19 March 2002 External T.I. 2001-0115925 - Proposed Exchange of Shares

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Income tax consequences of share exchange.

Position: No response since a specific question on a section of the Act was not asked. May request an advance income tax ruling following procedures in IC-76R4.

Reasons: See above.

XXXXXXXXXX 2001-011592

March 19, 2002

Dear XXXXXXXXXX:

Re: Proposed Exchange of Shares

We are writing in reply to your facsimile letter of December 20, 2001, wherein you requested an advance income tax ruling on a proposed exchange of shares by your one or more of your clients. Specifically, you ask whether such an exchange would result in any adverse income tax consequences under the Income Tax Act (the "Act").

Since your situation relates to actual proposed transactions involving specific taxpayers we are unable to provide a specific response to your request. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R4 ("IC-70-6R4") dated January 29, 2001 and a fee is charged for this service. Moreover, as outlined in paragraph 22 of IC-70-6R4, the Canada Customs and Revenue Agency ("CCRA") also provides written technical interpretations of specific provisions of income tax law to the public. While no fees are charged for this service the technical interpretations are not binding on the CCRA. For your information, IC-70-6R4 can be found on our website which is located at www.ccra-adrc.gc.ca.

Notwithstanding the above, as we discussed on the telephone (Cooke/XXXXXXXXXX) on March 19, 2002, based on the limited information in your letter, one of the income tax implications that would need to be considered is subsection 55(2) of the Act. Subsection 55(2), which is an anti-avoidance provision, in very general terms, will apply where a deductible taxable inter-corporate dividend results in the reduction of a capital gain that would otherwise have been realized on a fair market value disposition of the share but for the taxable dividend. The application of this particular anti-avoidance rule, and the exceptions from it, however, are quite complex and beyond the scope of this response. Moreover, there are other income tax implications that may arise from the proposed transactions described in your letter. However, these implications can only be dealt with in the context of an advance income tax ruling where the specific income tax issues that are of concern are identified by you.

Our comments are provided in accordance with the practice described in paragraph 22 of Information Circular 70-6R4 dated January 29, 2001.

Yours truly,

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