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.
Principal Issues: Supplemental ruling to 2023-098066.
Position: Supplemental ruling given.
Reasons: The changes don't impact the rulings given in 2023-098066.
XXXXXXXXXX 2024-103186
XXXXXXXXXX, 2024
Dear XXXXXXXXXX:
Re: Supplemental Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your email dated XXXXXXXXXX. It is supplemental to our advance income tax ruling number 2023-098066 (the Ruling Letter) and our supplemental advance income tax ruling number 2024-102189 (the Supplemental 1 Letter) that was issued to the above-captioned taxpayers on XXXXXXXXXX, respectively. We also acknowledge the additional information provided to us in subsequent correspondence and during our various telephone conversations. The information that you provided in such correspondence and in the telephone discussions form part of this letter only to the extent described herein.
You indicated that certain Proposed Transactions described in the Ruling Letter and the Supplemental 1 Letter have been completed. As requested, these particular amendments (the Amendments), as set out below in this letter (Supplemental Ruling Letter), are hereby made to the Ruling Letter and the Supplemental 1 Letter.
Unless otherwise defined herein, all capitalized terms in the Supplemental Ruling Letter have the meanings assigned to them in the Ruling Letter and the Supplemental 1 Letter, and, where the circumstances so require, the singular should be read as plural and vice versa.
COMPLETED TRANSACTIONS
1. Paragraph 51.3 is added as follows:
“TC1 borrowed from a third-party lender and used such cash to purchase farm equipment.”
PROPOSED TRANSACTIONS
2. Paragraph 51.4 is added as follows:
“TC1, TC2, TC3, TC4, TC5 and TC6 will amend their respective articles of incorporation to create and authorize the issuance of voting Class A, Class B, Class C and Class D Special Shares that are non-participating, non-convertible and carrying a: (i) non-cumulative dividend entitlement based on a fixed percentage of the FMV of the consideration received for the shares when first issued, and is unique to each Class of Special Shares; (ii) redemption /retraction feature for an amount equal to the FMV of the property transferred to the corporation in consideration for the issuance of these shares; and (iii) subject to a price adjustment clause to ensure that the redemption value of the shares does not deviate from the fair market value of the property received in consideration for the issuance of the shares.”
3. Paragraph 52.2 is replaced by the following: Cco will liquidate certain marketable securities and use cash from the liquidation to repay balances owing to Eco.
4. Paragraph 58 b) is amended by adding the words “Class A” immediately before the words “Special Shares to Individual B”.
5. Paragraph 60 b) is amended by adding the words “Class A” immediately before the words “Special Shares to Individual C”.
6. Paragraph 63 is amended by adding the words “Class B” immediately before the words “Special Shares to Individual B”.
7. Paragraph 64 is amended by adding the words “Class B” immediately before the words “Special Shares to Individual C”.
8. Paragraph 69 a) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class B Common Shares transferred to TC1”.
9. Paragraph 69 b) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class B Common Shares transferred to TC2”.
10. Paragraph 70 is replaced by the following:
“Bco and TC1 and Bco and TC2 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfers of the Dco Class B Common Shares to TC1 and TC2 as described in Paragraph 69. The agreed amount will be limited to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
The amount added to the stated capital in respect of the TC1 Class C Special Shares and TC2 Class C Special Shares issued to Bco will not exceed the maximum amount that could be to be added to the PUC of the shares without a reduction in PUC pursuant to subsection 85(2.1).”
11. Paragraph 71 is replaced by the following:
“Immediately after the share transfers described in Paragraph 69, TC1 and TC2 will redeem all of the TC1 Class C Special Shares and TC2 Class C Special Shares held by Bco for an amount equal to the aggregate redemption amount and FMV of such shares. As sole consideration therefor, each of TC1 and TC2 will issue the TC1 Note 1 and the TC2 Note 1 to Bco respectively. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the aggregate redemption amount and FMV of the TC1 Class C Special Shares and TC2 Class C Special Shares so redeemed. Bco will accept the TC1 Note 1 and the TC2 Note 1 as payment in full for the redemption of the TC1 Class C Special Shares and TC2 Class C Special Shares, respectively.”
12. Paragraph 72 is replaced by the following:
“By way of special resolution, TC1 and TC2 will resolve to wind-up and dissolve Bco pursuant to the provisions of Act 2.”
13. Paragraph 74 a) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC3”.
14. Paragraph 74 b) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC4”.
15. Paragraph 74 c) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC5”.
16. Paragraph 74 d) is amended by adding the words “Class C” immediately before the words “Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC6”.
17. Paragraph 75 is amended by adding the words “Class C” immediately after the words “The amount added to the stated capital in respect of the TC3, TC4, TC5 and TC6.”
18. Paragraph 76 is replaced by the following:
“Immediately after the share transfers described in Paragraph 74, TC3, TC4, TC5 and TC6 will redeem all of the TC3, TC4, TC5 and TC6 Class C Special Shares held by Cco for an amount equal to the aggregate redemption amount and FMV of such shares. As consideration therefor, TC3, TC4, TC5 and TC6 will issue the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1 to Cco respectively. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the aggregate redemption amount and FMV of the TC3, TC4, TC5 and TC6 Class C Special Shares. Cco will accept the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1 as payment in full for the redemption of the TC3, TC4, TC5 and TC6 Class C Special Shares, respectively.”
19. Paragraph 77 is replaced by the following:
“By way of special resolution, TC3, TC4, TC5 and TC6 will resolve to wind-up and dissolve Cco pursuant to the provisions of Act 2.”
20. Paragraph 79 is amended by adding the words “Class D” immediately after the words “Dco will transfer certain Dco Business Assets (the “Dco Business Assets”) to the TCs in consideration for the issuance of TC1, TC2, TC3, TC4, TC5 and TC6”.
21. Paragraph 80 is replaced by the following:
“Dco and TC1, Dco and TC2, Dco and TC3, Dco and TC4, Dco and TC5 and Dco and TC6 will respectively jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of the Dco Business Assets described in Paragraph 79. The agreed amount in respect of the Dco Business Assets transferred will not be less than the lesser of the amounts specified in paragraphs 85(1)(c.1), 85(1)(c.2) and 85(1)(e) and will not exceed the FMV of the property transferred.
The amount of the Dco liabilities assumed by the TCs, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property in accordance with paragraph 85(1)(b). The amount of liabilities assumed by the TCs, respectively, which are allocated by Dco to a particular property that is not subject to an election under subsection 85(1), will not exceed the FMV of any such property.
The amount added to the stated capital account for the Class D Special Shares to be issued by the TCs as partial consideration for the Dco Business Assets Distribution, will not exceed the maximum amount that could be added to the aggregate PUC of each TC’s respective Class D Special Shares without a reduction in PUC pursuant to subsection 85(2.1).”
22. Paragraph 81 is amended by replacing the words “class of” with the words “Class D”.
23. Paragraph 93 is amended to add the words “On XXXXXXXXXX” immediately before the words “Aco and Dco, each of which will be a predecessor corporation to Aco Amalco, (the “Aco Amalco Predecessor Corporations”)”.
24. Paragraph 95 is replaced by the following:
“The issued and outstanding shares of the capital stock of Aco Amalco will consist of XXXXXXXXXX Aco Amalco Common Shares and XXXXXXXXXX Aco Amalco Class C Special Shares and Aco Amalco Class F Special Shares, all of which will be owned by Individual A.
The ACB, stated capital and PUC of Common and Special shares of Aco Amalco owned by Individual A will be equal to the aggregate stated capital and PUC of the XXXXXXXXXX Aco Class A Common Shares, XXXXXXXXXX Aco Class C Special Shares and the Aco Class F Special Shares, issued in Paragraph 62, immediately prior to the First Amalgamation.”
RULINGS GIVEN
25. Ruling A, as amended by the Supplemental 1 Letter, is replaced by the following:
A. As a result of the following redemptions and purchases for cancellation:
a) The redemptions by TC1 Class C Special Shares and TC2 Class C Special Shares owned by Bco, as described in Paragraph 71 on the First Reorganization;
b) The redemptions by TC3, TC4, TC5 and TC6 of the Class C Special Shares owned by Cco, as described in Paragraph 76 on the Second Reorganization;
c) The redemptions by TC1, TC2, TC3, TC4, TC5 and TC6 of the Class D Special Shares owned by Dco, as described in Paragraph 81 on the Third Reorganization;
d) The purchase for cancellation of the Dco Class B and Dco Class C Common Shares and the redemptions of the Dco Class F Special Shares and Dco Class E Special Shares owned by TC1, TC2, TC3, TC4, TC5 and TC6, as described in Paragraph 82 on the Third Reorganization;
e) Reserved.
f) Reserved.
by virtue of subsection 84(3):
a) TC1 and TC2 will be deemed to have paid, and Bco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the TC1 Class C Special Shares and TC2 Class C Special Shares, as the case may be, owned by Bco, exceeds the aggregate PUC in respect of those shares immediately before the redemptions.
b) TC3, TC4, TC5 and TC6 will be deemed to have paid, and Cco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class C Special Shares in the capital of TC3, TC4, TC5 and TC6 owned by Cco exceeds the aggregate PUC in respect of those shares immediately before the redemptions.
c) The TCs will be deemed to have paid, and Dco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Class D Special Shares in the capital of the TCs owned by Dco exceeds the aggregate PUC in respect of those shares immediately before the redemptions.
d) Dco will be deemed to have paid, and each of the TCs will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of the Dco Class B Common shares and Dco Class C Common Shares or the redemption of the Dco Class F Special Shares and Dco Class E Special Shares owned by the TCs exceeds the aggregate PUC in respect of those shares immediately before the purchase for cancellation.
e) Reserved.
f) Reserved.
26. The Paragraph immediately following Ruling E is replaced by the following:
“The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022, and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX, unless otherwise specified.”
CONFIRMATION
Provided that the statements contained in the Ruling Letter, as amended by the Supplemental 1 Letter and this letter constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and of the purposes of the Proposed Transactions and the Amendments, notwithstanding the Amendments, we hereby confirm that, subject to the conditions, limitations, qualifications and comments set out in the Ruling Letter and the Supplemental 1 Letter and in Information Circular 70-6R12 dated April 1, 2022, the Rulings given in the Ruling Letter, as amended by the Supplemental 1 Letter and this letter will continue to be binding on the CRA.
Yours Truly,
XXXXXXXXXX
Manager, Reorganizations Section II
For Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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