2010 Ruling 2010-0363471R3 - Supplemental Ruling

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: Amendment to ruling to avoid circular RDTOH/PartIV tax

Position:	Supplemental ruling given		

XXXXXXXXXX 							2010-036347

XXXXXXXXXX , 2010

Dear Sir:

Re: XXXXXXXXXX
Supplemental Advance Income Tax Ruling Request

This is in reply to your letter dated XXXXXXXXXX requesting a supplement to our advance income tax ruling number 2009-034667 that was issued to the above noted taxpayers on XXXXXXXXXX , 2010 (the "Ruling").

Unless otherwise stated, all capitalized terms have the same meaning as assigned to them in the Ruling.

You have advised that the assets to be distributed by DC to TC1, TC2 and TC3 include an interest in a life insurance policy (the "Policy"). DC's interest in the Policy is not eligible property and DC's transfer of such interest will not be subject to an election under subsection 85(1). As a result, DC will be required to include the amount by which the proceeds of disposition received by DC for its interest in the Policy exceeds the adjusted cost basis of that interest in computing its income. The amount included in DC's income from the disposition of the Policy will be considered income from property and will result in an amount being added to DC's RDTOH. This will give rise to the so called circularity problem with respect to RDTOH on the redemption of the preferred shares of TC1, TC2 and TC3 held by DC and the winding-up of DC. In order to avoid this problem, you have advised that the Proposed Transactions will be changed so that the redemptions by TC1, TC2 and TC3 and the winding-up of DC will be completed in different fiscal periods of the TCs.

In connection with the changes to the Proposed Transactions, you have asked that the Ruling be amended as follows:

(a) Replace Paragraph 40 under the heading "Proposed Transactions" with the following:

Prior to the end of its fiscal year on XXXXXXXXXX , each of TC1, TC2 and TC3 will redeem all of its issued Class "G" Preferred Shares at their redemption amount in exchange for consideration consisting of a debt evidenced by non-interest bearing promissory notes, payable on demand, each of which will have a principal amount and FMV equal to the aggregate redemption amount of the shares redeemed (the "TC1 Redemption Note" in the case of TC1, the "TC2 Redemption Note" in the case of TC2, and the "TC3 Redemption Note" in the case of TC3). DC will accept the TC1 Redemption Note, the TC2 Redemption Note and the TC3 Redemption Note as payment in full for the shares redeemed.

(b) Replace Paragraph 41 under the heading "Proposed Transactions" with the following:

After the end of the fiscal period of the TCs on XXXXXXXXXX , the shareholders of DC will by a special resolution resolve to wind-up and dissolve DC pursuant to the BCA. On the wind-up of DC, under the terms of the agreement governing the winding-up of DC, the TC1 Redemption Note, TC2 Redemption Note and TC3 Redemption Note will be assigned and distributed to TC1, TC2, and TC3 respectively. As a result of the assignment and distribution of the TC1 Redemption Note, the TC2 Redemption Note and the TC3 Redemption Note held by DC, the obligation of each of TC1, TC2 and TC3 under its own note will be cancelled.

Confirmation

Provided that the preceding statements and the statements contained in the Ruling constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and of the purposes of the Proposed Transactions, we hereby confirm that (i) the Ruling is amended in the manner set out above; and (ii) subject to the conditions, limitations, qualifications and comments set out in the Ruling, the Ruling will continue to be binding on the Canada Revenue Agency provided that the Proposed Transactions set out in the Ruling are completed by XXXXXXXXXX .

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch