2005 Ruling 2005-0113301R3 - 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.

Principal Issues: Whether the proposed transactions meet the exemption under paragraph 55(3)(b)?

Position: Yes.

Reasons: Meets the requirements of the legislation.

XXXXXXXXXX 2005-011330

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

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

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is:

(a) dealt with in an earlier return of the taxpayers or related persons;

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

(c) under objection by one or any of the taxpayers or related persons;

(d) the subject of a ruling previously issued by the Income Tax Rulings Directorate; or

(e) before the courts.

DEFINITIONS

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

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

"adjusted cost base" ("ACB") has the meaning assigned by section 54;

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

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

"CBCA" means the Canadian Business Corporations Act and, where applicable, its predecessor statutes;

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

"capital dividend" has the meaning assigned by subsection 83(2);

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

"capital loss" has the meaning assigned by paragraph 39(1)(b);

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

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

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

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

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

"FMV" means fair market value;

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

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

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

"private holding corporation" has the meaning assigned by subsection 191(1);

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

"related persons" has the meaning assigned by section 251 and, where relevant, the meaning assigned by paragraph 55(5)(e);

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

"short-term preferred shares" has the meaning assigned by subsection 248(1);

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

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

"stated capital" has the meaning assigned by the CBCA;

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

"taxable dividend" has the meaning assigned by subsection 89(1); and

"taxable preferred shares" has the meaning assigned to that term by subsection 248(1).

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

FACTS

1. XXXXXXXXXX ("DC") is a CCPC and a TCC and a private holding corporation. DC was incorporated on XXXXXXXXXX and is governed by the provisions of the CBCA.

2. XXXXXXXXXX ("Mrs. X") and XXXXXXXXXX ("Mr. X") are individuals resident in Canada and are married to each other. Mr. X and Mrs. X are the parents of XXXXXXXXXX ("Sib1"), XXXXXXXXXX ("Sib2"), XXXXXXXXXX ("Sib3"), XXXXXXXXXX ("Sib4") and XXXXXXXXXX ("Sib5"). Sib1, Sib2, Sib3, Sib4 and Sib5 are all adults who are resident in Canada.

The trusts

3. The XXXXXXXXXX ("Trust1") is an inter-vivos trust resident in Canada. The Trust was established by a trust agreement between XXXXXXXXXX as Settlor, and Sib1, Sib2 and Sib3 as Trustees, dated XXXXXXXXXX, and was settled by the Settlor for the benefit of Sib1, his spouse, first degree children and other descendants to be born, any registered charity, as well as any private corporation constituted or to be constituted and of which the only shareholders will be one or more of the beneficiaries of the Trust, or any trust of which the only beneficiaries will be one or more of the beneficiaries of the Trust. As long as Sib1 is a trustee, any distribution from the Trust is at the sole discretion of the trustees. If Sib1 is no longer a trustee, for a reason other than death, the revenue and capital distribution directives shall be established in his last mandate in case of incapacity or any other document. If there is no mention of the Trust1 in the mandate in case of incapacity, the trustees shall employ the revenue and capital of the Trust to maintain the lifestyle of Sib1, his spouse and of his children to the first degree. At Sib1's death, the revenue and capital distribution directives shall be established in his last will or any other document. If there is no mention of the Trust1 in the last will, the trustees shall employ the revenue and the capital of the Trust for the benefit of Sib1's spouse. At her death, her share will benefit to Sib1's children to the first degree, in equal parts. Mrs. X is related to each of the beneficiaries of the Trust (other than the registered charities) for the purposes of section 55 of the Act; consequently pursuant to subparagraph 55(5)(e)(ii) Mrs. X is related to the Trust for the purposes of section 55.

4. The XXXXXXXXXX ("Trust2") is an inter-vivos trust resident in Canada. Trust2 was established by a trust agreement between Sib1 as Settlor, and Sib2, XXXXXXXXXX as Trustees, dated XXXXXXXXXX, and was settled by the Settlor for the benefit of Sib2, his spouse, first degree children and other descendants to be born, XXXXXXXXXX, a registered charity under number XXXXXXXXXX, as well as any private corporation constituted or to be constituted and of which the only shareholders will be one or more of the beneficiaries of the Trust, or any trust of which the only beneficiaries will be one or more of the beneficiaries of the Trust. As long as Sib2 is a trustee, any distribution from the Trust is at the sole discretion of the trustees. If Sib2 is no longer a trustee, for a reason other than death, the revenue and capital distribution directives shall be established in his last mandate in case of incapacity or any other document. If there is no mention of the Trust2 in the mandate in case of incapacity, the trustees shall employ the revenue and capital of the Trust to maintain the lifestyle of Sib2, his spouse and of his children to the first degree. At Sib2's death, the revenue and capital distribution directives shall be established in his last will or any other document. If there is no mention of the Trust2 in the last will, the trustees shall employ the revenue and the capital of the Trust for the benefit of Sib2's spouse. At her death, her share will benefit to Sib2's children to the first degree, in equal parts. Mrs. X is related to each of the beneficiaries of the Trust (other than the registered charities) for the purposes of section 55 of the Act; consequently pursuant to subparagraph 55(5)(e)(ii) Mrs. X is related to the Trust for the purposes of section 55.

5. The XXXXXXXXXX ("Trust4") is an inter-vivos trust resident in Canada. The Trust was established by a trust agreement between Sib1 as Settlor, and Sib4, and Sib5 as Trustees, dated XXXXXXXXXX, and was settled by the Settlor for the benefit of Sib4, her spouse, first degree children and his children's first degree children born or to be born, XXXXXXXXXX and any registered charity, as well as any private corporation constituted or to be constituted and of which the only shareholders will be one or more of the beneficiaries of the Trust, or any trust of which the only beneficiaries will be one or more of the beneficiaries of the Trust. As long as Sib4 is a trustee, any distribution from the Trust is at the sole discretion of the trustees. If Sib4 is no longer a trustee, for a reason other than death, the revenue and capital distribution directives shall be established in her last mandate in case of incapacity or any other document. If there is no mention of the Trust4 in the mandate in case of incapacity, the trustees shall employ the revenue and capital of the Trust to maintain the lifestyle of Sib4, her spouse and of his children to the first degree. At Sib4's death, the revenue and capital distribution directives shall be established in her last will or any other document. If there is no mention of the Trust4 in the last will, the trustees shall employ the revenue and the capital of the Trust for the benefit of Sib4's spouse. At his death, his share will benefit to Sib4's children to the first degree, in equal parts. Mrs. X is related to each of the beneficiaries of the Trust (other than the registered charities) for the purposes of section 55 of the Act; consequently pursuant to subparagraph 55(5)(e)(ii) Mrs. X is related to the Trust for the purposes of section 55.

6. The XXXXXXXXXX ("Trust5") is an inter-vivos trust resident in Canada. The Trust was established by a trust agreement between Sib1 as Settlor, and Sib4 and Sib5 as Trustees, dated XXXXXXXXXX, and was settled by the Settlor for the benefit of Sib5, her spouse, first degree children and his children's first degree children born or to be born, and any registered charity, as well as any private corporation constituted or to be constituted and of which the only shareholders will be one or more of the beneficiaries of the Trust, or any trust of which the only beneficiaries will be one or more of the beneficiaries of the Trust. As long as Sib5 is a trustee, any distribution from the Trust is at the sole discretion of the trustees. If Sib5 is no longer a trustee, for a reason other than death, the revenue and capital distribution directives shall be established in his last mandate in case of incapacity or any other document. If there is no mention of the Trust5 in the mandate in case of incapacity, the trustees shall employ the revenue and capital of the Trust to maintain the lifestyle of Sib5, her spouse and of his children to the first degree. At Sib5's death, the revenue and capital distribution directives shall be established in her last will or any other document. If there is no mention of the Trust5 in the last will, the trustees shall employ the revenue and the capital of the Trust for the benefit of Sib5's spouse. At his death, his share will benefit to Sib5's children to the first degree, in equal parts. Mrs. X is related to each of the beneficiaries of the Trust (other than the registered charities) for the purposes of section 55 of the Act; consequently pursuant to subparagraph 55(5)(e)(ii) Mrs. X is related to the Trust for the purposes of section 55.

Facts pertaining to DC

7. The authorized share capital of DC consists of:

- an unlimited number of Common shares;
- an unlimited number of Class A preferred shares;
- an unlimited number of Class B preferred shares;
- an unlimited number of Class C preferred shares;
- an unlimited number of Class D preferred shares;
- an unlimited number of Class E preferred shares; and
- an unlimited number of Class F preferred shares;

8. The rights attached to the shares of DC are as follows:

(a) the Common shares, Class A preferred shares, Class B preferred shares, Class C preferred shares and Class D preferred shares are entitled to one vote per share;

(b) all the shares are entitled to dividends:

(i) the Class A preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX%) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX%) per annum on the capital amount paid up on each Class A preferred share in priority of any other shares of DC. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC;

(ii) the Class B preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX%) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX%) per annum on the capital amount paid up on each Class B preferred share in priority of any other shares of DC, except Class A preferred shares. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC;

(iii) the Class C preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX%) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX%) per annum on the capital amount paid up on each Class C preferred share in priority of any other shares of DC, except Class A preferred shares and Class B preferred shares. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC;

(iv) the Class D preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX%) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX%) per annum on the capital amount paid up on each Class D preferred share in priority of any other shares of DC, except Class A preferred shares, Class B preferred shares and Class C preferred shares. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC;

(v) the Class E preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX%) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX %) per annum on the capital amount paid up on each Class E preferred share in priority of any other shares of DC, except Class A preferred shares, Class B preferred shares, Class C preferred shares and Class D preferred shares. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC;

(vi) the Class F preferred shares are entitled to non-cumulative preferential dividends from XXXXXXXXXX per cent (XXXXXXXXXX %) up to a maximum of XXXXXXXXXX per cent (XXXXXXXXXX%) per month on the amount equal to the money consideration received by DC for the issuance of such shares or for the fair market value of the property or past services considered received by DC for the issuance of such shares in priority of any other shares of DC, except Class A preferred shares, Class B preferred shares, Class C preferred shares, Class D preferred shares and Class E preferred shares. Such right to a dividend shall be forever extinguished XXXXXXXXXX months after the expiration of any financial year of DC; and

(vii) the Common shares are entitled to unlimited dividends once the rights to a dividend of the preferred shares have been respected;

(c) DC shall have the right, upon resolution of the board of directors, to redeem all or any part of the outstanding Class A, B, C, D, E and F preferred shares, as the case may be, by paying to the holder of such shares:

(i) in the case of Class A, B, C, D and E preferred shares, an amount equal to the capital amount paid up thereon plus all dividends declared thereon and unpaid; and

(ii) in the case of Class F preferred shares, an amount equal to the money consideration received by DC for the issuance of such shares or for the fair market value of the property or past services considered received by DC for the issuance of such shares plus all dividends declared thereon and unpaid;

(d) the holder of Class A, B, C, D and F preferred shares, as the case may be, shall be entitled to require DC to redeem at any time, all or any number of such shares at a redemption price per share equal to:

(i) in the case of Class A, B, C and D preferred shares, the capital amount paid up thereon plus all dividends declared thereon and unpaid; and

(ii) in the case of Class F preferred shares, the money consideration received by DC for the issuance of such shares or for the fair market value of the property or past services considered received by DC for the issuance of such shares plus all dividends declared thereon and unpaid;

(e) all shares shall be entitled to a return of capital in the event of liquidation, dissolution, bankruptcy or winding up of DC. The Class A preferred shares, Class B preferred shares, Class C preferred shares, Class D preferred shares, Class E preferred shares, and Class F preferred shares shall rank equally with respect to the return of capital, and in priority of the Common shares. The holders of the Class A, B, C, D, E and F preferred shares shall be entitled to receive, on a pro rata basis, for each Class A, B, C, D, E and F preferred shares outstanding, as the case may be:

(i) in the case of Class A, B, C, D and E preferred shares, an amount equal to the capital amount paid up thereon plus all dividends declared thereon and unpaid in priority to any distribution to the holders of the common shares; and

(ii) in the case of Class F preferred shares, an amount equal to the money consideration received by DC for the issuance of such shares or for the fair market value of the property or past services considered received by DC for the issuance of such shares plus all dividends declared thereon and unpaid in priority to any distribution to the holders of the common shares.

9. The issued share capital of DC consists of:

a. XXXXXXXXXX Class D preferred shares which are held by XXXXXXXXXX (the "Trust D"), with an aggregate PUC of $ XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

b. XXXXXXXXXX Common shares, XXXXXXXXXX Class D preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held jointly by the XXXXXXXXXX (collectively "Trust W"), an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Common shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class D preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

c. XXXXXXXXXX Common shares, XXXXXXXXXX Class D preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held by XXXXXXXXXX (the "Trust H"), with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Common shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class D preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

d. XXXXXXXXXX Common shares which are held by Trust1, with an aggregate PUC of $XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

e. XXXXXXXXXX Common shares which are held by Trust 2, with an aggregate PUC of $XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

f. XXXXXXXXXX Common shares which are held by XXXXXXXXXX (the "Trust3"), with an aggregate PUC of $XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

g. XXXXXXXXXX Common shares which are held by Trust 4, with an aggregate PUC of $XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

h. XXXXXXXXXX Common shares which are held by Trust5, with an aggregate PUC of $XXXXXXXXXX and an aggregate ACB of $XXXXXXXXXX;

i. XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held by Sib1, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class A preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

j. XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held by Sib2, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class A preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

k. XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held by Sib3, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class A preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

l. XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares, XXXXXXXXXX Class F preferred shares which are held by Sib4, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class A preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

m. XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares which are held by Sib5, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class A preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class E preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class F preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

n. XXXXXXXXXX Class B preferred shares and XXXXXXXXXX Class C preferred shares which are held by Mrs. X with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class B preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class C preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

o. XXXXXXXXXX Class B preferred shares and XXXXXXXXXX Class C preferred shares which are held by Mr. X, with an aggregate PUC and ACB for each class of shares so owned equal to:

Class of share
Number of shares
Aggregate ACB
Aggregate PUC
Class B preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Class C preferred shares
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

10. The aggregate PUC of the shares of DC is as follows:

a. the Common shares have an aggregate PUC of $XXXXXXXXXX;
b. the Class A preferred shares have an aggregate PUC of $XXXXXXXXXX;
c. the Class B preferred shares have an aggregate PUC of $XXXXXXXXXX and a stated capital of $XXXXXXXXXX;
d. the Class C preferred shares have an aggregate PUC of $XXXXXXXXXX;
e. the Class D preferred shares have an aggregate PUC of $XXXXXXXXXX;
f. the Class E preferred shares have an aggregate PUC of $XXXXXXXXXX;
g. the Class F preferred shares have an aggregate PUC of $XXXXXXXXXX;

11. The aggregate FMV and redemption value of the shares of DC is as follows:

a. the Common shares have an aggregate FMV of $XXXXXXXXXX;
b. the Class A preferred shares have a redemption value of $XXXXXXXXXX;
c. the Class B preferred shares have a redemption value of $XXXXXXXXXX;
d. the Class C preferred shares have a redemption value of $XXXXXXXXXX;
e. the Class D preferred shares have a redemption value of $XXXXXXXXXX;
f. the Class E preferred shares have a redemption value of $XXXXXXXXXX;
g. the Class F preferred shares have a redemption value of $ XXXXXXXXXX;

12. DC has an RDTOH balance of $XXXXXXXXXX and a balance in its CDA of approximately $XXXXXXXXXX.

Description of the assets of DC

13. DC is an investment holding company. Its assets consist of:

a. cash, accounts receivable, income taxes receivable and advances to a shareholder;

b. shares of private corporations; and

c. marketable securities consisting of shares of public companies, income trust units, bonds, and units of limited partnership.

14. DC's marketable securities are managed by a manager who endeavours to keep the portfolios fully invested in publicly traded stocks, income trust units, bonds and units of limited partnerships. The investment philosophy of DC is to invest in a way to provide for the preservation of the capital of DC.

15. The investments in private corporations and the marketable securities described above are capital properties to DC and represent portfolio investments of DC as it does not have significant influence, within the meaning of section 3050 of the CICA Handbook, over any corporation in which it holds shares.

16. On XXXXXXXXXX, the aggregate fair market value of DC's assets (before deducting DC's debts) was approximately $XXXXXXXXXX and the aggregate ACB of such assets was approximately $XXXXXXXXXX.

17. DC does not have any liabilities other than current liabilities. The current liabilities of DC include income tax liabilities and accrued professional fees which result from the ongoing operations of DC. The current liabilities of DC do not exceed the aggregate fair market value of the cash or near cash property of DC.

Other Relevant Facts

18. None of the shares of DC were acquired by their current owner in contemplation of the proposed transactions described herein.

19. DC has a policy of declaring taxable and capital dividends annually at the discretion of the directors.

PROPOSED TRANSACTIONS

AMENDMENT TO THE ARTICLES OF AMENDMENT OF DC

20. Articles of Amendment will be filed for DC to effect the following:

a) establish the redemption value of the preferred shares of DC to be an amount that is equal to the cash consideration received by DC for the issuance of such shares or the fair market value of the property or past services considered received by DC for the issuance of such shares plus all dividends declared thereon and unpaid less the amount of any return of capital paid to the holders of the preferred shares pursuant to a reduction of the legal stated capital of the preferred shares.

b) ensure that all dividends on the preferred shares of DC are calculated as a percentage of an amount equal to the cash consideration received by DC for the issuance of such shares or the fair market value of the property or past services considered received by DC for the issuance of such shares. The percentages used to calculate the dividends and the ranking of the preferred shares with respect to dividends will not be modified.

c) ensure that the return of capital in the event of liquidation, dissolution, bankruptcy or winding up of DC on the preferred shares will be an amount equal to the cash consideration received by DC for the issuance of such shares or the fair market value of the property or past services considered received by DC for the issuance of such shares plus all dividends declared thereon and unpaid. The ranking of the preferred shares in case of an event that would trigger a return of capital will not be modified.

REDUCTION OF THE STATED CAPITAL

21. DC will reduce the stated capital of the Class B preferred shares to an amount equal to the PUC of such class of shares. There will be no cash or asset distribution pursuant to this reduction of stated capital.

DISTRIBUTION OF THE RDTOH AND CDA

22. The following steps will be completed prior to end of the next fiscal year-end of DC:

a. DC will increase the stated capital of the Class B and Class F preferred shares by an aggregate amount equal to all or a portion of the remaining CDA of DC ("CDA PUC increase"). DC will file an election, pursuant to subsection 83(2), in prescribed manner and prescribed form, in respect of the entire amount of the dividend deemed to be paid to the holders of the Class B and Class F preferred shares under subsection 84(1) on this increase in PUC of the Class B and Class F preferred shares of DC;

b. DC will increase the stated capital of the Class B and Class F preferred shares by an aggregate amount equal to an amount representing XXXXXXXXXX times the balance of the remaining RDTOH of DC ("RDTOH PUC increase");

c. DC will reduce the stated capital of the Class B and Class F preferred shares by an aggregate amount equal to the amount of the dividend refund to be received by DC following the deemed dividend pursuant to the RDTOH PUC increase. A promissory note will be issued to each shareholder as payment for the PUC reduction. Such a promissory note will be payable to the shareholders on the day DC receives its dividend refund.

CREATION OF THE TRANSFEREE CORPORATIONS

23. After the end of the next fiscal year of DC, Sib1, Sib2, Sib3, Sib4 and Sib5 will each incorporate a new Transferee corporation, Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5 pursuant to the CBCA.

24. Each Transferee corporation (collectively, the "Transferees", individually a "Transferee"), will be a TCC, a private holding corporation and will not be a specified financial institution.

25. The share capital of each Transferee will consist of at least the following classes:

a. a class of voting common shares;

b. a class of special shares designated as Class A preferred shares with the following share attributes:

i. voting;

ii. redeemable and retractable at an amount equal to the fair market value of the consideration received; and

iii. entitled to an annual non-cumulative dividend not to exceed XXXXXXXXXX% per annum of the redemption amount, to be paid at the discretion of the directors of the particular Transferee.

26. No shares of the Transferees will be issued prior to the proposed transactions described herein.

27. [Reserved].

Transfer of Trust 1's shares to Transferee 1

28. Trust 1 will transfer a portion of its XXXXXXXXXX Common shares of DC to Transferee 1 at fair market value. As sole consideration, Transferee 1 will issue to Trust1 XXXXXXXXXX Common shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 1.

29. Trust1 and Transferee 1 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Common Shares of Transferee 1 will be equal to the aggregate PUC of the shares transferred.

Transfer of Sib1's shares to Transferee 1

30. Sib1 will transfer a portion of his XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares of DC to Transferee 1 at fair market value. As sole consideration, Transferee 1 will issue to Sib1 a number of Class A preferred shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 1.

31. Sib1 and Transferee 1 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Class A preferred shares of Transferee 1 will be equal to the aggregate PUC of the shares transferred.

Transfer of Trust2's shares to Transferee 2

32. Trust2 will transfer a portion of its XXXXXXXXXX Common shares of DC to Transferee 2 at fair market value. As sole consideration, Transferee 2 will issue to Trust2 XXXXXXXXXX Common shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 2.

33. Trust2 and Transferee 2 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Common shares of Transferee 2 will be equal to the PUC of the shares transferred.

Transfer of Sib2's shares to Transferee 2

34. Sib2 will transfer a portion of his XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares of DC to Transferee 2 at fair market value. As sole consideration, Transferee 2 will issue to Sib2 a number of Class A preferred shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 2.

35. Sib2 and Transferee 2 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Class A preferred shares of Transferee 2 will be equal to the PUC of the shares transferred.

Transfer of Sib3's shares to Transferee 3

36. Sib3 will transfer a portion of his XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares of DC to Transferee 3 at fair market value. As sole consideration, Transferee 3 will issue to Sib3 XXXXXXXXXX Common shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 3.

37. Sib3 and Transferee 3 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Class A preferred shares of Transferee 3 will be equal to the PUC of the shares transferred.

Transfer of Trust5's shares to Transferee 5

38. Trust5 will transfer a portion of its XXXXXXXXXX Common shares of DC to Transferee 5 at fair market value. As sole consideration, Transferee 5 will issue to Trust5 XXXXXXXXXX Common shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 5.

39. Trust5 and Transferee 5 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Common shares of Transferee 5 will be equal to the PUC of the shares transferred.

Transfer of Sib5's shares to Transferee 5

40. Sib5 will transfer a portion of her XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares of DC to Transferee 5 at fair market value. As sole consideration, Transferee 5 will issue to Sib5 a number of Class A preferred shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 5.

41. Sib5 and Transferee 5 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Class A preferred shares of Transferee 5 will be equal to the PUC of the shares transferred.

Transfer of Trust 4's shares to Transferee 4

42. Trust4 will transfer a portion of its XXXXXXXXXX Common shares of DC to Transferee 4 at fair market value. As sole consideration, Transferee 4 will issue to Trust4 XXXXXXXXXX Common shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 4.

43. Trust4 and Transferee 4 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Common shares of Transferee 4 will be equal to the PUC of the shares transferred.

Transfer of Sib4's shares to Transferee 4

44. Sib4 will transfer a portion of her XXXXXXXXXX Class A preferred shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class F preferred shares of DC to Transferee 4 at fair market value. As sole consideration, Transferee 4 will issue to Sib4 a number of Class A preferred shares of its capital stock having a fair market value equal to the fair market value at that time of the shares of DC so transferred to Transferee 4.

45. Sib4 and Transferee 4 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 the transfer. The agreed amount in respect of the shares so transferred will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The aggregate addition to the stated capital account of the Class A preferred shares of Transferee 4 will be equal to the PUC of the shares transferred.

46. Immediately before the transfers of property as described hereinafter, 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 any cash, marketable securities other than portfolio investments, and accounts receivable;

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 specified investment business); 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 specified investment business;

It is anticipated that DC will not have any business property immediately before the transfer of property as described hereinafter. For greater certainty, the marketable securities which are held as portfolio investments would be classified as investment property.

For greater certainty, any tax accounts, such as the balance of any RDTOH account or CDA of DC will not be considered property for purposes of the proposed transactions described herein.

For greater certainty, the amount of any deferred income taxes will not be considered a liability for the purposes of the proposed transactions as described herein because such amount does not represent a legal obligation of DC.

In determining the net fair market value of each type of property of DC immediately before the transfer described in paragraph 51 below, the liabilities of DC, which consist only of current liabilities, will be allocated to, and will be deducted in the calculation of the net fair market value of, each such type of property of DC in the following manner:

(i) current liabilities of DC will be allocated to the cash or near-cash property of DC 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 of DC. The allocation of current liabilities as described herein will not exceed the fair market value of all the cash or near-cash property of DC; and

(ii) the excess, if any, of liabilities remaining after the allocations described in subparagraph (i) above are made will be allocated to the cash or near-cash property, investment property and business property, if any, of DC, on the basis of the relative net fair market value of each type of property prior to the allocation of such excess.

Creation of Subcos

47. Each of Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5 will incorporate a new corporation, SubCo 1, SubCo 2, Subco 3, SubCo 4 and SubCo 5, respectively, under the CBCA.

48. Each SubCo will be a TCC, a private holding corporation and will not be a specified financial institution.

49. The share capital of each SubCo will be include the following:

a. a class of voting common shares;

b. a class of special shares designated as Class A preferred shares with the following share attributes:

i. voting;

ii. redeemable and retractable at an amount equal to the fair market value of the consideration received; and

ii. entitled to an annual non-cumulative dividend not to exceed XXXXXXXXXX% per annum of the redemption amount, to be paid at the discretion of the directors of the particular SubCo.

50. Each of the 5 Transferees will subscribe for one (1) Common share of its respective SubCo for cash consideration of $XXXXXXXXXX.

Transfer of property to the Subcos

51. DC will transfer to each of SubCo1, SubCo2, SubCo3, SubCo4 and SubCo5, property so that, immediately after the transfer, the net fair market value of the cash or near-cash property, the investment property and business property, if any, of DC, calculated as described in paragraph 46 above, which is transferred to SubCo1, SubCo2, SubCo3, SubCo4 and SubCo5 will approximate that proportion of the net fair market value of that type of property of DC, determined immediately before the transfer described in this paragraph, that:

(a) the fair market value of the shares of DC owned by each of Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee5, as the case may be, immediately before the transfers described in this paragraph
is of

(b) the aggregate fair market value of all the issued and outstanding shares of DC immediately before the transfers described in this paragraph.

For the purposes of this paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, would not exceed XXXXXXXXXX%, determined as a percentage of the fair market value of each type of property which each of Transferee 1 to Transferee 5 has received as compared to what each of them would have received had they received their appropriate pro rata share of the fair market value of that type of property.

52. DC and each of SubCo 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act, with respect to the transfer to each of the transferees of any eligible property of DC. The agreed amount in each joint election will be equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1).

As consideration for the transfer of properties described herein, each of SubCo 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 will issue to DC a number of Class A preferred shares of its capital stock, having an aggregate fair market value and redemption amount equal to the fair market value of the property of DC transferred to it as described herein.

For greater certainty, the agreed amount for any capital property included in the subsection 85(1) election, referred to herein will not exceed the fair market value of each such property.

The amount added to the stated capital account maintained for the Class A preferred shares of SubCo1, SubCo2, SubCo3, SubCo4 and SubCo5, as the case may be, will equal the aggregate cost to SubCo1, SubCo2, SubCo3, SubCo4 and SubCo5, as the case may be, determined pursuant to subsection 85(1), of the properties transferred by DC.

Redemption by the Subcos of shares issued to DC

53. Immediately following the transfers of properties as described in paragraph 51 above, each of SubCo 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 will redeem all of its Class A preferred shares owned by DC for an amount equal to the aggregate of the redemption amounts of its Class A preferred shares so redeemed, and will issue to DC in consideration therefor a demand non-interest-bearing promissory note with a principal amount and a fair market value equal to the aggregate of the redemption amount of its Class A preferred special shares (the "Redemption Price"). DC will accept the promissory note issued by SubCo 1 ( the "SubCo1 Note") as full payment for the Redemption Price of the Class A preferred shares of SubCo1. DC will accept the promissory note issued by SubCo 2 (the "SubCo 2 Note") as full payment for the Redemption Price of the Class A preferred shares of SubCo 2. DC will accept the promissory note issued by SubCo 3 (the "SubCo 3 Note") as full payment for the Redemption Price of the Class A preferred shares of SubCo 3. DC will accept the promissory note issued by SubCo 4 (the "SubCo 4 Note") as full payment for the Redemption Price of the Class A preferred shares of SubCo 4. DC will accept the promissory note issued by SubCo 5 (the "SubCo 5 Note") as full payment for the Redemption Price of the Class A preferred shares of SubCo 5.

Winding-up of the Subcos into the Transferees

54. At the end of the day on which the Class A preferred shares of SubCo 1, SubCo2, SubCo 3, SubCo 4 and SubCo 5 are redeemed:

a. SubCo 1 will be wound-up into Transferee 1; SubCo 2 will be wound-up into Transferee 2; SubCo 3 will be wound-up into Transferee 3; SubCo 4 will be wound-up into Transferee 4; and SubCo 5 will be wound-up into Transferee 5;

b. all properties of each of SubCo 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 will be distributed to Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5 respectively and all liabilities of SubCos 1 to 5 including the obligations under the SubCo 1 Note, the SubCo 2 Note, the SubCo 3 Note, the SubCo 4 Note and the SubCo 5 Note will be assumed by Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5 respectively;

SubCo1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 will obtain approval from DC with respect to the assumption of the SubCco 1 Note, the SubCo 2 Note, the SubCo 3 Note, the SubCo 4 Note and the SubCo 5 Note by Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5.

Redemption or Purchase for cancellation of the shares of DC held by the Transferees

55. DC will redeem or purchase for cancellation its shares owned by Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5.

In consideration for such redemptions and purchases for cancellation, DC will issue to each Transferee a non-interest bearing Promissory Note ("DC Promissory Note"), for an amount equal to the fair market value of such shares.

Notes Set Off

56. The SubCo1 Note and the DC Promissory Note issued to Transferee 1 will be set off against each other in full satisfaction of the respective obligation thereunder and will be cancelled.

The SubCo2 Note and the DC Promissory Note issued to Transferee 2 will be set off against each other in full satisfaction of the respective obligation thereunder and will be cancelled.

The SubCo3 Note and the DC Promissory Note issued to Transferee 3 will be set off against each other in full satisfaction of the respective obligation thereunder and will be cancelled.

The SubCo4 Note and the DC Promissory Note issued to Transferee 4 will be set off against each other in full satisfaction of the respective obligation thereunder and will be cancelled.

The SubCo5 Note and the DC Promissory Note issued to Transferee 5 will be set off against each other in full satisfaction of the respective obligation thereunder and will be cancelled.

ADDITIONAL INFORMATION

57. None of the corporations referred to herein is or will be, at any time during the series of transactions herein described, a specified financial institution or a restricted financial institution.

58. No property has been or will be acquired by DC, and no liabilities have been or will be incurred by DC, in contemplation of and before the transfers of property, except as described herein. The shares owned by Trust1, Trust2, Trust3, Trust4 and Trust5 were issued as part of an estate freeze undertaken in XXXXXXXXXX.

59. None of the 5 Transferees and SubCos have any specific intention of disposing of any property acquired by them as described in the following request to a partnership or to an unrelated person following the proposed transactions described herein, except tradings of the marketable securities in the normal course of their activities and none of them will dispose of any of their assets as part of the series of transactions which includes the proposed transaction.

60. There are not and 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), in respect of any of the transfers mentioned herein.

61. None of DC, the 5 Transferees or the 5 SubCos have, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares described herein.

62. None of the shares of DC, the 5 Transferees and the 5 SubCos have been or will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5) of the Act.

63. None of DC, the 5 Transferees or the 5 SubCos have been, or will be, at any time before the completion of the proposed transactions as described herein, a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1) of the Act.

PURPOSE OF THE PROPOSED TRANSACTIONS

64. The purpose of the proposed transactions is to transfer to some shareholders of DC, through a holding corporation controlled by them, a substantial portion of their proportionate share of the cash, marketable securities and other portfolio investments currently held in DC in order that each such shareholder will be able to independently set the future investment policies regarding the distributed assets without being bound by or influenced by the investment policies considered most appropriate by the other holders.

RULINGS

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

A. The filing of the Articles of Amendments of DC referred to in paragraph 20 will not, in and of itself, constitute a disposition of the shares of DC for the purposes of the Act.

B. As a result of the increases in stated capital of the Class B and Class F preferred shares by DC, as described in paragraph 22 (a) above, DC will be deemed to have paid to each holder of the Class B and Class F preferred shares, and each such holder will be deemed to have received, dividends pursuant to subsection 84(1) in an aggregate amount equal to the CDA PUC increase of the Class B and Class F preferred shares owned by such holder.

C. Provided that DC elects pursuant to subsection 83(2) in respect of the full amount of the dividend described in paragraph (B) above, in prescribed manner and prescribed form, such dividend will be deemed to be a capital dividend.

D. The ACB of a holder's Class B and Class F preferred shares of DC will be increased by the amount of that holder's deemed dividend described in paragraph (B), under the provisions of paragraph 53(1)(b).

E. As a result of the increases in stated capital of the Class B and Class F preferred shares by DC, as described in paragraph 22 (b) above, DC will be deemed to have paid to each holder of the Class B and Class F preferred shares, and each such holder will be deemed to have received, dividends pursuant to subsection 84(1) in an aggregate amount equal to the RDTOH PUC increase of the Class B and Class F preferred shares owned by such holder.

F. The ACB of a holder's Class B and Class F preferred shares of DC will be increased by the amount of that holder's deemed dividend described in paragraph (E), under the provisions of paragraph 53(1)(b).

G. The provisions of subsection 85(1) will apply to the transfer by each of the shareholders of DC of his Common, Class A, Class E or Class F shares of DC, as the case may be, to each of Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5, as the case may be, as described in paragraphs 28, 30, 32, 34, 36, 38, 40, 42 and 44 above, in respect of which an election under subsection 85(1) will be made. The agreed amount in respect of each transfer of such shares 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.

H. The provisions of subsection 85(1) will apply to the transfer of each eligible property by DC to each of SubCo 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5, as described in paragraphs 51 and 52 above, in respect of which an election under subsection 85(1) is made. The agreed amount in respect of each transfer of each eligible property will be deemed to be proceeds of disposition to DC and the cost thereof to each of the SubCos pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

I. Subsection 84(3) will apply:

(a) on the redemption by SubCo 1, Subco 2, Subco 3, Subco4 and Subco 5 of its Class A shares held by DC, as described in paragraph 53 above, to deem each of Subco 1, SubCo 2, SubCo 3, SubCo 4 and SubCo 5 to have paid, and DC to have received; and

(b) on the purchase for cancellation by DC of its Common shares held by Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5, as described in paragraph 55 above, to deem DC to have paid, and each of Transferee 1, Transferee 2, Transferee 3, Transferee 4 and Transferee 5 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, as the case may be, exceeds the aggregate PUC in respect of such shares immediately before such redemption or purchase for cancellation, and any such dividend:

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

(d) will be deductible pursuant to subsection 112(1) by the corporation deemed to have received the dividend and, for greater certainty, the provisions of subsections 112(2.1), 112(2.2), 112(2.3) and 112(2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;

(e) will be excluded, pursuant to paragraph (j) of the definition "proceeds of disposition" in section 54, in determining the proceeds of disposition to the recipient corporation of the shares so redeemed;

(f) will not be subject to tax under Parts IV.1 or VI.1;

(g) will only be subject to tax under Part IV to the extent exigible under paragraph 186(1)(b).

J. The provisions of subsection 112(3) will apply to reduce any loss which would otherwise be determined for the holder as a result of the redemption or purchase for cancellation of shares.

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

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

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

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

(iv) an acquisition of property in the circumstances described in subparagraph 55(3.1)(c); or

(iv) an acquisition of property in the circumstances described in subparagraph 55(3.1)(d):

which has not been described herein, then by virtue of paragraph 55(3)(b) of the Act, subsection 55(2) of the Act will not apply to the taxable dividends referred to in the rulings given above and for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b) of the Act.

L. The set-off and cancellation of the 5 SubCo Notes against the 5 DC Promissory Notes described in paragraph 56 above, will not give rise to a "forgiven amount" within the meaning thereof in subsections 80(1) or 80.01(1).

M. The Common shares of DC will not, as a result of the implementation of the proposed transaction as described above, in and by themselves, become taxable preferred shares or short-term preferred shares

N. Subsection 88(1) will apply to each winding-up of SubCo 1 into Transferee 1, SubCo 2 into Transferee 2, SubCo 3 into Transferee 3, SubCo 4 into Transferee 4 and SubCo 5 into Transferee 5 as described in paragraph 54.

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

P. Subsection 245(2) will not be applied to 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 forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada 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 Revenue Agency has agreed to or reviewed:

(a) the determination of the ACB, PUC or FMV of any shares referred to herein;

(b) the balance of the CDA account or the RDTOH balance; or

(c) any tax consequences relating to the facts and proposed transactions described herein other than those described in the rulings given above.

Yours truly,

XXXXXXXXXX
Manager
Corporate Reorganizations Section 1
Reorganizations and Resources Division
Income Tax Rulings Directorate