2009 Ruling 2007-0261171R3 - Post butterfly transaction

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: Whether paragraph 55(3.1)(c) will apply as a result of the proposed series of transactions, which are to be undertaken subsequent to sequential butterflies that were implemented in XXXXXXXXXX 2006.

Position: No.

Reasons: The taxpayer has represented that the proposed transactions are not part of the series of transactions that included the previous butterflies. Based on our interpretation of the law and related case law, we did not disagree with this position.

XXXXXXXXXX 2007-026117

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letters of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.

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

• in an earlier return of any of the taxpayers or a related person;
• being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the taxpayers or a related person;
• under objection by any of the taxpayers or a related person;
• before the courts; or
• the subject of a ruling previously issued by the Income Tax Rulings Directorate other than the advance income tax ruling issued on XXXXXXXXXX , 2006 (our reference 2006-020398) (the "Original Ruling") and the advance income tax ruling issued on XXXXXXXXXX , 2007 (our reference 2007-0232261R3)(the "Second Ruling").

You have confirmed that each of the proposed transactions described in the Original Ruling has been completed, as described therein, except for certain matters related to the dissolution of various corporations as set out in the proposed transactions described in paragraphs 90, 104, 107, 108 and 109 of the Original Ruling. You have also confirmed that each of the proposed transactions described in the Second Ruling, which involved a series of transactions undertaken by certain parties to the Original Ruling to consolidate certain shareholdings into a separate legal entity, has been completed, as described therein.

DEFINITIONS

In this letter, all references to monetary amounts are in Canadian dollars and the following terms or expressions have the meaning specified:

* "A Co" means XXXXXXXXXX ;

* "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 in the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";

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

* "agreed amount" means the amount agreed on in respect of a property in an election filed pursuant to subsection 85(1);

* "B Co" means XXXXXXXXXX ;

* "BCA" means the XXXXXXXXXX ;

* "BN" means the tax identification number assigned by the CRA to the particular entity;

* "Butterfly 1" means the distribution of all of the property of DC1 to A Co, B Co and C Co, which was undertaken pursuant to the transactions set out in paragraphs 80 to 90 of the Original Ruling, all of which have been completed, except for certain matters related to the dissolution of DC1 as set out in the proposed transaction described in paragraph 90 of the Original Ruling;

* "Butterfly 2" means the distribution of all of the property of DC2 to TC1-Sub, TC2-Sub, TC3-Sub, and TC4-Sub, which was undertaken pursuant to the transactions set out in paragraphs 93 to 109 of the Original Ruling, all of which have been completed, except for certain matters related to the dissolution of the Transferee2-Subs and DC1 as set out in the proposed transactions described in paragraphs 104, 107, 108 and 109 of the Original Ruling;

* "C Co" means XXXXXXXXXX ;

* "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);

* "capital property" has the meaning assigned by section 54;

* "XXXXXXXXXX Co" means XXXXXXXXXX .;

* "CRA" means the Canada Revenue Agency;

* "DC1" means XXXXXXXXXX .;

* "DC2" means XXXXXXXXXX ;

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

* "fair market value" ("FMV") means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and with no compulsion to act, expressed in terms of cash;

* "Numberco" means XXXXXXXXXX , which is a taxable Canadian corporation and a CCPC;

* "Original Ruling" means advance tax ruling 2006-020398, which was issued to DC1 and DC2 on XXXXXXXXXX , 2006;

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

* "Paragraph" refers to a numbered paragraph in this advance income tax ruling;

* "proceeds of disposition" has the meaning assigned by section 54;

* "Proposed Transactions" means the transactions described in Paragraphs 14 to 23;

* "Real Co" means XXXXXXXXXX

* "Real Co Promissory Note(s)" means one or more of the demand promissory notes payable by Real Co, as described in Paragraph 15, either singularly or collectively;

* "Real Co Properties" means Real Co's direct ownership interest in one revenue-producing commercial real property, and Real Co's indirect interest, through XXXXXXXXXX separate tenancy in common arrangements and one partnership, in certain revenue-producing industrial and commercial real properties and numerous parcels of land held for future development as revenue-producing industrial and commercial real properties, together with ancillary deposits, accounts receivable, and rights arising from prepaid expenses;

* "Real Co Property" means any one of the seven "Real Co Properties";

* "Real-Subco1" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco2" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco3" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco4" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco5" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco6" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco7" means the taxable Canadian corporation incorporated by Real Co, as described in Paragraph 10;

* "Real-Subco(s)" means Real-Subco1, Real-Subco2, Real-Subco3, Real-Subco4, Real-Subco5, Real-Subco6, and Real-Subco7, either singularly or collectively;

* "related person" has the meaning assigned by section 251;

* "Second Ruling" means advance tax ruling 2007-0232261R3, which was issued to Real Co and XXXXXXXXXX Co on XXXXXXXXXX , 2007;

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

* "stated capital" has the meaning assigned by the BCA;

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

* "TC1" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC1-Sub" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC2" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC2-Sub" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC3" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC3 Promissory Note(s)" means one or more of the demand promissory notes payable by TC3, as described in Paragraph 19, either singularly or collectively;

* "TC3 Properties" means TC3's indirect interest, through four separate tenancy in common arrangements, in certain revenue-producing industrial and commercial real properties and numerous parcels of land held for future development as revenue-producing industrial and commercial real properties, together with ancillary deposits, accounts receivable, and rights arising from prepaid expenses;

* "TC3 Property" means any one of the four "TC3 Properties";

* "TC3-Sub" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC;

* "TC3-Subco1" means the taxable Canadian corporation incorporated by TC3, as described in Paragraph 12;

* "TC3-Subco2" means the taxable Canadian corporation incorporated by TC3, as described in Paragraph 12;

* "TC3-Subco3" means the taxable Canadian corporation incorporated by TC3, as described in Paragraph 12;

* "TC3-Subco4" means the taxable Canadian corporation incorporated by TC3, as described in Paragraph 12;

* "TC3-Subco(s)" means TC3-Subco1, TC3-Subco2, TC3-Subco3, and TC4-Subco4, either singularly or collectively;

* "TC4" means XXXXXXXXXX , which is a taxable Canadian corporation and a CCPC;

* "TC4-Sub" means XXXXXXXXXX ., which is a taxable Canadian corporation and a CCPC; and

* "Transferee2-Sub(s)" means TC1-Sub, TC2-Sub, TC3-Sub and TC4-Sub, either singularly or collectively.

Our understanding of the facts, proposed transactions, the purposes of the proposed transactions and additional information, is as follows.

FACTS

Facts Relating to Real Co

1. Real Co is a taxable Canadian corporation and a CCPC incorporated under the BCA.

2. Real Co's issued share capital is comprised of:

• XXXXXXXXXX Common Shares;
• XXXXXXXXXX non-voting Class A Preference Shares; and
• XXXXXXXXXX non-voting Class B Preference Shares.

3. The shareholders of Real Co are:

(a) A Co: XXXXXXXXXX Common Shares having a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX . The Common Shares held by A Co represent XXXXXXXXXX % of the issued and outstanding Common Shares of Real Co.

(b) B Co: XXXXXXXXXX Common Shares having a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX . The Common Shares held by B Co represent XXXXXXXXXX % of the issued and outstanding Common Shares of Real Co.

(c) C Co: XXXXXXXXXX Common Shares having a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX . The Common Shares held by C Co represent XXXXXXXXXX % of the issued and outstanding Common Shares of Real Co.

(d) Numberco: XXXXXXXXXX Class A Preference Shares having an aggregate redemption value of $XXXXXXXXXX , a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX . The Class A Preference Shares held by Numberco represents XXXXXXXXXX % of the issued and outstanding Class A Preference Shares of Real Co.

(e) C Co: XXXXXXXXXX Class B Preference Shares having an aggregate redemption value of $XXXXXXXXXX , a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX . The Class B Preference Shares held by C Co represents XXXXXXXXXX % of the issued and outstanding Class B Preference Shares of Real Co.

Each of A Co, B Co and C Co acquired its Common Shares of Real Co on Butterfly 1.

4. Each of the Real Co Properties is capital property of Real Co.

Facts Relating to TC3

5. TC3 is a taxable Canadian corporation and a CCPC incorporated under the BCA.

6. TC3's issued share capital is comprised of XXXXXXXXXX Common Shares having a total PUC of $XXXXXXXXXX and a total ACB of $XXXXXXXXXX .

7. The sole shareholder of TC3 is Real Co.

8. Each of the TC3 Properties is capital property to TC3. TC3 acquired the TC3 Properties on Butterfly 2.

Additional Facts

9. Each of the corporate taxpayers files its corporate income tax returns at the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office. The taxpayers' address is XXXXXXXXXX . The BN of each corporate taxpayer is as follows:

      A Co					XXXXXXXXXX ;
      B Co					XXXXXXXXXX ;
      C Co					XXXXXXXXXX ;
      XXXXXXXXXX  Co 		XXXXXXXXXX ;
      DC1					XXXXXXXXXX ;
      DC2					XXXXXXXXXX ;
      Numberco				XXXXXXXXXX ;
      Real Co				XXXXXXXXXX ;
      TC1					XXXXXXXXXX ;
      TC1-Sub				XXXXXXXXXX ;
      TC2					XXXXXXXXXX ;
      TC2-Sub				XXXXXXXXXX ;
      TC3					XXXXXXXXXX ;
      TC3-Sub				XXXXXXXXXX ;
      TC4					XXXXXXXXXX ;
      TC4-Sub				XXXXXXXXXX .

RECENTLY COMPLETED TRANSACTIONS

Incorporation of Seven New Subsidiaries of Real Co

10. Real Co incorporated seven new wholly-owned subsidiary corporations under the BCA. Real Co's wholly-owned subsidiary corporations will be referred to as "Real-Subco1" through "Real-Subco7" inclusive, and all such corporations shall be sometimes collectively referred to as the "Real-Subcos" or singularly as a "Real-Subco". Each of the Real-Subcos is a CCPC and a taxable Canadian corporation.

11. The Articles of Incorporation of each of the Real-Subcos provide that such corporation's authorized capital will include an unlimited number of voting, fully participating Common Shares.

On incorporation, Real Co subscribed for at least one Common Share of each of the Real-Subcos for nominal consideration. Prior to the Proposed Transactions described herein, none of the Real-Subcos has acquired any assets, or incurred any liabilities other than the nominal consideration each such corporation received for issuing its Common Shares.

Incorporation of Four New Subsidiaries of TC3

12. TC3 incorporated four new wholly-owned subsidiary corporations under the BCA. TC3's wholly-owned subsidiary corporations will be referred to as "TC3-Subco1" through "TC3-Subco4" inclusive, and all such corporations shall be sometimes collectively referred to as the "TC3-Subcos" or singularly as a "TC3-Subco". Each of the TC3-Subcos is a CCPC and a taxable Canadian corporation.

13. The Articles of Incorporation of each of the TC3-Subcos provide that such corporation's authorized capital will include an unlimited number of voting, fully participating Common Shares.

On incorporation, TC3 subscribed for at least one Common Share of each of the TC3-Subcos for nominal consideration. Prior to the Proposed Transactions described herein, none of the TC3-Subcos has acquired any assets, or incurred any liabilities other than the nominal consideration each such corporation received for issuing its Common Shares.

PROPOSED TRANSACTIONS

Transfer of Certain Real Properties by Real Co to Real-Subcos

14. Real Co will transfer a separate Real Co Property to each of the Real-Subcos.

As consideration for the transfer of each Real Co Property to a particular Real-Subco, the particular Real-Subco will (a) assume the mortgages payable and other liabilities related to the Real Co Property transferred to it (other than the undertakings assumed by the Real-Subco, as described in Paragraph 15 below), (b) assign to Real Co the Real Co Promissory Note receivable by the particular Real-Subco, as described in the Paragraph 15 below, and (c) issue XXXXXXXXXX Common Shares to Real Co.

15. Real Co will make a payment to each Real-Subco, by issuing a demand promissory note (each such promissory note being referred to as a "Real Co Promissory Note") to the particular Real-Subco, in consideration for the Real-Subco assuming undertakings of Real Co, which relate primarily to prepaid monthly rent and tenant contributions to prepaid common area operating costs in respect of the particular Real Co Property, to which paragraph 12(1)(a) applies. For the purposes of paragraph 20(24)(b), each Real-Subco will receive the amount in the course of business. Real Co and each Real-Subco that has assumed any such undertakings in the transactions described in this Paragraph will elect, jointly and in prescribed form and within the time referred to in subsection 20(25), to have the rules in subsection 20(24) apply to Real Co as the payer, and to such Real-Subco as the recipient, in respect of any payment made by Real Co to such Real-Subco in consideration for the assumption by such Real-Subco of those undertakings.

16. In respect of each of the transfers of a Real Co Property described in Paragraph 14, Real Co and the particular Real-Subco will jointly elect, in prescribed form and within the time determined under subsection 85(6), for the provisions of subsection 85(1) to apply to the transfer of the Real Co Property to such Real-Subco provided that such property is an eligible property. In each case, the agreed amount will not exceed the FMV of each such property and it will not be less than the amount permitted under paragraph 85(1)(b).

Specifically, the agreed amount in each joint election will not be less than:

(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of any eligible capital property;

(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) in the case of depreciable property of a prescribed class; and

(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) in the case of property described in paragraph 85(1)(c.1).

The aggregate of the liabilities assumed and the Real Co Promissory Notes assigned as consideration for a particular Real Co Property transferred pursuant to subsection 85(1) will not exceed the agreed amount in respect of that property.

For the purposes of the BCA, each of the Real-Subcos will add to the stated capital maintained for its Common Shares issued to Real Co as consideration for the property transferred to it, as described in Paragraph 14, an amount equal to the amount by which the aggregate cost of the properties acquired by it from Real Co (determined pursuant to subsection 85(1)) exceeds the aggregate amount of the liabilities of Real Co, if any, assumed by the particular Real-Subco and the amount of the Real Co Promissory Note assigned to Real Co as consideration therefor. For greater certainty, the increase to the PUC of the Common Shares so issued by the particular Real-Subco will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

The subsection 85(1) election referred to herein will exclude any cash, accounts receivable and prepaid expenses. Real Co and each of the Real-Subcos to which accounts receivable are transferred in the transactions described in Paragraph 14 will elect, jointly and in prescribed form and within the time referred to in section 22, to have the rules in section 22 apply to the transfer of such accounts receivable.

17. Following the Proposed Transactions described in Paragraphs 14 and 15 above, each Real-Subco's only assets will be the transferred Real Co Property and the nominal consideration the Real-Subco received for issuing its Common Shares, as described in Paragraph 11 above, and the Real-Subco will have the liabilities assumed, as described in Paragraph 14 above.

Transfer of Certain Real Properties by TC3 to TC3-Subcos

18. TC3 will transfer a separate TC3 Property to each of the TC3-Subcos.

As consideration for the transfer of each TC3 Property to a particular TC3-Subco, the particular TC3-Subco will (a) assume the mortgages payable and other liabilities related to the TC3 Property transferred to it (other than the undertakings assumed by the TC3-Subco, as described in Paragraph 19 below), (b) assign to TC3 the TC3 Promissory Note receivable by the particular TC3-Subco, as described in the Paragraph 19 below, and (c) issue XXXXXXXXXX Common Shares to TC3.

19. TC3 will make a payment to each TC3-Subco, by issuing a demand promissory note (each such promissory note being referred to as a "TC3 Promissory Note") to the particular TC3-Subco, in consideration for the TC3-Subco assuming undertakings of TC3, which relate primarily to prepaid monthly rent and tenant contributions to prepaid common area operating costs in respect of the particular TC3 Property, to which paragraph 12(1)(a) applies. For the purposes of paragraph 20(24)(b), each TC3-Subco will receive the amount in the course of business. TC3 and each TC3-Subco that has assumed any such undertakings in the transactions described in this Paragraph will elect, jointly and in prescribed form and within the time referred to in subsection 20(25), to have the rules in subsection 20(24) apply to TC3 as the payer, and to such TC3-Subco as the recipient, in respect of any payment made by TC3 to such TC3-Subco in consideration for the assumption by such TC3-Subco of those undertakings.

20. In respect of each of the transfers of a TC3 Property described in Paragraph 18, TC3 and the particular TC3-Subco will jointly elect, in prescribed form and within the time determined under subsection 85(6), for the provisions of subsection 85(1) to apply to the transfer of the TC3 Property to such TC3-Subco provided that such property is an eligible property. In each case, the agreed amount will not exceed the FMV of each such property and it will not be less than the amount permitted under paragraph 85(1)(b).

Specifically, the agreed amount in each joint election will not be less than:

(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii) in the case of any eligible capital property;

(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii) in the case of depreciable property of a prescribed class; and

(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) in the case of property described in paragraph 85(1)(c.1).

The aggregate of the liabilities assumed and the TC3 Promissory Notes assigned as consideration for a particular TC3 Property transferred pursuant to subsection 85(1) will not exceed the agreed amount in respect of that property.

For the purposes of the BCA, each of the TC3-Subcos will add to the stated capital maintained for its Common Shares issued to TC3 as consideration for the property transferred to it, as described in Paragraph 18, an amount equal to the amount by which the aggregate cost of the properties acquired by it from TC3 (determined pursuant to subsection 85(1)) exceeds the aggregate amount of the liabilities of TC3, if any, assumed by the particular TC3-Subco and the amount of the TC3 Promissory Note assigned to TC3 as consideration therefor. For greater certainty, the increase to the PUC of the Common Shares so issued by the particular TC3-Subco will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

The subsection 85(1) election referred to herein will exclude any cash, accounts receivable and prepaid expenses. TC3 and each of the TC3-Subcos to which accounts receivable are transferred in the transactions described in Paragraph 18 will elect, jointly and in prescribed form and within the time referred to in section 22, to have the rules in section 22 apply to the transfer of such accounts receivable.

21. Following the Proposed Transactions described in Paragraphs 18 and 19 above, each TC3-Subco's only assets will be the transferred TC3 Property and the nominal consideration the TC3-Subco received for issuing its Common Shares, as described in Paragraph 13 above, and the TC3-Subco will have the liabilities assumed, as described in Paragraph 18 above.

Transfer of Common Shares of Each Real-Subco to TC3

22. Real Co will transfer to TC3 all of its Common Shares of each of the Real-Subcos in consideration for Common Shares of TC3.

23. Real Co and TC3 will jointly elect, in prescribed form and within the time determined under subsection 85(6), for the provisions of subsection 85(1) to apply to the transfer described in Paragraph 22 above. The agreed amount in respect of such transfer will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount in respect of such transfer will not exceed the FMV of the shares transferred to TC3.

TC3 will add to the stated capital account maintained for its Common Shares an amount not to exceed the aggregate PUC of the Real-Subco Common Shares issued to Real Co in consideration for the Common Shares of each of the Real-Subcos.

ADDITIONAL INFORMATION

24. The Proposed Transactions will reduce the exposure of Real Co and TC3 to future potential creditors by isolating each of the Real Co Properties and the TC3 Properties into a separate corporation. The taxpayers decided to pursue these Proposed Transactions on or about XXXXXXXXXX , subject to the receipt of a favourable advance income tax ruling. XXXXXXXXXX The isolation of the properties in separate corporations will limit the recourse of a lender to the particular property which has been provided as security and the cash flow therefrom, rather than expose the unencumbered value and cash flow of the pool of assets. The isolation of each Real Co Property and each TC3 Property in a separate corporation, as contemplated by the Proposed Transactions, would have been undertaken regardless of whether Butterfly1 and/or Butterfly 2 were undertaken. Furthermore, each of Butterfly 1 and Butterfly 2 was completed without regard to whether the Proposed Transactions would be undertaken. It is the view of the taxpayers that the Proposed Transactions are not part of the series of transactions or events that includes either Butterfly 1 or Butterfly 2.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions, as set out in Paragraphs 14 to 23 above, is to isolate each Real Co Property and each TC3 Property for asset protection purposes such that potential future liabilities related to a particular property will be limited to that particular property and the cash flow therefrom.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions, additional information and the purpose of the Proposed Transactions, our rulings are set forth below:

A. Subject to the application of subsection 69(11), provided that the appropriate joint elections are filed in the prescribed form and manner within the time specified in subsection 85(6), the provisions of subsection 85(1) will apply to the transfer:

(a) of each Real Co Property by Real Co to a particular Real-Subco, as described in Paragraph 14;

(b) of each TC3 Property by TC3 to a particular TC3-Subco, as described in Paragraph 18; and

(c) of the Common Shares of each of the Real-Subcos to TC3, as described in Paragraph 22;

such that the agreed amount in respect of each transfer will be deemed to be the proceeds of disposition for the particular transferred property to each transferor, and the cost to each transferee for the particular transferred property. For greater certainty, paragraph 85(1)(e.2) will not apply to any of the transfers described above.

B. As a result of the Proposed Transactions, in and of themselves, paragraph 55(3.1)(c) will not apply to the taxable dividends described in Rulings C, C.1 and C.2 of the Original Ruling.

C. As a result of the Proposed Transactions, in and by themselves, any capital property or depreciable property, as the case may be, that is owned by Real Co or TC3 will not cease to be a capital property or depreciable property, as the case may be, to the particular acquirer immediately following such acquisition.

D. By virtue of subsection 1102(14) of the Regulations, each property which is depreciable property of a prescribed class or separate prescribed class of Real Co or TC3, as the case may be, immediately before the transfers described in Paragraphs 14 and 18, and which is acquired by a Real-Subco or a TC3-Subco, as the case may be, on a transfer described in Paragraph 14 or 18, will continue to be depreciable property of the same prescribed class or separate prescribed class, as the case may be, that was formerly held by Real Co or TC3, as the case may be.

E. Provided that the condition specified in paragraph 1100(2.2)(f) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply so that no amount will be included by any of the Real-Subcos or TC3-Subcos under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by a particular Real-Subco from Real Co, on the transfer described in Paragraph 14 above, or by the particular TC3-Subco from TC3, as described in Paragraph 18 above, as the case may be.

F. Provided that each of the Real-Subcos and each of the TC3-Subcos, as the case may be, continues to use the property that is property acquired as a result of a transfer of property described in Paragraph 14 or 18, as the case may be, for the purpose of gaining or producing income therefrom (other than income which is exempt from taxation), and provided that each of the Real-Subcos and each of the TC3-Subcos, as the case may be, has a legal obligation to pay interest in respect of any liabilities (other than any liabilities in respect of which Real Co or TC3, as the case may be, was not entitled to deduct interest under paragraph 20(1)(c)) that are assumed by the particular Real-Subco from Real Co as consideration for such property, as described in Paragraph 14, or by the particular TC3-Subco from TC3 as consideration for such property, as described in Paragraph 18, as the case may be, any such interest paid in the year or payable in respect of the year (depending on the method regularly followed by such corporation in computing its income for the purposes of the Act) by the particular Real-Subco or the particular TC3-Subco, as the case may be, in respect of such liabilities, not in excess of a reasonable amount, will be deductible in computing such corporation's income under paragraph 20(1)(c).

G. By virtue of subsection 20(24), Real Co or TC3, as the case may be, will be entitled to deduct in computing its income for the taxation year in which the transfers described in Paragraph 14 and 18 occur, the payments made by Real Co or TC3 to the Real-Subcos or TC3-Subcos, as the case may be, for assuming the undertakings, to the extent that the payments are reasonable, where the amounts were included under paragraph 12(1)(a) in respect of Real Co or TC3, as the case may be, and are the subject of an election as described in Paragraphs 15 and 19 above, and the payments will be deemed to be an amount described in paragraph 12(1)(a) in respect of the Real-Subcos or TC3-Subcos, as the case may be.

H. The provisions of subsections 15(1), 56(2) and 246(1) will not apply to any of the Proposed Transactions, in and of themselves.

I. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to re-determine 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 the 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 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.

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

(a) the PUC of any share or the ACB or FMV of any property referred to herein; or

(b) 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 include other transactions or events that are not described in this letter.

Yours truly,

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