2000 Ruling 1999-0013143 - 21-Year Rule - Trusts

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: Complete reorganization in order to mitigate tax consequences of the 21 year deemed disposition rule. As minor & unborn children were involved the value of the contingent capital interests were determined & set aside in a separate trust.

See Issue sheet for complete list of all issues as transactions were modified several times

Position:

Reasons:

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XXXXXXXXXX        990557
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Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: Advance Income Tax Ruling - XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling in respect of the income tax consequences arising out of the proposed transactions described below. We also acknowledge your correspondence of XXXXXXXXXX. We understand that, to the best of your knowledge, and that of the taxpayers on whose behalf this ruling is requested none of the issues contained in this advance income tax ruling are:

i) contained in earlier returns of the taxpayers or a related person;

ii) being considered by a tax service office and/or a tax centre in connection with a tax return previously filed by the taxpayers or a related person;

iii) under objection by the taxpayers or related person;

iv) before the courts; or

v) the subject of a ruling previously issued by the Directorate to the taxpayers or a related person.

In this letter, unless otherwise indicated, all statute references are to the Canadian Income Tax Act and Regulations (R.S.C. 1985, 5th Supplement,c.1, as amended) (the "Act"), and the following terms have the meanings specified:

a) "Adjusted Cost Base" ("ACB") has the meaning assigned by section 54;

b) "Canadian-Controlled Private Corporation" ("CCPC") has the meaning assigned by subsection 125(7);

c) "Paid-Up Capital" ("PUC") has the meaning assigned by subsection 89(1);

d) "Mr. X" means XXXXXXXXXX;

e) "Mrs. X" means XXXXXXXXXX;

f) "Child A" means XXXXXXXXXX;

g) "Child B" means XXXXXXXXXX;

h) "Child C" means XXXXXXXXXX;

i) "Child D" means XXXXXXXXXX;

j) "Children" refers collectively to Child A, Child B, Child C and Child D;

k) "Minor 1", "Minor 2" and "Minor 3" refers to XXXXXXXXXX respectively, the children of Child A; and

l) "Yco" means XXXXXXXXXX, a body corporate, incorporated pursuant to the XXXXXXXXXX, as amended, (the "XXXXXXXXXX"), and a CCPC controlled by Mr. X. Through a series of subsidiary companies, Yco carries on XXXXXXXXXX businesses.

Our understanding of the relevant facts, proposed transactions and purposes thereof are as follows:

FACTS

1. Mr. X and Mrs. X have four children, Child A, Child B, Child C and Child D. Each of the Children is over 18 years of age and is in good health.

2. Child A has 3 children, Minor 1, Minor 2 and Minor 3 (the "Minors"). No other Children currently have children.

3. The authorized capital of Yco consists of XXXXXXXXXX common shares with a par value of $XXXXXXXXXX per share, XXXXXXXXXX preferred shares with a par value of $XXXXXXXXXX per share and XXXXXXXXXX preferred shares with a par value of $XXXXXXXXXX per share. The issued capital of Yco consists of XXXXXXXXXX common shares, XXXXXXXXXX preferred shares and XXXXXXXXXX preferred shares.

4. In XXXXXXXXXX Mr. X carried out an estate freeze of his business interests. As part of the freeze Mr. X received XXXXXXXXXX preferred shares and XXXXXXXXXX preferred shares of Yco. At that time Mr. X also created four trusts, one for each of his Children, by trust deed dated XXXXXXXXXX (the "XXXXXXXXXX Trusts"). The terms of the XXXXXXXXXX Trusts are identical save for the identity of the beneficiaries. As an example, the terms of the XXXXXXXXXX Trust established for Child C are as follows:

(a) settlor - Mr. X;

(b) settled property - $XXXXXXXXXX;

(c) trustees - Mr. X and Mrs. X. Both Mr. X and Mrs. X as co-trustees of the XXXXXXXXXX Trust have exercised equal authority and activity in trust decisions; neither trustee alone has legal or in fact veto or other control over the assets of the XXXXXXXXXX Trusts;

(d) time of division - the time of division of the XXXXXXXXXX Trust is the later of:

(i) the death of the survivor of Mr. X and Mrs. X, and

(ii) the date that the primary beneficiary attains the age of XXXXXXXXXX years (each of the Children are or will be this year XXXXXXXXXX years of age); and

(e) beneficiaries - Child C an income and capital beneficiary (and is referred to herein as the "primary beneficiary" of the Child C XXXXXXXXXX Trust). If Child C dies prior to the time of division then the assets in the Child C XXXXXXXXXX Trust are held for his children to be distributed to his children alive at the time of division and if Child C were to die prior to the time of division and there were no children of his alive at his death then the assets of the trust are to be divided among and held in trust for the siblings of Child C then alive and if any sibling has died prior to Child C but has left children alive then the share of the deceased sibling would be held in trust for the children of the deceased sibling. The share held in trust for the siblings alive on C's death or for the children of a deceased sibling is to be distributed at the time of division.

The terms of the XXXXXXXXXX Trusts established for the three other Children are the same except that each of the Children is the primary beneficiary of their respective XXXXXXXXXX Trust.

5. Each of XXXXXXXXXX Trusts is a "personal trust" as that term is defined in subsection 248(1).

6. As part of the XXXXXXXXXX estate freeze each XXXXXXXXXX Trust acquired one common share of Yco for $XXXXXXXXXX per share. This share is being held by each XXXXXXXXXX Trust as "capital property" as that term is defined in section 54.

7. The XXXXXXXXXX Trusts have not received any income or realized any capital gains, and the assets of each XXXXXXXXXX Trust consist only of the one common share of Yco. The XXXXXXXXXX Trusts hold all issued and outstanding common shares of Yco.

8. Pursuant to subsection 104(4) the XXXXXXXXXX Trusts will be deemed to have disposed of their assets on XXXXXXXXXX.

PROPOSED TRANSACTIONS

9. The trustees and the Children (the primary beneficiaries of the XXXXXXXXXX Trusts) wish to distribute the assets of the XXXXXXXXXX Trusts having accrued gains prior to the XXXXXXXXXX deemed disposition date. In order to do so the terms of the XXXXXXXXXX Trusts need to be varied to ensure that the distribution is made in accordance with the terms of the XXXXXXXXXX Trusts. Due to the existence of minor contingent beneficiaries and the possibility of unborn contingent beneficiaries (the "Contingent Beneficiaries") it is necessary to obtain a court order pursuant to the Variation of Trusts Act, XXXXXXXXXX as amended (the "Variation of Trusts Act") to vary the XXXXXXXXXX Trusts to permit the distribution to the Children and the Minors. In order to obtain the order it is necessary to protect the interests of the Contingent Beneficiaries to the satisfaction of the court. To meet this requirement the value of the contingent interests in the XXXXXXXXXX Trusts will be determined after obtaining a valuation by a qualified actuary and valuator and pursuant to negotiations with the lawyer for the Contingent Beneficiaries and shall be approved by a judge of the Supreme Court of XXXXXXXXXX (individually the value of the contingent interest in each XXXXXXXXXX Trust will be referred to as "Contingent Value A", " Contingent Value B", "Contingent Value C" and "Contingent Value D", collectively referred to as the "Total Contingent Value"). In accordance with the order of the Supreme Court of XXXXXXXXXX the Total Contingent Value of the Contingent Beneficiaries will be protected through a combination of the creation of four separate trusts which will be established for the benefit of the Contingent Beneficiaries of the XXXXXXXXXX Trusts (one for each of the XXXXXXXXXX Trusts) (herein referred to as the "Contingent Trusts") and by the distribution directly to living Contingent Beneficiaries of certain assets of the Child A XXXXXXXXXX Trust (Child A is the only primary beneficiary with living children). The details of the proposed transactions are as set out below.

10. Each XXXXXXXXXX Trust will incorporate a company pursuant to the XXXXXXXXXX (for the purposes of this ruling the company to be formed by the Child A XXXXXXXXXX Trust will be referred to as "Aholdco", the Child B XXXXXXXXXX Trust as "Bholdco", the Child C XXXXXXXXXX Trust as "CHoldco" and the Child D XXXXXXXXXX Trust as "DHoldco", -collectively referred to as the "Holdcos" or individually as a "Holdco") and upon incorporation the incorporating XXXXXXXXXX Trust will receive one common share in the capital stock of the Holdco with a par value of $XXXXXXXXXX per share. The capital stock of the Holdcos will consist of:

common shares with a par value of $XXXXXXXXXX per share; and

voting preferred shares with a par value of $XXXXXXXXXX per share.

11. The capital of Yco shall be amended by the cancellation of all unissued XXXXXXXXXX preferred shares and by the creation of a substantial number of XXXXXXXXXX preferred shares with a par value of $XXXXXXXXXX per share, redeemable and retractable at the par value (the "XXXXXXXXXX Preferred Shares") and a substantial number of XXXXXXXXXX preferred shares with a par value of $XXXXXXXXXX per share, redeemable and retractable at a premium over the par value (the "XXXXXXXXXX Preferred Shares").

12. Yco will pay a stock dividend of XXXXXXXXXX Preferred Shares on the common shares of Yco held by the XXXXXXXXXX Trusts in an amount not exceeding the capital dividend account available for payment. Yco shall make the filings in the form prescribed and in the time required pursuant to subsection 83(2) so that the whole amount of the dividend created by the stock dividend as calculated in accordance with section 82 and the definition of "amount" in subsection 248(1) shall be payable as a capital dividend to the XXXXXXXXXX Trusts. Yco shall then pay a second stock dividend of XXXXXXXXXX Preferred Shares so that the aggregate value of the XXXXXXXXXX Preferred Shares issued will be equal to four times (4x) Contingent Value D. Yco will then pay a further stock dividend on it's common shares of XXXXXXXXXX Preferred Shares with a premium on redemption calculated so that the aggregate value of the XXXXXXXXXX Preferred Shares and the XXXXXXXXXX Preferred Shares so issued will be equal to four times (4x) Contingent Value C plus the estimated amount of tax payable by the XXXXXXXXXX Trusts in respect of the taxable portion of the stock dividend and any other taxes or expenses incurred by the XXXXXXXXXX Trusts as a result of the Proposed Transactions. These stock dividends will not alter the value of the interest of any specified shareholder of Yco. Each XXXXXXXXXX Trust will receive the same number of XXXXXXXXXX Preferred Shares and the same number of XXXXXXXXXX Preferred Shares as stock dividends.

13. The Child C XXXXXXXXXX Trust will then redeem the XXXXXXXXXX Preferred Shares issued to it and in consideration therefor will receive a demand, non-interest bearing promissory note of Yco with a principal amount and fair market value equal to the redemption value of the XXXXXXXXXX Preferred Shares being redeemed. The note will be convertible into XXXXXXXXXX Preferred Shares of Yco. The Child C XXXXXXXXXX Trust will immediately exercise the conversion right and Yco will issue to the Child C XXXXXXXXXX Trust that number of XXXXXXXXXX Preferred Shares having a fair market value, redemption value and par value equal to the amount of the promissory note.

14. The Child A XXXXXXXXXX Trust will then redeem the XXXXXXXXXX Preferred Shares issued to it and in consideration therefor will receive a demand, non-interest bearing promissory note of Yco with a principal amount and fair market value equal to the redemption value of the XXXXXXXXXX Preferred Shares being redeemed. The note will be convertible into XXXXXXXXXX Preferred Shares of Yco. The Child A XXXXXXXXXX Trust will immediately exercise the conversion right and Yco will issue to the Child A XXXXXXXXXX Trust that number of XXXXXXXXXX Preferred Shares having a fair market value, redemption value and a par value equal to the amount of the promissory note.

15. Pursuant to an order of the Supreme Court of XXXXXXXXXX under the Variation of Trusts Act, each XXXXXXXXXX Trust will settle a Contingent Trust with a nominal amount. Each Contingent Trust will be resident in Canada and will have the following terms:

(a) trustees - Mr. X and the Primary Beneficiary of the particular XXXXXXXXXX Trust;

(b) beneficiaries - the beneficiaries of the Contingent Trust will be the Contingent Beneficiaries of the XXXXXXXXXX Trusts. As an example, the beneficiaries of the Contingent Trust settled by the Child C XXXXXXXXXX Trust will consist of the children of Child C and if there are no such children alive at the time of division then the beneficiaries will be the other children of Mr. and Mrs. X (Child C 's siblings) and the children of any other child of Mr. and Mrs. X (Child C 's siblings) who has died (i.e. identical to the provisions of the Child C XXXXXXXXXX Trust);

(c) time of division - the earlier of:

(i) the death of the survivor of Mr. and Mrs. X; and

(ii) the date determined by the trustees provided that such date may not be earlier than 90 days prior to the 21st anniversary of the creation of the Contingent Trust; and

(d) the Contingent Trusts will contain a provision designed to meet the requirements of subsection 74.4(4) to avoid the application of subsection 74.4(2) to the XXXXXXXXXX Trusts.

16. The trustees of the XXXXXXXXXX Trusts will transfer to the Contingent Trusts that number of XXXXXXXXXX Preferred Shares as is required pursuant to the order of the Supreme Court of XXXXXXXXXX to protect the interest of the Contingent Beneficiaries.

17. Each XXXXXXXXXX Trust will transfer to its respective Holdco all assets held by that XXXXXXXXXX Trust including the common shares of Yco and any XXXXXXXXXX Preferred Shares of Yco (the "Transferred Assets"). Each XXXXXXXXXX Trust will retain that number of XXXXXXXXXX Preferred Shares as is estimated to be needed to pay any taxes or costs incurred by the XXXXXXXXXX Trust as part of these transactions.

Each XXXXXXXXXX Trust will receive as consideration for the Transferred Assets, XXXXXXXXXX common shares of its respective Holdco with a par value of $XXXXXXXXXX per share and a total fair market value equal to the fair market value of the Transferred Assets. Each XXXXXXXXXX Trust and its respective Holdco will jointly elect in accordance with the provisions of subsection 85(1) and within the time frame referred to in subsection 85(6), such that the assets being transferred will be transferred to the respective Holdco at an agreed amount equal to the ACB of the such assets to each XXXXXXXXXX Trust which amount will be less than or equal to the fair market value of the Transferred Assets. The aggregate addition to the PUC of the XXXXXXXXXX common shares of each Holdco will not exceed the ACB of the Transferred Assets and shall not exceed the PUC of any shares of Yco being transferred to the Holdco. The ACB of the Transferred Assets to each XXXXXXXXXX Trust is the same as the ACB as determined for the purposes of section 84.1. Together with the common share issued upon incorporation to each XXXXXXXXXX Trust will hold XXXXXXXXXX common shares of their respective Holdco.

18. Pursuant to an order of the Supreme Court of XXXXXXXXXX, the Child C XXXXXXXXXX Trust, the Child D XXXXXXXXXX Trust, and the Child B XXXXXXXXXX Trust will then distribute to the child that is the primary beneficiary of those trusts, the assets of those XXXXXXXXXX Trusts less any XXXXXXXXXX Preferred Shares or other assets that are estimated to be required to be held in those XXXXXXXXXX Trusts for the purposes of paying the tax liability and other costs associated with the proposed transactions. Pursuant to the order of the Supreme Court of XXXXXXXXXX, the Child A XXXXXXXXXX Trust will then distribute to Child A, the primary beneficiary under the Child A XXXXXXXXXX Trust and his three children (the Minors), the assets of the Child A XXXXXXXXXX Trust less the XXXXXXXXXX Preferred Shares or other assets that are estimated to be required to be held in the Child A XXXXXXXXXX Trust for the purposes of paying the taxes and other costs relating to the proposed transactions. The allocation of the assets of the Child A XXXXXXXXXX Trust among Child A and his three children will be determined after obtaining a valuation by a qualified actuary and valuator and pursuant to negotiations with the lawyer for the Contingent Beneficiaries and shall be approved by the order of the Supreme Court of XXXXXXXXXX. The aggregate value of the shares or other assets distributed to the Minors, and the XXXXXXXXXX Preferred Shares held in the Contingent Trust established by the Child A XXXXXXXXXX Trust shall be equal to Contingent Value A.

19. The shares issued to the Minors will be issued to Child A as the legal guardian of his children's property. Three separate share certificates will be issued to Child A being one for each of his children. Child A will be holding these shares as legal guardian of this property while the children are minors and it is

only because they are minors that the shares are not being transferred in their names. The shares held for Minor 1 will be vested indefeasibly in him, the shares held for Minor 2 will be vested indefeasibly in him and the shares held for Minor 3 will be indefeasibly vested in him.

20. Mr. X will subscribe for and each of the Holdcos will issue to him XXXXXXXXXX voting preferred shares with a par value and redemption value of $XXXXXXXXXX per share. The subscription price in each case will be the aggregate par value of the XXXXXXXXXX voting preferred shares, i.e. $XXXXXXXXXX.

21. The XXXXXXXXXX Trusts will be wound up following the filing of the appropriate income tax returns and elections with the Canada Customs and Revenue Agency (the "CCRA").

PURPOSE OF THE PROPOSED TRANSACTIONS

22. The application of the 21-year deemed disposition rule in subsection 104(4) to the XXXXXXXXXX Trusts would cause a significant disruption in the ongoing operations of the family owned and controlled operating companies. Raising the necessary funds to pay the income tax as a result of the application of the rule would dramatically interfere with financing arrangements of and generally have a devastating effect on the group of companies. Therefore, a decision has been made to distribute the assets prior to the 21st anniversary of the creation of the XXXXXXXXXX Trusts. In order to make the necessary distributions, the XXXXXXXXXX Trusts must be amended pursuant to the Variation of Trusts Act upon application to the Supreme Court of XXXXXXXXXX. The Court will require that the interests of the contingent minor and unborn and unascertained beneficiaries be protected. The interests of the Contingent Beneficiaries are represented by a lawyer appointed for this purpose. The Contingent Trusts and the special preferred share structure ensure that the interests of the Contingent Beneficiaries of the Child C XXXXXXXXXX Trust, the Child D XXXXXXXXXX Trust and the Child B XXXXXXXXXX Trust have been protected by placing in the Contingent Trusts for their benefit, shares of Yco having a value equal to the value of their respective Contingent Value. Child A's situation is different because he is the only child having living children. Therefore, the value of the contingent interest in the Child A XXXXXXXXXX Trust is greater than those in the other XXXXXXXXXX Trusts. To account for this, the proposal is to leave in the Contingent Trust established for the Child A XXXXXXXXXX Trust the same number of XXXXXXXXXX Preferred Shares as required to be held by the Contingent Trust established for the Child C XXXXXXXXXX Trust and as required by the lawyer for the Contingent Beneficiaries and as approved by the Supreme Court of XXXXXXXXXX. The excess of Contingent Value A over Contingent Value C will be accounted for by issuing to the living children of Child A (Minor 1, Minor 2, and Minor 3) common shares of AHoldco. If there had been other living children of any of the other primary beneficiaries, a similar distribution would have been made to them in partial settlement of their capital interests in the XXXXXXXXXX Trusts. However, there are no other living Contingent Beneficiaries.

23. The reason for the series of stock dividends is to maximize the use of the capital dividend account as part of this transaction and to equalize the value of the interests held by each of the four family groups (Child A, Child B, Child C, and Child D). As part of this transaction, each of the four family groups will receive the same value of preferred shares of Yco (but in different combinations of XXXXXXXXXX Preferred Shares and XXXXXXXXXX Preferred Shares). This merely ensures that there is no shift in the value of Yco between the four family groups.

24. The purpose of the transfers to the Holdcos is merely to provide for a method of treating the primary beneficiaries equally after the reorganization on distributions from Yco. It may become advisable because of the particular needs of a primary beneficiary to pay that primary beneficiary a dividend out of Yco through the Holdco. The Holdco structure allows the dividend to flow to the holding company on a tax efficient basis (subject to Part IV tax). The dividend could then be paid out of the Holdco depending upon the personal needs of the shareholders. This allows for the Children to be treated equally without imposing an immediate tax burden on those Children who would otherwise not wish to use the funds for personal purposes.

25. With respect to the issuance of the convertible promissory notes in paragraphs 13 and 14 above, the reason that convertible promissory notes are being issued on the redemption of the XXXXXXXXXX Preferred Shares, rather than simply issuing XXXXXXXXXX Preferred Shares, is to avoid an inappropriate result under subsections 84(5) and 86(2.1). Subsection 84(5) provides special rules when a portion of the deemed dividend under subsection 84(3) is paid in the corporation's own shares. Subsection 84(3) provides a deemed dividend for the "amount" paid exceeding PUC. According to subsection 84(5), the "amount" paid through the issue of the XXXXXXXXXX Preferred Shares for this purpose would be equal to the increase in PUC of the XXXXXXXXXX Preferred Shares by virtue of their issue on the redemption of the XXXXXXXXXX Preferred Shares.

Subsections 86(2.1) and 51(3) however provide a formula to calculate a reduction in the PUC of the XXXXXXXXXX Preferred Shares at or after an exchange where section 86 or section 51 applies. The effect of subsections 86(2.1) and 51(3) is to permit the deficiency in the PUC of the old shares (the XXXXXXXXXX Preferred Shares) to flow through to the new shares (the XXXXXXXXXX Preferred Shares). Applying this formula to the facts above, there would not be an increase in the PUC of the XXXXXXXXXX Preferred Shares if they were issued on the redemption of the XXXXXXXXXX Preferred Shares. In other words, there would be a grind in the PUC of the XXXXXXXXXX Preferred Shares if issued on the redemption. Therefore, the convertible promissory notes will be issued on the redemption of the XXXXXXXXXX Preferred Shares to ensure that the appropriate deemed dividend will be incurred and that on the subsequent conversion of the promissory notes, XXXXXXXXXX Preferred Shares can be issued with the appropriate PUC.

RULINGS GIVEN

Provided that the preceding statements are accurate and constitute complete disclosure of all relevant facts, proposed transactions and purpose thereof and the proposed transactions are carried out as herein described, our advance income tax rulings are as follows:

A. Subsection 107(2) will apply to the distribution of the assets of the XXXXXXXXXX Trusts to the Children and to the Minors pursuant to paragraph 18 above.

B. The variations of the XXXXXXXXXX Trusts, if so approved by the Supreme Court of XXXXXXXXXX, will not, in and by themselves, result in a disposition for income tax purposes of any property of the XXXXXXXXXX Trusts or any beneficiary's interest in the XXXXXXXXXX Trusts for the purposes of sections 106 or 107.

C. Provided that joint elections are filed in prescribed form and within the time set forth in subsection 85(6), the provisions of subsection 85(1) will apply to the transfers described in paragraph 17 above such that the agreed amounts in respect of each transfer shall be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a) and, for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

D. The provisions of subsections 15(1), 56(2), 105(1) and 246(1) will not be applied as a result of the proposed transactions, in and by themselves.

E. Subsection 75(2) will not apply to attribute income, losses, taxable capital gains or allowable capital losses of the Contingent Trusts to Mr. X , Mrs. X or the particular primary beneficiary of the XXXXXXXXXX Trusts as a result of the proposed transactions, in and by themselves.

F. As a result of the redemptions of the XXXXXXXXXX Preferred Shares by the Child C XXXXXXXXXX Trust and the Child A XXXXXXXXXX Trust as described in paragraphs 13 and 14 above, by virtue of paragraphs 84(3)(a) and 84(3)(b):

(i) Yco will be deemed to have paid, and the Child C XXXXXXXXXX Trust will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the XXXXXXXXXX Preferred Shares exceeds the PUC thereof; and

(ii) Yco will be deemed to have paid, and the Child A XXXXXXXXXX Trust will be deemed to have received a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the XXXXXXXXXX Preferred Shares exceeds the PUC thereof.

G. Provided that the fair market value of the XXXXXXXXXX Preferred Shares issued in settlement of the promissory notes is equal to face value of the promissory notes, section 80 will not apply on the conversion described in paragraphs 13 and 14 above.

H. For greater certainty subsection 104(4) will not apply to cause there to be a deemed disposition of the common shares of AHoldco held by Child A for the Minors by virtue of paragraph (g) of the definition of trust in subsection 108(1) with respect to any trust so found.

I. The proposed transactions will not, in and by themselves, cause the Contingent Trusts to fail to meet the definition of a "personal trust" as defined in subsection 248(1).

J. The proposed transactions will not, in and by themselves, cause the 1979 Trusts to cease to meet the definition of a "personal trust" as defined in subsection 248(1).

K. Subsection 15(1.1) will not apply to the stock dividends paid pursuant to paragraph 12 above.

L. Subsection 83(2) will apply to the payment of the capital dividend to the extent of the capital dividend account of Yco immediately before the dividend becomes payable pursuant to paragraph 12 above and, for greater certainty, subsection 83(2.1) will not be applied to recharacterize the payment of the dividend made pursuant to subsection 83(2) as a taxable dividend.

M. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3, Advance Income Tax Rulings, and are binding on the CCRA provided the proposed transactions are completed within six months of the date of this letter.

Comments

Nothing in this letter should be construed as implying that the CCRA has agreed to or accepted:

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

(b) any tax consequences arising from the facts or proposed transactions described above other than those specifically confirmed in the rulings given.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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