Income Tax Severed Letters

Principal Issues: (1) Whether Lossco would be entitled
to apply existing non-capital losses, investment tax credits and cumulative Canadian exploration expense against the interest income to be earned on the Profitco Note, and (2) Whether Profitco would be entitled to deduct the interest expense that would be paid or payable on the Profitco Note, and the Newco Preferred Shares Dividends that would be received on the Newco Preferred Shares.

Position: (1) Yes; (2) Yes

Reasons: Profitco would comply with the requirements found in paragraph 20(1)(c) and subsection 112(1), and the CRA views applicable to loss consolidations arrangements because Profitco and Lossco are and will continue to be Related Persons and Affiliated Persons throughout the Proposed Transactions. In addition, the Loss Consolidation transactions will be legally effective, and will not contemplate dollar amounts and time frames that are blatantly artificial.