30 November 1995 Ruling 9622673 - XXXXXXXXXX

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:

On a proposed amalgamation XXXXXXXXXX, which will result in a deemed acquisition of control of one of the predecessor XXXXXXXXXX, do the loss restriction rules in XXXXXXXXXX of the Act prevent XXXXXXXXXX, which is formed on the amalgamation, from being able to access and deduct XXXXXXXXXX, and if not, would GAAR apply.

Position:

In this case subsection XXXXXXXXXX of the Act does not prevent XXXXXXXXXX deduction from surviving the amalgamation - XXXXXXXXXX. Further, GAAR was determined not to apply in this situation because the taxpayer's had valid business reasons for the amalgamation and it was not evident from the legislation XXXXXXXXXX that such a streaming was ever intended.

Reasons: See above

XXXXXXXXXX							962267
XXXXXXXXXX
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: Proposed Amalgamation of XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX (and all your subsequent correspondence), requesting an advance income tax ruling on behalf of the above noted taxpayers. You have advised us that to the best of your knowledge, and that of all the taxpayers involved, none of the issues raised in this letter are being considered by any Tax Service Office and/or Taxation Centre in connection with any tax return already filed by the taxpayers, nor are any of these issues under objection or appeal.

Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter (herein referred to as the "Act") and unless otherwise expressly stated:

(a)"adjusted cost base" has the meaning assigned by section 54 of the Act;

(b)"Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

(c)"paid-up capital" has the meaning assigned by subsection 89(1) of the Act;

(d)"public corporation" has the meaning assigned by subsection 89(1) of the Act;

(e)"taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.

(f)"common share" has the meaning assigned by subsection 248(1) of the Act;

(g)"preferred share" has the meaning assigned by subsection 248(1) of the Act;

(h)"specified financial institution" has the meaning assigned by subsection 248(1) of the Act; and

(i)"fair market value" means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is set out as follows:

FACTS

1. XXXXXXXXXX

2. XXXXXXXXXX

3. XXXXXXXXXX

4. XXXXXXXXXX

5. XXXXXXXXXX

6. XXXXXXXXXX

7. XXXXXXXXXX

8. XXXXXXXXXX

9. XXXXXXXXXX

10. XXXXXXXXXX

11. XXXXXXXXXX

12. XXXXXXXXXX

PROPOSED TRANSACTIONS

13.XXXXXXXXXX amalgamation under the provisions

XXXXXXXXXX

XXXXXXXXXX

14.Upon full completion of the steps described in 13 above, XXXXXXXXXX (referred to in this paragraph as "predecessor corporations") will amalgamate on the earliest moment XXXXXXXXXX, in such a manner that

(a)all the property (except amounts receivable from any predecessor corporation or shares of the capital stock of a predecessor corporation) of the predecessor corporations immediately before the merger will become property of XXXXXXXXXX by virtue of the merger;

(b) all the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of XXXXXXXXXX by virtue of the merger;

(c)all the shareholders of the predecessor corporations (other than any predecessor corporation) before the merger will receive shares of the capital stock of XXXXXXXXXX by virtue of the merger; and

(d) none of the foregoing requirements has been accomplished as a result of a purchase or windup of any predecessor corporation.

15. XXXXXXXXXX

16. XXXXXXXXXX

17. XXXXXXXXXX

XXXXXXXXXX

18. XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

19.The proposed transactions serve a number of purposes:

(1) XXXXXXXXXX

(2) XXXXXXXXXX

(3) XXXXXXXXXX

RULINGS

Provided the foregoing statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions, we confirm the following:

A)Upon the amalgamation XXXXXXXXXX, as described in 14 above, paragraph 87(2)(a) of the Act will apply to deem XXXXXXXXXX to each have a taxation year that ends immediately before the amalgamation XXXXXXXXXX.

B)Each shareholder of XXXXXXXXXX, immediately prior to the amalgamation, owned shares of either predecessor corporation as capital property and who received no consideration for the disposition of those shares on the amalgamation, other than shares of the capital stock of XXXXXXXXXX, shall be deemed:

i)pursuant to paragraph 87(4)(a) of the Act, to have disposed of such shares of XXXXXXXXXX for proceeds equal to the aggregate adjusted cost bases to the shareholders of such shares immediately before the amalgamation, and

ii) pursuant to paragraph 87(4)(b) of the Act, to have acquired the shares of any particular class of the capital stock of XXXXXXXXXX at a cost to the shareholder equal to that proportion of the proceeds described in (i) above that

a)the fair market value, immediately after the amalgamation, of all new shares of that particular class so acquired by the shareholder,

is of

b)the fair market value, immediately after the amalgamation, of all new shares so acquired by the shareholder.

C)Any undeducted XXXXXXXXXX that are deductible at the time of the amalgamation XXXXXXXXXX will not be deemed XXXXXXXXXX to be deducted XXXXXXXXXX of the Act in computing XXXXXXXXXX income for its taxation year deemed to end immediately before the amalgamation.

D)As a result of the Proposed Transactions, in and of themselves, subsection 245(2) of the Act will not apply to redetermine the income tax consequences confirmed in the rulings given.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2, issued on September 28, 1990 (as amended by special release dated September 30, 1992) and are binding on Revenue Canada provided the transactions are carried out by XXXXXXXXXX. These rulings are based on the Act in its present form and does not take into account the effect of any proposed amendments.

OPINION

In our opinion, provided the proposed amendment to paragraph 256(7)(b) of the Act is enacted, as set out in the draft legislation to amend the Act issued by the Department of Finance on June 20, 1996, the amalgamation XXXXXXXXXX will result in there being a deemed acquisition of control of XXXXXXXXXX, but not XXXXXXXXXX, immediately before the amalgamation.

COMMENTS

Nothing in this letter should be construed as implying that the Department has reviewed or accepted any tax consequences arising from the facts or proposed transactions other than those specifically confirmed in the rulings and opinion given.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch