2002 Ruling 2002-0162293 - Butterfly

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: Single wing split-up butterfly

Position: Meets the requirements under paragraph 55(3)(b).

Reasons: The pre-butterfly transactions do not taint the butterfly.

XXXXXXXXXX 2002-016229

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

RE: XXXXXXXXXX

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

You have been advised by your clients that to the best of their knowledge, none of the issues involved in this ruling:

(i) is in an earlier return;

(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return;

(iii) is under objection;

(iv) is before the courts; or

(v) is the subject of a previously issued ruling.

DEFINITIONS

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

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

(a) "adjusted cost base" ("ACB") has the meaning assigned by section 54 and subsection 248(1);

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

(b) "Parentco" means XXXXXXXXXX which is described in paragraph 1;

(c) "Subsidiary" means XXXXXXXXXX which is described in paragraph 2;

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

(d.1) "Company Act" means the Company Act, (XXXXXXXXXX);

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

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

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

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

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

(j) "paid-up capital" ("PUC") has the meaning assigned by subsection 89(1);

(j.1) "related persons" has the meaning assigned by subsection 251(1);

(k) "refundable dividend tax on hand" ("RDTOH") has the meaning assigned by subsection 129(3);

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

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

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

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

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

FACTS

1. Parentco is a TCC and a CCPC and has a taxation year ending on XXXXXXXXXX. Parentco was incorporated under the Company Act on XXXXXXXXXX.

2. Subsidiary is a TCC and a CCPC and has a taxation year ending on XXXXXXXXXX. Subsidiary was incorporated under the Company Act on XXXXXXXXXX.

3. Parentco's business activity is the operation of a XXXXXXXXXX farm.

4. Subsidiary owns land, barns and equipment used principally by Parentco in the course of carrying on the business of XXXXXXXXXX farming.

5. Parentco calculates its income for tax purposes on the cash basis as provided by subsection 28(1).

6. Parentco's authorized share capital is as follows:

XXXXXXXXXX Class A participating common voting shares without par value;
XXXXXXXXXX Class B participating common non-voting shares without par value;
XXXXXXXXXX Class C preferred non-voting shares with $XXXXXXXXXX par value, redeemable/retractable at $XXXXXXXXXX each;
XXXXXXXXXX Class D preferred voting shares with $XXXXXXXXXX par value, redeemable/retractable at $XXXXXXXXXX each;
XXXXXXXXXX Class E preferred non-voting shares with $XXXXXXXXXX par value, redeemable/retractable at $XXXXXXXXXX each; and
XXXXXXXXXX Class F preferred non-voting shares with $XXXXXXXXXX par value, redeemable/retractable at $XXXXXXXXXX each.

The Class E and F preferred shares are shares of a "specified class" as defined in subsection 256(1.1).

7. Parentco's issued share capital is held as follows:

Class

Shareholder
B
common
C
preferred
D
preferred
E
Preferred

XXXXXXXXXX ("SIB1")

XXXXXXXX

XXXXXXXX
XXXXXXXXXX . ("SIB2")
XXXXXXXX

XXXXXXXX
XXXXXXXXXX . ("Father")
-
XXXXXXXX
XXXXXXXX
-
XXXXXXXXXX ("Mother")
-
XXXXXXX
XXXXXXX
-

XXXXXXXX

XXXXXXX

XXXXXXX

XXXXXXXX

The Class B common shares have an adjusted cost base of $XXXXXXXXXX each.

The Class C preferred shares have an adjusted cost base of $XXXXXXXXXX each.

The Class D preferred shares have an adjusted cost base of $XXXXXXXXXX each.

The Class E preferred shares have an adjusted cost base of $XXXXXXXXXX each.

8. Subsidiary's issued share capital is as follows:

Shareholder
Class A common

Parentco

XXXXXXXXXX

The Class A common shares are voting participating shares with an adjusted cost base and par value of $XXXXXXXXXX each.

9. Parentco's issued shares are shares of the capital stock of a family farm corporation as defined in subsection 70(10).

10. SIB1 and SIB2 are individuals who are residents of Canada and are adults. Father and Mother are the parents of SIB1 and SIB2 and are individuals who are residents of Canada.

11. SIB1, SIB2, Father and Mother hold the shares of Parentco as capital property.

12. Parentco currently has approximately $XXXXXXXXXX of RDTOH. It is not expected that it will have any RDTOH at the end of its taxation year in which the proposed transactions are implemented.

PROPOSED TRANSACTIONS

13. Father will transfer his XXXXXXXXXX Class C preferred shares of Parentco to his spouse, Mother, on a tax-deferred basis as provided by subsection 73(1).

After this share transfer, Father and Mother will each own XXXXXXXXXX Class C preferred shares of Parentco. Immediately after the reorganization in which the distribution described below will be made, Mother will be related to Amalco (defined in paragraph 15, below).

14. Father and Mother will each transfer all of their Class D voting preferred shares of Parentco, a family farm corporation, to their son, SIB1, on a tax-deferred basis as provided by subsection 73(4). The proceeds of disposition of the shares will be equal to the adjusted cost base of the shares to Father and Mother respectively.

15. Parentco and Subsidiary (referred to in this paragraph as "predecessor corporations") will amalgamate under the provisions of the Company Act to form a new corporation ("Amalco") in such manner that:

(a) all the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of Amalco by virtue of the merger;

(b) all the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco by virtue of the merger;

(c) all the shareholders of Parentco before the merger will receive shares of the capital stock of Amalco by virtue of the merger; and

(d) Parentco will elect, in prescribed form and within the time referred to in subsection 80.01(3), to have the rules in subsection 80.01 (3) apply with respect to the settlement of debt between itself and Subsidiary upon the amalgamation of Parentco and the Subsidiary.

Amalco's authorized share capital will be as follows:

XXXXXXXXXX Class A participating common voting shares without par value;
XXXXXXXXXX Class B participating common non-voting shares without par value;
XXXXXXXXXX Class C preferred non-voting shares with $XXXXXXXXXX par value, redeemable and retractable at $XXXXXXXXXX per share;
XXXXXXXXXX Class D preferred voting shares with $XXXXXXXXXX par value, redeemable and retractable at $XXXXXXXXXX per share;
XXXXXXXXXX Class E preferred non-voting shares with $XXXXXXXXXX par value, redeemable and retractable at $XXXXXXXXXX per share; and
XXXXXXXXXX Class F preferred non-voting shares with $XXXXXXXXXX par value, redeemable and retractable at $XXXXXXXXXX per share.

On the amalgamation, each shareholder of Parentco will receive:

Parentco Shares Exchanged
Amalco Shares Received
Shareholder
#
FMV
PUC
#
FMV
PUC
SIB1
XXXXXX
XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX

XXXXXX
XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX

XXXXXX
XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX

XXXXXX
XXXXXX
XXXXXX

XXXXXXX
XXXXXX
SIB2
XXXXXX
XXXXXX
XXXXXX

XXXXXX
XXXXXX
XXXXXX

XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX
Father
XXXXXX
XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX

Mother
XXXXXX
XXXXXX
XXXXXX
XXXXX
XXXXXXX
XXXXXX

Each shareholder of Parentco, a predecessor corporation, will receive shares of Amalco with a fair market value equal to the aggregate fair market value, immediately before the amalgamation, of the common and preferred shares of Parentco, as the case maybe, held by that shareholder, immediately before the amalgamation.

The PUC of the shares of Amalco, immediately after the issue of such shares on the amalgamation, will not exceed the aggregate of the PUC of Parentco, a predecessor corporation, immediately before the amalgamation.

16. SIB2 will incorporate a new corporation ("Newco") under the provisions of the Company Act. Newco will be a CCPC and a TCC.

The authorized share capital of Newco will include a class of voting common shares and several classes of redeemable retractable, non-voting, non-cumulative preferred shares with a par value of $XXXXXXXXXX each, the redemption amount of which will be set by the directors at the date of issuance. Upon incorporation, XXXXXXXXXX Class A voting common will be issued to SIB2.

17. SIB2 will transfer all of the XXXXXXXXXX Class F Amalco Preferred shares that he owns to Newco in exchange for XXXXXXXXXX Class G preferred shares of Newco (the "Class G Newco Preferred shares").

In accordance with the articles of Newco, the directors will designate the redemption amount of the Class G Newco Preferred shares at $XXXXXXXXXX each.

The Class G Newco Preferred shares will have a par value of $XXXXXXXXXX each. SIB2 and Newco will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of preferred shares of Amalco as described herein to Newco. The agreed amount will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate addition to the PUC of the Class G Newco Preferred shares in respect of the shares that Newco issues to SIB2 will be equal to the aggregate PUC of the shares of Amalco so transferred.

18. Father will transfer all of the XXXXXXXXXX Class F Amalco Preferred shares that he owns to Newco in exchange for XXXXXXXXXX Class G Newco Preferred shares.

In accordance with the articles of Newco, the directors will designate the redemption amount of the Class G Newco Preferred shares at $XXXXXXXXXX each.

The Class G Newco Preferred shares will have a par value of $XXXXXXXXXX each. Father and Newco will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of preferred shares of Amalco as described herein to Newco. The agreed amount will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate addition to the PUC of the Class G Newco Preferred shares in respect of the shares that Newco issues to Father will be equal to the aggregate PUC of the shares of Amalco so transferred.

19. Immediately before the proposed transfer of property by Amalco to Newco, the property of Amalco will be classified into three types of property for the purposes of the definition "distribution" in subsection 55(1), as follows:

(a) cash or near-cash property, comprised of the current assets of Amalco including cash, accounts receivable, inventory and rights arising from the prepayment of certain expenses ("prepaid expenses");

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

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

20. In determining the net fair market value of each type of property to be owned by Amalco, immediately before the transfers of property described in paragraphs 21 and 22 below, the liabilities of Amalco will be allocated to and be deducted in the calculation of the net fair market value of each type of property of Amalco as follows:

(a) Current liabilities of Amalco (including the current portion of long-term debt) will be allocated to each cash or near-cash property in the proportion that the fair market value of each such property is of the fair market value of all cash or near-cash property. The allocation of current liabilities will not exceed the aggregate fair market value of all cash or near-cash property of Amalco;

(b) Accounts receivable, inventories and prepaid expenses that are initially classified in accordance with paragraph (a) as cash or near-cash property, that will relate to a business carried on by Amalco or Newco and that will be collected, sold or consumed by such corporation in the ordinary course of business will be reclassified as business property and the net fair market value thereof, determined after the allocation of current liabilities described in (a) will be included in the net fair market value of business property and will not be included in the net fair market value of cash or near-cash property;

(c) Liabilities (other than current liabilities) that relate to a particular property will be allocated to that particular property (and effectively to the type to which the particular property belongs) to the extent of the property's fair market value. Any excess of such liabilities over the fair market value of that property will be allocated to the type of property to which that property belongs. Liabilities that pertain to a type of property, but not to a particular property, will be then allocated to that type of property, but not in excess of the net fair market value of such type of property after the allocation of liabilities to a particular property; and

(d) Any liabilities that remain after the allocations described in steps (a) and (c) above ("excess unallocated liabilities") will be then allocated to the cash or near-cash property, investment property and business property, if any, based on the relative remaining net fair market value of each type of property determined prior to the allocation of such excess unallocated liabilities.

21. Amalco will transfer certain of its cash or near-cash property, its business property and its investment property to Newco (the "Distribution") such that in respect of each of these types of property owned by Amalco immediately before the transfer (calculated in accordance with the rules in paragraphs 19 and 20) Newco receives property of that type the net FMV of which (calculated in accordance with the rules in paragraphs 19 and 20) is equal to or approximates that proportion determined by the formula

A* B/C

Where:

"A" is the net FMV, immediately before the transfer, of all property of that type owned at that time by Amalco,

"B" is the FMV, immediately before the transfer, of all the shares of the capital stock of Amalco owned at that time by Newco, and

"C" is the FMV, immediately before the transfer, of all the issued shares of the capital stock of Amalco.

For the purposes of this paragraph, the expression "approximates that proportion" means the discrepancy from that proportion, if any, that would not exceed XXXXXXXXXX percent (XXXXXXXXXX%) determined as a percentage of the net FMV of the property that Newco has received compared to what it would have received had it received its appropriate pro-rata share of Amalco's property.

Amalco and Newco will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of any eligible property (the "Eligible Property") of Amalco which is transferred to Newco as described above, the fair market value of which exceeds its cost amount. The agreed amount in respect of each of the Eligible Properties so transferred will be equal to:

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

(b) in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(c) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

For the purposes of the joint election described herein, the reference to the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition found in subparagraph 85(1)(e)(i) shall be interpreted to mean that proportion of the undepreciated capital cost to the taxpayer of all of the property of that class that the fair market value of the assets that are transferred immediately before the disposition is of the fair market value of all property of that class immediately before the disposition.

For greater certainty, the agreed amount for any eligible property included in the subsection 85(1) elections referred to herein will not exceed the fair market value of such property and will not be less than the amount of any liabilities assumed by Newco as consideration for the transfer of such property.

As consideration for the transfer of the Eligible Property, Newco will issue XXXXXXXXXX Class F preferred shares (the " Newco Special Preferred shares") to Amalco. The aggregate redemption amount of the Newco Special Preferred shares will equal the amount by which the aggregate FMV of the Eligible Property exceeds any debt assumed by Newco.

The addition to the PUC of the Newco Special Preferred shares will not exceed the amount by which aggregate agreed amounts under subsection 85(1) in respect of the Eligible Property exceeds any debts assumed by Newco.

22. Certain assets, including the accounts receivable and the balance in the Investment in Producer's Co-operative account will be also be transferred as part of the Distribution described in paragraph 21 above. As consideration for the transfer of these assets, Newco will assume certain debts of Amalco and will issue a non-interest-bearing promissory note ("Note1") having a principal amount and fair market value equal to the fair market value of the net assets transferred.

23. [Reserved].

24. a) Immediately following the transfers of property described in paragraphs 21 and 22 above, Amalco will redeem its XXXXXXXXXX Class F Amalco Preferred shares, owned by Newco, for an amount equal to their fair market value and will issue as consideration therefor a non-interest-bearing demand promissory note (the "Amalco Note") having a principal amount and fair market value equal to the aggregate fair market value of the XXXXXXXXXX Class F Amalco Preferred shares. Newco will accept the Amalco Note as full payment of the redemption amount of the XXXXXXXXXX Class F Amalco Preferred shares.

Amalco will, immediately before such share redemption, be related to Newco within the meaning of subsection 251(2) and will be connected with Newco within the meaning assigned by subsections 186(2) and 186(4).

b) Immediately following the transfers of property described in paragraph 21 and 22 above, Newco will redeem its XXXXXXXXXX Newco Special Preferred shares owned by Amalco for an amount equal to their fair market value and will issue as consideration therefor a non-interest-bearing demand promissory note (the "Newco Note") having a principal amount and fair market value equal to the aggregate fair market value of the Newco Special Preferred shares. Amlaco will accept the Newco Note as full payment of the redemption amount of the Newco Special Preferred shares.

Newco will, immediately before such share redemptions, be related to Amalco within the meaning of subsection 251(2) and will be connected with Amalco within the meaning assigned by subsection 186(2) and 186(4).

c) In satisfaction of its inter-company debts, the Amalco Note, the Newco Note and the Note1 will be set- off against one another and cancelled.

PURPOSE OF PROPOSED TRANSACTIONS

25. SIB1 and SIB2 no longer agree on a business strategy and have chosen to divide the assets between themselves and operate independently.

Accordingly, it is in the best interests of both parties to go their separate ways as soon as possible by carrying out a single-wing net asset butterfly.

ADDITIONAL INFORMATION

26. Except as described in this letter, no liabilities have been or will be incurred, and no assets have been or will be acquired by Parentco, Subsidiary or Amalco in contemplation of and before the proposed transfers of properties described in paragraphs 21 and 22 above.

27. Neither Newco nor Amalco is, or will be at the time of the proposed transactions, an SFI.

28. None of the shares of Amalco or Newco has been or will be, at any time during the implementation of the proposed transactions described herein:

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

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

(b) the subject of a dividend rental arrangement as that term is defined in subsection 248(1) .

29. Neither Amalco nor Newco has any intention of disposing of any assets currently owned by it to an unrelated person following the proposed transactions except in the normal course of carrying on business and neither Amalco nor Newco will dispose of any of its assets as part of a series of transactions which includes the proposed transactions except as described herein.

RULINGS

Provided that the above statements constitute a complete and accurate disclosure of all the relevant facts, purposes of the proposed transactions and proposed transactions, we rule as follows:

A. The provisions of subsection 87(11) will apply to the amalgamation of Parentco and Subsidiary as described in paragraph 15 above such that:

(i) the shares of Subsidiary will be deemed to have been disposed of by Parentco for proceeds as determined under paragraph 87(11)(a); and

(ii) the cost to Amalco of each capital property of Subsidiary acquired on the amalgamation will deemed to be the amount determined under paragraph 87(11)(b).

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

(i) the transfer of each eligible property by Amalco to Newco, which is the subject of an election under subsection 85(1), as described in paragraph 21 above, and to

(ii) the transfer of the preferred shares of Amalco held by SIB2 and Father to Newco which is the subject of an election under subsection 85(1) as described in paragraphs 17 and 18 above,

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

C. As a result of the redemption by Newco of the Newco Special Preferred shares as described in paragraph 24(b) above and the redemption by Amalco of the Class F Amalco Preferred shares as described in paragraph 24(a) above:

(a) by virtue of subsection 84(3):

(i) Newco will be deemed to have paid, and Amalco 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 Newco Special Preferred shares exceeds the PUC thereof; and

(ii) Amalco will be deemed to have paid, and Newco 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 F Amalco Preferred shares exceeds the PUC thereof;

(b) the taxable dividends deemed to have been received by each of Amalco and Newco as described above:

(i) will be included in the recipient's income pursuant to section 82 and paragraph 12(1)(j);

(ii) will be excluded from the proceeds of disposition of the shares so redeemed, as the case may be, by virtue of paragraph (j) of the definition "proceeds of disposition" in section 54;

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

(iv) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b), as Newco will be connected with Amalco and Amalco will be connected with Newco; and

(c) any loss arising from the disposition of the shares will be reduced by the amount of the taxable dividends by virtue of subsection 112(3).

D. By virtue of paragraph 191(2)(a), Amalco will have a substantial interest in Newco immediately before the redemption of the Newco Special Preferred shares as described in paragraph 24(b) above and Newco will have a substantial interest in Amalco immediately before the redemption of Class F Amalco Preferred shares described in paragraph 24(a) above. Consequently, no tax will be payable under either section 187.2 or section 191.1 in respect of the dividends described in Ruling C above.

E. Provided that as part of the series of transactions or events that includes the proposed transactions described herein, there is not:

(a) an acquisition of property in the circumstances described in subparagraph 55(3.1)(a);

(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(d) an acquisition of distributing corporation shares described in subparagraph 55(3.1)(b)(iii);

(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(f) 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 C 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 subsection 80(1) or subsection 80.01 will not apply to the settlement of the Newco and Amalco notes as described in paragraph 24(c) above.

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

H. As a result of the proposed transactions, in and by themselves, subsection 245(2) will not be applied to redetermine the tax consequences confirmed in the rulings given.

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

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

COMMENTS

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

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

(b) any tax consequences relating to the facts and proposed transactions described herein other than those described in the rulings given above. In particular, we are not commenting on whether the shares of Parentco are shares of the capital stock of a family farm corporation as that term is defined in subsection 70(10).

Yours truly,

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