2001 Ruling 2001-0087923 - Internal Reorganization

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 CCRA.

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

Principal Issues: Whether an internal reorganization is subject to the exemption under paragraph 55(3)(a)?

Position: Yes.

Reasons: See SPI for analysis.

XXXXXXXXXX 								2001-008792

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX ("ACO")

This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer.

To the best of your knowledge and that of ACO, none of the issues involved in this ruling:

(a) is in an earlier return of ACO or a related person;

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

(c) is under objection by ACO or a related person;

(d) is before the courts; or,

(e) is the subject of a ruling previously issued by the Directorate.

DEFINITIONS:

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

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

"agreed amount" means the amount that a transferor and transferee of property have agreed to be the proceeds of disposition in their election under subsection 85(1);

"adjusted cost base" (sometimes referred to herein as "ACB") has the meaning assigned by section 54;

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

"CBCA" means the Canada Business Corporations Act;

"capital property" has the meaning assigned by section 54;

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

"dividend refund" has the meaning assigned by subsection 129(1);

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

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

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

"paid-up capital" (hereinafter referred to as "PUC") has the meaning assigned by subsection 89(1);

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

XXXXXXXXXX

"RDTOH" means "refundable dividend tax on hand" as defined in subsection 129(3);

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

"specified financial institution" and "restricted financial institution" have the meanings assigned by subsection 248(1);

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

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

In this letter, the taxpayers have been defined as follows:

"ACO" means XXXXXXXXXX;

"BCO" means XXXXXXXXXX;

"Cco" means XXXXXXXXXX;

"Dco" means XXXXXXXXXX;

"Eco" means XXXXXXXXXX;

"Fco" means XXXXXXXXXX;

"Gco" means XXXXXXXXXX;

"Hco" means XXXXXXXXXX;

"Ico" means XXXXXXXXXX;

"Jco" means XXXXXXXXXX;

"Kco" means XXXXXXXXXX;

"LCO" means XXXXXXXXXX;

"Mco" means XXXXXXXXXX;

"Nco" means XXXXXXXXXX;

"Oco" means XXXXXXXXXX;

"Zco" means XXXXXXXXXX;

"Mr. D" means XXXXXXXXXX, an individual resident in Canada;

"Shareco1" means XXXXXXXXXX; and

"Shareco2" means XXXXXXXXXX.

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

FACTS

1. ACO was incorporated by certificate of amalgamation on XXXXXXXXXX under the CBCA. Its year-end is XXXXXXXXXX. The issued share capital of ACO is held as follows:

Shareholder		No. & Class of Shares		ACB		PUC

Shareco1		                       XXXXXXXXXX 

Shareco2 XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX.

XXXXXXXXXX

The XXXXXXXXXX common shares are standard voting common shares.

The XXXXXXXXXX shares are preferred non-voting shares, entitled to a monthly non-cumulative dividend of XXXXXXXXXX% of the amount of the consideration for which the shares were issued and redeemable and retractable for the consideration for which such shares were issued.

The XXXXXXXXXX shares are preferred non-voting shares, entitled to a monthly non-cumulative dividend of XXXXXXXXXX% of the amount of the consideration for which the shares were issued and redeemable for XXXXXXXXXX each.

2. ACO is a taxable Canadian corporation and a private corporation.

3. As at XXXXXXXXXX, the RDTOH account of ACO equalled $XXXXXXXXXX.

4. Shareco1 is controlled by Mr. D. Shareco2 is controlled by members of the XXXXXXXXXX. Mr. D and XXXXXXXXXX deal with each other at arm's length. XXXXXXXXXX. deals at arm's length with Shareco1 and Shareco2.

5. ACO is in the stevedoring and freight handling business. As well, it owns various investments in other companies.

6. BCO was created by certificate of amalgamation on XXXXXXXXXX. It is a taxable Canadian corporation and a private corporation. Its year-end is XXXXXXXXXX.

7. The issued share capital of BCO is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

ACO XXXXXXXXXX

The XXXXXXXXXX shares are voting common shares.

8. BCO operates a XXXXXXXXXX business.

9. As at XXXXXXXXXX, the RDTOH account of BCO was $XXXXXXXXXX.

10. ACO owns XXXXXXXXXX% of the outstanding shares of Cco and Dco and XXXXXXXXXX% of the common shares of Eco. All of these companies are taxable Canadian corporations and private corporations. The tax attributes of their shares are contained in your attached schedule.

11. Cco owns XXXXXXXXXX of the outstanding shares of Fco, a taxable Canadian corporation and private corporation incorporated under XXXXXXXXXX. The issued share capital of Fco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

BCO		                         XXXXXXXXXX 

Gco		                         XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares.

12. Gco is a taxable Canadian corporation and a private corporation incorporated under the CBCA on XXXXXXXXXX. The issued share capital of Gco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

Hco		           XXXXXXXXXX 

XXXXXXXXXX .("Sco") XXXXXXXXXX
XXXXXXXXXX

ACO		          XXXXXXXXXX
     XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares. The XXXXXXXXXX shares are non-voting preferred shares, entitled to annual non-cumulative dividends of prime plus XXXXXXXXXX% on paid-up capital and are redeemable and retractable for the amount for which they are issued.

13. Hco is a taxable Canadian corporation and a private corporation incorporated under the CBCA on XXXXXXXXXX. The issued share capital of Hco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

Sco XXXXXXXXXX

ACO XXXXXXXXXX

The XXXXXXXXXX shares are voting common shares.

Thus, through its direct and indirect shareholdings, ACO owns XXXXXXXXXX% of the equity of Fco and Sco, a party which deals at arm's length with ACO, owns XXXXXXXXXX% of the equity.

14. BCO owns XXXXXXXXXX% of the issued shares of Ico, a taxable Canadian corporation and a private corporation incorporated under the CBCA on XXXXXXXXXX. The issued share capital of Ico is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

XXXXXXXXXX  	                            XXXXXXXXXX
BCO		                            XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares. XXXXXXXXXX deals at arm's length with Ico and the other shareholder, BCO.

15. Ico owns XXXXXXXXXX% of the issued shares of Jco, a taxable Canadian corporation and a private corporation incorporated under XXXXXXXXX. The issued share capital of Jco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

Ico		                        XXXXXXXXXX
            XXXXXXXXXX 

XXXXXXXXXX .

("XXXXXXXXXX ") XXXXXXXXXX
XXXXXXXXXX

The XXXXXXXXXX shares are voting common shares. The XXXXXXXXXX shares are non-voting preferred shares, carrying a non-cumulative annual dividend of $XXXXXXXXXX per share and are retractable for the amount of issued and paid-up capital. XXXXXXXXXX deals at arm's length with Jco and the other shareholder, Ico.

16. Jco and BCO each own XXXXXXXXXX % of the issued shares of Kco, a taxable Canadian corporation and a private corporation incorporated under the CBCA on XXXXXXXXXX. The issued share capital of Kco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

Jco		                    XXXXXXXXXX 

BCO		                    XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares. BCO owns, directly or indirectly, XXXXXXXXXX% of the equity of Kco. Kco owns XXXXXXXXXX% of the issued shares of XXXXXXXXXX. The XXXXXXXXXX% is held by XXXXXXXXXX, a company which deals at arm's length with XXXXXXXXXX and Kco.

17. LCO is a taxable Canadian corporation and a private corporation incorporated under the XXXXXXXXXX. The issued share capital is held as follows:

Shareholder	No. & Class of Shares		ACB	PUC

BCO		                              XXXXXXXXXX 

Shareco2 XXXXXXXXXX

Mr. D		                              XXXXXXXXXX 

Zco		                               XXXXXXXXXX 

The common shares are voting common shares.

18. Mco is a taxable Canadian corporation and a private corporation incorporated under the XXXXXXXXXX. The issued share capital of Mco is held as follows:

Shareholder	No. & Class of Shares		ACB	PUC

BCO		                         XXXXXXXXXX 

ACO		                         XXXXXXXXXX 

XXXXXXXXXX
             XXXXXXXXXX
Nco		                          XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares. XXXXXXXXXX deals at arm's length with Mco and the other shareholders.

19. Nco is a taxable Canadian corporation and a private corporation incorporated under the CBCA on XXXXXXXXXX. The issued share capital of Nco is held as follows:

Shareholder	No. & Class of Shares		ACB		PUC

XXXXXXXXXX XXXXXXXXXX

ACO			         XXXXXXXXXX
     XXXXXXXXXX 

The XXXXXXXXXX shares are voting common shares. The XXXXXXXXXX shares are entitled to a monthly XXXXXXXXXX% non-cumulative dividend. XXXXXXXXXX deals at arm's length with Nco and ACO. Nco owns XXXXXXXXXX% of the issued shares of Zco.

20. Oco., which is owned XXXXXXXXXX% by XXXXXXXXXX. and XXXXXXXXXX% by XXXXXXXXXX is currently in the process of selling its assets to ACO. This sale has been contemplated for quite some time and would be undertaken regardless of whether the proposed transactions are completed. Further, the proposed transactions would be undertaken regardless of whether this sale is undertaken

21. All of the shares being transferred herein are capital property to the transferors.

22. None of the companies named herein is or will be, at the time of the proposed transactions, a specified financial institution or a restricted financial institution.

23. No shares of any of the companies referred to herein will be disposed of, except as described herein, as part of the series of transactions or events that includes the proposed transactions outlined below.

24. (Reserved).

25. None of the shares of any of the companies described herein has been or will be, at any time during the implementation of the proposed transactions described below, (i) the subject of any guarantee agreement, (ii) a share issued or acquired as part of a series of transactions or events of the type described in subsection 112(2.5), or (iii) the subject of a dividend rental arrangement.

PROPOSED TRANSACTIONS

26. ACO will incorporate a company under the CBCA ("Nasco"). Subsequently, ACO will subscribe for XXXXXXXXXX voting common shares for $XXXXXXXXXX. Nasco will be authorized to issue an unlimited number of the following shares:

- common shares;

- XXXXXXXXXX shares - these shares rank pari passu in all respects with the common shares, except that the holders will not have any right to vote;

- XXXXXXXXXX shares - these shares are voting, redeemable, non-participating and carry an annual non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, redeemable and carry an annual, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable at a price per share of $XXXXXXXXXX and carry a monthly non-cumulative dividend rate which will not be greater than $XXXXXXXXXX per share;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%; and

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%.

27. Nasco will incorporate a company under the CBCA ("New ACO"). Subsequently, Nasco will subscribe for XXXXXXXXXX voting common shares of New ACO for $XXXXXXXXXX. New ACO will be authorized to issue an unlimited number of the following shares:

- common shares;

- XXXXXXXXXX shares - these shares rank pari passu in all respects with the common shares, except that the holders will not have any right to vote;

- XXXXXXXXXX shares - these shares are voting, redeemable, non-participating and carry an annual non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, redeemable and carry an annual, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable at a price per share of $XXXXXXXXXX and carry a monthly non-cumulative dividend rate which will not be greater than $XXXXXXXXXX per share;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%; and

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%.

28. ACO will transfer all of its shares of Cco, Eco, BCO and Dco to Nasco. As sole consideration therefor, Nasco will issue XXXXXXXXXX additional voting common shares (XXXXXXXXXX) to ACO.

In respect of the shares being transferred, ACO and Nasco will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the shares. The agreed amount in such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amounts will not exceed the fair market value of the shares transferred to Nasco.

For purposes of the CBCA, the amount that will be added to the stated capital account of the common shares of Nasco issued upon each separate transfer as described hereinabove, will not exceed the agreed amount with respect to such transfer.

29. BCO will transfer all of its shares in Fco, Ico, Kco, LCO and Mco to ACO. As sole consideration therefor, ACO will issue to BCO, XXXXXXXXXX shares having an aggregate redemption and retraction value equal to the fair market value of the shares transferred to ACO by BCO.

In respect of the transfer of the shares of Fco, Ico, Kco, LCO and Mco to ACO, BCO and ACO will jointly elect in prescribed form and within the time limits referred to in subsection 85(6) to have the rules in subsection 85(1) apply to the transfer of the shares. The agreed amounts in such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amounts will not exceed the fair market value of the shares transferred to ACO.

For purpose of the CBCA, the amount that will be added to the stated capital account of the XXXXXXXXXX shares of ACO issued upon each transfer of shares of each company will not exceed the agreed amount with respect to such transfer.

30. The XXXXXXXXXX shares held by BCO in ACO will be redeemed for an amount equal to the consideration for which such shares were issued. As consideration for the redemption, ACO will issue to BCO a demand non-interest-bearing promissory note (the "Note") having a principal amount and fair market value equal to the redemption price of such shares. BCO will accept such note in full satisfaction of the purchase price.

30A. BCO will reorganize its capital and will amend its articles in order to create a class of non-voting preferred shares (the XXXXXXXXXX shares). These shares will be entitled to a monthly non-cumulative preferential dividend which will not be greater than XXXXXXXXXX% and they will be redeemable and retractable. BCO will cancel its XXXXXXXXXX shares and will issue XXXXXXXXXX shares and XXXXXXXXXX shares, redeemable and retractable for an amount equal to the face value of the Note. The paid-up share capital of the XXXXXXXXXX shares and the XXXXXXXXXX shares will be equal to the paid-up capital of the XXXXXXXXXX shares. Nasco will therefore own XXXXXXXXXX shares and XXXXXXXXXX shares of BCO.

30B. Nasco will reorganize its capital and will cancel its common shares and issue XXXXXXXXXX common shares and XXXXXXXXXX shares, redeemable and retractable for an amount equal to the face value of the Note. The paid-up capital of the XXXXXXXXXX common shares and XXXXXXXXXX shares will be equal to the paid-up capital of the old common shares. ACO will therefore own XXXXXXXXXX common shares and XXXXXXXXXX shares of Nasco.

31. BCO will redeem the XXXXXXXXXX shares owned by Nasco its capital stock for their redemption price and it will pay the purchase price by assigning the Note to Nasco.

32. Nasco will redeem the XXXXXXXXXX shares owned by ACO in its capital stock for a purchase price equal to their redemption value and it will pay the purchase price by assigning the Note to ACO which will extinguish it.

33. Nasco will incorporate a new company under the CBCA (herein "New BCO"). Subsequently, Nasco will subscribe for XXXXXXXXXX common shares in New BCO for $XXXXXXXXXX in the aggregate. New BCO will be authorized to issue an unlimited number of the following shares:

- common shares;

- XXXXXXXXXX shares - these shares rank pari passu in all respects with the common share, except that the holders will not have any right to vote;

- XXXXXXXXXX shares - these shares are voting, redeemable, non-participating and carry an annual non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, redeemable and carry an annual, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable at a price per share of $XXXXXXXXXX and carry a monthly non-cumulative dividend rate which will not be greater than $XXXXXXXXXX per share;

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%; and

- XXXXXXXXXX shares - these shares are non-voting, non-participating, retractable and carry a monthly, non-cumulative dividend rate which will not be greater than XXXXXXXXXX%.

34. ACO will transfer its goodwill and inventory to New ACO. As consideration therefor, New ACO will issue to ACO, XXXXXXXXXX shares having a redemption and retraction value equal to the fair market value of the goodwill and inventory transferred by ACO to New ACO.

In respect of the assets being transferred, ACO and New ACO will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6) , to have the rules in subsection 85(1) apply to the transfer of all the eligible property. The agreed amount in such election will not be less than:

(i) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property; and

(ii) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) in the case of inventory.

In each case, the agreed amount will not exceed the fair market value of the property transferred, nor will it be less than the amount permitted under paragraph 85(1)(b).

For purposes of the CBCA, the amount that will be added to the stated capital account of the XXXXXXXXXX shares of New ACO issued upon the transfers as described hereinabove, will not exceed the agreed amount with respect to such transfers.

35. ACO will transfer its XXXXXXXXXX shares of New ACO to Nasco. As consideration therefor Nasco will issue to ACO, XXXXXXXXXX shares, redeemable and retractable for the fair market value of the Class "F" shares transferred by ACO to Nasco.

In respect of the shares being transferred, ACO and Nasco will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the shares. The agreed amount in such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the fair market value of the shares transferred to Nasco.

For purposes of the CBCA, the amount that will be added to the stated capital account of the XXXXXXXXXX shares of Nasco issued upon the transfer as described hereinabove, will not exceed the agreed amount with respect to such transfer.

36. BCO will transfer its goodwill and inventory to New BCO. As consideration therefor, New BCO will issue to BCO an additional XXXXXXXXXX common shares.

In respect of the assets being transferred, BCO and New BCO will jointly elect, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of all the eligible property. The agreed amount in such election will not be less than:

(i) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property; and

(ii) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of inventory.

For purposes of the CBCA, the amount that will be added to the stated capital account of the common shares of New BCO issued upon the transfer as described hereinabove, will not exceed the agreed amount with respect to such transfer. The fair market value of the XXXXXXXXXX common shares will be equal to the fair market value of the transferred assets.

37. New BCO will carry on the business formerly carried on by BCO. An agreement wherein the equipment of BCO is leased to New BCO will be executed.

38. New ACO will carry on the business formerly carried on by ACO. An agreement wherein the equipment of ACO is leased to New ACO will be executed.

39. All of the sale agreements respecting the sale of shares or assets described in paragraphs 34 and 35 will contain a price adjustment clause which will allow the parties thereto to alter the sale price, as well as the retraction and redemption value of the consideration paid therefor.

PURPOSE OF THE PROPOSED TRANSACTIONS

40. The purposes of the proposed transaction are as follows:

(a) There are separate businesses being carried on by the various companies in the corporate group. The shareholders feel that from an administrative point of view, it would be easier if the companies involved in each of these businesses were isolated under separate umbrella companies; and

(b) Currently, each of ACO and BCO carries on an active business. By moving the operations to subsidiaries, the client can isolate the other investments in shares owned by ACO and BCO from creditors of the businesses.

RULINGS

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

A. The provisions of subsection 85(1) will apply to:

(a) the transfer by ACO of the shares of Cco, Eco, BCO and Dco to Nasco described in paragraph 28;

(b) the transfer by BCO of the shares of Fco, Ico, Kco, LCO and Mco to ACO described in paragraph 29;

(c) the transfer by ACO of any eligible property to New ACO described in paragraph 34;

(d) the transfer by ACO of XXXXXXXXXX shares of New ACO to Nasco described in paragraph 35; and

(e) the transfer by BCO of any eligible property to New BCO as described in paragraph 36;

such that the elected amounts in respect of each transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).

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

A.1 Provided that the XXXXXXXXXX shares of BCO represent capital property to Nasco, the provisions of section 86, other than subsection 86(2), will apply to the conversion of the XXXXXXXXXX shares held by Nasco into XXXXXXXXXX shares and XXXXXXXXXX shares of BCO.

A.2 Provided that the common shares of Nasco represent capital property to ACO, the provisions of section 86, other than subsection 86(2) will apply to the conversion of the XXXXXXXXXX common shares held by ACO into XXXXXXXXXX common shares and XXXXXXXXXX shares of ACO.

B. Subsection 85(2.1) will not apply so as to reduce the PUC of:

(a) the common shares issued by Nasco to ACO described in paragraph 28 above;

(b) the XXXXXXXXXX shares issued by ACO described in paragraph 29 above;

(c) the XXXXXXXXXX shares issued by New ACO to ACO described in paragraph 34 above;

(d) the XXXXXXXXXX shares issued by Nasco to ACO described in paragraph 35 above; and

(e) the common shares issued by New BCO to BCO described in paragraph 36 above.

C. As a result of:

(i) the redemption of the XXXXXXXXXX shares of ACO held by BCO as described in paragraph 30,

(ii) the redemption of the XXXXXXXXXX shares of BCO held by Nasco as described in paragraph 31;

(iii) the redemption of the XXXXXXXXXX shares of Nasco held by ACO as described in paragraph 32;

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:

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

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

(c) will be included in income pursuant to paragraph 12(1)(j);

and to the extent that a dividend described in paragraph (b) above is a taxable dividend, such dividend will:

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

(e) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the shares will be reduced by the amount of such dividends pursuant to subsection 112(3);

(f) be subject to tax under Part IV of the Act to the extent provided for in paragraph 186(1)(b); and

(g) not be subject to tax under Part IV.I or Part VI.I of the Act.

D. Provided that as part of the series of transactions and events that includes the proposed transactions described herein, there is no disposition or increase in interest as described in any of subparagraphs 55(3)(a)(i) to (v), then by virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends referred to in ruling C above. For greater certainty, the proposed transactions described herein, in and by themselves, will not be considered to result in any disposition or increase in interest to an unrelated person as described in subparagraphs 55(3)(a)(i) to (v).

E. The extinguishment of the Note upon the repurchase of the XXXXXXXXXX shares and the assignment of the Note to ACO by Nasco described in paragraph 32 above will not result in a "forgiven amount" within the meaning of subsections 80(1) and 80.01(1) .

F. The provisions of subsections 15(1), 56(2), 56(4), 69(4) and section 246 will not apply to the proposed transactions described in paragraphs 26 to 35 above in and by themselves.

G. Subsection 245(2) will not be applied as a result of the proposed transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R4 issued on January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.

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

COMMENTS

Nothing in this letter should be construed as implying that the Canada Customs and Revenue Agency has reviewed, accepted or otherwise agreed to:

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

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

Price adjustment clause

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the fair market value of the properties transferred and the redemption amount of the shares issued as consideration, will be effective retroactively to the time of the transfer and issuance of shares.

In addition, any such adjustment could affect the rulings given above. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since its coming into effect will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the Canada Customs and Revenue Agency with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.

Yours truly,

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