2000 Ruling 2000-0003253 - Safe income

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:

1. Where a share ("exchanged share") is exchanged for shares ("new shares") at ACB to the transferor on a rollover basis, whether the full safe income on hand attributable to the exchanged shares owned by the transferor immediately before the exchange will flow through to the new shares received by the transferor on the exchange.

2. Whether each of the dividend recipients will have a different safe income determination time for purposes of subsection 55(2) when the proposed dividend payments to each of the dividend recipients is part of the same series that includes the proposed transactions.

Position:

1. Provided that the condition set out below is met, the answer is yes.

2. No.

Reasons:

1. Provided that the FMV of the new shares received on the exchange is not less than the FMV of the transferor's exchanged shares immediately before the exchange.

2. The definition of "safe income determination time" contemplates only one safe income determination time for the entire series of transactions.

XXXXXXXXXX
XXXXXXXXXX 									2000-000325
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. In your letters of XXXXXXXXXX you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein:

(i) is in an earlier return of the taxpayer or a related person;

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

(iii) is under objection by the taxpayer or a related person;

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

(v) is the subject of a ruling previously issued by the Income Tax Rulings Directorate.

DEFINITIONS

In this letter, the following terms have the meanings specified:

(a) Unless otherwise indicated, all references to statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended ( the "Act");

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

(c) "agreed amount" has the meaning assigned by subsection 85(1);

(d) "BCA1" means the Business Corporations Act XXXXXXXXXX;

(e) "BCA2" means the Business Corporations Act XXXXXXXXXX;

(f) "capital property" has the meaning assigned by the definition in section 54;

(g) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c.C-44;

(h) "cost amount" has the meaning assigned by subsection 248(1);

(i) "FMV" means fair market value;

(j) "private corporation" has the meaning assigned by subsection 89(1);

(k) "public corporation" has the meaning assigned by subsection 89(1);

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

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

(n) "related persons" has the meaning assigned by section 251;

(o) "safe-income determination time" has the meaning assigned by subsection 55(1);

(p) "safe income on hand" in respect of a particular share of a corporation at a particular time means the portion of the unrealized gain inherent in such share of the corporation at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events that includes the proposed transactions as described below;

(q) "series of transactions or events" has the meaning assigned by subsection 248(10);

(r) "SFI" means specified financial institution as defined in subsection 248(1);

(s) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);

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

(u) "taxable dividend" has the meaning assigned by subsection 89(1); and

(v) "valuation day" has the meaning assigned by section 24 of the Income Tax Application Rules.

Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS

1. XXXXXXXXXX ("Holdco") is a taxable Canadian corporation and a private corporation which is governed by the provisions of the CBCA. Holdco's federal tax account number is XXXXXXXXXX. Holdco has a XXXXXXXXXX year end. Its tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

Holdco was formed by Articles of Amalgamation dated XXXXXXXXXX of five companies; namely: XXXXXXXXXX ("Subco1"), XXXXXXXXXX ("Subco2"), XXXXXXXXXX ("Subco3"), XXXXXXXXXX ("Subco4"), and XXXXXXXXXX ("Subco5").

The issued and outstanding capital of Holdco consists of:

(a) XXXXXXXXXX shares, which are owned by XXXXXXXXXX ("Aco"), with an aggregate PUC of $XXXXXXXXXX;

(b) XXXXXXXXXX shares, which are owned by XXXXXXXXXX ("Bco"), with an aggregate PUC of $XXXXXXXXXX; and

(c) XXXXXXXXXX shares, of which

(i) XXXXXXXXXX are owned by XXXXXXXXXX ("Cco"), with an aggregate PUC of $XXXXXXXXXX;

(ii) XXXXXXXXXX are owned by XXXXXXXXXX ("Dco"), with an aggregate PUC of $XXXXXXXXXX; and

(iii) XXXXXXXXXX are owned by XXXXXXXXXX ("Eco"), with an aggregate PUC of $XXXXXXXXXX.

There is no preference or priority between the Holdco XXXXXXXXXX shares, the Holdco XXXXXXXXXX shares and the Holdco XXXXXXXXXX shares with respect to the payment of dividends. Subject to the provisions of any unanimous shareholder agreement or voting trust agreement, the directors of Holdco may, with the consent in writing of all of the shareholders of Holdco, declare dividends on the issued shares of any one or more classes of shares without declaring dividends on the other class or classes of shares in the capital stock of Holdco. However, upon dissolution of Holdco, the Holdco XXXXXXXXXX shares have a first preference of XXXXXXXXXX ¢ per share, the Holdco XXXXXXXXXX shares have a second preference of XXXXXXXXXX ¢ per share and the Holdco XXXXXXXXXX shares have a third preference of XXXXXXXXXX ¢ per share. Otherwise, the Holdco XXXXXXXXXX shares, the Holdco XXXXXXXXXX shares and the Holdco XXXXXXXXXX shares are identical to each other in all respects.

The property of Holdco includes :

(d) XXXXXXXXXX shares of XXXXXXXXXX ("Opco"), with an aggregate ACB to Holdco of $XXXXXXXXXX and XXXXXXXXXX shares of Opco, with an aggregate ACB to Holdco of $XXXXXXXXXX; and

(e) cash and marketable securities having a value at XXXXXXXXXX, of approximately $XXXXXXXXXX.

Approximately XXXXXXXXXX Opco XXXXXXXXXX shares owned by Holdco are pre-valuation day shares.

The Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares constitute capital property to Holdco.

2. Opco is a taxable Canadian corporation and a public corporation which is governed by the CBCA. Opco's federal income tax account number is XXXXXXXXXX. Opco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding capital of Opco as at XXXXXXXXXX consisted of

(a) XXXXXXXXXX shares, having an estimated PUC of $XXXXXXXXXX per share, of which XXXXXXXXXX are owned by Holdco, and

(b) XXXXXXXXXX shares, having an estimated PUC of $XXXXXXXXXX per share, of which XXXXXXXXXX are owned by Holdco.

Opco has not computed the PUC of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares but the PUC is not expected to differ materially from the amounts reflected in the capital stock accounts of Opco.

The Opco XXXXXXXXXX shares and Opco XXXXXXXXXX shares have the following rights and attributes:

(i) each Opco XXXXXXXXXX share is entitled to one vote per share whereas each Opco XXXXXXXXXX share is entitled to XXXXXXXXXX votes per share;

(ii) dividends may be paid on the Opco XXXXXXXXXX shares and Opco XXXXXXXXXX shares at the same time, provided that

(I) all such dividends shall be declared and paid in equal amounts per share on all the outstanding Opco XXXXXXXXXX shares,

(II) all such dividends shall be declared and paid in equal amounts per share on all the outstanding Opco XXXXXXXXXX shares, and

(III) the amount of such dividends payable on each Opco XXXXXXXXXX share shall equal XXXXXXXXXX % of the amount of such dividends payable on each Opco XXXXXXXXXX share;

(iii) the holders of Opco XXXXXXXXXX shares are entitled to convert any of their Opco XXXXXXXXXX Shares to Opco XXXXXXXXXX Shares on the basis of one Opco XXXXXXXXXX Share for each Opco XXXXXXXXXX Share converted;

(iv) there are coattail provisions in the Articles of Amalgamation of Opco in favour of the Opco XXXXXXXXXX Shares with respect to any take-over bid for Opco XXXXXXXXXX Shares which is not also made to the holders of Opco XXXXXXXXXX Shares; and

(v) with respect to all other matters, including the distribution of the assets of Opco upon a winding up of Opco, the Opco XXXXXXXXXX Shares and Opco XXXXXXXXXX Shares have the same rights and attributes and are the same in all respects.

XXXXXXXXXX

As at XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares held by Holdco represent XXXXXXXXXX% of the voting rights and XXXXXXXXXX% of the common equity of Opco. Also, XXXXXXXXXX ("Individual A"), owned about XXXXXXXXXX% of the voting rights and about XXXXXXXXXX % of the common equity of Opco as at XXXXXXXXXX.

XXXXXXXXXX

3. Aco is a taxable Canadian corporation and a private corporation which is governed by the BCA2. Aco's federal tax account number is XXXXXXXXXX. Aco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

Aco's capital consists of:

(a) XXXXXXXXXX voting common shares and XXXXXXXXXX voting common shares which are owned by taxable Canadian corporations which are owned by Individual A, his spouse XXXXXXXXXX and his three children: XXXXXXXXXX ("Child A1"), XXXXXXXXXX ("Child A2") and XXXXXXXXXX ("Child A3"); and

(b) XXXXXXXXXX redeemable and retractable preference shares which are owned by a taxable Canadian corporation which is owned by an individual who is not related to Individual A. The XXXXXXXXXX Aco redeemable and retractable preference shares represent a small minority interest of the third party in Aco.

Aco is controlled by XXXXXXXXXX ("Zco"), which is a taxable Canadian corporation and a private corporation. Child A1 owns XXXXXXXXXX% of the voting shares of Zco. However, under the terms of an unanimous shareholder agreement among the shareholders of Zco, the Board of Directors of Zco is to consist of four directors, one director is to be nominated by each of Individual A, Child A1, Child A2 and Child A3.

The property of Aco includes XXXXXXXXXX Holdco XXXXXXXXXX shares with an estimated aggregate ACB of $XXXXXXXXXX. Aco holds the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

XXXXXXXXXX

Individual A's siblings include XXXXXXXXXX ("Individual B"), XXXXXXXXXX ("Individual C") and XXXXXXXXXX ("Individual D").

4. Bco is a taxable Canadian corporation and a private corporation which is governed by the BCA2. Bco's federal tax account number is XXXXXXXXXX. For XXXXXXXXXX and prior years, Bco's tax affairs have been administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns have been filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding capital of Bco consists of:

(a) XXXXXXXXXX non-voting, redeemable and retractable XXXXXXXXXX Shares which are all owned by XXXXXXXXXX ("Xco"), having an aggregate PUC of $XXXXXXXXXX and an aggregate redemption amount equal to the FMV of the XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares transferred by Xco to Bco as described in paragraph 11 below;

(b) XXXXXXXXXX non-voting, redeemable and retractable XXXXXXXXXX Shares which are all owned by XXXXXXXXXX ("Yco"), having an aggregate PUC of $XXXXXXXXXX and an aggregate redemption amount equal to the FMV of the XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares transferred by Yco to Bco as described in paragraph 11 below; and

(c) XXXXXXXXXX common shares which are owned by Xco and Yco equally, having an aggregate PUC of $XXXXXXXXXX.

Each of the Bco common shares, the Bco XXXXXXXXXX Shares and the Bco XXXXXXXXXX Shares are entitled to such dividends as are declared in the discretion of the Directors of Bco. Pursuant to a unanimous shareholder agreement between the shareholders of Bco, the issued and outstanding Bco XXXXXXXXXX Shares and Bco XXXXXXXXXX Shares are entitled to share proportionately in all of the assets of Bco, and prior to a liquidation of Bco, all of the assets of Bco would be distributed pro rata to the holders of Bco XXXXXXXXXX Shares and Bco XXXXXXXXXX Shares. As a consequence, the Bco common shares have only a nominal value.

The property of Bco includes XXXXXXXXXX Holdco XXXXXXXXXX shares, with an estimated aggregate ACB to Bco of $XXXXXXXXXX. Bco holds the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

5. Xco is a taxable Canadian corporation and a private corporation which is governed by the BCA2. Xco's federal tax account number is XXXXXXXXXX. For XXXXXXXXXX and prior years Xco's tax affairs have been administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns have been filed at the XXXXXXXXXX Taxation Centre

The issued and outstanding shares of Xco are owned by:

(a) Individual B;

(b) Individual B's children;

(c) a Canadian resident trust ("B First Trust") established for the benefit of Individual B's children and grandchildren; and

(d) a second Canadian resident trust ("B Second Trust") established for the benefit of Individual B, XXXXXXXXXX children and grandchildren, which owns about XXXXXXXXXX% of the voting shares of Xco.

The property of Xco includes the XXXXXXXXXX Bco XXXXXXXXXX Shares with an estimated aggregate ACB to Xco of $XXXXXXXXXX and XXXXXXXXXX Bco common shares with an aggregate ACB to Xco of $XXXXXXXXXX. Xco holds the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares as capital property.

The trustees of the B Second Trust consist of Individual C, Individual D and XXXXXXXXXX, an unrelated lawyer. Any decision made by two of the three trustees binds the B Second Trust.

Individual B is related to each of the beneficiaries of the B Second Trust for the purposes of section 55; consequently pursuant to subparagraph 55(5)(e)(ii), Individual B is related to the B Second Trust for the purposes of section 55.

XXXXXXXXXX

It is contemplated that the voting shares of Xco held by the B Second Trust will be distributed to Individual B; however, any such transfer will occur only after the implementation of the proposed amalgamation of Cco with Dco to form Amalco as described in paragraph 18 below.

6. Yco is a taxable Canadian corporation and a private corporation which is governed by the BCA2. Yco's federal tax account number is XXXXXXXXXX. For the XXXXXXXXXX and prior years, Yco's tax affairs have been administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns have been filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding shares of Yco are owned by

(a) Individual B;

(b) Individual C, XXXXXXXXXX,

(c) Individual C's children; and

(d) a Canadian resident trust established for Individual C's children and grandchildren ("CTrust").

The voting shares of Yco are owned by Individual C, Individual B, and CTrust as to XXXXXXXXXX, respectively. Individual B does not own any participating shares in Yco.

The property of Yco includes XXXXXXXXXX Bco XXXXXXXXXX Shares, with an aggregate ACB to Yco of $XXXXXXXXXX and XXXXXXXXXX Bco common shares, with an aggregate ACB to Yco of $XXXXXXXXXX Yco holds the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares as capital property.

7. Cco is a taxable Canadian corporation and a private corporation which is governed by the BCA1. Cco's federal tax account number is XXXXXXXXXX. Cco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding capital of Cco consists of XXXXXXXXXX common shares and XXXXXXXXXX common shares which are all owned by XXXXXXXXXX ("Wco").

The property of Cco includes XXXXXXXXXX Holdco XXXXXXXXXX shares, with an estimated ACB to Cco of $XXXXXXXXXX. Cco holds the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

Wco is a taxable Canadian corporation and a private corporation. Its issued and outstanding capital consists of :

(a) XXXXXXXXXX preferred shares which are owned by Individual D;

(b) XXXXXXXXXX preferred shares, of which XXXXXXXXXX are owned by Individual D and XXXXXXXXXX by Individual A;

(c) XXXXXXXXXX preferred shares which are owned by Individual D; and

(d) XXXXXXXXXX common shares which are owned by a Canadian resident trust established for the benefit of the children and grandchildren of Individual D.

Cco is controlled by Individual A and Individual D through their direct control of Wco.

8. Dco is a taxable Canadian corporation and a private corporation which is governed by the BCA1. Dco's federal tax account number is XXXXXXXXXX. Dco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding capital of Dco consists of XXXXXXXXXX common shares which are owned as follows:

(a) XXXXXXXXXX ("Dchildco1"), XXXXXXXXXX%;

(b) XXXXXXXXXX ("Dchildco2"), XXXXXXXXXX%;

(c) XXXXXXXXXX ("Dchildco3"), XXXXXXXXXX%; and

(d) XXXXXXXXXX ("Dchildco4"), XXXXXXXXXX%.

Each of Dchildco1, Dchildco2, Dchildco3 and Dchildco4 is a taxable Canadian corporation and a private corporation and is controlled by Individual D through his ownership of voting preferred shares in each of them. The common shares of each of Dchildco1, Dchildco2, Dchildco3 and Dchildco4 are owned by one of the 4 children of Individual D.

The property of Dco includes XXXXXXXXXX Holdco XXXXXXXXXX shares, with an estimated aggregate ACB to Dco of $XXXXXXXXXX. Dco holds the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

XXXXXXXXXX

9. Eco is a taxable Canadian corporation and a private corporation which is governed by the BCA1. Eco's federal tax account number is XXXXXXXXXX. Eco's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

The issued and outstanding capital of Eco consists of :

(a) XXXXXXXXXX common shares which are held by Dchildco1, Dchildco2, Dchildco3, and Dchildco4 equally;

(b) XXXXXXXXXX preferred shares which are held by Dchildco1, Dchildco2, Dchildco3, and Dchildco4 equally;

(c) XXXXXXXXXX preferred shares, XXXXXXXXXX, which are held by Individual D;

(d) XXXXXXXXXX preferred shares, XXXXXXXXXX, which are held by Individual D; and

(e) XXXXXXXXXX preferred shares, XXXXXXXXXX, which are held by XXXXXXXXXX, a taxable Canadian corporation which is controlled by Individual D.

Eco is controlled by Individual D through his ownership of voting preferred shares in Dchildco1, Dchildco2, Dchildco3 and Dchildco4.

The property of Eco includes XXXXXXXXXX Holdco XXXXXXXXXX shares with an estimated aggregate ACB to Eco of $XXXXXXXXXX. Eco holds the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

10. Prior to XXXXXXXXXX, the issued shares of Opco were owned as follows:

(a) Aco owned XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares;

(b) Xco owned XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares;

(c) Yco owned XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares;

(d) Cco owned XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares;

(e) Dco owned XXXXXXXXXX Opco XXXXXXXXXX shares; and

(f) Eco owned XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares.

Pursuant to a XXXXXXXXXX voting trust and option agreement among Individual A, Individual B, Individual C, and the predecessor corporation of Xco and of Yco, and a XXXXXXXXXX voting trust and option agreement among Individual A and his family, Individual D and his family, the Canadian corporations that were controlled by Individual A and his family and that owned the voting shares of Aco, the Canadian corporations that were controlled by Individual D and his family and that owned the voting shares of Cco, Dco or Eco, and Opco ( the "Voting Trust and Option Agreements"), each of the parties to the Voting Trust and Option Agreements were bound by such agreements to provide voting control of Opco to Individual A, his children and Aco.

11. In XXXXXXXXXX, Xco and Yco incorporated Bco and each subscribed for XXXXXXXXXX Bco common shares for a cash consideration of $XXXXXXXXXX.

In XXXXXXXXXX, the following transfers of Opco shares occurred:

(a) Xco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Bco at FMV. As consideration for such transfer, Bco issued XXXXXXXXXX Bco XXXXXXXXXX Shares, having an aggregate FMV and redemption amount equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Bco;

(b) Yco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Bco at FMV. As consideration for such transfer, Bco issued XXXXXXXXXX Bco XXXXXXXXXX Shares, having an aggregate FMV and redemption amount equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Bco;

(c) Aco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Subco1, its subsidiary wholly-owned corporation, at FMV. As consideration for such transfer, Subco1 issued XXXXXXXXXX Subco1 common shares to Aco, having an aggregate FMV equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Subco1;

(d) Bco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Subco2, its subsidiary wholly-owned corporation, at FMV. As consideration for such transfer, Subco2 issued XXXXXXXXXX Subco2 common shares to Bco, having an aggregate FMV equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Subco2;

(e) Cco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Subco3, its subsidiary wholly-owned corporation at FMV. As consideration for such transfer, Subco3 issued XXXXXXXXXX Subco3 XXXXXXXXXX common shares to Cco, having an aggregate FMV equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Subco3;

(f) Dco transferred its XXXXXXXXXX Opco XXXXXXXXXX shares to Subco4, its subsidiary wholly-owned corporation at FMV. As consideration for such transfer, Subco4 issued XXXXXXXXXX Subco4 XXXXXXXXXX common shares to Dco, having an aggregate FMV equal to the FMV of the Opco XXXXXXXXXX shares so transferred to Subco4; and

(g) Eco transferred its XXXXXXXXXX Opco XXXXXXXXXX Shares and XXXXXXXXXX Opco XXXXXXXXXX shares to Subco5, its subsidiary wholly-owned corporation at FMV. As consideration for such transfer, Subco5 issued XXXXXXXXXX Subco5 XXXXXXXXXX common shares, having an aggregate FMV equal to the FMV of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares so transferred to Subco5.

In respect of each of the transfers as described in paragraphs (a) through (g) above,

(h) the transferor and the transferee jointly elected pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, in respect of the disposition of the Opco shares. The agreed amount in respect of each election was equal to the ACB to the transferor of the Opco shares so transferred to the transferee at the time of the disposition, which amount was less than their FMV; and

(i) the PUC of the shares so issued by the transferee was equal to the aggregate agreed amount in respect of the election.

12. Prior to XXXXXXXXXX, Subco2 sold XXXXXXXXXX Opco XXXXXXXXXX shares at a price of $ XXXXXXXXXX. The ACB to Subco2 of the XXXXXXXXXX Opco XXXXXXXXXX shares sold was $XXXXXXXXXX. Subco2 paid a dividend in excess of the proceeds of sale of the XXXXXXXXXX Opco XXXXXXXXXX shares to its shareholders.

On or about XXXXXXXXXX, Subco1, Subco2, Subco3, Subco4 and Subco5 were amalgamated pursuant to the provisions of the CBCA to form Holdco ( the "XXXXXXXXXX Amalgamation"). Subsection 87(1) of the Act applied to this amalgamation. By virtue of the amalgamation, each of Aco, Bco, Cco, Dco and Eco received one Holdco share for each Opco XXXXXXXXXX share or Opco XXXXXXXXXX share held by its subsidiary wholly-owned corporation at the time of the amalgamation. Equal value was placed on the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares at the time of the amalgamation. As a result,

(a) Aco received XXXXXXXXXX Holdco XXXXXXXXXX shares,

(b) Bco received XXXXXXXXXX Holdco XXXXXXXXXX shares,

(c) Cco received XXXXXXXXXX Holdco XXXXXXXXXX shares,

(d) Dco received XXXXXXXXXX Holdco XXXXXXXXXX shares, and

(e) Eco received XXXXXXXXXX Holdco XXXXXXXXXX shares.

By virtue of the amalgamation, Holdco owned XXXXXXXXXX Opco XXXXXXXXXX shares with an aggregate ACB to Holdco of $XXXXXXXXXX and XXXXXXXXXX Opco XXXXXXXXXX shares with an aggregate ACB to Holdco of $XXXXXXXXXX.

XXXXXXXXXX

(i)

XXXXXXXXXX

(ii)

XXXXXXXXXX

XXXXXXXXXX

13.

XXXXXXXXXX

(a) XXXXXXXXXX

(b) XXXXXXXXXX

XXXXXXXXXX

14. Yco is desirous of selling its indirect interest in Opco. To that end, there were negotiations between Bco and its shareholders and Individual A but such negotiations have terminated

XXXXXXXXXX

15. Holdco has engaged XXXXXXXXXX to determine:

(a) the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Aco, the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Bco, and the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Amalco; and

(b) the safe income on hand attributable to the XXXXXXXXXX Bco XXXXXXXXXX Shares held by Xco, and the XXXXXXXXXX Bco XXXXXXXXXX Shares held by Yco.

Prior to the commencement of the proposed transactions as described below, XXXXXXXXXX will be advising Holdco and Bco of its determination of the estimated safe income on hand attributable to the Holdco shares and the Bco shares as described in (a) and (b) above.

16. Immediately prior to implementation of the proposed transactions described below, Individual A, Individual B, Individual C, Individual D, Xco, Yco, Aco, Bco, Cco, Dco, and Eco will agree that, provided that the proposed transactions described below are completed, XXXXXXXXXX the Voting Trust and Option Agreements described in paragraph 10 above, will be of no further force or effect

XXXXXXXXXX

PROPOSED TRANSACTIONS

17. Eco will transfer to Dco all of its XXXXXXXXXX Holdco XXXXXXXXXX shares at FMV. As sole consideration for such transfer, Dco will issue XXXXXXXXXX of its XXXXXXXXXX common shares to Eco, having an aggregate FMV equal to the FMV of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred to Dco.

Dco and Eco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Dco of the XXXXXXXXXX Holdco XXXXXXXXXX shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Eco of the XXXXXXXXXX Holdco XXXXXXXXXX shares at the time of the disposition and such amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Pursuant to the applicable provisions of the BCA1, the addition to the stated capital of Dco in respect of the issuance of the Dco XXXXXXXXXX common shares will be equal to the cost to Dco of the XXXXXXXXXX Holdco XXXXXXXXXX shares transferred to Dco as described herein.

18. Pursuant to the provisions of the BCA1, Cco will amalgamate with Dco to form Amalco. This amalgamation will be a qualifying amalgamation for the purposes of subsection 87(1) of the Act. Each holder of Cco XXXXXXXXXX common shares, Cco XXXXXXXXXX common shares or Dco XXXXXXXXXX common shares (except any predecessor corporation) will receive one Amalco XXXXXXXXXX common share for each such share held by such person immediately before the amalgamation. The Amalco common shares received by each such shareholder will have an aggregate FMV equal to the aggregate FMV of the Cco XXXXXXXXXX common shares, the Cco XXXXXXXXXX common shares or the Dco XXXXXXXXXX common shares, as the case may be, held by such person immediately before the amalgamation.

The Cco XXXXXXXXXX common shares, the Cco XXXXXXXXXX common shares and the Dco XXXXXXXXXX common shares will be cancelled on the amalgamation.

The aggregate stated capital of the Amalco XXXXXXXXXX common shares will be equal to the aggregate PUC, immediately before the amalgamation, of the Cco XXXXXXXXXX common shares, the Cco XXXXXXXXXX common shares and the Dco XXXXXXXXXX common shares (excluding any such shares owned by a predecessor corporation).

By virtue of the amalgamation, Amalco will own the XXXXXXXXXX Holdco XXXXXXXXXX shares with an estimated aggregate ACB to Amalco of $XXXXXXXXXX. Amalco will hold the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

Amalco will be controlled by Individual D through his Canadian private corporations.

19. Holdco will declare and pay a dividend in kind pro rata to all of its shareholders equal to the FMV of its net assets, other than of its Opco shares, so that when the shares of Holdco are transferred to Opco by Aco, Xco, Yco and Amalco as described in paragraphs 31, 32, 33 and 34 below, Holdco's only property will consist of the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares and cash equal to its known liabilities.

20. Pursuant to the applicable provisions of the CBCA, Holdco will add to the stated capital account in respect of its XXXXXXXXXX shares, an amount not to exceed the estimate of the safe income on hand that is attributable to such shares at that time. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares as described in paragraph 19 above. This addition to the stated capital account of Holdco will be approved by a special resolution of the shareholders of Holdco.

Bco will file one or more designations, pursuant to paragraph 55(5)(f) of the Act, in its return of income under Part I for the taxation year in which a dividend is deemed to be received by it as a result of the transactions referred to herein, to treat a portion of such deemed dividend as a separate taxable dividend.

21. Pursuant to the applicable provisions of the CBCA, Holdco will add to the stated capital account in respect of its XXXXXXXXXX shares, an amount not to exceed the estimate of the safe income on hand that is attributable to such shares at that time. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares as described in paragraph 19 above. This addition to the stated capital account of Holdco will be approved by a special resolution of the shareholders of Holdco.

Aco will file one or more designations, pursuant to paragraph 55(5)(f) of the Act, in its return of income under Part I for the taxation year in which a dividend is deemed to be received by it as a result of the transactions referred to herein, to treat a portion of such deemed dividend as a separate taxable dividend.

22. Pursuant to the applicable provisions of the CBCA, Holdco will add to the stated capital account in respect of its XXXXXXXXXX shares, an amount not to exceed the estimate of the safe income on hand that is attributable to such shares at that time. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares as described in paragraph 19 above. This addition to the stated capital account of Holdco will be approved by a special resolution of the shareholders of Holdco.

Amalco will file one or more designations, pursuant to paragraph 55(5)(f) of the Act, in its return of income under Part I for the taxation year in which a dividend is deemed to be received by it as a result of the transaction referred to in herein, to treat a portion of such deemed dividend as a separate taxable dividend.

23. Immediately after the payment of dividends by Holdco as described in paragraph 19 above, and the additions to the stated capital account for the Holdco shares as described in paragraphs 20, 21 and 22, Bco will pay a dividend in kind pro rata to each of Xco (in respect of the XXXXXXXXXX Bco XXXXXXXXXX Shares) and Yco (in respect of the XXXXXXXXXX Bco XXXXXXXXXX Shares) in an aggregate amount equal to the FMV of Bco's net assets, other than the XXXXXXXXXX Holdco XXXXXXXXXX shares, so that when the Bco shares are transferred to Holdco by Xco and Yco, as described in paragraphs 26 and 27 below, its only property will consist of the XXXXXXXXXX Holdco XXXXXXXXXX shares and cash equal to its known liabilities.

24 Pursuant to the applicable provisions of the BCA2, Bco will add to the stated capital accounts in respect of its XXXXXXXXXX Shares held by Yco, and its XXXXXXXXXX Shares held by Xco, an amount not to exceed the estimate of the safe income on hand that is attributable to such shares at that time. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares as described in paragraph 23 above. These additions to the stated capital accounts of the Bco XXXXXXXXXX Shares and the Bco XXXXXXXXXX Shares will be approved by a special resolution of the shareholders of Bco.

Xco will file one or more designations, pursuant to paragraph 55(5)(f) of the Act, in its return of income under Part I for the taxation year in which a dividend is deemed to be received by it as a result of the transaction referred to herein, in respect of its XXXXXXXXXX Bco XXXXXXXXXX shares, to treat a portion of such deemed dividend as a separate taxable dividend.

Yco will file one or more designations, pursuant to paragraph 55(5)(f) of the Act, in its return of income under Part I for the taxation year in which a dividend is deemed to be received by it as a result of the transaction referred to herein, in respect of its XXXXXXXXXX Bco XXXXXXXXXX shares, to treat a portion of such deemed dividend as a separate taxable dividend.

25. Prior to the transfers of Xco's XXXXXXXXXX Bco XXXXXXXXXX shares and XXXXXXXXXX Bco common shares to Holdco as described in paragraph 27 below, and Yco's XXXXXXXXXX Bco XXXXXXXXXX Shares and XXXXXXXXXX Bco common shares to Holdco as described in paragraph 26 below, each of Xco and Yco will covenant to assume on a several basis, proportionate to its shareholding in Bco XXXXXXXXXX Shares or Bco XXXXXXXXXX Shares, as the case may be, any liabilities of Bco in excess of its cash on hand as a capital contribution in Bco such that when Holdco acquires Bco shares as described in paragraphs 26 and 27 below, Bco will have no liabilities, contingent or otherwise. Bco currently has no known contingent liabilities.

26. Contemporaneously with the transfer described in paragraph 27 below, Yco will transfer its XXXXXXXXXX Bco XXXXXXXXXX Shares and XXXXXXXXXX Bco common shares to Holdco at FMV. As sole consideration for such transfer, Holdco will issue XXXXXXXXXX Holdco XXXXXXXXXX shares to Yco, having an aggregate FMV equal to the aggregate FMV of the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares so transferred to Holdco.

Yco and Holdco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Holdco of the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Yco of the Bco shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Yco will hold the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

27. Contemporaneously with the transfer described in paragraph 26 above, Xco will transfer its XXXXXXXXXX Bco XXXXXXXXXX Shares and XXXXXXXXXX Bco common shares to Holdco at FMV. As sole consideration for such transfer, Holdco will issue XXXXXXXXXX shares to Xco, having an aggregate FMV equal to the aggregate FMV of the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares so transferred to Holdco.

Xco and Holdco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Holdco of the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Xco of the Bco shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Xco will hold the XXXXXXXXXX Holdco XXXXXXXXXX shares as capital property.

28. Pursuant to the applicable provisions of the CBCA, the addition to the stated capital of Holdco in respect of the issuance of the XXXXXXXXXX Holdco XXXXXXXXXX shares to Xco as described in paragraph 27 above and the XXXXXXXXXX Holdco XXXXXXXXXX shares to Yco as described in paragraph 26 above, will be equal to the aggregate PUC of the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Bco immediately before the transfers of the XXXXXXXXXX Bco XXXXXXXXXX Shares, the XXXXXXXXXX Bco XXXXXXXXXX Shares and the XXXXXXXXXX Bco common shares to Holdco as described in paragraphs 26 and 27 above, which amount will not exceed the FMV of the Bco shares so transferred to Holdco.

29. Immediately after the acquisition by Holdco of all of the issued and outstanding shares of Bco, Holdco as sole shareholder thereof will commence the voluntary dissolution of Bco pursuant to the relevant provisions of the BCA2. All of the assets of Bco, including the XXXXXXXXXX Holdco XXXXXXXXXX Shares, will be distributed to Holdco on the winding-up of Bco and all of the liabilities of Bco, other than those liabilities of Bco which are assumed by Xco and Yco as described in paragraph 25 above, will be assumed by Holdco.

Holdco will cancel the XXXXXXXXXX Holdco XXXXXXXXXX shares received from Bco in the course of the dissolution of Bco for no consideration, and will deduct from the stated capital account maintained for its issued and outstanding XXXXXXXXXX shares, in respect of the number cancelled, an amount equal to the result obtained by multiplying the stated capital for the Holdco XXXXXXXXXX shares immediately before the cancellation, by the number of cancelled Holdco XXXXXXXXXX shares, divided by the total number of Holdco XXXXXXXXXX shares immediately before the cancellation.

Immediately after the cancellation, the stated capital of the Holdco XXXXXXXXXX shares and the number of the issued and outstanding Holdco XXXXXXXXXX shares will be the same as it was immediately before the transfers of the Bco shares by Xco and Yco to Holdco as described in paragraphs 26 and 27 above.

Bco will file Articles of Dissolution with the appropriate Corporate Registry and will be formally dissolved upon issuance of a Certificate of Dissolution.

30. Prior to the transfers as described in paragraphs 31, 32, 33 and 34 below, each of Aco, Xco, Yco and Amalco will covenant to assume on a several basis, proportionate to its shareholding in Holdco, any liabilities of Holdco in excess of its cash on hand as a capital contribution in Holdco such that when Opco acquires Holdco shares from Aco, Xco, Yco and Amalco as described in paragraphs 31, 32, 33 and 34 below, Holdco will have no liabilities, contingent or otherwise. Holdco currently has no known contingent liabilities.

Aco, Xco, Yco and Amalco will indemnify Opco for any costs to Opco, (including professional fees, regulatory fees, and the cost of any special shareholders' meeting) associated with the Proposed Transactions described herein.

31. With the prior approval of the Opco Board of Directors and, if necessary, the securities law regulators, Aco will transfer its XXXXXXXXXX Holdco XXXXXXXXXX shares to Opco at FMV. As sole consideration for such transfer, Opco will issue XXXXXXXXXX Opco XXXXXXXXXX shares having an aggregate FMV equal to the FMV of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred to Opco as described herein.

Aco and Opco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Opco of the XXXXXXXXXX Holdco XXXXXXXXXX shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Aco of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

The purpose of issuing only Opco XXXXXXXXXX shares to Aco is to ensure that control of Opco remains with Individual A and his family as has been the case for a number of years by reason of the Voting Trust and Option Agreements XXXXXXXXXX.

The issuance of the XXXXXXXXXX Opco XXXXXXXXXX shares to Aco as described herein will reduce the voting rights of Holdco in Opco from approximately XXXXXXXXXX% to approximately XXXXXXXXXX%.

32. With the prior approval of the Opco Board of Directors and, if necessary, the securities law regulators, and following the transfer of the Holdco shares and the issuance of the Opco shares as described in paragraph 31 above, Xco will transfer its XXXXXXXXXX Holdco XXXXXXXXXX shares to Opco at FMV. As sole consideration for such transfer, Opco will issue XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares having an aggregate FMV equal to the FMV of the XXXXXXXXXX Holdco Class XXXXXXXXXX shares so transferred to Opco as described herein.

Xco and Opco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Opco of the XXXXXXXXXX Holdco XXXXXXXXXX shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Xco of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Xco will hold the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares as capital property.

33. With the prior approval of the Opco Board of Directors and, if necessary, the securities law regulators, and following the transfer of the Holdco shares and the issuance of the Opco shares as described in paragraph 31 above, Yco will transfer its XXXXXXXXXX Holdco XXXXXXXXXX shares to Opco at FMV. As sole consideration for such transfer, Opco will issue XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares having an aggregate FMV equal to the FMV of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred to Opco as described herein.

Yco and Opco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Opco of the XXXXXXXXXX Holdco XXXXXXXXXX shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Yco of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Yco will hold the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares as capital property.

34. With the prior approval of the Opco Board of Directors and, if necessary, the securities law regulators, and following the transfer of the Holdco shares and the issuance of the Opco shares as described in paragraph 31 above, Amalco will transfer its XXXXXXXXXX Holdco XXXXXXXXXX shares to Opco at FMV. As sole consideration for such transfer, Opco will issue XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares having an aggregate FMV equal to the FMV of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred to Opco as described herein.

Amalco and Opco will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to Opco of the XXXXXXXXXX Holdco XXXXXXXXXX shares. Specifically, the agreed amount in the joint election will be equal to the ACB to Amalco of the XXXXXXXXXX Holdco XXXXXXXXXX shares so transferred at the time of the disposition which amount will not exceed their FMV, nor will it be less than the amount permitted under paragraph 85(1)(b).

Amalco will hold the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares as capital property.

35. Pursuant to the applicable provisions of the CBCA,

(a) the aggregate amount to be added to the stated capital of the Opco XXXXXXXXXX shares pursuant to the transfers described in paragraphs 31, 32, 33 and 34 above, will be equal to the aggregate of the PUC of the Opco XXXXXXXXXX shares held by Holdco immediately before the transfers, and

(b) the aggregate amount to be added to the stated capital of the Opco XXXXXXXXXX shares pursuant to the transfers described in paragraphs 31, 32, 33 and 34 above, will be equal to the aggregate of the PUC of the Opco XXXXXXXXXX shares held by Holdco immediately before the transfers.

The aggregate amount to be added to the stated capital for the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares will not exceed the aggregate FMV of the Holdco shares so transferred to Opco by Aco, Xco, Yco and Amalco as described in paragraphs 31, 32, 33 and 34 above.

The PUC of the Opco shares so issued will be equal to their stated capital, subject to adjustment, if required, pursuant to subsection 85(2.1) of the Act.

36. Immediately after the acquisition by Opco of all of the issued and outstanding shares of Holdco, Opco as sole shareholder thereof will commence the voluntary dissolution of Holdco pursuant to the provisions of the CBCA. All property of Holdco, including the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares, will be distributed to Opco and all liabilities of Holdco, other than those liabilities of Holdco which were assumed by Aco, Xco, Yco and Amalco as described in paragraph 30 above, will be assumed by Opco.

37. Opco will cancel the XXXXXXXXXX Opco XXXXXXXXXX shares and the XXXXXXXXXX Opco XXXXXXXXXX shares received in the course of the dissolution of Holdco as described in paragraph 36 above for no consideration, and will:

(a) deduct from the stated capital account maintained for its issued and outstanding XXXXXXXXXX shares, in respect of the number cancelled, an amount equal to the result obtained by multiplying the stated capital for the Opco XXXXXXXXXX shares immediately before the cancellation, by the number of cancelled Opco XXXXXXXXXX shares, divided by the total number of Opco XXXXXXXXXX shares immediately before the cancellation, and

(b) deduct from the stated capital account maintained for its issued and outstanding XXXXXXXXXX shares, in respect of the number cancelled, an amount equal to the result obtained by multiplying the stated capital for the Opco XXXXXXXXXX shares immediately before the cancellation, by the number of cancelled Opco XXXXXXXXXX shares, divided by the total number of Opco XXXXXXXXXX shares immediately before the cancellation.

Immediately after the cancellation of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares described above, the stated capital and the total number of the issued and outstanding Opco XXXXXXXXXX Shares and Opco XXXXXXXXXX Shares will be the same as it was immediately before the transfers of the Holdco shares to Opco by Aco, Xco, Yco and Amalco as described in paragraphs 31, 32, 33 and 34 above.

Following the cancellation of the Opco XXXXXXXXXX shares and the Opco XXXXXXXXXX shares described above, Holdco will file Articles of Dissolution with the appropriate Corporate Registry and will be formally dissolved upon issuance of a Certificate of Dissolution.

38. Following the receipt by Amalco, Yco and Xco of the Opco shares as described in paragraphs 32, 33 and 34 above, they will, at the request of Individual A, convert their Opco XXXXXXXXXX shares into Opco XXXXXXXXXX shares on the basis of one Opco XXXXXXXXXX share for each Opco XXXXXXXXXX share converted.

These conversions of Opco XXXXXXXXXX shares into Opco XXXXXXXXXX shares is consistent with the objective of the shareholders of Holdco that Individual A and his family will maintain voting control of Opco

XXXXXXXXXX

OTHER INFORMATION

39. None of Aco, Bco, Amalco, Xco or Yco is or will be, at any time prior to the completion of the proposed transactions described herein, a SFI.

40. There are not, and will not be at any time prior to the completion of the proposed transactions described herein, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2), in respect of any of the shares of Holdco or Bco.

41. Neither Holdco nor Bco has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the Holdco shares or the Bco shares.

42. None of the shares of Holdco or Bco has been acquired as part of a series of transactions of the type described in subsection 112(2.5) of the Act.

43. Except as outlined herein, there are not and will not be at any time prior to the amalgamation of Cco and Dco as described in paragraph 18 above, any dispositions of property or increases in interest in any corporation as described in subparagraphs 55(3)(a)(i) to (v) of the Act or any payment of a dividend that resulted from or as part of the transaction, event or series that includes the proposed transactions as described above.

44.

XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

45. The purposes of the proposed transactions are:

(a) to increase the ACB of the Opco shares that will be issued to Aco, Amalco Xco and Yco in exchange for their Holdco shares as described in paragraphs 31, 32, 33 and 34 above by an amount equal to the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Aco, the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Xco, the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Yco and the XXXXXXXXXX Holdco XXXXXXXXXX shares held by Amalco, as the case may be;

(b) to eliminate the existing structure of the common ownership of Opco shares through Holdco and to achieve a structure such that

(i) Individual A and XXXXXXXXXX family will own Opco shares through Aco, Individual B and XXXXXXXXXX family will own Opco shares through Xco, Individual C and XXXXXXXXXX family will own Opco shares through Yco, and Individual D and XXXXXXXXXX family will own Opco shares through Amalco, and

(ii) Individual A and XXXXXXXXXX family will maintain voting control of Opco.

The direct ownership of Opco shares by Aco, Xco, Yco and Amalco will permit each owner to decide on future divestments based on its own cash needs and investment priorities; and

(c) in the case of Xco and Yco, the purpose of the proposed transactions to eliminate Bco is to allow steps to be taken on the death of an individual shareholder that will eliminate the double tax that may arise if such person held investments through a joint holding company.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

A. Subject to subsection 55(2) of the Act, the amount of the addition to the stated capital accounts of Holdco in respect of each of the Holdco XXXXXXXXXX shares, the Holdco XXXXXXXXXX shares and the Holdco XXXXXXXXXX shares, as the case may be, as described in paragraphs 20, 21 and 22 above, will

(a) be deemed by subsection 84(1) to be a taxable dividend paid by Holdco and received by each of Aco, Bco and Amalco, as the case may be; and

(b) be added by virtue of paragraph 53(1)(b) in computing the ACB to each of Aco, Bco and Amalco, as the case may be, of its Holdco XXXXXXXXXX shares, its Holdco XXXXXXXXXX shares and its Holdco XXXXXXXXXX shares.

B. Subject to subsection 55(2) of the Act, the deemed taxable dividend received by each of Aco, Bco and Amalco as described in Ruling A(a) and the actual taxable dividend received by each of Aco, Bco and Amalco, as described in paragraph 19 above, will,

(a) be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to be received or is received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(b) will not be subject to tax under Part IV of the Act, except as provided in paragraph 186(1)(b) of the Act, as the recipient and the payer corporation will be connected to each other by virtue of subsection 186(4) of the Act; and

(c) will not be subject to tax under Parts IV.1 and VI.1 of the Act by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act because each of the recipients will have a substantial interest, within the meaning assigned by subsection 191(2) of the Act, in the payer corporation immediately before the payment of the taxable dividend to the recipient as described in paragraph 19 above and the increase to the stated capital of the Holdco shares held by the recipient as described in paragraphs 20, 21 and 22 above.

C. Subsection 55(2) will not apply to the portions of the deemed dividend described in Ruling A(a) above, which are deemed by paragraph 55(5)(f) to be separate dividends received by Aco, Bco or Amalco, as the case may be, which do not exceed the safe income on hand that is attributable to such shares. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares, as described in paragraph 19 above.

D. Subject to subsection 55(2) of the Act, the amount of the addition to the stated capital accounts of Bco in respect of the Bco XXXXXXXXXX Shares and the Bco XXXXXXXXXX shares, as the case may be, as described in paragraph 24 above, will

(a) be deemed by subsection 84(1) to be a taxable dividend paid by Bco and received by each of Xco and Yco, as the case may be; and

(b) be added by virtue of paragraph 53(1)(b) in computing the ACB to each of Xco and Yco, as the case may be, of its Bco XXXXXXXXXX Shares and Bco XXXXXXXXXX Shares.

E. Subject to subsection 55(2) of the Act, the deemed taxable dividend received by each of Xco and Yco as described in Ruling D(a) and the actual taxable dividend received by Xco and Yco, as described in paragraph 23 above, will,

(a) be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to be received or is received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(b) will not be subject to tax under Part IV of the Act, except as provided in paragraph 186(1)(b) of the Act, as the recipient and the payer corporation will be connected to each other by virtue of subsection 186(4) of the Act; and

(c) will not be subject to tax under Parts IV.1 and VI.1 of the Act by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act because each of the recipients will have a substantial interest, within the meaning assigned by subsection 191(2) of the Act, in the payer corporation immediately before the payment of the taxable dividend to the recipient as described in paragraph 23 above and the increase to the stated capital of the Bco shares held by the recipient as described in paragraph 24 above.

F. Subsection 55(2) will not apply to the portions of the dividend described in Ruling D(a) above, which are deemed by paragraph 55(5)(f) to be separate dividends received by Xco or Yco, as the case may be, which do not exceed the safe income on hand that is attributable to such shares. For greater certainty, the amount of such safe income on hand will be equal to the amount determined as at the safe income determination time in respect of the series of proposed transactions less the amount of the dividend declared and paid on such shares as described in paragraph 23 above.

G. (i) The safe income on hand attributable to the Dco XXXXXXXXXX common shares owned by Eco immediately following the issuance of those Dco XXXXXXXXXX common shares, as described in paragraph 17 above, will be equal to the safe income on hand that is attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Eco immediately before the transfer of those shares by Eco to Dco as described in paragraph 17 above; and

(ii) the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Dco immediately after the transfer as described in paragraph 17 above, will be equal to the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Eco immediately before the transfer as described in paragraph 17 above.

H. (i) The safe income on hand attributable to the Amalco XXXXXXXXXX common shares owned by a particular holder immediately following the issuance of those Amalco XXXXXXXXXX common shares by virtue of the statutory amalgamation of Cco and Dco as described in paragraph 18 above, will be equal to the safe income on hand attributable to the Cco XXXXXXXXXX common shares, the Cco XXXXXXXXXX common shares or the Dco XXXXXXXXXX common shares, as the case may be, owned by the particular holder immediately before the statutory amalgamation of Cco and Dco as described in paragraph 18 above; and

(ii) the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Amalco by virtue of the statutory amalgamation of Cco and Dco as described in paragraph 18 above, will be equal to the aggregate of the safe income on hand attributable to the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Cco and the XXXXXXXXXX Holdco XXXXXXXXXX shares owned by Dco immediately before the statutory amalgamation of Cco and Dco as described in paragraph 18 above.

I. The safe-income determination time in respect of the series of proposed transactions as described above, will be the time that is immediately after the transfer of the XXXXXXXXXX Holdco XXXXXXXXXX shares by Eco to Dco as described in paragraph 17 above.

J. To the extent that the provisions of subsection 55(2) apply to a particular dividend paid by Holdco as described in Ruling A(a) or paid by Bco as described in Ruling D(a) above, as the case may be, and, as a consequence, the particular dividend is deemed by paragraph 55(2)(a) not to be a dividend received by the recipient, neither paragraph 55(2)(b) nor (c) shall be applied to the particular dividend.

K. Subject to the application of the provisions of subsection 26(5) of the Income Tax Application Rules and subsection 69(11), the provisions of subsection 85(1) will apply to:

(a) the transfer by Xco of its XXXXXXXXXX Bco XXXXXXXXXX Shares and XXXXXXXXXX Bco common shares to Holdco as described in paragraph 27 above, in respect of which a joint election under subsection 85(1) is made; and

(b) the transfer by Yco of its XXXXXXXXXX Bco XXXXXXXXXX Shares and XXXXXXXXXX Bco common shares to Holdco as described in paragraph 26 above, in respect of which a joint election under subsection 85(1) is made;

such that the agreed amount in respect of each 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 to the transfers referred to herein.

L. Subject to the application of the provisions of subsection 26(5) of the Income Tax Application Rules, subsection 69(11) and paragraph 85(1)(e.2), the provisions of subsection 85(1) will apply to:

(a) the transfer by Aco of its XXXXXXXXXX Holdco XXXXXXXXXX Shares to Opco, as described in paragraph 31 above, in respect of which a joint election under subsection 85(1) is made;

(b) the transfer by Xco of its XXXXXXXXXX Holdco XXXXXXXXXX Shares to Opco, as described in paragraph 32 above, in respect of which a joint election under subsection 85(1) is made;

(c) the transfer by Yco of its XXXXXXXXXX Holdco XXXXXXXXXX Shares to Opco, as described in paragraph 33 above, in respect of which a joint election under subsection 85(1) is made; and

(d) the transfer by Amalco of its XXXXXXXXXX Holdco XXXXXXXXXX shares to Opco, as described in paragraph 34 above, in respect of which a joint election under subsection 85(1) is made;

such that the agreed amount in respect of each 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).

Provided that either

(i) the FMV of an Opco XXXXXXXXXX share is equal to the FMV of an Opco XXXXXXXXXX share at the time of the transfers referred to in (a) to (d) above, or

(ii) in respect of any such transfer, it is not reasonable to regard any excess (within the meaning of paragraph 85(1)(e.2)) as a benefit that the transferor wished to have conferred on a person who is not related to the transferor,

paragraph 85(1)(e.2) will not apply to the transfers referred to in (a) to (d) above.

M. The provisions of subsection 88(1) will apply to the winding-up of:

(a) Bco into Holdco as described in paragraph 29 above such that:

(i) Bco will be deemed pursuant to subparagraph 88(1)(a)(iii) to have disposed of its XXXXXXXXXX Holdco XXXXXXXXXX shares which are distributed to Holdco on the winding-up for proceeds of disposition equal to its cost amount of such shares immediately before the winding-up; and

(ii) Holdco will be deemed pursuant to paragraph 88(1)(b) to have disposed of its Bco shares for proceeds of disposition equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii);

(b) Holdco into Opco as described in paragraph 37 above such that:

(i) Holdco will be deemed pursuant to subparagraph 88(1)(a)(iii) to have disposed of its XXXXXXXXXX Opco XXXXXXXXXX shares and XXXXXXXXXX Opco XXXXXXXXXX shares which were distributed to Opco on the winding-up for proceeds of disposition equal to its cost amount of such shares immediately before the winding-up; and

(ii) Opco will be deemed pursuant to paragraph 88(1)(b) to have disposed of its Holdco shares for proceeds of disposition equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii).

N. The provisions of subsection 84(2) will not apply to the winding-up of Bco or Holdco as described in paragraphs 29 and 37 above, by virtue of paragraph 88(1)(d.1) of the Act.

O. The provisions of subsection 84(3) will not apply to:

(a) the cancellation of the Opco shares on the winding-up of Holdco as described in paragraph 37 above; or

(b) the cancellation of the Holdco shares on the winding-up of Bco as described in paragraph 29 above.

P. The provisions of subsection 69(11) will not apply to the transfers described in paragraphs 26, 27 and 31 through 34 above, in and by themselves, unless, as part of a series of transactions or events which includes any of such transfers, it may reasonably be considered that one of the main purposes of the series was to obtain the benefit of any item described in paragraph 69(11)(a) which is available to a person (other than a person that would be affiliated with the vendors of the property immediately before the series began, if section 251.1 were read without reference to the definition of "controlled" in subsection 251.1(3)) or to obtain a benefit described in paragraph 69(11)(b).

Q. Subject to the application of subsection 51(2), the provisions of subsection 51(1) of the Act will apply to the share exchange by each of Xco, Yco and Amalco of its Opco XXXXXXXXXX shares as described in paragraph 38 above, with the result that:

(a) each of Xco, Yco and Amalco will be deemed not to have disposed of its Opco XXXXXXXXXX shares; and

(b) the cost to each of Xco, Yco and Amalco of the Opco XXXXXXXXXX shares received will be equal to the ACB to each of Xco, Yco and Amalco of its Opco XXXXXXXXXX shares immediately before the share exchange.

Provided that either

(i) the FMV of an Opco XXXXXXXXXX share immediately before the share exchange described in paragraph 38 above is equal to the FMV of an Opco XXXXXXXXXX share immediately after the share exchange, or

(ii) in respect of any such exchange, it is not reasonable to regard any portion of the excess (within the meaning of paragraph 51(2)(c)) as a benefit that any of Xco, Yco or Amalco, as the case may be, desired to have conferred on a person who is not related to it,

subsection 51(2) will not apply to the share exchanges referred to above.

R. Subsection 15(1), 56(2), and 246(1) of the Act will not apply to the proposed transactions as described above, in and by themselves.

S. The provisions of subsection 245(2) of the Act will not apply to the proposed transactions as described above to re-determine the tax consequences described therein.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued on December 30, 1996 and are binding provided that the proposed transactions are completed by XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

OPINION

The exchange of the Opco shares (the "old shares") for shares of a particular transferee (the "new shares") at the ACB to the particular transferor under the provisions of section 85, as described in subparagraphs 11(a) through (g) above, are completed transactions which are beyond the scope of an advance income tax ruling. However, it is our opinion that:

1. (a) the safe income on hand attributable to the new shares owned by a particular transferor referred to above, immediately following the issuance of those new shares to the particular transferor, would be equal to the safe income on hand attributable to the old shares owned by the particular transferor immediately before the transfer referred to above; and

(b) the safe income on hand attributable to the old shares owned by the particular transferee immediately after the transfer referred to above, would be equal to the safe income on hand attributable to the old shares owned by the particular transferor immediately before the transfer referred to above.

2. The safe income on hand attributable to the old shares owned by a particular transferor as referred to above, would include the income earned or realized, determined pursuant to subsection 55(5), by Opco or any of Opco's direct or indirect subsidiaries or other investee companies over which Opco had significant influence to the extent that the FMV of the old shares owned by the particular transferor immediately before the transfer referred to above was attributable to such income.

The foregoing opinion is given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3.

COMMENTS

1. Paragraphs 55(5)(b), (c) and (d) of the Act define the income earned or realized by a particular type of corporation. However, these paragraphs do not provide that the amount so computed represents an amount of income earned or realized that could reasonably be considered to contribute to the capital gain on a particular share.

2. Nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed:

(a) the determination of the FMV or ACB of any particular asset or share or the PUC of any shares referred to herein or the computation of the safe income on hand attributable to the shares of any corporation. For greater certainty, our rulings should not be construed as

(i) providing comfort that an Opco XXXXXXXXXX share and an Opco XXXXXXXXXX share are of equal value at any particular time; or

(ii) commenting on the flow-through of the safe income on hand attributable to the shares of Subco1, Subco2, Subco3, Subco4 or Subco5 to the Holdco shares received by Aco, Bco, Cco, Dco or Eco by virtue of the XXXXXXXXXX Amalgamation as described in paragraph 12 above; or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

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