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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
XXXXXXXXXX 3-963259
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: XXXXXXXXXX
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings. We also acknowledge your letters of XXXXXXXXXX and our various telephone conversations.
We understand that to the best of your knowledge and that of the taxpayers involved none of the issues involved in the requested rulings is being considered by a tax services office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.
Definitions
In this letter unless otherwise expressly stated:
(a)"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;
(b)"adjusted cost base" has the meaning assigned by section 54;
(c)"associated corporations" has the meaning assigned by section 256;
(d)"capital dividend account" has the meaning assigned by subsection 89(1);
(e)"capital property" has the meaning assigned by section 54;
(f)"cost amount" has the meaning assigned under subsection 248(1);
(g)"depreciable property" has the meaning assigned by subsection 13(21);
(h)"distribution" has the meaning assigned by subsection 55(1);
(i)"dividend rental arrangement" has the meaning assigned by subsection 248(1);
(j)"eligible property" has the meaning assigned by subsection 85(1.1);
(k)"financial intermediary corporation" has the meaning assigned by subsection 191(1);
(l)"forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(m)"guarantee agreement" has the meaning assigned by subsection 112(2.2);
(n)"ITAR" means the Income Tax Application Rules;
(o)XXXXXXXXXX;
(p)"paid-up capital" has the meaning assigned by subsection 89(1);
(q)"predecessor corporation" has the meaning assigned by subsection 87(1);
(r)"RDTOH" means the expression "refundable dividend tax on hand" as defined in subsection 129(3);
(s)"Regulations" mean the Income Tax Regulations;
(t)"series of transactions or events" has the meaning assigned by subsection 248(10);
(u)"specified financial institution" and "restricted financial institution" have the meanings assigned under subsection 248(1);
(v)"specified investment business" has the meaning assigned by subsection 125(7);
(w)"taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(x)"taxable dividend" has the meaning assigned by subsection 89(1).
FACTS
1.XXXXXXXXXX is a corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a Canadian-controlled private corporation and a taxable corporation.
2.The authorized share capital of XXXXXXXXXX consists of XXXXXXXXXX preference shares redeemable at $XXXXXXXXXX each and XXXXXXXXXX common shares. The issued and outstanding shares of XXXXXXXXXX are held as follows:
Type and Number
Shareholder Shares held
XXXXXXXXXX
The paid-up capital of the XXXXXXXXXX preferred shares is $XXXXXXXXXX and the XXXXXXXXXX common shares is $XXXXXXXXXX The adjusted cost of the XXXXXXXXXX preferred shares and XXXXXXXXXX common shares to their respective holders is at least equal to the paid-up capital thereof.
Prior to XXXXXXXXXX, all the common shares of XXXXXXXXXX were held by XXXXXXXXXX. The preference shares were, at that time, non-voting and the common shares voting. In XXXXXXXXXX, the trustees of each trust distributed the common shares to each beneficiary and authorized the amendment to the articles of XXXXXXXXXX to amend the provisions of the preferred shares to, among other matters, change the shares from non-voting to voting. In the resolutions passed to carry out these changes, the trustees acknowledged that XXXXXXXXXX has always been operated and will continue to be operated by officers and directors of XXXXXXXXXX. XXXXXXXXXX was controlled by XXXXXXXXXX factually before the amendment to the rights of the preferred shares of XXXXXXXXXX and they continue to control XXXXXXXXXX after the amendments.
The shareholders of XXXXXXXXXX hold their shares as capital property.
3.The assets of XXXXXXXXXX consist primarily of:
Estimated fair market value
(a)Rental properties as at XXXXXXXXXX
XXXXXXXXXX
(b)Vacant land held for development:
XXXXXXXXXX
Other assets of XXXXXXXXXX include cash and short-term deposits, receivables and prepaid expenses.
Vacant land held for development is capital property to XXXXXXXXXX.
4.XXXXXXXXXX is a corporation incorporated under the laws of the province of XXXXXXXXXX. XXXXXXXXXX is a Canadian-controlled private corporation and a taxable corporation.
5.The authorized share capital of XXXXXXXXXX consists of XXXXXXXXXX preference shares redeemable at $XXXXXXXXXX each and XXXXXXXXXX common shares. The issued and outstanding shares of XXXXXXXXXX are held as follows:
Type and Number
Shareholder Shares held
XXXXXXXXXX
The paid-up capital of the XXXXXXXXXX preferred shares is $XXXXXXXXXX and the XXXXXXXXXX common shares is $XXXXXXXXXX. The adjusted cost of the XXXXXXXXXX preferred shares and XXXXXXXXXX common shares to their respective holders is at least equal to the paid-up capital thereof.
The shareholders of XXXXXXXXXX hold their shares as capital property.
6.The assets of XXXXXXXXXX consist primarily of:
Estimated fair market value
(a)Rental properties as at XXXXXXXXXX
XXXXXXXXXX
Other assets of XXXXXXXXXX include cash and short-term deposits, receivables and prepaid expenses.
7.XXXXXXXXXX is a resident of Canada and XXXXXXXXXX is a resident of the United States and a non-resident of Canada for purposes of the Act.
XXXXXXXXXX is a taxable Canadian corporation all of the shares of which are owned by XXXXXXXXXX.
XXXXXXXXXX is a taxable Canadian corporation all of the shares of which are owned by XXXXXXXXXX.
8.XXXXXXXXXX has RDTOH of $XXXXXXXXXX and a capital dividend account of nil as at XXXXXXXXXX. XXXXXXXXXX has no RDTOH and a capital dividend account of nil as at XXXXXXXXXX.
9.XXXXXXXXXX had not previously filed their income tax returns as being associated corporations. The representatives of XXXXXXXXXX have contacted the appropriate tax centre regarding this error and will confirm in writing to the Department that XXXXXXXXXX have been associated for prior years including years prior to XXXXXXXXXX.
10.Immediately before the transfers of property described in paragraph 27 below (the "Butterfly Transfer"), the property of Amalco, a new corporation formed on the amalgamation of XXXXXXXXXX as described in paragraph 16 below, will be classified into two types of property for the purposes of a distribution, as follows:
(a)cash or near cash property, comprising all of the current assets of Amalco, including any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses (referred to as "prepaid expenses");
(b)investment property, comprising all of the assets of Amalco, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or a specified investment business.
For purposes of determining the type of property, vacant land held for development will be categorized as investment property.
For greater certainty, any tax accounts, such as the balance of any RDTOH account or capital dividend account of Amalco, will not be considered property for purposes of the proposed transactions described herein.
11.In determining the net fair market value of its cash or near-cash property and investment property immediately before the Butterfly Transfer, liabilities of Amalco will be deducted in the calculation of the net fair market value of each type of property of Amalco in the following manner:
(a)current liabilities of Amalco will be allocated to cash or near-cash property;
(b)liabilities of Amalco, other than current liabilities, that relate, to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its fair market value. 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 fair market value of such type of property after the allocation of liabilities to a particular property, as described herein; and
(c)any liabilities ("excess unallocated liabilities") that remain after the allocations described in steps (a) and (b) are made (including excess current liabilities, if any), will then be allocated to the cash or near-cash property and investment property of Amalco based on the relative net fair market value of each type of property prior to the allocation of such excess unallocated liabilities.
PROPOSED TRANSACTIONS
12.XXXXXXXXXX will incorporate a new corporation ("XXXXXXXXXX") under the XXXXXXXXXX. XXXXXXXXXX will be a Canadian-controlled private corporation and a taxable Canadian corporation.
13.The authorized share capital of XXXXXXXXXX will consist of:
(a)an unlimited number of common shares;
(b)an unlimited number of Class XXXXXXXXXX Special Shares, redeemable and retractable for an amount equal to $XXXXXXXXXX per share, entitled to non-cumulative dividends at a rate determined by its directors, carrying one vote per share; and
(c)an unlimited number of Class XXXXXXXXXX Special Shares, redeemable and retractable for an amount equal to the amount for which they were issued and not entitled to vote.
No shares will be issued on incorporation until the issuance of shares in the transaction described in paragraph 17 below.
14.XXXXXXXXXX will incorporate a new corporation ("XXXXXXXXXX") under the XXXXXXXXXX. XXXXXXXXXX will be a Canadian-controlled private corporation and a taxable Canadian corporation.
15.The authorized share capital of XXXXXXXXXX will consist of:
(a)an unlimited number of common shares;
(b)an unlimited number of Class XXXXXXXXXX Special Shares, which will be redeemable and retractable for an amount equal to $XXXXXXXXXX per share, entitled to non-cumulative dividends at a rate determined by its directors, and carry one vote per share;
(c)an unlimited number of Class XXXXXXXXXX Special Shares, which will be non-voting and redeemable and retractable for an amount equal to the amount for which they were issued; and
(d)an unlimited number of Class XXXXXXXXXX Special Shares, which will be non-voting, redeemable and retractable for an amount equal to the fair market value of property transferred as consideration for the issuance, and entitled to non-cumulative dividends at a rate determined by its directors.
No shares will be issued on incorporation until the issuance of shares in the transaction described in paragraph 19 below.
16.XXXXXXXXXX (referred to in this paragraph as "predecessor corporations") will amalgamate under the provisions of the XXXXXXXXXX to form a new corporation ("Amalco") in such manner that:
(a)all the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporations) of the predecessor corporations immediately before the merger will become property of Amalco by virtue of the merger;
(b)all the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco by virtue of the merger; and
(c)all the shareholders of the predecessor corporations before the merger will receive shares of the capital stock of Amalco by virtue of the merger.
On the amalgamation, the holders of the common shares of the predecessor corporations will receive common shares of Amalco, which common shares will have a fair market value equal to the fair market value immediately before the amalgamation of the common shares of XXXXXXXXXX, and the holders of the preferred shares of the predecessor corporations will receive preferred shares of Amalco, which preferred shares will have a fair market value equal to the fair market value immediately before the amalgamation of the preferred shares of XXXXXXXXXX. The stated capital of the common shares of Amalco, immediately after the issue of such shares on the amalgamation, will not exceed the aggregate of the paid-up capital of the common shares of the predecessor corporations immediately before the merger. The stated capital of the preferred shares of Amalco, immediately after the issue of such shares on the amalgamation, will not exceed the aggregate of the paid-up capital of the preferred shares of the predecessor corporations immediately before the merger.
17.Each of XXXXXXXXXX will transfer all of the Amalco shares that he or she owns to XXXXXXXXXX. As sole consideration for such transfers, XXXXXXXXXX will issue to the respective transferor common shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by that transferor to XXXXXXXXXX. XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the paid-up capital of the shares transferred.
18.XXXXXXXXXX and each transferor will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to each transfer. The agreed amount in respect of the shares so transferred will, in each case, be equal to their adjusted cost base to the particular transferor immediately before the transfer, which amount will be less than the fair market value of such shares.
19.Each of XXXXXXXXXX will transfer all of the Amalco shares that he or she owns to XXXXXXXXXX. As sole consideration for such transfers, XXXXXXXXXX will issue to the respective transferor common shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by that transferor to XXXXXXXXXX. XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the paid-up capital of the shares transferred.
20.XXXXXXXXXX and each transferor will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to each transfer. The agreed amount in respect of the shares so transferred will, in each case, be equal to their adjusted cost base to the particular transferor immediately before the transfer, which amount will be less than the fair market value of such shares.
21.XXXXXXXXXX will transfer all of the Amalco preferred shares that it owns to XXXXXXXXXX. As sole consideration for such transfer, XXXXXXXXXX will issue to XXXXXXXXXX Class XXXXXXXXXX Special Shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by XXXXXXXXXX. XXXXXXXXXX will add to the stated capital account maintained for its Class XXXXXXXXXX Special Shares an amount equal to the paid-up capital of the shares transferred.
22.XXXXXXXXXX will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to their adjusted cost base to the transferor immediately before the transfer, which amount will be less than the fair market value of such shares.
23.XXXXXXXXXX will transfer all of the Amalco preferred shares that it owns to XXXXXXXXXX. As sole consideration for such transfers, XXXXXXXXXX will issue to XXXXXXXXXX Class XXXXXXXXXX Special Shares with a fair market value equal to the fair market value at the time of the transfer of the shares transferred by XXXXXXXXXX. XXXXXXXXXX will add to the stated capital account maintained for its Class XXXXXXXXXX Special Shares an amount equal to the paid-up capital of the shares transferred.
24.XXXXXXXXXX will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to their adjusted cost base to the transferor immediately before the transfer, which amount will be less than the fair market value of such shares.
25.Each of XXXXXXXXXX will incorporate a new corporation ("XXXXXXXXXX") under the XXXXXXXXXX. XXXXXXXXXX will be Canadian-controlled private corporations and taxable Canadian corporations.
26.The authorized share capital of each of XXXXXXXXXX will consist of:
(a)an unlimited number of common shares; and
(b)an unlimited number of Special Shares, which will be redeemable and retractable for an amount equal to the fair market value of the property transferred to such corporation, entitled to non-cumulative dividends at a rate determined by its directors, and carry one vote per share.
Each of XXXXXXXXXX will issue common shares for a nominal amount on incorporation.
27.Amalco will sell at fair market value to each of XXXXXXXXXX a portion of the cash or near-cash property and investment property described in paragraphs 3 and 6 above. As a result of such transfers, the net fair market value of the cash or near-cash property and investment property received by each of XXXXXXXXXX, determined in the manner described in paragraph 10 above (after allocating and deducting liabilities, in the manner described in paragraph 11 above), will be equal to the proportion of the net fair market value of each type of property of Amalco, determined in the manner described in paragraph 10 above (after allocating and deducting, in the manner described in paragraph 11 above, the liabilities of Amalco), immediately before the transfer, that:
(a)the aggregate of the fair market value, immediately before the transfer, of all shares of the capital stock of Amalco owned by XXXXXXXXXX, in the case of the transfer of property to XXXXXXXXXX, in the case of the transfer of property to XXXXXXXXXX, at that time
is of
(b)the fair market value immediately before the transfer of all of the issued shares of the capital stock of Amalco at that time.
In consideration for such transfers, each of XXXXXXXXXX will issue Special Shares and assume a portion of the liabilities of Amalco. The Special Shares issued by each of XXXXXXXXXX will have a redemption amount equal to the fair market value of the properties at the time of the transfer less the amount of liabilities assumed by that transferee. The liabilities assumed by each of XXXXXXXXXX, in respect of eligible properties transferred, will not exceed the aggregate of the agreed amounts in respect of such properties.
Each of XXXXXXXXXX will add to the stated capital account maintained for its Special Shares an amount equal to the amount by which the aggregate of the cost amounts, in the case of eligible properties, and the fair market value, in the case of other properties, of the properties transferred to that transferee exceeds the liabilities assumed by that transferee.
28.Amalco and each of XXXXXXXXXX will jointly elect, in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of Amalco that is an eligible property and is transferred to each of XXXXXXXXXX. The agreed amount for the purposes of subsection 85(1) in respect of such property will be:
(a)where the particular property is inventory or capital property (other than depreciable property of a prescribed class), the lesser of the cost amount of the property to Amalco immediately before the transfer and the fair market value of such property; and
(b)where the particular property is depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii).
The fair market value of each property will equal or exceed the agreed amount in respect thereof.
29.Following the transfer of assets to XXXXXXXXXX, each of XXXXXXXXXX will redeem the Special Shares issued to Amalco in the Butterfly Transfer, by the issuance by each of XXXXXXXXXX of a demand non-interest-bearing note (the "XXXXXXXXXX Note" and "XXXXXXXXXX Note") having a principal amount equal to the redemption amount of the Special Shares of XXXXXXXXXX so redeemed.
30.Each of XXXXXXXXXX will then be wound up, each into its respective parent, XXXXXXXXXX. As a result of the wind-ups, the XXXXXXXXXX Note will become a liability of XXXXXXXXXX and the XXXXXXXXXX Note will become a liability of XXXXXXXXXX.
31.Following the transactions described in paragraphs 29 and 30 above, a special resolution will then authorize Amalco to commence voluntary dissolution.
Amalco will purchase for cancellation, at fair market value, its common shares and redeem and cancel its preferred shares held by XXXXXXXXXX. Amalco will issue to XXXXXXXXXX as consideration for the purchase of its common shares and redemption of its preferred shares a non-interest-bearing note having a principal amount equal to the fair market value of the shares purchased ("Amalco Note 1").
Amalco will purchase for cancellation, at fair market value, its common shares and redeem and cancel its preferred shares held by XXXXXXXXXX. Amalco will issue to XXXXXXXXXX as consideration for the purchase of its common shares and redemption of its preferred shares a non-interest-bearing note having a principal amount equal to the fair market value of the shares purchased ("Amalco Note 2").
Following the distribution by Amalco of its remaining assets and liabilities (including the XXXXXXXXXX Note and XXXXXXXXXX Note) to XXXXXXXXXX Amalco will then file articles of dissolution pursuant to the XXXXXXXXXX.
32.The XXXXXXXXXX Note will be set off against the Amalco Note 1, the XXXXXXXXXX Note will be set off against the Amalco Note 2 and the notes will all be cancelled.
33.After the completion of the transactions described in paragraphs 12 to 34 above, XXXXXXXXXX will transfer all of the XXXXXXXXXX common shares that he owns to XXXXXXXXXX. As sole consideration for such transfer, XXXXXXXXXX will issue to XXXXXXXXXX Class XXXXXXXXXX Special Shares with a fair market value equal to the fair market value at the time of the transfer of the XXXXXXXXXX common shares transferred by XXXXXXXXXX. XXXXXXXXXX will add to the stated capital account maintained for its Class XXXXXXXXXX Special Shares an amount equal to the paid-up capital of the shares transferred.
34.XXXXXXXXXX will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to their adjusted cost base to the transferor immediately before the transfer, which amount will be less than the fair market value of such shares.
35.None of XXXXXXXXXX are either restricted financial institutions or specified financial institutions.
36.No property has or will become property of, and no liabilities have been or will be incurred by XXXXXXXXXX or Amalco in contemplation of and before the Butterfly Transfer, except as described herein.
37.None of the parties are contemplating a disposition of any of the shares of XXXXXXXXXX other than as described herein.
38.There are not, and will not be at any time prior to the completion of the proposed transactions described herein, any guarantee agreements in respect of any of the XXXXXXXXXX shares.
39.None of XXXXXXXXXX has entered, or will enter, into a dividend rental arrangement in respect of any of the shares to be redeemed as part of the Proposed Transactions.
40.None of the shares of Amalco, XXXXXXXXXX will be issued or acquired as part of a series of transactions described in subsection 112(2.5).
SUBSEQUENT TRANSACTION
41.XXXXXXXXXX will sell, at fair market value, to XXXXXXXXXX its interest in the XXXXXXXXXX property that was received by XXXXXXXXXX on the Butterfly Transfer. The fair market value of the interest in the XXXXXXXXXX property will not exceed 10% of the fair market value of the property received by XXXXXXXXXX on the Butterfly Transfer.
PURPOSE OF THE PROPOSED TRANSACTIONS
42.The purpose of the proposed transactions is to permit XXXXXXXXXX, to separate their interests to the extent possible, in order to enable them to own their various property interests independently from one another.
RULINGS
Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following:
A.The amalgamation of XXXXXXXXXX described in paragraph 16 above will be an amalgamation within the meaning of subsection 87(1) with the result that:
(i)each shareholder of a predecessor corporation will be deemed by paragraph 87(4)(a) to have disposed of his or her shares of a class of a predecessor corporation for proceeds equal to their aggregate adjusted cost base immediately before the amalgamation; and
(ii)for greater certainty, the rules in paragraphs 87(4)(c), (d) and (e) will not apply.
B.The provisions of subsection 85(1) will apply to the transfer of:
(i)the Amalco common shares by each of XXXXXXXXXX to XXXXXXXXXX described in paragraph 17 above;
(ii)the Amalco common shares by each of XXXXXXXXXX to XXXXXXXXXX described in paragraph 19 above;
(iii)the Amalco preferred shares by XXXXXXXXXX to XXXXXXXXXX described in paragraph 21 above; and
(iv)the Amalco preferred shares by XXXXXXXXXX to XXXXXXXXXX described in paragraph 23 above
with the result that the agreed amount in each transfer will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition of that property to each transferor and the cost of that property to the respective transferee.
For greater certainty, paragraph 85(1)(e.2) will not apply to such transfers.
C.The provisions of subsection 85(1) will apply to the transfer of the properties of Amalco that are eligible property by Amalco to XXXXXXXXXX, as described in paragraph 27 above, such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).
For greater certainty, paragraph 85(1)(e.2) of the Act will not apply to such transfers.
D.The provisions of subsection 85(2.1) will not apply to reduce the paid-up capital of the Special shares issued by each of XXXXXXXXXX to Amalco described in paragraph 27 above.
E.On the redemption by each of XXXXXXXXXX of their Special Shares held by Amalco described in paragraph 29 above and the purchase for cancellation by Amalco of its common shares and redemption of its preferred shares held by XXXXXXXXXX described in paragraph 31 above and the purchase for cancellation by Amalco of its common shares and redemption of its preferred shares held by XXXXXXXXXX described in paragraph 33 above:
(i)by virtue of paragraph 84(3)(b), Amalco will be deemed to have received a taxable dividend equal to the amount, if any, by which the amount paid by each of XXXXXXXXXX to redeem their Special Shares held by Amalco exceeds the paid-up capital of the particular shares immediately before the redemption;
(ii)pursuant to subsection 84(2), each of XXXXXXXXXX will be deemed to have received a winding-up dividend on its common shares and preferred shares of Amalco, equal to the proportion of the amount by which the aggregate of the fair market value of the property of Amalco distributed by Amalco on its winding-up exceeds the paid-up capital of its common shares and preferred shares, that the number of such shares held by XXXXXXXXXX, as the case may be, is of the number of all such shares;
(iii)the dividends referred to in (i) and (ii) will be deductible by each recipient pursuant to subsection 112(1) and the provisions of subsections 112(2.1) to 112(2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividends;
(iv)by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (i) and (ii) above, will be excluded from the proceeds of disposition of the shares, and any loss arising from the disposition of those shares will be reduced by the amount of such dividends pursuant to subsection 112(3);
(v)no taxes under Part IV.1 will be payable by a holder in respect of a dividend referred to in (i) above, as each such dividend will be an excepted dividend by virtue of paragraph (b) of the definition thereof in section 187.1;
(v)no taxes under Part VI.1 will be payable by an issuer of the preferred shares in respect of a dividend referred to in (i) above, as each such dividend will be an excluded dividend by virtue of paragraph (a) of the definition thereof in subsection 191(1); and
(vi)no taxes under Part IV will be payable in respect of a dividend referred to in (i) or (ii) above, except to the extent provided in paragraph 186(1)(b).
F.The provisions of subsection 55(2) will not apply to the dividends described in Ruling E above, by virtue of the application of paragraph 55(3)(b) provided that, as part of the series of transactions that includes the proposed transactions described herein, there is no:
(a)disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b)acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(c)acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(d)acquisition of property in the circumstances described in paragraph 55(3.1)(d)
which has not been described herein.
G.The provisions of subsection 69(11) will not apply to the transfers described in paragraph 27 above.
H.The extinguishment of the XXXXXXXXXX Note, Amalco Note 1, XXXXXXXXXX Note and Amalco Note 2 described in paragraph 32 above will not give rise to a "forgiven amount".
I.Provided that the interest paid or payable by XXXXXXXXXX on the liabilities assumed on the wind-up of XXXXXXXXXX, as described in paragraph 30 above, which were liabilities assumed by XXXXXXXXXX on the transfer of property from Amalco, as described in paragraph 27 above, was deductible to Amalco under paragraph 20(1)(c), interest paid or payable in respect of a taxation year by XXXXXXXXXX (depending on the method regularly followed by XXXXXXXXXX in computing its income) on the liabilities assumed will be deductible in computing the income of XXXXXXXXXX for that taxation year pursuant to paragraph 20(1)(c) to the extent the amount thereof is reasonable and paid or payable pursuant to a legal obligation to pay interest.
J.Provided that the interest paid or payable by XXXXXXXXXX on the liabilities assumed on the wind-up of XXXXXXXXXX, as described in paragraph 30 above, which were liabilities assumed by XXXXXXXXXX on the transfer of property from Amalco, as described in paragraph 27 above, was deductible to Amalco under paragraph 20(1)(c), interest paid or payable in respect of a taxation year by XXXXXXXXXX (depending on the method regularly followed by XXXXXXXXXX in computing its income) on the liabilities assumed will be deductible in computing the income of XXXXXXXXXX for that taxation year pursuant to paragraph 20(1)(c) to the extent the amount thereof is reasonable and paid or payable pursuant to a legal obligation to pay interest.
K.Any depreciable property acquired by Amalco, as described in paragraph 16 above, will be property described in paragraphs 1100(2.2)(e), 1100(19)(b), 1101(1ad)(b), 1102(14)(d) of the Regulations.
L.Any depreciable property acquired by XXXXXXXXXX, as described in paragraph 27 above, will be property described in paragraphs 1100(2.2)(a), 1100(19)(a), 1101(1ad)(a), 1102(14)(a) of the Regulations.
M.The provisions of subsections 15(1), 56(2) and 246(1) will not apply to the proposed transactions, in and by themselves.
N.Subsection 245(2) will not be applied to the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and are binding provided that the proposed transactions are completed before XXXXXXXXXX.
These rulings are based on the Act as it reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
Nothing in this letter should be construed as implying that the Department has agreed to or accepted:
(a)the determination of the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares, or
(b)any tax consequences arising from the facts or proposed transactions described above other than those specifically confirmed in the rulings given.
Yours truly,
for Director
Reorganizations and International Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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