as a consequence of the settlement of the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note and Newlossco 12 Note described in paragraph 73 above, and the amount of the increase in the fair market value of other shares of Wind-upco 3 held by XXXXXXXXXX at that time is equal to the aggregate of the principal amount of the Newlossco 9 Note, Newlossco 10 Note, Newlossco 11 Note and Newlossco 12 Note.
J. The set-off and cancellation of the notes described in paragraphs 37, 55 and 73 above will not give rise to a forgiven amount.
K. Paragraph 12(1)(x) will have no application in respect of the proposed transactions described in paragraphs 38, 40, 56, 58, 74 and 76 above.
L. Subsections 15(1), 56(2), and 246(1) will not apply to the proposed transactions in and of themselves.
M. The provisions of subsection 245(2) will not apply, as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and are binding provided that the proposed transactions are completed before XXXXXXXXXX.
These rulings are based on the Act as it reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
1. Our favourable rulings should not be construed as confirmation that we have agreed to the adjusted cost base or fair market value of any property.
2. It is our opinion that any amount paid or payable by XXXXXXXXXX in respect of money borrowed from a chartered bank to acquire the common shares of Newlossco 1, Newlossco 2, Newlossco 3, Newlossco 4, Newlossco 5, Newlossco 6, Newlossco 7, Newlossco 8, Newlossco 9, Newlossco 10, Newlossco 11 and Newlossco 12 described in paragraphs 25, 43 and 61 above will not deductible in computing the income of XXXXXXXXXX as the borrowed money will not be used for the purpose of earning income from a business or property.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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