2006 Ruling 2006-0167521R3 - Incorporation of Partnership

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: Additional facts

Position: Does not affect rulings given.

Reasons: Does not affect rulings given. Request for 15(1) ruling withdrawn.

XXXXXXXXXX 							2006-016752

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in response to your XXXXXXXXXX facsimile, and your XXXXXXXXXX email correspondence, requesting amendments to advance income tax ruling #2005-014616, which was issued on XXXXXXXXXX, 2005 (the "Ruling").

Paragraph 35 of the Ruling is replaced with the following paragraph:

"35. Each Contracting Professional Corporation will have one class of voting common shares and up to one separate class of non-voting shares per family member of the Partner (see the definition of "family" in paragraph 38, below). Each Contracting Professional Corporation will be controlled by the Partner who incorporated the corporation, and that Partner will be the legal and beneficial owner of all of the voting shares of that corporation. The sole officer and director of a Contracting Professional Corporation will be the Partner who incorporated the corporation. Non-voting shares of each Contracting Professional Corporation may be owned by members of the Partner's family. The non-voting shares of the Contracting Professional Corporation may be common shares or they may be redeemable and retractable for an amount equal to the amount paid to acquire the shares, which is anticipated to be a nominal amount such as $XXXXXXXXXX per share. The non-voting shares will be entitled to discretionary dividends. If the non-voting shares are redeemable and retractable, then they will not be entitled to participate upon the liquidation or dissolution of the Contracting Professional Corporation, other than to be paid an amount equal to the amount paid to acquire the shares. None of these non-voting shares will be issued as part of the proposed transactions described herein. All persons legally or beneficially owning shares of a Contracting Professional Corporation will be residents of Canada. The subscription amount for all shares of the Contracting Professional Corporation (voting and non-voting) will be the same. The shareholders of the Contracting Professional Corporation may enter into a shareholders' agreement or a unanimous shareholders' agreement."

The following paragraph is added immediately after paragraph 40 of the Ruling:

"40.1. Newco will cause a corporation ("R&Dco") to be incorporated under the laws of the Province of XXXXXXXXXX. R&Dco will be incorporated to carry on the business of performing research and development in XXXXXXXXXX. Newco will be the sole shareholder of R&Dco. R&Dco will engage the services of the Partners as independent contractors to perform the research. Newco may subcontract the services of its employees to R&Dco to perform the research."

The following paragraph is added immediately before the last paragraph of the Ruling:

"Nothing in this advance income tax ruling implies acceptance, approval or confirmation of the tax consequences of the declaration or distribution of dividends to family members holding non-voting shares in the Contracting Professional Corporations."

Notwithstanding the amendments described above, the rulings given in the Ruling will continue to be binding on the Canada Revenue Agency provided that the proposed transactions are implemented on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch