Principal Issues: Correction of facts and proposed transactions.
Position: Changes made and accepted.
Reasons: The changes do not affect any of the rulings given.
XXXXXXXXXX 2005-014553
XXXXXXXXXX, 2005
Re: XXXXXXXXXX ("Lossco")
XXXXXXXXXX ("Profitco")
XXXXXXXXXX ("Cco")
Request for Supplementary Advance Income Tax Ruling___
Further to your letter of XXXXXXXXXX, the following amendments are made to Advance Income Tax Ruling 2004-010948 issued XXXXXXXXXX, 2005 as amended by Supplemental Ruling 2005-014300 dated XXXXXXXXXX, 2005 (the "Ruling").
Changes to the Definitions
1. Paragraph (j) of the Definitions is deleted and replaced by the following:
(j) (Reserved)
2. Paragraph (k) of the Definitions is deleted and replaced by the following:
(k) "Dco" means XXXXXXXXXX ;
Changes to the Facts
1. The term "XXXXXXXXXX" in the first sentence of paragraph 3 of the Ruling is deleted and replaced with "CBCA".
2. The last sentence in paragraph 3 of the Ruling is deleted and replaced by the following:
Prior to the proposed transactions, Cco's primary liability will be a $XXXXXXXXXX non-interest-bearing loan payable to Lossco and its primary asset will be an investment in XXXXXXXXXX Dco Common Shares.
3. The sixth sentence in paragraph 4 of the Ruling is deleted and replaced by the following:
Lossco's and Cco's ACB of the Dco Common Shares is approximately $XXXXXXXXXX and $XXXXXXXXXX, respectively.
Changes to the Proposed Transactions
1. Paragraph 12 of the Ruling is deleted and replaced by the following:
12. The articles of Cco will be amended to create an unlimited number of Class A preferred shares ("Cco Class A Preferred Shares") having the following attributes:
(i) non-voting;
(ii) redeemable and retractable, for an amount equal to the amount for which they were issued, plus any unpaid dividends which have accumulated prior to their redemption or retraction;
(iii) entitled to cumulative dividends at an annual rate of XXXXXXXXXX% calculated on the amount for which they were issued; and
(iv) ranking senior to any other shares of Cco with respect to preference as to dividends and proceeds on dissolution.
2. Paragraph 13 of the Ruling is deleted and replaced by the following:
13. Lossco will transfer at Fair Market Value ("FMV") all of its Dco Common Shares to Cco pursuant to the terms of a share transfer agreement. As sole consideration for the transfer, Cco will issue to Lossco:
(a) Cco Class A Preferred Shares with a redemption/retraction amount of $XXXXXXXXXX; and
(b) Cco Common Shares with a fair market value not exceeding the difference between the fair market value of the Dco Common Shares transferred to Cco and the fair market value of the consideration described in subparagraph (a) of this paragraph.
3. The first sentence of paragraph 14 of the Ruling is deleted and replaced by the following:
The aggregate FMV of the Cco shares described in subparagraphs 13(a) and (b) above will not exceed the aggregate FMV of the Dco Common Shares so transferred to Cco.
4. The principal amount and FMV of the Lossco Note in paragraph 15 of the Ruling is changed from $XXXXXXXXXX to $XXXXXXXXXX.
5. The reference in the first sentence of paragraph 18 of the Ruling to "additional interest expense of approximately $XXXXXXXXXX on an annual basis" is replaced with a reference to "additional interest expense of approximately $XXXXXXXXXX on an annual basis"
6. The phrase "other than Profitco" in the first sentence of paragraph 19 of the Ruling is deleted and replaced with "including Profitco".
7. The second sentence of paragraph 19 of the Ruling is deleted and replaced by the following:
Lossco would generally accomplish these subsequent transactions by subscribing for additional Cco Class A Preferred Shares and selling these Cco Class A Preferred Shares to a profitable subsidiary in exchange for an interest bearing debt.
Consequential Changes to the Rulings
The phrase "as described in paragraphs 13(a) through (c)" in the last sentence of Ruling A is deleted and replaced with "as described in subparagraphs 13(a) and (b)."
We confirm that the Ruling, as amended herein, remains binding on the Canada Revenue Agency subject to the same limitations and qualifications as set out in the Ruling.
Yours truly,
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch