2010 Ruling 2009-0330901R3 - Reorganization of XXXXXXXXXX -- summary under Subparagraph 53(2)(h)(i.1)

Background

Subco, which is held by Parent (also a Canadian corporation), owns all the units of Trust 1 which, in turn, holds all the units of Holding LP (previously acquired by it in connection with a reorganization in which it transferred assets including appreciated assets to Holding LP and subsidiary LPs, with gains being potentially limited or quantified through s. 97(2) elections).

Proposed transactions

1. Trust I will transfer, at FMV, all its Holding LP Units to Subco in consideration for a non-interest bearing promissory note (Subco Note), so that its remaining assets will consist of a loan to Subco (the “Subco Loan”), the Subco Note, interests in sub trusts and cash.
2. Trust I will distribute the Subco Loan and the Subco Note as the consideration for the purchase for cancellation of substantially all of the Trust 1 units (the “Subco Cancelled Units.”) Subco (or New Parent as successor of Subco) will continue to hold the remaining units of Trust I for an undetermined period of time. The amount of the income allocated to New Parent (as successor of Subco) in respect of this distribution will be equal to the total of Trust I’s income for its current taxation year (including from the drop-down transactions referenced above under “Background”). Subco will realize a capital loss on the cancellation of the Subco Cancelled Units.
3. Subco will amalgamate with Parent to form New Parent.
4. In filing its return for its current taxation year, Trust I will deduct under s. 104(6)(b) an amount equal to the income as became payable to Subco. New Parent (as successor of Subco) will include such amount under s. 104(13)(a) in computing its income.
5. Trust I will designate pursuant to s. 104(21) in respect of New Parent (as successor of Subco) that the net taxable capital gains for the current taxation year of Trust I be deemed to be a taxable capital gain of New Parent from the disposition of capital property by New Parent for its XX taxation year.

Rulings

Include: The amount of the taxable capital gains referred to in 3 will be deemed to be a taxable capital gain of New Parent under s. 104(21).

Ss. 53(2)(h)(i.1)(A) and 53(2)(h)(i.1)(B)(I) will apply such that the ACB of the Trust I Units to Subco will not be reduced for the amount included in New Parent's income (as successor to Subco), as described in 4, and for an amount equal to the amount designated by Trust I in 5.