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Joint Committee suggests issues for consideration in drafting the new employee stock option restriction rules

16 May 2019- 1:47am Joint Committee suggests issues for consideration in drafting the new employee stock option restriction rules Email this Content The Joint Committee has provided comments on the 2019 Budget proposals to align Canada’s employee stock option rules with those in the U.S. through applying a $200,000 annual cap on employee stock option grants (based on the fair market value of the underlying shares) that may receive tax-preferred treatment for employees of large, long-established, mature firms (i.e., the s. 110(1)(d) deduction). ...

The new s. 18.2 interest-limitation rules require careful consideration before their implementation

16 February 2022- 11:17pm The new s. 18.2 interest-limitation rules require careful consideration before their implementation Email this Content Observations on the draft s. 18.2 rules (supplemented by the elective rules in draft s. 18.21) for limiting a taxpayer’s interest and financing expenses net of its interest and financing revenues that are deductible in computing its income to a fixed ratio (ultimately 30%) of the taxpayer’s adjusted taxable income (“ATI”) (essentially, tax-basis EBITDA) include: It is unclear whether the rules apply to computing the income of a foreign affiliate, which is generally deemed by s. 95(2)(f) to be a Canadian resident for FAPI-computation purposes “except to the extent that the context otherwise requires.” ...

Filo/ BHP/ Lundin -- summary under Shares for Shares and Cash

Consideration for Filo shares Filo shareholders (other than those dissenting and the BHP/Lundin purchaser parties or their affiliates) will receive, as consideration for their shares, at their election: (i) $33.00 in cash for each Filo Share (the “Cash Consideration”), or (ii) 2.3578 Lundin Mining Shares for each Filo Share held (the Share Consideration), plus for each whole Lundin Mining Share issued to such shareholder, $0.0001 in cash (the “Share Consideration Cash”), or (iii) a combination of (i) and (ii) in exchange for the aggregate number of Filo Shares in respect of which such election is made. The Cash Consideration and Share Consideration are subject, in each case, to pro-ration based on a maximum cash consideration of approximately $2,767 million (the sum of the Maximum BHP Cash and the Maximum Lundin Mining Cash) and a maximum of approximately 92.1 million Lundin Mining Shares (the Maximum Share Consideration). ... All Filo shares held by BHP will be transferred to JVCo in consideration for a specified number of JVCo shares. ...

Brookfield Infrastructure/Enercare -- summary under Exchangeable Units

Unit Election Each Canadian Shareholder may elect: to receive from the Purchaser the Cash Consideration for each of its Common Share; or to receive from Exchange LP (A) the Unit Consideration for each of its Common Shares, or (B) the Unit Consideration per Common Share for certain of its Common Shares and the Cash Consideration per Common Share for the balance of its Common Shares (a "Unit Election").An Electing Canadian Shareholder can elect for a portion of the amount payable under the Arrangement as Cash Consideration and a portion as Unit Consideration. ... Canadian tax considerations BIP BIP is not a "SIFT partnership" as defined in s.197(1) based on the understanding that BIP is not a "Canadian resident partnership." Cash consideration A Resident that receives Cash Consideration from the Purchaser in exchange for its Common Shares under the Arrangement will realize a capital gain (or a capital loss) equal to the amount by which the aggregate cash payment exceeds (or is less than) the aggregate of the adjusted cost base to the Resident Holder of such Common Shares and any reasonable costs of disposition. ...

ExxonMobil/InterOil -- summary under Canadian Buyco

The consideration for each InterOil share consists of that number of ExxonMobil shares having a fixed value of U.S.$45.00 per share (or U.S.$2.3B in total), plus a cash payment of U.S.$26.87 per share (or U.S.$1.37B in total). ... Each Common Share will be transferred to AcquisitionCo in exchange for the Consideration (i.e., ExxonMobil shares and the CRP), and the payment of the CRP portion of the Consideration will be satisfied by the delivery thereof by AcquisitionCo to the Escrow Agent in accordance with the terms of the CRP Agreement. ... U.S. tax considerations The amount, timing and character of any gain, income or loss with respect to the CRP Rights are uncertain. ...

Carrie Smit, "Amendments to 'Bump' Rules May Permit Foreign Shares as Deal Consideration", International Tax, No. 68, February 2013, p.1 -- summary under Subparagraph 88(1)(c.3)(i)

Carrie Smit, "Amendments to 'Bump' Rules May Permit Foreign Shares as Deal Consideration", International Tax, No. 68, February 2013, p.1-- summary under Subparagraph 88(1)(c.3)(i) Summary Under Tax Topics- Income Tax Act- Section 88- Subsection 88(1)- Paragraph 88(1)(c.3)- Subparagraph 88(1)(c.3)(i) … where a foreign purchaser ("Forco") sets up a Canadian acquisition corporation ("Bidco") to acquire a Canadian target company ("Canco"), and the consideration to be paid for the Canco shares includes Forco shares, the tax cost bump will not be precluded provided that not more than 10% of the value of the Forco shares is attributable to Canco's property. … From a practical perspective, the Bump Amendment favours larger foreign purchasers (which are substantially more valuable than the Canadian target company) over smaller foreign purchasers. … It is not entirely clear, however, how the timing in the Bump Amendment is intended to apply. ... If the consideration paid for the Canco shares includes Forco shares, and less than 10% of the value of those Forco shares is attributable to Canco's property at the time of the acquisition, does it matter if values fluctuate and, at a later point in time, more than 10% of the value of the Forco shares is attributable to Canco's property? ... In order to preclude the bump, the Substituted Property must be acquired as part of the same series of transactions or events that includes the winding-up of Canco (the Forco shares issued as consideration for the Canco shares would clearly satisfy this series requirement where they are the actual deal consideration). ...

Angelo Nikolakakis, Alain Léonard, "The Acquisition of Canadian Corporations by Non-Residents: Canadian Income Tax Considerations Affecting Acquisition Strategies and Structure, Financing Issues, and Repatriation of Profits", 2005 Conference Report (Canadian Tax Foundation), 21:1-61, at 21:24-25: -- summary under Paragraph 88(1)(c.4)

Angelo Nikolakakis, Alain Léonard, "The Acquisition of Canadian Corporations by Non-Residents: Canadian Income Tax Considerations Affecting Acquisition Strategies and Structure, Financing Issues, and Repatriation of Profits", 2005 Conference Report (Canadian Tax Foundation), 21:1-61, at 21:24-25:-- summary under Paragraph 88(1)(c.4) Summary Under Tax Topics- Income Tax Act- Section 88- Subsection 88(1)- Paragraph 88(1)(c.4) Policy for exclusion of shares or debt of foreign corporations (p. 280) Why is it that shares of a non-resident Bidder should not constitute "specified property"? ... The Department of Finance may be considering whether or not it should be concerned about transactions by which non-Canadian assets are removed from Canadian corporate solution against tax attributes generated by consideration paid in foreign equity instead of cash or Canadian equity. At least with share consideration issued by a Canadian Bidder, the assets remain in Canadian corporate solution. ...

Michael Firth, Eric Reolon, "A Seven-Year (Retroactive) Plague on Cross-Border Reinsurance", Canadian GST Monitor, No. 283, April 2012, p.1: "Early experience has been that CRA will examine reinsurance [between a non-resident re-insurer and its Canadian affiliate] on a contract-by-contract basis, and identify loading content as anywhere between a third of the premium and its entire value." -- summary under Qualifying Consideration

"-- summary under Qualifying Consideration Summary Under Tax Topics- Excise Tax Act- Section 217- Qualifying Consideration ...

Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35. -- summary under Subsection 21(1)

Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.-- summary under Subsection 21(1) Summary Under Tax Topics- Income Tax Act- Section 21- Subsection 21(1) Capitalization of financing costs (p. 10:22) [S]ubsection 21(1) allow[s] a taxpayer to capitalize certain costs of financing to any related depreciable property acquired with the borrowed funds. Consideration should be given to capitalizing paragraph 20(1)(e) costs to the related capital property based on this elective provision. ...

Janette Pantry, Carrie Smit, "Tax Considerations in Restructuring under the Companies’ Creditors Arrangement Act", draft 2020 CTF Annual Conference paper -- summary under Subsection 79(2)

Janette Pantry, Carrie Smit, "Tax Considerations in Restructuring under the Companies’ Creditors Arrangement Act", draft 2020 CTF Annual Conference paper-- summary under Subsection 79(2) Summary Under Tax Topics- Income Tax Act- Section 79- Subsection 79(2) Description of credit bid (pp. 11-12) Under a credit bid, which allows an existing secured creditor to bid up to the full face amount of their secured debt claim as currency for the acquisition of the debtor’s assets, the secured debt may be transferred by the secured creditors to a newly-established “CreditBidCo” in consideration for equity, so that CreditBidCo then acquires the debtor’s assets (and assumes some operating liabilities), with the full amount of its secured debt claim being extinguished. ... Greater certainty on s. 79 not applying may be achieved with a three-party arrangement under which CreditBidCo would directly acquire the debtor’s assets, and in consideration it would issue its shares to the secured creditors who would agree to the extinguishment of their debt claims against the debtor. ...

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