2009 Ruling 2009-0340351R3 - Substituted Property

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 Guarantee Rights constitute property described in paragraph 88(1)(c.3)

Position: Favourable Ruling provided.

Reasons: In compliance with the law and previous positions.

XXXXXXXXXX 									2009-034035

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 above-noted taxpayer. We also acknowledge the information provided in your letters and e-mails of XXXXXXXXXX , and during our various telephone conversations in connection with your ruling request (XXXXXXXXXX ).

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

(i) dealt with in an earlier return of the taxpayer or a related person,

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

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

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

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate (other than Ruling no. 2009-032021).

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

LEGAL ENTITY DEFINITIONS

In this letter, except in Paragraph 36, the taxpayers will be referred to as follows:

(a) "Amalco" means XXXXXXXXXX , a corporation governed by the CBCA and formed as a result of the Amalgamation of Parent and Target as described in Paragraph 15, which is a subsidiary wholly-owned corporation of SubPubco I;
(b) "Asset Sellers" means XXXXXXXXXX . which is an indirect subsidiary of Amalco and XXXXXXXXXX . which is an indirect subsidiary of SubPubco I; these corporations will be selling the Assets to the Purchaser under the Transaction Agreement, as described in XXXXXXXXXX the Transaction Agreement;
(c) "Cross-Group Loan Sellers" means the legal entities that will be selling the Cross-Group Loans to the Purchaser under the Transaction Agreement, as further described in XXXXXXXXXX the Transaction Agreement;
(d) "CTA Trustee" means the XXXXXXXXXX association which will act as trustee under the CTA;
(e) "Existing Pension Trustee" means XXXXXXXXXX , a company registered in XXXXXXXXXX , which is the trustee of the Existing Pension Plan;
(f) "Group" means a XXXXXXXXXX , combining Pubco I and its group undertakings and Pubco II and its group undertakings in a XXXXXXXXXX ;
(g) "New Pension Employer" means XXXXXXXXXX , a company registered in XXXXXXXXXX , which is an indirect wholly-owned subsidiary of Pubco I, and which is the principal employer in relation to the New Pension Plan;
(h) "New Pension Trustee" means XXXXXXXXXX , a new special purpose limited liability company registered in XXXXXXXXXX , which is the trustee of the New Pension Plan;
(i) "Parent" means XXXXXXXXXX , a corporation governed by the CBCA;
(j) "Pubco I" means XXXXXXXXXX ., a publicly listed corporation governed by the laws of XXXXXXXXXX and based in the XXXXXXXXXX ;
(k) "Pubco II" means XXXXXXXXXX , a publicly listed corporation that has executive offices in XXXXXXXXXX ;
(l) "Purchaser" means XXXXXXXXXX , a publicly listed corporation governed by the laws of the XXXXXXXXXX , and/or one or more companies controlled by it, which will be acquiring the shares of the capital stock of, or the interests in, particular Target Holding Companies, the Cross-Group Loans and the Assets from the Relevant Sellers under the Transaction Agreement;
(m) "Relevant Sellers" means the Asset Sellers, the Cross-Group Loan Sellers and the Share Sellers;
(n) "Seller Group" means SubAmalco, its affiliates and any other person with whom SubAmalco or any of its affiliates is grouped, connected or associated for purposes of the Act, but not any Target Holding Company, its subsidiaries, or the Purchaser, its affiliates and any other person with whom the Purchaser or any of its affiliates is grouped, connected or associated for purposes of the Act;
(o) "Share Sellers" means XXXXXXXXXX ., which are direct or indirect subsidiaries of Amalco, as well as XXXXXXXXXX , which are indirect subsidiaries of SubPubco I, and XXXXXXXXXX which is a direct subsidiary of XXXXXXXXXX (which is a wholly-owned subsidiary of Pubco I); these corporations will be selling the shares of the capital stock of, or the interests in, particular Target Holding Companies to the Purchaser under the Transaction Agreement, as described in XXXXXXXXXX the Transaction Agreement;
(p) "SubAmalco" means XXXXXXXXXX , a corporation governed by the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of Amalco;
(q) "Subco I" means XXXXXXXXXX which is a subsidiary wholly-owned corporation of SubAmalco;
(r) "Subco II" means XXXXXXXXXX which is an indirect subsidiary of SubAmalco;
(s) "Subco III" means XXXXXXXXXX , which is an indirect subsidiary of Amalco;
(t) "Subco IV" means XXXXXXXXXX which is an indirect subsidiary of SubAmalco and an indirect subsidiary of Subco III;
(u) "Subco V" means XXXXXXXXXX . which is an indirect subsidiary of SubAmalco and a subsidiary wholly-owned corporation of Subco IV;
(v) "SubPubco I" means XXXXXXXXXX , a corporation governed by the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of Pubco I;
(w) "Target" means XXXXXXXXXX . which was amalgamated with Parent as described in Paragraph 15;
(x) "Target Holding Companies" means the legal entities listed in Schedule A to the advance income tax ruling request, which are all indirect subsidiaries of Amalco, XXXXXXXXXX . which is an indirect subsidiary of Amalco and SubPubco I, as well as XXXXXXXXXX , which are direct or indirect subsidiaries of SubPubco I; the shares of the capital stock, or the interests in, these corporations will be sold by the Share Sellers to the Purchaser under the Transaction Agreement, as described in XXXXXXXXXX the Transaction Agreement;
(y) "Transferring Beneficiaries" means the pensioners and deferred members and other beneficiaries of the defined benefits section of the Existing Pension Plan and the active members of that section who are employed by the New Pension Employer, which will be transferred to the New Pension Plan under the terms of the Pension Transfer Agreement, as described in Paragraph 32.

DEFINITIONS

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

(z) "ACB" has the meaning assigned to the expression "adjusted cost base" in section 54;

(aa) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended from time to time 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;

(bb) "Acquisition" means the acquisition by Parent of all the issued and outstanding common shares of the capital stock of Target as described in Paragraph 14;

(cc) "Amalgamation" means the amalgamation of Target and Parent to form Amalco, as described in Paragraph 15;

(dd) "Assets" means certain specific assets used in the Relevant Business Segments of the XXXXXXXXXX that will be sold by the Asset Sellers to the Purchaser under the Transaction Agreement, as further described in XXXXXXXXXX the Transaction Agreement;

(ee) "Capital Property" has the meaning assigned by section 54;

(ff) "CBCA" means the Canada Business Corporations Act, as amended from time to time;

(gg) "CTA" means the contractual trust arrangement to be established by certain Target Holding Companies or their subsidiaries, as further described in Paragraph 31;

(hh) "CRA" means Canada Revenue Agency;

(ii) "Cross-Group Loans" means certain specific debts owed by Target Holding Companies or subsidiaries of Target Holding Companies to Cross-Group Loan Sellers that will be sold by the Cross-Group Loan Sellers to the Purchaser under the Transaction Agreement, as further described in XXXXXXXXXX the Transaction Agreement;

(jj) "Distributed Property" means all the property of Target, including all the shares of the capital stock of subsidiaries, which became property of Amalco as a result of the Amalgamation, as described in Paragraph 16;

(kk) "Existing Pension Plan" means the XXXXXXXXXX , a pension plan of which XXXXXXXXXX is the principal employer and which is funded under a trust governed by the laws of XXXXXXXXXX and of which the Existing Pension Trustee is the trustee;

(ll) "Final Price" means the aggregate final price for the sale and purchase of the shares of the capital stock of, or the interests in, Target Holding Companies, the Cross-Group Loans and the Assets, as described in Paragraph 23;

(mm) "FMV" means fair market value;

(nn) "Guarantee Rights" means the Transaction Obligations and the Pension and Employment Obligations that will be guaranteed by Pubco I upon the issuance of this letter, as described in Paragraphs 24, 25 and 27 to 33. For greater certainty, the Guarantee Rights do not include the guarantee of any obligation in respect of the OBGP Adjustment;

(oo) "New Pension Plan" means the XXXXXXXXXX of which the New Pension Employer will be the principal employer and which will be funded under a trust governed by the laws of XXXXXXXXXX and of which the New Pension Trustee is the trustee;

(pp) "OBGP Adjustment" means any increase or decrease in the Final Price based on the operating business group profits for the Relevant Business Segments, for the twelve consecutive calendar months ending on the last day of the month in which closing occurs, except if closing occurs after XXXXXXXXXX , for the twelve calendar months ending XXXXXXXXXX , as further described in XXXXXXXXXX the Transaction Agreement;

(qq) XXXXXXXXXX

(rr) "Paragraph" refers to the numbered paragraphs in this letter;

(ss) "Pension and Employment Obligations" means the obligations of the members of the Seller Group relating to the pension and employment matters under and pursuant to the Transaction Agreement, the Pension Transfer Agreement and the Pension Guarantee Agreement, as further described in Paragraphs 27 to 33;

(tt) "Pension Guarantee Agreement" means the agreement between SubAmalco and the New Pension Trustee pursuant to which certain funding obligations of the New Pension Employer under the New Pension Plan are guaranteed;

(uu) "Pension Transfer Agreement" means the agreement between SubAmalco, the New Pension Trustee and other parties to transfer certain assets to the New Pension Plan, certain terms of which are described in the Proposed Transactions;

(vv) "Proposed Transactions" means the transactions described in Paragraphs 20 to 35 below;

(ww) "Public Corporation" has the meaning assigned by subsection 89(1);

(xx) "Relevant Business Segments" means the businesses carried on by one or more of the Target Holding Companies or the Asset Sellers of XXXXXXXXXX ;

(yy) "Substituted Property" in relation to property distributed to a "parent" referred to in paragraph 88(1)(c) upon the winding-up of a corporation that is described in subsection 88(1) or an amalgamation described in subsection 87(11), means any property acquired by any person in substitution for Distributed Property for the purpose of applying clause 88(1)(c)(vi)(B) and, for greater certainty, includes any property described in paragraph 88(1)(c.3);

(zz) "Taxable Canadian Corporation" has the meaning assigned by subsection 89(1);

(aaa) "Transaction Agreement" means the sale and purchase agreement between the Relevant Sellers, the Purchaser and other parties, in respect of the sale and purchase of the Relevant Business Segments of the XXXXXXXXXX by the Relevant Sellers to the Purchaser, a draft of which was submitted on XXXXXXXXXX ;

(bbb) "Transaction Obligations" means the obligations of the members of the Seller Group relating to the due and punctual performance and observance by each member of the Seller Group of all its obligations, commitments, undertakings, warranties and indemnities under the Transaction Agreement and the related transaction documents, other than any obligation in respect of the OBGP Adjustment, as further described in Paragraphs 24 and 25.

FACTS

1. The Group business is XXXXXXXXXX

2. The common shares of the capital stock of Pubco I are admitted to the XXXXXXXXXX

3. The common shares of the capital stock of Pubco II are listed on the XXXXXXXXXX

4. On XXXXXXXXXX , Pubco I had a market capitalization of $XXXXXXXXXX and Pubco II had a market capitalization of $XXXXXXXXXX .

5. Pubco I, SubPubco I and the New Pension Employer are not residents of Canada and do not carry on business in Canada for the purpose of the Act.

6. Parent was incorporated on XXXXXXXXXX . At all times prior to the Amalgamation, it was a subsidiary wholly-owned corporation of SubPubco I and a Taxable Canadian Corporation.

7. XXXXXXXXXX

8. XXXXXXXXXX

9. On XXXXXXXXXX , Parent made an offer to purchase all the issued and outstanding common shares of the capital stock of Target for $XXXXXXXXXX per common share by way of a take-over bid, for a total cash consideration of approximately $XXXXXXXXXX .

10. The Target directors' circular dated XXXXXXXXXX provided that "XXXXXXXXXX "

11. In XXXXXXXXXX , the Group announced its intention to focus on the integration of its XXXXXXXXXX business operations with those of Target in order to maximize synergies and optimize operational effectiveness. XXXXXXXXXX

12. The proportion of value that the entire XXXXXXXXXX represents of Amalco is generally estimated at XXXXXXXXXX %.

13. On XXXXXXXXXX , Target completed the redemption of all of its outstanding preferred shares in accordance with their terms.

14. On XXXXXXXXXX , Parent became the sole holder of all the issued and outstanding common shares of the capital stock of Target. This was as a result of taking-up and paying for all Target common shares tendered into the offer, taking-up and paying for all Target common shares tendered during an extension of the offer, and, finally, acquiring the remaining Target common shares through a compulsory acquisition under the CBCA.

15. On XXXXXXXXXX , Parent and Target amalgamated through a vertical short-form amalgamation pursuant to section 184 of the CBCA to form Amalco.

16. By virtue of the Amalgamation, all of the property of Parent (except any amounts receivable from Target or shares of the capital stock of Target) and Target (except any amount receivable from Parent) held immediately before the Amalgamation became property of Amalco. Subsection 87(1) applied to such Amalgamation.

17. The Group recently announced the sale of the XXXXXXXXXX to a third party for a cash consideration of approximately $XXXXXXXXXX .

18. The proportion of value that Amalco represents of Pubco I is generally estimated at XXXXXXXXXX %.

19. Pursuant to paragraph 88(1)(d), which is applicable to the Amalgamation by virtue of subsection 87(11), Amalco designated an amount not exceeding the amount permitted by paragraph 88(1)(d) in its return of income for its first taxation year ending after the Amalgamation to increase the ACB of certain Capital Properties, including shares of the capital stock of subsidiaries, acquired by it on the Amalgamation and which were owned by Target at the time that Parent last acquired control of Target, and thereafter without interruption up until the time of the Amalgamation.

PROPOSED TRANSACTIONS

20. The Purchaser has submitted a binding offer to SubAmalco on the basis of the Transaction Agreement. Together with the offer, the Purchaser submitted an executed copy of the Transaction Agreement. The transaction was publicly announced on XXXXXXXXXX , at the time of the submission of this offer. SubAmalco will consider the offer and will cause certain Relevant Sellers in XXXXXXXXXX to consult their labour unions, labour organisations, works councils or other employee representative bodies in conformity with applicable law on the basis of the offer. In consideration for the offer, SubAmalco granted the Purchaser exclusivity and agreed to pay to the Purchaser in reimbursement of its transaction costs an amount of $XXXXXXXXXX if, upon completion of the consultation process described above, SubAmalco or one or more of the Relevant Sellers fails to execute the Transaction Agreement.

21. Upon acceptance of the offer referred to above, the Relevant Sellers (and the other signatories thereto) will enter into the Transaction Agreement, and to the extent modifications are made to the Transaction Agreement referred to in Paragraph 20, the Purchaser will reexecute the said Transaction Agreement.

22. Pursuant to the Transaction Agreement, the Purchaser will purchase, and the Relevant Sellers will sell, the shares of the capital stock of, or interest in, Target Holding Companies, the Cross-Group Loans and the Assets.

23. The aggregate Final Price is estimated at $XXXXXXXXXX , subject to certain adjustments that include the OBGP Adjustment, further described in XXXXXXXXXX the Transaction Agreement.

The Final Price will be payable in cash.

24. Upon receipt of this advance income tax ruling, Pubco I will guarantee to the Purchaser and to certain of its affiliates the due and punctual performance and observance by each member of the Seller Group of all its obligations, commitments, undertakings, warranties and indemnities, under the Transaction Agreement and the related transaction agreements and documents, other than any obligations in respect of the OBGP Adjustment and the Pension and Employment Obligations, as further described in Paragraph 25 below (the "Transaction Obligations").

25. The Transaction Obligations are related to, inter alia, the obtaining of all required authorizations, consents and approvals to enter into the Transaction Agreement, the validity of the Transaction Agreement, the ownership of the shares of the capital stock of, or interest in, Target Holding Companies and the Assets, the compliance with applicable laws, performing all closing conditions, the delivery of transitional services and the payment on account of various indemnities for all liabilities and costs suffered or incurred by the Purchaser and/or certain of its affiliates arising from or relating to any breach of any obligations, commitments, undertakings, warranties and indemnities by the members of the Seller Group.

26. The Transaction Obligations will not allow any party to participate in the return generated after the Amalgamation in respect of any Distributed Property or any other property acquired in substitution therefor.

27. Upon receipt of this advance income tax ruling, Pubco I will guarantee to the Purchaser, the CTA Trustee and others (e.g., XXXXXXXXXX ) the arrangements and promises described in Paragraphs 28 to 31 under or pursuant to the Transaction Agreement, under one or more instruments. Pubco I will also guarantee to the New Pension Trustee the funding obligations of the New Pension Employer under the New Pension Plan (under and pursuant to the Pension Guarantee Agreement) and will indemnify (i) the Existing Pension Trustee for any losses, costs, expenses and liabilities which could properly have been met from the assets of the Existing Pension Plan and which relate to the Transferring Beneficiaries and (ii) the Existing Pension Trustee and the New Pension Trustee for all fees, costs and expenses incurred in connection with the establishment of the New Pension Plan, entering into the Pension Transfer Agreement and the transaction charges incurred in transferring liabilities and assets to the New Pension Plan, as further described in Paragraphs 28 and 33 (altogether the "Pension and Employment Obligations").

28. XXXXXXXXXX the Transaction Agreement, the Pension Transfer Agreement and the Pension Guarantee Agreement set out a number of matters in respect of pension and employment issues.

In particular, the Transaction Agreement provides for a price adjustment mechanism in respect of certain funded and unfunded defined benefit pension plans based on an actuarial valuation of the assets (where applicable) and liabilities of those plans as of the closing of the sale and purchase contemplated by the Transaction Agreement.

29. Further, in the event that the Purchaser causes Subco I to exit within a certain period in the future a XXXXXXXXXX pension plan referred to as the "XXXXXXXXXX ", a further payment will be made by the relevant Share Seller to the Purchaser based on an actuarial valuation of the deficit of the assets compared to the liabilities transferred out of the scheme on the date that Subco I exits from the scheme. Also, in the event that the Purchaser causes Subco II to exit within a certain period of time a XXXXXXXXXX pension plan referred to as the "XXXXXXXXXX ", an additional contribution may be required to be made by the relevant Share Seller to such plan.

30. In addition, the Relevant Sellers or other members of the Seller Group will retain liability, by way of indemnity or otherwise, for certain Canadian, U.S. and XXXXXXXXXX pension, superannuation or other post-retirement benefits plans. In certain cases, for example in relation to certain XXXXXXXXXX plans, the related payments by the relevant members of the Seller Group are contemplated to be owed and be made directly to the organizations administering such plans. A number of other undertakings and indemnities are provided by the Relevant Sellers in relation to employment, pensions and other benefits matters in or pursuant to XXXXXXXXXX the Transaction Agreement.

31. Further, the Share Seller of certain XXXXXXXXXX companies (i.e. XXXXXXXXXX ) will grant promises to pay an amount equal to their respective liabilities under certain unfunded defined benefits pension plans in respect of retirees or deferred pensioner members of those plans as at closing of the sale and purchase contemplated by the Transaction Agreement and certain related costs. It is also contemplated that, prior to the closing of the sale and purchase contemplated by the Transaction Agreement, those XXXXXXXXXX companies will each establish a CTA for the benefit of those participants in their respective unfunded defined benefits plans referred to above and that the Share Seller's promises will be assigned to fund the CTA.

32. In connection with the offer made by the Purchaser under the Transaction Agreement, the Pension Transfer Agreement was entered into between SubAmalco, the New Pension Trustee and certain other parties. Under the terms of the Pension Transfer Agreement, all pensioners and deferred members and all other beneficiaries (other than the active members) of the defined benefits section of the Existing Pension Plan (i.e. the inactive members of that section) and any active members of that section who are employed by the New Pension Employer (together the "Transferring Beneficiaries") will be transferred to the New Pension Plan. The Transferring Beneficiaries as of the date of such transfer will become the beneficiaries of the New Pension Plan and will cease to be beneficiaries of the Existing Pension Plan.

33. The Purchaser will be responsible for the Existing Pension Plan. The Existing Pension Plan will retain assets having such value as is necessary to fully fund the Existing Pension Plan on an ongoing basis, after the liability transfer described above. The assets of the Existing Pension Plan in excess of those to be retained will be transferred to the New Pension Plan. The New Pension Employer will be responsible for making the present and future statutory contributions to the New Pension Plan for the benefit of its beneficiaries.

34. The Pension and Employment Obligations will not allow any party to participate in the return generated after the Amalgamation in respect of any Distributed Property or any other property acquired in substitution therefor.

35. Because the Purchaser has signed the Transaction Agreement prior to the issuance of this advance income tax ruling, the Guarantee Rights will be provided by SubAmalco (and possibly certain other Group entities, which, if they were to provide the guarantee, the guarantee would not constitute Distributed Property or Substituted Property for the purpose of subparagraph 88(1)(c)(vi)). If the advance income tax ruling is received by the closing of the sale and purchase contemplated by the Transaction Agreement, Pubco I will be substituted for SubAmalco (or such other entities described above) as guarantor of the Guarantee Rights. If, at closing, Pubco I is not so substituted as guarantor, SubAmalco (or such other entities described above) will be obligated to post an unconditional and irrevocable letter of credit for a period of at least XXXXXXXXXX years in favour of the Purchaser and its affiliates to secure all or some of the Guarantee Rights. Upon receipt of the advance income tax ruling, whether before or after closing, Pubco I will assume all obligations under the Guarantee Rights and SubAmalco (or such other entities described above) will be released and discharged from the obligations under such guarantee, including any obligations to post the letter of credit described above, which will be terminated and of no further force and effect.

ADDITIONAL INFORMATION

36. The federal business number of XXXXXXXXXX ., the location of its tax services office and taxation centre where its returns are filed, and the address of its head office is as follows:
- Business Number: XXXXXXXXXX
- Tax Services Office: XXXXXXXXXX
- Taxation Centre: XXXXXXXXXX
- Head office: XXXXXXXXXX

37. Pubco I is of the view that the Relevant Sellers generally have the financial capacity to assume their Transaction Obligations. However, the guarantee of the Transaction Obligations of the Relevant Sellers avoids the need for each individual Relevant Seller to keep any portion of the Final Price received under the Transaction Agreement and not otherwise needed in its continuing operations to secure its transactions Obligations.

38. Pubco I is of the view that the New Pension Employer generally have the financial capacity to assume its Pension and Employment Obligations.

39. Considering that the properties (i.e. the shares of the capital stock of, or the interests in, the Target Holding Companies, the Cross-Group Loans and the Assets,) to be acquired by the Purchaser from the Relevant Sellers under the Transaction Agreement are owned by direct or indirect subsidiaries of Amalco (i.e. lower tiers) or by indirect subsidiaries of SubPubco I (the shares of which are indirectly held by a sister corporation of Amalco), and that none of these properties were owned by Target at the time of the Amalgamation, these properties do not constitute Distributed Property or Substituted Property.

40. Considering that the properties (i.e. the assets of the Existing Pension Plan in excess of those to be retained) to be acquired by the New Pension Plan under the pension transfer are owned by the Existing Pension Plan, and that none of these properties were owned by Target at the time of the Amalgamation, these properties do not constitute Distributed Property or Substituted Property.

41. The Transaction Obligations of the members of the Seller Group, which are to be guaranteed by Pubco I, and any obligation in respect of the OBGP Adjustment, which will be guaranteed by SubAmalco, will not constitute Distributed Property or Substituted Property because the members of the Seller Group (other than SubPubco I which has obligations of nominal value under the Hive-outs, as defined in the Transaction Agreement) are not Amalco or any direct or indirect shareholder of Amalco and none of these obligations were in existence at the time of the Amalgamation.

42. SubAmalco will guarantee the obligations of the Asset Sellers and the Share Sellers in respect of the OBGP Adjustment. Any right of guarantee provided by SubAmalco to the Purchaser in respect of the payment obligations arising directly from the OBGP Adjustment will not constitute Distributed Property or Substituted Property because SubAmalco is a direct subsidiary of Amalco (i.e. lower tier).

43. The Pension and Employment Obligations of the members of the Seller Group, which are to be guaranteed by Pubco I, will not constitute Distributed Property or Substituted Property because the members of the Seller Group are not Amalco or any direct or indirect shareholder of Amalco and none of these obligations arising directly as a result of the Proposed Transactions were in existence at the time of the Amalgamation.

44. The Guarantee Rights will not be considered as property acquired in substitution for Distributed Property at common law or as a result of the application of subsection 248(5).

45. The Guarantee Rights will not allow any party to participate in the return generated after the Amalgamation in respect of any Distributed Property or any other property acquired in substitution therefor.

46. As a result of and following the Proposed Transactions, neither Amalco nor any direct or indirect shareholder of Amalco, other than Pubco I, will be indebted to Purchaser and/or its affiliates in any manner whatever. Furthermore, Pubco I will be indebted to Purchaser and/or its affiliates only by reason of the Guarantee Rights as a result of the Proposed Transactions.

47. As a result of the acquisition by the Purchaser of the shares of the capital stock of Subco III, which represents a Target Holding Company listed in XXXXXXXXXX the Transaction Agreement, the Purchaser will indirectly acquire the shares of capital stock of Subco IV and Subco V, as well as the receivable of approximately $ XXXXXXXXXX owed by Subco IV to Subco V.

48. The Purchaser deals at arm's length with Amalco, Pubco I and the Relevant Sellers.

PURPOSES OF THE TRANSACTIONS

49. The purpose of the Proposed Transactions is to sell the Relevant Business Segment of the XXXXXXXXXX to the Purchaser.

50. Since there will be a large number of Relevant Sellers (at least XXXXXXXXXX different entities) and because Pubco I is a more creditworthy entity than each individual Relevant Seller, the Purchaser has required that Pubco I guarantee the obligations of the Relevant Sellers as set out in Paragraphs 25 and 28 to 31.

51. The Existing Pension Plan will be restructured because the Purchaser does not want to be responsible for the pension benefits of the Transferring Beneficiaries. It is usual and common practice in the XXXXXXXXXX for parent companies, such as Pubco I, to provide a guarantee to pension trustees similar to the guarantees described in Paragraphs 28 to 33.

RULING GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant Facts, Proposed Transactions, Additional Information and Purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:

A. The Guarantee Rights will not constitute property described in paragraph 88(1)(c.3).

COMMENTS

Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed:

(a) the amount of the designation under paragraph 88(1)(d) that Amalco intends to make, or the availability of such designation;

(d) any provincial tax consequences of the proposed transactions; or

(e) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically confirmed in the ruling given above.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

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