2001 Ruling 2001-0082843 - Paragraph 55(3)(a) spin-off

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Transfer of XXXXXXXXXX business of taxpayer's subsidiary to be carried out in separate tranches

Position: Allowed to be carried out in two separate transfers.

Reasons: Ruling given for first transfer to be carried out within six months, supplementary to be applied for second transfer.

XXXXXXXXXX 2001-008284

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested various 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.

Throughout this letter the taxpayers involved will be referred to as follows:

XXXXXXXXXX Aco
XXXXXXXXXX. Bco
XXXXXXXXXX Cco
XXXXXXXXXX Dco
XXXXXXXXXX Eco
XXXXXXXXXX Fco
XXXXXXXXXX Gco
XXXXXXXXXX Hco
XXXXXXXXXX Ico

We understand to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested rulings is being considered by any tax services office or taxation centre in connection with a tax return already filed, or is under objection or appeal.

You advised that the proposed transactions described herein, will have no impact on outstanding tax liabilities of Aco, Bco, Cco, Dco or a related person.

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 or the context otherwise requires, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

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

(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);

(d) "CCRA" means, on or after November 1, 1999, the Canada Customs and Revenue Agency, and before November 1, 1999, Revenue Canada, Taxation;

(e) XXXXXXXXXX;

(f) XXXXXXXXXX;

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

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

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

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

(k) "forgiven amount" has the meaning assigned by subsections 80(1) or 80(1.1);

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

(m) XXXXXXXXXX;

(n) XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) XXXXXXXXXX;

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

(r) "POD" means "proceeds of disposition" as that expression is defined in section 54;

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

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

(u) XXXXXXXXXX;

(v) XXXXXXXXXX;

(w) "Regulations" means the Income Tax Regulations;

(x) "SFI" means "specified financial institution" as that expression is defined in subsection 248(1);

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

(z) "stated capital" has the meaning assigned by the XXXXXXXXXX;

(aa) XXXXXXXXXX;

(bb) XXXXXXXXXX; and

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

FACTS

1. XXXXXXXXXX Aco is a taxable Canadian corporation and a public corporation. It is the ultimate parent corporation for all its direct and indirect subsidiaries (the "X Group"), including Bco, Cco and Dco.

2. Bco XXXXXXXXXX is a holding corporation incorporated on XXXXXXXXXX. Bco is a taxable Canadian corporation.

The authorized share capital of Bco consists of an unlimited number of common shares and an unlimited number of preference shares which can be issued in one or more series. At XXXXXXXXXX, Bco had XXXXXXXXXX common shares and XXXXXXXXXX Series XXXXXXXXXX preference shares issued and outstanding. Bco is a subsidiary that is directly or indirectly wholly-owned by Aco. Aco owns directly XXXXXXXXXX% of the issued and outstanding common shares of Bco. The balance of XXXXXXXXXX% of the common shares is owned by Eco, which is a wholly-owned subsidiary of Aco. Eco also owns the XXXXXXXXXX Series XXXXXXXXXX preference shares.

3. On XXXXXXXXXX Aco acquired XXXXXXXXXX% of the common shares of Bco. A further XXXXXXXXXX% was purchased in XXXXXXXXXX. The total consideration in respect of these purchases amounted to $XXXXXXXXXX. This consisted of cash of $XXXXXXXXXX and the issuance of XXXXXXXXXX common shares of Aco with an ascribed value of $XXXXXXXXXX. Prior to XXXXXXXXXX, Aco held XXXXXXXXXX% of the common shares of Bco, with a book value, for accounting purposes, of $XXXXXXXXXX.

XXXXXXXXXX

4. XXXXXXXXXX.

5. XXXXXXXXXX Cco is a taxable Canadian corporation.

The authorized share capital of Cco consists of an unlimited number of common shares. At XXXXXXXXXX common shares were issued and outstanding, all of which are owned by Bco.

As at XXXXXXXXXX, the cost of the Cco common shares held by Bco was recorded in the balance sheet of Bco as $XXXXXXXXXX and the stated capital of these shares in the balance sheet of Cco is $XXXXXXXXXX. The PUC of the Cco common shares and the ACB of these shares to Bco will be determined prior to the Proposed Transactions. In the event that the PUC of the Cco common shares exceeds the ACB of such shares to Bco, the transactions described in Paragraph 19 will be carried out to reduce PUC.

6. XXXXXXXXXX.

7. Cco's business is divided into 3 business lines:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX; and

(c) XXXXXXXXXX.

XXXXXXXXXX

8. XXXXXXXXXX (hereinafter the "XXXXXXXXXX business"), XXXXXXXXXX of Cco includes the following activities:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX; and

(d) XXXXXXXXXX.

9. Cco has one operating subsidiary, Gco, XXXXXXXXXX.

10. Since being acquired by Aco in XXXXXXXXXX, Bco and Cco have, in the normal course of business, undertaken activities that are intended to optimize operating efficiencies. For example, Bco and Cco's accounting and other support activities are currently outsourced to Aco.

11. XXXXXXXXXX Dco is a wholly-owned subsidiary of Bco. Dco is a taxable Canadian corporation.

The authorized share capital of Dco consists of an unlimited number of common shares, an unlimited number of preference shares, an unlimited number of Class XXXXXXXXXX shares and an unlimited number of Class XXXXXXXXXX shares, all without par value. Each Class XXXXXXXXXX share may at any time be converted, at the option of the holder, into one common share. At XXXXXXXXXX, there were XXXXXXXXXX common shares issued and outstanding and no issued and outstanding preference shares, Class XXXXXXXXXX shares or Class XXXXXXXXXX shares.

12. XXXXXXXXXX.

In XXXXXXXXXX, Dco acquired all of the XXXXXXXXXX was the subject matter of an advance income tax ruling # XXXXXXXXXX issued by the CCRA on XXXXXXXXXX.

13. Statutory restrictions found in the Trustee Act (Ontario), and equivalent legislation in each of the other provinces of Canada, generally preclude the substitution of Dco as successor trustee in place of Cco for all personal testamentary or inter vivos trusts currently being administered by Cco, in the absence of permissive court orders in respect of each of such trusts from courts of competent jurisdiction in each province or territory where trust assets are situated. As it is impractical and would be prohibitively expensive to seek and obtain orders for all such trusts on an individual basis, Cco has instead applied for special legislation from the Provinces of XXXXXXXXXX, being the provinces in which Cco carries on the XXXXXXXXXX business, to provide for the transfer of the trusteeship of the XXXXXXXXXX business of Cco to Dco.

14. XXXXXXXXXX.

15. XXXXXXXXXX.

16. XXXXXXXXXX.

17. XXXXXXXXXX.

PROPOSED TRANSACTIONS

18. Cco will reorganize its capital XXXXXXXXXX in order to create two new classes of preferred shares (the "Class XXXXXXXXXX Shares" and the "Class XXXXXXXXXX Shares") and a new class of common shares (the "New Common Shares") and to convert the existing common shares into the appropriate number of New Common Shares, Class XXXXXXXXXX Shares, and Class XXXXXXXXXX Shares, as described herein (the "Share Exchange").

As a result of the reorganization of capital, Bco will exchange all of its common shares of Cco for New Common Shares, Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of Cco, and the existing common shares of Cco will be cancelled following the exchange. The New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares of Cco will have an aggregate fair market value equal to the fair market value of the Cco common shares, owned by Bco, immediately before the exchange.

The aggregate of the amounts to be credited to the stated capital accounts of the New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares of Cco will be equal to the amount of the stated capital of the existing common shares of Cco immediately before the exchange. Subsection 86(2.1) will reduce the aggregate stated capital of the New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares of Cco to an amount equal to the PUC of the Cco common shares at time of the exchange.

The PUC of the existing common shares of Cco will be allocated between the New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares of Cco based on the proportion that the fair market value of the New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares, as the case may be, is of the fair market value of all of the New Common Shares, the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares issued by Cco on the Share Exchange.

The New Common Shares will be identical in all respects to the existing common shares of Cco.

The Class XXXXXXXXXX Shares of Cco will be non-voting, non-cumulative preferred shares which will be redeemable and retractable for an amount determined by way of formula. The aggregate redemption and retraction amount of the Class XXXXXXXXXX Shares of Cco, as established by formula, will be an amount equal to the fair market value of the XXXXXXXXXX assets of Cco to be transferred to Dco, described in Paragraph 25, and which are attributable to the Cco XXXXXXXXXX business operated in XXXXXXXXXX.

The Class XXXXXXXXXX Shares of Cco will be non-voting, non-cumulative preferred shares which will be redeemable and retractable for an amount determined by way of formula. The aggregate redemption and retraction amount of the Class XXXXXXXXXX Shares of Cco, as established by formula, will be an amount equal to the fair market value of the XXXXXXXXXX assets of Cco to be transferred to Dco, described in Paragraph 36, and which are attributable to the Cco XXXXXXXXXX business operated in XXXXXXXXXX.

19. After the Share Exchange described in Paragraph 18, Cco will take such steps as may be necessary to reduce the PUC of the Class XXXXXXXXXX Shares and the Class XXXXXXXXXX Shares to an amount, in each case, equal to the ACB of such shares to Bco. The amount of the reduction, in each case, will be added to the contributed surplus of Cco. No payment will be made to Bco in connection with these reductions of PUC.

20. Dco will XXXXXXXXXX delete the existing Class XXXXXXXXXX and Class XXXXXXXXXX shares, described in Paragraph 11, and to create two new classes of preferred shares. The new "Dco Class XXXXXXXXXX Shares" will be convertible, redeemable and retractable, non-voting, non-cumulative preferred shares and the new "Dco Class XXXXXXXXXX Shares" will be issuable in series, redeemable and retractable, non-voting, non-cumulative preferred shares, but will not be convertible. The new capital by-law will also restate the existing shares of Dco, other than the Class XXXXXXXXXX and Class XXXXXXXXXX shares which are to be deleted, described in Paragraph 11.

21. XXXXXXXXXX.

22. Bco will transfer to Dco, at fair market value, all of the Class XXXXXXXXXX Shares it holds in Cco in consideration of the issuance by Dco to Bco of Dco Class XXXXXXXXXX Shares having an aggregate fair market value equal to the fair market value of the Class XXXXXXXXXX Shares transferred.

Dco will add to the stated capital account maintained for its Dco Class XXXXXXXXXX Shares an amount not to exceed the aggregate amount of the PUC of the Class XXXXXXXXXX Shares of Cco transferred.

23. Bco and Dco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer described in Paragraph 22. The agreed amount in respect of the Class XXXXXXXXXX Shares transferred will be equal to the greater of:

(a) the lesser of the fair market value of the Class XXXXXXXXXX Shares and the ACB of those shares to Bco, at the time of transfer; and

(b) one dollar.

24. XXXXXXXXXX.

25. Cco will transfer to Dco, at fair market value, the initial XXXXXXXXXX assets. As sole consideration, Dco will issue to Cco Dco Class XXXXXXXXXX Shares with a redemption and retraction amount equal to the aggregate fair market value of the initial XXXXXXXXXX assets immediately before the transfer.

Dco will add to the stated capital account maintained for its Dco Class XXXXXXXXXX Shares an amount not to exceed the aggregate of the cost amounts, in the case of eligible properties, and the fair market value, in the case of other properties, of the properties transferred to Dco from Cco.

26. Cco and Dco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer to Dco of each property that is an eligible property. The agreed amount for the purposes of subsection 85(1) in respect of each eligible property will be equal to:

(a) in the case of capital property (other than depreciable property of a prescribed class), an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii), however, the agreed amount in respect of any particular property will not be less than $1.

27. XXXXXXXXXX.

28. Dco will redeem its Dco Class XXXXXXXXXX Shares issued to Cco for an amount equal to their fair market value, being the aggregate redemption amount of the Dco Class XXXXXXXXXX Shares, and will issue to Cco in consideration therefor a demand non-interest-bearing promissory note (the "Dco First Redemption Note") having a principal amount equal to the aggregate of such redemption amount.

XXXXXXXXXX

29. Cco will redeem its Class XXXXXXXXXX Shares owned by Dco for an amount equal to their fair market value, being the aggregate redemption amount of the Class XXXXXXXXXX Shares, and will issue to Dco a demand non-interest-bearing promissory note (the "Cco First Redemption Note") having a principal amount equal to the aggregate of such redemption amount.

XXXXXXXXXX

30. The Dco First Redemption Note will be set off against the Cco First Redemption Note and all the notes will be cancelled.

31. Bco will exercise its conversion right with respect to the Dco Class XXXXXXXXXX Shares, acquired as described in Paragraph 22, and convert all of the Dco Class XXXXXXXXXX Shares held into common shares of Dco (the "First Share Conversion"). No other consideration will be received by Bco in respect of the conversion.

32. After the Share Conversion described in Paragraph 31, Dco will take such steps as may be necessary to reduce the PUC of the Dco common shares by an amount equal to the PUC reduction described in Paragraph 19 in respect to the Cco Class XXXXXXXXXX Shares. No payment will be made to any of the holders of the common shares upon the reduction in the Dco common shares' PUC.

XXXXXXXXXX

33. Upon XXXXXXXXXX , Bco will transfer to Dco, at fair market value, all of the Class XXXXXXXXXX Shares it holds in Cco in consideration of the issuance by Dco to Bco of Dco Class XXXXXXXXXX Shares having an aggregate fair market value equal to the fair market value of the Class XXXXXXXXXX Shares transferred.

Dco will add to the stated capital account maintained for its Dco Class XXXXXXXXXX Shares an amount not to exceed the aggregate amount of the PUC of the Class XXXXXXXXXX Shares of Cco transferred.

34. Bco and Dco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer described in Paragraph 33. The agreed amount in respect of the Class XXXXXXXXXX Shares transferred will be equal to the greater of:

(a) the lesser of the fair market value of the Class XXXXXXXXXX Shares and the ACB of those shares to Bco, at the time of transfer; and

(b) one dollar.

35. XXXXXXXXXX.

36. Cco will transfer to Dco, at fair market value, the remaining XXXXXXXXXX assets. As sole consideration, Dco will issue to Cco Dco Class XXXXXXXXXX Shares with a redemption and retraction amount equal to the aggregate fair market value of the remaining XXXXXXXXXX assets immediately before the transfer.

Dco will add to the stated capital account maintained for Dco Class XXXXXXXXXX Shares an amount not to exceed the aggregate of the cost amounts, in the case of eligible properties, and the fair market value, in the case of other properties, of the properties transferred to Dco from Cco.

37. Cco and Dco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer to Dco of each property that is an eligible property. The agreed amount for the purposes of subsection 85(1) in respect of each eligible property will be equal to:

(a) in the case of capital property (other than depreciable property of a prescribed class), an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

(b) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii), however, the agreed amount in respect of any particular property will not be less than $1.

38. XXXXXXXXXX.

39. Dco will redeem its Dco Class XXXXXXXXXX Shares issued to Cco for an amount equal to their fair market value, being the aggregate redemption amount of the Dco Class XXXXXXXXXX Shares, and will issue to Cco in consideration therefor a demand non-interest-bearing promissory note (the "Dco Second Redemption Note") having a principal amount equal to the aggregate of such redemption amount.

XXXXXXXXXX

40. Cco will redeem its Class XXXXXXXXXX Shares owned by Dco for an amount equal to their fair market value, being the aggregate redemption amount of the Class XXXXXXXXXX Shares, and will issue to Dco a demand non-interest-bearing promissory note (the "Cco Second Redemption Note") having a principal amount equal to the aggregate of such redemption amount.

XXXXXXXXXX

41. The Dco Second Redemption Note will be set off against the Cco Second Redemption Note and all the notes will be cancelled.

42. Bco will exercise its conversion right with respect to the Dco Class XXXXXXXXXX Shares, acquired as described in Paragraph 33, and convert all of the Dco Class XXXXXXXXXX Shares held into common shares of Dco (the "Second Share Conversion"). No other consideration will be received by Bco in respect of the conversion.

43. After the Share Conversion described in Paragraph 42, Dco will take such steps as may be necessary to reduce the PUC of the Dco common shares by an amount equal to the PUC reduction described in Paragraph 19 in respect of the Cco Class XXXXXXXXXX Shares. No payment will be made to any of the holders of the common shares upon the reduction in the Dco common shares' PUC.

XXXXXXXXXX

PURPOSE OF PROPOSED TRANSACTIONS

44. The proposed transactions are being undertaken for strategic business and marketing reasons in order to separate the XXXXXXXXXX businesses from other XXXXXXXXXX businesses within the X Group XXXXXXXXXX.

OTHER INFORMATION

45. Board resolutions have been passed to XXXXXXXXXX

46. Related party transactions in respect of the other Bco subsidiaries, described in Paragraph 3, or other matters relating to the integration of Cco into the X Group, are as follows:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX;

(d) XXXXXXXXXX;

(e) XXXXXXXXXX;

(f) XXXXXXXXXX;

(g) XXXXXXXXXX;

(h) XXXXXXXXXX; and

(i) XXXXXXXXXX.

XXXXXXXXXX

47. XXXXXXXXXX.

48. None of the issued shares of Cco held by Bco, the Class XXXXXXXXXX Shares or the Class XXXXXXXXXX Shares of Cco, the Dco Class XXXXXXXXXX Shares or the Dco Class XXXXXXXXXX Shares has been, or will be, acquired in the ordinary course of business of the respective acquirer.

49. None of the shares of Dco or Cco has been, or will be, the subject of a guarantee agreement, that is given by an SFI or a specified person (within the meaning of paragraph (h) of the definition of "taxable preferred share" in subsection 248(1)).

50. Neither Dco or Cco has, or will have, entered into a dividend rental arrangement in respect of any of the shares to be redeemed as part of the proposed transactions.

51. None of the shares of Dco or Cco has been, or will be, 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).

52. Aco has no present intention to dispose of the XXXXXXXXXX business which, following these transactions, will be carried on only within Dco and not within Cco, nor to dispose of shares of Dco or Cco to any unrelated party.

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. Provided that the existing common shares of Cco constitute capital property to Bco and Bco does not make an election pursuant to subsection 85(1) with respect to the Share Exchange, subsection 86(1) will apply to the Share Exchange, described in Paragraph 18.

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

B. The provisions of subsection 85(1) will apply to the transfer:

(i) by Bco of the Class XXXXXXXXXX Shares of Cco to Dco, described in Paragraph 22;

(ii) by Cco of the XXXXXXXXXX assets, that are eligible properties, to Dco, described in Paragraph 25;

(iii) by Bco of the Class XXXXXXXXXX Shares of Cco to Dco, described in Paragraph 33; and

(iv) by Cco of the XXXXXXXXXX assets, that are eligible properties, to Dco, described in Paragraph 36

such that, the agreed amount in respect of each such transfer will be deemed to be the transferor's POD and the transferee's cost thereof pursuant to paragraph 85(1)(a) and the cost to each transferor of the shares received as consideration for the transfer will be deemed by paragraph 85(1)(g) to be equal to the deemed POD to the transferor.

C. On the redemption of the Dco Class XXXXXXXXXX Shares described in Paragraph 28, the Cco Class XXXXXXXXXX Shares described in Paragraph 29, the Dco Class XXXXXXXXXX Shares described in Paragraph 39 and the Cco Class XXXXXXXXXX Shares described in Paragraph 40, the amount, if any, by which the amount paid to redeem the particular shares exceeds the PUC of the particular shares immediately before the redemption:

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

and

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

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

(iv) Part IV.1 of the Act will not apply to the deemed dividend described in (i) above because the dividend will be an excepted dividend pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1; and

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

D. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to deem any portion of the dividends described in Ruling C above to be POD, provided that as part of the series of transactions or events that includes the Proposed Transactions, there is no disposition or significant increase described in subparagraphs 55(3)(a)(i) to (v) which has not been described herein.

E. The set-off and cancellation of:

(i) the Dco First Redemption Note and the Cco First Redemption Note described in Paragraph 30; and

(ii) the Dco Second Redemption Note and the Cco Second Redemption Note described in Paragraph 41

will not give rise to a forgiven amount.

F. Provided that the Dco Class XXXXXXXXXX Shares constitute capital property to Bco, the provisions of section 51 will apply to the First Share Conversion, described in Paragraph 31, and the Second Share Conversion, described in Paragraph 42, such that:

(i) Bco will be deemed not to have disposed of its Dco Class XXXXXXXXXX Shares and to have acquired the Dco common shares at a cost equal to the adjusted cost base of the Dco Class XXXXXXXXXX Shares so exchanged; and

(ii) subject to the provisions of subsection 51(3), the PUC of the Dco common shares issued to Bco in exchange for the Dco Class XXXXXXXXXX Shares will be an amount equal to the amount added to the stated capital of the Dco common shares.

G. Provided that the common shares of Cco held by Bco prior to the Proposed Transactions represent capital property to Bco, then the New Common Shares, the Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares, while held by Bco and while held by Dco, will represent capital property to the holder for the purpose of the transactions described herein.

H. 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 70-6R4 dated January 29, 2001 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

Nothing in this letter should be construed as confirmation that the CCRA has reviewed 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.

Yours truly,

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