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Highlights
CONTROL
The Hypothetical Shareholder Rule and Paragraph 251(5)(b):
Sedona Networks
Mark D. Brender, Jean-Frédérick Ménard
One of the most salient issues
concerning the determination of a corporation's status as a Canadian-controlled
private corporation has been that of the interpretation of paragraph (b)
of the definition of Canadian-controlled private corporation in subsection
125(7) of the Income Tax Act. Mark Brender and Jean-Frédérick
Ménard review the Sedona decision and note that although the
Federal Court of Appeal decision is not favourable to taxpayers on the issue of
the combined effect of the deeming provisions found respectively in paragraphs
125(7)(b) and 251(5)(b), the methodology applied by the Court
calls into question the Canada Revenue Agency's administrative position
regarding the application of paragraph 251(5)(b) on a holder-by-holder
basis.
A MALGAMATIONS
Paragraph 78(1)(a) and Amalgamated Debtors: Dow Chemical
Canada Inc.
Mark D. Brender, Ryan Rabinovitch
Mark Brender and Ryan Rabinovitch
review the recent decision of the Tax Court of Canada in Dow Chemical Canada
Inc. v. The Queen. The Tax Court concluded that subsection 78(1) of the
Income Tax Act ceases to apply following the amalgamation of the debtor in light
of the statutory fiction in section 87, which treats the amalgamated corporation
as a new corporation, and the absence of a specific provision to deem the
amalgamated corporation to not deal at arm's length with the creditor at the
time the debt was incurred.
BUTTERFLY
REORGANIZATIONS
Neither "Split" Nor "Spin:" Butterflies Involving a
Controlling Shareholder
Douglas J. Powrie
Butterfly transactions under
paragraph 55(3)(b) of the Income Tax Act are only available in strictly
controlled circumstances. Generally, but not universally, there is a requirement
that a butterfly reorganization be restricted to one of two forms which are
generally referred to in the profession as a "spin" or a "split." Douglas Powrie
examines the circumstances in which a butterfly which is neither a "spin" nor a
"split" is permitted.
SECTION 88 BUMP
Using a Target's Cash as a Source of Funds
Eoin Brady
A Purchaser intends to acquire a
taxable Canadian corporation ("Target"). The Purchaser establishes a taxable
Canadian corporation as an acquisition entity ("Acqco") and begins sourcing cash
for the acquisition. If it is established that Target and its subsidiary has
excess cash, Acqco may decide to use this excess cash as a source of funding for
the acquisition. Eoin Brady examines the technical issues that should be
considered whenever a Target's cash is used to partially finance an
acquisition.
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Board
Mark D. Brender
Editor-in-Chief
Osler, Hoskin & Harcourt LLP
Montreal
Serge Bilodeau
KPMG LLP
Montreal
Greg C. Boehmer
Ernst & Young LLP
Toronto
Douglas J. Powrie
Thorsteinssons LLP
Vancouver
Gabrielle M.R. Richards
McCarthy Tétrault LLP
Toronto
Christopher J. Steeves
Fraser Milner Casgrain LLP
Toronto
Marc N. Ton-That
KPMG LLP
Toronto
P class="Editor">Geoffrey S. Turner
Davies Ward Phillips & Vineverg LLP
Toronto
David M. Williamson
PricewaterhouseCoopers LLP
Toronto |