2002 Income Tax Severed Letter 2002-0133871 - Supplemental Ruling

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Supplemental Ruling to Ruling 2001-009166. The taxpayer requested some minor changes to the facts and proposed transactions of the original ruling.

Position: N/A

Reasons: N/A

XXXXXXXXXX 2002-013387

XXXXXXXXXX , 2002

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your fax of XXXXXXXXXX, and prior and subsequent emails, wherein you describe changes to the facts and proposed transactions described in our letter dated XXXXXXXXXX, 2002 (the "Ruling").

Terms defined in the Ruling as having a certain meaning have the same meaning when used in this letter.

As a result of your correspondence, the following changes are made to the Ruling:

1. Paragraph 60 is amended to read as follows:

" Aco may sell some XXXXXXXXXX Shares or XXXXXXXXXX shares of Jco prior to the transfers of property to the Siblings' Subs described in Paragraph 68 below to ensure that Aco has sufficient cash to effect the transfers of property to the Siblings' Subs described in Paragraph 68 below and to generate sufficient gains to utilize some or all of the unutilized charitable donation credits or deductions available to Aco. Any such sales would be for cash and would be over the stock exchanges on which the XXXXXXXXXX Shares or the XXXXXXXXXX shares of Jco trade. "

2. The following sentence is added following the first sentence of Paragraph 66.1:

" At that time, Amalco will also transfer some minor furniture and fixtures to Employeeco. "

3. Paragraph 67 is amended to read as follows:

" Amalco will effect a series of increases in the stated capital of the Amalco Class XXXXXXXXXX Preference Shares, the aggregate amount of which will be equal to a portion of the balance in Amalco's CDA immediately before the time of the commencement of such stated capital increases. Amalco will elect, in prescribed form and within the time referred to in subsection 83(2), to have the rules in subsection 83(2) apply to the full amount of any resulting deemed dividends. "

4. The last paragraph of Paragraph 68 is amended as follows:

" Amalco and each Sibling's Sub will elect, jointly and in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of one or more of the eligible properties transferred by Amalco to such Sibling's Sub as described in this Paragraph. The agreed amount in respect of each property in respect of which a joint election is made will not be less than the lesser of the cost amount to Amalco of the particular property and the FMV of the particular property at the time of the transfer, provided, however, the agreed amount in respect of any particular property will not be less than $XXXXXXXXXX. The agreed amount may exceed the cost amount in order to generate sufficient gains to utilize some or all of the unutilized charitable donation credits or deductions available to Aco. "

5. Following the last paragraph of Paragraph 68, as amended in paragraph 4 above, the following new paragraph is added:

" In connection with securing the consent of Fco to the proposed transactions, prior to the transfers of property to the Siblings' Subs described in this Paragraph, the secured and unsecured, short and long-term indemnities in favour of Fco in connection with the disposition of Gco to Fco (see Paragraph 48 above) will be amended so that Aco and Father will indemnify Fco for all or a portion of any losses in respect of certain litigation involving Gco. Also, Fco will not consent to the novation of these secured and unsecured, short and long-term indemnities in favour of Fco in connection with the disposition of Gco to Fco, and, accordingly, there will not be a novation of such indemnities."

6. The last paragraph of Paragraph 73 is amended to read as follows:

" As consideration for the transfers of property described above, each Sibling will issue to its respective Holdco a non-interest-bearing demand promissory note with a principal amount equal to the FMV, on the Determination Date, of the XXXXXXXXXX Shares transferred to the Sibling in the transfers described in this Paragraph. "

7. The penultimate paragraph of Paragraph 74 is amended to read as follows:

" As consideration for such sales, Father will pay cash or issue a non-interest-bearing promissory note (payable according to its terms) to each Sibling in an amount to be agreed upon among Aco, Father, the Siblings and the Holdcos prior to the transfers of property to the Siblings' Subs described in Paragraph 68 above, which amount will be equal to their best estimate, on the Determination Date, of the aggregate amount of the tax liability of such Sibling and such Sibling's Holdco referred to in this Paragraph. "

8. Subparagraph 75(d) is amended to read as follows:

" (d) pay cash or issue a non-interest-bearing promissory note (payable according to its terms) to each Sibling's Holdco in an amount to be agreed upon among Aco, Father, the Siblings and the Holdcos prior to the transfers of property to the Siblings' Subs described in Paragraph 68 above, which amount will be equal to their best estimate, on the Determination Date, of the amount referred to in Subparagraph (a) above. "

9. Paragraph 85 is amended to read as follows:

" The proposed transactions described in Paragraphs 57 through 61 above will occur in any order (except that the proposed transaction described in Paragraph 61 above will occur after the proposed transaction described in Paragraph 59 above), on one or more days before the date agreed to by the parties as the date for effecting the transfers of property to the Siblings' Subs described in Paragraph 68 above (the "Effective Date"), (other than the transfer of legal title to a particular Real Property, which may occur on the Effective Date). The proposed transactions described in Paragraphs 62 through 75 above will occur in the order in which they are set out above on the Effective Date (except that the proposed transactions described in Paragraph 67 above will occur immediately after the proposed transactions described in Paragraph 68 above), and the agreements referred to in Paragraph 77 above may also be entered into on the Effective Date. The proposed donations described in Paragraph 76 above will occur further to the demands made by the Foundation or Father, from time to time following the Effective Date, for contributions in specified amounts, not to exceed, in aggregate, the amount specified in Paragraph 76 above in respect of Bco (or its successor corporations) and each Sibling's Holdco. The proposed transactions described in Paragraphs 78 through 84 above may occur in any order on one or more days after the Effective Date. "

We confirm that the Canada Customs and Revenue Agency will continue to be bound by the rulings given in the Ruling, notwithstanding the changes described above.

Yours truly,

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