Principal Issues: [TaxInterpretations translation]
Request for additional advance income tax ruling for file no. 2022-095749.
Position: Granted
REFERENCE TO THE ACT: 55(2), 55(3)(b)
XXXXXXXXXX 2023-099841
XXXXXXXXXX 2023
XXXXXXXXXX 2023-099841
XXXXXXXXXX 2023
Dear Madam,
Subject: Request for a supplementary advance income tax ruling for file no. 2022-095749
XXXXXXXXXX
This is further to your email of XXXXXXXXXX and your letter of XXXXXXXXXX requesting an extension of time to implement the proposed transactions described in advance income tax ruling letter no. 2022-095749 issued on XXXXXXXXXX (‘Letter’). You have also asked us to make certain changes to the proposed transactions contained in the Letter.
Your request states the following:
With the exception of the modifications set out in this Letter, all facts, information, authorizations and consents are the same as those submitted in our original advance ruling request.
Before proceeding with the Proposed Transactions, we must have obtained, from the CRA and RQ, the clearance certificates and notices of distribution of property with respect to the winding-up of the Estate, the Transferor and the Trust.
To date, we have not received the clearance certificates and notices of distribution from the tax authorities. It is therefore not possible to proceed with the distribution of the property held by the Estate, the Transferor and the Trust.
The transactions described in the request for an advance ruling will take place as soon as the clearance certificates and distribution notices have been received.
Request for extension of time
Your response to our request for an advance ruling specifies that the Proposed Transactions must be completed before the 6-month period ending after XXXXXXXXXX, i.e. no later than XXXXXXXXXX.
Since we are waiting for the clearance certificates and distribution notices, as stated above, it is not possible for the Proposed Transactions to be finalized before XXXXXXXXXX.
We are requesting that the CRA extend the deadline for a further 6 months, until XXXXXXXXXX, in order to complete the Proposed Transactions.
Changes to the facts of the advance ruling
In addition, since the Proposed Transactions have not yet been completed, the first year-end of Child 1 Holdco and Child 2 Holdco cannot take place after the authorized redemptions in steps 89 and 91 of the advance ruling.
Child 1 Holdco was created on XXXXXXXXXX and Child 2 Holdco was created on XXXXXXXXXX.
The first year end of Child 1 Holdco and Child 2 Holdco will take place on XXXXXXXXXX.
The description of the steps in the advance ruling would therefore be modified as follows:
90. The first year-end for Child 1 Holdco will be XXXXXXXXXX.
92. The first year-end of Child 2 Holdco will take place on XXXXXXXXXX.
93. The day following step 89 above....
The Transactions described in paragraphs 89, 91 and 93 will give rise to a circular calculation of the ERDTOH/NERDTOH. Consequently, Transferor and Child 1 Holdco and Child 2 Holdco may be subject to Part IV tax under 186(1)(b). This circularity issue causes uncertainty as to which corporation will ultimately be entitled to receive a DR and which corporation will ultimately have to pay Part IV tax.
98. On XXXXXXXXXX, Child 2 Holdco and Group will merge.
Does the choice of XXXXXXXXXX as the first fiscal year-end of Child 1 Holdco and Child 2 Holdco change the advance rulings issued in file 2022-095749?
Our Comments
After reviewing your request, we confirm that the changes described below have been made to the Letter.
Amendments to the ‘Proposed Transactions’ section
Paragraphs 90, 92, 93 and 98 of the Letter are replaced by the following paragraphs:
90. The first fiscal period end of Child 1 Holdco will occur on XXXXXXXXXX. The Proposed Transactions provided for in paragraphs 72 and following will begin after XXXXXXXXXX and will be carried out, unless otherwise provided for herein, in the taxation year of Child 1 Holdco ending on XXXXXXXXXX.
92. The first fiscal period end of Child 2 Holdco will occur on XXXXXXXXXX. The Proposed Transactions provided for in paragraphs 72 and following will begin after XXXXXXXXXX and will be carried out, unless otherwise provided for herein, in the taxation year of Child 2 Holdco ending on XXXXXXXXXX.
93. On the day following the Proposed Transactions provided for in paragraphs 89 and 91 above, the authorized officers of Transferor will adopt a special resolution authorizing the winding-up and dissolution of Transferor, whereby its property, namely Note 1 and Note 2, will be distributed to Child 1 Holdco and Child 2 Holdco respectively. Note 1 and Note 2 will be extinguished by set-off in accordance with Article 1683 of the Civil Code of Québec.
98. On XXXXXXXXXX, Child 2 Holdco and Group will be amalgamated.
Amendment to the heading ‘Advance Rulings Rendered’
The last paragraph under the heading ‘Advance Rulings Rendered’ is amended as follows:
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 are completed before XXXXXXXXXX or as specifically provided herein. These determinations are based on the current Act and do not take into account any proposed amendments thereto.
Amendment to the ‘Other comments’ section
In the ‘Other comments’ section, the following comment is added concerning the circular calculation of the ERDTOH/NERDTOH:
Given that Taxable Dividends will arise from the Proposed Transactions described in paragraphs 89, 91 and 95, a circularity issue in the calculation of the ERDTOH/NERDTOH of each corporation involved may arise and will impact the assessment of Transferor, Child 1 Holdco and Child 2 Holdco. Our Directorate provides no comment in relation to this issue.
Confirmation of advance rulings issued
Provided that the statement of facts, the Proposed Transactions, the purpose of the Proposed Transactions and the additional information contained in the Letter, as hereby amended, is accurate and constitutes full disclosure of, among other things, all relevant facts and the Proposed Transactions, we hereby confirm to you that the rulings issued in the Letter remain valid in light of the amendments described above and continue to be binding on the CRA, the whole subject to compliance with the other conditions and restrictions set out in the Letter.
A statement of our fees for the time spent reviewing your file will be sent to you under separate cover.
Best regards,
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch