2020-0854401R3 Internal Reorganization 55(3)(a)

Principal Issues: Whether an internal reorganization meets the requirements of paragraph 55(3)(a) and 55(3.01)(g).

Position: Yes

Reasons: Taxpayers’ transaction is consistent with the transaction described in CRA Document 2015-0570021E5.

Author: XXXXXXXXXX
Section: 55(3)(a), 55(3.01)(g) and 55(4)

2020-085440

XXXXXXXXXX

XXXXXXXXXX, 2020

Dear XXXXXXXXXX:

Re:      CONTAINS TAXPAYER INFORMATION
            Advance Income Tax Ruling

XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX (the “Request”) in which you requested an advance income tax ruling on behalf of the Taxpayers.
 

We understand that to the best of your knowledge and that of the Taxpayers, none of the proposed transactions or issues involved in this Ruling are the same as or substantially similar to transactions or issues that are:

1. in a previously filed return of the Taxpayers or a related person;
2. being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayers or a related person;
3. under objection by the Taxpayers or a related person;
4. the subject of a current or completed court process involving the Taxpayers or a related person; or
5. the subject of a ruling previously considered by the Income Tax Rulings Directorate in relation to the Taxpayers or a related person.

Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act, RSC 1985, c 1 (5th Supp), as amended (the “Act”), or, where appropriate, the Income Tax Regulations C.R.C., c. 945, as amended (the “Regulations”) and all terms and conditions used herein that are defined in the Act or Regulations have the meaning given in such definition unless otherwise indicated. All references to monetary amounts are in Canadian dollars.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with the request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

DEFINITIONS

In this letter, unless otherwise noted, the following terms have the meaning specified herein. All references in the singular include the plural.

“ACB” means “adjusted cost base” as that expression is defined in section 54;

“adjusted cost basis” in respect of a life insurance policy has the meaning assigned by subsection 148(9);

“agreed amount” in respect of a property means the amount that the transferor and the transferee of an eligible property have agreed upon in a joint election pursuant to subsection 85(1) in respect of the property;

“arm's length” has the meaning assigned by subsection 251(1);

“capital dividend” means a dividend to which subsection 83(2) applies;

“Canadian-controlled private corporation” or “CCPC” has the meaning assigned by subsection 125(7);

“Controlling Principal” means either Sibling1, Sibling2 or Sibling3 and “Controlling Principals” means collectively Sibling1, Sibling2 and Sibling3;

“CSV” means “cash surrender value” as that expression is defined in subsection 148(9);

“DC” means XXXXXXXXXX which is a corporation resident in Canada founded in XXXXXXXXXX;

“Estate” means XXXXXXXXXX, the subject of which was the father of the Controlling Principals;

“eligible dividend” has the meaning assigned by subsection 89(1);

“fair market value” or “FMV” means the highest price expressed in terms of money or money's worth, available in an open and unrestricted market between knowledgeable, informed, and prudent parties acting at arm's length, neither party being under any compulsion to transact;

“Group” means DC, the Opcos, the Parentcos and XXXXXXXXXX;

“Holdco” means XXXXXXXXXX, a new corporation to be incorporated by filing Articles of Incorporation in the province of XXXXXXXXXX;

“Landco1” means XXXXXXXXXX, a wholly-owned subsidiary of DC;

“Landco2” means XXXXXXXXXX, a wholly-owned subsidiary of DC;

“Landco3” means XXXXXXXXXX, in which DC holds XXXXXXXXXX voting common shares and XXXXXXXXXX non-voting Preferred shares representing XXXXXXXXXX% of the issued and outstanding shares in Landco 3, the other half of the common and Preferred shares are held by arm’s length third parties;

“Landcos” means collectively Landco1, Landco2, and Landco3;

“Opco1” means XXXXXXXXXX which is a wholly-owned subsidiary of DC;

“Opco2” means XXXXXXXXXX which is a wholly-owned subsidiary of DC; “Opco3” means XXXXXXXXXX, a wholly-owned subsidiary of DC;

“Opcos” means collectively Opco1, Opco2, Opco3, the Landcos and six other wholly-owned subsidiaries of DC;

“Parentco1” means XXXXXXXXXX which is wholly-owned by Sibling 1;

“Parentco2” means XXXXXXXXXX which is wholly-owned by Sibling 2;

“Parentco3” means XXXXXXXXXX which is wholly-owned by Sibling 3;

“Parentcos” means collectively Parentco1, Parentco2, and Parentco3;

“paid-up capital” or “PUC” has the meaning assigned by subsection 89(1); “Paragraph” refers to a numbered paragraph in this letter;

“Proposed Transactions” means the transactions described in the Proposed Transactions section of this request;

“related” in respect of a person has the meaning assigned by subsection 251(2);

“safe income on hand” in respect of a particular dividend received (as part of a transaction or event or a series of transactions or events) on a particular share means the income earned or realized (as determined for purposes of section 55) by any corporation after XXXXXXXXXX and before the safe-income determination time for the transaction, event or series that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at fair market value of the particular share immediately before the dividend;

“Series of transactions or events” includes any related transaction or event referred to in subsection 248(10);

“Sibling1” means XXXXXXXXXX, an individual resident in Canada, brother of Sibling2 and Sibling3, and XXXXXXXXXX shareholder of Parentco1;

“Sibling2” means XXXXXXXXXX, an individual resident in Canada, brother of Sibling1 and Sibling3, and XXXXXXXXXX shareholder of Parentco2;

“Sibling3” means XXXXXXXXXX, an individual resident in Canada, sister of Sibling1 and Sibling2, and XXXXXXXXXX shareholder of Parentco3;

“stated capital” means the amount reported in the stated capital account attributable to a share;

“taxable dividend” has the meaning assigned by subsection 89(1);

“TC” means XXXXXXXXXX, a new corporation to be incorporated by filing Articles of Incorporation in the province of XXXXXXXXXX;

FACTS

1. The Group is controlled by three Controlling Principals who are siblings. The Controlling Principals are related for the purpose of the Act and deemed to be unrelated for the purpose of section 55.

2. Each Controlling Principal has their own wholly-owned subsidiary, namely Parentco1 owned by Sibling1, Parentco2 owned by Sibling2, and Parentco3 owned by Sibling3.

3. The Parentcos each hold XXXXXXXXXX% of the voting shares of DC and various classes of nonvoting special shares of DC. Further, Sibling1 and Sibling2 personally hold XXXXXXXXXX% each of the voting shares of DC.

4. The Controlling Principals have always acted jointly and in concert with each other with respect to all important business and financial decisions regarding DC.

5. The issued and outstanding shares of DC consist of the following:

6. The common shares and Class AA Special shares carry XXXXXXXXXX per share. All other classes are non-voting special shares.
7. DC held XXXXXXXXXX life insurance policies with respect to the Controlling Principals with adjusted cost basis, CSV, and FMV of $XXXXXXXXXX, $XXXXXXXXXX, and $XXXXXXXXXX, respectively. These policies were transferred to the respective Parentco owned by the Controlling Principal whose life is insured by each policy. The specific transaction steps to transfer the policies are described under the Completed Transactions section below.
8. DC holds direct ownership in XXXXXXXXXX wholly-owned subsidiaries and XXXXXXXXXX corporation (Landco3) over which it has significant influence (collectively, the Opcos). XXXXXXXXXX.
9. The XXXXXXXXXX investments are held in the Landcos. Landco1 and Landco2 are wholly-owned subsidiaries and Landco3 is a corporation in which DC holds XXXXXXXXXX% of the issued and outstanding voting Common shares and non- voting Preferred shares. The total shares of the Landcos held by DC are as follows:

The Class B Special shares of Landco2 are non-voting, redeemable at their stated capital, and entitled to non-cumulative dividends in priority to common shares. The Preferred shares of Landco3 are non-voting, redeemable at their stated capital, and entitled to an XXXXXXXXXX% non-cumulative dividend.

10. The other XXXXXXXXXX issued and outstanding Common shares and XXXXXXXXXX issued and outstanding Preferred shares in Landco3 are held by various arm’s length corporations that are not party to the Proposed Transactions.
11. All corporations in the Group are resident in Canada and the Controlling Principals are Canadian residents for purposes of the Act. Accordingly, all corporations in the Group are CCPCs.
12. With the exception of Landco3, all corporations in the Group are persons not dealing at arm’s length with each other pursuant to subsection 251(1) and are associated corporations pursuant to subsection 256(1). DC is connected to each of the Parentcos and Opcos for the purposes of subsection 186(4).

COMPLETED TRANSACTIONS

13. On XXXXXXXXXX, Opco1, Opco2 and Opco3 filed Articles of Amendment with the province of XXXXXXXXXX whereby all their existing classes of Special or Preferred shares were cancelled and the authorized share capital was amended to consist of common shares only. In the course of the reorganization, DC exchanged all Class A Special shares and common shares in Opco1, all Preferred shares and common shares in Opco2, and all Class B preference shares and common shares in Opco3, for newly issued common shares of each corporation pursuant to subsection 86(1).

14. On XXXXXXXXXX, DC filed Articles of Amendment with the province of XXXXXXXXXX to:
    1. delete from the authorized classes of shares the Class E Special shares and Class W Special shares (these classes of shares were authorized in the articles of DC with no shares issued and outstanding);
    2. remove the priority dividend rankings of the Class AA Special shares, Class BB Special shares, Class G Special shares and Class Z Special shares over the common shares (these shares were then ranked equally with the common shares such that all the shares shall be entitled to receive dividends, if, as and when declared by the board of directors of DC in their sole and absolute discretion; and
    3. remove the priority dividend rankings for dividends other than capital dividends for the Class AAA Special shares, Class BBB Special shares and Class CCC Special shares such that dividends other than capital dividends can be declared on any class of shares if, as and when declared by the board of directors of DC in their sole and absolute discretion.
15. On XXXXXXXXXX, in the course of a reorganization, each Parentco exchanged all the common shares, Class G Special shares and Class Z Special shares it held in DC for newly issued common shares pursuant to subsection 86(1).
16. On the same date, DC filed Articles of Amendment with the province of XXXXXXXXXX to:
    1. delete the Class G Special shares and Class Z Special shares from the authorized classes of shares; and
    2. authorize the ability to issue an unlimited number of all the remaining classes of shares, namely, the Class AAA Special, Class BBB Special, Class CCC Special, Class AA Special, Class BB Special and common shares.
17. Following the secondary share capital reorganization, the DC shares issued and outstanding consisted of the following:

18. On XXXXXXXXXX, Opco1 and Opco2 declared and paid capital dividends pursuant to subsection 83(2) in the amount of $XXXXXXXXXX and $XXXXXXXXXX, respectively, on the common shares held by DC. The payment of each dividend was satisfied by a non-interest-bearing promissory note, due on demand.
19. On XXXXXXXXXX, Opco1 and Opco3 declared and paid taxable dividends of $XXXXXXXXXX and $XXXXXXXXXX, respectively, on the common shares held by DC. The dividends were designated as eligible dividends pursuant to subsection 89(14). The payment of each dividend was satisfied by a non-interest-bearing promissory note, due on demand.
20. On XXXXXXXXXX, DC declared and paid capital dividends of $XXXXXXXXXX in aggregate, as follows:
    1. $XXXXXXXXXX on Class AAA Special shares held by Parentco1;
    2. $XXXXXXXXXX on Class BBB Special shares held by Parentco2;
    3. $XXXXXXXXXX on Class CCC Special shares held by Parentco3.
21. DC declared and paid a taxable dividend on its outstanding common shares of $XXXXXXXXXX. Of the total taxable dividend, $XXXXXXXXXX was designated as an eligible dividend pursuant to subsection 89(14).
22. The capital and taxable dividends declared and paid by DC of $XXXXXXXXXX, in aggregate, were satisfied as a dividend-in-kind by the transfer of life insurance policies at their fair market value and by promissory notes as follows:
    1. XXXXXXXXXX life insurance policies on the insured Sibling1 to Parentco1 having FMV of $XXXXXXXXXX;
    2. ​​​​​​​XXXXXXXXXX life insurance policies on the insured Sibling2 having FMV of $XXXXXXXXXX and a promissory note of $XXXXXXXXXX to Parentco2;
    3. ​​​​​​​XXXXXXXXXX life insurance policies on the insured Sibling3 having FMV of​​​​​​​ $XXXXXXXXXX and a promissory note of $XXXXXXXXXX to Parentco3.

PROPOSED TRANSACTIONS

23. Holdco will be incorporated by the Controlling Principals by filing Articles of Incorporation in the province of XXXXXXXXXX. The authorized share capital upon incorporation will be unlimited common shares, Class AA Special shares, Class BB Special shares, Class AAA Special shares, Class BBB Special shares, and Class CCC special Shares. The common shares will carry XXXXXXXXXX per share and have other typical attributes with respect to dividends and liquidation. All attributes of each newly authorized class of Special shares will be identical to those of the corresponding class of shares in DC.
24. No shares will be issued upon incorporation.
25. TC will be incorporated by Holdco by filing Articles of Incorporation in the province of XXXXXXXXXX. The authorized share capital upon incorporation will be unlimited common shares and unlimited Class A Special shares. The common shares will carry XXXXXXXXXX per share and have other typical attributes with respect to dividends and liquidation. The Class A Special shares will be non-voting, redeemable and retractable, entitled to dividends at the discretion of the Board of Directors, and will have priority over common shares with respect to dividends and liquidation. The redemption value of the Class A Special shares will be equal to their FMV at the time of issuance.
26. No shares will be issued upon incorporation.
27. Parentco1 will transfer all of its shares of DC being XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class AAA Special shares of DC to Holdco. Parentco1 will receive consideration of XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class AAA Special shares of Holdco. Each share of Holdco issued will have ACB and PUC equal to that of the corresponding share transferred. Parentco1 will not receive any non-share consideration on the transfer of the DC shares.
28. Parentco1 and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than the FMV of those shares at the time of the transfer.​​​​​​​
29. The amount to be added to the stated capital of each class of Holdco shares issued as consideration will not exceed the PUC of the corresponding DC shares so transferred.
30. Parentco2 will transfer all of its shares of DC being XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class BBB Special shares of DC to Holdco. Parentco2 will receive consideration of XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class BBB Special shares of Holdco. Each share of Holdco issued will have ACB and PUC equal to that of the corresponding share transferred. Parentco2 will not receive any non-share consideration on the transfer of the DC shares.
31. Parentco2 and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV of those shares at the time of the transfer.
32. The amount to be added to the stated capital of each class of Holdco shares issued as consideration will not exceed the PUC of the corresponding DC shares so transferred.
33. Parentco3 will transfer all of its shares of DC being XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class CCC Special shares of DC to Holdco. Parentco3 will receive consideration of XXXXXXXXXX common shares, XXXXXXXXXX Class BB Special shares and XXXXXXXXXX Class CCC Special shares of Holdco. Each share of Holdco issued will have ACB and PUC equal to that of the corresponding share transferred. Parentco3 will not receive any non-share consideration on the transfer of the DC shares.
34. Parentco3 and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV of those shares at the time of the transfer.
35. The amount to be added to the stated capital of each class of Holdco shares issued as consideration will not exceed the PUC of the corresponding DC shares so transferred.
36. Sibling1 will transfer all of his shares of DC being XXXXXXXXXX Class AA Special shares of DC to Holdco. Sibling1 will receive consideration of XXXXXXXXXX Class AA Special shares of Holdco with ACB and PUC equal to the shares transferred. Sibling1 will not receive any non-share consideration on the transfer of the DC shares.
37. Sibling1 and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV of those shares at the time of the transfer.
38. The amount to be added to the stated capital of the Holdco Class AA Special shares issued as consideration will not exceed the PUC of the DC shares transferred, as adjusted for purposes of section 84.1.
39. Sibling2 will transfer XXXXXXXXXX all of his shares of DC being Class AA Special shares of DC to Holdco. Sibling2 will receive consideration of XXXXXXXXXX Class AA Special shares of Holdco with ACB and PUC equal to the shares transferred. Sibling2 will not receive any non-share consideration on the transfer of the DC shares.
40. Sibling2 and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV of those shares at the time of the transfer.
41. The amount to be added to the stated capital of the Holdco Class AA Special shares issued as consideration will not exceed the PUC of the DC shares transferred, as adjusted for purposes of section 84.1.
42. The Estate will transfer all of its shares of DC being XXXXXXXXXX Class BB Special shares of DC to Holdco. The Estate will receive consideration of XXXXXXXXXX Class BB Special shares of Holdco with ACB and PUC equal to the shares transferred. The Estate will not receive any non-share consideration on the transfer of the DC shares.
43. The Estate and Holdco will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV at the time of the transfer.
44. The amount to be added to the stated capital of the Holdco Class BB Special shares issued as consideration will not exceed the PUC of the DC shares transferred, as adjusted for purposes of section 84.1.
45. DC will file Articles of Amendment with the province of XXXXXXXXXX whereby its authorized share capital will be amended to add Class B Special shares.
46. In the course of a reorganization of the share capital of DC, Holdco will exchange all of its DC common shares and Special shares (the “Exchanged Shares”) for newly issued common shares and Class B Special shares (collectively the “New Shares”) of DC pursuant to subsection 86(1).
47. The DC Class B Special shares will have a redemption price of $XXXXXXXXXX per share. The number of DC Class B Special shares issued will be equal to the aggregate FMV of DC’s shares in the Landcos.
48. An amount equal to the PUC of the Exchanged Shares immediately before the reorganization will be added to the aggregate stated capital Account of DC, allocated between the two classes of New Shares based on their proportionate FMV. The aggregate PUC of the New Shares immediately after the reorganization will be equal to the PUC of the Exchanged Shares immediately before the reorganization.
49. Holdco will transfer all of its DC Class B Special shares to TC. Holdco will receive consideration of XXXXXXXXXX common shares of TC with an ACB and PUC equal to that of the shares transferred. Holdco will not receive any non-share consideration on the transfer of the DC shares.
50. Holdco and TC will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred DC shares, which amount will be less than FMV at the time of the transfer.
51. The amount to be added to the stated capital of the TC common shares issued as consideration will not exceed the PUC of the DC shares transferred.
52. DC will transfer to TC all of its XXXXXXXXXX common shares of Landco1. In consideration, DC will receive Class A Special shares of TC with an ACB and PUC equal to that of the Landco1 shares transferred. The FMV of the TC Class A Special shares to be issued to DC will be equal to the FMV of the Landco1 shares transferred. DC will not receive any non-share consideration on the transfer of the Landco1 shares.
53. DC will transfer to TC all of its shares of Landco2 being XXXXXXXXXX common shares and XXXXXXXXXX Class B Special shares. DC will receive consideration of Class A Special shares of TC with ACB and PUC equal to that of the Landco2 shares transferred. The number of TC Class A Special shares to be issued to DC will be equal to the FMV of the Landco2 shares transferred. DC will not receive any non- share consideration on the transfer of the Landco2 shares.
54. DC will transfer to TC all of its shares of Landco3 being XXXXXXXXXX common shares and XXXXXXXXXX preference shares of Landco3. DC will receive consideration of Class A Special shares of TC with ACB and PUC equal to that of the Landco3 shares transferred. The number of TC Class A Special shares to be issued to DC will be equal to the FMV of the Landco3 shares transferred. DC will not receive any non-share consideration on the transfer of the Landco3 shares. The transfer of the Landco1, Landco2 and Landco3 shares will occur simultaneously.
55. DC and TC will jointly elect in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The Agreed Amount specified in the election will be equal to the ACB of the transferred Landco1, Landco2, and Landco3 shares, which amount will be less than FMV at the time of the transfer.
56. The amount to be added to the stated capital of the TC Class A Special shares issued as consideration will not exceed the aggregate PUC of the Landco1, Landco2, and Landco3 shares transferred.
57. DC will redeem all of its Class B Special shares held by TC. The redemption price will be satisfied by a non-interest-bearing promissory note, due on demand (the “TC Note”).
58. TC will redeem all of its Class A Special shares held by DC. The redemption price will be satisfied by a non-interest-bearing promissory note, due on demand (the “DC Note”).
59. DC and TC will agree to offset the TC Note as payment and full satisfaction of the DC Note.

ADDITIONAL INFORMATION

60. Except as described in this letter, no property has been or will be acquired by or disposed of by DC in contemplation of and before the series of transactions or events that includes the Proposed Transactions. In addition, no liabilities have been, or will be incurred or discharged by DC in contemplation of and before as part of the series of transactions or events that includes the Proposed Transactions.
61. Except as described in this letter, no shares of DC or of any other corporation referred to herein has been acquired or will be acquired or disposed of as part of a series of transactions or events that includes the Proposed Transactions.
62. Subsequent to the Proposed Transactions, TC does not intend to sell or otherwise transfer any of the assets it will receive in the course of the Proposed Transactions.
63. The Completed Transactions were not undertaken in contemplation of the Proposed Transactions and would have been undertaken irrespective of the Proposed Transactions and the Proposed Transactions are not being undertaken in contemplation of the Completed Transactions and would be undertaken irrespective of whether the Completed Transactions had been implemented.
64. For greater certainty, as a result of the Proposed Transactions none of the direct safe income on hand associated with the shares of DC will be transferred to TC.

PURPOSE OF THE COMPLETED TRANSACTIONS

65. The purpose of the Completed Transactions was to transfer the life insurance policies owned by DC to each respective Parentco owned by the Controlling Principal whose life is insured by each policy for estate planning purposes.

PURPOSE OF THE PROPOSED TRANSACTIONS

66. The purpose of the Proposed Transactions is to segregate certain high-value real estate assets from the DC financial guarantee requirements related to the construction operations within the Group in order to protect the real estate assets from legal and creditor claims associated with the operating business.
67. In order to maintain the existing indirect ownership by the Parentcos and Controlling Principals in the underlying assets of DC through a common holding company structure, the share ownership of the Parentcos and Controlling Principals in Holdco following the Proposed Transactions will be identical to the share ownership of the Parentcos and Controlling Principals in DC prior to the Proposed Transactions.
68. The purpose of the Proposed Transactions is not to facilitate the sale of corporate assets as all of the corporate assets will continue to be owned by the Parentcos and Controlling Principals, and in the same proportion, through wholly-owned subsidiaries.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we rule as follows:

1. By virtue of subsection 84(3), on the redemption of the DC Class B Special shares held by TC as described in Paragraph 57, DC will be deemed to have paid, and TC will be deemed to have received, a dividend equal to the amount by which the amount paid on the redemption of the DC Class B Special shares exceeds the PUC of such shares immediately before such redemption.
2. By virtue of subsection 84(3), on the redemption of the TC Class A Special Shares held by DC as described in Paragraph 58, TC will be deemed to have paid, and TC will be deemed to have received, a dividend equal to the amount by which the amount paid on the redemption of TC Class A Special shares exceeds the PUC of such shares immediately before such redemption.
3. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to any of the taxable dividends referred to in Rulings A and B, provided that as part of the series of transactions or events that includes the Proposed Transactions, there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v). For greater certainty, the Proposed Transactions described herein, in and by themselves, will not be considered to result in a disposition or increase in interest described in subparagraphs 55(3)(a)(i) to (v).
4. The provisions of subsection 15(1), 55(4), 56(2) and 246(1) will not apply to the Proposed Transactions.
5. Subsection 245(2) will not apply to the Proposed and Completed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R10 issued on September 29, 2020, and are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise expressively confirmed, nothing in this ruling should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

1. ​​​​​​​the FMV or ACB of any property referred to herein or the PUC in respect of any share referred to herein; or
2. ​​​​​​​any provincial tax consequences of the Proposed Transactions or any other tax consequence relating to the facts, proposed transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer or issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to, or in the event of, the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, updated to November 26, 2015.

Yours truly,

XXXXXXXXXX
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
​​​​​​​Legislative Policy and Regulatory Affairs Branch

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