2003 Ruling 2002-0155853 - 55(3)(b)

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:

In a sequential spin-off butterfly and a split-up butterfly, whether the new reorganization shares received by a taxpayer in exchange ("share exchange") for his or her subsection 7(1.1) shares in the spin-off butterfly would retain subsection 7(1.1) treatment.

Position:

Yes.

Reasons:

The share exchange in the present case will meet all the conditions stipulated in subsection 7(1.5).

XXXXXXXXXX 								2002-015585

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. In your subsequent letters of XXXXXXXXXX, your facsimiles of XXXXXXXXXX, and your emails of XXXXXXXXXX, you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

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

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

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

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

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

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

Definitions

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

(a) Unless otherwise indicated, all references to statute are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended ( the "Act");

(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 subsection 251(1);

(e) "BCA" means the XXXXXXXXXX Business Corporations Act, XXXXXXXXXX;

(f) "Canadian-controlled private corporation" ("CCPC") has the meaning assigned by subsection 125(7);

(g) "capital dividend account" ("CDA") has the meaning assigned by subsection 89(1);

(h) "CCA" means "capital cost allowance" which refers to a deduction allowed under section 1100 of the Regulations;

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

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

(k) "depreciable property" has the meaning assigned by subsection 13(21);

(l) "disposition" has the meaning assigned by subsection 248(1);

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

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

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

(p) "fair market value" ("FMV") means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale;

(q) "financial intermediary corporation" has the meaning assigned by subsection 191(1);

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

(s) "ITAR" refers to the Income Tax Application Rules;

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

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

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

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

(x) "related persons" has the meaning assigned by section 251;

(y) "related group" has the meaning assigned by subsection 251(4);

(z) "restricted financial institution" has the meaning assigned by subsection 248(1);

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

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

(cc) "specified investment business"(SIB") has the meaning assigned by subsection 125(7);

(dd) "stated capital" has the meaning assigned by the BCA;

(ee) "subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);

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

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

Facts

1. XXXXXXXXXX ("DC") is a TCC, a CCPC and is governed by the BCA. It was formed on XXXXXXXXXX by an amalgamation ("Merger") of a predecessor corporation, XXXXXXXXXX ("Predecessor DC"), which was incorporated by Letters Patent dated XXXXXXXXXX, and Predecessor DC's subsidiary wholly-owned corporation, XXXXXXXXXX, under the BCA.

The issued and outstanding share capital of DC consists of XXXXXXXXXX common shares ("DC Common Shares") and XXXXXXXXXX first special shares ("DC First Special Shares"), which are owned by the following shareholders:

				DC Common Shares		DC First Special Shares

XXXXXXXXXX    ("Father")  			XXXXXXXXXX
XXXXXXXXXX    ("Mother")			XXXXXXXXXX
XXXXXXXXXX    ("Son1")	XXXXXXXXXX
XXXXXXXXXX        ("Son2")			XXXXXXXXXX
XXXXXXXXXX  ("Individual A")   XXXXXXXXXX
				XXXXXXXXXX 

Total			   XXXXXXXXXX 		XXXXXXXXXX 

Each DC Common Share is a fully participating share and entitles the holder to one vote.

Each DC First Special Share

(a) is redeemable and retractable for an amount equal to the redemption amount of $1,000;

(b) does not entitle the holder to votes (other than as required under the BCA);

(c) does not entitle the holder to any dividend, and

(d) provides no entitlement to, or participation in, the assets of DC upon liquidation other than to the extent of its redemption amount.

Prior to the Merger, Father and Mother each owned XXXXXXXXXX first special shares of Predecessor DC and Son1 and Son2 each owned XXXXXXXXXX common shares of Predecessor DC. On the Merger, these shares were not cancelled and, consequently, they were deemed by subsection 87(1.1) to be shares of the capital stock of DC received by each of Father, Mother, Son1 and Son2, by virtue of the Merger, as consideration for the disposition of his or her shares of the capital stock of Predecessor DC.

None of the shares of DC has been acquired by any person in contemplation of the proposed transactions described below.

All of the shareholders of DC hold their DC shares as capital property.

2. DC carries on an active business ("Business") XXXXXXXXXX. DC has more than five full-time employees and has reported its operating income as active business income and not as SIB income for federal income tax purposes.

The assets of DC consist of:

(a) cash;

(b) accounts receivable;

(c) prepaid expenses including realty taxes and insurance pertaining to the Inventory Lands and Revenue Producing Properties described in (e) and (f) below;

(d) office furniture;

(e) lands for development ("Inventory Lands"); and

(f) undivided interests in the following revenue producing properties ("Revenue Producing Properties"):

	Property					DC Percentage Interest

	XXXXXXXXXX 						XXXXXXXXXX 

DC holds the Revenue Producing Properties as capital property.

DC acquired all of the Revenue Producing Properties after 1972.

Certain of the Inventory Lands have dwellings on them. However, DC has not claimed any CCA on the dwellings. DC intends to sell the Inventory Lands or to develop them into housing units for resale at a profit. DC will report any future disposition of the Inventory Lands on income account.

The liabilities of DC consist of

(i) current liabilities, which consist of bank indebtedness, accounts payable, tenants' prepaid rents and advances payable, and

(ii) long-term liabilities, which consist of mortgages payable on the Revenue Producing Properties including the mortgage ("Mortgage") XXXXXXXXXX ("Lender") against the XXXXXXXXXX in the principal amount of approximately $XXXXXXXXXX. The interest rate on the Mortgage is XXXXXXXXXX% per annum over a XXXXXXXXXX-year term.

DC borrowed the $XXXXXXXXXX ("Loan") from the Lender in XXXXXXXXXX and used the Loan proceeds to pay off one of its existing loans that it had with XXXXXXXXXX (secured by a mortgage registered against the XXXXXXXXXX). That existing loan matured in XXXXXXXXXX and had a balance of $XXXXXXXXXX at that time. The refinancing, by DC, of the $XXXXXXXXXX was for business purposes and was not part of a series of transactions or events that includes the proposed transactions described below.

DC currently has RDTOH of $XXXXXXXXXX.

DC's fiscal and taxation years end on XXXXXXXXXX . DC's tax affairs are administered by the XXXXXXXXXX Tax Services Office and its corporate tax returns are filed at the XXXXXXXXXX Taxation Centre.

3. Son1 and Son2 are the adult children of Father and Mother. Both the parents and the two children are Canadian residents.

For the purposes of the Act, other than section 55 thereof, Son1 and Son2 constitute a related group that controls DC by virtue of subparagraph 251(2)(b)(ii). However, for the purposes of section 55, Son1 and Son2 are not related by virtue of paragraph 55(5)(e) and, consequently, they do not constitute a related group for the purposes of section 55.

4. [Reserved]

5. Prior to 1972, Father and Mother each established a family trust, the XXXXXXXXXX ("Father Trust") and the XXXXXXXXXX ("Mother Trust") (collectively referred to hereinafter as the "Trusts" and individually as a "Trust"). The beneficiaries under both Trusts were Son1, Son2 and their issue. The trustees of the Father Trust were Father, Mother and XXXXXXXXXX ("Individual B"). The trustees of the Mother Trust were Father and Individual B. Individual B was not related to Father, Mother, Son1 and Son2.

Prior to 1972, each of the Trusts subscribed for XXXXXXXXXX Predecessor DC common shares for a subscription price of $XXXXXXXXXX each.

In XXXXXXXXXX, each of the Trusts transferred shares of another CCPC to Predecessor DC under subsection 85(1). As consideration for each transfer, Predecessor DC issued to each Trust XXXXXXXXXX Predecessor DC common shares having an aggregate FMV of $XXXXXXXXXX. Predecessor DC and each Trust elected $XXXXXXXXXX as the agreed amount under subsection 85(1). However, Predecessor DC added an amount of $XXXXXXXXXX to the stated capital of its common shares, in respect of the issuance of the XXXXXXXXXX Predecessor DC common shares to each of the Trusts.

On or about XXXXXXXXXX, each Trust distributed XXXXXXXXXX of its Predecessor DC common shares to each of Son1 and Son2 under subsection 107(2), such that after the distribution, Son1 and Son2 each owned XXXXXXXXXX Predecessor DC common shares.

Each of the Trusts has not elected under ITAR 26(7) with respect to its capital property owned on XXXXXXXXXX.

6. In XXXXXXXXXX, Father and Mother each transferred shares of another CCPC to Predecessor DC under subsection 85(1). As consideration for each transfer, Predecessor DC issued to each of Father and Mother XXXXXXXXXX Predecessor DC first special shares having a par value of $XXXXXXXXXX and a redemption amount of $XXXXXXXXXX each. Predecessor DC and each of Father and Mother elected $XXXXXXXXXX as the agreed amount for each transfer under subsection 85(1).

7. Individual A is a senior executive of DC, who is not related to Father, Mother, Son1 and Son2.

On or about XXXXXXXXXX, DC granted to Individual A, under an employee stock option agreement ("Option Agreement"), an option ("Option") to purchase XXXXXXXXXX of its first special shares and XXXXXXXXXX of its common shares for an option price of $XXXXXXXXXX. At the time when DC granted the Option to Individual A, it was a CCPC and was dealt at arm's length with Individual A. Following the execution, by DC and Individual A, of the Option Agreement, Individual A exercised his Option and DC issued to Individual A XXXXXXXXXX of its First Special Shares and XXXXXXXXXX of its Common Shares for cash of $XXXXXXXXXX.

Proposed Transactions

8. XXXXXXXXXX new corporations ("XXXXXXXXXX) will be incorporated pursuant to the provisions of the BCA (XXXXXXXXXX are collectively referred to hereafter as the "Bare Trusteecos" and individually as a "Bare Trusteeco").

Each Bare Trusteeco will be a TCC and a CCPC. The authorized capital of each Bare Trusteeco will consist of an unlimited number of common shares.

On the incorporation of each Bare Trusteeco,

(a) Son1 will subscribe for one common share in a particular Bare Trusteeco that will hold legal title to the property transferred by Newco to TC1 described in paragraph 28 below;

(b) Son2 will subscribe for one common share in a particular Bare Trusteeco that will hold legal title to the property transferred by Newco to TC2 described in paragraph 29 below, and

(c) Individual A will subscribe for one common share in a particular Bare Trusteeco that will hold legal title to the property retained by Newco described in paragraph 34 below.

Son1, Son2 and Individual A will each pay $XXXXXXXXXX to the particular Bare Trusteeco as a subscription price for their Bare Trusteeco common share.

You have advised that the Bare Trusteecos will have no purpose or activity other than to acquire legal title to the Revenue Producing Properties and to hold them as nominee, agent and bare trustee as described in the proposed transaction in paragraph 14 below.

9. Pursuant to the provisions of the BCA, the articles of amalgamation of DC will be amended to create one class of an unlimited number of Class A Preference Shares (the "DC Class A Preference Shares"). Each of the DC Class A Preference Shares will have the following attributes:

(a) will be non-voting and non-participating;

(b) will be redeemable and retractable, subject to applicable law, at any time for an amount equal to the amount determined by dividing the aggregate FMV of the property received by the corporation on the issuance of the Class A Preference Shares, less the aggregate FMV of any non-share consideration issued or liabilities assumed by the corporation in connection with the issuance of such shares, by the number of the Class A Preference Shares issued ("DC Class A Redemption Amount");

(c) will be entitled to a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX % of the DC Class A Redemption Amount, and

(d) will rank in first priority over all other classes on dissolution.

10. A new corporation ("Newco") will be incorporated pursuant to the provisions of the BCA. Newco will be a TCC and a CCPC. No shares will be issued as part of the incorporation of Newco.

The authorized capital of Newco will consist of one class of an unlimited number of Class A shares (the "Newco Class A Shares"), one class of an unlimited number of Class B shares (the "Newco Class B Shares"), one class of an unlimited number of Class C shares (the "Newco Class C Shares") and one class of an unlimited number of common shares (the "Newco Common Shares"), which will include the following attributes:

(a) each Newco Class A and B Share:

(i) will be non-voting, non-participating;

(ii) will be redeemable and retractable, subject to applicable law, at any time for an amount equal to the amount determined by dividing the aggregate FMV of the property received by the corporation on the issuance of the Class A or B Shares, as the case may be, less the aggregate FMV of any non-share consideration issued or liabilities assumed by the corporation, by the number of the Class A or B Shares issued, as the case may be ("Newco Class A Redemption Amount" and "Newco Class B Redemption Amount"), and

(iii) will be entitled to a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX% of the Newco Class A Redemption Amount or the Newco Class B Redemption Amount, as the case may be;

(b) the Newco Class C Shares will be non-voting but fully participating;

(c) the Newco Common Shares will be fully participating and entitle the holder to one vote per share, and

(d) the Newco Class A Shares will rank ahead of all other classes on liquidation or other distribution by the corporation. The Newco Class B Shares will rank ahead of the Newco Class C Shares and the Newco Common Shares. The Newco Class C Shares and the Newco Common Shares will rank pari passu on dissolution after all other classes.

11. Two new corporations ("TC1" and "TC2") will be incorporated pursuant to the provisions of the BCA (TC1 and TC2 are collectively referred to hereafter as "TCs" and individually as "TC"). Each TC will be a TCC and a CCPC. No shares will be issued as part of the incorporation of the TCs.

The authorized capital of each TC will consist of one class of an unlimited number of Class A shares (the "TC1 Class A Shares" and the "TC2 Class A Shares"), one class of an unlimited number of Class B shares (the "TC1 Class B Shares" and the "TC2 Class B Shares"), one class of an unlimited number of Class 1 shares (the "TC1 Class 1 Shares" and the "TC2 Class 1 Shares"), one class of an unlimited number of Class 2 shares (the "TC1 Class 2 Shares" and the "TC2 Class 2 Shares"), one class of an unlimited number of Class C shares (the "TC1 Class C Shares" and the "TC2 Class C Shares") and one class of an unlimited number of common shares (the "TC1 Common Shares" and the "TC2 Common Shares") which will include the following attributes:

(a) each TC Class A , Class B and Class 1 Share:

(i) will be non-voting, non-participating;

(ii) will be redeemable and retractable, subject to applicable law, at any time for an amount equal to the amount determined by dividing the aggregate FMV of the property received by the corporation on the issuance of the Class A, Class B or Class 1 Shares, as the case may be, less the aggregate FMV of any non-share consideration issued or liabilities assumed by the corporation, by the number of the Class A, Class B or Class 1 Shares issued, as the case may be (the "TC1 Class A Redemption Amount", the "TC1 Class B Redemption Amount", the "TC1 Class 1 Redemption Amount", the "TC2 Class A Redemption Amount", the "TC2 Class B Redemption Amount" and the "TC2 Class 1 Redemption Amount", as the case may be), and

(iii) will be entitled to a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX% of the TC1 Class A Redemption Amount, the TC1 Class B Redemption Amount, the TC1 Class 1 Redemption Amount, the TC2 Class A Redemption Amount, the TC2 Class B Redemption Amount or the TC2 Class 1 Redemption Amount, as the case may be;

(b) each TC Class 2 Share

(i) will be non-participating and entitle the holder to one vote per share;

(ii) will be redeemable and retractable, subject to applicable law, at any time for an amount of $XXXXXXXXXX (the "TC1 Class 2 Redemption Amount" and the "TC2 Class 2 Redemption Amount"), and

(iii) will have a fixed, preferential, non-cumulative monthly dividend of XXXXXXXXXX% of the TC1 Class 2 Redemption Amount or the TC2 Class 2 Redemption Amount, as the case may be;

(c) the TC Class C Shares will be fully participating and non-voting;

(d) the TC Common Shares will be fully participating and will entitle the holder to one vote per share, and

(e) the TC Class A Shares will rank ahead of all other classes on dissolution. The TC Class B Shares will rank ahead of the TC Class 1, 2, C and Common Shares. The TC Class 1 Shares will rank ahead of the TC Class 2, C and Common Shares. The TC Class 2 Shares will rank ahead of the TC Class C and Common Shares. The TC Class C and Common Shares will rank pari passu on dissolution after all other classes.

12. [Reserved]

13. Three new corporations ("TC1Subco", "TC2Subco" and "NewcoSubco") will be incorporated pursuant to the provisions of the BCA (TC1Subco, TC2Subco and NewcoSubco are collectively referred to hereafter as "Subcos" and individually as "Subco"). Each Subco will be a TCC and a CCPC. No shares will be issued as part of the incorporation of the Subcos.

The authorized capital of each of the Subcos will consist of an unlimited number of common shares (the "TC1Subco Common Shares", the "TC2Subco Common Shares" and the "NewcoSubco Common Shares").

14. Prior to the implementation of any of the transactions described below, DC will transfer its legal title to the Revenue Producing Properties to the Bare Trusteecos such that

(a) one particular Bare Trusteeco will hold legal title to the property transferred by Newco to TC1 described in paragraph 28 below;

(b) one particular Bare Trusteeco will hold legal title to the property transferred by Newco to TC2 described in paragraph 29 below, and

(c) one particular Bare Trusteeco will hold legal title to the property retained by Newco described in paragraph 34 below.

DC will enter into a separate bare trust agreement with the particular Bare Trusteeco, the terms of which will include the following:

(i) the particular Bare Trusteeco will hold legal title to the property described above as nominee, agent and bare trustee for the sole benefit and account of DC as principal and beneficial owner, and

(ii) the particular Bare Trusteeco will not deal with the property described above in any way, or execute any instrument, document or encumbrance in respect of the property described above without prior written consent or direction of DC.

In each subsequent transfer of the beneficial ownership of the Revenue Producing Properties contemplated by the proposed transactions described in paragraphs 19, 28, 29 and 35 below, a similar bare trust agreement between each particular beneficial owner and each particular Bare Trusteeco will be utilized.

All the bare trust agreements entered into in respect of the transfers of the Revenue Producing Properties described in this paragraph and in paragraphs 20, 30 and 36 below will be substantially the same as the bare trust agreement attached to your letter of XXXXXXXXXX.

DC Spin-Off

15. Each of Father, Mother, Son1, Son2 and Individual A (collectively referred to hereafter as the "DC Shareholders" and individually as a "DC Shareholder") will transfer to DC a particular number of his or her DC shares having an aggregate FMV equal to that proportion of the aggregate FMV of his or her DC shares that

(a) the aggregate FMV of the Revenue Producing Properties immediately before the transfer described in paragraph 19 below

is of

(b) the aggregate FMV of all of the business property of DC determined immediately before the transfer described in paragraph 19 below by applying the rules in paragraph 18 below.

For greater certainty, Individual A will transfer all of his DC First Special Shares together with a number of his DC Common Shares to DC to arrive at that proportion.

As sole consideration, DC will issue to each particular DC Shareholder a number of the DC Class A Preference Shares having an aggregate FMV, redemption and retraction amount equal to the aggregate FMV of the DC shares that were transferred by the particular DC Shareholder to DC.

For greater certainty, the aggregate FMV of the DC Class A Preference Shares received by Individual A immediately after the share exchange described herein will not exceed the aggregate FMV of his DC Common Shares and DC First Special Shares, immediately before such share exchange, that he exchanged for the DC Class A Preference Shares.

For the purposes of the BCA, the addition to the stated capital account of the DC Class A Preference Shares issued by DC to the DC Shareholders described herein will be $XXXXXXXXXX.

The share exchanges described in this paragraph will result in a net reduction in the stated capital of DC. The DC Shareholders will consent to that net reduction.

Each DC Shareholder will not file an election under subsection 85(1) with respect to the shares received by each on the share exchange described herein.

Each DC Shareholder will hold his or her DC Class A Preference Shares as capital property.

16. Following the completion of the transfers described in paragraph 15 above, each particular DC Shareholder will transfer all of his or her DC Class A Preference Shares to Newco in exchange for an identical number of the Newco Common Shares having an aggregate FMV equal to the aggregate FMV at that time of the DC Class A Preference Shares that the particular DC Shareholder transferred to Newco.

Immediately after the share exchanges described in this paragraph, the aggregate FMV of the Newco Common Shares owned by the particular DC shareholder will be equal to or approximate the amount determined by the formula, on the assumption that Father, Mother, Son1, Son2 and Individual A are participants, DC is the distributing corporation and Newco is the acquirer,

				(A x B)  + D
			     		     C

as found in subparagraph (b)(iii) of the definition of "permitted exchange" in subsection 55(1). In addition, no person who is not a DC shareholder will own any shares of Newco.

For the purposes of the Act, other than section 55 thereof, DC and Newco will be related and will not be dealing at arm's length with each other immediately after the share exchanges described in this paragraph, as Son1 and Son2 are a related group (other than for the purposes of section 55) that will control Newco at that time.

For greater certainty, the aggregate FMV of the Newco Common Shares received by Individual A immediately after his share exchange described in this paragraph will not exceed the aggregate FMV of his DC Class A Preference Shares, immediately before such share exchange, that he exchanged for the Newco Common Shares.

Each DC Shareholder will hold his or her Newco Common Shares as capital property.

17. Newco and each particular DC Shareholder will jointly elect in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to each transfer described in paragraph 16 above. The agreed amount in respect of the DC Class A Preference Shares so transferred by the particular DC Shareholder to Newco will be equal to the ACB, at the time of such transfer, to the particular DC Shareholder of each such share owned by the particular DC Shareholder and transferred to Newco. For greater certainty, the DC Class A Preference Shares owned by the particular DC Shareholder will be property described in paragraph 85(1)(c.1) and the elected amount will be within the limits prescribed by that paragraph.

For the purposes of the BCA, the addition to the stated capital account of the Newco Common Shares issued by Newco to each of the DC Shareholders will be the sum of

(a) the aggregate of the greater of the PUC and the ACB to Father, Mother, Son1 and Son2, as the case may be, immediately before the transfer, as modified by paragraph 84.1(2)(a.1), where applicable, of the DC Class A Preference Shares that Father, Mother, Son1 and Son2 transferred to Newco, as the case may be, and

(b) an amount equal to the aggregate of the cost (as determined under section 85, where applicable) of the DC Class A Preference Shares that Individual A transferred to Newco.

Each DC Shareholder will hold the Newco Common Shares as capital property.

18. Immediately before the transfer of property described in paragraph 19 below, the property of DC will be classified into three types of property for the 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 DC, including cash, accounts receivable, prepaid expenses consisting of realty taxes and insurance;

(b) business property, comprising all of the assets of DC, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from a business (other than a SIB); and

(c) investment property, comprising all of the assets of DC, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or a SIB.

For the purposes of determining the types of property described herein,

(i) the Revenue Producing Properties and the Inventory Lands will be classified as business property, and

(ii) any tax accounts, such as the balance of any non-capital losses of DC or the balance of any RDTOH account or CDA of DC, will not be considered property.

It is not anticipated that DC will have any investment property immediately before the transfer of property described in paragraph 19 below.

19. Immediately following the determination of its types of property as described in paragraph 18 above, DC will transfer to Newco a proportionate share of

(a) its cash or near cash property;

(b) its business property (such proportionate share being its beneficial ownership of the Revenue Producing Properties), and

(c) its investment property, if any,

such that the FMV of each type of property described in (a) to (c) above so received by Newco will be equal to that proportion of the FMV of all property of DC of that type determined immediately before the transfer that:

(d) the aggregate FMV, immediately before the transfer, of all of the DC Class A Preference Shares owned by Newco,

is of

(e) the aggregate FMV, immediately before the transfer, of all of the issued and outstanding shares of DC (that proportion is hereinafter referred to as the "Newco Proportion").

As consideration for the property transferred to Newco described herein, Newco will:

(i) assume the liabilities of DC, which will be equal to the Newco Proportion of all of the liabilities of DC, and

(ii) issue to DC that number of its Class B Shares having an aggregate FMV, redemption and retraction amount equal to the amount by which the aggregate of the FMV at that time of the property that was transferred by DC to Newco described herein exceeds the principal amount of the liabilities of DC assumed by Newco described in (i) above.

For greater certainty, the amount of the liabilities of DC assumed by Newco described in (i) above, will not exceed the aggregate cost amount of the property that was transferred by DC to Newco as described in this paragraph.

Newco will hold the Revenue Producing Properties received from DC described herein as capital property.

20. Immediately prior to the transfer of property by DC to Newco described in paragraph 19 above, Newco and each particular Bare Trusteeco will enter into a separate bare trust agreement, similar to the bare trust agreement described in paragraph 14 above, the terms of which will include that the particular Bare Trusteeco will hold legal title to the property transferred by Newco to TC1 described in paragraph 28 below, the property transferred by Newco to TC2 described in paragraph 29 below, or the property retained by Newco described in paragraph 34 below, as the case may be, as nominee, agent and bare trustee for the sole benefit and account of Newco as principal and beneficial owner.

21. DC and Newco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer to Newco of any eligible property of DC that has a FMV in excess of its cost amount. Specifically, the agreed amount in each joint election will be equal to the least of:

(a) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,

(b) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and

(c) the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1).

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

22. For the purposes of the BCA, the addition to the stated capital account of the Newco Class B Shares issued by Newco to DC described in paragraph 19 above, will equal the amount by which the aggregate of the cost (determined pursuant to subsection 85(1), where relevant) of the property transferred to Newco described in paragraph 19 above exceeds the principal amount of the liabilities of DC assumed by Newco described in subparagraph 19(i) above.

23. Immediately following the transfer of property described in paragraph 19 above, Newco will redeem from DC all of the Newco Class B Shares for an amount equal to their FMV, being the Newco Class B Redemption Amount of the Newco Class B Shares so redeemed and will issue to DC in consideration therefor a demand non-interest bearing promissory note with a principal amount and FMV equal to that amount (the "Newco Class B Redemption Note"). DC will accept the Newco Class B Redemption Note as full payment of the Newco Class B Redemption Amount in respect of each redeemed Newco Class B Share with the risk of the note being dishonored.

At the end of the day on which the Newco Class B Shares are redeemed, Newco will cause its first fiscal and taxation year to end.

On the day following the redemption of the Newco Class B Shares described in this paragraph, DC will redeem from Newco all of the DC Class A Preference Shares for an amount equal to their FMV, being the DC Class A Redemption Amount of the DC Class A Preference Shares so redeemed and will issue to Newco in consideration therefor a demand non-interest bearing promissory note with a principal amount and FMV equal to that amount (the "DC Class A Redemption Note"). The principal amounts and FMVs of the Newco Class B Redemption Note and the DC Class A Redemption Note will be equal. Newco will accept the DC Class A Redemption Note as full payment of the DC Class A Redemption Amount in respect of each redeemed DC Class A Preference Share with the risk of the note being dishonored.

DC will pay the principal amount of the DC Class A Redemption Note by transferring to Newco the Newco Class B Redemption Note that will be accepted by Newco in full payment of DC's obligation. Newco will pay the principal amount of the Newco Class B Redemption Note by transferring to DC the DC Class A Redemption Note that will be accepted by DC in full payment of Newco's obligation. The DC Class A Redemption Note and the Newco Class B Redemption Note will both be marked paid in full and cancelled.

24. Immediately following the transfer described in paragraph 19 above,

(a) the FMV of each type of property retained by DC, determined in the manner described in paragraph 18 above, will be equal to that proportion of the FMV of each type of property of DC, determined immediately before the transfer described in paragraph 19 above, that:

(i) the aggregate FMV, immediately before the transfer described in paragraph 19 above, of all of the shares of DC owned by Father, Mother, Son1, Son2 and Individual A

			is of 

(ii) the aggregate FMV, immediately before the transfer described in paragraph 19 above, of all of the issued and outstanding shares of DC (that proportion is hereinafter referred to as the "DC Spin-Off Proportion"), and

(b) DC's liabilities will be equal to the DC Spin-Off Proportion of all of its liabilities determined immediately before the transfer described in paragraph 19 above.

Newco Split-Up

25. Father and Son1 each will transfer all of his Newco Common Shares to TC1. As sole consideration, TC1 will issue to

(a) Father XXXXXXXXXX TC1 Class A Shares having an aggregate FMV, redemption amount and retraction amount equal to the aggregate FMV at that time of the Newco Common Shares transferred to TC1 by Father, and

(b) Son1 XXXXXXXXXX TC1 Common Shares having an aggregate FMV equal to the aggregate FMV at that time of the Newco Common Shares transferred to TC1 by Son1.

TC1 and each of Father and Son1 will jointly elect in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to each transfer described herein. The agreed amount in respect of the Newco Common Shares so transferred by Father and Son1 to TC1, as the case may be, will be equal to the aggregate ACB to Father and Son1, as the case may be, of each such share owned by Father and Son1 and transferred to TC1 at the time of such transfer. For greater certainty, the Newco Common Shares owned by Father and Son1 will be property described in paragraph 85(1)(c.1) and the elected amount will be within the limits prescribed by that paragraph.

For the purposes of the BCA, the addition to the stated capital account of

(i) the XXXXXXXXXX TC1 Class A Shares issued by TC1 to Father, will be equal to the aggregate PUC of the Newco Common Shares transferred to TC1 by Father described herein, and

(ii) the XXXXXXXXXX TC1 Common Shares issued by TC1 to Son1, will be equal to the aggregate PUC of the Newco Common Shares transferred to TC1 by Son1 described herein.

Son1 will hold his XXXXXXXXXX TC1 Common Shares as capital property.

26. Mother and Son2 each will transfer all of his or her Newco Common Shares to TC2. As sole consideration, TC2 will issue to

(a) Mother XXXXXXXXXX TC2 Class A Shares having an aggregate FMV, redemption amount and retraction amount equal to the aggregate FMV at that time of the Newco Common Shares transferred to TC2 by Mother described herein, and

(b) Son2 XXXXXXXXXX TC2 Common Shares having an aggregate FMV equal to the aggregate FMV at that time of the Newco Common Shares transferred to TC2 by Son2 described herein.

TC2 and each of Mother and Son2 will jointly elect in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to each transfer as described herein. The agreed amount in respect of the Newco Common Shares so transferred by Mother and Son2 to TC2, as the case may be, will be equal to the aggregate ACB to Mother and Son2, as the case may be, of each such share owned by Mother and Son2 and transferred to TC2 at the time of such transfer. For greater certainty, the Newco Common Shares owned by Mother and Son2 will be property described in paragraph 85(1)(c.1) and the elected amount will be within the limits prescribed by that paragraph.

For the purposes of the BCA, the addition to the stated capital account of

(i) the XXXXXXXXXX TC2 Class A Shares issued by TC2 to Mother, will be equal to the aggregate PUC of the Newco Common Shares transferred to TC2 by Mother described herein, and

(ii) the XXXXXXXXXX TC2 Common Shares issued by TC2 to Son2, will be equal to the aggregate PUC of the Newco Common Shares transferred to TC2 by Son2 described herein.

27. Immediately before the transfer of property described in paragraph 28 below, the property of Newco will be classified into three types of property for the 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 Newco, including cash, accounts receivable, prepaid expenses consisting of realty taxes and insurance;

(b) business property, comprising all of the assets of Newco, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from a business (other than a SIB); and

(c) investment property, comprising all of the assets of Newco, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or a SIB.

For the purposes of determining the types of property described herein, the Revenue Producing Properties will be classified as business property.

It is not anticipated that Newco will have any investment property immediately before the transfer of property described in paragraph 28 below.

28. Immediately following the determination of its types of property as described in paragraph 27 above and contemporaneously with the transfer of property described in paragraph 29 below, Newco will transfer to TC1 a proportionate share of

(a) its cash or near cash property;

(b) its business property which will consist solely of its beneficial ownership of the Revenue Producing Properties, and

(c) its investment property, if any,

such that the FMV of each type of property described in (a) to (c) above so received by TC1 will be equal to that proportion of the FMV of all property of Newco of that type determined immediately before the transfer that:

(d) the aggregate FMV, immediately before the transfer, of all of the Newco Common Shares owned by TC1,

is of

(e) the aggregate FMV, immediately before the transfer, of all of the issued and outstanding shares of Newco (that proportion is hereinafter referred to as the "TC1 Proportion").

As consideration for the property transferred to TC1 described herein, TC1 will:

(i) assume the liabilities of Newco, which will be equal to the TC1 Proportion of all of the liabilities of Newco, and

(ii) issue to Newco that number of its Class B Shares having an aggregate FMV, redemption and retraction amount equal to the amount by which the aggregate of the FMV at that time of the property that was transferred by Newco to TC1 described herein exceeds the principal amount of the liabilities of Newco assumed by TC1 described in (i) above.

For greater certainty, the amount of the liabilities of Newco assumed by TC1 described in (i) above, will not exceed the aggregate cost amount of the property that was transferred by Newco to TC1 described herein.

TC1 will hold the TC1 Proportion of the Revenue Producing Properties received from Newco described herein as capital property.

29. Immediately following the determination of its types of property as described in paragraph 27 above and contemporaneously with the transfer of property described in paragraph 28 above, Newco will transfer to TC2 a proportionate share of

(a) its cash or near cash property;

(b) its business property which will consist solely of its beneficial ownership of the Revenue Producing Properties, and

(c) its investment property, if any,

such that the FMV of each type of property described in (a) to (c) above so received by TC2 will be equal to that proportion of the FMV of all property of Newco of that type determined immediately before the transfer that:

(d) the aggregate FMV, immediately before the transfer, of all of the Newco Common Shares owned by TC2,

is of

(e) the aggregate FMV, immediately before the transfer, of all of the issued and outstanding shares of Newco (that proportion is hereinafter referred to as the "TC2 Proportion").

As consideration for the property transferred to TC2 described herein, TC2 will:

(i) assume the liabilities of Newco, which will be equal to the TC2 Proportion of all of the liabilities of Newco, and

(ii) issue to Newco that number of its Class B Shares having an aggregate FMV, redemption and retraction amount equal to the amount by which the aggregate FMV at that time of the property that was transferred by Newco to TC2 described herein exceeds the principal amount of the liabilities of Newco assumed by TC2 described in (i) above.

For greater certainty, the amount of the liabilities of Newco assumed by TC2 described in (i) above, will not exceed the aggregate cost amount of the property that was transferred by Newco to TC2 described herein.

TC2 will hold the TC2 Proportion of the Revenue Producing Properties received from Newco described in this paragraph as capital property.

30. Immediately prior to the transfers of property by Newco to each of TC1 and TC2 described in paragraphs 28 and 29 above, TC1 and the particular Bare Trusteeco described in subparagraph 14(a) above, and TC2 and the particular Bare Trusteeco described in subparagraph 14(b) above, will each enter into a separate bare trust agreement, similar to the bare trust agreement described in paragraph 14 above, the terms of which will include that the particular Bare Trusteeco will hold legal title to the property transferred by Newco to TC1 described in paragraph 28 above, or the property transferred by Newco to TC2 described in paragraph 29 above, as the case may be, as nominee, agent and bare trustee for the sole benefit and account of TC1 or TC2, as the case may be, as principal and beneficial owner.

31. In respect of the transfers described in paragraphs 28 and 29 above, Newco and each of TC1 and TC2 will file a joint election under subsection 85(1) in prescribed form and within the time referred to in subsection 85(6), with respect to each property that is an eligible property of Newco and that has a FMV in excess of its cost amount. Specifically, the agreed amount in each joint election will be equal to the least of:

(a) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,

(b) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and

(c) the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1).

In each case, the agreed amount will not exceed the FMV of the respective property at the time of the disposition, nor will it be less than the amount permitted under paragraph 85(1)(b).

32. For the purposes of the BCA, the aggregate amount that will be added to the stated capital account of the TC1 Class B Shares and the TC2 Class B Shares issued by each of TC1 and TC2 to Newco as described in paragraphs 28 and 29 above, as the case may be, will be equal to the amount by which the aggregate cost (as determined under section 85, where applicable) of the property that was transferred by Newco to TC1 and TC2, as the case may be, exceeds the principal amount of the liabilities of Newco assumed by TC1 or TC2 described in subparagraph 28(i) or 29(i) above, as the case may be.

33. Each of TC1 and TC2 will redeem all of its outstanding Class B Shares held by Newco and each will issue to Newco, as payment therefor, a demand non-interest bearing promissory note having a principal amount and FMV equal to the aggregate redemption amount and FMV of its Class B Shares so redeemed ("TC1 Redemption Note" and "TC2 Redemption Note", as the case may be). Newco will accept the TC1 Redemption Note and the TC2 Redemption Note as full satisfaction for the redemption price of the TC1 Class B Shares and the TC2 Class B Shares, as the case may be, with the risk of the notes being dishonored.

At the end of the day on which the Class B Shares of TC1 and TC2 are redeemed, each of TC1 and TC2 will cause its first fiscal and taxation year to end.

On the day following the redemption of the TC1 Class B Shares and the TC2 Class B Shares described herein, Newco will purchase for cancellation all of its Common Shares held by each of TC1 and TC2 and will issue to each of TC1 and TC2, as payment therefor, a demand non-interest bearing promissory note having a principal amount and FMV equal to the aggregate FMV of its Common Shares so purchased from TC1 and TC2, as the case may be ("Newco Redemption Note 1" and "Newco Redemption Note 2", as the case may be). The principal amount and FMV of the Newco Redemption Note 1 and the Newco Redemption Note 2 will be equal to the TC1 Redemption Note and the TC2 Redemption Note, respectively. TC1 and TC2 will accept the Newco Redemption Note 1 and the Newco Redemption Note 2, respectively, as full satisfaction for the purchase price of their Newco Common Shares, with the risk of the note being dishonored.

Each of TC1 and TC2 will pay the principal amount of the TC1 and TC2 Redemption Note, respectively, by transferring to Newco the Newco Redemption Note 1 and 2, as the case may be, which will be accepted by Newco in full payment of each of TC1 and TC2's obligation. Newco will pay the principal amount of the Newco Redemption Note 1 and 2 by transferring to each of TC1 and TC2 the TC1 Redemption Note and the TC2 Redemption Note, respectively, which will be accepted by each of TC1 and TC2 in full payment of Newco's obligation. The TC1 Redemption Note, the TC2 Redemption Note, the Newco Redemption Note 1 and the Newco Redemption Note 2 will all be marked paid in full and cancelled.

34. Immediately following the transfers described in paragraphs 28 and 29 above,

(a) the FMV of each type of property retained by Newco, determined in the manner described in paragraph 27 above, will be equal to that proportion of the FMV of each type of property of Newco determined immediately before the transfers described in paragraphs 28 and 29 above, that:

(i) the aggregate FMV, immediately before the transfer, of all of the shares of Newco owned by Individual A

			is of 

(ii) the aggregate FMV, immediately before the transfer, of all of the issued and outstanding shares of Newco (that proportion is hereinafter referred to as the "Newco Split-Up Proportion"), and

(b) Newco's liabilities will be equal to the Newco Split-Up Proportion of all of its liabilities determined immediately before the transfers described in paragraphs 28 and 29 above.

35. Following the completion of the transfers of properties to TC1 and TC2 described in paragraphs 28 and 29 above, Newco, TC1 and TC2 (collectively referred to hereafter as the "Transferors", individually as a "Transferor") each will transfer all of its beneficial ownership of the XXXXXXXXXX to NewcoSubco, TC1Subco and TC2Subco, respectively ("NewcoSubco XXXXXXXXXX Interest", "TC1Subco XXXXXXXXXX Interest" and "TC2Subco XXXXXXXXXX Interest", as the case may be). As sole consideration, each particular Subco will issue XXXXXXXXXX of its Common Shares to each particular Transferor having an aggregate FMV equal to the aggregate of the FMV at that time of the property that was transferred by the particular Transferor to the particular Subco.

Each particular Transferor and particular Subco will file a joint election under subsection 85(1) in prescribed form and within the time referred to in subsection 85(6), with respect to each property that is an eligible property of the particular Transferor and that has a FMV in excess of its cost amount. Specifically, the agreed amount in each joint election will be equal to the least of:

(a) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,

(b) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class, and

(c) the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1).

In each case, the agreed amount will not exceed the FMV of the respective property at the time of the disposition, nor will it be less than the amount permitted under paragraph 85(1)(b).

For the purposes of the BCA, the amount that will be added to the stated capital account of the particular Subco Common Shares issued by the particular Subco to the particular Transferor will be equal to the aggregate cost (as determined under section 85, where applicable) of the property that was transferred by the particular Transferor to the particular Subco.

36. Immediately prior to the transfers of property by Newco to NewcoSubco, TC1 to TC1Subco and TC2 to TC2Subco described in paragraph 35 above, each of NewcoSubco, TC1 Subco and TC2Subco and each particular Bare Trusteeco will enter into a separate bare trust agreement, similar to the bare trust agreement described in paragraph 14 above, the terms of which will include that each particular Bare Trusteeco will hold legal title to the NewcoSubco XXXXXXXXXX Interest, the TC1Subco XXXXXXXXXX Interest or the TC2Subco XXXXXXXXXX Interest, as the case may be, as nominee, agent and bare trustee for the sole benefit and account of NewcoSubco, TC1Subco or TC2Subco, as the case may be, as principal and beneficial owner.

37. Following the completion of the transactions described in paragraph 35 above, Son1 will transfer all of his TC1 Common Shares to TC1. As sole consideration, TC1 will issue to Son1

(a) XXXXXXXXXX TC1 Class 1 Shares having an aggregate FMV, redemption and retraction amount equal to the amount by which the aggregate of the FMV at that time of the TC1 Common Shares that were transferred by Son1 to TC1 described herein exceeds the amount of $XXXXXXXXXX described in (b) below, and

(b) XXXXXXXXXX TC1 Class 2 Shares having an aggregate FMV, redemption and retraction amount equal to $XXXXXXXXXX.

For the purposes of the BCA, the addition to the stated capital account of

(i) the XXXXXXXXXX TC1 Class 1 Shares issued by TC1 to Son1, will be equal to the amount by which the aggregate PUC of the TC1 Common Shares received by TC1 exceeds the amount of $XXXXXXXXXX described in (ii) below, and

(ii) the XXXXXXXXXX TC1 Class 2 Shares issued by TC1 to Son1, will be equal to $XXXXXXXXXX.

38. A discretionary inter vivos trust ("Son1 Family Trust") will be settled by Father by contributing a silver coin to the trust. The terms of the Son1 Family Trust will include:

(a) the beneficiaries will be Son1 and his issue;

(b) the trustees ("Trustees") will be Son1, Individual A and XXXXXXXXXX (who is not related to Son1);

(c) decisions of the Trustees must be made by majority rule;

(d) Son1 will have the power to remove and replace the Trustees, and

(e) no person who is a designated person as defined in subsection 74.5(5) of the Act shall be entitled to receive or otherwise obtain the use of any of the income or capital of the Son1 Family Trust at any time while such person is a designated person.

39. The Son1 Family Trust will borrow the sum of $XXXXXXXXXX from a bank, on an interest-bearing basis, and will use the borrowed funds to subscribe for XXXXXXXXXX TC1 Class C Shares for a subscription price of $XXXXXXXXXX per share.

Additional Information

40. None of the corporations referred to herein (including the corporations to be incorporated as described in the proposed transactions) is or will be, at any time during the series of transactions herein described, a specified financial institution or a restricted financial institution.

41. No property has been or will be acquired by DC or Newco, and no liabilities have been or will be incurred by DC or Newco, in contemplation of and before the transfers of property as described in paragraphs 19, 28 and 29 above, except as described herein.

42. There will not be at any time prior to the completion of the proposed transactions, any agreements or undertakings which constitute or include a "guarantee agreement", as defined in subsection 112(2.2) of the Act, in respect of any of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions).

43. Each of DC, Newco, TC1 and TC2 will not have entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions).

44. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5) of the Act.

45. None of the corporations described above (including the corporations to be incorporated as described in the proposed transactions) is or will be, at any time before the completion of the proposed transactions described above, a corporation described in any of the paragraphs (a) to (f) of the definition "financial intermediary corporation" in subsection 191(1) of the Act.

46. Each of DC, Newco, TC1 and TC2 will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note(s) issued by it as part of the proposed transactions.

Purpose of the Proposed Transactions

47. The purpose of the DC Spin-Off and the Newco Split-Up described above is to allow

(a) Son1, Son2 and Individual A to separate their interests in the Revenue Producing Properties from one another so that they can pursue their separate goals, and

(b) Son1 to implement an estate freeze such that his issue will participate in the future growth of his interest in the Revenue Producing Properties.

48. The purpose of the transfers by DC of its legal title to the Revenue Producing Properties to the Bare Trusteecos described in paragraph 14 above is to allow the subsequent transfers of the beneficial ownership of the Revenue Producing Properties described in paragraphs 19, 28, 29 and 35 above to be exempt from XXXXXXXXXX land transfer tax XXXXXXXXXX.

49. The purpose of the proposed transfers by Newco, TC1 and TC2 of their beneficial interests in the XXXXXXXXXX to NewcoSubco, TC1Subco and TC2Subco, respectively, as described in paragraph 35 above, is to protect Newco, TC1 and TC2's other revenue producing properties from being exposed to the potential commercial liabilities that are associated with the XXXXXXXXXX.

Rulings

Provided that the preceding statements constitute 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 follows:

A. The provisions of subsection 51(1) of the Act will apply to the share exchanges by

(a) each of Father and Mother of their DC First Special Shares for DC Class A Preference Shares;

(b) each of Son1 and Son2 of their DC Common Shares for DC Class A Preference Shares; and

(c) Individual A of his DC Common Shares for DC Class A Preference Shares

as described in paragraph 15 above, with the result that:

(d) each of Father, Mother, Son1, Son2 and Individual A will be deemed not to have disposed of his or her DC Common Shares or DC First Special Shares, as the case may be, and

(e) the cost to each of Father, Mother, Son1, Son2 and Individual A of the DC Class A Preference Shares received will be equal to the ACB, immediately before the share exchange, to each of Father, Mother, Son1, Son2 and Individual A of his or her DC Common Shares or DC First Special Shares, as the case may be, that he or she transferred to DC.

For greater certainty, subsection 51(2) will not apply to the share exchanges referred to above.

B. The provisions of subsection 86(1) of the Act will apply, and the provisions of subsection 86(2) of the Act will not apply, to the share exchanges

(a) by Individual A of his DC First Special Shares for DC Class A Preference Shares described in paragraph 15 above; and

(b) by Son1 of his TC1 Common Shares for the TC1 Class 1 and 2 Shares described in paragraph 37 above,

such that:

(c) the cost to Son1 of the TC1 Class 1 Shares and the TC1 Class 2 Shares received on the share exchange described in (b) above shall be deemed by paragraph 86(1)(b) of the Act to be an amount equal to that proportion of the aggregate ACB to Son1, immediately before the share exchange, of the TC1 Common Shares, that

(i) the FMV, immediately after the share exchange, of the TC1 Class 1 Shares and the TC1 Class 2 Shares, as the case may be,

is of

(ii) the FMV, immediately after the share exchange, of all the shares of TC1 received by Son1 for the TC1 Common Shares;

(d) pursuant to paragraph 86(1)(c) of the Act, Son1 shall be deemed to have disposed of the TC1 Common Shares for aggregate proceeds of disposition equal to the aggregate cost to Son1 of the TC1 Class 1 Shares and the TC1 Class 2 Shares determined in (c) above;
(e) the cost to Individual A of the DC Class A Preference Shares received on the share exchange described in (a) above, shall be deemed by paragraph 86(1)(b) of the Act to be equal to the aggregate ACB to Individual A, immediately before the share exchange, of the DC First Special Shares, and

(f) pursuant to paragraph 86(1)(c) of the Act, Individual A shall be deemed to have disposed of the DC First Special Shares for aggregate proceeds of disposition equal to the aggregate cost to Individual A of the DC Class A Preference Shares determined in (e) above.

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

(a) subject to the application of subsection 26(5) of the ITAR, the transfers by Son1 and Son2 of their DC Class A Preference Shares to Newco described in paragraph 16 above;

(b) the transfers by Father, Mother and Individual A of their DC Class A Preference Shares to Newco described in paragraph 16 above;

(c) the transfers by Father and Son1 of there Newco Common Shares to TC1 described in paragraph 25 above;

(d) the transfers by Mother and Son2 of there Newco Common Shares to TC2 described in paragraph 26 above;

(e) subject to the application of subsections 13(21.2) and 69(11), the transfers of

(i) each eligible property by DC to Newco described in paragraph 19 above;

(ii) each eligible property by Newco to TC1 described in paragraph 28 above;

(iii) each eligible property by Newco to TC2 described in paragraph 29 above, and

(f) subject to the application of subsection 13(21.2), the transfers by Newco, TC1 and TC2 of their interests in the XXXXXXXXXX to NewcoSubco, TC1Subco and TC2Subco, respectively, described in paragraph 35 above,

such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a). In respect of depreciable property, to the extent that the transferor's capital cost exceeds the transferor's proceeds of disposition of the property, the transferee's capital cost of each such property will be determined in accordance with subsection 85(5).

For the purpose of this ruling, the reference in subparagraph 85(1)(e)(i) to "the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition" shall be interpreted to mean the portion of the undepreciated capital cost of all property of that class immediately before the transfer that the capital cost of the property of that class transferred is of the capital cost of all property of that class.

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

D. Subsection 84(3) will apply on the redemption or purchase for cancellation described in paragraphs 23 and 33 above,

(a) of the Newco Class B Shares held by DC, to deem Newco to have paid and DC to have received;

(b) of the DC Class A Preference Shares held by Newco, to deem DC to have paid and Newco to have received;

(c) of the Class B Shares of TC1 and TC2 held by Newco, to deem each of TC1 and TC2 to have paid and Newco to have received, and

(d) of the Newco Common Shares held by each of TC1 and TC2, to deem Newco to have paid and each of TC1 and TC2 to have received, a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption or purchase for cancellation exceeds the aggregate PUC in respect of such shares immediately before such redemption or purchase for cancellation, and any such dividend

(e) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;

(f) will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1) and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividends;

(g) will be excluded from the proceeds of disposition of the shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 of the Act;

(h) by virtue of subsection 112(3) of the Act, will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received, and

(i) will not be subject to tax under Part IV.1 and Part VI.1 of the Act on the basis that such dividends will be excepted dividends by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act and excluded dividends by virtue of paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act, as DC, Newco, TC1 and TC2, as the case may be, will have a substantial interest, within the meaning assigned by paragraph 191(2)(a) of the Act, in the payer corporation at the time of the redemption or purchase for cancellation of such shares.

E. Provided that each of DC, Newco, TC1 and TC2 is not entitled to a dividend refund in respect of its taxation year in which it is deemed to pay the dividend referred to in ruling D above, DC, Newco, TC1 and TC2 will not be subject to Part IV tax under subsection 186(1) in respect of such dividend.

F. Provided that as part of the series of transactions or events that includes the proposed transactions described herein, 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 shares 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, then by virtue of paragraph 55(3)(b) subsection 55(2) will not apply to the taxable dividends referred to in ruling D above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b) of the Act.

G. The repayment of the DC Class A Redemption Note held by Newco, the Newco Class B Redemption Note held by DC, the Newco Redemption Note 1 held by TC1, the Newco Redemption Note 2 held by TC2, and the TC1 Redemption Note and the TC2 Redemption Note held by Newco described in paragraphs 23 and 33 above, as the case may be, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).

H. The provisions of subsection 7(1.5) of the Act will apply to the share exchanges by Individual A

(a) of his DC Common Shares and DC First Special Shares for the DC Class A Preference Shares described in paragraph 15 above, and

(b) of his DC Class A Preference Shares for the Newco Common Shares described in paragraph 16 above,

such that, for the purposes of subsection 7(1.1) and paragraph 110(1)(d.1):

(c) (i) in the share exchange described in (a) above, he will be deemed
not to have disposed of or exchanged his DC Common Shares and DC First Special Shares and not to have acquired the DC Class A Preference Shares, and

(ii) in the share exchange described in (b) above, he will be deemed not to have disposed of or exchanged his DC Class A Preference Shares and not to have acquired the Newco Common Shares;

(d) (i) the DC Class A Preference Shares that he received as described in
(a) above and that he transferred to Newco as described in (b) above, will be deemed to be the same shares as, and a continuation of, his exchanged DC Common Shares and DC First Special Shares, and

(ii) the Newco Common Shares that he received as described in (b)
above, will be deemed to be the same shares as, and a continuation of, his exchanged DC Common Shares and DC First Special Shares;

(e) Newco will be deemed to be the same person as, and a continuation of, DC, and

(f) the DC Class A Preference Shares described in (a) above and the Newco Common Shares described in (b) above acquired by Individual A, will be deemed to have been issued under the Option Agreement described in paragraph 7 above.

I. The transfers by DC of its legal title to the Revenue Producing Properties to the Bare Trusteecos described in paragraph 14 above will not constitute a disposition for the purposes of the Act. For greater certainty, the bare trust agreement procedure described in paragraph 14 above will not create a trust described in subsection 104(1).

J. The provisions of subsections 15(1), 56(2), 75(2) and 246(1) will not apply to any of the proposed transactions described in paragraphs 8 to 39 above, in and by themselves.

K. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions described in paragraphs 8 to 39 above, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by Canada Customs and Revenue Agency ("CCRA") on May 17, 2002 and are binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX.

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

Comments

1. It is our view that when Newco purchases for cancellation its Common Shares owned by TC1 and TC2 described in paragraph 33 above, Individual A will acquire control of Newco and, consequently, subsection 249(4) will apply to Newco.

2. Nothing in this ruling should be construed as implying that CCRA has agreed to or reviewed:

(a) the determination of the FMV or the cost amount of any particular asset or the PUC or V-day value of any shares referred to herein; and

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. For greater certainty, our rulings should not be construed as providing comfort that any of the shares of DC, Newco, TC1, TC2, NewcoSubco, TC1Subco or TC2Subco is or will be a "qualified small business corporation share" (as defined in subsection 110.6(1) of the Act).

Yours truly,

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