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: Whether the Proposed Transactions meet the requirements of paragraph 55(3)(b).
Position: Yes.
Reasons: Based on the Act and CRA publications and taxpayer representations.
XXXXXXXXXX 2019-082112
XXXXXXXXXX, 2021
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling - Paragraph 55(3)(b) Butterfly
XXXXXXXXXX
We are writing in response to your request, dated XXXXXXXXXX, for an advance income tax ruling (Ruling) on behalf of the above-noted taxpayer and the other taxpayers involved as described below. We acknowledge your request dated XXXXXXXXXX to amend the proposed transactions, as well as the additional information provided to us in letters and emails and during our various telephone conversations. The documents submitted as part of your request are part of this document only to the extent described herein.
CONFIRMATION
To the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this ruling request are the same as, or substantially similar to, transactions or issues that are:
i. in a previously filed tax return of the taxpayer or a related person and:
(A) being considered by the CRA in connection with such return;
(B) under objection by the taxpayer or a related person; or
(C) the subject of a current or completed court process involving the taxpayer or a related person; or the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.
The tax account numbers, Tax Services Offices and the Tax Centres and head office address of the taxpayers involved are as follows:
XXXXXXXXXX
The above-referenced taxpayers have confirmed that the Proposed Transactions described herein will not affect their ability to pay any of their outstanding tax liabilities.
DEFINITIONS
Unless otherwise stated:
i. all references herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended, (the Act);
ii. all terms and conditions used in this letter that are defined in the Act (or in the Regulations) have the meaning given in such definition;
iii. all references to monetary amounts are in Canadian dollars; and
iv. the singular should be read as plural and vice versa where the circumstances so require.
The relevant parties to the Proposed Transactions (as defined below) are referred to as follows:
“ALco 1” refers to XXXXXXXXXX, an arm’s length party to Holdco 3;
“ALco 2” refers to XXXXXXXXXX; an arm’s length party to Holdco 3;
“ALco 3” refers to XXXXXXXXXX; an arm’s length party to Holdco 3;
“Amalco” means the corporation that will be formed as a consequence of the Final Amalgamation as part of the Proposed Transactions;
“DC” means the corporation that will be formed on the Amalgamation of the Predecessor Corporations, as described in Paragraph 49;
“Holdco 1” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Holdco 2” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Holdco 3” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Holdco” refers to any one of Holdco 1, Holdco 2 or Holdco 3, as the context may require, and “Holdcos” refers collectively to Holdco 1, Holdco 2 and Holdco 3;
“Nomineeco 1” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Nomineeco 4” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Nomineeco 6” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Nomineeco 8” refers to XXXXXXXXXX a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Nomineeco 9” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Nomineeco” refers to any one of Nomineeco 1, Nomineeco 4, Nomineeco 6, Nomineeco 8 or Nomineeco 9, as the context may require, and “Nomineecos” refers collectively to Nomineeco 1, Nomineeco 4, Nomineeco 6, Nomineeco 8 and Nomineeco 9;
“Parentco” refers to XXXXXXXXXX, a corporation continued into and governed under the laws of the Province of XXXXXXXXXX, as described in Paragraph 1;
“Predecessor Corporations” refers to Parentco, Subco, Subsidiary 1, Subsidiary 2, Subsidiary 3, Subsidiary 4, Subsidiary 5, Subsidiary 6, Subsidiary 7, Subsidiary 8 and Subsidiary 9;
“Sibling 1” refers to XXXXXXXXXX, who is an individual resident in Canada and the brother of Sibling 2 and Sibling 3;
“Sibling 2” refers to XXXXXXXXXX, who is an individual resident in Canada and the sister of Sibling 1 and Sibling 3;
“Sibling 3” refers to XXXXXXXXXX, who is an individual resident in Canada and the brother of Sibling 1 and Sibling 2;
“Sibling” refers to any one of Sibling 1, Sibling 2 or Sibling 3, as the context may require, and “Siblings” refers collectively to Sibling 1, Sibling 2 and Sibling 3;
“Soldco 1” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Soldco 2” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Soldco 3” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subco” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 1” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 2” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 3” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 4” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 5” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 6” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 7” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 8” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 9” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary 10” refers to XXXXXXXXXX, a corporation incorporated under and governed by the laws of the Province of XXXXXXXXXX;
“Subsidiary” refers to any one of Subsidiary 1, Subsidiary 2, Subsidiary 3, Subsidiary 4, Subsidiary 5, Subsidiary 6, Subsidiary 7, Subsidiary 8, Subsidiary 9 or Subsidiary 10, as the context may require, and “Subsidiaries” refers collectively to all of them;
“TC1” means a corporation to be incorporated under the XXXXXXXXXX by Holdco 1 as described in Paragraph 47;
“TC2” means a corporation to be incorporated under the XXXXXXXXXX by Holdco 2 as described in Paragraph 47;
“TC3” means a corporation to be incorporated under the XXXXXXXXXX by Holdco 3 as described in Paragraph 47;
“TC” refers to any one of TC1, TC2 or TC3, as the context may require, and “TCs” refers collectively to TC1, TC2 and TC3;
“Trust 1” refers to the XXXXXXXXXX, an inter vivos trust established for the benefit of the lineal descendants of Sibling 1;
“Trust 2” refers to the XXXXXXXXXX, an inter vivos trust established for the benefit of the lineal descendants of Sibling 2;
“Trust 3” refers to the XXXXXXXXXX, an inter vivos trust established for the benefit of the lineal descendants of Sibling 3; and
“Trust” refers to any one of Trust 1, Trust 2 or Trust 3, as the context may require, and “Trusts” refers collectively to Trust 1, Trust 2 and Trust 3.
The following abbreviations, terms and expressions have the meanings specified for the purposes of this letter:
“active business” has the meaning assigned by subsection 248(1);
“adjusted cost base” or “ACB” has the meaning assigned by section 54;
“agreed amount” means the amount that a transferor and a transferee have agreed on in a joint election under subsection 85(1) in respect of the transfer of an “eligible property”;
“Amalgamation” refers to the long-form amalgamation of the Predecessor Corporations as described in Paragraph 49;
“arm’s length” has the meaning assigned by subsection 251(1);
XXXXXXXXXX;
“Canadian-controlled private corporation”, or “CCPC”, has the meaning assigned by subsection 125(7);
“capital dividend” has the meaning assigned by subsection 83(2);
“capital dividend account”, or “CDA”, has the meaning assigned by subsection 89(1);
“capital property” has the meaning assigned by section 54;
“Class A Common Shares” means the Class A common shares in the capital stock of TC1, TC2 or TC3, as the case may be, described in Paragraph 47;
“Class B Preferred Shares” means the Class B preferred shares in the capital stock of TC1, TC2 or TC3, as the case may be, described in Paragraph 47;
“Class C Preferred Shares” means the Class C preferred shares in the capital stock of TC1, TC2 or TC3, as the case may be, described in Paragraph 47;
“Completed Transactions” means the transactions described in the Completed Transactions section of this letter as more particularly described in Paragraphs 43 to 46;
“co-ownership arrangement” has the meaning set out in Paragraph 82;
“co-owner” and “co-owners” each have the meaning set out in Paragraph 82(a);
“CRA” means the Canada Revenue Agency;
“DC Class A Common Shares” means the Parentco Class A Common Shares before the Amalgamation, that will become the issued and outstanding common shares of the capital stock of DC after the Amalgamation, as described in Paragraph 50;
“DC Class B Preferred Shares” means the Parentco Class B Preferred Shares before the Amalgamation, that will become the issued and outstanding preferred shares of the capital stock of DC after the Amalgamation, as described in Paragraph 50;
“DC Deemed Dividends” means the dividends, deemed by subsection 84(3) to have been paid by DC, and received by each of TC1 and TC2, on the purchase for cancellation by DC of DC Class A Common Shares, and the redemption of DC Class B Preferred Shares, as described in Paragraph 74 and Ruling C;
“DC Notes” refers collectively to the DC Repurchase Note A, the DC Redemption Note A, the DC Repurchase Note B and the DC Redemption Note B;
“DC Redemption Note A” has the meaning set out in Paragraph 74(c);
“DC Redemption Note B” has the meaning set out in Paragraph 74(c);
“DC Repurchase Note A” has the meaning set out in Paragraph 74(b);
“DC Repurchase Note B” has the meaning set out in Paragraph 74(b);
“DC Retained Property” has the meaning set out in Paragraph 67(c);
“DC Transfers” has the meaning set out in Paragraph 67;
“distribution” has the meaning assigned by subsection 55(1);
“Distribution Property” has the meaning set out in Paragraph 67;
“dividend refund” has the meaning assigned by subsection 129(1);
“Effective Date” means the first day of the second taxation year of DC;
“eligible dividend” has the meaning assigned by subsection 89(1);
“eligible property” has the meaning assigned by subsection 85(1.1);
“ERDTOH” means “eligible refundable dividend tax on hand” and has the meaning assigned to that term in subsection 129(4);
“Final Amalgamation” refers to the short-form vertical amalgamation of DC and TC3 pursuant to Division 3 of Part 9 of the XXXXXXXXXX and section 87 of the Act, as more particularly described in Paragraph 78;
“FMV” means “fair market value” and refers to the highest price available in an open and unrestricted market between informed and prudent parties acting at arm’s length and under no compulsion to act, expressed in terms of cash;
“forgiven amount” has the meaning assigned by subsection 80(1);
“GRIP” means “general rate income pool” and has the meaning assigned by subsection 89(1);
“Holdco 3 Note” means the demand promissory note issued by Holdco 3 to Subco in full and final satisfaction of the aggregate purchase price of property acquired by Holdco 3 from Subco pursuant to the share purchase agreement, and not as mere evidence of an amount owing, and as part of the Completed Transactions;
“NERDTOH” means “non-eligible refundable dividend tax on hand” and has the meaning assigned by subsection 129(4);
“Parentco Class A Common Shares” means the Class A common shares of the capital stock of Parentco that are currently issued and outstanding and described in Paragraph 2;
“Parentco Class B Preferred Shares” means the Class B preferred shares of the capital stock of Parentco that are currently issued and outstanding and described in Paragraph 2;
“proceeds of disposition” has the meaning assigned by section 54;
“Property 1-A” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-B” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-C” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-D” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-E” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-F” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 1-G” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 2-A” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 2-B” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 2-C” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 2-D” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 2-E” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 3” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 4” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 5” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 6” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 7-A” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 7-B” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 7-C” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 8-A” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 8-B” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 9” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property 10” refers to land and improvements located at XXXXXXXXXX and all equipment and furniture related thereto or situated thereon;
“Property” means any one of Property 1-A, Property 1-B, Property 1-C, Property 1-D, Property 1-E, Property 1-F, Property 1-G, Property 2-A, Property 2-B, Property 2-C, Property 2-D, Property 2-E, Property 3, Property 4, Property 5, Property 6, Property 7-A, Property 7-B, Property 7-c, Property 8-A, Property 8-B, Property 9, Property 10, as the context may require, and “Properties” means more than one of them as the context may require;
“Property Pool A” has the meaning set out in Paragraph 64;
“Property Pool B” has the meaning set out in Paragraph 64;
“Property Pool C” has the meaning set out in Paragraph 64;
“Property Pool” refers to any one of Property Pool A, Property Pool B or Property Pool C, as the context may require, and “Property Pools” refers collectively to Property Pool A, Property Pool B and Property Pool C;
“Proposed Transactions” means the transactions described in the Proposed Transactions section of this letter as more particularly described in Paragraphs 47 to 79;
“PUC” means “paid-up capital” and has the meaning assigned by subsection 89(1);
“RDTOH” means “refundable dividend tax on hand” as that expression is defined in former subsection 129(3);
“redemption amount” means with respect to a share of any class of a corporation, the amount for which such share is retractable by the holder or redeemable by the corporation;
“restricted financial institution” has the meaning assigned by subsection 248(1);
“safe-income determination time” has the meaning assigned by subsection 55(1);
“series of transactions or events” has the meaning assigned by subsection 248(10);
“share purchase agreement” means the share purchase agreement(s) dated XXXXXXXXXX between Holdco 3 and Subco in respect of the purchase by Holdco 3 of the shares in the capital of Soldco 1, Soldco 2, and Soldco 3, and relevant debts receivable, owned by Subco;
“specified financial institution” has the meaning assigned by subsection 248(1);
“specified investment business” has the meaning assigned to that term by subsection 125(7);
“stated capital” in respect of a class of shares of a corporation, means the amount added to the capital of the corporation in respect of that class under the XXXXXXXXXX;
“Subco Class A Common Shares” means the Class A common shares of the capital stock of Subco that are currently issued and outstanding and described in Paragraph 17;
“Subco Class B Preferred Shares” means the Class B preferred shares of the capital stock of Subco that are currently issued and outstanding and described in Paragraph 17;
“substantial interest” has the meaning assigned by subsection 191(2);
“taxable Canadian corporation” has the meaning assigned by subsection 89(1);
“taxable dividend” has the meaning assigned to that term by subsection 89(1);
“taxation year” has the meaning assigned by subsection 249(1);
“TC1 Distribution Property” has the meaning set out in Paragraph 67(a);
“TC2 Distribution Property” has the meaning set out in Paragraph 67(b);
“TC1 Redemption Note” has the meaning set out in Paragraph 72;
“TC2 Redemption Note” has the meaning set out in Paragraph 72;
“TC Redemption Notes” means collectively TC1 Redemption Note and TC2 Redemption Note;
“type of property” means one of the following three types of property into which DC’s property may be classified (referred to collectively as “types of property”), as described in Paragraph 62:
(a) cash or near-cash property;
(b) investment property; and
(c) business property; and
“Valuator” means an independent professional valuation firm practicing in, inter alia, business valuation, or an independent accredited real estate appraisal company, as the case may be.
FACTS
The relevant facts are as follows:
Parentco
1. Parentco is and will be, at all relevant times and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Parentco is currently governed under the XXXXXXXXXX and has a XXXXXXXXXX taxation year-end.
2. The history of the shareholdings of Parentco is as follows:
(a) Parentco was incorporated on XXXXXXXXXX under the laws of XXXXXXXXXX;
(b) On incorporation, the authorized share capital of Parentco consisted of the following classes of shares:
i. XXXXXXXXXX Parentco Class A Common Shares, which are without par value, non-voting, entitled to dividends and, in the event of the winding-up, dissolution or liquidation of the corporation, will rank last in priority and entitle the holder to share equally in the remaining assets of the corporation;
ii. XXXXXXXXXX Parentco Class B Preferred Shares, which are without par value, voting, non-participating and, in the event of the winding-up, dissolution or liquidation of the corporation, will rank second in priority and entitle the holder to an amount equal to the PUC of the shares;
iii. XXXXXXXXXX Class C preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the corporation, rank first in priority (along with the holders of the Class D preferred shares and the Class E preferred shares) and entitle the holder to an amount up to the redemption amount of the shares;
iv. XXXXXXXXXX Class D preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the corporation, rank first in priority (along with the holders of the Class C preferred shares and the Class E preferred shares) and entitle the holder to an amount up to the redemption amount of the shares; and
v. XXXXXXXXXX Class E preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the corporation, rank first in priority (along with the holders of the Class C preferred shares and the Class D preferred shares) and entitle the holder to an amount up to the redemption amount of the shares.
(c) On incorporation, each Sibling subscribed for XXXXXXXXXX Parentco Class B Preferred Shares for $XXXXXXXXXX per share;
(d) On XXXXXXXXXX, each Sibling transferred, on a tax-deferred basis under subsection 85(1), their respective XXXXXXXXXX Subco Class A Common Shares and XXXXXXXXXX Subco Class B Preferred Shares in exchange for XXXXXXXXXX Parentco Class A Common Shares and XXXXXXXXXX Parentco Class B Preferred Shares;
(e) On XXXXXXXXXX, the rights and restrictions attached to the Parentco Class A Common Shares and Parentco Class B Preferred Shares were altered to provide that such shares were redeemable and retractable in certain limited circumstances;
(f) On XXXXXXXXXX, each Sibling transferred, on a tax-deferred basis under subsection 85(1), their respective XXXXXXXXXX Parentco Class A Common Shares and XXXXXXXXXX Parentco Class B Preferred Shares to their particular Holdco;
(g) On XXXXXXXXXX, Parentco was continued into the corporate jurisdiction of XXXXXXXXXX;
(h) On XXXXXXXXXX, new share certificates were issued in respect of the Parentco Class A Common Shares and the Parentco Class B Preferred Shares that were issued and outstanding at that time, to reflect the change to Parentco’s current name.
There have been no substantive changes to the share capital of Parentco since XXXXXXXXXX.
3. The current issued and outstanding share capital of Parentco is held as follows:
Shareholder Number and Class of Shares ACB PUC
Holdco 1 XXXXX Parentco Class A Common Shares XXXXX XXXXX
XXXXX Parentco Class B Preferred Shares XXXXX XXXXX
Holdco 2 XXXXX Parentco Class A Common Shares XXXXX XXXXX
XXXXX Parentco Class B Preferred Shares XXXXX XXXXX
Holdco 3 XXXXX Parentco Class A Common Shares XXXXX XXXXX
XXXXX Parentco Class B Preferred Shares XXXXX XXXXX
Each Holdco holds its respective shares in Parentco as capital property and all such shares are eligible property. None of the Class C preferred shares, the Class D preferred shares or the Class E preferred shares have ever been issued.
4. The Siblings, through their respective Holdcos, have always acted jointly and in concert with respect to the significant business and financial decisions of Parentco and the associated group of corporations.
5. Parentco is primarily an investment holding corporation that engages in the management and development of real estate rental properties through Subco and the Subsidiaries. As at XXXXXXXXXX, Parentco’s assets consisted of cash, income taxes recoverable, shares in the capital stock of Subco and a debt receivable owing by Subco. The FMV of Parentco’s assets (before adjusting the cost of the shares of Subco and the debt receivable from cost to FMV), was approximately $XXXXXXXXXX. Parentco holds the Subco shares and debt receivable as capital property.
6. As at XXXXXXXXXX, Parentco had outstanding liabilities of approximately $XXXXXXXXXX primarily attributable to amounts owing to the Siblings and their respective Holdcos, as well as accounts payable and accrued liabilities. The aforementioned shareholder loans are non-interest-bearing and payable on demand and the related party loans are interest-bearing and payable on demand.
7. There has not been a material change in the composition of Parentco’s assets and liabilities described herein, since XXXXXXXXXX. Moreover, there will not be any material change in the composition of Parentco’s assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date the Proposed Transactions described herein are completed.
8. As at XXXXXXXXXX, Parentco had the following tax account balances:
(a) RDTOH $XXXXXXXXXX
(b) GRIP $XXXXXXXXXX
(c) CDA $XXXXXXXXXX
Holdcos
9. Each Holdco is a CCPC and a taxable Canadian corporation incorporated on XXXXXXXXXX under the XXXXXXXXXX. The taxation year-end for each Holdco is XXXXXXXXXX.
10. The history of the shareholdings of each Holdco is as follows:
(a) On incorporation, the authorized share capital of each Holdco consisted of the following shares:
i. XXXXXXXXXX Class A common shares, which are without par value, non-voting, participating and, in the event of a winding-up, dissolution or liquidation of the particular Holdco, will rank last in priority and entitle the holder to share equally in the remaining assets of the corporation;
ii. XXXXXXXXXX Class B preferred shares, which are without par value, voting, non-participating and, in the event of a winding-up, dissolution or liquidation of the particular Holdco, rank fourth in priority and entitle the holder to receive an amount equal to the PUC of the shares;
iii. XXXXXXXXXX Class C preferred shares, which are without par value, non-voting, conditionally participating, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the particular Holdco, rank first in priority and entitle the holder to receive an amount equal to the redemption amount of the shares;
iv. XXXXXXXXXX Class D preferred shares, which are without par value, non-voting, conditionally participating, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the particular Holdco, rank second in priority and entitle the holder to receive an amount equal to the redemption amount of the shares; and
v. XXXXXXXXXX Class E preferred shares, which are without par value, non-voting, conditionally participating, redeemable and retractable for an amount determined by the directors at the time of issuance and, in the event of a winding-up, dissolution or liquidation of the particular Holdco, rank third in priority and entitle the holder to receive an amount equal to the redemption amount of the shares.
(b) On incorporation, each Sibling acquired XXXXXXXXXX Class B preferred shares of their particular Holdco for $XXXXXXXXXX per share;
(c) On XXXXXXXXXX, each Sibling undertook the following transactions to implement an estate freeze in respect of their shareholding in Parentco:
(a) the transfer of their XXXXXXXXXX Parentco Class A Common Shares to their particular Holdco in exchange for consideration including,
- a promissory note in the amount of $XXXXXXXXXX,
- XXXXXXXXXX Class C preferred shares of the particular Holdco, having an aggregate redemption amount of $XXXXXXXXXX and
- XXXXXXXXXX Class A common shares of the particular Holdco;
(b) the transfer of their XXXXXXXXXX Parentco Class B Preferred Shares in exchange for XXXXXXXXXX Class B preferred shares of their particular Holdco;
(c) the exchange of the XXXXXXXXXX Class A common shares in their respective Holdco for XXXXXXXXXX Class D preferred shares of the Holdco, having a redemption amount of approximately $XXXXXXXXXX per share; and
(d) the creation of a family trust for each Sibling, which subscribed for XXXXXXXXXX Class A common shares of their respective Holdco for $XXXXXXXXXX per share; and
(d) Each Holdco has periodically redeemed Class D preferred shares held by the respective Sibling.
11. The issued and outstanding shares in the capital of Holdco 1 are held as follows:
Shareholder Number and Class of Shares ACB PUC Aggregate redemption amount
Sibling 1 XXXXX Class B preferred shares XXXXX XXXXX XXXXX
XXXXX Class C preferred shares XXXXX XXXXX XXXXX
XXXXX Class D preferred shares XXXXX XXXXX XXXXX
Trust 1 XXXXX Class A common shares XXXXX XXXXX XXXXX
12. The issued and outstanding shares in the capital of Holdco 2 are held as follows:
Shareholder Number and Class of Shares ACB PUC Aggregate redemption amount
Sibling 2 XXXXX Class B preferred shares XXXXX XXXXX XXXXX
XXXXX Class C preferred shares XXXXX XXXXX XXXXX
XXXXX Class D preferred shares XXXXX XXXXX XXXXX
Trust 2 XXXXX Class A common shares XXXXX XXXXX XXXXX
13. The issued and outstanding shares in the capital of Holdco 3 are held as follows:
Shareholder Number and Class of Shares ACB PUC Aggregate redemption amount
Sibling 3 XXXXX Class B preferred shares XXXXX XXXXX XXXXX
XXXXX Class C preferred shares XXXXX XXXXX XXXXX
XXXXX Class D preferred shares XXXXX XXXXX XXXXX
Trust 3 XXXXX Class A common shares XXXXX XXXXX XXXXX
Trust 1, Trust 2 and Trust 3
14. Each of Trust 1, Trust 2 and Trust 3 was settled on June 29, 2011 under the laws of XXXXXXXXXX with the following general terms:
(a) the settlor of each trust is XXXXXXXXXX;
(b) the beneficiaries of each of Trust 1, Trust 2 and Trust 3 are the issue of Sibling 1, Sibling 2 and Sibling 3, respectively;
(c) each Sibling is the trustee of the trust established for the benefit of their lineal descendants;
(d) the terms of each trust gives the trustee the discretionary power to distribute the income and capital of the trust; and
(e) the terms of each trust are designed to meet the conditions in subsection 74.4(4) and each trust is not a reversionary trust under subsection 75(2).
15. The trustees and beneficiaries of Trust 1, Trust 2 and Trust 3 are residents of Canada for the purposes of the Act.
Subco
16. Subco is a CCPC and a taxable Canadian corporation incorporated on XXXXXXXXXX under the XXXXXXXXXX. The taxation year-end for Subco is XXXXXXXXXX.
17. The authorized share capital of Subco consists of the following shares:
(a) XXXXXXXXXX Subco Class A Common Shares, which are without par value, non-voting, participating and, in the event of the winding-up, dissolution or liquidation of the corporation, the Subco Class A Common Shares will rank last in priority and entitle the holder to share equally in the remaining assets of the corporation;
(b) XXXXXXXXXX Subco Class B Preferred Shares, which are without par value, voting, non-participating and, in the event of the winding-up, dissolution or liquidation of the corporation, the Subco Class B Preferred Shares will rank second in priority and entitle the holder to receive an amount equal to the PUC of the shares;
(c) XXXXXXXXXX Class C preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance of the Class C preferred shares and, in the event of a winding-up, dissolution or liquidation of the corporation, the Class C preferred shares will rank first in priority (along with the holders of the Class D preferred shares and the Class E preferred shares) and entitle the holder to receive an amount up to the redemption amount of the shares;
(d) XXXXXXXXXX Class D preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance of the Class D preferred shares and, in the event of a winding-up, dissolution or liquidation of the corporation, the Class D preferred shares will rank first in priority (along with the holders of the Class C preferred shares and the Class E preferred shares) and entitle the holder to receive an amount up to the redemption amount of the shares; and
(e) XXXXXXXXXX Class E preferred shares, which are without par value, non-voting, conditionally entitled to dividends, redeemable and retractable for an amount determined by the directors at the time of issuance of the Class E preferred shares and, in the event of a winding-up, dissolution or liquidation of the corporation, the Class E preferred shares will rank first in priority (along with the holders of the Class C preferred shares and the Class D preferred shares) and entitle the holder to receive an amount up to the redemption amount of the shares.
18. The issued and outstanding shares of the capital stock of Subco consist of XXXXXXXXXX Subco Class A Common Shares and XXXXXXXXXX Subco Class B Preferred Shares, all of which are held by Parentco. None of the Class C preferred shares, the Class D preferred shares or the Class E preferred shares have ever been issued.
19. The XXXXXXXXXX Subco Class A Common Shares have an aggregate ACB and PUC of $XXXXXXXXXX, and the XXXXXXXXXX Subco Class B Preferred Shares have an aggregate ACB equal to the aggregate PUC of $XXXXXXXXXX.
20. Subco is primarily an investment holding corporation that engages in the management and development of real estate rental properties through the Subsidiaries. Subco owns all of the issued and outstanding shares of the capital stock of the Subsidiaries, which have the following attributes:
Shareholder Number and Class of Shares ACB PUC
Subsidiary 1 XXXXX Class B common shares XXXXX XXXXX
XXXXX Class C common shares XXXXX XXXXX
XXXXX Class D preferred shares XXXXX XXXXX
Subsidiary 2 XXXXX Class B common shares XXXXX XXXXX
XXXXX Class C common shares XXXXX XXXXX
Subsidiary 3 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 4 XXXXX Class A common shares XXXXX XXXXX
Subsidiary 5 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 6 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 7 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 8 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 9 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
Subsidiary 10 XXXXX Class A common shares XXXXX XXXXX
XXXXX Class B preferred shares XXXXX XXXXX
21. Subco holds its shares in the capital stock of each Subsidiary as capital property and all such shares are eligible property.
22. As at XXXXXXXXXX, in addition to the shares in the capital stock of the Subsidiaries, Subco’s assets consisted of cash and debt receivables owing by the Subsidiaries and other related parties. The approximate value of Subco’s assets (before adjusting for the shares of the Subsidiaries and the debt receivables from cost to FMV) was approximately $XXXXXXXXXX. Subco holds all its assets as capital property.
23. As at XXXXXXXXXX, Subco had outstanding liabilities of approximately $XXXXXXXXXX primarily attributable to amounts owing to Parentco and other related parties which are interest-bearing and payable on demand, as well as accounts payable and accrued liabilities.
24. As at XXXXXXXXXX, Subco had the following tax account balances:
(a) NERDTOH $XXXXXXXXXX
(b) ERDTOH $XXXXXXXXXX
(c) GRIP $XXXXXXXXXX
(d) CDA $XXXXXXXXXX
Subsidiaries
25. Each of the Subsidiaries is a CCPC and a taxable Canadian corporation and has a XXXXXXXXXX taxation year-end.
26. Subco owns all the issued and outstanding shares in the capital of Subsidiary 1, Subsidiary 2, Subsidiary 3, Subsidiary 4, Subsidiary 5, Subsidiary 6, Subsidiary 7, Subsidiary 8, Subsidiary 9 and Subsidiary 10 as described in Paragraph 20.
27. Each of the Subsidiaries holds and manages real estate rental properties. Certain Subsidiaries also develop real estate with a view to holding and managing the rental of the developed properties for an indefinite period of time.
28. The Subsidiaries’ assets generally consist of cash, short-term guaranteed investment certificates, accounts receivable, prepaid expenses and deposits, and one or more of the Properties. More specifically, each Subsidiary has a beneficial interest in the Property listed adjacent to the Subsidiary in the table below, as well as legal title to each such Property, unless a separate Nomineeco has been identified as the legal titleholder:
Beneficial Owner/Legal Titleholder Property
Subsidiary 1 Property 1-A; Property 1-B; Property 1-C; Property 1-D; Property 1-E; and Property 1-F
Subsidiary 1/ Nomineeco 1 Property 1-G
Subsidiary 2 Property 2-A; Property 2-B; Property 2-C; Property 2-D; Property 2-E
Subsidiary 3 Property 3
Subsidiary 4/ Nomineeco 4 Property 4
Subsidiary 5 Property 5
Subsidiary 6/ Nomineeco 6 Property 6
Subsidiary 7 Property 7-A; Property 7-B; and Property 7-C
Subsidiary 8 Property 8-A
Subsidiary 8/ Nomineeco 8 Property 8-B
Subsidiary 9/ Nomineeco 9 Property 9
Subsidiary 10 Property 10
29. Each of the Properties constitutes capital property to the respective Subsidiary, and the aggregate FMV of the Properties as at XXXXXXXXXX is approximately $XXXXXXXXXX.
30. The liabilities of the Subsidiaries generally consists of accounts payable and accrued liabilities, government remittances and income taxes payable, rents received in advance, tenants’ security deposits, and long-term debt secured by way of mortgage against the Properties. Regarding the long-term debt:
(a) each Subsidiary received loans from, and are currently indebted to, Subco; and
(b) Subsidiary 7 received a loan from, and is currently indebted to, an arm’s length lender.
31. Each of the Subsidiaries, other than Subsidiary 1, carries on a specified investment business in respect of the Properties owned by each Subsidiary, respectively.
32. Since XXXXXXXXXX, and continuing to the present date, Subsidiary 1 has employed more than XXXXXXXXXX employees in its business to manage its Properties, throughout each taxation year. As a result, Subsidiary 1 has consistently treated the rental income it earns each year from its Properties, as income from an active business on the basis that it has carried on an active business during the relevant period of time. As of the date of this letter, Subsidiary 1 employs XXXXXXXXXX employees.
33. For purposes of the DC Transfers described in Paragraph 67, the issued and outstanding share capital of Subsidiary 10 consists of the following:
(a) XXXXXXXXXX Class A common non-voting shares without par value, non-voting, participating and on a winding up, dissolution or liquidation of Subsidiary 10, the class A common non-voting shares rank last in priority and entitle the holders to all remaining assets of Subsidiary 10.
(b) XXXXXXXXXX Class B voting preferred shares without par value, voting, participating and, on a winding up, dissolution or liquidation of Subsidiary 10, the class B voting preferred shares rank first in priority and entitle the holders to an amount equal to the PUC of the class B voting preferred shares.
Nomineecos
34. The Nomineecos are all CCPCs and taxable Canadian corporations incorporated under the XXXXXXXXXX.
35. Nomineeco 1 was incorporated on XXXXXXXXXX. Subsidiary 1 owns all of the issued and outstanding shares of the capital stock of Nomineeco 1, consisting of XXXXXXXXXX common shares having an ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX.
36. Nomineeco 4 was incorporated on XXXXXXXXXX. Subsidiary 4 owns all of the issued and outstanding shares of the capital stock of Nomineeco 4, consisting of XXXXXXXXXX common share having an ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX.
37. Nomineeco 6 was incorporated on XXXXXXXXXX. Subsidiary 6 owns all of the issued and outstanding shares of the capital stock of Nomineeco 6, consisting of XXXXXXXXXX common shares having an ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX.
38. Nomineeco 8 was incorporated on XXXXXXXXXX. Subsidiary 8 owns all of the issued and outstanding shares of the capital stock of Nomineeco 8, consisting of XXXXXXXXXX common shares having an ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX.
39. Nomineeco 9 was incorporated on XXXXXXXXXX. Subsidiary 9 owns all of the issued and outstanding shares of the capital stock of Nomineeco 9, consisting of XXXXXXXXXX common shares having an ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX.
40. Each Nomineeco was incorporated for the sole purpose of holding legal title to the particular Property described in the table in Paragraph 28, as bare trustee, nominee and agent for the particular Subsidiary that is the beneficial owner of such Property. The Nomineecos will continue to hold legal title of their respective Property throughout the Proposed Transactions that includes the distribution of such Property as described in Paragraph 67.
41. The Nomineecos have had no business activity since incorporation and each Nomineeco earns no revenue and has no assets, apart from legal title to a Property, as set out in the table in Paragraph 28.
42. Registered title to all other Properties is held by the Subsidiary listed adjacent to the particular Property described in the table in Paragraph 28.
Completed Transactions
43. Effective XXXXXXXXXX, and pursuant to a share purchase agreement, Subco sold, and Holdco 3 acquired, all of the shares in the capital stock held by Subco of each of Soldco 1, Soldco 2 and Soldco 3. At the time of the sale, the issued and outstanding shares in the capital stock were held as follows:
Shareholder Number of shares ACB PUC
Soldco 1
Subco XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
ALco 1 XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
Soldco 2
Subco XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
ALco 2 XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
Soldco 3
Subco XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
ALco 3 XXXXX Class A common shares, non-voting and participating XXXXX XXXXX
XXXXX Class B preferred shares, voting and participating XXXXX XXXXX
44. The aggregate purchase price for the shares of each of Soldco 1, Soldco 2 and Soldco 3, together with the debt receivable owed by each corporation to Subco, was equal to the FMV, at that time, of such shares and debt receivable, respectively. For the purposes of determining the purchase price in each sale, Subco and Holdco 3 relied on a determination of the FMV of such property, respectively, pursuant to a valuation prepared by a Valuator.
45. As consideration for the aggregate purchase price of the shares and debt receivables of Soldco 1, Soldco 2 and Soldco 3, Holdco 3 issued Holdco 3 Note to Subco in full and final satisfaction of the aggregate purchase price for all such property. Holdco 3 Note was not convertible into any other property and has been repaid in full.
46. Subco reported the disposition of the shares in the capital stock of each of Soldco 1, Soldco 2 and Soldco 3, including the debt receivable owing to Subco by each corporation, at FMV in its T2 Corporation Income Tax Return for its taxation year that included the disposition.
PROPOSED TRANSACTIONS
Incorporation of the TCs
47. Each of Holdco 1, Holdco 2 and Holdco 3 will incorporate a holding corporation, being TC1, TC2 and TC3, respectively, in accordance with the XXXXXXXXXX. Each TC will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. The authorized share capital of each TC will consist of XXXXXXXXXX Class A Common Shares, XXXXXXXXXX Class B Preferred Shares and XXXXXXXXXX Class C Preferred Shares with the following share attributes:
(a) the Class A Common Shares of each TC will be without par value, non-voting, participating, and in the event of the winding-up, dissolution or liquidation of the corporation, the Class A Common Shares will rank last in priority and entitle the holders to share equally in the remaining assets of the particular TC.
(b) the Class B Preferred Shares of each TC will be without par value, voting, non-participating, and in the event of a winding-up, dissolution or liquidation of the particular TC, the Class B Preferred Shares will rank second in priority and entitle the holders to receive an amount equal to the PUC of the shares.
(c) The Class C Preferred Shares of each TC will be without par value, non-voting, conditionally participating, redeemable and retractable for an amount as determined by the directors at the time of issuance of the Class C Preferred Shares, and in the event of a winding-up, dissolution or liquidation of the particular TC, the Class C Preferred Shares will rank first in priority and entitle the holders to receive an amount equal to the redemption amount of the shares.
48. Upon incorporation, each Holdco will subscribe for XXXXXXXXXX Class B Preferred Shares of the capital stock of their particular TC for $XXXXXXXXXX.
Amalgamation
49. The Predecessor Corporations will amalgamate pursuant to the Amalgamation to form DC such that:
(a) the Amalgamation will qualify as an amalgamation within the meaning assigned by subsections 87(1) and (1.1);
(b) all of the property, including the Properties, and the liabilities of the Predecessor Corporations (except amounts receivable from or payable to any Predecessor Corporation or shares of the capital stock of any Predecessor Corporation) immediately before the Amalgamation will become property of DC by virtue of the Amalgamation; and
(c) all of the shareholders (except for any Predecessor Corporation), who own shares of the capital stock of any Predecessor Corporation immediately before the Amalgamation, will receive shares of the capital stock of DC by virtue of the Amalgamation.
50. Furthermore, the amalgamation agreement will provide for the following:
(a) the shares of the capital stock of Subsidiary 1, Subsidiary 2, Subsidiary 3, Subsidiary 4, Subsidiary 5, Subsidiary 6, Subsidiary 7, Subsidiary 8 and Subsidiary 9 held by Subco immediately prior to the Amalgamation, will be cancelled without payment;
(b) the shares of the capital stock of Subco held by Parentco immediately prior to the Amalgamation, will be cancelled without payment;
(c) the authorized share capital of DC will be the same as the authorized share capital of Parentco immediately prior to the Amalgamation;
(d) the issued and outstanding shares in the capital stock of DC will be the same as the issued and outstanding shares in the capital stock of Parentco immediately prior to the Amalgamation (the DC Class A Common Shares and the DC Class B Preferred Shares);
(e) the intercorporate receivables and indebtedness outstanding among the Predecessor Corporations will be settled as a consequence of the Amalgamation; and
(f) the employees of the Predecessor Corporations will become the employees of DC on the Amalgamation. For greater certainty, it is expected that DC will employ more than XXXXXXXXXX employees subsequent to the Amalgamation throughout the taxation year that includes the DC Transfers.
51. DC will be a CCPC and a taxable Canadian corporation.
52. Immediately after the Amalgamation, DC will carry on the business of holding and managing the Properties that became the property of DC on the Amalgamation.
53. The Properties and the shares in the capital stock of Subsidiary 10, held by DC immediately after the Amalgamation, will be capital property to DC.
54. Registered title to each of the Properties acquired by DC as a consequence of the Amalgamation will be re-registered in the name of DC, other than those Properties for which the registered title will continue to be held by a Nomineeco.
Increase in PUC of the DC Class A Common Shares
55. DC will choose to end its first taxation year approximately one month after the Amalgamation upon the filing of its first T2 Corporation Income Tax Return in accordance with subsection 249.1(1).
56. On the last day of its first taxation year, DC will resolve to increase the PUC of the DC Class A Common Shares held by Holdco 1, Holdco 2 and Holdco 3 by way of an increase in the legal stated capital of such shares in accordance with the XXXXXXXXXX. The PUC will be increased by an aggregate amount sufficient to trigger a full refund of DC’s NERDTOH and ERDTOH, if any, at that time. For greater certainty, the amount of the increase to the PUC of the DC Class A Common Shares will not exceed the amount of safe income on hand determined immediately before the safe-income determination time for this dividend that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at FMV of the DC Class A Common Shares, immediately before the dividend.
57. Pursuant to subsection 84(1), and as a consequence of the increase in PUC, DC will be deemed to pay a dividend to the holders of the DC Class A Common Shares. For greater certainty, the increase in PUC will not be by way of one of the transactions or events described in paragraphs 84(1)(a) to (c.3) and, more specifically, it will not be as a result of the conversion of contributed surplus into PUC.
58. DC will be connected with each of the Holdcos pursuant to subsections 186(4) and 186(2) and the Holdcos will be subject to Part IV tax in respect of such deemed taxable dividends calculated by reference to DC’s dividend refund for its first taxation year.
Transfer of DC shares to the TCs
59. On a contemporaneous basis, at the beginning of the day on the Effective Date, Holdco 1, Holdco 2 and Holdco 3 will each transfer all of its shares of the capital stock of DC to TC1, TC2 and TC3, respectively, such that:
(a) Holdco 1 will transfer its XXXXXXXXXX DC Class A Common Shares and XXXXXXXXXX DC Class B Preferred Shares to TC1, in exchange for TC1 issuing XXXXXXXXXX of its Class A Common Shares as sole consideration for the transfer, with an aggregate FMV equal to the aggregate FMV of the shares of DC so transferred.
(b) Holdco 2 will transfer its XXXXXXXXXX DC Class A Common Shares and XXXXXXXXXX DC Class B Preferred Shares to TC2, in exchange for TC2 issuing XXXXXXXXXX of its Class A Common Shares as sole consideration for the transfer, with an aggregate FMV equal to the aggregate FMV of the shares of DC so transferred.
(c) Holdco 3 will transfer its XXXXXXXXXX DC Class A Common Shares and XXXXXXXXXX DC Class B Preferred Shares to TC3, in exchange for TC3 issuing XXXXXXXXXX of its Class A Common Shares as sole consideration for the transfer, with an aggregate FMV equal to the aggregate FMV of the shares of DC so transferred.
60. Holdco 1, Holdco 2 and Holdco 3, as the case may be, will jointly elect with its respective TC, in the prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer by each Holdco of the XXXXXXXXXX DC Class A Common Shares and XXXXXXXXXX DC Class B Preferred Shares, for an agreed amount equal to the ACB of the shares so transferred. For greater certainty, the agreed amount in respect of the election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) and will not exceed the FMV of the shares transferred to each TC.
61. TC1, TC2 and TC3, as the case may be, will add to its stated capital account maintained in respect of the shares of its capital stock issued to each respective Holdco, an amount equal to the agreed amount. For greater certainty, the increase to the PUC of Class A Common Shares issued by each TC will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
Types of Property Classification
62. Immediately before the transfers of property by DC as described in Paragraph 67, the property of DC will be classified into one of the following three types of property for the purposes of the definition of “distribution” in subsection 55(1):
(a) cash or near-cash property, consisting of all of the current assets of DC, including cash, short-term deposits, accrued interest receivable, accounts receivable and prepaid expenses, including, for greater certainty, the shares in the capital of the Nomineecos acquired by DC as a consequence of the Amalgamation;
(b) investment property, consisting of all of the assets of DC, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or from a specified investment business of DC; and
(c) business property, consisting of all of the assets of DC, other than property described in Paragraphs 62(a) and 62(b) above, any income from which would, for the purposes of the Act, be income from a business carried on by DC (other than a specified investment business).
63. For greater certainty, for purposes of the transfer of the property by DC:
(a) tax accounts or other tax related amounts of DC, such as the balance of any non-capital losses, net capital losses, NERDTOH, ERDTOH, CDA or GRIP, will not be considered property of DC for the purposes of determining whether a distribution has been made;
(b) advances that are payable on demand or that are due within the next 12 months will be considered cash or near-cash property;
(c) the amount of any deferred income tax or future income tax assets will not be considered a liability for the purposes of the Proposed Transactions;
(d) any amount in respect of refunds of taxes, and interest thereon, actually receivable will be treated as cash or near-cash property and any potential refunds of taxes and interest thereon will, due to their contingent nature, be ignored; and
(e) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification.
64. The Properties (other than Property 10) will be classified into three approximately equal pools of assets, Property Pool A, Property Pool B and Property Pool C, based on their FMVs.
65. DC has significant influence over Subsidiary 10. Consequently, DC would normally be required to use the consolidated look-through method for determining the appropriate proportion of each of the types of property represented by the shares and debts of Subsidiary 10. However, since DC will transfer to each of TC1 and TC2 its pro rata (one-third) proportion of the shares and debts of Subsidiary 10 owned by DC, the determination using the consolidated look-through method will not be undertaken for the purposes of the Proposed Transactions.
66. The transfer of property of DC described below will be made on a gross FMV basis. In determining the gross FMV of each type of property of DC immediately before the transfer, no liabilities of DC will be allocated to, and deducted from, the calculation of the gross FMV of each type of property.
DC Transfers
67. On the Effective Date, and following the transfer of shares described in Paragraph 59 and the determination of the gross FMV of each type of property, DC will contemporaneously transfer (the DC Transfers) to each of TC1 and TC2 a pro rata (one-third) portion of the gross FMV of each type of property owned by it at that time (collectively referred to as the Distribution Property), such that:
(a) TC1 will receive (collectively the TC1 Distribution Property):
i. one-third of DC’s business property, including for greater certainty, Property Pool A;
ii. one-third of the shares in the capital stock of Subsidiary 10;
iii. one-third of the debts receivable owed to DC by Subsidiary 10;
iv. one-third of DC’s cash or near cash; and
v. one-third of DC’s investment property.
(b) TC2 will receive (collectively the TC2 Distribution Property):
i. one-third of DC’s business property, including for greater certainty, Property Pool B;
ii. one-third of the shares in the capital stock of Subsidiary 10;
iii. one-third of the debts receivable owed to DC by Subsidiary 10;
iv. one-third of DC’s cash or near cash; and
v. one-third of DC’s investment property.
(c) DC and TC3 will retain (collectively the DC Retained Property):
i. one-third of DC’s business property, including for greater certainty, Property Pool C;
ii. one-third of the shares in the capital stock of Subsidiary 10;
iii. one-third of the debts receivable owed to DC by Subsidiary 10;
iv. one-third of DC’s cash or near cash; and
v. one-third of DC’s investment property.
For greater certainty, the Property Pools may include an undivided co-ownership interest, as tenants-in-common, in one or more of the Properties (other than Property 10) described in Paragraph 28.
68. Immediately after the DC Transfers, the aggregate gross FMV of each type of property transferred to each of TC1 and TC2, as the case may be, will be equal to or approximate the proportion of each type of property determined by the formula:
A x B/C
where:
A is the FMV, immediately before the DC Transfers, of all property of that type of property owned at that time by DC;
B is the aggregate FMV, immediately before the DC Transfers, of all of the shares of the capital stock of DC owned at that time by TC1 or TC2, as the case may be; and
C is the aggregate FMV, immediately before the DC Transfers, of all of the issued and outstanding shares of the capital stock of DC.
The expression “approximate the proportion” above means that the discrepancy from the proportion, if any, will not exceed one percent (1%), determined as a percentage of the aggregate gross FMV of each type of property that each of TC1 and TC2 has received, or DC has retained, as compared to what each TC would have received, or DC would have retained, had it received or retained, as the case may be, its appropriate pro rata share of the aggregate gross FMV of that type of property of DC.
69. In the circumstance that the TC1 Distribution Property or the TC2 Distribution Property includes a beneficial interest in one or more Properties for which legal title is held by a Nomineeco, the particular TC will enter into a nominee agreement with the Nomineeco effective on the date of the DC Transfers. The nominee agreement will specify that the particular Nomineeco will hold the legal title to any such Property as the nominee, agent and bare trustee for the sole benefit of TC1 or TC2, as the case may be, and that it will not deal with such property without receiving the prior written instructions, consent or direction of TC1 or TC2, as applicable.
70. As consideration for the DC Transfers, each of TC1 and TC2, as the case may be, will:
(a) assume its proportionate (one-third) share of the liabilities of DC such that the amount of the liabilities assumed by each TC, will equal the proportion of the aggregate amount of the liabilities of DC, determined immediately before the DC Transfers, that:
i. the aggregate FMV, immediately before the DC Transfers, of the shares of the capital stock of DC held by TC1 and TC2, as applicable;
is of
ii. the aggregate FMV, immediately before the DC Transfers, of all of the issued and outstanding shares of the capital stock of DC; and
(b) issue to DC, 1,000 Class C Preferred Shares of its capital stock having an aggregate FMV and redemption amount equal to the amount by which the aggregate FMV of the TC1 Distribution Property or the TC2 Distribution Property, as the case may be, exceeds the aggregate FMV of the liabilities assumed by TC1 or TC2, as the case may be, in connection with the transfer.
71. DC will jointly elect with each of TC1 and TC2, respectively, in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply in respect of the transfer of each eligible property of DC that is transferred by DC to each TC. The agreed amount in respect of each such eligible property will not be less than:
(a) in the case of a property described in paragraph 85(1)(c.1), the least of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii); and
(b) in the case of a depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii), and (iii).
The agreed amount in respect of each eligible property, will not be greater than the FMV of such eligible property, nor will it be less than the amount permitted under paragraph 85(1)(b).
The amount added to the stated capital of the TC1 Class C Preferred Shares and the TC2 Class C Preferred Shares received by DC, as the case may be, will be an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to each TC, and (b) the aggregate FMV, in the case of each property transferred to each TC that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC assumed by the particular TC. For greater certainty, the amount added to the stated capital account for the Class C Preferred Shares that will be issued by each TC as partial consideration for the Distribution Property received by such TC, will not exceed the maximum amount that could be added to the aggregate PUC of the particular shares without a reduction taking place pursuant to subsection 85(2.1).
Redemption of Class C Preferred Shares of TC1 and TC2
72. On the Effective Date, and after the DC Transfers, each of TC1 and TC2 will redeem all of the TC1 Class C Preferred Shares or the TC2 Class C Preferred Shares, as the case may be, for an amount equal to the aggregate redemption amount and FMV of such shares. In satisfaction of the redemption amount for such shares, each of TC1 and TC2 will issue to DC a non-interest-bearing demand promissory note, TC1 Redemption Note and TC2 Redemption Note, respectively, with a principal amount and FMV equal to the redemption amount of the shares so redeemed. DC will accept TC1 Redemption Note and TC2 Redemption Note in full payment of the aggregate redemption amount of the redeemed shares.
73. At the end of the day on the Effective Date, and after the redemption of the TC1 Class C Preferred Shares and the TC2 Class C Preferred Shares, each of TC1 and TC2 will cause its first taxation year to end in accordance with subsection 249.1(1).
Repurchase and redemption of shares in the capital of DC
74. Commencing at the beginning of the first day after the Effective Date, DC will:
(a) to the extent of its capital dividend account, and immediately prior to the purchase for cancellation by DC as described in Paragraphs 74(b) and 74(c), increase the PUC of its issued and outstanding DC Class A Common Shares held by each of TC1, TC2 and TC3, and elect, in respect of the full amount of the deemed dividend arising under subsection 84(1), in the prescribed manner and prescribed form specified by subsection 83(2), to have such deemed dividend paid from its capital dividend account;
(b) purchase for cancellation all of the issued and outstanding DC Class A Common Shares held by each of TC1 and TC2 for an aggregate purchase price equal to the aggregate FMV of such shares, and in consideration for the purchase price, DC will issue to TC1 and TC2 a non-interest bearing demand promissory note, DC Repurchase Note A and DC Repurchase Note B, respectively, each with a principal amount and FMV equal to the purchase price of the shares purchased; and
(c) redeem all of the issued and outstanding DC Class B Preferred Shares held by each of TC1 and TC2 for an amount equal to the aggregate redemption amount and FMV of such shares, and in satisfaction of the redemption amount, DC will issue to TC1 and TC2 a non-interest bearing demand promissory note, DC Redemption Note A and DC Redemption Note B, respectively, with a principal amount and FMV equal to the redemption amount of the shares so redeemed.
Each of TC1 and TC2 will accept the DC Notes described in Paragraphs 74(b) and 74(c), as the case may be, in full payment of the aggregate purchase price, or redemption amount, of the purchased, or the redeemed, shares as applicable.
75. The repurchase of the DC Class A Common Shares as described in Paragraph 74(b) is expected to give rise to a deemed taxable dividend received by each of TC1 and TC2, pursuant to subsection 84(3). DC will designate a portion of such taxable dividend as an eligible dividend in such a manner as to ensure an equal division of its GRIP, if any, between TC1, TC2 and TC3.
Set-off of promissory notes
76. Immediately following the redemption and repurchase of shares described in Paragraphs 74(b) and 74(c), TC1 Redemption Note will be set-off against DC Repurchase Note A and DC Redemption Note A, and all such notes will be cancelled in full satisfaction of the obligations under each such note.
77. Immediately following the redemption and repurchase of shares described in Paragraphs 74(b) and 74(c), TC2 Redemption Note will be set-off against DC Repurchase Note B and DC Redemption Note B, and all such notes will be cancelled in full satisfaction of the obligations under each such note.
Final Amalgamation
78. Effective at the beginning of the second day after the Effective Date, TC3 will amalgamate with DC pursuant to the Final Amalgamation to form Amalco, such that:
(a) the Final Amalgamation will qualify as an amalgamation within the meaning assigned by subsections 87(1) and (1.1);
(b) all of the assets and liabilities of TC3 and DC immediately before the Final Amalgamation (except amounts receivable from or payable to either corporation or shares of the capital stock of TC3 and DC) will become the assets and liabilities of Amalco;
(c) all of the issued shares in the capital of DC held by TC3 will be cancelled without payment;
(d) the authorized share capital of Amalco will be the same as the authorized share capital of TC3 immediately prior to the Final Amalgamation;
(e) the issued and outstanding shares in the capital of Amalco will be the same as the issued and outstanding shares in the capital of TC3 immediately prior to the Final Amalgamation; and
(f) the employees of DC will become the employees of Amalco on the Final Amalgamation, after which certain employees may be allocated to, and become employees of, TC1 and TC2.
79. Amalco will be a CCPC and a taxable Canadian corporation.
80. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing of the applicable election forms, which will be filed by the applicable due date following completion of the Proposed Transactions.
81. The incorporation of, and initial share subscription in, the TCs as described in Paragraphs 47 and 48 will occur simultaneously.
82. In connection with the DC Transfers described in Paragraph 67, TC1, TC2 and DC/Amalco will enter into an agreement with respect to their interests in the certain Property that will be co-owned (co-ownership arrangement). For greater certainty, it has been represented that the co-ownership arrangement will not result in the creation of a partnership for legal purposes with respect to the joint interest in any Property. To that end, the co-ownership agreement will provide for the following:
(a) the parties to the co-ownership agreement (individually a co-owner and collectively the co-owners) do not intend to create a partnership;
(b) no co-owner can act on behalf of another co-owner without obtaining prior consent from that co-owner;
(c) each co-owner will have a well-defined separation of interests in, and ownership of, the property subject to the co-ownership;
(d) no co-owner can charge and/or grant security over the co-owned property as a whole as each co-owner will only have the right to deal with its own undivided interest in the property;
(e) each co-owner’s profit and loss from the co-owned property will be calculated by each co-owner individually, and the agreement will not provide a mechanism for the allocation of profit or loss from the co-owned property; and
(f) each co-owner’s liability will be limited to their own expenses.
The co-ownership arrangement is expected to remain in place for the foreseeable future, and the co-owners have no intention as at the date of this letter to change the terms of the agreement. For greater certainty, the Property(ies) that will be subject to the co-ownership agreement will not be acquired by a person unrelated to any of the TCs or DC/Amalco, as part of the series of transactions or events that includes the Proposed Transactions, in the circumstances described in paragraphs 55(3.1)(c) or (d).
83. Except as described in this letter, no property has or will become property of Parentco or DC, or of a corporation controlled by Parentco or DC, in contemplation of and before the DC Transfers described in Paragraph 67, in the circumstances described in paragraph 55(3.1)(a). In addition, no liabilities have been, or will be incurred or discharged by any of the Predecessor Corporations, DC or Subsidiary 10 in contemplation of and before the DC Transfers described in Paragraph 67, in the circumstances described in paragraph 55(3.1)(a).
84. As part of a series of transactions or events that includes the taxable dividends described in Ruling D, there has not been and will not be:
(a) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(b) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii); and
(c) an acquisition of shares in the capital stock of DC in the circumstances described in subparagraph 55(3.1)(b)(iii),
that has not been described herein.
85. None of the TC1 Distribution Property, the TC2 Distribution Property or the DC Retained Property will be acquired by a person or by a partnership, as part of a series of transactions or events that includes the Proposed Transactions, in the circumstances described in paragraph 55(3.1)(c) or 55(3.1)(d).
86. None of the shares of the capital stock of DC, the TCs or Amalco will be, at any time prior to the completion of the Proposed Transactions:
(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) as a “guarantee agreement”;
(b) the subject of a dividend rental arrangement within the meaning of subsection 112(2.3);
(c) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or
(d) a share that is issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5); and
(d) except as described in this letter, no shares of DC, the TCs, Amalco or of any other corporation described herein will be acquired or disposed of as part of a series of transactions or events that includes the Proposed Transactions.
87. Immediately before the redemption of the TC1 Class C Preferred Shares and the TC2 Class C Preferred Shares held by DC as described in Paragraph 72, DC will be connected with each of TC1 and TC2 pursuant to paragraph 186(4)(a) and subsection 186(2) and will have a substantial interest in each of TC1 and TC2.
88. Immediately before the purchase for cancellation of the DC Class A Common Shares and the redemption of the DC Class B Preferred Shares, held by each of TC1 and TC2 as described in Paragraphs 74(b) and 74(c) respectively, each of TC1 and TC2 will be connected with DC pursuant to paragraphs 186(4)(a) and subsection 186(2) and will have a substantial interest in DC.
89. None of the TCs, DC or Amalco is, or will be at any time during the series of transactions or events that includes the Proposed Transactions, a specified financial institution, a restricted financial institution or a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation” in subsection 191(1).
90. The TCs and DC will have the financial capacity to honour, upon presentation for payment, the amounts payable under the TC Redemption Notes and the DC Notes, respectively, issued as part of the Proposed Transactions.
PURPOSES OF THE PROPOSED TRANSACTIONS
91. The overall purpose of the Proposed Transactions is for each Sibling to receive (or retain as the case may be) through their respective Holdco and TC, their proportionate share of the property of Parentco, in order to have direct and separate control of the Properties to allow each Sibling to operate independently from the other going forward (other than in respect of any such Property held in co-ownership or through Subsidiary 10 after the Proposed Transactions are completed).
92. The purpose for DC and each of TC1 and TC2 to choose to end its respective first taxation year in the manner described in Paragraphs 55 and 73, respectively, is to cause the taxable dividends resulting from the cross-redemption to be paid and received in separate taxation year-ends to avoid a possible Part IV tax “circularity” issue.
93. The purpose of the Amalgamation as described starting in Paragraph 49, is to combine the Properties and the employees of the Predecessor Corporations into one rental property business operated by DC throughout the relevant taxation year that includes the DC Transfers, in order for the income earned by DC to qualify as income from an active business carried on by DC, such that the Properties are classified as business property for purposes of the distribution under paragraph 55(3)(b).
94. The purpose of the transactions described at Paragraphs 56 to 58 to increase the PUC of the DC Class A Common Shares, is to ensure the NERDTOH and ERDTOH (if any) of DC at the end of its first taxation year is divided equally among the TCs. This is consistent with the existing practice of the corporate group to transfer substantially all of the refundable tax in the corporate group to the Holdcos, following which the Holdcos typically pay taxable dividends to their individual shareholders to obtain a full refund of ERDTOH or NERDTOH.
95. The purpose of the Final Amalgamation described at Paragraph 78, is primarily to trigger a short year-end to DC’s second taxation year to ensure that DC’s NERDTOH and ERDTOH (if any), and any corresponding dividend refund, will be nominal. Accordingly, the Part IV tax payable by each of TC1 and TC2 in respect of the DC Deemed Dividends will be nominal, and any Part IV tax payable in respect of a dividend refund to DC for the period after the distribution, will be borne by Holdco 3/Sibling 3 as the remaining shareholder of DC.
RULINGS
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions, additional information and purposes of the Proposed Transactions and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:
A. Subsection 80.01(3) will apply to the Amalgamation, described in Paragraph 49, such that any intercompany debts between the Predecessor Corporations will be deemed to have been settled, immediately before the time that is immediately before the Amalgamation, by a payment made by the debtor and received by the creditor, of an amount equal to the amount that would have been the creditor's cost amount of the indebtedness at that time, subject to paragraphs 80.01(3)(a) and (b), such that no forgiven amount will arise.
B. Subject to the application of 69(11), and provided the appropriate joint elections are filed in the prescribed form and manner within the time limit specified in subsection 85(6), and provided that each particular property so transferred is an eligible property, subsection 85(1) will apply to:
(a) the transfer of the DC Class A Common Shares and the DC Class B Preferred Shares owned by Holdco 1 to TC1, as described in Paragraph 59(a);
(b) the transfer of the DC Class A Common Shares and the DC Class B Preferred Shares owned by Holdco 2 to TC2, as described in Paragraph 59(b);
(c) the transfer of the DC Class A Common Shares and the DC Class B Preferred Shares owned by Holdco 3 to TC3, as described in Paragraph 59(c); and
(d) the transfer, by DC, of the TC1 Distribution Property to TC1, and the transfer, by DC, of the TC2 Distribution Property to TC2, on the DC Transfers described in Paragraphs 67(a) and 67(b), respectively,
such that the agreed amount in respect of each such transfer, other than in respect of any accounts receivable, will be deemed to be the transferor’s proceeds of disposition and the transferee’s cost thereof pursuant to paragraph 85(1)(a).
For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.
For the purposes of the joint elections, the reference in subparagraph 85(1)(e)(i) to “the undepreciated capital cost to the taxpayer of all of the property of that class immediately before the disposition” shall be interpreted to mean that proportion of the UCC to DC of all the property of that class immediately before the disposition that the FMV of the property at that time that is transferred, is of the aggregate FMV at that time of all the property of that class.
C. Subsection 84(3) will apply on the redemption or purchase for cancellation, as the case may be, of:
(a) the TC1 Class C Preferred Shares held by DC as described in Paragraph 72, to deem TC1 to have paid and DC to have received a dividend on such shares equal to the amount, if any, by which the amount paid by TC1 on the redemption exceeds the aggregate PUC in respect of such shares immediately before the redemption.
(b) the TC2 Class C Preferred Shares held by DC as described in Paragraph 72, to deem TC2 to have paid and DC to have received a dividend on such shares equal to the amount, if any, by which the amount paid by TC2 on the redemption exceeds the aggregate PUC in respect of such shares immediately before the redemption.
(c) the DC Class A Common Shares held by each of TC1 and TC2 as described in Paragraph 74(b), to deem DC to have paid, and each of TC1 and TC2 to have received, a dividend on such shares equal to the amount, if any, by which the amount paid by DC on the purchase for cancellation exceeds the aggregate PUC in respect of such shares immediately before the purchase for cancellation; and
(d) the DC Class B Preferred Shares held by each of TC1 and TC2 as described in Paragraph 74(c), to deem DC to have paid, and each of TC1 and TC2 to have received, a dividend on such shares equal to the amount, if any, by which the redemption amount paid by DC on the redemption, exceeds the aggregate PUC in respect of such shares immediately before the redemption.
D. The taxable dividends received by TC1, TC2 and DC described in Ruling C above:
(a) will be deductible by the recipient corporation pursuant to subsection 112(1) in computing its taxable income for the taxation year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);
(b) will be excluded in determining the recipient corporation’s proceeds of disposition of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54;
(c) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;
(d) will not give rise to tax under Part IV, except to the extent that the payer corporation is entitled to a dividend refund for its taxation year in which it is deemed to pay dividends as provided in paragraph 186(1)(b); and
(e) will not be subject to tax under Parts IV.1 or VI.1.
E. Provided that DC’s rental property business formed on the Amalgamation employs more than XXXXXXXXXX employees throughout the taxation year of DC that includes the DC Transfers, the combined rental business of DC will not be considered to be a specified investment business for purposes of the types of property classification and the distribution made pursuant to paragraph 55(3)(b).
F. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is not:
(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(d) an acquisition of shares of DC as described in subparagraph 55(3.1)(b)(iii);
(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(f) an acquisition of property in the circumstances described in paragraph 55(3.1)(d),
which has not been described herein, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling C, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
G. The set-off and cancellation of:
(a) TC1 Redemption Note with DC Repurchase Note A and DC Redemption Note A, as described in Paragraph 76; and
(b) TC2 Redemption Note with DC Repurchase Note B and DC Redemption Note B, as described in Paragraph 77,
will not, in and of itself, give rise to a forgiven amount within the meaning of either subsection 80(1) or section 80.01, and neither DC nor TC1 or TC2, as the case may be, will realize any gain or incur a loss as a result of such set-off and cancellation.
H. Subsection 80.01(3) will apply to the Final Amalgamation, described in Paragraph 78, such that any intercompany debts between DC and TC3 will be deemed to have been settled immediately before the time that is immediately before the Final Amalgamation by a payment made by the debtor, and received by the creditor, of an amount equal to the amount that would have been the creditor's cost amount of the indebtedness at the time, subject to paragraphs 80.01(3)(a) and (b), such that no forgiven amount will arise.
I. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not apply to the Proposed Transactions, in and of themselves.
J. As a result of the Proposed Transactions, in and of themselves, subsection 245(2) will not be applied to re-determine the tax consequences confirmed in the Rulings given.
The Rulings are given subject to the general limitations and qualifications set out in Information Circular, IC70-6R10 dated September 29, 2020, and are binding on the CRA provided that the Proposed Transactions are completed no later than six months from the date of this letter, and in accordance with the time frame specified herein.
The Rulings are based on the Act as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the Rulings provided herein.
Unless otherwise expressly confirmed in the above Rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:
(a) the FMV or ACB of any property referred to herein or the PUC in respect of any share referred to herein;
(b) the outstanding balance of various tax accounts such as NERDTOH, ERDTOH, GRIP, non-capital losses or CDA, if any, for any of the corporate entities described herein;
(c) any provincial tax consequences of the Proposed Transactions;
(d) whether, at any relevant time, any of the corporations described herein carries on an active business or a specified investment business; or
(e) any other income tax consequence relating to the facts, additional information or Proposed Transactions, or any transaction or event taking place either prior or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the Rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.
Nothing in this letter should be construed as confirmation, express or implied, that, for the purposes of any of the Rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the Rulings given in this letter are intended to apply to or in the event of the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, dated November 26, 2015.
An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.
Yours truly,
XXXXXXXXXX
Manager
Reorganizations Section II
For Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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