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: Application of subsection 55(2) to dividends arising in the course of a "spin-off" transaction.

Position: Not Applicable.

Reasons: Paragraph 55(3)(a) precludes application of subsection 55(2) (no misuse of paragraph 55(3)(a) so GAAR also N/A).

XXXXXXXXXX 2000-005654

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX ("Parentco")
XXXXXXXXXX ("Spinco")
Advance Income Tax Ruling Request

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

To the best of your knowledge, and that of the taxpayers named herein, none of the issues involved in this advance income tax ruling request is under objection or appeal or is being considered by any tax services office or taxation centre of the Canada Customs and Revenue Agency in connection with any income tax return already filed.

DEFINITIONS:

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

(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, subparagraph or clause is a reference to the relevant provision of the Act;

(b) XXXXXXXXXX;

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

(d) "Aco" means XXXXXXXXXX, as described in Paragraph 6;

(e) "Aco Note " means the debt of Aco owing to Parentco so described in Paragraph 7;

(f) XXXXXXXXXX;

(g) XXXXXXXXXX;

(h) "arm's length" has the meaning assigned by section 251;

(i) "Bco" means XXXXXXXXXX, as described in Paragraph 9;

(j) "Bco notes" means the debt of Bco owing to Aco so described in Paragraph 10;

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

(l) "CBCA" means the Canada Business Corporations Act;

(m) XXXXXXXXXX;

(n) "Cco" means XXXXXXXXXX, as described in Paragraph 17;

(o) "Cco Acquisitionco" means XXXXXXXXXX, as described in Paragraph 16;

(p) "Cco Acquisitionco Common Shares" means the common shares in the capital stock of Cco Acquisitionco so described in Paragraph 16;

(q) "Cco Acquisitionco XXXXXXXXXX Common Shares" means the Cco Acquisitionco Common Shares renamed as described in Paragraph 54.1;

(r) "Cco Acquisitionco XXXXXXXXXX Common Shares" means the XXXXXXXXXX common shares of Cco Acquisitionco so described in Paragraph 54.1;

(s) "Cco Acquisitionco XXXXXXXXXX Common Shares" means the XXXXXXXXXX common shares of Cco Acquisitionco so described in Paragraph 54.1;

(t) "Cco Common Shares" means the common shares in the capital stock of Cco so described in Paragraph 17;

(u) "Dco" means XXXXXXXXXX, a corporation dealing at arm's length with Mco, Zco and Parentco;

(v) "Dco Portion of Vco" means the portion of Vco presently owned indirectly by Dco as of the date hereof, being all of Vco except the Mco Portion of Vco;

(w) "Dco Portion of Vco Amount" means the fair market value of the Dco Portion of Vco as of the date hereof, estimated at $XXXXXXXXXX;

(x) "disposition" has the meaning assigned by section 54;

(y) "dividend rental arrangement" has the meaning assigned by subsection 248(1);

(z) "Eco" means XXXXXXXXXX, as described in Paragraph 19;

(aa) "Eco Common Shares" means the common shares in the capital stock of Eco owned by Parentco and Numberco so described in Paragraph 19;

(bb) "fair market value" means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length;

(cc) "Fco" means XXXXXXXXXX, as described in Paragraph 30;

(dd) "Gco" means XXXXXXXXXX, as described in paragraph 23;

(ee) "Gco Option" means the option so described in paragraph 23;

(ff) "Gco Assets" means:

(i) all of the assets, property, undertakings and liabilities of XXXXXXXXXX, a division of Mco Canada; and

(ii) all of the assets, property, undertakings and liabilities of XXXXXXXXXX, a division of Mco Canada which is an XXXXXXXXXX;

(gg) "Gco Assets Price" means the amount of money paid by Newco to purchase the Gco Assets so described in Paragraph 66;

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

(ii) "Joint Venture Transactions" means the transactions described in Paragraphs 64 to 73;

(jj) "Mco" means XXXXXXXXXX, as described in Paragraph 21;

(kk) "Mco Canada" means XXXXXXXXXX, as described in Paragraph 21;

(ll) "Mco Partnership" means the partnership so described in Paragraph 47;

(mm) "Mco Portion of Vco" means all of the outstanding shares of Gco, Gco being the owner of all of Vco except the Dco Portion of Vco as of the date hereof;

(nn) "Mco Portion of Vco Amount" means the fair market value of the Mco Portion of Vco as of the date hereof, estimated at $XXXXXXXXXX;

(oo) "Newco" means the new CBCA corporation to be incorporated, as described in Paragraph 26;

(pp) "Newco Common Shares" means the common shares in the capital stock of Newco so described in Paragraph 26;

(qq) "Numberco" means XXXXXXXXXX, as described in Paragraph 18;

(rr) XXXXXXXXXX;

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

(tt) "Paragraph" means a numbered paragraph in this letter;

(uu) "Parentco" means XXXXXXXXXX, as described in Paragraph 1;

(vv) "Parentco Board" means the Board of Directors of Parentco;

(ww) "Parentco Common Shares" means the common shares in the capital stock of Parentco so described in Paragraph 3;

(xx) "Qco " means XXXXXXXXXX, as described in Paragraph 14;

(yy) "Qco Properties" means the properties of Qco so described in Paragraph 15;

(zz) "Parentco Subco" means the new CBCA corporation to be incorporated, as described in Paragraph 25;

(aaa) "Parentco Subco Common Shares" means the common shares in the capital stock of Parentco Subco so described in Paragraph 25;

(bbb) "Parentco Subco Dividend" means the dividend so described in Ruling A(a) deemed to arise on the redemption of the Parentco Subco Preferred Shares;

(ccc) "Parentco Subco Preferred Shares" means the preferred shares in the capital stock of Parentco Subco so described in Paragraph 25;

(ddd) "Parentco Subco Redemption Note" means the note of Parentco Subco so described in Paragraph 57;

(eee) "principal amount" has the meaning assigned by subsection 248(1);

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

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

(hhh) "Proposed Transactions" means collectively the Spin-Out Transactions and the Joint Venture Transactions;

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

(jjj) "Redemption Amount" means the amount so described in Paragraph 25;

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

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

(mmm) "Sco" means XXXXXXXXXX, as described in Paragraph 29;

(nnn) "Sco Loan" means the loan made by Zco to Sco so described in Paragraph 31;

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

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

(qqq) "Spinco" means XXXXXXXXXX, as described in Paragraph 11;

(rrr) "Spinco Common Shares" means the common shares in the capital stock of Spinco so described in Paragraph 11;

(sss) "Spinco Special Dividend" means the special dividend on the Spinco Common Shares so described in Paragraph 60;

(ttt) "Spin-Out Transactions" means the transactions described in Paragraphs 56 to 62;

(uuu) "stated capital account" has the meaning assigned by section 26 of the CBCA;

(vvv) "Transferco" means XXXXXXXXXX, as described in Paragraph 12;

(www) "Transferco Shares" means the shares in the capital stock of Transferco that are owned by Spinco as of the date hereof, as described in Paragraph 12;

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

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

(zzz) "Trust" means the trust established under the laws of XXXXXXXXXX with XXXXXXXXXX as trustee and XXXXXXXXXX as beneficiaries;

(aaaa) "Unrelated Person", with respect to a disposition of property or a significant increase in a person's or partnership's interest in a corporation, means a person or partnership that is an "unrelated person" with reference to Spinco within the meaning of paragraph 55(3.01)(a) immediately before that disposition or significant increase (as the case may be); and

(bbbb) "Vco" means XXXXXXXXXX a partnership under the laws of XXXXXXXXXX in which Gco currently owns a XXXXXXXXXX% partnership interest. Dco indirectly owns the remaining XXXXXXXXXX% interest in Vco. XXXXXXXXXX;

(cccc) "Vco Closing Deadline" means XXXXXXXXXX;

(dddd) "Vco Proportion" means the proportion that $XXXXXXXXXX is of the fair market value of all of the outstanding shares of Cco Acquisitionco immediately following the transaction described in Paragraph 69;

(eeee) "Zco" means XXXXXXXXXX, as described in Paragraph 24.

STATEMENT OF FACTS:

Facts Relating to Parentco

1. XXXXXXXXXX. Parentco is governed by the CBCA and is a public corporation and a taxable Canadian corporation.

2. XXXXXXXXXX:

3. As at XXXXXXXXXX, Parentco had XXXXXXXXXX common shares issued and outstanding, representing all of its issued voting shares (the "Parentco Common Shares"). The Parentco Common Shares are listed on XXXXXXXXXX.

4. Parentco also has XXXXXXXXXX issued and outstanding XXXXXXXXXX Preferred Shares issued in various series. The relevant terms and conditions of the XXXXXXXXXX Preferred Shares vary somewhat from series to series, but in all cases are non-voting and are redeemable for a fixed amount. XXXXXXXXXX.

5. Based on a review of the shareholders' register, and to the knowledge of Parentco's directors and senior officers, it does not appear that any person or partnership owns more than 10% of the issued and outstanding Parentco Common Shares. Certain arm's-length financial institutions hold more than 10% of the issued and outstanding shares of a series of Parentco preferred shares.

The Parentco Group

6. Aco is a taxable Canadian corporation that was incorporated in XXXXXXXXXX under the CBCA. Aco is a holding corporation which holds common shares and debt of Bco. As at XXXXXXXXXX, Aco had outstanding XXXXXXXXXX common shares, XXXXXXXXXX common shares and XXXXXXXXXX Shares. The XXXXXXXXXX common shares are all held by Parentco. The XXXXXXXXXX common shares are all held by the Trust. The XXXXXXXXXX Shares are all held by Parentco and are non-voting. Parentco and the Trust deal at arm's length with each other.

7. Parentco also holds the following indebtedness of Aco:

(i) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(iii) a Note (the "Aco Note ") with a principal amount of $XXXXXXXXXX. The Aco Note will mature on XXXXXXXXXX. Aco may at any time prepay all or any portion of the Note without notice or penalty. Aco is obliged to repay Parentco under the Aco Note to the extent that Bco repays any of the Bco notes (issued by XXXXXXXXXX and held by Aco, as described below) and Aco does not use the repayment proceeds to subscribe for equity of Bco; and

(iv) XXXXXXXXXX.

8. The Trust owns XXXXXXXXXX securities issued by Aco with a principal amount of $XXXXXXXXXX. The XXXXXXXXXX securities will mature on XXXXXXXXXX. Aco may, at any time, prepay all or any portion of the XXXXXXXXXX securities in cash or through the issuance of XXXXXXXXXX common shares of Aco. The XXXXXXXXXX securities are convertible into XXXXXXXXXX common shares of Aco at any time after a failure by Aco to pay any quarterly coupon amounts due thereunder or at any time after XXXXXXXXXX.

9. XXXXXXXXXX. Bco is a public corporation and a taxable Canadian corporation. As at XXXXXXXXXX , Bco had outstanding XXXXXXXXXX common shares, representing all of the voting shares of the company. Aco owns XXXXXXXXXX Bco common shares (approximately XXXXXXXXXX%) directly, and the remaining outstanding XXXXXXXXXX Bco common shares (approximately XXXXXXXXXX%) indirectly through XXXXXXXXXX, a wholly-owned subsidiary of Aco. Bco also has outstanding preference shares of a specified class, all of which are non-voting, fixed value, non-participating and not convertible into common shares. Such shares are held by Unrelated Persons.

10. Aco also holds the following indebtedness of Bco:

(i) XXXXXXXXXX;

(ii) Bco Notes (the "Bco notes") with a principal amount of $XXXXXXXXXX. The Bco Notes will mature on XXXXXXXXXX. Bco may at any time prepay any or all of the Bco Notes without notice or penalty provided that any such repayment does not result in a reduction in the credit rating of any debt securities of Bco ranking senior to the Bco Notes. Bco may elect to make any repayment of principal under the Bco Notes through the issuance of such number of common shares of Bco as have an aggregate fair market value equal to the amount of principal thereby repaid; and

(iii) XXXXXXXXXX.

11. Spinco is a taxable Canadian corporation that was incorporated in XXXXXXXXXX under the CBCA. Its outstanding shares consist of common shares (the "Spinco Common Shares"), all of which are held by Bco. The adjusted cost base to Bco of the Spinco Common Shares is less than their fair market value.

12. Transferco is a taxable Canadian corporation that was incorporated under the OBCA in XXXXXXXXXX. Spinco and XXXXXXXXXX (an Unrelated Person) own XXXXXXXXXX and XXXXXXXXXX, respectively, of the XXXXXXXXXX issued and outstanding common shares of Transferco. Spinco also owns XXXXXXXXXX preferred shares of Transferco, representing all of the issued and outstanding XXXXXXXXXX preferred shares. The holders of XXXXXXXXXX preferred shares have the right to convert, at any time XXXXXXXXXX on the date of any initial public offering of any securities of Transferco, all and not less than all of their XXXXXXXXXX preferred shares into that number of XXXXXXXXXX common shares of the company that is calculated based on the conversion rate in effect at such time. The conversion rate currently in effect is XXXXXXXXXX (Spinco would thus own XXXXXXXXXX% of the issued and outstanding common shares of Transferco if it exercised its option to convert its XXXXXXXXXX preferred shares into common shares). The XXXXXXXXXX common shares of Transferco and the XXXXXXXXXX preferred shares of Transferco held by Spinco are collectively referred to herein as the "Transferco Shares".

13. The Transferco Shares have an adjusted cost base to Spinco that is materially less than their aggregate fair market value.

14. Qco is a taxable Canadian corporation that was incorporated in XXXXXXXXXX under the CBCA. It is a direct wholly-owned subsidiary of Parentco, offering XXXXXXXXXX and business services through its operating entities.

15. Qco owns XXXXXXXXXX (the "Qco Interest") of the issued and outstanding XXXXXXXXXX shares of XXXXXXXXXX, a corporation governed by the laws of Canada, XXXXXXXXXX. The Qco Interest and the Qco XXXXXXXXXX are collectively referred to herein as the "Qco Properties".

16. Cco Acquisitionco is a taxable Canadian corporation incorporated in XXXXXXXXXX under the XXXXXXXXXX. All of the common shares of Cco Acquisitionco (the "Cco Acquisitionco Common Shares") are owned by Parentco, these being the only shares of Cco Acquisitionco outstanding.

17. XXXXXXXXXX.

18. Numberco was incorporated under the CBCA in XXXXXXXXXX. All of its outstanding shares are owned by Parentco.

19. Eco is a taxable Canadian corporation incorporated under the XXXXXXXXXX. The company specializes in the XXXXXXXXXX. Numberco owns XXXXXXXXXX common shares of Eco, while Parentco owns a further XXXXXXXXXX common shares of Eco. These two combined shareholdings (the "Eco Common Shares") represent approximately XXXXXXXXXX% of all of the issued and outstanding common shares of Eco. The remaining shares of Eco are owned by persons dealing at arm's length with Numberco and Parentco.

20. In addition to the foregoing specifically-described entities, there are XXXXXXXXXX other entities not specifically mentioned herein over which Parentco exercises control or significant influence. Such other entities are not relevant for the purposes of the Proposed Transactions.

Facts Relating to Mco Canada and Zco

21. Mco Canada is a wholly-owned subsidiary of Mco that is governed by the XXXXXXXXXX. Mco is a public corporation and a taxable Canadian corporation that is also governed by the XXXXXXXXXX. The common shares of Mco are listed on XXXXXXXXXX. As of XXXXXXXXXX, Mco had outstanding XXXXXXXXXX common shares, XXXXXXXXXX of which (approximately XXXXXXXXXX%) were beneficially owned by Zco. Also as of XXXXXXXXXX was the direct or indirect beneficial owner of, or exercised control or discretion over, XXXXXXXXXX (approximately XXXXXXXXXX%) of the outstanding common shares of Mco.

22. XXXXXXXXXX:

23. Gco is a corporation governed by the XXXXXXXXXX that is wholly-owned by XXXXXXXXXX. Gco currently holds a XXXXXXXXXX% interest in the Vco partnership. XXXXXXXXXX ownership of the common shares of Gco is subject to an irrevocable option (the "Gco Option") in favour of Mco Canada under which Mco Canada may at any time purchase from XXXXXXXXXX all but not less than all of the common shares of Gco for consideration equal to their fair market value at the time of any such exercise. XXXXXXXXXX, Mco Canada will exercise the Gco Option such that, prior to the time that Vco is transferred to Newco as described in the third-last sentence of Paragraph 66, Mco Canada will purchase all of the common shares of Gco from XXXXXXXXXX for proceeds of disposition equal to their fair market value at that time and thereby indirectly (through Gco) own a XXXXXXXXXX% interest in the Vco partnership.

24. Zco is a private corporation and a taxable Canadian corporation that is governed by the XXXXXXXXXX . Zco is indirectly owned by XXXXXXXXXX. Zco is a holding company for the XXXXXXXXXX. Its principal assets are common shares of Mco.

Corporations Incorporated for Proposed Transactions

25. Prior to the implementation of the Proposed Transactions, Parentco will incorporate a new taxable Canadian corporation ("Parentco Subco") under the CBCA, subscribing for a single common share in exchange for $XXXXXXXXXX, and holding the only issued share of Parentco Subco immediately after Parentco Subco's incorporation. The authorized share capital of Parentco Subco will consist of:

(1) an unlimited number of non-voting preferred shares (the "Parentco Subco Preferred Shares"), each of which will be redeemable at the option of the issuer and retractable at the option of the holder at any time for an amount (the "Redemption Amount") equal to, (1) the fair market value of the property received by Parentco Subco in exchange for the issuance of such shares, divided by (2) the number of Parentco Subco Preferred Shares issued as consideration for such property; and

(2) an unlimited number of voting common shares (the "Parentco Subco Common Shares"). At no time will any person other than Parentco own Parentco Subco Common Shares.

There will be no changes in the capital structure, outstanding shares, or shareholdings of Parentco Subco between the time immediately following its incorporation and the time immediately before the Spin-Out Transactions, nor will it acquire any property or incur any liability during such time.

26. Prior to the implementation of the Proposed Transactions, Parentco will incorporate a new taxable Canadian corporation ("Newco") under the CBCA, subscribing for a single common share in exchange for $XXXXXXXXXX, and holding the only issued share of Newco immediately after Newco's incorporation. The authorized share capital of Newco will consist of an unlimited number of voting common shares (the "Newco Common Shares"), which (as a class) shall be entitled to the net residual assets of Newco upon its liquidation or winding-up. There will be no changes in the capital structure, outstanding shares, or shareholdings of Newco between the time immediately following its incorporation and the time immediately before the Joint Venture Transactions, nor will it acquire any property or incur any liability during such time.

Background to Proposed Transactions

27. XXXXXXXXXX.

28. XXXXXXXXXX.

29. XXXXXXXXXX.

30. XXXXXXXXXX.

31. XXXXXXXXXX.

32. XXXXXXXXXX.

33. XXXXXXXXXX.

34. XXXXXXXXXX.

35. XXXXXXXXXX.

36. XXXXXXXXXX.

37. XXXXXXXXXX.

38. XXXXXXXXXX.

39. XXXXXXXXXX.

40. XXXXXXXXXX.

41. XXXXXXXXXX:

42. XXXXXXXXXX.

Other Information

43. XXXXXXXXXX. In order to remain competitive in this environment, Parentco (and/or corporations in which Parentco has a direct or indirect interest) has recently undertaken or is at this time contemplating undertaking various business transactions. In particular:

XXXXXXXXXX.

44. All of the transactions referred to in Paragraph 43 were, or, if completed, would be, undertaken irrespective of whether the Proposed Transactions are undertaken. Similarly, the Proposed Transactions would be undertaken irrespective of such transactions. For greater certainty, none of such transactions has been or will be undertaken in contemplation of the Proposed Transactions, or vice versa.

45. There will not be as a part of the series of transactions or events that includes the receipt of the Parentco Subco Dividend:

(i) any disposition of property to an Unrelated Person (other than money disposed of on the payment of a dividend or on a reduction of the paid-up capital of a share, or property disposed of for proceeds of disposition that are not less than its fair market value);

(ii) a significant increase in the total direct interest in any corporation of one or more Unrelated Persons (other than as a consequence of a disposition of shares of the capital stock of a corporation for proceeds of disposition that are not less than their fair market value);

(iii) a disposition to an Unrelated Person of either, (1) shares of Parentco Subco, or (2) property more than 10% of the fair market value of which was (at any time during the course of the series) derived from shares of Parentco Subco;

(iv) after the Parentco Subco Dividend, a disposition to an Unrelated Person of either, (1) shares of Spinco, or (2) property more than 10% of the fair market value of which was (at any time during the course of the series) derived from shares of Spinco; or

(v) a significant increase in the total of all direct interests in Parentco Subco of one or more Unrelated Persons.

46. Assuming that the reference to Spinco in the definition of "Unrelated Person" was instead a reference to Bco, there will not be as a part of the series of transactions or events that includes the receipt of the Spinco Special Dividend:

(i) any disposition of property to an Unrelated Person (other than money disposed of on the payment of a dividend or on a reduction of the paid-up capital of a share, or property disposed of for proceeds of disposition that are not less than its fair market value);

(ii) a significant increase in the total direct interest in any corporation of one or more Unrelated Persons (other than as a consequence of a disposition of shares of the capital stock of a corporation for proceeds of disposition that are not less than their fair market value);

(iii) a disposition to an Unrelated Person of either, (1) shares of Spinco, or (2) property more than 10% of the fair market value of which was (at any time during the course of the series) derived from shares of Spinco;

(iv) after the Spinco Special Dividend, a disposition to an Unrelated Person of either, (1) shares of Bco, or (2) property more than 10% of the fair market value of which was (at any time during the course of the series) derived from shares of Bco; or

(v) a significant increase in the total of all direct interests in Spinco of one or more Unrelated Persons.

47. It is anticipated that prior to the Joint Venture Transactions, Mco Canada and/or Zco will engage in certain transactions for the purpose of effectively utilizing losses under the Act. In particular, if the closing of the Joint Venture Transactions (excluding the sale of Vco from Mco Canada to Newco) does not occur on or before XXXXXXXXXX, it is anticipated that in order to utilize non-capital losses that would otherwise expire on XXXXXXXXXX, Mco Canada and an existing corporation related to it will form a partnership (the "Mco Partnership") and transfer some of the Gco Assets to that partnership and receive a partnership interest with a fair market value equal to that of such transferred Gco Assets. No election would be made under subsection 97(2) in respect of such transfer.

48. Furthermore, additional transactions other than the Joint Venture Transactions may be undertaken by Mco Canada, Zco or corporations controlled by either of them (before or after the Proposed Transactions) that are not part of the series of transactions and events that includes the Parentco Subco Dividend and the Spinco Special Dividend. In all cases and for greater certainty, any such transactions (to which neither Parentco nor any entity controlled by it will be a party) undertaken by Mco Canada, Zco or corporations controlled by either of them that are part of the series of transactions and events that includes the Parentco Subco Dividend and the Spinco Special Dividend will comply with the factual representations made in Paragraphs 45 and 46.

49. As a result of exercising the Gco Option and purchasing the common shares of Gco for fair-market-value proceeds of disposition, Mco Canada will own an indirect (through Gco) XXXXXXXXXX % interest in Vco, the other XXXXXXXXXX% being held by Dco. Mco Canada intends to acquire the remaining XXXXXXXXXX% of Vco in a transaction (to which neither Parentco nor any entity controlled by it will be a party) under which the vendor will receive proceeds of disposition equal to the disposed-of property's fair market value. While the form of such transaction has not been determined as of the date hereof, any such transaction will consist of one or more dispositions for proceeds of disposition equal to the fair market value of any disposed of property. As such, this proposed acquisition of the remaining XXXXXXXXXX% for the purpose of contributing XXXXXXXXXX% of Vco to the joint venture will comply with the factual representations made in Paragraphs 45 and 46.

50. None of the Parentco Subco Preferred Shares or the Spinco Common Shares is or will be (at the time of the Parentco Subco Dividend and the Spinco Special Dividend, respectively):

• the subject of a guarantee agreement;
• issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5); or
• the subject of a dividend rental arrangement.

51. Other than as described in Paragraph 43 and Paragraph 54.1, no changes to the share capital structure of Parentco or the corporations controlled by it described in Paragraphs 6 to 19 are contemplated before the date of the commencement of the Proposed Transactions, with the exception of changes that would result from the refinancing, conversion or new issuance of preferred shares, the ordinary operations of Parentco's shareholder dividend reinvestment and stock purchase plan and employees' savings plan, the exercise of Parentco stock options by officers and key employees, XXXXXXXXXX, and certain internal restructurings within the Parentco group. None of the foregoing exceptions is related to or is part of the series of transactions or events that includes the Proposed Transactions.

52. Neither Spinco nor Bco is or will be a specified financial institution during the Proposed Transactions.

53. All of the shares described herein owned by Parentco, Parentco Subco, Aco, Bco, Spinco, Qco , Numberco, or Cco Acquisitionco are held and will be held throughout the Proposed Transactions as capital property.

54. There is no present intention for Bco to dispose of any of the Spinco Common Shares.

54.1 Shortly before the Joint Venture Transactions, Cco Acquisitionco will amend its articles of incorporation to change its share capital and create the Cco Acquisitionco XXXXXXXXXX Common Shares and the Cco Acquisitionco XXXXXXXXXX Common Shares. The Cco Acquisitionco Common Shares will be renamed the Cco Acquisitionco XXXXXXXXXX Common Shares. The terms of the Cco Acquisitionco XXXXXXXXXX Common Shares will be amended to provide that each such share will have the same rights to vote as, be entitled to the same dividends as, and (in the event of its liquidation, winding-up or dissolution) be entitled to share equally in Cco Acquisitionco's residual surplus with, each Cco Acquisitionco XXXXXXXXXX Common Share and each Cco Acquisitionco XXXXXXXXXX Common Share.

The terms of the Cco Acquisitionco XXXXXXXXXX Common Shares will similarly provide for each such share to have the same voting and economic rights as each Cco Acquisitionco XXXXXXXXXX Common Share and each Cco Acquisitionco XXXXXXXXXX Common Share, except that the terms of the Cco Acquisitionco XXXXXXXXXX Common Shares will also provide that in the event that Mco has not completed the transfer of the Mco Portion of Vco to Newco by the Vco Closing Deadline, then at that time all outstanding Cco Acquisitionco XXXXXXXXXX Common Shares will automatically be redeemed for the Mco Portion of Vco Amount. The terms of the Cco Acquisitionco XXXXXXXXXX Common Shares will similarly provide for each such share to have the same voting and economic rights as each Cco Acquisitionco XXXXXXXXXX Common Share and each Cco Acquisitionco XXXXXXXXXX Common Share, except that the terms of the Cco Acquisitionco XXXXXXXXXX Common Shares will also provide that in the event that Mco has not completed the transfer of the Dco Portion of Vco to Newco by the Vco Closing Deadline, then at that time all outstanding Cco Acquisitionco XXXXXXXXXX Common Shares will automatically be redeemed for the Dco Portion of Vco Amount. Thus, the rights and entitlements of the XXXXXXXXXX common shares of Cco Acquisitionco will be identical, save for the Vco-related redemption feature of the Cco Acquisitionco XXXXXXXXXX Common Shares and Cco Acquisitionco XXXXXXXXXX Common Shares.

PROPOSED TRANSACTIONS

55. XXXXXXXXXX, the transactions described in Paragraphs 56 to 73 will be undertaken in the order described below.

Spin-Out Transactions

56. Spinco will transfer the Transferco Shares to Parentco Subco, in exchange for the issuance of a fixed number of Parentco Subco Preferred Shares with an aggregate Redemption Amount equal to the fair market value of the Transferco Shares. Spinco and Parentco Subco will elect jointly under subsection 85(1) (in prescribed form and within the time permitted in subsection 85(6)) at an agreed amount equal to Spinco's adjusted cost base of the Transferco Shares at that time, which amount will be less than the fair market value of such shares at that time. Parentco Subco will add to the stated capital of the Parentco Subco Preferred Shares an amount not in excess of the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 85(2.1).

57. Parentco Subco will redeem the Parentco Subco Preferred Shares, and will issue a note ("the Parentco Subco Redemption Note") to Spinco in full satisfaction of the Redemption Amount. The Parentco Subco Redemption Note will be a non-interest-bearing debt payable on demand owing from Parentco Subco to Spinco having a principal amount and a fair market value equal to the Redemption Amount.

58. Parentco Subco will be wound up into Parentco under the provisions of the CBCA, such that Parentco Subco will distribute all of its assets, rights and properties (being the Transferco Shares) to Parentco, and Parentco will assume all the liabilities and obligations of Parentco Subco (being the liability of Parentco Subco to Spinco under the Parentco Subco Redemption Note).

59. Parentco will pay the full amount owing to Spinco under the Parentco Subco Redemption Note, in full satisfaction of Parentco's liability under that note.

60. Using the funds received from the immediately preceding step, Spinco will make two payments to Bco totaling the Redemption Amount, as a result of which the funds received from Parentco in the immediately preceding step will be transferred from Spinco to Bco, the sole shareholder of Spinco. Such payments will be made by, (1) Spinco reducing its stated capital by an amount (the "ACB Reduction") equal to the number produced when Bco's aggregate adjusted cost base of the Spinco Common Shares is multiplied by the proportion that the fair market value of the Transferco Shares is of the fair market value of the Spinco Common Shares, and (2) Spinco declaring a dividend on the Spinco Common Shares (the "Spinco Special Dividend") equal to the Redemption Amount minus the ACB Reduction.

61. Using the funds received from Spinco in the immediately preceding step, Bco will repay to Aco a number of Bco notes with an aggregate principal amount equal to the Redemption Amount.

62. Using the funds received from Bco in the immediately preceding step, Aco will repay to Parentco a portion of the principal amount of the Aco Note equal to the Redemption Amount.

Joint Venture Transactions

63. The Joint Venture Transactions will occur shortly following the Spin-Out Transactions.

64. Following the completion of the Spin-Out Transactions, Numberco will sell all of the Eco Common Shares that it owns to Parentco for cash equal to their fair market value, leaving Parentco as the owner of all of the Eco Common Shares.

65. Parentco will subscribe for XXXXXXXXXX Newco Common Shares for aggregate cash proceeds equal to the Gco Assets Price (as defined below) plus $XXXXXXXXXX. The full amount of such subscription funds will be added to the stated capital of the Newco Common Shares.

66. Using the funds received from Parentco in the immediately preceding step, Newco will purchase the Gco Assets from Mco Canada, for an amount of money (the "Gco Assets Price") equal to the fair market value of the Gco Assets. In the event that Mco Canada undertakes the loss utilization transaction described in Paragraph 47, the vendor of some of the Gco Assets could be the Mco Partnership. The sale of the Gco Assets to Newco will include an option to permit Mco Canada to re-purchase from Newco, during a specified period in the future, certain real property relating to the XXXXXXXXXX at its fair market value (as of the time of the option exercise). In addition, Mco Canada and Newco will enter into an agreement of purchase and sale for Newco to purchase for an aggregate price of $XXXXXXXXXX (being equal to the aggregate fair market value of the purchased property) all of Vco, being the Mco Portion of Vco and the Dco Portion of Vco, XXXXXXXXXX. Due to XXXXXXXXXX, it is not certain at this time what form Mco Canada's conveyance of the Dco Portion of Vco to Newco will take (e.g., a transfer of the XXXXXXXXXX% interest in the Vco partnership presently held by one or more Dco subsidiaries, a transfer of the shares of those Dco subsidiaries, etc.). However, any acquisition of the Dco Portion of Vco by Mco Canada will comply with the factual representations made in Paragraphs 45 and 46, and any conveyance of the Dco Portion of Vco by Mco Canada to Newco will be for the Dco Portion of Vco Amount as provided for under the agreement of purchase and sale.

67. Qco will transfer all of the Qco Properties to Parentco, in exchange for cash equal to their fair market value.

68. Parentco will transfer the following assets to Cco Acquisitionco in exchange for Cco Acquisitionco XXXXXXXXXX Common Shares of equal fair market value:

(a) all XXXXXXXXXX of the outstanding Newco Common Shares;

(b) all of the Eco Common Shares;

(c) all of the Qco Properties;

(d) all of the Transferco Shares; and

(e) cash of $XXXXXXXXXX.

Parentco and Cco Acquisitionco will elect jointly under subsection 85(1) (in prescribed form and within the time permitted in subsection 85(6)) at an agreed amount equal to Parentco's adjusted cost base of the Transferco Shares so transferred, which amount will be less than the fair market value of such shares at that time. No election under subsection 85(1) will be made in respect of the other properties transferred to Cco Acquisitionco by Parentco. As a result of this transfer, Cco Acquisitionco will own the transferred properties described above, and Parentco will own all of the outstanding Cco Acquisitionco XXXXXXXXXX Common Shares (being all of the shares of Cco Acquisitionco then outstanding). Cco Acquisitionco will add to the stated capital of the Cco Acquisitionco XXXXXXXXXX Common Shares an amount not in excess of the maximum amount that could be added to the paid-up capital of such shares, having regard to subsection 85(2.1).

69. Zco will grant Cco Acquisitionco certain contractual rights in respect of the Sco Loan in exchange for a cash payment from Cco Acquisitionco equal to their fair market value of XXXXXXXXXX.

69.1 A portion of Parentco's Cco Acquisitionco XXXXXXXXXX Common Shares equal to XXXXXXXXXX of the Vco Proportion will be exchanged by Parentco for an equal number of Cco Acquisitionco XXXXXXXXXX Common Shares, and the same number of Cco Acquisitionco XXXXXXXXXX Common Shares will be exchanged for an equal number of Cco Acquisitionco XXXXXXXXXX Common Shares. In the case of each exchange, (1) Parentco and Cco Acquisitionco will elect jointly under subsection 85(1) (in prescribed form and within the time permitted in subsection 85(6)) at an agreed amount equal to the fair market value of the Cco Acquisitionco XXXXXXXXXX Common Shares so exchanged, and (2) Cco Acquisitionco will add that same agreed amount to the stated capital of the Cco Acquisitionco XXXXXXXXXX Common Shares and Cco Acquisitionco XXXXXXXXXX Common Shares (as the case may be).

70. Parentco (the sole shareholder of Cco Acquisitionco) will sell a number of its Cco Acquisitionco XXXXXXXXXX Common Shares to Zco equal to XXXXXXXXXX% of the number of all the outstanding shares of Cco Acquisitionco that it then owns, in exchange for cash equal to the fair market value of the Cco Acquisitionco XXXXXXXXXX Common Shares being purchased. Parentco will also sell to Mco Canada (for cash equal to the fair market value of the shares being sold), (1) all of the Cco Acquisitionco XXXXXXXXXX Common Shares and Cco Acquisitionco XXXXXXXXXX Common Shares that Parentco owns (these being the only outstanding shares of those classes), and (2) a number of Cco Acquisitionco XXXXXXXXXX Common Shares that equals the number of all of the outstanding shares of Cco Acquisitionco owned by Parentco (immediately before the share sales described in this Paragraph) multiplied by the number obtained when the Vco Proportion is subtracted from XXXXXXXXXX%. The cash payable by Mco Canada will be equal to the cash paid by Newco in Paragraph 66 on Newco's cash purchase of the Gco Assets, plus a further $XXXXXXXXXX equal to the value of Vco (XXXXXXXXXX). The cash payable by Zco represents $XXXXXXXXXX plus $XXXXXXXXXX received in Paragraph 69 from Cco Acquisitionco in exchange for the contractual rights relating to the Sco Loan. As a result of this step, Parentco and Zco will own XXXXXXXXXX% and XXXXXXXXXX% (respectively) of the outstanding shares of Cco Acquisitionco (all in the form of Cco Acquisitionco XXXXXXXXXX Common Shares), and Mco Canada will own the remaining XXXXXXXXXX% of the outstanding shares of Cco Acquisitionco (in the form of Cco Acquisitionco XXXXXXXXXX Common Shares, and all of the outstanding Cco Acquisitionco XXXXXXXXXX Common Shares and Cco Acquisitionco XXXXXXXXXX Common Shares).

71. Newco will make a loan to Mco Canada of $XXXXXXXXXX, the loan principal being repayable at the earlier of the time that Mco Canada is able to close the sale of Vco to Newco and the Vco Closing Deadline.

72. [Reserved]

73. Once Mco Canada has acquired the Dco Portion of Vco XXXXXXXXXX, Mco Canada and Newco will close the transfer of Vco described in Paragraph 66. It is anticipated that this step could occur some months after the other steps in the Joint Venture Transactions. If Mco Canada cannot close the transfer of the Mco Portion of Vco by the Vco Closing Deadline, all of the Cco Acquisitionco XXXXXXXXXX Common Shares will automatically be redeemed in accordance with their terms. If Mco Canada cannot close the transfer of the Dco Portion of Vco by the Vco Closing Deadline, all of the Cco Acquisitionco XXXXXXXXXX Common Shares will automatically be redeemed in accordance with their terms. If either such closing (or both such closings) are completed before the Vco Closing Deadline, Newco will pay Mco Canada the purchase price described in Paragraph 66, and Mco Canada will repay the corresponding amount owing under the loan from Newco described in Paragraph 71.

PURPOSE OF THE PROPOSED TRANSACTIONS:

74. The overall purpose of the Proposed Transactions is to cause the various assets that will be contributed to Cco Acquisitionco by Parentco, Mco Canada and Zco to be assembled in a single XXXXXXXXXX , in order to exploit those business assets on a collective basis more advantageously than they could be exploited separately in the hands of their current owners.

75. The specific purposes of certain of the Proposed Transactions are as follows:

(a) The purpose of the Spin-Out Transactions is to allow Parentco to contribute the Transferco Shares to the joint venture entity on a tax-deferred basis;

(b) The purpose of having Mco Canada and Zco sell the assets they are contributing to the joint venture for cash (which they later use to buy common shares of Cco Acquisitionco) rather than selling such assets directly to Cco Acquisitionco for common shares of Cco Acquisitionco is to ensure that subparagraph 55(3)(a)(ii) will not apply to the Parentco Subco Dividend or the Spinco Special Dividend;

(c) The purpose of having the transfer of Vco described in Paragraph 66, be the subject of a separate closing is simply to allow the parties to implement the Proposed Transactions as quickly as possible without having to delay them because of uncertainties and delays in the transfer of a single asset arising from the fact that Mco Canada has not yet acquired the remaining XXXXXXXXXX% of Vco XXXXXXXXXX ; and

(d) The purpose of the loan described in Paragraph 71 is to provide Mco Canada with the necessary funds to purchase at the outset the common shares of Cco Acquisitionco relating to Vco, notwithstanding the fact that Mco Canada will not close the transfer of Vco until a later time. Mco Canada's immediate purchase of the common shares of Cco Acquisitionco relating to Vco allows Mco Canada to receive such shares in a manner that complies with paragraph 55(3)(a).

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. The redemption of the Parentco Subco Preferred Shares by Parentco Subco described in Paragraph 57 will have the following results:

(a) Parentco Subco will be deemed by paragraph 84(3)(a) to have paid, and Spinco will be deemed by paragraph 84(3)(b) to have received, a dividend (the "Parentco Subco Dividend") equal to the amount by which the amount paid on such redemption exceeds the paid-up capital of the redeemed Parentco Subco Preferred Shares;

(b) pursuant to section 54, the amount of such deemed dividend will be excluded in determining Spinco's proceeds of disposition for the Parentco Subco Preferred Shares;

(c) Spinco will be entitled, pursuant to subsection 112(1), to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the deduction of such deemed dividend; and

(d) subsection 55(2) will not apply to any portion of such deemed dividend, by virtue of paragraph 55(3)(a), provided that as part of the series of transactions or events which include the Parentco Subco Dividend there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

B. The payment of the Spinco Special Dividend described in Paragraph 60 will have the following results:

(a) Bco will be entitled, pursuant to subsection 112(1), to deduct the amount of such dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the deduction of such dividend; and

(b) subsection 55(2) will not apply to any portion of such dividend, by virtue of paragraph 55(3)(a), provided that as part of the series of transactions or events which include the Spinco Special Dividend there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

C. Provided that joint elections are filed pursuant to subsection 85(1) in the prescribed form and within the prescribed time, the provisions of subsection 85(1) will apply to the transfer of the Transferco Shares by Parentco to Cco Acquisitionco described in Paragraph 68, such that:

(a) both Parentco's proceeds of disposition of the Transferco Shares and Cco Acquisitionco's cost of the Transferco Shares will be deemed by paragraph 85(1)(a) to be the agreed amount in respect thereof; and

(b) the provisions of paragraph 85(1)(e.2) will not apply to such transfer.

D. 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 the CCRA 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.

COMMENTS

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

(a) the determination of the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares; or

(b) any tax consequences arising from the facts or Proposed Transactions described herein other than those specifically confirmed in the rulings given.

2. Subsection 112(3) will apply to deny any loss that would otherwise be realized by Parentco on the disposition of the Cco Acquisitionco XXXXXXXXXX and XXXXXXXXXX Common Shares to Mco Canada, described in Paragraph 70.

Yours truly,

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