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9th TAXATION OF CORPORATE REORGANIZATION
Conference held in Toronto on January 9, 10 & 11, 2008
Chairs: Greg C. Boehmer, Ernst & Young LLP; Mark Brender, Osler, Hoskin & Harcourt LLP; Alan M. Schwartz, Fasken Martineau DuMoulin LLP; and Brian Schneiderman, Borden Ladner Gervais LLP
CD-ROM: Over 12 hours of video presentations.
To purchase, please contact Federated Press.
Hot topics & fundamentals
Panel: Taxation of corporate reorganization - Current issues and future trends
Mark Brender, Osler, Hoskin & Harcourt LLP, Firoz Ahmed, Osler, Hoskin & Harcourt LLP, and Greg C. Boehmer, Ernst & Young LLP
- The status of a corporation can change from Canadian-controlled private company to a non-CCPC. If that's the case, there are rules for transition from non-CCPC to CCPC and vice-versa.
- Specific rules apply in the context of amalgamations and winding-ups to basically combine the accounts of the two companies that are being combined.
- There is a transition rule in 89 (7) that applies for computing what your opening GRIP would be going into 2006 and effectively allowing you to go back and pick up what your GRIP would've been for the 5 prior taxation years, had these rules applied.
"In a nutshell, the hypothetical shareholder rule is a rule which basically requires the aggregations of all holdings by non-qualifying persons, namely non-resident shareholders and public corporations."
Video: 65 minutes
Paid-up capital and internal reorganizations
Leslie J. Morgan, Blakes, Cassels & Graydon LLP
- Paid-up capital is the term used by the Income Tax Act (Canada) (the "Act") to refer to the capital of a corporation as a result of the issue of shares
- Tax paid-up capital starts with corporate stated capital and is adjusted in certain circumstances (rollover transactions).
- The paid-up capital of a share of that class or series is the paid-up capital of the class or series divided by the number of issued and outstanding shares of the class.
"The series of transactions is very key to this in terms of what's acceptable in planning and what is not."
Video: 44 minutes • 17 Overheads
Partnerships
Mitchell J. Sherman, Goodmans LLP
- There is no definition of "partnership" in the Income Tax Act (Canada). Section 102 defines "Canadian partnership", but presupposes that there is a partnership.
- Exchangeable LP interests are an economic surrogate for REIT/income trust units, which cannot be received directly on a rollover basis (i.e. in general, the Income Tax Act (Canada) does not permit a rollover to a trust).
- Application of SIFT rules to a partnership will cause the partnership, itself, to be taxable on "non-portfolio earnings" (basically: (i) earnings from non-portfolio investments in Canadian resident entities (or entities with principally Canadian source income); (ii) Canadian real estate; (iii) Canadian business income.
"Partnerships can be made to be very flexible. In a partnership agreement, you can pretty much say what you want."
Video: 44 minutes • 46 Overheads
Amalgamations & wind-ups: The 88(1)(D) bump
Stephen S. Ruby, Davies Ward Phillips & Vineberg LLP
- Ability to bump shares of foreign affiliates of a subsidiary is proposed to be restricted by paragraph 88(1)(d.4).
- Prohibited persons could be either single specified shareholders, group specified shareholders or indirect specified shareholders.
- There are three types of substituted properties.
"It’s extremely complicated. What I always say is ‘it’s a case of Where’s Waldo?' "
Video: 46 minutes • 58 Overheads
Cross border strategies
Canada and U.S. cross-border financing issues
Elinore J. Richardson, Borden Ladner Gervais LLP and Paul Carman, Chapman and Cutler LLP
- Even if you have a particular client who’s made decisions before as to the way to structure the acquisitions, it may be worthwhile to go back and revisit and check to make sure that those decisions are still valid.
- There are no particular rules as to which cross-border financing structures are used in a particular case.
- There are foreign intermediary structures that are being considered to effectively avoid the denial benefits.
"Both the US guys and the Canadian guys have been very close and tough about this issue."
Video: 54 minutes
Structuring foreign affiliates
David S. Downie, KPMG LLP
- From a Canadian perspective, we just like to follow the law. Our US friends like to call it "duck a bird."
- The problems that we have is when something isn’t called a dividend or isn’t called a return of capital.
- "Suspended loss" rules prevent triggering FAPL on an internal sale.
"The point of this presentation is things to think about when you’re structuring foreign affiliates."
Video: 43 minutes • 40 Overheads
Reorganization of foreign affiliates
Phil Halvorson, Ernst & Young LLP
- It may not always be beneficial to bump.
- Paragraph 95(2)(e) is the general rule with broad application but limited rollover.
- If conditions of either 95(2)(d.1) (mergers) or 95(2)(e.1) (liquidations) are met, should get full rollover.
"Finance was able to introduce a new grammatical tense to the language. Not only do you need to know what your taxes are or what they were but you have to know what they will have been."
Video: 38 minutes • 35 Overheads
Exchangeable share transactions
Dov B. Begun, Osler, Hoskin & Harcourt LLP
- US private equity firms that are looking to make investments into Canada have, in many cases, used exchangeable shares as a way of making investments and that has proven to be, in some respects, more successful than most people thought.
- By creating a share of a Canadian company which is exchangeable into a share of the US company and attaching to that share a bundle of economic rights (economic equivalence), you would not trigger a tax liability.
- Section 85 is the section you mostly rely on for access to the rollover.
"Exchangeable shares do still remain an integral part of a tax practitioner’s arsenal."
Video: 43 minutes
Acquisition strategies
Panel: The latest tax-avoidance & GAAR developments
Warren J. A. Mitchell, Thorsteinssons LLP, Ed Kroft, McCarthy Tetrault LLP, Warren J. A. Mitchell, Spiegel Sohmer Inc., and David E. Spiro, Blake, Cassels & Graydon LLP
- The CRA no longer has a tax avoidance group, it’s called the aggressive tax planning initiative.
- To permit application of the GAAR, there must be (a) tax benefit, (b) avoidance transaction; and (c) abusive tax avoidance.
- Stats DO NOT reflect multi-taxpayer reassessments in specific tax shelter/projects because large number of taxpayers involved.
"One of the things we’ve been seeing over the last while is the Canada Revenue Agency using the GAAR in perhaps what some people might perceive to be an irresponsible fashion."
Video: 80 minutes
Takeovers & tax issues
Alan M. Schwartz, QC, and Mitchell Thaw, Fasken Martineau DuMoulin LLP
- Subsection 85.1(2.1) provides for a PUC reduction equal to increase of PUC as a result of share exchange over PUC of exchanged shares received from vendor.
- Subsection 87(9) introduced to make such an amalgamation qualify under subsection 87(1)(c) and to give rollover to shareholders who takes shares of such third party corporation.
- If value of new shares is not known with certainty, then the stock option plan for New Option could provide for exercise price by way of formula to ensure 7(1.4) applies.
"You can elect out of 85.1 by making a section 85 election."
Video: 53 minutes • 63 Overheads
Use of tax losses
Gerald D. Courage, Miller Thomson LLP
- Consistent definition of affected group used virtually throughout the stop-loss rules.
- Until 2004 Federal Budget, there were no specific rules for trusts.
- There are a variety of techniques to shift interest income and expense between affiliated corporations.
"The matter of the utilization of tax losses is a fairly well-worked theme in the tax literature. As you’re aware, it’s not so interesting in times of economic boom like we’ve experienced the last few years but becomes more topical in times of recession or economic slowdown."
Video: 37 minutes • 47 Overheads
Tax-effective financing of acquisitions
Richard Lewin, Heenan Blaikie LLP
- Pension funds and private equity acquisitions are all cash offers.
- When a shareholder receives shares as part of the sales proceeds, the shareholder has the possibility of deferring any accruing capital gains through one of the two provisions of the act.
- The purchaser as a general rule is disadvantaged if the vendor uses the share exchange provisions to defer tax.
"As a general rule, it’s really the foreign government that will be affected by the double dip."
Video: 30 minutes • 7 Overheads
Topical issues in corporate reorganizations
Subsection 55(2) & the computation of safe income
Mark Brender, Osler, Hoskin & Harcourt LLP
- The 112(1) deduction is there to facilitate distributions of earnings within a corporate group principally on a tax-deferred basis. The assumption is that those earnings have been taxed."
- Statutory rules deal specifically with computation rules for resident private corps, resident non-private corps and foreign affiliates.
- You have investment tax credits that are brought into income to be captured in the subsequent year but there’s no actual cash influx that corresponds with that income.
"There have been a few significant developments in the past few years that I’d like to focus on, in particular, the Crewco case and Revenue Canada’s reaction to the Crewco case."
Video: 46 minutes
Divisive reorganizations and "butterfly" transactions
Brian R. Carr, Fraser Milner Casgrain LLP
- Act does not permit a direct distribution of assets to a shareholder on a tax-deferred basis
- Caution – don’t think you know the rules.
- To figure out what types of property you have, you allocate your debt to the various assets.
"The first butterflies that I saw were done as investment deals."
Video: 39 minutes • 50 Overheads
Pension obligations & reorganizations
Gregory J. Winfield, McCarthy Tétrault LLP
- Benefits may be categorized as either defined benefit ("DB") or defined contribution ("DC").
- The vendor may wish to conduct due diligence itself to ensure it recognizes problems first and has solutions.
- Purchasers absolutely need to conduct due diligence.
"If you’re acting for a purchaser, you want to make sure whether unfunded benefit liabilities exist in the target."
Video: 39 minutes • 53 Overheads
Debt restructuring
Kathleen S.M. Hanly and David Fox, Fasken Martineau DuMoulin LLP
- Debt forgiveness rules are applied for commercial debt obligations which incur to earn income.
- Section 80 "forgiven amount" reduces tax attributes in a specified order.
- It is often preferable to issue debt rather than equity since value of debt is irrelevant to forgiveness.
"Canadian borrowers can now access foreign lending markets on withholding tax-free basis."
Video: 26 minutes • 23 Overheads |