28 August 2008 External T.I. 2008-0287611E5 F - Surplus Stripping -- translation

28 August 2008 External T.I. 2008-0287611E5 F - Surplus Stripping

Principal Issues: Whether either subsection 84.1(1) or the GAAR applies to the proposed transactions?

Position: Yes.

Reasons: The purpose of the proposed series of transactions is to convert a taxable dividend that would otherwise have been paid by a corporation (Opco), into a proceeds of disposition the shareholders of Opco would have received from the sale, in favour of an unrelated purchaser corporation, of freeze shares of the capital-stock of Opco. In our view, the proposed series of transactions corresponds to a dividend stripping arrangement of Opco to which all the conditions under either subsection 84.1(1) or the GAAR would be met.

XXXXXXXXXX                                            Marc LeBlond
                                                      2008-028761

August 28, 2008

Dear Sir,

Subject: Request for advance income tax rulings XXXXXXXXXX

This is further to your email of August 27, 2008 in which you informed us of your intention to withdraw your July 16, 2008 request for advance rulings. You wish to withdraw your request since, as discussed in a telephone conversation (LeBlond /XXXXXXXXXX) on August 27, 2008, we are of the opinion that either subsection 84.1(1) of the Income Tax Act (the "Act") or the general anti-avoidance provision ("GAAR") in subsection 245(2) could apply to the series of proposed transactions described in your request.

The series of transactions you have presented to us was intended to convert a taxable dividend that would otherwise have been paid by XXXXXXXXXX (Opco) to XXXXXXXXXX of its shareholders (XXXXXXXXXX) into proceeds of disposition to them from the sale of freeze shares of the capital stock of Opco to an unrelated purchasing corporation (XXXXXXXXXX). We are of the view that the proposed series of transactions is an arrangement for stripping Opco's surplus and that all of the conditions for the application of either subsection 84.1 or GAAR would be satisfied.

We therefore consider your file to be closed. A statement of our fees for the time spent studying your file will be sent to you under separate cover.

Best regards,

Maurice Bisson, CGA
Manager
Reorganizations and Resource Industries Section
Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.