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: 1. Is the concurrent lease acceptable? 2. Is the Trust allowed to prepay rent and deduct an amount over the term of the lease? 3. Are all the rental lease amounts that are prepaid considered income and can a yearly reserve be taken?
Position: 1. Acceptable 2. YES 3. YES
Reasons: 1. Financing method 2. Section 9 and acceptable business practices. 3. Wording of subsection 18(9) and subparagraph 20(1)(m)
XXXXXXXXXX 2009-032949
XXXXXXXXXX , 2009
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
XXXXXXXXXX ("B Co") BN XXXXXXXXXX
This is in response to your letter of XXXXXXXXXX , and further to various telephone conversations (XXXXXXXXXX ) and to subsequent information sent on XXXXXXXXXX , requesting an advance income tax ruling with respect to proposed transactions involving a concurrent lease.
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues contained in this ruling request herein are:
(i) dealt with in an earlier return of B Co or a related person;
(ii) being considered by a Tax Services Office or a Taxation Centre in connection with an income tax return previously filed by B Co or a related person;
(iii) under objection by B Co or a related person;
(iv) the subject of a previous ruling issued by the Income Tax Rulings Directorate to B Co or a related person other than 2003-002803, dated XXXXXXXXXX , 2003, and as amended by supplementary advance income tax ruling 2003-004699, dated XXXXXXXXXX , 2003 (collectively, the "Prior Ruling"); nor
(v) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired.
In this ruling request, the singular should be read as plural and vice-versa where the circumstances so require. Also, unless otherwise specified, all monetary references are to Canadian dollars.
In this application, unless otherwise expressly stated, the following terms have the meanings specified:
(a) "Acceleration Date" has the meaning ascribed thereto in 27 below;
(b) "Acceleration Event" in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, as the case may be, means an Event of Default (such as non-payment by O Co, change in control in the shares of O Co, a judgment entered against O Co involving a liability of $XXXXXXXXXX or more) as further defined in the Notes;
(c) "Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1, (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference hereto to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(d) "Additional Rent Compensation" XXXXXXXXXX ;
(e) "Annual Guarantee Fee" means the guarantee fee to be paid annually by the Trust to B Co as consideration for B Co's Guarantee in respect of each taxation year of the Trust or part thereof of the payments due to the Trust under the Notes and the Leases for such year. The amount of the Annual Guarantee Fee for a taxation year of the Trust is determined by dividing the total fees to be paid by the Trust to B Co as consideration for the Guarantee by the total number of months (including fractions thereof) in the period commencing with the time that the Trust Notes are issued by the Trust and ending on XXXXXXXXXX and multiplying that quotient by the number of months (or fractions thereof) included within such taxation year provided that, for this purpose, the first taxation year of the Trust shall be considered to commence with the date that the Trust Notes are issued by the Trust and the last taxation year of the Trust shall be deemed to end on XXXXXXXXXX ;
(f) XXXXXXXXXX
(g) "B Co" means the XXXXXXXXXX ;
(h) "A Co" means the XXXXXXXXXX ;
(i) "C Co" means the XXXXXXXXXX ;
(j) "Concurrent XXXXXXXXXX Lease" means, collectively, the concurrent lease in respect of the XXXXXXXXXX to be entered into by the Trust, as tenant, and B Co, as landlord, maturing on XXXXXXXXXX ;
(k) "Concurrent XXXXXXXXXX Rent Rebate" means that portion of the rent, determined using the straight-line monthly basis contemplated in Ruling G, that was prepaid by the Trust to B Co for the period of the Concurrent XXXXXXXXXX Lease that is terminated by reason of a XXXXXXXXXX Lease Termination;
(l) "Concurrent Leases" mean the Concurrent XXXXXXXXXX Lease and the Concurrent XXXXXXXXXX Lease;
(m) "Concurrent XXXXXXXXXX Lease" means the concurrent lease in respect of the XXXXXXXXXX to be entered into by the Trust, as tenant, and B Co, as landlord, maturing on XXXXXXXXXX ;
(n) "Concurrent XXXXXXXXXX Rent Rebate" means the portion of the rent, determined using the straight-line monthly basis contemplated in Ruling G, that was prepaid by the Trust to B Co for the period of the Concurrent XXXXXXXXXX Lease that is terminated by reason of a XXXXXXXXXX Lease Termination;
(o) "CRA" means the Canada Revenue Agency;
(p) "D Co" means XXXXXXXXXX , as nominee of A Co;
(q) "Entity" means the XXXXXXXXXX ;
(r) XXXXXXXXXX ;
(s) "XXXXXXXXXX Lease" means the XXXXXXXXXX Lease as amended and assigned and as described in the Prior Ruling;
(t) "XXXXXXXXXX Lease Termination" means the early termination of the XXXXXXXXXX Lease at the option of the tenants by reason of the XXXXXXXXXX ;
(u) "XXXXXXXXXX Option" means the option granted by B Co to D Co as to an undivided XXXXXXXXXX % interest and to Z Co as to the remaining undivided XXXXXXXXXX % interest, as co-tenants of the XXXXXXXXXX , to acquire the XXXXXXXXXX upon the exercise of the option on XXXXXXXXXX , as described in the Prior Ruling;
(v) "Guarantee" means the guarantee to be provided by B Co to the Trust in respect of the payments of principal and interest payable under the Notes and the rent payable under the Leases;
(w) "Insurance Proceeds" means the proceeds from insurance arising in the event of XXXXXXXXXX ;
(x) "Leases" mean, collectively, the XXXXXXXXXX Lease and the XXXXXXXXXX Lease;
(y) "Notes" mean the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note;
(z) XXXXXXXXXX
(aa) "O Co" means XXXXXXXXXX ., a wholly-owned subsidiary of the Entity;
(bb) XXXXXXXXXX
(cc) "XXXXXXXXXX Lease" means the XXXXXXXXXX Lease as described in the Prior Ruling;
(dd) "XXXXXXXXXX Lease Termination" means the early termination of the XXXXXXXXXX Lease at the option of the tenant by reason of the XXXXXXXXXX ;
(ee) "XXXXXXXXXX Promissory Note" means the promissory note made by O Co, as debtor, to B Co, as creditor, dated XXXXXXXXXX ;
(ff) "XXXXXXXXXX Promissory Note" means the promissory note made by O Co, as debtor, to B Co, as creditor, dated XXXXXXXXXX ;
(gg) "Prepaid Principal Amount" in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, as the case may be, means the unpaid principal amount of such Note or part thereof that becomes payable upon the occurrence of an Acceleration Event;
(hh) "Prepaid Rent" in respect of the Concurrent XXXXXXXXXX Lease and the Concurrent XXXXXXXXXX Lease means the discounted aggregate amount of rent payable by the Trust to B Co, as landlord, in respect of each such lease at the commencement of each such lease;
(ii) "Prepayment Compensation Payment" in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, as the case may be, means a payment that is equal to the greater of: (i) XXXXXXXXXX % of the Prepaid Principal Amount of such Note, and (ii) the amount by which the aggregate of all payments that become due and payable under such Note after the Acceleration Event discounted to the Acceleration Date, at the rate that is equal to the yield of a non-callable Government of Canada Bond with a maturity date approximately the same as that of such Note plus XXXXXXXXXX % expressed as a rate per annum calculated semi-annually, exceeds the Prepaid Principal Amount;
(jj) "Premium" in respect of the Notes means the amount of the purchase price paid by the Trust to B Co for the Notes in excess of their outstanding principal amount at the time of such purchase;
(kk) "Prior Ruling" means advance income tax ruling 2003-002803, dated XXXXXXXXXX , 2003, as amended by supplementary advance income tax ruling 2003-004699, dated XXXXXXXXXX , 2003, issued by the CRA (collectively, the " Prior Ruling");
(ll) "Proposed Transactions" means the proposed transactions described in 24 to 30;
(mm) "XXXXXXXXXX Option" means the option granted by B Co to D Co as tenant of the XXXXXXXXXX , to acquire the XXXXXXXXXX upon the exercise of the option as described in the Prior Ruling;
(nn) "subsidiary wholly-owned corporation" has the meaning assigned in subsection 248(1) of the Act;
(oo) "Support Agreement" means an agreement between the Trust and B Co whereby B Co agrees to provide funds to the Trust, if necessary, to permit the Trust to pay various fees and other administrative expenses, including income taxes, in the event that (i) the payment of those expenses would preclude the Trust from satisfying its interest and principal obligations on the Trust Notes or (ii) the Trust would be unable to pay other obligations (including income taxes) that become payable by it within XXXXXXXXXX business days following any date or (iii) the payment of such obligations by the Trust would render it insolvent;
(pp) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;
(qq) "Trust" means the inter vivos special purpose trust to be settled by a declaration of trust for the purpose, inter alia, of securitizing the XXXXXXXXXX Promissory Note, the XXXXXXXXXX Promissory Note, the XXXXXXXXXX Lease and the XXXXXXXXXX Lease, the beneficiaries of which will be XXXXXXXXXX charities that qualify as registered charities for the purposes of the Act;
(rr) "Trust Notes" mean the notes to be issued to the public by the Trust as contemplated herein;
(ss) "Trustee" means the trustee of the Trust; and
(tt) "Z Co" means XXXXXXXXXX .
FACTS
B Co
1. B Co is a corporation continued under XXXXXXXXXX and is a taxable Canadian corporation.
2. B Co files its tax return at the XXXXXXXXXX Taxation Centre. The head office of B Co is located at XXXXXXXXXX .
3. B Co is a corporation XXXXXXXXXX .
4. XXXXXXXXXX
5. XXXXXXXXXX , B Co currently operates out of XXXXXXXXXX locations within Canada as well as various offices overseas. B Co's offices in XXXXXXXXXX are located at XXXXXXXXXX .
C Co
6. C Co is a body corporate, formerly known as XXXXXXXXXX .
7. XXXXXXXXXX
Z Co
8. Z Co is a corporation incorporated under the XXXXXXXXXX and is a wholly-owned subsidiary corporation of C Co.
A Co
9. A Co is a corporation continued by amalgamation under the XXXXXXXXXX .
10. A Co is a subsidiary wholly-owned corporation of the Entity.
D Co
11. D Co is a corporation incorporated pursuant to the XXXXXXXXXX . Its registered office is at XXXXXXXXXX
12. D Co is a subsidiary wholly-owned corporation of A Co.
O Co/Entity
13. O Co is a wholly-owned subsidiary of Entity and was established in XXXXXXXXXX
14. XXXXXXXXXX
15. XXXXXXXXXX
16. XXXXXXXXXX
17. XXXXXXXXXX
18. XXXXXXXXXX
19. XXXXXXXXXX
20. XXXXXXXXXX .
21. The XXXXXXXXXX Promissory Note evidences a debt obligation of O Co to B Co for the original principal amount of $XXXXXXXXXX together with interest thereon at the rate of XXXXXXXXXX % calculated and compounded, XXXXXXXXXX . As at XXXXXXXXXX , the unpaid principal amount of this note was $XXXXXXXXXX . This note represents the unpaid purchase price of the XXXXXXXXXX purchased by O Co from B Co on XXXXXXXXXX .
22. The XXXXXXXXXX Promissory Note evidences a debt obligation of O Co to B Co for the original principal amount of $XXXXXXXXXX together with interest thereon at the rate of XXXXXXXXXX % calculated and compounded, XXXXXXXXXX . As at XXXXXXXXXX , the unpaid principal amount of this note was $XXXXXXXXXX . This note represents the unpaid purchase price of the XXXXXXXXXX purchased by O Co from B Co on XXXXXXXXXX .
23. B Co deals at arm's length with each of A Co, O Co, C Co, D Co and Z Co, within the meaning of section 251(1) of the Act.
Proposed Transactions
24. B Co proposes to monetize its interest in the XXXXXXXXXX Lease, the XXXXXXXXXX Lease, the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note in 25 to 30 below.
25. B Co will cause the Trust to be settled by a third party. The purposes of the Trust, as expressed in its Declaration of Trust, will include, inter alia, (i) to act as tenant of B Co, as landlord, under the Concurrent XXXXXXXXXX Lease and to act as sublandlord to D Co and Z Co, as co-subtenants, under the XXXXXXXXXX Lease, (ii) to act as tenant of B Co, as landlord, under the Concurrent XXXXXXXXXX Lease and to act as sublandlord to D Co, as subtenant, under the XXXXXXXXXX Lease, (iii) to acquire the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, (iv) to acquire such other securities, indebtedness and other financial instruments as the Trustee of the Trust considers advisable and in the best interests of the Trust in connection with the purposes described in (i), (ii), and (iii) above, and (v) to borrow funds for the purposes of transacting any or all of the foregoing activities.
26. Upon its establishment, the Trust will enter into the Concurrent XXXXXXXXXX Lease and the Concurrent XXXXXXXXXX Lease with B Co, as landlord, and will prepay all of the rent due and payable under each such lease to B Co immediately after entering into such lease in an amount substantially equal to the present value thereof determined as at the date of prepayment. The Concurrent XXXXXXXXXX Lease will not provide an option to the Trust to acquire the reversionary interest of B Co in the XXXXXXXXXX and, similarly, the Concurrent XXXXXXXXXX Lease will not provide an option to the Trust to acquire the reversionary interest of B Co in the XXXXXXXXXX .
XXXXXXXXXX
27. Contemporaneously with entering into the Concurrent Leases, the Trust will purchase all of B Co's rights (except the right to the Prepayment Compensation Payment in the event of an Acceleration Event) in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note for a purchase price equal to its respective fair market value at the time of its acquisition by the Trust. The purchase price in respect of each of the Notes will be paid in cash at the time of its acquisition by the Trust.
It is anticipated that the Notes will be purchased by the Trust at a Premium due to the fact that the interest rates on the Notes are anticipated to exceed the current market interest rate for debt obligations having the same term and credit rating as the Notes.
Upon the occurrence of an Acceleration Event in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, as the case may be, the Prepaid Principal Amount in respect of such Note together with all accrued and unpaid interest thereon, is required to be paid forthwith (the "Acceleration Date") by O Co together with an amount equal to the Prepayment Compensation Payment. The right to the
Prepayment Compensation Payment in respect of a Note is retained by B Co and is not purchased by the Trust.
The purchase agreement between the Trust and B Co in respect of the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note will provide that, in the event that B Co receives a Prepayment Compensation Payment under a Note, such amount, after the payment of tax, if any, thereon, shall be held by B Co in a segregated account that is separate from B Co's other assets and until the maturity of the Trust Notes, shall be used by it exclusively to pay to the Trust payments at such times and in such amounts necessary to ensure that the Trust receives the same amount of interest in each month that it would have received pursuant to the XXXXXXXXXX Promissory Note or the XXXXXXXXXX Promissory Note, as the case may be, had such Note not been prepaid on the Acceleration Date. To the extent that such funds are insufficient to satisfy this requirement, any deficiency will be paid by B Co to the Trust pursuant to the Guarantee.
28. Contemporaneously with entering into the Concurrent Leases, the Trust will issue Trust Notes to the public having an aggregate principal amount sufficient to fund the aggregate of (i) the purchase price of the Notes, (ii) the aggregate amount of rent to be prepaid by the Trust in respect of the Concurrent Leases, (iii) the aggregate amount of the Annual Guarantee Fees, (iv) the anticipated initial expenses of the offering, and (v) the anticipated annual recurring expenses of the Trust. The Trust Notes will mature on XXXXXXXXXX and will be repayable in equal semi-annual payments of principal and interest computed at a rate that is anticipated to be in the range of XXXXXXXXXX % to XXXXXXXXXX % per annum, calculated and compounded semi-annually, not in advance, depending on the exigencies of the market. The payments under the Trust Notes will be collaterally secured by the payments of principal and interest on the Notes as well as the rent in respect of the Leases that will be guaranteed by B Co as discussed below. A substantial portion of the funds raised from the issuance of the Trust Notes will be paid forthwith by the Trust to B Co in satisfaction of (i) prepaid rent in respect of the Concurrent Leases, (ii) the purchase price of the Notes and (iii) the aggregate amount of the Annual Guarantee Fees. The balance of such funds will be retained by the Trust and used by it to pay the initial offering expenses of the Trust with the remaining funds, together with interest earned thereon, being retained and used by the Trust to pay its annual operating expenses. For greater certainty, the rent prepaid by the Trust to B Co pursuant to the Concurrent Leases will not be considered as proceeds received by B Co for the granting of the XXXXXXXXXX Option or the granting of the XXXXXXXXXX Option, as the case may be, for the purposes of paragraph 49(3)(a) and 49(4)(c) of the Act.
Neither the Notes (nor any other investment in the Trust) will be listed or traded on a stock exchange or other "public market" (as defined in subsection 122.1(1) of the Act).
29. In addition, the payments due to the Trust under the Leases and the Notes will be guaranteed by the Guarantee granted by B Co in favour of the Trust whereby in the event of a default in the payment of principal or interest on the Notes or rent in respect of the Leases, B Co will pay to the Trust the amount(s) that are in default. In consideration for B Co's Guarantee, the Trust will pay B Co an Annual Guarantee Fee each year in respect of B Co's Guarantee for that year in an amount equal to an arm's length amount as determined by one or more third party valuators. The total amount of the Annual Guarantee Fees will be prepaid by the Trust to B Co contemporaneously with the issuance of the Trust Notes.
30. The annual recurring operating expenses of the Trust will include Trustees fees, general and administrative expenses, indenture trustee fees, Canadian Depository Securities ("CDS") fees, rating agencies fees and optional bond rating fees ("DBRS fees") aggregating approximately $XXXXXXXXXX for any XXXXXXXXXX -month period.
31. It is anticipated that pursuant to the Support Agreement, B Co may be required to provide funds to the Trust to permit it to pay federal and Ontario income taxes in the three taxation years of the Trust ending immediately prior to XXXXXXXXXX , which taxes are anticipated to be refunded to the Trust in its XXXXXXXXXX taxation year or shortly thereafter as a result of a non-capital loss that is anticipated to be incurred by the Trust in its XXXXXXXXXX taxation year that can be carried back to the three immediately preceding taxation years of the Trust. Any such refund of taxes received by the Trust will be paid by it to B Co as deferred rent pursuant to the Concurrent Leases.
Purpose of the Proposed Transactions
32. The purpose of the Proposed Transactions is to monetize the cash flows of the Notes and the Leases for the purposes of enabling B Co to raise immediate cash that it requires to finance its current year's operating expenses.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the Proposed Transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we rule as follows:
A. The portion of the monthly rent payable by D Co and Z Co, as co-tenants, under the XXXXXXXXXX Lease to the Trust in the amount of $XXXXXXXXXX that pursuant to the Prior Ruling is regarded for the purposes of the Act as a payment in respect of the extension of the XXXXXXXXXX Option upon its receipt by B Co, will be considered rent received by the Trust pursuant to that lease and included by it as rent in computing its income in each taxation year of the Trust in which such rent is received and, for greater certainty, will not be considered, for the purposes of the Act, to be a payment received by the Trust in respect of the extension of the XXXXXXXXXX Option.
B. The portion of the monthly rent payable by D Co, as a tenant under the XXXXXXXXXX Lease to the Trust in the amount of $XXXXXXXXXX that pursuant to the Prior Ruling is regarded for the purposes of the Act as a payment in respect of the extension of the XXXXXXXXXX Option upon its receipt by B Co, will be considered rent received by the Trust pursuant to that lease and included by it as rent in computing its income in its taxation years in which such rent is received and, for greater certainty, will not be considered, for the purposes of the Act, to be a payment received by the Trust in respect of the extension of the XXXXXXXXXX Option.
C. The Annual Guarantee Fee payable in respect of a taxation year of the Trust determined in the manner described in (e) of the Definitions and in 29 above will be deductible by the Trust in computing its income in respect of that taxation year in accordance with the provisions of paragraph 20(1)(e.1) of the Act.
D. The rent prepaid by the Trust to B Co pursuant to the Concurrent Leases will be considered to be prepaid rent for the purposes of the Act and, for greater certainty, will not be considered to be payments made by the Trust in respect of the extension of the XXXXXXXXXX Option or the XXXXXXXXXX Option, as the case may be.
E. The prepaid rent referred to in Ruling D above, that is, in respect of the Concurrent XXXXXXXXXX Lease, will be deductible by the Trust in computing its income on a straight-line basis over the remaining term of the lease, pursuant to section 9 of the Act, provided that, for this purpose, the first taxation year of the Trust shall be considered to commence with the date that the Concurrent XXXXXXXXXX Lease is entered into by the Trust and B Co and the last taxation year of the Trust which will be considered to end on XXXXXXXXXX
F. The prepaid rent referred to in Ruling D above, that is, in respect of the Concurrent XXXXXXXXXX Lease, will be deductible by the Trust in computing its income on a straight-line monthly basis over the remaining term of the lease, provided that, for this purpose, the first taxation year of the Trust shall be considered to commence with the date that the Concurrent XXXXXXXXXX Lease is entered into by the Trust and B Co and the last taxation year of the Trust will be considered to end on XXXXXXXXXX .
G. B Co will be required to include in computing its income the amount of prepaid rent received by the Trust pursuant to paragraph 12(1)(a) of the Act, for its taxation year in which the rent prepaid to it by the Trust under the Concurrent Leases is received, and B Co may deduct in the form of a reserve pursuant to subparagraph 20(1)(m)(iii) of the Act for that taxation year and for each subsequent taxation year, an amount equal to that portion of the prepaid rent that relates to taxation years subsequent to such taxation years on a straight-line monthly basis over the respective terms of those leases and for the purposes of this calculation, the first taxation year of the Trust shall be considered to commence with the date that the relevant Concurrent Lease is entered into and the last taxation year shall end on XXXXXXXXXX . Any amount so deducted by B Co in respect of a taxation year will be required to be included by it in computing its income for the immediately subsequent taxation year pursuant to subparagraph 12(1)(e)(i) of the Act.
H. B Co will be required to include in computing its income the prepaid Annual Guarantee Fees in the year in which such fees are received by it under paragraph 12(1)(a) of the Act and B Co may, pursuant to subparagraph 20(1)(m)(ii) of the Act, deduct in computing its income for the taxation year in which such fees are received and for any subsequent taxation year, a reserve in respect of the prepaid Annual Guarantee Fees equal to the aggregate amount of such fees that are in respect of taxation years of B Co subsequent to such taxation years determined on a straight-line basis based on the terms of the Concurrent Leases and pursuant to subparagraph 12(1)(e)(i) of the Act, B Co will be required to include in its income for a taxation year the amount deducted by it pursuant to subparagraph 20(1)(m)(ii) of the Act in its taxation year immediately previous to such taxation year.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX .
The above rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.
Opinions Given
You requested additional rulings, however, we have provided the following opinions instead since the time that the deduction would be taken is either too far in the future or the event that the proposed transaction is based on is remote and uncertain:
I. In our opinion, the Trust may deduct the Premium, if any, as described in 27 above pursuant to section 9 and paragraph 18(1)(a) of the Act in computing its income for its taxation year in which the Notes mature, which is expected to be in XXXXXXXXXX .
II. In the event that B Co is required by reason of a XXXXXXXXXX Lease Termination or by reason of a XXXXXXXXXX Lease Termination, as the case may be, to pay to the Trust the XXXXXXXXXX Rent Rebate or the XXXXXXXXXX Rent Rebate, respectively, in our opinion, B Co will be entitled to deduct the amount of such rebate in computing its income for its taxation year that includes such termination pursuant to section 9 of the Act.
III. In the event that by reason of a XXXXXXXXXX Lease Termination or by reason of a XXXXXXXXXX Lease Termination, as the case may be, the Trust receives the XXXXXXXXXX Rent Rebate or the XXXXXXXXXX Rent Rebate, respectively, in our opinion, the Trust is required to include such amount in computing its income for its taxation year in which that amount is received pursuant to section 9 of the Act, or, alternatively, pursuant to paragraph 12(1)(x) of the Act.
IV. In the event that by reason of a XXXXXXXXXX Lease Termination or by reason of a XXXXXXXXXX Lease Termination, B Co is required to pay Additional Rent Compensation to the Trust in respect of any month or part thereof occurring during the terminated period of the Concurrent XXXXXXXXXX Lease or the Concurrent XXXXXXXXXX Lease, respectively, or is required to pay amounts to the Trust in respect of any such month or part thereof pursuant to its Guarantee, in each case as described in 26 above, in our opinion, such payments shall be deductible by B Co in computing its income for its taxation year in which such payments are made pursuant to section 9 of the Act.
V. Upon the occurrence of a XXXXXXXXXX Lease Termination, the Trust will be permitted to deduct in computing its income for the taxation year of the Trust in which such termination occurs, pursuant to section 9 of the Act, in our opinion, an amount that is equal to the amount of rent that was prepaid by it pursuant to the Concurrent XXXXXXXXXX Lease to the extent that such rent was not deductible by it in a previous taxation year in accordance with Ruling E.
VI. Upon the occurrence of a XXXXXXXXXX Lease Termination, the Trust will be permitted to deduct in computing its income for the taxation year of the Trust in which such termination occurs, pursuant to section 9 of the Act, in our opinion, an amount that is equal to the amount of rent that was prepaid by it pursuant to the Concurrent XXXXXXXXXX Lease to the extent that such rent was not deductible by it in a previous taxation year in accordance with Ruling F.
VI. In the event, that B Co pays an amount to the Trust as described in 27 above, whether out of proceeds of the Prepayment Compensation Payment or pursuant to its Guarantee, as the case may be, in our opinion, such payments shall be deductible by B Co in computing its income for its taxation year in which such payments are payable to the Trust pursuant to section 9 of the Act.
VII. In our opinion, any payments received by the Trust from B Co as described in 27 above that are in lieu of interest that it would otherwise have received on the XXXXXXXXXX Promissory Note and the XXXXXXXXXX Promissory Note, as the case may be, had such Note not been wholly or partially prepaid on the Acceleration Date, shall be included in computing the income of the Trust for its taxation year in which such payments are received by the Trust pursuant to section 9 of the Act, or, alternatively, pursuant to paragraph 12(1)(x) of the Act.
This letter is based solely on the facts and Proposed Transactions described above. The documentation submitted with your request does not form part of the facts and Proposed Transactions and any references thereto are provided solely for the convenience of the reader.
Nothing in this ruling should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:
(a) the fair market value or adjusted cost base of any property or interest rate of any note or obligation referred to herein;
(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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