2006 Ruling 2005-0113161R3 - 86(1)

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.

Principal Issues: Standard estate freeze. No major issues encountered.

XXXXXXXXXX  							2005-011316

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (B/N XXXXXXXXXX)
XXXXXXXXXX (S.I.N. 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 letters 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, unless otherwise specified, all monetary amounts are expressed in Canadian dollars and the following terms have the meanings specified below:

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

(b) "adjusted cost base" ("ACB") has the meaning assigned by subsection 248(1);

(c) "arm's length" has the meaning assigned by subsection 251(1);

(d) "BCA" means the Corporations Act XXXXXXXXXX and the regulations thereto, both as amended from time to time and any legislation enacted in substitution for the BCA and its regulations;

(e) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44 and the regulations thereto, both as amended from time to time and any legislation enacted in substitution for the CBCA and its regulations;

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

(g) "CRA" means the Canada Revenue Agency and its predecessors, the Canada Customs and Revenue Agency and Revenue Canada, as the date and context so require;

(h) "Capital Beneficiaries" of the Trust means Individual A1, the First Generation Beneficiaries and, in the event that a particular First Generation Beneficiary is then deceased, the children of such First Generation Beneficiary, and "Capital Beneficiary" means any one of them, as described in Subparagraph 15(b);

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

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

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

(l) "Deed of Trust" means the deed of trust to be made between the Settlor and the Trustees which will establish and govern the Trust, as described in Paragraph 15;

(m) "Designated Beneficiary" means a person who is under 18 years of age and who does not deal at arm's length with Individual A1 or is the nephew or niece of Individual A1, as described in Subparagraph 15(c);

(n) "designated person" in respect of an individual, has the meaning assigned by subsection 74.5(5);

(o) "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;

(p) "First Generation Beneficiaries" means the children of Individual A1, whether living on the date that the Trust is created or born thereafter, who are Capital Beneficiaries of the Trust, and "First Generation Beneficiary" means any one of them, as described in Subparagraph 15(b);

(q) "Individual A1" means XXXXXXXXXX, as described in Paragraph 3;

(r) "Individual A1's Nominee" means a person appointed and designated by Individual A1 pursuant to paragraph 11.1(e) of the Deed of Trust to be a trustee in his place and to be the holder of the powers and rights conferred on Individual A1 under paragraph 9.1 of the Deed of Trust, as described in Subparagraph 15(i);

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

(t) "Paragraph" and "Subparagraph" refer to a numbered paragraph and subparagraph in this advance income tax ruling, respectively;

(u) "Proposed Transactions" means the transactions referred to in Paragraphs 15 to 19;

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

(w) "Settlor" means Individual A1's mother, XXXXXXXXXX, as described in Paragraph 15;

(x) "stated capital" has the meaning assigned by the CBCA;

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

(z) "Trust" means the trust named XXXXXXXXXX to be created pursuant to the Deed of Trust, as described in Paragraph 15;

(aa) "Trustees" initially means Individual A1, his sister, XXXXXXXXXX, and a person who deals at arm's length with Individual A1 and thereafter any person appointed as a replacement or additional trustee of the Trust in accordance with the provisions of paragraph 11.1 of the Deed of Trust, as described in Subparagraph 15(a); and

(bb) "Vesting Date" means the date of death of Individual A1, as described in Subparagraph 15(d).

Our understanding of the relevant facts, Proposed Transactions and purpose of the Proposed Transactions are as follows:

Facts

1. XXXXXXXXXX ("A1Holdco") is a TCC and a CCPC. A1Holdco was incorporated under the CBCA. The tax services office and taxation centre where the tax returns of A1Holdco are filed and audited is XXXXXXXXXX.

2. A1Holdco is a holding company the assets of which include:

(a) XXXXXXXXXX common shares of XXXXXXXXXX ("ABCHoldco");

(b) a loan receivable owing by ABCHoldco;

(c) life insurance policies on the life of Individual A1; and

(d) cash.

3. The authorized share capital of A1Holdco consists of an unlimited number of common shares ("A1Holdco Common Shares" and individually referred to as an "A1Holdco Common Share"), XXXXXXXXXX Class B preference shares ("A1Holdco Class B Preference Shares" and individually referred to as an "A1Holdco Class B Preference Share") and an unlimited number of Class F preference shares ("A1Holdco Class F Preference Shares" and individually referred to as an "A1Holdco Class F Preference Share"), of which the following number and classes of shares are issued and outstanding, which are all owned by XXXXXXXXXX ("Individual A1"):

(a) XXXXXXXXXX A1Holdco Common Shares;

(b) XXXXXXXXXX A1Holdco Class B Preference Shares; and

(c) XXXXXXXXXX A1Holdco Class F Preference Shares.

The attributes of the A1Holdco Common Shares, the A1Holdco Class B Preference Shares and the A1Holdco Class F Preference Shares include the following:

(I) the A1Holdco Common Shares entitle their holders to one (1) vote per share and to dividends as declared by the Board of Directors of A1Holdco.

The A1Holdco Common Shares are subject to a share transfer restriction that only Individual A1's lineal descendants can own them;

(II) the A1Holdco Class B Preference Shares entitle their holders to one (1) vote per share and to a priority on dissolution to the amount of $XXXXXXXXXX per share. The Class B Preference Shares are redeemable at the option of A1Holdco at $XXXXXXXXXX per share. Holders of Class B Preference Shares have no entitlement to dividends.

The A1Holdco Class B Preference Shares are subject to a share transfer restriction that only allows Individual A1's lineal descendants to own them; and

(III) the A1Holdco Class F Preference Shares:

(i) are non-voting;

(ii) are retractable at any time at the option of the holder or redeemable at any time at the option of A1Holdco for an amount ("redemption amount of an A1Holdco Class F Preference Share") equal to the FMV of the property received for the issuance of the shares, net of any liabilities assumed by A1Holdco, if any, at the time of issuance divided by the number of the shares issued as consideration for such property;

(iii) are entitled to non-cumulative dividends at a rate per annum expressed as a percentage of the redemption amount of an A1Holdco Class F Preference Share, as determined by the Board of Directors, which rate shall not be less than XXXXXXXXXX% and not more than the greater of XXXXXXXXXX% and the rate charged by the Bank of Canada to Canadian Chartered Banks plus XXXXXXXXXX%;

(iv) on dissolution, liquidation or winding-up, they will rank in priority to the A1Holdco Common Shares but behind the A1Holdco Class B Preference Shares; and

(v) require, at the option of the holder, A1Holdco to make an election pursuant to subsection 83(2) that any dividend deemed to arise pursuant to the Act on a redemption of any of the A1Holdco Class F Preference Shares be treated as a capital dividend to the extent that the capital dividend account of A1Holdco is attributable to life insurance proceeds received by it as a consequence of the death of Individual A1.

Also, no dividends shall be paid on the A1Holdco Common Shares if such dividend would reduce the realizable FMV of A1Holdco's assets to an amount that is less than the aggregate of A1Holdco's liabilities, the stated capital of the A1Holdco Common Shares and the total redemption amount of the A1Holdco Class B and Class F Preference Shares.

The PUC of the XXXXXXXXXX A1Holdco Common Shares, the XXXXXXXXXX A1Holdco Class B Preference Shares and the XXXXXXXXXX A1Holdco Class F Preference Shares is $XXXXXXXXXX, $XXXXXXXXXX and $XXXXXXXXXX, respectively. The A1Holdco Class F Preference Shares have a redemption amount of $XXXXXXXXXX per share.

4. Individual A1 is a resident of Canada and has one child. Individual A1 acquired the XXXXXXXXXX A1Holdco Class F Preference Shares and the XXXXXXXXXX A1Holdco Common Shares pursuant to a reorganization transaction in 1995, which was the subject of a ruling dated XXXXXXXXXX, 1995 (document #9404363) ("1995 Ruling"), as amended by the CRA correspondence dated XXXXXXXXXX, 1995.

Individual A1 also acquired the XXXXXXXXXX A1Holdco Class B Preference Shares from his mother XXXXXXXXXX ("Parent A") as a gift in XXXXXXXXXX. Since the gifting of the A1Holdco Class B Preference Shares by Parent A, Individual A1 has controlled A1Holdco.

The ACB to Individual A1 of the XXXXXXXXXX A1Holdco Common Shares, the XXXXXXXXXX A1Holdco Class B Preference Shares and the XXXXXXXXXX A1Holdco Class F Preference Shares are $XXXXXXXXXX, $XXXXXXXXXX and $XXXXXXXXXX, respectively.

Individual A1 holds all of his A1Holdco shares as capital property.

5. ABCHoldco is a TCC and a CCPC. It was incorporated under the BCA and was continued under the CBCA. ABCHoldco is a holding company the assets of which include all of the issued and outstanding shares of XXXXXXXXXX (formerly known as XXXXXXXXXX) ("ABCOpco").

6. The issued and outstanding share capital of ABCHoldco consists of XXXXXXXXXX common shares ("ABCHoldco Common Shares" and individually referred to as an "ABCHoldco Common Share") which are owned as follows:

(a) A1Holdco					XXXXXXXXXX
(b) XXXXXXXXXX  ("A2Holdco")			XXXXXXXXXX
(c) XXXXXXXXXX  ("A3Holdco")			XXXXXXXXXX
(d) XXXXXXXXXX  ("B1Holdco")		      XXXXXXXXXX
(e) XXXXXXXXXX  ("B2Holdco")			XXXXXXXXXX
(f) XXXXXXXXXX
	(formerly XXXXXXXXXX) ("B3Holdco")	XXXXXXXXXX
(g) XXXXXXXXXX  ("C1Holdco")			XXXXXXXXXX
(h) XXXXXXXXXX  ("C2Holdco")			XXXXXXXXXX
(i) XXXXXXXXXX
	(formerly XXXXXXXXXX) ("C3Holdco")		XXXXXXXXXX
(j) XXXXXXXXXX  (C4Holdco")				XXXXXXXXXX
(k) XXXXXXXXXX  (C5Holdco")				XXXXXXXXXX 

7. Each of A1Holdco, A2Holdco and A3 Holdco (collectively referred to hereinafter as the "AsHoldcos") is controlled by one of the three children (Individual A1, XXXXXXXXXX "Individual A2" and XXXXXXXXXX "Individual A3") of XXXXXXXXXX (deceased) and Parent A. Parent A is a resident of Canada.

8. Each of B1Holdco, B2Holdco and B3Holdco ("collectively referred to hereinafter as the "BsHoldcos") is controlled by one of the three children of XXXXXXXXXX ("Parent B") and XXXXXXXXXX ("Parent B Spouse").

9. Each of C1Holdco, C2Holdco, C3Holdco, C4Holdco and C5Holdco (collectively referred to hereinafter as the "CsHoldcos") is controlled by one of the five children of XXXXXXXXXX. ("Parent C") and XXXXXXXXXX ("Parent C Spouse").

10. The AsHoldcos, the BsHoldcos and the CsHoldcos were incorporated pursuant to the CBCA. They are TCCs and CCPCs.

11. Parent A, Parent B and Parent C are siblings.

12. The ABCHoldco Common Shares that the AsHoldcos, the BsHoldcos and the CsHoldcos currently own were acquired by them in a somersault transaction in 1996, which was the subject of a ruling dated XXXXXXXXXX, 1996 (document # 9626043) ("1996 Ruling").

The ABCHoldco Common Shares and the voting shares of the AsHoldcos, the BsHoldcos and the CsHoldcos are subject to a share transfer restriction that only allows lineal descendants of Parents A, B and C to own those shares.

13. ABCOpco is a TCC and a CCPC. It is governed by the CBCA. All of the issued and outstanding shares of ABCOpco are owned by ABCHoldco.

ABCOpco carries on the business of XXXXXXXXXX on its own account and through its subsidiary corporations.

14. XXXXXXXXXX

Proposed Transactions

15. Parent A (referred to hereinafter as the "Settlor") will settle an irrevocable trust named XXXXXXXXXX ("Trust") by gifting a XXXXXXXXXX silver certificate to the Trust. The terms and conditions of the Trust will be set forth in the deed of trust ("Deed of Trust") which will provide, among other things, that:

(a) it is the intention of the Settlor that there be at least two trustees at all times and that a majority of the trustees of the Trust be residents of Canada for the purposes of the Act. Individual A1, his sister, XXXXXXXXXX, and a person who deals at arm's length with Individual A1 will be the initial trustees and thereafter any replacement or additional trustee of the Trust will be appointed in accordance with the provisions of paragraph XXXXXXXXXX of the Deed of Trust ("Trustees");

(b) the beneficiaries of the Trust will be Individual A1 and his issue, whether living on the date that the Trust is created or born thereafter. In this regard, the Deed of Trust will provide that the capital beneficiaries ("Capital Beneficiaries" and individually referred to as a "Capital Beneficiary") of the Trust will be

(i) Individual A1; and

(ii) the first generation beneficiaries ("First Generation Beneficiaries" and individually referred to as a "First Generation Beneficiary") who are Individual A1's children, whether living on the date that the Trust is created or born thereafter; and, in the event that a particular First Generation Beneficiary is then deceased, the children of such First Generation Beneficiary;

(c) notwithstanding any provision of the Deed of Trust, no beneficiary of the Trust shall receive or otherwise obtain the use of any of the trust property, any income of the Trust or any other income earned upon the trust property while such a person is a designated beneficiary. A designated beneficiary ("Designated Beneficiary") is a person who is under 18 years of age and who does not deal at arm's length with Individual A1 or is the nephew or niece of Individual A1;

(d) prior to the date of death of Individual A1 ("Vesting Date"), the Trustees will, subject to (e) below, before the end of each fiscal year of the Trust, pay or distribute the income of the Trust for that fiscal year (net of any payments which the Trustees have determined to be made under (e) below) to Individual A1;

(e) notwithstanding (d) above, the Trustees may, in their absolute discretion, pay or distribute a portion of the income of the Trust for a particular fiscal year to one or more Capital Beneficiaries of the Trust (other than a Designated Beneficiary) provided that the amount paid to a particular Capital Beneficiary in respect of any one fiscal year of the Trust may not exceed $XXXXXXXXXX;

(f) at any time before the Vesting Date, the Trustees may, in their absolute discretion, pay or distribute all or any portion of the property of the Trust to or for the benefit of all or any one or more Capital Beneficiaries (other than a Designated Beneficiary) of the Trust in such share or shares as the Trustees may determine (even if the effect of such distributions would be to terminate the Trust);

(g) on the Vesting Date, the Trustees will determine each beneficiary's notional percentage share of the Trust on the basis set out in article XXXXXXXXXX of the Deed of Trust and any income or capital of the Trust which is distributed thereafter to a beneficiary shall be in accordance with such beneficiary's notional percentage share. The notional percentage shares shall be redetermined pursuant to article XXXXXXXXXX of the Deed of Trust on the happening of certain specified events;

(h) at any time before the Vesting Date, the Trustees may, in their absolute discretion, completely remove any one or more Capital Beneficiaries as a beneficiary of the Trust provided that at least one (1) Capital Beneficiary must remain as a beneficiary of the Trust. Similarly, at any time before the Vesting Date, the Trustees may, in their absolute discretion, reinstate any Capital Beneficiary who has previously been removed as a beneficiary of the Trust under the aforementioned provision;

(i) the decision of a majority of Trustees governs for each act or decision of the Trustees relating to the trust property provided that such majority of the Trustees shall include Individual A1 or Individual A1's nominee, as the case may be, during such time Individual A1 or Individual A1's nominee is a trustee. Individual A1's nominee ("Individual A1's Nominee") is a person appointed and designated by Individual A1 pursuant to paragraph XXXXXXXXXX of the Deed of Trust to be a trustee in his place and to be the holder of the powers and rights conferred on Individual A1 under paragraph XXXXXXXXXX of the Deed of Trust;

(j) the Trustees, by way of majority decision as described in (i) above, have the power and right, exercisable from time to time,

(i) to replace any trustee of the Trust; and

(ii) to name additional trustees thereof;

(k) Individual A1 has the power and right to designate, by Will or other testamentary instrument, Individual A1's Nominee (but only one person) to hold Individual A1's right to have to be included in the majority of Trustees for each act or decision of Trustees relating to the trust property;

(l) no part of the trust property or income of the Trust shall be paid or lent or applied for the benefit of the Settlor in any manner or in any circumstances whatsoever and no part of the trust property shall revert to the Settlor or to any other donor of the Trust; and

(m) if on the Vesting Date Individual A1 leaves no surviving issue, the Trustees shall distribute the remaining property of the Trust to the nieces and nephews of Individual A1 in equal shares.

16. A1Holdco will file articles of amendment under the CBCA to amend its authorized capital to provide for the creation of an unlimited number of Class G preference shares ("A1Holdco Class G Preference Shares" and individually referred to as an "A1Holdco Class G Preference Share"). The attributes of the Class G Preference Shares will, among other things, provide that:

(a) each A1Holdco Class G Preference Share is non-voting and is redeemable at any time at the option of A1Holdco, or retractable at any time at the option of the holder, for an amount ("redemption amount of an A1Holdco Class G Preference Share") equal to the FMV of the property received for the issuance of the shares, net of any liabilities assumed by A1Holdco, if any, at the time of issuance divided by the number of the shares issued as consideration for such property. The redemption amount of the A1Holdco Class G Preference Share will be subject to a price adjustment clause;

(b) the A1Holdco Class G Preference Shares are entitled to non-cumulative dividends at a rate per annum (expressed as a percentage of the redemption amount of an A1Holdco Class G Preference Share) as determined by the Board of Directors of A1Holdco, which rate shall not be less than XXXXXXXXXX% and not more than the greater of XXXXXXXXXX% and the rate charged by the Bank of Canada to Canadian chartered banks plus XXXXXXXXXX%. The Class G Preference Shares will not have a preference as to dividends over the A1Holdco Common Shares and the A1Holdco Class F Preference Shares;

(c) A1Holdco shall, at the option of the holder, make an election pursuant to subsection 83(2) that any dividend deemed to arise pursuant to the Act on a redemption of any of the A1Holdco Class G Preference Shares be treated as a capital dividend to the extent of the capital dividend account of A1Holdco that was created by virtue of the receipt of life insurance proceeds received as a consequence of the death of Individual A1; and

(d) on liquidation, dissolution or winding up, the A1Holdco Class G Preference Shares will rank in priority to the A1Holdco Common Shares but behind the A1Holdco Class B and Class F Preference Shares.

The articles of amendment of A1Holdco will also provide that no dividends shall be paid on any shares of the capital stock of A1Holdco if such dividend would reduce the realizable FMV of A1Holdco's assets to an amount that is less than the aggregate of A1Holdco's liabilities, the stated capital of the A1Holdco Common Shares and the total redemption amount of the A1Holdco Class B, Class F and Class G Preference Shares.

17. Individual A1 will transfer his XXXXXXXXXX A1Holdco Common Shares to A1Holdco. As sole consideration for the transfer, A1Holdco will issue to Individual A1 XXXXXXXXXX A1Holdco Class G Preference Shares having an aggregate redemption amount ("Redemption Amount of the XXXXXXXXXX A1Holdco Class G Preference Shares") and FMV equal to the aggregate FMV of the XXXXXXXXXX A1Holdco Common Shares immediately before their transfer to A1Holdco ("Share Exchange").

The transfer by Individual A1 of his XXXXXXXXXX A1Holdco Common Shares to A1Holdco will be subject to a price adjustment clause.

For the purposes of the CBCA, A1Holdco will add to the stated capital of the A1Holdco Class G Preference Shares an amount equal to the PUC of the XXXXXXXXXX A1Holdco Common Shares immediately before their transfer to A1Holdco.

No section 85 election will be filed in respect of the Share Exchange.

18. The Trustees will, in their capacity as trustees of the Trust, borrow $XXXXXXXXXX ("Loan") from an arm's length financial institution. The Trustees will pledge the silver certificate they hold as security for the Loan. The Loan will not be guaranteed and will be non-recourse such that the financial institution's only recourse will be against the pledged certificate.

The Trustees will use the Loan proceeds to subscribe for and acquire XXXXXXXXXX new common shares of A1Holdco ("New A1Holdco Common Shares").

19. A1Holdco will pay a dividend on the XXXXXXXXXX New A1Holdco Common Shares in an amount sufficient to pay off the Loan and any interest accrued thereon described in Paragraph 18 and to pay any income tax liability of the Trust associated with the dividend.

Purpose of the Proposed Transactions

20. The purpose of the Proposed Transactions is to freeze the FMV of Individual A1's XXXXXXXXXX A1Holdco Common Shares on a tax-deferred or rollover basis so as to permit any future increase in the FMV of A1Holdco to accrue to the XXXXXXXXXX New A1Holdco Common Shares that the Trust will own for the benefit of the Capital Beneficiaries under the Trust.

Rulings

Provided that the preceding statements constitute complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. Subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the Share Exchange described in Paragraph 17, such that:

(i) the cost of the XXXXXXXXXX A1Holdco Class G Preference Shares receivable by Individual A1 on the Share Exchange shall be deemed to be an amount equal to the aggregate ACB to Individual A1, immediately before the Share Exchange, of the XXXXXXXXXX A1Holdco Common Shares; and

(ii) pursuant to paragraph 86(1)(c) of the Act, Individual A1 shall be deemed to have disposed of the XXXXXXXXXX A1Holdco Common Shares for proceeds of disposition equal to the cost to Individual A1 of all of the XXXXXXXXXX A1Holdco Class G Preference Shares receivable by Individual A1 for the XXXXXXXXXX A1Holdco Common Shares, as determined in (i) above.

B. No dividend will be deemed to arise pursuant to subsection 84(1) or (3) of the Act with respect to the Share Exchange described in Paragraph 17.

C. Provided that the conditions of subsection 74.4(4) are met the Share Exchange described in Paragraph 17 will not, in and by itself, be considered to benefit, either directly or indirectly, a designated person in respect of Individual A1 for the purposes of subsection 74.4(2). For greater certainty, the terms of the Deed of Trust described in Subparagraph 15(c) will not, in and by themselves, dissatisfy the condition in paragraph 74.4(4)(b) of the Act.

D. Subsection 75(2) of the Act will not apply in respect of:

(i) the silver certificate settled upon the Trust as described in Paragraph 15; and

(ii) the XXXXXXXXXX New A1Holdco Common Shares to be acquired by the Trust as described in Paragraph 18.

E. The provisions of 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 above.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by CRA on May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

Comments

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

(a) the determination of the FMV or the cost amount of any particular asset or the PUC 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.

Price Adjustment Clause

You have informed us that the consideration given by A1Holdco for the XXXXXXXXXX A1Holdco Common Shares, as described in Paragraph 17, will be subject to a price adjustment clause. Nothing in this letter should be construed as confirmation, express or implied, that any adjustment to the consideration given for the XXXXXXXXXX A1Holdco Common Shares by A1Holdco in Paragraph 17 will be effective retroactively. Furthermore, the rulings in this letter are not intended to apply to the operation of a price adjustment clause, since its coming into effect will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch