2016 Ruling 2016-0648991R3 - Internal spinoff reorganization of XXXXXXXXXX -- summary under Paragraph 55(3)(a)

Current structure

ParentCo, a taxable Canadian corporation and a public corporation, owns all the common shares of CanSub1 and all the shares of ForSub4. CanSub1 and CanSub2 hold ForSub1 and ForSub2, respectively. ForSub5, which is an indirect wholly-owned subsidiary of ParentCo, wholly owns ForSub3.

Proposed transactions

1. ParentCo will transfer its ForSub4 common shares to CanSub2 under s. 85(1) in consideration for common shares.
2. CanSub2 will transfer such shares to ForSub2 for common shares.
3. CanSub2 will amend its articles to create two new classes of redeemable, retractable non-voting preferred shares (the ForSub1 Transfer and ForSub3 Transfer preferred shares).
4. CanSub1 will effect a reorganization of its capital under which it will amend its articles to create new common shares (which will be identical to the existing common shares except for bearing X votes per share) and new redeemable, retractable non-voting preferred shares (the CanSub1 New Preferred Shares), and will issue such shares of two classes in exchange for all of its existing common shares, which will be cancelled. The paid-up capital of the cancelled common shares will be allocated to the shares of the two new classes pro rata to their respective FMVs.
5. ParentCo will transfer the CanSub1 New Preferred Shares to CanSub2 under s. 85(1) in consideration for common shares.
6. CanSub1 will transfer the common shares of ForSub1 to CanSub2 under s. 85(1) in consideration for ForSub1 Transfer preferred shares.
7. There will be a redemption of the preferred shares held by CanSub1 and CanSub2 in each other in consideration for the issuance of notes, with eligible dividend designations being made.
8. Such notes will be set off.
9. CanSub2 will transfer its common shares of ForSub1 to ForSub2 in consideration for common shares.
10. ForSub5 will transfer all of its ForSub3 common shares to CanSub2 in consideration for ForSub3 Transfer preferred shares.
11. CanSub2 will transfer all of its ForSub3 common shares to ForSub2 in consideration for common shares.

Additional Information

ParentCo does not intend to make any specific contemporaneous public disclosure of the Proposed Transactions. Management of ParentCo has no reason to believe that: (a) the Proposed Transactions will have any material impact on the trading price of shares in the capital stock of ParentCo; and (b) public trading of shares in the capital stock of ParentCo will in any way be facilitated or motivated by the Proposed Transactions. It is possible that the Proposed Transactions may be disclosed in the ParentCo’s regular disclosure documents… .

Rulings

Including that the transactions will not by themselves be considered to result in any disposition of property to, or increase in interest by, an unrelated person described in any of ss. 55(3)(a)(i) to (v). Respecting the non-application of GAAR, the summary states "there is no creation or streaming of cost base and the preferred shares ... are cross-redeemed for notes that are set-off and cancelled."