2005 Ruling 2005-0132891R3 - In-house loss consolidation

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 particular arrangement relating to utilization of non-capital losses within an affiliated group of companies is acceptable.

Position: Yes.

Reasons: Based upon the facts of the situation and traditional practice concerning borrowing to acquire common shares.

XXXXXXXXXX 2005-013289

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX
(collectively referred to herein as the "Applicants")

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the Applicants. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations (XXXXXXXXXX) in connection with your request.

You have advised that to the best of your knowledge, and that of the responsible officers of each of the Applicants, none of the issues involved in this Ruling:

(i) is in an earlier tax return of any of the Applicants or a related person;

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

(ii) is under objection by any of the Applicants or a related person;

(iii) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; or

(iv) is the subject of a ruling previously issued by the Income Tax Rulings Directorate (although the proposed transactions were designed from transactions that were subject to prior advance income tax rulings, in particular, 2002-013308 dated XXXXXXXXXX, 2002).

The head office for each of the Applicants is located at XXXXXXXXXX. The XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre service each of the Applicants.

You have advised that to the best of the knowledge of the responsible officers of each of the Applicants, the Proposed Transactions will not have any impact on existing outstanding tax liabilities, if any, of any of the Applicants.

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

DEFINITIONS

Unless otherwise stated, in this letter, the following terms and expressions have the meanings specified below:

a) "A Co", as described in paragraph 12, means XXXXXXXXXX;

b) "ACB" means "adjusted cost base" as that expression is defined in section 54 of the Act;

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

d) "affiliated persons" has the meaning assigned by subsection 251.1(1) of the Act;

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

f) "B Co", as described in paragraph 12, means XXXXXXXXXX;

g) XXXXXXXXXX;

h) "C Co", as described in paragraph 12, means XXXXXXXXXX;

i) "capital loss" has the meaning assigned by section 39 of the Act;

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

k) "Corporate Group" means Parentco and all taxable Canadian corporations controlled by it;

l) "cost amount" has the meaning assigned under subsection 248(1) of the Act;

m) "CRA" means the Canada Revenue Agency;

n) "D Co" means XXXXXXXXXX;

o) "FMV" means fair market value;

p) "forgiven amount" has the meaning assigned by subsections 80(1) or 80.01(1)

q) "guarantee agreement" has the meaning assigned under subsection 112(2.2) of the Act;

r) "Holdco" means XXXXXXXXXX;

s) "Newlossco(s)" means any of Newlossco1, Newlossco2, Newlossco3, Newlossco4, or Newlossco5;

t) "Newlossco1" means the new corporation described in paragraph 13;

u) "Newlossco1 Note" means the note payable described in paragraph 14;

v) "Newlossco1 Note A" means the note payable described in paragraph 19;

w) "Newlossco1 Note B" means the note payable described in paragraph 26;

x) "Newlossco2" means the new corporation described in paragraph 13;

y) "Newlossco2 Note" means the note payable described in paragraph 15;

z) "Newlossco2 Note A" means the note payable described in paragraph 19;

aa) "Newlossco2 Note B" means the note payable described in paragraph 26;

bb) "Newlossco3" means the new corporation described in paragraph 13;

cc) "Newlossco3 Note" means the note payable described in paragraph 16;

dd) "Newlossco3 Note A" means the note payable described in paragraph 19

ee) "Newlossco3 Note B" means the note payable described in paragraph 26;

ff) "Newlossco4" means the new corporation described in paragraph 35;

gg) "Newlossco4 Note" means the note payable described in paragraph 36;

hh) "Newlossco4 Note A" means the note payable described in paragraph 40;

ii) "Newlossco4 Note B" means the note payable described in paragraph 47;

jj) "Newlossco5" means the new corporation described in paragraph 35;

kk) "Newlossco5 Note" means the note payable described in paragraph 37;

ll) "Newlossco5 Note A" means the note payable described in paragraph 40;

mm) "Newlossco5 Note B" means the note payable described in paragraph 47;

nn) "Newsubco(s)" means any of Newsubco A, Newsubco B, Newsubco C, Newsubco D, or Newsubco E;

oo) "Newsubco A" means the corporation formed on the amalgamation of A Co and Newlossco1 as set out in paragraph 31;

pp) "Newsubco B" means the corporation formed on the amalgamation of B Co and Newlossco2 as set out in paragraph 32;

qq) "Newsubco C" means the corporation formed on the amalgamation of C Co and Newlossco3 as set out in paragraph 33;

rr) "Newsubco D" means the corporation formed on the amalgamation of A Co and Newlossco4 as set out in paragraph 52;

ss) "Newsubco E" means the corporation formed on the amalgamation of B Co and Newlossco5 as set out in paragraph 53;

tt) "non-capital loss" has the meaning assigned by subsection 111(8);

uu) "Paragraph" means a numbered paragraph in this Advance Income Tax Ruling;

vv) "Parentco" means XXXXXXXXXX;

ww) "Plan of Arrangement" means the plan of arrangement implemented on XXXXXXXXXX under which D Co completed its divisive reorganization, as outlined in the Prior Ruling;

xx) "Portion A" means a percentage that, for the purposes of the Proposed Transactions in this letter, is assumed to be XXXXXXXXXX% of the Utilized ACB;

yy) "Portion B" means an amount that, for the purposes of the Proposed Transactions in this letter, is assumed to be XXXXXXXXXX% of the Utilized ACB;

zz) "Portion C" means an amount that is equal to the Utilized ACB less the sum of Portion A and Portion B;

aaa) "Portion D" means an amount that, for the purposes of the Proposed Transactions in this letter, is assumed to be XXXXXXXXXX% of the Utilized ACB;

bbb) "Portion E" means an amount that is equal to the Utilized ACB less Portion D;

ccc) "predecessor corporation" has the meaning assigned under subsection 87(1) of the Act;

ddd) "principal amount" has the meaning assigned under subsection 248(1) of the Act;

eee) XXXXXXXXXX;

fff) "Proposed Transactions" means the various transactions that are the subject of this ruling request;

ggg) "public corporation" has the meaning assigned by subsection 89(1) of the Act;

hhh) "PUC" means "paid-up capital" and has the meaning assigned by subsection 89(1) of the Act;

iii) "series of transactions or events" includes the extended meaning assigned to that expression by subsection 248(10) of the Act;

jjj) "specified financial institution" has the meaning assigned under subsection 248(1) of the Act;

kkk) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

lll) "taxable dividend" has the meaning assigned by subsection 89(1) of the Act;

mmm) "Transferred assets" means common shares of Holdco held by Parentco as capital property as noted in Paragraph 4;

nnn) "Utilized ACB" has the meaning described in paragraph 10;

ooo) "Wind-upco(s)" means Wind-upco1 and Wind-upco2;

ppp) "Wind-upco1" means the new corporation described in paragraph 13;

qqq) "Wind-upco1 Note 1" means the note payable described in paragraph 27;

rrr) "Wind-upco1 Note 2" means the note payable described in paragraph 27;

sss) "Wind-upco1 Note 3" means the note payable described in paragraph 27;

ttt) "Wind-upco2" means the new corporation described in paragraph 35;

uuu) "Wind-upco2 Note 1" means the note payable described in paragraph 48; and

vvv) "Wind-upco2 Note 2" means the note payable described in paragraph 48.

FACTS

1. Parentco is a taxable Canadian corporation and a public corporation the issued shares of which consist solely of common shares that are widely held by members of the public.

2. Parentco has a XXXXXXXXXX fiscal and taxation year-end.

3. Holdco is a taxable Canadian corporation that was incorporated pursuant to the CBCA.

4. All of the issued and outstanding shares of Holdco are common shares (such shares being the "Holdco Shares") and are held by Parentco as capital property.

5. Holdco is the main Canadian holding company in the Corporate Group. Holdco's subsidiaries carry on the operation of XXXXXXXXXX in Canada and throughout the world.

6. Parentco, formerly D Co, became the publicly traded holding company for the Corporate Group as a result of the Plan of Arrangement. That reorganization was the subject of the Prior Ruling.

7. Holdco has a XXXXXXXXXX fiscal and taxation year-end.

8. The FMV of the shares of Parentco, based on Parentco's market capitalization, is approximately $XXXXXXXXXX with the shares of Holdco representing the majority of such FMV. Based on the trading value of the shares of Parentco, the FMV of the Holdco shares owned by Parentco is in excess of their ACB. No formal valuation of the shares of Holdco or of any of the subsidiaries of Parentco has, or will be done. The ACB of the Holdco shares to Parentco is approximately $XXXXXXXXXX.

9. Parentco reported non-capital losses carried forward at XXXXXXXXXX 03 of approximately $XXXXXXXXXX, which are scheduled to expire as follows:

XXXXXXXXXX

Parentco also sustained a non-capital loss of approximately $XXXXXXXXXX for its XXXXXXXXXX taxation year and expects to have a non-capital of between $XXXXXXXXXX to $XXXXXXXXXX for its XXXXXXXXXX taxation year.

10. The aggregate principal amount of the notes payable issued to Parentco on the transfer of its shares of Holdco to the Newlosscos, as described in paragraphs 19 through 21 as well as in paragraphs 42 and 43 below, will in both cases be $XXXXXXXXXX ("Utilized ACB"). In each case, the aggregate principal amount of the debt so arising will be less than the FMV and the ACB, immediately before such respective transfers, of the shares of Holdco transferred by Parentco under such respective transfers.

11. Holdco is expected to pay annual dividends during the period covered by the Proposed Transactions.

12. A Co, B Co and C Co are potentially profitable taxable Canadian corporations within the Corporate Group that have been selected for use in the Proposed Transactions based on their expected taxable income. Each of Parentco, Holdco, A Co, B Co, and C Co will be affiliated persons throughout the Proposed Transactions. In particular, Parentco owns all of the issued shares of Holdco and B Co while Holdco owns all of the issued shares of C Co, as well as of another taxable Canadian corporation that owns all of the issued shares of A Co.

PROPOSED TRANSACTIONS

Based on current projections of taxable income, it is contemplated that the Proposed Transactions will be undertaken as set out below. Proposed Transactions occurring on a particular date will occur in the order presented herein. Each Proposed Transaction will have received whatever approvals are necessary for corporate purposes prior to its implementation.

13. Parentco will incorporate Newlossco1, Newlossco2, Newlossco3 and Wind-upco1 under the XXXXXXXXXX. Each of Newlossco1, Newlossco2, Newlossco3 and Wind-upco1 will be a taxable Canadian corporation.

Newlossco1's authorized share capital will consist of common shares and a class of non-voting, redeemable, preferred shares ("Newlossco1 Preferred Shares"). The Newlossco1 Preferred Shares will be entitled to non-cumulative dividends not exceeding XXXXXXXXXX% of their redemption amount. The aggregate redemption amount of the Newlossco1 Preferred Shares will be equal to Portion A of the FMV of the Holdco Shares at the time of their redemption less the principal amount of the debt issued or assumed by Newlossco1 on the acquisition of the Holdco Shares as described in Paragraph 14 below.

Newlossco2's authorized share capital will consist of common shares and a class of non-voting, redeemable, preferred shares ("Newlossco2 Preferred Shares"). The Newlossco2 Preferred Shares will be entitled to non-cumulative dividends not exceeding XXXXXXXXXX% of their redemption amount. The aggregate redemption amount of the Newlossco2 Preferred Shares will be equal to Portion B of the FMV of the Holdco Shares at the time of their redemption less the principal amount of the debt issued or assumed by Newlossco2 on the acquisition of the Holdco Shares as described in Paragraph 15 below.

Newlossco3's authorized share capital will consist of common shares and a class of non-voting, redeemable, preferred shares ("Newlossco3 Preferred Shares"). The Newlossco3 Preferred Shares will be entitled to non-cumulative dividends not exceeding XXXXXXXXXX % of their redemption amount. The aggregate redemption amount of the Newlossco3 Preferred Shares will be equal to Portion C of the FMV of the Holdco Shares at the time of their redemption less the principal amount of the debt issued or assumed by Newlossco3 on the acquisition of the Holdco Shares as described in Paragraph 16 below.

Wind-upco 1's authorized share capital will consist of common shares and two classes of non-voting, redeemable, preferred shares (Wind-upco1 Class A Shares and Wind-upco1 Class B Shares). The aggregate redemption amount of the Wind-upco1 Class A Shares will be equal to the aggregate of Portion A, Portion B and Portion C of the FMV of the shares of Holdco at the time of their redemption less the principal amount of the debt issued or assumed by Wind-upco1 on the acquisition of the Holdco Shares as described in Paragraph 23 below. The redemption amount of the Wind-upco1 Class B Shares will be equal to the FMV of the consideration received by Wind-upco1 on the issuance of such shares.

On incorporation, Parentco will subscribe for 1 common share of each of Newlossco1, Newlossco2, Newlossco3 and Wind-upco1 for an amount of $XXXXXXXXXX in each case. Each of Newlossco1, Newlossco2, Newlossco3 and Wind-upco1 will add $XXXXXXXXXX to the stated capital account maintained for its respective common shares.

Each of Newlossco1, Newlossco2, Newlossco3 and Wind-upco1 will select XXXXXXXXXX, as the date on which its fiscal and taxation year will end, unless its respective taxation year terminates prematurely as a result of an amalgamation pursuant to section 87.

Parentco will transfer the Holdco Shares to Newlossco1, Newlossco2, and Newlossco3

14. Parentco will transfer to Newlossco1 Portion A of its Holdco Shares for consideration consisting of a note payable to Parentco with a principal amount and FMV not exceeding the ACB of the Holdco Shares transferred (the "Newlossco1 Note") and 1 Newlossco1 Preferred Share.

15. Parentco will transfer to Newlossco2 Portion B of its Holdco Shares for consideration consisting of a note payable to Parentco with a principal amount and FMV not exceeding the ACB of the Holdco Shares transferred (the "Newlossco2 Note") and 1 Newlossco2 Preferred Share.

16. Parentco will transfer to Newlossco3 Portion C of its Holdco Shares for consideration consisting of a note payable to Parentco with a principal amount and FMV not exceeding the ACB of the Holdco Shares transferred (the Newlossco3 Note") and 1 Newlossco3 Preferred Share.

17. The Newlossco1 Note, the Newlossco2 Note and the Newlossco3 Note will be interest-bearing at an annual rate of XXXXXXXXXX% and have a term of XXXXXXXXXX years with certain early prepayment options.

18. Parentco will jointly elect with Newlossco1, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco shares to Newlossco1. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco shares transferred and their cost amount to Parentco at that time, and will not be less than the principal amount of the Newlossco1 Note.

Newlossco1 will add to the stated capital account maintained for the Newlossco1 Preferred Share an amount equal to the amount by which the FMV of the Holdco Shares received by Newlossco1 exceeds the principal amount of the Newlossco1 Note. Subsection 85(2.1) of the Act will result in a reduction in computing the PUC of the Newlossco1 Preferred Share, such that the amount of PUC of the Newlossco1 Preferred Share will be equal to the cost amount to Newlossco1 of the Holdco Shares transferred to Newlossco1 less the principal amount of the Newlossco1 Note.

Parentco will jointly elect with Newlossco2, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco shares to Newlossco2. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco shares transferred and their cost amount to Parentco at that time, and will not be less than the principal amount of the Newlossco2 Note.

Newlossco2 will add to the stated capital account maintained for the Newlossco2 Preferred Share an amount equal to the amount by which the FMV of the Holdco Shares received by Newlossco2 exceeds the principal amount of the Newlossco2 Note. Subsection 85(2.1) will result in a reduction in computing the PUC of the Newlossco2 Preferred Share, such that the amount of PUC of the Newlossco2 Preferred Share will be equal to the cost amount to Newlossco2 of the Holdco Shares transferred to Newlossco2 less the principal amount of the Newlossco2 Note.

Parentco will jointly elect with Newlossco3, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco shares to Newlossco3. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco shares transferred and their cost amount to Parentco at that time, and will not be less than the principal amount of the Newlossco3 Note.

Newlossco3 will add to the stated capital account maintained for the Newlossco3 Preferred Share an amount equal to the amount by which the FMV of the Holdco Shares received by Newlossco3 exceeds the principal amount of the Newlossco3 Note. Subsection 85(2.1) will result in a reduction in computing the PUC of the Newlossco3 Preferred Share, such that the amount of PUC of the Newlossco3 Preferred Share will be equal to the cost amount to Newlossco3 of the Holdco Shares transferred to Newlossco3 less the principal amount of the Newlossco3 Note.

Parentco will lend money to Newlossco1, Newlossco2, and Newlossco3

19. On or before XXXXXXXXXX, each of Newlossco1, Newlossco2 and Newlossco3 will issue demand notes payable bearing interest at a rate of XXXXXXXXXX% (the Newlossco1 Note A, Newlossco2 Note A and Newlossco3 Note A, respectively) to Parentco for cash in the amount of the non-capital losses of each of Newlossco1, Newlossco2 and Newlossco3 at that time (which will approximate the interest expense incurred by each of Newlossco1, Newlossco2 and Newlossco3 on the Newlossco1 Note, Newlossco2 Note and Newlossco3 Note, respectively).

20. The cash received from the issuance of the Newlossco1 Note A, Newlossco2 Note A and Newlossco3 Note A will permit each of Newlossco1, Newlossco2 and Newlossco3 to pay amounts owing, including interest expense owing to Parentco.

Parentco will transfer its Newlossco1 Preferred Share, Newlossco2 Preferred Share and Newlossco3 Preferred Share to Wind-upco1

21. On the same day referred to in Paragraph 19, Parentco will transfer to Wind-upco1, at FMV, its Newlossco1 Preferred Share, Newlossco2 Preferred Share and Newlossco3 Preferred Share. As sole consideration for these transfers, Wind-upco1 will issue to Parentco common shares of its capital stock.

22. Parentco will jointly elect with Wind-upco1, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Newlossco1 Preferred Share, the Newlossco2 Preferred Share and the Newlossco3 Preferred Share. The agreed amount in respect of the Newlossco1 Preferred Share, the Newlossco2 Preferred Share and the Newlossco3 Preferred Share so transferred will be the lesser of their FMV and their cost amount to Parentco at that time.

Wind-upco1 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount to it of the properties transferred.

Newlossco1, Newlossco2 and Newlossco3 will transfer Holdco Shares to Wind-upco1

23. On the same day referred to in Paragraph 19, the following transactions will occur:

Newlossco1 will transfer to Wind-upco1, at FMV, its Holdco Shares. As consideration for the transfer, Wind-upco1 will assume the Newlossco1 Note issued to Parentco and will issue Wind-upco1 Class A Shares to Newlossco1 which will have a redemption amount equal to the excess of the FMV at that time of the Holdco shares so transferred over the principal amount of the Newlossco1 Note assumed by Parentco.

Newlossco2 will transfer to Wind-upco1, at FMV, its Holdco Shares. As consideration for the transfer, Wind-upco1 will assume the Newlossco2 Note issued to Parentco and will issue Wind-upco1 Class A Shares to Newlossco2 which will have a redemption amount equal to the excess of the FMV at that time of the Holdco shares so transferred over the principal amount of the Newlossco2 Note assumed by Parentco.

Newlossco3 will transfer to Wind-upco1, at FMV, its Holdco Shares. As consideration for the transfer, Wind-upco1 will assume the Newlossco3 Note issued to Parentco and will issue Wind-upco1 Class A Shares to Newlossco3 which will have a redemption amount equal to the excess of the FMV at that time of the Holdco shares so transferred over the principal amount of the Newlossco3 Note assumed by Parentco.

24. Wind-upco1 will jointly elect with Newlossco1, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares. The agreed amount in respect of the Holdco Shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Newlossco1 at that time.

Wind-upco1 will jointly elect with Newlossco2, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Newlossco2 at that time.

Wind-upco1 will jointly elect with Newlossco3, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Newlossco3 at that time.

Wind-upco1 will add to the stated capital account maintained for its Wind-upco1 Class A Shares an amount equal to the FMV of the Holdco Shares transferred to it by each of Newlossco1, Newlossco2 and Newlossco3. Subsection 85(2.1) will result in a reduction in computing the PUC of the Wind-upco1 Class A Shares, such that the amount added to the PUC of the Wind-upco1 Class A Shares will be equal to the aggregate cost amount to Wind-upco1 of all of the Holdco Shares transferred to it less the aggregate of the principal amounts of the Newlossco1 Note, the Newlossco2 Note and the Newlossco3 Note.

25. To ensure that no interest expense accumulates in Wind-upco1, immediately after the transfer of the Holdco Shares described in Paragraph 23, Wind-upco1 will issue to Parentco Wind-upco1 Class B Shares with a FMV, a redemption price and stated capital account equal to the aggregate principal amounts of the Newlossco1 Note, Newlossco2 Note and Newlossco3 Note. As consideration, Parentco will surrender the Newlossco1 Note, Newlossco2 Note and Newlossco3 Note.

Newlosscos and Wind-upco 1 will cross-redeem preferred shares

26. On the same day referred to in Paragraph 19, Newlossco1 will redeem its Newlossco1 Preferred Share held by Wind-upco1. The consideration will be a demand non-interest-bearing note (the "Newlossco1 Note B") with a principal amount and FMV equal to the redemption value of the Newlossco1 Preferred Share.

On the same day referred to in Paragraph 19, Newlossco2 will redeem its Newlossco2 Preferred Share held by Wind-upco1. The consideration will be a demand non-interest-bearing note (the " Newlossco2 Note B") with a principal amount and FMV equal to the redemption value of the Newlossco2 Preferred Share.

On the same day referred to in Paragraph 19, Newlossco3 will redeem its Newlossco3 Preferred Share held by Wind-upco1. The consideration will be a demand non-interest-bearing note (the "Newlossco3 Note B") with a principal amount and FMV equal to the redemption value of the Newlossco3 Preferred Share.

Wind-upco1 will accept the Newlossco1 Note B, the Newlossco2 Note B and the Newlossco3 Note B in full satisfaction of the redemption amount of the Newlossco1 Preferred Share, Newlossco2 Preferred Share and the Newlossco3 Preferred Share, respectively.

27. On the same day referred to in Paragraph 19, Wind-upco1 will redeem its Wind-upco1 Class A Shares held by Newlossco1. The consideration will be a demand non-interest-bearing note (the "Wind-upco1 Note 1") with a principal amount and FMV equal to the redemption value of the Wind-upco1 Class A Shares held by Newlossco1. Newlossco1 will accept the Wind-upco1 Note 1 in full satisfaction of the redemption amount of the Wind-upco1 Class A Shares.

On the same day referred to in Paragraph 19, Wind-upco1 will redeem its Wind-upco1 Class A Shares held by Newlossco2. The consideration will be a demand non-interest-bearing note (the "Wind-upco1 Note 2") with a principal amount and FMV equal to the redemption value of the Wind-upco1 Class A Shares held by Newlossco2. Newlossco2 will accept the Wind-upco1 Note 2 in full satisfaction of the redemption amount of the Wind-upco1 Class A Shares.

On the same day referred to in Paragraph 19, Wind-upco 1 will redeem its Wind-upco1 Class A Shares held by Newlossco3. The consideration will be a demand non-interest-bearing note (the "Wind-upco1 Note 3") with a principal amount and FMV equal to the redemption value of the Wind-upco1 Class A Shares held by Newlossco3. Newlossco3 will accept the Wind-upco1 Note 3 in full satisfaction of the redemption amount of the Wind-upco1 Class A Shares.

Newlosscos and Wind-upco1 will cross-cancel Notes

28. Subsequent to, but on the same day as the redemptions described in Paragraphs 26 and 27, the Newlossco1 Note B and the Wind-upco1 Note 1 will be set off against each other and cancelled in full satisfaction of the obligations under each note, the Newlossco2 Note B and the Wind-upco1 Note 2 will be set off against each other and cancelled in full satisfaction of the obligations under each note, and the Newlossco3 Note B and the Wind-upco1 Note 3 will be set off against each other and cancelled in full satisfaction of the obligations under each note.

Parentco will sell Newlossco 1, Newlossco2 and Newlossco3 to Profitable Canadian Subsidiaries

29. A Co will acquire all of the shares of Newlossco1 and the Newlossco1 Note A from Parentco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco1 and other considerations.

B Co will acquire all of the shares of Newlossco2 and the Newlossco2 Note A from Parentco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco2 and other considerations.

C Co will acquire all of the shares of Newlossco3 and the Newlossco3 Note A from Parentco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco3 and other considerations.

30. Each of Newlossco1, Newlossco2 and Newlossco3 will have a taxation year end. Each of Newlossco1, Newlossco2 and Newlossco3 will file corporate income tax returns for its first taxation year. Each of Newlossco1, Newlossco2 and Newlossco3 will have incurred a non-capital loss that will approximate the interest expense on the Newlossco1 Note, Newlossco2 Note or Newlossco3 Note, as the case may be, held by Parentco for that taxation year.

A Co, B Co and C Co will amalgamate with Newlosscos

31. Following the acquisition by A Co of all the shares of Newlossco1, A Co and Newlossco1 will be amalgamated pursuant to XXXXXXXXXX to form one corporation, Newsubco A, in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the Newlossco1 Note A and the shares of Newlossco1) will become property of Newsubco A by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except the Newlossco1 Note A) will become liabilities of Newsubco A by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of A Co) will be cancelled on the merger. The shares of A Co owned by its shareholders immediately before the merger will become shares of Newsubco A to those shareholders immediately after the merger.

32. Following the acquisition by B Co of all the shares of Newlossco2, B Co and Newlossco2 will be amalgamated pursuant to provisions of the XXXXXXXXXX to form one corporation, Newsubco B, in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the Newlossco2 Note A and the shares of Newlossco2) will become property of Newsubco B by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except Newlossco2 Note A) will become liabilities of Newsubco B by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of B Co) will be cancelled on the merger. The shares of B Co owned by its shareholders immediately before the merger will become shares of Newsubco B to those shareholders immediately after the merger.

33. Following the acquisition by C Co of all the shares of Newlossco3, C Co and Newlossco3 will be amalgamated pursuant to the provisions of the XXXXXXXXXX to form one corporation, Newsubco C, in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the Newlossco3 Note A and the shares of Newlossco3) will become property of Newsubco C by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except Newlossco3 Note A) will become liabilities of Newsubco C by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of C Co) will be cancelled on the merger. The shares of C Co owned by its shareholders immediately before the merger will become shares of Newsubco C to those shareholders immediately after the merger.

Parentco will wind-up Wind-upco1

34. Pursuant to XXXXXXXXXX , Parentco will cause Wind-upco1 to be wound up and dissolved. A resolution of the shareholder, Parentco, authorizing and requiring that Wind-upco1 be wound up will be passed after the transfers of assets and redemptions of shares as described in Paragraphs 14 through 30. In addition, a general conveyance of assets and assumption of liabilities will be executed between Parentco and Wind-upco1.

Parentco will incorporate Newlossco4, Newlossco5, and Wind-upco2

35. Parentco will incorporate Newlossco4, Newlossco5 and Wind-upco2 under the XXXXXXXXXX. Each of Newlossco4, Newlossco5, and Wind-upco2 will be a taxable Canadian corporation.

Newlossco4's authorized share capital will consist of common shares and a class of non-voting, redeemable preferred shares ("Newlossco4 Preferred Shares"). The Newlossco4 Preferred Shares will be entitled to non-cumulative dividends not exceeding XXXXXXXXXX% of their redemption amount. The aggregate redemption amount of the Newlossco4 Preferred Shares will be equal to Portion D of the FMV of the Holdco Shares at the time of their redemption less the principal amount of the debt issued or assumed by Newlossco4 on the acquisition of the Holdco Shares as described in Paragraph 36 below.

Newlossco5's authorized share capital will consist of common shares and a class of non-voting, redeemable preferred shares ("Newlossco5 Preferred Shares"). The Newlossco5 Preferred Shares will be entitled to non-cumulative dividends not exceeding XXXXXXXXXX% of their redemption amount. The aggregate redemption amount of the Newlossco5 Preferred Shares will be equal to Portion E of the FMV of the Holdco Shares at the time of their redemption less the principal amount of the debt issued or assumed by Newlossco5 on the acquisition of the Holdco Shares as described in Paragraph 37 below.

Wind-upco2's authorized share capital will consist of common shares and two classes of non-voting redeemable preferred shares (Wind-upco2 Class A Shares and Wind-upco2 Class B Shares). The aggregate redemption amount of the Wind-upco2 Class A Shares will be equal to the aggregate of Portion D and Portion E of the FMV of the shares of Holdco at the time of their redemption less the principal amount of the debt issued or assumed by Wind-upco2 on the acquisition of the Holdco Shares as described in Paragraph 44 below. The redemption amount of the Wind-upco2 Class B Shares will be equal to the FMV of the consideration received by Wind-upco2 on the issuance of such shares.

On incorporation, Parentco will subscribe for 1 common share of each of Newlossco4, Newlossco5 and Wind-upco2 for an amount of $XXXXXXXXXX in each case. Each of Newlossco4, Newlossco5 and Wind-upco2 will add $XXXXXXXXXX to the stated capital account maintained for its respective common shares.

Each of Newlossco4, Newlossco5 and Wind-upco2 will select XXXXXXXXXX as the date on which its fiscal and taxation year will end, unless its respective taxation year terminates prematurely as a result of an amalgamation pursuant to section 87.

Parentco will transfer the Holdco Shares to Newlossco4 and Newlossco5

36. On a business day during XXXXXXXXXX after the winding-up of Wind-upco1 into Parentco, Parentco will transfer to Newlossco4 Portion D of its Holdco Shares for consideration consisting of a note payable to Parentco with a principal amount and FMV not exceeding the ACB of the Holdco Shares transferred (the "Newlossco4 Note") and 1 Newlossco4 Preferred Share.

37. Parentco will transfer to Newlossco5 Portion E of its Holdco Shares for consideration consisting of a note payable to Parentco with a principal amount and FMV not exceeding the ACB of the Holdco shares transferred (the "Newlossco5 Note") and 1 Newlossco5 Preferred Share.

38. The Newlossco4 Note and the Newlossco5 Note will be interest-bearing at an annual rate of XXXXXXXXXX% and have a term of XXXXXXXXXX years with certain early prepayment options.

39. Parentco will jointly elect with Newlossco4, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares to Newlossco4. The agreed amount in respect of the Holdco Shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Parentco at that time, and will not be less than the principal amount of the Newlossco4 Note.

Newlossco4 will add to the stated capital account maintained for the Newlossco4 Preferred Share an amount equal to the amount by which the FMV of the Holdco Shares received by Newlossco4 exceeds the principal amount of the Newlossco4 Note. Subsection 85(2.1) will result in a reduction in computing the PUC of the Newlossco4 Preferred Share, such that the amount of PUC of the Newlossco4 Preferred Share will be equal to the cost amount to Newlossco4 of the Holdco Shares transferred to Newlossco4 less the principal amount of the Newlossco4 Note.

Parentco will jointly elect with Newlossco5, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares to Newlossco5. The agreed amount in respect of the Holdco Shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Parentco at that time, and will not be less than the principal amount of the Newlossco5 Note.

Newlossco5 will add to the stated capital account maintained for the Newlossco5 Preferred Share an amount equal to the amount by which the FMV of the Holdco Shares received by Newlossco5 exceeds the principal amount of the Newlossco5 Note. Subsection 85(2.1) will result in a reduction in computing the PUC of the Newlossco5 Preferred Share, such that the amount of PUC of the Newlossco5 Preferred Share will be equal to the cost amount to Newlossco5 of the Holdco Shares transferred to Newlossco5 less the principal amount of the Newlossco5 Note.

Parentco will lend money to Newlossco4 and Newlossco5

40. On a particular day in late XXXXXXXXXX, each of Newlossco4 and Newlossco5 will issue demand notes payable, bearing interest at a rate of XXXXXXXXXX% (the Newlossco4 Note A and Newlossco5 Note A, respectively) to Parentco for cash in the amount of the non-capital losses of each of Newlossco4 and Newlossco5 at that time (which will approximate the interest expense incurred by each of Newlossco4 and Newlossco5 on the Newlossco4 Note and Newlossco5 Note, respectively).

41. The cash received from the issuance of the Newlossco4 Note A and Newlossco5 Note A will permit each of Newlossco4 and Newlossco5 to pay amounts owing, including interest expense owing to Parentco.

Parentco will transfer its Newlossco4 Preferred Share and Newlossco5 Preferred Share to Wind-upco2

42. On the same day as the transaction set out in Paragraph 40, Parentco will transfer to Wind-upco2, at FMV, its Newlossco4 Preferred Share and Newlossco5 Preferred Share. As sole consideration for these transfers, Wind-upco2 will issue to Parentco common shares of its capital stock.

43. Parentco will jointly elect with Wind-upco2, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Newlossco4 Preferred Share and Newlossco5 Preferred Share. The agreed amount in respect of the Newlossco4 Preferred Share and Newlossco5 Preferred Share transferred will be the lesser of their FMV and their cost amount to Parentco at that time.

Wind-upco2 will add to the stated capital account maintained for its common shares an amount not to exceed the aggregate of the cost amount to it of the properties transferred.

Newlossco4 and Newlossco5 will transfer Holdco Shares to Wind-upco2

44. On the same day as the transaction set out in Paragraph 40, Newlossco4 will transfer to Wind-upco2, at FMV, its Holdco Shares. As consideration for the transfer, Wind-upco2 will assume the Newlossco4 Note issued to Parentco and will issue Wind-upco2 Class A Shares to Newlossco4.

On the same day as the transaction set out in Paragraph 40, Newlossco5 will transfer to Wind-upco2, at FMV, its Holdco Shares. As consideration for the transfer, Wind-upco2 will assume the Newlossco5 Note issued to Parentco and will issue Wind-upco2 Class A Shares to Newlossco5.

45. Wind-upco2 will jointly elect with Newlossco4, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco Shares. The agreed amount in respect of the Holdco Shares transferred will be the lesser of the FMV of the Holdco Shares transferred and their cost amount to Newlossco4 at that time.

Wind-upco2 will jointly elect with Newlossco5, in prescribed form and within the time allowed by subsection 85(6), to have the rules of subsection 85(1) apply to the transfer of the Holdco shares. The agreed amount in respect of the Holdco shares transferred will be the lesser of the FMV of the Holdco shares transferred and their cost amount to Newlossco5 at that time.

Wind-upco2 will add to the stated capital account maintained for its Wind-upco2 Class A Shares an amount equal to the FMV of the Holdco Shares transferred to it by each of Newlossco4 and Newlossco5. Subsection 85(2.1) will result in a reduction in computing the PUC of the Wind-upco2 Class A Shares, such that the amount added to the PUC of the Wind-upco2 Class A Shares will be equal to the cost amount to Wind-upco2 of the Holdco Shares transferred less the aggregate principal amounts of the Newlossco4 Note and the Newlossco5 Note.

46. To ensure that no interest expense accumulates in Wind-upco2, immediately after the transfer of the Holdco Shares as described in Paragraph 44, Wind-upco2 will issue to Parentco Wind-upco2 Class B Shares with a redemption price and stated capital account equal to the aggregate principal amounts of the Newlossco4 Note and Newlossco5 Note. As consideration, Parentco will surrender the Newlossco4 Note and Newlossco5 Note.

Newlosscos and Wind-upco2 will cross-redeem preferred shares

47. On the same day as the transaction set out in Paragraph 40, Newlossco4 will redeem its Newlossco4 Preferred Share held by Wind-upco2. The consideration will be a demand non-interest-bearing note (the "Newlossco4 Note B") with a principal amount and FMV equal to the redemption value of the Newlossco4 Preferred Share. Wind-upco2 will accept the Newlossco4 Note B in full satisfaction of the redemption amount of the Newlossco4 Preferred Share.

On the same day as the transaction set out in Paragraph 40, Newlossco5 will redeem its Newlossco5 Preferred Share held by Wind-upco2. The consideration will be a demand non-interest-bearing note (the "Newlossco5 Note B") with a principal amount and FMV equal to the redemption value of the Newlossco5 Preferred Share. Wind-upco2 will accept the Newlossco5 Note B in full satisfaction of the redemption amount of the Newlossco5 Preferred Share.

48. On the same day as the transaction set out in Paragraph 40, Wind-upco2 will redeem its Wind-upco2 Class A Shares held by Newlossco4. The consideration will be a demand non-interest-bearing note (the "Wind-upco2 Note 1") with a principal amount and FMV equal to the redemption value of the Wind-upco2 Class A Shares held by Newlossco4. Newlossco4 will accept the Wind-upco2 Note 1 in full satisfaction of the redemption amount of the Wind-upco2 Class A Shares.

On the same day as the transaction set out in Paragraph 40, Wind-upco2 will redeem its Wind-upco2 Class A Shares held by Newlossco5. The consideration will be a demand non-interest-bearing note (the "Wind-upco2 Note 2") with a principal amount and FMV equal to the redemption value of the Wind-upco2 Class A Shares held by Newlossco5. Newlossco5 will accept the Wind-upco2 Note 2 in full satisfaction of the redemption amount of the Wind-upco2 Class A Shares.

Newlosscos and Wind-upco2 will cross-cancel Notes

49. On the same day as the transaction set out in Paragraph 40, the Newlossco4 Note B and the Wind-upco2 Note 1 will be set off against each other and cancelled in full satisfaction of the obligations under each note, and the Newlossco5 Note B and the Wind-upco2 Note 2 will be set off against each other and cancelled in full satisfaction of the obligations under each note.

Parentco will sell Newlossco4 and Newlossco5 to Profitable Canadian Subsidiaries

50. On the same day as the transaction set out in Paragraph 40, A Co will acquire all of the shares of Newlossco4 and the Newlossco4 Note A from Parentco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco4 and other considerations.

On the same day as the transaction set out in Paragraph 40, B Co will acquire all of the shares of Newlossco5and the Newlossco5 Note A from Parentco for FMV consideration consisting of cash. The FMV will reflect, inter alia, interest rates, statutory income tax rates, the estimated time of utilization of the non-capital losses of Newlossco5 and other considerations.

51. Each of Newlossco4 and Newlossco5 will have a taxation year-end. Each of Newlossco4 and Newlossco5 will file corporate income tax returns for its first taxation year. Each of Newlossco4 and Newlossco5 will have incurred a non-capital loss that will approximate the interest expense on the Newlossco4 Note or Newlossco5 Note, as the case may be, held by Parentco for that taxation year.

A Co and B Co will amalgamate with Newlosscos

52. Following the acquisition by A Co of all the shares of Newlossco4, A Co and Newlossco4 will be amalgamated pursuant to XXXXXXXXXX to form one corporation, Newsubco D, in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the Newlossco4 Note A and the shares of Newlossco4) will become property of Newsubco D by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except the Newlossco4 Note A) will become liabilities of Newsubco D by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of A Co) will be cancelled on the merger. The shares of A Co owned by its shareholders immediately before the merger will become shares of Newsubco D to those shareholders immediately after the merger.

53. Following the acquisition by B Co of all the shares of Newlossco5, B Co and Newlossco5 will be amalgamated pursuant to XXXXXXXXXX to form one corporation, Newsubco E, in such manner that:

(a) all of the property of the predecessor corporations immediately before the merger (except the Newlossco5 Note A and the shares of Newlossco5) will become property of Newsubco E by virtue of the merger;

(b) all of the liabilities of the predecessor corporations immediately before the merger (except Newlossco5 Note A) will become liabilities of Newsubco E by virtue of the merger; and

(c) all of the shares of the predecessor corporations (except those of B Co) will be cancelled on the merger. The shares of B Co owned by its shareholders immediately before the merger will become shares of Newsubco E to those shareholders immediately after the merger.

Parentco will wind-up Wind-upco2

54. Pursuant to XXXXXXXXXX , Parentco will cause Wind-upco2 to be wound up and dissolved. A resolution of the shareholder, Parentco, authorizing and requiring that Wind-upco2 be wound up will be passed after the transfers of assets and redemptions of shares as described in Paragraphs 36 through 51. In addition, a general conveyance of assets and assumption of liabilities will be executed between Parentco and Wind-upco2.

ADDITIONAL INFORMATION

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

56. There will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a guarantee agreement in respect of any of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions).

57. None of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions) is or will be the subject of a dividend rental agreement.

58. None of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions) has been or will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).

59. None of the corporations referred to herein (including the corporations to be incorporated as described in the Proposed Transactions) is or will be, at any time before the completion of the Proposed Transactions, a corporation described in any of the paragraphs (a) to (f) of the definition "financial intermediary corporation" in subsection 191(1).

PURPOSE OF THE PROPOSED TRANSACTIONS

The Proposed Transactions have been designed specifically to transfer a portion of Parentco's non-capital losses (being the $XXXXXXXXXX of such losses incurred before XXXXXXXXXX as noted in Paragraph 9) to Canadian resident subsidiary corporations. There is no economic or other advantage or benefit conferred on any of the companies that are party to the Proposed Transactions. In particular, the tax attributes of Parentco and the related corporations remain the same except for the transfer of the loss. There is no advantage or benefit conferred on any shareholder of the companies. The Proposed Transactions are not being undertaken to facilitate the use of any non-capital losses after the time that Parentco's non-capital losses would otherwise have expired. The economic substance of the Proposed Transactions is that a portion of the non-capital losses of Parentco will be replaced with cash. The Proposed Transactions and agreements related thereto will reflect the bona fide intention of the parties to transfer the non-capital losses at their FMV.

RULINGS REQUESTED AND GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our rulings are as follows:

A. Provided that:

1. each of Newlossco1, Newlossco2 and Newlossco3 holds its proportion of the Holdco Shares for the purpose of gaining or producing income (other than income which is exempt from taxation) from the Holdco Shares; and

2. each of Newlossco1, Newlossco2 and Newlossco3 has a legal obligation to pay interest in respect of the Newlossco1 Note in the case of Newlossco1, the Newlossco2 Note in the case of Newlossco2 and the Newlossco3 Note in the case of Newlossco3;

each of Newlossco1, Newlossco2 and Newlossco3 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco1, Newlossco2 and Newlossco3 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).

B. Provided that:

1. each of Newlossco4 and Newlossco5 holds its proportion of the Holdco Shares for the purpose of gaining or producing income (other than income which is exempt from taxation) from the Holdco Shares; and

2. each of Newlossco4 and Newlossco5 has a legal obligation to pay interest in respect of the Newlossco4 Note in the case of Newlossco4 and the Newlossco5 Note in the case of Newlossco5;

each of Newlossco4 and Newlossco5 will be entitled to deduct, in computing its income for a taxation year, the lesser of such interest and a reasonable amount in respect thereof paid in the year or payable in respect of the year (depending on the method Newlossco4 and Newlossco5 regularly follow in computing their income for the purposes of the Act) under paragraph 20(1)(c).

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

1. the transfer by Parentco of its Holdco Shares to Newlossco1 described in Paragraph 14;

2. the transfer by Parentco of its Holdco Shares to Newlossco2 described in Paragraph 15;

3. the transfer by Parentco of its Holdco Shares to Newlossco3 described in Paragraph 16;

4. the transfer by Parentco of its Newlossco1 Preferred Share to Wind-upco1 described in Paragraph 21;

5. the transfer by Parentco of its Newlossco2 Preferred Share to Wind-upco1 described in Paragraph 21;

6. the transfer by Parentco of its Newlossco3 Preferred Share to Wind-upco1 described in Paragraph 21;

7. the transfer by Newlossco1 of its Holdco Shares to Wind-upco1 described in Paragraph 23;

8. the transfer by Newlossco2 of its Holdco Shares to Wind-upco1 described in Paragraph 23;

9. the transfer by Newlossco3 of its Holdco Shares to Wind-upco1 described in Paragraph 23;

10. the transfer by Parentco of its Holdco Shares to Newlossco4 described in Paragraph 36;

11. the transfer by Parentco of its Holdco Shares to Newlossco5 described in Paragraph 37;

12. the transfer by Parentco of its Newlossco4 Preferred Share to Wind-upco2 described in Paragraph 42;

13. the transfer by Parentco of its Newlossco5 Preferred Share to Wind-upco2 described in Paragraph 42;

14. the transfer by Newlossco4 of its Holdco Shares to Wind-upco2 described in Paragraph 44;

15. the transfer by Newlossco5 of its Holdco Shares to Wind-upco2 described in Paragraph 44;

with the result that the agreed amount in respect of the transferred shares will, in each case, be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to the transferor and the cost thereof to the transferee.

D. With respect to:

a) the redemption by Newlossco1 of its Newlossco1 Preferred Share held by Wind-upco1 described in Paragraph 26;

b) the redemption by Newlossco 2 of its Newlossco2 Preferred Share held by Wind-upco1 described in Paragraph 26;

c) the redemption by Newlossco 3 of its Newlossco3 Preferred Share held by Wind-upco1 described in Paragraph 26;

d) the redemption by Wind-upco1 of its Wind-upco1 Class A Shares held by Newlossco1, Newlossco2 and Newlossco3 described in Paragraph 27;

e) the redemption by Newlossco4 of its Newlossco4 Preferred Share held by Wind-upco2 described in Paragraph 47;

f) the redemption by Newlossco5 of its Newlossco5 Preferred Share held by Wind-upco2 described in Paragraph 47;

g) the redemption by Wind-upco2 of its Wind-upco2 Class A Shares held by Newlossco4 and Newlossco5 described in Paragraph 48;

1. the amount, if any, by which the amount paid to redeem the particular shares exceeds the PUC of the particular shares immediately before the redemption

(i) will be deemed by paragraph 84(3)(a) to be a dividend paid at that time by the issuer of such shares; and

(ii) will be deemed by paragraph 84(3)(b) to be a dividend received at that time by the holder of such shares;

2. to the extent that a dividend described in 1(ii) above is a taxable dividend, such dividend will, pursuant to subsection 112(1), be deductible in computing the taxable income of the recipient for the year in which the dividend is deemed to have been received, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

3. by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of each particular deemed dividend described in 1(ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividend pursuant to subsection 112(3);

4. Part IV.l will not impose any tax liability on Newlossco1, Newlossco2, Newlossco3, Newlossco4, Newlossco5, Wind-upco1 or Wind-upco2 as a result of the deemed dividends referred to in 1(ii) above because each such dividend will be a dividend described in paragraph (b) of the definition of "excepted dividend" in section 187.1; and

5. Part VI.l will not impose any tax liability on Newlossco1, Newlossco2, Newlossco3, Newlossco4, Newlossco5, Wind-upco1 or Wind-upco2 as a result of the deemed dividends referred to in 1(i) above because each such dividend will be a dividend described in paragraph (a) of the definition of "excluded dividend" in subsection 191(1).

E. Upon the amalgamation of each of

a) A Co and Newlossco1 described in Paragraph 31;

b) B Co and Newlossco2 described in Paragraph 32;

c) C Co and Newlossco3 described in Paragraph 33;

d) A Co and Newlossco4 described in Paragraph 52; and

e) B Co and Newlossco5 described in Paragraph 53:

1. each amalgamation will be a merger as described in subsection 87(1);

2. the provisions of subsection 87(1.1) will apply to the amalgamation referred to in (a) above to deem the shareholders of A Co to have received shares of the capital stock of Newsubco A by virtue of the merger as consideration for the disposition of the shares of the capital stock of A Co;

3. the provisions of subsection 87(1.1) will apply to the amalgamation referred to in (b) above to deem the shareholders of B Co to have received shares of the capital stock of Newsubco B by virtue of the merger as consideration for the disposition of the shares of the capital stock of B Co;

4. the provisions of subsection 87(1.1) will apply to the amalgamation referred to in (c) above to deem the shareholders of C Co to have received shares of the capital stock of Newsubco C by virtue of the merger as consideration for the disposition of the shares of the capital stock of C Co;

5. the provisions of subsection 87(1.1) will apply to the amalgamation referred to in (d) above to deem the shareholders of A Co to have received shares of the capital stock of Newsubco D by virtue of the merger as consideration for the disposition of the shares of the capital stock of A Co;

6. the provisions of subsection 87(1.1) will apply to the amalgamation referred to in (e) above to deem the shareholders of B Co to have received shares of the capital stock of Newsubco E by virtue of the merger as consideration for the disposition of the shares of the capital stock of B Co;

7. the provisions of subsection 87(2.1) will apply to the amalgamations referred to in (a), (b) and (c) above to deem Newsubco A, Newsubco B and Newsubco C to be the same corporation as, and a continuation of, each of Newlossco1 and A Co, each of Newlossco2 and B Co, and Newlossco3 and C Co, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis and subject to the rules contained in section 111, the non-capital losses of Newlossco1, Newlossco2 and Newlossco3 will be available to be utilized by each of Newsubco A, Newsubco B and Newsubco C, respectively;

8. the provisions of subsection 87(2.1) will apply to the amalgamations referred to in (d) and (e) above to deem Newsubco D and Newsubco E to be the same corporation as, and a continuation of, each of Newlossco4 and A Co, and each of Newlossco5 and B Co, respectively, for the purposes, and subject to the restrictions, described in subsection 87(2.1). On this basis and subject to the rules contained in section 111, the non-capital losses of Newlossco4 and Newlossco5 will be available to be utilized by each of Newsubco D and Newsubco E, respectively;

9. the provisions of paragraph 87(2)(a) will apply to the amalgamations referred to in (a), (b) and (c) above to deem each of Newsubco A, Newsubco B and Newsubco C to be a new corporation, the first taxation year of which commences immediately after the amalgamation, and the predecessor corporations will be deemed to have taxation years ended immediately prior to the amalgamations; and

10. the provisions of paragraph 87(2)(a) will apply to the amalgamations referred to in (d) and (e) above to deem each of Newsubco D and Newsubco E to be a new corporation, the first taxation year of which commences immediately after the amalgamation, and the predecessor corporations will be deemed to have taxation years ended immediately prior to the amalgamations.

F. After the winding-up of:

1. Wind-upco1 into Parentco described in Paragraph 34 is completed; and

2. Wind-upco2 into Parentco described in Paragraph 54 is completed;

the provisions of subsection 88(1) will apply to each winding-up such that:

3. each property of Wind-upco1 and Wind-upco2 distributed to Parentco on the particular winding-up will be deemed by paragraph 88(1)(a) to have been disposed of by Wind-upco1 or Wind-upco2, as the case may be, for proceeds of disposition determined under that paragraph;

4. the shares of the capital stock of each of Wind-upco1 and Wind-upco2 held by Parentco immediately before the particular winding-up will be deemed by paragraph 88(1)(b) to have been disposed of by Parentco for proceeds determined under that paragraph; and

5. each property of Wind-upco1 and Wind-upco2 distributed to Parentco on the particular winding-up will be deemed, by paragraph 88(1)(c) to have been acquired by Parentco for an amount equal to the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the property to Wind-upco1 or Wind-upco2, as the case may be, and no more.

G. Provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) as part of a series of transactions or events that includes the redemption of the shares described in Paragraphs 26, 27, 47 or 48 above, then, by virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends described in Ruling D above. For greater certainty, the Proposed Transactions, in and by themselves, will not be considered to result in any disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

H. Provided that:

1. the FMV of the Wind-upco1 Class B Shares issued to Parentco, as a consequence of the settlement of the Newlossco1 Note, the Newlossco2 Note and the Newlossco3 Note described in Paragraph 25, and the amount of the increase in the FMV of any other shares of Wind-upco1 held by Parentco at that time is equal to the aggregate of the principal amount of the Newlossco1 Note, the Newlossco2 Note and the Newlossco3 Note; and

2. the FMV of the Wind-upco2 Class B Shares issued to Parentco, as a consequence of the settlement of the Newlossco4 Note and the Newlossco5 Note described in Paragraph 46, and the amount of the increase in the FMV of any other shares of Wind-upco2 held by Parentco at that time is equal to the aggregate of the principal amount of the Newlossco4 Note and the Newlossco5 Note;

no forgiven amount will arise as a result of the settlements described in either of Paragraph 25 or 46, as the case may be.

I. The set-off and cancellation of the notes described in Paragraphs 28 and 49 will not give rise to a forgiven amount.

J. With respect to the

1. sale by Parentco of the Newlossco1 Note A to A Co described in Paragraph 29;

2. sale by Parentco of the Newlossco2 Note A to B Co described in Paragraph 29;

3. sale by Parentco of the Newlossco3 Note A to C Co described in Paragraph 29;

4. sale by Parentco of the Newlossco4 Note A to A Co described in Paragraph 50; and

5. sale by Parentco of the Newlossco5 Note A to B Co described in Paragraph 50

paragraph 40(2)(e.1) will apply with the result that the amount of any capital loss realized by Parentco on the disposition will, in each case, be deemed to be nil. For greater, certainty, subparagraph 40(2)(g)(ii) will not apply to any of the dispositions referred to in 1 to 5 above.

K. Paragraph 53(1)(f.1) will apply to any capital loss arising on any of the dispositions referred to in Ruling J above, such that

1. A Co's ACB in respect of Newlossco1 Note A will include the amount of any capital loss that would otherwise have been realized by Parentco on the sale of the Newlossco1 Note A to A Co;

2. B Co's ACB in respect of Newlossco2 Note A will include the amount of any capital loss that would otherwise have been realized by Parentco on the sale of the Newlossco2 Note A to B Co;

3. C Co's ACB in respect of Newlossco3 Note A will include the amount of any capital loss that would otherwise have been realized by Parentco on the sale of the Newlossco3 Note A to C Co;

4. A Co's ACB in respect of Newlossco4 Note A will include the amount of any capital loss that would otherwise have been realized by Parentco on the sale of the Newlossco4 Note A to A Co; and

5. B Co's ACB in respect of Newlossco5 Note A will include the amount of any capital loss that would otherwise have been realized by Parentco on the sale of the Newlossco5 Note A to B Co.

L. With respect to the

1. settlement of the Newlossco1 Note A on the amalgamation of Newlossco1 and A Co described in Paragraph 31;

2. settlement of the Newlossco2 Note A on the amalgamation of Newlossco2 and B Co described in Paragraph 32;

3. settlement of the Newlossco3 Note A on the amalgamation of Newlossco3 and C Co described in Paragraph 33;

4. settlement of the Newlossco4 Note A on the amalgamation of Newlossco4 and A Co described in Paragraph 52; and

5. settlement of the Newlossco5 Note A on the amalgamation of Newlossco5 and B Co described in Paragraph 53

no forgiven amount will arise.

M. Paragraph 12(1)(x) will have no application in respect of the Proposed Transactions described in Paragraphs 19 and 40.

N. Subsections 15(1), 56(2), and 246(1) will not apply to the Proposed Transactions in and by themselves.

O. The provisions of subsection 245(2) will not apply, as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the proposed transactions are completed before XXXXXXXXXX.

OTHER COMMENTS

Nothing in this ruling should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

(a) the fair market value or ACB of any property or the paid-up capital of any shares referred to herein;

(b) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(c) the provincial income tax implications relating to the allocation of any income, expenses or non-capital losses under the proposed transactions;

(d) the application or non-application of the general anti-avoidance provisions of any province; and

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

Yours truly,

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