2000 Ruling 2000-0014463 - Public company spin-off

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. Shareholder with more than 10% of a class of preferred shares will dispose of part of his holdings of common shares.

2. Individual transferring property to a corporation to utilize losses.

Position:

1. Taxpayer relying on comfort letter from Dept of Finance advising of proposed change to definition of specified shareholder for purposes of section 55.

2. Accepted

Reasons:

1. Relying on comfort letter.

2. Individual transferring property affiliated to corporation.

XXXXXXXXXX 2000-001446

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX ("XXXXXXXXXX/Aco")
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX in which you requested advance income tax rulings on behalf of the above-noted taxpayer. We acknowledge receipt of your letters of XXXXXXXXXX and our telephone conversations in connection herewith.

We understand that to the best of your knowledge and that of XXXXXXXXXX/Aco, none of the issues involved herein:

(a) is in an earlier return of XXXXXXXXXX/Aco or a related person;

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

(c) is under objection by XXXXXXXXXX/Aco or a related person;

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

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

DEFINITIONS

In this letter unless otherwise expressly stated:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) "ACB" means "adjusted cost base" and has the meaning assigned by section 54;

(c) "agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in their election under subsection 85(1) in respect of the property;

(d) "acquiror" has the meaning assigned by the proposed definition of "specified corporation" in the Legislative Proposals released by the Department of Finance on November 30, 1999;

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

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

(g) "distribution" has the meaning assigned by subsection 55(1);

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

(i) "financial intermediary corporation" has the meaning assigned by subsection 191(1);

(j) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);

(k) "guarantee agreement" has the meaning assigned by subsection 112(2.2);

(l) XXXXXXXXXX;

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

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

(o) XXXXXXXXXX;

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

(q) "Plan of Arrangement" means the proposed plan of arrangement under XXXXXXXXXX to effect the transactions described in paragraphs 17 to 28;

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

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

(t) "RDTOH" means "refundable dividend tax on hand" which has the meaning assigned by subsection 129(3);

(u) "Regulations" refers to the Income Tax Regulations;

(v) "RRSP" means "registered retirement savings plan" which has the meaning assigned by subsection 146(1);

(w) "restricted financial institution" has the meaning assigned by subsection 248(1);

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

(y) "specified class" has the meaning assigned by subsection 55(1);

(z) "specified shareholder" has the meaning assigned by subsection 248(1) as modified by subsections 55(3.2) and (3.3);

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

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

(cc) "taxable dividend" has the meaning assigned by subsection 89(1).

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

FACTS

1. XXXXXXXXXX/Aco (formerly XXXXXXXXXX) subsists after the result of a XXXXXXXXXX amalgamation between XXXXXXXXXX/Aco is a taxable Canadian corporation and a public corporation. XXXXXXXXXX/Aco's tax account number is XXXXXXXXXX and it files its returns at the Tax Centre in XXXXXXXXXX. The fiscal period of XXXXXXXXXX/Aco ends on XXXXXXXXXX.

XXXXXXXXXX/Aco had no RDTOH on XXXXXXXXXX and will have no RDTOH prior to the end of its taxation year in which the transactions described herein are completed.

2. The authorized capital of XXXXXXXXXX/Aco consists of

XXXXXXXXXX

XXXXXXXXXX

The paid-up capital of the XXXXXXXXXX Aco shares is as follows:

Class of Shares Paid-up Capital

XXXXXXXXXX

XXXXXXXXXX

3.

XXXXXXXXXX

There are XXXXXXXXXX shareholders that hold more than 10% of the class of XXXXXXXXXX/Aco XXXXXXXXXX Preference Shares, XXXXXXXXXX. One of these XXXXXXXXXX shareholders, XXXXXXXXXX ("Mr X"), also owns XXXXXXXXXX/Aco common shares. These shareholders are not related to XXXXXXXXXX/A. There is no other shareholder, other than XXXXXXXXXX/A and any person related to her or the XXXXXXXXXX shareholders described herein, that is or was, at any time during the course of the series of transactions which include the proposed transactions described herein, a specified shareholder of XXXXXXXXXX/Aco or Newco (a corporation to be incorporated as described in paragraph 18 below).

XXXXXXXXX/A has had control of XXXXXXXXXX/Aco since XXXXXXXXXX, through her voting control of XXXXXXXXXX/Bco"). In addition to the shares XXXXXXXXXX/A holds through XXXXXXXXXX/Bco, XXXXXXXXXX/A owns shares of XXXXXXXXXX/Aco personally and through XXXXXXXXXX ("XXXXXXXXXX/Cco")

Beginning in XXXXXXXXXX/Bco began a program to acquire common shares and Class XXXXXXXXXX Shares of XXXXXXXXXX/Aco, in the open market. The reason for acquiring the XXXXXXXXXX/Aco shares was that, amongst other reasons, XXXXXXXXXX/Bco considered these shares to be a good investment. The purchases of the XXXXXXXXXX /Aco shares by XXXXXXXXXX/Bco were carried out in compliance with the XXXXXXXXXX guidelines for such acquisitions.

In addition, XXXXXXXXXX/Aco also repurchased and cancelled XXXXXXXXXX of its Class XXXXXXXXXX Shares in XXXXXXXXXX, respectively, pursuant to a normal course issuer bid at a price of $XXXXXXXXXX per share.

The acquisition of XXXXXXXXXX/Aco's shares by XXXXXXXXXX /Bco and by way of the normal course issuer bid by XXXXXXXXXX/Aco were not made in contemplation or as part of the series of transactions or events that include the proposed transactions described herein.

4. XXXXXXXXXX/Bco was incorporated under the laws of the province of XXXXXXXXXX and continued under the XXXXXXXXXX/Bco's tax account number is XXXXXXXXXX and it files its returns at the Tax Centre in XXXXXXXXXX/Bco is a taxable Canadian corporation and a public corporation.

The fiscal year-end of XXXXXXXXXX/Bco is XXXXXXXXXX.

5. XXXXXXXXXX/Cco was incorporated under the XXXXXXXXXX and amalgamated with XXXXXXXXXX/Cco's tax account number is XXXXXXXXXX and it files its income tax returns at the Tax Centre in XXXXXXXXXX/Cco is a taxable Canadian corporation and a private corporation within the meaning of subsection 89(1).

The fiscal year-end of XXXXXXXXXX/Cco is XXXXXXXXXX.

6. XXXXXXXXXX/A is an individual resident in Canada. XXXXXXXXXX/A's social insurance number is XXXXXXXXXX.

XXXXXXXXXX/A is the spouse of XXXXXXXXXX /Mr B who is also a resident of Canada.

7. XXXXXXXXXX/A owns all the issued and outstanding shares of XXXXXXXXXX/Cco. XXXXXXXXXX/A controls XXXXXXXXXX% of all the issued and outstanding shares of XXXXXXXXXX/Bco directly and through XXXXXXXXXX, which are private corporations and taxable Canadian corporations. As a result of XXXXXXXXXX/A's control of XXXXXXXXXX/Cco and XXXXXXXXXX/Bco, XXXXXXXXXX also controls approximately XXXXXXXXXX% of the equity (excluding the XXXXXXXXXX/Aco XXXXXXXXXX Preference Shares) and XXXXXXXXXX% of the voting shares of XXXXXXXXXX/Aco.

8. The shares of XXXXXXXXXX/Aco held by XXXXXXXXXX/Bco, XXXXXXXXXX/Cco, XXXXXXXXXX/A and XXXXXXXXXX/Mr B are capital property to each of the shareholders.

9. As a result of the amalgamation referred to in paragraph 1 above, XXXXXXXXXX/Aco acquired the predecessor XXXXXXXXXX/Dco's loan corporation subsidiary, The XXXXXXXXXX ("XXXXXXXXXX/Fco") (XXXXXXXXXX), and XXXXXXXXXX/Eco's XXXXXXXXXX business. XXXXXXXXXX/Aco also has a number of subsidiaries which are dormant.

10. In XXXXXXXXXX/Aco sold the shares of XXXXXXXXXX/Fco to XXXXXXXXXX and its XXXXXXXXXX business to XXXXXXXXXX. As part of these transactions, XXXXXXXXXX/Aco entered into non-competition agreements with the respective purchasers that placed restrictions on XXXXXXXXXX/Aco's business activities over the subsequent XXXXXXXXXX years. The sale of XXXXXXXXXX/Aco's operating businesses enabled it to meet its obligations, retire its outstanding debentures, and provided cash surplus. Since the time of sale of its operating businesses, XXXXXXXXXX/Aco has actively explored and researched other business opportunities in order to maximize shareholder value. In the meantime, it has used its cash balances to invest primarily in fixed income and government-backed securities.

11. The consolidated balance sheet of XXXXXXXXXX/Aco as at XXXXXXXXXX indicates that XXXXXXXXXX/Aco has the following assets:

Cash and Cash Equivalents $ XXXXXXXXXX
Receivables - XXXXXXXXXX XXXXXXXXXX
Notes receivable XXXXXXXXXX
Prepaid expenses XXXXXXXXXX
XXXXXXXXXX
Income producing property and equipment XXXXXXXXXX
Other assets XXXXXXXXXX
$ XXXXXXXXXX

The sole liabilities of XXXXXXXXXX/Aco consist of accounts payable of $XXXXXXXXXX and a mortgage payable of $XXXXXXXXXX, for total liabilities of $XXXXXXXXXX.

The income-producing property under "Income producing property and equipment" is a co-ownership interest in a property known as

XXXXXXXXXX

The accounts payable of XXXXXXXXXX/Aco consist of a single account payable.

XXXXXXXXXX

12. XXXXXXXXXX/Aco had, as at XXXXXXXXXX, accumulated non-capital losses available totalling $XXXXXXXXXX and net capital losses incurred in XXXXXXXXXX of $XXXXXXXXXX .

XXXXXXXXXX/Aco's non-capital losses were incurred as follows:

Taxation Year Amount

XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX

13. The board of directors of XXXXXXXXXX/Aco has obtained a valuation that the non-capital losses of XXXXXXXXXX/Aco have a value in the range of XXXXXXXXXX of tax losses. No value was attributed to the net capital losses. An independent committee of the board of directors of XXXXXXXXXX/Aco, in obtaining a fairness opinion, may also consider the value of XXXXXXXXXX/Aco's losses. Any value ascribed to such losses will not be included in the determination of the fair market value of property for purposes of the distribution described in paragraph 23 below.

14. XXXXXXXXXX.

15. XXXXXXXXXX.

16. XXXXXXXXXX.

PROPOSED TRANSACTIONS

17. The XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX will be redeemed for an amount equal to the amount of the consideration for which such shares were issued, $XXXXXXXXXX. The redemption price will be paid in cash by XXXXXXXXXX/Aco to each holder of XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX.

18. A new corporation ("Newco") will be incorporated under the XXXXXXXXXX. The authorized capital of Newco will consist of an unlimited number of common shares (the "Newco Common Shares"), an unlimited number of class XXXXXXXXXX non-voting shares (the "Newco Class XXXXXXXXXX Shares"), XXXXXXXXXX shares, issuable in series (the "Newco XXXXXXXXXX Shares") and an unlimited number of XXXXXXXXXX shares (the "Newco XXXXXXXXXX Shares"). The principal attributes of the Newco Common Shares, the Newco Class XXXXXXXXXX Shares, the Newco XXXXXXXXXX Shares, XXXXXXXXXX and the Newco XXXXXXXXXX Shares will be as follows:

(a) the Newco Common Shares and the Newco Class XXXXXXXXXX Shares rank on a parity with each other and the Newco Common Shares are convertible at any time on a one-for-one basis into the Newco Class XXXXXXXXXX Shares. The Newco Class XXXXXXXXXX Shares are entitled to receive cash dividends per share equal to XXXXXXXXXX% of the cash dividends paid or set aside for payment on the Newco Common Shares. Subject to the prior rights, privileges, restrictions and conditions of the Newco XXXXXXXXXX Shares and the Newco XXXXXXXXXX Shares and the XXXXXXXXXX% cash dividend entitlement of the Newco Class XXXXXXXXXX Shares, the holders of the Newco Common Shares and the Newco Class XXXXXXXXXX Shares are entitled to receive equally, on a share-for-share basis, such non-cash dividends as may be declared, and to receive equally, share-for-share, the property of Newco on its liquidation, dissolution and winding-up. The Newco Common Shares are entitled to one vote per share. The holders of Newco Class XXXXXXXXXX Shares are entitled to receive notice of, attend and speak at any meeting of shareholders of the Corporation other than meetings of shareholders of another class or series, as such, but are not entitled to vote except as required by law and except as provided below. Pursuant to the articles of the Corporation, the holders of Newco Class XXXXXXXXXX Shares are exclusively entitled, voting separately as a class, to elect XXXXXXXXXX directors to the board of directors of the Corporation, where the Corporation has XXXXXXXXXX directors, and XXXXXXXXXX directors, where the Corporation has XXXXXXXXXX directors;

(b) the Newco XXXXXXXXXX Shares rank ahead of the Newco Common Shares and the Newco Class XXXXXXXXXX Shares. On a liquidation, dissolution or winding-up of Newco, the Newco XXXXXXXXXX Shares have a priority claim for an amount equal to their redemption amount at the time of the liquidation, dissolution or winding-up but are not entitled to any further amounts on the liquidation, dissolution or winding-up. The Newco XXXXXXXXXX Shares are non-voting;

(c) the Newco XXXXXXXXXX Shares, XXXXXXXXXX bear cumulative dividends at the rate of $XXXXXXXXXX per annum payable quarterly, and are redeemable at Newco's option for a price of $XXXXXXXXXX per share plus unpaid accrued dividends. They are subject to a repurchase obligation whereby Newco is obliged to make all reasonable efforts to purchase for cancellation, quarterly beginning XXXXXXXXXX, that number of Newco XXXXXXXXXX Shares equal to XXXXXXXXXX% of the XXXXXXXXXX Shares, XXXXXXXXXX outstanding at XXXXXXXXXX at an amount not exceeding $XXXXXXXXXX per share plus unpaid accrued dividends; and

(d) the Newco XXXXXXXXXX Shares are voting, non-participating and redeemable and retractable for the Newco Redemption Amount (defined below) and rank ahead of the Newco Common Shares, the Newco Class XXXXXXXXXX Shares and the Newco XXXXXXXXXX Shares. They have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX% of the Newco Redemption Amount. The Newco Redemption Amount with respect to each Newco XXXXXXXXXX Share will be a specified amount determined by dividing the amount of money received by Newco and/or the fair market value of any property (other than money) received by Newco (less the principal amount of any liabilities assumed by Newco for such money or other property) on the first issuance of the Newco XXXXXXXXXX Shares by the number of Newco XXXXXXXXXX Shares issued on the first issuance of the Newco XXXXXXXXXX Shares. On a liquidation, dissolution or winding-up of Newco, the Newco XXXXXXXXXX Shares have a priority claim for an amount equal to their redemption amount at the time of the liquidation, dissolution or winding-up but are not entitled to any further amounts on the liquidation, dissolution or winding-up.

No shares of Newco will be issued on incorporation.

19. The stated capital account of each of the XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares will be reduced to an amount equal to the product of the number of issued and outstanding XXXXXXXXXX/Aco Common Shares or XXXXXXXXXX/Aco Class XXXXXXXXXX Shares, as the case may be, multiplied by $XXXXXXXXXX per share. XXXXXXXXXX/Aco will make no payment or distribution of its assets or properties as a result of the reduction of the stated capital of its XXXXXXXXXX/Aco Common Shares and XXXXXXXXXX/Aco Class XXXXXXXXXX Shares. The purpose of the reduction of stated capital is to ensure that no holder of XXXXXXXXXX/Aco Common Shares or XXXXXXXXXX/Aco Class XXXXXXXXXX Shares will have an ACB for such shares in excess of that share's paid-up capital.

20. Pursuant to the Plan of Arrangement, each shareholder of XXXXXXXXXX/Aco will transfer XXXXXXXXXX% of his XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, to Newco in exchange for:

(i) one Newco Common Share for each XXXXXXXXXX/Aco Common Share;

(ii) one Newco Class XXXXXXXXXX Share for each XXXXXXXXXX/Aco Class XXXXXXXXXX Share; and

(iii) one Newco XXXXXXXXXX Share, XXXXXXXXXX for each XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX Share

with a fair market value equal to the fair market value of the respective transferred shares at the time of the transfer.

Newco will add to the stated capital account in respect of the Newco Common Shares, the Newco Class XXXXXXXXXX Shares and the Newco XXXXXXXXXX Shares, XXXXXXXXXX an amount equal to the paid-up capital of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX /Aco Class XXXXXXXXXX Shares and the XXXXXXXXXX Shares, XXXXXXXXXX, respectively, so transferred.

21. If requested by a particular XXXXXXXXXX/Aco shareholder, Newco will execute a joint election as permitted under subsection 85(1), within the time referred to in subsection 85(6), in respect of the transfer by that shareholder of his XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be. As sole consideration, each transferor will receive:

(i) one Newco Common Share for each XXXXXXXXXX/Aco Common Share;

(ii) one Newco Class XXXXXXXXXX Share for each XXXXXXXXXX/Aco Class XXXXXXXXXX Share; and

(iii) one Newco XXXXXXXXXX Share, XXXXXXXXXX for each XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX Share

with a fair market value equal to the fair market value of the respective transferred shares at the time of the transfer. The agreed amount in respect of such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the fair market value of the particular share or shares transferred.

22. Fractional Newco Common Shares, Newco Class XXXXXXXXXX Shares or Newco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, that would otherwise be received by a XXXXXXXXXX/Aco shareholder, in the transfers described in paragraphs 20 and 21 above, will be dealt with in the manner described in paragraph 40 below.

You have advised that there is no impediment to the transfer of fractional shares of XXXXXXXXXX/Aco under the XXXXXXXXXX.

No person who is not a shareholder of XXXXXXXXXX /Aco will own any shares of Newco.

23. XXXXXXXXXX/Aco will transfer to Newco:

(a) money, and

(b) all of its other rights and property (other than its co-ownership interest in XXXXXXXXXX).

XXXXXXXXXX.

As sole consideration for such transfer:

(c) as to the fair market value of such liabilities, Newco will assume all of the liabilities (contingent or otherwise) of XXXXXXXXXX/Aco relating to the XXXXXXXXXX;

(d) as to an amount equal to the amount by which the fair market value of the property transferred by XXXXXXXXXX/Aco to Newco exceeds the fair market value of the liabilities referred to in paragraph (c) above, Newco will issue to XXXXXXXXXX/Aco Newco XXXXXXXXXX Shares with a fair market value equal to such amount.

The liabilities of XXXXXXXXXX/Aco in respect of the XXXXXXXXXX assumed by Newco include any increase in the liability of XXXXXXXXXX/Aco

XXXXXXXXXX

The net fair market value of the property of XXXXXXXXXX /Aco transferred to Newco will be XXXXXXXXXX% of the net fair market value of all of XXXXXXXXXX/Aco's property immediately before the distribution described herein.

For greater certainty, any tax accounts, such as the balance of any capital or non-capital losses of XXXXXXXXXX/Aco, will not be considered property for purpose of the distribution. The fair market value of XXXXXXXXXX/Aco's co-ownership interest in XXXXXXXXXX will be determined on the assumption that XXXXXXXXXX/Aco's co-ownership interest in XXXXXXXXXX is a XXXXXXXXXX% co-ownership interest. Any rights which XXXXXXXXXX/Aco may have in respect of a greater than XXXXXXXXXX% co-ownership interest in XXXXXXXXXX and the rights and property of XXXXXXXXXX/Aco in respect of the XXXXXXXXXX will be given a value equal to the fair market value of such rights at the time of the distribution.

The liabilities (contingent or otherwise) of XXXXXXXXXX/Aco relating to the XXXXXXXXXX have a fair market value equal to the amount of the reserve established by XXXXXXXXXX/Aco in its financial statements in respect of such liabilities as described in paragraph 11 above.

The voting rights attached to the Newco XXXXXXXXXX Shares issued to XXXXXXXXXX/Aco will have more than XXXXXXXXXX% of the voting rights of all the issued and outstanding shares of Newco.

Newco will add to the stated capital account in respect of the Newco XXXXXXXXXX Shares an amount equal to the amount referred to in (d) above.

24. Newco will redeem all of the Newco XXXXXXXXXX Shares owned by XXXXXXXXXX/Aco and will issue to XXXXXXXXXX/Aco, in consideration therefor, a non-interest-bearing demand promissory note (the "Newco Note") with a principal amount equal to the redemption amount of the Newco XXXXXXXXXX Shares. XXXXXXXXXX/Aco will accept such note as full and absolute payment of the redemption amount of the redeemed Newco XXXXXXXXXX Shares.

25. XXXXXXXXXX/Aco will purchase for cancellation from Newco or redeem, as the case may be, all of the XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX held by Newco and will issue to Newco, in consideration therefor, a non-interest-bearing demand promissory note (the "XXXXXXXXXX/Aco Note") with a principal amount equal to the aggregate fair market value of the XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and the redemption amount of the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX held by Newco. Newco will accept such XXXXXXXXXX/Aco Note as full payment of the purchase price or the redemption amount, as the case may be, of the purchased or redeemed XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX.

26. The Newco Note will be set off against the XXXXXXXXXX/Aco Note in full satisfaction of the obligations under each of the notes and the notes will be cancelled.

27. XXXXXXXXXX/ A will acquire for cash additional common shares of XXXXXXXXXX/Cco, to the extent any funds are required by XXXXXXXXXX /Cco (in addition to its internal resources) to complete the acquisition described in paragraph 28.

28. XXXXXXXXXX/Cco will acquire for cash all of the outstanding XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX held by shareholders other than XXXXXXXXXX/Bco, XXXXXXXXXX/ A or XXXXXXXXXX/Mr B for an amount equal to, in the case of the XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares, an amount determined by negotiations between XXXXXXXXXX/Cco and the independent committee of the board of directors of XXXXXXXXXX/Aco, and, in the case of the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, the redemption amount of such shares. XXXXXXXXXX/Cco will take into account the tax losses of XXXXXXXXXX Aco in determining a price for the XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares. XXXXXXXXXX/Cco deals at arm's length with all the vendors of XXXXXXXXXX/Aco shares described herein (other than XXXXXXXXXX/Mr B's RRSP).

29. XXXXXXXXXX/Cco will incorporate a wholly-owned subsidiary ("Realco") under the XXXXXXXXXX. Realco will be a taxable Canadian corporation.

XXXXXXXXXX.

XXXXXXXXXX/Cco will subscribe for one common share of Realco on incorporation for a nominal amount.

30. XXXXXXXXXX/Aco will incorporate a wholly-owned subsidiary ("Subco") under the XXXXXXXXXX. Subco will be a taxable Canadian corporation. The purpose for the incorporation of Subco is to allow for the realization of the accrued gains in the Real Properties (as described in paragraph 35 below) and the XXXXXXXXXX Shares held by XXXXXXXXXX/Cco.

XXXXXXXXXX/Aco will subscribe for one common share of Subco on incorporation for a nominal amount.

31. XXXXXXXXXX/Aco will file articles of amendment to create a class of non-voting preferred shares (the "XXXXXXXXXX/Aco Preferred Shares") and to amend the terms and conditions of the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX.

The XXXXXXXXXX/Aco Preferred Shares will be non-voting, non-participating, redeemable and retractable for the redemption amount described below. They will have a fixed, preferential, non-cumulative dividend of XXXXXXXXXX% per annum of the redemption amount of the shares. On a liquidation, dissolution or winding-up of XXXXXXXXXX/Aco, the XXXXXXXXXX/Aco Preferred Shares have a priority claim for an amount equal to their redemption amount at the time of the liquidation, dissolution or winding-up but are not entitled to any further amounts of the liquidation, dissolution or winding-up. The redemption amount of each XXXXXXXXXX/Aco Preferred Share will be an amount, stated as a formula equal to the fair market value of the property for which it is issued plus unpaid accrued dividends.

The XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX will be amended to change the percentage of shares which is subject to the reasonable efforts purchase obligation from XXXXXXXXXX% of the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, outstanding at XXXXXXXXXX to XXXXXXXXXX% of the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX outstanding at XXXXXXXXXX.

32. XXXXXXXXXX/Bco, XXXXXXXXXX/ A and XXXXXXXXXX/Mr B will each exchange their XXXXXXXXXX/Aco Common Shares and XXXXXXXXXX/Aco Class XXXXXXXXXX Shares for XXXXXXXXXX/Aco Preferred Shares. The ratio on which the XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares will be exchanged for the XXXXXXXXXX/Aco Preferred Shares will be determined based on the price paid by XXXXXXXXXX/Cco for the XXXXXXXXXX/Aco Common Shares and XXXXXXXXXX/Aco Class XXXXXXXXXX Shares pursuant to the transaction described in paragraph 28 above. The XXXXXXXXXX/Aco Preferred Shares received by XXXXXXXXXX/Bco, XXXXXXXXXX/A and XXXXXXXXXX/Mr B will have a fair market value equal to the fair market value of the XXXXXXXXXX/Aco Common Shares and XXXXXXXXXX/Aco Class XXXXXXXXXX Shares owned by XXXXXXXXXX/Bco, XXXXXXXXXX/A and XXXXXXXXXX/Mr B, respectively, immediately before the exchange.

XXXXXXXXXX/Aco will add to the stated capital account in respect of the XXXXXXXXXX/Aco Preferred Shares an amount equal to the aggregate amount of the paid-up capital of the XXXXXXXXXX /Aco Class XXXXXXXXXX Shares and XXXXXXXXXX/Aco Common Shares so exchanged.

33. XXXXXXXXXX/A will transfer, at fair market value, to XXXXXXXXXX/Cco XXXXXXXXXX. The transfer of XXXXXXXXXX will occur before XXXXXXXXXX. As sole consideration for such transfers, XXXXXXXXXX/Cco will issue to XXXXXXXXXX/A additional common shares of XXXXXXXXXX/Cco.

XXXXXXXXXX/Cco will add to the stated capital account maintained for its common shares an amount not exceeding the aggregate of the agreed amounts in respect of eligible property transferred.

34. In connection with the transfer of properties described in paragraph 33, XXXXXXXXXX/A and XXXXXXXXXX/Cco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of XXXXXXXXXX/A that is an eligible property transferred to XXXXXXXXXX/Cco. The agreed amount for the purposes of subsection 85(1) in respect of each such property will be:

(a) where the particular property is inventory or capital property (other than depreciable property of a prescribed class), the lesser of the cost amount of the property to XXXXXXXXXX/A immediately before the transfer and the fair market value of such property; and

(b) where the particular property is depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii).

The fair market value of each property will equal or exceed the agreed amount in respect thereof.

35. XXXXXXXXXX/Cco will transfer legal title (but not beneficial interest) to its interest in XXXXXXXXXX (collectively, the "Real Properties") to Realco, and Realco will execute declarations of trust that it holds the Real Properties as a bare trustee for XXXXXXXXXX/Cco or such other person as may be the beneficial owner of the Real Properties from time to time. Realco's only function will be to hold legal title to the Real Properties and it will not be able to carry out any actions with regard to the Real Properties without instructions from XXXXXXXXXX/Cco or such other person as may be the beneficial owner of the Real Properties from time to time.

36. XXXXXXXXXX /Cco will transfer, at fair market value, to XXXXXXXXXX/Aco its beneficial interest in the Real Properties and the XXXXXXXXXX Shares. The transfer of the beneficial interest in the Real Properties will occur before the year-end of the fiscal year that XXXXXXXXXX/Cco acquired XXXXXXXXXX from XXXXXXXXXX/A. As sole consideration for such transfers, XXXXXXXXXX/Aco will issue to XXXXXXXXXX/Cco XXXXXXXXXX/Aco Common Shares with a fair market value equal to the fair market value of the properties transferred.

The declaration of trust referred to in paragraph 35 above will be amended to reflect XXXXXXXXXX/Aco as the holder of the beneficial interest in the Real Properties.

XXXXXXXXXX/Aco will add to the stated capital account maintained for its common shares an amount not exceeding the aggregate of the agreed amounts in respect of eligible property transferred.

37. In connection with the transfer of properties described in paragraph 36, XXXXXXXXXX/Cco and XXXXXXXXXX/Aco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of XXXXXXXXXX/Cco that is an eligible property transferred to XXXXXXXXXX/Aco. The agreed amount for the purposes of subsection 85(1) in respect of each such property will be:

(a) where the particular property is inventory or capital property (other than depreciable property of a prescribed class), the lesser of the cost amount of the property to XXXXXXXXXX/Cco immediately before the transfer and the fair market value of such property; and

(b) where the particular property is depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii).

The fair market value of each property will equal or exceed the agreed amount in respect thereof.

38. XXXXXXXXXX/Aco will sell, at fair market value, to Subco its beneficial interest in the Real Properties and the XXXXXXXXXX Shares. In consideration for the sale, Subco will issue to XXXXXXXXXX/Aco an interest-bearing demand promissory note with a principal amount, stated as a formula, equal to the aggregate fair market value of the properties transferred (the "Subco Note"). Interest on the Subco Note for a fiscal period will be equal to the taxable income of Subco, before the deduction of interest and capital cost allowance, subject to a maximum rate of XXXXXXXXXX% per annum of the principal amount of the note.

The declaration of trust referred to in paragraph 35 above will be further amended to reflect Subco as the holder of the beneficial interest in the Real Properties.

39. XXXXXXXXXX/Aco will apply to cease to be a reporting issuer under applicable securities legislation and its shares will be delisted from the XXXXXXXXXX Stock Exchange. XXXXXXXXXX/Aco will also elect, pursuant to subparagraph (c)(i) in the definition of "public corporation", not to be a public corporation effective immediately after the acquisition of the shares of XXXXXXXXXX/Aco by XXXXXXXXXX/Cco described in paragraph 28 above.

Subject to regulatory approval, Newco will become a reporting issuer under applicable securities legislation and will obtain a public listing on the XXXXXXXXXX Stock Exchange or such other exchange or quotation system approved by the board of directors of XXXXXXXXXX/Aco.

40. Any fractional Newco Common Shares, Newco Class XXXXXXXXXX Shares or Newco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, receivable by XXXXXXXXXX/Aco shareholders in the transfers described in paragraphs 20 and 21 above, will be aggregated, rounded up to the nearest whole number, and issued to a third-party trustee (the "Trustee") on behalf of the XXXXXXXXXX/Aco shareholders. The Trustee will sell all of the Newco Common Shares, Newco Class XXXXXXXXXX Shares and Newco XXXXXXXXXX Shares, XXXXXXXXXX so received for cash proceeds in the open market, and remit to each XXXXXXXXXX/Aco shareholder the holder's pro rata share of such proceeds.

41. XXXXXXXXXX/Aco has XXXXXXXXXX dormant wholly-owned subsidiaries, XXXXXXXXXX/Gco (collectively, the "Subsidiaries"). There is no cash or amounts receivable/payable due to persons other than to XXXXXXXXXX/Aco or a corporation related to XXXXXXXXXX/Aco. Following the proposed transactions described in paragraphs 17 to 38 above, XXXXXXXXXX/Aco will wind up each of the Subsidiaries

ADDITIONAL INFORMATION

40. Subject to, among other things, the appropriate shareholder, regulatory and court approvals, the transactions described in paragraphs 17 to 28 will be undertaken pursuant to the Plan of Arrangement. With the exception of the filing of elections, if any, under the Act, these transactions will occur by virtue of the Plan of Arrangement and will be designated in the Plan of Arrangement to occur on the date (the "Transaction Date") on which the Plan of Arrangement is effective, and in the order set out above. The Transaction Date will be a date that will be subsequent to the receipt of the advance income tax ruling requested herein. The transactions described in paragraphs 29 to 39 will occur after the Transaction Date and, with the exception of the filing of elections, if any, under the Act, the transactions described in paragraphs 32 to 38 will occur in the order set out.

41. The Plan of Arrangement must be approved by the holders of at least XXXXXXXXXX of each of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX each voting as a class on the arrangement. Each shareholder of XXXXXXXXXX/Aco will be entitled to dissent from the Plan of Arrangement pursuant to the provisions of the XXXXXXXXXX. Where a shareholder so dissents, such dissenting shareholder will cease to be a shareholder of XXXXXXXXXX/Aco on the Transaction Date immediately prior to the transactions undertaken pursuant to the Plan of Arrangement such that the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and/or the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX held by such shareholder will no longer be considered to be outstanding for purposes of the corporate law transactions comprising the Plan of Arrangement. After the completion of the proposed transactions comprising the Plan of Arrangement, each such dissenting shareholder will be entitled to be paid the fair value of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and/or the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, in respect of which the right of dissent is exercised. If shareholders holding more than XXXXXXXXXX% of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX dissent from the Plan of Arrangement, XXXXXXXXXX/Aco will have the option of not proceeding with the Plan of Arrangement. If more than XXXXXXXXXX% but less than XXXXXXXXXX% of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX dissent, the board of directors will have the option of proceeding with the Plan of Arrangement.

42. No property has or will become property of XXXXXXXXXX/Aco and no liabilities have or will be incurred by XXXXXXXXXX/Aco in contemplation of and before the transfer described in paragraph 23 above, except in the ordinary course of business or on sales at fair market value for cash or a note that is not convertible into any other property or as described herein. XXXXXXXXXX/Aco is actively exploring and researching other business opportunities which could involve the acquisition of a business or other properties. However, XXXXXXXXXX/Aco has not entered into any agreements or made any commitments in respect of such an acquisition that is not described herein.

43. There are not, and will not be, at any time prior to the completion of the proposed transactions, 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 to be redeemed as part of the proposed transactions.

44. Neither XXXXXXXXXX/Aco nor Newco has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares to be redeemed as part of the proposed transactions.

45. None of the shares to be redeemed as part of the proposed transactions will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).

46. XXXXXXXXXX/Aco and Newco are not financial intermediary corporations.

47. The proposed transactions will have no effect on any outstanding tax liabilities of any of the parties referred to in this ruling request.

PURPOSE OF THE PROPOSED TRANSACTIONS

48. The purposes of the proposed transactions are to:

(a) allow XXXXXXXXXX/ A and XXXXXXXXXX/Cco to utilize the non-capital losses and net capital losses of XXXXXXXXXX/Aco to offset the accrued gains in the Real Properties and the XXXXXXXXXX Shares without diluting their ownership interest in such properties; and

(b) to enhance shareholder value. The transfer of the cash and cash equivalent assets of XXXXXXXXXX/Aco to Newco will allow Newco to use those assets to start a new business which is expected to be more fully valued by the public markets than has been the case for XXXXXXXXXX/Aco. The XXXXXXXXXX/Aco Common Shares and the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares have traded for some time at a significant discount to the underlying value attributable to them. The board of directors and management of XXXXXXXXXX/Aco have considered a number of methods of enhancing shareholder value. In these deliberations, it was recognized that there is a significant unrecognized value in XXXXXXXXXX/Aco's tax losses but that these tax losses are only of practical value to the controlling shareholder of XXXXXXXXXX/Aco. Accordingly, the proposed transactions have been structured to realize that value for the benefit of all shareholders and to enable most of the assets of XXXXXXXXXX/Aco to be utilized in a new public company which will be valued on a fresh basis.

The shareholders of XXXXXXXXXX/Aco, other than XXXXXXXXXX/A and persons related to XXXXXXXXXA/A, will realize a value for the tax losses, as a result of receiving a price described in paragraph 28 above, for their remaining XXXXXXXXXX% of their shares of XXXXXXXXXX/Aco from XXXXXXXXXX/Cco.

RULINGS

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

A. No dividend will be deemed to arise, by virtue of either subsection 84(1) or 84(3), as a result of the exchange of shares described in paragraphs 20 and 32 above.

B. On the redemption of the Newco XXXXXXXXXX Shares held by XXXXXXXXXX/Aco as described in paragraph 24 above and the purchases for cancellation or redemption of the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX held by Newco as described in paragraph 25 above, the amount, if any, by which the amount paid to redeem or purchase the particular shares exceeds the paid-up capital of the particular shares immediately before the redemption or the purchase for cancellation:

(i) will be deemed pursuant to paragraph 84(3)(a) to be a dividend paid by the issuer of such shares;

(ii) will be deemed pursuant to paragraph 84(3)(b) to be a dividend received by the holder of such shares;

(iii) will be included in each recipient's income pursuant to paragraph 12(1)(j);

(iv) to the extent that a dividend described in (ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4); and

(v) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividends pursuant to subsection 112(3).

C. Provided that the transfer by XXXXXXXXXX/Aco of its property to Newco described in paragraph 23 above meets the "types of property" requirement in the definition of "distribution" in subsection 55(1), and provided that as part of the series of transactions or events that includes the proposed transactions described herein, there is not:

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

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

(c) an acquisition of any shares of a distributing corporation in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii)

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

D. No taxes under Part IV of the Act will be payable in respect of a dividend described in Ruling B above.

E. Part IV.1 of the Act will not apply to the deemed dividends described in Ruling B above because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1.

F. Part VI.1 of the Act will not apply to the deemed dividends described in Ruling B above because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).

G. The settlement by way of set off of the XXXXXXXXXX/Aco Note and Newco Note described in paragraph 26 above will not give rise to a forgiven amount.

H. On the transfer of:

(a) the XXXXXXXXXX/Aco Common Shares, the XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and/or the XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX by a shareholder of XXXXXXXXXX/Aco to Newco as described in paragraph 20 above;

(b) XXXXXXXXXX from XXXXXXXXXX/A to XXXXXXXXXX/Cco as described in paragraph 33 above; and

(c) the Real Properties and the XXXXXXXXXX Shares from XXXXXXXXXX/Cco to XXXXXXXXXX/Aco as described in paragraph 36 above,

subject to the provisions of subsection 69(11), the provisions of subsection 85(1) will apply with the result that the amount agreed upon by each transferor and transferee in their joint election in respect of the particular transferred property will be deemed pursuant to paragraph 85(1)(a) to be proceeds of disposition thereof to the particular transferor and the cost thereof to the particular transferee. In respect of depreciable property, each transferee's capital cost of such property will be determined in accordance with subsection 85(5) and paragraph 13(7)(e).

For greater certainty, paragraph 85(1)(e.2) will not apply to any of the transfers.

I. Provided that a shareholder of XXXXXXXXXX/Aco who disposes of XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares and/or XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX for Newco Common Shares, Newco Class XXXXXXXXXX Shares and Newco XXXXXXXXXX Shares, XXXXXXXXXX, respectively, on the share-for-share exchange described in paragraph 20 above, immediately before the exchange:

(a) holds such shares of XXXXXXXXXX/Aco as capital property;

(b) deals at arm's length with Newco immediately before the exchange;

(c) does not include any portion of the gain or loss otherwise determined, from the disposition of those shares of XXXXXXXXXX/Aco, in computing such shareholder's income for the taxation year in which the exchange takes place;

(d) does not file an election under subsection 85(1) or 85(2) with Newco with respect to such shares of XXXXXXXXXX/Aco; and

(e) does not receive any consideration other than Newco Common Shares, Newco Class XXXXXXXXXX Shares or Newco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, in exchange for such shares (and for this purpose any cash received by a holder on the sale of fractional shares described in paragraph 22 above will not be considered to be consideration for the XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be)

and further provided that immediately after the exchange referred to in paragraph 20 above:

(f) neither the shareholder or any person or persons with whom the shareholder does not deal at arm's length, nor such shareholder together with any person or persons with whom the shareholder does not deal at arm's length, will:

(i) control Newco; or

(ii) beneficially own shares of Newco having a fair market value of more than 50% of the fair market value of all of the outstanding shares of Newco,

then, pursuant to paragraph 85.1(1)(a), such shareholder will be deemed:

(g) to have disposed of such shares of XXXXXXXXXX/Aco, for proceeds of disposition equal to the ACB to that shareholder of those shares immediately before the exchange;

(h) to have acquired the Newco Common Shares, the Newco Class XXXXXXXXXX Shares or the Newco XXXXXXXXXX Shares, XXXXXXXXXX, as the case may be, at a cost to that shareholder equal to the ACB to that shareholder of such XXXXXXXXXX/Aco Common Shares, XXXXXXXXXX/Aco Class XXXXXXXXXX Shares or XXXXXXXXXX/Aco XXXXXXXXXX Shares, XXXXXXXXXX , respectively, immediately before the exchange; and

pursuant to paragraph 85.1(1)(b), the cost to Newco of each XXXXXXXXXX/Aco Common Share, XXXXXXXXXX/Aco Class XXXXXXXXXX Share or XXXXXXXXXX/Aco XXXXXXXXXX Share, XXXXXXXXXX share acquired by Newco as a result of the exchange will be deemed to be the lesser of such share's fair market value immediately before the exchange and its paid-up capital immediately before the exchange.

J. Provided that the XXXXXXXXXX/Aco Common Shares and XXXXXXXXXX/Aco Class XXXXXXXXXX Shares are capital property to XXXXXXXXXX/A, XXXXXXXXXX/Mr B and XXXXXXXXXX/Bco and they do not make an election pursuant to subsection 85(1) with respect to the share exchange described in paragraph 32 above, subsection 86(1) will apply to the exchange of all such shares held by such shareholders, such that:

(a) the cost of the XXXXXXXXXX/Aco Preferred Shares received by a particular XXXXXXXXXX Aco shareholder on the share exchange will be deemed by paragraph 86(l)(b) to be an amount equal to the aggregate ACB to the particular XXXXXXXXXX/Aco shareholder, immediately before the exchange, of that shareholder's XXXXXXXXXX/Aco Common Shares or XXXXXXXXXX Aco Class XXXXXXXXXX Shares, as the case may be; and

(b) pursuant to paragraph 86(1)(c), a particular XXXXXXXXXX/Aco shareholder will be deemed to have disposed of that shareholder's XXXXXXXXXX/Aco Common Shares or XXXXXXXXXX/Aco Class XXXXXXXXXX Shares, as the case may be, for proceeds of disposition equal to the ACB to the particular shareholder immediately before the share exchange of that shareholder's XXXXXXXXXX/Aco Common Shares or XXXXXXXXXX/Aco Class XXXXXXXXXX Shares, as the case may be.

For greater certainty, subsection 86(2) will not apply to the Share Exchange.

K. Provided Subco continues to use the property acquired from XXXXXXXXXX/Aco, as described in paragraph 36 above, for the purpose of gaining or producing income from such property (other than income which will be exempt or to acquire a life insurance policy), any interest (which for greater certainty, will be as determined in the manner described in paragraph 38 above) paid in the year or payable in respect of the year (depending on the method regularly followed by Subco in computing its income for the purposes of the Act) by Subco on the Subco Note, not in excess of a reasonable amount, will be deductible in computing Subco's income under paragraph 20(1)(c).

L. On the transfer of depreciable property by XXXXXXXXXX/Aco to Subco as described in paragraph 36 above, the provisions of paragraph 13(7)(e) will apply, where the capital cost of a property transferred to Subco, determined without reference to this paragraph, exceeds the capital cost of such property to XXXXXXXXXX/Aco immediately before its disposition, such that the capital cost to Subco of such property will be deemed to be the amount that is equal to the capital cost of such property to XXXXXXXXXX/Aco plus 3/4 of the amount by which XXXXXXXXXX/Aco's proceeds of disposition of such property exceed the capital cost of such property to XXXXXXXXXX/Aco.

M. Pursuant to subsection 1102(14) of the Regulations, each property which, immediately before the transfers described in paragraphs 33, 36 and 38, is depreciable property of a prescribed class or separate prescribed class of XXXXXXXXXX/A or XXXXXXXXXX/Cco, as the case may be, and which is acquired by XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco, as the case may be, on the transfers described in paragraphs 33, 36 and 38, will be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco, as the case may be.

N. Provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included by XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco, as the case may be, under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco on the transfers described in paragraphs 33, 36 and 38 above.

O. Pursuant to subsection 1101(1ad) of the Regulations, each rental property (within the meaning given in subsection 1100(14) of the Regulations) which is acquired by XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco, as the case may be, on the transfers described in paragraphs 33, 36 and 38 above and which would otherwise be rental property of a separate prescribed class under subsection 1101(1ac) of the Regulations, will be deemed not to be property of a separate prescribed class of XXXXXXXXXX/Cco, XXXXXXXXXX/Aco or Subco under subsection 1101(1ac) of the Regulations provided that such property was a rental property included in the prescribed class of XXXXXXXXXX/A or XXXXXXXXXX/Cco, as the case may be, other than a separate class prescribed under subsection 1101(1ac) of the Regulations.

P. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not be applied as a result of the proposed transactions, in and by themselves.

Q. 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.

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

These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.

OPINION

1. In the event that the proposed amendments to add subsection 55(3.02) and the definition "specified corporation" in subsection 55(1) are enacted substantially in the form proposed in the Legislative Proposals released by the Department of Finance on November 30, 1999, and provided that

(a) there is not a distribution by XXXXXXXXXX/Aco to a corporation that is not an acquiror before the day that is three years after the Transaction Date;

(b) there is not a distribution by Newco or any other acquiror in relation to XXXXXXXXXX/Aco before the day that is three years after the Transaction Date

and provided that as part of the series of transactions or events that includes the Proposed Transactions there is not:

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

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

(e) an acquisition of any shares of a distributing corporation in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii)

which has not been described herein, it is then our opinion that by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling B above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

The foregoing opinions are not rulings and, in accordance with the practice referred to in Information Circular 70-6R3, are not binding on the CCRA.

COMMENTS

Nothing in this ruling should be construed as confirmation, express or implied, of:

(a) the determination of the fair market value, ACB or paid-up capital of any particular share referred to herein;

(b) the amount of non-capital losses or capital losses of XXXXXXXXXX/Aco or any value ascribed to any such losses; or

(c) the tax consequences of any transaction other than those described in the rulings given above.

Yours truly,

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