2009 Ruling 2008-0299721R3 - Supplemental ruling

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: Extension of time and changes to Ruling

Position: Extension granted and Ruling modified

Reasons: Changes do not affect validity of rulings given

XXXXXXXXXX 2008-029972

XXXXXXXXXX , 2009

Dear Sir:

Re: XXXXXXXXXX
Advance Income Tax Ruling 2007-0241221 dated XXXXXXXXXX , 2008

This is in reply to your letter of XXXXXXXXXX requesting certain changes to Advance Income Tax Ruling 2007-0241221 dated XXXXXXXXXX , 2008 (the "Ruling"). We also acknowledge our subsequent telephone conversations concerning your request. Capitalized terms used in this letter have the meanings given to them in the Ruling.

Changes to DEFINITIONS

1. Add the following Paragraphs to the DEFINITIONS section:

(j.1) "GRIP" means general rate income pool, and has the meaning assigned by subsection 89(1);

(x.1) "Pro Rata Grip" means the proportion of DC's GRIP that all the common shares in the capital of DC held by a shareholder, prior to the cashing out steps, is of all the outstanding shares of the capital of DC, prior to the cashing out steps. For greater certainty, the Pro Rata GRIP of each shareholder will be determined prior to the transactions contemplated at Paragraphs 17 to 23 of the Ruling;

2. At Paragraph (q), $XXXXXXXXXX is deleted and replaced with $XXXXXXXXXX .

Changes to FACTS

1. Delete Paragraph 9 of the Ruling and replace with the following:

9. As at XXXXXXXXXX , DC had an RDTOH balance of approximately $XXXXXXXXXX .

At the date hereof, DC has a CDA balance of $XXXXXXXXXX .

As at the date hereof, DC has non-capital loss carry forwards for Federal purposes in the approximate amount of $XXXXXXXXXX . DC also incurred additional non-capital losses but such losses were applied as a reduction of DC's Part IV tax liability. For XXXXXXXXXX purposes, being the only Province where DC has activity, DC has non-capital loss carry-forwards in the approximate amount of $XXXXXXXXXX as at XXXXXXXXXX .

To the best of DC's knowledge, it has no Capital Surplus On Hand.

2. In Paragraph 11(i), all references to 'Mr. A' are changed to 'Mr. A's daughter', and all references to 'him' are changed to 'her'.

3. Delete Paragraph 11(ii).

4. Delete Paragraph 11(iii) and replace with the following:

(iii) The real property used in the XXXXXXXXXX business will be listed for immediate sale.

5. Delete Paragraph 13.2 of the Ruling and replace with the following:

13.2 The parties could not agree to the quantum of the indemnity fund to be held under the terms of the Indemnity Agreement and proceeded to have the matter arbitrated. The arbitrator gave his decision on XXXXXXXXXX . The arbitrator decided that the sum of $XXXXXXXXXX be set aside on account of potential liabilities (herein referred to as the "Indemnity Fund").

The arbitrator also ruled that Mr. A was entitled to a further sum of $XXXXXXXXXX as a retiring allowance, the original calculation having been done in error. The additional retiring allowance has been paid to Mr. A by DC.

6. Delete Paragraph 15 and replace with the following:

15. The transactions described in subparagraphs 11 (i), (iii) and (iv) will be implemented as provided for in the Settlement Agreement except that the properties of DC to be acquired by Mr. A's daughter, as described in paragraph 11(i) above, will be acquired by her personally and not by a corporation which she controls. After the acquisition of the properties of DC described in paragraph 11(i) above, Mr. A's daughter will transfer such assets to a corporation wholly owned by her at their respective fair market values.

In the event that any of the assets described in 11(iii) and 11(iv) have not been sold by DC on the date the Proposed Transactions are implemented, DC will cause the incorporation of a corporation under the BCA ("DC Subco"). The directors of DC Subco will be the same as are currently the directors of DC. DC Subco will be a taxable Canadian corporation and a private corporation. The authorized share capital of DC Subco will consist of an unlimited number of common shares. DC will subscribe for XXXXXXXXXX common shares of DC Subco for consideration in the amount of $XXXXXXXXXX per share. DC will transfer to DC Subco the assets used by XXXXXXXXXX , and any of the assets described in 11(iii) and 11(iv) that have not been sold by DC on the date the Proposed Transactions are implemented, at their fair market value for consideration consisting of XXXXXXXXXX common shares and a non-interest-bearing promissory note (the "DC Subco Promissory Note") having a principal amount equal to the fair market value of the assets transferred to DC Subco less the sum of $XXXXXXXXXX . It is anticipated that the principal amount of the DC Subco Promissory Note, if none of the real properties are sold, will be less than $XXXXXXXXXX , being less than XXXXXXXXXX % of the value of DC's assets. The DC Subco common shares and the DC Subco Promissory Note will be considered as cash for all purposes hereof and will be distributed to the parties as cash in the implementation of the transactions described herein. For greater certainty, if the transactions described herein are implemented, each shareholder of DC participating in the transactions described in paragraphs 17 to 23 will receive that proportion of the DC Subco common shares and the DC Subco Promissory Note that the particular shareholder's shares of DC purchased under paragraphs 17 to 23 is of all the outstanding DC shares and each transferee corporation described herein will similarly receive its proportion of the DC Subco common shares and the DC Subco Promissory Note. As required, the DC Subco Promissory Note may be used, in whole or in part, to pay the capital dividend described in paragraph 14 and in such event, the DC Subco Promissory Note would be distributed to each shareholder of DC in the proportion described herein.

The retiring allowances described in paragraph 11(v) and 13.2 have been paid.

Changes to PROPOSED TRANSACTIONS

1. Delete Paragraph 17 of the Ruling and replace with the following:

17. At Mr. H's option, Mr. H shall give a Cash Call notice in writing to DC specifying the portion of his share equity interest to be received as a dividend, which, in any event, shall not exceed 99.99%. (Mr. H will give a Cash Call notice in an amount no less than the full amount of the Mr. H Shareholder Loan.)

If a Cash Call is made, Mr. H and DC will enter into an agreement (the "Mr. H Dividend Agreement") under which:

(i) DC and Mr. H will agree that DC will dispose of that number of XXXXXXXXXX Shares held by it as is equal to the Cash Call Proportion; and

(ii) DC will agree to pay the Cash Call dividend to Mr. H. The dividend will be comprised of two dividends, the first dividend being in respect of the addition to DC's CDA arising as a result of the disposition of XXXXXXXXXX Shares and the second in respect of the remaining value of Mr. H's interest.

The Mr. H Dividend Agreement will be dated on the day which is approximately XXXXXXXXXX business days preceding the transactions described below as the FIRST BUTTERFLY and such XXXXXXXXXX Shares will be sold on such day. As provided for under the terms of the Mr. H Dividend Agreement, DC will forthwith direct its agent to sell the required number of XXXXXXXXXX Shares through the facilities of the XXXXXXXXXX . The dividends contemplated under the Mr. H Dividend Agreement will be paid on the day immediately preceding the transactions described below as the FIRST BUTTERFLY, being the day on which the cash to be received from the sale of XXXXXXXXXX Shares contemplated hereunder will be received by DC.

The Cash Call dividend will be paid in three steps.

Under the first step, DC will declare a dividend in respect of the common shares in its capital outstanding at that particular time equal to the addition to DC's CDA as a result of the disposition by DC of XXXXXXXXXX Shares in order to meet the Cash Call. The dividend will be payable, as described below, forthwith upon DC filing the election described immediately hereafter. DC will file an election in respect of the full amount of the dividend in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or by fax.

Under the second step, DC will declare an eligible dividend in respect of the common shares in its capital outstanding at that particular time equal to the particular shareholder's Pro Rata GRIP, to the greatest extent possible, taking into account the corporate law requirement that dividends be paid equally to holders of the same class of shares in respect of which the dividend is declared. For greater certainty, a shareholder that is partially cashing-out shall receive an eligible dividend pursuant to this second step which may be greater than the shareholder's Cash Call Proportion of GRIP but not in excess of the shareholder's Pro Rata GRIP. In such event, the eligible dividend paid to the shareholder's Transferee Corporation, as described in Paragraphs 102 to 108 below, will be less than the Transferee Corporation's otherwise determined share of GRIP, provided that the aggregate of the eligible dividends to be paid to the cashing out shareholder and his or her Transferee Corporation will not exceed the shareholder's Pro Rata GRIP. In other words, the payment of eligible dividends will be skewed in favour of the cashing out dividends.

The directors of DC will designate the dividend described above under this second step to be an eligible dividend in the manner contemplated at subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipient.

Under the third step, DC will declare a dividend in respect of the common shares in its capital outstanding at that particular time equal to the remaining portion of the Cash Call dividend to be paid to Mr. H under the terms of the Mr. H Dividend Agreement.

The Cash Call dividend to be paid by DC for purposes of this paragraph 17 will be equal to the aggregate of:

(i) that portion of DC's cash on hand as determined under paragraph16(a), investment property, other than XXXXXXXXXX Shares, if any, as determined under paragraph 16(b) and business property, as determined under paragraph 16(c) as is equal to the Cash Call Proportion;

(ii) the net of tax amount received by DC in respect of the disposition of XXXXXXXXXX Shares in order to meet the Cash Call as is equal to the Cash Call Proportion;

(iii) the addition to DC's RDTOH arising as a result of the disposition of the XXXXXXXXXX Shares in order to meet the Cash Call; and

(iv) the Cash Call Proportion of DC's RDTOH prior to the sale of any XXXXXXXXXX Shares to satisfy the Cash Call.

The dividends so determined shall be paid

(v) in part by offsetting and cancelling any unpaid portion of the Mr. H Shareholder Loan,

(vi) in cash; and

(vii) by a non-interest-bearing promissory note, having a principal amount equal to the balance of the dividend payable to Mr. H under the Mr. H Dividend Agreement (the "Mr. H Note").

The terms of the Mr. H Note shall provide that the principal amount thereof shall be paid upon DC having the cash required to do so either from receiving a refund of RDTOH or otherwise.

After payment of the above dividend the common shares in the capital of DC held by Mr. H will have nominal value.

For the avoidance of doubt, if Mr. H wishes to cash out that proportion of his share equity which represents XXXXXXXXXX % of all the share equity of DC (i.e. the Cash Call Proportion), the consideration to be paid to Mr. H under the Mr. H Dividend Agreement will be equal to the aggregate of (i) the after tax proceeds received by DC on the disposition of XXXXXXXXXX % of DC's XXXXXXXXXX Shares (in calculating the tax liability arising on the disposition of such XXXXXXXXXX Shares, Mr. H shall be entitled to the benefit of the Cash Call Proportion of any capital or non-capital losses available to DC and in particular the XXXXXXXXXX loss carry forwards described in paragraph 9), (ii) the addition to DC's RDTOH arising as a result of the disposition of such XXXXXXXXXX Shares, (iii) XXXXXXXXXX % of the RDTOH prior to the disposition of XXXXXXXXXX Shares to satisfy the Cash Call and (iv) XXXXXXXXXX % of DC's other assets, less (v) XXXXXXXXXX % of DC's liabilities (other than the tax liabilities contemplated in (i) above).

It will be a condition of the Mr. H Dividend Agreement that the Cash Call Proportion of the contingent liabilities of DC as described in sub-paragraph 11(vii) be secured through the Indemnity Fund. The Indemnity Fund will be held in the form of cash and/or an irrevocable letter of credit. Mr. H will be required to contribute to the Indemnity Fund that portion of the Indemnity Fund as is equal to the Cash Call Proportion.

2. Delete Paragraph 38 of the Ruling and replace with the following:

38. In respect of the transfers described in paragraphs 35 above, DC and Subco A will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC to Subco A as described in paragraph 35 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:

(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (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 of any liabilities assumed by Subco A as consideration for the transfer of such property. In the event that capital or non-capital losses remain in DC after the transactions described in paragraphs 17 to 23 above and immediately before the transfers described in this Paragraph, the agreed amount may exceed the adjusted cost base of the respective property by an amount necessary to create a capital gain on the transfer that does not exceed Mr. A's pro rata share of the capital and non-capital losses remaining in DC immediately before the transfer (such amount hereinafter referred to as the "Subco A Excess Agreed Amount").

3. Delete Paragraph 39 of the Ruling and replace with the following:

39. In respect of the transfers described in paragraphs 36 above, DC and Transferee Z will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each property transferred by DC to Transferee Z, as described in paragraph 36 above that is an eligible property the fair market value of which at the time of the transfer exceeds or may exceed the cost amount thereof to DC. The agreed amount in each such election in respect of a particular eligible property so transferred will not be less than:

(a) in the case of capital property, an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (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 of any liabilities assumed by Transferee Z as consideration for the transfer of such property. In the event that capital or non-capital losses remain in DC after the transactions described in paragraphs 17 to 23 above and immediately before the transfers described in this Paragraph, the agreed amount may exceed the adjusted cost base of the respective property by an amount necessary to create a capital gain on the transfer that does not exceed the total of all shareholders of Transferee Z's pro rata share of the capital and non-capital losses remaining in DC immediately before the transfer (such amount hereinafter referred to as the "Transferee Z Excess Agreed Amount"). Any CDA arising from the Transferee Z Excess Agreed Amount shall be allocated to the shareholders of Transferee Z based on their pro rata share of the capital and non-capital losses of DC comprising the Transferee Z Excess Agreed Amount (such amount hereinafter referred to as "Excess Agreed Amount CDA").

4. Add the following Paragraph following Paragraph 42:

42.1. DC will cause a year-end to occur through a request to change its fiscal period addressed to its Tax Services Office. In the event that such request is not granted or proves to be too difficult to co-ordinate, DC will cause a year-end to occur by virtue of an amalgamation.

The amalgamation steps, if necessary, will be as follows:

(i) DC will cause a corporation to be incorporated under the BCA ("DC Subco 2"). The share capital of DC Subco 2 will be comprised of common shares. The directors of DC Subco 2 will be the same directors as the directors of DC;

(ii) Upon incorporation of DC Subco 2, DC will subscribe for XXXXXXXXXX common shares in the capital of DC Subco 2 for consideration in the amount of $XXXXXXXXXX ;

(iii) DC Subco 2 will be amalgamated with its parent, DC, by way of a short form amalgamation under the terms of the BCA. As a consequence of the amalgamation, all the assets and liabilities of DC and DC Subco 2 will become assets and liabilities of new DC and all the shares of the capital stock of DC Subco 2 will be cancelled. No shares of the capital stock of new DC will be issued such that the issued and outstanding shares of the capital stock of DC will become the shares of the capital stock of new DC.

(iv) After the amalgamation, new DC will continue to hold all of the shares in DC Subco.

(v) The Articles of Amalgamation will be filed as required and be stamped as of the day of the required year-end.

5. Delete Paragraph 43 of the Ruling and replace with the following:

43. After the transaction described in paragraph 44 below has been completed, DC will purchase for cancellation all of the DC common shares and Freeze Shares in its capital stock owned by Transferee Z for fair market value consideration. To the extent that DC has on hand Pre-Transaction CDA, and to the extent that any CDA was created as the result of any Transferee Z Excess Agreed Amounts under Paragraph 39, the purchase for cancellation of DC's common shares will be accomplished in three steps. Under the first step, DC will purchase for cancellation that number of DC common shares held by Transferee Z as have a value equal to the proportion, as determined under paragraph 36, of the Pre-Transaction CDA, plus any CDA created as a result of any Transferee Z Excess Agreed Amounts under Paragraph 39. DC will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax. Under the second step, DC will purchase for cancellation that number of DC common shares held by Transferee Z that will give rise to a deemed dividend to Transferee Z that will be equal to the remaining GRIP. The directors of DC will designate the dividends described above under this second step to be eligible dividends in the manner contemplated at subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipient. Under the third step, all remaining DC common shares and Freeze Shares will be purchased for cancellation.

DC will pay the purchase price for such shares by issuing to Transferee Z a demand promissory note, or notes, as the case may be, (the "DC Note Z") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee Z will accept the DC Note Z in full payment of the purchase price of the common shares.

6. Delete Paragraph 44 of the Ruling and replace with the following:

44. DC will purchase for cancellation all of the DC common shares of its capital stock owned by Transferee A for fair market value consideration. To the extent that DC has on hand Pre-Transaction CDA, and to the extent that additional CDA was created in DC as a result of any Subco A Excess Agreed Amounts as described in Paragraph 38, the purchase for cancellation of DC's common shares will be accomplished in three steps. Under the first step, DC will purchase for cancellation that number of DC common shares held by Transferee A as have a value equal to the proportion, as determined under paragraph 35, of the Pre-Transaction CDA, plus any CDA created as a result of any Subco A Excess Agreed Amounts under Paragraph 38. DC will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax. Under the second step, DC will purchase for cancellation that number of DC common shares held by Transferee A that will give rise to a deemed dividend to Transferee A that will be equal to Transferee A's Pro Rata GRIP. The directors of DC will designate the dividends described above under this second step to be eligible dividends in the manner contemplated at subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipient. Under the third step, all remaining DC common shares will be purchased for cancellation.

DC will pay the purchase price for such shares by issuing to Transferee A a demand promissory note, or notes, as the case may be, (the "DC Note A") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee A will accept the DC Note Z in full payment of the purchase price of the common shares.

7. Delete Paragraphs 102 to 108 of the Ruling and replace with the following:

102. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee G for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee G as have a value equal to the proportion, as determined under paragraph 73, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee G. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee G that will give rise to a deemed dividend to Transferee G that will be equal to Mr. G's Pro Rata GRIP, less the portion thereof, if any, paid to Mr. G pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee G will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee G a demand promissory note, or notes, as the case may be, (the "DC2 Note G") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee G will accept the DC2 Note G in full payment of the purchase price of the common shares and Class C Shares, if any.

103. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee H for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee H as have a value equal to the proportion, as determined under paragraph 74, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee H. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee H that will give rise to a deemed dividend to Transferee H that will be equal to Mr. H's Pro Rata GRIP, less the portion thereof, if any, paid to Mr. H pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee H will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee H a demand promissory note, or notes, as the case may be, (the "DC2 Note H") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee H will accept the DC2 Note H in full payment of the purchase price of the common shares and Class C Shares, if any.

104. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee I for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee I as have a value equal to the proportion, as determined under paragraph 75, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee I. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee I that will give rise to a deemed dividend to Transferee I that will be equal to Mrs. I's Pro Rata GRIP, less the portion thereof, if any, paid to Mrs. I pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee I will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee I a demand promissory note, or notes, as the case may be, (the "DC2 Note I") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee I will accept the DC2 Note I in full payment of the purchase price of the common shares and Class C Shares, if any.

105. DC2 will purchase for cancellation all of common shares and Class C Shares, if any, of its capital stock owned by Transferee J for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee J as have a value equal to the proportion, as determined under paragraph 76, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee J. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee J that will give rise to a deemed dividend to Transferee J that will be equal to Mr. J's Pro Rata GRIP, less the portion thereof, if any, paid to Mr. J pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee J will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee J a demand promissory note, or notes, as the case may be, (the "DC2 Note J") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee J will accept the DC2 Note J in full payment of the purchase price of the common shares and Class C Shares, if any.

106. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee K for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 and common shares held by Transferee K as have a value equal to the proportion, as determined under paragraph 77, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee K. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee K that will give rise to a deemed dividend to Transferee K that will be equal to Ms. K's Pro Rata GRIP, less the portion thereof, if any, paid to Ms. K pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee K will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee K a demand promissory note, or notes, as the case may be, (the "DC2 Note K") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee K will accept the DC2 Note K in full payment of the purchase price of the common shares and Class C Shares, if any.

107. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee L for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 common shares held by Transferee L as have a value equal to the proportion, as determined under paragraph 78, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee L. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee L that will give rise to a deemed dividend to Transferee L that will be equal to Mr. L's Pro Rata GRIP, less the portion thereof, if any, paid to Mr. L pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee L will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee L a demand promissory note, or notes, as the case may be, (the "DC2 Note L") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee L will accept the DC2 Note L in full payment of the purchase price of the common shares and Class C Shares, if any.

108. DC2 will purchase for cancellation all of the common shares and Class C Shares, if any, of its capital stock owned by Transferee M for fair market value consideration. To the extent that DC2 has on hand Pre-Transaction CDA or Excess Agreed Amount CDA the purchase for cancellation of DC2's shares will be accomplished in three steps.

Under the first step, DC2 will purchase for cancellation that number of DC2 and common shares held by Transferee M as have a value equal to the proportion, as determined under paragraph 79, of the Pre-Transaction CDA, and any Excess Agreed Amount CDA allocable to Transferee M. DC2 will file an election in respect of the full amount of such dividend, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations. The election will be filed by registered mail or by fax and will provide that the dividend will be payable immediately after the time of filing of the prescribed form by registered mail or fax.

Under the second step, DC2 will purchase for cancellation that number of shares of DC2 held by Transferee M that will give rise to a deemed dividend to Transferee M that will be equal to Mrs. M's Pro Rata GRIP, less the portion thereof, if any, paid to Mrs. M pursuant to Paragraphs 17 to 23 above. The directors of DC2 will designate the dividends described above under this second step to be eligible dividends in the manner contemplated in subsection 89(14) of the Act, including the giving of notice thereof by letter addressed to the dividend recipients.

Under the third step, all remaining DC2 shares held by Transferee M will be purchased for cancellation.

DC2 will pay the purchase price for such shares by issuing to Transferee M a demand promissory note, or notes, as the case may be, (the "DC2 Note M") having a principal amount and fair market value equal to the aggregate fair market value of the shares so purchased. Transferee M will accept the DC2 Note M in full payment of the purchase price of the common shares and Class C Shares, if any.

Changes to ADDITIONAL INFORMATION

1. Add the following Paragraph to the ADDITIONAL INFORMATION section:

132. At no time will DC or DC2 file an election pursuant to subsection 89(11) of the Act.

Changes to PURPOSE OF PROPOSED TRANSACTIONS

1. Delete the following sentence:

It is anticipated that XXXXXXXXXX of the non-specified shareholders will make Cash Calls in respect of their entire interest in DC (other than a nominal amount).

Changes to RULINGS

1. Add the following rulings:

W. Subsection 87(1) of the Act will apply to the amalgamation of DC and DC Subco 2 described in Paragraph 42.1 of the Ruling.

Confirmation

Notwithstanding the above changes, we confirm that the rulings given in the Ruling, as modified by this letter, will continue to be binding on the Canada Revenue Agency subject to the same limitations and qualifications set out therein, except that the Ruling will continue to be binding on the Canada Revenue Agency provided that the Proposed Transactions set out in the Ruling are completed by XXXXXXXXXX .

Yours truly,

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