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:
Issue of a small amount of additional DPS a short time after initial issue of DPS was completed.
Position: Granted.
Reasons:
Debts were in existence and in payment default at time initial DPS ruling (972932) was given and at the time the DPS were issued. The request for the additional DPS was made within 15 days of the initial DPS issue. The taxpayer also provided specific mitigating reasons why these amounts were not originally included in their initial DPS request. All such requests must be handled on a case by case basis.
XXXXXXXXXX 980088
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to XXXXXXXXXX letter dated XXXXXXXXXX and your letter dated XXXXXXXXXX, wherein we were requested to consider certain additional proposed transactions with respect to our ruling letter #972932, dated XXXXXXXXXX, 1997 and the supplemental ruling letter #972932(sup), dated XXXXXXXXXX, 1997, collectively referred to herein as the "Ruling". Your request relates to the proposed issuance of $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX and a proposed issuance of an additional $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX.
We understand, that the proposed transactions described in the Ruling with respect to the issuance of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX and the Class XXXXXXXXXX Special Shares of XXXXXXXXXX, were completed on XXXXXXXXXX, but that none of the transactions described below has been undertaken. The purpose of your request is twofold. The first is to provide us with the final details related to the proposed issuance of the Class XXXXXXXXXX Special Shares by XXXXXXXXXX within the XXXXXXXXXX period described in paragraph 100 of the Ruling. The second is to request that we consider the taxpayer's proposal to issue an additional $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (Canada), R.S.C. 1985 (5th Suppl.) 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 any terms defined in the Ruling are fully applicable to this letter, where applicable. Further, the reference to an amount of money is expressed in Canadian dollars unless otherwise indicated.
Part A - The Class XXXXXXXXXX Special Shares
With regard to the proposed issuance of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX, within the XXXXXXXXXX period from the issuance of the Class XXXXXXXXXX Special Shares and Class XXXXXXXXXX Special Shares you advise the following:
1. The amount owing (including accrued interest) under the XXXXXXXXXX, as described in paragraphs 20(c), 67 and 68 of the Ruling, will be $XXXXXXXXXX;
2. The number of authorized Class XXXXXXXXXX Special Shares of XXXXXXXXXX, as described in paragraph 49 of the Ruling Letter, will be set at XXXXXXXXXX;
3. XXXXXXXXXX have received credit approval for daylight loans of $XXXXXXXXXX and $XXXXXXXXXX respectively and that the total proceeds from these two daylight loans will be used in accordance with paragraph 68 of the Ruling to purchase the $XXXXXXXXXX owing by XXXXXXXXXX under the XXXXXXXXXX;
4. The Class XXXXXXXXXX Special Shares will be issued as provided in paragraph 70 of the Ruling to the following Class XXXXXXXXXX Purchasers:
Class XXXXXXXXXX Purchasers
Purchaser
Number of
Class XXXXXX
Special Shares
Purchaser's Aggregate
Class XXXXXX Special Share
Subscription Price
XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
XXXXXXXXXX
$ XXXXXXXXXX
Part B - The Additional $XXXXXX of Class XXXXXX Special Shares
Background
As mentioned above, you advise that the issue of $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX and $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX were completed in accordance with the Ruling on XXXXXXXXXX, 1997 (the "Closing"). You advise that throughout negotiations with XXXXXXXXXX prior to obtaining the Ruling, XXXXXXXXXX understood that neither party was generally willing to provide for any increase in the amount of DPS financing over and above what they had actually committed to as part of the transactions proposed in the Ruling notwithstanding the fact that you advised that certain other debts owing by XXXXXXXXXX (see description below) met the requirements for such DPS refinancing at that time.
After the time the Ruling was issued but before Closing it appeared that such additional DPS financing in respect of these other debts might be possible. However, due to the various delays resulting from the extended negotiations with XXXXXXXXXX and in light of the relatively small amounts owing by XXXXXXXXXX under these debts (when compared to the total DPS refinancing covered by the Ruling), a decision was made not to request an increase in the amount of DPS to be issued by XXXXXXXXXX prior to Closing so as not to cause any further delays. Specifically, management of XXXXXXXXXX was concerned that any request to increase the amount of Class XXXXXXXXXX Special Shares of XXXXXXXXXX before the end of XXXXXXXXXX would have delayed the issue of the Class XXXXXXXXXX and Class XXXXXXXXXX Special Shares until after XXXXXXXXXX. If this occurred it would have possibly put at risk the continued support of the syndicate of buyers of all DPS shares.
Additional Facts
1. XXXXXXXXXX, as described in paragraphs 20(g) and 40 of the Ruling, in the amount of approximately $XXXXXXXXXX were repaid as part of the additional advances to be made by XXXXXXXXXX, as described in paragraph 75 of the Ruling, and ultimately refinanced by the issuance of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX, as described in paragraph 62 of the Ruling. However, as a result of the unfavourable $US/$CDN exchange rate on XXXXXXXXXX (the date when XXXXXXXXXX was required to purchase US dollars to acquire the XXXXXXXXXX as described in paragraph 59 of the Ruling), XXXXXXXXXX was required to make an additional XXXXXXXXXX of approximately $XXXXXXXXXX to bring the outstanding principal on the XXXXXXXXXX down to the equivalent of $XXXXXXXXXX Canadian, as described in paragraph 101 of the Ruling. The additional XXXXXXXXXX effectively replaced a portion of the XXXXXXXXXX that was owing by XXXXXXXXXX and in default at that time (see paragraphs 34 and 35 of the Ruling). Moreover, you advise that under the terms of the XXXXXXXXXX any amounts owing by XXXXXXXXXX as XXXXXXXXXX continue to be in default.
2. XXXXXXXXXX
At the time the Ruling was issued an event of default under the terms of the XXXXXXXXXX had occurred (such event being described in paragraphs 32 and 33 of the Ruling). Accordingly, you advise that these amounts should have been listed in paragraph 40 of the Ruling as debts that were due and payable on demand as a result of the defaults under the XXXXXXXXXX, the XXXXXXXXXX and that such amounts continue to be in default under the terms of the XXXXXXXXXX.
3. XXXXXXXXXX Advances of approximately $XXXXXXXXXX and a promissory note of approximately $XXXXXXXXXX owing by XXXXXXXXXX (herein referred to as the "XXXXXXXXXX"), were described in paragraphs 20(d) and (h), of the Ruling respectively, and also in paragraph 40 of the Ruling as being due and payable on demand as a result of the various defaults under the XXXXXXXXXX, the XXXXXXXXXX. As described in 2 above, you advise that such debts continue to remain in default under the terms of the XXXXXXXXXX.
4. As noted in paragraph 75 of the Ruling transaction costs were estimated to be approximately $XXXXXXXXXX of which approximately $XXXXXXXXXX were to be paid using part of the proceeds of the $XXXXXXXXXX issue of Class XXXXXXXXXX Special Shares. As a result of various factors you advise that it is known that the transaction costs in respect of the transactions described in the Ruling were under estimated by approximately $XXXXXXXXXX (the "XXXXXXXXXX").
Proposed Transactions
5. XXXXXXXXXX will obtain the unanimous approvals required under the XXXXXXXXXX, as described in paragraph 77 of the Ruling, of all the Holders of Class XXXXXXXXXX Special Shares and obtain the consent of all other required parties, to waive the prohibition against amending the articles of XXXXXXXXXX to allow for an increase to the authorized number of Class XXXXXXXXXX Special Shares of XXXXXXXXXX by XXXXXXXXXX.
6. Upon obtaining all the necessary approvals as described in 5 above, XXXXXXXXXX will file articles of amendment to increase the authorized number of Class XXXXXXXXXX Special Shares from XXXXXXXXXX to XXXXXXXXXX. There will be no changes to any of the terms and conditions of the Class XXXXXXXXXX Special Shares of XXXXXXXXXX as described in paragraph 52 of the Ruling.
7. XXXXXXXXXX will make an additional XXXXXXXXXX to XXXXXXXXXX, in the amount of approximately $XXXXXXXXXX, to bring the aggregate XXXXXXXXXX outstanding to $XXXXXXXXXX. XXXXXXXXXX will use the proceeds from the additional XXXXXXXXXX of $XXXXXXXXXX to repay the amounts referred to in paragraphs 2, 3 and 4 above, as follows:
XXXXXXXXXX.
8. XXXXXXXXXX will acknowledge the combined $XXXXXXXXXX amount of XXXXXXXXXX owing by XXXXXXXXXX that are comprised of the additional XXXXXXXXXX of $XXXXXXXXXX described above and the existing XXXXXXXXXX of $XXXXXXXXXX described in 1 above will be referred to as an "XXXXXXXXXX".
9. XXXXXXXXXX shall then purchase the XXXXXXXXXX and any related security from XXXXXXXXXX for $XXXXXXXXXX.
10. XXXXXXXXXX will then enter into an agreement with XXXXXXXXXX, under which XXXXXXXXXX shall agree to sell and XXXXXXXXXX shall agree to purchase from XXXXXXXXXX the XXXXXXXXXX and any related security.
11. XXXXXXXXXX will borrow $XXXXXXXXXX as a daylight demand loan from XXXXXXXXXX and use the proceeds from such loan to purchase the XXXXXXXXXX and any related security from XXXXXXXXXX, as described in 10 above. The demand loan will bear interest at the prime rate of XXXXXXXXXX, be repayable on demand, be secured by a security interest in all property and assets of XXXXXXXXXX, and be evidenced by a demand promissory note issued by XXXXXXXXXX. XXXXXXXXXX shall make the demand loan by delivering a bank draft (the "XXXXXXXXXX") payable to XXXXXXXXXX in the amount of $XXXXXXXXXX. XXXXXXXXXX shall satisfy the total purchase price of $XXXXXXXXXX for the XXXXXXXXXX and any related security by endorsing the XXXXXXXXXX in favour of XXXXXXXXXX and delivering the endorsed XXXXXXXXXX to XXXXXXXXXX.
As part of this transaction, XXXXXXXXXX agree that the XXXXXXXXXX will become indebtedness outstanding under the XXXXXXXXXX. Accordingly, the XXXXXXXXXX agreement will be amended to add the $XXXXXXXXXX of XXXXXXXXXX as a separate tranche forming part of the indebtedness outstanding under the XXXXXXXXXX except that this tranche will not be secured by XXXXXXXXXX as security for the initial amount of the XXXXXXXXXX. You advise that any and all consequential changes to any XXXXXXXXXX (as defined in paragraph 55(d) of the Ruling) that are required as a result of the above change to the XXXXXXXXXX agreement will be made.
Immediately before the XXXXXXXXXX is sold by XXXXXXXXXX, if all of the Class XXXXXXXXXX Special Shares have been redeemed, and the principal amount outstanding on the XXXXXXXXXX exceeds $XXXXXXXXXX, the excess will be removed from the XXXXXXXXXX indebtedness and will become a separate debt that is deemed to be an XXXXXXXXXX under the XXXXXXXXXX for purposes of repayment thereof. Should this occur this separate debt will be referred to as the XXXXXXXXXX. However, as long as any Class XXXXXXXXXX Special Shares are outstanding any sale of the XXXXXXXXXX by XXXXXXXXXX will be the full amount owing under the XXXXXXXXXX.
12. XXXXXXXXXX shall agree that no interest will accrue or be payable on the XXXXXXXXXX that forms part of the XXXXXXXXXX. All other terms and conditions of the XXXXXXXXXX will remain in force and in effect.
13. XXXXXXXXXX will then subscribe for XXXXXXXXXX Class XXXXXXXXXX Special Shares of XXXXXXXXXX. The aggregate subscription price, of $XXXXXXXXXX will be paid by XXXXXXXXXX delivering a bank draft (the "XXXXXXXXXX") in the amount of $XXXXXXXXXX to XXXXXXXXXX. The entire amount of the subscription proceeds received by XXXXXXXXXX from the issuance of the Class XXXXXXXXXX Special Shares will be added to XXXXXXXXXX stated capital account in respect of the Class XXXXXXXXXX Special Shares issued.
14. XXXXXXXXXX will repay its daylight demand loan, described in 11 above, by endorsing the XXXXXXXXXX in favour of the XXXXXXXXXX and delivering such endorsed XXXXXXXXXX to XXXXXXXXXX.
15. You advise that any XXXXXXXXXX relating to the Class XXXXXXXXXX Shares, such as, but not limited to, the XXXXXXXXXX (as described in paragraphs 77, 83, 85 and 86, and 91 of the Ruling respectively) will be modified or amended if and as the circumstances require such that the XXXXXXXXXX Class XXXXXXXXXX Special Shares issued to XXXXXXXXXX as described in 13 above will be subject to the same rights, restrictions and agreements as the XXXXXXXXXX Class XXXXXXXXXX Special Shares issued pursuant to paragraph 66 of the Ruling.
Purpose of the Proposed Transactions
16. The proposed issuance of an additional $XXXXXXXXXX of Class XXXXXXXXXX Special Shares by XXXXXXXXXX will allow XXXXXXXXXX to fully restructure all its significant outstanding debts with DPS.
Rulings Given
Provided the foregoing statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions, we confirm the following:
A. The Class XXXXXXXXXX Special Shares, which are to be issued to XXXXXXXXXX, as described in 13 above, and where applicable sold to a Canadian resident corporate third party purchaser (hereinafter referred to as a "Third Party Purchaser"), will be
(a) shares described in subparagraph (e)(iii) of the definition of "term preferred share" in subsection 248(1) for a period not exceeding five years from the date of their issuance and,
(b) "exempt shares" pursuant to paragraph (c) of the definition thereof in subsection 112(2.6) for that same period
and, accordingly, subsections 112(2.1), (2.2), (2.3) and (2.4) will not apply to deny XXXXXXXXXX or a Third Party Purchaser, as the case may be, a deduction under subsection 112(1) for dividends received or deemed to have been received by it on such shares during such period;
B. Section 80 will not apply to XXXXXXXXXX by virtue of the fact that no interest will be paid or payable by XXXXXXXXXX on the XXXXXXXXXX that forms part of the XXXXXXXXXX as described in 11 and 12 above, or by virtue of the failure of XXXXXXXXXX, to demand payment of the aforementioned debt owing to it by XXXXXXXXXX;
C. The cost amount, within the meaning of subsection 248(1), to XXXXXXXXXX of the Class XXXXXXXXXX Special Shares, will immediately after the time that such shares are issued, be equal to the amount paid by XXXXXXXXXX for those shares as described in 13 above;
D. The cost amount, within the meaning of subsection 248(1), to XXXXXXXXXX of the XXXXXXXXXX will, immediately after such debt is acquired from XXXXXXXXXX, be equal to the purchase price paid by XXXXXXXXXX as described in 9 above;
E. The cost amount, within the meaning of subsection 248(1), to XXXXXXXXXX of the XXXXXXXXXX acquired from XXXXXXXXXX, as described in 11 above will, immediately after such debt is acquired from XXXXXXXXXX, be equal to the purchase price paid therefor by XXXXXXXXXX, as described in 11 above;
F. No amount will be included in the income of the XXXXXXXXXX pursuant to subsection 15(1) or 246(1) solely by virtue of the fact that no interest will be paid or payable by XXXXXXXXXX on the XXXXXXXXXX that forms part of the XXXXXXXXXX as described in 11 and 12 above;
These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3, issued on December 30, 1996, and are binding on Revenue Canada provided the proposed 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.
Other
We also confirm that the rulings given in the Ruling will continue to be binding on Revenue Canada in the manner set forth therein provided the Class XXXXXXXXXX Special Shares of XXXXXXXXXX to be issued by XXXXXXXXXX, as described in Part A above, and the Class XXXXXXXXXX Special Shares to be issued by XXXXXXXXXX, as described in Part B above, are issued no later than XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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