2023 Ruling 2023-0969321R3 - 88(1)(c) and (d) Bump Request

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: Request for confirmation that the property acquired by the Taxpayer from the Seller pursuant to the subject transactions can qualify for the bump rules un paragraphs 88(1)(c) and (d).

Position: Positive ruling can be provided.

Reasons: Subject transactions meet criteria for the application of the paragraph 88(1)(c) and (d) bump.

XXXXXXXXXX									2023-096932

XXXXXXXXXX, 2023

Dear XXXXXXXXXX:

Advance Income Tax Ruling

Re: XXXXXXXXXX

We are writing in response to your request dated XXXXXXXXXX for an advance income tax ruling on behalf of the above-noted taxpayer (the “Taxpayer”).

We understand that to the best of your knowledge and that of the Taxpayer, none of the Subject Transactions or issues involved in this Ruling are the same as or substantially similar to transactions or issues that are:

i. in a previously filed return of the Taxpayer or a related person and;

A. being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayer or a related person;

B. under objection by the Taxpayer or a related person;

C. the subject of a current or completed court process involving the Taxpayer or a related person; or

ii. the subject of an advance income tax ruling previously considered by the Income Tax Rulings Directorate in relation to the Taxpayer or a related person.

This document is based solely on the facts and subject transactions described below. The documentation submitted with the request does not form part of the facts and subject transactions and any references thereto are provided solely for the convenience of the reader.

The address, tax account number, Tax Services Office and the Tax Centre of the Taxpayer are as follows:

XXXXXXXXXX

Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act, RSC 1985, c 1 (5th Supp), as amended (the “Act”), or, where appropriate, the Income Tax Regulations C.R.C., c. 945, as amended (the “Regulations”) and all terms and conditions used herein that are defined in the Act or Regulations have the meaning given in such definition unless otherwise indicated. All references to monetary amounts are in Canadian dollars.

DEFINITIONS

In this letter, unless otherwise noted, the following terms have the meanings specified herein. All references in the singular include the plural and vice versa.

“ACB” means adjusted cost base as defined in section 54 of the Act;

“Acquisition” means the acquisition of the shares of Target by Parentco on the Closing Date;

“Amalco I” means the corporation to be formed upon the amalgamation of Target and REALTYCO 2;

“Amalco II” means the corporation to be formed upon amalgamation of Bidco and Amalco I;

“arm’s length” has the meaning assigned by subsection 251(1) of the Act;

“ASPE” means Canadian accounting standards for private enterprises as defined in the CPA Canada Handbook – Accounting Part II;

“Bidco” means XXXXXXXXXX., a corporation formed under, and governed by, the laws of XXXXXXXXXX;

“BNote” means the interest-bearing promissory note issued by Bidco to Parentco with a principal amount of $XXXXXXXXXX, payable on demand, pre-payable at will and bearing interest at a rate of XXXXXXXXXX%;

“Bump Property” means the land portion of the Realtyco 2 Real Estate Assets and any other non-depreciable capital property distributed on the amalgamation of Bidco and Amalco I;

“capital property” has the meaning assigned by subsection 54(1) of the Act;

“CDA” means capital dividend account as defined in subsection 89(1) of the Act;

“XXXXXXXXXX Purchase Agreement” means the asset purchase agreement entered into by XXXXXXXXXX on XXXXXXXXXX pursuant to which XXXXXXXXXX sold certain assets relating to its XXXXXXXXXX business;

“Closing Date” means the date of the closing of the Share Purchase Agreement between Seller and Parentco for the sale of the shares of Target on XXXXXXXXXX;

“Co-Borrower LLC” means XXXXXXXXXX, an unlimited liability company formed and existing under the laws of XXXXXXXXXX;

“Co-Investors” means those persons (yet to be determined but who are expected to be members of the executive team of Parentco and/or its direct or indirect subsidiaries) subscribing for Class XXXXXXXXXX Common Shares;

“Consideration Shares” means the XXXXXXXXXX Class XXXXXXXXXX Common Shares of Parentco having a FMV of approximately $XXXXXXXXXX, and which were issued to Seller on the Closing Date;

“CRA” refers to the Canada Revenue Agency;

“Earnout” refers to the portion of the consideration payable to Seller in connection with the Acquisition up to a maximum of $XXXXXXXXXX provided certain hurdles are met pursuant to the Share Purchase Agreement;

“Earnout EBITDA” means the EBITDA of Target and its direct and indirect subsidiaries;

“EBITDA” means earnings before interest, tax, depreciation and amortization;

“External Debt” means Bidco’s interest-bearing debt owing to XXXXXXXXXX;

“fair market value” or “FMV” means 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 money;

“First Amalgamation” means the amalgamation of Realtyco 2 and Target;

“GAAR” means the general anti-avoidance rule described in section 245 of the Act;

“Intermediateco” means XXXXXXXXXX, a corporation formed under, and governed by, the laws of XXXXXXXXXX;

“Leaseco” means XXXXXXXXXX or one or more affiliates or related persons;

“Leaseco Payable” is the amount payable by Bidco to Leaseco of $XXXXXXXXXX;

“Leaseco Parent” means XXXXXXXXXX;

“Leaseco Real Estate Assets” refers to the following land and building assets that were previously owned by Realtyco 1 and Realtyco 2 prior to the Closing Date, subject to the Leaseco Transaction and includes:

XXXXXXXXXX

“Leaseco Receivable” means the amount payable by Leaseco to Amalco II in consideration for the acquisition of the Leaseco Real Estate Assets of $XXXXXXXXXX;

“Leaseco Transaction” means the sale of Leaseco Real Estate Assets held by Amalco II to the Leaseco for the Leaseco Receivable;

“Newco” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“NR LP” means XXXXXXXXXX, a limited partnership organized under the laws of the XXXXXXXXXX;

XXXXXXXXXX;

“Old Seller” means XXXXXXXXXX, a corporation formed and governed under the laws of XXXXXXXXXX and a predecessor corporation of Seller;

“Parentco” means XXXXXXXXXX, a corporation formed under, and governed by, the laws of XXXXXXXXXX;

“Paragraph” refers to a numbered paragraph in this letter;

“PNote” refers to the interest-bearing promissory note issued by Parentco to Bidco having a principal amount of $XXXXXXXXXX, payable on demand, pre-payable at will and bearing interest at a rate of XXXXXXXXXX%;

“Provider CSA” means the consulting and services agreement entered into by Provider LP and TARGET on the Closing Date;

“Provider LP” means XXXXXXXXXX;

“Purchaser” means Parentco and any related persons and affiliated persons;

“Realtyco 1” means XXXXXXXXXX, a corporation formed under, and governed by, the laws of XXXXXXXXXX;

“Realtyco 1 Real Estate Assets” means the following land and building assets owned by RealtyCo 1 which are used by one or more members of the Target Group to carry on the Target Business and includes:

XXXXXXXXXX

“Realtyco 2” means XXXXXXXXXX, a corporation formed under, and governed by, the laws of XXXXXXXXXX;

“Realtyco 2 Real Estate Assets” means the land and building assets owed by RealtyCo 2 that are used by the Target Group to carry on the Target Business and includes:

XXXXXXXXXX

“related persons” has the meaning assigned by subsection 251(2) of the Act;

“Second Amalgamation” means the amalgamation of Amalco I and Bidco;

“Seller” means XXXXXXXXXX, the corporation formed on the amalgamation of Old Seller, Subco 1, and Newco under the laws of XXXXXXXXXX;

“Seller CSA” means the consulting and services agreement entered into by Seller and Target on the Closing Date;

“Seller’s Forecast” projected earnings forecast prepared by Seller’s management and included in the confidential information memorandum to substantiate the FMV of the Target shares to prospective bidders;

“Share Purchase Agreement” is the share purchase agreement between Old Seller and Parentco dated XXXXXXXXXX, with respect to the Acquisition in consideration for (i) cash of $XXXXXXXXXX (plus or minus (as the case may be) closing adjustments), (ii) the Consideration Shares and (iii) the Earnout;

“Shareholders Agreement” means the shareholders agreement entered into on the Closing Date between (among others) Parentco, Seller and US LLC;

“specified shareholder” has the meaning assigned by subsection 248(1) and subparagraph 88(1)(c.2)(iii) of the Act;

“Subco 1” means XXXXXXXXXX, a corporation originally formed under the laws of Canada, and continued under, and now governed by, the laws of XXXXXXXXXX;

“Subco 2” means XXXXXXXXXX., a corporation governed by the laws of XXXXXXXXXX;

“Subco 3” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Subco 4” means XXXXXXXXXX., a corporation governed by the laws of XXXXXXXXXX;

“Subco 5” means XXXXXXXXXX, a company governed by the laws of XXXXXXXXXX;

“Subject Transactions” means the transactions described in Paragraphs 59 to 68;

“Target” means XXXXXXXXXX, a corporation originally formed under the laws of XXXXXXXXXX, and now governed by the laws of XXXXXXXXXX;

“Target Business” means the XXXXXXXXXX by the Target Group;

“Target Group” means Target and its direct and indirect subsidiaries;

“taxable Canadian corporation” has the meaning assigned by subsections 89(1) and 248(1) of the Act;

“US LLC” means XXXXXXXXXX, a limited liability company organized under the laws of XXXXXXXXXX; and

“US$” or “USD” means United States of America dollar.

FACTS

A complete description of all the relevant facts is as follows:

Taxpayer structure

1. NR LP, a limited partnership formed under the laws of the XXXXXXXXXX, is controlled by non-residents of Canada. None of the controlling non-residents of NR LP is a specified shareholder of Seller.

2. US LLC is disregarded for U.S. income tax purposes and is treated as a corporation for Canadian income tax purposes. US LLC is a wholly-owned subsidiary of NR LP.

3. Parentco is a “taxable Canadian corporation” for purposes of the Act.

4. Parentco’s authorized share capital includes Class XXXXXXXXXX Common Shares and Class XXXXXXXXXX Common Shares which are owned by US LLC and Seller, respectively, as a result of the Completed Transaction, as well as, Class XXXXXXXXXX Common Shares, Class XXXXXXXXXX Common Shares and Class XXXXXXXXXX Common Shares.

5. The Class XXXXXXXXXX Common Shares and Class XXXXXXXXXX Common Shares of Parentco are separate classes of shares. The share provisions thereof are essentially identical.

6. As a result of the Completed Transaction, US LLC owns XXXXXXXXXX Class XXXXXXXXXX Common Shares and Seller owns XXXXXXXXXX Class XXXXXXXXXX Common Shares of Parentco. Each Class XXXXXXXXXX Common Share and Class XXXXXXXXXX Common Share is entitled to one vote at all meetings of the shareholders of Parentco. As US LLC owns the majority of the outstanding Class XXXXXXXXXX Common Shares, Parentco is directly controlled by US LLC.

7. Parentco’s Class XXXXXXXXXX Common Shares are non-voting shares and are intended to be issued to future Co-Investors. The Class XXXXXXXXXX Common Shares will not be issued to the Seller.

8. Parentco’s Class XXXXXXXXXX Common Shares are intended to be issued in connection with Parentco’s management incentive plan. The Class XXXXXXXXXX Common Shares may be issued to certain members of the executive team of Parentco and/or its direct or indirect subsidiaries. Class XXXXXXXXXX Common and Class XXXXXXXXXX Common Shares will not be issued Seller.

9. Intermediateco is a “taxable Canadian corporation” for purposes of the Act. Intermediateco is a wholly-owned subsidiary of Parentco.

10. Bidco is a “taxable Canadian corporation” for purposes of the Act. Bidco is a wholly-owned subsidiary of Parentco.

11. The BNote and PNote each bear interest at a rate that is in excess the interest rate on the External Debt. The BNote and PNote are each payable on demand and pre-payable at will.

12. Each of Parentco and any person that is related and affiliated to Parentco (which includes Intermediateco, Bidco, US LLC and NR LP) deals at arm’s length with each of the Seller and any person that is related and affiliated person to Seller.

13. Each of Parentco and any person that is related and affiliated to Parentco (including Intermediateco, Bidco, US LLC and NR LP) deals at arm’s length with each of the Leaseco and any person that is related and affiliated to Leaseco.

14. Each of Seller and any person that is related and affiliated to Seller deals at arm’s length with each of the Leaseco and any person that is related and affiliated to Leaseco.

15. Leaseco is not a specified shareholder of Seller, Target or any of its subsidiaries.

16. The Leaseco Real Estate Assets do not account for more than XXXXXXXXXX% of the FMV of the assets owned by Leaseco’s ultimate parent, Leaseco Parent. As of XXXXXXXXXX, the market capitalization of Leaseco Parent is approximately $XXXXXXXXXX.

17. Bidco is party to a novation agreement and a confirmation with XXXXXXXXXX in respect of a foreign exchange hedging arrangement.

Target structure

18. Target and its subsidiaries are engaged in the Target Business.

19. Target owns all of the issued and outstanding shares of Realtyco 2, Realtyco 1 and various other subsidiaries as capital property.

20. Realtyco 2 owns the Realtyco 2 Real Estate Assets as capital property.

21. Realtyco 1 owns the Realtyco 1 Real Estate Assets as capital property.

22. The Seller owned all of the issued and outstanding shares, and was a specified shareholder, of Target prior to the Acquisition.

Target structure prior to the Seller Pre-Closing Steps

23. Subco 1 was a taxable Canadian corporation. All of the issued and outstanding shares in Subco 1 were owned by Old Seller.

24. Subco 2 is a taxable Canadian corporation. All of the issued and outstanding shares in Subco 2 were owned by Old Seller.

25. Newco is a taxable Canadian corporation. All of the issued and outstanding shares in Newco were owned by Old Seller.

26. Subco 3 was a taxable Canadian corporation. All of the issued and outstanding shares in Subco 3 were owned by Old Seller.

27. Subco 4 was a taxable Canadian corporation. All of the issued and outstanding shares in Subco 4 were owned by Subco 3.

28. All of the issued and outstanding shares in Subco 5 were owned by Subco 1. Subco 5 is treated as a regarded C-corporation for US federal income tax purposes.

Earnout

29. Pursuant to the Share Purchase Agreement, on each annual anniversary of the Closing Date, if the earnings of Target and its direct and indirect subsidiaries before interest, tax, depreciation and amortization (the “Earnout EBITDA”) is equal to or higher than the applicable earnout hurdle, Parentco (and subsequently Bidco) is required to make an additional payment to the Seller. The final Earnout period ends on XXXXXXXXXX.

30. The total maximum potential Earnout payment is $XXXXXXXXXX.

31. XXXXXXXXXX.

32. At the time of signing, Purchaser and Old Seller had differing views regarding the ability of Target and its subsidiaries to meet the Seller’s Forecast. Purchaser and Old Seller could not agree on a fixed purchase price. The Earnout allowed the transaction to proceed in a manner acceptable to both parties. The Earnout was designed to provide the Seller with additional purchase price consideration to the extent that certain EBITDA thresholds are met. XXXXXXXXXX.

33. XXXXXXXXXX.

34. It has been agreed that the Leaseco Transaction will not occur in the ordinary course of business as such transaction was not taken into account in Seller’s Forecast which were based on EBITDA thresholds.

35. XXXXXXXXXX.

Ancillary Agreements

36. The Shareholders Agreement governs the arrangements between shareholders and outlines the rights and obligations of each of Parentco’s shareholders.

37. As noted above, Parentco is controlled by US LLC as it owns the majority of the outstanding voting shares of Parentco. The Shareholders Agreement does not contain any terms that would otherwise allow Seller to legally or factually control Parentco.

38. XXXXXXXXXX.

39. XXXXXXXXXX.

COMPLETED TRANSACTIONS

Seller Pre-Closing Steps

40. The Seller engaged in a large number of pre-closing steps generally involving the subsidiaries of the Target Group. The Seller’s pre-closing steps generally involved extracting entities that were not within the transaction perimeter from the Target Group, settling various inter-company balances and simplifying the remaining structure to facilitate the disposition of the Target shares.

Purchaser Transactions

41. On XXXXXXXXXX, NR LP formed Parentco and contributed $XXXXXXXXXX to Parentco in exchange for XXXXXXXXXX Class XXXXXXXXXX Common share of Parentco.

42. On XXXXXXXXXX, Parentco formed Intermediateco and Bidco and contributed $XXXXXXXXXX and $XXXXXXXXXX to the entities, respectively, in exchange for 1 Class XXXXXXXXXX Common share of each of the relevant entities.

43. On XXXXXXXXXX, Bidco formed Co-Borrower LLC to serve as the co-borrower in respect of the External Debt.

44. On XXXXXXXXXX, NR LP formed US LLC.

45. XXXXXXXXXX.

45.1 XXXXXXXXXX.

46. On XXXXXXXXXX, NR LP contributed $XXXXXXXXXX) to US LLC.

47. On XXXXXXXXXX, Parentco underwent a reorganization of its share capital, wherein an unlimited number of Class XXXXXXXXXX Common Shares, Class XXXXXXXXXX Common Shares, Class XXXXXXXXXX Common Shares and Class XXXXXXXXXX Common Shares were created and amended the rights and privileges of the Class XXXXXXXXXX Common share.

48. As a result of the reorganization of share capital, the Class XXXXXXXXXX Common Share of Parentco was converted into a Class XXXXXXXXXX Common Share.

49. On XXXXXXXXXX, NR LP transferred XXXXXXXXXX Class XXXXXXXXXX Common Share of Parentco to US LLC as a contribution of capital in respect of its existing units in US LLC.

50. On XXXXXXXXXX, US LLC contributed $XXXXXXXXXX to Parentco in exchange for XXXXXXXXXX additional Class XXXXXXXXXX Common Shares.

51. On the Closing Date, Bidco borrowed the External Debt.

52. On the Closing Date, Bidco was advanced $XXXXXXXXXX by Leaseco resulting in the Leaseco Payable.

53. On the Closing Date, Bidco lent $XXXXXXXXXX to Parentco evidenced by the PNote.

54. At XXXXXXXXXX on the Closing Date, Parentco acquired all of the shares of Target from Seller (the “Acquisition”) pursuant to the Share Purchase Agreement.

55. At XXXXXXXXXX on the Closing Date, Seller, Parentco and US LLC entered into the Shareholders Agreement.

56. At XXXXXXXXXX on the Closing Date, Seller and Target entered into the Seller CSA.

57. At XXXXXXXXXX on the Closing Date, Provider LP and Target entered into the Provider CSA.

58. XXXXXXXXXX.

SUBJECT TRANSACTIONS

On the Closing Date and subsequent to the Completed Transactions and the Taxpayer’s request for an advanced income tax ruling, the following steps occurred in the order set out below:

Transfer of Bidco

59. Parentco transferred the shares of Target to Bidco in exchange for (i) the issuance of the BNote, (ii) the issuance of XXXXXXXXXX additional Class XXXXXXXXXX Common Shares of Bidco, and (iii) the assumption of the Earnout obligation on a tax-deferred basis pursuant to subsection 85(1) of the Act. Parentco remains jointly and severally liable for the Earnout obligation to Seller under the Share Purchase Agreement.

60. The BNote and PNote were legally set off and cancelled.

61. Parentco transferred the shares of Bidco to Intermediateco on a tax-deferred basis pursuant to subsection 85(1) in exchange for XXXXXXXXXX additional Class XXXXXXXXXX Common Shares of Intermediateco.

62. Target and Realtyco 2 each loaned their cash balances to Bidco in exchange for promissory notes bearing interest at a rate of XXXXXXXXXX%, payable on demand and pre-paid at will.

Amalgamations

63. Target and Realtyco 2 amalgamated on a tax-deferred basis to form Amalco I pursuant to section 87 of the Act whereby:

a) All assets of Target and Realtyco 2 immediately before the amalgamation became property of Amalco I;

b) All of the liabilities of Target and Realtyco 2 immediately before the amalgamation became liabilities of Amalco I;

c) Bidco was deemed to receive shares of the capital stock of Amalco I because of the amalgamation;

d) The stated capital account for the Amalco I common shares is comprised of the full amount of the stated capital of the Target common shares immediately before the amalgamation; which was retained as the stated capital account maintained for the Amalco I common shares.

64. Bidco and Amalco I amalgamated on a tax-deferred basis to form Amalco II pursuant to section 87 of the Act whereby:

a) All assets of Bidco and Amalco I immediately before the amalgamation became property of Amalco II;

b) All of the liabilities of Bidco and Amalco I immediately before the amalgamation became liabilities of Amalco II;

c) Intermediateco was deemed to receive shares of the capital stock of Amalco II because of the amalgamation;

d) The stated capital account for the Amalco II Class XXXXXXXXXX Common Shares is comprised of the full amount of the stated capital of the Bidco Class XXXXXXXXXX Common Shares immediately before the amalgamation; which was retained as the stated capital account maintained for the Amalco II Class XXXXXXXXXX Common Shares.

65. Realtyco 1 transferred XXXXXXXXXX% of its beneficial interests in the Realtyco 1 Real Estate Assets to Amalco II in exchange for a promissory note issued by Amalco II having a principal amount equal to the FMV of the Realtyco 1 Real Estate Assets being $XXXXXXXXXX.

66. Amalco II disposed of the Leaseco Real Estate Assets acquired by it (i) on the amalgamation referred to in Paragraph 64 and (ii) from the transfer by Realtyco 1 referred to in Paragraph 65 to Leaseco in consideration for the Leaseco Receivable.

67. The Leaseco Receivable and Leaseco Payable were legally set-off and cancelled.

68. Immediately thereafter, the Leaseco Real Estate Assets were leased to Amalco II, and/or its direct or indirect subsidiaries, by Leaseco.

ADDITIONAL INFORMATION

69. XXXXXXXXXX.

PURPOSE OF THE COMPLETED AND SUBJECT TRANSACTIONS

70. Parentco, Intermediateco and Bidco were initially formed for commercial and financing reasons. The formation of multiple entities in XXXXXXXXXX allowed for flexibility in how the Acquisition and related financing would ultimately be structured based on business needs.

71. XXXXXXXXXX.

72. XXXXXXXXXX.

73. The contributions of cash by NR LP in Paragraph 46, and by US LLC in Paragraph 50, provided additional capital required to finance the Acquisition.

74. The reorganization of share capital in Paragraph 47 was undertaken to provide for a separate class of Class XXXXXXXXXX Common shares of Parentco to be issued to US LLC and Seller, respectively. Seller retains the historical paid-up capital of its rolled over interest.

75. XXXXXXXXXX.

76. Paragraphs 51 through 53 were undertaken to finance the remainder of the Acquisition.

77. Paragraphs 54 through 58 were undertaken to effect the Acquisition.

78. The purpose of the amalgamations following the Acquisition is to simplify the Target Group’s corporate structure and to facilitate the deduction of interest from the External Debt against income from the Target Group’s operations. The amalgamations should also allow for an increase in the adjusted cost base of non-depreciable capital property that was owned by Realtyco 2 and Target immediately prior to the Acquisition to the extent permitted by paragraphs 88(1)(c) and 88(1)(d) of the Act.

79. The purpose of the sale of the Leaseco Real Estate Assets to Leaseco is to monetize certain real estate assets while continuing to have access to these assets for the Target Group’s operating needs.

RULINGS PROVIDED

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, transactions, additional information and the purposes of the Subject Transactions; the Subject Transactions were completed in the manner described above, and provided that no property acquired by Amalco II on the amalgamation of Bidco and Amalco I to form Amalco II or “any other property acquired by any person in substitution therefor” (within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) as part of the series of transactions or events that includes the acquisition of control of Target by Parentco and the amalgamation of Bidco and Amalco I, pursuant to paragraphs 88(1)(c) and (d), we confirm the following:

A. The Consideration Shares are not substituted property for purposes of subparagraph 88(1)(c.3)(i) or (ii) of the Act.

B. The Earnout is not substituted property for purposes of subparagraph 88(1)(c.3)(i) or (ii) of the Act.

C. For the purposes only of applying paragraph 88(1)(c) to determine the cost of the Bump Property that was owned by Realtyco 2 and Target on the Closing Date only, following the First Amalgamation, pursuant to subsection 88(4),

i. Amalco I will be considered to be the same corporation as, and a continuation of, Target, for the purposes of applying the reference in subparagraph 88(1)(c.4)(iii) to “the subsidiary”; and

ii. Amalco I will be considered to be the same corporation as, and a continuation of, Target and Realtyco 2, respectively, for the purposes of determining whether the Bump Property was capital property owned by Amalco I on the Closing Date, and for the purposes of determining when Bidco last acquired control of any corporation.

D. The provisions of subsections 87(11) and 88(1) will apply such that the cost, pursuant to paragraphs 88(1)(c) and (d), to Amalco II of the Bump Property owned without interruption from the Acquisition until the First Amalgamation, and that becomes property of Amalco I on the First Amalgamation, and that becomes property of Amalco II on the Second Amalgamation, will be deemed to be the cost amount of such property to Amalco I immediately before such amalgamation, plus the amount designated by Amalco II under paragraph 88(1)(d) in respect of the property.

E. The Bump Property, that became property of Amalco II on the Second Amalgamation, will not be ineligible property for purposes of paragraph 88(1)(c), solely, as a result of the Subject Transactions described herein.

F. The provisions of subsection 245(2) will not be applied as a result of the Subject Transactions, in and of themselves, to re-determine the tax consequences described herein.

This ruling is given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022, and is binding on the CRA, provided that the Subject Transactions are completed no later than six (6) months after the date of this letter. The above ruling is based on the law as it reads at the date of this letter and does not take into account any proposed amendments to the Act and the Regulations, which if enacted, could have an effect on the ruling.

COMMENTS

Unless otherwise expressly confirmed in the above ruling, 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 fair market value or adjusted cost base of any property referred to herein or the paid-up capital in respect of any share referred to herein;

(b) the outstanding balance of various tax accounts such as “non-eligible refundable dividend tax on hand” as defined in subsection 129(4), “eligible refundable dividend tax on hand” as defined in subsection 129(4), “general rate income pool” as defined in subsection 89(1), any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(c) the safe-income attributable to any shares of any corporation;

(d) any provincial tax consequences of the Proposed Transaction; or

(e) any other income tax consequence relating to the facts, additional information or Proposed Transaction, or any transaction or event taking place either prior or subsequent to the Proposed Transaction, whether described in this letter or not, other than those specifically described in the ruling given above, including whether the Proposed Transaction would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

Yours truly,

XXXXXXXXXX
Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch