2020-0854741R3 Subordinated Notes without Maturity

Principal Issues: Whether payments under subordinated notes exempt from withholding under paragraph 212(1)(b).

Position: Yes.

Reasons: The law.

Author: XXXXXXXXXX
Section: 212(1)(b)

XXXXXXXXXX                                                                    2020-085474

Dear XXXXXXXXXX:

RE: Advance Income Tax Ruling Request – XXXXXXXXXX

This is in reply to the letter of XXXXXXXXXX, in which your firm requested an Advance Income Tax Ruling (the “Ruling”) on behalf of the above-named taxpayer. We also acknowledge the information provided in subsequent correspondence in connection with your request (XXXXXXXXXX).

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

(i) in a previously filed tax return of the taxpayer or a related person and;

(a) being considered by the Canada Revenue Agency in connection with such return

(b) under objection by the taxpayer or a related person; or

(c) the subject of a current or completed court process involving the taxpayer or a related person; or

(ii) the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.

Unless specified otherwise, all statutory references herein are to provisions or parts of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended to the date hereof (the “Act”) and all references to monetary amounts are in Canadian dollars.

DEFINITION

Unless specified otherwise, (i) all statutory references herein are to provisions or parts of the Act or the Income Tax Regulations (the “Regulations”), as appropriate, and (ii) all references to monetary amounts are in Canadian dollars.

In addition, unless otherwise noted, the following terms have the meanings ascribed to them below:

(A) “ACo” means XXXXXXXXXX;

(B) “Additional Amount” has the meaning ascribed in paragraph 19 below;

(C) “Administrative Action” means any judicial decision, administrative pronouncement, published or private ruling, regulatory procedure, rule, notice, announcement, assessment or reassessment (including any notice or announcement of intent to adopt or issue such decision, pronouncement, ruling, procedure, rule, notice, announcement, assessment or reassessment);

(D) “Change of Control Date” means the date (i) ACo’s ultimate parent ceases to beneficially own, directly or indirectly, or otherwise have the right to directly or indirectly exercise voting rights of, common stock or other equity interests in ACo, representing at least a majority of the total voting interest in ACo (a “Change of Control”), and (ii) a ratings downgrade of the Notes has occurred as a result of such Change of Control.

(E) “Interest” means the payments on the Notes contemplated by paragraph 8 below;

(F) “Interest Payment Date” has the meaning ascribed by paragraph 8 below;

(G) “Interest Period” means the period of time from an Interest Reset Date to the next occurring Interest Reset Date;

(H) “Interest Reset Date” means approximately XXXXXXXXXX following the day the applicable series of Notes are issued and a day that is every XXXXXXXXXX thereafter;

(I) “Note” or “Notes” means the subordinated indebtedness to be issued by ACo as described in paragraph 4 below;

(J) “Principal Amount” has the meaning assigned by subsection 248(1) of the Act and, in respect of each series of Notes, means the fixed dollar denomination of each Note;

(K) “Rating Event Date” means the date that either the amount of equity credit assigned to the Notes or the length of time the Notes are assigned a particular level of equity credit has been reduced by any nationally recognized rating organization that then publishes a rating for ACo due to an amendment to, clarification of or change in, the methodology or criteria employed by such rating organization for purposes of assigning equity credit to securities such as the Notes that was effective on the date of the original issuance of the Notes;

(L) “Redemption Price” in respect of a Note means the aggregate of (i) the Principal Amount of the Note, and (ii) any accrued and unpaid Interest on the Note (except to the extent cancelled) to, but excluding, the date fixed for redemption;

(M) “XXXXXXXXXX Date” means a date that is a Rating Event Date, a XXXXXXXXXX Date or a Change of Control Date;

(N) “XXXXXXXXXX Date” means the date on which ACo receives XXXXXXXXXX in Canada experienced in such matters (who may be counsel to ACo) to the effect that,

(i) as a result of:

(A) any amendment to, clarification of, or change (including any announced prospective change) in, the laws, or any regulations thereunder, or any application or interpretation thereof, of Canada or any political subdivision or taxing authority thereof or therein, affecting taxation,

(B) any Administrative Action, or

(C) any amendment to, clarification of, or change in, the official position with respect to or the interpretation of any Administrative Action or any interpretation or pronouncement that provides for a position with respect to such Administrative Action that differs from the theretofore generally accepted position,

XXXXXXXXXX;

(O) “Trust Indenture” means an indenture entered into between ACo and the Trustee, as supplemented from time to time; and

(P) “Trustee” means a trust company XXXXXXXXXX acting as the trustee under the Trust Indenture or such other person or persons appointed from time to time as trustee under the Trust Indenture.

FACTS

1. ACo is a corporation that is incorporated under the laws of XXXXXXXXXX.

2. ACo’s registered address is XXXXXXXXXX. Its Taxation Centre is XXXXXXXXXX Taxation Centre and its Tax Services Office is XXXXXXXXXX Tax Services Office. ACo’s business number is XXXXXXXXXX.

3. ACo’s authorized capital includes common shares and XXXXXXXXXX Class A non-cumulative preferred shares. XXXXXXXXXX, holds approximately XXXXXXXXXX% of the common shares. Directors and officers of ACo own approximately XXXXXXXXXX% of the common shares. There are no issued shares other than the common shares.

PROPOSED TRANSACTIONS

4. Subject, inter alia, to the receipt of a favourable advance income tax ruling, ACo proposes to issue Fixed Rate Resetting Perpetual Non-Cumulative Subordinated Notes (the “Notes”) in one or more private placements in XXXXXXXXXX XXXXXXXXXX.

5. Each series of Notes will be issued pursuant to the Trust Indenture. The Notes will be issued in denominations of a fixed dollar amount and fixed dollar amounts above that amount and will be issued for an amount equal to or approximately equal to their Principal Amount. The Notes will not be an indexed debt obligation as defined in subsection 248(1). If issued at a discount, the issue price will not be less than XXXXXXXXXX% of their Principal Amount. ACo anticipates the offering to be for an aggregate amount of up to XXXXXXXXXX.

6. The Notes will constitute direct, unsecured obligations of ACo and rank subordinate to all of ACo’s other indebtedness (including all of ACo’s other unsecured and subordinated indebtedness) from time to time issued and outstanding, except indebtedness which by its terms ranks equally in right of payment with, or is subordinate to, the Notes.

7. Subject to the provisions of applicable law, a holder of Notes will have no right to vote at any meeting of shareholders of ACo and will have no right to participate in the profits of ACo. In the event of ACo’s insolvency or winding-up, ACo’s deeply subordinated indebtedness, including the Notes, will be subordinate in right of payment to the prior payment in full of all of ACo’s other indebtedness (including ACo’s subordinated indebtedness), except indebtedness which by its terms ranks equally in right of payment with, or is subordinate to, the particular deeply subordinated indebtedness. The Notes will not be shares of the capital stock of ACo and will not be added to the paid-up capital of ACo for purposes of the relevant corporate law.

Accrual and Payment of Interest

8. The Notes will accrue a payment obligation from their date of issue at a rate which will reflect prevailing interest rates at the date of issue. From the date of issue to the first Interest Reset Date, the Notes will accrue a payment obligation at a fixed annual rate. The rate on the Notes will be reset on each Interest Reset Date to a rate equal to a fixed annual rate for the applicable Interest Period plus a spread. The payments on the Notes will be payable XXXXXXXXXX in arrears (the date on which a payment is scheduled to be made being an “Interest Payment Date”). If ACo does not give notice of redemption within a specified period following the occurrence of a Change of Control Date, the fixed annual rate used to determine payment obligations under the Notes will increase by a specified percentage beginning a specified period following such Change of Control Date.

9. ACo may, in its sole and absolute discretion at all times and for any reason, with prior notice to the holders of Notes, cancel (in whole or in part) any Interest that would otherwise be payable on any Interest Payment Date. Any cancelled Interest payments will not be cumulative.

10. ACo will agree that, if, on any Interest Payment Date, ACo does not pay in full the Interest on the Notes due on such Interest Payment Date (whether as a result of cancellation or otherwise), ACo will not (a) declare dividends on its common shares or any issued and outstanding Class A non-cumulative preferred shares or other equity interest of ACo, or (b) redeem, purchase or otherwise retire any common shares or any issued and outstanding Class A non-cumulative preferred shares or other equity interest of ACo (except pursuant to any purchase obligation, retraction privilege or mandatory redemption provisions attaching to any issued and outstanding Class A non-cumulative preferred shares or other equity interest of ACo), in each case, until the month commencing immediately after ACo resumes interest payments on the Notes.

Redemption

11. Except as may be otherwise explicitly provided, the Notes will not be redeemable by ACo prior to the first Interest Reset Date.

12. ACo may, at its option, and on giving notice to the holders of the Notes, redeem an outstanding series of Notes in whole, or in part, during the three months prior to, or on, the first Interest Reset Date or any Interest Reset Date thereafter by payment of an amount for each Note equal to the Redemption Price.

XXXXXXXXXX Redemption

13. A series of Notes may contain a provision that, upon the occurrence of a XXXXXXXXXX Date, ACo may, at its option and without the consent of any holder of the Notes, and upon giving notice to the holders of the Notes, redeem all (but not part) of the outstanding series of Notes by the payment of an amount equal to the Redemption Price.

Purchase for Cancellation

14. ACo may, at any time, purchase Notes at any price or prices in the open market or otherwise. Notes so purchased by ACo will be cancelled and will not be re-issued.

Conversion

15. The Notes will not be convertible into any other property.

Events of Default

16. An Event of Default in respect of the Notes will occur only if ACo becomes insolvent or bankrupt or subject to the provisions of the XXXXXXXXXX, or any act that may be substituted therefor, as from time to time amended, or if ACo goes into liquidation, either voluntary or under an order of a court of competent jurisdiction, passes a resolution for the winding-up, liquidation or dissolution of ACo, is ordered wound-up or otherwise acknowledges its insolvency. The failure to make a payment on the Notes when due (including any Interest payment, whether as a result of cancellation or otherwise) will not constitute an Event of Default.

17. If an Event of Default has occurred, the entire Principal Amount of, and accrued and unpaid Interest on, all of the Notes (except to the extent such unpaid interest was cancelled) will become immediately due and payable without any declaration or other act on the part of the Trustees or any holders of the Notes.

Maturity

18. The Notes have no scheduled maturity or redemption date. ACo is not required to make any repayment of the Principal Amount except in the event of an Event of Default.

Other Covenants

19. If any payment under the Notes is subject to withholding under Part XIII of the Act, ACo will pay such Additional Amounts such that, after such withholding and any withholding on such additional amounts, the holder receives an amount equal to the amount it would have received had there been no such withholding.

ADDITIONAL INFORMATION

20. The Interest paid or payable by ACo on the Notes will not be deductible under paragraph 20(1)(c) or any other provision of the Act in computing the income of ACo for any taxation year.

21. The governing law of the Notes will be the laws of the XXXXXXXXXX. The offering of the Notes will be subject to XXXXXXXXXX and will be treated as a debt offering for purposes of such laws.

PURPOSE OF THE PROPOSED TRANSACTIONS

22. The purpose of the proposed transactions is to obtain undated capital to be used to make distributions to its shareholders. Any proceeds not distributed will be used for general corporate purposes.

23. The reason for the terms of the Notes described in paragraph 9 is XXXXXXXXXX.

24. The reasons for the terms of the Notes described in paragraph 18 are to XXXXXXXXXX.

RULING

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions,and provided further that the proposed transactions are carried out as described above, our Rulings are as follows:

(A) The amounts described in paragraph 8, which are paid or credited by ACo as, on account or in lieu of payment of, or in satisfaction of interest on the Notes, will not be subject to Part XIII withholding tax under paragraph 212(1)(b), provided that i) the recipient of such amounts deals at arm’s length with ACo at the time of the payments, and ii) such Notes are beneficially owned by a person that deals at arm's length with ACo.

The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R9 dated April 23, 2019, and are binding on the CRA provided that the Proposed Transactions are commenced on or before XXXXXXXXXX. In addition, the above rulings are based on the law as it presently reads 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

Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any income tax implications of the Facts or Proposed Transactions described herein. For greater certainty, nothing in this letter should be construed as implying that we are ruling on any tax consequences other than those tax consequences specifically described in the rulings above and, without limiting the generality of the foregoing, the CRA is not ruling on:

(A) the fair market value or adjusted cost base of any property or the paid-up capital of any shares referred to herein; and

(B) the payment of Additional Amounts as described in paragraph 19.

An invoice for our fees in connection with this ruling will be forwarded to you under separate cover.

Yours sincerely,



XXXXXXXXXX
for Director
Partnerships and Corporate Financing Section
Reorganizations Division
Income Tax Rulings Directorate

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