Principal Issues: A trust will realize a capital gain as a result of the application of subparagraph 104(4)(b)(ii) to shares of a Canadian-controlled private corporation (Holdco) and will include the taxable capital gain realized in its income. After the 21st anniversary of the trust, the trust will distribute under subsection 107(2) some of its shares in the capital stock of Holdco to Father. Father will enter into a pipeline type transaction (the Proposed Transactions) and will receive a Note from Newco. 1) Does section 84.1 apply to the Proposed Transactions? 2) Does subsection 84(2) apply to the Proposed Transactions? 3) Does section 245 apply to the Proposed Transactions?
Position: 1) No. 2) No. 3) No.
Reasons: see below.
XXXXXXXXXX 2022-093766
XXXXXXXXXX 2022
Dear Sirs,
Subject: Request for Advance Income Tax Rulings
XXXXXXXXXX
This is in response to your letter of XXXXXXXXXX, the final version of which was sent to us on XXXXXXXXXX (and amended by email on XXXXXXXXXX), in which you requested income tax rulings on behalf of XXXXXXXXXX and the taxpayers identified in Supplement 1 to your letter. We have also taken into account additional information submitted in your letters and emails as well as information submitted during our telephone conversations (XXXXXXXXXX).
To the best of your knowledge and that of the parties involved in the proposed transactions, none of the issues raised herein are:
(i) addressed in any prior return of the taxpayers or any related person;
(ii) being considered by any Tax Services Office or Tax Centre in relation to any return previously filed by the taxpayers or any related person;
(iii) the subject of an objection by the taxpayers or a related person;
(iv) before the courts or, if a judgment has been rendered, the time limit for appeal to a higher court has expired;
(v) the subject of a ruling request that we have considered, except as indicated in Paragraph 9 of this letter (our file 2014-0526791R3).
Unless otherwise indicated, all statutory references below are to the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (Canada) (the "Act").
DESIGNATION OF PARTIES
In this letter, unless otherwise indicated, the names and corporate names of the taxpayers are replaced by the following names and corporate names:
"ACB" has the same meaning as in the definition of "adjusted cost base" in section 54;
"Advance" means the advance made by Holdco to Newco described in Paragraph 42 of the Proposed Transactions;
"Agreed Amount" has the meaning set out in subsection 85(1);
"Amalco" means the corporation resulting from the amalgamation between Holdco and Newco as contemplated in Paragraph 44 of the Proposed Transactions;
"Capital Property" has the same meaning as in the definition of "capital property" in section 54;
"CCPC" has the same meaning as in the definition of "Canadian-controlled private corporation" in subsection 125(7).
"Child 1" means XXXXXXXXXX who is a resident of Canada for the purposes of the Act, and is Father’s daughter;
"Child 2" means XXXXXXXXXX who is resident in Canada for the purposes of the Act and is Father's son;
"Child 3" means XXXXXXXXXX who is resident in Canada for the purposes of the Act, and is Father's daughter;
"Children" refers collectively to Child 1, Child 2 and Child 3;
"connected corporation" has the meaning assigned by subsection 186(4);
"CRA" means the Canada Revenue Agency;
"Fair Market Value" or "FMV" means the highest price, in dollars, that would be agreed upon in an open market between two arm's length parties who are knowledgeable, informed and prudent, neither party being under any compulsion to act;
"Father" means XXXXXXXXXX who is a resident of Canada for the purposes of the Act;
"Foundation" means XXXXXXXXXX or any other foundation which may, from time to time, legally replace XXXXXXXXXX;
"GAAR" means "general anti-avoidance rule" and has the meaning assigned by subsection 245(2);
"Grandfather" means the late XXXXXXXXXX, father of Father;
"Holdco" means XXXXXXXXXX, incorporated under the XXXXXXXXXX Act;
"Holdings" means XXXXXXXXXX, the company resulting from the amalgamation of XXXXXXXXXX. Holdings is governed by the XXXXXXXXXX;
"Investment" means XXXXXXXXXX, incorporated under XXXXXXXXXX;
"Newco" means a new corporation to be created as contemplated in paragraph 35 of the Proposed Transactions;
"Non-arm's length" has the meaning assigned by subsection 251(1);
"Note" means the note issued by Newco to Father and described in Paragraph 41 of the Proposed Transactions;
"NSC" means non-share consideration;
"Paragraph" means a numbered paragraph of this letter;
"Proposed Transactions" means the transactions referred to in paragraphs 30 to 47;
"PUC" has the same meaning as in the definition of "paid-up capital" in subsection 89(1);
"Related Person" has the meaning set out in subsection 251(2);
"SBC" has the same meaning as in the definition "small business corporation" in subsection 248(1);
"Taxation Year" has the same meaning assigned by subsection 249(1);
"TCC" has the meaning assigned by the definition "taxable Canadian corporation" in subsection 89(1);
"Trust 1" means XXXXXXXXXX Trust;
"Trust 2" means XXXXXXXXXX Trust;
"Trust 3" means a new trust to be created as provided for in Paragraph 30 of the Proposed Transactions;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
Facts
Trust 1 and Trust 2
1. Trust 1 and Trust 2 are resident in Canada for the purposes of the Act.
2. Trust 1 was established on XXXXXXXXXX by way of an irrevocable gift of silver bullion and is governed by the XXXXXXXXXX.
3. Trust 1 is a personal trust as defined in subsection 248(1) and an inter vivos trust as defined in subsection 108(1).
4. Trust 1 will be subject to the deemed disposition rule on XXXXXXXXXX pursuant to paragraph 104(4)(b).
5. Trust 2 was created by an irrevocable gift of money on XXXXXXXXXX and is governed by the XXXXXXXXXX.
6. Trust 2 is a personal trust as defined in subsection 248(1) and an inter vivos trust as defined in subsection 108(1).
7. On XXXXXXXXXX, Trust 1 held XXXXXXXXXX Class A shares of the capital stock of Holdings that it distributed by way of a rollover pursuant to subsection 107(2) to Holdco in satisfaction of its capital interest in Trust 1.
8. Prior to the distribution of the shares of the capital stock of Holdings to Holdco described in Paragraph 7, Trust 2 held XXXXXXXXXX Class A shares (voting and participating) of the capital stock of Holdco acquired as a result of a loan received by Trust 2 from a third person. This loan, which bore interest, was repaid in full on XXXXXXXXXX.
9. A precautionary disclosure was filed with XXXXXXXXXX by Trust 1 regarding the distribution of Trust 1's assets to Holdco as described in Paragraph 7 above. After discussions with XXXXXXXXXX and the CRA, it has been determined that the GAAR and its provincial equivalent applied to deem the deemed disposition date of Trust 2's property within the meaning of subparagraph 104(4)(b)(ii) to be, pursuant to subsection 104(5.8), the day on which the deemed disposition of Trust 1's property will occur, i.e., XXXXXXXXXX.
10. The trustees of Trust 2 are: Father, Child 2 and a person who is not related to Father and Child 2.
11. The beneficiaries of Trust 2 are defined in paragraph 2.1.2 of the Trust 2 deed of trust and include the following persons:
a. Father
b. Father's five 1st degree children;
c. 1st degree children of the 1st degree children of Father;
d. Child in the 1st degree of the children in the 2nd degree of Father;
e. The Grandfather (footnote 1);
f. Certain trusts;
g. Investment;
h. Foundation;
i. Other beneficiaries added by virtue of the option to add (footnote 2).
12. XXXXXXXXXX.
13. Of Father's five 1st degree children, Child 1, Child 2 and Child 3 have reached the age of majority.
a. Child 1 was born in XXXXXXXXXX;
b. Child 2 was born in XXXXXXXXXX;
c. Child 3 was born in XXXXXXXXXX.
14. The assets held by Trust 2 consist of XXXXXXXXXX Class A shares of the capital stock of Holdco, cash on hand, advances receivable and the cash corresponding to the initial contribution made when Trust 2 was created.
15. The assets held by Trust 2, including the shares of the capital stock of Holdco, are capital property to Trust 2.
16. The FMV of the XXXXXXXXXX Class A shares of the capital stock of Holdco held by Trust 2 is estimated to be $XXXXXXXXXX. An independent appraisal of the FMV will be carried out in order to establish this value on the date of the transaction provided for in Paragraph 32.
Holdco
17. Holdco is a TCC and a CCPC. It was incorporated on XXXXXXXXXX under the XXXXXXXXXX. Its Taxation Year ends on XXXXXXXXXX.
18. Holdco is not an SBC.
19. Holdco is a holding company whose activities consist of holding the shares of the capital stock of Holdings, which is itself a holding company whose sole activity is XXXXXXXXXX. At XXXXXXXXXX, Holdco's assets consist mainly of an advance receivable and shares of the capital stock of Holdings. Holdco's main liability is an advance payable. The FMV of the shares in the capital stock of Holdco held by Trust 2 is derived from the FMV of the shares in the capital stock of Holdings held by Holdco.
20. The shares of the capital stock of Holdings held by Holdco are capital property to Holdco.
21. The issued and outstanding shares of the capital stock of Holdco prior to the Proposed Transactions are as follows:
|
Shareholder |
Number |
Class |
$ACB |
$PUC |
$FMV |
|
Trust 2 |
XXXXX |
A |
XXXXX |
XXXXX |
XXXXX |
|
Father |
XXXXX |
C |
XXXXX |
XXXXX |
XXXXX |
22. The attributes of the issued and outstanding shares of Holdco's capital stock are as follows:
a. Class A shares: common shares, entitled to one vote per share, to dividends and to the remaining assets in the event of winding-up of the corporation.
b. Class C shares: multi-voting shares entitled to XXXXXXXXXX votes per share. Class C shares are not entitled to dividends and their rights in the assets of the corporation in the event of winding-up are limited to their redemption value.
23. Holdco's authorized share capital provides for Class B shares, non-voting, which are entitled to a non-fixed, non-cumulative preferred dividend, varying between XXXXXXXXXX% per month of the redemption value, with priority in the event of winding-up or dissolution, redeemable at the option of the holder for an amount equal to the redemption value. If the Class B shares are issued as a result of an exchange of shares of another class of share capital, the redemption value of the Class B shares will be equal to the FMV of the shares of that other class less any consideration paid or received by the corporation in connection with such conversion or exchange.
24. No Class B shares of the capital stock of Holdco have been issued and will not be issued prior to the Proposed Transactions.
Holdings
25. Holdings is a CCPC and a TCC. Its Taxation Year-end is XXXXXXXXXX.
26. Holdings is a holding company which holds investments in various corporations. It was incorporated on XXXXXXXXXX. As at XXXXXXXXXX, Holdings's assets consisted mainly of a balance of XXXXXXXXXX.
27. Holdings is not an SBC.
28. The issued and outstanding shares of the capital stock of Holdings are as follows:
|
Shareholder |
Number |
Class |
$ACB |
$PUC |
$FMV |
|
Holdco |
XXXXX |
A |
XXXXX |
XXXXX |
XXXXX |
|
Father |
XXXXX |
C |
XXXXX |
XXXXX |
XXXXX |
|
Third parties employed by the group |
XXXXX |
D |
XXXXX |
XXXXX |
XXXXX |
29. The attributes of the issued and outstanding shares of Holdings' capital stock are as follows:
a. Class A shares: common shares, entitled to XXXXXXXXXX votes per share, dividends and the remaining assets of Holdings in the event of winding-up.
b. Class C shares: multiple-voting shares, giving the right to XXXXXXXXXX votes per share. Class C shares are not entitled to dividends and their rights in the assets of the corporation in the event of winding-up are limited to their redemption value.
c. Class D shares: non-voting, entitled to dividends and redeemable at the corporation's option.
Proposed Transactions
30. Prior to XXXXXXXXXX, Trust 3 will be created in accordance with the provisions of the XXXXXXXXXX. The list of beneficiaries of Trust 3, subject to certain residency restrictions, will include Father and his first-degree children, a foundation, and certain trusts and corporations.
31. Prior to XXXXXXXXXX, the articles of Holdco will be amended to add the following class of shares to the capital stock of Holdco:
a. A new class of Class D preferred shares, which are non-voting, entitled to a non-fixed, non-cumulative dividend in preference to the Class A shares, but ranking after the Class B shares, varying XXXXXXXXXX% per month of the redemption value. The shares will also have priority over the Class A shares in the event of a winding-up or dissolution, and will be redeemable at the option of the holder for an amount equal to the redemption value. If the Class D preferred shares are issued as a result of an exchange of shares of another class of capital stock, the redemption value of the Class D shares will be equal to the FMV of the shares of that other class less any consideration paid or received by the corporation in connection with such conversion or exchange.
32. Prior to XXXXXXXXXX and subsequent to the amendments to the articles described in the preceding paragraph, Trust 2 will exchange, pursuant to subsection 51(1), its XXXXXXXXXX Class A shares of the capital stock of Holdco for XXXXXXXXXX Class B preferred shares and XXXXXXXXXX Class D preferred shares of the capital stock of Holdco. The redemption value of the Class B preferred shares will be set at $XXXXXXXXXX. The redemption value of the XXXXXXXXXX Class D preferred shares will be set at $XXXXXXXXXXX. The ACB of the XXXXXXXXXX Class A shares of the capital stock of Holdco held by Trust 2 will be allocated between the XXXXXXXXXX Class B shares and the XXXXXXXXXX Class D shares of the capital stock of Holdco based on their respective FMV. The PUC of the XXXXXXXXXX Class A shares of the capital stock of Holdco will be allocated on the same basis.
33. Concurrently with the transaction described in Paragraph 32, Trust 3 will subscribe for XXXXXXXXXX Class A shares of the capital stock of Holdco for an amount of $XXXXXXXXXX.
34. Prior to XXXXXXXXXX, Trust 2 will distribute the XXXXXXXXXX Class D shares of the capital stock of Holdco that it holds in satisfaction of all or part of the capital interest of such beneficiaries in Trust 2 as follows:
a. XXXXXXXXXX shares to Father;
b. XXXXXXXXXX shares to Child 1;
c. XXXXXXXXXX shares to Child 2;
d. XXXXXXXXXX shares to Child 3.
Trust 2 will not make an election pursuant to subsection 107(2.001).
35. Prior to XXXXXXXXXX, Newco will be incorporated under the XXXXXXXXXX. Newco will be a TCC and a CCPC. Its Taxation Year will end on XXXXXXXXXX. The authorized share capital of Newco will include an unlimited number of Class A, Class B and Class C shares without par value:
a. Class A shares: voting and participating common shares.
b. Class B shares: non-participating, non-voting, entitled to a non-cumulative preferred dividend of XXXXXXXXXX% per month of the redemption value, redeemable at any time at the option of the holder or the corporation for an amount equal to the FMV of the consideration received at the time of issue less any NSC received.
c. Class C shares: multiple-voting shares carrying XXXXXXXXXX votes per share, redeemable for an amount equal to the FMV of the consideration received on issue and non-participating.
36. Father will transfer his XXXXXXXXXX Class C shares of the capital stock of Holdco to Newco in consideration for XXXXXXXXXX Class C shares of the capital stock of Newco having a FMV equal to the FMV of the Class C shares of the capital stock of Holdco then transferred. An election pursuant to subsection 85(1) will be filed in the prescribed form and within the prescribed time in accordance with subsection 85(6). The Agreed Amount will be determined in accordance with the limits set out in subsection 85(1) so that the transfer will be made on a tax-free basis. The amount that Newco will add to its PUC for the Class C shares that it will issue will be equal to the PUC of the shares transferred immediately before the transfer, i.e. $XXXXXXXXXX. For greater certainty, the PUC of the shares issued will not exceed the amount determined by B in the formula in paragraph 84.1(1)(a). After this transfer, Holdco will be a connected corporation with Newco pursuant to paragraph 186(4)(a).
37. Trust 3 will simultaneously, with Paragraph 36, transfer its XXXXXXXXXX Class A shares of the capital stock of Holdco to Newco in consideration for XXXXXXXXXX Class A shares of the capital stock of Newco having a FMV equal to the FMV of the Class A shares of the capital stock of Holdco then transferred. An election pursuant to subsection 85(1) will be filed in the prescribed form and within the prescribed time in accordance with subsection 85(6). The Agreed Amount will be determined in accordance with the limits set out in subsection 85(1) so that the transfer will be made on a tax-free basis. The amount that Newco will add to its PUC for the Class A shares that it will issue will be equal to the PUC of the shares transferred immediately before the transfer, i.e., $XXXXXXXXXX. For greater certainty, the PUC of the shares issued will not exceed the amount determined by the description of B in the formula in paragraph 84.1(1)(a).
38. Father and the Children will simultaneously, with Paragraphs 36 and 37, transfer their Class D shares of the capital stock of Holdco to Newco in consideration for Class B shares of the capital stock of Newco having a FMV equal to the FMV of the Class D shares of the capital stock of Holdco then transferred. An election pursuant to subsection 85(1) will be filed in the prescribed form and within the prescribed time in accordance with subsection 85(6). The Agreed Amount will be determined in accordance with the limits prescribed in subsection 85(1) so that the transfer will be made on a tax-free basis. The amount that Newco will add to its PUC for the Class B shares that it will issue will be equal to the PUC of the shares transferred immediately before the transfer. For greater certainty, the PUC of the shares issued will not exceed the total of the amounts determined by the description of B in the formula in paragraph 84.1(1)(a). The Class D shares in the capital stock of Holdco will be transferred as follows:
a. Father will transfer XXXXXXXXXX shares in consideration for XXXXXXXXXX Class B shares of the capital stock of Newco.
b. Child 1 will transfer XXXXXXXXXX shares in consideration for XXXXXXXXXX Class B shares of the capital stock of Newco.
c. Child 2 will transfer XXXXXXXXXX shares in exchange for XXXXXXXXXX Class B shares in the capital stock of Newco.
d. Child 3 will transfer XXXXXXXXXX shares in consideration for XXXXXXXXXX Class B shares in the capital stock of Newco.
39. As indicated in Paragraph 9, pursuant to subparagraph 104(4)(b)(ii) and subsection 104(5.8), at the end of the day on XXXXXXXXXX, Trust 2 will be deemed to have disposed of all of the property it holds, which will consist mainly of the Class B shares of the capital stock of Holdco, for proceeds of disposition equal to their FMV at that time. Trust 2 will be deemed to have reacquired such property immediately thereafter, on XXXXXXXXXX, for an amount equal to such FMV. Trust 2 will not pay or otherwise make payable to one or more of its beneficiaries the taxable capital gain realized as a result of the deemed disposition of each of its properties under subsection 104(4). As a result of this transaction, Trust 2's ACB of the XXXXXXXXXX Class B shares of Holdco's capital stock will be $XXXXXXXXXX. With respect to the tax on this taxable capital gain of Trust 2 and subject to Paragraphs 42 and 43 below, Trust 2 will file the election pursuant to subsection 159(6.1) to defer the payment thereof over a maximum period of XXXXXXXXXX years.
40. On XXXXXXXXXX, Trust 2 will distribute a number of XXXXXXXXXX Class B shares of the capital stock of Holdco to Father in satisfaction of a portion of his interest in the capital of Trust 2. Trust 2 will not make the election provided for in subsection 107(2.001).
41. After XXXXXXXXXX, Father will sell the XXXXXXXXXX Class B shares of the capital stock of Holdco to Newco in consideration for a Note having a value of $XXXXXXXXXX.
42. Since Trust 2 will not have the cash required to pay the taxes payable following the transaction described in Paragraph 39, Holdco will make an Advance to Newco in an amount equivalent to the first instalment of the taxes and interest payable by Trust 2. The Advance made by Holdco to Newco will be financed by an advance received from Holdings, which advance will bear a commercially reasonable rate of interest. To the extent that the subsection 159(6.1) election is filed in order to stagger Trust 2's taxes until the amalgamation described in Paragraph 44, this step may be repeated annually until Trust 2 has paid its taxes in full.
43. With the money from the Advance described in Paragraph 42, Newco will repay a portion of the note payable to Father, namely an amount equivalent to the first instalment of the taxes and interest payable by Trust 2, and Father will use the amount received to make a capital contribution to Trust 2 in an amount equivalent to the first instalment of the taxes and interest related to the transactions described in Paragraph 39 at the time the payment is due by Trust 2. To the extent that the election in subsection 159(6.1) is filed in order to stagger Trust 2's taxes, this step may be repeated annually by Father, by Newco or by Amalco, after the amalgamation described in Paragraph 44, until the taxes are paid in full by Trust 2.
44. After a minimum period of XXXXXXXXXX following the transaction described in Paragraph 41, Newco and Holdco (the "Predecessor Corporations") will amalgamate to form Amalco. In connection with the amalgamation:
a. The assets (other than amounts receivable from a Predecessor Corporation or shares of the capital stock of a Predecessor Corporation) held by the Predecessor Corporations immediately prior to the amalgamation will become assets of Amalco;
b. The liabilities (with the exception of amounts payable to a Predecessor Corporation) of the Predecessor Corporations, existing immediately prior to the amalgamation, will become liabilities of Amalco;
c. The shareholders (other than the Predecessor Corporations) who held shares of the capital stock of a Predecessor Corporation immediately prior to the amalgamation will receive shares of the capital stock of Amalco.
46. Following the amalgamation described in Paragraph 44, Amalco will progressively repay the balance of the note payable to Father upon future receipts of dividends from Holdings, advances made by Holdings to Amalco or other receipts. However, any repayment made in any of the first four quarters of the second year following the transaction described in Paragraph 41 of the Proposed Transactions will not exceed XXXXXXXXXX% of the total principal amount of the Note, if any.
47. Trust 2 will be wound-up following full payment of the taxes payable.
Other relevant facts
48. No amount under section 110.6 has been deducted by the beneficiaries of Trust 2 or by a person not dealing at arm's length with Trust 2 in respect of the Class A shares held by Trust 2 in the capital stock of Holdco or in respect of substituted shares within the meaning of subsection 248(5). No taxable capital gain resulting from the deemed disposition provided for in Paragraph 39 will be paid or otherwise made payable to the beneficiaries of Trust 2. Trust 2 beneficiaries will not claim a deduction under section 110.6 in connection with the Proposed Transactions.
49. Father, Child 1, Child 2 and Child 3 are residents of Canada and they have not taken any steps to become non-residents of Canada as of the date hereof and it is not their intention to take such steps.
50. At no time prior to Father's contribution of capital pursuant to Paragraph 43 did Trust 2 hold property in circumstances described in subsection 75(2).
51. Newco will remain a separate legal entity from Holdco for a minimum period of XXXXXXXXXX following the sale described in Paragraph 41. In addition, during that period, Holdco will continue to carry on its activities as it did prior to the Proposed Transactions.
52. Trust 2 will retain the balance of the Class B shares of the capital stock of Holdco (after the distribution described in Paragraph 40) in order to hold assets of a value equal to or greater than the tax liability resulting from the application of subsection 104(4), considering the election to spread the payment of taxes over a maximum period of 10 years provided for in subsection 159(6.1).
53. For greater certainty, no part of the value received or receivable by Father pursuant to the transaction described in Paragraph 41 will be paid directly or indirectly to a non-resident person of Canada, other than a non-resident person dealing at arm's length with Father.
Purpose of the Proposed Transactions
The purpose of the proposed transactions is to transfer a portion of the shares of the capital stock of Holdco held by Trust 2 into the hands of Father, following the application of subsection 104(4), in order to gradually restore the value of those shares to Father, as well as to finance the taxes resulting from the application of that subsection, using funds provided by Holdings.
Additional Information
XXXXXXXXXX
ADVANCE RULINGS ISSUED
Provided that the statement of facts, the Proposed Transactions, the other relevant facts and the additional information constitute full disclosure of all relevant facts and of all the Proposed Transactions, and provided that the Proposed Transactions are carried out as described above, our rulings are as follows:
A. The provisions of section 51 will apply to the exchange by Trust 2 of its XXXXXXXXXX Class A shares of the capital stock of Holdco for XXXXXXXXXX Class B preferred shares and XXXXXXXXXX Class D preferred shares of the capital stock of Holdco described in Paragraph 32 of the Proposed Transactions. The ACB to Trust 2 of the shares acquired in that exchange will be equal to the amount determined under paragraph 51(1)(b). The PUC of the shares issued by Holdco on that exchange will be equal to the amount determined under paragraph 51(3).
B. The provisions of subsection 107(2) will apply to the distributions of Class D Shares and Class B Shares of the capital stock of Holdco by Trust 2 to Father, Child 1, Child 2 and Child 3 in satisfaction of all or part of their respective interests in the capital of Trust 2 as described in Paragraphs 34 and 40 of the Proposed Transactions.
C. Pursuant to subsection 245(2) and in accordance with Paragraph 9, the provisions of subparagraph 104(4)(b)(ii) will apply, through the application of paragraph 104(5.8), at the end of XXXXXXXXXX so that Trust 2 will be deemed to have disposed of all of the property that it holds and that constitutes capital property to it referred to in subsection 104(4) for proceeds of disposition equal to its FMV at that time and Trust 2 will be deemed to have reacquired such property immediately after that day, i.e. XXXXXXXXXX, for an amount equal to that FMV.
D. Paragraph 84.1 will not apply to deem a dividend to be paid by Newco and received by Father in connection with the transfer described in Paragraph 41 of the Proposed Transactions to the extent that the principal amount of the Note is equal to or less than the ACB (as subject to paragraphs 84.1(2)(a) and (a.1)), to Father, of the Class B shares of the capital stock of Holdco, immediately prior to such transfer.
E. The provisions of subsection 84(2) will not apply as a result of and by reason of the Proposed Transactions described above to deem Holdco to have paid to Father, and Father to have received, a dividend.
F. The provisions of subsections 15(1), 246(1) and 105(1) will not apply in connection with the Proposed Transactions.
G. The provisions of subsection 245(2) will not apply as a result of and by reason of the Proposed Transactions to redetermine the tax consequences confirmed by the rulings rendered, other than with respect to the deemed date of disposition of the Trust 2 Property pursuant to subsection 104(5.8).
These rulings are subject to the restrictions and general conditions set out in Information Circular 70-6R12 dated April 1, 2022, published by the CRA and are binding on the CRA, provided that the proposed transactions described in Paragraphs 30 to 41 are completed within the timeframes set out herein and before the 6-month period ending after the date hereof. The subsequent planned transactions described in Paragraphs 42 to 47 must be completed within the timeframes set out herein, as described above. These decisions are based on the current Act and do not take into account the proposed amendments thereto.
OTHER COMMENTS
These rulings should in no way be construed as an acquiescence on the part of the CRA that:
a. we have considered the other tax consequences that may result from the proposed transactions set out herein;
b. the amount attributed to a property in the statement of facts and proposed transactions truly represents the FMV or ACB of a property, or the PUC amount of a share; and
c. we have determined the residence status of a party involved in the Proposed Transactions.
A statement of our fees for the time spent reviewing your file will be sent to you under separate cover.
Best regards,
XXXXXXXXXX
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
XXXXXXXXXX.