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: Several issues regarding corporate reorganization.
Position: See statement of principal issues.
Reasons: See statement of principal issues.
XXXXXXXXXX
XXXXXXXXXX 3-980352
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings. We also acknowledge your letters 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
Non-Statutory Terms
In this letter unless otherwise expressly stated:
(a) XXXXXXXXXX as described in Paragraph 28;
(b) XXXXXXXXXX as described in Paragraph 10;
(c) XXXXXXXXXX as described in Paragraph 10;
(d) "Arrangeco" means XXXXXXXXXX as described in Paragraph 24;
(e) "Arrangeco Common Shares" means the voting fully participating common shares of Arrangeco;
(f) "XXXXXXXXXX Business" means the operations which are carried on indirectly by XXXXXXXXXX, and which will continue to be carried on directly or indirectly by XXXXXXXXXX following the Proposed Transactions, XXXXXXXXXX.
(g) "Effective Date" means the effective date of the Plan of Arrangement;
(h) "Effective Time" means XXXXXXXXXX on the Effective Date;
(i) "FMV" means "fair market value" and is 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;
(j) XXXXXXXXXX as described in Paragraph 14;
(k) XXXXXXXXXX as described in Paragraph 8;
(l) XXXXXXXXXX as described in Paragraph 12;
(m) "XXXXXXXXXX Loan" means the loan from XXXXXXXXXX to XXXXXXXXXX described in Paragraph 8;
(n) XXXXXXXXXX as described in Paragraph 8;
(o) "XXXXXXXXXX Common Shares" means the voting fully participating common shares of XXXXXXXXXX that were outstanding prior to the XXXXXXXXXX described in Paragraph 29;
(p) "XXXXXXXXXX New Common Shares" means the new class of voting fully participating common shares of XXXXXXXXXX, one of which was issued to XXXXXXXXXX as described in Paragraph 30;
(q) "XXXXXXXXXX New Preferred Shares" means the new class of voting preferred shares of XXXXXXXXXX which were created on the XXXXXXXXXX described in Paragraph 29;
(r) "XXXXXXXXXX Preferred Shares" means the outstanding class of preferred shares of XXXXXXXXXX that are held by XXXXXXXXXX and which are described in Paragraph 8;
(s) "XXXXXXXXXX Redemption Amount" means the aggregate redemption amount for the XXXXXXXXXX New Preferred Shares, which amount is equal to the FMV of the XXXXXXXXXX Common Shares prior to the XXXXXXXXXX described in Paragraph 29;
(t) XXXXXXXXXX as described in Paragraph 15;
(u) "XXXXXXXXXX as described in Paragraph 7;
(v)
XXXXXXXXXX
(w)
XXXXXXXXXX
(x)
XXXXXXXXXX
(y)
XXXXXXXXXX
(z) XXXXXXXXXX as described in Paragraph 15;
(aa) XXXXXXXXXX as described in Paragraph 13;
(bb) XXXXXXXXXX as described in Paragraph 9;
(cc) XXXXXXXXXX as described in Paragraph 1;
(dd) XXXXXXXXXX. as described in Paragraph 15;
(ee) XXXXXXXXXX. as described in Paragraph 16;
(ff) "XXXXXXXXXX Common Shareholders" means holders of XXXXXXXXXX Common Shares;
(gg) "XXXXXXXXXX Common Shares" means the outstanding voting fully participating common shares of XXXXXXXXXX;
(hh) "XXXXXXXXXX Preferred Shareholders" means holders of XXXXXXXXXX Preferred Shares;
(ii) "XXXXXXXXXX Preferred Shares" means the outstanding Cumulative Redeemable First Preferred Shares, XXXXXXXXXX, as described in Paragraph 2;
(jj) "XXXXXXXXXX Preferred Shares" means the Cumulative Redeemable First Preferred Shares, XXXXXXXXXX, as described in Paragraph 2;
(kk) "XXXXXXXXXX Shareholders" means XXXXXXXXXX Common Shareholders and XXXXXXXXXX Preferred Shareholders;
(ll) "XXXXXXXXXX Stock Options" means the employee stock options of XXXXXXXXXX to acquire XXXXXXXXXX Common Shares granted pursuant to its Employee Incentive Stock Option Plan (1982);
(mm)XXXXXXXXXX. as described in Paragraph 17;
(nn) XXXXXXXXXX the general partner in the XXXXXXXXXX;
(oo)
XXXXXXXXXX
(pp) "Paragraph" refers to a numbered paragraph in this letter;
(qq) "XXXXXXXXXX Holdco" means XXXXXXXXXX as described in Paragraph 34;
(rr) "XXXXXXXXXX Holdco Common Shares" means the voting fully participating common shares of XXXXXXXXXX Holdco.
(ss) "XXXXXXXXXX Business" means the domestic and international operations which are carried on indirectly by XXXXXXXXXX, and which will be carried on indirectly by XXXXXXXXXX following the Proposed Transactions, that relate to:
(i) XXXXXXXXXX current XXXXXXXXXX business and certain other operations;
(ii) XXXXXXXXXX current business of XXXXXXXXXX;
(iii) XXXXXXXXXX international XXXXXXXXXX business, XXXXXXXXXX business and certain other operations;
(tt) "Plan of Arrangement"" means the proposed plans of arrangement under XXXXXXXXXX section 192 of the CBCA to effect the combination of XXXXXXXXXX, and the split of the XXXXXXXXXX Business as described in the Proposed Transactions;
(uu) "Proposed Transactions" means the transactions described in Paragraphs 34 to 55;
(vv)
XXXXXXXXXX
(ww) XXXXXXXXXX as described in Paragraph 19;
(xx) "XXXXXXXXXX Common Shareholders" means holders of XXXXXXXXXX Common Shares;
(yy) "XXXXXXXXXX Common Shares" means the outstanding voting fully participating common shares of XXXXXXXXXX;
(zz) XXXXXXXXXX as described in Paragraph 31;
(ab) "XXXXXXXXXX New Common Shares" means the new class of voting fully participating common shares of XXXXXXXXXX which will be issued on the capital reorganization of XXXXXXXXXX described in Paragraph 52;
(ac) "XXXXXXXXXX New Preferred Shares" means the new class of XXXXXXXXXX Preferred Shares which will be issued to the XXXXXXXXXX Preferred Shareholders on the share exchange described in Paragraph 40;
(ad) "XXXXXXXXXX Note" has the meaning assigned by Paragraph 44; and
(ae) "XXXXXXXXXX Stock Options" means the employee stock options of XXXXXXXXXX to acquire XXXXXXXXXX Common Shares under the XXXXXXXXXX Incentive Plan and/or the XXXXXXXXXX Incentive Plan (XXXXXXXXXX).
Statutory Terms
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, subparagraph or clause is a reference to the relevant provision of the Act;
(b) "adjusted cost base" has the meaning assigned by section 54;
(c) "CBCA" means Canada Business Corporation Act;
(d) "capital property" has the meaning assigned by section 54;
(e) XXXXXXXXXX
(f) "ACB" means the expression "adjusted cost base" as that term is defined in section 54;
(g) "agreed amount" has the meaning assigned by subsection 85(1). Any agreed amounts that are expressly referred to in this letter are expressed in Canadian dollars;
(h) "deferred profit sharing plan" has the meaning assigned by subsection 147(1);
(i) "dividend rental arrangement" has the meaning assigned in subsection 248(1);
(j) "financial intermediary corporation" has the meaning assigned in subsection 191(1);
(k) "guarantee agreement" has the meaning assigned in subsection 112(2.2);
(l) "insurance corporation" has the meaning assigned by subsection 248(1);
(m) "net capital loss" has the meaning assigned by subsection 111(8);
(n) "PUC" means "paid-up capital" as that expression is defined in subsection 89(1);
(o) "prescribed stock exchange" has the meaning assigned by section 3200 of the Regulations;
(p) "proceeds of disposition" has the meaning assigned by section 54;
(q) "public corporation" has the meaning assigned in subsection 89(1);
(r) "RFI" means "restricted financial institution" as that expression is defined in subsection 248(1);
(s) "registered retirement income fund" has the meaning assigned by subsection 146.3(1);
(t) "registered retirement savings plan" has the meaning assigned by subsection 146(1);
(u) "Regulations" refers to the Income Tax Regulations;
(v) "related persons" has the meaning assigned by subsection 251(2);
(w) "SFI" means "specified financial institution" as that expression is defined in subsection 248(1);
(x) "series of transactions or events" has the meaning assigned by subsection 248(10);
(y) "stated capital" means "stated capital" as that expression is used in the XXXXXXXXXX or the CBCA;
(z) "stock dividend" has the meaning assigned by subsection 248(1);
(aa) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
(bb) "taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(cc) "taxable dividend" has the meaning assigned by subsection 89(1).
FACTS
1.
XXXXXXXXXX
XXXXXXXXXX is a taxable Canadian corporation and a public corporation, the shares of which are listed onXXXXXXXXXX is engaged through subsidiary corporations, both directly and indirectly, in the XXXXXXXXXX.
2.
XXXXXXXXXX
3.
XXXXXXXXXX
4.
XXXXXXXXXX
5. XXXXXXXXXX has granted the XXXXXXXXXX Stock Options to certain officers and employees of XXXXXXXXXX and its subsidiaries. XXXXXXXXXX . As of XXXXXXXXXX, a total of XXXXXXXXXX Common Shares were under option in accordance with the XXXXXXXXXX Stock Options at an exercise price ranging from $XXXXXXXXXX per share to $XXXXXXXXXX per share, with expiry dates on such options ranging from XXXXXXXXXX. In all cases, the exercise price for a XXXXXXXXXX Stock Option was not less than the FMV of a XXXXXXXXXX Common Share at the time that the option was granted or, where the particular XXXXXXXXXX Stock Option was issued XXXXXXXXXX, the requirements of paragraph 7(1.4)(c) were met in respect of the exercise price thereunder.
XXXXXXXXXX Business
6. XXXXXXXXXX ownership of the XXXXXXXXXX Business is, inter alia, represented by its direct ownership of shares or interests in XXXXXXXXXX and its indirect ownership of the shares of XXXXXXXXXX.
7. XXXXXXXXXX is a taxable Canadian corporation and was, XXXXXXXXXX, a subsidiary wholly-owned corporation of
XXXXXXXXXX
8. XXXXXXXXXX is a taxable Canadian corporation governed by the XXXXXXXXXX, directly and indirectly through various affiliates, carries on the XXXXXXXXXX Business in Canada and in other countries (other than the XXXXXXXXXX Business carried on through XXXXXXXXXX).
Prior to XXXXXXXXXX, XXXXXXXXXX owned all of the issued and outstanding XXXXXXXXXX Common Shares. In XXXXXXXXXX issued the XXXXXXXXXX Preferred Shares to XXXXXXXXXX, a wholly-owned indirect subsidiary of XXXXXXXXXX, for cash consideration. XXXXXXXXXX used the proceeds of such share issuance to make an interest-bearing loan to XXXXXXXXXX (the "XXXXXXXXXX Loan"). As part of the Proposed Transactions, the XXXXXXXXXX Loan will be repaid and the XXXXXXXXXX Preferred Shares will be redeemed.
9.
XXXXXXXXXX
10.
XXXXXXXXXX
XXXXXXXXXX Business
11. XXXXXXXXXX ownership of the XXXXXXXXXX Business is generally represented by its ownership of the shares of XXXXXXXXXX.
12. XXXXXXXXXX is a taxable Canadian corporation and a subsidiary wholly-owned corporation of XXXXXXXXXX and its subsidiaries, among other things,
XXXXXXXXXX
As at XXXXXXXXXX had approximately $XXXXXXXXXX of available net capital losses.
13. XXXXXXXXXX is a taxable Canadian corporation and a subsidiary wholly-owned corporation of XXXXXXXXXX. As at XXXXXXXXXX had approximately $XXXXXXXXXX of available unutilized net capital losses.
14. XXXXXXXXXX is a taxable Canadian corporation and is a subsidiary wholly-owned corporation of XXXXXXXXXX
15. XXXXXXXXXX is a taxable Canadian corporation and a subsidiary wholly-owned corporation of XXXXXXXXXX owns all of the issued and outstanding shares of XXXXXXXXXX, a U.S. incorporated holding company which directly or indirectly owns the XXXXXXXXXX group's U.S. subsidiaries, including all of the issued and outstanding shares of XXXXXXXXXX is a U.S. resident corporation, which, inter alia, owns all of the issued and outstanding shares of XXXXXXXXXX.
16. XXXXXXXXXX owns all of the issued and outstanding shares of XXXXXXXXXX is a taxable Canadian corporation.
XXXXXXXXXX
17. XXXXXXXXXX owns all of the issued and outstanding shares of XXXXXXXXXX is a corporation incorporated under the laws of the XXXXXXXXXX.
18. The ownership structure of the XXXXXXXXXX group of companies is set out in the organizational chart which was enclosed with your letter of XXXXXXXXXX.
XXXXXXXXXX
19.
XXXXXXXXXX
The District Office and Taxation Centre which are responsible for XXXXXXXXXX are the XXXXXXXXXX District Office and the XXXXXXXXXX Taxation Centre. XXXXXXXXXX business number is XXXXXXXXXX.
20. As of XXXXXXXXXX, the following was the issued and outstanding share capital of XXXXXXXXXX:
(a) XXXXXXXXXX
XXXXXXXXXX
(b) XXXXXXXXXX
XXXXXXXXXX
As at XXXXXXXXXX, the aggregate PUC of the XXXXXXXXXX Common Shares was approximately $XXXXXXXXXX.
21.
XXXXXXXXXX
22.
XXXXXXXXXX
23. XXXXXXXXXX has granted XXXXXXXXXX Stock Options to certain key employees, some of whom are also officers, under the XXXXXXXXXX Stock Incentive Plan and the XXXXXXXXXX Stock Incentive Plan (XXXXXXXXXX). As XXXXXXXXXX Common Shares were under option in accordance with the XXXXXXXXXX Stock Options at an exercise price ranging from $XXXXXXXXXX per share, with expiry dates on such options ranging from XXXXXXXXXX. In all cases the exercise price for a XXXXXXXXXX Stock Option was not less than the FMV of a XXXXXXXXXX Common Share at the time the option was granted.
24. Arrangeco has been incorporated under the CBCA and is a subsidiary wholly-owned corporation of XXXXXXXXXX.
Other Facts
25.
XXXXXXXXXX
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
26.
XXXXXXXXXX
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
(e) XXXXXXXXXX
XXXXXXXXXX
27.
XXXXXXXXXX
28.
XXXXXXXXXX
XXXXXXXXXX
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX.
29.
XXXXXXXXXX
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
(e) XXXXXXXXXX
XXXXXXXXXX
30.
XXXXXXXXXX
31. XXXXXXXXXX is a corporation incorporated under the laws of XXXXXXXXXX and is a wholly-owned subsidiary of XXXXXXXXXX is a corporation incorporated under the laws of XXXXXXXXXX and is a wholly-owned subsidiary of
XXXXXXXXXX
32. There will not be, at the time of payment of the dividends described in Paragraphs 46 and 49 below or immediately after that time, any agreements or undertakings which constitute or include a guarantee agreement in respect of any of the XXXXXXXXXX Common Shares or XXXXXXXXXX Common Shares.
33. Neither XXXXXXXXXX nor XXXXXXXXXX has entered into a dividend rental arrangement in respect of any shares of XXXXXXXXXX and none of the XXXXXXXXXX Common Shares will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5). In addition, neither XXXXXXXXXX nor XXXXXXXXXX is a corporation described in any of paragraphs (a) to (f) of the definition of financial intermediary corporation in subsection 191(1).
PROPOSED TRANSACTIONS
Pre-Arrangement Transactions
34. XXXXXXXXXX will transfer to XXXXXXXXXX Holdco all of the XXXXXXXXXX Shares and all of the XXXXXXXXXX Shares that it owns. As consideration for such transfer, XXXXXXXXXX Holdco will issue to XXXXXXXXXX Holdco Common Shares with a FMV not to exceed the aggregate FMV of the XXXXXXXXXX Shares and the XXXXXXXXXX Shares, at the time of the transfer.
XXXXXXXXXX Holdco will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate paid-up capital of the XXXXXXXXXX Shares and XXXXXXXXXX Shares transferred. The paid-up capital of the XXXXXXXXXX Shares and the XXXXXXXXXX Shares to XXXXXXXXXX do not exceed the respective adjusted cost base of such shares to XXXXXXXXXX.
In connection with the transfer of the XXXXXXXXXX Shares and XXXXXXXXXX Shares described herein, the transferor and the transferee 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 amounts in respect of the shares so transferred will be equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the respective FMVs of the XXXXXXXXXX Shares and the XXXXXXXXXX Shares, immediately before the transfer.
35. XXXXXXXXXX will transfer to XXXXXXXXXX a certain number of its XXXXXXXXXX Holdco Common Shares. As consideration for such transfer, XXXXXXXXXX will issue a demand non-interest-bearing promissory note, with a principal amount equal to (or less than) XXXXXXXXXX ACB of the shares transferred (the "XXXXXXXXXX Note") and one XXXXXXXXXX Common Share with a FMV not to exceed the FMV of the XXXXXXXXXX Holdco Common Shares, at the time of the transfer, less the principal amount of the XXXXXXXXXX Note.
XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate paid-up capital of the XXXXXXXXXX Holdco Common Shares transferred less the amount of the XXXXXXXXXX Note.
In connection with the transfer of the XXXXXXXXXX Holdco Common Shares described herein, the transferor and the transferee 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 not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the FMV of the XXXXXXXXXX Holdco Common Shares so transferred, immediately before the transfer.
36. XXXXXXXXXX will transfer to XXXXXXXXXX all the XXXXXXXXXX Holdco Common Shares it then owns. As consideration for such transfer, XXXXXXXXXX will issue a demand non-interest-bearing promissory note, with a principal amount equal to (or less than) XXXXXXXXXX ACB of the shares transferred (the "XXXXXXXXXX Note") and one XXXXXXXXXX Common Share with a FMV not to exceed the FMV of the XXXXXXXXXX Holdco Common Shares, at the time of the transfer, less the principal amount of the XXXXXXXXXX Note.
XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate paid-up capital of the XXXXXXXXXX Holdco Common Shares transferred less the amount of the XXXXXXXXXX Note.
In connection with the transfer of the XXXXXXXXXX Holdco Common Shares described herein, the transferor and the transferee 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 not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the FMV of the XXXXXXXXXX Holdco Common Shares so transferred, immediately before the transfer.
37. XXXXXXXXXX will transfer, at FMV, to XXXXXXXXXX the XXXXXXXXXX Holdco Common Shares it acquired from XXXXXXXXXX. As consideration for such transfer, XXXXXXXXXX will issue a demand non-interest-bearing promissory note (the "XXXXXXXXXX Note 1"), with a principal amount equal to the FMV of the XXXXXXXXXX Holdco Common Shares at the time of the transfer.
The transfer by XXXXXXXXXX to XXXXXXXXXX of the XXXXXXXXXX Holdco Common Shares described herein will take place without being subject to a condition precedent or condition subsequent relating to court approval prior to XXXXXXXXXX and XXXXXXXXXX obtaining final court approval to implement the Plan of Arrangement.
38. Prior to the Effective Date, XXXXXXXXXX will take the following steps, among others, to facilitate the separation of the XXXXXXXXXX Business and the XXXXXXXXXX Business:
(a) XXXXXXXXXX will transfer, at FMV, to XXXXXXXXXX (or a subsidiary of XXXXXXXXXX) all of its shares of XXXXXXXXXX. As consideration for such transfer, XXXXXXXXXX (or a subsidiary of XXXXXXXXXX) will issue a demand non-interest-bearing promissory note (the "XXXXXXXXXX Note 1"), with a principal amount equal to the amount of the aggregate FMV of the shares XXXXXXXXXX at the time of the transfer;
(b) XXXXXXXXXX will transfer, at FMV, to XXXXXXXXXX (or a subsidiary of XXXXXXXXXX) all of its shares or other interests in XXXXXXXXXX. As consideration for such transfers, XXXXXXXXXX will issue, in each case, a demand non-interest-bearing promissory note (the "XXXXXXXXXX Note 2") with a principal amount equal to the respective FMVs of XXXXXXXXXX shares or interest, as the case may be, at the time of the transfer;
(c) Intercompany debt between XXXXXXXXXX and their subsidiaries on one hand and XXXXXXXXXX and XXXXXXXXXX and their subsidiaries on the other hand will be settled in cash except for the principal amount of the XXXXXXXXXX Loan. Trade payables between such corporations will be settled in the ordinary course. Intercompany debt between such corporations, including the notes described in Paragraphs 38(a) and (b) but excluding trade payables, will be settled prior to the Effective Date to the extent practicable and, otherwise, subsequent to the Effective Date.
The accrued interest payable by XXXXXXXXXX on the XXXXXXXXXX Loan to the date on which the steps described in this subparagraph are implemented will be paid by XXXXXXXXXX in cash. XXXXXXXXXX is obligated under the terms and conditions of the XXXXXXXXXX Preferred Shares to pay a bonus over and above the cash consideration paid by XXXXXXXXXX on the issuance of such shares, in order to redeem such shares. XXXXXXXXXX will pay such premium in cash, and will satisfy the balance of the redemption price for such shares by conveying the XXXXXXXXXX Loan to XXXXXXXXXX;
(d) XXXXXXXXXX and XXXXXXXXXX will pay XXXXXXXXXX dividends on the XXXXXXXXXX Shares and XXXXXXXXXX Shares respectively; and
(e) the benefits of certain assets and the burdens of certain liabilities of XXXXXXXXXX that cannot reasonably be identified as being assets of either the XXXXXXXXXX Business or the XXXXXXXXXX Business will be shared between XXXXXXXXXX and XXXXXXXXXX.
Plan of Arrangement Transactions
Subject to the appropriate shareholder, regulatory and court approvals, the transactions described in Paragraphs 39 to 55 will be undertaken on the Effective Date pursuant to the Plan of Arrangement (except in the case of the changes to the stock options referred to in Paragraphs 48 and 53 below which will be carried out pursuant to the resolutions of the board of directors of XXXXXXXXXX and XXXXXXXXXX and except in the case of the steps relating to contingent share purchase rights issued under the shareholder rights plan of XXXXXXXXXX and XXXXXXXXXX which will occur pursuant to the terms of such plans) and (except as expressly provided below) in the sequence set forth below:
39. The holders of XXXXXXXXXX Common Shares will transfer, at FMV, all of the issued and outstanding XXXXXXXXXX Common Shares held by them to Arrangeco. As consideration for such transfer, XXXXXXXXXX will issue XXXXXXXXXX Common Share for each XXXXXXXXXX Common Share transferred to Arrangeco. As consideration for the issue by XXXXXXXXXX of its common shares to the holders of XXXXXXXXXX Common Shares, Arrangeco will issue one Arrangeco Common Share to XXXXXXXXXX for each XXXXXXXXXX Common Share issued to a XXXXXXXXXX Common Shareholder.
Arrangeco will add to the stated capital account maintained for its common shares an amount equal to the FMV of the XXXXXXXXXX Common Shares at the time of the transfer.
XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the FMV of the XXXXXXXXXX Common Shares at the time of the transfer.
Shareholders of XXXXXXXXXX or XXXXXXXXXX who dissent in respect of the Plan of Arrangement will be dealt with in the manner described in Paragraph 54.
40. The holders of XXXXXXXXXX Preferred Shares will transfer, at FMV, all of the issued and outstanding XXXXXXXXXX Preferred Shares held by them to XXXXXXXXXX. As consideration for such transfer, XXXXXXXXXX will issue one XXXXXXXXXX New Preferred Share, having substantially similar terms and conditions to the XXXXXXXXXX Preferred Shares, for every two XXXXXXXXXX 1 Preferred Shares transferred to XXXXXXXXXX (the redemption price of each XXXXXXXXXX New Preferred Share will be $XXXXXXXXXX for each XXXXXXXXXX New Preferred Share instead of $XXXXXXXXXX for each XXXXXXXXXX Preferred Share). No subsection 85(1) election will be made in respect of the transfer of the XXXXXXXXXX XXXXXXXXXX Preferred Shares. In lieu of fractions of XXXXXXXXXX New Preferred Shares, XXXXXXXXXX will pay cash to a holder of XXXXXXXXXX Preferred Shares. The amount of cash to be paid to any such holder will not exceed $XXXXXXXXXX.
XXXXXXXXXX will add to the stated capital account maintained for its New Preferred Shares an amount equal to the PUC of the XXXXXXXXXX Preferred Shares transferred to XXXXXXXXXX.
40A XXXXXXXXXX will transfer, at FMV, all of the XXXXXXXXXX Preferred Shares it holds to Arrangeco. As consideration for such transfer, Arrangeco will issue to XXXXXXXXXX Arrangeco Common Shares with a FMV equal to the FMV of the XXXXXXXXXX Preferred Shares transferred to Arrangeco. No subsection 85(1) election will be made in respect of the transfer of the XXXXXXXXXX Preferred Shares.
Arrangeco will add to the stated capital account maintained for its common shares an amount equal to the FMV of the XXXXXXXXXX Preferred Shares transferred to Arrangeco.
40B Arrangeco will transfer, at FMV, all of the XXXXXXXXXX Preferred Shares it holds to XXXXXXXXXX. As consideration for such transfer, XXXXXXXXXX will issue to Arrangeco XXXXXXXXXX Common Shares with a FMV equal to the FMV of the XXXXXXXXXX Preferred Shares transferred to XXXXXXXXXX. No subsection 85(1) election will be made in respect of the transfer of the XXXXXXXXXX Preferred Shares.
XXXXXXXXXX will add to the stated capital account maintained for its common shares an amount equal to the PUC of the XXXXXXXXXX Preferred Shares transferred.
41. Arrangeco will commence winding-up under the provisions of the CBCA and distribute all of its assets, rights and properties, including the XXXXXXXXXX Common Shares to XXXXXXXXXX so that XXXXXXXXXX will be the beneficial owner of the XXXXXXXXXX Common Shares, and all the liabilities and obligations of Arrangeco will be assumed by XXXXXXXXXX.
Arrangeco will thereafter, subsequent to the Effective Date, be dissolved.
42. XXXXXXXXXX will adopt an unanimous shareholders' declaration with respect to XXXXXXXXXX and will thereby assume all of the powers of the directors of XXXXXXXXXX.
43. (replaced by 40A and 40B)
44. XXXXXXXXXX will transfer to XXXXXXXXXX all of its XXXXXXXXXX Holdco Common Shares. As consideration for such transfer, XXXXXXXXXX will issue a demand, non-interest-bearing promissory note (the "XXXXXXXXXX Note") having a principal amount equal to the aggregate of the XXXXXXXXXX and the XXXXXXXXXX.
45. XXXXXXXXXX will subscribe for additional XXXXXXXXXX Common Shares at an aggregate subscription price equal to the FMV of such shares at that time. The amount of the additional subscription by XXXXXXXXXX will be paid in cash and will be equal to a portion of the tax liabilities of XXXXXXXXXX incurred on the transfer of the XXXXXXXXXX Holdco Common Shares and of transaction costs plus the estimated amount of XXXXXXXXXX third-party borrowings (excluding certain debt to subsidiaries) as of the Effective Date, plus an agreed amount in respect of certain liabilities of XXXXXXXXXX that cannot reasonably be identified as being liabilities of either the XXXXXXXXXX Business or the XXXXXXXXXX Business, less an agreed amount in respect of certain assets owned by XXXXXXXXXX that cannot reasonably be identified as being assets of either the XXXXXXXXXX Business or the XXXXXXXXXX Business.
46. XXXXXXXXXX will declare and pay a dividend to XXXXXXXXXX on the XXXXXXXXXX Common Shares in an amount equal to the principal amount of the XXXXXXXXXX Note. Such dividend will be paid by the issuance of a demand non-interest-bearing promissory note (the "First Dividend Note").
The equal liabilities of XXXXXXXXXX to XXXXXXXXXX and XXXXXXXXXX to XXXXXXXXXX (as evidenced by the XXXXXXXXXX Note and First Dividend Note) will be settled in full by way of set off immediately thereafter. The XXXXXXXXXX Note and the First Dividend Note will be cancelled.
47. Concurrently with the declaration and payment of the dividend described in Paragraph 46, XXXXXXXXXX Articles will be amended to consolidate the number of XXXXXXXXXX Common Shares into a number of XXXXXXXXXX Common Shares equal to XXXXXXXXXX of the number of XXXXXXXXXX Common Shares outstanding in accordance with the Plan of Arrangement following the issue of the XXXXXXXXXX Common Shares described in Paragraph 39 and not including shares in respect of which a dissent right is perfected.
48. XXXXXXXXXX employee stock option plan provides XXXXXXXXXX board of directors with the authority to amend the number of shares under option and the exercise price of such options in circumstances where the board believes such changes are necessary to preserve the accrued benefit inherent in such options. XXXXXXXXXX employee stock option plan (referred to in Paragraph 53) provides XXXXXXXXXX board of directors with similar authority. Pursuant to such authority of the two boards, concurrently with the declaration and payment of the dividend described in Paragraph 46 and the consolidation described in Paragraph 47, and subject to regulatory or other required approvals, each outstanding XXXXXXXXXX Stock Option (referred to herein as the "exchanged XXXXXXXXXX option") will be cancelled and the optionholder will receive in exchange a new XXXXXXXXXX option and a new XXXXXXXXXX option.
The combined aggregate exercise cost for the new options will be allocated between the new XXXXXXXXXX option and new XXXXXXXXXX option so that the aggregate "in the money" value of the exchanged XXXXXXXXXX option immediately before its cancellation will be equal (subject to the treatment of fractional options) to the combined aggregate "in the money" value of the new XXXXXXXXXX option and new XXXXXXXXXX option immediately after the cancellation of the exchanged XXXXXXXXXX option. The FMV of a XXXXXXXXXX Common Share immediately before the cancellation of the exchanged XXXXXXXXXX options will be determined based on the weighted average prices of XXXXXXXXXX Common Shares on XXXXXXXXXX Stock Exchange for the ten trading days immediately preceding the effective time of Paragraph 48, including the Effective Date. For the purposes of determining the FMV of a share immediately after the cancellation of the exchanged XXXXXXXXXX options:
(i) the FMV of a XXXXXXXXXX Common Share will be determined based on the weighted average prices of XXXXXXXXXX Common Shares on XXXXXXXXXX Stock Exchange for the ten trading days following the Effective Date; and
(ii) the FMV of a XXXXXXXXXX Common Share immediately after the exchange of options described in Paragraph 48 will be defined in the director's resolutions amending the stock option plans as the fair market value of a XXXXXXXXXX Common Share immediately after the exchange of options described in Paragraph 48 (and for greater certainty before the reorganization described in Paragraph 52 below).
XXXXXXXXXX will make necessary amendments to the XXXXXXXXXX Stock Option Plan to permit employees of XXXXXXXXXX and its subsidiaries who become employees of XXXXXXXXXX and its subsidiaries to continue to hold XXXXXXXXXX options as if employed by XXXXXXXXXX will make necessary amendments to its Stock Option Plan to permit XXXXXXXXXX employees to hold XXXXXXXXXX options.
As a result, in the case of each employee:
(i) the amount, if any, by which the total value of the XXXXXXXXXX Common Shares and the XXXXXXXXXX Common Shares which are, respectively, subject to the new XXXXXXXXXX options and the new XXXXXXXXXX options (immediately after the cancellation of the exchanged XXXXXXXXXX option) exceeds the total amount payable by the employee to acquire the new shares under the new options
will not exceed
(ii) the amount, if any, by which the total value of the XXXXXXXXXX Common Shares which are subject to the exchanged XXXXXXXXXX option (immediately before the cancellation of the exchanged XXXXXXXXXX option) exceeds the amount payable by the employee to acquire the XXXXXXXXXX Common Shares under the exchanged XXXXXXXXXX option.
Upon the exercise of options of XXXXXXXXXX, any entitlement to fractional shares on such exercise would be ignored, so that the optionholders' entitlement to acquire shares at the new price would be rounded down to the next lowest whole number of shares.
49. XXXXXXXXXX will declare a dividend paid to XXXXXXXXXX on the XXXXXXXXXX Common Shares in an amount equal to the amount, if any, by which any loss realized by XXXXXXXXXX on the disposition of the XXXXXXXXXX Common Shares as described in Paragraph 52 (determined without reference to subsection 112(3)) would exceed the amount of the dividend described in Paragraph 46. Such dividend will be concurrently paid by the issuance of a demand non-interest-bearing promissory note by XXXXXXXXXX (the "Second Dividend Note") to XXXXXXXXXX.
49A XXXXXXXXXX will forgive the payment of the Second Dividend Note by XXXXXXXXXX, and the Second Dividend Note will be cancelled, without any payment being made by XXXXXXXXXX.
50. XXXXXXXXXX Articles will be amended to create a new class of shares, the XXXXXXXXXX New Common Shares, with attributes identical to the XXXXXXXXXX Common Shares.
51. The XXXXXXXXXX will be terminated.
52. The XXXXXXXXXX Common Shareholders will surrender all of the XXXXXXXXXX Common Shares for cancellation and in exchange will receive for each cancelled share, one XXXXXXXXXX New Common Share and XXXXXXXXXX Common Share. With respect to the exchange of the XXXXXXXXXX Common Shares into XXXXXXXXXX New Common Shares and XXXXXXXXXX Common Shares, the stated capital of the XXXXXXXXXX New Common Shares will be set at an amount equal to the PUC of the XXXXXXXXXX Common Shares immediately before the exchange, less the aggregate FMV of the XXXXXXXXXX Common Shares distributed to the XXXXXXXXXX Common Shareholders on the exchange and less the amount of any cash consideration paid in respect of fractional shares. No fractional XXXXXXXXXX Common Shares or XXXXXXXXXX New Common Shares will be issued and in lieu thereof, each person entitled to a fractional interest in a XXXXXXXXXX Common Share or XXXXXXXXXX New Common Share will receive a cash amount based on the FMV of such interest.
53. XXXXXXXXXX employee stock option plan provides XXXXXXXXXX board of directors with the authority to amend the number of shares under option and the exercise price of such options in circumstances where the board believes such changes to be necessary to preserve the accrued benefit inherent in such options. Pursuant to this authority, concurrent with the reorganization of capital of XXXXXXXXXX described in Paragraph 52:
(a) XXXXXXXXXX will cancel the XXXXXXXXXX options issued as described in Paragraph 48 and the optionholder will receive in exchange new XXXXXXXXXX options. The exercise price payable under the new XXXXXXXXXX options for each XXXXXXXXXX New Common Share and the number of new XXXXXXXXXX options will be determined consistent with the same methods as set forth in Paragraph 48 and the FMV of a XXXXXXXXXX New Common Share will be determined based on the aggregate of the weighted average prices of a XXXXXXXXXX New Common Share on XXXXXXXXXX Stock Exchange for the ten trading days following the Effective Date.
As a result, in the case of each employee:
(i) the amount, if any, by which the total value of the new XXXXXXXXXX New Common Shares and the XXXXXXXXXX Common Shares which are, respectively, subject to the XXXXXXXXXX options and the new XXXXXXXXXX options (immediately after the cancellation of the exchanged XXXXXXXXXX option) exceeds the total amount payable by the employee to acquire the new shares under the new options
will not exceed
(ii) the amount, if any, by which the total value of the XXXXXXXXXX Common Shares and XXXXXXXXXX Common Shares which are subject to the options described in Paragraph 48 exceeds the total amount payable by the employee to acquire those shares under options; and
(b) subject to regulatory or other required approvals, each outstanding XXXXXXXXXX Stock Option held by XXXXXXXXXX employees (referred to herein as the "exchanged XXXXXXXXXX option") will be cancelled and the optionholder will receive in exchange new XXXXXXXXXX options. The exercise cost for the new options and number of new options issued will be set so that the aggregate "in the money" value of the exchanged XXXXXXXXXX option held by an optionholder immediately before their cancellation will not exceed the combined aggregate "in the money" value of the new XXXXXXXXXX options immediately after the cancellation of the exchanged XXXXXXXXXX options. The FMV of a XXXXXXXXXX Common Share immediately before the cancellation of the exchanged XXXXXXXXXX options will be determined based on the weighted average prices of XXXXXXXXXX Common Shares on XXXXXXXXXX Stock Exchange for the ten trading days immediately preceding the effective time of Paragraph 53, including the Effective Date. For the purposes of determining the FMV of a share immediately after the cancellation of the exchanged XXXXXXXXXX options the FMV of a XXXXXXXXXX New Common Share will be determined based on the weighted average prices of XXXXXXXXXX New Common Shares on XXXXXXXXXX Stock Exchange for the ten trading days following the Effective Date.
As a result, in the case of each employee:
(i) the amount, if any, by which the total value of the XXXXXXXXXX New Common Shares which are, subject to the new XXXXXXXXXX options exceeds the total amount payable by the employee to acquire the new shares under the new options
will not exceed
(ii) the amount, if any, by which the total value of the XXXXXXXXXX Common Shares which are subject to the exchanged XXXXXXXXXX option exceeds the amount payable by the employee to acquire the XXXXXXXXXX Common Shares under the exchanged XXXXXXXXXX option.
Upon the exercise of options of XXXXXXXXXX, any entitlement to fractional shares on such exercise would be ignored, so that the optionholders entitlement to acquire shares at the new price would be rounded down to the next lowest whole number of shares.
54. Dissenting shareholders of XXXXXXXXXX who are entitled to be paid fair value for their XXXXXXXXXX Shares shall be deemed to have transferred their shares to XXXXXXXXXX for cancellation on the Effective Date prior to the implementation of the Proposed Transactions. Dissenting shareholders of XXXXXXXXXX who are entitled to be paid fair value for their XXXXXXXXXX Common Shares shall be deemed to have transferred their XXXXXXXXXX Common Shares to XXXXXXXXXX for cancellation on the Effective Date prior to the implementation of the Proposed Transactions. Both XXXXXXXXXX will pay for the shares of their respective dissenting shareholders in cash.
Post-Arrangement Transactions
55. XXXXXXXXXX each have adopted a shareholder rights plan. XXXXXXXXXX have covenanted and represented that their respective Board of Directors will take necessary action to ensure that the respective shareholder rights plans will not be triggered by the Plan of Arrangement transactions. XXXXXXXXXX will recommend to the XXXXXXXXXX Common Shareholders that they take such action as is necessary to waive the application of the XXXXXXXXXX shareholder rights plan to the Plan of Arrangement. Each of XXXXXXXXXX will amend their respective shareholder rights plans effective on the Effective Date.
In light of these shareholder rights plans, one contingent share purchase right will be attached to each of the XXXXXXXXXX Common Shares, XXXXXXXXXX Common Shares and XXXXXXXXXX New Common Shares. In the case of Paragraph 47, the contingent share purchase rights attached to each XXXXXXXXXX Common Share will be consolidated, similar to the consolidation of the XXXXXXXXXX Common Shares, pursuant to XXXXXXXXXX shareholder rights plan. In the case of Paragraph 52, pursuant to XXXXXXXXXX shareholder rights plan, the contingent share purchase rights attached to each XXXXXXXXXX Common Share will remain outstanding and will attach to each XXXXXXXXXX New Common Share.
The contingent share purchase rights issued under the XXXXXXXXXX shareholder rights plans do not trade separately from the related common shares and such rights do not have any material value, as it is not expected that any of these rights would ever become exercisable.
These contingent rights entitle holders to acquire shares at a substantial discount from market value upon the occurrence of a take-over bid other than a "permitted bid". The rights would not be exercisable by the person making such a bid.
PURPOSES OF THE PROPOSED TRANSACTIONS
56. The purposes of the Proposed Transactions is to:
(a) effect a combination ofXXXXXXXXXX including a combination of the XXXXXXXXXX businesses of XXXXXXXXXX for the benefit of the shareholders of XXXXXXXXXX; and
(b) effect the distribution of the XXXXXXXXXX Business to the XXXXXXXXXX Common Shareholders (which would then include former XXXXXXXXXX Common Shareholders), as a Canadian public company.
57. The combination of XXXXXXXXXX will, among other things, increase the ability of the merged entity to compete in the global marketplace in the XXXXXXXXXX business. The objective of the combination of XXXXXXXXXX is to achieve significant operating and capital cost savings from the increased flexibility of the XXXXXXXXXX business in Canada and from the coordination of other businesses in Canada and internationally. The distribution of the XXXXXXXXXX Business will create a separate XXXXXXXXXX company. At the corporate level, this separation will, among other things, accomplish the following:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
58. The specific purposes of certain of the proposed transactions are as follows:
(a) the transfer of the XXXXXXXXXX Shares and XXXXXXXXXX Shares to XXXXXXXXXX Holdco as described in Paragraph 34 is in order to simplify the implementation of the proposed transactions XXXXXXXXXX;
(b) the proposed transactions described in Paragraphs 35 to 37 are intended to utilize available capital losses of XXXXXXXXXX in order to increase XXXXXXXXXX ACB of the XXXXXXXXXX Holdco Common Shares;
(c) the use of Arrangeco as described in Paragraph 39 is intended to preclude the application of either section 85 or section 85.1 to the disposition by XXXXXXXXXX Common Shareholders of XXXXXXXXXX Common Shares, so that Arrangeco's cost of the XXXXXXXXXX Common Shares will be equal to their FMV; and
(d) the sale by XXXXXXXXXX of the XXXXXXXXXX Holdco Common Shares in return for the XXXXXXXXXX Note as described in Paragraph 44, and the set-off of such note against the First Dividend Note described in Paragraph 46, will simplify the implementation steps as compared to a sale by XXXXXXXXXX of the XXXXXXXXXX Holdco Common Shares for cash followed by a cash dividend of an equivalent amount.
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 provisions of subsection 85(1) will apply to the transfer of:
(a) the XXXXXXXXXX Shares and XXXXXXXXXX Shares by XXXXXXXXXX to XXXXXXXXXX Holdco described in Paragraph 34;
(b) the XXXXXXXXXX Holdco Common Shares by XXXXXXXXXX to XXXXXXXXXX described in Paragraph 35; and
(c) the XXXXXXXXXX Holdco Common Shares by XXXXXXXXXX to XXXXXXXXXX described in Paragraph 36
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) will not apply to such transfers.
B. XXXXXXXXXX will be entitled under paragraph 3(b) to deduct available allowable capital losses from the amount of the taxable capital gain realized on its disposition of the XXXXXXXXXX Holdco Common Shares, and XXXXXXXXXX will be entitled under paragraph 111(1)(b), to the extent permitted by section 111, to deduct its net capital losses in computing its taxable income.
This ruling is intended to make clear that XXXXXXXXXX may utilize any available allowable capital losses or net capital losses against any taxable capital gain realized by virtue of the transaction described in Paragraph 36, but is otherwise not intended to preclude Revenue Canada from auditing the availability or quantum of any such allowable capital losses or net capital losses.
C. XXXXXXXXXX will be considered to have disposed of the XXXXXXXXXX Holdco Common Shares described in Paragraph 37 to XXXXXXXXXX for FMV proceeds, and XXXXXXXXXX will be considered to have acquired such shares at a cost equal to such proceeds. XXXXXXXXXX will be entitled under paragraph 3(b) of the Act to deduct available allowable capital losses from the amount of the taxable capital gain realized on its disposition of the XXXXXXXXXX Holdco Common Shares, and XXXXXXXXXX will be entitled under paragraph 111(1)(b) of the Act, to the extent permitted by section 111, to deduct its net capital losses in computing its taxable income.
This ruling is intended to make clear that XXXXXXXXXX may utilize any available allowable capital losses or net capital losses against any taxable capital gain realized by virtue of the transaction described in Paragraph 37, but is otherwise not intended to preclude Revenue Canada from auditing the availability or quantum of any such allowable capital losses or net capital losses.
D. Provided that the XXXXXXXXXX Common Shareholders disposed of their shares to Arrangeco and receive XXXXXXXXXX Common Shares in exchange for the XXXXXXXXXX Common Shares held by the holders as described in Paragraph 39:
(a) the provisions of subsection 85.1(1) will not apply, so that the holders of XXXXXXXXXX Common Shares will dispose of their XXXXXXXXXX Common Shares for proceeds of disposition equal to the FMV of the XXXXXXXXXX Common Shares received in exchange;
(b) the cost to Arrangeco of the XXXXXXXXXX Common Shares acquired by Arrangeco will be equal to the FMV of the XXXXXXXXXX Common Shares on the Effective Date;
(c) on the issue of the XXXXXXXXXX Common Shares to the XXXXXXXXXX Common Shareholders, the PUC of the XXXXXXXXXX Common Shares will be increased by an amount equal to the FMV of the XXXXXXXXXX Common Shares on the Effective Date;
(d) the cost and PUC of the Arrangeco Common Shares issued to XXXXXXXXXX will be equal to the FMV of the XXXXXXXXXX Common Shares on the Effective Date; and
(e) the cost to the XXXXXXXXXX Common Shareholders of the XXXXXXXXXX Common Shares acquired by the XXXXXXXXXX Common Shareholders in the exchange will be equal to the FMV of such shares on the Effective Date.
E. Provided that a shareholder of XXXXXXXXXX who, immediately before the exchange of shares described in Paragraph 40, holds the XXXXXXXXXX Preferred Shares as capital property:
(a) deals at arm's length (otherwise than because of a right referred to in paragraph 251(5)(b)) with XXXXXXXXXX immediately before such share exchange;
(b) does not include any portion of the gain or loss, otherwise determined, from the disposition of those shares, in computing his income for the taxation year in which the share exchange take place;
(c) does not file an election under subsection 85(1) or 85(2) with XXXXXXXXXX with respect to those shares;
(d) does not receive any consideration (other than cash not exceeding $XXXXXXXXXX in lieu of fractional shares) other than XXXXXXXXXX New Preferred Shares in exchange for those shares;
and further, provided that immediately after the exchange,
(e) no such holder or persons with whom the holder does not deal at arm's length, or such holder together with persons with whom the holder does not deal at arm's length, will
(i) control XXXXXXXXXX, or
(ii) will beneficially own shares of XXXXXXXXXX having a fair market value of more than 50% of the fair market value of all the issued and outstanding shares of the capital stock of XXXXXXXXXX
then, pursuant to paragraph 85.1(1)(a), such holder will be deemed:
(f) to have disposed of his XXXXXXXXXX Preferred Shares for proceeds of disposition equal to the adjusted cost base to him of those shares immediately before the share exchange; and
(g) to have acquired the XXXXXXXXXX New Preferred Shares at a cost to him equal to the adjusted cost base to him of the XXXXXXXXXX Preferred Shares immediately before the share exchange; and
pursuant to paragraph 85.1(1)(b), the cost of each XXXXXXXXXX Preferred Share acquired by XXXXXXXXXX as a result of the exchange shall be deemed to be the lesser of its FMV immediately before the exchange and its PUC immediately before the exchange.
F. A holder of XXXXXXXXXX Preferred Shares, described in Paragraph 40, who receives XXXXXXXXXX New Preferred Shares and also receives cash instead of a fraction of a XXXXXXXXXX New Preferred Shares for the XXXXXXXXXX Preferred Shares held by him as capital property, either may:
(a) include the cash as proceeds of a partial disposition of the XXXXXXXXXX Preferred Shares held by him giving rise to a capital gain or loss; or
(b) be considered to have acquired his XXXXXXXXXX New Preferred Shares for amount equal to the ACB of his XXXXXXXXXX Preferred Shares less the amount of cash received.
G. On the acquisition of the XXXXXXXXXX Preferred Shares by Arrangeco described in Paragraph 40A, Arrangeco's cost of the XXXXXXXXXX Preferred Shares will be equal to the FMV of such shares at the time of the acquisition.
H. The provisions of subsection 51(1) will apply to the exchange by Arrangeco of the XXXXXXXXXX Preferred Shares that it holds for XXXXXXXXXX Common Shares as described in Paragraph 40B, with the result that:
(a) Arrangeco will be deemed not to have disposed of its XXXXXXXXXX Preferred Shares; and
(b) the cost to Arrangeco of the XXXXXXXXXX Common Shares received will be equal to the ACB of the XXXXXXXXXX Preferred Shares immediately before the exchange.
J. The provisions of subsections 84(1) and (3) will not apply to deem Arrangeco to have received a dividend as a result of the exchange described in Paragraph 40B.
K. The provisions of subsection 88(1) will apply on the winding-up of Arrangeco into XXXXXXXXXX as described in Paragraph 41 and for greater certainty:
(a) each property of Arrangeco distributed to XXXXXXXXXX on the winding-up will be deemed by paragraph 88(1)(a) to have been disposed of by Arrangeco for proceeds of disposition determined under that paragraph;
(b) the shares in the capital stock of Arrangeco held by XXXXXXXXXX immediately before the winding-up will be deemed by paragraph 88(1)(b) to have been disposed of by XXXXXXXXXX for proceeds determined under that paragraph; and
(c) each property of Arrangeco distributed to XXXXXXXXXX on the winding-up will be deemed to have been acquired by XXXXXXXXXX for an amount equal to the amount deemed by paragraph 88(1)(a) to be Arrangeco's proceeds of disposition of the property.
L. XXXXXXXXXX will realize a capital gain on the disposition of the XXXXXXXXXX Holdco Common Shares as described in Paragraph 44 equal to the amount by which the proceeds of disposition of such shares exceed the sum of XXXXXXXXXX ACB of such shares and any reasonable costs of disposition.
In the event that XXXXXXXXXX proceeds of disposition of the XXXXXXXXXX Holdco Common Shares exceed their FMV at the time of disposition, the provisions of subsection 69(1) will apply to deem XXXXXXXXXX to have acquired the XXXXXXXXXX Holdco Common Shares at the FMV of such shares at that time.
M. On the payment of the dividend on the XXXXXXXXXX Common Shares described in Paragraph 46, subsection 55(2) will not apply to deem any portion of the taxable dividend paid on the XXXXXXXXXX Common Shares to be proceeds of disposition.
N. The taxable dividend described in Ruling M above will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4).
Part IV.1 of the Act will not apply to the taxable dividend described in Ruling M above because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1.
Part VI.1 of the Act will not apply to the taxable dividend described in Ruling M above because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
O. The provisions of section 80 will not apply to the settlement by way of set-off of the XXXXXXXXXX Note and the First Dividend Note described in Paragraph 46 and neither XXXXXXXXXX nor XXXXXXXXXX will realize a gain or loss by virtue of such set-off.
P. The provisions of subsection 7(1.4) will apply to the exchange of stock options described in Paragraph 48 with the result that:
(a) a holder of a XXXXXXXXXX Stock Option will not be deemed to have received a benefit for the purposes of paragraph 7(1)(b) and no income inclusion will otherwise arise;
(b) a holder will be deemed not to have disposed of his XXXXXXXXXX Stock Options and not to have acquired the corresponding new XXXXXXXXXX options or new XXXXXXXXXX options for the purposes of section 7 and paragraph 110(1)(d); and
(c) a holder's new XXXXXXXXXX options and new XXXXXXXXXX options will be deemed to be the same as, and a continuation of, the exchanged XXXXXXXXXX options for the purposes of section 7 and paragraph 110(1)(d).
Q. On the payment of the dividend on the XXXXXXXXXX Common Shares described in Paragraph 49, subsection 55(2) will not apply to deem any portion of the taxable dividend paid on the XXXXXXXXXX Common Shares to be proceeds of disposition.
R. The taxable dividend described in Ruling Q above will pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4).
Part IV.1 of the Act will not apply to the taxable dividend described in Ruling Q above because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1.
Part VI.1 of the Act will not apply to the taxable dividend described in Ruling Q above because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).
S. The provisions of section 80 will not apply to the forgiveness of the Second Dividend Note described in Paragraph 49A and neither XXXXXXXXXX will realize a gain or loss by virtue of such set-off.
T. Provided that there is no change in the PUC of the XXXXXXXXXX Common shares, or in the interest, rights or privileges of XXXXXXXXXX on the consolidation of the XXXXXXXXXX Common Shares described in Paragraph 47:
(a) XXXXXXXXXX will not be regarded as having disposed of its XXXXXXXXXX Common Shares;
(b) XXXXXXXXXX aggregate ACB of the consolidated XXXXXXXXXX Common Shares will be equal to XXXXXXXXXX aggregate ACB of the XXXXXXXXXX Common Shares held by it immediately before the stock consolidation; and
(c) neither subsection 84(1) nor 84(3) will apply to deem XXXXXXXXXX to have received a dividend as a result of the stock consolidation.
U. Provided that the XXXXXXXXXX Common Shares constitute capital property to their holders (and for this purpose, where prior to the Proposed Transactions a XXXXXXXXXX Common Shareholder held XXXXXXXXXX Common Shares as capital property, the Proposed Transactions described herein will not in and of themselves cause XXXXXXXXXX Common Shares held by such a holder to not be considered capital property) and their holders do not make an election pursuant to subsection 85(1) with respect to the exchange described in Paragraph 52, subsection 86(1) will apply to the exchange with the result that:
(a) the cost to each XXXXXXXXXX Common Shareholder of the XXXXXXXXXX Common Shares received on the reorganization of the capital of XXXXXXXXXX will be deemed by paragraph 86(1)(a) to be equal to the FMV of such shares;
(b) the cost to each XXXXXXXXXX Common Shareholder of the XXXXXXXXXX New Common Shares received on the reorganization of the capital of XXXXXXXXXX will be deemed by paragraph 86(1)(b) to be equal to the amount, if any, by which the holder's ACB of the XXXXXXXXXX Common Shares exceeds the FMV of the XXXXXXXXXX Common Shares received on the reorganization and the amount of other non-share consideration received in lieu of fractional shares;
(c) each XXXXXXXXXX Common Shareholder will be deemed by paragraph 86(1)(c) to have disposed of his XXXXXXXXXX Common Shares for proceeds of disposition equal to the aggregate cost to the XXXXXXXXXX Shareholder of the XXXXXXXXXX New Common Shares and the XXXXXXXXXX Common Shares received by the XXXXXXXXXX Shareholder and the amount of other non-share consideration received in lieu of fractional XXXXXXXXXX shares; and
(d) XXXXXXXXXX will be considered to have disposed of the XXXXXXXXXX Common Shares for proceeds of disposition equal to the FMV of the XXXXXXXXXX Common Shares at the time of the reorganization. The provisions of subsection 112(3) will apply to reduce any loss that otherwise would arise if such proceeds of disposition are less than XXXXXXXXXX ACB of the XXXXXXXXXX Common Shares.
V. The provisions of subsections 84(1) and (3) will not apply to deem a holder of XXXXXXXXXX Common Shares to have received a dividend as a result of the reorganization described in Paragraph 52.
W. The provisions of subsection 7(1.4) will apply to the exchange of stock options described in Paragraphs 53(a) and (b) above with the result that:
(a) a holder of a XXXXXXXXXX Stock Option will not be deemed to have received a benefit for the purposes of paragraph 7(1)(b) and no income inclusion will otherwise arise;
(b) a holder will be deemed not to have disposed of his XXXXXXXXXX Stock Options and not to have acquired the corresponding new XXXXXXXXXX options for the purposes of section 7 and paragraph 110(1)(d); and
(c) a holder's new XXXXXXXXXX options will be deemed to be the same as, and a continuation of, the exchanged XXXXXXXXXX options for the purposes of section 7 and paragraph 110(1)(d).
X. There will be no acquisition of control, for the purposes of the provisions set out in the preamble to subsection 256(7), of XXXXXXXXXX, solely as a result of the transactions described in Paragraph 52 provided that there is no person or group of persons who will exercise control of XXXXXXXXXX immediately after the disposition of the XXXXXXXXXX Common Shares by XXXXXXXXXX.
Y. A XXXXXXXXXX Shareholder or XXXXXXXXXX Common Shareholder who dissents to the Plan of Arrangement, and who, pursuant to court order under the XXXXXXXXXX and CBCA, is given rights of dissent, will, subject to the application of subsection 55(2), be deemed by paragraph 84(3)(b) to have received a taxable dividend equal to the amount by which the cash amount received by such dissenting shareholder from XXXXXXXXXX or XXXXXXXXXX (other than an amount in respect of interest awarded by a court) for such shareholder's shares, as described in Paragraph 54, exceeds the PUC of such shares.
Pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, the proceeds of disposition in respect of the XXXXXXXXXX Common Shares or XXXXXXXXXX Common Shares received by such dissenting shareholder will be reduced by the amount of the dividend so deemed to have been received, to the extent subsection 55(2) does not apply to such dividend.
Z. The provisions of subsection 55(2) will apply to a dividend described in Ruling Y above, received by a corporation resident in Canada in respect of which the corporation is entitled to a deduction under subsection 112(1) or 138(6), other than the portion of the dividend, if any, subject to tax under Part IV that is not refunded as a consequence of the payment of a dividend to a corporation where the payment is part of a series of transactions or events that include the payment of a dividend described in Ruling Y.
AA. Provided that the XXXXXXXXXX New Common Shares and the XXXXXXXXXX Common Shares transferred to holders of XXXXXXXXXX New Common Shares are listed on a prescribed stock exchange, such shares will be a "qualified investment":
(a) for a deferred profit sharing plan by virtue of paragraph (d) of the definition of "qualified investment" in section 204;
(b) for a registered retirement savings plan by virtue of paragraph (a) of the definition of "qualified investment" in subsection 146(1); and
(c) for a registered retirement income fund by virtue of paragraph (a) of the definition of "qualified investment" in subsection 146.3(1).
BB. The provisions of subsections 15(1), 56(2) and 246(1) will not be applied as a result of the proposed transactions, in and by themselves. This Ruling does not apply to the transactions described in Paragraph 38(e).
CC. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
OPINIONS
1.
XXXXXXXXXX
2. In the event that the proposed amendment to paragraph 256(7)(c) is enacted as proposed in Bill C-28 in the form which was passed by the House of Commons on April 21, 1998, it is our opinion that the issuance of XXXXXXXXXX Common Shares to the XXXXXXXXXX Common Shareholders, as described in Paragraph 39, will result in an acquisition of control of XXXXXXXXXX and each corporation controlled by XXXXXXXXXX immediately before the issuance for the purposes of provisions set out in the preamble to subsection 256(7), in the event that, if the XXXXXXXXXX shares issued to the XXXXXXXXXX Common Shareholders were acquired by one person, that person would control XXXXXXXXXX.
The foregoing opinions are not rulings and, in accordance with the practice referred to in Information Circular 70-6R3, are not binding on Revenue Canada.
1. 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.
2. There will be an acquisition of control, for the purposes of provisions set out in the preamble to subsection 256(7), of XXXXXXXXXX, as a result of the transaction described in Paragraph 39.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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.../cont'd
.../cont’d
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