2006 Ruling 2006-0189011R3 - Split-up Butterfly

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

Principal Issues: Standard double-wing split-up butterfly.

XXXXXXXXXX 								2006-018901

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Subject: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, and your other correspondence, wherein you requested an advance income tax ruling on behalf of the taxpayers described in this ruling request. You have advised us that to the best of your knowledge and that of the taxpayers involved none of the issues involved in this ruling request are:

(i) in an earlier return of the taxpayers or any related person;

(ii) being considered by a tax services office ("TSO") or taxation centre ("TC") in connection with a previously filed tax return by the taxpayers or any related person;

(iii) under objection by the taxpayers or any related person;

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

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

The taxpayers have also represented that the proposed transactions described herein will not result in the taxpayers or any related person described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

In this letter, all monetary amounts are expressed in Canadian dollars unless otherwise indicated, and the following terms or expressions have the meaning specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter, and unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph, clause or subclause is a reference to the relevant provision of the Act, and the Income Tax Act Regulations thereunder are referred to as the "Regulations";

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

(c) "affiliated persons" has the meaning assigned by section 251.1;

(d) "agreed amount" means the amount agreed on by the transferor and transferee in respect of the transfer of an eligible property in a joint election filed pursuant to subsection 85(1);

(e) "BCA1" means the XXXXXXXXXX Business Corporations Act;

(f) "BCA2" means the XXXXXXXXXX Business Corporations Act;

(g) "BN" means the tax identification number assigned by the CRA to the particular entity;

(h) XXXXXXXXXX;

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

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

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

(l) "Child B1" means XXXXXXXXXX;

(m) "Child B2" means XXXXXXXXXX;

(n) "Child B3" means XXXXXXXXXX;

(o) "Child B4" means XXXXXXXXXX;

(p) "Child S1" means XXXXXXXXXX;

(q) "Child S2" means XXXXXXXXXX;

(r) "Children" means any or all of Child B1, Child B2, Child B3 and Child B4 and/or any or all of Child S1 and Child S2, as the context requires;

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

(t) "DC" means XXXXXXXXXX;

(u) "designated person" has the meaning assigned by subsection 74.5(5);

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

(w) "dividend refund" has the meaning assigned by paragraph 129(1)(a);

(x) "dividend rental arrangement" has the meaning assigned by subsection 248(1);

(y) "Effective Date" means a day in XXXXXXXXXX on or prior to XXXXXXXXXX, as agreed upon by the taxpayers;

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

(aa) "fair market value" ("FMV") means the highest price available in an open and unrestricted market between informed, prudent parties acting at arm's length (within the meaning assigned by subsection 251(1)) under no compulsion to act and contracting for a taxable purchase and sale;

(bb) "Gain Properties" has the meaning assigned by Paragraph 34, and "Gain Property" has a corresponding meaning but in the singular;

(cc) "Holdco B" has the meaning assigned by Paragraph 11;

(dd) "Holdco S" has the meaning assigned by Paragraph 12;

(ee) "Holdco S Note" has the meaning assigned by Paragraph 36;

(ff) "Holdco S Redemption Price" has the meaning assigned by Paragraph 36;

(gg) "Loss Properties" has the meaning assigned by Paragraph 34, and "Loss Property" has a corresponding meaning but in the singular;

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

(ii) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;

(jj) "personal trust" has the meaning assigned by subsection 248(1);

(kk) "pre-1972 capital surplus on hand" ("CSOH") has the meaning assigned by subsection 88(2.1);

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

(mm) "Proposed Transactions" means the proposed transactions described in Paragraphs 11 to 42;

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

(oo) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);

(pp) "SIN" means social insurance number;

(qq) XXXXXXXXXX;

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

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

(tt) "specified shareholder" has the meaning assigned by subsection 248(1) as modified as described in paragraph 74.4(2)(a);

(uu) "stated capital" has the meaning assigned by the BCA1 or BCA2 as the context requires;

(vv) "Subsidiary" has the meaning assigned by Paragraph 15;

(ww) "Subsidiary Note" has the meaning assigned by Paragraph 35;

(xx) "Subsidiary Redemption Price" has the meaning assigned by Paragraph 35;

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

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

(aaa) "Trust B1" has the meaning assigned by Paragraph 1;

(bbb) "Trust B2" has the meaning assigned by Paragraph 1;

(ccc) "Trust B3" has the meaning assigned by Paragraph 1;

(ddd) "Trust B4" has the meaning assigned by Paragraph 1;

(eee) "Trust S1" has the meaning assigned by Paragraph 2;

(fff) "Trust S2" has the meaning assigned by Paragraph 2; and

(ggg) "Trusts" means any or all of Trust B1, Trust B2, Trust B3, Trusts B4, Trust S1, and Trust S2, as the context requires;

FACTS

1. Each of Trust B1, Trust B2, Trust B3 and Trust B4 is a personal trust that was established by XXXXXXXXXX on XXXXXXXXXX. Each of these Trusts is governed by the laws of the Province of XXXXXXXXXX and each is resident in Canada for the purposes of the Act. The XXXXXXXXXX beneficiary of Trust B1 is XXXXXXXXXX. The XXXXXXXXXX beneficiary of Trust B2 is XXXXXXXXXX. The XXXXXXXXXX beneficiary of Trust B3 is XXXXXXXXXX. The XXXXXXXXXX beneficiary of Trust B4 is XXXXXXXXXX. XXXXXXXXXX.

2. Each of Trust S1 and Trust S2 is a personal trust that was established by XXXXXXXXXX on XXXXXXXXXX. Each of these Trusts is governed by the laws of the Province of XXXXXXXXXX and each is resident in Canada for the purposes of the Act. The XXXXXXXXXX beneficiary of Trust S1 is XXXXXXXXXX and the XXXXXXXXXX beneficiary of Trust S2 is XXXXXXXXXX. Each of the Children is resident in Canada for the purposes of the Act.

3. The Indentures for each Trust require that trustees be appointed such that there be at all times at least two (2) trustees. The current trustees of Trust B1, Trust B2, Trust B3 and Trust B4 are XXXXXXXXXX and the current trustees of Trust S1 and Trust S2 are XXXXXXXXXX. Each of the trustees is resident in Canada for the purpose of the Act. The Indentures for each Trust contain the following terms:

XXXXXXXXXX.

In addition, the Indentures for each Trust contain limitations that expressly prohibit:

XXXXXXXXXX.

4. DC is a taxable Canadian corporation and CCPC that was formed on XXXXXXXXXX under the BCA1 by the amalgamation of XXXXXXXXXX. DC has a fiscal year end of XXXXXXXXXX. DC deals with the XXXXXXXXXX TSO and files its federal returns at the XXXXXXXXXX TC.

5. The authorized share capital of DC consists of: an unlimited number of non-voting Class XXXXXXXXXX Preference Shares ("Class XXXXXXXXXX Shares"); an unlimited number of non-voting Class XXXXXXXXXX Preference Shares ("Class XXXXXXXXXX Shares"); an unlimited number of voting Class XXXXXXXXXX Preference Shares ("Class XXXXXXXXXX Shares"); an unlimited number of voting Class XXXXXXXXXX Preference Shares ("Class XXXXXXXXXX Shares"); and an unlimited number of voting XXXXXXXXXX Common Shares ("Common Shares").

6. The issued and outstanding shares of DC are owned as follows:

XXXXXXXXXX.

The total number of voting shares of DC is XXXXXXXXXX, of which XXXXXXXXXX voting shares of DC (i.e. approximately XXXXXXXXXX%) are held by XXXXXXXXXX, XXXXXXXXXX's Children and the four Trusts set up for the benefit of XXXXXXXXXX. The paid-up capital of each class of the issued and outstanding classes of shares of DC is equal to its stated capital under the BCA1. The issued and outstanding share capital of DC represents capital property to each of its shareholders and no shares of DC have been acquired by any of its shareholders in contemplation of the Proposed Transactions. XXXXXXXXXX does not have de factco control of DC.

7. The aggregate FMV of the Class XXXXXXXXXX Shares of DC is XXXXXXXXXX.

(or approximately $XXXXXXXXXX/share), being an amount that is equal to the aggregate redemption price of such shares. The ACB of each Class XXXXXXXXXX Share to XXXXXXXXXX is approximately $XXXXXXXXXX and the ACB of each Class XXXXXXXXXX Share to the other holders of such shares is approximately $XXXXXXXXXX. The PUC of each Class XXXXXXXXXX Share is approximately $XXXXXXXXXX. Due to a decline in the FMV of DC's portfolio investments the approximate FMV of the Class XXXXXXXXXX Shares of DC is currently less than their aggregate redemption price. The ACB and PUC of each Class XXXXXXXXXX Share and of each Common Share is $XXXXXXXXXX. The aggregate FMV, PUC and ACB of the Class XXXXXXXXXX Shares, Class XXXXXXXXXX Shares and Common Shares of DC is nominal.

8. Child XXXXXXXXXX and Child XXXXXXXXXX are the only Children who are designated persons in respect of XXXXXXXXXX, however, neither Child XXXXXXXXXX nor Child XXXXXXXXXX is a specified shareholder of DC.

9. DC's assets consist entirely of cash and near cash property and a diverse portfolio of investments in publicly traded securities ("portfolio investments"). DC buys and sells its portfolio investments in the normal course of its investment activities, sometimes pursuant to advice from an independent investment advisor. DC does not have the ability to exercise "significant influence" (within the meaning assigned by section 3050 of the CICA Handbook) over any corporation or other entity in which it invests. DC's major liabilities are loans payable to XXXXXXXXXX. Other liabilities of DC include income tax liabilities, and accounts payable that result from the ongoing operations of DC.

10. Capital dividends have been paid regularly on the Class XXXXXXXXXX Shares of DC. As at XXXXXXXXXX, DC had RDTOH balance of $XXXXXXXXXX (after taking into account dividend refunds for the year then ended); a CDA balance estimated at $XXXXXXXXXX; and a balance of CSOH of $XXXXXXXXXX

PROPOSED TRANSACTIONS

11. On a day that does not precede the Effective Date by more than XXXXXXXXXX days XXXXXXXXXX will incorporate a new corporation ("Holdco B") pursuant to the BCA1. Holdco B will be a taxable Canadian corporation.

12. On a day that does not precede the Effective Date by more than XXXXXXXXXX days XXXXXXXXXX will incorporate a new corporation ("Holdco S") pursuant to the BCA1. Holdco S will be a taxable Canadian corporation.

13. The authorized share capital of each of Holdco B and Holdco S will include an unlimited number of the following classes of shares having terms and conditions described as follows:

(a) Common Shares entitling a holder to one vote per share and non-cumulative dividends as the directors may declare, provided such dividends will not reduce the value of the net assets of the company to an amount which is less than the aggregate of the redemption amounts of any issued and outstanding class preference shares of the company at that time. The holders of Common Shares will be entitled to receive, on a liquidation or a wind-up, the residual value of the company after the preference shares of each class have received their respective redemption amounts;

(b) non-voting Class A Preference Shares entitling a holder to such non-cumulative dividends as the directors may declare, but not exceeding 10% of their aggregate redemption amount. The Class A Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of such Class A Preference Shares. Such redemption amount will be equal to the fair market value of the property received by the company in return for their issuance less any debt issued or liabilities assumed by the company on their issuance. On liquidation or winding up, the holders of the Class A Preference Shares will be entitled to receive the redemption amount of the Class A Preference Shares, as follows: an amount equal to the stated capital of the Class A Preference Shares shall be paid in priority to any distributions on any other classes of shares; thereafter, holders of the Class A Preference Shares shall be entitled to receive the balance of their redemption amount pari passu with the entitlements of the holders of the Class B Preference Shares, the Class C Preference Shares and the Class D Preference Shares, in priority to any distributions on the Class V Preference Shares and Common Shares;

(c) non-voting Class B Preference Shares entitling a holder to such non-cumulative dividends as the directors may declare, but not exceeding 10% of their aggregate redemption amount. The Class B Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of such Class B Preference Shares. Such redemption amount will be equal to the fair market value of the property received by the company in return for their issuance less any debt issued or liabilities assumed by the company on their issuance. On liquidation or winding up, subject to the rights of the holders of Class A Preference Shares to a return of stated capital, the holders of the Class B Preference Shares will be entitled to receive the redemption amount of the Class B Preference Shares, as follows: an amount equal to the stated capital of the Class B Preference Shares shall be paid in priority to any distributions on any other class of shares ranking junior to the Class B Preference Shares; thereafter, the holders of the Class B Preference Shares shall be entitled to receive the balance of their redemption amount pari passu with the entitlements of the holders of the Class A Preference Shares, the Class C Preference Shares and the Class D Preference Shares, in priority to any distributions on the Class V Preference Shares and Common Shares;

(d) non-voting Class C Preference Shares entitling a holder to such non-cumulative dividends as the directors may declare, but not exceeding 10% of their aggregate redemption amount. The Class C Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of such Class C Preference Shares. Such redemption amount will be equal to the fair market value of the property received by the company in return for their issuance less any debt issued or liabilities assumed by the company on their issuance. On liquidation or winding up, subject to the rights of the holders of Class A Preference Shares and Class B Preference Shares to a return of stated capital, the holders of the Class C Preference Shares will be entitled to receive the redemption amount of the Class C Preference Shares, as follows: an amount equal to the stated capital of the Class C Preference Shares shall be paid in priority to any distributions on any other class of shares ranking junior to the Class C Preference Shares; thereafter, the holders of the Class C Preference Shares shall be entitled to receive the balance of their redemption amount pari passu with the entitlements of the holders of the Class A Preference Shares, the Class B Preference Shares and the Class D Preference Shares, in priority to any distributions on the Class V Preference Shares and Common Shares;

(e) non-voting Class D Preference Shares entitling a holder to such non-cumulative dividends as the directors may declare, but not exceeding 10% of their aggregate redemption amount. The Class D Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of such Class D Preference Shares (in the case of Holdco S subject to a price adjustment clause). Such redemption amount will be equal to the fair market value of the property received by the company in return for their issuance less any debt issued or liabilities assumed by the company on their issuance. On liquidation or winding up, subject to the rights of the holders of Class A Preference Shares, the Class B Preference Shares and the Class C Preference Shares to a return of stated capital, the holders of the Class D Preference Shares will be entitled to receive the redemption amount of the Class D Preference Shares pari passu with the entitlements of the holders of the Class A Preference Shares, the Class B Preference Shares and the Class C Preference Shares, in priority to any distributions on the Class V Preference Shares and Common Shares; and

(f) Class V Preference Shares entitling a holder to one vote per share but with no entitlement to receive dividends. The Class V Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of such Class V Preference Shares. Such redemption amount will be equal to the fair market value of the property received by the company in return for their issuance less any debt issued or liabilities assumed by the company on their issuance. On liquidation or winding up, and subject to the prior rights of the Class A Preference Shares, the Class B Preference Shares, the Class C Preference Shares and the Class D Preference Shares, the Class V Preference Shares shall be entitled to receive the redemption amount of such shares before any distribution on the Common Shares.

14. On incorporation of Holdco B, XXXXXXXXXX will subscribe for one Common Share of Holdco B for $XXXXXXXXXX. On incorporation of Holdco S, XXXXXXXXXX will subscribe for one Common Share of Holdco S for $XXXXXXXXXX.

15. Holdco B will also incorporate a new corporation ("Subsidiary") pursuant to the BCA2. Subsidiary will be a taxable Canadian corporation. The authorized share capital of Subsidiary will include the following classes of shares having terms and conditions described as follows:

(a) voting Common Shares entitling a holder to non-cumulative dividends as the directors may declare, provided such dividends will not reduce the value of the net assets of the company to an amount which is less than the aggregate of the redemption amounts of the issued Class A Preference Shares. The Common Shares will be entitled to receive, on a liquidation or a wind-up, the residual value of the company after the holders of the Class A Preference Shares have received their redemption amounts; and

(b) non-voting Class A Preference Shares entitling a holder to such non-cumulative dividends as the directors may declare, but not exceeding 10% of their aggregate redemption amount. The Class A Preference Shares will be retractable and redeemable for an aggregate redemption amount fixed at the first issuance of the Class A Preference Shares (subject to a price adjustment clause). Such redemption amount will be equal to the fair market value of the property received by Subsidiary in return for their issuance less any debt issued by Subsidiary or liabilities assumed by Subsidiary on their issuance. Holders of the Class A Preference Shares will be entitled to receive, on liquidation or wind-up, their aggregate redemption amount in priority to the liquidation entitlement of the Common Shares.

On incorporation, Holdco B will subscribe for one Common Share of Subsidiary for $XXXXXXXXXX.

16. XXXXXXXXXX will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to XXXXXXXXXX a number of its Class A Preference Shares and a number of its Class B Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by XXXXXXXXXX . The aggregate addition to the stated capital of the Class A Preference Shares and Class B Preference Shares of Holdco B so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a);

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to XXXXXXXXXX a number of its Class B Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by XXXXXXXXXX. The aggregate addition to the stated capital of the Class B Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by XXXXXXXXXX;

(c) all of XXXXXXXXXX Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to XXXXXXXXXX a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC transferred to it by XXXXXXXXXX. The addition to the stated capital of Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC transferred to Holdco B by XXXXXXXXXX; and

(d) all of XXXXXXXXXX Common Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to XXXXXXXXXX a number of its Common Shares having an aggregate a FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by XXXXXXXXXX. The addition to the stated capital of the Common Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco B by XXXXXXXXXX.

17. Child B1 will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Child B1 a number of its Class C Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child B1. The addition to the stated capital of the Class C Preference Shares of Holdco B so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a); and

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Child B1 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child B1. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Child B1.

18. Child B2 will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Child B2 a number of its Class D Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child B2. The addition to the stated capital of the Class D Preference Shares of Holdco B so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a); and

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Child B2 a number of Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX shares of DC transferred to it by Child B2. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Child B2.

19. Each of Child B3 and Child B4 will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to each such transferor a number of its Class A Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by such transferor. The addition to the stated capital of the Class A Preference Shares of Holdco B so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a)for such transferors; and

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to each such transferor a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by such transferor. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by such transferors.

20. Trust B1 will transfer:

(a) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B1 a number of its Class C Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust B1. The addition to the stated capital of the Class C Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Trust B1;

(b) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B1 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust B1. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Trust B1; and

(c) all of its Common Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B1 a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by Trust B1. The addition to the stated capital of the Common Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco B by Trust B1.

21. Trust B2 will transfer:

(a) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B2 a number of its Class D Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust B2. The addition to the stated capital of the Class D Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Trust B2;

(b) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B2 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust B2. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by Trust B2; and

(c) all of its Common Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to Trust B2 a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by Trust B2. The addition to the stated capital of the Common Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco B by Trust B2.

22. Each of Trust B3 and Trust B4 will transfer:

(a) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to each such transferor a number of its Class A Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by such transferor. The addition to the stated capital of the Class A Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by such transferors;

(b) all of its Class XXXXXXXXXX Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to each such transferor a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by such transferor. The addition to the stated capital of the Class V Preference Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco B by such transferors; and

(c) all of its Common Shares of DC to Holdco B and, as consideration therefor, Holdco B will issue to each such transferor a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by such transferor. The addition to the stated capital of the Common Shares of Holdco B so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco B by such transferors.

23. XXXXXXXXXX will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC and all XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to XXXXXXXXXX a number of its Class A Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC and Class XXXXXXXXXX Shares of DC transferred to it by XXXXXXXXXX . The aggregate addition to the stated capital of the Class A Preference Shares of Holdco S so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a);

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to XXXXXXXXXX a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC transferred to it by XXXXXXXXXX. The addition to the stated capital of the Class V Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares and Class XXXXXXXXXX Shares of DC transferred to Holdco B by XXXXXXXXXX; and

(c) all of XXXXXXXXXX Common Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to XXXXXXXXXX a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by XXXXXXXXXX. The addition to the stated capital of the Common Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco S by XXXXXXXXXX.

24. Child S1 will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Child S1 a number of its Class B Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child S1. The addition to the stated capital of the Class B Preference Shares of Holdco S so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a); and

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Child S1 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child S1. The addition to the stated capital of the Class V Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Child S1.

25. Child S2 will transfer:

(a) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Child S2 a number of its Class C Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX shares of DC transferred to it by Child S2. The addition to the stated capital of the Class B Preference Shares of Holdco S so issued will be equal to the amount determined as B for the purposes of paragraph 84.1(1)(a); and

(b) all of XXXXXXXXXX Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Child S2 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Child S2. The addition to the stated capital of the Class V Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Child S2.

26. Trust S1 will transfer:

(a) all of its Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S1 a number of its Class B Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust S1. The addition to the stated capital of the Class B Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Trust S1;

(b) all of its Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S1 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust S1. The addition to the stated capital of the Class V Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Trust S1; and

(c) all of its Common Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S1 a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common Shares of DC transferred to it by Trust S1. The addition to the stated capital of the Common Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco S by Trust S1.

27. Trust S2 will transfer:

(a) all of its Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S2 a number of its Class C Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust S2. The addition to the stated capital of the Class C Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Trust S2;

(b) all of its Class XXXXXXXXXX Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S2 a number of its Class V Preference Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Class XXXXXXXXXX Shares of DC transferred to it by Trust S2. The addition to the stated capital of the Class V Preference Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Class XXXXXXXXXX Shares of DC transferred to Holdco S by Trust S2; and

(c) all of its Common Shares of DC to Holdco S and, as consideration therefor, Holdco S will issue to Trust S2 a number of its Common Shares having an aggregate FMV equal to the aggregate FMV, at that time, of the Common shares of DC transferred to it by Trust S2. The addition to the stated capital of the Common Shares of Holdco S so issued will equal the aggregate paid-up capital attributable to the Common Shares of DC transferred to Holdco S by Trust S2.

28. The share transfers described in Paragraphs 16 through 27 will occur on a contemporaneous basis on the day that is immediately prior to the Effective Date. Each of the share transfer agreements will contain a price adjustment clause. In connection with each such share transfer, the FMV of the shares of DC that are transferred to Holdco B or Holdco S, as the case may be, will be determined in accordance with an independent valuation report that will be obtained for this purpose. Immediately, after these share transfers, Holdco B will own XXXXXXXXXX (approximately XXXXXXXXXX%) of the XXXXXXXXXX shares of DC having voting rights. In addition, immediately, after these share transfers, Child B3 and Child B4 will each be a specified shareholder of Holdco B since each will directly or indirectly own approximately XXXXXXXXXX% of the issued and outstanding Common Shares of Holdco B. Holdco S and DC will not be affiliated persons at any time.

29. In regard to each of the share transfers described in Paragraphs 16 through 22, Holdco B and each of XXXXXXXXXX, Child B1, Child B2, Child B3, Child B4, Trust B1, Trust B2, Trust B3, and Trust B4, as the case may be, will file a joint election, in prescribed form, and within the time limits referred to in subsection 85(6) to have the provisions of subsection 85(1) apply in respect of each of the share transfers. The agreed amount in each election will be equal to the respective transferor's ACB of the particular class of shares of DC transferred to Holdco B and for greater certainty, such agreed amount will not be less than the lesser of the two amounts described in paragraph 85(1)(c.1) or exceed the FMV of the transferred shares.

For greater certainty, the PUC of the particular class of shares that Holdco B issues to each of XXXXXXXXXX, Child B1, Child B2, Child B3, Child B4, Trust B1, Trust B2, Trust B3, and Trust B4, as the case may be, as consideration for that particular person's shares of DC will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).

30. In regard to each of the share transfers described in Paragraphs 23 through 27, Holdco S and each of XXXXXXXXXX, Child S1, Child S2, Trust S1 and Trust S2, as the case may be, will file a joint election, in prescribed form, and within the time limits referred to in subsection 85(6) to have the provisions of subsection 85(1) apply in respect of each of the share transfers. The agreed amount in each election will be the respective transferor's ACB of the shares of DC transferred to Holdco S and for greater certainty, such agreed amount will not be less than the lesser of the two amounts described in paragraph 85(1)(c.1) or exceed the FMV of the transferred shares.

For greater certainty, the PUC of the particular class of shares that Holdco S issues to each of XXXXXXXXXX, Child S1, Child S2, Trust S1 and Trust S2, as the case may be, as consideration for that particular person's shares of DC will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).

31. Immediately before the transfers of property described in Paragraph 32, the property owned by DC will be classified into the following three types of property for the purposes of the definition of "distribution" in subsection 55(1) as follows:

(a) cash or near-cash property, comprising all of the current assets of DC, including cash, and prepaid expenses;

(b) investment property, comprising all of the assets of DC, including for greater certainty the portfolio investments owned by DC, other than any cash or near-cash property, any income from which would, for the purposes of the Act, be income from property or a specified investment business; and

(c) business property, comprising all of the assets of DC, other than cash or near-cash property, any income from which would, for the purposes of the Act, be income from a business (other than a specified investment business).

For greater certainty, any tax accounts, such as the balance of any non-capital loss, net capital loss, CSOH, RDTOH or CDA of DC will not be considered property for this purpose. It is expected that DC will only own cash or near cash property and investment property.

32. On the Effective Date, DC will transfer at FMV:

(a) to Subsidiary, Holdco B's pro rata share of DC's cash or near cash property and DC's investment property. For greater certainty, the transfers will be effected in a manner such that Subsidiary will acquire Holdco B's pro rata share of each type of property owned by DC on a gross FMV basis; and,

(b) to Holdco S, Holdco S's pro rata share of DC's cash or near cash property and DC's investment property. For greater certainty, the transfers will be effected in a manner such that Holdco S will acquire its pro rata share of each type of property owned by DC on a gross FMV basis.

Immediately following the distribution of DC's property described in this Paragraph, the FMV of each type of property so transferred directly or indirectly to DC's shareholders, will approximate that proportion of the FMV of all property of DC of that type determined immediately before such transfer that

(i) the aggregate FMV, immediately before the transfer, of all of the shares of DC owned by a particular transferee corporation of DC at that time;

is of

(ii) the aggregate FMV, immediately before the transfer, of all of the issued and outstanding shares of DC at that time.

For the purposes of this Paragraph the expression "approximate that proportion" means that the discrepancy of that proportion, if any, will not exceed one percent (1%), determined as a percentage of the fair market value of each type of property which each such transferee corporation will receive as compared to what each such transferee corporation would have received had such transferee corporation received its appropriate pro rata share of the fair market value of that type of property.

33. As consideration for the property transferred by DC to Holdco S and Subsidiary as described in Paragraph 32, each of Holdco S and Subsidiary, as the case may be, will assume its pro rata share of the liabilities of DC, if any, and:

(a) Subsidiary will issue one Class A Preference Share to DC having a FMV and a redemption amount equal to the amount by which the aggregate FMV of the property of DC transferred to Subsidiary exceeds the amount of the liabilities assumed by Subsidiary; and,

(b) Holdco S will issue one Class D Preference Share to DC having a FMV and a redemption amount equal to the amount by which the FMV of the property of DC transferred to Holdco S exceeds the amount of the liabilities assumed by Holdco S.

Subsidiary will add to the stated capital account maintained for its Class A Preference Share an amount equal to the amount by which the aggregate cost of the properties acquired by it from DC (determined pursuant to subsection 85(1) where relevant) exceeds the aggregate amount of the liabilities, if any, assumed by Subsidiary as consideration therefor.

Holdco S will add to the stated capital account maintained for its Class D Preference Share an amount equal to the amount by which the aggregate cost of the properties acquired by it (determined pursuant to subsection 85(1) where relevant) exceeds the aggregate amount of the liabilities, if any, assumed by Holdco S as consideration therefor.

34. The property transferred by DC to Subsidiary and to Holdco S, as described in Paragraph 32, may include portfolio investments (i.e. non-depreciable capital property) with unrealized capital gains (the "Gain Property") and portfolio investments with unrealized capital losses (the "Loss Property"). DC and each of Holdco S and Subsidiary, as the case may be, will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to each transfer of DC's property described in Paragraph 32 and that is an eligible property transferred by DC to such transferee and, in particular, the agreed amount for the purposes of each such election will:

(a) in the case of a particular Loss Property, be an amount equal to the lesser of the two amounts described in paragraph 85(1)(c.1); and

(b) in the case of a particular Gain Property, be an amount that will not be less than the lesser of the two amounts described in paragraph 85(1)(c.1) but may be greater than the lesser of these two amounts. For greater certainty, such agreed amount will not exceed the FMV of the particular Gain Property.

In addition, the agreed amount for any particular property included in the subsection 85(1) elections referred to in this Paragraph will not be less than the amount of any liabilities that are being assumed by Subsidiary or Holdco S, as the case may be, as consideration for the transfer of the particular property to it. For greater certainty, the amount of liabilities to be allocated to any property that is not the subject of an election under subsection 85(1) will not exceed the FMV of such property.

35. On the Effective Date, Subsidiary will redeem the one Class A Preference Share it issued to DC, as described in Paragraph 33, for an amount equal to its redemption amount and FMV (the "Subsidiary Redemption Price"). As payment of the Subsidiary Redemption Price, Subsidiary will issue a demand non-interest-bearing promissory note (the "Subsidiary Note") having a principal amount and fair market value equal to the Subsidiary Redemption Price. DC will accept the Subsidiary Note as full payment for the Subsidiary Redemption Price of the Class A Preference Share of Subsidiary.

36. On the Effective Date, Holdco S will redeem the one Class D Preference Share it issued to DC, as described in Paragraph 33, for an amount equal to its redemption amount and FMV (the "Holdco S Redemption Price"). As payment of the Holdco S Redemption Price, Holdco S will issue a demand non-interest-bearing promissory note (the "Holdco S Note") having a principal amount and fair market value equal to the Holdco S Redemption Price. DC will accept the Holdco S Note as full payment for the Holdco S Redemption Price of the Class D Preference Share of Holdco S.

37. At the end of the Effective Date, Holdco S will cause its first taxation year to end.

38. On the day after the Effective Date, the shareholder of Subsidiary will, by special resolution, resolve to wind up and dissolve the Subsidiary under the applicable provisions of the BCA2. In the course of the winding-up, Subsidiary will distribute all its property to Holdco B and Holdco B will assume all of Subsidiary's obligations, including the amount owing to DC under the Subsidiary Note. Articles of Dissolution will then be filed and Subsidiary will be formally dissolved.

39. On the day after the Effective Date, the shareholders of DC will, by special resolution, resolve to wind up and dissolve DC under the applicable provisions of the BCA1. In connection with the winding up, DC will distribute the Holdco S Note to Holdco S and the Subsidiary Note to Holdco B. No agreement or resolution relating to the winding-up of DC or the distribution of property by DC will provide for the cancellation of any shares of DC. As a result of the assignment and distribution of the Subsidiary Note to Holdco B, and the distribution of the Holdco S Note to Holdco S, the obligations under the Subsidiary Note and the Holdco S Note will be cancelled.

40. Immediately prior to the distribution of the Holdco S Note and the Subsidiary Note, described in Paragraph 39, DC will elect, pursuant to subsection 83(2), in prescribed manner and prescribed form, to treat a portion of any winding-up dividend referred to in subparagraph 88(2)(b)(i), that does not exceed DC's CDA immediately before that time, as a separate dividend that is a capital dividend. Each of Holdco B and Holdco S will receive a proportionate capital dividend from DC.

41. DC will file any tax returns and election forms before their respective due dates. Following receipt of the dividend refund to which DC will become entitled as a result of the payment of the winding-up dividends on its dissolution as described herein, DC will distribute Holdco B's pro rata share of such dividend refund to Holdco B and Holdco S's pro rata share of such dividend refund to Holdco S. Since the dividend refund will not arise until after the end of the fiscal period in which the Proposed Transactions are completed an agreement will be prepared whereby Holdco B and Holdco S will agree that such dividend refund and all other property or liabilities of DC, if any, not known by this time will be subsequently shared between Holdco B and Holdco S on the basis that each of Holdco B and Holdco S will receive, with respect to any property of a particular type, its pro rata share thereof, and with respect to any liability, its pro rata share thereof, determined as described in Paragraph 32. DC will then be formally dissolved.

POST-BUTTERFLY TRANSACTION

42. Immediately after the completion of the distribution of the Subsidiary Note and the Holdco S Note described in Paragraph 39, XXXXXXXXXX will enter into an agreement with each of Trust B3 and Trust B4 to purchase, for FMV, such portion of the Common Shares of Holdco B owned by each such Trust as may be necessary to ensure that neither Trust B3 nor Trust B4 owns 10% or more of the Common Shares of Holdco B. Each of the said agreements will contain a price adjustment clause.

ADDITIONAL INFORMATION

43. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing any applicable election forms in respect of the Proposed Transactions described in Paragraphs 29, 30 and 34, which will be filed on or before the applicable due date and for greater certainty, before any such transferee or transferor ceases to exist.

44. On completion of the Proposed Transactions:

(a) Holdco B will hold and only dispose of the portfolio investments it received from DC in the normal course of its investment activities; and

(b) Holdco S will hold and only dispose of the portfolio investments it received from DC in the normal course of its investment activities.

For greater certainty, each of Holdco B and Holdco S will hold and sell the portfolio investments so received from DC in the course of carrying on its normal investment activities in a similar manner to that which DC would have done had the Proposed Transactions not been executed.

45. No property has or will become property of DC and no liabilities have been or will be incurred by DC, in contemplation of and before the Proposed Transactions.

46. None of the shares of DC or of any other corporation described herein (including any shares to be issued as described in the Proposed Transactions) is or will be, at any time during a series of transactions or events that includes the Proposed Transactions:

(i) the subject of any undertaking that is a guarantee agreement;

(ii) a share that is issued or acquired as part of a series of transaction, event or series of transactions or events of the type described in subsection 112(2.5); or

(iii) the subject of a dividend rental arrangement.

47. Neither DC nor any other corporation referred to herein is, or will be, a specified financial institution or a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1) at any time during a series of transactions or events the includes the Proposed Transactions.

48. Except as otherwise described herein, no shares of DC or of any other corporation referred to herein will be acquired or disposed of as part of a series of transactions or events that includes the Proposed Transactions.

PURPOSES OF THE PROPOSED TRANSACTIONS

49. The main purpose of the Proposed Transactions is to enable XXXXXXXXXX and XXXXXXXXXX family members XXXXXXXXXX and XXXXXXXXXX and XXXXXXXXXX family members XXXXXXXXXX to have direct and separate control of its respective pro rata share of the property of DC so that each family may deal with such property independently from the other family; and in particular, so that each of XXXXXXXXXX and XXXXXXXXXX may determine the independent investment policy of Holdco B, in the case of XXXXXXXXXX and XXXXXXXXXX 's family, and Holdco S, in the case of XXXXXXXXXX and XXXXXXXXXX's family, Holdco S.

50. The main purpose for having Holdco B issue Class A Preference Shares to each of Child B3 and Child B4 as described in Paragraph 19(a) and to each of Trust B3 and Trust B4 as described in Paragraph 22(a) is to ensure that neither Child B3 nor Child B4 would be considered a specified shareholder of Holdco B because if Child B3 and/or Child B4 is a specified shareholder of Holdco B, XXXXXXXXXX may be deemed to receive interest on such transferred property under subsection 74.4(2).

51. The main purpose for the Post-Butterfly Transaction described in Paragraph 42 is to ensure that neither Child B3 nor Child B4 would be considered a specified shareholder of Holdco B after such transaction for the same reason described in Paragraph 49.

52. The purpose for having Holdco B or Holdco S, as the case may be, issue different classes of its shares to the adult Children, is to allow for flexibility in declaring dividends in order to provide for the differing personal needs of each such shareholder.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as set forth below.

A. Subject to the application of subsection 69(11), provided the appropriate joint elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and provided that each particular property so transferred is an eligible property in respect of which shares have been issued as full or partial consideration therefore, the provisions of subsection 85(1) will apply to:

(a) the transfers of the shares of DC to Holdco B as described in
Paragraphs 16 to 22;

(b) the transfers of the shares of DC to Holdco S as described in
Paragraphs 23 to 27;

(c) the transfers of the property of DC to Subsidiary as described in
Paragraph 32; and

(d) the transfers of the property of DC to Holdco S as described in
Paragraph 32;

such that the agreed amount in respect of each such transfer shall be deemed to be the transferor's proceeds of disposition and the transferee's cost amount thereof pursuant to paragraph 85(1)(a) and paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. Pursuant to clause 256(7)(a)(i)(B), control of DC will be deemed not to have been acquired by Holdco B, as a consequence of the transfers of DC's shares to Holdco B described in Paragraphs 16 to 22, for the purposes of the provisions enumerated in subsection 256(7).

C. Paragraph 40(3.4)(a) will deem DC's capital losses arising on the disposition of any Loss Properties to Holdco B as described in Paragraphs 32 and 34 to be nil at the time of such disposition. However, subparagraph 40(3.4)(b)(v) will deem such capital losses to occur immediately before the winding-up of DC begins as described in Paragraph 39.

D. Neither paragraph 40(3.4)(a) nor subparagraph 40(2)(g)(i) will apply to deem DC's capital losses arising on the disposition of any Loss Properties to Holdco S as described in Paragraphs 32 and 34 to be nil at the time of such disposition.

E. On the redemption by Subsidiary of its one Class A Preference Share held by DC as described in Paragraph 35; on the redemption by Holdco S of its one Class D Preference Share held by DC as described in Paragraph 36; and as a result of the distributions by DC in the course of its winding up as described in Paragraph 39:

(a) by virtue of paragraphs 84(3)(a) and 84(3)(b), each of Subsidiary and Holdco S, as the case may be, will be deemed to have paid, and DC will be deemed to have received, respectively, a taxable dividend on such share at that time equal to the amount, if any, by which the amount paid to redeem such share exceeds the PUC of that share immediately before the redemption;

(b) by virtue of paragraph 88(2)(b) and subsection 84(2), but subject to (i) to (iii) below, DC will be deemed to have paid, and each of Holdco B and Holdco S, as the case may be, will be deemed to have received, a dividend (each referred to as a "winding-up dividend") on each particular class of shares of DC held by such corporation, equal to the proportion of the amount by which the aggregate FMV of the property of DC distributed to each of Holdco B and Holdco S, as the case may be, on the winding-up and allocated to a particular class of shares of DC exceeds the amount by which the PUC of such class of shares of DC is reduced as a result of the distribution, that the number of shares of such class of shares of DC held by Holdco B and Holdco S, as the case may be, is of the number of all shares of that particular class of DC outstanding immediately before that time, and

(i) pursuant to subparagraph 88(2)(b)(i), such portion of any winding-up dividend referred to in (b) as does not, in aggregate, exceed DC's CDA immediately before the payment of such winding-up dividend will be deemed, for purposes of the subsection 83(2) election referred to in Paragraph 40, to be the full amount of a separate dividend;

(ii) pursuant to subparagraph 88(2)(b)(ii), such portion of any winding-up dividend referred to in (b) that is equal to the lesser of:

(a) DC's CSOH, as determined immediately before the payment of such winding-up dividend; and

(b) the amount by which such winding-up dividend exceeds the portion of thereof in respect of which DC will elect under subsection 83(2);

will be deemed not to be a dividend; and

(iii) pursuant to subparagraph 88(2)(b)(iii), any winding-up dividend, to the extent that it exceeds the portion thereof referred to in (i) that is deemed to be a separate dividend and the portion thereof referred to in (ii) that is deemed not to be a dividend, will be deemed to be a separate dividend that is a taxable dividend; and

(c) the taxable dividends described in (a) and (b)(iii):

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

(ii) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income in the year in which such a dividend is deemed to have been received, and, for greater certainty, will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);

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

(iv) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

(vi) will not be subject to tax under Part IV.1 or Part VI.1; and

(vii) will not be subject to tax under Part IV, except to the extent that a dividend payer is entitled to a dividend refund for its taxation year in which it paid such dividend.

F. Subsection 88(1) will apply in respect of the winding up of Subsidiary as described in Paragraph 38.

G. As a result of the assumption by Holdco B of the Subsidiary Note described in Paragraph 38 and the distribution and cancellation of the Holdco S Note and the and the distribution and cancellation of the Subsidiary Note in the course of the winding-up of DC as described in Paragraph 39, neither Subsidiary, Holdco B or Holdco S, as the case may be will have a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1). For greater certainty, neither DC, Holdco B nor Holdco S, as the case may be, will realize any gain as a result of such debt assumption, cancellation or distribution.

H. Provided that, as part of the series of transactions or events that includes the Proposed Transactions, there is not:

(a) an acquisition of property in the circumstances described in
paragraph 55(3.1)(a);

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

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

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

(e) an acquisition of property in the circumstances described in
paragraph 55(3.1)(c); or

(f) an acquisition of property in the circumstances described in
paragraph 55(3.1)(d),

which has not been described as a Proposed Transaction herein, then, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling E, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

I. In computing XXXXXXXXXX's income, subsection 74.4(2) will not apply to deem XXXXXXXXXX to have received as interest in the year the amount, if any, by which the amount that would be interest on the outstanding amount of the transferred property for such periods in the year (computed at the prescribed rate) exceeds the total of amounts determined under paragraphs 74.4(2)(e), (f) and (g), in respect of the share transfers described in Paragraphs 16 through 22, for any period in which neither Child B3 nor Child B4 is a specified shareholder of Holdco B.

J. The provisions of subsections 15(1), 56(2), 56(4), 69(1), 69(4), 105(1) and 246(1) will not apply to any of the Proposed Transactions, in and by themselves.

K. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given above.

The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the Proposed Transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:

(a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein; or

(b) the balance of CDA, CSOH or RDTOH of any corporation;

(c) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that include other transactions or events that are not described in this letter.

Yours truly,

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