30 November 1995 Ruling 9632733 - CHANGE IN FACTS

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:

Change in facts to Ruling 960165-3.

1.Will we allow repayment of the shareholder loans and a "special dividend"; the proceeds of which will be used to pay the personal income tax liabilities of the shareholders; to be financed by way of DPS issued out of the company?

2.Will we allow payables that were in part owing at the time the original Ruling letter was issued, but were omitted from the list due primarily "poor" accounting records, to be refinanced by way of DPS?

3.Will we grant an extension of time?

Position:

1.No, refinancing of related party debt of the company is not permissable by the legislation and a "special dividend payment" to the shareholder that is financed by DPS is not permissable since it takes the DPS too far (see E9420543). In effect, the taxpayer is requesting that DPS financing be made available to individuals which is clearly inconsistent with the Act.

2.Permitted, nothing sinister here. It was recognized at the time of the original request that the accounting records of XXXXXXXXXX were in a mess. Further, we recognize that generally such "specified" or "agreed" amounts, where they represent normal accruals to a point in time, are approximations only and the actual amounts could vary slightly depending on the length of time once the final date of the transaction is determined.

3.Granted.

Reasons: See above.

XXXXXXXXXX							963273
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Re: Advance Income Tax Ruling #3-960165
XXXXXXXXXX

This is in reply to your facsimile letter of XXXXXXXXXX, wherein you requested certain amendments to the advance income tax ruling #960165 dated XXXXXXXXXX, 1996 (the "Ruling"), as extended by our subsequent letter dated XXXXXXXXXX.

Your request relates to the fact that the Ruling letter is factually incorrect since it does not specifically reflect the following information:

1.You advise that liabilities of approximately $XXXXXXXXXX in total, which relate to loans owing by one or more of the above noted companies that are part of the XXXXXXXXXX group (herein collectively referred to as "XXXXXXXXXX") to XXXXXXXXXX (the "Shareholders") and amounts owing by the Shareholders' to the Receiver General of Canada in respect of their personal income taxes, were inadvertently included in the amount of outstanding trade payables referred to in paragraph 8 of the Ruling letter.

2.You advise that the

XXXXXXXXXX

3.You advise that the proposed XXXXXXXXXX Share Put Agreement described in paragraph 38 of the Ruling, will not be entered into between XXXXXXXXXX Instead, you advise that XXXXXXXXXX will undertake to agree with XXXXXXXXXX to make any payments required under the XXXXXXXXXX insured debt if XXXXXXXXXX realizes or enforces its security.

You requested that the Shareholders of XXXXXXXXXX be allowed to receive a repayment of their respective shareholder loan accounts in XXXXXXXXXX (approximately $XXXXXXXXXX in total) and receive a special cash dividend (approximately $XXXXXXXXXX in total), which will equal the amount of each Shareholder's respective personal income tax liability as described in 1 above. The purpose of such payment is to allow each Shareholder to pay their personal income tax liability. The $XXXXXXXXXX to be paid to the Shareholders will be included as part of the $XXXXXXXXXX of Additional Debt and the $XXXXXXXXXX Debt, as described in paragraph 28 of the Ruling that will be refinanced by way of DPS issued to XXXXXXXXXX, as described in paragraph 31 of the Ruling.

You advise that if we agree to the above request, XXXXXXXXXX is prepared to defer receipt of the additional amounts owing in respect of accrued interest and refinancing fees referred to in 2 above, otherwise XXXXXXXXXX will request payment of these amounts before the DPS restructuring can proceed. You request that if we do not agree to the above proposal, that the additional amounts owing to XXXXXXXXXX, as described above, be included in the $XXXXXXXXXX of Additional Debt and the Total XXXXXXXXXX Debt, as described in paragraph 28 of the Ruling that will be refinanced by way of DPS issued to XXXXXXXXXX, as described in paragraph 31 of the Ruling.

You further request that the deadline for completion of the proposed transactions be extended a further sixty days to XXXXXXXXXX from the current deadline of XXXXXXXXXX as a result of the above requests.

We understand that none of the proposed transactions described in the Ruling have been completed.

As discussed with you on XXXXXXXXXX, we are not prepared to permit any payment to the Shareholders from XXXXXXXXXX that is ultimately funded by way of the proposed issue of DPS issued by XXXXXXXXXX Accordingly, the $XXXXXXXXXX Additional Debt and the $XXXXXXXXXX Debt, as described in paragraph 28 of the Ruling, and the $XXXXXXXXXX in DPS to be issued by XXXXXXXXXX, as described in paragraph 31 of the Ruling, should be reduced by $XXXXXXXXXX in total.

However, we are prepared to permit the inclusion in trade accounts payable, the amounts owing to XXXXXXXXXX in respect of accrued interest and refinancing fees referred to in 2 above, and such amount may be added to the amount of Additional Debt and Total XXXXXXXXXX Debt, as described in paragraph 28 of the Ruling, and the DPS to be issued by XXXXXXXXXX, as described in paragraph 31 of the Ruling, to the extent that any part of these amounts was not otherwise already included.

We also agree to replace the balance of paragraph 38 of the Ruling starting with the third sentence with the following:

XXXXXXXXXX will provide XXXXXXXXXX in the form of a comfort letter, an acknowledgement that in the event of a Retraction Event, XXXXXXXXXX will undertake to make all payments of interest, principal, or taxes required on the Total XXXXXXXXXX Debt during the realization or enforcement by XXXXXXXXXX of its security.

We confirm that the rulings given in Ruling letter #3-960165 will continue to be binding in the manner set forth therein, provided that the Proposed Transactions described in the Ruling, and as amended by this letter, are completed on or before XXXXXXXXXX

Yours truly,

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