Principal Issues: Whether either 84(2) 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) out of the proceeds of sale of its business, into a proceeds of disposition the shareholders of Opco would have received from the sale, in favour of an unrelated purchaser, of the shares of a newly formed corporation that would have acquired Opco's business on a taxable basis before its shares being sold to the unrelated purchaser. The proposed series of transactions corresponds to a dividend stripping arrangement of Opco to which all the conditions under either 84(2) or the GAAR are met.
XXXXXXXXXX Marc LeBlond 2007-022415 August 13, 2007
Dear Sir,
Subject: Request for advance income tax rulings
XXXXXXXXXX
This is further to your email of July 11, 2007, in which you informed us of your intention to withdraw your request for advance rulings of February 5, 2007. You wish to withdraw your request because, as discussed in a telephone conversation (LeBlond /XXXXXXXXXX ) on June 28, 2007, it is our opinion that either subsection 84(2) of the Income Tax Act (the "Act") or the general anti-avoidance rule (the "GAAR"), provided for in subsection 245(2), would apply to the series of proposed transactions described in your request.
The series of transactions that you have presented to us is intended to convert a taxable dividend, which would otherwise have been paid by XXXXXXXXXX to its shareholders from the proceeds of the sale of its business, into proceeds of disposition by the shareholders of XXXXXXXXXX from the sale, to an unrelated purchaser, of shares of the capital stock of a newly-incorporated corporation that previously acquired the business of XXXXXXXXXX on a taxable basis. We are of the view that the proposed series of transactions constitutes a mechanism for stripping the surplus of XXXXXXXXXX and that all of the conditions for the application of either subsection 84(2) or the GAAR of the Act are satisfied.
We therefore consider your file to be completed. A statement of our fees for the time spent on your case will be sent to you under separate cover.
Best regards,
Maurice Bisson, CGA
Manager
Corporate Reorganizations and Resource Industries Section
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.