2001 Income Tax Severed Letter 2001-0065881 - Spin Off Butterfly using 55(3.02)

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: This ruling is a major revision of, and therefore replaces and rescinds, Ruling # 2000 - 005024, dated XXXXXXXXXX , 2000. This is a spin-off butterfly of two corporations (Cco/XXXXXXXXXX and Dco/XXXXXXXXXX ) by a specified wholly-owned corporation (Opco/XXXXXXXXXX .) taking advantage of new subsection 55(3.02) of the Act permitting a no-types-of-property distribution to an acquiring company. XXXXXXXXXX . The purpose of the spin-off is to move Opco's XXXXXXXXXX businesses into two separate corporations and consolidate the XXXXXXXXXX assets in preparation for taking the group public in an initial public offering.

(1) The spin-off falls under the paragraph 55(3)(b) butterfly exception and will take advantage of new subsection 55(3.02) of the Act.

(2) As part of the reorganization, Opco will pay a safe income dividend to Pubco and Bco by way of a PUC increase.

(3) After the butterfly, Opco will sell certain indirectly-owned assets to two related corporations.

Position:

(1) The taxpayer qualifies for a public company spin-off taking advantage of the new no-types-of-property rules in subsection 55(3.02).

(2) The PUC increase is acceptable.

(3) The sale of the assets is acceptable.

Reasons:

(1) Since Opco satisfies the definition of "specified corporation" in subsection 55(1), it qualifies for the subsection 55(3.02) exception.

(2) The PUC increase does not constitute a transfer of property from the distributing corporation to its shareholders and therefore the increase does not have an impact on the pro rata test for a distribution.

(3) The sale of the assets after the butterfly does not offend paragraph 55(3.1)(d).

XXXXXXXXXX 2001 - 006588

XXXXXXXXXX , 2001

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling (Replaces and Rescinds Ruling # 2000 - 005024)

We are writing in response to your letter of XXXXXXXXXX wherein you requested certain changes to a previously issued advance income tax ruling on behalf of the above-referenced taxpayers. This ruling replaces and rescinds Ruling # 2000 - 005024, dated XXXXXXXXXX, 2000.

Throughout this letter, the corporate and individual taxpayers, and other related organizations will be referred to as follows:

XXXXXXXXXX . Pubco
XXXXXXXXXX . Bco
XXXXXXXXXX . Opco
XXXXXXXXXX . Newco
XXXXXXXXXX . Cco
XXXXXXXXXX . HoldcoC
XXXXXXXXXX . Dco
XXXXXXXXXX . HoldcoD

XXXXXXXXXX Mr. K

XXXXXXXXXX
XXXXXXXXXX Lco

XXXXXXXXXX Mr. M

The Tax Services Office of Pubco, Bco and Opco (XXXXXXXXXX) is XXXXXXXXXX. Their corporate tax returns are filed at the XXXXXXXXXX Taxation Centre (previously XXXXXXXXXX). Pubco, Bco and Opco are resident in Canada for the purposes of the Act.

To the best of your knowledge, and that of any of the taxpayers, none of the issues involved in this ruling request is:

(i) involved in an earlier return of any of the taxpayers or a related person;

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

(iii) under objection by any of the taxpayers or a related person;

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

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

The taxpayers have represented that the proposed transactions will not affect their ability to pay any of their outstanding tax liabilities.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended to the date hereof;

(b) "adjusted cost base" ("ACB") has the meaning assigned to that term by section 54 of the Act;

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

(d) "arm's length" has the meaning assigned to that term by section 251 of the Act;

(e) "BCA" means the Business Corporations Act (XXXXXXXXXX) and, where applicable, its predecessor statutes;

(f) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned to that term by subsection 125(7) of the Act;

(g) "capital gain" has the meaning assigned to that term by section 39 of the Act;

(h) "capital property" has the meaning assigned to that term by section 54 of the Act;

(i) "CICA" means the Canadian Institute of Chartered Accountants;

(j) "cost amount" has the meaning assigned to that term by subsection 248(1) of the Act;

(k) "distribution" has the meaning assigned to that term by subsection 55(1) of the Act;

(l) "eligible property" has the meaning assigned to that term by subsection 85(1.1) of the Act;

(m) "forgiven amount" has the meaning assigned to that term by subsection 80(1) and 80.01(1) of the Act;

(n) "paid-up capital" ("PUC") has the meaning assigned to that term by subsection 89(1) of the Act;

(o) "principal amount" has the meaning assigned to that term by subsection 248(1) of the Act;

(p) "public corporation" has the meaning assigned to that term by subsection 89(1) of the Act;

(q) "safe-income determination time" has the meaning assigned to that term by subsection 55(1) of the Act;

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

(s) "series of transactions or events" includes the transactions or events referred to in subsection 248(10) of the Act;

(t) "significant influence" is defined in paragraph 3050 of the CICA handbook. A corporation is also considered to have significant influence over a second corporation if the first corporation has significant influence over a third corporation that has significant influence over the second corporation;

(u) "specified financial institution" ("SFI") has the meaning assigned to that term by subsection 248(1) of the Act;

(v) "stated capital" and "stated capital account" have the meaning assigned to those terms by section 24 of the BCA;

(w) "subsidiary wholly-owned corporation" has the meaning assigned to that term by subsection 248(1) of the Act;

(x) "substantial interest" has the meaning assigned to that term by subsection 191(2) of the Act;

(y) "taxable Canadian corporation" ("TCC") has the meaning assigned to that term by subsection 89(1) of the Act; and

(z) "taxable dividend" has the meaning assigned to that term by subsection 89(1) of the Act.

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

FACTS

1. Pubco is a taxable Canadian corporation and a public corporation incorporated under the provisions of the BCA.

Pubco's authorized share capital consists of an unlimited number of Class A subordinate voting common shares ("Pubco Class A Common Shares"), XXXXXXXXXX Class B voting common shares ("Pubco Class B Common Shares") and XXXXXXXXXX preferred shares issuable in series. The Pubco Class A Common Shares and Pubco Class B Common Shares participate equally as to dividends and on dissolution. Each Pubco Class A Common Share is entitled to one vote per share and each Pubco Class B Common Share is entitled to XXXXXXXXXX votes per share at all meetings of shareholders.

The Pubco Class A Common Shares and Pubco Class B Common Shares are listed on the XXXXXXXXXX Stock Exchange. The Pubco Class A Common Shares are also listed on the XXXXXXXXXX Stock Exchange.

Pubco's issued and outstanding share capital consists of XXXXXXXXXX Pubco Class A Common Shares and XXXXXXXXXX Pubco Class B Common Shares as at XXXXXXXXXX , Pubco's most recent taxation year end. There has been no significant change since XXXXXXXXXX.

According to the Management Information Circular and Proxy Statement furnished to shareholders of Pubco in connection with the last annual meeting of shareholders, as of XXXXXXXXXX, Lco owned XXXXXXXXXX Pubco Class B Common Shares. XXXXXXXXXX owns all of the shares of Lco. Mr. K and XXXXXXXXXX members of his family are XXXXXXXXXX This structure has not changed since XXXXXXXXXX, though the total number of shares held may have changed.

2. XXXXXXXXXX.

3. In addition to other companies owned or controlled directly and indirectly by Pubco, Pubco owns all of the shares of the following companies:

(a) Newco was incorporated under the BCA on XXXXXXXXXX. The authorized capital of Newco consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. Newco's issued and outstanding share capital consists of 1 common share issued to Pubco on incorporation for $XXXXXXXXXX. Newco has been inactive since its incorporation. Newco is a taxable Canadian corporation and a subsidiary wholly-owned corporation of Pubco.

(b) HoldcoC was incorporated under the BCA on XXXXXXXXXX. The authorized capital of HoldcoC consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. HoldcoC's issued and outstanding share capital consists of 1 common share issued to Pubco on incorporation for $XXXXXXXXXX. HoldcoC has been inactive since its incorporation. HoldcoC is a taxable Canadian corporation and a subsidiary wholly-owned corporation of Pubco.

(c) HoldcoD was incorporated under the BCA on XXXXXXXXXX. The authorized capital of HoldcoD consists of an unlimited number of common shares and an unlimited number of preferred shares issuable in series. HoldcoD's issued and outstanding share capital consists of 1 common share issued to Pubco on incorporation for $XXXXXXXXXX. HoldcoD has been inactive since its incorporation. HoldcoD is a taxable Canadian corporation and a subsidiary wholly-owned corporation of Pubco.

(d) Bco was incorporated under the BCA on XXXXXXXXXX. The authorized capital of Bco consists of an unlimited number of common shares of which XXXXXXXXXX common shares are issued and outstanding. Bco is a taxable Canadian corporation and a subsidiary wholly-owned corporation of Pubco.

4. XXXXXXXXXX.

5. Opco was incorporated under the BCA on XXXXXXXXXX and is a taxable Canadian corporation. Opco carries on the XXXXXXXXXX business in Canada. Opco's authorized share capital consists of an unlimited number of Class A subordinate voting common shares ("Opco Class A Common Shares") and a limited number (XXXXXXXXXX ) of Class B voting common shares ("Opco Class B Common Shares").

The Opco Class A Common Shares have the following attributes:

(a) Each Opco Class A Common Share is entitled to one vote per share at all meetings of shareholders.

(b) Each Opco Class A Common Share participates equally as to dividends and on dissolution with each Opco Class B Common Share.

The Opco Class B Common Shares have the following attributes:

(a) Each Opco Class B Common Share is entitled to XXXXXXXXXX.

(b) Each Opco Class B Common Share participates equally as to dividends and on dissolution with each Opco Class A Common Share.

(c) Each Opco Class B Common Share may be converted at any time into a fully-paid Opco Class A Common Share on a one-for-one basis.

In the event that either the Opco Class A Common Shares or the Opco Class B Common Shares are subdivided or consolidated, the other class must be similarly changed to preserve the relative attributes of each class.

6. Pubco, together with Bco, owns XXXXXXXXXX% of all issued and outstanding shares of Opco as summarized below:

Shareholder XXXXXXXXXX

Pubco XXXXXXXXXX
Bco XXXXXXXXXX

XXXXXXXXXX

7. Opco owns shares of the following companies:

(a) XXXXXXXXXX incorporated under the BCA. XXXXXXXXXX carries on the XXXXXXXXXX business in Canada for the Opco Group. Opco owns XXXXXXXXXX % of the outstanding shares of XXXXXXXXXX.

(b) Cco, a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX. Opco owns XXXXXXXXXX% of the outstanding shares of Cco.

(c) Dco, a CCPC incorporated under the BCA. Opco owns shares of Dco which represent, in aggregate, XXXXXXXXXX% of the votes and equity of Dco. The remaining XXXXXXXXXX% of the shares of Dco are owned by a number of taxable Canadian corporations, all of which are, directly or indirectly, controlled by Mr. M, a Canadian resident. Mr. M deals with Opco, Pubco and Bco at arm's length.

(d) XXXXXXXXXX a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX. Opco owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

8. XXXXXXXXXX principal assets are used in the XXXXXXXXXX business and include its direct and indirect investments in the shares of the following companies:

(a) XXXXXXXXXX a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX carries on the XXXXXXXXXX business for the Opco Group in the United States. XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

(b) XXXXXXXXXX a limited liability company incorporated under the laws of the State of XXXXXXXXXX is also in the XXXXXXXXXX business. XXXXXXXXXX owns a XXXXXXXXXX% membership interest in XXXXXXXXXX. The remaining XXXXXXXXXX% membership interest in XXXXXXXXXX is owned by XXXXXXXXXX, an arm's length third party.

(c) XXXXXXXXXX an inactive U.S. corporation incorporated under the laws of the State of XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

(d) XXXXXXXXXX a corporation incorporated under the BCA. XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

9. Cco is a holding company and owns XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX is a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX carries on the XXXXXXXXXX business in the U.S. for the Opco Group.

10. XXXXXXXXXX.

11. XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX is a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX. The XXXXXXXXXX Group carries on the XXXXXXXXXX business in XXXXXXXXXX for the Opco Group. XXXXXXXXXX principal assets are used in the XXXXXXXXXX business and include its direct and indirect investments in the shares of the following companies:

(a) XXXXXXXXXX a corporation incorporated under the laws of XXXXXXXXXX and resident in and carrying on business in XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

(b) XXXXXXXXXX a corporation incorporated under the laws of XXXXXXXXXX and resident in and carrying on business in XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

(c) XXXXXXXXXX an inactive U.S. corporation incorporated under the laws of the State of XXXXXXXXXX and resident in the United States. XXXXXXXXXX was previously in the business of XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX.

(d) XXXXXXXXXX a U.S. corporation incorporated under the laws of the State of XXXXXXXXXX and resident in the United States. XXXXXXXXXX owns XXXXXXXXXX% of the outstanding shares of XXXXXXXXXX. The remaining XXXXXXXXXX% of the outstanding shares are owned by XXXXXXXXXX, an arm's length third party.

(e) XXXXXXXXXX a limited liability company incorporated under the laws of the State of XXXXXXXXXX owns a XXXXXXXXXX% membership interest in XXXXXXXXXX . The remaining XXXXXXXXXX % membership interest in XXXXXXXXXX is owned by XXXXXXXXXX, an arm's length third party.

(f) XXXXXXXXXX a limited liability company incorporated under the laws of the State of XXXXXXXXXX owns a XXXXXXXXXX% membership interest in XXXXXXXXXX. The remaining XXXXXXXXXX% membership interest in XXXXXXXXXX is owned by XXXXXXXXXX, an arm's length third party.

12. At XXXXXXXXXX, the fiscal XXXXXXXXXX taxation year end, XXXXXXXXXX was a subsidiary wholly-owned corporation of Opco. From that time to the present, the following transactions occurred:

(a) On XXXXXXXXXX Opco sold the shares of XXXXXXXXXX to Pubco for fair market value proceeds.

(b) On XXXXXXXXXX, the following sequence of transactions occurred:

(i) Pubco sold the shares of XXXXXXXXXX to XXXXXXXXXX for fair market value proceeds.

(ii) XXXXXXXXXX transferred the net assets and business XXXXXXXXXX pursuant to the provisions of section 85 of the Act.

(iii) XXXXXXXXXX then sold the net assets and business XXXXXXXXXX to a third party for fair market value proceeds.

The XXXXXXXXXX business was previously a division of Opco. On XXXXXXXXXX , Opco transferred the net assets and business XXXXXXXXXX pursuant to the provisions of section 85 of the Act. XXXXXXXXXX, Opco sold the shares of XXXXXXXXXX to Pubco on XXXXXXXXXX . Since that time, XXXXXXXXXX was in the process of selling the net assets and business XXXXXXXXXX for a considerable gain. XXXXXXXXXX , a plan was undertaken to use the non-capital losses of XXXXXXXXXX to shelter part of the taxable gain from the expected sale of the XXXXXXXXXX . This was accomplished with the steps noted in (b) above. The proceeds from the sale have been used by XXXXXXXXXX to repay intercompany debt and provide intercompany loans.

On XXXXXXXXXX sold its operating assets, net of liabilities, to XXXXXXXXXX . for fair market value proceeds. XXXXXXXXXX. is a wholly-owned subsidiary of Pubco. Pubco would have entered into these transactions regardless of whether the proposed transactions (as hereinafter described) were undertaken. Similarly, the proposed transactions would be undertaken regardless of the transactions entered into by the Pubco Group in respect of XXXXXXXXXX. The undertaking of these transactions by the Pubco Group was not done in contemplation of the proposed transactions.

13. On XXXXXXXXXX, Dco declared a cash dividend of $XXXXXXXXXX payable to its shareholders of record at the close of business that day. The President and Vice President of Finance of Dco were also authorized and directed to pay the dividend over a period of XXXXXXXXXX as the cash flow of Dco permitted, without further authority from the board of Directors of Dco. XXXXXXXXXX. As of XXXXXXXXXX, dividends totaling $XXXXXXXXXX have been paid. Since Opco owns a XXXXXXXXXX% interest in Dco, it has received dividend payments of $XXXXXXXXXX.

The board of directors of Dco consists of three individuals: Mr. M who owns a XXXXXXXXXX% interest in Dco, XXXXXXXXXX, the Vice President of Finance of Dco, and XXXXXXXXXX, the President of XXXXXXXXXX.

Pubco does not control Dco. This dividend was not declared in contemplation of the proposed transactions described below, and was declared at the direction of the majority shareholder of Dco, namely Mr. M. It is the understanding of the taxpayers that Mr. M was not aware of the proposed transactions at the time the dividend was declared and therefore was not motivated by them in declaring the dividend. The dividend would have been paid by Dco regardless of whether the proposed transactions were undertaken. Similarly, the proposed transactions would be undertaken regardless of whether or not the dividend would be paid by Dco. XXXXXXXXXX.

It is standard policy for Pubco's subsidiaries to pay dividends to Pubco, their ultimate parent, to allow Pubco to pay dividends to its public shareholders. In fact, even though Pubco only holds a XXXXXXXXXX% interest in Dco, Dco has also followed a similar practice. In addition, Pubco may also use the dividends provided by its subsidiaries to fund its own operations and pursue other business opportunities. There is no intention to leave the amounts paid by Dco in Opco for the purposes of completing the initial public offering referred to in paragraph 37 below. The dividends paid by Dco to Opco will be distributed to Pubco in the ordinary course of business.

Opco is indifferent as to whom the recipient (either Opco or HoldcoD) would be of the balance of the dividends to be paid by Dco, given that such funds will ultimately be distributed to Pubco as described above. At present, Pubco has no interest in selling its interest in Dco, or any portion thereof.

PROPOSED TRANSACTIONS

The following transactions will be completed in order.

14. The articles of incorporation of Opco will be amended by creating another class of voting common shares ("Opco Class C Common Shares"). The attributes of the Opco Class C Common Shares will be the same as the Opco Class A Common Shares except that each share will have XXXXXXXXXX votes instead of one. Pubco will exchange all of its XXXXXXXXXX Opco Class B Common Shares for XXXXXXXXXX Opco Class C Common Shares.

15. Through one or more increases in stated capital, Opco will:

(a) increase the stated capital of the Opco Class A Common Shares by amounts that will in aggregate not exceed the safe income on hand of Opco in respect of the Opco Class A Common Shares held by Pubco;

(b) increase the stated capital of the Opco Class B Common Shares by amounts that will in aggregate not exceed the safe income on hand of Opco in respect of the Opco Class B Common Shares held by Bco; and

(c) increase the stated capital of the Opco Class C Common Shares by amounts that will in aggregate not exceed the safe income on hand of Opco in respect of the Opco Class C Common Shares held by Pubco.

16. The articles of incorporation of HoldcoC will be amended by creating XXXXXXXXXX redeemable and retractable, non-voting preferred shares ("HoldcoC Preferred Shares"). The HoldcoC Preferred Shares shall be redeemable and retractable for an amount (the "Aggregate HoldcoC Preferred Share Redemption Amount") equal to the fair market value of the consideration received by HoldcoC upon the issuance of such shares less any liabilities assumed by HoldcoC in connection with the issuance of the shares. The holders of the HoldcoC Preferred Shares shall be entitled to receive, as and when declared from time to time by the board of directors, dividends not exceeding an amount equal to XXXXXXXXXX% per annum calculated on the Aggregate HoldcoC Preferred Share Redemption Amount. The HoldcoC Preferred Shares will rank in priority to any other shares issued by HoldcoC on the dissolution or winding-up of HoldcoC to the extent of the Aggregate HoldcoC Preferred Share Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the HoldcoC Preferred Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of HoldcoC to an amount less than the Aggregate HoldcoC Preferred Share Redemption Amount.

The articles of incorporation of HoldcoD will be amended by creating XXXXXXXXXX redeemable and retractable, non-voting preferred shares ("HoldcoD Preferred Shares"). The HoldcoD Preferred Shares shall be redeemable and retractable for an amount (the "Aggregate HoldcoD Preferred Share Redemption Amount") equal to the fair market value of the consideration received by HoldcoD upon the issuance of such shares less any liabilities assumed by HoldcoD in connection with the issuance of the shares. The holders of the HoldcoD Preferred Shares shall be entitled to receive, as and when declared from time to time by the board of directors, dividends not exceeding an amount equal to XXXXXXXXXX% per annum calculated on the Aggregate HoldcoD Preferred Share Redemption Amount. The HoldcoD Preferred Shares will rank in priority to any other shares issued by HoldcoD on the dissolution or winding-up of HoldcoD to the extent of the Aggregate HoldcoD Preferred Share Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the HoldcoD Preferred Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of HoldcoD to an amount less than the Aggregate HoldcoD Preferred Share Redemption Amount.

17. The articles of incorporation of Opco will be further amended by creating the following classes of shares:

(a) Another class of voting common shares ("Opco New Common Shares"). The attributes of the Opco New Common Shares will be the same as the Opco Class A Common Shares except that each share will have XXXXXXXXXX votes instead of one.

(b) XXXXXXXXXX redeemable and retractable, non-voting Class A preferred shares ("Opco Class A Preferred Shares"). Each Opco Class A Preferred Share shall be redeemable and retractable for an amount (the "Opco Class A Preferred Share Redemption Amount") equal to XXXXXXXXXX of the amount determined when the FMV of all the issued and outstanding shares of Opco, immediately before the exchange of shares described in paragraph 20 below, is multiplied by a fraction, the numerator of which is the net FMV of the property of Opco, immediately before the exchange of shares described in paragraph 20 below, represented by the shares of Cco directly owned by Opco, and the denominator of which is the net FMV of all property of Opco, immediately before the exchange of shares described in paragraph 20 below. The holder of each Opco Class A Preferred Share shall be entitled to receive, as and when declared from time to time by the board of directors, dividends not exceeding an amount equal to XXXXXXXXXX% per annum calculated on the Opco Class A Preferred Share Redemption Amount. The directors will have the discretion to declare and pay dividends on the Opco Class A Preferred Shares instead of on any other class of shares of Opco. The holders of the Opco Class A Preferred Shares shall be entitled to receive on the dissolution or winding-up of Opco a distribution of the net assets of Opco in an amount equal to the aggregate Opco Class A Preferred Share Redemption Amount in equal priority with the holders of the Opco Class B Preferred Shares (as hereinafter defined) but in priority to any distribution to be made to holders of any other class of shares issued by Opco. No dividends or other distributions will be paid on any other class of shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of Opco to an amount less than the sum of the aggregate Opco Class A Preferred Share Redemption Amount and the aggregate Opco Class B Preferred Share Redemption Amount (as hereinafter defined).

(c) XXXXXXXXXX redeemable and retractable, non-voting Class B preferred shares ("Opco Class B Preferred Shares"). Each Opco Class B Preferred Share shall be redeemable and retractable for an amount (the "Opco Class B Preferred Share Redemption Amount") equal to XXXXXXXXXX of the amount determined when the FMV of all the issued and outstanding shares of Opco, immediately before the exchange of shares described in paragraph 20 below, is multiplied by a fraction, the numerator of which is the net FMV of the property of Opco, immediately before the exchange of shares described in paragraph 20 below, represented by the shares of Dco directly owned by Opco, and the denominator of which is the net FMV of all property of Opco, immediately before the exchange of shares described in paragraph 20 below. The holder of each Opco Class B Preferred Share shall be entitled to receive, as and when declared from time to time by the board of directors, dividends not exceeding an amount equal to XXXXXXXXXX% per annum calculated on the Opco Class B Preferred Share Redemption Amount. The directors will have the discretion to declare and pay dividends on the Opco Class B Preferred Shares instead of on any other class of shares of Opco. The holders of the Opco Class B Preferred Shares shall be entitled to receive on the dissolution or winding-up of Opco a distribution of the net assets of Opco in an amount equal to the aggregate Opco Class B Preferred Share Redemption Amount in equal priority with the holders of the Opco Class A Preferred Shares but in priority to any distribution to be made to holders of any other class of shares issued by Opco. No dividends or other distributions will be paid on any other class of shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of Opco to an amount less than the sum of the aggregate Opco Class B Preferred Share Redemption Amount and the aggregate Opco Class A Preferred Share Redemption Amount.

18. Pubco will transfer all of its XXXXXXXXXX Opco Class C Common Shares to Newco. As the sole consideration, Newco will issue XXXXXXXXXX common shares from treasury to Pubco. The purpose of this transfer is to preserve the different ACB of the Opco Class A Common Shares and Opco Class C Common Shares held by Pubco.

19. In respect of the transfer described in paragraph 18 above, Pubco and Newco will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) or 85(7) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of the Opco Class C Common Shares to Newco. The agreed amount specified in the election will be equal to the ACB to Pubco of the Opco Class C Common Shares immediately before the transfer. For greater certainty, the ACB of the transferred shares will be less than the FMV of the shares. Immediately following this transfer, no shares of Newco will be owned by any person or partnership other than Pubco.

20. Pubco will exchange all of its XXXXXXXXXX Opco Class A Common Shares for XXXXXXXXXX Opco New Common Shares, XXXXXXXXXX Opco Class A Preferred Shares and XXXXXXXXXX Opco Class B Preferred Shares. Simultaneously, Bco will exchange all of its XXXXXXXXXX Opco Class B Common Shares for XXXXXXXXXX Opco New Common Shares, XXXXXXXXXX Opco Class A Preferred Shares and XXXXXXXXXX Opco Class B Preferred Shares. Simultaneously, Newco will exchange all of its XXXXXXXXXX Opco Class C Common Shares for XXXXXXXXXX Opco New Common Shares, XXXXXXXXXX Opco Class A Preferred Shares and XXXXXXXXXX Opco Class B Preferred Shares. Opco will add to its stated capital in respect of the XXXXXXXXXX Opco New Common Shares, XXXXXXXXXX Opco Class A Preferred Shares and XXXXXXXXXX Opco Class B Preferred Shares an amount equal to the aggregate PUC of the Opco Class A Common Shares, Opco Class B Common Shares and Opco Class C Common Shares so exchanged. The addition to the stated capital of each class of shares will be proportional to the relative FMV of each class of shares issued by Opco on the exchanges.

21. Pubco, Bco and Newco will each transfer the Opco Class A Preferred Shares and Opco Class B Preferred Shares that they each received as a result of the share exchanges described in paragraph 20 above, to two transferee corporations, HoldcoC and HoldcoD, in the following manner:

(a) Pubco, Bco and Newco will transfer:

(i) XXXXXXXXXX Opco Class A Preferred Shares, respectively, to HoldcoC; and

(ii) XXXXXXXXXX Opco Class B Preferred Shares, respectively, to HoldcoD.

(b) As the sole consideration, HoldcoC and HoldcoD will each issue XXXXXXXXXX of their common shares from treasury to Pubco, Bco and Newco, respectively.

(c) For each of the above transfers, the respective transferor and transferee will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) or 85(7) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of the Opco Class A Preferred Shares and Opco Class B Preferred Shares to HoldcoC and HoldcoD, respectively. The agreed amount specified in each election will be equal to the ACB to Pubco, Bco and Newco, respectively, of the transferred shares immediately before the transfer. For greater certainty, the ACB of the transferred shares will be less than the FMV of the transferred shares.

(d) Immediately before the transfers of property described in paragraph 25 below, the FMV of each Opco shareholder's common shares of HoldcoC and HoldcoD, respectively, will be equal to or approximate the amount determined by the formula found in subparagraph (b)(iii) of the definition of "permitted exchange" in subsection 55(1) of the Act. In addition, no person who is not an Opco shareholder will own any shares of HoldcoC or HoldcoD.

(e) The addition to the stated capital of the common shares of HoldcoC and HoldcoD, respectively, will be equal to the aggregate ACB of the transferred Opco Class A Preferred Shares and Opco Class B Preferred Shares, respectively.

22. Immediately before the transfers of property described in paragraph 25 below, the property of Opco will be determined as though there was one type of property, as contemplated in subsection 55(3.02) of the Act.

23. Immediately before transfers of property described in paragraph 25 below, the property of Opco will be determined on a net basis. Thus, the gross FMV of Opco property will be comprised of the property owned directly by Opco (including shares of, and amounts receivable from, another member of the related group). The net FMV of Opco property will then be determined. In making this determination, the liabilities of Opco, determined on an unconsolidated basis, will be deducted by allocating the same against the property of Opco on an aggregate basis.

24. For greater certainty, the following principles will also be applied in determining the net FMV of Opco's property for the purposes of the proposed transactions:

(a) any tax accounts, such as the balance of any non-capital losses and net capital losses will not be considered property; and

(b) liabilities will be determined in accordance with generally accepted accounting principles, except that the amount of deferred income tax will not be considered a liability.

25. Immediately following the determination of the net FMV of its property, as described in paragraphs 22 to 24 above, Opco will transfer assets to HoldcoC and HoldcoD as follows:

(a) Opco will transfer to HoldcoC all the shares of Cco directly owned by Opco. As consideration for the property so transferred, HoldcoC will issue to Opco XXXXXXXXXX HoldcoC Preferred Shares having a redemption price and FMV equal to the FMV of the Cco shares so transferred.

(b) Opco will transfer to HoldcoD all the shares of Dco directly owned by Opco. As consideration for the property so transferred, HoldcoD will issue to Opco XXXXXXXXXX HoldcoD Preferred Shares having a redemption price and FMV equal to the FMV of the Dco shares so transferred.

26. For each of the transfers described in paragraph 25 above, Opco and the respective transferee will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6) or 85(7) of the Act, to have the rules in subsection 85(1) of the Act apply to the transfer of the Cco shares and Dco shares by Opco to HoldcoC and HoldcoD, respectively. The agreed amount specified in each election will be equal to the cost amount to Opco of the transferred shares immediately before the transfers. For greater certainty, the cost amount of the transferred shares will be less than the FMV of the transferred shares.

27. As a result of the transfers described in paragraph 25 above, the net FMV of the property received by HoldcoC or HoldcoD, as the case may be, determined in the manner described in paragraphs 22 to 24 above, will be equal to that proportion of the net FMV of all property of Opco, immediately before the transfers, that:

(a) the FMV, immediately before the transfers described in paragraph 25, of the Opco Class A Preferred Shares owned by HoldcoC and the Opco Class B Preferred Shares owned by HoldcoD, as the case may be, at that time,

is of

(b) the FMV, immediately before those transfers, of all the issued and outstanding shares of the capital stock of Opco at that time.

28. Immediately after the transfers described in paragraph 25 above, Opco will redeem the XXXXXXXXXX Opco Class A Preferred Shares held by HoldcoC at the aggregate Opco Class A Preferred Share Redemption Amount. In consideration therefor, Opco will issue a non-interest-bearing promissory note payable on demand (the "Opco A Note") having a principal amount equal to the aggregate Opco Class A Preferred Share Redemption Amount. The Opco A Note will be assignable by the holder thereof. HoldcoC will accept the Opco A Note as full payment for the redemption price of the Opco Class A Preferred Shares so redeemed.

Immediately after the redemption of the Opco Class A Preferred Shares, HoldcoC will redeem the XXXXXXXXXX HoldcoC Preferred Shares held by Opco at the Aggregate HoldcoC Preferred Share Redemption Amount. In consideration therefor, HoldcoC will issue a non-interest-bearing promissory note payable on demand (the "HoldcoC Note"), having a principal amount equal to the Aggregate HoldcoC Preferred Share Redemption Amount. The HoldcoC Note will be assignable by the holder thereof. Opco will accept the HoldcoC Note as full payment for the redemption price of the HoldcoC Preferred Shares so redeemed.

The HoldcoC Note will be set off against the Opco A Note and the respective notes will be cancelled.

29. Immediately after the transfers described in paragraph 25 above, Opco will redeem the XXXXXXXXXX Opco Class B Preferred Shares held by HoldcoD at the aggregate Opco Class B Preferred Share Redemption Amount. In consideration therefor, Opco will issue a non-interest-bearing promissory note payable on demand (the "Opco B Note") having a principal amount equal to the aggregate Opco Class B Preferred Share Redemption Amount. The Opco B Note will be assignable by the holder thereof. HoldcoD will accept the Opco B Note as full payment for the redemption price of the Opco Class B Preferred Shares so redeemed.

Immediately after the redemption of the Opco Class B Preferred Shares, HoldcoD will redeem the XXXXXXXXXX HoldcoD Preferred Shares held by Opco at the Aggregate HoldcoD Preferred Share Redemption Amount. In consideration therefor, HoldcoD will issue a non-interest-bearing promissory note payable on demand (the "HoldcoD Note"), having a principal amount equal to the Aggregate HoldcoD Preferred Share Redemption Amount. The HoldcoD Note will be assignable by the holder thereof. Opco will accept the HoldcoD Note as full payment for the redemption price of the HoldcoD Preferred Shares so redeemed.

The HoldcoD Note will be set off against the Opco B Note and the respective notes will be cancelled.

30. After the mutual offset and cancellation of the HoldcoC Note and Opco A Note, and the mutual offset and cancellation of the HoldcoD Note and Opco B Note, the net FMV of the property retained by Opco, determined in the manner described in paragraphs 22 to 24 above, will be equal to that proportion of the net FMV of all property of Opco, immediately before the transfer of property to HoldcoC and HoldcoD described in paragraph 25 above, that:

(a) the total FMV of all the issued and outstanding Opco shares (other than the Opco Class A Preferred Shares and the Opco Class B Preferred Shares), immediately before the transfers described in paragraph 25 above,

is of

(b) the total FMV of all the issued and outstanding shares of Opco immediately before those transfers.

31. After the transfers of property described above, the following transactions will be carried out:

(a) XXXXXXXXXX will sell its intercompany receivable from XXXXXXXXXX to XXXXXXXXXX a corporation related to Pubco, for FMV proceeds consisting of an intercompany receivable from XXXXXXXXXX.

(b) XXXXXXXXXX will sell its XXXXXXXXXX% interest in XXXXXXXXXX to XXXXXXXXXX, a corporation related to Pubco, for FMV proceeds consisting of an intercompany receivable from XXXXXXXXXX

(c) XXXXXXXXXX will sell its intercompany receivable from XXXXXXXXXX to XXXXXXXXXX for FMV proceeds consisting of an intercompany receivable from XXXXXXXXXX.

(d) XXXXXXXXXX will sell its XXXXXXXXXX% interest in XXXXXXXXXX to XXXXXXXXXX for FMV proceeds consisting of an intercompany receivable from XXXXXXXXXX.

ADDITIONAL INFORMATION

32. Neither Pubco, nor any corporation to which it is related, is an SFI.

33. None of the shares of Pubco or Bco were acquired in contemplation of the proposed transactions set out in paragraphs 14 to 31 above.

34. No assets have been or will be acquired or disposed of, and no liabilities have been or will be incurred, by Pubco, Bco, Newco or Opco in contemplation of and before the proposed transfers of property described in paragraph 25 above, except as described in this letter.

35. No person participating in the proposed transactions will sell or transfer any property as part of the series of transactions or events to an unrelated person or partnership subsequent to the proposed transactions.

36. None of the shares of Pubco, Bco, Newco, Opco, Cco, Dco, HoldcoC or HoldcoD are or will be, at any time during the implementation of the proposed transactions described herein:

(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) of the Act as a "guarantee agreement";

(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5) of the Act; or

(c) the subject of a dividend rental arrangement referred to in subsection 112(2.3) of the Act as that term is defined in subsection 248(1) of the Act.

PURPOSE OF THE PROPOSED TRANSACTIONS

37. XXXXXXXXXX, Pubco wishes to consolidate XXXXXXXXXX and subsequently take this XXXXXXXXXX public through an initial public offering XXXXXXXXXX. The XXXXXXXXXX business in XXXXXXXXXX is primarily carried on by the Opco Group. However, Opco also owns the shares of Cco and Dco whose businesses are XXXXXXXXXX. The purpose of the proposed transactions is to reorganize Cco and Dco so that they are removed from the Opco Group. Subsequently, Pubco will proceed to reorganize and consolidate XXXXXXXXXX and take the XXXXXXXXXX public through an initial public offering. The initial public offering will not involve a disposition of shares or an acquisition of control of any corporation.

RULINGS GIVEN

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

A. The provisions of subsection 86(1) of the Act will apply to the exchange of shares described in paragraph 14 above, such that:

(a) the cost to Pubco of the Opco Class C Common Shares will be deemed by paragraph 86(1)(b) of the Act to be the ACB to Pubco of the existing Opco Class B Common Shares held by it;

(b) Pubco will be deemed by paragraph 86(1)(c) of the Act to have disposed of its existing Opco Class B Common Shares for proceeds of disposition equal to the cost to Pubco of the Opco Class C Common Shares receivable by Pubco on the exchange.

B. As a result of the increases in stated capital of the Opco Class A Common Shares, Opco Class B Common Shares and Opco Class C Common Shares, as described in paragraph 15 above:

(a) by virtue of subsection 84(1) of the Act, Opco will be deemed to have paid, and Pubco and Bco will be deemed to have received, a taxable dividend on the Opco Class A Common Shares, Opco Class B Common Shares and Opco Class C Common Shares held by each of them, as the case may be, equal to the respective increases in the stated capital;

(b) the taxable dividends deemed to be received by Pubco and Bco as a result of the increases in stated capital referred to in Ruling B(a) above will be included in each corporation's income pursuant to paragraph 12(1)(j) of the Act, and will be deductible by each corporation in computing its taxable income pursuant to subsection 112(1) of the Act. For greater certainty, the provisions of subsections 112(2.1), 112(2.2), 112(2.3), and 112(2.4) of the Act will not apply to deny the application of the subsection 112(1) deduction in respect of such dividends;

(c) by virtue of paragraph 191(2)(a) of the Act, Pubco and Bco will each have a substantial interest in Opco, immediately before the increases in stated capital referred to in paragraph 15 above. Consequently, no Part IV.1 tax under section 187.2 of the Act will be payable by Pubco or Bco, and no Part VI.1 tax under section 191.1 of the Act will be payable by Opco, in respect of the dividends deemed to have been paid by Opco to Pubco and Bco, respectively.

(d) the provisions of subsection 55(2) of the Act will not apply to the taxable dividends deemed to be received by Pubco, referred to in Ruling B(a) above, provided that the deemed dividends received by Pubco in respect of the Opco Class A Common Shares do not exceed the safe income on hand of Opco in respect of those shares, and the deemed dividends received by Pubco in respect of the Opco Class C Common Shares do not exceed the safe income on hand of Opco in respect of those shares, immediately before the time of the dividend;

(e) the provisions of subsection 55(2) of the Act will not apply to the taxable dividends deemed to be received by Bco, referred to in Ruling B(a) above, provided that the deemed dividends received by Bco in respect of the Opco Class B Common Shares do not exceed the safe income on hand of Opco in respect of those shares, immediately before the time of the dividend; and

(f) the provisions of paragraph 53(1)(b) of the Act will apply to increase the adjusted cost base of the Opco Class A Common Shares, Opco Class B Common Shares or Opco Class C Common Shares, as the case may be, by the amount of the dividends deemed to be received.

C. The provisions of subsection 85(1) of the Act will apply to:

(a) the transfer of the Opco Class C Common Shares held by Pubco to Newco, as described in paragraphs 18 and 19 above;

(b) the transfer of the XXXXXXXXXX Opco Class A Preferred Shares held by Pubco, Bco and Newco, respectively, to HoldcoC, as described in paragraph 21 above;

(c) the transfer of the XXXXXXXXXX Opco Class B Preferred Shares held by Pubco, Bco and Newco, respectively, to HoldcoD, as described in paragraph 21 above;

(d) the transfer of the Cco shares held by Opco to HoldcoC, as described in paragraphs 25 and 26 above; and

(e) the transfer of the Dco shares held by Opco to HoldcoD, as described in paragraphs 25 and 26 above;

such that the agreed amounts in respect of each such transfer will be deemed to be the transferor's proceeds of disposition of the property and the transferee's cost thereof, and the transferor's cost of the shares received as consideration for the disposition. For greater certainty, paragraph 85(1)(e.2) of the Act will not apply to the transfers referred to herein.

D. The provisions of subsection 86(1) of the Act will apply to the share exchanges described in paragraph 20 above, such that:

(a) The cost to each of Pubco, Bco and Newco of the Opco New Common Shares, Opco Class A Preferred Shares or Opco Class B Preferred Shares, as the case may be, will be deemed by paragraph 86(1)(b) of the Act to be equal to that proportion of the aggregate ACB to each of Pubco, Bco and Newco, respectively, of the existing Opco Class A Common Shares, Opco Class B Common Shares or Opco Class C Common Shares held by it, that,

(i) the FMV, immediately after the share exchange, of the Opco New Common Shares, Opco Class A Preferred Shares or Opco Class B Preferred Shares, as the case may be,

is of

(ii) the aggregate FMV, immediately after the exchange of all the Opco New Common Shares, Opco Class A Preferred Shares and Opco Class B Preferred Shares received by Pubco, Bco and Newco, respectively, for its existing Opco Class A Common Shares, Opco Class B Common Shares or Opco Class C Common Shares, as the case may be.

(b) Pubco, Bco and Newco will be deemed by paragraph 86(1)(c) to have disposed of their existing Opco Class A Common Shares, Opco Class B Common Shares or Opco Class C Common Shares, as the case may be, for proceeds of disposition equal to the aggregate cost to Pubco, Bco and Newco, respectively, of all the Opco New Common Shares, Opco Class A Preferred Shares and Opco Class B Preferred Shares received by them on the exchanges of their existing Opco Class A Common Shares, Opco Class B Common Shares or Opco Class C Common Shares, as the case may be.

E. As a result of the redemption by Opco of the Opco Class A Preferred Shares and the redemption by HoldcoC of the HoldcoC Preferred Shares, as described in paragraph 28 above, and the redemption by Opco of the Opco Class B Preferred Shares and the redemption by HoldcoD of the HoldcoD Preferred Shares, as described in paragraph 29 above:

(a) by virtue of paragraphs 84(3)(a) and 84(3)(b) of the Act:

(i) Opco will be deemed to have paid, and HoldcoC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid to redeem the Opco Class A Preferred Shares exceeds the PUC thereof, immediately before such redemption;

(ii) HoldcoC will be deemed to have paid, and Opco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid to redeem the HoldcoC Preferred Shares exceeds the PUC thereof, immediately before such redemption;

(iii) Opco will be deemed to have paid, and HoldcoD will be deemed to have received, a taxable dividend equal to the amount by which the amount paid to redeem the Opco Class B Preferred Shares exceeds the PUC thereof, immediately before such redemption; and

(iv) HoldcoD will be deemed to have paid, and Opco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid to redeem the HoldcoD Preferred Shares exceeds the PUC thereof, immediately before such redemption;

(b) the taxable dividends deemed to be received by Opco, HoldcoC and HoldcoD, respectively, as a result of the redemptions referred to in Ruling E(a) above will be included in each corporation's income pursuant to paragraph 12(1)(j) of the Act, and will be deductible by each corporation in computing its taxable income pursuant to subsection 112(1) of the Act, respectively. For greater certainty, the provisions of subsections 112(2.1), 112(2.2), 112(2.3), and 112(2.4) of the Act will not apply to deny the application of the subsection 112(1) deduction in respect of such dividends;

(c) the dividends deemed to have been received by Opco, HoldcoC and HoldcoD, respectively, as a result of the redemptions referred to in Ruling E(a) above will be excluded from the proceeds of disposition of such shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 of the Act;

(d) by virtue of paragraph 191(2)(a) of the Act, each recipient of a deemed dividend will have a substantial interest in the payer of the deemed dividend immediately before the redemptions referred to in paragraphs 28 and 29 above. In particular:

(i) HoldcoC will have a substantial interest in Opco immediately before the redemption of the Opco Class A Preferred Shares held by HoldcoC, and Opco will have a substantial interest in HoldcoC immediately before the redemption of the HoldcoC Preferred Shares held by Opco, as described in paragraph 28 above; and

(ii) HoldcoD will have a substantial interest in Opco immediately before the redemption of the Opco Class B Preferred Shares held by HoldcoD, and Opco will have a substantial interest in HoldcoD immediately before the redemption of the HoldcoD Preferred Shares held by Opco, as described in paragraph 29 above.

Consequently, neither Opco, HoldcoC nor HoldcoD will be subject to Part IV.1 tax under section 187.2 of the Act or to Part VI.1 tax under section 191.1 of the Act in respect of:

(iii) the dividends deemed to have been paid by Opco to HoldcoC upon the redemption of the Opco Class A Preferred Shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where HoldcoC is the recipient of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where Opco is the payer of the particular dividends;

(iv) the dividends deemed to have been paid by HoldcoC to Opco upon the redemption of the HoldcoC Preferred Shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where Opco is the recipient of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where HoldcoC is the payer of the particular dividends;

(v) the dividends deemed to have been paid by Opco to HoldcoD upon the redemption of the Opco Class B Preferred Shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where HoldcoD is the recipient of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where Opco is the payer of the particular dividends; or

(vi) the dividends deemed to have been paid by HoldcoD to Opco upon the redemption of the HoldcoD Preferred Shares since each such dividend will be an "excepted dividend" within the meaning of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act where Opco is the recipient of the particular dividends, and will be an "excluded dividend" within the meaning of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act where HoldcoD is the payer of the particular dividends.

(e) by virtue of paragraph 186(4)(a) of the Act, HoldcoC and HoldcoD will each be connected with Opco, and Opco will be connected with each of HoldcoC and HoldcoD. Provided that neither Opco, HoldcoC nor HoldcoD is entitled to a dividend refund in respect of its taxation year in which it is deemed to pay the dividend referred to in Rulings E(a)(i) to E(a)(iv) above, neither Opco, HoldcoC nor HoldcoD will be subject to Part IV tax under subsection 186(1) of the Act in respect of such dividend.

F. Provided that, as part of the series of transactions or events that includes the proposed transactions described above, 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 subparagraph 55(3.1)(b)(ii);

(c) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii);

(d) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or 55(3.1)(d);

(e) a distribution by Opco to a corporation that is not an "acquiror" within the meaning of the definition of "specified corporation" before the day that is three years after the day that the transaction described in paragraph 21 above is implemented; or

(f) a distribution by HoldcoC, HoldcoD or any other acquiror in relation to Opco before the day that is three years after the date that the transaction described in paragraph 21 above is implemented;

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

G. The settlement and cancellation of the Opco A Note and HoldcoC Note, as described in paragraph 28 above, and the settlement and cancellation of the Opco B Note and HoldcoD Note, as described in paragraph 29 above, will not give rise to a "forgiven amount" within the meaning of subsections 80(1) and 80.01(1) of the Act. In addition, neither Opco, HoldcoC nor HoldcoD will realize any gain or incur any loss from:

(a) the transfer and assignment to Opco of the Opco A Note by HoldcoC;

(b) the transfer and assignment to Opco of the Opco B Note by HoldcoD;

(c) the transfer and assignment to HoldcoC of the HoldcoC Note by Opco;

(d) the transfer and assignment to HoldcoD of the HoldcoD Note by Opco; and

(e) the settlement and cancellation of the Opco A Note, Opco B Note, HoldcoC Note and HoldcoD Note.

H. The provisions of subsections 15(1), 56(2), 56(4), 69(4) and 246(1) of the Act will not apply to the proposed transactions described herein, in and by themselves.

I. Subsection 245(2) of the Act will not be applied to the proposed transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001 and are binding on the Canada

Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

COMMENTS

1. Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has agreed to or reviewed:

(a) the determination of the fair market value or ACB of any particular asset, or the paid-up capital or safe income on hand in respect of any shares referred to herein; or

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

Yours truly,

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

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