SUMMARY: Change in facts—ruling 2006-017865—ITA-55(3)(a)—Advance income tax ruling—Amendments to advance income tax ruling 2006-017865 as a result of a change in some of the underlying facts.
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: Change in facts.
POSITION: Change accepted.
REASONS: No impact on rulings given.
XXXXXXXXXX 2006-020949
XXXXXXXXXX, 2006
Dear XXXXXXXXXX:
Subject: XXXXXXXXXX—Change in Facts to Advance Income Tax Ruling #2006-017865 (the “Ruling”)
This is in reply to your email of XXXXXXXXXX wherein you requested certain amendments to the Ruling that was issued to the above-noted taxpayers on XXXXXXXXXX, 2006. Unless otherwise defined, all capitalized terms have the meanings assigned to them in the Ruling and all references to paragraph numbers are to those in the Ruling. You also confirm that none of the Proposed Transactions described in the Ruling have been entered into.
We hereby confirm that the Ruling is amended as follows:
Paragraphs 13, 18 and 25 are replaced in their entirety as follows:
13. Profitco will borrow an amount of approximately $XXXXXXXXXX on a daylight basis from either Parent or from a third party lender (the “Daylight Loan”).
18. To the extent that, on the date annual dividends are paid by Newco on the Newco Preferred Shares, Newco does not have sufficient cash on hand, or is not able to legally pay a dividend, Parent will contribute additional funds to Newco in the form of contributed surplus on the common shares. However, it is expected that as a result of the Proposed Transactions all of Lossco's non-capital losses will be fully utilized as described in Paragraph 25 such that it is expected that Newco will only pay one cumulative dividend on the Newco Preferred Shares as described in Paragraph 19(b). In XXXXXXXXXX and XXXXXXXXXX, Profitco's income may include the proceeds from the sale of some of its assets for proceeds of disposition equal to their fair market value XXXXXXXXXX
XXXXXXXXXX None of the assets to be disposed of by Profitco will have been acquired by Profitco within the XXXXXXXXXX years preceding the date of its disposition from any person with whom Profitco was not affiliated.
25. The purpose of the Proposed Transactions is to consolidate profits and losses within a group of taxable Canadian corporations that are affiliated persons by enabling Lossco to earn sufficient interest income from Profitco on the Profitco Demand Loan to fully utilize its non-capital losses and non-capital losses that it otherwise would have incurred in its XXXXXXXXXX taxation years (but for the Proposed Transactions) by the end of its XXXXXXXXXX taxation year. Profitco will be able to deduct interest that it incurred on the Profitco Demand Loan in computing its taxable income for its XXXXXXXXXX and XXXXXXXXXX taxation years, each of which is expected to include income arising from the sale of its assets during such year. To the extent that Profitco incurs a non-capital loss for its XXXXXXXXXX taxation year, Profitco will carry such non-capital loss back to its XXXXXXXXXX taxation year.
In addition, the phrase “except for Paragraph 19” which appears on the third sentence following ruling K is replaced with “except for Paragraphs 18 and 19”.
Notwithstanding the above, in accordance with the practice outlined in Information Circular 70-6R5, dated May 17, 2002, we confirm that subject to the conditions and time limit set out in the Ruling, the Ruling, as amended by the above, will continue to be binding on the Canada Revenue Agency as described therein.
Yours truly,
XXXXXXXXXX
Manager
Corporate Reorganizations Section II
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch