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: Whether a proposed reorganization meets the requirements under paragraph 55(3)(b)?
Position: Yes.
Reasons: It meets the requirements of the law.
XXXXXXXXXX 2005-014249
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, wherein your requested an advance income tax ruling on behalf of the above-noted taxpayers. We acknowledge our numerous telephone conversations in respect of this ruling.
To the best of your knowledge and that of the taxpayers, none of the issues in this ruling is:
(i) in an earlier return of any of the taxpayers or a related person;
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the taxpayers or a related person;
(iii) under objection by any of the taxpayers or a related person;
(iv) before the courts; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
DEFINITIONS
In this letter, unless otherwise expressly stated, the following terms have the meanings specified:
(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) XXXXXXXXXX
(b.1) "adjusted cost base" ("ACB") has the meaning assigned by section 54;
(c) "arm's length" has the meaning assigned by section 251;
(d) "agreed amount" in respect of a property means the amount that the transferor and transferee have agreed upon in an election under subsection 85(1);
(e) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);
(f) "CBCA" means the Canada Business Corporations Act and, where applicable, its predecessor statutes;
(g) "cost amount" has the meaning assigned by subsection 248(1);
(h) "capital dividend account" has the meaning assigned by subsection 89(1);
(i) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(j) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);
(k) "FMV" means fair market value;
(l) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(m) "paid-up capital" ("PUC") has the meaning assigned by subsection 89(1);
(n) "principal amount" has the meaning assigned by subsection 248(1);
(o) "private corporation" has the meaning assigned by subsection 89(1);
(p) "proposed transactions" means the transactions described in paragraphs 22 to 35 below;
(q) "public corporation" has the meaning assigned by subsection 89(1);
(q.1) "refundable dividend tax on hand" ("RDTOH") has the meaning assigned by subsection 129(3);
(r) "related persons" has the meaning assigned by subsection 251(2);
(s) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);
(t) "significant influence" has the meaning assigned by section 3050 of the CICA Handbook;
(u) "specified financial institution" has the meaning assigned by subsection 248(1);
(v) "specified investment business" has the meaning assigned by subsection 125(7);
(w) "stated capital" has the meaning assigned by the CBCA;
(x) "stated capital account" has the meaning assigned by XXXXXXXXXX;
(y) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
(z) "taxable dividend" has the meaning assigned by subsection 89(1); and
(aa) "taxable preferred share" has the meaning assigned by subsection 248(1).
Our understanding of the facts, purposes of the proposed transactions and proposed transactions is as follows:
FACTS
1. XXXXXXXXXX. ("DC") is a taxable Canadian corporation and a CCPC. DC was incorporated under the provisions of the CBCA in XXXXXXXXXX as a holding company.
2. DC's principal assets consist of XXXXXXXXXX shares of XXXXXXXXXX, a public corporation listed on the XXXXXXXXXX and rights to receive royalty income from XXXXXXXXXX. The shares described above are capital properties to DC and represent portfolio investments of DC as it does not have significant influence over the corporation in which it holds shares. The rights to receive royalty income are "Canadian resource property" as defined under subsection 66(15).
3. DC's liabilities consist of an insignificant amount of trade payables (hereinafter "payables").
4. DC's fiscal year-end is XXXXXXXXXX.
5. As at XXXXXXXXXX, DC had a nil balance in its RDTOH account and in its capital dividend account.
6. DC's authorized capital consists of:
an unlimited number of voting, participating Class "A" shares; and
an unlimited number of non-voting, non-participating Class "B" shares bearing a discretionary dividend.
7. The issued capital of DC consists of:
XXXXXXXXXX Class "A" shares (the "DC Shares") having an adjusted cost base and a stated capital of $XXXXXXXXXX.
8. The shareholders of DC are as follows:
XXXXXXXXXX (hereinafter "Mr. A") owns XXXXXXXXXX DC Shares.
XXXXXXXXXX (hereinafter "Mr B") owns XXXXXXXXXX DC Shares.
XXXXXXXXXX (hereinafter "Mr. C") owns XXXXXXXXXX DC Shares.
XXXXXXXXXX (hereinafter "Mr. D") owns XXXXXXXXXX DC Shares.
XXXXXXXXXX (hereinafter "Mr. E") owns XXXXXXXXXX DC Shares.
Mr. A, Mr. B, Mr. C, Mr. D and Mr. E are all adults who are resident in Canada.
9. XXXXXXXXXX. (hereinafter "Aco") is a taxable Canadian corporation and a CCPC incorporated under the CBCA.
10. Aco's authorized capital consists of an unlimited number of:
Voting, participating Class "A" shares;
Non-voting, participating Class "B" shares;
Voting, non-participating, redeemable Class "C" shares;
Non-voting, non-participating, redeemable and retractable Class "D" shares bearing a non-cumulative dividend of XXXXXXXXXX% per month;
Non-voting, non-participating, redeemable and retractable Class "E" shares bearing a non-cumulative dividend of XXXXXXXXXX% per month;
Non-voting, non-participating, redeemable and retractable Class "F" shares bearing a non-cumulative dividend of XXXXXXXXXX% per month;
Non-voting, non-participating, redeemable Class "G" shares bearing a non- cumulative annual dividend of prime plus XXXXXXXXXX%.
11. The issued capital of Aco consists of XXXXXXXXXX Class "A" shares having a stated capital and adjusted cost base of $XXXXXXXXXX, all of which are owned by Mr. A.
12. XXXXXXXXXX. (hereinafter "Bco") is a taxable Canadian corporation and a CCPC incorporated under the CBCA.
13. Bco's authorized capital consists of an unlimited number of shares of one class ("common shares").
No shares of Bco have, as yet, been issued.
14. XXXXXXXXXX. (hereinafter "Cco") is a taxable Canadian corporation and a CCPC incorporated under the CBCA.
15. Cco's authorized capital consists of an unlimited number of shares of one class.
16. The issued capital of Cco consists of XXXXXXXXXX shares having a stated capital and adjusted cost base of $XXXXXXXXXX per share. Mr. C owns XXXXXXXXXX shares and XXXXXXXXXX (the spouse of Mr. C) owns XXXXXXXXXX shares.
17. XXXXXXXXXX. (hereinafter "Dco") is a taxable Canadian corporation and a CCPC incorporated under the CBCA.
18. Dco's authorized capital consists of an unlimited number of shares of one class ("common shares").
No shares of Dco have, as yet, been issued.
19. XXXXXXXXXX. (hereinafter "Eco") is a taxable Canadian corporation and a CCPC incorporated under the ABCA.
20. Eco's authorized capital consists of an unlimited number of common shares without par value.
21. The issued capital of Eco consists of XXXXXXXXXX common shares having a stated capital account and adjusted cost base of $XXXXXXXXXX per share, all of which are owned by Mr. E.
PROPOSED TRANSACTIONS
22. Aco will file Articles of Amendments to convert the existing authorized, unissued, non-voting Class "D" shares into voting shares which will be redeemable by Aco for an amount equal to the FMV of the amount received by Aco as consideration for the share.
23. Mr. A will transfer all his XXXXXXXXXX DC Shares to Aco in exchange for XXXXXXXXXX Class "E" shares of Aco having a fair market value equal to the fair market value of the XXXXXXXXXX DC Shares transferred. Mr. A and Aco will jointly elect in prescribed form and within the time period 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 be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital of the XXXXXXXXXX class "E" shares of Aco will be equal to the aggregate PUC of the shares transferred.
24. Bco and Dco will each file Articles of Amendments to add a new class of preferred shares (hereinafter Class "A" preferred shares) with the following characteristics:
(a) voting;
(b) non-participating;
(c) discretionary, non-cumulative dividend of up toXXXXXXXXXX% per month;
(d) redeemable at the option of the corporation or shareholder for an amount equal to the fair market value of the amount received by the corporation as consideration for the share.
25. Mr. B will transfer all his XXXXXXXXXX DC Shares to Bco in exchange for XXXXXXXXXX common shares of Bco having a fair market value equal to the fair market value of the XXXXXXXXXX DC Shares transferred. Mr. B and Bco will jointly elect in prescribed form and within the time period 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 be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital of the shares of Bco will be equal to the aggregate PUC of the shares transferred.
26. Cco will file Articles of Amendments to add at least two new classes of preferred shares (hereinafter Class "A" preferred shares and Class "B" preferred shares) with the following characteristics:
(a) voting;
(b) non-participating;
(c) discretionary, non-cumulative dividend of up to XXXXXXXXXX% per month;
(d) redeemable at the option of the corporation or shareholder for an amount equal to the fair market value of the amount received by the corporation as consideration for the share.
27. Mr. C will transfer all his XXXXXXXXXX DC Shares to Cco in exchange for XXXXXXXXXX Class "B" preferred shares of Cco having a fair market value equal to the fair market value of the XXXXXXXXXX DC Shares transferred. Mr. C and Cco will jointly elect in prescribed form and within the time period 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 be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital of the shares of Cco will be equal to the aggregate PUC of the shares transferred.
28. Mr. D will transfer all his XXXXXXXXXX DC Shares to Dco in exchange for XXXXXXXXXX common shares of Dco having a fair market value equal to the fair market value of the XXXXXXXXXX DC Shares transferred. Mr. D and Dco will jointly elect in prescribed form and within the time period 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 be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital of the shares of Dco will be equal to the aggregate PUC of the shares transferred.
29. Eco will file Articles of Amendments to add at least two new classes of preferred shares (hereinafter Class "A" preferred shares and Class "B" preferred shares) with the following characteristics:
(a) voting;
(b) non-participating;
(c) discretionary, non-cumulative dividend of up to XXXXXXXXXX% per month;
(d) redeemable at the option of the corporation or shareholder for an amount equal to the fair market value of the amount received by the corporation as consideration for the share.
30. Mr. E will transfer all his XXXXXXXXXX DC Shares to Eco in exchange for XXXXXXXXXX Class "B" shares of Eco having a fair market value equal to the fair market value of the XXXXXXXXXX DC Shares transferred. Mr. E and Eco will jointly elect in prescribed form and within the time period 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 be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital of the shares of Eco will be equal to the aggregate PUC of the shares transferred.
31. Immediately before the transfers of property described in paragraph 32 below, the property of DC will be classified into the three types of property for the purposes of the definition "distribution" in subsection 55(1), as follows:
(a) cash or near-cash property, comprised of all of the current assets of DC;
(b) investment property, comprising all of the assets of DC, other than cash or near-cash property and business property, any income from which would, for the purposes of the Act, constitute income from property or income from a specified investment business;
(c) business property, comprising all of the assets of DC other than property described in (a) or (b) above, any income from which would be income from a business (other than a specified investment business).
DC does not have any business property.
For greater certainty, any tax accounts such as the balance of any RDTOH or CDA will not be considered property for purposes of the proposed transactions described herein.
In determining the net fair market value of each type of property of DC immediately before the transfer described in paragraph 32 below, the liabilities of DC, which consist only of current liabilities, will be allocated to, and will be deducted in the calculation of the net fair market value of, each such type of property of DC in the following manner:
(i) current liabilities of DC will be allocated to the cash or near-cash property of DC in the proportion that the fair market value of each such property is of the fair market value of all cash or near-cash property of DC. The allocation of current liabilities as described herein will not exceed the fair market value of all the cash or near-cash property of DC;
(ii) following the allocation of current liabilities to cash or near-cash property of DC as described in (i), liabilities, other than current liabilities, of DC will be allocated to investment property to the extent of its fair market value; and;
(iii) the excess, if any, of liabilities remaining after the allocations described in subparagraphs (i) and (ii) above are made will be allocated to the cash or near-cash property, investment property and business property, if any, of DC, on the basis of the relative net fair market value of each type of property prior to the allocation of such excess.
32. DC will transfer to each of Aco, Bco, Cco, Dco and Eco, property so that, immediately after the transfer, the net fair market value of the cash or near-cash property, the investment property and business property, if any, of DC, calculated as described in paragraph 31 above, which is transferred to Aco, Bco, Cco, Dco and Eco will equal the net fair market value of that type of property of DC, determined immediately before the transfer described in this paragraph, that:
(a) the fair market value of the shares of DC owned by each of Aco, Bco, Cco, Dco and Eco, as the case may be, immediately before the transfers described in this paragraph
is of
(b) the aggregate fair market value of all the issued and outstanding shares of DC immediately before the transfers described in this paragraph.
32A. For the purposes of subsection 191(4), an agreement will be entered into in respect of the Class "D" shares to be issued by Aco and the Class "A" shares to be issued by Bco, Cco, Dco and Eco, to specify an amount (the "Redemption Amount") in respect of such shares for which such shares are to be redeemed, acquired or cancelled. The Redemption Amount in respect of each share, at the time of issuance thereof, will be expressed as a fixed dollar amount that will not be determined by formula or subject to change thereafter and will not exceed the fair market value of the consideration for which such share is issued. None of the Class "A" or Class "D" shares will be issued for consideration that includes a taxable preferred share.
33. DC and each of Aco, Bco, Cco, Dco and Eco will jointly elect, pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to each of the transferees of any eligible property of DC. The agreed amount in each joint election will be equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
As consideration for the transfer of properties described herein, Aco will assume one-fifth of the liabilities of DC and will issue to DC a number of Class "D" preferred shares of its capital stock, having an aggregate fair market value and redemption amount equal to the net fair market value of the property of DC transferred to it as described herein, and each of Bco, Cco, Dco and Eco will assume one-fifth of the liabilities of DC and will issue to DC a number of Class "A" preferred shares having a fair market value and redemption amount equal to the net fair market value of the property of DC transferred to it as described herein.
For greater certainty, the agreed amount for any capital property included in the subsection 85(1) election, referred to herein, will not be less than the amount of any liabilities assumed as consideration therefore, and will not exceed the fair market value of each such property.
The amount added to the stated capital account maintained for the preferred shares of Aco, Bco, Cco, Dco and Eco, as the case may be, will equal to the amount by which the aggregate cost to Aco, Bco, Cco, Dco and Eco, as the case may be, determined pursuant to subsection 85(1), of the properties transferred by DC exceeds the amount of the liabilities assumed by each of Aco, Bco, Cco, Dco and Eco.
DC will own more than 10% but less than 50% of the issued share capital of each of Aco, Bco, Cco, Dco and Eco having full voting rights under all circumstances and will own shares of the capital stock of each of Aco, Bco, Cco, Dco and Eco having a FMV of more than 10% of the FMV of all the issued shares of the capital stock of each of Aco, Bco, Cco, Dco and Eco.
34. Immediately following the transfers of properties described in paragraph 32, each of Bco, Cco, Dco and Eco will redeem all of its Class "A" preferred shares owned by DC for an amount equal to the redemption amounts of its Class "A" shares so redeemed, and will issue to DC in consideration therefor a demand non-interest-bearing promissory note with a principal amount and fair market value equal to the aggregate of the redemption amounts of its Class "A" preferred shares (the "Redemption Price"). At the same time, Aco will redeem all of its Class "D" preferred shares owned by DC for an amount equal to the redemption amounts of its Class "D" preferred shares so redeemed, and will issue to DC in consideration therefor a demand non-interest-bearing promissory note with a principal amount and fair market value equal to the redemption amounts of its Class "D" preferred shares. DC will accept the promissory note issued by Aco (the "Aco Note") as full payment for the Redemption Price of the Class "D" preferred shares of Aco. DC will accept the promissory note issued by Bco (the "Bco Note") as full payment for the Redemption Price of the Class "A" preferred shares of Bco. DC will accept the promissory note issued by Cco (the "Cco Note") as full payment for the Redemption Price of the Class "A" preferred shares of Cco. DC will accept the promissory note issued by Dco (the "Dco Note") as full payment for the Redemption Price of the Class "A" preferred shares of Dco. DC will accept the promissory note issued by Eco (the "Eco Note") as full payment for the Redemption Price of the Class "A" preferred shares of Eco.
35. Aco, Bco, Cco, Dco, and Eco will, by special resolution, resolve to liquidate and dissolve DC pursuant to the provisions of the CBCA. In connection with the winding-up of DC, DC will assign and distribute the Aco Note to Aco, the Bco Note to Bco, the Cco Note to Cco, the Dco Note to Dco and the Eco Note to Eco. As a result of the assignment and distribution of the Aco Note, the Bco Note, the Cco Note, the Dco Note and the Eco Note by DC, the obligation of each of Aco, Bco, Cco, Dco and Eco under their respective notes will be cancelled.
None of DC, Aco, Bco, Cco, Dco or Eco is or will be at the time that the proposed transactions are implemented, a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1), a restricted financial institution or a specified financial institution.
None of the shares of DC, Aco, Bco, Cco, Dco or Eco referred to herein (including the shares to be issued as described in the proposed transactions) is or will be at any time during the series of transaction or events that includes the proposed transactions described herein:
(a) the subject of any undertaking that is a guarantee agreement;
(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5); or
(c) the subject of a dividend rental arrangement referred to in subsection 112(2.3).
The DC Shares are not taxable preferred shares.
Each of DC, Aco, Bco, Cco, Dco and Eco will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the proposed transactions.
No property has been or will be acquired by DC, and no liabilities have been or will be incurred by DC, in contemplation of and before the transfers of property, except as described herein.
None of Aco, Bco, Cco, Dco or Eco has any specific intention of disposing of any property acquired by them as described herein to a partnership or to an unrelated person following the proposed transactions described herein, and none of them will dispose of any of their assets as part of the series of transactions which includes the proposed transactions except as permitted under subsection 55(3.1).
PURPOSE OF PROPOSED TRANSACTIONS
The shareholders of DC anticipate that DC will receive significant royalty payments and dividends in the future. They each have differing investment strategies and wish to separate their interests at the present time on a proportional basis in anticipation of the receipt of future revenues.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions, the purposes of the proposed transactions and the additional information, we rule as follows:
A. The provisions of subsection 85(1) will apply to the transfer by Mr. A to Aco of XXXXXXXXXX DC Shares as described in paragraph 23 above, with the result that the agreed amount will be deemed, pursuant to paragraph 85(1)(a), to be the proceeds of disposition of the property to Mr. A and the cost of the property to Aco. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
B. The provisions of subsection 85(1) will apply to the transfer by Mr. B to Bco of XXXXXXXXXX DC Shares as described in paragraph 25 above, with the result that the agreed amount will be deemed, pursuant to paragraph 85(1)(a), to be the proceeds of disposition of the property to Mr. B and the cost of the property to Bco. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
C. The provisions of subsection 85(1) will apply to the transfer by Mr. C to Cco of XXXXXXXXXX DC Shares as described in paragraph 27 above, with the result that the agreed amount will be deemed, pursuant to paragraph 85(1)(a), to be the proceeds of disposition of the property to Mr. C and the cost of the property to Cco. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
D. The provisions of subsection 85(1) will apply to the transfer by Mr. D to Dco of XXXXXXXXXX DC Shares as described in paragraph 28 above, with the result that the agreed amount will be deemed, pursuant to paragraph 85(1)(a), to be the proceeds of disposition of the property to Mr. D and the cost of the property to Dco. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
E. The provisions of subsection 85(1) will apply to the transfer by Mr. E to Eco of XXXXXXXXXX DC Shares as described in paragraph 30 above, with the result that the agreed amount will be deemed, pursuant to paragraph 85(1)(a), to be the proceeds of disposition of the property to Mr. E and the cost of the property to Eco. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
F. The provisions of subsection 85(1) will apply to the transfer of each eligible property by DC to each of Aco, Bco, Cco, Dco and Eco, as described in paragraph 32 above, in respect of which an election under subsection 85(1) is made. The agreed amount in respect of each transfer of each eligible property will be deemed to be the proceeds of disposition of the property to DC and the cost thereof to each of Aco, Bco, Cco, Dco and Eco, pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer.
G. On the redemption of the Class "A" preferred shares of Bco, Cco, Dco and Eco and the Class "D" preferred shares of Aco owned by DC described in paragraph 34 and on the dissolution of DC described in paragraph 35:
(a) by virtue of paragraphs 84(3)(a) and 84(3)(b), each of Aco, Bco, Cco, Dco and Eco will be deemed to have paid, and DC will be deemed to have received a taxable dividend on the Class "D" preferred shares of Aco and the Class "A" preferred shares of Bco, Cco, Dco and Eco, as the case may be, equal to the amount, if any, by which the aggregate amount paid on such redemption exceeds the aggregate PUC in respect of such shares immediately before the redemption;
(b) by virtue of paragraph 88(2)(b) and subsection 84(2), DC will be deemed to have paid, and each of Aco, Bco, Cco, Dco and Eco will be deemed to have received, a dividend (the "winding-up dividend") on the DC Shares, equal to the proportion of the amount by which the aggregate FMV of the property of DC distributed to each of Aco, Bco, Cco, Dco and Eco on the winding-up, exceeds the amount by which the PUC of the DC Shares, is reduced as a result of the distribution, that the number of DC Shares held by Aco, Bco, Cco, Dco or Eco, as the case may be, is of the number of such shares outstanding immediately before that time.
H. The dividends deemed to be received by DC, Aco, Bco, Cco, Dco and Eco as a result of the redemptions and the winding-up referred to in Ruling G above:
(i) will be included in the particular recipient corporation's income pursuant to section 82 and paragraph 12(1)(j);
(ii) will be excluded from the proceeds of disposition of such shares so redeemed or purchased for cancellation, as the case may be, by virtue of paragraph (j) of the definition "proceeds of disposition" in section 54;
(iii) will, by virtue of subsection 112(1), be deductible in computing the taxable income of the particular 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 the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4);
(iv) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b); and
(v) will not be subject to tax under section 187.2 or section 191.1.
I. The provisions of subsection 112(3) will apply to reduce any loss which would otherwise be determined for the holder as a result of the redemption of shares.
J. Provided that, as part of a series of transactions or events, which include the proposed transactions described herein, there is not:
(a) an acquisition of property described in paragraph 55(3.1)(a);
(b) a disposition of property described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of shares described in subparagraph 55(3.1)(b)(iii);
(e) an acquisition of property described in paragraph 55(3.1)(c) or 55(3.1)(d), which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling G and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
K. The cancellation of the Aco Note, the Bco Note, the Cco Note, the Dco Note and the Eco Note as described in paragraph 35 above will not give rise to a "forgiven amount" within the meaning of subsections 80(1) and 80.01(1).
L. Subsection 245(2) will not apply to the proposed transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.
M. The provisions of subsections 15(1), 56(2), 69(1) and 246(1) will not apply to the proposed transactions, in and by themselves.
The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the proposed transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
Nothing in this letter should be construed as implying that the Canada Revenue Agency has confirmed, reviewed or has made any determination in respect of:
(a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein; or
(b) any other tax consequence relating to the facts or proposed transactions whether described in this letter or not, other than those specifically described in the rulings given above.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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