30 November 1996 Ruling 9724053 - AMALGAMATION, DISSENT

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.

Principal Issues:

Confirmation of administrative position that the payment of cash to, or the redemption of shares of dissenting shareholder will not cause an amalgamation to not qualify for subsection 87(1) treatment.

Position:

Reasons:

XXXXXXXXXX							3-972405
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("Holdco")
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling for each member of the Group and for Amalco (as defined below). We also acknowledge your letters of XXXXXXXXXX.

To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling:

is in an earlier return of the taxpayer or a related person,

is being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the taxpayer or a related person,

is under objection by the taxpayer or related person,

is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or

is the subject of a ruling previously issued by the Directorate.

Definitions and Abbreviations

In this letter, the following terms have the meanings specified:

"Act" means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1, as amended, and, unless otherwise indicated, all legislative references are to provisions of the Act;

"Subco 1" means XXXXXXXXXX;

"Subco 2" means XXXXXXXXXX;

"Subco 3" means XXXXXXXXXX;

"Subco 4" means XXXXXXXXXX;

"Subco 5" means XXXXXXXXXX;

"Subco 6" means XXXXXXXXXX;

"Subco 7" means XXXXXXXXXX;

"Amalco" refers to the company to be formed as described in paragraph 15 below;

"Amalco Preferred Shares" refers to the preferred shares described in paragraph 14 below;

"Group" refers to Holdco, Subco 1, Subco 2, Subco 3, Subco 4, Subco 5, Subco 6 and Subco 7, collectively;

"Predecessor Corporations" refers to the Group except for Holdco;

"capital property" has the meaning assigned by section 54;

"public corporation" has the meaning assigned by subsection 89(1); and

"taxable Canadian corporation" ("TCC") has the meaning assigned by subsection 89(1);

Facts

XXXXXXXXXX

Each member of the Group is a TCC.

Each of the Predecessor Corporations is a direct or indirect wholly-owned Canadian subsidiary of Holdco except for Subco 3 in which an arm's-length third party, XXXXXXXXXX ("A Co"), owns approximately XXXXXXXXXX% of the outstanding common shares.

Subco 3 and Subco 7 are currently subsisting corporations under the Canada Business Corporations Act (the "CBCA"). All of the other Predecessor Corporations are currently subsisting under the Company Act (XXXXXXXXXX) but, have been or will be continued as described in paragraph 13 below.

Subco 1 is a wholly-owned subsidiary of Holdco. It has XXXXXXXXXX Common shares outstanding, all of which are owned by Holdco.

The only issued and outstanding shares of Subco 2 are XXXXXXXXXX Common shares, of which XXXXXXXXXX are held by Holdco and the remaining XXXXXXXXXX by Holdco's wholly-owned subsidiary, Subco 1.

The only issued and outstanding shares of Subco 3 are held as follows:

Voting Class XXXXXXXXXX Shares (common shares)

Subco 2 XXXXXXXXXX
Subco 1 XXXXXXXXXX
A Co XXXXXXXXXX
XXXXXXXXXX

Non-voting Class XXXXXXXXXX Shares (preferred shares)

Subco 2 XXXXXXXXXX

Non-voting XXXXXXXXXX Preferred Shares

Subco 2 XXXXXXXXXX

The XXXXXXXXXX Voting Class XXXXXXXXXX Shares owned by Subco 1 were transferred to Subco 1 from Holdco in XXXXXXXXXX for one share of Subco 1 pursuant to the provisions of subsection 85(1). This transfer was undertaken to simplify the corporate structure for the proposed transactions described below. The intended result was to have all the voting Class XXXXXXXXXX shares of Subco 3 held by A Co and one of the Predecessor Corporations so that the only Amalco Preferred Shares to be issued in exchange for Class XXXXXXXXXX shares of Subco 3 on the amalgamation described in paragraph 15 below will be issued to A Co.

A Co is a corporation subsisting under the XXXXXXXXXX that deals at arm's length for purposes of the Act with each member of the Group.

Subco 4 is a wholly-owned subsidiary of Holdco. Its only issued and outstanding shares are XXXXXXXXXX Common shares, all of which are held by Holdco.

Subco 5 is a wholly-owned subsidiary of Holdco's wholly-owned subsidiary, Subco 4. Its only issued and outstanding shares are XXXXXXXXXX Common shares, all of which are held by Subco 4.

Subco 6 is a wholly-owned subsidiary of Holdco. Its only issued and outstanding shares are XXXXXXXXXX Common shares, all of which are held by Holdco.

Subco 7 is a wholly-owned subsidiary of Holdco. Its only issued and outstanding shares are XXXXXXXXXX Common shares, all of which are held by Holdco.

All of the shares held by Holdco in any Predecessor Corporation are held by it as capital property.

The Predecessor Corporations (other than Subco 7) either file or will file their federal tax returns at the XXXXXXXXXX Taxation Centre and deal or will deal with the XXXXXXXXXX Tax Services Office.

Proposed Transactions

All of the Predecessor Corporations except for Subco 3 and Subco 7 have been or will be continued under the CBCA. These continuations have been or will be undertaken to comply with CBCA requirements that all predecessor corporations on an amalgamation be incorporated or continued under the provisions of the CBCA.

An amalgamation agreement (the "Agreement") will be entered into by each of the Predecessor Corporations which will provide, amongst other things, the following:

Amalco will be authorized to issue an unlimited number of common shares (the "Amalco Common Shares") and an unlimited number of redeemable preference shares (the "Amalco Preferred Shares") which will be non-voting, redeemable at a fixed amount and non-participating. The Amalco Common Shares will be voting shares, fully participating and entitled to dividends, if any, as and when declared by the Amalco directors, subject only to the right of the Amalco Preferred Shares to receive the fixed redemption amount.

Any shares in a Predecessor Corporation held by or on behalf of any other Predecessor Corporation will be cancelled without any repayment of capital.

Holdco will be the sole holder of Amalco Common Shares immediately after the amalgamation. The Amalco Common Shares will be the only consideration that Holdco will receive by reason of the Amalgamation.

A Co, as holder of Class XXXXXXXXXX shares of Subco 3, will be entitled to receive Amalco Preferred Shares in exchange therefor. A Co will hold Amalco Preferred Shares immediately after the amalgamation (unless it exercises its rights of dissent pursuant to section 190 of the CBCA). The Amalco Preferred Shares will be redeemed shortly after their issuance in accordance with the provisions thereof as set out in the Agreement. If A Co exercises its statutory rights of dissent, it will not receive any shares of Amalco, but will only be entitled to receive payment for its Subco 3 shares in accordance with section 190 of the CBCA.

Subject to A Co exercising its rights of dissent described in subparagraph 15.(d) above, the Predecessor Corporations will amalgamate pursuant to the provisions of the CBCA to form Amalco in such manner that:

(a)all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of a 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 of the predecessor corporations (except any predecessor corporation) immediately before the amalgamation will receive shares of the capital stock of Amalco by virtue of the amalgamation.

As a result of the amalgamation, all debts owing between the predecessor corporations will be cancelled and Amalco will assume all debts of the predecessor corporations owing to third parties. Amalco will be a TCC.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to consolidate Holdco's Canadian XXXXXXXXXX operations (XXXXXXXXXX).

Rulings Provided

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we confirm the following:

The amalgamation described in paragraphs 15 and 16 above will be an amalgamation within the meaning of subsection 87(1) whether A Co:

exercises its statutory rights of dissent and thereby receives cash rather than shares of Amalco; or

receives Amalco Preferred Shares which are redeemed in accordance with the provisions of the Agreement.

The provisions of section 87 will apply to the amalgamation described in paragraph 16 above.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and are binding provided the proposed transactions described herein are completed by XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch