2009 Ruling 2008-0300741R3 - Amalgamation of paragraph 149(1)(l) corporations

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: 1. What are the tax consequences to the corporations if three paragraph 149(1)(l) corporations amalgamate? 2. What are the tax consequences to the shareholders of these corporations?

Position: 1.The corporations will not incur dispositions of property. 2. (a) There will be no disposition for members exchanging their memberships of the society for shares in the society continued as a corporation. (b) The members will have a disposition of their shares of the predecessor corporations when the shares are exchanged for shares of the amalgamated corporation.

Reasons: 1.This transaction is completed under XXXXXXXXXX corporate law. Under this legislation the amalgamated corporation is a continuance of the three predecessor corporations. 2. (a) There are no proceeds of disposition or capital property being transferred to the shareholders. (b) Subparagraph 248(1)(b)(iii) of the definition of "disposition" applies.

XXXXXXXXXX								2008-030074

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling Request
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge your subsequent submissions of XXXXXXXXXX . In addition, we acknowledge several telephone conversations with you (XXXXXXXXXX ) regarding this file.

We understand that, to the best of your knowledge and that of the taxpayers, none of the issues involved in the ruling request are:

(i) in an earlier return of any of the taxpayers or related persons,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of any of the taxpayers or related persons,
(iii) under objection by any of the taxpayers or related persons,
(iv) before the courts, or
(v) the subject of a ruling previously issued by the Directorate to any of the taxpayers or related persons.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated. Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

FACTS:

Facts Relating to the XXXXXXXXXX ("Corporation G")

1. Corporation G was incorporated as a corporation with share capital under the Companies Act (XXXXXXXXXX ) on XXXXXXXXXX . Its business number is XXXXXXXXXX

2. Corporation G's mailing address is XXXXXXXXXX . Corporation G is served by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre.

3. Corporation G files a T2 return each year. Corporation G also files a T1044 information return, as required by subsection 149(12) of the Act, since it owns assets in excess of $XXXXXXXXXX .

4. The objects of Corporation G, as set out in its memorandum of association, are:

a. to acquire and take over all or any part of the assets and liabilities of the present unincorporated body known as the "XXXXXXXXXX ";
b. to promote XXXXXXXXXX and other athletic sports and pastimes;
c. to establish, maintain and conduct a XXXXXXXXXX and to afford the members of such club all the usual privileges, advantages, conveniences and accommodations of a club;
d. to acquire by purchase, lease or otherwise grounds near XXXXXXXXXX and to lay out and prepare the same for XXXXXXXXXX or other athletic sports or pastimes;
e. to buy, hire, prepare, make or provide and maintain and to sell all things required or which may be conveniently used in connection with the XXXXXXXXXX grounds, club-house and other premises of the Company by persons frequenting the same; and
f. to buy, prepare, make, supply, sell and deal in all kinds of XXXXXXXXXX and other athletic sports and pastimes; and all kinds of liquors, provisions and refreshments (subject to any laws of the Province of XXXXXXXXXX in that behalf) required or used by the members of such club or other persons frequenting the lands, club-houses or premises of the Company.

Corporation G is not a charity within the meaning assigned by subsection 149.1(1) of the Act. XXXXXXXXXX of the memorandum of association states that the company will not pay any dividends and its profits (if any) or other income will be applied only in promoting its objectives.

5. Corporation G is required by an agreement with the City of XXXXXXXXXX to obtain the permission of the City of XXXXXXXXXX before the sale of any of its land holdings. If permission to sell any particular land is granted, the entire proceeds must be used first to pay down mortgages registered on the property; second to pay any debt resulting from the development of facilities on the property being sold; and third any remaining funds must be used to purchase and develop other recreational land. Before this land is purchased Corporation G must obtain consent from the City of XXXXXXXXXX .

6. Corporation G's primary activity is the provision of a XXXXXXXXXX to its members, along with other recreational and dining facilities.

7. Corporation G holds legal title to XXXXXXXXXX parcels of land totalling approximately XXXXXXXXXX acres, all in the XXXXXXXXXX . Of these lands, XXXXXXXXXX acres were acquired from the City of XXXXXXXXXX in XXXXXXXXXX . The City of XXXXXXXXXX required as a term of the sale that Corporation G make its facilities available to the general public and that any proceeds derived from any future sale of this land be committed to the development of recreational facilities.

8. One of the objects of Corporation G is to afford the shareholders of Corporation G all the usual privileges, advantages, conveniences and accommodations of the club. No person is permitted to hold more than XXXXXXXXXX shares in the company.

9. With respect to the shares, Corporation G has a lien on every share (not being a fully paid share) for all moneys (whether presently payable or not) called or payable at a fixed time in respect of that share. Corporation G also has a lien on all shares standing registered in the name of a single person for all moneys presently payable by him or his estate to Corporation G. The directors may at any time declare any share to be wholly or in part exempt from these terms.

10. Corporation G may sell, in such manner as the directors think fit, any shares on which Corporation G has a lien, but no sale will be made unless some sum in respect of which the lien exists is presently payable, nor until the expiration of XXXXXXXXXX days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the person entitled by reason of death or bankruptcy to the share.

The directors may from time to time make calls upon the members in respect of any moneys unpaid on their shares, provided that no call will exceed XXXXXXXXXX of the nominal amount of the share (or, in the case of a share without nominal or par value, of the price at which the share is issued), and the call will not be payable less than XXXXXXXXXX from the last call. Each member must (subject to receiving at least XXXXXXXXXX days notice specifying the time or times of payment) on receipt of such call, pay to Corporation G at the time or times so specified the amount called on his shares. Interest applies at the rate of XXXXXXXXXX % on unpaid calls, though directors are at the liberty to waive payment of that interest in whole or part.

11. Failure to pay amounts on any call or instalment of a call can lead to a forfeiture of those shares by a resolution of the directors.

12. The issuance and transfer of shares of Corporation G are under the control of the directors who may allot or dispose of the same to such persons, on such terms, conditions and restrictions as to transfer and at such price as the directors may from time to time determine.

13. The directors may from time to time fix a transfer fee to be paid by a transferee of a share which fee will not necessarily be of a nominal amount and may be varied in any case in the sole discretion of the directors. The directors may approve of a transfer of a share without a fee from a husband to a wife, or from wife to husband, or from parent to adult child, or from adult child to parent and of similar successions in the event of the death of a shareholder.

14. The directors may refuse to register any transfer of a share,

a. where Corporation G has a lien on the share;
b. where the transferor is indebted to or in any way obligated to Corporation G;
c. whenever in the opinion of the directors it is not in the interests of Corporation G or the shareholders that the person proposed to be registered as a shareholder should become a shareholder; and
d. unless the certificate of the share accompanies the instrument of transfer to which it relates and such other evidence as the directors may reasonably require showing the right of the transferor to make the transfer is present.

15. A shareholder who wishes to sell his shares must request the board of directors to do so as his agent. He must surrender the certificate for such share and must accept from the board of directors such price as the board has been able to obtain for it, or such price as the board may determine, less any transfer fee as set by the directors.

16. The board of directors in each year may set a minimum price at which a share in the company may be sold and may refuse to approve a sale and transfer of a share at less than that price. So long as the board of directors has before it the request of an existing shareholder to transfer his share on the transfer terms then in force as set by the board of directors and at the price fixed by the board of directors, no further shares may be allotted by the directors.

17. If the directors have before them several applications from members to sell their shares, the directors may, in their sole discretion, in cases of extenuating circumstances determine the priority in which shares will be sold and are not bound to act in accordance with priority of time of the application to sell. Where a member offers more than one share for sale he does not have priority except as to one of them. His surplus share or shares will only be sold after the directors have sold individual shares offered by other members.

18. Every member present in person at a meeting has one vote regardless of the number of shares he may hold. No member is entitled to vote at any general meeting unless all calls presently payable by him in respect of shares in Corporation G have been paid.

19. To be a director, the individual must hold at least one share in Corporation G and it is the individual's duty to comply with the provisions of the Companies Act (XXXXXXXXXX ).

Facts Relating to the XXXXXXXXXX ("Corporation C")

20. Corporation C was incorporated as a corporation with share capital under the XXXXXXXXXX on XXXXXXXXXX . Its business number is XXXXXXXXXX .

21. The mailing address of Corporation C is XXXXXXXXXX . The Tax Services Office for Corporation C is the XXXXXXXXXX and its' taxation centre is XXXXXXXXXX .

22. Corporation C files a T2 return and T1044 information return as required by subsection 149(12) of the Act.

23. The objects of Corporation C, as contained in its memorandum of association are:

a. to acquire by purchase, donation, demise, lease or otherwise lands, buildings or any interests therein and any other property whether personal or real for the purpose of sport, recreation, amusements and entertainment of any kind whatsoever;
b. to erect buildings on such lands as aforesaid or any of them or otherwise and improve the same for the purpose of a XXXXXXXXXX , or any other use to which such buildings or lands are convenient, or for which they can conveniently be used; and to operate, manage, lease, rent or otherwise deal with such property upon said premises in such manner as may be decided upon by Corporation C from time to time; and
c. to borrow or raise or secure the payment of money in such manner as Corporation C thinks fit and in particular by the issuance of debentures charged upon all or any of Corporation C's property.

24. Corporation C is not a charity within the meaning assigned by subsection 149.1(1) of the Act. XXXXXXXXXX

25. Shareholders have the right to the use of the various facilities held by Corporation C, subject to such rules and the payment of such fees as the directors fixed from time to time, in common with the other shareholders of Corporation C or their nominees or substitutes, as the case may be.

26. The memorandum of association of Corporation C contains the following terms relating to the rights of shareholders with respect to their shareholdings:

a. Corporation C has a lien on every share that is not a fully paid share for all moneys called or payable at a fixed time in respect of that share. Corporation C also has a lien on all shares standing registered in the name of a single person for all moneys presently payable by him or his estate to Corporation C. The directors may at any time declare any share to be wholly or in part exempt from these terms;

b. Corporation C may sell, in such manner as the directors think fit, any shares on which the company has a lien, but no sale will be made unless some sum in respect of which the lien exists is presently payable, and until the expiration of XXXXXXXXXX days after a notice in writing, stating and demanding payment of such part of the amount in respect of which the lien exists as is presently payable, has been given to the registered holder for the time being of the share, or the person entitled by reason of death or bankruptcy to the share;

c. the directors may from time to time make calls upon the members in respect of any moneys unpaid on their shares, provided that no call will exceed XXXXXXXXXX of the nominal amount of the share (or, in the case of a share without nominal or par value, of the price at which the share is issued), and the call will not be payable less than XXXXXXXXXX from the last call. Each member must (subject to receiving at least XXXXXXXXXX days notice specifying the time or times of payment) on receipt of such a call, pay to Corporation C at the time or times so specified the amount called on his shares. Interest applied at the rate of XXXXXXXXXX % on unpaid calls, though directors are at liberty to waive payment of that interest in whole or in part. Failure to pay amounts on any call or instalment of a call can lead to a forfeiture of the particular shares by a resolution of the directors;

d. the directors may decline to register any transfer of shares not being fully paid shares to a person of who they do not approve, and may also decline to register any transfer of shares on which Corporation C has a lien. The directors may suspend the registration of transfers during the XXXXXXXXXX days immediately preceding the ordinary general meeting each year. The directors may also decline to recognize any instrument of transfer unless a fee not exceeding XXXXXXXXXX is paid to Corporation C and the instrument of transfer is accompanied by the certificate of the shares to which it relates and such other evidence as the directors may reasonably require showing the right of the transferor to make the transfer;

e. the issuance and transfer of shares is under the control of the board of directors which may allot or dispose of the same to such persons, on such terms, conditions and restrictions as to transfer, and at such price as the directors may from time to time determine;

f. the directors may from time to time fix a transfer fee to be paid by a transferee of a share which fee will not necessarily be of a nominal amount and which may be varied in any case in the sole discretion of the directors. The directors may approve a transfer of a share without a fee from a parent to a male child of a minimum age of XXXXXXXXXX years or from such male child to a male parent or from one brother of a minimum age of XXXXXXXXXX years to another such brother and of similar successions in the event of the death of a shareholder;

g. a shareholder who wishes to sell his shares must request that the board of directors act as his agent in the sale. He must surrender the certificate for such share and must accept from the board of directors such price as the board has been able to obtain for it, or such price as the board may determine less any transfer fee as set by the directors;

h. the board of directors in each year may set a minimum selling price for the shares, and may refuse a sale and transfer if it occurs at a price less then the minimum; and
i. each shareholder has one vote regardless of the number of shares he may hold. No member is entitled to vote at any general meeting unless all calls presently payable by him in respect of shares of Corporation C have been paid.

27. XXXXXXXXXX The revenue received did not exceed the expenses related to the leased portion of the facility.

28. As Corporation C no longer provided facilities to its members, a change in use of its property took place for income tax purposes. Corporation C was deemed to have disposed of its facility at fair market value and then reacquire it at the same amount.

29. The Society continued to use a portion of Corporation C's facility until XXXXXXXXXX . After this time, the whole facility was rented to a third party.

30. The property was sold in XXXXXXXXXX for less than its adjusted cost base and a capital loss was reported XXXXXXXXXX .

31. The proceeds of the sale of the land and building referred to in 33 herein were loaned to the Society to support the activities of that organization. Since the sale of the property, Corporation C has been inactive; its only asset is the loan receivable from the Society, which is non-interest bearing.

Combination of Corporation G and Corporation C and Creation of the Society

32. In a special meeting held on XXXXXXXXXX , the majority of the shareholders of Corporation G and Corporation C resolved to combine their recreational and dining operations.

33. It was decided that instead of completing a legal amalgamation, a new organization would be established to take over the operations of these two corporations. The Society was incorporated as a corporation without share capital under the Society Act (XXXXXXXXXX ) on XXXXXXXXXX , for this purpose.

34. The mailing address for the Society is XXXXXXXXXX . The Society is serviced by the XXXXXXXXXX Tax Services Office. Its Taxation Centre is XXXXXXXXXX . Its business number is XXXXXXXXXX . The Society files both a T2 return and a T1044 return as property income earned from the operation of the XXXXXXXXXX the recreation and dining facilities is in excess of $10,000 . The Society also files a T3 return for the property owned by Corporation G, Corporation C and itself that is deemed to be held in a trust pursuant to subsection 149(5) of the Act.

35. The objects of the Society, as contained in its certificate of incorporation, are as follows:

a. to promote and foster XXXXXXXXXX and other forms of sport and recreation, and to operate a XXXXXXXXXX for the benefit of the membership, and also to make the recreational facilities of the Society available to as many members of the general public who are not members of the Society as is compatible with the capacity of those facilities to accommodate them provided that the fees and charges to be paid by non-members for the use of said facilities will be such as will be agreed upon between the Society and the Department of Recreation and Conservation but said fees and charges must not be less than the fees and charges payable by members for the use of said facilities nor will they be more than one XXXXXXXXXX per cent of the fees and charges payable by members for use of such facilities and provided further, that such non-members will be subject to the same rules, regulations and restrictions respecting the use of said facilities as apply to members; the provisions of this clause respecting the use of said recreational facilities by members of the general public who are not members of the Society and the fees and charges payable by such non-members are unalterable; and

b. in furtherance of the above objects, to provide XXXXXXXXXX and a club house and other facilities and conveniences for the members of the Society and others, and to equip, furnish and maintain the same. In the event of the dissolution of the Society, any assets remaining after payment of all debts and obligations of the Society will revert and be transferred to the City of XXXXXXXXXX : the provisions of this clause respecting the disposition of the assets of the Society upon the dissolution of the Society are unalterable.

36. The Society is not a charity within the meaning assigned by subsection 149.1(1) of the Act. No part of the income of the Society is available for the personal benefit of any member of the Society and any profits of the Society are used to further the recreational objectives of the Society.

As part of the terms of the XXXXXXXXXX combination of operations between Corporation G and Corporation C, shareholders of Corporation G and Corporation C were entitled to exchange all the shares that they held in either corporation for one membership of the Society.

37. As of XXXXXXXXXX , the share capital of Corporation G consisted of XXXXXXXXXX issued common voting shares of which XXXXXXXXXX were owned by the Society. The other XXXXXXXXXX issued shares were widely held and are restricted in that they can only be exchanged by shareholders for memberships in the Society.

38. As of XXXXXXXXXX , the share capital of Corporation C consisted of XXXXXXXXXX issued common voting shares of which XXXXXXXXXX were owned by the Society. The other XXXXXXXXXX issued shares were widely held and are restricted in that they can only be exchanged by the shareholders for memberships in the Society.

39. As of XXXXXXXXXX , the Society had XXXXXXXXXX voting members. The difference between the number of memberships issued in XXXXXXXXXX and the number of voting members as of XXXXXXXXXX , is due to the death of members and the cancellation of inactive memberships.

40. On XXXXXXXXXX , an agreement was entered into between the City of XXXXXXXXXX , Corporation G, Corporation C and the Society where the City of XXXXXXXXXX agreed to convey XXXXXXXXXX acres of land to Corporation G. As part of this agreement Corporation G, Corporation C and the Society confirmed that their real property holdings would be consolidated into a single parcel to be used for the purpose of constructing thereon, and using, facilities for XXXXXXXXXX , and other ancillary facilities including club house, dining room and lounge facilities for members, shareholders and their guests and the rental of the same to other groups for social functions and for no other purpose. In addition the agreement provided that Corporation G, Corporation C and the Society would accommodate as many members of the public as were compatible with the efficient operations of Corporation G and Corporation C as determined by a committee consisting of XXXXXXXXXX directors of the Society and XXXXXXXXXX members of the Council of the City of XXXXXXXXXX .

41. XXXXXXXXXX

42. Specific dining and recreational facilities operated and managed by the Society include:

XXXXXXXXXX

43. The Society has four classes of members: regular, corporate, inactive and life members. Any application for membership must be signed by the applicant and XXXXXXXXXX members in good standing. All applicants for regular and corporate membership must pay an entrance fee, and in addition an initial payment with respect to the requirement to purchase a debenture should the application for membership be accepted. These amounts are refunded should the applicant not be accepted for membership. Only individuals XXXXXXXXXX years and older may be members.

44. Regular members, upon paying the applicable membership fee for the year, are entitled to participate in all activities and enjoy all facilities provided by the Society. The immediate family of the member (spouse and children under XXXXXXXXXX ) are also entitled to use the facilities and participate in the Society's activities.

45. Each regular member in good standing is entitled to one vote at a meeting of members. Regular members may also stand for office. Spouses and children cannot vote or hold office unless the spouse or child is himself or herself a member.

46. A regular membership in good standing may be transferred to a spouse or common law spouse, as that term is defined by the XXXXXXXXXX . Upon the death of the regular member, the membership can be transferred to the surviving spouse or common law spouse, if the member was in good standing, and the application for transfer is made within XXXXXXXXXX months from the date of death of the member. No transfer fee applies. A regular member in good standing may also transfer membership to a child or grandchild who is XXXXXXXXXX years of age or older upon payment of the transfer fee in place at that time. Similarly, a regular membership in good standing of a deceased member can be transferred to a child or grandchild over the age of XXXXXXXXXX years if the transfer request is made within XXXXXXXXXX months from the date of death, and the transfer fee is paid.

47. A regular membership cannot be transferred otherwise than as described in 52 and 53 herein.

48. A regular member in good standing can submit a written application to the directors requesting their account be changed to inactive. If accepted by the directors, and once the required fee is paid, the member's status changes from regular to inactive.

49. A corporate member must designate in writing to the directors an individual who is an officer, shareholder or employee of the corporate member, and who would otherwise qualify to be a regular member, to represent the corporate member. The designated individual, until the designation is revoked or the corporation ceases to be a member has all the rights and privileges of a regular member. A corporation may change its designate by application in writing and the payment of the appropriate fee. A corporate membership may be transferred to a principal owner, employee or retired employee upon application and payment of the fee applicable at the time of the transfer. A corporate member is responsible for the indebtedness to the Society incurred by its designate and by their immediate family.

50. There is a yearly fee charged for inactive members. Inactive members are not entitled to vote, maintain credit privileges or receive reduced playing fees, nor are they entitled to any other privilege received by the other classes of members. An inactive membership may be changed to a regular membership with written application and payment of the appropriate fee as set by the directors.

51. A life membership can be awarded to any person who has, in the opinion of the directors, performed a significant service to the Society. The awarding of such a membership is done only by unanimous vote of the directors. Upon the awarding of a life membership, the awardee will receive a certificate entitling him to participate in the Society's sporting activities free of charge but will only have voting privileges if he was previously a regular member or a designate of a corporate member in good standing. If the life member was either of these, then he retains his voting privileges and all the other rights, privileges and obligations of his membership.

52. A member ceases to be a member upon:

a. delivering his resignation in writing to the directors;
b. his death or, in the case of a corporation, upon dissolution;
c. being expelled; or
d. having been a member not in good standing for XXXXXXXXXX consecutive months by reason of a failure to pay debts due to the Society.

53. A member can be expelled or suspended if the member is guilty of conduct that in the opinion of the directors is detrimental to the character or interests of the Society. The directors may ask for the member to appear and explain the members' actions. If the member fails to appear, or fails to satisfy the directors, the directors may suspend the member from entitlement to the privileges of the Society for such period as they see fit, or they may expel the member.

PROPOSED TRANSACTIONS:

Continuance of the Society as a Corporation with Share Capital

54. The Society proposes to legally amalgamate its operations with those of Corporation G and Corporation C. It has been submitted that, under XXXXXXXXXX corporate law, a society cannot amalgamate with a corporation with share capital. Therefore, as a preliminary step, the Society will be continued as a corporation with share capital governed by the Business Corporations Act (XXXXXXXXXX ).

55. It has been submitted that, pursuant to paragraph XXXXXXXXXX of the Business Corporations Act (XXXXXXXXXX ), all of the property, rights and interests of the Society will continue to be the property, rights and interests of the Society once it is continued as a corporation with share capital.

56. The Society, as continued as a corporation, will not be a charity within the meaning assigned by subsection 149.1(1) of the Act. Section XXXXXXXXXX of the Society's new articles of incorporation will continue to prohibit the Society from declaring or paying any dividends whatsoever out of corporate funds to its shareholders and the directors will not be empowered to declare any such dividends. It is intended that the continued corporation be operated for a purpose other than profit.

57. The Society's revised objects, as stated in its new articles of incorporation, will be:

to promote and foster XXXXXXXXXX and other forms of sport and recreation, and to operate a XXXXXXXXXX for the benefit of the membership and also to make the recreational facilities of the Society available to as many members of the general public who are not members of the Society as is compatible with the capacity of those facilities to accommodate them provided that the fees and charges to be paid by non-members for the use of said facilities will be such as will be determined by the Board of Directors of the Society but said fees and charges will not be less than the fees and charges payable by members for the use of said facilities nor will they be more than XXXXXXXXXX per cent of the fees and charges payable by members for the use of such facilities and provided further, that such non-members will be subject to the same rules, regulations and restrictions respecting the use of said facilities as apply to members; and

a. in furtherance of the objects described in paragraph (a), to provide XXXXXXXXXX and a clubhouse and other facilities and conveniences for the members of the Society and others, and to equip, furnish and maintain the same.

58. Section XXXXXXXXXX of the Society's new articles of incorporation will state that, in the event that the Society is wound up or dissolved, no corporate surpluses will be distributed or paid to shareholders. Any corporate surplus after the payment of all debts and obligations of the Society will be distributed and paid to the City of XXXXXXXXXX .

Effect of Continuance on Members' Interests

59. The Society, as continued as a corporation, will issue one share to each of its members in exchange for their outstanding membership in the Society. The shares will entitle the shareholders to continue to participate in the activities and enjoy the facilities provided by the Society, subject to the payment of fees and dues as set by the board of directors. The Society shareholders will hold one of three types of membership: regular, corporate or inactive.

60. The requirement that new members be willing to purchase a debenture, in such amount and on such terms and conditions as the directors may from time to time determine, is continued as a term of the new shareholdings.

61. The new articles of incorporation of the Society will also provide:

if a shareholder's certificate is transferred to a spouse upon the death of the shareholder, the estate of the deceased member is not entitled to redemption of the debenture. The debenture will be redeemable, subject to other by-laws, within XXXXXXXXXX days after the spouse has ceased to be a shareholder;

a. that the Society is not required to redeem more than XXXXXXXXXX debentures per year. A debenture not redeemed in XXXXXXXXXX days because of this rule will be redeemed in the following year or years in the order in which the shareholders ceased to be shareholders;

b. that a certificate of a shareholder in good standing can be transferred to the members' spouse or common law spouse, as that term is defined in the XXXXXXXXXX without charge. A certificate of a shareholder may also be transferred to a child or grandchild (XXXXXXXXXX years of age or older) upon payment of the appropriate transfer fee;

c. that in the event of death, a membership can be transferred to either a surviving spouse or child or grandchild (over XXXXXXXXXX years of age) if an application is made within XXXXXXXXXX months from the date of death of the member. A transfer fee applies to the transfer of the membership from the deceased to the child or grandchild. Otherwise shares are not transferable;

d. if a shareholder is guilty of misconduct which in the opinion of the directors is detrimental to the interests or character of the company, the directors may summon such shareholder to appear before them to explain such conduct, and if the shareholder fails to appear or fails to satisfy the directors they may suspend the shareholder from privileges and its facilities for a period of time as they see fit. The may also expel the shareholder;

e. that a corporate shareholder must designate in writing an individual who is an officer, shareholder or employee of the corporate shareholder and who would otherwise qualify to be a regular member, to represent the corporation. The person so designated will, until his designation is revoked in writing by the corporate shareholder or the corporate shareholder ceases to be a member, have all the rights, privileges and obligations of a regular shareholder;

f. that a corporate membership may be transferred to a principal owner, employee or retired employee of the corporate shareholder upon application and the payment of the applicable transfer fee;
g. that a corporate shareholder may, upon payment of the appropriate fee, apply in writing to change its corporate designate;
h. that a corporate shareholder is responsible for the indebtedness to the company incurred by the designate and by his immediate family;

i. that a regular shareholder in good standing can convert his account to inactive if the shareholder receives approval from the board of directors. In order to receive approval all fees must be paid in full. A yearly charge applies to maintain an inactive account;

j. that those shareholders with an inactive membership cannot vote, maintain charging privileges, or receive reduced playing fees or any other privilege received by a shareholder with an active account; and
k. that every shareholder, other than one having an inactive membership, is entitled to one vote.

Amalgamation of the Society, Corporation G and Corporation C

62. Immediately after the continuance of the Society as a corporation with share capital, the Society will amalgamate with Corporation G and Corporation C to form one single corporation ("New Society") pursuant to paragraphs XXXXXXXXXX of the Business Corporations Act (XXXXXXXXXX ).

63. It is submitted that, pursuant to the Business Corporations Act (XXXXXXXXXX ), all the property, rights and interests of the Society, Corporation G and Corporation C (the "Predecessors") continue to be the property, rights and interests of the New Society and the New Society will continue to be liable for the obligations of each of the Predecessors.

64. The objects of the New Society will be set out in articles of incorporation as follows:

a. to promote and foster XXXXXXXXXX and other forms of sport and recreation, and to operate a XXXXXXXXXX for the benefit of the membership and also to make the recreational facilities of the New Society available to as many members of the general public who are not members of the New Society as is compatible with the capacity of those facilities to accommodate them provided that the fees and charges to be paid by non-members for the use of said facilities will be such as will be determined by the Board of Directors of the New Society but said fees and charges will not be less than the fees and charges payable by members for the use of said facilities nor will they be more than XXXXXXXXXX per cent of the fees and charges payable by members for the use of such facilities and provided further, that such non-members will be subject to the same rules, regulations and restrictions respecting the use of said facilities as apply to members; and

in furtherance of the objects described in paragraph (a), to provide XXXXXXXXXX and a clubhouse and other facilities and conveniences for the members of the New Society and others, and to equip, furnish and maintain the same.

65. The New Society will not be a charity within the meaning assigned by subsection 149.1(1) of the Act. The articles of incorporation for the New Society will be identical to those of the Society immediately after the continuance as described in 61 to 63 herein. The New Society will be prohibited by its articles from declaring or paying any dividends whatsoever out of corporate funds to its shareholders and the directors are not empowered to declare any such dividends.

66. In the event that the New Society is wound up or dissolved, section XXXXXXXXXX of its articles provides that no corporate surpluses may be distributed or paid to shareholders and all such corporate surpluses after the payment of all debts and obligations of the company will be distributed to the City of XXXXXXXXXX .

Effect of Amalgamation on Shareholders of the Society

67. The shareholders of the New Society will receive shares with rights and restrictions identical to those of the Society as described in 66 and 67 herein in exchange for their shares in the Society (as continued as a corporation), Corporation G or Corporation C, as applicable.

68. Shareholders of Corporation G and Corporation C who had not, prior to these proposed transactions, exchanged shares of Corporation G or Corporation C for a membership in the Society will receive one share of the New Society irrespective of the number of shares held in Corporation G or Corporation C.

PURPOSE OF THE PROPOSED TRANSACTIONS:

69. The members of the Society, Corporation G, and Corporation C wish to simplify annual tax and corporate reporting requirements by combining all three entities into one corporation that will be operated for purposes other than profit.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed as described above, we rule as follows:

RULINGS

A. Effecting the continuance described in paragraph 61 herein will not, in and of itself, result in a disposition to the Society of its property for purposes of the Act.

B. The completion of the transaction described in 66 herein will not, in and of itself, result in a disposition to the members of the Society of their interests in the Society for purposes of the Act.

C. The completion of the transaction described in 69 herein will not, in and of itself, result in a disposition, to any of the Predecessors, of its property for purposes of the Act.

D. The amalgamation of the Predecessors will not, in and of itself, mean that the New Society is not organized exclusively for purposes other than profit within the meaning of paragraph 149(1) (l) of the Act.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002, and are binding on the Canada Revenue Agency (the "CRA") provided that the proposed transactions are completed by XXXXXXXXXX .

This letter is based solely on the facts and proposed transactions described above. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

COMMENTS

Nothing in this letter should be construed as confirming or implying that the CRA has reviewed or is making a determination in respect of:

(i) whether any of the Predecessors or the New Society is or has been exempt from tax under Part I of the Act pursuant to paragraph 149(1)(l) at any particular time; the fair market value or adjusted cost base of the shares held in Corporation G, Corporation C, the Society or the New Society for purposes of the Act or any particular asset of Corporation G, Corporation C, the Society, or the New Society;
(ii) the amount of the taxable capital gain, if any, arising from the exchange of shares on amalgamation as described in 74 and 75 herein; and
(iii) the legal effect of the proposed continuance and amalgamation as a matter of corporate law.

Yours truly,

XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch