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: Sequential Butterfly - various standard issues.
Position: Meets the proper tests.
Reasons: See above.
XXXXXXXXXX 2002-014073
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request:
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, as amended by your letter of XXXXXXXXXX and your other correspondence wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. You have advised us that to the best of your knowledge and that of the taxpayers involved none of the issues involved in this ruling request:
(a) is in an earlier return of the taxpayer or a related person;
(b) is being considered by a tax services office ("TSO") or taxation centre ("TC") in connection with a previously filed tax return of the taxpayer or a related person;
(c) is under objection by the taxpayer or a related person;
(d) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; or
(e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate.
DEFINITIONS
In this letter, unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars and unless otherwise indicated:
(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Act and the regulations thereunder are referred to as the "Regulations";
(b) "adjusted cost base" ("ACB") has the meaning assigned by subsection 248(1);
(c) "agreed amount" has the meaning assigned by subsection 85(1);
(d) "arm's length" has the meaning assigned by section 251;
(e) "BrotherA" means XXXXXXXXXX;
(f) "BrotherACo" means XXXXXXXXXX and is more fully described in paragraph 4 below;
(g) "BrotherA FamilyCo" means XXXXXXXXXX and is more fully described in paragraph 3 below;
(h) "BrotherB" means XXXXXXXXXX;
(i) "BrotherBCo" means XXXXXXXXXX and is more fully described in paragraph 5 below;
(j) "BrotherB FamilyCo" means XXXXXXXXXX and is more fully described in paragraph 3 below;
(k) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);
(l) "capital gain" has the meaning assigned by section 39;
(m) "capital property" has the meaning assigned by subsection 248(1);
(n) "CCRA" means the Canada Customs and Revenue Agency;
(o) "CICA" means the Canadian Institute of Chartered Accountants;
(p) "cost amount" has the meaning assigned by subsection 248(1);
(q) "distribution" has the meaning assigned by subsection 55(1);
(r) "dividend rental arrangement" has the meaning assigned by subsection 248(1);
(s) "eligible property" has the meaning assigned by subsection 85(1.1);
(t) "excepted dividend" has the meaning assigned by section 187.1;
(u) "excluded dividend" has the meaning assigned by section 191(1);
(v) "FMV" means fair market value;
(w) "guarantee agreement" has the meaning assigned by subsection 112(2.2);
(x) XXXXXXXXXX;
(y) "Opco" means XXXXXXXXXX and is more fully described in paragraph 1 below;
(z) "Opco Group" has the meaning assigned thereto in paragraph 52;
(aa) "paid-up capital" ("PUC") has the meaning assigned by subsection 89(1);
(bb) "Proposed Transactions" and "Butterfly Reorganizations" mean the proposed transactions described in paragraphs 46 to 84 of this letter;
(cc) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);
(dd) "significant influence" has the meaning assigned by section 3050 of the CICA Handbook;
(ee) "specified financial institution" ("SFI") has the meaning assigned by subsection 248(1);
(ff) "specified investment business" ("SIB") has the meaning assigned by the definition in subsection 125(7);
(gg) "stated capital" has the meaning assigned by XXXXXXXXXX;
(hh) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
(ii) "substantial interest" has the meaning assigned by subsection 191(2);
(jj) "taxable Canadian corporation" has the meaning assigned by subsection 89(1); and
(kk) "taxable dividend" has the meaning assigned by subsection 89(1).
FACTS
Canadian Holding Company Structure
1. Opco is a taxable Canadian corporation incorporated under the XXXXXXXXXX and is the successor corporation to XXXXXXXXXX. Opco's CCRA business number is XXXXXXXXXX. Opco files its federal income tax returns at the XXXXXXXXXX, TC but otherwise deals with the XXXXXXXXXX TSO.
2. Opco is XXXXXXXXXX% family-owned and has evolved into a holding corporation that directly or indirectly owns (either wholly or partially) numerous operating corporations in Canada and around the world. Where such operating corporations are not wholly-owned, the other shareholder is usually a person with whom Opco deals at arm's length and frequently, such other shareholder is the most significant customer or the only customer of the business carried on by that particular corporation. XXXXXXXXXX Opco's direct revenue is derived almost exclusively from management fees, interest, rent and dividends from wholly and partly owned operating corporations. Opco also earns interest on cash and near cash balances and a small amount of rent from an arm's-length party.
3. Since about XXXXXXXXXX, Opco has been owned or controlled equally by two brothers, BrotherA and BrotherB. From XXXXXXXXXX, Brother A and BrotherB directly owned all of the issued shares of Opco. In XXXXXXXXXX, a partial estate freeze was implemented by each of BrotherA and BrotherB wherein BrotherA's shares of Opco were transferred to BrotherA FamilyCo and BrotherB's shares of Opco were transferred to BrotherB FamilyCo. BrotherA FamilyCo and BrotherB FamilyCo are taxable Canadian corporations that were incorporated under the XXXXXXXXXX. BrotherA FamilyCo's CCRA business number is XXXXXXXXXX and BrotherB FamilyCo's CCRA business number is XXXXXXXXXX. Each of BrotherA FamilyCo and BrotherB FamilyCo files its federal income tax returns at the XXXXXXXXXX, TC but otherwise deals with the XXXXXXXXXX TSO.
Opco's current authorized share capital consists of XXXXXXXXXX Class A preference shares "Opco Class A Shares"), XXXXXXXXXX Class B preference shares ("Opco Class B Shares") and XXXXXXXXXX common shares ("Opco Common Shares"). The Opco Class A Shares are non-voting, redeemable and have a XXXXXXXXXX% non-cumulative dividend rate. The Opco Class B Shares have no par value, are non-voting, are entitled to a preferential dividend of $XXXXXXXXXX per share per fiscal period in priority to dividends on the Opco Common Shares, and participate equally share for share with the Opco Common Shares in any further dividends in that fiscal period. At the present time, Opco's issued and outstanding share capital is owned as follows:
Opco Opco
Shareholder Common Shares Class B Shares
BrotherA FamilyCo XXXXXXXXXX XXXXXXXXXX
BrotherB FamilyCo XXXXXXXXXX XXXXXXXXXX
Total XXXXXXXXXX XXXXXXXXXX
The above shares of Opco are held as capital property by each of the shareholders.
4. In connection with the XXXXXXXXXX estate freeze of Opco described above, BrotherACo, a taxable Canadian corporation incorporated under the XXXXXXXXXX, acquired XXXXXXXXXX% of the Class A shares (as hereafter defined) of BrotherA FamilyCo and XXXXXXXXXX % of the common shares of BrotherA FamilyCo. BrotherACo is XXXXXXXXXX% owned by BrotherA. The balance of the common shares of BrotherA FamilyCo were acquired by BrotherA's spouse XXXXXXXXXX ("BrotherA's Wife"), as to XXXXXXXXXX%, and the XXXXXXXXXX ("The BrotherA Trust"), as to XXXXXXXXXX%. BrotherA and his wife have two adult children being, XXXXXXXXXX ("ChildA1") and XXXXXXXXXX ("ChildA2"). ChildA1 and ChildA2 and their respective issue, are the sole discretionary income and capital beneficiaries of The BrotherA Trust. BrotherACo's CCRA business number is XXXXXXXXXX. BrotherACo files its federal income tax returns at the XXXXXXXXXX, TC but otherwise deals with the XXXXXXXXXX TSO.
5. In connection with the XXXXXXXXXX estate freeze of Opco described above, BrotherBCo, a taxable Canadian corporation incorporated under the XXXXXXXXXX, acquired XXXXXXXXXX% of the Class A shares (as hereafter defined) of BrotherB FamilyCo and XXXXXXXXXX% of the common shares of BrotherB FamilyCo. BrotherBCo is XXXXXXXXXX% owned by BrotherB. The balance of the common shares (XXXXXXXXXX%) of BrotherB FamilyCo were acquired by the XXXXXXXXXX ("The BrotherB Trust"). BrotherB and BrotherB's spouse XXXXXXXXXX ("BrotherB's Wife") have two adult children, being XXXXXXXXXX ("ChildB1") and XXXXXXXXXX ("ChildB2"). Child B1 and Child B2 and their respective issue, are the sole discretionary income and capital beneficiaries of The BrotherB Trust. BrotherBCo's CCRA business number is XXXXXXXXXX. BrotherBCo files its federal income tax returns at the XXXXXXXXXX, TC but otherwise deals with the XXXXXXXXXX TSO.
6. In XXXXXXXXXX, an estate freeze was implemented by BrotherA at which time all of the existing common shares of BrotherA FamilyCo were converted into Class B shares (as hereafter defined) held by BrotherACo, BrotherA's Wife and The BrotherA Trust and all of the new common shares of BrotherA FamilyCo were issued to XXXXXXXXXX ("The BrotherA's Wife Trust"). The discretionary income beneficiaries of The BrotherA's Wife Trust are ChildA1, ChildA2 and their respective spouses and issue. The discretionary capital beneficiaries of The BrotherA's Wife Trust are ChildA1, ChildA2 and their respective issue.
At the present time, BrotherA FamilyCo's authorized share capital consists of XXXXXXXXXX Class A preference shares ("Class A shares"), XXXXXXXXXX Class B preference shares ("Class B shares") and an unlimited number of common shares. The holders of the Class A shares, Class B shares and common shares are entitled to XXXXXXXXXX in respect of each Class A share, Class B share or common share, respectively. The Class A shares and the Class B shares are redeemable and retractable for an amount equal to $XXXXXXXXXX and $XXXXXXXXXX per share, respectively. The current shareholders of BrotherA FamilyCo are summarized as follows:
Shareholder
Common
Shares
Class A
Shares
Class B
Shares
Total
Votes
BrotherACo
XXXXXXXX
XXXXXXXX
XXXXXXXX
BrotherA's Wife
XXXXXXXX
XXXXXXXX
The BrotherA Trust
XXXXXXXX
XXXXXXXX
The BrotherA's Wife Trust
XXXXXXXX
XXXXXXXX
Total
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
The above shares of BrotherA FamilyCo are held as capital property by each of the shareholders.
7. In XXXXXXXXXX, BrotherB completed an estate freeze at which time all of the existing common shares in the capital of BrotherB FamilyCo were converted into Class B shares (as hereafter defined) held by BrotherBCo and The BrotherB Trust and all of the new common shares of the BrotherB FamilyCo were issued to XXXXXXXXXX ("The BrotherB's Wife Trust"). The discretionary income beneficiaries of The BrotherB's Wife Trust are ChildB2, ChildB1 and their respective spouses and issue. The discretionary capital beneficiaries of The BrotherB's Wife Trust are ChildB2 and ChildB1 and their respective issue.
At the present time, BrotherB FamilyCo's authorized share capital consists of XXXXXXXXXX Class A preference shares ("Class A shares"), XXXXXXXXXX Class B preference shares ("Class B shares") and an unlimited number of common shares. The holders of the Class A shares, Class B shares and common shares are entitled to XXXXXXXXXX in respect of each Class A share, Class B share or common share, respectively. The Class A shares and the Class B shares are redeemable and retractable for an amount equal to $XXXXXXXXXX and $XXXXXXXXXX per share, respectively. The current shareholders of BrotherB FamilyCo are summarized as follows:
Shareholder
Common
Shares
Class A
Shares
Class B
Shares
Total
Votes
BrotherBCo
XXXXXXXX
XXXXXXXX
XXXXXXXX
The BrotherB Trust
XXXXXXXX
XXXXXXXX
The BrotherB's Wife Trust
XXXXXXXX
XXXXXXXX
Total
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
The above shares of BrotherB FamilyCo are held as capital property by each of the shareholders.
8. BrotherA, BrotherA's Wife, ChildA1 and ChildA2 are the trustees of both The BrotherA Trust and The BrotherA's Wife Trust and all such persons are resident in Canada for the purposes of the Act. In each case, decisions may be made by a majority of the trustees.
9. BrotherB, BrotherB's Wife, ChildB1 and ChildB2 are the trustees of both The BrotherB Trust and The BrotherB's Wife Trust and all such persons are resident in Canada for the purposes of the Act. In each case, decisions may be made by a majority of the trustees.
10. From time to time, BrotherA FamilyCo has redeemed certain of its issued Class A and Class B shares owned by BrotherACo and by BrotherA's Wife. The last such redemption occurred on XXXXXXXXXX, wherein BrotherA FamilyCo redeemed XXXXXXXXXX of its Class B shares held by BrotherACo for their aggregate redemption amount. The aggregate redemption price was paid in cash. None of the BrotherA FamilyCo shares owned by The BrotherA Trust or The BrotherA's Wife Trust have been redeemed, cancelled or transferred.
11. From time to time, BrotherB FamilyCo has redeemed certain of its issued Class A and Class B shares owned by BrotherBCo. The last such redemption occurred on XXXXXXXXXX, wherein BrotherB FamilyCo redeemed XXXXXXXXXX Class B shares for their aggregate redemption price. The aggregate redemption price was paid in cash. None of the shares owned by The BrotherB Trust or The BrotherB's Wife Trust have been redeemed, cancelled or transferred.
12. Prior to the Proposed Transactions described herein, BrotherA FamilyCo will redeem XXXXXXXXXX Class B shares held by BrotherACo and BrotherB FamilyCo will redeem XXXXXXXXXX Class B shares and 1 Class A share held by BrotherBCo for their respective redemption amounts. These redemptions, and those described in paragraphs 10 and 11 above, are part of ongoing redemptions that have taken place by each of BrotherA FamilyCo and BrotherB FamilyCo since the above noted XXXXXXXXXX estate freezes. Funds are distributed in this manner when it is the opinion of each company's management that they are surplus to Opco's immediate cash needs. Further, while the proposed redemptions described above are somewhat larger than those that have been carried out in the past, the increase is in recognition of the prospect that the diminished executive duties of BrotherA and BrotherB will result in a reduction of salary and remuneration earned from Opco once they retire. Accordingly, the above noted redemptions are not part of the series of transactions that includes the Proposed Transactions described below.
Canadian Operational Structure
13. XXXXXXXXXX.
14. XXXXXXXXXX.
15. XXXXXXXXXX.
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. Each of the taxable Canadian corporations described in paragraphs 13 to 17 above, other than XXXXXXXXXX, is a CCPC.
19. XXXXXXXXXX.
U.S. Corporate Structure
20. All operational interests of Opco in the United States of America ("U.S.") are held through a Canadian holding corporation known as XXXXXXXXXX all the shares of which are owned by Opco and which is a taxable Canadian corporation. XXXXXXXXXX owns XXXXXXXXXX% of a U.S. holding corporation known as XXXXXXXXXX.
21. XXXXXXXXXX.
22. XXXXXXXXXX.
23. XXXXXXXXXX.
24. XXXXXXXXXX.
25. XXXXXXXXXX.
26. XXXXXXXXXX.
XXXXXXXXXX.
27. XXXXXXXXXX.
28. XXXXXXXXXX.
29. XXXXXXXXXX.
30. XXXXXXXXXX.
31. XXXXXXXXXX.
32. XXXXXXXXXX.
33. XXXXXXXXXX.
34. XXXXXXXXXX.
35. XXXXXXXXXX.
36. XXXXXXXXXX.
37. XXXXXXXXXX.
38. XXXXXXXXXX.
39. XXXXXXXXXX.
40. Current senior management of Opco and of the businesses carried on by Opco's various operating corporations is provided by BrotherA, BrotherB, ChildA1, ChildB2, ChildB1, ChildA2 and XXXXXXXXXX. BrotherA is aged XXXXXXXXXX and BrotherB is aged XXXXXXXXXX and each would like to retire from the day-to-day management responsibilities of Opco.
41. ChildA1 has worked in the business since XXXXXXXXXX, ChildB2 since XXXXXXXXXX, ChildB1 since XXXXXXXXXX and ChildA2 since XXXXXXXXXX. Each of them has worked in executive positions and in recent years each has been assigned primary management and operational authority for specified operating corporations.
42. None of BrotherBCo, BrotherB FamilyCo, BrotherACo, BrotherA FamilyCo, Opco or any corporation to which any such corporation is related is, or will be, at any time during the implementation of the Proposed Transactions, an SFI.
43. None of BrotherBCo, BrotherB FamilyCo, BrotherACo, BrotherA FamilyCo or Opco has any outstanding tax liabilities that could be affected by the Proposed Transactions.
44. None of the shares of BrotherBCo, BrotherB FamilyCo, BrotherACo, BrotherA FamilyCo or Opco has been, 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 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); or
(c) the subject of a "dividend rental arrangement".
PROPOSED TRANSACTIONS
45. The following Proposed Transactions will be completed in the following order unless otherwise indicated.
Pre-Butterfly Transactions
46. BrotherA's Wife will transfer the XXXXXXXXXX Class B shares of BrotherA FamilyCo described in paragraph 6 above to BrotherACo and as sole consideration therefor, BrotherACo will issue XXXXXXXXXX Class A Special Shares to BrotherA's Wife. The Class A Special Shares issued by BrotherACo will have identical rights to those attaching to the transferred Class B shares of BrotherA FamilyCo except that they will be non-voting. Accordingly, the XXXXXXXXXX Class A Special Shares of BrotherACo will have an aggregate FMV and aggregate redemption amount equal to the aggregate FMV and aggregate redemption amount of the Class B shares of BrotherA FamilyCo so transferred. BrotherA's Wife and BrotherACo will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of such transfer. The agreed amount for purposes of the election will be equal to the aggregate ACB of the XXXXXXXXXX Class B shares of Brother A FamilyCo to BrotherA's Wife immediately before the transfer and for greater certainty, such agreed amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
The amount to be added to the stated capital account maintained for the Class A Special Shares that will be issued by BrotherACo as consideration for the Class B shares of BrotherA FamilyCo transferred to BrotherACo, as described above, under the XXXXXXXXXX will not exceed the amount that is determined as B for the purposes of paragraph 84.1(1)(a).
47. The assets of The BrotherA Trust (consisting almost exclusively of XXXXXXXXXX Class B shares of BrotherA FamilyCo described in paragraph 6 above) and the assets of The BrotherA's Wife Trust (consisting almost exclusively of XXXXXXXXXX common shares in the capital of BrotherA FamilyCo described in paragraph 6 above) will be distributed equally in accordance with the terms of the respective trusts and in satisfaction of ChildA1's and ChildA2's capital interest in each such trust, to ChildA1 and ChildA2, such that ChildA1 will become the registered beneficial owner of XXXXXXXXXX Class B shares and XXXXXXXXXX common shares of BrotherA FamilyCo and ChildA2 will become the registered and beneficial owner of XXXXXXXXXX Class B shares and XXXXXXXXXX common shares of BrotherA FamilyCo. None of the main purposes of the distribution of the shares owned by each such trust will be to cause two or more persons to be related to each other or to cause one corporation to control another corporation.
48. The assets of The BrotherB Trust (consisting almost exclusively of XXXXXXXXXX Class B shares in the BrotherB FamilyCo described in paragraph 7 above) and the assets of The BrotherB's Wife Trust (consisting almost exclusively of XXXXXXXXXX common shares in the capital of BrotherB FamilyCo described in paragraph 7 above) will be distributed equally, in accordance with their respective terms and in satisfaction of ChildB1's and ChildB2's capital interest in each such trust, to ChildB1 and ChildB2, such that ChildB1 will become the registered and beneficial owner of XXXXXXXXXX Class B shares and XXXXXXXXXX common shares of BrotherB FamilyCo and ChildB2 will become the registered and beneficial owner of XXXXXXXXXX Class B shares and XXXXXXXXXX common shares of BrotherB FamilyCo. None of the main purposes of the distribution of the shares owned by each such trust will be to cause two or more persons to be related to each other or to cause one corporation to control another corporation.
Butterfly Transactions - Opco
49. Opco will transfer all its property to two new subsidiary wholly-owned corporations, Holdco and New Opco (as hereafter defined), by undertaking the following transactions:
(a) Opco will incorporate a new subsidiary wholly-owned corporation ("Holdco") under the XXXXXXXXXX. Holdco's authorized share capital will consist solely of common shares.
(b) Opco will transfer all of its shares of XXXXXXXXXX to Holdco and as consideration therefor, Holdco may assume some liabilities of Opco and will issue a number of common shares to Opco that have a FMV equal to the aggregate FMV of such transferred property less the aggregate amount of any liabilities so assumed. Opco may also transfer a certain amount of cash and real property to Holdco and as consideration therefor, Holdco may assume some liabilities of Opco and will issue a number of common shares to Opco that have a FMV equal to the aggregate FMV of such transferred property less the aggregate amount of any liabilities so assumed. Where such transferred property is eligible property (including, for greater certainty, the shares of XXXXXXXXXX), Opco and Holdco will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6). The agreed amount for purposes of each election will be equal to the cost amount to Opco of the particular transferred property immediately before such transfer such that the agreed amount in each joint 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;
(ii) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(iii) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of each election, no portion of Opco's liabilities assumed by Holdco will be treated as being assumed in consideration for the transfer of a particular property to the extent that the principal amount of such liabilities assumed by Holdco would exceed the agreed amount under subsection 85(1) in respect of that transfer.
The amount to be added to the stated capital account maintained for the common shares that will be issued by Holdco as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to Holdco of such transferred property (as determined under subsection 85(1) where relevant) immediately after their acquisition exceeds the aggregate amount of any liabilities assumed by Holdco in respect of such transfers. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
(c) XXXXXXXXXX will distribute XXXXXXXXXX% of the shares of XXXXXXXXXX to XXXXXXXXXX either as payment of a dividend or repayment of outstanding intercompany loan or a combination thereof.
(d) XXXXXXXXXX will transfer all of the shares of XXXXXXXXXX to Holdco and as sole consideration therefor, Holdco will issue a number of common shares to XXXXXXXXXX that have a FMV equal to the aggregate FMV of such transferred property. XXXXXXXXXX and Holdco will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6). The agreed amount for purposes of each election will be equal to XXXXXXXXXX ACB of the transferred shares immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
The amount to be added to the stated capital account maintained for the common shares that will be issued as consideration by Holdco for the transferred property, as described above, under the XXXXXXXXXX will not exceed the aggregate cost amounts to Holdco (as determined under subsection 85(1)) of the transferred property immediately after their acquisition. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
(e) XXXXXXXXXX will incorporate a new subsidiary wholly-owned corporation ("New XXXXXXXXXX") under the XXXXXXXXXX.
(f) XXXXXXXXXX will transfer all of its property (other than the shares of Holdco and XXXXXXXXXX) to New XXXXXXXXXX and as consideration therefor, New XXXXXXXXXX will assume all of XXXXXXXXXX liabilities and issue a number of common shares of New XXXXXXXXXX to XXXXXXXXXX that have a FMV equal to the aggregate FMV of such transferred property less any liabilities assumed by it. Where such transferred property is eligible property, XXXXXXXXXX and New XXXXXXXXXX will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6). The agreed amount for purposes of each election will be equal to the cost amount to XXXXXXXXXX of the particular transferred property immediately before such transfer such that the agreed amount in each joint 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;
(ii) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(iii) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of each election, no portion of XXXXXXXXXX liabilities assumed by New XXXXXXXXXX will be treated as being assumed in consideration for the transfer of a particular property to the extent that the principal amount of such liabilities assumed by New XXXXXXXXXX would exceed the agreed amount under subsection 85(1) in respect of that transfer.
The amount to be added to the stated capital account maintained for the common shares that will be issued by New XXXXXXXXXX as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to New XXXXXXXXXX of such transferred property (as determined under subsection 85(1) where relevant) immediately after their acquisition exceeds the aggregate amount of any liabilities assumed by New XXXXXXXXXX in respect of such transfers. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
(g) XXXXXXXXXX will be wound-up into Opco in the course of which XXXXXXXXXX property consisting solely of the shares of Holdco, New XXXXXXXXXX and XXXXXXXXXX will be distributed to Opco.
(h) Holdco will invest directly in common shares of XXXXXXXXXX that will give it a XXXXXXXXXX% equity interest in XXXXXXXXXX.
(i) Opco will transfer all of its shares of XXXXXXXXXX to XXXXXXXXXX and as sole consideration therefor, XXXXXXXXXX will issue a number of common shares of XXXXXXXXXX to Opco that have a FMV equal to the aggregate FMV of such transferred property. Opco and XXXXXXXXXX will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6). The agreed amount for purposes of each election will be equal to Opco's ACB of the transferred shares immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
The amount to be added to the stated capital account maintained for the common shares that will be issued by XXXXXXXXXX as consideration for the shares of XXXXXXXXXX transferred to it, as described above, under the XXXXXXXXXX will not exceed the cost amount to XXXXXXXXXX of such transferred shares (as determined under subsection 85(1)) immediately after their acquisition. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
(j) Opco will incorporate another new subsidiary wholly-owned corporation ("New Opco") under the XXXXXXXXXX. New Opco's authorized share capital will consist solely of common shares.
(k) Opco will transfer all of its property, other than the common shares of Holdco, to New Opco and as consideration therefor, New Opco may assume some liabilities of Opco and will issue XXXXXXXXXX common shares of New Opco to Opco that have a FMV equal to the aggregate FMV of such transferred property less the aggregate amount of any liabilities so assumed. Where such transferred property is eligible property, Opco and New Opco will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6). The agreed amount for purposes of each election will be equal to the cost amount to Opco of the transferred property immediately before such transfer such that the agreed amount in each joint 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;
(ii) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(iii) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of each election, no portion of Opco's liabilities assumed by New Opco will be treated as being assumed in consideration for the transfer of a particular property to the extent that the principal amount of such liabilities assumed by New Opco would exceed the agreed amount under section 85(1) in respect of that transfer.
The amount to be added to the stated capital account maintained for the common shares that will be issued by New Opco as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to New Opco (as determined under subsection 85(1) where relevant) of the transferred property immediately after their acquisition exceeds the aggregate amount of any liabilities assumed by New Opco in respect of such transfers. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
50. BrotherA FamilyCo will incorporate a new corporation under the XXXXXXXXXX ("AF Subco"). The authorized share capital will consist of a class of redeemable and retractable preferred shares (the "AF Subco Class A Special Shares") and an unlimited number of common shares. The AF Subco Class A Special Shares will be non-voting. The holder of each AF Subco common share will be entitled to one (1) vote per share. The AF Subco Class A Special Shares will be redeemable and retractable for an amount (the "AF Subco Class A Redemption Amount") equal to the FMV of the consideration received by AF Subco upon the issuance of such shares. The holders of the AF Subco Class A Special 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 AF Subco Class A Redemption Amount. The AF Subco Class A Special Shares will rank in priority to any other shares issued by AF Subco on the dissolution or winding-up of AF Subco up to the extent of the aggregate AF Subco Class A Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the AF Subco Class A Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of AF Subco to an amount that is less than the aggregate AF Subco Class A Redemption Amount.
BrotherA FamilyCo will subscribe for one (1) common share of AF Subco for cash equal to $XXXXXXXXXX
51. BrotherB FamilyCo will incorporate a new corporation under the XXXXXXXXXX ("BF Subco"). The authorized share capital will consist of a class of redeemable and retractable preferred shares (the "BF Subco Class A Special Shares") and an unlimited number of common shares. The BF Subco Class A Special Shares will be non-voting. The holder of each BF Subco common share will be entitled to one (1) vote per share. The BF Subco Class A Special Shares will be redeemable and retractable for an amount (the "BF Subco Class A Redemption Amount") equal to the FMV of the consideration received by BF Subco upon the issuance of such shares. The holders of the BF Subco Class A Special 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 BF Subco Class A Redemption Amount. The BF Subco Class A Special Shares will rank in priority to any other shares issued by BF Subco on the dissolution or winding-up of BF Subco up to the extent of the aggregate BF Subco Class A Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the BF Subco Class A Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of BF Subco to an amount that is less than the aggregate BF Subco Class A Redemption Amount.
BrotherB FamilyCo will subscribe for one (1) common share of BF Subco for cash equal to $XXXXXXXXXX
52. Immediately before the transfer of property described in paragraph 54 below, the property owned by Opco will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which Opco has the ability to exercise significant influence (Opco and such corporations being referred to in this paragraph and paragraph 53 below as the "Opco Group") and all such property will be classified into the following three types of property for purposes of the definition of "distribution" in subsection 55(1) as follows:
(a) cash or near cash property, comprising all of the current assets of the Opco Group, including any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses;
(b) investment property, comprising all of the assets of the Opco Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of the Opco Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from a business (other than a SIB) carried on by the Opco Group including goodwill and other intangible assets relating to such businesses.
For the purposes of this letter, Opco will be considered to have significant influence over a corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation and for greater certainty:
(d) the FMV of any shares of a particular corporation over which Opco has the ability to exercise significant influence and of any indebtedness receivable by Opco from such a corporation will be allocated among the three (3) types of property described above by multiplying the FMV of the shares of the particular corporation or amount of indebtedness receivable from the particular corporation, as the case may be, by the proportion that the net FMV of each type of property owned by the particular corporation (as determined in this paragraph and paragraph 53 below) is of the total net FMV of all the property owned by the particular corporation;
(e) the shares of the U.S. corporation owned by Opco described in paragraph 19 above will be classified as business property since the investment in such shares was made as a pre-condition to the formation of the strategic alliance in developing the new technology described in paragraph 19 above;
(f) the XXXXXXXXXX real property owned by Opco and XXXXXXXXXX described in paragraph 13 above will be classified as business property since they are either currently leased, or planning to be leased to, wholly-owned or partly owned corporations for industrial purposes;
(g) to the extent a portion of the cash or near cash property of the Opco Group is committed by the Opco Group in order to fund the acquisition of a business property (that is to be acquired regardless of the Proposed Transactions), such cash or near cash property will be classified as business property;
(h) any tax accounts of the Opco Group will not be considered property for these purposes; and
(i) deferred revenue represents revenue received or receivable in the ordinary course of Opco Group's business, the recognition of which has been deferred due to the legal obligation of Opco Group to render services from which such revenues were received pursuant to the contract. Deferred revenue is considered as a liability for the purposes of the Proposed Transactions to the extent that the amount of such deferred revenue gives rise to a legal obligation to repay such amount should the services not be provided.
53. In determining, on a consolidated look-through basis, the net FMV of Opco's cash or near cash property, investment property and business property immediately before the transfers of property described in paragraph 54 below, the liabilities of Opco and any corporation over which Opco has the ability to exercise significant influence will be allocated to, and be deducted in the calculation of the net FMV of, each such type of property of Opco or such corporation, as the case may be, in the following manner:
(a) in determining, immediately before the transfer described in paragraph 54 below, the net FMV of each type of property of a corporation over which Opco has the ability to exercise significant influence, the liabilities of that corporation (other than any amount owing by such corporation to Opco) will be allocated to, and be deducted in the calculation of, the net FMV of a type of property of that particular corporation in the following manner:
(i) current liabilities of such corporation will be allocated to the cash or near cash property (any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses) of such corporation in the proportion that the FMV of each such property is of the FMV of all cash or near cash property owned by that corporation. To the extent that the total current liabilities so allocated exceed the total FMV of all cash or near cash property of that particular corporation, such corporation will be considered to have a negative amount of cash or near cash property;
(ii) provided that the amount of such corporation's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses of such corporation that are initially classified in accordance with subparagraph (a)(i) above as cash or near cash property that will relate to a business that will be carried on by such corporation or BrotherA FamilyCo and any corporation over which BrotherA FamilyCo has the ability to exercise significant influence (herein referred to as the "BrotherA FamilyCo Group") or BrotherB FamilyCo and any corporation over which the BrotherB FamilyCo has the ability to exercise significant influence (herein referred to as the "BrotherB FamilyCo Group") and that will be collected or consumed in the ordinary course of such business, will then be reclassified as business property and the net FMV thereof, determined after the allocation described in (a)(i) herein will be included in the net FMV of such corporation's business property and will not be included in the net FMV of such corporation's cash or near cash property;
(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property, will then be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a type of property as described herein exceeds the aggregate FMV of all the particular type of property of such corporation, such corporation will be considered to have a negative amount of that type of property; and
(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, investment property and business property of such corporation based on the relative net FMV of each type of property prior to the allocation of such liabilities but after the allocation of the liabilities described in subparagraphs (a)(i) and (a)(iii) above. However, where a corporation is considered to have a negative amount of a type of property because of subparagraphs (a)(i) or (a)(iii) above, for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property; and
(b) in determining, on a consolidated look-through basis, the net FMV of each type of property of Opco immediately before the transfer of property described in paragraph 54 below, Opco will include the appropriate pro-rata share of the net FMV of each type of property of any corporation over which Opco has the ability to exercise significant influence and, for greater certainty the appropriate negative amount of such types of property of such corporation, as determined in accordance with subparagraph (a) herein, and any liabilities of Opco, will then be allocated to, and be deducted in the calculation of, the net FMV of each type of property of Opco in the following manner:
(i) current liabilities of Opco will be allocated to the cash or near cash property (any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses) of Opco in the proportion that the FMV of each such property is of the FMV of all cash or near cash property of Opco. The allocation of current liabilities as described herein will not exceed the aggregate FMV of the cash or near cash property of Opco;
(ii) provided that the amount of Opco's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses of Opco's that are initially classified in accordance with subparagraph (b)(i) above as cash or near cash property that will relate to a business that will be carried on by the BrotherA FamilyCo Group or the BrotherB FamilyCo Group and that will be collected or consumed in the ordinary course of such business, will then be reclassified as business property and the net FMV thereof, determined after the allocation described in (b)(i) above will be included in the net FMV of Opco's business property and will not be included in the net FMV of Opco's cash or near cash property;
(iii) liabilities, other than current liabilities, of Opco that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and
(iv) if any liabilities remain after the allocations described in subparagraphs (b)(i) and (b)(iii) above are made ("excess Opco unallocated liabilities"), such excess Opco unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of Opco based on the relative net FMV of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in subparagraphs (b)(i) and (b)(iii) above.
54. Following the determination of the net FMV of Opco's cash or near cash property, business property and investment property, as described in paragraphs 52 and 53 above, Opco will transfer: all of its shares of Holdco and XXXXXXXXXX common shares of New Opco to AF Subco; and XXXXXXXXXX common shares of New Opco to BF Subco; such that, immediately after these transfers, the net FMV of each type of property so transferred to each of AF Subco and BF Subco (after allocating and deducting, in the manner described in paragraph 53, the liabilities of Opco which are to be assumed by AF Subco and BF Subco as described herein) will approximate that proportion of the net FMV of all property of Opco of that type determined immediately before such transfer that:
(a) the aggregate FMV, immediately before the transfer, of all of the shares of the capital stock of Opco held by BrotherA FamilyCo or BrotherB FamilyCo, as the case may be, at that time,
is of
(b) the aggregate FMV, immediately before the transfer, of all the issued and outstanding shares of the capital stock of Opco at that time.
For the purpose of this paragraph the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the net FMV of each type of property which AF Subco or BF Subco has received as compared to what AF Subco or BF Subco would have received had it received its appropriate pro-rata share of the net FMV of that type of property.
As consideration for the transfers of property described herein, each of AF Subco and BF Subco may assume certain liabilities of Opco and AF Subco will issue XXXXXXXXXX AF Subco Class A Special Shares to Opco that have a FMV equal to the aggregate FMV of such property transferred to it less the aggregate amount of any Opco liabilities assumed by AF Subco and BF Subco will issue XXXXXXXXXX BF Subco Class A Special Shares to Opco that have a FMV equal to the aggregate FMV of such property transferred to it less the aggregate amount of any Opco liabilities assumed by BF Subco. The XXXXXXXXXX AF Subco Class A Special Shares and XXXXXXXXXX BF Subco Class A Special Shares will be capital property to Opco.
In respect of the transfers described herein, Opco will jointly elect with each of AF Subco and BF Subco under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of the property transferred to AF Subco or BF Subco, as the case may be. The agreed amount for purposes of each election will be equal to the cost amount to Opco of the transferred property immediately before such transfer such that the agreed amount in each joint election will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of each election, no portion of Opco's liabilities assumed by AF Subco or BF Subco, as the case may be, will be treated as being assumed in consideration for the transfer of a particular property to the extent that the principal amount of such liabilities assumed by AF Subco or BF Subco, as the case may be, would exceed the agreed amount under subsection 85(1) in respect of that transfer.
The amount to be added to the stated capital account maintained for the AF Subco Class A Special Shares that will be issued by AF Subco as consideration for the property transferred to it, as described above, under the XXXXXXXXXX; and the amount to be added to the stated capital account maintained for the BF Subco Class A Special Shares that will be issued by BF Subco as consideration for the property transferred to it, as described above, under the XXXXXXXXXX; will not exceed the amount by which the aggregate cost amounts (as determined under subsection 85(1) where relevant) to AF Subco or BF Subco, as the case may be, of the transferred property immediately after such transferred property is acquired by AF Subco or BF Subco, as the case may be, exceeds the amount of any liabilities assumed by such corporation in respect of such transfer. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
55. AF Subco will redeem the AF Subco Class A Special Shares held by Opco at the aggregate AF Subco Class A Redemption Amount. In consideration therefor, AF Subco will issue a non-interest-bearing demand promissory note (the "AF Subco Note") having a principal amount and FMV equal to the aggregate AF Subco Class A Redemption Amount of the AF Subco Class A Special Shares so redeemed. Opco will accept the note as full payment for the redemption price of the AF Subco Class A Special Shares so redeemed. AF Subco will then be wound-up into BrotherA FamilyCo and as a consequence, all of AF Subco's property will be transferred to BrotherA FamilyCo and BrotherA FamilyCo will assume AF Subco's liabilities including the AF Subco Note.
BF Subco will redeem the BF Subco Class A Special Shares held by Opco at the aggregate BF Subco Class A Redemption Amount. In consideration therefor, BF Subco will issue a non-interest-bearing demand promissory note (the "BF Subco Note") having a principal amount and FMV equal to the aggregate BF Subco Class A Redemption Amount of the BF Subco Class A Special Shares so redeemed. Opco will accept the note as full payment for the redemption price of the BF Subco Class A Special Shares so redeemed. BF Subco will be wound-up into BrotherB FamilyCo and as a consequence, BF Subco's assets will be transferred to BrotherB FamilyCo and BrotherB FamilyCo will assume BF Subco's liabilities including the BF Subco Note.
56. Immediately after the transactions described in paragraph 55 above, the shareholders of Opco will, by special resolution, resolve to liquidate and dissolve Opco under the applicable provisions of the XXXXXXXXXX. No agreement or resolution relating to the winding-up of Opco or the distribution of its property will provide for the cancellation of any shares of Opco. In connection with the winding-up of Opco, Opco will distribute the AF Subco Note to BrotherA FamilyCo and the BF Subco Note to BrotherB FamilyCo. As a result of the assignment and distribution of the notes, the obligations under each such note will be cancelled. Once all properties and liabilities of Opco will have been distributed or discharged, Articles of Dissolution will be executed and filed with the appropriate corporate registry. Upon receipt of the Certificate of Dissolution, Opco will be dissolved.
Butterfly Transactions - BrotherA FamilyCo
57. ChildA1 will incorporate a new corporation ("ChildA1Co") under the XXXXXXXXXX. The authorized share capital of ChildA1Co will consist of two classes of redeemable and retractable preferred shares (the "ChildA1Co Class A Special Shares" and the "ChildA1Co Class B Special Shares") and an unlimited number of common shares. The holder of each ChildA1Co Class A Special Share or common share will be entitled to one (1) vote per share. The ChildA1Co Class B Special Shares will be non-voting. Each class of the ChildA1Co Special Shares will be redeemable and retractable for an amount (the "ChildA1Co Class A Redemption Amount" and the "ChildA1Co Class B Redemption Amount", respectively, and collectively, the "ChildA1Co Special Share Redemption Amount") equal to the FMV of the consideration received by ChildA1Co upon the issuance of such class of shares. A holder of a ChildA1Co Special 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 their respective ChildA1Co Class A Redemption Amount. The ChildA1Co Special Shares will rank in priority to any other shares issued by ChildA1Co on the dissolution or winding-up of ChildA1Co up to the extent of the ChildA1Co Special Share Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the ChildA1Co Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of ChildA1Co to an amount less than the aggregate of the ChildA1Co Special Share Redemption Amount on such outstanding shares at that time.
ChildA1Co will incorporate a new corporation under the XXXXXXXXXX ("ChildA1 Subco"). The authorized share capital will consist of a class of redeemable and retractable preferred shares (the "ChildA1 Subco Class A Special Shares") and an unlimited number of common shares. The ChildA1 Subco Class A Special Shares will be non-voting. The holder of each ChildA1 Subco common share will be entitled to one (1) vote per share. The ChildA1 Subco Class A Special Shares will be redeemable and retractable for an amount (the "ChildA1 Subco Class A Redemption Amount") equal to the FMV of the consideration received by ChildA1 Subco upon the issuance of the shares. A holder of a ChildA1 Subco Class A Special 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 their respective ChildA1 Subco Class A Redemption Amount. The ChildA1 Subco Class A Special Shares will rank in priority to any other shares issued by ChildA1 Subco on the dissolution or winding-up of ChildA1 Subco up to the extent of their aggregate ChildA1 Subco Class A Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the ChildA1 Subco Class A Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of ChildA1 Subco to an amount less than the aggregate ChildA1 Subco Class A Redemption Amounts on such outstanding shares at that time.
ChildA1Co will subscribe for 1 common share of ChildA1 Subco for cash equal to $XXXXXXXXXX
58. BrotherACo will incorporate a new corporation under the XXXXXXXXXX ("BrotherA Subco"). The authorized share capital will consist of an unlimited number of common shares. The holder of each BrotherA Subco common share will be entitled to one (1) vote per share.
BrotherACo will transfer XXXXXXXXXX% of its Class A shares (XXXXXXXXXX ) and XXXXXXXXXX% of its Class B shares (XXXXXXXXXX) of BrotherA FamilyCo to BrotherA Subco and as sole consideration therefor, BrotherA Subco will issue XXXXXXXXXX common shares of BrotherA Subco to BrotherACo that have a FMV equal to the aggregate FMV of such transferred property. BrotherACo and BrotherA Subco will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of the BrotherA FamilyCo shares transferred to BrotherA Subco. The agreed amount for purposes of each election will be equal to BrotherACo's ACB of the transferred shares immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX common shares of BrotherA Subco will be capital property to BrotherACo.
The amount to be added to the stated capital account maintained for the common shares that will be issued by BrotherA Subco as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the aggregate cost amounts to BrotherA Subco (as determined under subsection 85(1)) of such transferred property immediately after their acquisition. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
59. BrotherA Subco will transfer all of its Class A shares (XXXXXXXXXX) and Class B shares (XXXXXXXXXX) of BrotherA FamilyCo to ChildA1Co and as sole consideration therefor, ChildA1Co will issue XXXXXXXXXX ChildA1Co Class A Special Shares and XXXXXXXXXX ChildA1Co Class B Special Shares to BrotherA Subco, that each have an aggregate FMV equal to the aggregate FMV of such transferred property. BrotherA Subco and ChildA1Co will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of each of these transfers. The agreed amount for purposes of each election for each transfer will be equal to the ACB to BrotherA Subco of the particular class of BrotherA FamilyCo shares to BrotherA Subco immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX ChildA1Co Class A Special Shares and XXXXXXXXXX ChildA1Co Class B Special Shares of ChildA1Co will be capital property to BrotherA Subco.
The aggregate amount to be added to the stated capital accounts maintained for the ChildA1Co Class A Special Shares and ChildA1Co Class B Special Shares that will be issued by ChildA1Co as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to ChildA1Co (as determined under subsection 85(1)) of such transferred shares immediately after their acquisition. For greater certainty, the stated capital addition of the ChildA1Co Class A Special Shares and ChildA1Co Class B Special Shares, as the case may be, will not exceed the maximum amount that could be added to the PUC of such class of shares, having regard to subsection 85(2.1).
60. ChildA1 will transfer his XXXXXXXXXX common shares and XXXXXXXXXX Class B shares in the capital of BrotherA FamilyCo to ChildA1Co and as sole consideration therefor, ChildA1Co will issue XXXXXXXXXX common shares of ChildA1Co that have a FMV equal to the aggregate FMV of such transferred property. As a result, ChildA1 will own shares carrying more than XXXXXXXXXX % of the total votes attaching to all outstanding shares of ChildA1Co. ChildA1 and ChildA1Co will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of such transfer. The agreed amount for purposes of each election will be equal to the ACB to ChildA1 of the transferred shares immediately before such transfer and for greater certainty such agreed amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX common shares of ChildA1Co will be capital property to ChildA1.
The amount to be added to the stated capital account maintained for the common shares that will be issued by ChildA1Co as consideration for the transferred shares, as described above, under the XXXXXXXXXX will not exceed the amount that is determined as B for the purposes of paragraph 84.1(1)(a).
61. Immediately before the transfer of property described in paragraph 63 below, the property owned by BrotherA FamilyCo will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which BrotherA FamilyCo has the ability to exercise significant influence (BrotherA FamilyCo and such corporations being referred to in this paragraph and paragraph 62 as the "BrotherA FamilyCo Group") and all such property will be classified into the following three types of property for purposes of the definition of "distribution" in subsection 55(1) as follows:
(a) cash or near cash property, comprising all of the current assets of the BrotherA FamilyCo Group, including any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses;
(b) investment property, comprising all of the assets of the BrotherA FamilyCo Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of the BrotherA FamilyCo Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from a business (other than a SIB) carried on by the BrotherA FamilyCo Group including goodwill and other intangible assets relating to such businesses.
For the purposes of this letter, BrotherA FamilyCo will be considered to have significant influence over a corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation and for greater certainty:
(d) the FMV of the shares of a particular corporation over which BrotherA FamilyCo has the ability to exercise significant influence and of any indebtedness receivable by BrotherA FamilyCo from such a corporation will be allocated among the above three (3) types of property by multiplying the FMV of the shares of the particular corporation or amount receivable from the particular corporation, as the case may be, by the proportion that the net FMV of each type of property owned by the particular corporation (as determined in this paragraph and paragraph 62 below) is of the total net FMV of all the property owned by the particular corporation;
(e) the property that was classified as business property of Opco as described in paragraphs 52(e) and (f) above for the purposes of the distribution described in paragraph 54 above will be classified as business property of BrotherA FamilyCo to the extent that such property was acquired by BrotherA FamilyCo Group on the distribution described in paragraph 54 and provided such property will be held by BrotherA FamilyCo Group under the conditions described in paragraphs 52(e) and (f) above;
(f) to the extent a portion of the cash or near cash property of the BrotherA FamilyCo Group is committed by the BrotherA FamilyCo Group in order to fund the acquisition of business property (that is to be acquired regardless of the Proposed Transactions), such cash or near cash property will be classified as business property;
(g) any tax accounts of the BrotherA FamilyCo Group will not be considered property for these purposes; and
(h) deferred revenue represents revenue received or receivable in the ordinary course of BrotherA FamilyCo Group's business, the recognition of which has been deferred due to the legal obligation of BrotherA FamilyCo Group to render services from which such revenues were received pursuant to the contract. Deferred revenue is considered as a liability for the purposes of the Proposed Transactions described herein to the extent that the amount of such deferred revenue gives rise to a legal obligation to repay such amount should the services not be provided.
62. In determining, on a consolidated look-through basis, the net FMV of BrotherA FamilyCo's cash or near cash property, investment property and business property immediately before the transfers of property described in paragraph 63 below, the liabilities of BrotherA FamilyCo and any corporation over which BrotherA FamilyCo has the ability to exercise significant influence will be allocated to, and be deducted in the calculation of, the net FMV of each such type of property of BrotherA FamilyCo or such corporation, as the case may be, in the following manner:
(a) in determining, immediately before the transfer described in paragraph 63, the net FMV of each type of property of a corporation over which BrotherA FamilyCo has the ability to exercise significant influence, the liabilities of that corporation (other than any amount owing by such corporation to BrotherA FamilyCo) will be allocated to, and be deducted in the calculation of, the net FMV of a type of property of that particular corporation in the following manner:
(i) current liabilities of such corporation will be allocated to the cash or near cash property (including cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses) of such corporation in the proportion that the FMV of each such property is of the FMV of all cash or near cash property owned by that corporation. To the extent that the total current liabilities so allocated exceed the total FMV of all cash or near cash property of that particular corporation it will be considered to have a negative amount of cash or near cash property;
(ii) provided that the amount of such corporation's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses of the particular corporation that are initially classified in accordance with subparagraph (a)(i) above as cash or near cash property that will relate to a business that will be carried on by such corporation or ChildA1Co and any corporation over which ChildA1Co has the ability to exercise significant influence (herein referred to as the "ChildA1Co Group") and that will be collected or consumed in the ordinary course of that business will then be reclassified as business property where the net FMV thereof, determined after the allocation described in subparagraph (a)(i) above will be included in the net FMV of such corporation's business property and will not be included in the net FMV of such corporation's cash or near cash property;
(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a type of property as described herein exceeds the total FMV of that type of property of such corporation, such corporation will be considered to have a negative amount of that type of property; and
(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, investment property and business property of such corporation based on the relative net FMV of each type of property prior to the allocation of such liabilities but after the allocation of the liabilities described in subparagraphs (a)(i) or (a)(iii) above. However, where a corporation is considered to have a negative amount of a type of property because of subparagraphs (a)(i) or (a)(iii) above, for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property; and
(b) in determining, on a consolidated look-through basis, the net FMV of each type of property of BrotherA FamilyCo immediately before the transfer of property described in paragraph 63, BrotherA FamilyCo will include the appropriate pro-rata share of the net FMV of each type of property of any corporation over which BrotherA FamilyCo has the ability to exercise significant influence and, for greater certainty the appropriate negative amount of such types of property of such corporation, as determined in accordance with subparagraph (a) herein, and any liabilities of BrotherA FamilyCo will then be allocated to, and be deducted in the calculation of, the net FMV of each type of property of BrotherA FamilyCo in the following manner:
(i) current liabilities of BrotherA FamilyCo will be allocated to the cash or near cash property of BrotherA FamilyCo in the proportion that the FMV of each such property is of the FMV of all cash or near cash property of BrotherA FamilyCo. The allocation of current liabilities as described herein will not, however, exceed the aggregate FMV of the cash or near cash property of BrotherA FamilyCo;
(ii) provided that the amount of BrotherA FamilyCo's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses that are initially classified in accordance with the subparagraph (b)(i) above as cash or near cash property that will relate to a business that will be carried on by such corporation or any corporation included in the BrotherA FamilyCo Group or the ChildA1Co Group and that will be collected or consumed in the ordinary course of that business, will then be reclassified as business property and the net FMV thereof, determined after the allocation described in (b)(i) above will be included in the net FMV of BrotherA FamilyCo's business property and will not be included in the net FMV of BrotherA FamilyCo's cash or near cash property;
(iii) liabilities, other than current liabilities, of BrotherA FamilyCo that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and
(iv) if any liabilities remain after the allocations described in subparagraphs (b)(i) and (b)(iii) above are made ("excess BrotherA FamilyCo unallocated liabilities"), such excess BrotherA FamilyCo unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of BrotherA FamilyCo based on the relative net FMV of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in subsections (b)(i) and (b)(iii) above.
63. Following the determination of the net FMV of BrotherA FamilyCo's cash or near cash property, business property and investment property, as described in paragraphs 61 and 62, BrotherA FamilyCo will transfer all of its common shares of Holdco and such other property to ChildA1 Subco such that, immediately after the transfer, the net FMV of each type of property so transferred to ChildA1 Subco (after allocating and deducting, in the manner described in paragraph 62, the liabilities of BrotherA FamilyCo which are to be assumed by ChildA1 Subco as described herein) will approximate that proportion of the net FMV of all property of BrotherA FamilyCo of that type determined immediately before such transfer that:
(a) the aggregate FMV, immediately before the transfer, of all of the shares of the capital stock of BrotherA FamilyCo held by ChildA1Co at that time,
is of
(b) the aggregate FMV, immediately before the transfer, of all the issued and outstanding shares of the capital stock of BrotherA FamilyCo at that time.
For the purpose of this paragraph the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the net FMV of each type of property which ChildA1 Subco has received (or BrotherA FamilyCo has retained) as compared to what ChildA1 Subco would have received (or BrotherA FamilyCo would have retained) had it received (or retained) its appropriate pro-rata share of the net FMV of that type of property.
As consideration for the transfers of property described herein, ChildA1 Subco may assume certain liabilities of BrotherA FamilyCo and will issue XXXXXXXXXX ChildA1 Subco Class A Special Shares to BrotherA FamilyCo that have a FMV equal to the aggregate FMV of such transferred property to ChildA1 Subco less the aggregate amount of any liabilities so assumed. The XXXXXXXXXX ChildA1 Subco Class A Special Shares issued to BrotherA FamilyCo will be held as capital property by BrotherA FamilyCo.
In respect of the transfers of property described herein, BrotherA FamilyCo and ChildA1 Subco will, where such property is an eligible property, jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of such property (including the Holdco shares) transferred to ChildA1 Subco. The agreed amount for purposes of each election will be equal to the cost amount to BrotherA FamilyCo of such transferred property immediately before such transfer and for greater certainty such agreed amount will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(b) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of the election, no portion of BrotherA FamilyCo's liabilities assumed by ChildA1 Subco will be treated as being assumed in consideration for the transfer of a particular property to the extent that the principal amount of any liabilities assumed by ChildA1 Subco would exceed the agreed amount under subsection 85(1) in respect of such transfer.
The amount to be added to the stated capital account maintained for the ChildA1 Subco Class A Special Shares that will be issued by ChildA1 Subco as consideration for the transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to ChildA1 Subco (as determined under subsection 85(1) where relevant) of such transferred property immediately after its acquisition exceeds the aggregate amount of any liabilities assumed by ChildA1 Subco in respect of such transfers. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
64. ChildA1 Subco will redeem the ChildA1 Subco Class A Special Shares held by BrotherA FamilyCo at the ChildA1 Subco Class A Redemption Amount. In consideration therefor, ChildA1 Subco will issue a non-interest-bearing demand promissory note (the "ChildA1 Subco Note") having a principal amount and FMV equal to the aggregate ChildA1 Subco Class A Special Share Redemption Amount. BrotherA FamilyCo will accept the ChildA1 Subco Note as full payment for the redemption price of the shares so redeemed. ChildA1 Subco will be wound-up into ChildA1Co and as a consequence, ChildA1 Subco's property will be transferred to ChildA1Co and ChildA1Co will assume ChildA1 Subco's liabilities including the ChildA1 Subco Note.
65. Immediately after the transactions described in paragraph 64 above, BrotherA FamilyCo will redeem the Class A and the Class B shares of BrotherA FamilyCo held by ChildA1Co at their respective aggregate redemption amounts. In consideration therefor, BrotherA FamilyCo will issue a non-interest-bearing demand promissory note (the "BrotherA FamilyCo Note 1") having a principal amount and FMV equal to the aggregate Class A and Class B share redemption amounts. ChildA1Co will accept the BrotherA FamilyCo Note 1 as full payment for the redemption price of the Class A and Class B shares so redeemed.
66. BrotherA FamilyCo will purchase for cancellation the common shares of BrotherA FamilyCo held by ChildA1Co at their aggregate FMV. In consideration therefor, BrotherA FamilyCo will issue a non-interest-bearing demand promissory note (the "BrotherA FamilyCo Note 2") having a principal amount and FMV equal to the aggregate FMV of the common shares purchased for cancellation. ChildA1Co will accept the BrotherA FamilyCo Note 2 as full payment for the purchase price of the common shares so purchased.
67. The BrotherA FamilyCo Note 1 and BrotherA FamilyCo Note 2 will be set off against the ChildA1 Subco Note and the respective notes will be cancelled.
68. After the mutual offset and the cancellation of the BrotherA FamilyCo Note 1 and BrotherA FamilyCo Note 2 and the ChildA1 Subco Note, the net FMV of each type of property retained by BrotherA FamilyCo, determined in the manner described in paragraphs 61 to 62 will approximate that proportion of the net FMV of each such type of property of BrotherA FamilyCo immediately before the transfer of property to ChildA1 Subco described in paragraph 63 that:
(a) the total FMV of all the issued and outstanding shares of the capital stock of BrotherA FamilyCo other than those shares held by ChildA1Co, immediately before the transfer described in paragraph 63,
is of
(b) the total FMV of all of the issued and outstanding shares of the capital stock of BrotherA FamilyCo immediately before that transfer.
Butterfly Transactions - BrotherB FamilyCo
69. ChildB2 will incorporate a new wholly-owned corporation ("ChildB2Co") under the XXXXXXXXXX. The authorized share capital of ChildB2Co will consist of three (3) classes of redeemable and retractable preferred shares (the "ChildB2Co Class A Special Shares", the "ChildB2Co Class B Special Shares" and the "ChildB2Co Class D Special Shares") and an unlimited number of common shares. The holder of each ChildB2Co Class A Special Share and the holder of each ChildB2Co Class D Special Share will be entitled to XXXXXXXXXX votes per share. The holder of each ChildB2Co Class B Special Share or common share will be entitled to one (1) vote per share. Each class of the ChildB2Co Special Shares will be redeemable and retractable for an amount (the "ChildB2Co Class A Redemption Amount", the "ChildB2Co Class B Redemption Amount" and the "ChildB2Co Class D Redemption Amount", respectively and collectively the "ChildB2Co Special Share Redemption Amount") equal to the FMV of the consideration received by ChildB2Co upon the issuance of such class of shares. A holder of the ChildB2Co Special 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 their respective ChildB2Co Special Share Redemption Amount. The ChildB2Co Special Shares will rank in priority to any other shares issued by ChildB2Co on the dissolution or winding-up of ChildB2Co up to the extent of their ChildB2Co Special Shares Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the ChildB2Co Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of ChildB2Co to an amount less than the aggregate of the ChildB2Co Special Share Redemption Amount on such shares then outstanding.
ChildB2Co will incorporate a new corporation under the XXXXXXXXXX ("ChildB2 Subco"). The authorized share capital will consist of a class of redeemable and retractable preferred shares (the "ChildB2 Subco Class A Special Shares") and an unlimited number of common shares. The ChildB2 Subco Class A Special Shares will be non-voting. The holder of each ChildB2 Subco common share will be entitled to one (1) vote per share. The ChildB2 Subco Class A Special Shares will be redeemable and retractable for an amount (the "ChildB2 Subco Class A Redemption Amount") equal to the FMV of the consideration received by ChildB2 Subco upon the issuance of the shares. The holders of the ChildB2 Subco Class A Special 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 ChildB2 Subco Class A Redemption Amount. The ChildB2 Subco Class A Special Shares will rank in priority to any other shares issued by ChildB2 Subco on the dissolution or winding-up of ChildB2 Subco up to the extent of the aggregate ChildB2 Subco Class A Redemption Amount. No dividends or other distributions will be paid on any shares ranking junior to the ChildB2 Subco Class A Special Shares if the effect of such dividend or other distribution would be to reduce the net realizable value of the assets of ChildB2 Subco to an amount less than the aggregate ChildB2 Subco Class A Redemption Amount on such shares then outstanding.
ChildB2Co will subscribe for 1 common share of ChildB2 Subco for cash equal to $XXXXXXXXXX
70. BrotherBCo will incorporate a new corporation under the XXXXXXXXXX ("BrotherB Subco"). The authorized share capital will consist of an unlimited number of common shares. The holder of each BrotherB Subco common share will be entitled to one (1) vote per share.
BrotherBCo will transfer XXXXXXXXXX% of its Class A shares (XXXXXXXXXX) and XXXXXXXXXX% of its Class B shares (XXXXXXXXXX) of BrotherB FamilyCo to BrotherB Subco and as sole FMV consideration therefor, BrotherB Subco will issue XXXXXXXXXX common shares of BrotherB Subco to BrotherBCo that have a FMV equal to the aggregate FMV of such transferred property. BrotherBCo and BrotherB Subco will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of the BrotherB FamilyCo shares transferred to BrotherB Subco. The agreed amount for purposes of each election will be equal to BrotherBCo's ACB of the transferred shares immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX common shares of BrotherB Subco will be capital property to BrotherBCo.
The amount to be added to the stated capital account maintained for the common shares that will be issued by BrotherB Subco as consideration for the Class A shares and Class B shares of BrotherB FamilyCo transferred to it, as described above, under the XXXXXXXXXX will not exceed the aggregate cost amounts to BrotherB Subco (as determined under subsection 85(1)) of such transferred shares immediately after their acquisition. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
71. BrotherB Subco will transfer all of its Class A shares (XXXXXXXXXX) and Class B shares (XXXXXXXXXX) of BrotherB FamilyCo to ChildB2Co and as sole consideration therefor, ChildB2Co will issue XXXXXXXXXX ChildB2Co Class A Special Shares and XXXXXXXXXX ChildB2Co Class B Special Shares, respectively, that have an aggregate FMV equal to the aggregate FMV of such transferred property. BrotherB Subco and ChildB2Co will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of each of these transfers. The agreed amount for purposes of each election will be equal to the ACB to BrotherB Subco of the particular class of BrotherB FamilyCo shares to BrotherB Subco immediately before such transfer and for greater certainty, such agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX ChildB2Co Class A Special Shares and XXXXXXXXXX ChildB2Co Class B Special Shares of ChildB2Co will be capital property to BrotherB Subco.
The aggregate amount to be added to the stated capital accounts maintained for the ChildB2Co Class A Special Shares and ChildB2Co Class B Special Shares that will be issued by ChildB2Co as consideration for the transferred shares, as described above, under the XXXXXXXXXX will not exceed the aggregate cost amounts to ChildB2Co (as determined under subsection 85(1)) of such transferred shares immediately after they are acquired. For greater certainty, the stated capital addition of the ChildB2Co Class A Special Shares and ChildB2Co Class B Special Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
72. ChildB2 will transfer his XXXXXXXXXX common shares and XXXXXXXXXX Class B shares of BrotherB FamilyCo to ChildB2Co and as sole consideration therefor, ChildB2Co will issue XXXXXXXXXX common shares, XXXXXXXXXX ChildB2Co Class B Special Shares and XXXXXXXXXX ChildB2Co Class D Special Shares that have an aggregate FMV equal to the aggregate FMV of such transferred property. As a result, ChildB2 will own shares carrying more than XXXXXXXXXX% of the total votes attaching to all outstanding shares of ChildB2Co. ChildB2 and ChildB2Co will jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of such transfer. The agreed amount for purposes of each election will be equal to the ACB to ChildB2 of the transferred shares immediately before such transfer and for greater certainty such amount will not be less than the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The XXXXXXXXXX common shares of ChildB2Co, XXXXXXXXXX ChildB2Co Class B Special Shares and XXXXXXXXXX ChildB2Co Class D Special Shares will be capital property to ChildB2.
The aggregate amount to be added to the stated capital accounts maintained for the common shares, the ChildB2Co Class B Special Shares and the ChildB2Co Class D Special Shares that will be issued by ChildB2Co as consideration for such transferred shares, as described above, under the XXXXXXXXXX will not exceed the amount that is determined as B for the purposes of paragraph 84.1(1)(a).
73. Immediately before the transfer of property described in paragraph 75 below, the property owned by BrotherB FamilyCo will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation over which BrotherB FamilyCo has the ability to exercise significant influence (BrotherB FamilyCo and such corporations being referred to in this paragraph and paragraph 74 below as the "BrotherB FamilyCo Group") and all such property will be classified into the following three types of property for purposes of the definition of "distribution" in subsection 55(1):
(a) cash or near cash property, comprising all of the current assets of the BrotherB FamilyCo Group, including any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses;
(b) investment property, comprising all of the assets of the BrotherB FamilyCo Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from property or from a SIB; and
(c) business property, comprising all of the assets of the BrotherB FamilyCo Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from a business (other than a SIB) carried on by the BrotherB FamilyCo Group including goodwill and other tangible assets relating to the businesses of the BrotherB FamilyCo Group.
For the purposes of this letter, BrotherB FamilyCo will be considered to have significant influence over a corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation and for greater certainty:
(d) the FMV of the shares of a particular corporation over which BrotherB FamilyCo has the ability to exercise significant influence and of any indebtedness receivable by BrotherB FamilyCo from such a corporation will be allocated among the above three (3) types of property by multiplying the FMV of the shares of the particular corporation or amount receivable from the particular corporation, as the case may be, by the proportion that the net FMV of each type of property owned by the particular corporation (as determined in this paragraph and paragraph 74) is of the total net FMV of all the property owned by the particular corporation;
(e) the property that was classified as business property of Opco as described in paragraphs 52(e) and (f) above for the purposes of the distribution described in paragraph 54 above will be classified as business property of BrotherB FamilyCo to the extent that such property was acquired by BrotherB FamilyCo Group on the distribution described in paragraph 54 and provided such property will be held by BrotherB FamilyCo Group under the conditions described in paragraphs 52(e) and (f) above;
(f) to the extent a portion of the cash or near cash property of the BrotherB FamilyCo Group is committed by the BrotherB FamilyCo Group in order to fund the acquisition of business property (that is to be acquired regardless of the Proposed Transactions), such cash or near cash property will be classified as business property;
(g) any tax accounts of BrotherB FamilyCo Group will not be considered property for these purposes; and
(h) deferred revenue represents revenue received or receivable in the ordinary course of BrotherB FamilyCo Group's business, the recognition of which has been deferred due to the legal obligation of BrotherB FamilyCo Group to render services from which such revenues were received pursuant to the contract. Deferred revenue is considered as a liability for the purposes of the Proposed Transactions described herein to the extent that the amount of such deferred revenue gives rise to a legal obligation to repay such amount should the services not be provided.
74. In determining, on a consolidated look-through basis, the net FMV of BrotherB FamilyCo's cash or near cash property, investment property and business property immediately before the transfers of property described in paragraph 75 below, the liabilities of BrotherB FamilyCo and any corporation over which BrotherB FamilyCo has the ability to exercise significant influence will be allocated to, and be deducted in the calculation of, the net FMV of each such type of property of BrotherB FamilyCo, or such corporation, as the case may be, in the following manner:
(a) in determining, immediately before the transfer described in paragraph 75, the net FMV of each type of property of a corporation over which BrotherB FamilyCo has the ability to exercise significant influence, the liabilities of that particular corporation (other than any amount owing by such corporation to BrotherB FamilyCo) will be allocated to, and be deducted in the calculation of, the net FMV of a type of property of the particular corporation in the following manner:
(i) current liabilities of the particular corporation will be allocated to the cash or near cash property (including any cash, deposits, marketable securities, accounts receivable, inventory and rights arising from prepaid expenses) of such corporation in the proportion that the FMV of each such property is of the FMV of all cash or near cash property owned by that corporation. To the extent that the total current liabilities so allocated exceed the total FMV of all cash or near cash property of that particular corporation it will be considered to have a negative amount of cash or near cash property.
(ii) provided that amount of such corporation's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses of the particular corporation that are initially classified in accordance with subparagraph (a)(i) above as cash or near cash property that will relate to a business that will be carried on by such corporation or ChildB2Co and any corporation over which ChildB2Co has the ability to exercise significant influence (herein referred to as the "ChildB2Co Group") and that will be collected or consumed in the ordinary course of that business will then be reclassified as business property and the net FMV thereof, determined after the allocation described in (a)(i) above will be included in the net FMV of such corporation's business property and will not be included in the net FMV of such corporation's all cash or near cash property;
(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a type of property as described herein exceeds the total FMV of that type of property of that corporation that corporation will be considered to have a negative amount of that type of property; and
(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, investment property and business property of such corporation based on the relative net FMV of each type of property prior to the allocation of such liabilities but after the allocation of the liabilities described in subparagraphs (a)(i) or (a)(iii) above. However, where a corporation is considered to have a negative amount of a type of property because of subparagraphs (a)(i) or (a)(iii) above, for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property; and
(b) in determining, on a consolidated look-through basis, the net FMV of each type of property of BrotherB FamilyCo immediately before the transfer of property described in paragraph 75 below, BrotherB FamilyCo will include the appropriate pro-rata share of the net FMV of each type of property of any corporation over which BrotherB FamilyCo has the ability to exercise significant influence and, for greater certainty, the appropriate negative amount of such types of property of such corporation, as determined in accordance with subparagraph (a) herein, and any liabilities of BrotherB FamilyCo, will then be allocated to, and be deducted in the calculation of, the net FMV of each type of property of BrotherB FamilyCo in the following manner:
(i) current liabilities of BrotherB FamilyCo will be allocated to the cash or near cash property of BrotherB FamilyCo in the proportion that the FMV of each such property is of the FMV of all cash or near cash property of BrotherB FamilyCo. The allocation of current liabilities as described herein will not, however, exceed the total FMV of the cash or near cash property of BrotherB FamilyCo;
(ii) provided the amount of BrotherB FamilyCo's cash or near cash property exceeds its current liabilities, the net FMV of all accounts receivable, inventory and prepaid expenses of BrotherB FamilyCo that are initially classified in accordance with the subparagraph (b)(i) above as cash or near cash property that will relate to a business that will be carried on by such corporation or any other corporation included in the BrotherB FamilyCo Group or ChildB2Co Group and that will be collected or consumed in the ordinary course of that business, will then be reclassified as business assets and the net FMV thereof, determined after the allocation described in subparagraph (b)(i) above will be included in the net FMV of BrotherB FamilyCo's business property and will not be included in the net FMV BrotherB FamilyCo's cash or near cash property;
(iii) liabilities, other than current liabilities, of BrotherB FamilyCo that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and
(iv) if any liabilities remain after the allocations described in subparagraphs (b)(i) and (b)(iii) above are made ("excess BrotherB FamilyCo unallocated liabilities"), such excess BrotherB FamilyCo unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of BrotherB FamilyCo based on the relative net FMV of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in subparagraphs (b)(i) and (b)(iii) above.
75. Following the determination of the net FMV of BrotherB FamilyCo's cash or near cash property, its business property and its investment property, as described in paragraphs 73 and 74 above, BrotherB FamilyCo will transfer XXXXXXXXXX common shares of New Opco held by BrotherB FamilyCo and such other types of property to ChildB2 Subco such that, immediately after the transfer, the net FMV of each type of property so transferred to ChildB2 Subco (after allocating and deducting, in the manner described in paragraph 74, the liabilities of BrotherB FamilyCo which are to be assumed by ChildB2 Subco as described herein) will approximate that proportion of the net FMV of all property of BrotherB FamilyCo of that type determined immediately before such transfer that:
(a) the aggregate FMV, immediately before the transfer, of all of the shares of the capital stock of BrotherB FamilyCo held by ChildB2Co at that time,
is of
(b) the aggregate FMV, immediately before the transfer, of all the issued and outstanding shares of the capital stock of BrotherB FamilyCo at that time.
For the purpose of this paragraph the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the net FMV of each type of property which ChildB2 Subco has received (or BrotherB FamilyCo has retained) as compared to what ChildB2 Subco would have received (or BrotherB FamilyCo would have retained) had it received (or retained) its appropriate pro-rata share of the net FMV of that type of property.
As consideration for the property so transferred, ChildB2 Subco may assume certain liabilities of BrotherB FamilyCo and issue XXXXXXXXXX ChildB2 Subco Class A Special Shares to BrotherB FamilyCo that have a FMV equal to the aggregate FMV of such transferred property less the aggregate amount of any liabilities so assumed. The XXXXXXXXXX ChildB2 Subco Class A Special Shares will be capital property to BrotherB FamilyCo.
In respect of the transfers of property described herein, BrotherB FamilyCo and ChildB2 Subco will, where such property is an eligible property, jointly elect under subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6) in respect of such property (including the XXXXXXXXXX common shares of New Opco) transferred to ChildB2 Subco. The agreed amount for purposes of each election will be equal to the cost amount to BrotherB FamilyCo of such transferred property immediately before such transfer and for greater certainty such agreed amount will not be less than:
(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property;
(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and
(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).
For greater certainty, for the purposes of each election, the agreed amount will not exceed the FMV of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(b). For the purposes of each election, no portion of BrotherB FamilyCo's liabilities assumed by ChildB2 Subco will be treated as being assumed in consideration for the transfer of a particular property by BrotherB FamilyCo to the extent that the principal amount of such assumed liabilities would exceed the agreed amount under subsection 85(1) in respect of that transfer.
The amount to be added to the stated capital account maintained for the ChildB2 Subco Class A Special Shares that will be issued by ChildB2 Subco as consideration for such transferred property, as described above, under the XXXXXXXXXX will not exceed the amount by which the aggregate cost amounts to ChildB2 Subco (as determined under subsection 85(1), where relevant) of the transferred property immediately after its acquisition exceeds the aggregate amount of any liabilities assumed by ChildB2 Subco in respect of such transfer. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).
76. ChildB2 Subco will redeem the ChildB2 Subco Class A Special Shares held by BrotherB FamilyCo at the ChildB2 Subco Class A Special Share Redemption Amount. As consideration therefor, ChildB2 Subco will issue a non-interest-bearing demand promissory note (the "ChildB2 Subco Note") having a principal amount and FMV equal to the FMV and ChildB2 Subco Class A Special Share Redemption Amount. BrotherB FamilyCo will accept the ChildB2 Subco Note as full payment for the purchase price of the common shares so purchased. ChildB2 Subco will be wound-up into ChildB2Co and as a consequence, ChildB2 Subco's property will be transferred to ChildB2Co and ChildB2Co will assume ChildB2 Subco's liabilities including the ChildB2 Subco Note.
77. Immediately after the transactions described in paragraph 76 above, BrotherB FamilyCo will redeem the Class A and Class B shares of BrotherB FamilyCo held by ChildB2Co at their aggregate redemption amount. As consideration therefor, BrotherB FamilyCo will issue a non-interest-bearing demand promissory note (the "BrotherB FamilyCo Note 1") having a principal amount and FMV equal to the aggregate FMV and Class A and Class B share redemption amount. ChildB2Co will accept the BrotherB FamilyCo Note 1 as full payment for the redemption price of the Class A and Class B shares so redeemed.
78. BrotherB FamilyCo will purchase for cancellation the common shares of BrotherB FamilyCo held by ChildB2Co at their aggregate FMV. As consideration therefor, BrotherB FamilyCo will issue a non-interest-bearing demand promissory note (the "BrotherB FamilyCo Note 2") having a principal amount and FMV equal to the aggregate FMV of the common shares purchased for cancellation. ChildB2Co will accept the BrotherB FamilyCo Note 2 as full payment for the purchase price of the common shares so purchased.
79. The BrotherB FamilyCo Note 1 and BrotherB FamilyCo Note 2 will be set off against the ChildB2 Subco Note and the respective notes will be cancelled.
80. After the mutual offset and the cancellation of the BrotherB FamilyCo Note 1 and BrotherB FamilyCo Note 2 and the ChildB2 Subco Note, the net FMV of each type of property retained by BrotherB FamilyCo, determined in the manner described in paragraphs 73 and 74 above will approximate that proportion of the net FMV of each such type of property of BrotherB FamilyCo immediately before the transfer of property to ChildB2 Subco described in paragraph 75 above that:
(a) the total FMV of all the issued and outstanding shares of the capital stock of BrotherB FamilyCo other than those shares held by ChildB2Co, immediately before the transfer described in paragraph 75,
is of
(b) the total FMV of all of the issued and outstanding shares of the capital stock of BrotherB FamilyCo immediately before that transfer.
Post-Butterfly Transactions
81. ChildA2 will subscribe for cash for XXXXXXXXXX voting, redeemable and retractable Class D preferred shares of BrotherA FamilyCo for an aggregate FMV subscription price of $XXXXXXXXXX . The Class D preferred shares are to be created by filing an amendment to the articles of incorporation of BrotherA FamilyCo. The Class D preferred shares will entitle a holder to XXXXXXXXXX votes per share. As a result, ChildA2 will acquire more than XXXXXXXXXX% of the total votes of all outstanding shares of BrotherA FamilyCo.
82. ChildB1 will subscribe for cash for XXXXXXXXXX voting, redeemable and retractable Class D preferred shares of BrotherB FamilyCo for an aggregate FMV subscription price of $XXXXXXXXXX. The Class D preferred shares are to be created by filing an amendment to the articles of incorporation of BrotherB FamilyCo. The Class D preferred share will entitle a holder to XXXXXXXXXX votes per share. As a result, ChildB1 will acquire more than XXXXXXXXXX% of the total votes of all outstanding shares of BrotherB FamilyCo.
83. BrotherA FamilyCo, BrotherB FamilyCo and ChildB2Co will enter into a unanimous shareholders' agreement concerning management of New Opco and the ownership of its shares by the three shareholders.
84. BrotherA Subco will be wound-up into BrotherACo and BrotherB Subco will be wound-up into BrotherBCo to simplify the corporate structure subsequent to the Butterfly Reorganizations. For greater certainty, there will be no agreement or resolution relating to the winding-up or the distribution of any property of BrotherA Subco or BrotherB Subco that will provide for the cancellation of any shares of BrotherA Subco or BrotherB Subco, as the case may be.
85. From time to time, BrotherA FamilyCo and ChildA1Co may redeem certain of their preference shares held by BrotherACo. BrotherACo and BrotherA FamilyCo, and BrotherACo and ChildA1Co, respectively, may also enter into shareholder agreements concerning the management of BrotherA FamilyCo and ChildA1Co, respectively, and the ownership of their respective outstanding shares.
Similarly, from time to time, BrotherB FamilyCo and ChildB2Co may redeem certain of their preference shares held by BrotherBCo. BrotherBCo and BrotherB FamilyCo, and BrotherBCo and ChildB2Co, respectively, may enter into shareholder agreements concerning the management of BrotherB FamilyCo and ChildB2Co, respectively, and the ownership of their respective outstanding shares.
PURPOSE OF THE PROPOSED TRANSACTIONS
86. The transfer of BrotherA's Wife's Class B shares in the capital of BrotherA FamilyCo to BrotherACo under paragraph 46 above and the transfers of the assets from each of the trusts to the respective beneficiaries as described in paragraphs 47 and 48 are being effected to simplify the share structure of BrotherA FamilyCo and BrotherB FamilyCo, respectively.
87. ChildA1 desires the freedom to make management decisions and to pursue opportunities in businesses under his supervision and control independently of the rest of the family group. ChildB2, ChildB1 and ChildA2 wish to continue to operate businesses under their supervision and control as a single organization.
88. Since the entry of ChildA2 into the business in XXXXXXXXXX, it has been the plan of both BrotherA and BrotherB to retire handing over control of Opco to the four children and relying on the gradual retraction of their shares of BrotherA FamilyCo and BrotherB FamilyCo, respectively, to sustain their lifestyles. Substantial time, effort and money has been spent in endeavouring to achieve a management structure, a division of responsibilities and a common plan for the future, both in the context of further development of the Opco Group and in the context of the personal lifestyles and goals of the four children. This process has succeeded in many respects but it has become clear that it is necessary for ChildA1 to operate independently from the rest of the group.
89. Under the existing corporate structure, the benefits from growth in value of the Opco issued shares accrues to the respective trusts described in paragraphs 4, 5, 6 and 7 and the consequence of winding-up these four trusts will be that such benefits accrue equally to ChildA1, ChildA2, ChildB2 and ChildB1. After the transactions involving ChildA1, ChildA1Co and Holdco the benefits of growth in value of the New Opco issued shares will accrue one-third to ChildA2 (through the holding of XXXXXXXXXX% of the common shares of BrotherA FamilyCo), one-third to ChildB2 (through holding of XXXXXXXXXX% of the common shares of ChildB2Co) and one-third to ChildB1 (through holding of XXXXXXXXXX% of the common shares of BrotherB FamilyCo).
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as set forth below.
A. The provisions of subsection 85(1) will apply, other than paragraph 85(1)(e.2), to each of the transfers of an eligible property, described in paragraphs 46, 49(b), 49(d), 49(f), 49(i), 49(k), 54, 58, 59, 60, 63, 70, 71, 72 and 75 above, provided that each respective transferor and transferee jointly file an election pursuant to subsection 85(1) in prescribed form and manner and within the time specified in subsection 85(6), such that the agreed amount in respect of each respective transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost of such transferred property under paragraph 85(1)(a), and the transferor's cost of any shares (after deducting the FMV of any non-share consideration received on the respective transfer) received by such transferor as consideration by such transferor.
B. As a result of: the redemption by AF Subco of the AF Subco Class A Special Shares held by Opco as described in paragraph 55 above; the redemption by BF Subco of the BF Subco Class A Special Shares held by Opco as described in paragraph 55 above; the distribution of the property of Opco in respect of the Opco Class B shares and the Opco Common Shares held by BrotherA FamilyCo on the winding up of Opco as described in paragraph 56 above; the distribution of the property of Opco in respect of the Opco Class B shares and the Opco Common Shares held by BrotherB FamilyCo on the winding up of Opco as described in paragraph 56 above; the redemption by ChildA1 Subco of the Class A Special Shares held by BrotherA FamilyCo as described in paragraph 64 above; the redemption by BrotherA FamilyCo of the Class A and the Class B special shares as described in paragraph 65 above; the purchase for cancellation of the common shares of BrotherA FamilyCo held by ChildA1Co as described in paragraph 66 above; the redemption by ChildB2 Subco of the Class A Special Shares held by BrotherB FamilyCo as described in paragraph 76 above; the redemption by BrotherB FamilyCo of the Class A and the Class B shares as described in paragraph 77 above; and the purchase for cancellation of the common shares of BrotherB FamilyCo held by ChildB2Co as described in paragraph 78 above,
(a) by virtue of paragraphs 84(3)(a) and 84(3)(b):
(i) AF Subco 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 in respect of the redemption of the AF Subco Class A Special Shares held by Opco exceeds the PUC thereof;
(ii) BF Subco 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 in respect of the redemption of the BF Subco Class A Special Shares held by Opco exceeds the PUC thereof;
(iii) BrotherA FamilyCo will be deemed to have paid, and ChildA1Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the Class A shares of BrotherA FamilyCo held by ChildA1Co exceeds the PUC thereof;
(iv) BrotherA FamilyCo will be deemed to have paid, and ChildA1Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the Class B shares of BrotherA FamilyCo held by ChildA1Co exceeds the PUC thereof;
(v) BrotherA FamilyCo will be deemed to have paid, and ChildA1Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the acquisition of the common shares of BrotherA FamilyCo held by ChildA1Co exceeds the PUC thereof;
(vi) ChildA1 Subco will be deemed to have paid, and BrotherA FamilyCo will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the ChildA1 Subco Class A Special Shares exceeds the PUC thereof;
(vii) BrotherB FamilyCo will be deemed to have paid, and ChildB2Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the Class A shares of BrotherB FamilyCo held by ChildB2Co exceeds the PUC thereof;
(viii) BrotherB FamilyCo will be deemed to have paid, and ChildB2Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the Class B shares of BrotherB FamilyCo held by ChildB2Co exceeds the PUC thereof;
(ix) BrotherB FamilyCo will be deemed to have paid, and ChildB2Co will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the acquisition of the common shares of BrotherB FamilyCo held by ChildB2Co exceeds the PUC thereof;
(x) ChildB2 Subco will be deemed to have paid, and BrotherB FamilyCo will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the ChildB2 Subco Class A Special Shares exceeds the PUC thereof;
(b) by virtue of paragraph 88(2)(b) and subsection 84(2) Opco will be deemed to have paid, and each of BrotherA FamilyCo and BrotherB FamilyCo will be deemed to have received a taxable dividend on each class of shares of Opco equal to the proportion of the amount by which the fair market value of the property of Opco distributed by Opco to BrotherA FamilyCo and BrotherB FamilyCo on a particular class on its winding-up exceeds the PUC thereof, that the number of shares of such class held by BrotherA FamilyCo or BrotherB FamilyCo, as the case may be, is of the number of all such shares cancelled;
(c) the taxable dividends deemed to be received by each of Opco, BrotherA FamilyCo, ChildA1Co, BrotherB FamilyCo, and ChildB2Co, as the case may be, as a result of the redemptions referred to in (a) and (b) herein will be included in computing each respective corporation's income pursuant to paragraph 12(1)(j) and will be deductible by such corporation in computing its taxable income pursuant to subsection 112(1). For greater certainty, the provisions of subsections 112(2.1), 112(2.2), 112(2.3), and 112(2.4) will not apply to deny the application of subsection 112(1) deduction in respect of such dividends;
(d) the taxable dividends deemed to have been received by each of Opco, BrotherA FamilyCo, ChildA1Co, BrotherB FamilyCo, and ChildB2Co, as the case may be, as a result of the transactions referred to in (a) and (b) herein 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;
(e) by virtue of the definition of substantial interest, each of the taxable dividends deemed to have been received by Opco, BrotherA FamilyCo, ChildA1Co, BrotherB FamilyCo, and ChildB2Co, as the case may be, referred to in (a) and (b) herein will not be subject to Part IV.1 tax under section 187.2 or to Part VI.1 tax under subsection 191.1(1) because each such dividend will be an excepted and an excluded dividend; and
(f) by virtue of subsection 186(2) and paragraph 186(4) each of Opco, BrotherA FamilyCo, BrotherB FamilyCo, AF Subco, BF Subco, ChildA1 Subco, ChildB2 Subco, as the case may be, will be connected to the particular payer corporation in respect of a taxable dividend referred to in (a) or (b) herein. Accordingly, none of Opco, BrotherA FamilyCo, ChildA1Co, BrotherB FamilyCo and ChildB2Co will be subject to Part IV tax under subsection 186(1) in respect of a taxable dividend received by such corporation referred to in (a) or (b) herein except to the extent that the particular payer corporation is entitled to a dividend refund (within the meaning of subsection 129(1)) in respect of such dividend.
C. The extinguishment of the AF Subco Note and the BF Subco Note on the winding up of Opco as described in paragraph 56 above; the BrotherA FamilyCo Note 1, BrotherA FamilyCo Note 2 and the ChildA1 Subco Note as described in paragraph 67 above; and the BrotherB FamilyCo Note 1, BrotherB FamilyCo Note 2 and the ChildB2 Subco Note as described in paragraph 79 above, will not give rise to a "forgiven amount" within the meaning of subsections 80(1) and 80.01(1) and for greater certainty:
(a) none of BrotherA FamilyCo, BrotherB FamilyCo and Opco will realize any gain or incur any loss from the transfer and assignment to BrotherA FamilyCo of the AF Subco Note by Opco or the transfer and assignment to BrotherB FamilyCo of the BF Subco Note by Opco as described in paragraph 56 above;
(b) neither ChildA1 Subco nor ChildA1Co will realize any gain or incur any loss from the transfer and assignment to ChildA1Co of the ChildA1 Subco Note by ChildA1 Subco as described in paragraph 64 above, and neither BrotherA FamilyCo nor ChildA1Co will realize any gain or incur any loss on the extinguishment and cancellation of the BrotherA FamilyCo Note 1 and 2 and the ChildA1 Subco Note as described in paragraph 67 above; and
(c) neither ChildB2 Subco nor ChildB2Co will realize any gain or incur any loss from the transfer and assignment to ChildB2Co of the ChildB2 Subco Note by ChildB2 Subco as described in paragraph 76 above, and neither BrotherB FamilyCo nor ChildB2Co will realize any gain or incur any loss on the extinguishment and cancellation of the BrotherB FamilyCo Note 1 and 2 and the ChildB2 Subco Note as described in paragraph 79 above.
D. The provisions of subsection 88(1) will apply to the winding-up of XXXXXXXXXX into Opco as described in paragraph 49(g) above; the winding-up of AF Subco into BrotherA FamilyCo and the winding-up of BF Subco into BrotherB FamilyCo as described in paragraph 55 above; the winding-up of ChildA1 Subco into ChildA1Co as described in paragraph 64 above; the winding-up of ChildB2 Subco into ChildB2Co as described in paragraph 76 above; the winding-up of BrotherA Subco into BrotherAco as described in paragraph 84 above; and the winding-up of BrotherB Subco into BrotherBco as described in paragraph 84 above.
E. Provided that, as part of the series of transactions or events that includes these Proposed Transactions, 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 any shares of a distributing corporation in the circumstances described in subparagraph 55(3.1)(b)(iii);
(d) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or
(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(d);
which has not been described herein, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in the rulings given in B above, and for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).
F. The provisions of subsections 15(1), 56(2), 56(4), 69(4) and 246(1) will not apply to any of the Proposed Transactions described herein other than those described in paragraphs 81 and 82 above, in and by themselves.
G. As a result of the proposed transactions, in and by themselves, subsection 245(2) will not apply to re-determine the tax consequences arising from any of the Proposed Transactions.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX. These 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.
Nothing in this letter should be construed as implying that the CCRA has confirmed, reviewed or has made any determination in respect of:
(a) the ACB or FMV of any particular property referred to herein;
(b) the PUC of any share or class of shares referred to herein;
(c) the application of subsection 55(2) to any of the redemptions of the shares of BrotherA FamilyCo, ChildA1Co, BrotherB FamilyCo and ChildB2Co described in paragraph 85 above, or any dividend described in paragraph 15 above, including whether any such redemption or dividend is considered to be part of the same series of transactions or events that includes the Butterfly Reorganizations described in this letter;
(d) the application of subsection 15(1) to the Proposed Transactions described in paragraphs 81 and 82 above; or
(d) any other tax consequence relating to the facts, proposed transactions, other information or any other transactions or events, whether described in this letter or not other than those specifically described in the rulings given above, including whether any such transaction or event is considered to be part of the same series of transactions or events described herein or not.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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