2004 Ruling 2004-0108941R3 - Substitution of XXXXXXXXXX Royalty

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: Additional facts and clarifications to original ruling 2003-005095

Position: Will not impact on original rulings. Amendments accepted and rulings given.

Reasons: Amendments were inconsequential and did not impact on original rulings.

XXXXXXXXXX 2004-010894

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
Supplementary Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, received by facsimile on XXXXXXXXXX, and is supplemental to our advance income tax ruling number 2003-005095 (the "Ruling"). Terms defined in the Ruling as having certain meanings have the same meaning when used in this letter.

You have provided changes to the facts and proposed transactions set forth in the Ruling, all as described below.

1. Under the heading in the Ruling entitled "Definitions", based on the advice referred to in paragraph 4 below the definition of "Reclamation Trust" in paragraph (ae) should be changed to read as follows:

"Reclamation Trust" means the reclamation trust in relation to Royalty 4 described in paragraph 62 below."

2. In paragraph 31 of the Ruling, change the purchase price allocated to the New Trust Series 1 Special Units from $XXXXXXXXXX to $XXXXXXXXXX.

3. In paragraph 42 of the Ruling, change the number and aggregate redemption amount of the Series 2 Special Units issued in satisfaction of the purchase price therein described from "XXXXXXXXXX Series 2 Special Units having an aggregate redemption amount of $XXXXXXXXXX " to "XXXXXXXXXX Series 2 Special Units having an aggregate redemption amount of $XXXXXXXXXX".

4. Paragraph 63 of the Ruling describes the formation by B Co. of a new Reclamation Trust. You have advised that, instead of creating a new Reclamation Trust, the reclamation trust established and operated in relation to Royalty 1 will be amended in such manner as is necessary to enable it to serve as a reclamation trust in relation to Royalty 4.

5. Paragraph 67 of the Ruling contemplates that the consideration to be given by B Co. to New Trust on account of the purchase by B Co. of the interests of New Trust in Partnership 2 will be a demand promissory note and Series 6 Preferred Shares. It is now proposed that such consideration will consist solely of Series 6 Preferred Shares. Accordingly, you have advised that Paragraph 67 of the Ruling should be reworded to read as follows:

"New Trust will sell all of its interests in Partnership 2 to B Co. for a purchase price equal to the fair market value thereof to be satisfied by the issuance of Series 6 Preferred Shares in the capital of B Co. having an aggregate fair market value and a redemption amount, respectively, equal to the purchase price."

6. As a result of the change described in paragraph 5 above, the second last sentence in paragraph 68 of the Ruling should be changed to delete the reference to the "Note" so that it will read as follows:

"The redemption amount, but not the specified amount, will be subject to adjustment if it is determined by a bona fide agreement between B Co. and the New Trust, by agreement between the New Trust, B Co. and the Canada Revenue Agency or by a court of competent jurisdiction, that the redemption amount was greater or less than the estimated fair market value of Royalty 3 or, as applicable, the purchase price of the New Trust's interest in Partnership 2."

7. As a result of the change described in paragraph 5 above, the 2nd and 3rd paragraphs of paragraph 69 of the Ruling will be changed to read as follows:

"The amount so agreed upon in respect of a particular asset will not exceed the fair market value of that asset at the time of the transfer.

The addition to the PUC of the Preferred Shares will not exceed the aggregate agreed amounts under subsection 85(1) of the Act in respect of the eligible property transferred to B Co. as described in paragraph 67 above."

8. As a result of the change described in paragraph 5 above, paragraph 71 of the Ruling is to be deleted.

9. There is indebtedness, estimated to be approximately $XXXXXXXXXX, owing by New Trust to B Co. that has arisen as a result of the need of New Trust to contribute funds to Partnership 2 to enable Partnership 2 to satisfy its obligations in respect of expansion costs of the Project. This indebtedness is to be discharged prior to any distribution being made on the Ordinary Units. Accordingly, you have advised that the first sentence of paragraph 74 of the Ruling is to be reworded to read as follows:

"If New Trust then holds any further Redemption Notes, it will endorse them in favour of and deliver the same to B Co. up to the amount of any indebtedness then owing by New Trust to B Co. and endorse the balance of the Redemption Notes in favour of and deliver the same to Trust 1."

Except to the extent necessarily modified as a result of the changes noted above, the facts and proposed transactions set forth in the Ruling continue to be accurate.

We acknowledge your advice that none of the transactions described in paragraphs 50 through 74.1 of the Ruling have yet been undertaken and it is still contemplated that such transactions be completed on XXXXXXXXXX.

Rulings Given

Notwithstanding the changes to the proposed transactions set out above, we hereby confirm that the rulings given in the Ruling continue to be binding on the Canada Revenue Agency, subject to the conditions, limitations and qualifications set out in the Ruling.

Yours truly,

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