2016 Ruling 2016-0650571R3 - Butterfly Reorganization

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 the proposed transactions qualify for the butterfly exemption found in paragraph 55(3)(b).

Position: Yes.

Reasons: See below.

XXXXXXXXXX						2016-065057

XXXXXXXXXX, 2016

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your request for an advance income tax ruling (“Ruling Request”). We also acknowledge the additional information provided in your letters and in various email correspondence, as well as information provided during our telephone conversations (XXXXXXXXXX).

PRELIMINARY MATTERS

To the best of your knowledge and that of the Taxpayers involved, none of the issues involved in this Ruling Request is:

(a) dealt with in a previously filed return of the Taxpayers or a related person;

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of a Taxpayer or a related person;

(c) under objection by one or any of a Taxpayer or a related person;

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

(e) the subject of a ruling previously considered by the Income Tax Rulings Directorate except to the extent that some of the issues and transactions are similar to ones in XXXXXXXXXX.

Unless otherwise stated, all references herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, (the “Act”) as amended, or the Income Tax Regulations, C.R.C., c. 945, as appropriate and all references to monetary amounts are in Canadian dollars.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms or expressions have the meanings ascribed to them below:

“A” means XXXXXXXXXX, the niece of Sibling 1 and Sibling 2;

“ACB” means “adjusted cost base” as that expression is defined in section 54 and subsection 248(1);

XXXXXXXXXX

“adjusted cost basis” has the meaning assigned by subsection 148(9);

“agreed amount” means the amount agreed on by the transferor and the transferee in respect of an eligible property in an election filed pursuant to subsection 85(1);

“arm’s length” has the meaning assigned by subsection 251(1);

“Bank Loan” means the interest-bearing, payable on demand revolving credit facility with XXXXXXXXXX;

“CCPC” means “Canadian-controlled private corporation” as that expression is defined in subsection 125(7);

“capital dividend” means a dividend to which subsection 83(2) applies;

“CDA” means “capital dividend account” as that expression is defined in subsection 89(1);

“Common Share” means the new class of common shares authorized by DC as part of the Proposed Transactions;

“DC” means XXXXXXXXXX, a corporation governed by XXXXXXXXXX;

“DC Note” means the note issued by DC to TC;

“distribution” has the meaning assigned by subsection 55(1);

“dividend refund” has the meaning assigned by subsection 129(1);

“dividend rental arrangement” has the meaning assigned by subsection 248(1);

“eligible property” has the meaning assigned by subsection 85(1.1);

“Existing Note” means the interest-bearing promissory note issued by DC in XXXXXXXXXX due to A;

“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;

“forgiven amount” has the meaning assigned by subsection 80(1) and 80.01(1);

“GRIP” means “general rate income pool” as that expression is defined in subsection 89(1);

“Holdco” means XXXXXXXXXX, a taxable Canadian corporation governed by XXXXXXXXXX;

“Holdco Preferred Shares” means the non-voting preferred shares of Holdco held by DC;

“Marketable Securities” means the portfolio comprising primarily of publicly traded securities;

“Newco” means the holding corporation incorporated by TC under XXXXXXXXXX;

“Newco B Shares” means the non-voting, non-participating, redeemable Class B Preferred Shares of Newco;

“Newco Note” means the note issued by Newco to DC;

“Opco” means XXXXXXXXXX;

“PUC” means “paid-up capital” as that expression is defined in subsection 89(1);

“Paragraph” refers to a numbered paragraph in this advance income tax ruling request;

“Policies” means XXXXXXXXXX life insurance policies, XXXXXXXXXX;

“private corporation” has the meaning assigned by subsection 89(1);

“POD” means “proceeds of disposition” as that expression is defined in section 54;

“Proposed Transactions” means the proposed transactions described in the Proposed Transactions section of this letter;

“RDTOH” means “refundable dividend tax on hand” as that expression is defined in subsection 129(3);

“related person” has the meaning assigned by section 251;

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

“Share Purchase Agreement” means the agreement between XXXXXXXXXX (a corporation controlled by A) and DC dated XXXXXXXXXX governing the redemption of XXXXXXXXXX Class B Shares of DC for a combination of cash and the Existing Note;

“Sib1ACo” means XXXXXXXXXX, a corporation governed by XXXXXXXXXX;

“Sib1BCo” means XXXXXXXXXX, a corporation governed by XXXXXXXXXX;

“Sibling 1” means XXXXXXXXXX;

“Sibling 2” means XXXXXXXXXX;

“significant influence” has the meaning assigned by section 3051.05 of the Accounting Standards for Private Enterprises;

“specified investment business” has the meaning assigned by subsection 125(7);

“stated capital” means the amount of capital determined in respect of a class or series of shares in accordance with XXXXXXXXXX;

“taxable Canadian corporation” has the meaning assigned by subsection 89(1);

“taxable dividend” has the meaning assigned by subsection 89(1); and

“TC” means XXXXXXXXXX, a corporation governed by XXXXXXXXXX.

FACTS

1. Sibling 1 and Sibling 2 are adult sisters and residents of Canada for purposes of the Act.

2. Sib1ACo is a CCPC and a taxable Canadian corporation. Sib1ACo is an investment holding corporation whose main asset is shares of DC. Sib1ACo's address is XXXXXXXXXX. The taxation year-end of Sib1ACo is XXXXXXXXXX. Sib1ACo deals with the XXXXXXXXXX Tax Services Office and files its corporate income tax returns at the XXXXXXXXXX Taxation Centre. Sib1ACo's BN is XXXXXXXXXX.

3. Sib1BCo is a CCPC and a taxable Canadian corporation. Sib1BCo is an investment holding corporation whose main asset is shares of DC. Sib1BCo's address is XXXXXXXXXX. The taxation year-end of Sib1BCo is XXXXXXXXXX. Sib1BCo deals with the XXXXXXXXXX Tax Services Office and files its corporate income tax returns at the XXXXXXXXXX Taxation Centre. Sib1BCo's BN is XXXXXXXXXX.

4. Sib1ACo is controlled by Sibling 1 through her ownership of voting preferred shares. The other shareholders of Sib1ACo are XXXXXXXXXX. There have been a number of changes to the shareholding of Sib1ACo since its incorporation, with the most recent changes occurring in XXXXXXXXXX. However, most of the transfers of shares of Sib1ACo were received by related parties and in any event, none of them form part of the same series of transactions or events that include the Proposed Transactions.

5. Sib1BCo is controlled by Sibling 1 through her ownership of XXXXXXXXXX% of the common shares of Sib1BCo. There has been no change to the shareholding of Sib1BCo since XXXXXXXXXX.

6. TC is a CCPC and a taxable Canadian corporation. TC is an investment holding corporation whose assets include shares of DC. TC's address is XXXXXXXXXX. The taxation year-end of TC is XXXXXXXXXX.

7. TC is controlled by Sibling 2 through her ownership of special voting shares, being the only voting shares. Sibling 2 also owns non-voting shares of TC. The remaining shares of TC, all of which are non-voting, are owned by a corporation controlled by Sibling 2 and XXXXXXXXXX. There has been no change to the shareholding of TC described above since XXXXXXXXXX other than several redemptions of the non-voting shares by Sibling 2 in XXXXXXXXXX.

8. DC is a CCPC and a taxable Canadian corporation. DC's address is XXXXXXXXXX. The taxation year-end of DC is XXXXXXXXXX.

9. The authorized capital of DC consists of:

(a) an unlimited number of Class A Shares;

(b) an unlimited number of Class B Shares; and

(c) an unlimited number of Class C Shares.

The Class A, B and C Shares entitle their holders to one vote per share and are otherwise equal in all respects except that (i) any one class of shares may receive a dividend to the exclusion of the other classes and (ii) in the event of a liquidation, dissolution, or wind-up of DC, the Class A Shares are entitled to receive a distribution of $XXXXXXXXXX in the aggregate prior to any distributions to the holders of Class B or Class C Shares, and the Class B Shares are entitled to receive a distribution of $XXXXXXXXXX in the aggregate prior to any distribution to the holders of the Class C Shares, with any further distributions being shared on a pro rata basis.

10. Currently there are XXXXXXXXXX Class A Shares, XXXXXXXXXX Class B Shares and XXXXXXXXXX Class C Shares of DC issued and outstanding. These shares are held as follows:

Shareholder	Class A Shares	Class B Shares	Class C Shares	Voting
	(Voting)		(Voting)		(Voting)		Percentage

Sib1ACo							XXXX			XXXX%
Sib1BCo				XXXX						XXXX%
TC		XXXX									XXXX%

DC does not exert significant influence over any corporation. There has been no change to the shareholding of DC described above since XXXXXXXXXX.

11. The main assets of DC immediately before the transfer described in Paragraph 27 will be as follows:

(a) cash and cash equivalents, dividend and interest receivables, prepaid expenses and income taxes recoverable;

(b) the Marketable Securities; and

(c) the Policies.

12. The main liabilities of DC immediately before transfer described in Paragraph 27 will be as follows:

(a) interest and accounts payable;

(b) the Bank Loan; and

(c) income taxes payable.

13. [Reserved]

Redemption of the Holdco Preferred Shares

14. On XXXXXXXXXX, Holdco redeemed XXXXXXXXXX Holdco Preferred Shares held by DC. DC received cash from Holdco in satisfaction of the redemption amount of the XXXXXXXXXX Holdco Preferred Shares.

15. On XXXXXXXXXX, Holdco redeemed all of the remaining outstanding Holdco Preferred Shares held by DC. DC received cash in an amount of $XXXXXXXXXX from Holdco in satisfaction of the redemption amount of the Holdco Preferred Shares. At the time of redemption, Holdco also paid to DC $XXXXXXXXXX in respect of accrued dividends.

16. [Reserved]

Repayment of Existing Note

17. DC made the following repayments in XXXXXXXXXX in respect of the Existing Note before XXXXXXXXXX:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX; and

(c) XXXXXXXXXX.

18. On XXXXXXXXXX, DC paid interest on the Existing Note in the amount of $XXXXXXXXXX.

19. On XXXXXXXXXX, DC repaid an amount of $XXXXXXXXXX (together with accrued interest of $XXXXXXXXXX) in respect of the Existing Note, which represented the outstanding balance on the Existing Note. Upon receipt of this payment, the Existing Note was repaid in full and discharged.

Repayment of Bank Loan

20. On XXXXXXXXXX, DC repaid an amount of $XXXXXXXXXX in respect of the Bank Loan.

Payment of Dividends by DC

21. On XXXXXXXXXX, DC paid taxable dividends in the amounts of $XXXXXXXXXX, $XXXXXXXXXX and $XXXXXXXXXX on its Class A, Class B and Class C shares respectively.

22. On XXXXXXXXXX, DC paid capital dividends in the amounts of $XXXXXXXXXX, $XXXXXXXXXX and $XXXXXXXXXX on its Class A, Class B and Class C Shares respectively.

22.1 As of XXXXXXXXXX, DC had a CDA balance of $XXXXXXXXXX, a GRIP balance of $XXXXXXXXXX and a XXXXXXXXXX balance for RDTOH. As of XXXXXXXXXX, the balance of TC’s RDTOH account was $XXXXXXXXXX.

PROPOSED TRANSACTIONS

23. TC will incorporate Newco. The authorized share capital of Newco will comprise an unlimited number of common shares and XXXXXXXXXX Newco B Shares. Upon incorporation, Newco will issue 1 common share to TC.

24. Each Class A Share, Class B share and Class C Share issued by DC has an equal FMV. DC will reorganize its authorized and issued share capital. An unlimited number of Common Shares will be authorized. Each issued and outstanding Class A Share, Class B share and Class C Share of DC will be respectively exchanged for one (1) Common Share having an equal FMV.

25. Immediately before the transfer of property described in Paragraph 27, the property owned by DC will be classified into the following three types of property:

(a) “cash or near-cash” property, comprising all of the current assets of DC, including cash, cash equivalents, the cash surrender value of the Policies, dividend, interest receivables and prepaid expenses;

(b) investment property, comprising all of the assets of DC, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from property or from a specified investment business (including the excess of the FMV of the Policies over their cash surrender value); and

(c) business property, comprising all of the assets, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from a business (other than a specified investment business).

For greater certainty, for purposes of the transactions described herein:

(d) tax accounts and other tax related amounts, such as the balance of non-capital losses, net capital losses, CDA, GRIP and RDTOH will not be considered property;

(e) advances that are payable on demand or that are due within the next 12 months will be considered cash or near-cash property;

(f) no amount will be considered a liability unless it represents a true legal liability which is capable of quantification;

(g) the amount of any deferred tax will not be considered to be a property or a liability, as the case may be; and

(h) any amount in respect of refunds of taxes, and interest thereon, actually receivable will be treated as cash or near-cash property and any potential refunds of taxes and interest thereon will, due to their contingent nature, be ignored.

26. The aggregate net FMV of each type of property of DC will be determined as follows:

(a) current liabilities of DC, which include any amount outstanding in respect of the Bank Loan, will reduce the aggregate net FMV of its cash or near-cash property in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property owned by DC, to the extent that the amount of current liabilities so allocated will not exceed the aggregate FMV of all cash or near-cash property of DC;

(b) its accounts receivable, trade receivables, inventories and prepaid expenses will be reclassified as business property (and not cash or near cash property) to the extent that they will be collected, sold or used in the ordinary course of the business to which such property relates and that the aggregate FMV of the remaining cash or near-cash properties does not become negative;

(c) a liability, other than a current liability, that relates to a particular property will reduce the FMV of the particular property (and effectively the aggregate FMV of the types of properties to which the property belongs) to the extent of its FMV;

(d) liabilities, other than current liabilities, that relate to a particular type of property, but not a particular property, will be allocated to that type of property to the extent of the FMV;

(e) any remaining liabilities will then be allocated among all types of property in the proportion that the remaining net FMV of each type of property is of the aggregate FMV of all types of property, determined after the allocation of liabilities in (a) to (d) above; and

(f) any amount of taxes payable pursuant to an assessment or reassessment (whether a notice of objection has been served under subsection 165(1) in respect of such assessments or reassessments or not) and any amount of taxes that is the subject of a proposed assessment (to the extent that any such amount is accrued as a liability) will be classified as a current liability and will, to the extent that any objection in respect of such unpaid taxes has not been resolved, be deducted from the net FMV of the cash or near cash property.

Based on the type of property classifications, it is anticipated that DC will not have any business type of property at the time of the transfers described in Paragraph 27.

27. DC will transfer to Newco ownership and complete beneficial interest of property such that the proportion of the net FMV of each type of property transferred immediately after such transfer over the net FMV of each type of property immediately before the transfer which will be equal to or will approximate that proportion that:

(a) the aggregate FMV, immediately before the transfer of property, of the Common Shares of DC owned by TC;

is of

(b) the aggregate FMV, immediately before the transfers of property, of all the issued and outstanding Common Shares of DC at that time.

For the purposes of this paragraph, the expression "approximate that proportion" means that the discrepancy of that proportion, if any, will not exceed one percent (1%), determined as a percentage of the net FMV of each type of property that Newco has received compared to what it would have received had it received TC’s appropriate pro rata share of DC's property.

Subject to the above, the transfer will include the XXXXXXXXXX Policies on the life of Sibling 2.

28. As consideration for the property received by Newco from DC, Newco will:

(a) assume 50% of the liabilities of DC allocated to each type of property owned by DC, and

(b) issue XXXXXXXXXX Newco B Shares to DC with an aggregate redemption value equal to the amount by which the aggregate FMV of the property transferred exceeds the liabilities assumed and an aggregate paid-up capital of $XXXXXXXXXX (Newco will add the amount of $XXXXXXXXXX to the stated capital account maintained for the Newco B Shares).

29. DC and Newco will jointly elect in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer described in Paragraph 27 of each property that is an eligible property received by Newco from DC (other than any Marketable Security which has a FMV that is less than its ACB). In each case, the agreed amount will neither exceed the FMV of the respective property nor be less than the amount permitted under paragraph 85(1)(b) and the amount of liabilities assumed as consideration for the property will not exceed the FMV of any such property. For greater certainty, the agreed amount in respect of each such transferred property (being capital property other than depreciable property) will be an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

Where a Marketable Security to be transferred to Newco as described in Paragraph 27 has a FMV that is less than its ACB, as consideration for such security, Newco will not assume an amount of DC's liabilities in excess of the FMV of that particular security and no election under subsection 85(1) will be made in respect of such security.

30. Immediately following the transfers of property described in Paragraph 27, Newco will purchase for cancellation all of its outstanding Newco B Shares for an amount equal to the aggregate redemption amount of such Newco B Shares. As consideration therefor, Newco will issue the Newco Note having a principal amount equal to the aggregate redemption amount of the Newco B Shares so purchased for cancellation by Newco. DC will accept the Newco Note as full payment for the aggregate redemption amount of the Newco B Shares so purchased for cancellation.

31. Following the purchase for cancellation by Newco of all of its outstanding Newco B Shares, DC will purchase for cancellation from TC the Common Shares of DC owned by TC for a purchase price equal to the FMV of such shares at that time. DC will issue to TC, as consideration therefor, the DC Note having a principal amount equal to the purchase price of the Common Shares purchased from TC. TC will accept the DC Note issued to it in full payment of the aggregate purchase price of the Common Shares of DC disposed by it.

32. Following the completion of the foregoing transactions, Newco will be wound up into TC, pursuant to the applicable provision of XXXXXXXXXX. On the winding up of Newco, all of the property of Newco will be distributed by Newco to TC, and all of the liabilities of Newco, including the Newco Note, will be assumed by TC.

33. DC and TC will set-off the principal amount of their mutual debt obligations (namely the DC Note issued to TC and the Newco Note issued by Newco to DC), such that the DC Note and the Newco Note will be discharged and cancelled in full satisfaction of the obligations under the DC Note and Newco Note.

ADDITIONAL INFORMATION

34. The Holdco Preferred Shares were originally issued XXXXXXXXXX many years ago. The periodic redemptions XXXXXXXXXX.

35. The Existing Note is payable to A XXXXXXXXXX. The repayment of the Existing Note is not part of the same series of transactions or events that include the Proposed Transactions. The Proposed Transactions and the repayment of the Existing Note are not being completed in contemplation of each other. The Existing Note would have been repaid in full and discharged regardless of whether the Proposed Transactions are completed.

36. XXXXXXXXXX

37. Unless otherwise specified, the Proposed Transactions described herein will occur in the order presented, with the exception of the filing of the applicable election forms described in Paragraph 29, which will be filed before the applicable due date.

38. No property has or will become property of DC or any corporation controlled by DC or a predecessor corporation of any such corporation in contemplation of and before the transfers described in Paragraph 27, except as described herein and no liabilities have been, or will be, incurred or discharged by DC or any corporation controlled by DC in contemplation of and before the proposed transfers described in Paragraph 27, except as described herein. Moreover, except as specifically outlined herein, there is no expectation or intention of DC, TC, Newco, any corporation controlled by such corporations or any corporation having a direct or indirect interest in such corporations, to dispose of any property owned by them as part of the series of transactions or events that includes the Proposed Transactions, other than in the ordinary course of business.

39. None of DC, TC or Newco is or will be, at any time during a series of transactions or events that includes the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1) or a "specified financial institution" as defined in subsection 248(1).

40. None of the shares of DC, TC or Newco will be at any time during a series of transactions or events that includes the Proposed Transaction be:

(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) as a "guarantee agreement";

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

(c) the subject of a "dividend rental arrangement" as that term is defined in subsection 248(1).

41. Newco will have the financial capacity to honour, upon presentation for payment, the amount payable under the Newco Note issued by it as part of the Proposed Transactions.

42. The purpose of the incorporation of Newco is to avoid circularity in the calculation of DC’s RDTOH and Part IV tax that would otherwise occur if the transfer of property and the share purchase described in Paragraphs 27, 30 and 31 were made between TC by DC.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to permit the shareholders of DC to separate their interests in DC in order to enable such shareholders to own, manage and administer such interests independently of each other.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions, the additional information and the purpose of the proposed transactions, and the proposed transactions herein described are completed in the manner contemplated above, we confirm the following:

A. Subject to the application of subsection 69(11), provided that the requisite joint elections are filed in the prescribed form and manner within the prescribed time specified in subsection 85(6) and provided that each particular property so transferred is an eligible property in respect of which shares have been issued as full or partial consideration therefor, the provisions of subsection 85(1) will apply to the transfers of property held by DC to Newco as described in Paragraph 27, such that the agreed amount in respect of each such transfer will be deemed pursuant to paragraph 85(1)(a) to be DC’s POD and Newco’s cost of such property. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. As a result of the purchase for cancellation by Newco of the Newco B Shares held by DC and the purchase for cancellation by DC of the Common Shares held by TC, by virtue of subsection 84(3):

(a) Newco will be deemed to have paid, and DC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by Newco in respect of its redemption of the Newco B Shares of its capital stock owned by DC exceeds the PUC of such shares immediately before the redemption; and

(b) DC will be deemed to have paid, and TC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by DC in respect of the purchase of the Common Shares of the capital stock of DC owned by TC exceeds the PUC of such shares immediately before the purchase for cancellation.

C. The taxable dividends as described in Ruling C above:

(a) will be included in the recipient’s income pursuant to subsection 82(1) and paragraph 12(1)(j);

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

(c) will be excluded from the POD to the recipient of the shares so purchased for cancellation by virtue of the definition of “proceeds of disposition” in section 54;

(d) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

(e) will not be subject to tax under Part IV except as provided in paragraph 186(1)(b); and

(f) will not be subject to tax under Part IV.1 or VI.1.

D. Provided that as part of the series of transactions or events that includes the taxable dividends as described in Ruling C above, there is not

(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);

(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(d) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c) or 55(3.1)(d);

which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling C above. For greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

E. The set-off and cancellation of the DC Note and the Newco Note will not, in and of itself, give rise to a forgiven amount. In addition, neither DC nor TC will otherwise realize a gain or incur any loss as a result of such set-off and cancellation.

F. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not apply to any of the Proposed Transactions described in Paragraphs 25 to 33, in and by themselves.

G. The provisions of subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.

These rulings are subject to the limitations and qualifications set out in Information Circular 70-6R7 dated April 22, 2016 and are binding on the CRA provided that the Proposed Transactions are completed no later than six months after the date of this letter.

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 letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a) the PUC of any shares or the FMV or the ACB of any particular asset referred to herein;

(b) the value of the Class A, Class B or Class C shares of DC, which are discretionary shares;

(c) the outstanding balance of the GRIP, CDA or RDTOH of any corporation; or

(d) any other tax consequences relating to the Facts, Proposed Transactions or any transaction or event taking place either prior to or subsequent to the Proposed Transactions whether described in this letter or not, other than those specifically described in the above rulings.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer or issuance of shares. Furthermore, none of the rulings listed above are intended to apply to or in the event of the operation of a price adjustment clause since such adjustments 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 Income Tax Folio S4-F3-C1, dated March 28, 2013.

An invoice for our fees in connection with this Ruling Request will be forwarded to you under separate cover.

Yours truly,

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