News of Note
GFL Environmental issued prepaid forward purchase contracts for variable numbers of treasury shares, coupled with amortizing notes
Email this ContentThe IPO of GFL Environmental entailed not only an offering of subordinate voting common shares, but also a concurrent offering of units (at US$50) per unit. Each unit consisted of:
- a prepaid contract for the purchase of subordinate voting shares of GFL, to be delivered (subject to earlier termination or acceleration) on March 15, 2023; and
- an amortizing note bearing interest of 4% on the principal (initially, of US$8.5143) and that is repaid through cash quarterly payments of US$0.75 per note, so that each quarterly payment includes an interest component and is a principal repayment as to the rest, with the final instalment being received on the targeted settlement date for the above prepaid purchase contract.
The number of subordinate voting shares to be delivered will vary such that their computed value (based on their 20-day VWAP on the NYSE) will be US$50 per contract if the computed value of a subordinate voting share at that time is between the price at which the subordinate voting shares were offered in the concurrent offering of those shares (US$19 per share) and a 20% premium above that price (US$22.80 per share). A fixed number of subordinate voting shares will be delivered if the computed value of a subordinate voting share at the delivery date is higher than US$22.80 per share, and a lower fixed number will be delivered if such value lower than US$19 per share, so that the purchaser is fully exposed to market movements outside the US$19 to US$22.80 range.
Each purchaser is stated to have agreed to treat the purchase price for a purchase contract as the difference between the US$50 unit price, and the US$8.5143 initial amortizing note principal.
The Canadian tax disclosure diffidently suggests that since the fair market value of the subordinate voting shares delivered on settlement of the purchase contract can be considered to be determined solely by reference to a change in the fair market value of the subordinate voting shares over the term of the agreement, the derivative forward agreement rules should not apply to the settlement of the purchase agreement so as to require the inclusion of all or a portion of the amount by which the fair market value of the subordinate voting shares received under the purchase contract exceeds the purchase price for the purchase contract.
The US tax disclosure indicates that GFL will take the position that each unit will be treated as consisting of two separate instruments for Code purposes – and that if the unit were instead treated as a single instrument, a US holder could be required to recognize the entire amount of each instalment payment on the amortizing notes, rather than merely the portion of such payment denominated as interest, as income. (The two-instrument treatment and recognition of interest only at the 4% rate also is expected for ITA purposes.)
Neal Armstrong. Summary of 4 March 2020 Supplemented Prep Prospectus of GFL Environmental Inc. under Offerings – Prepaid Share Purchase.
CRA indicates that a GST/HST backdated election generally is permitted if the parties have been treating one as in place
Joint venture participants, who had not made a joint venture election, purchased real estate collectively through a representative who was registered for GST/HST purposes. No s. 273 joint venture election was made. The vendor did not collect GST/HST on the sale in reliance on s. 221(2) but, as it emerged, one of the purchasers was not registered.
CRA responded that, given that purchaser’s non-registration, s. 221(1) imposed liability on the vendor, but “That said, the minister may consider assessing the purchaser under paragraph 296(1)(b) where warranted.” An issue not discussed by CRA is that s. 278(2) would preclude it from collecting on any such assessment.
Respecting the absent JV election, CRA stated:
Generally, if the conditions of the … Election … have been met, and the parties have treated their transactions as if the election had been valid … and the parties are otherwise compliant with the CRA, Audit will allow this election to be backdated.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.18 under ETA s. 221(2) and 273(4).
CRA states that it will not grant ITCs when it assesses following an audit but without receiving any GST/HST return
On the GST/HST side, CRA issues both
- non-binding “notional” (i.e., approximate) notices of assessment (NNOAs), which are issued in order to encourage the registrant to file returns and which “can be overridden at any time with a filed return by the registrant” and
- binding NNOAs which, as the term implies, “would require the registrant to file a Notice of Objection to make any changes to the assessment,” and which “will be issued on completed exams where full records were reviewed but … no returns were provided.”
In the latter type of situation, the binding NNOA will not grant any input tax credits, as CRA:
does not want to make a decision on behalf of the registrant on when to claim their ITCs. There is no legislative requirement to include ITCs when raising notional assessments. Registrants can either file their return(s) and include the ITCs, claim them on a future period, or be assessed based on sales.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.14 under ETA s. 296(1)(a).
CRA rules that s. 248(21) can apply to a partial partition of a property
CRA ruled that s. 248(21) applied to a partition of property held in co-ownership into two sets of parcels (Property 1 and Property 2) such that each minority co-owner continued to hold the same co-ownership interest in each such property as before, but the two equal larger co-owners now had a double-sized co-ownership interest in Property 1 but no interest in Property 2, or vice versa. The point appeared to be that s. 248(21) can apply even though no one is acquiring outright ownership of any parcel, and some are not changing their percentage interests in any property at all.
Neal Armstrong. Summary of 2019 Ruling 2018-0787181R3 under s. 248(21).
Income Tax Severed Letters 11 March 2020
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that it would be “fair” for it to adjust the new residential rental property rebate when assessing under ETA s. 191(3)
CRA is assessing to increase the amount of GST/HST self-assessed by a builder under ETA s. 191(3) on substantial completion and first occupancy of a rental residential complex. What should be done where there should be a corresponding increase to the amount of the new residential rental property rebate given this higher FMV?
CRA noted that it was not required under s. 296(2.1)(b) to grant the rebate - because this provision did not apply where a rebate application had been filed. Furthermore, the making of a fresh rebate application was prohibited by s. 262(2). However, CRA indicated that, as a matter “of service and fairness, it would be appropriate for the auditor” to adjust the rebate, provided the period was not statute-barred.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, GST Session – Q.10 under ETA s. 256.2(7).
CRA treats a mailed or couriered item as having been received by it five days before the delivery date
S. 248(7) provides that “anything … sent by first class mail or its equivalent shall be deemed to be received by the person to whom it was sent on the day it was mailed.” Be that as it may:
The CRA considers the received date to be the mailroom date (delivered date) minus five days leniency. The CRA strongly encourages the use of electronic filing via certified T2 software.
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, General Session – Q.4 under ITA s. 248(7).
DREAM Global REIT was acquired through unit redemptions funded with asset sales and unit subscriptions
Dream Global REIT, a TSX-listed mutual fund trust with no non-portfolio property, held a portfolio of German and Netherlands rental properties through a wholly-owned Bermuda LP which, in turn, held some direct and indirect Netherlands subsidiaries but held the majority of such assets through a Dutch Co-op which, in turn, held a Luxembourg holding company for various property subsidiaries.
The REIT’s purchase (without the benefit of a Plan of Arrangement) was accomplished, in the main, by Luxembourg and Caymans subsidiaries of three non-resident Blackstone-managed funds acquiring the Dutch Co-op for cash and note consideration, winding-up the Bermuda LP (in order to ensure that such gains fell into the right taxation year of the REIT and so that the proceeds were received in the hands of the REIT), and with the cash portion of such proceeds and the subscription by the purchasers for Class B units of the REIT being used to fund a previously declared special distribution on, and then redeem, all the (Class A) Units, thereby giving rise to a deemed year end under ss. 249(4) and 256(9). Given inter alia that much of the gains were realized as capital gains (i.e., gains realized by the Bermuda LP) rather than as gains giving rise to FAPI, management did not anticipate that the special distribution included any ordinary income – so that it was expected that the unitholders received the same treatment as if they had sold their Units for cash.
Neal Armstrong. Summary of Dream Global REIT Circular under Mergers & Acquisitions – Cross-Border Acquisitions – Inbound – REIT Targets.
CRA accepts that “in contemplation of” can be backwards looking
After quoting from Copthorne as to the meaning of the extension in s. 248(10) of the concept of a series of transactions, CRA stated (in the context of a question on s. 55(2)):
Therefore … “in contemplation” is not read in the sense of actual knowledge, but in the broader sense of “because of” or “in relation to” the series. Therefore, this can be applied to events either before, or after a specific transaction.
Therefore, the sole factor of transactions occurring at the same time is not necessarily a deciding factor either way. The transactions are reviewed in the context of the transaction identified and used to apply to the specific section of the act, in this case subsection 55(2).
Neal Armstrong. Summary of May 2019 CPA Alberta CRA Roundtable, ITA Session – Q.7 under ITA s. 248(10).
5 more translated CRA interpretations are available
We have published a further 5 translations of CRA interpretations released in February and January, 2011. Their descriptors and links appear below.
These are additions to our set of 1121 full-text translations of French-language Roundtable items and Technical Interpretations of the Income Tax Rulings Directorate, which covers all of the last 9 years of releases of Interpretations by the Directorate. These translations are subject to the usual (3 working weeks per month) paywall.