2017-0737151I7 Application of paragraph 40(3.5)(c)

Principal Issues: Whether the term “merger” as used in subparagraph 40(3.5)(c)(i) may include a winding-up.

Position: Yes.

Reasons: Based on the various Canadian legal definitions of the term “merger”, such term may be broadly interpreted so as to include a winding-up. Furthermore, had Parliament intended to exclude a winding-up from the reference to “merger” in subparagraph 40(3.5)(c)(i) it would have specifically done so by incorporating exclusionary wording to that effect, as was done in subsections 87(1), 87(8.1), 87(8.2) and 128.2(3). Furthermore, based on the text, context and purpose of paragraph 40(3.5)(c) the liquidation of CCo should not result in the suspended loss becoming available, as such liquidation should fall within the ambit of “merger” in subparagraph 40(3.5)(c)(i).

Author: Patel, Komal
Section: 40(3.3), 40(3.4), 40(3.5), 95(2)(e), 87(1), 87(8.1), 87(8.2), 89(1) and 128.2(3)

                                                                                                          June 25, 2018

Minh-Thi Truong                                                                                Income Tax Rulings
Legislative Application Section                                                          Directorate
Large Business Audit, ILBIB                                                              K. Patel
610-344 Slater Street                                                                         (416) 973-2418
Ottawa ON  K1A 0L5

                                                                                                           2017-073715

XXXXXXXXXX (“ACo”)
Application of paragraph 40(3.5)(c) to the capital loss realized on the XXXXXXXXXX Winding-up of XXXXXXXXXX (“CCo”)

We are writing in response to the December 8, 2017 referral from the Legislative Applications Section requesting the Income Tax Rulings Directorate’s (ITRD’s) opinion on the interpretation of subparagraph 40(3.5)(c) of the Income Tax Act (the “Act”) to the XXXXXXXXXX and XXXXXXXXXX reorganization steps outlined below (the “Reorganization”).

FACTS & ASSUMPTIONS

1.    BCo is a corporation formed under the laws of XXXXXXXXXX.  It is a publicly traded XXXXXXXXXX resident company.

2.    ACo is incorporated under the XXXXXXXXXX and is a wholly-owned subsidiary of BCo.  ACo is in the business of XXXXXXXXXX.

3.    ECo is a private limited company incorporated under the laws of XXXXXXXXXX.  It is an indirect subsidiary of BCo.

4.    DCo is a private unlimited company, incorporated under the laws of XXXXXXXXXX.  It is a dormant company, and a wholly owned subsidiary of ECo.

5.    GCo is a XXXXXXXXXX corporation and an indirect subsidiary of BCo.

6.    HCo is a XXXXXXXXXX, registered in XXXXXXXXXX. HCo is an indirect subsidiary of BCo.

7.    CCo was a private unlimited company, incorporated under the laws of XXXXXXXXXX.  CCo was a holding company, and controlled foreign affiliate (“CFA”) (footnote 1) of ACo. Prior to the Reorganization, CCo had XXXXXXXXXX issued and outstanding ordinary shares of which XXXXXXXXXX shares were owned by ACo and the remaining XXXXXXXXXX held by DCo.

8.    In XXXXXXXXXX CCo acquired the XXXXXXXXXX business. The XXXXXXXXXX business consisted of a number of foreign affiliates (“FAs”) operating in various jurisdictions.  In XXXXXXXXXX CCo was involved in a restructuring, part of which involved the disposition of the XXXXXXXXXX business to an arm’s length party.

9.    All the above mentioned entities are ultimately owned and controlled by BCo and are therefore affiliated pursuant to section 251.1 of the Act.

10.   Throughout the course of the Reorganization, CCo held no assets or liabilities other than a XXXXXXXXXX receivable from ECo (“The Receivable”).

11.   Immediately prior to the Reorganization, the shares of CCo held by ACo had an accrued loss of XXXXXXXXXX. (footnote 2)

12.   Further to Reorganization steps 3 to 6, we understand that under XXXXXXXXXX law CCo was considered to be wound up in XXXXXXXXXX.

REORGANIZATION STEPS

Step 1: On XXXXXXXXXX ACo disposed of all of its shares of CCo (footnote 3) to BCo, via a dividend in kind.

Reported Tax Implications:

ACo reported a capital loss of XXXXXXXXXX which was deemed to be nil pursuant to subsection 40(3.3) and paragraph 40(3.4)(a) (“the Suspended Loss”) for its tax year ended XXXXXXXXXX.

Step 2: On XXXXXXXXXX, BCo formed FCo, a corporation formed under the laws of XXXXXXXXXX.

Step 3: On XXXXXXXXXX the board of directors of CCo approved a XXXXXXXXXX that intended to qualify under XXXXXXXXXX.  The plan included steps 4, 5 and 6 described below.

XXXXXXXXXX.

Step 4: On XXXXXXXXXX BCo transferred XXXXXXXXXX ordinary shares of CCo to FCo.

Step 5: On XXXXXXXXXX: CCo declared an interim dividend of XXXXXXXXXX per share or XXXXXXXXXX to FCo and XXXXXXXXXX to BCo. (footnote 4) The dividend was settled pursuant to the directed transfer agreement (footnote 5) resulting in the following:

(i)   ECo wired XXXXXXXXXX to GCo and XXXXXXXXXX to BCo

(ii)  GCo converted the total to XXXXXXXXXX, and transferred the amount to HCo

(iii) HCo had an obligation to FCo in the amount of the XXXXXXXXXX payable to FCo

Step 6: On XXXXXXXXXX an application XXXXXXXXXX was made to XXXXXXXXXX, requesting that CCo be XXXXXXXXXX.

ISSUE

Whether the liquidation of CCo results in the Suspended Loss becoming available pursuant to subparagraph 40(3.4)(b)(i), as reported by ACo in its XXXXXXXXXX tax return.

ANALYSIS

Part I: Is the liquidation of CCo a “merger” under Subparagraph 40(3.5)(c)(i)?

Corporate Law

The term “merger” is not defined in the Act nor has such meaning been the subject of any tax court cases.

Barron’s Canadian Law Dictionary, 6th Edition, defines “merger” as:

“The amalgamation of one thing into another; a consolidation.

1. In the law of corporations, the terms merger and amalgamation are often used interchangeably, although only the latter has a specific legal meaning. AMALGAMATION is the fusion of two or more corporations and their continuance as one corporation. Such an amalgamation, or, popularly, a merger, is accomplished in several ways: (1) A sale of the assets of one (or more than one) corporation to an existing corporation in consideration of the issuance of paid-up shares or securities of the latter. The vendor corporation will then pay its liabilities and distribute its assets among its own shareholders and surrender its charter or in some other manner be dissolved; (2) a lease of the whole or a substantial part of the assets and business of one or more corporations to another corporation. In this case the lessor corporation remains in existence and distributes, by way of dividends among its shareholders, the rentals paid by the lessee corporation; (3) acquisition of shares of two or more corporations by a new corporation or by an existing corporation; (4) amalgamation by agreement between the corporations pursuant to special statutory provisions. This last-named method of effecting amalgamations is governed by both federal and provincial companies legislation.”

Black’s Law Dictionary 8th Edition defines “merger” as: “The act or instance of combining or uniting”. It then details additional meanings depending on the context. In the corporate context it states: “The absorption of one organization (esp. a corporation) that ceases to exist into another that retains its own name and identity and acquires the assets and liabilities of the former. Corporate mergers must conform to statutory formalities and usu. must be approved by a majority of the outstanding shares.”

The definition then goes on to further define a number of subsets of “mergers”. Of note is the definition of De facto merger: “A transaction that has the economic effect of a statutory merger but that is cast in the form of an acquisition or sale of assets or voting stock. Although such a transaction does not meet the statutory requirements for a merger, a court will generally treat it as a statutory merger for purposes of the appraisal remedy.”

In contrast, a winding-up is defined (footnote 6) simply as: “The process of settling accounts and liquidating assets in anticipation of a partnership’s or a corporation’s dissolution.”

Based on the above definitions, it appears that from a corporate law perspective, the term “merger” is broader and more encompassing in comparison to a “winding-up”.

In The Queen v. Black and Decker Mfg. Co., 43 D.L.R. (3d) 393, at pages 399–400, (“Black and Decker”), which is a decision concerning the meaning of “amalgamation” under section 128A of the Canada Corporations Act, the Supreme Court of Canada indicated that:

“There are various ways in which companies can be put together. The assets of one or more existing companies may be sold to another existing company or to a company newly-incorporated, in exchange for cash or shares or other consideration. The consideration received may then be distributed to the shareholders of the companies whose assets have been sold, and these companies wound up and their charters surrendered. In this type of transaction a new company may be incorporated or an old company wound up but the legal position is clear. There is no fusion of corporate entities. Another form of merger occurs when an existing company or a newly-incorporated company acquires the shares of one or more existing companies which latter companies may then be retained as subsidiaries or wound up after their assets have been passed up to the parent company. Again there is no fusion. But in an amalgamation a different result is sought and different legal mechanics are adopted, usually for the express purpose of ensuring the continued existence of the constituent companies. The motivating factor may be the Income Tax Act or difficulties likely to arise in conveying assets if the merger were by asset or share purchase. But whatever the motive, the end result is to coalesce to create a homogenous whole. The analogies of a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands have been suggested by others.” [Emphasis added]

Based on the above statement, the Court contemplated a number of different ways that a merger could be effected, supporting the notion that a merger at law is broad and encompassing.

Tax Law

A review of a number of provisions in the Act supports the view that the term “merger” used in subparagraph 40(3.5)(c)(i) is broad and encompassing such that it may also include a winding-up.

For instance, subsection 87(1) reads as follows: “In this section, an amalgamation means a merger of two or more corporations each of which was, immediately before the merger, a taxable Canadian corporation (each of which corporations is referred to in this section as a "predecessor corporation") to form one corporate entity (in this section referred to as the "new corporation") in such a manner that……..otherwise than as a result of the acquisition of property of one corporation by another corporation, pursuant to the purchase of that property by the other corporation or as a result of the distribution of that property to the other corporation on the winding-up of the corporation.”

This exclusionary language is also mirrored in subsection 87(8.1) which deals with foreign mergers and subsection 87(8.2) which deals with absorptive mergers. The exclusionary language found in each of these provisions supports that a merger is broad enough to include a winding-up, hence the specific carve-out of a winding-up noted. This drafting style is also evident in proposed subsection 87(8.4), which lays out the conditions required to be met in order to obtain a rollover (under proposed subsection 87(8.5)) on the disposition of taxable Canadian property that occurs as part of a foreign merger.

Proposed subsection 87(8.4) provides that, “Subsection (8.5) applies at any time if (a) there is at that time a foreign merger of two or more predecessor foreign corporations (within the meaning assigned by subsection (8.1), if that subsection and subsection (8.2) were read without reference to the expression "otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation")…”. Proposed subsection 87(8.4) is comparatively broader in its application as it removes from the definition of “foreign merger” the exclusion for wind-ups. Such carving out of wind-ups in the definition of “foreign merger” in 87(8.1) is only necessary because, in our view, a “merger” otherwise includes a wind-up.

In addition to subsections 87(1), 87(8.1) and 87(8.2), the exclusionary language used therein is also noted in subsection 128.2(3) which deals with cross-border mergers and in the definition of a “Canadian corporation” in subsection 89(1). Given that these provisions when making reference to a “merger” found it necessary to carve out a winding-up, it follows that the term “merger” generally includes a winding-up. As it relates to the stop loss rules, in our view, had Parliament intended to exclude a winding-up from the reference to “merger” in subparagraph 40(3.5)(c)(i), it would have specifically done so by incorporating exclusionary wording to that effect, as was done in a number of other provisions.

A review of the exclusion in subparagraph 40(3.5)(c)(i) to transactions that fall within paragraph 40(3.5)(b) provides additional support for the broadness of the term “merger” as used in subparagraph 40(3.5)(c)(i).

Subparagraph 40(3.5)(c)(i) reads:

(c) if subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a particular corporation and after the disposition
(i) the particular corporation is merged or combined with one or more other corporations, otherwise than in a transaction in respect of which paragraph (b) applies to the share, then the corporation formed on the merger or combination is deemed to own the share while the corporation so formed is affiliated with the transferor,

Generally speaking, paragraph 40(3.5)(b) provides that a share of the capital stock of a corporation that is acquired (i.e., new share) in exchange for another share (i.e., old share) in a transaction is deemed to be a property that is identical to the other share (i.e., old share) if section 51, 86, 87 or 85.1 applies to the transaction. Accordingly, in addition to a winding-up, transactions that fall within sections 51, 86, 87 or 85.1 may also fall within the ambit of a “merger” for purposes of subparagraph 40(3.5)(c)(i). This provides further support for the broadness of the term “merger” as used in subparagraph 40(3.5)(c)(i).

In addition, we note that the current version of paragraph 40(3.5)(c) (applicable after August 19, 2011) incorporated the words “or combined” immediately after the word “merger”. In this respect, it appears that the addition of the words “or combined” to “merged” broadens the potential scope of subparagraph 40(3.5)(c)(i).

Our Interpretation of “Merger”

Based on legal definitions of the term “merger” as well as the scope of that term described by the Supreme Court of Canada in the Black and Decker case, it is evident that such term is broad and encompassing and may include a winding-up. Furthermore, as mentioned above, had Parliament intended to exclude a winding-up from the reference to “merger” in subparagraph 40(3.5)(c)(i), it would have specifically done so by incorporating exclusionary wording to that effect, as was done in subsections 87(1), 87(8.1), 87(8.2), 89(1) (footnote 7) and 128.2(3). Given that these provisions, when making reference to a “merger”, found it necessary to carve out a winding-up, it follows that the term “merger” generally includes a winding-up. Lastly, the various provisions referred to in paragraph 40(3.5)(b) and the carve-out of these provisions in the context of the term “merger” in subparagraph 40(3.5)(c)(i), lends additional support for the broadness of that term as used in the context of subsection 40(3.5).

Part II: Subparagraph 40(3.5)(c)(i) and the use of the words “the corporation formed”

Subparagraph 40(3.5)(c)(i) reads:

(c) if subsections (3.3) and (3.4) apply to the disposition by a transferor of a share of the capital stock of a particular corporation and after the disposition
(i) the particular corporation is merged or combined with one or more other corporations, otherwise than in a transaction in respect of which paragraph (b) applies to the share, then the corporation formed on the merger or combination is deemed to own the share while the corporation so formed is affiliated with the transferor

Interpreting “Formed”

Subparagraph 40(3.5)(c)(i) makes reference to a corporation “formed” on the merger or combination. Under most corporate statutes, where a corporation is wound-up into another, there is no formation of a corporation in the traditional sense. In our view, this does not preclude the application of subparagraph 40(3.5)(c)(i).

The wording in subsection 128.2(1) is particularly notable in respect of the current discussion around the word “formed”: “Where a corporation formed at a particular time by the amalgamation or merger of, or by a plan of arrangement or other corporate reorganization in respect of 2 or more corporations….”. The wording of this provision suggests that the use of the word “formed” may be broad enough to include more than just a straight amalgamation of corporations and may also include “other corporate reorganizations” such as a wind-up or liquidation.

Above, it was noted that transactions that fall within sections 51, 86, 87 or 85.1 are carved out of a “merger” in subparagraph 40(3.5)(c)(i). Accordingly, the term “merger” as used therein is broad enough to capture a subsection 86(1) reorganization of capital, as one example. The rollover provisions of subsection 86(1) apply where all of the shares of the capital stock of a particular class are exchanged for new shares in the course of a reorganization of the corporation’s capital. In such a transaction there is no corporation “formed” in the traditional sense. The same can be said for transactions that fall within sections 51 and 85.1. Consequently, the use of the word “formed” in subparagraph 40(3.5)(c)(i) does not, in our view, preclude a merger from including a winding-up.

Lastly, it is helpful to revisit subsection 87(8.1) and the definition of foreign merger: “For the purposes of this section, "foreign merger" means a merger or combination of two or more corporations each of which was, immediately before the merger or combination, resident in a country other than Canada …. to form one corporate entity resident in a country other than Canada … in such a manner that, and otherwise than as a result of the distribution of property to one corporation on the winding-up of another corporation…”. The above wording supports that a wind-up could fall within the ambit of a merger that results in the “formation” of a corporate entity. The same can be inferred from the winding-up carve outs found in subsections 87(1) and 128.2(1).

One or Many Corporations “Formed”

The current facts involve the wind-up of CCo into its three shareholders (BCo, FCo and DCo).

XXXXXXXXXX.

Subsection 33(2) of the Interpretation Act provides that in construing every enactment, "Words in the singular include the plural, and words in the plural include the singular."  Accordingly, subparagraph 40(3.5)(c)(i) may also be read in a manner that accommodates the formation of more than one corporation, as in the present case.

Subsection 3(1) of the Interpretation Act provides that the provisions of the Interpretation Act apply to all other federal enactments "unless a contrary intention appears".

As discussed above, it is our view that the term “merger” in subparagraph 40(3.5)(c)(i) may include a wind-up. In light of this expanded interpretation of the term “merger” used therein, it follows that since a corporation may wind-up into more than one shareholder corporation, an interpretation of subparagraph 40(3.5)(c)(i) that accommodates such transaction is appropriate.

Accordingly, in our view there is no contrary intention that would limit the application of subparagraph 40(3.5)(c)(i) to situations where there is only one shareholder of a corporation being wound up.

Our Interpretation of the Words “the corporation formed” in Subparagraph 40(3.5)(c)(i)

Based on the wording of subparagraph 40(3.5)(c)(i) and the specific carve out of a number of transactions in paragraph 40(3.5)(b) that do not result in a corporation being “formed” in the traditional sense, we are of the view that the use of the word “formed” should be broadly interpreted within the context of the provisions at hand. This is further evidenced by the use of the word “form” or “formed” in subsections 87(1), 87(8.1) and 128.2(1). Accordingly, in our view the use of the word “formed” in subparagraph 40(3.5)(c)(i) does not preclude a merger from including a winding-up. Lastly, pursuant to the principles laid out in subsections 33(2) and 3(1) of the Interpretation Act, under the current facts, subparagraph 40(3.5)(c)(i) should be read in a manner that accommodates the formation of multiple corporations.

Part III: Interpretation of subparagraph 40(3.5)(c)(i) in light of subparagraphs 40(3.5)(c)(ii) and (iii)

In the analysis above we conclude that the term “merger” as used in subparagraph 40(3.5)(c)(i) is broad enough to include a wind-up. Turning our attention to subparagraphs 40(3.5)(c)(ii) and (iii), we observe that these subparagraphs make reference to certain wind-ups (i.e., subsection 88(1) wind-ups, as well as a QLAD (footnote 8) or DLAD (footnote 9) where the transferor of the loss shares is a foreign affiliate). Interpreting subparagraph (i) as including any wind-up could make subparagraphs (ii) and (iii) redundant. It follows then that the words of paragraph 40(3.5)(c), more particularly the word “merger” in subparagraph (i), needs to be read as a “harmonious whole” based on the text, context and purpose of the rules in arriving at an appropriate interpretation thereof. This method of interpreting the Act was espoused by the Supreme Court of Canada in Her Majesty the Queen v. Canada Trustco Company, 2005 DTC 5523 (“Canada Trustco”), (as quoted in Her Majesty the Queen v. Imperial Oil Limited, 2006 DTC 6639 (“Imperial Oil”), para. 10:

“The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words play a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.”

Context

Subparagraphs 40(3.5)(c)(ii) and (iii) cover a limited number of wind-up transactions, however all such transactions involve a wind-up that occurs on a tax deferred basis. It appears that Parliament wanted to ensure that, pursuant to the deemed continuity rules, a suspended loss does not become available where the transferred corporation is subsequently wound up on a tax deferred basis.

This makes sense from a tax policy perspective given that the wound up corporation’s assets continue to be held within the affiliated group and the wind-up was not subject to Canadian tax.

The above interpretation is further supported by looking at the context of subsection 40(3.5) from a macro perspective. It is notable that all of the reorganizations mentioned in paragraph 40(3.5)(b) (i.e., sections 51, 86, 87 and 85.1) allow transactions that fall within those provisions to occur on a tax deferred basis. Given that the deemed continuity rules apply to such transactions, this informs us that the legislators intended that tax deferred transactions should not result in a previously suspended loss becoming available.

With respect to the current facts, ACo disposed of the CCo shares to its immediate parent BCo at a capital loss. Following a XXXXXXXXXX reorganization transaction, CCo was then wound up into three non-resident corporations, namely BCo, DCo and FCo. In our view, for the purposes of paragraph 40(3.5)(c) such wind-up should be afforded the same treatment as a tax deferred wind up (i.e., a windup of CCo into a Canadian company on a tax deferred basis). This is supported by the fact that a tax deferred wind-up generally represents a deferral of Canadian income tax on any accrued gain and a wind-up of a corporation outside of Canada results in no Canadian income tax. Accordingly, from a contextual perspective the current transaction falls within the ambit of the deemed continuity rules.

Purpose

The Federal Court of Appeal in Cascades c. R., 2009 DTC 5093, made the following comments regarding the overall scheme of the legislation and subsections 40(3.3), 40(3.4) and 40(3.5), at paragraph 34:

“[…] in light of the overall scheme of the legislation and of the provision in question, they should be seen as establishing a stop-loss rule. As Gerald D. Courage points out in his article Utilization of Tax Losses and Debt Restructuring, 2006 Ontario Tax Conference, (Toronto; Canadian Tax Foundation, 2006), 9:1-86, at page 2:

[…] the Act contains a number of so called “stop-loss rules” where there has been a transfer of property with an accrued loss within a statutorily defined closely held group. While the transfer might otherwise be treated as a sufficient realization so as to permit recognition of the loss, nevertheless the loss is denied until the property (or, in some cases, property received in exchange on the transfer) is transferred out of the group, at which point there is effectively a “true” realization by the group of the loss for tax purposes.”

The purpose of subsections 40(3.3), (3.4) and (3.5) was also summarized by Justice Lamarre of the Tax Court of Canada in Cascades Inc. v. Majesty the Queen, 2008 DTC 2387, as follows, para. 22:

“These rules are aimed at preventing a corporation (in this case, the appellant) from recognizing a capital loss on capital property for as long as the property or identical property (the substituted property) is held by the transferor (the appellant) or a person affiliated with the transferor. The respondent relied on paragraph 40(3.5)(c) to argue that the corporation formed on the merger of PII and 371, namely 384894-9 Canada Inc. (PII Fusionco), was deemed to hold the share of PII (sold by the appellant and given rise to the loss at issue) as long as it was affiliated with the appellant. The presumption in paragraph 40(3.5)(c) of the ITA is that when a transferor (the appellant) disposes of a share of the capital stock of a corporation (PII) that is then merged with one or more other corporations (371), the corporation formed on the merger (PII Fusionco) is deemed to own the share as long as it is affiliated with the transferor. […]”

It is evident from statements made by the court as well as the relevant explanatory notes that at large, the purpose of the stop-loss rules in subsections 40(3.3), 40(3.4) and 40(3.5) is to defer the recognition of losses incurred within an affiliated group. Such purpose becomes especially evident or useful in circumstances that reveal there to be no true economic loss incurred by the transferor or by the affiliated group as a whole. Absent the existence of such rules, the recognition and use of losses on transfers within an affiliated group would erode the Canadian tax base.

Interpretation of Subparagraph 40(3.5)(c)(i) in Light of subparagraphs 40(3.5)(c)(ii) and (iii)

A textual, contextual and purposive interpretation of the rules in paragraph 40(3.5)(c) lead to the conclusion that the deemed continuity rules are intended to capture a number of reorganizations, including tax deferred wind-ups, whether it be through the specific mechanics of subparagraphs 40(3.5)(c)(ii) and (iii) or the broader more general provisions of subparagraph 40(3.5)(c)(i) by virtue of the term “merger” used therein.

CONCLUSION

Based on the foregoing analysis, the liquidation of CCo into BCo, DCo and FCo respectively should not result in the Suspended Loss becoming available, as such liquidation should fall within the ambit of “merger” in subparagraph 40(3.5)(c)(i). Accordingly, BCo, DCo and FCo should be deemed to own their respective interests in the shares of CCo as long as they are affiliated with ACo.

We trust our comments will be of assistance, and thank you for your enquiry.

Yours truly,

Yves Moreno
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

cc: XXXXXXXXXX

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  As defined in subsection 95(1).
2  The FMV of the shares was XXXXXXXXXX (i.e., the XXXXXXXXXX equivalent of the Receivable) and the ACB was XXXXXXXXXX.
3  XXXXXXXXXX ordinary shares.
4  The total dividend is equal to the amount of the Receivable held by CCo.
5  It appears that the purpose of the directed transfer agreement is to settle the Receivable while distributing a dividend in XXXXXXXXXX cash/payable to each shareholder of CCo.  This is supported by board resolutions which state that the purpose of the directed transfer agreement is to manage foreign exchange and minimize the number of cash transfers.
6  Black’s Law Dictionary 8th Edition.
7  Definition of Canadian corporation.
8  Qualifying liquidation and dissolution as defined in subsection 88(3.1).
9  Designated liquidation and dissolution as defined in subsection 95(1).

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