2009 Ruling 2007-0251621R3 - 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 Split-Up Butterfly

XXXXXXXXXX 2007-025162

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the taxpayers. You have advised that to the best of your knowledge, and that of the responsible officers of each of the taxpayers, none of the issues involved in this Ruling is

(a) in an earlier tax return of one of the taxpayers or any related person;

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

(c) under objection by one of the taxpayers or a related person;

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

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

You have also advised that to the best of your knowledge, and that of the responsible officers of each of the taxpayers, that the proposed transactions will not result in any of 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 (Canada), 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 and clause or subclause is a reference to the relevant provision of the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";

b) "adjusted cost base" (also referred to as "ACB") has the meaning assigned by section 54;

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

d) XXXXXXXXXX

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

f) "BN" means the business number assigned to the particular entity by the CRA;

g) "Canadian-controlled private corporation" (also referred to as "CCPC") has the meaning assigned by subsection 125(7);

h) "capital dividend account" (also referred to as "CDA") has the meaning assigned by subsection 89(1);

i) "capital gain" has the meaning assigned by paragraph 39(1)(a);

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

k) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C44;

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

m) "CRA" means the Canada Revenue Agency;

n) "DC" refers to XXXXXXXXXX ;

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

p) "distribution" has the meaning assigned by subsection 55(1);

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

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

s) "Estate" means the estate of the late XXXXXXXXXX , deceased on XXXXXXXXXX ;

t) "fair market value" (also referred to as "FMV") means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;

u) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);

v) "Mother" means XXXXXXXXXX , deceased on XXXXXXXXXX .

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

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

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

z) "proceeds of disposition" (also referred to as "POD") has the meaning assigned by section 54;

aa) "Proposed Transactions" means the transactions described in Paragraphs 17 to 29;

bb) "refundable dividend tax on hand" (also referred to as "RDTOH") has the meaning assigned by subsection 129(3);

cc) "related person" has the meaning assigned by subsection 251(2);

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

ee) "Shareholder Loans" means amounts owed by DC to shareholders;

ff) "Sibling 1" means XXXXXXXXXX ;

gg) "Sibling 2" means XXXXXXXXXX ;

hh) "Sibling 3" means XXXXXXXXXX ;

ii) "Sibling 4" means XXXXXXXXXX ;

jj) "Siblings" means Sibling 1, Sibling 2, Sibling 3, and Sibling 4 collectively.

kk) "significant influence" has the meaning assigned by section 3051 of the CICA Handbook;

ll) "SIN" means Social Insurance Number;

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

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

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

pp) "TCs" means TC1, TC2, and TC3 collectively, and "TC" means any of TC1, TC2, or TC3 in the singular;

qq) "TC1" means the new corporation incorporated by Sibling 1 as described in Paragraph 17;

rr) "TC2" means the new corporation incorporated by Sibling 2 as described in Paragraph 17;

ss) "TC3" means the new corporation incorporated by Sibling 3 as described in Paragraph 17; and

tt) "TC Note(s)" has the meaning assigned by Paragraph 27.

FACTS

1. Sibling 1 is a resident of Canada. His SIN is XXXXXXXXXX . He resides at XXXXXXXXXX and files his return at the XXXXXXXXXX Tax Centre.

2. Sibling 2 is a resident of Canada. His SIN is XXXXXXXXXX . He resides at XXXXXXXXXX and files his return at the XXXXXXXXXX Tax Centre.

3. Sibling 3 is a resident of Canada. His SIN is XXXXXXXXXX . He resides at XXXXXXXXXX and files his return at the XXXXXXXXXX Tax Centre.

4. Sibling 4 is a resident of Canada. His SIN is XXXXXXXXXX . He resides at XXXXXXXXXX and files his return at the XXXXXXXXXX Tax Centre.

5. Mother, the mother of the Siblings, died on XXXXXXXXXX and was resident and domiciled in the province of XXXXXXXXXX .

6. DC is a taxable Canadian corporation and a CCPC. XXXXXXXXXX

7. The authorized share capital of DC consists of:

a) an unlimited number of Voting Preferred Shares ("Voting Preferred Shares");

b) a maximum number of XXXXXXXXXX Non-Voting Preferred Shares ("Non-Voting Preferred Shares"); and

c) an unlimited number of Common Shares.

The Common Shares entitle the holders to one vote per share, to receive dividends as and when declared by the directors of DC and to share in the remaining property of DC upon its dissolution after prepayment is made to the holders of the preferred shares. The Voting Preferred Shares entitle the holders to one vote per share, and to receive non-cumulative preferential dividends at a rate varying from XXXXXXXXXX to XXXXXXXXXX as and when declared by the directors of DC. Upon the dissolution of DC, the Voting Preferred shareholders are entitled, in priority to the holders of Common Shares, to the payment of the capital amount of their shares, plus all dividends declared but unpaid. The Non Voting Preferred Shares entitle the holders to receive non-cumulative preferential cash dividends at a rate varying from XXXXXXXXXX to XXXXXXXXXX as and when declared by the directors of DC. Upon the dissolution of DC, holders of the Non-Voting Preference Shares are entitled, in priority to holders of the Common Shares and the Voting Preferred Shares, to the payment of the capital amount of their shares, plus all dividends declared but unpaid. Each share is redeemable by the payment of the capital amount paid plus all dividends declared but unpaid.

8. DC's issued and outstanding shares are held as follows:

Shareholder		Common Shares
Sibling 1		XXXXXXXXXX
Sibling 2		XXXXXXXXXX
Sibling 3		XXXXXXXXXX
Sibling 4		XXXXXXXXXX 

The shares of DC are held by each of the Shareholders as capital property.

9. The Estate previously owned XXXXXXXXXX Voting Preferred Shares. Consequently, DC was controlled by the Estate. The trustees of the Estate are the four Siblings. The Voting Preferred Shares were redeemed, in XXXXXXXXXX , by DC for their redemption/retraction amount of $XXXXXXXXXX . Mother was the original owner of the Voting Preferred Shares and she owned them until the time of her death. The Voting Preferred Shares were issued to her on XXXXXXXXXX for consideration equal to their fair market value at that time. At the time of redemption, the Voting Preferred Shares had an aggregate PUC equal to $XXXXXXXXXX , and a FMV and redemption value of $XXXXXXXXXX . Under the last will and testament of Mother, the property of the Estate is to be distributed equally among the four Siblings. The amount received by the Estate on the redemption of the Voting Preferred Shares was distributed in equal shares to the four Siblings.

10. The redemption of the Voting Preferred Shares held by the Estate was done for the purposes of administering the Estate, and was independent from, and without regard to, the proposed distribution by DC. As such, the redemption of the Estate's Voting Preferred Shares was not undertaken in contemplation of the proposed distribution by DC. For greater certainty, since the redemption of the Voting Preferred Shares by the Estate was done for the purposes of administering the Estate, the redemption would have taken place in any event, whether or not the Proposed Transactions described below occur. The Voting Preferred Shares held by the Estate qualified, at all relevant times, as shares of a "specified class" within the meaning of subsection 55(1).

11. Each Common Share has an estimated PUC of $XXXXXXXXXX and, except in the case of Sibling 4, an ACB of $XXXXXXXXXX .
XXXXXXXXXX

12. Prior to its year end on XXXXXXXXXX , a dividend on the Common Shares was declared in the amount of $XXXXXXXXXX giving rise to a dividend refund of $XXXXXXXXXX and reducing DC's RDTOH account balance to $XXXXXXXXXX .

13. The only activity of DC involves the investment of its funds. The assets of DC consist of cash, marketable securities, receivables, all of the issued and outstanding shares in XXXXXXXXXX ., and an amount due from XXXXXXXXXX .

14. XXXXXXXXXX is a company incorporated pursuant to the laws of XXXXXXXXXX . Its business number is XXXXXXXXXX and it files its returns at the XXXXXXXXXX Tax Centre. Its address is XXXXXXXXXX . Its authorized share capital consists of an unlimited number of Class A common shares. The only issued and outstanding shares of XXXXXXXXXX . are XXXXXXXXXX Class A common shares held entirely by DC. The aggregate stated capital and PUC of these shares is $XXXXXXXXXX and the aggregate ACB of these shares is $XXXXXXXXXX . The company invests in various marketable securities, primarily of a small capital nature, with most of them located in XXXXXXXXXX .

15. DC's liabilities consist of accounts payable, income taxes payable, and long-term loans due to shareholders.

16. From time to time, DC and XXXXXXXXXX . buy and sell investments. On completion of the Proposed Transactions, the TCs will own their pro rata share of the investments previously owned by DC and their pro rata share of the shares of XXXXXXXXXX . DC and XXXXXXXXXX . will hold and dispose of their investments in the normal course of their investment activities.

PROPOSED TRANSACTIONS

17. Each of Sibling 1, Sibling 2, and Sibling 3 will incorporate a new corporation under the CBCA, which will be referred to as TC1, TC2, and TC3, respectively. On incorporation, each TC will issue 1 Class B share to the particular Sibling that caused its incorporation. None of the TCs will acquire any assets or incur any liabilities other than those described in the Proposed Transactions. Sibling 4 will retain his ownership of XXXXXXXXXX Common Shares in DC and, therefore, will not incorporate a new corporation.

18. Each of the TCs will have an authorized share capital consisting of an unlimited number of the following separate classes of shares:

a) Class A non-voting, redeemable, retractable preferred shares ("Class A Preferred Shares");

b) Class B voting, redeemable, retractable preferred shares ("Class B Preferred Shares");

c) Class C non-voting preferred shares ("Class C Preferred Shares"); and

d) Common Shares ("TC Common Shares").

The Class A Preferred Shares entitle the holders thereof to receive for each financial year of the corporation, when, as and if declared by the board of directors, a variable preferential non-cumulative dividend. The Class A Preferred Shares are redeemable and retractable for a per share amount equal to the net consideration received for the first issuance of such shares divided by the total number of such shares first issued, together with all dividends declared but unpaid. The Class B Preferred Shares are redeemable and retractable for XXXXXXXXXX per share. After the full amount of the dividend payable on the Class A Preferred Shares and Class B Preferred Shares have been paid, any and all further dividends declared for the financial year by the board of directors shall be declared and paid in equal amounts per share on all of the outstanding Class C Preferred Shares and Common Shares without preference. The Class B Preferred Shares and Common Shares entitle the holders thereof to one vote per share.

19. Each of Sibling 1, Sibling 2 and Sibling 3 will contemporaneously transfer his Common Shares in the capital of DC to his respective TC and, as consideration therefore, the TC will issue a number of TC Common Shares to the particular Sibling having an aggregate FMV equal to the aggregate FMV of the Common Shares of DC transferred to the TC.

20. Each of Sibling 1, Sibling 2 and Sibling 3 and his respective TC will file a joint election in the prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer. The agreed amount for the purposes of such election, in each case, will not be less than the lesser of the two amounts specified in paragraph 85(1)(c.1), nor will such amount exceed the FMV of the Common Shares of DC that are transferred to the particular TC.

The increase to the PUC of the TC Common Shares that are issued as consideration for the Common Shares of DC transferred to each TC will not exceed the amount of PUC attributable to the Common Shares of DC for which such TC's Common Shares were issued. For greater certainty, the increase to the PUC of the TC Common Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to paragraph 84.1(1)(a).

21. Immediately before the transfer of property described in Paragraph 23, 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, interest and dividend receivables;

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

For greater certainty, for the purposes of this distribution:

d) tax accounts or other tax related amounts of DC, such as the balance of non-capital losses, net capital losses, RDTOH and/or CDA, if any, will not be considered property or a liability, as the case may be;

e) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification; and

f) the amount of any deferred income tax will not be considered to be a property or a liability, as the case may be, for the purposes of the Proposed Transactions.

22. DC has significant influence over XXXXXXXXXX .. Consequently, DC would normally be required to use the consolidated look-through method for determining the appropriate proportion of each of the three types of property (cash or near cash, business and investment property) that the shares of XXXXXXXXXX . would represent. However, since the TCs will each receive its pro rata portion of the shares of XXXXXXXXXX . owned by DC, the determination using the consolidated look-through method will not actually be undertaken for the purposes of the Proposed Transactions.

22.1. In determining the net FMV of its cash or near cash property, investment property and business property immediately before the transfers described in paragraph 23, liabilities of DC will be allocated to, and be deducted in the calculation of, the net FMV of each such type of property of DC in the following manner:

a) current liabilities of DC will be allocated to cash or near cash property (including any cash, accounts receivable and prepaid expenses) in the proportion that the FMV of each such property is of the FMV of all cash or near cash property. The allocation of current liabilities as described herein will not exceed the aggregate FMV of all cash or near cash property of DC;

b) liabilities of DC, other than current liabilities, that relate to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its FMV. Liabilities that pertain to a type of property, but not to a particular property, will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property, as described herein;

c) if any liabilities (hereinafter referred to as "excess unallocated liabilities") remain after the allocations described in steps a) and b) are made, such excess unallocated liabilities (including any excess current liabilities, if any), will then be allocated to the cash or near cash property and investment property of DC based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities.

23. DC will contemporaneously transfer to each of the TCs, a pro rata portion (i.e., XXXXXXXXXX percent) of the net FMV of each type of property owned by DC, as determined in accordance with Paragraphs 21, 22, and 22.1, such that immediately following such property transfers and liability assumptions, XXXXXXXXXX percent of the net FMV of each type of property will remain in DC and the net FMV of each of the three types of property of DC so transferred to each TC will, for greater certainty, approximate the proportion determined by the formula:

A x B/C

where:

A is the net FMV, immediately before the transfer, of all property of that type owned at that time by DC;

B is the FMV, immediately before the transfer, of all of the shares of the capital stock of DC owned, at that time, by the particular TC; and

C is the FMV, immediately before the transfer, of all the issued and outstanding shares of the capital stock 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 net FMV of the property that each TC will receive as compared to what it would have received had it received its appropriate pro rata share of DC's property.

24. As consideration for the property transferred by DC to each TC, each TC will:

a) assume an appropriate amount of liabilities of DC (so that on a net basis each TC will receive its pro rata share of each type of property owned by DC); and

b) issue to DC a number of its Class A Preferred Shares having an aggregate redemption amount and aggregate FMV equal to the FMV of the property received by such TC less the amount of the liabilities of DC assumed by the particular TC as described in (a).

25. DC and each TC will file a joint election in the prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of each eligible property that is transferred by DC to each TC as described in Paragraph 23. The agreed amount in respect of each eligible property so transferred will not be greater than the FMV of such property nor will it be less than the lesser of the FMV and the cost amount to DC of such property. For greater certainty, the agreed amount in respect of each such transferred property will be within the limits prescribed as follows:

(a) in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

(b) in the case of depreciable property of a prescribed class, an amount not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(c) in the case of eligible capital property, an amount not less than the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

For greater certainty, the aggregate of such elected amounts will be greater than the aggregate amount of DC's liabilities so assumed for such properties. Where a marketable security to be transferred to each TC has a FMV that is less than its ACB, as consideration for such marketable security, TC will only assume an amount of DC's liabilities equal to the FMV of that particular security and, for greater certainty, no election under subsection 85(1) will be made in respect of such security.

26. For the purposes of the Act, the increase to the PUC of the Class A Preferred Shares of each TC that are issued to DC, as consideration for the property transferred by DC to each TC, will not exceed the aggregate cost of such property to each TC, as determined pursuant to subsection 85(1) where applicable, less the aggregate amount of DC's liabilities assumed by each TC for such property. For greater certainty, the increase to the PUC of the Class A Preferred Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

27. Immediately following the transfer of property described in Paragraph 23, each TC will redeem its Class A Preferred Shares owned by DC for an amount equal to the aggregate redemption amount and FMV of such shares. As consideration therefore, each TC will issue a non-interest bearing demand promissory note (the "TC Note") having a principal amount and FMV equal to the aggregate redemption amount of the TC Class A Preferred Shares. DC will accept each TC Note as full payment for the aggregate redemption amount of each TC's Class A Preferred Shares.

28. At the end of the day following the redemption of each of the TC's Class A Preferred Shares, each TC will cause its first taxation year to end.

29. On the next business day following the TCs' first taxation year, DC will purchase for cancellation the Common Shares of DC owned by each TC for an amount equal to the aggregate FMV of such Common Shares and, as payment therefore, DC will assign and distribute each TC Note back to the particular TC it relates to. As a result of such assignment and distribution, each TC's obligation under its respective TC Note will be cancelled.

ADDITIONAL INFORMATION

30. The Proposed Transactions described herein will occur in the order presented unless otherwise indicated, with the exception of the filing of the applicable election forms described in Paragraphs 20 and 25, which will be filed by the applicable due date following completion of the Proposed Transactions.

31. None of the shares of DC or of any of the TCs will be at any time during a series of transactions or events that includes the Proposed Transactions:

c) the subject of a guarantee agreement;

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

e) the subject of a dividend rental agreement.

32. None of DC or any of the TCs will be, at any time before the completion of the Proposed Transactions, a specified financial institution.

PURPOSE OF THE PROPOSED TRANSACTIONS

33. The principal purpose of the Proposed Transactions is to divide the assets of DC among the four Siblings so that each such Sibling will have direct and separate ownership of his pro rata share of DC's property. This will enable each Sibling to formulate and implement, in an independent manner, his own investment strategies with respect to his pro rata share of DC's property.

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. The provisions of subsection 85(1) will apply to the transfers of the XXXXXXXXXX Common Shares in the capital of DC held by each of Sibling 1, Sibling 2 and Sibling 3 to each respective TC, as described in Paragraph 19, such that the agreed amount in respect of such transfers will be deemed to be each of Sibling 1's, Sibling 2's and Sibling 3's proceeds of disposition and each respective TC's cost of acquisition. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. The provisions of subsection 85(1) will apply to the transfers of eligible property held by DC to each of the TCs as described in Paragraph 23, such that the agreed amount in respect of each such transfer will be deemed to be DC's proceeds of disposition and the respective TC's cost of such property. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

C. As a result of the redemption by the TCs of the TCs' Class A Preferred Shares described in Paragraph 27 and the purchase for cancellation by DC of its Common Shares described in Paragraph 29, by virtue of subsection 84(3):

a) Each TC will be deemed to have paid, and DC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by each TC in respect of its redemption of the TC's Class A Preferred Shares owned by DC exceeds the PUC of such class of shares immediately before the redemption;

b) DC will be deemed to have paid, and each TC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by DC in respect of the purchase for cancellation of the Common Shares of DC owned by each TC exceeds the PUC of such Common Shares immediately before the purchase for cancellation; and

c) The taxable dividends received by TC1, TC2, TC3 and DC, as described above:

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;

v) will not give rise to tax under Part IV except to the extent that the payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend; and

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

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

(a) an acquisition of property in circumstances described in paragraph 55(3.l)(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 shares in the circumstances described in subparagraph 55(3.l)(b)(iii); or

(e) an acquisition of property in the circumstances described in subparagraph 55(3.l)(c) or 55(3.1)(d);

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

E. The cancellation of the TCs' Notes as described in Paragraph 29 will not, in and of itself, result in a forgiven amount within the meaning of subsection 80(1) and 80.01(1).

F. The provisions of subsections 15(1), 56(2), and 246(1) will not apply to any of the Proposed Transactions described herein, in and by themselves.

G. Subsection 245(2) will not apply to the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed herein.

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.

OTHER COMMENTS

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;

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

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