2003 Ruling 2002-0177993 - Safe Income Extraction

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

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

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

Principal Issues: Whether Canco and Pco deal at arm's length with Holdco for purposes of the bump provisions in paragraph 88(1)(c)?

Position: Yes.

Reasons: The facts indicate that Canco and Pco are not acting as an accomodator in this arrangement.

XXXXXXXXXX 2002-017799

XXXXXXXXXX , 2003

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 that, to the best of the knowledge of the above-mentioned taxpayers, none of the issues involved in this ruling is:

(i) being considered by a tax services office or a taxation centre in connection with a tax return already filed;

(ii) under objection;

(iii) before the courts; or

(iv) the subject of a previously issued ruling.

STATUTORY DEFINITIONS

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

- "Act" means the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof (the "Act"), and unless otherwise indicated, all references herein to a statute are references to the Act;

- "adjusted cost base" has the meaning assigned by section 54;

- "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);

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

- "CBCA" means the Canada Business Corporations Act;

- "CCPC" or "Canadian-controlled private corporation" has the meaning assigned by subsection 248(1);

- "ineligible property" has the meaning assigned by paragraph 88(1)(c);

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

- "proceeds of disposition" has the meaning assigned by section 54;

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

- "related persons" has the meaning assigned by subsection 251(2);

- "Safe Income on Hand" in respect of particular shares at a particular time means the portion of the unrealized gain inherent in the shares at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as defined in paragraph 55(5)(b), (c) or (d) depending on the circumstances) by Pubco and its subsidiaries after 1971 and before the safe-income determination time for the series of transactions that includes the dividends;

- "safe income determination time" has the meaning assigned by subsection 55(1);

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

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

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

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

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

FACTS

1. XXXXXXXXXX ("Pubco") is a public corporation, all of whose outstanding common shares are listed for trading on the XXXXXXXXXX Stock Exchange.

2. There are currently outstanding approximately XXXXXXXXXX common shares of Pubco.

3. XXXXXXXXXX ("Holdco") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA.

4. XXXXXXXXXX ("Newco1") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA. XXXXXXXXXX ("Newco2") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA. XXXXXXXXXX ("Newco3") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA. XXXXXXXXXX("Newco4") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA. The authorized share capital of each of Newco1, Newco2, Newco3, and Newco4 consists of:

(a) an unlimited number of class A common shares (the "Class A Common Shares") which are voting, have a dividend entitlement and are participating;

(b) an unlimited number of class B common shares which are non-voting, have a dividend entitlement and are participating;

(c) an unlimited number of class A preferred shares (the "Class A Preferred Shares") which are voting, ranking in priority to the Class A Common shares and the class B common shares and to the class B, C and D preferred shares with a fixed non-cumulative dividend entitlement of XXXXXXXXXX% per month, are non-participating, redeemable and can be purchased for cancellation;

(d) an unlimited number of class B preferred shares which are non-voting, ranking in priority to the Class A Common shares and the class B common shares and to the class C and D preferred shares, but after the Class A Preferred shares, have a fixed non-cumulative dividend entitlement of XXXXXXXXXX% per month, are non-participating, redeemable and can be purchased for cancellation;

(e) an unlimited number of class C preferred shares, which are voting, ranking in priority to the Class A Common shares and the class B common shares, to the class D preferred shares but after the class A and B preferred shares, have a non-cumulative dividend entitlement of XXXXXXXXXX% per month, which are non-participating, redeemable, retractable and can be purchased for cancellation; and

(f) an unlimited number of class D preferred shares, which are non-voting, ranking in priority to the Class A Common shares and the class B common shares, but after the class A, B and C preferred shares, which have a non-cumulative dividend entitlement of XXXXXXXXXX% per month, which are non-participating, redeemable, retractable and can be purchased for cancellation.

5. Holdco owns the one (1) outstanding Class A Common Share of each of Newco1, Newco2, Newco3 and Newco4 (hereinafter collectively referred to as the "Newcos").

6. XXXXXXXXXX ("Aco") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX, under the CBCA. The authorized capital of Aco consists of:

(a) an unlimited number of class A common shares( the "Class A Common Shares") which are voting and have a non-cumulative discretionary dividend entitlement;

(b) an unlimited number of class B non-voting common shares which have a non-cumulative discretionary dividend entitlement;

(c) an unlimited number of class C voting, non-participating preferred shares;

(d) an unlimited number of class D preferred shares;

(e) an unlimited number of class E preferred shares;

(f) an unlimited number of class F preferred shares; and

(g) an unlimited number of class G non-voting, non-participating, preferred shares (the "Aco Class G Preferred Shares") which are redeemable at an amount equal to $XXXXXXXXXX per share and are entitled to a fixed monthly non-cumulative dividend of XXXXXXXXXX.

7. Holdco owns the one outstanding Class A Common Share of Aco.

8. Holdco owns XXXXXXXXXX common shares of Pubco, which constitute capital property.

9. The shareholders of Holdco and the number of shares held are as follows:

	SHAREHOLDER			NUMBER AND SHARES HELD

	XXXXXXXXXX .			XXXXXXXXXX  common shares
	XXXXXXXXXX .			XXXXXXXXXX  common shares
	XXXXXXXXXX  			XXXXXXXXXX  class A preferred shares
	XXXXXXXXXX 			XXXXXXXXXX  class A preferred shares
	XXXXXXXXXX 			XXXXXXXXXX  class A preferred shares
	XXXXXXXXXX 			XXXXXXXXXX  class A preferred shares
	XXXXXXXXXX 			XXXXXXXXXX  class A preferred shares

XXXXXXXXXX ("Holdings") is a CCPC and a taxable Canadian corporation which was incorporated on XXXXXXXXXX , under the CBCA. Holdings is controlled by the XXXXXXXXXX ("XXXXXXXXXX Trust"). XXXXXXXXXX ("Numberco") is a CCPC and a taxable Canadian corporation which is controlled directly or indirectly by the XXXXXXXXXX are individuals who are resident in Canada.

10. XXXXXXXXXX ("Canco") is a taxable Canadian corporation and is not a specified financial institution. Further, it is represented that Canco does not act as an agent for any specified financial institution. Canco is owned directly or indirectly by members of the XXXXXXXXXX family each of whom deals at arm's length with each of XXXXXXXXXX. Canco and Holdco are not related persons.

11. XXXXXXXXXX ("Pco") is a taxable Canadian corporation and is not a specified financial institution. Further, it is represented that Pco does not act as agent for any specified institution. Pco is owned directly or indirectly by XXXXXXXXXX who deals at arm's length with each of XXXXXXXXXX. Pco and Holdco are not related persons. Pco and Canco are not related persons.

PROPOSED TRANSACTIONS

12. Holdco will sell some common shares of Pubco in one or more transactions to each of Newco1, Newco2, Newco3 and Newco4 for an equal number of Class A Common Shares of Newco1, Newco2, Newco3 and Newco4 respectively.

13. Holdco will sell some common shares of Pubco in one or more transactions to Aco for an equal number of the Class A Common Shares of Aco.

14. In respect of the transfers described in paragraph 12 above, Holdco will jointly elect with each of Newco1, Newco2, Newco3 and Newco4, pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the common shares of Pubco at an amount equal to the adjusted cost base thereof to Holdco (approximately $XXXXXXXXXX per share), which will be substantially less than the fair market value thereof at the time of the transfer. The amount to be added to the stated capital of the Newco1 Class A Common Shares so issued will be an amount equal to the aggregate adjusted cost base of the common shares of Pubco so transferred (the "Transferred Shares "1""). The amount to be added to the stated capital of the Newco2 Class A Common Shares so issued will be an amount equal to the aggregate adjusted cost base of the common shares of Pubco so transferred (the "Transferred Shares "2""). The amount to be added to the stated capital of the Newco3 Class A Common Shares so issued will be an amount equal to the aggregate adjusted cost base of the common shares of Pubco so transferred (the "Transferred Shares "3""). The amount to be added to the stated capital of the Newco4 Class A Common Shares so issued will be an amount equal to the aggregate adjusted cost base of the common shares of Pubco so transferred (the "Transferred Shares "4"").

15. Each of Newco1, Newco2, Newco3 and Newco4 will declare and pay a series of sequential stock dividends on the Newco1 Class A Common Shares, the Newco2 Class A Common Shares, the Newco3 Class A Common Shares and the Newco4 Class A Common Shares, respectively, to be satisfied by the issuance of Newco1 Class A Preferred Shares, Newco2 Class A Preferred Shares, Newco3 Class A Preferred Shares and Newco4 Class A Preferred Shares respectively. It is intended that the stated capital and the value of the Newco1 Class A Preferred Shares, the Newco2 Class A Preferred Shares, the Newco3 Class A Preferred Shares and the Newco4 Class A Preferred Shares will not exceed the Safe Income on Hand of Pubco in respect of the Transferred Shares "1", the Transferred Shares "2", the Transferred Shares "3" and the Transferred Shares "4", respectively. The aggregate amount by which the stated capital of each of the Newco1, Newco2, Newco3 and Newco4 Class A Preferred Shares will be increased in respect of the issue of the preferred shares will be equal to their aggregate redemption values. For this purpose, it is your view that all of the Safe Income on Hand of Pubco that is attributable to the common shares of Pubco transferred by Holdco to each of Newco1, Newco2, Newco3 and Newco4, will, immediately after such transaction, be attributed to the Newco1 Class A Common Shares, the Newco2 Class A Common Shares, the Newco3 Class A Common Shares and the Newco4 Class A Common Shares.

16. Holdco will then sell for cash, at a price to be negotiated on an arm's length basis, all of the outstanding shares of each of Newco1, Newco2, Newco3 and Newco4 to Canco or a taxable Canadian corporation related to it (the Buyer is hereinafter referred to as "Canco")

17. Newco1, Newco2, Newco3, and Newco4 will then be wound up into Canco under the relevant corporate law and, accordingly, all the shares of Pubco owned by each of Newco1, Newco2, Newco3 and Newco4 will be transferred and assigned to Canco

18. Canco will designate, in respect of the Transferred Shares "1", the Transferred Shares "2", the Transferred Shares "3" and the Transferred Shares "4"in its income tax return of income for the taxation year in which each of Newco1, Newco2, Newco3 and Newco4 is wound up, an amount pursuant to paragraph 88(1)(d), equal to the difference between:

(a) the purchase price paid by Canco for the shares of Newco1, Newco2, Newco 3 or Newco 4, as the case may be, as described in paragraph 16 above; and

(b) the adjusted cost base to Newco1, Newco2, Newco3 and Newco4, as the case may be, of the Transferred Shares "1", the Transferred Shares "2", the "Transferred Shares "3" and the "Transferred Shares "4", as the case may be, as a result of the transaction described in paragraph 14 above.

19. Canco will, immediately or soon after the distribution of the Transferred Shares "1", the Transferred Shares "2", the Transferred Shares "3" and the Transferred Shares "4" to it by each of Newco1, Newco2, Newco3 and Newco4, sell some or all of the shares so acquired for an aggregate sale price that will probably be slightly in excess of the purchase price paid by it for the shares of Newco1, Newco2, Newco3 and Newco4, as described in paragraph 16 above. None of the Pubco shares will be sold to a person described in subclause 88(1)(c)(vi)(B)(I), (II) or (III) in relation to Newco1, Newco2, Newco3 and Newco4.

20. The purchase and sale agreement between Holdco and Canco pursuant to which Holdco will sell the shares of Newco1, Newco2, Newco3, Newco4, to Canco will include usual representations and warranties, including a representation by Holdco that the facts disclosed in this ruling relating to Holdco and Pubco are true and complete and that no person described in subclause 88(1)(c)(vi)(I), (II) or (III) in relation to Newco1, Newco2, Newco3 or Newco4 will purchase any Pubco shares from Canco or as part of the series of transactions that includes the winding-up of the Newcos. The purchase agreement will also include indemnities for any losses incurred by a party as a result of a breach of representation or warranty by the other party and for any taxes, interest or penalties incurred by Canco as a result of the cost of the Transferred Shares acquired by Canco on the winding-up of the Newcos being less than the amount described in ruling (N) below. However, Canco will not be indemnified against commercial risks and will be subject to market considerations subsequent to its acquisition of the shares of the Newcos and the proposed resale of the Pubco shares.

21. In respect of the transfers described in paragraph 13 above, Holdco will jointly elect with Aco, pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the common shares of Pubco at an amount equal to the adjusted cost base thereof to Holdco (approximately $XXXXXXXXXX per share), which will be substantially less that the fair market value thereof at the time of the transfer. The amount to be added to the stated capital of the Aco Class A Common Shares so issued will be an amount equal to the aggregate adjusted cost base of the common shares of Pubco so transferred (the "Transferred Shares "A"").

22. Aco will declare and pay a series of sequential stock dividends on the Aco Class A Common Shares to be satisfied by the issuance of Aco Class G Preferred Shares. It is intended that the stated capital and the value of the Aco Class G Preferred Shares will not exceed the Safe Income on Hand of Pubco in respect of the Transferred Shares "A". The aggregate amount by which the stated capital of Aco will be increased in respect of the issue of the preferred shares will be equal to their aggregate redemption values. For this purpose, it is your view that all of the Safe Income on Hand of Pubco that is attributable to the common shares of Pubco transferred by Holdco to Aco, will, immediately after such transaction, be attributed to the Aco Class A Common Shares.

23. Holdco will then sell for cash, at a price negotiated on an arm's length basis, all of the outstanding shares of Aco to Pco or a taxable Canadian corporation related to it (the buyer is hereinafter referred to as "Pco").

24. Aco will then be wound up into Pco under the relevant corporate law and, accordingly, all the shares of Pubco owned by Aco will be transferred and assigned to Pco.

25. Pco will designate, in respect of the Transferred Shares "A" in its income tax return of income for the taxation year in which Aco is wound up, an amount pursuant to paragraph 88(1)(d), equal to the difference between:

(a) the purchase price paid by Pco for the shares of Aco as described in paragraph 23 above; and

(b) the adjusted cost base to Aco of the Transferred Shares "A" as a result of the transactions described in paragraph 21 above.

26. Pco will, immediately or soon after the distribution of the Transferred Shares "A" to it by Aco, sell some or all of the shares so acquired for an aggregate sale price that will probably be slightly in excess of the purchase price paid by it for the shares of Aco , as described in paragraph 23 above. None of the Pubco shares will be sold to a person described in subclause 88(1)(c)(vi)(B)(I),(II) or (III) of the Act in relation to Aco.

27. The provisions of paragraph 20 above, will apply, mutatis mutandis, with respect to Holdco, Aco and Pco.

SUBSEQUENT TRANSACTION

28. Holdco proposes to use the funds received from the sale of the shares of Newco1, and the shares of Newco2, as described in paragraph 16 above, to purchase for cancellation a portion of its shares owned by Holdings. Holdco proposes to use the funds received from the sale of the shares of Newco3 and Newco4 and the shares of Aco to purchase for cancellation a portion of its shares owned by Numberco which will then apply the proceeds thereof to repurchase a portion of its shares owned by the DS Trust or JS.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to allow Holdco to recover, on a tax-deferred basis, the Safe Income on Hand of Pubco in respect of the Transferred Shares held by Holdco. Since Pubco is a public corporation, Holdco is unable to cause Pubco to declare a dividend. Accordingly, it must transfer its shares in Pubco which are to be sold to a corporate third party in order to be able to realize on a tax-deferred basis the Safe Income on Hand of Pubco attributable to its Pubco common shares.

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 subsections 15(1), 56(2) and 246(1) will not apply to the proposed transactions described above, in and of themselves.

(B) Immediately after the transfers described in paragraph 12 above, the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco1 will include the Safe Income on Hand of Pubco in respect of the Transferred Shares "1".

(C) Immediately after the transfers described in paragraph 12 above, the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco2 will include the Safe Income on Hand of Pubco in respect of the Transferred Shares "2".

(D) Immediately after the transfers described in paragraph 12 above, the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco3 will include the Safe Income on Hand of Pubco in respect of the Transferred Shares "3".

(E) Immediately after the transfers described in paragraph 12 above, the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco4 will include the Safe Income on Hand of Pubco in respect of the Transferred Shares "4".

(F) Immediately after the transfers described in paragraph 13 above, the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Aco will include the Safe Income on Hand of Pubco in respect of the Transferred Shares "A".

(G) The Newcos will be considered to have paid dividends on the Class A Common Shares in an amount equal to the paid-up capital of the Class A Preferred Shares issued in respect of the stock dividends paid in paragraph 15 above and each such dividend received by the recipient will:

(1) be deductible by the recipient, to the extent that it is a taxable dividend, in computing its taxable income for the taxation year in which such dividend is deemed to be received, pursuant to subsection 112(1);

(2) not be subject to tax under Part IV of the Act except as provided in paragraph 186(1)(b); and

(3) be an "excluded dividend" within the meaning of subsection 191(1) and an "excepted dividend" within the meaning of section 187.1.

(H) The provisions of subsection 55(2) will not apply to a dividend described in ruling G above, provided that the full amount of the dividend does not exceed the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco1 immediately before the time of the dividend.

(I) The provisions of subsection 55(2) will not apply to a dividend described in ruling G above, provided that the full amount of the dividend does not exceed the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco2 immediately before the time of the dividend.

(J) The provisions of subsection 55(2) will not apply to a dividend described in ruling G above, provided that the full amount of the dividend does not exceed the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco3 immediately before the dividend.

(K) The provisions of subsection 55(2) will not apply to a dividend described in ruling G above, provided that the full amount of the dividend does not exceed the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Newco4 immediately before the dividend.

(L) The provisions of paragraph 52(3)(a) will apply in determining the adjusted cost base to Holdco of the Class A Preferred Shares of the Newcos received in respect of the dividends paid as described in ruling G above.

(M) The provisions of subsection 88(1) will apply in respect of the winding-up of Newco1, Newco2, Newco3 and Newco4 into Canco as described in paragraph 17 above with the result that:

(1) Each of Newco1, Newco2, Newco3 and Newco4 will, pursuant to subparagraph 88(1)(a)(iii), be deemed to have disposed of the Transferred Shares for proceeds of disposition equal to their cost amount to the respective Newco immediately before the winding-up, and

(2) Canco will, pursuant to paragraph 88(1)(b), be deemed to have disposed of its shares of Newco1, Newco2, Newco3 and Newco4 for proceeds equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii).

(N) Pursuant to paragraphs 88(1)(c) and 88(1)(d), provided that no property acquired by Canco on the winding-up as described in paragraph 17 above, or "any other property acquired by any person in substitution therefore" (within the meaning of the phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III), the cost to Canco of the Transferred Shares "1", the Transferred Shares "2", the Transferred Shares "3" and the Transferred Shares "4" acquired by it on the winding-up described in paragraph 17 above will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the Transferred Shares to the Newcos plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), such portion of the amount, if any, by which:

(1) the aggregate of the adjusted cost base to Canco of its shares of the Newcos immediately before the winding-up of the Newcos

exceeds

(2) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1) (which will not include any dividends deemed to be received by Holdco by reason of the sequential dividends as described in paragraph 15 above).

as is designated by Canco in respect of the Transferred Shares in its return of income under Part I of the Act for its taxation year in which the Newcos are wound up, as described in paragraph 18 above.

(O) Aco will be considered to have paid dividends on the Class A Common Shares in an amount equal to the paid-up capital of the Class G Preferred Shares issued in respect of the stock dividends paid in paragraph 22 above and each such dividend received by the recipient will:

(1) be deductible by the recipient, to the extent that it is a taxable dividend, in computing its taxable income for the taxation year in which such dividend is deemed to be received, pursuant to subsection 112(1);

(2) not be subject to tax under Part IV of the Act except as provided in paragraph 186(1)(b); and

(3) be an "excluded dividend" within the meaning of subsection 191(1) and an "excepted dividend" within the meaning of section 187.1.

(P) The provisions of subsection 55(2) will not apply to a dividend described in ruling O above, provided that the full amount of the dividend does not exceed the Safe Income on Hand of Pubco in respect of the Class A Common Shares of Aco immediately before the time of the dividend.

(Q) The provisions of paragraph 52(3)(a) will apply in determining the adjusted cost base to Holdco of the Class G Preferred Shares of Aco received in respect of the dividend paid as described in ruling O above.

(R) The provisions of subsection 88(1) will apply in respect of the winding-up of Aco into Pco as described in paragraph 24 above with the result that:

(1) Aco will, pursuant to subparagraph 88(1)(a)(iii), be deemed to have disposed of the Transferred Shares "A" for proceeds of disposition equal to their cost amount to Aco immediately before the winding-up; and

(2) Pco will, pursuant to paragraph 88(1)(b), be deemed to have disposed of its shares of Aco for proceeds equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii).

(S) Pursuant to paragraphs 88(1)(c) and 88(1)(d), provided that no property acquired by Pco on the winding-up as described in paragraph 24 above, or "any property acquired by any person in substitution therefor" (within the meaning of the phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III), the cost to Pco of the Transferred Shares "A" acquired by it on the winding-up described in paragraph 24 above will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the Transferred Shares "A" to Aco plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), such portion of the amount, if any, by which:

(1) the aggregate of the adjusted cost base to Pco of its shares of Aco immediately before the winding-up of Aco

exceeds:

(2) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1) (which will not include any dividends deemed to be received by reason of the sequential dividends as described in paragraph 22 above).

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

The above 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 reviewed:

(a) the determination of the adjusted cost base, the paid-up capital or the 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.

Yours truly,

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