2009 Ruling 2008-0304741R3 - Loss utilization

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

Principal Issues: Whether an in-house loss utilization arrangement using a partnership is acceptable?

Position: Yes.

Reasons: Based on previous positions.

XXXXXXXXXX 								2008-030474

XXXXXXXXXX , 2009

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-noted parties and related corporations. We also acknowledge the additional information provided to us in your electronic mail transmissions, letters, and during our telephone conversations (XXXXXXXXXX ).

We understand that, to the best of your knowledge, and that of the taxpayers involved, none of the issues described herein is:

(i) in an earlier return of the XXXXXXXXXX , any of its
partners or a related person;
(ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed return of the XXXXXXXXXX , any of the its partners or a related person;
(iii) the subject of any notice of objection;
(iv) before the courts or, if a judgment has been issued, the time limit for appeal has not expired; or
(v) the subject of a previously issued ruling.

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

LEGAL ENTITY DEFINITIONS

In this letter

(a) "ACo" means XXXXXXXXXX ., and is more fully described in Paragraph 3;

(b) "BCo" means XXXXXXXXXX ., a company governed by the CBCA;

(c) "CCo" means XXXXXXXXXX ., a company governed by the CBCA;

(d) "DCo" means XXXXXXXXXX ., a company incorporated under the CBCA;

(e) "ECo" means XXXXXXXXXX ., a company governed by the CBCA;

(f) "FCo" means XXXXXXXXXX ., a company governed by the BCCA;

(g) "GCo" means XXXXXXXXXX ., a company governed by the CBCA;

(h) "HCo" means XXXXXXXXXX , a company governed by the CBCA;

(i) "ICo" means XXXXXXXXXX ., a company governed by the XXXXXXXXXX .

(j) "JCo" means XXXXXXXXXX ., a company governed by the CBCA;

(k) "KCo" means XXXXXXXXXX , a company governed by the XXXXXXXXXX ;

(l) "LCo" means XXXXXXXXXX ., a company governed by the CBCA. LCo is a wholly-owned subsidiary of Subco and is a TCC;

(m) "LP General Partner" means Newco 2, as referred to in Paragraph 18;

(n) "LP Limited Partners" means Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, and KCo, as referred to in Paragraph 18;

(o) "LP Partners" means Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo and Newco 2;

(p) "Newco 1" means XXXXXXXXXX ., a new corporation to be incorporated under the CBCA which is more fully described in Paragraphs 14 and 15;

(q) "Newco 2" means XXXXXXXXXX ., a new corporation to be incorporated under the CBCA which is more fully described in Paragraph 16;

(r) "New LP" means XXXXXXXXXX , a new limited partnership to be established pursuant to the laws of XXXXXXXXXX which is more fully described in Paragraphs 17 and 18;

(s) "Parent" means XXXXXXXXXX ., and is more fully described in Paragraph 1;

(t) "Parent Affiliated Group" means Parent and its subsidiaries; and

(u) "Subco" means XXXXXXXXXX ., and is more fully described in Paragraph 2.

DEFINITIONS

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, RSC 1985 (5th supp.), c.1, as amended to the date hereof, and, unless otherwise indicated, all statutory references are to the Act;

(b) "ACo Loans" means the loans made by Newco 1 to ACo described in Paragraphs 21, 24, 25 and 26;

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

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

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

(f) XXXXXXXXXX

(g) "Canadian partnership" has the meaning assigned by subsection 102(1);

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

(i) "CBCA" means the Canada Business Corporations Act, and, where applicable, its predecessor's statutes;

(j) "CRA" means Canada Revenue Agency;

(k) "Daylight Loans" means the loans made by the financial institution to New LP described in Paragraphs 19, 24, 25 and 26;

(l) "designated stock exchange" has the meaning assigned by subsection 248(1);

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

(n) "excepted dividend" has the meaning assigned by section 187.1;

(o) "excluded dividend" has the meaning assigned by subsection 191(1);

(p) "financial intermediary corporation" has the meaning assigned by subsection 191(1);

(q) "GAAR" means the general anti-avoidance rule in section 245;

(r) "New LP Loans" means the loans made by ACo to New LP described in

Paragraphs 22, 24, 25 and 26;

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

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

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

(v) "Preferred Shares" means the preferred shares of Newco 1 described in

Paragraph 15;

(w) "public corporation" has the meaning assigned by subsection 89(1);

(x) XXXXXXXXXX

(y) "related" has the meaning assigned by section 251;

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

(aa) "taxable Canadian corporation" or "TCC" has the meaning assigned by subsection 89(1).

Unless otherwise indicated in this letter, all dollar amounts referred to herein are in Canadian dollars.

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

FACTS

1. Parent is governed by the CBCA and is a public corporation and a TCC whose shares are listed on a designated stock exchange. XXXXXXXXXX Consolidated revenues of Parent for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with a consolidated net income amounting to approximately $XXXXXXXXXX . Parent files its information returns with the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services Office. Parent's business number is XXXXXXXXXX and its address is XXXXXXXXXX

2. Subco is a wholly-owned subsidiary of Parent incorporated under the CBCA and is a TCC. Subco carries on an XXXXXXXXXX business through numerous subsidiaries. Subco's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of Subco for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of Subco ends on XXXXXXXXXX . Subco files its information returns with the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services Office. Subco's business number is XXXXXXXXXX .

It is expected that Subco will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to Subco as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

Subco has permanent establishments in XXXXXXXXXX Canadian provinces. Its allocation of income among the jurisdictions in its XXXXXXXXXX taxation year is estimated as follows:

XXXXXXXXXX

It is reasonable to expect that these estimated XXXXXXXXXX figures for Subco will be reflective of those for XXXXXXXXXX .

3. ACo is governed by the CBCA and is a TCC. ACo, a wholly-owned subsidiary of Subco, is involved in the XXXXXXXXXX in Canada. The revenues of ACo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with a net loss amounting to $XXXXXXXXXX . ACo's taxable income for XXXXXXXXXX was $XXXXXXXXXX . The taxation year of ACo ends on XXXXXXXXXX . At the end of its XXXXXXXXXX taxation year, ACo had no non-capital losses. However, without giving effect to the proposed transactions, it is expected that ACo will generate non-capital losses of approximately $XXXXXXXXXX in its XXXXXXXXXX taxation year and will also generate smaller non-capital losses in its XXXXXXXXXX taxation years. Aggregate non-capital losses for ACo's XXXXXXXXXX taxation years are estimated to be approximately $XXXXXXXXXX .

ACo has a permanent establishment XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX .

4. BCo is a wholly-owned subsidiary of Subco and a TCC. BCo, together with its wholly-owned subsidiaries, CCo and DCo, is specialized in the XXXXXXXXXX in Canada. BCo, CCo and DCo's aggregate taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of BCo and its above-mentioned subsidiaries for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of BCo, CCo and DCo ends on XXXXXXXXXX .

It is expected that BCo, CCo and DCo will each generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset their respective annual share of the interest expense allocated to them as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

BCo has permanent establishments in XXXXXXXXXX Canadian provinces. Its allocation of income among the provinces in its XXXXXXXXXX taxation year is estimated as follows:

		XXXXXXXXXX 

CCo has permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year is estimated as follows:

XXXXXXXXXX

It is reasonable to expect that these estimated XXXXXXXXXX figures for BCo and CCo will be reflective of those for XXXXXXXXXX .

DCo has a permanent establishment only in XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX .

5. ECo is a wholly-owned subsidiary of Subco and a TCC. ECo is specialized in XXXXXXXXXX . ECo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of ECo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of ECo ends on XXXXXXXXXX . It is expected that ECo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to ECo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

ECo has permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year is estimated as follows:

XXXXXXXXXX

It is reasonable to expect that these estimated XXXXXXXXXX figures for ECo will be reflective of those for XXXXXXXXXX .

6. FCo is a wholly-owned subsidiary of Subco and a TCC. FCo is also specialized in XXXXXXXXXX . FCo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of FCo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of FCo ends on XXXXXXXXXX . It is expected that FCo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to FCo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

FCo has permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year is estimated as follows:

XXXXXXXXXX

It is reasonable to expect that these estimated XXXXXXXXXX figures for FCo will be reflective of those for XXXXXXXXXX .

7. GCo is a wholly-owned subsidiary of Subco and a TCC. GCo is involved in the XXXXXXXXXX . GCo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of GCo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of GCo ends on XXXXXXXXXX . It is expected that GCo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to GCo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

GCo has permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year is estimated as follows:

XXXXXXXXXX

It is reasonable to expect that these estimated XXXXXXXXXX figures for GCo will be reflective of those for XXXXXXXXXX .

8. HCo is a wholly-owned subsidiary of Subco and a TCC. HCo operates a XXXXXXXXXX business. HCo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of HCo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of HCo ends on XXXXXXXXXX . It is expected that HCo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to HCo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

HCo has a permanent establishment XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX .

9. ICo is a wholly-owned subsidiary of Subco and a TCC. ICo is specialized in XXXXXXXXXX . ICo's non-capital loss for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of ICo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of ICo ends on XXXXXXXXXX . It is expected that ICo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to ICo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26. ICo has a permanent establishment XXXXXXXXXX and it is reasonable to expect that to be the case in XXXXXXXXXX .

10. JCo is a wholly-owned subsidiary of Subco and a TCC. JCo is involved in the XXXXXXXXXX . JCo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of JCo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of JCo ends on XXXXXXXXXX . It is expected that JCo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to JCo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

JCo has a permanent establishment XXXXXXXXXX and it is reasonable to expect that to be the case in XXXXXXXXXX .

11. KCo is a wholly-owned subsidiary of Subco and a TCC. KCo is involved in the XXXXXXXXXX . KCo's taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX . Revenues of KCo for the year ended XXXXXXXXXX totalled $XXXXXXXXXX with net earnings amounting to $XXXXXXXXXX . The taxation year of KCo ends on XXXXXXXXXX . It is expected that KCo will generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to KCo as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans described in Paragraphs 22, 24, 25 and 26.

KCo has a permanent establishment XXXXXXXXXX and it is reasonable to expect that to be the case in XXXXXXXXXX .

12. The consolidated financial statements of Parent for its year ended XXXXXXXXXX indicate that Parent and its subsidiaries had:

(a) assets of approximately $XXXXXXXXXX ;

(b) liabilities of approximately $XXXXXXXXXX ; and

(c) shareholders' equity of approximately $XXXXXXXXXX which includes minority shareholders, retained earnings and cumulative currency translation adjustments.

The arm's length borrowings of the Parent Affiliated Group currently amount to approximately $XXXXXXXXXX . As of XXXXXXXXXX , an arm's-length financial institution confirmed in writing that Parent Affiliated Group's total borrowing capacity was between $XXXXXXXXXX to $XXXXXXXXXX [copy of written confirmation provided to us]. Furthermore, Parent and a number of its Canadian subsidiaries have concluded a centralized banking agreement (the "Cash Pooling Arrangement") with an arm's length financial institution [the XXXXXXXXXX , which is referred to in this letter as the "Financial Institution"] to optimize their overall cash management. Pursuant to this existing arrangement, the Financial Institution offers to Parent and its participating subsidiaries a consolidated interest statement through the consolidation of the debit and credit balances of the accounts of all the participating entities. The Financial Institution shall compute and charge or pay interest, as the case may be, on the net daily closing consolidated balances at rates agreed in writing between Parent and the Financial Institution. Under the Cash Pooling Arrangement, the Financial Institution also offers to advance funds to any participating entity without additional interest/fees as long as the funds stay in the hands of any other participating entity.

13. In recent years, some loss consolidation transactions have been implemented among corporations within the Parent Affiliated Group. All of these transactions have been unwound except for a typical loan/preferred share structure between ACo and LCo, which will also be unwound and replaced when the proposed transactions outlined below are implemented.

PROPOSED TRANSACTIONS

14. ACo will incorporate Newco 1 under the CBCA. Newco 1 will be a TCC.

Newco 1 will issue common shares of its capital stock to ACo for nominal consideration. ACo will have de jure control of Newco 1. The taxation year-end of Newco 1 will be XXXXXXXXXX . Newco 1's activities will be limited to those described in this letter. Newco 1 will be added to the Cash Pooling Arrangement referred to in Paragraph 12. ACo is already part of the Cash Pooling Arrangement.

15. The authorized capital of Newco 1 will consist of an unlimited number of common shares and preferred shares (the "Preferred Shares"). The common shares of

Newco 1 will be without par value and will be voting. The holders of common shares will be entitled to dividends at the discretion of the directors, and will be entitled to receive the remaining property of the corporation upon its winding-up or dissolution. The Preferred Shares will be without par value and will be non-voting. The Preferred Shares will be redeemable and retractable for a redemption price equal to the fair market value of the consideration for which the shares are issued, plus any accrued but unpaid dividends. The PUC and the fair market value of the Preferred Shares will be equal to the amount contributed. The holders of Preferred Shares will be entitled to cumulative dividends, calculated daily by reference to the redemption/retraction price of the Preferred Shares at a rate equal to the interest rate on the New LP Loans plus a small spread of XXXXXXXXXX %. The dividends on the Preferred Shares will be payable annually on the XXXXXXXXXX .

16. Subco will incorporate Newco 2 under the CBCA. Newco 2 will be a TCC.

Newco 2 will issue common shares of its capital stock to Subco for nominal consideration. Subco will have de jure control of Newco 2. The taxation year-end of Newco 2 will be XXXXXXXXXX . Newco 2's activities will be limited to acting as the general partner of New LP. The authorized capital of Newco 2 will only consist of an unlimited number of common shares. The common shares of Newco 2 will be without par value and will be voting. The holders of common shares will be entitled to dividends at the discretion of the directors, and will be entitled to receive the remaining property of the corporation upon its winding-up or dissolution.

17. LP Partners will constitute a new limited partnership ("New LP") under the laws of XXXXXXXXXX . New LP will be a Canadian partnership. The fiscal period-end of New LP will be XXXXXXXXXX . New LP will be added to the Cash Pooling Arrangement. New LP's activities will be limited to those described in the proposed transactions, including entering into daylight loans with the Financial Institution, purchasing the Preferred Shares and entering into the New LP Loans with ACo.

18. Newco 2 will be the general partner of New LP (referred to in this letter as the

"LP General Partner"). Newco 2 will have a XXXXXXXXXX % ownership interest in New LP and will be entitled to a XXXXXXXXXX % share of the income or loss of New LP.

Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo and KCo will be the limited partners of New LP (referred to in this letter as the "LP Limited Partners"). They have all been part of the Parent Affiliated Group for a number of years. Each of the LP Limited Partners will have a different ownership interest in New LP. The projected percentage partnership ownership interests in New LP of each of the LP Limited Partners is as follows:

LP Limited Partner 	Ownership Interest
Subco			XXXXXXXXXX %
BCo			XXXXXXXXXX %
CCo			XXXXXXXXXX %
DCo			XXXXXXXXXX %
Eco			XXXXXXXXXX %
FCo			XXXXXXXXXX %
GCo			XXXXXXXXXX %
HCo			XXXXXXXXXX %
ICo			XXXXXXXXXX %
JCo			XXXXXXXXXX %
KCo			XXXXXXXXXX %

The LP Limited Partners will share in New LP's income or loss in proportion to their partnership percentage.

19. New LP will borrow an amount of $XXXXXXXXXX on a "daylight loan" basis (the "First Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement.

20. New LP will use the proceeds received from the First Daylight Loan to subscribe for Preferred Shares having an aggregate redemption/retraction price equal to the amount contributed (i.e., $XXXXXXXXXX ). For greater certainty when considering the application of section 112, neither New LP, nor any of the LP Partners, will acquire, or be considered to have acquired the Preferred Shares in the ordinary course of business carried on by the respective entity.

21. Newco 1 will use the $XXXXXXXXXX proceeds received from the Preferred Shares subscriptions described in Paragraph 20 to make a demand, interest-free loan to ACo in an amount equal to such proceeds (the "First ACo Loan"). Newco 1's recourse against ACo to obtain reimbursement of the First ACo Loan will be limited to the amount of the First New LP Loan, as described in Paragraph 22, and related interest.

22. ACo will use the proceeds received from the First ACo Loan to make a loan of $XXXXXXXXXX to New LP (the "First New LP Loan"). Simple interest will accrue on the First New LP Loan and will be calculated daily at an annual rate equal to a commercial rate in these facts and circumstances. It is estimated that the annual interest rate will approximate XXXXXXXXXX %. The interest on the First New LP Loan will be paid on XXXXXXXXXX of each year. ACo's recourse against New LP to obtain reimbursement of the First New LP Loan will be limited to the Preferred Shares of Newco 1 owned by New LP. Furthermore, it will be possible for New LP to pay off the First New LP Loan by transferring its Preferred Shares to ACo.

Besides the interest expense incurred by New LP in respect of the New LP Loans, New LP's "other expenses" to be included in the computation of its income for any taxation year will be non-existent or negligible. Consequently, except as noted immediately following, no further reference to these other expenses need be made. For greater certainty, each year the amount of dividends payable on the Preferred Shares (see Paragraphs 15, 31, and 33(e)) will exceed the aggregate, in that particular year, of the amount of interest on the New LP Loans, plus the negligible amount of any other expenses incurred by New LP. Consequently, each year during which this loss utilization arrangement is in place, New LP will have net income computed in accordance with subsection 96(1).

23. New LP will use the proceeds received from the First New LP Loan to repay the First Daylight Loan.

24. On the same day and right after the transactions described in Paragraphs 19 to 23, New LP will again borrow an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Second Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed will be used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 19 to 23 in connection with the First Daylight Loan.

25. On the same day and right after the transactions described in Paragraph 24, New LP will again borrow an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Third Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed will be used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 19 to 24 in connection with the First Daylight Loan and the Second Daylight Loan.

26. On the same day and right after the transactions described in Paragraph 25, New LP will again borrow an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Fourth Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed will be used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 19 to 25 in connection with the First Daylight Loan, the Second Daylight Loan, and the Third Daylight Loan.

The purpose for carrying out the transactions pursuant to the Cash Pooling Arrangement, as opposed to a typical bank loan, is to permit New LP to fund the First Daylight Loan, the Second Daylight Loan, the Third Daylight Loan and the Fourth Daylight Loan (collectively referred to as the "Daylight Loans") without having to pay additional financing fees. The Daylight loans are made by the Financial Institution through covering New LP's overdrafts. Notwithstanding that there will be no interest/fees charged for the Daylight Loans, the loans will be real, wire transfers will be made and there will be an appropriate paper trail for the loans. There is no maximum amount that could be borrowed under the Cash Pooling Arrangement, but from a practical point of view, the amount so borrowed never exceeds the liquid assets of Parent Affiliated Group, which are presently estimated at $XXXXXXXXXX . Therefore, in order not to exceed the amount of the Parent Affiliated Group's liquidities, New LP will borrow the total amount of the Daylight Loans (i.e., $XXXXXXXXXX ) in XXXXXXXXXX tranches of $XXXXXXXXXX each.

The total amount borrowed by New LP (estimated to be $XXXXXXXXXX ) will be based on and will not exceed the borrowing capacity of the Parent Affiliated Group, as recently confirmed in writing by an arm's length financial institution. The interest rate on the Daylight Loans will be a commercial arm's length rate, presently estimated to be XXXXXXXXXX % per annum.

27. On the XXXXXXXXXX , while the New LP Loans are outstanding, New LP will borrow from Parent, on a daylight loan basis, an amount equal to the interest payable by New LP on the New LP Loans on that day (the "New LP Daylight Loan"). The New LP Daylight Loan will be a demand, interest free loan.

28. On the XXXXXXXXXX referred to in Paragraph 27, Subco will, if ACo does not have sufficient cash flow available, capitalize Aco in an amount corresponding to the XXXXXXXXXX % difference between the cumulative dividends payable by Newco 1 on the Preferred Shares and the interest payable by New LP on the New LP Loans for that particular year. No share will be issued by ACo with respect to the contribution of capital and no amount will be added to the stated capital of PUC of ACo. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be reported as income for tax purposes and will not be treated as income of Aco pursuant to generally accepted accounting principles.

29. New LP will use the proceeds received from the New LP Daylight Loan described in Paragraph 27 to pay the interest on the New LP Loans to ACo. The interest on the New LP Loans will be paid annually on the XXXXXXXXXX .

30. Upon receipt of the amounts described in Paragraphs 28 and 29, ACo will make a contribution of capital to Newco 1 in an amount equal to the dividend payable by Newco 1 on that day on the Preferred Shares held by New LP. No share will be issued by Newco 1 with respect to the contribution of capital and no amount will be added to the stated capital or PUC of Newco 1. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be reported as income for tax purposes and will not be treated as income of Aco pursuant to generally accepted accounting principles.

31. Upon receipt of the contribution described in Paragraph 30, Newco 1 will, subject to the applicable solvency test, pay a dividend to New LP equal to the amount of the dividends payable by Newco 1 on the Preferred Shares, as referred to in Paragraph 15.

32. New LP will use the amount received as dividends from Newco 1 to repay the New LP Daylight Loan and, with the excess cash available, make a cash distribution to the LP Partners in proportion of their ownership interests in New LP. The distribution will be made annually, upon receipt of the dividend from Newco 1 on the XXXXXXXXXX .

33. Once it is expected that the interest income to be received by ACo in respect of the New LP Loans will be greater than the amount required to utilize ACo's available tax operating losses, the following transactions will occur to unwind the loss consolidation arrangement. In certain other circumstances (e.g., where it is no longer expected that the LP Partners will generate sufficient annual taxable income to fully offset their annual share of the interest expense allocated to them, in respect of interest paid or payable by New LP on the New LP Loans), the following transactions may also be undertaken to reduce the amount of the New LP Loans:

(a) New LP will borrow from Parent, on a daylight loan basis, an amount equal to the amount of any accrued and unpaid interest on the New LP Loans on that day (the "New LP Final Daylight Loan"). The New LP Final Daylight Loan will be a demand, interest free loan.

(b) Subco will, if ACo does not have sufficient cash flow available, capitalize ACo in an amount corresponding to the XXXXXXXXXX % difference between the cumulative dividends payable by Newco 1 on the Preferred Shares and the interest payable by New LP on the New LP Loans on that day. No share will be issued by ACo with respect to the contribution of capital and no amount will be added to the stated capital of PUC of ACo. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be reported as income for tax purposes and will not be treated as income of Aco pursuant to generally accepted accounting principles.

(c) Upon receipt of the amount described in Paragraph 33(a), New LP will pay the accrued and unpaid interest on the New LP Loans.

(d) Upon receipt of the amount describe in Paragraphs 33(b) and (c), ACo will make a contribution of capital to Newco 1 in an amount equal to the accrued and unpaid dividends payable by Newco 1 on the Preferred Shares. No share will be issued by Newco 1 with respect to the contribution of capital and no amount will be added to the stated capital or PUC of Newco 1. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be treated as income for tax purposes and will not be treated as income of Newco 1 pursuant to generally accepted accounting principles.

(e) Upon receipt of the contribution described in Paragraph 33(d), Newco 1 will, subject to the applicable solvency test, pay a dividend to New LP equal to the amount of the dividends payable by Newco 1 on the Preferred Shares, as referred to in Paragraph 15.

(f) New LP will use the amount received as dividends from Newco 1 to repay the New LP Final Daylight Loan and, with the excess cash available, make a distribution to the LP Partners in proportion of their ownership interests in New LP.

(g) Newco 1 will redeem its issued and outstanding Preferred Shares held by
New LP in exchange for a promissory note equal to $XXXXXXXXXX (the

"Newco 1 Note"). The Newco 1 Note will be accepted as a final and unconditional payment of the redemption proceeds.

(h) New LP will transfer the Newco 1 Note to ACo in payment of the New LP Loans from ACo.

(i) The Newco 1 Note and the ACo Loans will be extinguished by offset at their principal amounts.

34. It is estimated that the loss utilization arrangement described in these proposed transactions, will stay in existence for about XXXXXXXXXX years before it is completely unwound, as contemplated in Paragraph 33.

ADDITIONAL INFORMATION

35. At any time during the implementation of the proposed transactions described in this letter, the Preferred Shares, which will be issued as described in Paragraph 15, will not be:

(a) the subject of any undertaking that is referred to in subsection 112(2.2) as a "guarantee agreement";

(b) the subject of a dividend rental arrangement;

(c) the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or

(d) issued for consideration that is or includes:

(i) an obligation of the type described in subparagraph 112(2.4)(b)(i); or

(ii) any right of the type described in subparagraph 112(2.4)(b)(ii).

36. None of Subco, ACo, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, LCo, Newco 1 and Newco 2 is or will be a financial intermediary corporation.

37. Subco, ACo, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, LCo,

Newco 1 and Newco 2 are or will be specified financial institutions.

38. Based on its existing assets and resources, Subco will have the ability to make the contributions of capital to ACo as described in Paragraphs 28 and 33(b).

PURPOSE OF PROPOSED TRANSACTIONS

39. The purpose of the proposed transactions is to effect a tax consolidation of the

LP Partners and ACo by causing ACo to earn interest income on the New LP Loans, thus permitting ACo to use its non-capital loss or current year loss, and to have the LP Partners being attributed interest expense, thereby allowing them to reduce their taxable income.

40. The use of the limited partnership is necessary to limit the potential claims and recourses of ACo's creditors against assets of the LP Limited Partners.

RULINGS

Provided that

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions,

(b) the proposed transactions are completed in the manner described above, and

(c) there are no other transactions which may be relevant to the rulings requested,

our rulings are as follows:

A. Provided that New LP has a legal obligation to pay interest on the New LP Loans, and the Preferred Shares continue to be held by New LP for the purpose of gaining or producing income therefrom, New LP will be entitled pursuant to paragraph 20(1)(c), to deduct in computing its income for a taxation year, the lesser of (i) the interest paid or payable (depending on the method regularly followed by New LP in computing its income for the purposes of the Act) in respect of the New LP Loans for that taxation year, or (ii) a reasonable amount in respect thereof.

B. The dividends received by New LP on the Preferred Shares, as described in Paragraphs 31 and 33(e), will be taxable dividends and such dividends will, pursuant to paragraph 12(1)(j), have to be included in the computation of New LP's income as contemplated in subsection 96(1).

C. To the extent that New LP has net income in a particular year, computed in accordance with subsection 96(1) [reference is made to the comments in the second paragraph of Paragraph 22], then in that particular year each LP Limited Partner will be required to report its share of that income in accordance with their respective ownership interests in New LP [see Paragraph 18] and in accordance with paragraph 96(1)(f). For greater certainty, in that case, none of the LP Limited Partners will have a share of any loss from New LP for that year and consequently subsection 96(2.1) would not apply to them for that particular year.

D. The dividends received by New LP in respect of the Preferred Shares in a particular year will be taxable dividends, and pursuant to subsection 112(1), an amount equal to the amount of those dividends will be deductible in computing the taxable income of the LP Partners for the year in which the dividends are received and allocated by New LP to the LP Partners in accordance with subsection 96(1). For greater certainty, such deductions will not be precluded by any of subsections 112(2.1), 112(2.2), or 112(2.4).

E. Part IV.1 will not apply to the dividends described in Ruling D above because the dividends will be excepted dividends.

F. Part VI.1 will not apply to the dividends described in Ruling D above because the dividends will be excluded dividends.

G. The dividends received by New LP in respect of the Preferred Shares will not be subject to tax under Part IV.

H. No amount will be included in the income of ACo pursuant to section 9, paragraphs 12(1)(c) or 12(1)(x) in respect of the contributions of capital made by Subco, as described in Paragraphs 28 and 33(b).

I. No amount will be included in the income of Newco 1 pursuant to section 9, paragraphs 12(1)(c) or 12(1)(x) in respect of the contributions of capital made by ACo, as described in Paragraphs 30 and 33(d).

J. The provisions of subsections 15(1), 56(2), 69(1), 69(11) and 246(1) will not apply as a result of entering into the proposed transactions described in Paragraphs 14 to 34, in and by themselves.

K. Subsection 245(2) will not be applied as a result of entering into the proposed transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and are binding on the CRA provided the proposed transactions are entered into on or before XXXXXXXXXX . These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

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

(a) the fair market value or adjusted cost base of any property or the paid up capital of any shares referred to herein;
(b) the reasonableness or fair market value of any fees or expenditures referred to herein;
(c) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;
(d) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transactions;
(e) the application or non-application of the general anti-avoidance provisions of any province; nor
(f) any tax consequences relating to the Facts and Proposed Transactions described herein, other than those specifically described in the rulings given above. In particular, we are not commenting on the tax consequences of any other loss consolidation transactions referred to in Paragraph 13.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch