1999 Ruling 9917383 - 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: will 110.6(7)(a) apply to deny a capital gain deduction on the disposition of transferee corporation shares undertaken as part of an estate freeze?

Position: yes

Reasons: 3 conditions specified in letter 9510776 have been met so provision will apply

XXXXXXXXXX
XXXXXXXXXX 3-991738
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance income tax ruling
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the above taxpayer. We also acknowledge your letters of XXXXXXXXXX.

To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling:

1. is in an earlier return of the taxpayer or a related person;

2. is being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

3. is under objection by the taxpayer or a related person;

4. is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

5. is the subject of a ruling previously issued by this Directorate.

DEFINITIONS

The following terms used herein are defined as follows and all statutory references are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, as amended, (the "Act"), unless otherwise noted:

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

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

(c) "capital dividend account" has the meaning assigned by subsection 89(1);

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

(e) "commercial obligation" has the meaning assigned by subsection 80(1);

(f) "depreciable property" has the meaning assigned by subsection 248(1);

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

(h) "excluded dividend" has the meaning assigned by subsection 191(1);

(i) "forgiven amount" has the meaning assigned by subsection 80(1) or 80.01(1);

(j) "limited dividend housing company" has the meaning assigned by paragraph 149(1)(n);

(k) "net capital loss" has the meaning assigned by subsection 111(8);

(l) "non-capital loss" has the meaning assigned by subsection 111(8);

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

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

(o) "qualified small business corporation share" has the meaning assigned by subsection 110.6(1);

(p) "specified financial institution" has the meaning assigned by subsection 248(1);

(q) "substantial interest" has the meaning assigned by subsection 191(2);

(r) "superficial loss" has the meaning assigned by section 54;

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

(t) "taxable preferred share" has the meaning assigned by subsection 248(1); and

(u) "undepreciated capital cost" has the meaning assigned by subsection 248(1).

The following taxpayers are resident in Canada and referred to herein:

(a) "Amalco" means the corporation formed upon the amalgamation of XXXXXXXXXX as described in paragraph 33 below;

(b) "Bare Trusteeco No.1" means the corporation to be incorporated as described in paragraph 21 below;

(c) "Bare Trusteeco No.2" means the corporation to be incorporated as described in paragraph 22 below;

(d) "XXXXXXXXXX Landco" means the corporation to be incorporated as described in paragraph 24 below;

(e) XXXXXXXXXX;

(f) "XXXXXXXXXX Children" means the adult children of XXXXXXXXXX;

(g) "XXXXXXXXXX Holdings" means XXXXXXXXXX;

(h) "XXXXXXXXXX Properties" means XXXXXXXXXX;

(i) "XXXXXXXXXX Children" means the adult children of XXXXXXXXXX;

(j) "XXXXXXXXXX Landco" means the corporation to be incorporated as described in paragraph 25 below;

(k) XXXXXXXXXX;

(l) "XXXXXXXXXX Holdings" meansXXXXXXXXXX;

(m) "XXXXXXXXXX Holdings Subco" means the corporation to be incorporated as described in paragraph 40 below;

(n) "XXXXXXXXXX Trustco" means XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) "XXXXXXXXXX Holdings" means XXXXXXXXXX;

(q) "XXXXXXXXXX Holdings Subco" means the corporation to be incorporated as described in paragraph 42 below;

(r) "XXXXXXXXXX Trustco" means XXXXXXXXXX;

(s) XXXXXXXXXX;

(t) "XXXXXXXXXX Holdings" means XXXXXXXXXX Holdings XXXXXXXXXX;

(u) XXXXXXXXXX; and

(v) XXXXXXXXXX.

No member of the XXXXXXXXXX family is related to the XXXXXXXXXX family. No corporation controlled by any member of the XXXXXXXXXX family is related to any member of the XXXXXXXXXX family or any corporation controlled by any member of the XXXXXXXXXX family; similarly, no corporation controlled by any member of the XXXXXXXXXX family is related to any member of the XXXXXXXXXX family or any corporation controlled by any member of the XXXXXXXXXX family.

FACTS

1. XXXXXXXXXX is a taxable Canadian corporation which was formed by an amalgamation on XXXXXXXXXX.

The authorized share capital of XXXXXXXXXX consists of an unlimited amount of class A, class XXXXXXXXXX, class XXXXXXXXXX, class D and class E shares. The attributes of the various classes of authorized shares are as follows.

class A shares Each class A share is (i) redeemable at the option of XXXXXXXXXX and the holder for an amount equal to the redemption amount per class A share as defined pursuant to the articles of XXXXXXXXXX, (ii) entitles the holder to one vote and (iii) is entitled to a variable preferential quarterly dividend, if and when declared by the directors of XXXXXXXXXX, in an amount equal to XXXXXXXXXX % of the redemption amount per share.

class XXXXXXXXXX shares Each class XXXXXXXXXX share is redeemable at the option of XXXXXXXXXX and the holder for an amount equal to the redemption amount per class XXXXXXXXXX share. The redemption amount for each class XXXXXXXXXX share is to be determined with reference to the aggregate proceeds received by XXXXXXXXXX from policies of insurance payable upon the death of the last to die of XXXXXXXXXX. The class XXXXXXXXXX shares are non-voting shares.

class XXXXXXXXXX shares Each class XXXXXXXXXX share is redeemable at the option of XXXXXXXXXX and the holder for an amount equal to the redemption amount per class XXXXXXXXXX share. The redemption amount for each class XXXXXXXXXX share is to be determined with reference to the aggregate proceeds received by XXXXXXXXXX from policies of insurance payable upon the death of the last to die of XXXXXXXXXX. The class XXXXXXXXXX shares are non-voting shares.

class D shares Each class D share is a fully participating share and is non-voting.

class E shares Each class E share is a fully participating share and entitles the holder to one vote.

2. On XXXXXXXXXX, an "estate freeze" was completed by the shareholders of XXXXXXXXXX whereby all of the participating shares in the capital of XXXXXXXXXX were exchanged for class A shares in the capital of XXXXXXXXXX. The redemption amount for the class A shares was defined to equal the fair market value of the participating shares as at XXXXXXXXXX. The redemption amount for each class A share has been determined to be $XXXXXXXXXX. The paid-up capital for each class A share is a nominal amount.

3. As part of the estate freeze, the class XXXXXXXXXX, XXXXXXXXXX, D and E shares were issued on XXXXXXXXXX for nominal subscription proceeds. The paid-up capital of each class XXXXXXXXXX, XXXXXXXXXX, D and E share is equal to its subscription proceeds.

4. XXXXXXXXXX presently does not own any insurance policies on the lives of XXXXXXXXXX. Accordingly, it has been determined that the fair market value of the class XXXXXXXXXX and class XXXXXXXXXX shares in the capital of XXXXXXXXXX is nil.

5. The current shareholders of XXXXXXXXXX hold their shares as capital property and are as follows:

Shareholder
class A shares
class XXXXXXXXXX shares
class XXXXXXXXXX shares
class D shares
class E shares
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

6. XXXXXXXXXX Holdings is a taxable Canadian corporation. All of the issued and outstanding shares in the capital of XXXXXXXXXX Holdings are owned by XXXXXXXXXX who holds those shares as capital property. XXXXXXXXXX Holdings is a taxable Canadian corporation. All of the issued and outstanding shares in the capital of XXXXXXXXXX Holdings are owned by XXXXXXXXXX who holds those shares as capital property.

7. The shareholders of XXXXXXXXXX Trustco are members of the XXXXXXXXXX family (directly, in the case of XXXXXXXXXX, and indirectly, in the case of the XXXXXXXXXX Children, who hold shares through their respective wholly-owned corporations). XXXXXXXXXX Trustco is a taxable Canadian corporation.

8. XXXXXXXXXX Holdings is a taxable Canadian corporation. All of the issued and outstanding shares in the capital of XXXXXXXXXX Holdings are owned by XXXXXXXXXX each of whom holds their shares as capital property. XXXXXXXXXX Holdings is a taxable Canadian corporation. All of the issued and outstanding shares in the capital of XXXXXXXXXX Holdings are owned by XXXXXXXXXX who holds those shares as capital property.

9. The shareholders of XXXXXXXXXX Trustco are members of the XXXXXXXXXX family (directly, in the case of XXXXXXXXXX, and indirectly, in the case of the XXXXXXXXXX Children, who hold shares through their respective wholly-owned corporations). XXXXXXXXXX Trustco is a taxable Canadian corporation

10. Pursuant to the articles of XXXXXXXXXX, the class XXXXXXXXXX, XXXXXXXXXX, D and class E shares are not entitled to any distribution of property or dividends if the distribution or dividend payment would restrict the ability of the corporation to pay the aggregate redemption amount attributable to the class A shares.

11. Since the fair market value of all of the property of XXXXXXXXXX has been determined to be an amount less than the aggregate redemption amount for the issued and outstanding class A shares, it has been determined that the aggregate fair market value of each of the class XXXXXXXXXX, class XXXXXXXXXX, class D and class E shares is nil.

12. XXXXXXXXXX owns certain parcels of vacant land (collectively referred to as "the Lands" and individually as a "parcel of Land").

13. XXXXXXXXXX is a lessee under a long-term ground lease in respect of the property municipally known as XXXXXXXXXX.

14. XXXXXXXXXX also owns certain residential rental properties (collectively referred to as the "Buildings" and individually as a "Building" and will include the "XXXXXXXXXX Buildings" as such term is subsequently defined).

15. XXXXXXXXXX Properties is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX Properties was incorporated pursuant to the laws of the Province of XXXXXXXXXX on XXXXXXXXXX. At the end of its last taxation year, XXXXXXXXXX Properties had non-capital losses available for carryforward in the amounts $XXXXXXXXXX and $XXXXXXXXXX, from its XXXXXXXXXX taxation years, respectively. Prior to the amalgamation referred to in paragraph 33 below, XXXXXXXXXX intends to make a loan to XXXXXXXXXX Properties of certain of its cash on hand.

16.

XXXXXXXXXX

17. XXXXXXXXXX currently owns residential properties municipally known as XXXXXXXXXX (the "XXXXXXXXXX Buildings").

18. The shareholders of XXXXXXXXXX have agreed to divide the Buildings into two packages. The net fair market value of each package will be equal. For these purposes, the net fair market value of each package is the fair market value of the Buildings in the package, less the mortgage debt, if any, attributable to such Buildings.

19. Immediately before the transfers of property described in paragraph 45 below, the assets of Amalco will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which Amalco has the ability to exercise significant influence and will be classified into three types of property for purposes of paragraph 55(3)(b) as follows:

(a) cash or near-cash property, being the current assets of Amalco including cash, accounts receivable, inventories, and rights arising from the prepayment of certain expenses (the "prepaid expenses");

(b) investment property, being all the assets of Amalco, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from property or a specified investment business; and

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

For this purpose, Amalco will be considered to have significant influence over a corporation if it has the ability to exercise significant influence, within the guidelines provided by section 3050 of the CICA Handbook, over that corporation or over any corporation which has significant influence over that corporation. The term "specified investment business" has the meaning assigned by subsection 125(7).

20. In determining, on a consolidated basis, the net fair market value of each type of property of Amalco immediately before the transfers described in paragraph 45 below, the liabilities of Amalco, also determined on a consolidated basis by including the appropriate pro rata share of the liabilities of each corporation over which Amalco has significant influence, will be allocated to, and deducted in the calculation of the net fair market value of, each type of property of Amalco as follows:

(a) Current liabilities (including the current portion of long-term debt) will be allocated to each cash or near-cash property to the extent of the fair market value of each such property. The allocation of current liabilities as described herein will not exceed the aggregate fair market value of the cash or near cash property.

(b) Liabilities, other than current liabilities, that relate to a particular property, will be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its fair market value. Liabilities that pertain to a type of property, but not to a particular property, will then be allocated to that type of property, but not in excess of the net fair market value of such type of property after the allocation of liabilities to a particular property as described herein.

(c) Any liabilities ("excess unallocated liabilities"), that remain after the allocations described in steps (a) and (b) above are made (including any excess current liabilities, if any) will then be allocated to the cash or near-cash, investment and business property on a pro rata basis, based on the relative net fair market value of each type of property after the allocation of liabilities in accordance with the rules described in steps (a) and (b) above and prior to the allocation of each such excess unallocated liabilities.

PROPOSED TRANSACTIONS

21. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX, Bare Trusteeco No.1 will be incorporated. Upon incorporation, XXXXXXXXXX will each subscribe for one common share in the capital of Bare Trusteeco No.1 for the subscription price of $XXXXXXXXXX per share. The only activity of Bare Trusteeco No.1 will be to hold legal title, as bare trustee, to certain Buildings. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX, Bare Trusteeco No.2 will be incorporated. Upon incorporation, XXXXXXXXXX will each subscribe for one common share in the capital of Bare Trusteeco No.2 for the subscription price of $XXXXXXXXXX. The only activity of Bare Trusteeco No.2 will be to hold legal title, as bare trustee, to certain Buildings.

22. Bare Trusteeco No. 1 and Bare Trusteeco No.2 will have no significant powers or responsibilities and can take no action without instructions from the settlor/beneficial owner of the properties. The function of Bare Trusteeco No. 1 and Bare Trusteeco No. 2 is only to hold legal title to the property. The settlor will be the sole beneficiary and can cause the property to revert to the settlor at any time.

23.

XXXXXXXXXX

24. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX Landco will be incorporated by the XXXXXXXXXX Children. Upon incorporation, the XXXXXXXXXX Children will subscribe for XXXXXXXXXX common shares in the capital of XXXXXXXXXX Landco for the subscription price of $XXXXXXXXXX per share. None of the XXXXXXXXXX children will then individually control XXXXXXXXXX Landco.

25. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX Landco will be incorporated by the XXXXXXXXXX Children. Upon incorporation, the XXXXXXXXXX Children will subscribe for XXXXXXXXXX common shares in the capital of XXXXXXXXXX Landco for the subscription price of $XXXXXXXXXX per share. None of the XXXXXXXXXX Children will then individually control XXXXXXXXXX Landco.

26. The necessary steps will be taken by XXXXXXXXXX to transfer legal title to certain of the Buildings to Bare Trusteeco No.1 and the remaining Buildings to Bare Trusteeco No. 2. XXXXXXXXXX will not receive any consideration for these transfers. The purpose of these transactions is to comply with XXXXXXXXXX land transfer tax requirements with respect to the transfers of the properties.

27. XXXXXXXXXX will transfer, at fair market value, to each of XXXXXXXXXX Landco and XXXXXXXXXX Landco a one-half undivided interest in the Lands. As consideration for the transfers, each of XXXXXXXXXX Landco and XXXXXXXXXX Landco will issue to XXXXXXXXXX a demand non-interest-bearing promissory note in the principal amount equal to one-half of the aggregate fair market value of the Lands so received. The purpose of this transaction is to divide the Lands equally between the XXXXXXXXXX families and to minimize exposure to the Lands from potential creditors of the active rental businesses by holding the Lands in separate corporations.

28. XXXXXXXXXX Trustco will transfer all of the issued and outstanding class XXXXXXXXXX, class D and class E shares it owns in the capital of XXXXXXXXXX to XXXXXXXXXX Holdings. As consideration for the transfer, XXXXXXXXXX Holdings will give XXXXXXXXXX Trustco the sum of $XXXXXXXXXX.

29. XXXXXXXXXX Trustco will transfer all of the issued and outstanding class XXXXXXXXXX, class D and class E shares it owns in the capital of XXXXXXXXXX to XXXXXXXXXX Holdings. As consideration for the transfer, XXXXXXXXXX Holdings will give XXXXXXXXXX Trustco the sum of $XXXXXXXXXX.

30. Articles of Amendment will be filed by each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings such that the following new classes of shares will be created for each corporation:

class A shares The class A shares will be non-voting, non-participating and redeemable and retractable for the Redemption Amount. Further, the class A shares will have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount with respect to each class A share will be equal to the amount determined by dividing the money received by the corporation or the fair market value of the consideration received by the corporation on the issuance of class A shares, by the number of class A shares issued, which consideration equals the fair market value of any property or assets transferred to the corporation minus the aggregate of the fair market value of any liabilities assumed by the corporation. The fair market value of any property or assets transferred to the corporation will be determined on the basis of generally accepted accounting and valuation principles. The class A shares will be non-voting shares.

class B shares The class B shares will be non-voting, non-participating and redeemable and retractable for the Redemption Amount. Further, the class B shares will have a fixed, preferential non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount with respect to each class B share will be equal to the amount determined by dividing the money received by the corporation or the fair market value of the consideration received by the corporation on the issuance of class B shares, by the number of class B shares issued, which consideration equals the fair market value of any property or assets transferred to the corporation minus the aggregate of the fair market value of any liabilities assumed by the corporation. The fair market value of any property or assets transferred to the corporation will be determined on the basis of generally accepted accounting and valuation principles. The class B shares will be non-voting shares.

Class XXXXXXXXXX shares The class XXXXXXXXXX voting shares will be voting, non-participating and redeemable and retractable for the Redemption Amount. The class XXXXXXXXXX shares will have a fixed, preferential non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount for each class XXXXXXXXXX share will be $XXXXXXXXXX. The holder of each class XXXXXXXXXX share will be entitled to XXXXXXXXXX votes per share.

Class XXXXXXXXXX shares The class XXXXXXXXXX shares will be non-voting, non-participating and redeemable and retractable for the Redemption Amount. Further, the class XXXXXXXXXX shares will have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount with respect to each class XXXXXXXXXX share will be equal to the amount determined by dividing the money received by the corporation or the fair market value of the consideration received by the corporation on the issuance of class XXXXXXXXXX shares, by the number of class XXXXXXXXXX shares issued, which consideration equals the fair market value of any property or assets transferred to the corporation minus the aggregate of the fair market value of any liabilities assumed by the corporation. The fair market value of any property or assets transferred to the corporation will be determined on the basis of generally accepted accounting and valuation principles. The class XXXXXXXXXX shares will be non-voting shares.

common shares The common shares will be fully participating and voting shares.

31. XXXXXXXXXX Holdings will transfer, at fair market value, all of its class A shares in the capital of XXXXXXXXXX to XXXXXXXXXX Holdings in exchange for XXXXXXXXXX class A shares in the capital of XXXXXXXXXX Holdings with a redemption amount and a fair market value equal to the fair market value of the transferred shares. In respect of the transfer, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the shares of XXXXXXXXXX at an amount equal to their adjusted cost base to XXXXXXXXXX Holdings immediately before the transfer, which amount will not exceed their fair market value. XXXXXXXXXX Holdings will add to the stated capital account in respect of the class A shares so issued an amount equal to the aggregate paid-up capital of the shares transferred to it.

32. XXXXXXXXXX Holdings will transfer, at fair market value, all of its class A shares in the capital of XXXXXXXXXX to XXXXXXXXXX Holdings in exchange for XXXXXXXXXX class A shares in the capital of XXXXXXXXXX Holdings with a redemption amount and a fair market value equal to the fair market value of the transferred shares. In respect of the transfer, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the shares of XXXXXXXXXX at an amount equal to their adjusted cost base to XXXXXXXXXX Holdings immediately before the transfer, which amount will not exceed their fair market value. XXXXXXXXXX Holdings will add to the stated capital account in respect of the class A shares so issued an amount equal to the aggregate paid-up capital of the shares transferred to it.

33. XXXXXXXXXX Properties and XXXXXXXXXX will amalgamate pursuant to the Business Corporations Act (XXXXXXXXXX) to form Amalco such that

(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of Amalco by virtue of the merger;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco by virtue of the merger; and

(c) all of the shareholders (except any predecessor corporation) who owned shares of the capital stock of any predecessor corporation immediately before the merger, receive shares of the capital stock of Amalco by virtue of the merger.

As a result of the amalgamation, all of the shares in the capital of XXXXXXXXXX Properties will be cancelled without repayment.

34. The share capital of Amalco will consist of an unlimited number of class A and common shares. The attributes of the various classes of shares will be as follows:

class A shares Each class A share will be redeemable at the option of the holder and Amalco for an amount equal to the Redemption Amount. The Redemption Amount for each class A share will be equal to the fair market value of each issued and outstanding share in the capital of XXXXXXXXXX immediately prior to the filing of the articles of amalgamation. The holders of class A shares will be entitled to one vote per share

common shares The common shares will be fully participating shares and each share will entitle the holder to one vote.

35. Upon the amalgamation, the shareholders of XXXXXXXXXX, namely XXXXXXXXXX Holdings and XXXXXXXXXX Holdings, will exchange all of their class A shares, class XXXXXXXXXX shares (or class XXXXXXXXXX shares, in the case of XXXXXXXXXX Holdings), class D and class E shares for XXXXXXXXXX common shares in the capital of Amalco. The paid-up capital and stated capital of the common shares in the capital of Amalco will equal the aggregate paid-up capital and stated capital attributable to the class A, XXXXXXXXXX , XXXXXXXXXX, D and E shares in the capital of XXXXXXXXXX immediately prior to the amalgamation. Each of the common shares of Amalco will not be a taxable preferred share.

36. Upon the amalgamation, the sole shareholders of XXXXXXXXXX, namely XXXXXXXXXX, will each receive XXXXXXXXXX class A shares in the capital of Amalco. The paid-up capital and stated capital of the class A shares will equal the aggregate paid-up capital and stated capital attributable to the all of the issued and outstanding shares in the capital of XXXXXXXXXX immediately prior to the amalgamation.

37. XXXXXXXXXX will transfer, at fair market value, all of his class A shares of Amalco to XXXXXXXXXX Holdings in exchange for XXXXXXXXXX Class B shares of XXXXXXXXXX Holdings with a redemption amount and a fair market value equal to the fair market value of the transferred shares. In respect of the transfer, XXXXXXXXXX and XXXXXXXXXX Holdings will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the shares of Amalco at an amount equal to their adjusted cost base to XXXXXXXXXX immediately before the transfer, which amount will not exceed their fair market value. XXXXXXXXXX Holdings will add to the stated capital account in respect of the class B shares so issued an amount equal to the aggregate paid-up capital of the shares transferred to it.

38. XXXXXXXXXX will transfer, at fair market value, all of his class A shares in the capital stock of Amalco to XXXXXXXXXX Holdings in exchange for XXXXXXXXXX class B shares of XXXXXXXXXX Holdings with a redemption amount and a fair market value equal to the fair market value of the transferred shares. In respect of the transfer, XXXXXXXXXX and XXXXXXXXXX Holdings will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the shares of Amalco at an amount equal to their adjusted cost base to XXXXXXXXXX immediately before the transfer, which amount will not exceed their fair market value. XXXXXXXXXX Holdings will add to the stated capital account in respect of the class B shares so issued an amount equal to the aggregate paid-up capital of the shares transferred to it.

39. Amalco will sell for cash all of its automobiles and office equipment to each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings for proceeds equal to their fair market value which will be less than their cost for tax purposes.

40. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX Holdings Subco will be incorporated by the XXXXXXXXXX Holdings. Upon incorporation, XXXXXXXXXX Holdings will subscribe for XXXXXXXXXX common shares in the capital of XXXXXXXXXX Holdings Subco for the subscription price of $XXXXXXXXXX per share. XXXXXXXXXX Holdings Subco will be a taxable Canadian corporation.

41. The share capital of JF Holdings Subco will consist of an unlimited number of class A and common shares. The attributes of the various classes of shares will be as follows:

class A shares The class A shares will be voting, non-participating and redeemable and retractable for the Redemption Amount. Further, the class A shares will have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount with respect to each class A share will be $XXXXXXXXXX. Each class A share will entitle the holder to one vote. For the purposes of subsection 191(4), the terms and conditions of the class A shares will specify an amount for which the shares will be redeemed, acquired or cancelled. The amount to be specified in respect of each class A share at the time of its issuance will be expressed as a dollar amount, will not be determined by a formula and will not exceed the fair market value of the property to be received as consideration for such shares.

common shares The common shares will be fully participating shares and each share will entitle the holder to one vote.

42. Pursuant to articles of incorporation to be filed pursuant to the laws of the Province of XXXXXXXXXX Holdings Subco will be incorporated by the XXXXXXXXXX Holdings. Upon incorporation, XXXXXXXXXX Holdings will subscribe for XXXXXXXXXX common shares in the capital of XXXXXXXXXX Holdings Subco for the subscription price of $XXXXXXXXXX per share. XXXXXXXXXX Holdings Subco will be a taxable Canadian corporation.

43. The share capital of XXXXXXXXXX Holdings Subco will consist of an unlimited number of class A and common shares. The attributes of the various classes of shares will be as follows:

class A shares The class A shares will be voting, non-participating and redeemable and retractable for the Redemption Amount. Further, the class A shares will have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX % of the Redemption Amount. The Redemption Amount with respect to each class A share will be $XXXXXXXXXX. Each class A share will entitle the holder to one vote. For the purposes of subsection 191(4), the terms and conditions of the class A shares will specify an amount for which the shares will be redeemed, acquired or cancelled. The amount to be specified in respect of each class A share at the time of its issuance will be expressed as a dollar amount, will not be determined by a formula and will not exceed the fair market value of the property to be received as consideration for such shares.

common shares The common shares will be fully participating shares and each share will entitle the holder to one vote

44. XXXXXXXXXX Holdings, XXXXXXXXXX Holdings and Amalco will then agree as to which Buildings are to be transferred to each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco.

45. Amalco will transfer to XXXXXXXXXX Holdings Subco (i) whole interests in certain Buildings, (ii) the XXXXXXXXXX Landco promissory note, (iii) a one-half undivided interest in the XXXXXXXXXX (iv) an undivided interest in the Building described as "XXXXXXXXXX" and (v) one-half of its remaining net assets (the "XXXXXXXXXX Package").

46. Amalco will transfer to XXXXXXXXXX Holdings Subco (i) whole interests in the remaining Buildings, (ii) the XXXXXXXXXX Landco promissory note, (iii) a one-half undivided interest in the XXXXXXXXXX, (iv) the remaining undivided interest in XXXXXXXXXX and (v) the remaining net assets (the "XXXXXXXXXX Package").

47. The fair market values of the XXXXXXXXXX Package and the XXXXXXXXXX Package will be equal. In order to achieve such equality, the percentage undivided interest in XXXXXXXXXX transferred to each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will be adjusted accordingly. This may result in the percentage undivided interest in XXXXXXXXXX received by each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings not being equal.

48. As consideration for the transfers described in paragraphs 45 and 46 above, XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will (i) each assume one-half of the liabilities of Amalco and (ii) each issue to Amalco that number of class A shares in their respective capital stock having an aggregate redemption amount and fair market value equal to the aggregate fair market value of the property so received less the amount of the liabilities assumed on the transfer. The amount of the assumed liabilities allocated to any asset transferred, pursuant to the election under subsection 85(1), will not exceed the agreed amount in respect of that asset. Amalco will hold class A shares of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco representing greater than 10% of the value and greater than 10% of the votes in all circumstances.

49. In respect of the transfers described in paragraphs 45 and 46 above (other than the property described in paragraph 50 below), Amalco and each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco, will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer each property that is an eligible property at an agreed amount which will be equal to:

(a) in the case of capital property (other than depreciable property of a prescribed class), 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 depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii);

Each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will add to the stated capital account in respect of its Class A shares issued on the transfers described respectively in paragraphs 45 and 46 above, an amount equal to the aggregate of the agreed amounts determined herein less the aggregate of the liabilities assumed on the transfer.

50. With respect to the disposition of the XXXXXXXXXX and the remaining Buildings which are not dealt with in the manner described in paragraph 49 above, XXXXXXXXXX Holdings Subco, XXXXXXXXXX Holdings Subco and Amalco will agree that the agreed amount for (i) certain non-depreciable capital property transferred will be an amount in excess of the cost amount of such property to Amalco and (ii) certain depreciable property transferred will be an amount in excess of its undepreciated capital cost. In either case, the agreed amount will not exceed the fair market of the transferred property. The parties will agree to file the necessary elections pursuant to subsection 85(1) in respect of the transfers of property, in the prescribed form within the time specified in subsection 85(6), to give effect to the foregoing. The purpose of choosing agreed amounts which realize capital gains and/or recaptured capital cost allowance is to utilize net capital losses and non-capital losses available to Amalco. The consideration received by Amalco for the transferred assets described herein will consist of the assumption of mortgage debt and the issuance of Class A shares of the transferee corporation having an aggregate fair market value and redemption amount equal to the aggregate fair market value of the transferred property less the aggregate of the mortgage debt assumed, if any. It is anticipated that there will not be any mortgage debt outstanding at the time the property is transferred. Each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will add to the stated capital account in respect of its Class A shares issued on the transfers described herein, an amount equal to the aggregate of the agreed amounts determined herein less the aggregate of the liabilities assumed on the transfer.

In respect of the transfers of property by Amalco described in paragraphs 39, 45 and 46 above, each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will have received, directly or indirectly, property such that the net fair market value of each type of property received by the transferee will be equal to 50% of the net fair market value of all the properties of Amalco of that type , determined immediately before such transfers of property.

51. Amalco will purchase for cancellation, at fair market value, all of its common shares held by XXXXXXXXXX Holdings and XXXXXXXXXX Holdings. Amalco will issue to each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings a demand non-interest-bearing promissory note in the principal amount equal to the fair market value of the common shares of Amalco held by XXXXXXXXXX Holdings and XXXXXXXXXX Holdings so purchased (the "Amalco common notes").

52. Amalco will redeem, at their aggregate redemption amount, all of its class A shares held by XXXXXXXXXX Holdings and XXXXXXXXXX Holdings. Amalco will issue to each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings a demand non-interest-bearing promissory note in the principal amount equal to the aggregate redemption amount of the class A shares of Amalco held by XXXXXXXXXX Holdings and XXXXXXXXXX Holdings so redeemed (the "Amalco class A notes").

53. Each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will redeem, at their aggregate redemption amount, all of its class A shares held by Amalco. Each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will issue to Amalco a demand non-interest-bearing promissory note in the principal amount equal to the aggregate redemption amount in respect of the class A shares held by Amalco so redeemed (the "XXXXXXXXXX Holdings Subco Note" and the "XXXXXXXXXX Holdings Subco Note", respectively).

54. On the following day, the directors of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco will commence dissolution proceedings by taking the necessary steps pursuant to the Business Corporations Act (XXXXXXXXXX). By general conveyance agreement, XXXXXXXXXX Holdings Subco will transfer all of its assets to XXXXXXXXXX Holdings in consideration for XXXXXXXXXX Holdings assuming all remaining liabilities of XXXXXXXXXX Holdings Subco. As a result, XXXXXXXXXX Holdings will owe Amalco an amount equal to the principal amount of the XXXXXXXXXX Holdings Subco Note.

55. Similarly, by general conveyance agreement, XXXXXXXXXX Holdings Subco will transfer all of its assets to XXXXXXXXXX Holdings in consideration for XXXXXXXXXX Holdings assuming all remaining liabilities of XXXXXXXXXX Holdings Subco. As a result, XXXXXXXXXX Holdings will owe Amalco an amount equal to the principal amount of the XXXXXXXXXX Holdings Subco Note.

56. After the redemptions, purchase for cancellation and dissolutions described above, Amalco, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will agree to offset the amounts owing represented by the various promissory notes and all such notes will be cancelled.

57. After all of the steps indicated above have been effected, such that Amalco will not have any remaining property, the necessary steps will be taken pursuant to the Business Corporations Act (XXXXXXXXXX) to dissolve Amalco voluntarily. No agreement or resolution relating to the winding-up of Amalco or the distribution of its property will provide for the cancellation of any shares of Amalco.

ADDITIONAL INFORMATION

58. No assets have been or will be acquired by or disposed of by, and no liabilities have been or will be incurred by Amalco, XXXXXXXXXX Properties or XXXXXXXXXX in contemplation of and before the transfers described in paragraph 45 above, except as described herein.

59. Except as described herein, none of the parties will dispose of any property to an unrelated person as part of a series of transactions that includes the proposed transactions.

60. None of the parties is contemplating an acquisition of control of any of the corporations referred to above.

61. None of the shares of Amalco, XXXXXXXXXX Holdings or XXXXXXXXXX Holdings has been, or will be, at any time during the implementation of the proposed transactions described herein

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

(b) a share that is issued or acquired as part of a transaction or event or a 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).

62. None of Amalco, XXXXXXXXXX Holdings, XXXXXXXXXX Holdings Subco. XXXXXXXXXX Holdings or XXXXXXXXXX Holdings Subco is, or will be at the time of the proposed transactions described herein, a specified financial institution.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to divide the Buildings so that each of the XXXXXXXXXX families will be able to pursue their independent objectives regarding their respective Buildings.

RULINGS PROVIDED

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purposes of the proposed transactions, we confirm the following:

A. The provisions of paragraph 1102(14)(a) of the Income Tax Regulations will apply to the Buildings acquired by XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco as described in paragraphs 45 and 46, respectively, provided that the Buildings were, immediately before such acquisitions, property of a prescribed class or a separate prescribed class of Amalco.

B. The transfer of legal title to the Lands by XXXXXXXXXX to Bare Trusteeco No.1 and Bare Trusteeco No.2 as described in paragraph 26 above will not be considered a disposition for purposes of the Act.

C. Any losses which may be realized upon the transfer of the Lands to each of XXXXXXXXXX Landco and XXXXXXXXXX Landco will not be superficial losses and will not be subject to the application of subsections 40(3.3) and 40(3.4).

D. Provided that the transferor and the transferee jointly file an election pursuant to subsection 85(1), in the prescribed form and within the prescribed time, in respect of the transfers of property described in paragraphs 31, 32, 37 and 38 above, the provisions of subsection 85(1) will apply to the transfer of each eligible property such that the agreed amount in respect of each such transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply in respect of the transfers described herein.

E.

XXXXXXXXXX

XXXXXXXXXX

F. The amalgamation of XXXXXXXXXX Properties and XXXXXXXXXX described in paragraph 33 above will be an amalgamation within the meaning of subsection 87(1) with the result that :

(a) each shareholder of a predecessor corporation will be deemed by paragraph 87(4)(a) to have disposed of his or her shares in the capital stock of a predecessor corporation for proceeds equal to their aggregate adjusted cost base immediately before the amalgamation;

(b) for greater certainty, the rules in paragraphs 87(4)(c) to (e) will not apply and the rules in paragraphs 87(2)(d) and (e) will apply; and

(c) the provisions of subsection 87(2.1) will apply to deem Amalco to be the same corporation as, and a continuation of, each predecessor corporation, for the purposes, and subject to the restrictions, described in subsection 87(2.1). However, no losses of XXXXXXXXXX will be available to Amalco, as a result of the application of paragraph 149(10)(c) to XXXXXXXXXX.

G. Provided that the transferor and each transferee jointly file an election pursuant to subsection 85(1), in the prescribed form and within the prescribed time, in respect of the transfers of property described in paragraphs 45 and 46 above, the provisions of subsection 85(1) will apply to the transfer of each eligible property such that the agreed amount in respect of each such transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply in respect of the transfers described herein.

H. As a result of the purchase for cancellation and redemption of Amalco's common shares and class A shares held by XXXXXXXXXX Holdings and XXXXXXXXXX Holdings as described in paragraphs 51 and 52 above, respectively, and the redemption by XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco of their class A shares held by Amalco, as described in paragraph 53 above, the amount, if any, by which the amount paid on the purchase for cancellation or redemption exceeds the paid-up capital of such shares immediately before the purchase or redemption:

(a) will be deemed, by virtue of paragraphs 84(3)(a) and 84(3)(b), to be a dividend paid by Amalco, XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco, as the case may be, and a dividend received by Amalco, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings, as the case may be;

(b) to the extent that a dividend that is deemed to be received by Amalco, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings as described in ruling H(a) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received and, for greater certainty, the provisions of subsections 112(2.1) to (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividends and the provisions of subsection 112(3) will apply to reduce any loss which may otherwise arise to the recipient as a result of the purchase for cancellation or redemption;

(c) the dividends that are deemed to be received by Amalco, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings as described in ruling H(a) above will not be subject to tax under Part IV except as provided in paragraph 186(1)(b);

(d) provided that the specified amount referred to respectively in paragraphs 41 and 43 above in respect of the class A shares of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco which are to be redeemed, as described in paragraph 53 above, is equal to their Redemption Amount, Parts IV.1 and VI.1 will not apply to the dividend deemed to have been paid by Amalco to each of XXXXXXXXXX Holdings Subco and XXXXXXXXXX Holdings Subco, as described in ruling H(a) above, because each such dividend will, pursuant to subsection 191(4), be an "excepted dividend" for purposes of section 187.2 and an "excluded dividend" for purposes of section 191.1;

(e) the dividends described in ruling H(a) that are deemed to be paid by Amalco to each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings on the purchase for cancellation and redemption of Amalco's common shares and class A shares will not be subject to tax under Parts IV.1 and VI.1 by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because each of XXXXXXXXXX Holdings and XXXXXXXXXX Holdings will have a substantial interest, within the meaning of subsection 191(2), in Amalco; and

(f) by virtue of the provisions of paragraph 55(3)(b), the provisions of subsection 55(2) will not apply to the dividends that are deemed to be received by Amalco, XXXXXXXXXX Holdings and XXXXXXXXXX Holdings as described in ruling H(a) above, provided that, as part of the series of transactions or events that includes the proposed transactions described herein, there is no:

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

(ii) acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(ii); or

(iii) acquisition of property in the circumstances described in subparagraph 55(3.1)(c)

which has not been described herein.

I. The settlement by way of set off of the Amalco common note, the Amalco class A note, the XXXXXXXXXX Holdings Subco Note and the XXXXXXXXXX Holdings Subco Note as described in paragraph 56 above will not give rise to a forgiven amount.

J. The provisions of subsection 88(1) will apply to the winding-up of XXXXXXXXXX Holdings Subco into XXXXXXXXXX Holdings and XXXXXXXXXX Holdings Subco into XXXXXXXXXX Holdings as described in paragraphs 54 and 55, respectively.

K. Subsection 245(2) will not be applied as a result of the proposed transaction, in and by themselves, to redetermine the tax consequences confirmed herein.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and are binding on the Canada Customs and Revenue Agency ("the CCRA"), provided the proposed transactions described herein are completed by XXXXXXXXXX.

Comments

1. Nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed the determination of the adjusted cost base or fair market value of any property or the redemption amount or the paid-up capital of any shares referred to herein.

2. Nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the ruling given above.

3. In the event of a subsequent disposition of any shares of any of the companies referred to herein, nothing in this ruling should be construed as implying that the transactions described herein will not, for the purposes of subsection 55(3.1) or paragraph 110.6(7)(a), be considered to be part of a series of transactions or events which includes such subsequent disposition of shares. The phrase "series of transactions or events" has the extended meaning assigned by subsection 248(10).

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch