2004 Ruling 2004-0096661R3 - 55(3)(a)

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: standard internal reorganization transactions

XXXXXXXXXX 2004-009666

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. In the emails from you and XXXXXXXXXX, both of you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations.

To the best of your knowledge, and that of the taxpayers involved, none of the issues involved in this ruling request is

(i) in an earlier return of one of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of one of the taxpayers or a related person;

(iii) under objection by one of the taxpayers or a related person;

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

Definitions

In this letter, unless otherwise specified, all monetary amounts are expressed in Canadian dollars and the following terms have the meanings specified below:

(a) "Aco" means XXXXXXXXXX;

(b) "Aco XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 37 below;

(c) "Aco Dividends" has the meaning referred to in paragraph 33 below;

(d) "Aco Note 1" has the meaning referred to in paragraph 39 below;

(e) "Aco Note 2" has the meaning referred to in paragraph 39 below;

(f) "Aco Preferred Shares" has the meaning referred to in paragraph 16 below;

(g) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";

(h) "adjusted cost base" has the meaning assigned by section 54;

(i) "agreed amount" means the amount that the taxpayer and the corporation jointly elect in prescribed form in respect of an eligible property;

(j) "Amalco 1" has the meaning referred to in paragraph 34 below;

(k) "Amalco 1 XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 38 below;

(l) "Amalco 1 Preferred Shares" has the meaning referred to in paragraph 34 below;

(m) "Amalco 1 Redemption Amount" means the aggregate redemption amount of the Amalco 1 Preferred Shares issued on the transfer of the Dco Business as described in paragraph 35 below;

(n) "Amalco 2" has the meaning referred to in paragraph 44 below;

(o) "Amalgamation 1" has the meaning referred to in paragraph 34 below;

(p) "Amalgamation 2" has the meaning referred to in paragraph 44 below;

(q) "arm's length" has the meaning assigned by subsection 251(1);

(r) "Bco" means XXXXXXXXXX;

(s) "Bco Dividend" has the meaning referred to in paragraph 33 below;

(t) XXXXXXXXXX;

(u) "cost amount" has the meaning assigned by subsection 248(1);

(v) "CRA" means the Canada Revenue Agency;

(w) "capital property" has the meaning assigned by section 54;

(x) "Cco" means XXXXXXXXXX;

(y) "Consolidation" has the meaning referred to in paragraph 17 below;

(z) "daylight loan" has the meaning referred to in paragraph 37 below;

(aa) "Dco" means XXXXXXXXXX;

(bb) "Dco Business" has the meaning referred to in paragraph 35 below;

(cc) "Dco XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 17;

(dd) "Dco XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 13 below;

(ee) "Dco XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 13 below;

(ff) "Dco XXXXXXXXXX Preferred Shares" has the meaning referred to in paragraph 13 below;

(gg) "Dco Share Cancellation" has the meaning referred to in paragraph 46 below;

(hh) "distributed portion of the Ico Note" has the meaning referred to in paragraph 46 below;

(ii) "disposition" has the meaning assigned by subsection 248(1);

(jj) "dividend rental arrangement" has the meaning assigned by subsection 248(1);

(kk) "Eco" means XXXXXXXXXX;

(ll) "eligible property" has the meaning assigned by subsection 85(1.1);

(mm) "fair market value" means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale;

(nn) "Fco" means XXXXXXXXXX;

(oo) "foreign affiliate" has the meaning assigned by subsection 95(1);

(pp) "Gco" means XXXXXXXXXX;

(qq) "guarantee agreement" has the meaning assigned by subsection 112(2.2);

(rr) "Hco" means XXXXXXXXXX;

(ss) XXXXXXXXXX;

(tt) "Ico" means XXXXXXXXXX;

(uu) "Ico group" means, collectively, the corporations comprising Ico and its subsidiary corporations;

(vv) "Ico Note" has the meaning referred to in paragraph 37 below;

(ww) "Income Fund" has the meaning referred to in paragraph 28 below;

(xx) XXXXXXXXXX;

(yy) "Jco" means XXXXXXXXXX;

(zz) "Kco" means the XXXXXXXXXX;

(aaa) "Lco" means XXXXXXXXXX;

(bbb) XXXXXXXXXX;

(ccc) "LP1" means XXXXXXXXXX;

(ddd) "LP2" means XXXXXXXXXX;

(eee) "LP3" means XXXXXXXXXX;

(fff) "LP4" means XXXXXXXXXX;

(ggg) "LP5" means XXXXXXXXXX;

(hhh) "Mco" means XXXXXXXXXX;

(iii) "XXXXXXXXXX" has the meaning referred to in paragraph 18 below;

(jjj) "XXXXXXXXXX Agreement" has the meaning referred to in paragraph 18 below;

(kkk) "Newco" has the meaning referred to in paragraph 27 below;

(lll) "New Gco" has the meaning referred to in paragraph 18 below;

(mmm) "non-resident" has the meaning assigned by subsection 248(1);

(nnn) XXXXXXXXXX;

(ooo) "paid-up capital" has the meaning assigned by subsection 89(1);

(ppp) XXXXXXXXXX;

(qqq) XXXXXXXXXX;

(rrr) "predecessor corporation" has the meaning assigned by subsection 87(1);

(sss) "principal amount" has the meaning assigned by subsection 248(1);

(ttt) "proceeds of disposition" has the meaning assigned by section 54;

(uuu) "Proposed Transactions" has the meaning referred to in paragraph 31 below;

(vvv) "public corporation" has the meaning assigned by subsection 89(1);

(www) "related persons" has the meaning assigned by subsection 251(2);

(xxx) "series of transactions or events" includes the related transactions or events referred to in subsection 248(10);

(yyy) XXXXXXXXXX;

(zzz) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);

(aaaa) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(bbbb) "taxable Canadian property" has the meaning assigned by subsection 248(1);

(cccc) "taxable income earned in Canada" has the meaning assigned by subsection 248(1); and

(dddd) "unrelated person", with respect to a disposition of property to a person or partnership or a significant increase in a person's or partnership's total direct interest in a corporation, means a person or partnership that is an "unrelated person" with reference to the dividend recipient within the meaning of paragraph 55(3.01)(a) immediately before that disposition or significant increase (as the case may be).

Our understanding of the relevant facts, Proposed Transactions and purposes of the Proposed Transactions are as follows:

Facts

1. Ico is a corporation incorporated under the XXXXXXXXXX. Ico is resident in Canada for the purposes of the Act. Ico is a public corporation and a taxable Canadian corporation. XXXXXXXXXX. Ico's common shares are listed for trading, principally, on the XXXXXXXXXX and the XXXXXXXXXX Stock Exchange. Ico is not controlled by any person or group of persons.

2. Ico is the parent company of XXXXXXXXXX.

Ico's assets consist of debt and equity securities of its subsidiaries, which include

(a) all of the issued and outstanding common shares of Aco; and

(b) all of the issued and outstanding shares of Hco.

3. Aco is a corporation incorporated under the XXXXXXXXXX. Aco is resident in Canada for the purposes of the Act. Aco is a taxable Canadian corporation, XXXXXXXXXX. All of the issued and outstanding common shares of Aco are owned by Ico. The Aco Preferred Shares are listed on the XXXXXXXXXX. The total fair market value of Aco's outstanding shares exceeded $XXXXXXXXXX as of XXXXXXXXXX. Aco is the parent of a Canadian group of corporations that includes Bco, Cco and Jco.

Aco's assets include

(a) a XXXXXXXXXX% limited partnership interest in LP1 (the remaining XXXXXXXXXX% is owned by XXXXXXXXXX, Aco's subsidiary wholly-owned corporation);

(b) a XXXXXXXXXX% limited partnership interest in LP3 (the remaining XXXXXXXXXX% is owned by an arm's length person to Aco);

(c) a XXXXXXXXXX% limited partnership interest in LP4 (the remaining XXXXXXXXXX% is owned by an arm's length person to Aco); and

(d) a XXXXXXXXXX% limited partnership interest in LP5 (the remaining XXXXXXXXXX% is owned by arm's length persons to Aco) and a receivable owing by LP5.

LP1 holds XXXXXXXXXX assets XXXXXXXXXX. LP3 is in the business of XXXXXXXXXX. LP4 holds XXXXXXXXXX. LP5 is in the business of XXXXXXXXXX.

4. Bco is a corporation incorporated under the XXXXXXXXXX. Bco is a subsidiary wholly-owned corporation of Aco. Bco is resident in Canada for the purposes of the Act. Bco is a taxable Canadian corporation. XXXXXXXXXX. Aco did not acquire any of the shares of Bco in the ordinary course of any business carried on by Aco.

5. Cco is a corporation incorporated under the XXXXXXXXXX. Cco is a subsidiary wholly-owned corporation of Bco. Cco is resident in Canada for the purposes of the Act. Cco is a taxable Canadian corporation, XXXXXXXXXX. Bco did not acquire any of the shares of Cco in the ordinary course of any business carried on by Bco.

6. Jco is a corporation XXXXXXXXXX and continued as a corporation governed by the XXXXXXXXXX on XXXXXXXXXX. Jco is a subsidiary wholly-owned corporation of Aco. Jco is resident in Canada for the purposes of the Act. Jco is a taxable Canadian corporation XXXXXXXXXX. Jco holds certain XXXXXXXXXX assets. Aco did not acquire any of the shares of Jco in the ordinary course of any business carried on by Aco.

The purpose of the continuance of Jco under the XXXXXXXXXX was to enable Jco to participate in Amalgamation 1 as described in paragraph 34 below.

Jco's assets include

(a) a XXXXXXXXXX% limited partnership interest in LP2 (the remaining XXXXXXXXXX % is owned by an arm's length person to Jco); and

(b) a receivable owing by LP3.

LP2 is in the business of XXXXXXXXXX.

7. Hco is a XXXXXXXXXX company formed under the XXXXXXXXXX. Hco is a subsidiary wholly-owned corporation of Ico and a XXXXXXXXXX holding company.

8. Prior to XXXXXXXXXX, Ico owned all of the issued and outstanding shares of New Gco. On XXXXXXXXXX, Ico transferred all of its shares of New Gco to Hco. As consideration for the transfer, Hco issued common shares to Ico and a convertible note in the principal amount of $XXXXXXXXXX. The principal amount of that convertible note did not exceed the adjusted cost base to Ico of its New Gco shares immediately before the transfer. On the same day, that convertible note was converted into Hco preferred shares with an aggregate redemption amount of $XXXXXXXXXX.

XXXXXXXXXX

9. New Gco is not resident in Canada for the purposes of the Act and is a resident of XXXXXXXXXX for purposes of the Canada-XXXXXXXXXX Tax Convention. New Gco is governed by the XXXXXXXXXX and is a subsidiary wholly-owned corporation of Hco.

New Gco is the parent of a XXXXXXXXXX group of corporations that includes Kco, a subsidiary wholly-owned corporation of New Gco. Kco is a XXXXXXXXXX corporation that is not resident in Canada for purposes of the Act, and is resident in XXXXXXXXXX for purposes of the Canada-XXXXXXXXXX Tax Convention.

New Gco is also the parent of a Canadian group of companies that includes Fco, Eco and Dco.

10. Fco is a corporation incorporated under the XXXXXXXXXX and is a subsidiary wholly-owned corporation of New Gco. Fco is resident in Canada for purposes of the Act, is a taxable Canadian corporation XXXXXXXXXX.

11. Eco is a corporation that was incorporated under the XXXXXXXXXX and continued on XXXXXXXXXX as a corporation governed by the XXXXXXXXXX Eco is a subsidiary wholly-owned corporation of New Gco. Eco is resident in Canada for purposes of the Act, is a taxable Canadian corporation XXXXXXXXXX.

Eco owns all of the issued and outstanding common shares of Dco. Eco did not acquire any of the common shares of Dco in the ordinary course of any business carried on by Eco.

The purpose of the continuance of Eco under the XXXXXXXXXX was to ensure that New Gco's Canadian subsidiaries (i.e. Fco, Eco and Dco) would all be governed by the same corporate statute, which continuance would provide various cost savings and reduced compliance requirements.

12. Dco is a corporation incorporated under the XXXXXXXXXX. Dco is resident in Canada for purposes of the Act, is a taxable Canadian corporation, XXXXXXXXXX Dco has XXXXXXXXXX common shares outstanding, all of which are owned by Eco. In addition to its common shares, Dco has authorized XXXXXXXXXX classes of preferred shares which are generally non-voting except that they are entitled to vote at certain special meetings of Dco's shareholders, XXXXXXXXXX.

13. At the time Ico acquired control of New Gco XXXXXXXXXX as described in paragraph 18 below, Dco's issued preferred shares (which were widely held and listed on the XXXXXXXXXX) were as follows:

XXXXXXXXXX.

14. Dco redeemed all of the Dco XXXXXXXXXX Preferred Shares on XXXXXXXXXX pursuant to their terms for $XXXXXXXXXX per share plus $XXXXXXXXXX per share in respect of accrued dividends. No deemed dividends arose on the redemption of the Dco XXXXXXXXXX Preferred Shares (as the redemption price was equal to the paid-up capital of the redeemed shares).

15. On XXXXXXXXXX, Aco announced an offer to acquire all of the Dco XXXXXXXXXX Preferred Shares for consideration per Dco XXXXXXXXXX Preferred Share equal to XXXXXXXXXX Aco XXXXXXXXXX Preferred Share, with terms and conditions substantially similar to the terms and conditions of the Dco XXXXXXXXXX Preferred Shares. The purpose of the offer was to allow Aco to become the only holder of the Dco XXXXXXXXXX Preferred Shares in order to vote those shares in favour of implementing the Proposed Transactions at a shareholders meeting on XXXXXXXXXX.

On XXXXXXXXXX, Dco also announced its intention to redeem the Dco XXXXXXXXXX Preferred Shares, with the redemption to occur on XXXXXXXXXX.

Aco (or another corporation that is part of the Ico group) may acquire a portion of the Dco XXXXXXXXXX Preferred Shares for cash at prevailing market prices through the XXXXXXXXXX.

16. Aco's offer to acquire the Dco XXXXXXXXXX Preferred Shares expired on XXXXXXXXXX At that time XXXXXXXXXX% of the outstanding Dco XXXXXXXXXX Preferred Shares (XXXXXXXXXX issued and outstanding Dco XXXXXXXXXX Preferred Shares) were tendered in response to the offer. The XXXXXXXXXX Aco Preferred Shares issued in exchange for the Dco XXXXXXXXXX Preferred Shares (the "Aco Preferred Shares") began trading on the XXXXXXXXXX on XXXXXXXXXX.

The fair market value of the Aco Preferred Shares is and has been approximately $XXXXXXXXXX (based on recent trading prices in the range of $XXXXXXXXXX to $XXXXXXXXXX per share), which was substantially less than XXXXXXXXXX% of the total fair market value of Aco's issued and outstanding shares on XXXXXXXXXX. (As the fair market value of Aco's total outstanding shares exceeded $XXXXXXXXXX at that time, the Aco Preferred Shares would have represented less than XXXXXXXXXX% of the fair market value of Aco's total outstanding shares.)

Aco did not acquire any of the Dco XXXXXXXXXX Preferred Shares in the ordinary course of any business carried on by it. Aco held its Dco XXXXXXXXXX Preferred Shares as capital property. No election under subsection 85(1) is contemplated with respect to the Aco Preferred Shares issued in exchange for the Dco XXXXXXXXXX Preferred Shares described herein.

17. On XXXXXXXXXX, the XXXXXXXXXX shareholders of Dco approved the resolution to consolidate the Dco XXXXXXXXXX Preferred Shares, effective on XXXXXXXXXX. Dco amended its by-laws to implement a consolidation of all the issued and outstanding Dco XXXXXXXXXX Preferred Shares on the basis of XXXXXXXXXX new XXXXXXXXXX Preferred Share (the "Dco XXXXXXXXXX Preferred Shares") for each XXXXXXXXXX Dco XXXXXXXXXX Preferred Shares then outstanding (the "Consolidation").

The Consolidation occurred on XXXXXXXXXX. On the Consolidation, all XXXXXXXXXX Dco XXXXXXXXXX Preferred Shares were exchanged for XXXXXXXXXX Dco XXXXXXXXXX Preferred Shares and a number of fractional interests in XXXXXXXXXX Dco XXXXXXXXXX Preferred Share. Aco, which owned more than XXXXXXXXXX Dco XXXXXXXXXX Preferred Shares immediately before the Consolidation, received XXXXXXXXXX Dco XXXXXXXXXX Preferred Shares and a fractional interest in XXXXXXXXXX Dco XXXXXXXXXX Preferred Share on the Consolidation. Aco will rely on subsection 51(1) to apply to the share exchange of its Dco XXXXXXXXXX Preferred Shares for the Dco XXXXXXXXXX Preferred Shares on the Consolidation.

Immediately after the Consolidation, Dco paid cash for each fractional interest in a Dco XXXXXXXXXX Preferred Share. The amount of the cash payment by Dco for the fractional interests in the Dco XXXXXXXXXX Preferred Share was $XXXXXXXXXX for each Dco XXXXXXXXXX Preferred Share held prior to the Consolidation (being the XXXXXXXXXX closing price of the Dco XXXXXXXXXX Preferred Shares on the XXXXXXXXXX as of the close of trading on XXXXXXXXXX, the day preceding the announcement of the offer), plus $XXXXXXXXXX per share for the pro rated portion of unpaid dividends declared on those shares to, but excluding, XXXXXXXXXX.

In Aco's view, paragraph 55(3)(a) will exempt the dividend it was deemed to receive, on the redemption of its fractional interest in the Dco XXXXXXXXXX Preferred Share described above, from the application of subsection 55(2), on the basis that Dco was not an unrelated person with reference to Aco immediately before the redemption by Dco of Aco's fractional interest in a Dco XXXXXXXXXX Preferred Share.

XXXXXXXXXX

18. Prior to XXXXXXXXXX, Gco was a XXXXXXXXXX public company whose common shares were listed for trading on the XXXXXXXXXX Exchange and were widely held by persons resident in XXXXXXXXXX and elsewhere. Ico and its XXXXXXXXXX subsidiary wholly-owned corporation, Lco (which was governed by the laws of XXXXXXXXXX) owned approximately XXXXXXXXXX% and XXXXXXXXXX % of the issued and outstanding common shares of Gco, respectively. Gco was not a foreign affiliate of Ico or Lco prior to the XXXXXXXXXX.

Ico, Lco and Gco signed a XXXXXXXXXX agreement as of XXXXXXXXXX (the "XXXXXXXXXX Agreement"), whereby Gco would become a subsidiary wholly-owned corporation of Ico pursuant to a transaction XXXXXXXXXX under the laws of XXXXXXXXXX (the "XXXXXXXXXX") and Gco would continue as the XXXXXXXXXX corporation ("New Gco") of the XXXXXXXXXX.

The XXXXXXXXXX was completed on XXXXXXXXXX pursuant to the terms of the XXXXXXXXXX Agreement. On the XXXXXXXXXX,

(a) Ico exchanged its Lco shares for a preferred share of New Gco;

(b) Ico issued, in aggregate, approximately $XXXXXXXXXX of Ico common shares to the public shareholders of Gco (other than members of the Ico group) on the basis of XXXXXXXXXX Ico common shares issued in exchange for each Gco common share; and

(c) any shares of Gco held by any member of the Ico group were cancelled and ceased to exist.

As consideration for Ico issuing its common shares to the Gco shareholders, the payment of $XXXXXXXXXX cash, and the cancellation of Ico's XXXXXXXXXX% of the Gco common shares, New Gco issued XXXXXXXXXX common shares to Ico on the XXXXXXXXXX.

As a consequence of the XXXXXXXXXX, New Gco became a subsidiary wholly-owned corporation of Ico.

19. The rollover provisions in sections 85 and 85.1 did not apply to public shareholders of Gco that were residents of Canada and disposed of Gco common shares on the XXXXXXXXXX. Accordingly, the XXXXXXXXXX was a taxable transaction to such shareholders.

20. With respect to non-resident persons who disposed of their common shares of Gco on the XXXXXXXXXX, because the common shares of Gco were not taxable Canadian property, generally no gain or loss from the disposition of the common shares of Gco would have been included in computing the non-resident person's taxable income earned in Canada. The XXXXXXXXXX qualified as XXXXXXXXXX and, in the case of holders of common shares of Gco who were resident in XXXXXXXXXX at the time of the XXXXXXXXXX, generally, no gain or loss would be recognized for XXXXXXXXXX income tax purposes.

21. Ico's acquisition of Gco by way of the XXXXXXXXXX was made for strategic XXXXXXXXXX business reasons that were independent of any future reorganizations involving Aco, Cco or Dco. More particularly, Ico's objective or purpose for the XXXXXXXXXX was to acquire the XXXXXXXXXX businesses of Gco and its subsidiaries, including Kco, XXXXXXXXXX. The Proposed Transactions will not affect Kco or its status as a subsidiary wholly-owned corporation of New Gco.

22. Although, prior to the XXXXXXXXXX, it was expected that certain synergies could be achieved in Canada by combining the operations of Aco, Cco and Dco (XXXXXXXXXX), the existence of Dco within the Gco group and the realization of "Canadian synergies" were incidental or ancillary to Ico's decision to enter into the XXXXXXXXXX Agreement. In this regard, at the time of the completion of the XXXXXXXXXX, the fair market value of Dco was approximately XXXXXXXXXX% of the fair market value of the Gco group. Consequently, Ico would have acquired Gco to achieve its XXXXXXXXXX objectives regardless of whether Dco was part of the Gco group or whether those synergies could be achieved in Canada.

23. At the time of the XXXXXXXXXX, the steps of the Proposed Transactions were neither defined nor pre-ordained transactions that were virtually certain to occur. The Proposed Transactions are subject to, among other third party approvals, XXXXXXXXXX approvals XXXXXXXXXX. In fact, at the time Ico entered into the XXXXXXXXXX Agreement (XXXXXXXXXX), neither Ico nor any corporation within the Ico group contemplated entering into the Proposed Transactions (or any similar transactions). Ico would have acquired, and did acquire (on XXXXXXXXXX), Gco to achieve its XXXXXXXXXX objectives pursuant to the XXXXXXXXXX Agreement as originally entered into, regardless of whether the Proposed Transactions could be implemented (or whether the synergies could be achieved in Canada). The XXXXXXXXXX would have occurred (and did occur) regardless of whether the operations of Aco, Cco and Dco could be combined in one XXXXXXXXXX corporation.

24. The XXXXXXXXXX did not depend in any way on the implementation of the Proposed Transactions in order to be effective from a tax or commercial perspective. The Proposed Transactions do not, in any manner, facilitate the completion of the XXXXXXXXXX and are not required to be undertaken as a condition of the approval of the XXXXXXXXXX by XXXXXXXXXX, by lenders or security holders of Ico, or by any other person.

Contemporaneous Transactions

Reorganization of Internal Funding

25. At various times, Eco lent Dco a total of $XXXXXXXXXX. Prior to the Proposed Transactions, XXXXXXXXXX, these loans will be repaid by Dco. In certain cases, the repayment will be preceded by an amendment to the terms of the notes issued by Dco to Eco to permit early repayment. XXXXXXXXXX.

26. Eco will use the proceeds of the repayment as described in paragraph 25 above to repay a portion of the amount Eco owes to Fco. Fco will, in turn, use these proceeds to make a loan to Aco or to make investments in other Canadian resident Ico group corporations.

Transfer of Certain Receivables and Partnership Interest

27. Prior to the Proposed Transactions, Jco will incorporate a taxable Canadian corporation ("Newco") for nominal consideration. Aco will loan Newco between $XXXXXXXXXX and $XXXXXXXXXX on an interest-bearing basis. Newco will use those loan proceeds to purchase the following receivables and partnership interest from Jco, LP1 and Aco:

(a) receivable owing by LP3 to Jco described in paragraph 6 above;

(b) receivable owing by LP2 to LP1 described in paragraph 3 above;

(c) receivable owing by LP5 to Aco described in paragraph 3 above; and

(d) Aco's XXXXXXXXXX % LP4 limited partnership interest described in paragraph 3 above.

As consideration for the transfers, Newco will,

(e) with respect to each of the receivables owing by LP2, LP3, and LP5 described in (a) to (c) above, pay XXXXXXXXXX Newco common share to each of Jco, LP1 and Aco, with a total fair market value equal to the fair market value of each such receivable at the time of the transfer; and

(f) with respect to Aco's XXXXXXXXXX% LP4 limited partnership interest described in (d) above, issue Newco common shares to Aco, with a total fair market value equal to the fair market value of that partnership interest at the time of the transfer.

Newco and each of Jco, LP1 and Aco will make joint elections under subsection 85(1) for such transfers to occur on a tax-deferred rollover basis.

XXXXXXXXXX

28. XXXXXXXXXX.

29. XXXXXXXXXX.

Transaction Approval

30. On XXXXXXXXXX, the Proposed Transactions were approved by XXXXXXXXXX and shareholders of Dco. The shareholders of Aco and Cco approved the Proposed Transactions prior to XXXXXXXXXX.

Proposed Transactions

31. Provided that a favourable ruling is received from the CRA and that the transactions described in paragraphs 33 to 46 below (the "Proposed Transactions"), including the transfer of the Dco Business to Amalco 1, are approved by XXXXXXXXXX, it is proposed that the following transactions will occur XXXXXXXXXX in the order presented below.

32. The dollar amounts used in describing the Proposed Transactions are based upon current estimates of the relevant amounts, are approximate and are for illustrative purposes only. The dollar amounts used in paragraphs 37 to 48 below assume that the fair market value of the Dco Business, net of liabilities, is $XXXXXXXXXX. To the extent that the fair market value of the Dco Business, net of liabilities, is different than that assumed herein, the actual amounts used to complete the Proposed Transactions will differ from those set out herein. In particular, the total principal amount of the Aco Note 1 and the Aco Note 2 will be equal to the amount of such fair market value, net of liabilities, as will the Amalco 1 Redemption Amount.

Payment of Dividends by Cco, Bco and Jco

33. Aco will subscribe for common shares of Bco for approximately $XXXXXXXXXX. Bco will then subscribe for common shares of Cco for approximately $XXXXXXXXXX. Cco will pay a cash dividend to Bco (the "Bco Dividend"). Jco will pay a cash dividend to Aco, and Bco will pay a cash dividend to Aco (collectively, the "Aco Dividends"). The Bco Dividend and the Aco Dividends will be paid to distribute earnings of Bco, Cco and Jco to Aco. It is estimated that the amount of the dividends to be paid by Bco, Co and Jco will be approximately $XXXXXXXXXX, $XXXXXXXXXX, and $XXXXXXXXXX, respectively.

Amalgamation to Form Amalco 1

34. Cco, Jco and Bco will amalgamate ("Amalgamation 1") to form one corporate entity, ("Amalco 1") under the XXXXXXXXXX. Amalco 1 will be a taxable Canadian corporation, XXXXXXXXXX. Each of Cco, Jco and Bco is a "subsidiary wholly-owned corporation" of Aco within the meaning of subsection 87(1.4). Specifically:

(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) and liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before Amalgamation 1 will become property and liabilities of Amalco 1 by virtue of Amalgamation 1;

(b) all of the shares of Bco owned by Aco immediately before Amalgamation 1 will not be cancelled on Amalgamation 1 and will become (or be converted into) common shares of Amalco 1 because of Amalgamation 1;

(c) all of the other shares of the predecessor corporations (including the shares of Jco owned by Aco immediately before Amalgamation 1) will be cancelled on Amalgamation 1 without any payment to the holders thereof; and

(d) the consequences described in paragraphs (a), (b) and (c) do not arise 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.

A new class of non-voting preferred shares of Amalco 1 (the "Amalco 1 Preferred Shares") will be created on Amalgamation 1, each of which

(e) will be redeemable and retractable, subject to applicable law, at any time for an amount equal to the amount determined by dividing the aggregate fair market value of the property received by Amalco 1 on the issuance of the Amalco 1 Preferred Shares less the aggregate fair market value of any non-share consideration issued or liabilities assumed by Amalco 1, by the number of the Amalco 1 Preferred Shares issued; and

(f) will entitle the holder thereof to a cumulative cash dividend equal to XXXXXXXXXX from time to time of the redemption amount of the share at that time having priority over the common shares of Amalco 1.

Any loans and other amounts owing by or to Aco and each of the predecessor corporations of Amalco 1 (that is, Cco, Jco and Bco) will become loans and other amounts owing by or to Aco by or to Amalco 1 as a result of Amalgamation 1. There are also various services and other agreements between Aco and Cco that will become agreements between Aco and Amalco 1 as a result of Amalgamation 1.

XXXXXXXXXX

Transfer of the Dco Business to Amalco 1

35. Dco will transfer all of its XXXXXXXXXX business ("Dco Business"), consisting of all or substantially all of its assets to Amalco 1. As consideration for the transfer, Amalco 1 will:

(a) assume all of Dco's liabilities (XXXXXXXXXX); and

(b) issue Amalco 1 Preferred Shares having an aggregate redemption amount (the "Amalco 1 Redemption Amount") and fair market value equal to the amount by which the aggregate fair market value at that time of the Dco Business so transferred to Amalco 1 exceeds the aggregate fair market value of Dco's liabilities so assumed by Amalco 1 as described in (a) above.

The Amalco 1 Preferred Shares will not be acquired by Dco in the ordinary course of any business carried on by Dco.

The parties will allocate the consideration to be paid by Amalco 1 to the Dco Business being purchased in a consistent manner for purposes of the Act. The agreement with respect to the transfer will contain a price adjustment clause. Under the agreement, XXXXXXXXXX.

36. Dco and Amalco 1 will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer to Amalco 1 of any eligible property of Dco that has a fair market value in excess of its cost amount as described in paragraph 35 above. Specifically, the agreed amount in each joint election,

(a) in the case of depreciable property of a prescribed class, will not be less than the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii);

(b) in the case of property described in paragraph 85(1)(c.1), will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii); and

(c) in the case of eligible capital property, will not be less than the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii).

In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

Dco and Amalco 1 may also make an election under section 22 of the Act with respect to the transfer by Dco of its accounts receivable to Amalco 1 described in paragraph 35 above.

XXXXXXXXXX, the amount to be added to the stated capital of Amalco 1 in respect of the issue of the Amalco 1 Preferred Shares will be equal to the net fair market value of the property transferred to Amalco 1 as described in paragraph 35 above. Subsection 85(2.1) of the Act will reduce the paid-up capital of the Amalco 1 Preferred Shares to an amount equal to the amount by which the aggregate of the cost to Amalco 1 (determined pursuant to subsection 85(1) of the Act) of the property so transferred to Amalco 1 as described in paragraph 35 above exceeds the amount of the liabilities assumed by Amalco 1 as described in subparagraph 35(a) above.

Capitalization of Amalco 1

37. Aco will borrow $XXXXXXXXXX from an arm's length lender (the "daylight loan"). Aco will lend $XXXXXXXXXX of the borrowed funds to Ico, in exchange for a $XXXXXXXXXX interest-bearing demand note (the "Ico Note"). The interest rate on the Ico Note will be a commercial arm's length rate.

Ico will use the $XXXXXXXXXX proceeds of the Ico Note to subscribe for Aco's new series XXXXXXXXXX preferred shares (the "Aco XXXXXXXXXX Preferred Shares") for $XXXXXXXXXX that will be redeemable and retractable for the price at which they were issued.

38. Using the share subscription funds obtained from Ico and the remainder of the proceeds from the daylight loan, Aco will subscribe for Amalco 1's new series XXXXXXXXXX preferred shares (the "Amalco 1 XXXXXXXXXX Preferred Shares") for $XXXXXXXXXX that will be redeemable and retractable for the price at which they were issued.

The stated capital of the Aco XXXXXXXXXX Preferred Shares and the Amalco 1 XXXXXXXXXX Preferred Shares will be equal to the fair market value of such shares at the time they are issued.

39. Amalco 1 will lend $XXXXXXXXXX to Aco, in exchange for an interest-bearing demand note for $XXXXXXXXXX ("Aco Note 1") and a non-interest bearing demand note for $XXXXXXXXXX ("Aco Note 2"). The interest rate on the Aco Note 1 will be a commercial arm's length rate.

40. Amalco 1 will purchase XXXXXXXXXX assets (XXXXXXXXXX) with a fair market value of $XXXXXXXXXX from Aco for cash consideration. This purchase of assets will be made using funds received by Amalco 1 on the share subscription by Aco.

41. Aco will use the proceeds of the $XXXXXXXXXX loans from Amalco 1 and from the disposition of assets to Amalco 1 (i.e., $XXXXXXXXXX ) to repay the daylight loan. The total principal amount and fair market value of all of the notes held by Amalco 1 will be $XXXXXXXXXX (i.e., the Aco Note 1 of $XXXXXXXXXX and the Aco Note 2 of $XXXXXXXXXX), which will be equal to the fair market value, at the time of the transfer, of the Dco Business net of assumed liabilities, as described in paragraph 35 above.

42. The Aco XXXXXXXXXX Preferred Shares held by Ico as described in paragraph 37 above will be exchanged for common shares of Aco having an aggregate fair market value equal to the aggregate fair market value, immediately before such exchange, of the Aco XXXXXXXXXX Preferred Shares so transferred to Aco. The stated capital of the Aco common shares will be increased on the exchange of the Aco XXXXXXXXXX Preferred Shares by an amount equal to the stated capital of such preferred shares.

The Amalco 1 XXXXXXXXXX Preferred Shares held by Aco as described in paragraph 38 above will be exchanged for common shares of Amalco 1 having an aggregate fair market value equal to the aggregate fair market value, immediately before such exchange, of the Amalco 1 XXXXXXXXXX Preferred Shares so transferred to Amalco 1. The stated capital of the Amalco 1 common shares will be increased on the exchange of the Amalco 1 XXXXXXXXXX Preferred Shares by an amount equal to the stated capital of such preferred shares.

Ico will hold its preferred and common shares of Aco as capital property. Aco will hold its preferred and common shares of Amalco 1 as capital property.

Redemption of Amalco 1 Preferred Shares

43. Amalco 1 will redeem the Amalco 1 Preferred Shares held by Dco for fair market value consideration equal to the Amalco 1 Redemption Amount. In satisfaction of the consideration for the redemption, Amalco 1 will transfer to Dco the Aco Note 1 and the Aco Note 2.

Amalgamation of Aco and Amalco 1 to Form Amalco 2

44. Aco and Amalco 1 will amalgamate ("Amalgamation 2") to form one corporate entity ("Amalco 2") under the XXXXXXXXXX. Immediately before Amalgamation 2, Amalco 1 will be a "subsidiary wholly-owned corporation" of Aco within the meaning of subsection 87(1.4). Specifically:

(a) all of the property (except amounts receivable from any predecessor corporation or shares of capital stock of any predecessor corporation) and liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before Amalgamation 2 will become property and liabilities of Amalco 2 by virtue of Amalgamation 2;

(b) all of the issued and outstanding shares of Aco immediately before Amalgamation 2 will not be cancelled and will become (or be converted into) shares of Amalco 2 because of Amalgamation 2;

(c) all of the shares of Amalco 1 will be cancelled on Amalgamation 2 without any payment to Aco; and

(d) the consequences described in paragraphs (a), (b) and (c) do not arise 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.

Any loans and other amounts owing by or to Aco by or to Amalco 1 immediately before Amalgamation 2 will be repaid immediately before Amalgamation 2 or will be extinguished by operation of law as a result of Amalgamation 2. Similarly, any services and other agreements between Aco and Amalco 1 existing immediately before Amalgamation 2 will be extinguished by operation of law as a result of Amalgamation 2.

The fair market value of the Aco Preferred Shares that will become preferred shares of Amalco 2 on Amalgamation 2 will be substantially less than XXXXXXXXXX% of the total fair market value of Amalco 2's issued and outstanding shares at the time of Amalgamation 2. (As the fair market value of Amalco 2's total outstanding shares will exceed $XXXXXXXXXX at the time of Amalgamation 2, the Aco Preferred Shares that become preferred shares of Amalco 2 on Amalgamation 2 will represent less than XXXXXXXXXX% of the fair market value of Amalco 2's total outstanding shares at that time.)

Ico has no intention of selling any of its Amalco 2 shares.

Redemption of Dco XXXXXXXXXX Preferred Shares

45. Dco will redeem all of the issued and outstanding Dco XXXXXXXXXX Preferred Shares on XXXXXXXXXX. Dco will use $XXXXXXXXXX of the principal amount owing to it under the Aco Note 1 to pay the redemption price and accrued dividends on the Dco XXXXXXXXXX Preferred Shares.

Dco Share Cancellation

46. XXXXXXXXXX Consequently, following the redemption of the Dco XXXXXXXXXX Preferred Shares as described in paragraph 45 above, Dco will continue as a corporation governed under the XXXXXXXXXX. Dco will then reduce the stated capital of the Dco common shares (and, consequently, the paid-up capital of the Dco common shares) to $XXXXXXXXXX.

Aco will repay $XXXXXXXXXX of the amount owing to Dco on the Aco Note 1 by transferring to Dco the Ico Note. Following the redemption of the Dco XXXXXXXXXX Preferred Shares and this partial repayment of the Aco Note 1, the principal amount owing on the Aco Note 1 will be approximately $XXXXXXXXXX.

Following the partial repayment of the Aco Note 1, Dco will purchase for cancellation that number of its common shares held by Eco that have an aggregate fair market value equal to the aggregate principal amount and fair market value of the Aco Note 2 and all or part of the Ico Note (the "distributed portion of the Ico Note"), rounded up to the nearest whole share (the "Dco Share Cancellation"). Dco will distribute the Aco Note 2 and the distributed portion of the Ico Note to Eco as consideration for the purchase of Eco's Dco common shares on the Dco Share Cancellation.

The amount of any loss of Eco from the disposition of its Dco common shares on the Dco Share Cancellation will, by virtue of the application of paragraph 112(3)(b) of the Act, be reduced to nil. For greater certainty, no amount will be added to the adjusted cost base to Eco of its remaining Dco shares immediately after the Dco Share Cancellation under paragraph 40(3.6)(b) of the Act.

Following the Dco Share Cancellation, it is expected that Dco's only asset will be the Aco Note 1 and possibly a portion of the Ico Note. Dco will use the Aco Note 1 and any portion of the Ico Note to fund any share redemptions, taxes or other expenses. There is no current plan to wind-up Dco into Eco, or to amalgamate Dco and Eco.

Transactions to be Implemented Following the Proposed Transactions

47. After the completion of the Proposed Transactions, Dco will use, to the extent and when necessary, the principal amount owing to it under the Aco Note 1 to pay all taxes and any other remaining liabilities of Dco, and to pay the redemption price for the Dco XXXXXXXXXX Preferred Shares when those shares are ultimately redeemed by Dco.

48. After the completion of the Proposed Transactions, Eco will transfer the Aco Note 2 to Fco in repayment of $XXXXXXXXXX owing by Eco to Fco. However, Eco will retain the distributed portion of the Ico Note described in paragraph 46 above and will earn interest on it. Fco will demand repayment of the Aco Note 2 from Amalco 2. Fco will thereafter lend the proceeds of the repayment to various Canadian-resident members of the Ico group.

The Ico Note or any property substituted for the Ico Note will not be distributed to Ico. Further, it is anticipated that Ico will repay the Ico Note in approximately XXXXXXXXXX years using one or more of the following sources:

(a) property acquired by Ico on the issuance of equity securities to unrelated persons;

(b) property acquired by Ico on the issuance of debt securities to unrelated persons;

(c) property held by Ico at the commencement of the Proposed Transactions (or property substituted for such property); or

(d) property acquired by Ico on a distribution from Amalco 2 that results in a corresponding reduction to Ico's adjusted cost base in its Amalco 2 shares.

For greater certainty, property described in paragraphs (a) to (d) used to repay the Ico Note will not be considered to be property that is substituted for the Ico Note.

49. Shortly after the completion of the Proposed Transactions, Dco will continue under the XXXXXXXXXX.

The purpose of the continuance of Dco under the XXXXXXXXXX is to ensure that New Gco's Canadian subsidiaries (i.e. Fco, Eco and Dco) will all be governed by the same corporate statute, which continuance will provide various cost savings and reduce compliance requirements.

50. In XXXXXXXXXX, the Dco XXXXXXXXXX Preferred Shares may be transferred by Amalco 2 to Ico for cash or a note equal to the fair market value of such shares at the time of transfer. This transfer is being considered XXXXXXXXXX for the Dco XXXXXXXXXX Preferred Shares to be held by Ico rather than Amalco 2.

Additional Information

51. None of the Bco shares, the Cco shares, the Jco shares, the Dco common shares and the Amalco1 Preferred Shares as described in the Proposed Transactions, is or will be, at any time throughout the series of transactions or events that includes the Proposed Transactions:

(a) the subject of any undertaking that is a guarantee agreement;

(b) the subject of a dividend rental arrangement;

(c) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a);

(d) issued for consideration that is or includes:

(i) an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or

(ii) any right of the type described in subparagraph 112(2.4)(b)(ii); or

(e) issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).

52. Neither Aco, Bco, Jco, Cco, Dco, Eco or Amalco1 is or will be, at any time throughout the series of transactions or events that includes the Proposed Transactions, a corporation described in any of the paragraphs (a) to (f) of the definition "financial intermediary corporation" in subsection 191(1) of the Act.

53. Each of Ico, Aco, Amalco 1 and Amalco 2 will have the financial capacity to honour, upon presentation for payment, the amount payable under the note issued or assumed by it as part of the Proposed Transactions.

Purpose of the Proposed Transactions

54. The purpose of the Proposed Transactions is to unite the operations of Aco, Cco and Dco in one XXXXXXXXXX corporation, Amalco 2, XXXXXXXXXX. Upon completion of the Proposed Transactions, Amalco 2 will be named Aco XXXXXXXXXX.

55. XXXXXXXXXX.

56. The purpose for the share subscriptions described in paragraph 33 above is to fund the payment of the dividends to be paid by Bco and Cco. These share subscriptions are necessary to provide sufficient funds to pay those dividends by Bco and Cco, having regard to the amount of cash held by Bco and Cco, XXXXXXXXXX.

57. The purpose for the payment of the Bco Dividend and the Aco Dividends described in paragraph 33 above is to avoid anomalous XXXXXXXXXX tax consequences. XXXXXXXXXX.

58. XXXXXXXXXX.

59. XXXXXXXXXX.

The purpose for the conversion of the Aco XXXXXXXXXX Preferred Shares and the Amalco 1 XXXXXXXXXX Preferred Shares into Aco common shares and Amalco 1 common shares, respectively, is to ensure that XXXXXXXXXX.

60. The purpose for the creation of the Ico Note, the Aco Note 1 and the Aco Note 2 is to facilitate the execution of the Proposed Transactions and to reduce the amount of cash required to be transferred at each step (i.e., by using the notes as currency) as illustrated in paragraphs 43 through 48 above.

61. The purpose of issuing two Aco notes instead of one is that the Aco Note 1 described in paragraph 39 above will be used to provide Dco with the financial resources to fund the redemption of the Dco XXXXXXXXXX Preferred Shares on XXXXXXXXXX, to pay all taxes and any other remaining liabilities of Dco, and to ensure sufficient financial resources to fund the redemption of the Dco XXXXXXXXXX Preferred Shares when those shares are ultimately redeemed. The Aco Note 2 described in paragraph 39 above will allow Eco to use such note to repay its $XXXXXXXXXX currently owing to Fco.

62. The purpose of Amalco 1's purchase of the XXXXXXXXXX assets referred to in paragraph 40 above is XXXXXXXXXX.

The purpose for the partial repayment of the Aco Note 1 described in paragraph 46 above is to simplify the number of outstanding notes owing between the various corporations.

63. The purpose for the Dco Share Cancellation described in paragraph 46 above is to transfer the Aco Note 2 and the distributed portion of the Ico Note from Dco to Eco. This will allow Eco to use the Aco Note 2 as currency to repay the intercompany debt owing by Eco to Fco, and will allow Eco to use the distributed portion of the Ico Note to acquire additional XXXXXXXXXX assets or to deploy those amounts within the Ico group in some other manner.

The purpose for potentially only transferring part of the Ico Note (rather than all of the Ico Note) from Dco to Eco is to avoid anomalous XXXXXXXXXX tax consequences. XXXXXXXXXX

64. The purpose for reducing the stated capital of the Dco common shares to $XXXXXXXXXX as described in paragraph 46 above is to avoid a potential adverse tax consequence that could otherwise arise if the paid-up capital of the Dco common shares that Dco purchased for cancellation from Eco is greater than their adjusted cost base to Eco.

65. The purpose of using two amalgamations instead of one as described in the Proposed Transactions is to prevent potentially adverse XXXXXXXXXX tax consequences that could otherwise arise XXXXXXXXXX.

Rulings

Provided that the preceding statements constitute 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, our rulings are as follows:

A. Subsection 84(3) will apply

(a) on the redemption of the Amalco1 Preferred Shares held by Dco described in paragraph 43 above, to deem Amalco1 to have paid and Dco to have received; and

(b) on the purchase for cancellation of the Dco common shares held by Eco described in paragraph 46 above, to deem Dco to have paid and Eco to have received;

a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption or purchase for cancellation, as the case may be, exceeds the aggregate paid-up capital in respect of such shares immediately before such redemption or purchase for cancellation,

(c) XXXXXXXXXX;

(d) any dividend described in (b) above and the Bco Dividend received by Bco described in paragraph 33 above,

(i) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person received or deemed to have received such dividend;

(ii) will be deductible by the recipient of such dividend pursuant to subsection 112(1) in computing the taxable income of the recipient for the year in which such dividend is received or deemed to have received. For greater certainty, such dividend will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(iii) will be excluded from the proceeds of disposition of the shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 of the Act; and

(iv) by virtue of subsection 112(3) of the Act, will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to have received.

B. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends referred to in ruling A above, provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) as part of a series of transactions or events that includes any of those taxable dividends. For greater certainty, the Proposed Transactions described above will not, in and by themselves, be considered to result in any disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

C. The provisions of subsection 51(1) of the Act will apply to the share exchanges

(a) by Ico of its Aco XXXXXXXXXX Preferred Shares for the Aco common shares described in paragraph 42 above; and

(b) by Aco of its Amalco 1 XXXXXXXXXX Preferred Shares for the Amalco 1 common shares described in paragraph 42 above;

with the result that:

(c) Ico will be deemed not to have disposed of its Aco XXXXXXXXXX Preferred Shares;

(d) the cost to Ico of the Aco common shares received will be equal to the adjusted cost base, immediately before the share exchange, to Ico of its Aco XXXXXXXXXX Preferred Shares for which those shares were exchanged;

(e) Aco will be deemed not to have disposed of its Amalco 1 XXXXXXXXXX Preferred Shares; and

(f) the cost to Aco of the Amalco 1 common shares received will be equal to the adjusted cost base, immediately before the share exchange, to Aco of its Amalco 1 XXXXXXXXXX Preferred Shares for which those shares were exchanged.

For greater certainty, subsection 51(2) will not apply to the share exchanges referred to above.

D. The amalgamation of Bco, Cco and Jco described in paragraph 34 above will, by virtue of subsection 87(1.1), be an amalgamation within the meaning of subsection 87(1).

E. The amalgamation of Aco and Amalco 1 described in paragraph 44 above will, by virtue of subsection 87(1.1), be an amalgamation within the meaning of subsection 87(1). For greater certainty, for the purposes of applying section 111 of the Act in respect of Aco, Amalco2 will, by virtue of subsection 87(2.11), be deemed to be the same corporation as, and a continuation of, Aco.

F. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by CRA on May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

Comments

Nothing in this ruling should be construed as implying that CRA has agreed to or reviewed:

(a) the determination of the fair market value or the cost amount of any particular asset or the paid-up capital of any shares referred to herein; and

(b) any tax consequences relating to the facts and Proposed Transactions described herein other than those specifically described in the rulings given above.

Price Adjustment Clause

You have informed us that the consideration given by Amalco1 for the property of Dco, as described in paragraph 35 above, will be subject to a price adjustment clause. Nothing in this letter should be construed as confirmation, express or implied, that any adjustment to the consideration given for the property of Dco by Amalco1 in paragraph 35 above will be effective retroactively. Furthermore, the rulings in this letter are not intended to apply to the operation of a price adjustment clause, since its coming into effect 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 Interpretation Bulletin IT-169.

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch

??

??

??

??