2006 Ruling 2006-0176321R3 - Conversion of coop. corp. into ordinary corp.

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: Is there a disposition on the continuance of the cooperative corporation?

Position: No

Reasons: Relevant corporate law

XXXXXXXXXX 									2006-017632

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX (Business No. XXXXXXXXXX)

Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge receipt of your facsimiles and emails as well as the information provided in various telephone conversations.

Throughout this letter, certain corporations will be referred to as follows:

XXXXXXXXXX 			Aco
XXXXXXXXXX 			Dco

Aco (the "taxpayer") files its corporate income tax returns at the XXXXXXXXXX Taxation Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office. The taxpayer is resident in Canada for the purposes of the Act.

To the best of your knowledge, and that of the taxpayer, none of the issues in this ruling request is:

(i) involved in an earlier return of the taxpayer or a related person;

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

(iii) under objection by the taxpayer or a related person;

(iv) before the courts; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

The taxpayer received an advance income tax ruling in conjunction with Dco (Ruling No. 2003-001349, dated XXXXXXXXXX, 2003) (the "Aco/Dco Ruling"). That ruling related to a purchase and sale transaction and the taxpayer's ongoing operations with Dco and its members. The ruling is described in Paragraph 13 below.

The taxpayer has represented that the transactions described in this letter will not affect its ability to pay any of its outstanding tax liabilities.

Unless otherwise indicated, all references to monetary amounts are in Canadian dollars.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "Aco Members" means those persons who currently hold XXXXXXXXXX Class XXXXXXXXXX Membership Shares and who have executed a Membership Agreement with Aco, and "Aco Member" means any one of them;

(b) "Act" means the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date hereof, and unless otherwise stated, every reference in this letter to a statutory provision is a reference to the relevant provision of the Act;

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

(d) "Board of Directors" means the Board of Directors of Aco from time to time;

(e) "CBCA" means the Canada Business Corporations Act;

(f) "Class XXXXXXXXXX Membership Shares" means the Class XXXXXXXXXX Membership shares of Aco, as more particularly described in Paragraph 5 below;

(g) "Class XXXXXXXXXX Investment Shares" means the Class XXXXXXXXXX Investment shares of Aco, as more particularly described in Paragraph 6 below;

(h) "Class XXXXXXXXXX Investment Shares" means the Class XXXXXXXXXX Investment shares of Aco, as more particularly described in Paragraph 7 below;

(i) "Class XXXXXXXXXX Investment Shares" means the Class XXXXXXXXXX Investment shares of Aco, as more particularly described in Paragraph 8 below;

(j) "Class XXXXXXXXXX Investment Shares" means the Class XXXXXXXXXX Investment shares of Aco, as more particularly described in Paragraph 9 below;

(k) "Cooperatives Act" means the Canada Cooperatives Act, 1998, c.1;

(l) "Corporations Canada" means the Office of the Director of Corporations Canada;

(m) "CRA" means the Canada Revenue Agency;

(n) "Dealers" means those persons (including current Aco Members) who will, following the completion of the Proposed Transactions, own common shares of Aco, and who will enter into Dealer Agreements with Aco and acquire XXXXXXXXXX and other XXXXXXXXXX from Aco in accordance with their respective Dealer Agreement and "Dealer" means any one of them;

(o) "Dealer Agreement" means the agreement to be entered into between Aco and each Dealer as part of the Proposed Transactions;

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

(q) "Membership Agreement" means the membership agreement that Aco has entered into with each Aco Member. The Membership Agreement governs the current relationship between Aco (as cooperative) and an Aco Member (as a member of the cooperative);

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

(s) "Paragraph" refers to a numbered paragraph in this letter;

(t) "Proposed Transactions" means the transactions described in Paragraphs 20 to 33 below;

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

(v) "taxable Canadian corporation" has the meaning assigned by subsection 89(1).

Our understanding of the facts, Proposed Transactions and purposes of the Proposed Transactions is as follows:

FACTS

1. Aco is a taxable Canadian corporation that was formed under the laws of XXXXXXXXXX.

2. Aco is a XXXXXXXXXX cooperative that is engaged more specifically in the business of XXXXXXXXXX and related products to its customers. Aco's customers include both Aco Members and non-members of Aco. Aco currently XXXXXXXXXX to approximately XXXXXXXXXX retail locations in all provinces and territories in Canada.

3. Aco has XXXXXXXXXX subsidiary XXXXXXXXXX corporations, namely XXXXXXXXXX.

4. The authorized share capital of Aco consists of Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Shares.

5. The Class XXXXXXXXXX Membership Shares, which are issued to persons upon their becoming Aco Members, have the following attributes: (i) a right to vote; (ii) a right to dividends if, as and when declared by the Board of Directors; (iii) a redemption right at the option of Aco; and (iv) a right to share equally with the Class XXXXXXXXXX Investment Shares in the remaining property of Aco on dissolution, after the requisite distributions have been made on any issued Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Shares. The Class XXXXXXXXXX Membership Shares have been issued in the past at a price of $XXXXXXXXXX per share. When an Aco Member ceases to be an Aco Member, such shares have been repurchased at a price of $XXXXXXXXXX per share.

6. The Class XXXXXXXXXX Investment Shares have the following attributes: (i) no right to vote; (ii) no right to dividends; (iii) a redemption right at the option of Aco; and (iv) a right to share equally with the Class XXXXXXXXXX Membership Shares in the remaining property of Aco on dissolution, after the requisite distributions have been made on any issued Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Shares. The Class XXXXXXXXXX Investment Shares are held by Aco Members and have been issued by Aco in the past as patronage dividends. Class XXXXXXXXXX Investment Shares were also issued by Aco to Dco as partial consideration for the recent acquisition of certain of Dco's assets, as described in Paragraph 13 below. The Class XXXXXXXXXX Investment Shares have been issued in the past at a price of $XXXXXXXXXX per share. When an Aco Member ceases to be an Aco Member, such shares have been repurchased at a price of $XXXXXXXXXX per share.

7. The Class XXXXXXXXXX Investment Shares have the following attributes: (i) no right to vote; (ii) a right to receive dividends if, as and when declared by the Board of Directors; (iii) a redemption right at the option of Aco in an amount equal to the amount paid by the holder to Aco to acquire such shares; and (iv) a right to receive an amount equal to the redemption price for the shares (together with an amount for all declared and unpaid dividends) on dissolution before any amounts are paid on any issued Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Membership Shares and Class XXXXXXXXXX Investment Shares.

8. The Class XXXXXXXXXX Investment Shares have the following attributes: (i) no right to vote, with one exception, namely a right to vote to elect the Board of Directors in the event that the XXXXXXXXXX of which the holder is a member becomes an Aco Member and provided the holder is not an Aco Member; (ii) no right to dividends; (iii) a redemption right at the option of Aco in an amount equal to the amount paid by the holder to Aco to acquire such shares; and (iv) a right to receive an amount equal to the redemption price for the shares on dissolution before any amounts are paid on any issued Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Membership Shares and Class XXXXXXXXXX Investment Shares. The Class XXXXXXXXXX Investment Shares were issued to various members of Dco who are not Aco Members.

9. The Class XXXXXXXXXX Investment Shares have the following attributes: (i) no right to vote, with one exception, namely a right to vote to elect one director to the Board of Directors; (ii) no right to dividends; (iii) a redemption right at the option of Aco in an amount equal to the amount paid by the holder to Aco to acquire such shares; and (iv) a right to receive an amount equal to the redemption price for the shares on dissolution before any amounts are paid on any other shares of Aco. One Class XXXXXXXXXX Investment Share was issued by Aco to Dco as partial consideration for the recent acquisition of certain of Dco's assets, as described in Paragraph 13 below.

10. As of XXXXXXXXXX, the following shares of Aco were issued and outstanding: XXXXXXXXXX Class XXXXXXXXXX Membership Shares, XXXXXXXXXX Class XXXXXXXXXX Investment Shares, XXXXXXXXXX Class XXXXXXXXXX Investment Shares and XXXXXXXXXX Class XXXXXXXXXX Investment Share.

11. As a federal cooperative corporation, Aco is governed on the basis of "one member, one vote". Individuals, partnerships and corporations who wish to become Aco Members must acquire and continue to hold XXXXXXXXXX Class XXXXXXXXXX Membership Shares and execute a Membership Agreement with Aco. Most Aco Members operate a single retail location XXXXXXXXXX. In some instances, Aco Members operate more than one retail location. Aco Members buy XXXXXXXXXX from Aco and Aco pays patronage dividends pursuant to allocations in proportion to each Aco Member's patronage. Aco has historically paid patronage dividends through the issuance of Class XXXXXXXXXX Investment Shares. Aco Members may also access a number of Aco programs including XXXXXXXXXX.

12. An Aco Member may withdraw and terminate its membership with Aco at any time by giving appropriate notice to Aco. Aco may also terminate the membership of an Aco Member in the manner provided in Aco's by-laws and/or the Membership Agreement with the Aco Member. On the effective date of withdrawal or termination, Aco may redeem any Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Shares held by the Aco Member in accordance with the terms of Aco's articles.

13. In XXXXXXXXXX, Aco completed a purchase and sale transaction with Dco whereby Dco sold certain of its assets to Aco as a going concern including: the assignment of certain contracts with respect to the operation of Dco's XXXXXXXXXX business in Canada, Dco's XXXXXXXXXX inventory in XXXXXXXXXX, Dco's rights to certain intellectual property and the goodwill associated with Dco's XXXXXXXXXX business in Canada. Through the acquisition of these assets, Aco effectively acquired, inter alia, the exclusive right to sell and distribute certain XXXXXXXXXX to Dco in order to allow Dco to satisfy orders received for such XXXXXXXXXX from its members. All of the relevant terms of this purchase and sale transaction and a description of the ongoing relationship between Aco and Dco are set out in the Aco/Dco Ruling (Ruling No. 2003-001349, dated XXXXXXXXXX, 2003). As partial consideration for the Dco assets, Dco received XXXXXXXXXX Class XXXXXXXXXX Membership Shares of Aco. Dco also entered into a "XXXXXXXXXX Membership Agreement" whereby Dco became an Aco Member. By virtue of the XXXXXXXXXX Membership Agreement, Dco is a XXXXXXXXXX member of Aco, and Aco markets its XXXXXXXXXX to Dco members using Dco as an intermediary. Aco sells its XXXXXXXXXX to Dco and pays patronage dividends to Dco which are based on the volume and margins applicable to the XXXXXXXXXX purchased by Dco from Aco. The dividends are calculated on the basis of the dividends that would have been payable to each member of Dco if it had been an Aco Member based on the quantum and quality of the purchases of Aco XXXXXXXXXX by Dco.

14. Due to changes in the economic and business climate in which Aco operates and given Aco's future business goals, the Board of Directors has determined that it would be in the best interest of Aco to continue from a cooperative corporation under the Cooperatives Act to an ordinary share capital corporation under the CBCA.

15. The Board of Directors called a special meeting of the Aco shareholders in accordance with subsection 287(2) of the Cooperatives Act. The purpose of the special meeting was to recommend and put forward a special shareholder resolution for Aco to be continued from a cooperative corporation under the Cooperatives Act to an ordinary share capital corporation under the CBCA. In accordance with subsection 287(2) of the Cooperatives Act, the holders of the Class XXXXXXXXXX Membership Shares, the Class XXXXXXXXXX Investment Shares, the Class XXXXXXXXXX Investment Shares and the Class XXXXXXXXXX Investment Share each voted as a separate class on the special resolution.

16. The special meeting was held on XXXXXXXXXX, at which time the Aco Members and shareholders approved the special resolution.

17. Under the Cooperatives Act, a special resolution requires the approval of two-thirds of the votes cast for each class of shares. However, in this case, the Board of Directors required a higher threshold of approval from each class of shares in order for the special resolution to pass.

18. The proposed special resolution provided that Aco will only proceed with the continuance provided that: (i) the Aco Members and shareholders pass the special resolution and meet the approval threshold; and (ii) Aco receives certain approvals for the continuance as well as an advance income tax ruling from CRA that is satisfactory to the Board of Directors. If a favourable advance tax ruling and the other requisite approvals are not obtained, Aco will not proceed with the continuance.

19. [Left Blank]

PROPOSED TRANSACTIONS

20. In accordance with section 286 of the Cooperatives Act, Aco will notify Corporations Canada of the continuance and file Articles of Continuance under the CBCA. By filing the Articles of Continuance, Aco will be continued from a XXXXXXXXXX cooperative corporation under the Cooperatives Act to an ordinary share capital corporation under the CBCA.

21. Given that Aco will no longer be a cooperative corporation, the share structure of Aco will have to be amended. The Articles of Continuance will therefore authorize Aco to issue two new classes of shares - common shares and preference shares.

22. The common shares will have the following attributes: (i) a right to vote; (ii) a right to dividends if, as and when declared by the Board of Directors; (iii) a redemption right at the option of Aco at a purchase price equal to the book value thereof (i.e. book value is presumed by the Board of Directors to fairly equate to fair market value); (iv) no right of retraction; and (v) a right to share rateably in the remaining property of Aco on dissolution once the redemption amount has been paid on any issued preference shares.

23. The preference shares will have the following attributes: (i) no right to vote; (ii) no right to dividends; (iii) a redemption right at the option of Aco at a purchase price equal to the redemption amount (i.e. the fair market value of the consideration for which the preference shares are issued); (v) no right of retraction; and (v) a right on dissolution to be paid the redemption amount in priority to any payments to holders of common shares.

24. The Articles of Continuance will also provide that Aco Members and shareholders will exchange their Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Share for new common and preference shares of Aco. These share exchanges will be accomplished through the continuance process as the Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Share will be converted into common shares and preference shares in the Articles of Continuance on the following basis:

Share Surrendered				Share(s) Received

1 Class XXXX  Membership Share	1 preference share
						1 common share

1 Class XXXX  Investment Share	1 preference share
						1 common share

1 Class XXXX Investment Share XXXX preference shares

1 Class XXXX Investment Share XXXX preference shares

For example, if an Aco Member has XXXXXXXXXX Class XXXXXXXXXX Membership Shares with an aggregate redemption value of $XXXXXXXXXX and XXXXXXXXXX Class XXXXXXXXXX Investment Shares with an aggregate redemption value of $XXXXXXXXXX such shares will be converted on continuance into XXXXXXXXXX preference and XXXXXXXXXX common shares. The Board of Directors believes that the number of preference shares to be granted for each existing share is fair and reasonable, and in accordance with the value of the existing shares in Aco. The aggregate paid-up capital of the new preference and common shares received by an Aco Member will be equal to the aggregate paid-up capital of the Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Share exchanged by the Aco Member. The aggregate paid-up capital will be allocated between the new preference and common shares in proportion to their relative fair market values.

25. Once the above share exchanges have occurred, the Articles of Continuance will delete the Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and Class XXXXXXXXXX Investment Shares from Aco's authorized share capital.

26. [Left Blank].

27. The Articles of Continuance will provide for a minimum and maximum number of directors for the Board of Directors. The minimum number of directors shall be XXXXXXXXXX and the maximum number shall be XXXXXXXXXX. There are currently XXXXXXXXXX directors comprising the Board of Directors (with one of these positions currently vacant) and it is expected that the same XXXXXXXXXX directors will comprise Aco's initial Board of Directors following the completion of the proposed transactions. The Board of Directors will be elected annually for XXXXXXXXXX terms and there will be no staggering of terms for directors.

28. The Articles of Continuance will provide that no shares of Aco can be transferred without the consent of the Board of Directors.

29. Concurrent with the continuance, Aco will adopt new by-laws in order to govern Aco in accordance with the CBCA.

30. Aco will also enter into Dealer Agreements with former Aco Members as the Membership Agreements will no longer be relevant or applicable to Aco's corporate structure (i.e., Aco will no longer be a cooperative corporation and will no longer have members). The new Dealer Agreements will replace the Membership Agreements and will provide that Dealers may purchase XXXXXXXXXX from Aco and Dealers who meet certain purchasing thresholds may receive rebates from Aco each year calculated on the basis of their purchases in the preceding year. It is intended that the Dealer Agreements will provide Aco with certain flexibility regarding rebates. Rebates may be paid by Aco at its discretion in cash, or alternatively rebates may be automatically reinvested on behalf of Dealers in common shares of Aco. In addition, Aco may choose in any given year to pay a dividend to shareholders in lieu of paying rebates or may choose in a year to not pay any rebate or dividend to Dealers.

31. The Dealer Agreements will further provide that a person must either pay a one-time administration fee of $XXXXXXXXXX or subscribe for and buy from Aco an equal number of common shares and preference shares of Aco having an aggregate value of $XXXXXXXXXX in order to become a Dealer. The quantum of the administration fee and shares required to be purchased contained in subsequent Dealer Agreements will be subject to adjustment in the future. The Dealer Agreements will comply with all securities and franchise legislation, as applicable.

32. A redemption policy of Aco will provide that a holder's common and preference shares may be redeemed by Aco on retirement of the holder or upon the holder otherwise ceasing to be a Dealer (referred to herein as "retirement"). The redemption policy will provide that on retirement of a Dealer:

(i) redemptions of common shares will be made annually, with the first redemption of up to XXXXXXXXXX% of common shares held by the holder to occur on the date (the "common share purchase date") that is XXXXXXXXXX days after the end of the fiscal year of Aco following the fiscal year of Aco in which the retirement occurred, and subsequent redemptions of up to XXXXXXXXXX% of the common shares originally held by the holder on each of the anniversaries of the common share purchase date until all common shares have been redeemed;

(ii) redemptions of preference shares will be made annually, with the first redemption of up to XXXXXXXXXX% of preference shares held by the holder to occur on the date (the "preference share purchase date") that is XXXXXXXXXX days after the end of the fiscal year of Aco in which the retirement occurred, and subsequent redemptions of up to XXXXXXXXXX% of the preference shares originally held by the holder on each of the anniversaries of the preference share purchase date until all preference shares have been redeemed;

(iii) notwithstanding (i) and (ii) above, redemptions of common and preference shares may, in the discretion of the Board of Directors, be made in full on or before the common share purchase date in exchange for an interest-bearing promissory note from Aco, which note shall be repayable in XXXXXXXXXX equal annual installments, the first of such installments being due and payable on the common share purchase date; and

(iv) redemptions of shares shall always be subject to:

a. approval of the Board of Directors of Aco,
b. no outstanding debts being owed by the holder to Aco,
c. adequate funds being available for the redemption, and
d. the redemption not negatively affecting Aco's lending covenants.

33. Any shareholders of Aco who dissent to the special resolution to continue Aco as an ordinary share capital corporation under the CBCA will have the rights provided under section 302 of the Cooperatives Act. Assuming all necessary

approvals are obtained, dissenting shareholders may sell their Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and/or Class XXXXXXXXXX Investment Share back to Aco and receive "fair value" from Aco for such shares.

PURPOSE OF THE PROPOSED TRANSACTIONS

34. The purpose of the Proposed Transactions is to allow Aco to change the way it carries on business and change its corporate governance in order to meet Aco's needs in a new business environment. While Aco has operated and carried on business in the past on a cooperative basis, the cooperative structure leaves Aco with certain restrictions and disadvantages in its current business climate. Aco's main competitors do not operate on a cooperative basis and the Proposed Transactions will place Aco on equal footing with its competitors.

35. Following the implementation of the Proposed Transactions and the continuance of Aco as an ordinary share capital corporation under the CBCA, Aco will be able to:

(a) access potential non-member investment capital through private or public offerings;

(b) provide flexibility through share capital investment, access business opportunities through mergers, equity participation, leveraged borrowings, subordinated debt or other initiatives involving Aco's equity;

(c) position Aco to have a retained earnings base sufficient to provide long-term financial stability and the opportunity for capital-intensive initiatives;

(d) meet the current and future needs and objectives of Dealers;

(e) provide Dealer and non-Dealer investors with the opportunity to share in the financial growth of Aco;

(f) allow for continued loyalty and commitment of Dealers by creating a financial commitment and a vested interest in Aco profitability and value;

(g) position Aco for growth and profitability in a number of XXXXXXXXXX;

(h) create a vehicle for Dealer/shareholder liquidity; and

(i) create a stronger and more flexible governance compliance.

RULINGS GIVEN

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

A. The continuance of Aco from a cooperative corporation under the Cooperatives Act to an ordinary share capital corporation under the CBCA, as described in Paragraph 20 above, will not, in and of itself, result in:

(a) a disposition or deemed disposition of the assets of Aco; or

(b) a disposition or deemed disposition by Aco shareholders of their shares of Aco.

B. Subsection 86(1) will apply and subsection 86(2) will not apply to the exchange by Aco Members and shareholders of their Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and/or Class XXXXXXXXXX Investment Share (referred to as their "old shares") for preference shares of Aco or a combination of common shares and preference shares of Aco, as described in Paragraph 24 above, such that:

(a) the cost to each Aco shareholder of any new common shares (or new preference shares) received on the share exchange will be deemed by paragraph 86(1)(b) to be equal to that proportion of the aggregate adjusted cost bases, immediately before the exchange, of the old shares owned by the Aco shareholder, that the fair market value, immediately after the exchange, of the new common shares (or new preference shares) receivable by the Aco shareholder on the exchange is of the aggregate fair market value, immediately after the exchange, of all of the new common and preference shares of Aco receivable by the Aco shareholder pursuant to the exchange; and

(b) pursuant to paragraph 86(1)(c), each Aco shareholder will be deemed to have disposed of that Aco shareholder's Class XXXXXXXXXX Membership Shares, Class XXXXXXXXXX Investment Shares, Class XXXXXXXXXX Investment Shares and/or Class XXXXXXXXXX Investment Share for aggregate proceeds of disposition equal to the aggregate cost of any new common and preference shares received by that Aco shareholder, as determined in Ruling B(a) above.

For greater certainty, subsections 84(1) and 84(3) will not apply to the share exchange to deem the Aco shareholders to have received a dividend.

C. The provisions of subsections 15(1), 56(2) and 246(1) will not apply to the exchanges of shares described in Paragraph 24.

D. Subject to Comment 2, below, the payment of any rebates by Aco to the Dealers (including cash reinvested at the option of the Dealer in common shares), as described in Paragraph 30 above, will be deductible, subject to the application of section 67, by Aco and will be included in the income of the Dealers.

The above 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 Canada Revenue Agency provided that the Proposed Transactions are completed by XXXXXXXXXX.

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

COMMENTS

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

(a) the determination of the fair market value or ACB of any particular asset, or the paid-up capital in respect of any shares referred to herein; or

(b) any tax consequences relating to the facts and Proposed Transactions described herein other than those specifically described in the rulings given above.

2. Assuming that proposed subsection 143.3(3) is enacted in substantially the same form as proposed in the Notice of Ways and Means Motion to introduce an Act to amend the Income Tax Act released by the Minister of Finance on November 9, 2006, rebates consisting of cash which is automatically invested at Aco's option in common shares will not be deductible by Aco and will be included in the income of the Dealers.

Yours truly,

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