2014-0539031R3 Butterfly Reorganization

Principal Issues: Whether the amended facts will impact the rulings granted in the original letter?

Position: No

Reasons: No

Author: XXXXXXXXXX
Section: 55(3)(b)

XXXXXXXXXX
                                                                                                                                                    2014-053903

Attention:  XXXXXXXXXX

XXXXXXXXXX, 2014

Dear XXXXXXXXXX

Re:   Supplementary Advance Income Tax Ruling
         XXXXXXXXXX

We are writing in response to the email correspondence we had on XXXXXXXXXX in which you requested that changes be made to the advance income tax ruling 2014-052829 dated XXXXXXXXXX, 2014 ("Ruling").
The Ruling is amended as follows:
1.    The definition of Amalgamation is replaced by the following:
“Amalgamation” means the amalgamation of Newco and Eco to form Amalco on XXXXXXXXXX.
2.    Subparagraphs (i) and (ii) of the third paragraph of the definition of Eco are amended as follows:
(i)   one vote per class A special share; (ii) receive fixed and non-cumulative dividends, as and when declared by the directors of ECo, provided that such dividend cannot exceed, each year, an amount equal to XXXXXXXXXX% of $XXXXXXXXXX per share (the amount of $XXXXXXXXXX being referred to as the “Class A Redemption Amount”) in respect of each such share that they own;
Subparagraph (iii) of the second paragraph of the definition of Holdco is amended as follows:
“receive an equal portion of the property and assets of Holdco available for distribution without preference being granted to the holder of any common shares but subject to the priority granted to the holders of class E, F, G, H and I special shares.”

3.    The definition of I is replaced by the following:
“I” means XXXXXXXXXX who is an individual resident in Canada.  I is J’s wife.
4.    The first sentence of the second paragraph to the definition of “Investment Property” is amended as follows:
The net FMV of DC’s Investment Property, immediately before the transfer of DC’s property to Newco as further described in Paragraph 25 will be calculated as follows
5.    The last paragraph of the definition of NCo is amended as follows:
NCo’s issued and outstanding shares are held as follows: (i) The Family Trust owns all the issued and outstanding common shares in NCo, and (ii) Each of G and H owns XXXXXXXXXX class A special shares in NCo.
6.    The last sentence of the second paragraph to the definition of Newco is replaced by the following:
Each class A preferred shares in Newco qualifies as a Taxable Preferred Share.
7.    The second paragraph of the definition of WCo is replaced by the following:
WCo’s authorized capital consists of XXXXXXXXXX common shares, XXXXXXXXXX class A special shares, XXXXXXXXXX class B special shares, XXXXXXXXXX class C special shares, XXXXXXXXXX class D special shares, XXXXXXXXXX class E special shares and XXXXXXXXXX class F special shares.

8.    Subparagraph (ii) of the third paragraph to the definition of WCo is amended to replace “XXXXXXXXXX%” by “XXXXXXXXXX%”.
9.    Subparagraph (i) of the fourth paragraph to the definition of WCo is amended to replace “XXXXXXXXXX% per month of the par value of $XXXXXXXXXX thereof” by “XXXXXXXXXX% per year of the par value of $XXXXXXXXXX per share”.
10.   In paragraph 4, 5, 6 and 7 of the definition of WCo, subparagraph (iii) is renumbered to become subparagraph (ii) and subparagraph (iv) is renumbered to become subparagraph (iii) where applicable.
Subparagraph (i) of the fifth paragraph to the definition of WCo is amended to replace “XXXXXXXXXX%” by “XXXXXXXXXX%”.

11.   Subparagraph (i) of the sixth paragraph to the definition of WCo is amended to replace “XXXXXXXXXX%” by “XXXXXXXXXX%”.

12.   Subparagraph (i) of the sixth paragraph to the definition of WCo is amended to replace “XXXXXXXXXX%” by “XXXXXXXXXX%”.
13.   Paragraph 4 is replaced by the following paragraph:
4.    D and G are the directors of DC.

14.   Paragraph 8 of the Ruling is replaced by the following paragraph
8.    Each of NCo, A, B, C and F own XXXXXXXXXX common shares in SCo (ACB: $XXXXXXXXXX, PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX).  The Estate owns XXXXXXXXXX class A special shares (ACB, PUC and FMV: $XXXXXXXXXX), XXXXXXXXXX class B special shares (ACB: $XXXXXXXXXX, PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX) and XXXXXXXXXX class D special shares in SCo.  Each of A, B, C, F and G owns XXXXXXXXXX class F special shares (ACB, PUC and FMV: $XXXXXXXXXX) in SCo.

15.   The second to last paragraph of paragraph 32 is amended to replace the sentence “cannot exceed an amount equal to XXXXXXXXXX% of $XXXXXXXXXX each year (the amount on which the dividend is calculated is referred to as the “Class A Redemption Amount”) in respect of each share that they own” by the following sentence “cannot exceed, each year, an amount equal to XXXXXXXXXX% of $XXXXXXXXXX per share (the amount on which the dividend is calculated is referred to as the “Class A Redemption Amount”) in respect of each share that they own”.
16.   The term and will be added after paragraph (e) of Ruling E.
17.   The following paragraph will be added after paragraph (e) of Ruling E:
(f)   will be subject to tax under Part IV under paragraph 186(1)(b) to the extent that Newco is entitled to a Dividend Refund for the taxation year in which it will be deemed to have paid such a dividend.      
We confirm that the changes described above will not affect the Ruling, which will continue to be binding on the CRA within the limitations set out therein.
Yours truly,

XXXXXXXXXX
For Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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