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: Internal reorganization.
Position: Favourable rulings issued.
Reasons: In compliance with the law and previous positions.
XXXXXXXXXX
2010-035799
XXXXXXXXXX , 2011
Dear XXXXXXXXXX :
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided in correspondence and telephone conversations (XXXXXXXXXX) concerning your request. You have advised that to the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein is:
a) in an earlier tax return of the taxpayer or a related person;
b) being considered by a Tax Services Office or Taxation Centre in connection with any tax return previously filed by the taxpayer or a related person;
c) under objection or appeal by the taxpayer 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 expired; or
e) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
You have also advised that to the best of your knowledge, and that of the responsible officers of the taxpayer, that the proposed transactions will not result in the taxpayer or any related person described herein being unable to pay its existing outstanding tax liabilities.
DEFINED TERMS
In this letter, all monetary amounts are expressed in Canadian dollars unless otherwise indicated, and the following terms or expressions have the meaning specified:
"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision, and the Income Tax Regulations there under are referred to as the "Regulations";
"adjusted cost base" (also referred to as "ACB") has the meaning assigned by section 54;
"agreed amount" in respect of a property means the amount that the transferor and transferee of the property have agreed upon in an election under subsection 85(1);
"Bequests" has the meaning assigned in Paragraph 5;
"Canadian-controlled private corporation" (also referred to as "CCPC") has the meaning assigned by subsection 125(7);
"capital dividend account" (also referred to as "CDA") has the meaning assigned by subsection 89(1);
"capital property" has the meaning assigned by section 54;
"Children" has the meaning assigned in Paragraph 4;
"Class A LP Units" has the meaning assigned in Paragraph 14;
"Class B LP Units" has the meaning assigned in Paragraph 14;
"connected" has the meaning described in subsection 186(4);
"Corporations Act" means the Business Corporations Act, R.S.O. 1990, c. B. 16, as amended;
"CRA" means the Canada Revenue Agency;
"D Family Trust" has the meaning assigned in Paragraph 41;
"D Holdco" means XXXXXXXXXX as described in Paragraphs 19 to 25;
"D Holdco Common Shares" has the meaning assigned in Paragraph 20;
"D Holdco Class A Special Shares" has the meaning assigned in Paragraph 20;
"D Holdco Class D Special Shares" has the meaning assigned in Paragraph 20;
"D Newco 1" has the meaning assigned in Paragraph 42;
"D Newco 1 Common Shares" has the meaning assigned in Paragraph 43;
"D Newco 1 Preferred Shares" has the meaning assigned in Paragraph 51;
"D Newco 1 Redemption Note" has the meaning assigned in Paragraph 57;
"D Newco 1 Special Shares" has the meaning assigned in Paragraph 43;
"D Newco 2" has the meaning assigned in Paragraph 42;
"D Newco 2 Common Shares" has the meaning assigned in Paragraph 44;
"D Newco 2 Preferred Shares" has the meaning assigned in Paragraph 54;
"D Newco 2 Redemption Note" has the meaning assigned in Paragraph 58;
"D Newco 2 Special Shares" has the meaning assigned in Paragraph 44;
"depreciable property" has the meaning assigned by subsection 13(21);
"designated person" has the meaning assigned by subsection 74.5(5);
"dividend rental arrangement" has the meaning assigned by subsection 248(1);
"division date" means the third anniversary of the date of death of the survivor of Mrs. A and Mr. A, or such earlier date (not preceding the date of death of the survivor of Mr. A and Mrs. A), as the trustees in their absolute discretion determine, pursuant to paragraph XXXXXXXXXX of the Will;
"eligible capital property" has the meaning assigned by section 54;
"eligible property" has the meaning assigned by subsection 85(1.1);
"Estate" means the Estate of Mrs. A as described in Paragraph 5;
"fair market value" means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length;
"Family Trust" means any one of the D Family Trust, G Family Trust, L Family Trust and T Family Trust, and "Family Trusts" means all of them, collectively;
"financial intermediary corporation" has the meaning assigned by subsection 191(1);
"G Family Trust" has the meaning assigned in Paragraph 41;
"G Holdco" means XXXXXXXXXX . as described in Paragraphs 26 to 30;
"G Holdco Common Shares" has the meaning assigned in Paragraph 27;
"G Holdco Class A Special Shares" has the meaning assigned in Paragraph 27;
"G Holdco Class D Special Shares" has the meaning assigned in Paragraph 27;
"G Newco 1" has the meaning assigned in Paragraph 42;
"G Newco 1 Common Shares" has the meaning assigned in Paragraph 45;
"G Newco 1 Preferred Shares" has the meaning assigned in Paragraph 51;
"G Newco 1 Redemption Note" has the meaning assigned in Paragraph 57;
"G Newco 1 Special Shares" has the meaning assigned in Paragraph 45;
"G Newco 2" has the meaning assigned in Paragraph 42;
"G Newco 2 Common Shares" has the meaning assigned in Paragraph 46;
"G Newco 2 Preferred Shares" has the meaning assigned in Paragraph 54;
"G Newco 2 Redemption Note" has the meaning assigned in Paragraph 58;
"G Newco 2 Special Shares" has the meaning assigned in Paragraph 46;
"GP Interest" means the general partner's partnership interest in LP;
"GP Trust" means XXXXXXXXXX ;
"general rate income pool" (also referred to as "GRIP") has the meaning assigned by subsection 89(1);
"guarantee agreement" has the meaning assigned by subsection 112(2.2);
"Holdco" means any one of D Holdco, G Holdco, L Holdco and T Holdco, and "Holdcos" means all of them, collectively;
"L Family Trust" has the meaning assigned in Paragraph 41;
"L Holdco" means XXXXXXXXXX as described in Paragraphs 31 to 35;
"L Holdco Class A Special Shares" has the meaning assigned in Paragraph 32;
"L Holdco Class D Special Shares" has the meaning assigned in Paragraph 32;
"L Holdco Common Shares" has the meaning assigned in Paragraph 32;
"L Newco 1" has the meaning assigned in Paragraph 42;
"L Newco 1 Common Shares" has the meaning assigned in Paragraph 47;
"L Newco 1 Preferred Shares" has the meaning assigned in Paragraph 51;
"L Newco 1 Redemption Note" has the meaning assigned in Paragraph 57;
"L Newco 1 Special Shares" has the meaning assigned in Paragraph 47;
"L Newco 2" has the meaning assigned in Paragraph 42;
"L Newco 2 Common Shares" has the meaning assigned in Paragraph 48;
"L Newco 2 Preferred Shares" has the meaning assigned in Paragraph 54;
"L Newco 2 Redemption Note" has the meaning assigned in Paragraph 58;
"L Newco 2 Special Shares" has the meaning assigned in Paragraph 48;
"LP" means XXXXXXXXXX ;
"Mr. A" means XXXXXXXXXX ;
"Mr. D" means XXXXXXXXXX ;
"Mr. G" means XXXXXXXXXX ;
"Mr. M" means XXXXXXXXXX ;
"Mr. T" means XXXXXXXXXX ;
"Mrs. A" means the late XXXXXXXXXX as described in Paragraph 1;
"Mrs. L" means XXXXXXXXXX ;
"Newco" means any one of D Newco 1, D Newco 2, G Newco 1, G Newco 2, L Newco 1, L Newco 2, T Newco 1, and T Newco 2, and "Newcos" means all of them, collectively;
"Newco 1" means any one of D Newco 1, G Newco 1, L Newco 1, and T Newco 1;
"Newco 1 Common Shares" has the meaning assigned in Paragraph 42;
"Newco 1 Preferred Shares" has the meaning assigned in Paragraph 42;
"Newco 1 Preferred Share Redemption Amount" has the meaning assigned in Paragraph 42;
"Newco 1 Special Shares" has the meaning assigned in Paragraph 42;
"Newco 2" means any one of D Newco 2, G Newco 2, L Newco 2, and T Newco 2;
"Newco 2 Common Shares" has the meaning assigned in Paragraph 42;
"Newco 2 Preferred Share Redemption Amount" has the meaning assigned in Paragraph 42;
"Newco 2 Preferred Shares" has the meaning assigned in Paragraph 42;
"Newco 2 Special Shares" has the meaning assigned in Paragraph 42;
"Opco" means XXXXXXXXXX as described in Paragraphs 7 to 18;
"Opco Common Shares" has the meaning assigned in Paragraph 9;
"Opco Class A Special Shares" has the meaning assigned in Paragraph 9;
"paid-up capital" (also referred to as "PUC") has the meaning assigned by subsection 89(1);
"Paragraph" means a numbered paragraph in this letter;
"principal amount" has the meaning assigned by subsection 248(1);
"Proposed Transactions" means the proposed transactions described in paragraphs 41 to 63;
"Real Estate" has the meaning assigned in Paragraph 11;
"refundable dividend tax on hand" (also referred to as "RDTOH") has the meaning assigned by subsection 129(3);
"XXXXXXXXXX Reit" means XXXXXXXXXX ;
"related group" has the meaning assigned by subsection 251(4);
"related persons" has the meaning assigned by subsection 251(2);
"specified financial institution" has the meaning assigned by subsection 248(1);
"stated capital account" has the meaning assigned by section 24 of the Corporations Act;
"Sub Trust" means XXXXXXXXXX ;
"T Family Trust" has the meaning assigned in Paragraph 41;
"T Holdco" means XXXXXXXXXX as described in Paragraphs 36 to 40;
"T Holdco Common Shares" has the meaning assigned in Paragraph 37;
"T Holdco Class A Special Shares" has the meaning assigned in Paragraph 37;
"T Holdco Class D Special Shares" has the meaning assigned in Paragraph 37;
"T Newco 1" has the meaning assigned in Paragraph 42;
"T Newco 1 Common Shares" has the meaning assigned in Paragraph 49;
"T Newco 1 Preferred Shares" has the meaning assigned in Paragraph 51;
"T Newco 1 Redemption Note" has the meaning assigned in Paragraph 57;
"T Newco 1 Special Shares" has the meaning assigned in Paragraph 49;
"T Newco 2" has the meaning assigned in Paragraph 42;
"T Newco 2 Common Shares" has the meaning assigned in Paragraph 50;
"T Newco 2 Preferred Shares" has the meaning assigned in Paragraph 54;
"T Newco 2 Redemption Note" has the meaning assigned in Paragraph 58;
"T Newco 2 Special Shares" has the meaning assigned in Paragraph 50;
"taxable Canadian corporation" (also referred to as "TCC") has the meaning assigned by subsection 89(1);
"taxable dividend" has the meaning assigned by subsection 89(1);
"Transferred Real Estate" has the meaning assigned in Paragraph 51; and
"Will" means the Last Will and Testament of Mrs. A.
FACTS
Individuals & Estate
1. Mr. A is an individual resident in Canada for purposes of the Act. Mrs. A was the spouse of Mr. A. Mrs. A passed away on XXXXXXXXXX .
2. Mr. D, Mr. G, Mrs. L, Mr. M, and Mr. T are all individuals resident in Canada for purposes of the Act.
3. Mr. M is the spouse of Mrs. L.
4. Mr. D, Mr. G, Mrs. L and Mr. T (the "Children") are siblings and are the children of Mr. A and Mrs. A.
5. The terms of the Will provide the following:
(a) Mr. A, Mr. D, Mr. G, Mr. T and Mr. M are the executors and trustees of the estate of Mrs. A (the "Estate"). Decisions of the Estate require a decision of the majority of executors and trustees of which Mr. A must be a part,
(b) The beneficiaries of the Estate included Mr. A, the Children, Mrs. A's sister, Mrs. A's nephew and that nephew's spouse and XXXXXXXXXX children,
(c) Mr. A was entitled to receive various properties owned by Mrs. A, including certain real property,
(d) Mrs. A's sister was bequeathed $XXXXXXXXXX ,
(e) Mrs. A's nephew, nephew's spouse, and their XXXXXXXXXX children were each bequeathed $XXXXXXXXXX ,
(f) The total bequests of $XXXXXXXXXX to Mrs. A's sister, nephew, the nephew's spouse, and their XXXXXXXXXX children ("Bequests") were not subject to the division date and were satisfied in full by XXXXXXXXXX payments in XXXXXXXXXX and XXXXXXXXXX . The trustees had no discretion with respect to the payment of the Bequests,
(g) The residual assets of the estate will be retained until the division date. Mrs. A's D Holdco Class D Special Shares, G Holdco Class D Special Shares, L Holdco Special Shares, and T Holdco Class D Special Shares will be transferred to Mr. D, Mr. G, Mrs. L, and
Mr. T, respectively, at the division date pursuant to paragraph XXXXXXXXXX of the Will.
6. The assets of the Estate currently include:
(a) Co-ownership interests in real property, including XXXXXXXXXX ,
(b) Loan receivable from an unrelated Canadian company (balance at XXXXXXXXXX of approximately $XXXXXXXXXX , bearing interest at the Bank of Canada prime business rate plus XXXXXXXXXX %),
(c) XXXXXXXXXX Common Shares of XXXXXXXXXX (footnote 1) ,
(d) XXXXXXXXXX Class D Special Shares of D Holdco,
(e) XXXXXXXXXX Class D Special Shares of G Holdco,
(f) XXXXXXXXXX Class D Special Shares of L Holdco,
(g) XXXXXXXXXX Class D Special Shares of T Holdco,
(h) XXXXXXXXXX Class A Special Shares of XXXXXXXXXX (footnote 2) ,
(i) XXXXXXXXXX Class A Special Shares of XXXXXXXXXX ,
(j) XXXXXXXXXX Class A Special Shares of XXXXXXXXXX ,
(k) XXXXXXXXXX Class A Special Shares of XXXXXXXXXX
Opco
7. Opco was incorporated under a predecessor statute of the Corporations Act on XXXXXXXXXX . Opco is a CCPC and a TCC. Opco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.
8. Opco amalgamated with XXXXXXXXXX under a predecessor statute of the Corporations Act on XXXXXXXXXX . The amalgamated corporation retained Opco's name.
9. Pursuant to Articles of Amalgamation filed XXXXXXXXXX , the authorized share capital of Opco consists of several classes of shares including common shares (the "Opco Common Shares") and Class A special shares (the "Opco Class A Special Shares"). The Opco Common Shares are voting and participating. The Opco Class A Special Shares are entitled to a discretionary non-cumulative dividend and are redeemable, retractable and voting.
10. The issued share capital of Opco consists of:
Shareholder # of Shares Class ACB $ PUC $
D Holdco XXXXXXX Common $XXXX $XXXX
G Holdco XXXXXXX Common $XXXX $XXXX
L Holdco XXXXXXX Common $XXXX $XXXX
T Holdco XXXXXXX Common $XXXX $XXXX
D Holdco XXXXXXX Class A Special $XXXX $XXXX
G Holdco XXXXXXX Class A Special $XXXX $XXXX
L Holdco XXXXXXX Class A Special $XXXX $XXXX
T Holdco XXXXXXX Class A Special $XXXX $XXXX
11. Opco owns, inter alia, the following properties:
(a) revenue-producing capital properties and land held for future development as capital property (the "Real Estate"),
(b) XXXXXXXXXX Class B LP Units,
(c) real property inventory, and
(d) investments in various partnerships and corporations.
12. The Real Estate consists XXXXXXXXXX . These XXXXXXXXXX are depreciable properties included in Class 1 or Class 3 as described in Schedule II of the Regulations. Eligible XXXXXXXXXX additions acquired after XXXXXXXXXX have been included in a separate Class 1.
13. The Real Estate has been acquired by Opco over the years. In some cases Opco XXXXXXXXXX . Some of the Real Estate was acquired by Opco in various estate planning transactions involving Mr. A in XXXXXXXXXX .
14. On XXXXXXXXXX , LP was formed with two classes of limited partnership units, Class A limited partnership units (the "Class A LP Units") and Class B limited partnership units (the "Class B LP Units"), and a GP Interest. LP is a limited partnership formed under the laws of the Province of XXXXXXXXXX between GP Trust and Sub Trust for the purpose of acquiring an interest in income producing real properties, as described in Paragraph 16. The holder of the GP Interest is entitled to XXXXXXXXXX % of the income of LP, not to exceed XXXXXXXXXX dollars ($XXXXXXXXXX ) per annum. XXXXXXXXXX Reit is the sole unitholder of SubTrust. SubTrust owns all of the issued shares of XXXXXXXXXX , the sole beneficiary of GP Trust.
15. The Class B LP Units are exchangeable at the option of the holder, on a one-for-one basis, for units of XXXXXXXXXX Reit. The units of XXXXXXXXXX Reit are widely held by the public and listed for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX . Interests in the XXXXXXXXXX Reit are represented by identical units of a single class.
16. On XXXXXXXXXX , Sub Trust subscribed for Class A LP units for cash consideration. Also on XXXXXXXXXX , LP acquired cash and an interest in XXXXXXXXXX XXXXXXXXXX all located in Canada from Opco and other vendors. As consideration, LP assumed liabilities and issued XXXXXXXXXX Class B LP Units to Opco and XXXXXXXXXX Class B LP Units to the other vendors.
17. On XXXXXXXXXX , LP used the funds received from the issuance of the Class A LP units and the Class B LP Units to subscribe for an aggregate of XXXXXXXXXX units of XXXXXXXXXX Reit, which units are used to satisfy the exchange feature described in Paragraph 15.
18. At XXXXXXXXXX , Opco's RDTOH balance was $XXXXXXXXXX and its GRIP balance was $XXXXXXXXXX .
D Holdco
19. D Holdco was incorporated under the Corporations Act on XXXXXXXXXX .
D Holdco is a CCPC and a TCC. D Holdco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX XXXXXXXXXX Tax Services Office.
20. The authorized share capital of D Holdco consists of an unlimited number of Class A Special Shares (the "D Holdco Class A Special Shares"), Class B Special Shares, Class C Special Shares, Class D Special Shares (the "D Holdco Class D Special Shares"), Class E Special Shares, Class F Special Shares and Common Shares (the "D Holdco Common Shares").
21. The issued share capital of D Holdco was issued in XXXXXXXXXX and consists of:
Shareholder # of Shares Class
Mr. D XXXXXXXXXX Common
Mr. D XXXXXXXXXX Class A Special
Mr. A XXXXXXXXXX Class D Special
The Estate XXXXXXXXXX Class D Special
22. The holders of the D Holdco Class A Special Shares are entitled to:
(a) one vote for each such share held;
(b) fixed preferential (ahead of all classes of shares of D Holdco ranking junior to the D Holdco Class A Special Shares) non-cumulative cash dividends as may be declared by the directors;
(c) receive, in the event of the liquidation, dissolution or winding-up of D Holdco, in priority to any other class of shares ranking junior to the D Holdco Class A Special Shares, an amount equal to the redemption amount of $XXXXXXXXXX per share in respect of each such share held together with all declared and unpaid preferential non-cumulative cash dividends; and
(d) require D Holdco to redeem his or her D Holdco Class A Special Share on payment for each share to be redeemed at the redemption amount of $XXXXXXXXXX per share.
D Holdco may redeem the whole or any part of the D Holdco Class A Special Shares outstanding on payment for each share to be redeemed at the redemption amount of $XXXXXXXXXX per share.
23. The holders of the D Holdco Class D Special Shares are entitled to:
(a) one vote for each such share held;
(b) fixed preferential (ahead of all classes of shares of D Holdco ranking junior to the D Holdco Class D Special Shares) non-cumulative cash dividends as may be declared by the directors;
(c) in the event of the liquidation, dissolution or winding-up of D Holdco, to receive, in priority to any other class of shares ranking junior to the D Holdco Class D Special Shares, an amount equal to the redemption amount of $XXXXXXXXXX per share in respect of each such share held together with all declared and unpaid preferential non-cumulative cash dividends; and
(d) require D Holdco to redeem his or her D Holdco Class D Special Share on payment for each share to be redeemed at the redemption amount of $XXXXXXXXXX per share.
D Holdco may redeem the whole or any part of the D Holdco Class D Special Shares outstanding on payment for each share to be redeemed at the redemption amount of $XXXXXXXXXX per share.
24. The holders of the D Holdco Common Shares are entitled to:
(a) one vote for each such share held;
(b) subject to the rights of the holders of the D Holdco Class A Special Shares, the Class B Special Shares, the Class C Special Shares and the D Holdco Class D Special Shares, to such dividends as may be declared by the directors; and
(c) subject to the rights of the holders of the D Holdco Class A Special Shares, the Class B Special Shares, the Class C Special Shares and the D Holdco Class D Special Shares, to receive, in the event of the liquidation, dissolution or winding-up of D Holdco, the assets and property of D Holdco available for distribution.
25. Mr. A and the Estate are a related group that controls D Holdco.
G Holdco
26. G Holdco was incorporated under the Corporations Act on XXXXXXXXXX .
G Holdco is a CCPC and a TCC. G Holdco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.
27. The authorized share capital of G Holdco consists of an unlimited number of Class A Special Shares (the "G Holdco Class A Special Shares"), Class B Special Shares, Class C Special Shares, Class D Special Shares (the "G Holdco Class D Special Shares"), Class E Special Shares, Class F Special Shares and Common Shares (the "G Holdco Common Shares").
28. The issued share capital of G Holdco was issued in XXXXXXXXXX and consists of:
Shareholder # of Shares Class
Mr. G XXXXXXXXXX Common
Mr. G XXXXXXXXXX Class A Special
Mr. A XXXXXXXXXX Class D Special
The Estate XXXXXXXXXX Class D Special
29. The G Holdco Class A Special Shares have the same rights and privileges as the D Holdco Class A Special Shares. The G Holdco Class D Special Shares have the same rights and privileges as the D Holdco Class D Special Shares. The G Holdco Common Shares have the same rights and privileges as the D Holdco Common Shares.
30. Mr. A and the Estate are a related group that controls G Holdco.
L Holdco
31. L Holdco was incorporated under the Corporations Act on XXXXXXXXXX .
L Holdco is a CCPC and a TCC. L Holdco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.
32. The authorized share capital of L Holdco consists of an unlimited number of Class A Special Shares (the "L Holdco Class A Special Shares"), Class B Special Shares, Class C Special Shares, Class D Special Shares (the "L Holdco Class D Special Shares"), Class E Special Shares, Class F Special Shares, and Common Shares (the "L Holdco Common Shares").
33. The issued share capital of L Holdco was issued in XXXXXXXXXX and consists of:
Shareholder # of Shares Class
Mrs. L XXXXXXXXXX Common
Mrs. L XXXXXXXXXX Class A Special
Mr. A XXXXXXXXXX Class D Special
The Estate XXXXXXXXXX Class D Special
34. The L Holdco Class A Special Shares have the same rights and privileges as the
D Holdco Class A Special Shares. The L Holdco Class D Special Shares have the same rights and privileges as the D Holdco Class D Special Shares. The L Holdco Common Shares have the same rights and privileges as the D Holdco Common Shares.
35. Mr. A and the Estate are a related group that controls L Holdco.
T Holdco
36. T Holdco was incorporated under the Corporations Act on XXXXXXXXXX .
T Holdco is a CCPC and a TCC. T Holdco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.
37. The authorized share capital of T Holdco consists of an unlimited number of Class A Special Shares (the "T Holdco Class A Special Shares"), Class B Special Shares, Class C Special Shares, Class D Special Shares (the "T Holdco Class D Special Shares"), Class E Special Shares, Class F Special Shares and Common Shares (the "T Holdco Common Shares").
38. The issued share capital of T Holdco was issued in XXXXXXXXXX and consists of:
Shareholder # of Shares Class
Mr. T XXXXXXXXXX Common
Mr. T XXXXXXXXXX Class A Special
Mr. A XXXXXXXXXX Class D Special
The Estate XXXXXXXXXX Class D Special
39. The T Holdco Class A Special Shares have the same rights and privileges as the D Holdco Class A Special Shares. The T Holdco Class D Special Shares have the same rights and privileges as the D Holdco Class D Special Shares. The T Holdco Common Shares have the same rights and privileges as the D Holdco Common Shares.
40. Mr. A and the Estate are a related group that controls T Holdco.
PROPOSED TRANSACTIONS
The following transactions will be implemented in the order presented below unless otherwise noted.
Settlement of the Family Trusts
41. An inter vivos discretionary trust will be established under the laws of the Province of XXXXXXXXXX for each of the Children (the "D Family Trust", the "G Family Trust", the "L Family Trust", and the "T Family Trust"). Mr. A will be the settlor for each Family Trust. The amount to be contributed by the settlor to each Family Trust will be at least equal to the total of the setup costs of the respective Family Trust and the amount required by the respective Family Trust to subscribe for the respective Newco 1 Common Shares and Newco 2 Common Shares as described in Paragraph 42. The terms of each Family Trust deed of settlement will provide that no party is allowed to contribute additional property to the trust. A majority of the trustees must be resident in Canada.
Pursuant to the deed of settlement for each Family Trust, the responsibilities of a trustee will include the following:
XXXXXXXXXX
Unanimous approval of the trustees is required in the case where there are XXXXXXXXXX trustees and majority approval of the trustees is required where there are more than XXXXXXXXXX trustees.
The trustees are to have, in general, full discretion to distribute capital and/or income to any or all of the beneficiaries in any proportions determined by them, except that they will not be permitted to make any such distributions to beneficiaries who are designated persons in respect of each of Mr. D, Mr. G,
Mrs. L, or Mr. T, as the case may be. The trustees are to have the power to identify the nature of any payment as income or capital.
The trustees and beneficiaries for each Family Trust are as follows:
D Family Trust
The original trustees of the D Family Trust are Mr. D,XXXXXXXXXX (spouse of Mr. D), and Mr. G.
The income and capital beneficiaries of the D Family Trust are Mr. D, XXXXXXXXXX , and the issue of Mr. DXXXXXXXXXX .
G Family Trust
The original trustees of the G Family Trust are Mr. G, XXXXXXXXXX
(son of XXXXXXXXXX ), and XXXXXXXXXX (son-in-law of Mr. G).
The income and capital beneficiaries of the G Family Trust are Mr. G and the issue of Mr. G and his spouse, XXXXXXXXXX .
L Family Trust
The original trustees of the L Family Trust will be Mrs. L, Mr. M (spouse of
Mrs. L) and XXXXXXXXXX (son of Mrs. L).
The income and capital beneficiaries of the L Family Trust will be Mrs. L, Mr. M, and the issue of Mrs. L and Mr. M.
T Family Trust
The original trustees of the T Family Trust will be Mr. T, XXXXXXXXXX (spouse of Mr. T), and Mr. G.
The income and capital beneficiaries of the T Family Trust are Mr. T and the issue of Mr. T and XXXXXXXXXX .
Incorporation of Newcos
42. Opco will incorporate eight new corporations (D Newco 1, D Newco 2,
G Newco 1, G Newco 2, L Newco 1, L Newco 2, T Newco 1, T Newco 2) under the Corporations Act (collectively referred to herein as "Newcos").
Each Newco 1 will have authorized share capital consisting of an unlimited number of preferred shares (the "Newco 1 Preferred Shares"), special voting shares (the "Newco 1 Special Shares"), and common shares ("Newco 1 Common Shares"). Each Newco 2 will have authorized share capital consisting of an unlimited number of preferred shares (the "Newco 2 Preferred Shares"), special voting shares (the "Newco 2 Special Shares"), and common shares (the "Newco 2 Common Shares").
The Newco 1 Preferred Shares and the Newco 2 Preferred Shares will have the following terms and conditions:
(a) One vote per share;
(b) Redeemable and retractable for an amount per share (the " Newco 1 Preferred Share Redemption Amount" and the "Newco 2 Preferred Share Redemption Amount", as the case may be) equal to the quotient obtained when the fair market value of any property transferred to the Newco, as consideration for the Newco 1 Preferred Shares or the Newco 2 Preferred Shares, as the case may be, on the date of first issuance of the Newco 1 Preferred Shares or the Newco 2 Preferred Shares, as the case may be, less the amount of any non-share consideration paid, assumed or delivered by the respective Newco for the acquisition of such property, is divided by the number of Newco 1 Preferred Shares or the Newco 2 Preferred Shares, as the case may be, issued as consideration therefore. The Newco 1 Preferred Share Redemption Amount and the Newco 2 Preferred Share Redemption Amount will be subject to a price adjustment clause should it later be determined, that the fair market value of the property transferred to the particular Newco is different from the amount agreed upon;
(c) A non-cumulative dividend entitlement equal to XXXXXXXXXX % per month of the Newco 1 Preferred Share Redemption Amount or the Newco 2 Preferred Share Redemption Amount, as the case may be;
(d) Dividends or returns of capital on, or reacquisitions of, subordinate classes (e.g., the Newco 1 Common Shares or the Newco 2 Common Shares) cannot be effected if the result would be to impair the ability to redeem or retract a Newco 1 Preferred Share at the Newco 1 Preferred Share Redemption Amount or a Newco 2 Preferred Share at the Newco 2 Preferred Share Redemption Amount, as the case may be; and
(e) Preference in all respects over the Newco 1 Common Shares and the Newco 2 Common Shares, as the case may be, on liquidation, dissolution or winding-up to the extent of the Newco 1 Preferred Share Redemption Amount or the Newco 2 Preferred Share Redemption Amount, as the case may be, and any dividends which have been declared but not paid.
The Newco 1 Special Shares and the Newco 2 Special Shares will have the following terms and conditions:
(a) One vote per share;
(b) Entitlement to capital contributed by holders of Newco 1 Special Shares or the Newco 2 Special Shares, as the case may be; and
(c) No entitlement to dividends or to property on the liquidation, dissolution or winding-up of Newco (except returns of capital).
The Newco 1 Common Shares and the Newco 2 Common Shares will have the following terms and conditions:
(a) One vote per share;
(b) A discretionary dividend entitlement; and
(c) Rank behind the Newco 1 Preferred Shares and the Newco 2 Preferred Shares, as the case may be, on liquidation, dissolution or winding-up to the extent of the Newco 1 Preferred Share Redemption Amount or the Newco 2 Preferred Share Redemption Amount, as the case may be, and any dividends which have been declared but not paid on the Newco 1 Preferred Shares and the Newco 2 Preferred Shares, as the case may be, and the Newco 1 Special Shares and the Newco 2 Special Shares, as the case may be, on liquidation, dissolution or winding up to the extent of capital contributed in respect of the Newco 1 Special Shares or the Newco 2 Special Shares, as the case may be.
43. Immediately after the incorporation of D Newco 1, the D Family Trust will subscribe for XXXXXXXXXX Newco 1 Common Shares of D Newco 1 (the "D Newco 1 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 1 Special Shares of D Newco 1 (the "D Newco 1 Special Shares") for $XXXXXXXXXX .
44. Immediately after the incorporation of D Newco 2, the D Family Trust will subscribe for XXXXXXXXXX Newco 2 Common Shares of D Newco 2 (the "D Newco 2 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 2 Special Shares of D Newco 2 (the "D Newco 2 Special Shares") for $XXXXXXXXXX .
45. Immediately after the incorporation of G Newco 1, the G Family Trust will subscribe for XXXXXXXXXX Newco 1 Common Shares of G Newco 1 (the "G Newco 1 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 1 Special Shares of G Newco 1 (the "G Newco 1 Special Shares") for $XXXXXXXXXX .
46. Immediately after the incorporation of G Newco 2, the G Family Trust will subscribe for XXXXXXXXXX Newco 2 Common Shares of G Newco 2 (the "G Newco 2 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 2 Special Shares of G Newco 2 (the "G Newco 2 Special Shares") for $XXXXXXXXXX .
47. Immediately after the incorporation of L Newco 1, the L Family Trust will subscribe for XXXXXXXXXX Newco 1 Common Shares of L Newco 1 (the "L Newco 1 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 1 Special Shares of L Newco 1 (the "L Newco 1 Special Shares") for $XXXXXXXXXX .
48. Immediately after the incorporation of L Newco 2, the L Family Trust will subscribe for XXXXXXXXXX Newco 2 Common Shares of L Newco 2 (the "L Newco 2 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 2 Special Shares of L Newco 2 (the "L Newco 2 Special Shares") for $XXXXXXXXXX .
49. Immediately after the incorporation of T Newco 1, the T Family Trust will subscribe for XXXXXXXXXX Newco 1 Common Shares of T Newco 1 (the "T Newco 1 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 1 Special Shares of T Newco 1 (the "T Newco 1 Special Shares") for $XXXXXXXXXX .
50. Immediately after the incorporation of T Newco 2, the T Family Trust will subscribe for XXXXXXXXXX Newco 2 Common Shares of T Newco 2 (the "T Newco 2 Common Shares") for $XXXXXXXXXX and Opco will subscribe for XXXXXXXXXX Newco 2 Special Shares of T Newco 2 (the "T Newco 2 Special Shares") for $XXXXXXXXXX .
Transfer of the Class B LP Units and Transferred Real Estate to the Newcos
51. Opco will contemporaneously transfer XXXXXXXXXX % of certain of the Real Estate and XXXXXXXXXX % of units of certain partnerships and shares of certain corporations that own Real Estate (the "Transferred Real Estate") to each of D Newco 1, G Newco 1, L Newco 1, and T Newco 1. As consideration for the Transferred Real Estate, D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, will:
(a) assume certain undertakings of Opco, if any, relating to the Transferred Real Estate to which paragraph 12(1)(a) is applicable;
(b) assume some of the liabilities of Opco; and
(c) issue to Opco, Newco 1 Preferred Shares (the "D Newco 1 Preferred Shares", the "G Newco 1 Preferred Shares", the "L Newco 1 Preferred Shares", and the "T Newco 1 Preferred Shares", as the case may be) such that the product obtained when the number thereof is multiplied by the Newco 1 Preferred Share Redemption Amount is equal to the amount by which the fair market value of the transferred property exceeds the aggregate of the amounts of the undertakings and liabilities assumed referred to in Paragraphs 51 (a) and (b).
52. Opco and each of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, 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 transfer of all eligible property so that the agreed amount in each joint election will not be less than the least of:
(a) the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property;
(b) the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(c) the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
In each case, the agreed amount will not exceed the fair market value of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b).
For purposes of each joint election, the portion, if any, of the principal amount of any liability of Opco that is assumed by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, that exceeds the amount determined under Paragraphs 52(a), (b) or (c) in respect of the particular transferred property to which it relates shall be treated as being assumed in consideration for the transfer of other property by Opco so that the aggregate amount of liabilities assumed by each of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, does not exceed the aggregate of the agreed amounts under subsection 85(1) in respect of all eligible property so transferred to D Newco 1, G Newco 1, L Newco 1, T Newco 1, as the case may be.
With respect to the assumption of the undertakings of Opco, if any, to which paragraph 12(1)(a) applies and which are included in the liabilities of Opco assumed by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, Opco and each of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, will each jointly elect under subsection 20(24), in the manner and within the time referred to in subsection 20(25).
53. D Newco 1, G Newco 1, L Newco 1, and T Newco 1 will each add to the stated capital account maintained for its respective Newco 1 Preferred Shares an amount not to exceed the amount by which the amount of the aggregate agreed amount in respect of the properties so transferred exceeds the total amount of liabilities and undertakings to be assumed by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be. For greater certainty, the increase to the PUC of the Newco 1 Preferred Shares issued by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to paragraph 85(2.1).
54. Opco will contemporaneously transfer XXXXXXXXXX % of the Class B LP Units owned by Opco to each of D Newco 2, G Newco 2, L Newco 2, and T Newco 2. As consideration for Class B LP Units received, D Newco 2, G Newco 2, L Newco 2, and T Newco 2, as the case may be, will issue to Opco, Newco 2 Preferred Shares (the "D Newco 2 Preferred Shares", the "G Newco 2 Preferred Shares", the "L Newco 2 Preferred Shares", and the "T Newco 2 Preferred Shares", as the case may be) such that the product obtained when the number thereof is multiplied by the Newco 2 Preferred Share Redemption Amount is equal to the fair market value of the transferred property.
55. Opco and each of D Newco 2, G Newco 2, L Newco 2, and T Newco 2, as the case may be, 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 transfer of all eligible property so that the agreed amount in each joint election will not be less than the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).
56. D Newco 2, G Newco 2, L Newco 2, and T Newco 2, as the case may be, will add to the stated capital account maintained for its respective Newco 2 Preferred Shares an amount not to exceed the aggregate agreed amount in respect of the properties so transferred. For greater certainty, the increase to the PUC of the Newco 2 Preferred Shares issued by D Newco 2, G Newco 2, L Newco 2, and T Newco 2, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to paragraph 85(2.1).
Redemption of the Preferred Shares of the Newcos
57. D Newco 1, G Newco 1, L Newco 1, and T Newco 1 will redeem all of the D Newco 1 Preferred Shares, G Newco 1 Preferred Shares, L Newco 1 Preferred Shares, and T Newco 1 Preferred Shares, respectively, held by Opco for an amount equal to their fair market value, being the product obtained when the respective Newco 1 Preferred Share Redemption Amount is multiplied by the number of D Newco 1 Preferred Shares, G Newco 1 Preferred Shares, L Newco 1 Preferred Shares, and T Newco 1 Preferred Shares, as the case may be, so redeemed.
D Newco 1, G Newco 1, L Newco 1, and T Newco 1 will satisfy the redemption price by issuing and delivering to Opco a non-interest bearing note (the "D Newco 1 Redemption Note", the "G Newco 1 Redemption Note", the "L Newco 1 Redemption Note", and the "T Newco 1 Redemption Note", as the case may be) payable on demand having a principal amount and fair market value equal to the redemption price of the D Newco 1 Preferred Shares, G Newco 1 Preferred Shares, L Newco 1 Preferred Shares, and T Newco 1 Preferred Shares, as the case may be, so redeemed. Opco will accept such note from D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, as full payment of the redemption price.
58. D Newco 2, G Newco 2, L Newco 2, and T Newco 2 will redeem all of the D Newco 2 Preferred Shares, G Newco 2 Preferred Shares, L Newco 2 Preferred Shares, and T Newco 2 Preferred Shares, respectively, held by Opco for an amount equal to their fair market value, being the product obtained when the Newco 2 Preferred Share Redemption Amount is multiplied by the number of D Newco 2 Preferred Shares, G Newco 2 Preferred Shares, L Newco 2 Preferred Shares, and T Newco 2 Preferred Shares, as the case may be, so redeemed.
D Newco 2, G Newco 2, L Newco 2, and T Newco 2 will satisfy the redemption price by issuing and delivering to Opco a non-interest bearing note (the "D Newco 2 Redemption Note", the "G Newco 2 Redemption Note", the "L Newco 2 Redemption Note" and the "T Newco 2 Redemption Note", as the case may be) payable on demand having a principal amount and fair market value equal to the redemption price of the D Newco 2 Preferred Shares, G Newco 2 Preferred Shares, L Newco 2 Preferred Shares, and T Newco 2 Preferred Shares, as the case may be, so redeemed. Opco will accept such note from D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, as full payment of the redemption price.
Payment of Dividends on the Opco Class A Special Shares
59. Opco will declare and pay a cash dividend to D Holdco, G Holdco, L Holdco, and T Holdco in the amount of $XXXXXXXXXX per share on the XXXXXXXXXX issued and outstanding Opco Class A Special Shares ($XXXXXXXXXX in aggregate).
Dividend Declaration and Exchange Agreements
59.1 Opco will declare a dividend-in-kind of a XXXXXXXXXX % undivided interest in each of the D Newco 1 Redemption Note, D Newco 2 Redemption Note, G Newco 1 Redemption Note, G Newco 2 Redemption Note, L Newco 1 Redemption Note,
L Newco 2 Redemption Note, T Newco 1 Redemption Note, and T Newco 2 Redemption Note to each Holdco.
59.2 D Holdco will enter into an exchange agreement with G Holdco to exchange its XXXXXXXXXX % undivided interest in the G Newco 1 Redemption Note and the G Newco 2 Redemption Note for G Holdco's XXXXXXXXXX % undivided interest in the D Newco 1 Redemption Note and the D Newco 2 Redemption Note. D Holdco will enter into an exchange agreement with L Holdco to exchange its XXXXXXXXXX % undivided interest in the L Newco 1 Redemption Note and the L Newco 2 Redemption Note for L Holdco's XXXXXXXXXX % undivided interest in the D Newco 1 Redemption Note and the D Newco 2 Redemption Note. D Holdco will enter into an exchange agreement with T Holdco to exchange its XXXXXXXXXX % undivided interest in the T Newco 1 Redemption Note and the T Newco 2 Redemption Note for T Holdco's XXXXXXXXXX % undivided interest in the L Newco 1 Redemption Note and the L Newco 2 Redemption Note.
59.3 G Holdco will enter into an exchange agreement with L Holdco to exchange its XXXXXXXXXX % undivided interest in the L Newco 1 Redemption Note and the L Newco 2 Redemption Note for L Holdco's XXXXXXXXXX % undivided interest in the G Newco 1 Redemption Note and the G Newco 2 Redemption Note. G Holdco will enter into an exchange agreement with T Holdco to exchange its XXXXXXXXXX % undivided interest in the T Newco 1 Redemption Note and the T Newco 2 Redemption Note for T Holdco's XXXXXXXXXX % undivided interest in the G Newco 1 Redemption Note and the G Newco 2 Redemption Note.
59.4 L Holdco will enter into an exchange agreement with T Holdco to exchange its XXXXXXXXXX % undivided interest in the T Newco 1 Redemption Note and the T Newco 2 Redemption Note for T Holdco's XXXXXXXXXX % undivided interest in the L Newco 1 Redemption Note and the L Newco 2 Redemption Note.
Distribution of the Newco Redemption Notes to the Holdcos
60. Opco will distribute the D Newco 1 Redemption Note and the D Newco 2 Redemption Note to D Holdco as a dividend-in-kind payable on the Opco Common Shares.
61. Opco will distribute the G Newco 1 Redemption Note and the G Newco 2 Redemption Note to G Holdco as a dividend-in-kind payable on the Opco Common Shares.
62. Opco will distribute the L Newco 1 Redemption Note and the L Newco 2 Redemption Note to L Holdco as a dividend-in-kind payable on the Opco Common Shares.
63. Opco will distribute the T Newco 1 Redemption Note and the T Newco 2 Redemption Note to T Holdco as a dividend-in-kind payable on the Opco Common Shares.
64. None of the shares of Opco, D Newco 1, D Newco 2, G Newco 1, G Newco 2,
L Newco 1, L Newco 2, T Newco 1 and T Newco 2 has been or will be, at any time during the implementation of the Proposed Transactions,
(a) the subject of any undertaking that is referred to in subsection 112(2.2) as a "guarantee agreement",
(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5), or
(c) the subject of a dividend rental arrangement.
65. None of Opco, D Newco 1, D Newco 2, G Newco 1, G Newco 2, L Newco 1,
L Newco 2, T Newco 1 and T Newco 2 is, or will be, during the implementation of the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).
66. None of Opco, D Holdco, G Holdco, L Holdco, T Holdco, D Newco 1, D Newco 2, G Newco 1, G Newco 2, L Newco 1, L Newco 2, T Newco 1 and T Newco 2 will be a specified financial institution prior to or during the implementation of the Proposed Transactions.
67. Legal title to Real Estate beneficially owned by Opco is held by other corporations as nominees or bare trustees for Opco as beneficial owner thereof. References to transfers of the Transferred Real Estate are references to transfers of beneficial interests in the Transferred Real Estate only.
68. Any future exchanges of the Opco Class B LP units for units of XXXXXXXXXX will result in a disposition of the Opco Class B LP units for proceeds of disposition equal to the fair market value of the Opco Class B LP Units at that time.
PURPOSES OF THE PROPOSED TRANSACTIONS
69. The purpose of the Proposed Transactions is to facilitate future estate planning of each of the Children and ultimately to enable each of them to have more control of his or her pro rata share of the Opco Class B LP Units and the Transferred Real Estate received by the Newcos so that each of them may deal with such property independently of the others during his or her lifetime.
69.1 The purpose of transferring the Transferred Real Estate and the Opco Class B LP Units to each respective Newco rather than directly to each Holdco is that it is not commercially desirable to have the Transferred Real Estate and the Opco Class B LP Units comingle with the assets already owned by each Holdco.
70. The purpose of Opco acquiring the Newco 1 Special Shares and the Newco 2 Special Shares of the Newcos is to defer and ultimately to cancel XXXXXXXXXX and, where applicable, XXXXXXXXXX , land transfer tax which would otherwise be payable in respect of the transactions described in Paragraphs 51 and 54.
71. Under the terms of the Opco Class A Special Shares, dividends must be paid on the Opco Class A Special Shares before a dividend can be paid on the Opco Common Shares. Therefore, the purpose of the payment of the dividend on the Class A Special Shares, as described in Paragraph 59, is to allow the dividend to be paid on the Opco Common Shares as described in Paragraphs 60 to 63.
72. The purpose of the distribution of the Redemption Notes, as described in Paragraphs 60 to 63, is to transfer the value of the Transferred Real Estate and the Class B LP Units to each respective Holdco. Otherwise, the value remains in Opco when the goal is to have the value received by each sibling's respective Holdco.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as set forth below.
A. The provisions of subsection 85(1) will apply to the transfer by Opco to D Newco 1, D Newco 2, G Newco 1, G Newco 2, L Newco 1, L Newco 2, T Newco 1 and T Newco 2, as the case may be, as described in Paragraphs 51 and 54, of each eligible property which is the subject of an election described in Paragraphs 52 and 55, so that the agreed amount in respect of such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost of the property transferred under paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.
For the purposes of a joint election in respect of depreciable property of a prescribed class, as described in Paragraph 52, the reference to "the undepreciated capital cost to the taxpayer of all the property of the class immediately before the disposition . . ." in subparagraph 85(1)(e)(i) will be read to mean the proportion of the undepreciated capital cost to Opco of all the property of that class that the original capital cost of the property so transferred immediately before the disposition is of the original capital cost of all property of that class immediately before the disposition.
B. The cost to Opco of the D Newco 1 Redemption Note, D Newco 2 Redemption Note, G Newco 1 Redemption Note, G Newco 2 Redemption Note, L Newco 1 Redemption Note, L Newco 2 Redemption Note, T Newco 1 Redemption Note, and T Newco 2 Redemption Note received as consideration for the redemptions described in Paragraphs 57 and 58 will be equal to its principal amount.
C. By virtue of subsection 52(2), the cost to D Holdco, G Holdco, L Holdco and T Holdco of the D Newco 1 Redemption Note, D Newco 2 Redemption Note, G Newco 1 Redemption Note, G Newco 2 Redemption Note, L Newco 1 Redemption Note, L Newco 2 Redemption Note, T Newco 1 Redemption Note and T Newco 2 Redemption Note, respectively, received as a dividend-in-kind, as described in Paragraphs 60 to 63, will be equal to the fair market value of such notes.
D. Subsection 84(3) will apply to the redemptions described in Paragraphs 57 and 58, to deem D Newco 1, D Newco 2, G Newco 1, G Newco 2, L Newco 1, L Newco 2, T Newco 1, and T Newco 2, as the case may be, to have paid and Opco to have received a dividend equal to the amount, if any, by which the amount paid upon such redemption exceeds the PUC in respect of such shares immediately before such redemption, and any such dividend:
(a) will be included in computing the income of Opco pursuant to subsection 82(1) and paragraph 12(1)(j);
(b) will be deductible by Opco pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);
(c) will be excluded in determining the proceeds of disposition, to Opco, of the shares so redeemed pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;
(d) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which such dividend is deemed to have been received,
(e) will not be subject to tax under Part IV, except as provided by in paragraph 186(1)(b), as Opco will be connected with each Newco; and
(f) will not be subject to tax under Parts IV.1 and Part VI.1.
E. The amount of the dividends received by D Holdco, G Holdco, L Holdco and T Holdco, as described in Paragraphs 60 to 63:
(a) will be included in computing the income of the recipient pursuant to subsection 82(1) and paragraph 12(1)(j);
(b) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);
(c) will not be subject to tax under Part IV, except as provided by in paragraph 186(1)(b), as each Holdco is connected with Opco;
(d) will not be subject to tax under Parts IV.1 and Part VI.1.
F. By virtue of subsection 20(24), Opco will be entitled to deduct in computing its income for the taxation year in which the assumption occurs, the amount paid to D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, in respect of the undertakings of Opco to which paragraph 12(1)(a) applies and that are assumed by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, as described in Paragraph 51 and which are the subject of an election described in Paragraph 52, to the extent that the payments are reasonable, and the amount so assumed will be deemed to be an amount described in paragraph 12(1)(a) in respect of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be.
G. Provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) as part of a series of transactions or events that includes Proposed Transactions, then by virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends described in Rulings D and E and in Paragraph 59. For greater certainty, the Proposed Transactions described herein, in and by themselves, will not be considered to result in any disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).
H. Provided that D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, has a legal obligation to pay interest on the liabilities of Opco assumed by it, and D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, continues to use the property acquired from Opco, as described in Paragraph 51, for the purpose of gaining or producing income from property, D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, will, pursuant to paragraph 20(1)(c), be entitled to deduct, in computing its income for a taxation year (depending on the method regularly followed by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, in computing its income for the purposes of the Act), the lesser of
(a) the interest paid or payable on the liabilities assumed by each of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, in respect of that taxation year; and
(b) a reasonable amount in respect thereof.
I. By virtue of subsection 1102(14) of the Regulations, each property, described in Paragraph 11, which, immediately before the transfer, described in Paragraph 51, is depreciable property of a prescribed class or separate prescribed class of Opco and which is acquired by D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be, on the transfer, will be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of D Newco 1, G Newco 1, L Newco 1, and T Newco 1, as the case may be.
J. Provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply so that no amount will be included by a particular Newco under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by the particular Newco on the transfer described in Paragraph 51.
K. The provisions of subsections 15(1), 55(4), 56(2), 56(4), 69(4), 69(11) and 246(1) will not apply to any of the Proposed Transactions, in and of themselves.
L. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.
The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the Proposed Transactions are completed by XXXXXXXXXX . The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.
Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:
a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein;
b) the balance of CDA, GRIP, or RDTOH of any corporation; or
c) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that include other transactions or events that are not described in this letter.
d) In Paragraph 42, you have indicated that the Newco 1 Preferred Share Redemption Amount and the Newco 2 Preferred Share Redemption Amount will include a price adjustment clause. Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred and the redemption amount of the shares issued as consideration, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since its coming into effect will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 The other XXXXXXXXXX common shares of XXXXXXXXXX are owned by Mr. A.
2 XXXXXXXXXX are related companies that are not part of any of the Proposed Transactions.
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