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: An XXXXXXXXXX corporation wholly-owned by one individual will gift a portfolio of publicly traded shares to a private foundation. The private foundation is a XXXXXXXXXX of which the individual is the sole director, and a company wholly-owned by that individual is the sole member of the company.
Position: The transfer is a gift for the purposes of 110.1(1)(a).
Reasons: The facts. The transfer is made without consideration to a registered charity.
XXXXXXXXXX 2000-005781
Attention: XXXXXXXXXX
XXXXXXXXXX, 2001
Dear Sirs:
Re: Advance income tax ruling request:
XXXXXXXXXX ("X"), XXXXXXXXXX ("X Co.") and its
successors, and XXXXXXXXXX ("Z Co."), a company to be incorporated
pursuant to the XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you request an advance tax ruling on behalf of the above named taxpayers. We also acknowledge the information provided in your subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request
(i) is in an earlier return of the taxpayers or any related person,
(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of any of the taxpayers or any person related to any of the taxpayers,
(iii) is under objection by any of the taxpayers or any person related to any of the taxpayers,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended ("the Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the relevant facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. X Co. was incorporated under the Business Corporations Act (XXXXXXXXXX), XXXXXXXXXX. Its Business Number is XXXXXXXXXX, its Tax Services Office is the XXXXXXXXXX Tax Services Office and its Tax Centre is located in XXXXXXXXXX.
2. X is an individual resident at XXXXXXXXXX. His Social Insurance Number is XXXXXXXXXX, his Tax Services Office is the XXXXXXXXXX Tax Services Office and his Tax Centre is located in XXXXXXXXXX.
3. Since XXXXXXXXXX, the sole shareholder of X Co. has been X who presently owns XXXXXXXXXX Common Shares and XXXXXXXXXX Preferred Shares in the capital of X Co. Since XXXXXXXXXX no person has had a right under contract, in equity or otherwise, either immediately or in the future, and either absolutely or contingently, to or to acquire shares or capital of X Co.. X Co. is a "Canadian controlled private corporation" within the meaning of subsection 125(7). Since incorporation, X has been the sole director of X Co. and President/Secretary-Treasurer.
4. X Co. is the registered and beneficial owner of, among other assets, XXXXXXXXXX Shares in the capital of XXXXXXXXXX ("A Co."). The XXXXXXXXXX Shares in the capital of A Co. are traded on the XXXXXXXXXX Stock Exchange in Canadian dollars. The aggregate of the adjusted cost bases, within the meaning of section 54, of the XXXXXXXXXX Shares in the capital of A Co. to X Co. is $XXXXXXXXXX; the aggregate fair market value of the XXXXXXXXXX Shares in the capital of A Co. at close on XXXXXXXXXX was $XXXXXXXXXX (Canadian dollars) or $XXXXXXXXXX. It is expected that the fair market value of each XXXXXXXXXX Share in the capital of A Co. will exceed the adjusted cost base of each XXXXXXXXXX Share of A Co. to X Co. at all times material to the proposed transactions.
5. X Co. owns other publicly-traded securities. The principal business of X Co. is that of XXXXXXXXXX. Currently, X Co. owns less than XXXXXXXXXX% of the shares of any company in which it has invested.
6. X personally owns less than XXXXXXXXXX% of the shares of any company in which X Co. has invested.
7. XXXXXXXXXX ("Y Co.") was incorporated under the Business Corporations Act (XXXXXXXXXX) on XXXXXXXXXX. Since incorporation, the sole shareholder of Y Co. has been X who presently owns XXXXXXXXXX Common Shares. Since incorporation, no person (other than X) has had a right under contract, in equity or otherwise, either immediately or in the future, and either absolutely or contingently, to or to acquire shares or capital of Y Co..
8. Y Co. is a "Canadian controlled private corporation" within the meaning of subsection 125(7). Since incorporation, X has been the sole director of Y Co. and President/Secretary-Treasurer.
9. The principal business of Y Co. is that of XXXXXXXXXX.
Proposed Transactions
10. It is proposed that X Co. and Y Co. amalgamate under the provisions of the Business Corporations Act (XXXXXXXXXX) to form a new company ("Amalco"). The only shareholder of Amalco will be X. X will be the sole director and only officer of Amalco.
11. It is proposed that XXXXXXXXXX ("Z Co.") be incorporated XXXXXXXXXX within the meaning of the XXXXXXXXXX. The sole director of Z Co. will be X and there will be one initial member, a corporation to be incorporated under the Business Corporations Act (XXXXXXXXXX), all the shares of which will be owned by X. Each member of Z Co. will limit its liability to $XXXXXXXXXX.
12. The objects and powers of Z Co. will be restricted as follows:
1) to create, administer and operate a fund, funds, and/or various sub-funds, to be used exclusively for the relief of poverty, charitable or educational purposes, to apply and distribute all or part of the funds of the Company and the income therefrom for the relief of poverty, charitable and educational purposes;
2) to solicit, accept, receive, acquire by purchase, lease, agreement, grant, donation, gift, devise, bequest or otherwise, any kind of real or personal property and to apply such property to the realization of the objects of the Company and to enter into and carry out agreements, undertakings and conditions in connection therewith;
3) to buy, hold, lease, mortgage, sell and convey such real and personal property as may be necessary or desirable in the carrying out of the objects of the Company;
4) to invest and deal with monies of the Company not immediately required in such manner as may, from time to time, be determined;
5) to sell or dispose of its undertaking or a substantial part thereof;
6) to amalgamate with any company or other body of persons; and
7) to do all such other acts and things as are necessary, incidental or beneficial to the foregoing objects.
PROVIDED THAT that the Company shall not enter into any transaction, carry on any activity, or engage in any business for profit and all income received by the Company shall be applied exclusively to the purposes and objects of the Company, and no part thereof shall payable to or otherwise available for the personal benefit of the incorporator, any director or member of the Company, and PROVIDED further that, in the event of liquidation, dissolution or winding-up of the Company, the surplus assets, if any, after all liabilities of the Company have been paid, shall not be distributed to the incorporator, any director or member of the Company, but shall be transferred to one or more registered charities in Canada that include objects which are the same or substantially similar to the objects of the Company.".
13. The Memorandum and Articles of Association of Z Co. will further provide that in no event shall X receive any remuneration, salary or payment whatsoever (except out-of-pocket expenses in the execution of his duties) as a director, managing director or officer.
14. Z Co. will apply to Canada Customs and Revenue Agency to be registered as a "private foundation" within the meaning of section 149.1 of the Act. After Z Co. is registered as a private foundation, Amalco will transfer to Z Co. XXXXXXXXXX Shares in the capital of A Co. (the "Transferred Shares") on direction to the effect that the property given, or the property substituted therefor, is to be held by Z Co. for a period of not less than XXXXXXXXXX years.
15. Z Co. will issue to Amalco a receipt ("the Receipt") containing that information prescribed in section 3501 of the Income Tax Regulations.
16. Amalco will not make any designation pursuant to subsection 110.1(3) of the Act with respect the Transferred Shares. Amalco will file with the Minister the Receipt.
Purpose of Proposed Transactions
X intends to transfer all of the assets currently owned by X Co. to Z Co. over time on an endowment basis. Due to differing corporate reporting requirements, it is desirable that Z Co. be established in the Province of XXXXXXXXXX.
Rulings requested and given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our rulings are as follows.
We confirm that:
A. Provided that Z Co. is registered as a "private foundation" within the meaning of section 149.1 of the Act, the transfer of the Transferred Shares by Amalco to Z Co. will constitute a gift for the purposes of paragraph 110.1(1)(a) of the Act.
Nothing in this advance income tax ruling should be construed as implying that we are ruling on the eligibility of Z Co. for registration as a private foundation within the meaning of section 149.1 of the Act or as confirming the fair market value ascribed to the Transferred Shares for the purposes of the Receipt, as described in paragraph 15.
The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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