2005 Ruling 2005-0126121R3 - 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.

Principal Issues: Changes to ruling

Position: Ruling modified

Reasons: Changes do not affect validity of rulings given.

XXXXXXXXXX 2005-012612

XXXXXXXXXX, 2005

Dear Sir:

Re: Advance Income Tax Ruling 2004-007098 dated XXXXXXXXXX, 2005 ("the Ruling")
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX requesting certain changes to the Ruling. Capitalized terms used in this letter have the meanings given to them in the Ruling.

Changes to DEFINITIONS

Add the following paragraphs to the DEFINITIONS section:

(a.1) "Adjusted Equity" means the stated capital and retained earnings of Opco determined and adjusted as set out in paragraph 23 of Interpretation Bulletin IT-533;

(gg.1) "Trust Notes, Series One" means the promissory notes of Opco described in Paragraph 38.4;

Changes to PROPOSED TRANSACTIONS

1. In Paragraph 24 add the words "and other senior indebtedness for borrowed money" to the end of the last sentence of that Paragraph.

2. The transactions described in Paragraphs 21 and 22 will be carried out after the transactions described in Paragraphs 23 to 25.

3. Add the following Paragraphs following Paragraph 38:

38.1 Opco will borrow from an arm's-length lender or lenders an amount of money that will not exceed the amount of Opco's Adjusted Equity at that time.

38.2 Opco will use the money borrowed, as described in Paragraph 38.1, to effect a return of capital and the payment of a dividend to AcquisitionCo.

38.3 Acquisitionco will use the money received from Opco, as described in Paragraph 38.2, to repay to the Trust a portion of the principal amount outstanding in respect of the Trust Notes.

38.4 The Trust will then advance the money received from Acquisitionco, as described in Paragraph 38.3, to Opco in consideration for promissory notes of Opco (the " Trust Notes, Series One") having a principal amount equal to the amount of money advanced and having terms and conditions that are otherwise identical to those of the Trust Notes.

38.5 Opco will use the money advanced to it by the Trust, as described in Paragraph 38.4, to repay the indebtedness to the lender or lenders described in Paragraph 38.1.

Changes to ADDITIONAL INFORMATION

Paragraphs 46 to 48 are deleted and replaced by the following.

46. In computing its income for its taxation year commencing on XXXXXXXXXX and ending, by virtue of paragraph 249(4)(a), at the time immediately before the time that Acquisitionco will acquire control of Opco as a result of the transaction described in Paragraph 23 (the "Initial XXXXXXXXXX Year"), Opco will deduct the maximum amount that it is entitled to deduct under XXXXXXXXXX (the "Initial XXXXXXXXXX Year Claim").

47. In computing its income for its taxation year commencing at the time determined by paragraph 249(4)(b), and ending on XXXXXXXXXX, Opco will limit its deduction under XXXXXXXXXX (the "Second XXXXXXXXXX Year Claim") to the difference between (a) the amount that it could have claimed in its Initial XXXXXXXXXX Year had such claim not been restricted by XXXXXXXXXX the Initial XXXXXXXXXX Year Claim, plus (c) any amount that it is entitled to deduct under XXXXXXXXXX in respect of any acquisition, in that taxation year, by Opco of a XXXXXXXXXX from a person with whom it deals at arm's length.

48. Without restricting the generality of Paragraphs 46 and 47, Opco agrees to compute its income in the taxation years that will together encompass the XXXXXXXXXX calendar year by deducting no more under XXXXXXXXXX than the amount that it could have deducted under that subsection had it not acquired the Mature Properties from the Partnership, with such claim being restricted in accordance with XXXXXXXXXX Opco's projections are that its XXXXXXXXXX balance at XXXXXXXXXX will be approximately $XXXXXXXXXX . Based on such projections (and assuming that the transaction described in Paragraph 23 occurs on XXXXXXXXXX such that Opco would have a taxation year ending on XXXXXXXXXX), Opco's Initial XXXXXXXXXX Year Claim would be approximately $XXXXXXXXXX and Opco's Second XXXXXXXXXX Year Claim would be approximately $XXXXXXXXXX of XXXXXXXXXX from a person with whom it deals at arm's length in that taxation year.

Changes to RULINGS GIVEN

Ruling D is deleted and replaced with the following:

D. Provided that Opco (and subsequent to the amalgamation described in Paragraph 44, Amalco) has a legal obligation to pay interest on the Acquisition Note and on the Trust Notes, Series One, and provided that the Mature Assets continue to be held by Opco (or Amalco) for the purpose of gaining or producing income (other than income which would be exempt), Opco (or Amalco) will be entitled to deduct, in computing its income for a taxation year, the lesser of the interest paid or payable on the Acquisition Note and the Trust Notes, Series One in respect of that taxation year or a reasonable amount in respect thereof pursuant to paragraph 20(1)(c).

Confirmation

Notwithstanding the above changes, we confirm that the rulings given in the Ruling, as modified by this letter, will continue to be binding on the Canada Revenue Agency subject to the same limitations and qualifications set out therein.

Yours truly,

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