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: Standard split-up butterfly
Position: Standard rulings given
Reasons: Consistent with previous rulings
XXXXXXXXXX 2009-033920
XXXXXXXXXX , 2010
Dear XXXXXXXXXX :
Re: XXXXXXXXXX - Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge your subsequent communications with us in respect of this ruling. The information contained in documents submitted with your request forms part of this ruling only to the extent it is expressly referred to or described herein.
DEFINITIONS
In this letter, unless otherwise expressly stated, the terms set forth below have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa.
"ACo" means XXXXXXXXXX ., a corporation that was incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX and continues to be governed by the laws of that province. The taxation year of ACo ends on XXXXXXXXXX ;
"ACB" means "adjusted cost base", and has the meaning assigned by section 54 and subsection 248(1);
"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;
"Amalco" means the entity formed on the statutory amalgamation of ACo, BCo and CCo;
"associated", in respect of 2 corporations, means 2 corporations that are associated with one another pursuant to section 256;
"BCo" means XXXXXXXXXX a corporation that was incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX and continues to be governed by the laws of that province. The taxation year of BCo ends on XXXXXXXXXX . BCo files its income tax returns with the XXXXXXXXXX Tax Center and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office;
"Business" means the ongoing XXXXXXXXXX business operated currently by ACo, BCo and CCo where income is reported on the cash basis for income tax purposes;
"capital property" has the meaning assigned to that term in section 54;
"CCo" means XXXXXXXXXX a corporation that was incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX and continues to be governed by the laws of that province. The taxation year of the corporation ends on XXXXXXXXXX . The corporation files its income tax returns with the XXXXXXXXXX Tax Center and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office;
"CCPC" means "Canadian-controlled private corporation", and has the meaning assigned by subsection 125(7);
"cost amount" has the meaning assigned to that term by subsection 248(1);
"depreciable property" has the meaning assigned by subsection 13(21);
"distribution" has the meaning assigned by subsection 55(1);
"eligible property" has the meaning assigned to that term in subsection 85(1.1);
"FMV" means fair market value, being the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;
"his particular corporation" means XCo in respect of Mr. X, YCo in respect of Mr. Y and ZCo in respect of Mr. Z;
"Mr. X" means XXXXXXXXXX
"Mr. Y" means XXXXXXXXXX
"Mr. Z" means XXXXXXXXXX
"predecessor corporation" has the meaning assigned to that term by subsection 87(1);
"Proposed Transactions" means the transactions described in paragraphs 11 through 22 below;
"PUC" means "paid-up capital", and has the meaning assigned by subsection 89(1);
"RDTOH" means "refundable dividend tax on hand", and has the meaning assigned by subsection 129(3);
"related person" means a person related under subsection 251(2);
"series of transactions or events" means "series of transactions or events" for the purposes of the Act as modified by subsection 248(10);
"taxable dividend" has the meaning assigned to that term by subsection 89(1);
"TCC" means "taxable Canadian corporation", and has the meaning assigned to that term by subsection 89(1);
"transferee corporation" means any of XCo, YCo and ZCo;
"type of property" means a type of property described in paragraph 14 below;
"XCo" means XXXXXXXXXX
"YCo" means XXXXXXXXXX ; and
"ZCo" means XXXXXXXXXX
STATEMENT OF FACTS
1. None of the issues involved in this ruling is:
(a) dealt with in an earlier return of ACo, BCo, CCo or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of ACo, BCo, CCo or a related person;
(c) under objection by ACo, BCo, CCo 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 not expired; or
(e) the subject of an advance income tax ruling previously issued by the Directorate.
2. ACo is a CCPC and a TCC. Particulars regarding the corporation's issued shares are as follows:
Shareholder # and class of shares PUC ACB FMV
Mr. X XX Class A common $ XX $ XXXXX $ XXXXX
XX Class B common $XX $XXXXXX $ XXXXX
Mr. Y XX Class A common $ XX $ XXXXX $ XXXXX
XX Class B common $XX $XXXXXX $ XXXXX
Mr. Z XX Class A common $ XX $ XXXXX $ XXXXX
XX Class B common $XX $XXXXX $ XXXXX
$XXXXXX
3. BCo is a CCPC and a TCC.
4. BCo is a wholly-owned subsidiary of ACo, which owns XXXXXXXXXX common voting shares of BCo. The ACB to ACo of the BCo shares is $XXXXXXXXXX and the aggregate PUC of the shares is $XXXXXXXXXX .
5. CCo is a CCPC and a TCC. Particulars regarding the corporation's issued shares are as follows:
Shareholder # and class of shares PUC ACB FMV
Mr. X XX Class A common $XX $XX $XX
Mr. Y XX Class A common $XX $XX $XX
Mr. Z XX Class A common $XX $XX $XX
All of the issued shares referred to above represent capital property to the holders thereof.
6. ACo, BCo and CCo carry on the Business and compute the income from that activity in accordance with the cash method.
7. Mr. X, Mr. Y and Mr. Z are brothers and are related persons. However, pursuant to subparagraph 55(5)(e)(i), they are not related persons for the purposes of section 55.
8. ACo, BCo and CCo are related persons and they are each associated with one another.
9. All of the persons herein referred to are resident in Canada.
10. XCo, YCo and ZCo are private corporations that were each incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX , with XCo being incorporated on behalf of Mr. X, YCo being incorporated on behalf of Mr. Y and ZCo being incorporated on behalf of Mr. Z. To date, no shares have been issued by any of these corporations.
PROPOSED TRANSACTIONS
The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing of any applicable election forms described below in respect of the Proposed Transactions, which will be filed on or before the applicable due date.
Amalgamation
11. CCo will be continued for corporate law purposes into the jurisdiction of XXXXXXXXXX in order that CCo may be amalgamated with ACo and BCo. On the continuance, there will be no change to the classes of shares or to the PUC of CCo.
12. ACo, BCo and CCo will be amalgamated pursuant to the laws of the Province of XXXXXXXXXX such that:
(a) all of the property (except amounts receivable from any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become property of Amalco by virtue of the amalgamation;
(b) all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of Amalco by virtue of the amalgamation; and
(c) all of the shareholders (except any predecessor corporation) who owned shares of any predecessor corporation immediately before the amalgamation will receive shares of Amalco because of the amalgamation.
In particular, on the amalgamation all of the common voting shares of BCo owned by ACo immediately before the amalgamation will be cancelled without any payment to the holder thereof and all of the issued and outstanding common shares of ACo and CCo owned by Mr. X, Mr. Y and Mr. Z will be exchanged for new Class A common shares of Amalco as follows:
Shareholder # of Amalco shares PUC ACB
Mr. X XXXXXX $XXXX $XXXXXX
Mr. Y XXXXXX $XXXX $XXXXXX
Mr. Z XXXXXX $XXXX $XXXXXX
The aggregate stated capital and the aggregate FMV of the common shares of Amalco acquired by each of Mr. X, Mr. Y and Mr. Z because of the amalgamation will be equal to the aggregate stated capital and the aggregate FMV, respectively, of the predecessor corporation shares that were owned by that shareholder and disposed of on the amalgamation.
13. Other than the share consideration described above, no other consideration will be received by any shareholder of a predecessor corporation as a consequence of the amalgamation. The issued and outstanding share capital of Amalco will be held as capital property by each of its shareholders.
Types of property of Amalco
14. Following the amalgamation described in paragraph 12 above and immediately before the distributions described in paragraph 19 below, the net FMV of each type of property of Amalco will be determined. For this purpose and for the purposes of the definition of "distribution", the property of Amalco will be classified into 3 types of property as follows:
(a) cash or near-cash property, consisting of all of the current assets of Amalco, including any cash and cash equivalents, deposits, and any income tax receivable;
(b) business property, consisting of all of the assets of Amalco (other than cash or near-cash property), any income from which would, for purposes of the Act, be income from a business (other than a specified investment business), including the accounts receivable, prepaid expenses, XXXXXXXXXX inventory held for resale, XXXXXXXXXX inventory and XXXXXXXXXX inventory that will be collected, sold or consumed in the ordinary course of a business to which they relate; and
(c) investment property, consisting of all of the assets of Amalco (other than cash or near-cash property), any income from which would, for purposes of the Act, be income from property or a specified investment business.
15. For greater certainty, for the purpose of determining the net FMV of each of the types of property of Amalco, the following principles will apply:
(a) deferred expenses, which were expenditures deferred and amortized for accounting purposes but fully deducted for tax purposes, will not be considered property for purposes of the Proposed Transactions;
(b) any tax accounts, such as any non-capital loss, net capital loss, the balance of any RDTOH or capital dividend account of Amalco, will not be considered property for purposes of the Proposed Transactions;
(c) no amount will be considered a liability unless it represents a true legal liability capable of quantification. For greater certainty, the amount of any deferred income taxes recorded in the financial statements of Amalco will not be considered a liability because such amount does not represent a legal obligation of Amalco; and
(d) any loans to related persons, which have no specified terms of repayment, will be considered current liabilities of Amalco.
16. In determining the net FMV of Amalco's cash or near-cash property, business property and investment property immediately before the transfers described in paragraph 19 below, its liabilities will be allocated to, and deducted in, the calculation of the net FMV of each such type of property of Amalco in the following manner:
(a) current liabilities of Amalco, other than those specifically mentioned in (c) below, will be allocated to each cash or near-cash property of Amalco in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property owned by Amalco and, to the extent that the total current liabilities so allocated exceed the total FMV of all cash or near-cash property of Amalco, the current liabilities will be allocated to the accounts receivable, prepaid expenses and inventory that have been classified as business property because they will be collected, sold or consumed in the ordinary course of the business to which they relate by a transferee corporation that will acquire and operate that business;
(b) liabilities, other than current liabilities, of Amalco that relate to a particular property will then be allocated to the particular property to the extent of its FMV and liabilities that pertain to a type of property, but not to a particular property, will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property, as described herein; and
(c) if any liabilities (hereinafter referred to as "excess unallocated liabilities") remain after the allocations described in steps (a) and (b) are made, such excess unallocated liabilities (including any excess current liabilities, if any), will then be allocated to the cash or near cash property, investment property, and business property of Amalco based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities.
17. It is not anticipated that any of the corporations will have an RDTOH balance immediately prior to the transactions described below.
Butterfly Transactions
The transactions in paragraphs 18 through 22 will occur chronologically in the order noted:
18. Each of Mr. X, Mr. Y and Mr. Z will transfer all of his Amalco Class A common shares to his particular corporation, as follows:
(a) Mr. X will transfer all of the Amalco Class A common shares owned by him to XCo and he will receive from XCo XXXXXXXXXX Class A common shares that are redeemable for an amount equal to the FMV of the shares of Amalco for which they were issued;
(b) Mr. Y will transfer all of the Amalco Class A common shares owned by him to YCo and he will receive from YCo XXXXXXXXXX Class A common shares that are redeemable for an amount equal to the FMV of the shares of Amalco for which they were issued; and
(c) Mr. Z will transfer all of the Amalco Class A common shares owned by him to ZCo and he will receive from ZCo XXXXXXXXXX Class A common shares that are redeemable for an amount equal to the FMV of the shares of Amalco for which they were issued.
In each case, the shares issued by the particular corporation will represent the only issued and outstanding shares in the capital of the particular corporation.
Each of Mr. X, Mr. Y and Mr. Z will jointly elect with his particular corporation, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of his Amalco Class A common shares to his particular corporation. In each case the agreed amount will be limited to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
The stated capital of the Class A common shares issued to each of Mr. X, Mr. Y and Mr. Z will be limited to an amount not greater than the PUC of the Amalco Class A common shares in consideration for which they are issued.
19. Immediately following the transfers of the Amalco shares described in paragraph 18 above, Amalco will contemporaneously transfer to each of XCo, YCo and ZCo, respectively, property of each of the 3 types of property owned by Amalco. The aggregate net FMV of all the property of each type of property received by each transferee corporation will be equal to or approximate the amount that is equal to the proportion of the net FMV of all property of Amalco of that type of property after the moment of the transfer described in paragraph 18, but before the transfer described in this paragraph, that:
(a) the aggregate FMV at that moment of all of the Amalco shares owned by the particular transferee corporation at that time;
is of
(b) the aggregate FMV at that moment of all of the issued and outstanding Amalco shares at that time.
The expression "approximate", used above, means that the discrepancy between the percentage of the net FMV of all the property of each type of property which a transferee corporation will receive as compared to what it would have received had it received its appropriate pro rata share (33.33%) of the net FMV of all the property of that type of property will not exceed one percent (1%).
As consideration for the transfer of the property of Amalco, each transferee corporation will:
(a) assume an appropriate amount of liabilities of Amalco (so that on a net basis it will receive its pro rata share of each type of property owned by Amalco); and
(b) issue XXXXXXXXXX Class A preferred shares in its capital stock, having an aggregate redemption amount and aggregate FMV equal to the FMV of the property that it received from Amalco as described in this paragraph, less the amount of the liabilities of Amalco that it will assume as described in paragraph (a) immediately above.
20. Amalco will jointly elect with each transferee corporation, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property of Amalco that is an eligible property transferred to the particular transferee corporation. The agreed amount in respect of each of the eligible properties transferred will be:
(a) in the case of capital property (other than depreciable property) and inventory (other than farm inventory), an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);
(b) in the case of depreciable property of a prescribed class, an amount not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii);
(c) in respect of farm inventory owned in connection with the Business, an amount determined in accordance with the formula in paragraph 85(1)(c.2)(i); and
(d) in respect of eligible capital property, an amount not less than the least of the amounts described in subparagraph 85(1)(d)(i), (ii) and (iii),
provided that, in the case of each transferee corporation, the aggregate agreed amounts will not be less than the aggregate amount of Amalco's liabilities assumed by that transferee corporation as described in paragraph 19.
The amount added to the stated capital account for the XXXXXXXXXX Class A preferred shares issued by each particular transferee corporation as partial consideration for the transferred property will be the maximum amount permitted to be added to the paid-up capital of the Class A preferred shares of that particular transferee corporation, having regard to subsection 85(2.1).
21. Each of XCo, YCo and ZCo will redeem all of its issued Class A preferred shares (described in paragraph 19 above) at the redemption amount of such shares. In each case, payment of the redemption amount will be by the issuance to Amalco of a non-interest bearing promissory note, payable on demand, having a principal amount and FMV equal to the redemption amount of the shares redeemed by the particular corporation. In each case, Amalco will accept the said promissory note as payment in full for the shares redeemed.
22. Immediately after the share redemptions described in paragraph 21 above, the shareholders of Amalco will, by special resolution, resolve to liquidate and dissolve Amalco under the applicable provisions of the governing corporate legislation. No agreement or resolution relating to the winding-up of Amalco or the distribution of its property will provide for the cancellation of any shares of Amalco. In connection with the winding-up of Amalco, Amalco will distribute:
(a) to XCo the promissory note made by XCo in respect of its obligation to Amalco,
(b) to YCo the promissory note made by YCo in respect of its obligation to Amalco, and
(c) to ZCo the promissory note made by ZCo in respect of its obligation to Amalco.
As a result of the assignment and distribution of the promissory notes to the respective issuers thereof, the obligations under each such note will be cancelled. In due course, Amalco will file tax returns for its taxation year that include the time of the distribution of the promissory notes and articles of dissolution will be filed and Amalco will be dissolved.
PURPOSE OF PROPOSED TRANSACTIONS
23. Mr. X, Mr. Y and Mr. Z each wish to operate a portion of the Business on their own rather than together on an ongoing basis. They have chosen to divide the assets between themselves and operate independently.
Accordingly, it would be in the best interests of the parties to go their separate ways as soon as possible by carrying out a net asset butterfly.
24. No property has or will become property of Amalco or any of its predecessor corporations described herein and no liabilities have been, or will be, incurred or discharged by any of these corporations in contemplation of and before the transfers described in paragraph 19 above, except as described herein or in the ordinary course of Business. Moreover, except as specifically outlined herein, there is no expectation or intention of Amalco or any of the transferee corporations to dispose of any property, the FMV of which, at any time after the distribution, represents more than 10% of the FMV of the property owned by such corporation, as part of the series of transactions or events that includes the Proposed Transactions, other than in the ordinary course of the Business.
25. Except as otherwise described herein, none of Mr. X, Mr. Y, Mr. Z, XCo, YCo and ZCo will dispose of any shares of any corporation described herein as part of a series of transactions or events that includes the Proposed Transactions.
26. None of ACo, BCo, CCo, Amalco, XCo, YCo and ZCo is, or will be, at the time of the Proposed Transactions, a specified financial institution.
27. None of the shares of ACo, BCo, CCo, Amalco, XCo, YCo and ZCo has been or will be, at any time during the implementation of the Proposed Transactions described herein:
(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" as that term is defined in subsection 248(1).
28. Amalco will not have any "pre-1972 capital surplus on hand" (as that term is defined in subsection 88(2.1)) immediately before the time of the distribution of the promissory notes described in paragraph 22 above.
RULINGS
Provided that the foregoing statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions, purposes of the proposed transactions and additional information, and provided that the proposed transactions are completed in the manner described above, we confirm the following:
A. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is not:
(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of shares of Amalco in the circumstances described in subparagraph 55(3.1)(b)(iii);
(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(f) an acquisition of property in the circumstances described in paragraph 55(3.1)(d),
which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Rulings E and F below, and for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
B. The amalgamation of ACo, BCo and CCo referred to in Paragraph 12 will be an amalgamation described in subsection 87(1) and, upon the amalgamation, provided that the ACo Class A common and Class B common shares and the CCo Class A common shares are held by a particular holder thereof as capital property, the provisions of subsections 87(4), other than paragraphs 87(4)(c) to (e), will apply to such holder.
C. Provided that the requisite joint elections are filed in prescribed form and within the prescribed time, and subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfer of by each of Mr. X, Mr. Y and Mr. Z of his Amalco shares to his particular corporation, as described in paragraph 18 above, with result that the agreed amount in respect of the Amalco shares transferred by the particular individual to his particular corporation will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to the particular individual and the cost thereof to his particular corporation.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in Paragraph 18.
D. Provided that the requisite joint elections are filed in prescribed form and within the prescribed time, and subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfers of property by Amalco to each of XCo, YCo and ZCo, as described in paragraph 19 above, with the result that the agreed amount in respect of each eligible property transferred to a particular transferee corporation will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to Amalco and the cost thereof to the particular transferee corporation.
For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in Paragraph 19.
For purposes of the joint elections referred to in paragraph 20 above, the reference to the "undepreciated capital cost to the taxpayer of all of the property of that class immediately before the disposition" in subparagraph 85(1)(e)(i) shall be interpreted to mean that proportion of the undepreciated capital cost to Amalco of all property of that class immediately before the transfer that the capital cost to Amalco of the property of that class transferred is of the capital cost to Amalco of all property of that class.
E. As a result of the redemption by each transferee corporation of its Class A preferred shares owned by Amalco, as described in paragraph 21 above, by virtue of subsection 84(3) each transferee corporation will be deemed to have paid, and Amalco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by the particular transferee corporation to Amalco on the redemption of its Class A preferred shares exceeds the PUC of such Class A preferred shares immediately before the redemption.
F. In respect of the winding-up of Amalco:
(a) Pursuant to paragraph 88(2)(b) and subsection 84(2), each transferee corporation will be deemed to have received a dividend on their Amalco Class A common shares equal to the proportion of the amount by which the aggregate FMV of the property of Amalco distributed to the particular transferee corporation on the winding-up in respect of such shares exceeds the amount by which the PUC of the Amalco Class A common shares is reduced as a result of the distribution, that the number of Amalco Class A common shares held by the particular transferee corporation is of the number of issued Amalco Class A common shares outstanding immediately before the distribution; and
(b) pursuant to subparagraph 88(2)(b)(iii), the winding-up dividend shall be deemed to be a separate dividend that is a taxable dividend.
G. The taxable dividends described in Rulings E and F above:
(a) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;
(b) will, pursuant to subsection 112(1), be deductible by the recipient in computing its taxable income for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);
(c) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed or disposed of 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 the dividend is deemed to be received;
(e) will not be subject to tax under Part IV except to the extent that the payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend;
(f) will not be subject to tax under Part IV.1 by virtue of paragraph (c) of the definition of "excepted dividend" in subsection 187.1; and
(g) will not be subject to tax under Part VI.1 by virtue of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because Amalco will have a substantial interest in each transferee corporation and each transferee corporation will have a substantial interest in Amalco.
H. The extinguishment of the debt obligations of Amalco, XCo, YCo and ZCo as a result of the cancellation of the promissory notes issued by them, all as described in paragraph 22 above, will not give rise to a "forgiven amount" within the meaning of subsections 80(1) and 80.01(1).
I. The provisions of subsections 15(1), 56(2) and 246(1) will not apply to the transactions described in paragraphs 18 through 22, in and of themselves.
J. As a result of the Proposed Transactions, in and of themselves, subsection 245(2) will not be applied to redetermine the tax consequences confirmed in the rulings given herein.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the CRA, provided that the proposed transactions are completed not later than six months of the date of this letter.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.
Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or Proposed Transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:
(a) the reasonableness or deductibility of any expenditures referred to in this letter;
(b) the determination of the PUC of any shares or the FMV or ACB of any property referred to in this letter;
(c) the determination of the amount to be added to the stated capital of a class of shares issued as consideration for any property;
(d) that a particular transaction or event will not be part of a series of transactions or events; or
(e) any other tax consequences of the completed or Proposed Transactions or of related transactions or events, or of the transactions or events disclosed under the heading "Additional Information".
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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