2012 Ruling 2011-0413661R3 - Butterfly

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

Principal Issues: Butterfly of Assets of a Financial Institution

Position: Favourable Ruling Given

Reasons: Meets Requirements of Legislation

XXXXXXXXXX
						2011-041366

XXXXXXXXXX , 2012

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

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. In your subsequent letter dated XXXXXXXXXX , you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX ).

To the best of your knowledge, and that of the taxpayer involved, none of the issues involved in this ruling request is

(i) 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.

The taxpayer has also represented that the Proposed Transactions described herein will not result in the taxpayer or a related person described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

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

“ACB” means “adjusted cost base” as that expression is defined in subsection 248(1);

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;

“agreed amount” means the amount that the taxpayer and the corporation have jointly elected in prescribed form in respect of an eligible property;

“BCA ” means the Business Corporations Act (XXXXXXXXXX ) and, where applicable, its predecessor statutes;

“BCo” has the meaning assigned in Paragraph 12:

“CBCA” means the Canada Business Corporations Act, R.S.C. 1985 c. C-44;

“Canadian Partnership” has the meaning assigned by subsection 102(1);

“Canadian XXXXXXXXXX” means XXXXXXXXXX ;

“capital” has the meaning assigned by the provisions of the BCA;

“capital property” has the meaning assigned by section 54;

“CCo” has the meaning assigned in Paragraph 12;

“cost amount” has the meaning assigned by subsection 248(1);

“credit union” has the meaning assigned by subsection 137(6);

“DC” means XXXXXXXXXX as described in Paragraph 1;

“DC Agreement” has the meaning assigned in Paragraph 11;

“DC Assets” has the meaning assigned in Paragraph 5;

“DC Common Shares” has the meaning assigned in Paragraph 9;

“DC Liabilities” has the meaning assigned in Paragraph 14;

“DC New Common Shares” has the meaning assigned in Paragraph 16;

“DC New Preferred Shares” has the meaning assigned in Paragraph 16;

“DC Notes” has the meaning assigned in Paragraph 24;

“DC Share Exchange” has the meaning assigned in Paragraph 17;

“DC Share Transfers” has the meaning assigned in Paragraph 19;

“DC Shares” has the meaning assigned in Paragraph 19;

“distribution” has the meaning assigned by subsection 55(1);

“dividend refund” has the meaning assigned by subsection 129(1);

“dividend rental arrangement” has the meaning assigned by subsection 248(1);

“eligible property” has the meaning assigned by subsection 85(1.1);

“FMV” represents fair market value which means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale;

“financial institution” has the meaning assigned by subsection 142.2(1);

“financial intermediary corporation” has the meaning assigned by subsection 191(1);

“First Combination” has the meaning assigned in Paragraph 7;

“GP” means XXXXXXXXXX as described in Paragraph 2;

“guarantee agreement” has the meaning assigned by subsection 112(2.2);

“LP” means XXXXXXXXXX as described in Paragraph 2;

“LP Agreement” has the meaning described in Paragraph 6;

“LP Units” has the meaning described in Paragraph 2;

“mark-to-market property” has the meaning assigned by subsection 142.2(1),

“Owner 1 TC” has the meaning assigned in Paragraph 18;

“Owners” means the shareholders of DC referred to in Paragraph 10 and “Owner” means any one of the Owners;

“PUC” means paid-up capital as that expression is defined in subsection 89(1);

“Paragraph” refers to a numbered paragraph in this advance income tax ruling;

“Partner” means XXXXXXXXXX as described in
Paragraph 3;

“Partnership Distribution” has the meaning assigned in Paragraph 15;

“Partnersub” means XXXXXXXXXX as described in Paragraph 7;

“par value” has the meaning assigned by the provisions of the BCA;

“private corporation” has the meaning assigned by subsection 89(1);

“proceeds of disposition” has the meaning assigned by section 54;

"Proposed Transactions" means the proposed transactions described in Paragraphs 16 to 27;

“public corporation” has the meaning provided for in subsection 89(1);

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

"Regulations" means the Income Tax Regulations promulgated under the Act;

“Second Combination” has the meaning assigned in Paragraph 12;

“series of transactions” has the meaning assigned by subsection 248(10);

“specified financial institution” has the meaning assigned by subsection 248(1);

“specified investment business” (“SIB”) has the meaning assigned by subsection 125(7);

“subsidiary wholly-owned corporation” has the meaning assigned by subsection 248(1);

“TC” has the meaning assigned in Paragraph 18;

“TC Notes” has the meaning assigned in Paragraph 23;

“TC Preferred A Shares” has the meaning assigned in Paragraph 18;

“TC Preferred B Shares” has the meaning assigned in Paragraph 18,

“taxable Canadian corporation” (“TCC”) has the meaning assigned by subsection 89(1);

“taxable dividend” has the meaning assigned by subsection 89(1);

“taxable preferred share” has the meaning assigned by subsection 248(1);

and

“Transfer” has the meaning assigned in Paragraph 20.

Our understanding of the relevant facts, Proposed Transactions and purpose of the Proposed Transactions is as follows:

I. FACTS

DC

1. XXXXXXXXXX (“DC”) is a corporation incorporated under the CBCA and extra-provincially registered under the BCA. DC is a taxable Canadian corporation and a private corporation, as those terms are defined in subsection 89(1). DC is also a financial institution by virtue of the fact it is controlled de jure by a financial institution. DC is a resident of Canada for Canadian income tax purposes.

2. DC is a holding corporation with no significant operations. Substantially all of its assets are comprised of limited partnership units (the “LP Units”) of XXXXXXXXXX (“LP”). DC holds the following LP Units:

• XXXXXXXXXX Class B Capitalization LP Units; and
• XXXXXXXXXX Class D Patronage LP Units.

The only other significant asset held by DC is its XXXXXXXXXX Class B common shares of XXXXXXXXXX (“GP”), the general partner of LP. These shares represent XXXXXXXXXX % of the issued and outstanding shares of GP. The GP Class B common shares are not taxable preferred shares.

3. DC’s LP Units comprise a XXXXXXXXXX % ownership in LP and entitle it to XXXXXXXXXX % of the net income and net losses of LP. The remaining XXXXXXXXXX % of LP is owned by the XXXXXXXXXX (“Partner”). Partner is a federation incorporated as a XXXXXXXXXX and qualifies as XXXXXXXXXX . DC deals at arm’s length with Partner.

4. Partner holds the remaining XXXXXXXXXX % of the issued and outstanding shares of GP.

5. DC has no assets other than the LP Units and the shares of GP (collectively, the LP Units and GP shares owned by DC are referred to as the “DC Assets”). DC has no RDTOH. The LP Units are eligible property.

LP

6. LP is a limited partnership formed under the laws of XXXXXXXXXX and is a Canadian partnership. LP, acting through GP, is XXXXXXXXXX . LP’s principal source of revenue is XXXXXXXXXX . None of the assets of LP is mark-to-market property. Pursuant to sections 6.4, 6.5, and 6.6 of the LP’s partnership agreement (the “LP Agreement”), LP distributes cash each year in accordance with the allocation of its net income for that year. The LP is essentially required to distribute all of its available cash each year and retain only those amounts needed to run its operations. For the periods following its creation, the LP made the following aggregate distributions of cash on its partnership units:

XXXXXXXXXX

Formation of LP - First Combination

7. LP was created on XXXXXXXXXX by combining the assets and fund management activities of DC and its subsidiary wholly-owned corporation, XXXXXXXXXX , with the assets of XXXXXXXXXX (“Partnersub”), a subsidiary wholly-owned corporation of Partner (the “First Combination”). In exchange for the assignment of its assets and the assumption of its liabilities, DC acquired the LP Units in the course of the First Combination.

8. The objectives of the First Combination were, inter alia, to increase the synergy between the two corporate groups of DC and Partner, increase the market share of the XXXXXXXXXX managed by DC and Partnersub across Canada, and significantly increase the future revenues that would be generated by the combined group. A secondary objective of the First Combination was to achieve a flow-through of income via partnership from the asset management business based on patronage.

Shareholders of DC

9. DC’s authorized share capital consists of one class of common shares, of which XXXXXXXXXX common shares are issued and outstanding (the “DC Common Shares”). With the exception of transfer restrictions, the rights attached to the DC Common Shares are not expressly provided for in the Articles of DC. Such rights are, accordingly, those stipulated by the CBCA. Pursuant to subsection 24(3) of the CBCA, the DC Common Shares are equal in all respects and include the right to vote, participate and receive the remaining property of DC on dissolution. Pursuant to Schedule 1 to the Articles of DC, the transfer of any DC Common Share is prohibited without the consent of the directors expressed by majority vote. The DC Common Shares are not taxable preferred shares.

10. The DC Common Shares are held by XXXXXXXXXX (the “Owners”) as capital property. The PUC and ACB of the DC Common Shares are nominal. The DC Common Shares are held in the following proportions:

			Shares	Amount	%
XXXXXXXXXX  	XXX 		$XXX		XXX%

Each Owner is XXXXXXXXXX . By virtue of being a XXXXXXXXXX , each Owner is also a XXXXXXXXXX . None of the Owners are public corporations.

11. DC and its shareholders are party to a XXXXXXXXXX (the “DC Agreement”). The relevant terms of the DC Agreement provide:

• The DC Agreement shall be binding on the parties and their respective successors and assigns.
• The DC Agreement shall be deemed to constitute a unanimous shareholders agreement within the meaning of the CBCA, restricting the power of the directors to manage the business and affairs of DC as provided in the DC Agreement;
• The board of directors of DC shall consist of XXXXXXXXXX persons;
• Directors shall be elected XXXXXXXXXX ;
• BCo shall be entitled to nominate XXXXXXXXXX people to be elected as directors, CCo, Owner XXXXXXXXXX shall be entitled to nominate one person to be elected as a director, and the predecessors of Owner XXXXXXXXXX shall be entitled to nominate one person to be elected as a director. One person shall be nominated by Canadian XXXXXXXXXX to be elected as a director and the Board may select one additional director with XXXXXXXXXX from outside the parties to be elected as a director. Each Shareholder shall vote its Common Shares from time to time, so as to elect such nominees to the Board. The nomination by the Shareholders of persons to be elected as directors shall be in accordance with the procedures established by the Board; and
• Unless unanimously approved by the shareholders, the business of DC shall be restricted to carry on the business of a XXXXXXXXXX .

Other than the above limitations, the board of directors of DC retains unfettered power to manage DC.

Formation of Owner 1 - Second Combination

12. XXXXXXXXXX , Owner 1, then known as XXXXXXXXXX (“Bco”), combined its operations with XXXXXXXXXX (“Cco”) through the purchase and assumption of substantially all of Cco’s assets and liabilities (the “Second Combination”). The purpose of the Second Combination was to increase the synergies and economies of scale between Bco and Cco with the ultimate goal of eventually creating a XXXXXXXXXX . After the Second Combination, Bco was re-named Owner 1.

13. As the result of the Second Combination, Owner 1 acquired voting control of DC on XXXXXXXXXX such that DC underwent an “acquisition of control” for purposes of the Act.

14. DC’s liabilities are current and are liabilities on account of accounts payable, income tax and a payable owed to LP (the “DC Liabilities”). The payable to LP bears no interest or fixed terms of repayment.

15. Prior to the Proposed Transactions described herein, the DC Liabilities will be extinguished as follows:

* LP will make its regular partnership distribution pursuant to the terms of the LP Agreement (the “Partnership Distribution”); and

* DC will use the proceeds from the Partnership Distribution to settle the DC Liabilities.

II. PROPOSED TRANSACTIONS

16. DC will alter its share capital to create a new series of voting common shares (the “DC New Common Shares”) and a new series of redeemable fixed-value preferred shares (the “DC New Preferred Shares”). The DC New Common Shares will have the following rights and restrictions:

• Voting rights of two votes per share
• Participating
• Right to receive remaining property of DC on dissolution

The DC New Preferred Shares will have the following rights and restrictions:

• Non-voting
• Dividends as declared by the directors
• Redeemable and retractable at a price set by the directors
• Priority liquidation entitlement over the DC New Common Shares

In connection with the creation of the DC New Common Shares and the DC New Preferred Shares, DC will file Articles of Amendment with the Director as required by the CBCA.

17. Each Owner will exchange its current DC Common Shares for its proportionate share of DC New Common Shares and DC New Preferred Shares (the “DC Share Exchange”). The aggregate FMV of all of the shares received by each each Owner will equal the aggregate FMV of such holder’s DC Common Shares immediately before the DC Share Exchange.

In connection with the DC Share Exchange:

(a) for the purpose of the BCA, the aggregate of the additions to the stated capital accounts of the DC New Common Shares and the DC New Preferred Shares will not exceed the paid-up capital of the DC Common Shares immediately prior to the DC Share Exchange, and

(b) the DC Common Shares will be cancelled.

The terms and conditions under which the DC New Preferred Shares are issued will specify an amount for which each Share is to be redeemed, acquired or cancelled (together with, where so provided, any accrued and unpaid dividends thereon) and that amount so specified will not exceed the FMV of the consideration for which the Share was issued. That is, the aggregate redemption value of all DC New Preferred Shares so issued will be equal to the FMV of the DC Assets as at the exchange date. The PUC and ACB of the DC New Common Shares and the DC New Preferred

Shares will be nominal. The DC Common Shares will be cancelled upon their acquisition by DC.

18. Each Owner will incorporate a subsidiary wholly-owned corporation (“TC”), under the BCA, which will be be a taxable corporation and a private corporation. Each TC, with the exception of the subsidiary wholly-owned corporation of Owner 1 (“Owner 1 TC”), will have share capital that includes two classes of redeemable fixed-value preferred shares without par value (the “TC Preferred A Shares” and the “TC Preferred B Shares”). Owner 1 TC’s share capital will include the TC Preferred A Shares but not the TC Preferred B Shares.

The TC Preferred A Shares will have the following rights and restrictions:

• Non-voting
• Dividends as declared by the directors
• Priority liquidation entitlement over the Common Shares
• Redeemable and retractable at a price set by the directors

The TC Sub Preferred B Shares will have the following rights and restrictions:

• Non-voting
• Dividends as declared by the directors
• Priority liquidation entitlement over the Common Shares
• Redeemable and retractable at a price set by the directors

19. Each Owner will transfer its DC New Common Shares and DC New Preferred Shares (collectively, the “DC Shares”) into its respective TC in exchange for TC Preferred A Shares having a redemption amount and FMV equal to the FMV, as at the transaction date, of the DC New Common Shares and the DC New Preferred Shares so transferred (the “DC Share Transfers”). The parties will jointly elect within the time limit in subsection 85(6) for the provisions of subsection 85(1) of the Act to apply to the transfer. The amount agreed upon in this election will be an amount equal in aggregate to the Owners’ ACBs in the DC New Common Shares and the DC New Preferred Shares, adjusted in accordance
with any applicable provisions of the Income Tax Application Rules, 1971. The amount added to the PUC of TC Preferred A Shares will be one dollar.

20. Immediately before the transfer of property described in Paragraph 21 (the “Transfer”), the property of DC will be classified into three types of property for the purposes of the definition of “distribution” in subsection 55(1), as follows:

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

(b) investment property, comprising all of the assets of DC, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or a SIB;

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

DC is not expected to have any business property, and will not have any liabilities at the time of the Transfer.

21. Immediately following the determination of its types of property as described above, DC will transfer to each of the TCs, except Owner 1 TC, a proportionate share of

(a) its cash or near cash property,

(b) its business property (if any); and

(c) its investment property,

such that, immediately after the transfer, the aggregate FMV of each type of property of DC transferred to a particular TC, will be equal to or approximate that proportion of the FMV, determined immediately before such transfer, of all of that type of property of DC, that:

(f) the FMV of the DC Shares owned by that particular TC, immediately before the transfer,

is of

(g) the aggregate FMV of all of the issued and outstanding shares of DC immediately before the transfer.

For the purpose of this Paragraph, the expression “approximate that proportion” means that the discrepancy from that proportion, if any, would not exceed XXXXXXXXXX %, determined as a percentage of the FMV of each type of property which each such TC has received in such transfer as compared to what each such TC would have received had such TC received its appropriate pro rata share of the net FMV of that type of property.

22. In exchange for the assets received from DC on the Transfer, each TC will issue TC Preferred B Shares to DC. The terms and conditions under which the TC Preferred B Shares are issued will specify an amount for which each Share is to be redeemed, acquired or cancelled (together with, where so provided, any accrued and unpaid dividends thereon) and that the amount so specified will not
exceed the FMV of the consideration for which the Share was issued. That is, the TC Preferred B Shares will have an aggregate redemption value equal to the FMV, as at the transaction date, of the DC Assets so transferred. The PUC of the TC Preferred B Shares will be established to be nominal, as permitted under subsection 72(1) of the BCA. The parties will jointly elect within the time limit in subsection 85(6) for the provisions of subsection 85(1) of the Act to apply to the Transfer. The amount agreed upon in each election will be an amount equal in aggregate to DC’s cost amount in the DC Assets.

23. Each TC will redeem all of its issued TC Preferred B Shares with a non-interest bearing promissory note having a principal amount and FMV equal to the redemption amount of the TC Preferred B Shares so redeemed (the “TC Notes”).

24. DC will redeem all of its issued DC New Preferred Shares, except those DC New Preferred Shares held by Owner 1 TC, with non-interest bearing promissory notes having a principal amount and FMV in aggregate equal to the redemption amount of the DC New Preferred Shares so redeemed (the “DC Notes”). Contemporaneously with the redemption of the DC New Preferred Shares, DC will repurchase for no consideration all of its issued DC New Common Shares, except those DC New Common Shares held by Owner 1 TD.

25. DC and each TC will enter into an agreement under which each DC Note will be offset by its respective TC Note and be cancelled.

26. DC will be wound up after receipt of its dividend refund.

27. Each TC will be wound up after receipt of its dividend refund.

III. ADDITIONAL INFORMATION

28. No property has or will become property of DC, and no liabilities have been, or will be, incurred or discharged by DC, in contemplation of and before the Transfer, except as described herein.

29. Neither DC nor any of the TCs has any expectation or intention of disposing of any property owned by it, as part of a series of transactions or events that includes the Proposed Transactions, to a person who is not a related person or to a partnership, subsequent to the Proposed Transactions, other than in the ordinary course of such corporation’s business.

30. None of the shares of DC nor any of the shares of any TC is, or will be, at any time during a series of transactions or events that includes the Proposed Transactions:

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

(b) issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5); or

(c) the subject of a dividend rental arrangement.

31. Neither DC nor any of the TCs is, or will be, at any time during a series of transactions or events that includes the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition of financial intermediary corporation.

32. Each of DC and the TCs will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.

IV. PURPOSE OF THE PROPOSED TRANSACTIONS

33. As the direct owner of LP, Partner is allocated income from LP, which it can then pay out to its members as tax-deductible interest payments by virtue of subsection 137(4.1). The Proposed Transactions are being carried out to provide the members of the Owners with a similar tax result. With the elimination of DC, income earned by LP can flow through the structure so as to be taxed only in the hands of the ultimate recipients, i.e., the XXXXXXXXXX members of the Owners. In this manner the overall effective tax rate of the Owners’ system is reduced.

V. RULINGS

Provided that the preceding statements constitute complete and accurate disclosure of all of the relevant facts, Proposed Transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. Provided that the requisite joint elections are filed in prescribed form and within the prescribed time, the provisions of subsection 85(1) will apply to:

(i) the DC Share Transfers described in Paragraph 19; and

(ii) subject to the application of subsection 69(11), the transfer by DC of each eligible property to each of the TCs except Owner 1 TC described in Paragraph 21,

such that the agreed amount in respect of each transfer of eligible property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).

B. Subsection 84(3) will apply on the redemption or purchase for cancellation:

(i) of the TC Preferred B Shares owned by DC described in Paragraph 23 to deem each of the TCs to have paid, and DC to have received, a dividend equal to the amount, if any, by which the aggregate amount paid upon such redemption or purchase for cancellation exceeds the aggregate PUC in respect of such shares immediately before such redemption or purchase for cancellation; and

(ii) of the DC New Preferred Shares owned by each of the TCs described in Paragraph 24 to deem DC to have paid, and each of the TCs to have received, a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption or purchase for cancellation exceeds the aggregate PUC in respect of such shares immediately before such redemption or purchase for cancellation,

and any such dividend,

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

(b) will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1). For greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;

(c) will be excluded from the proceeds of disposition of the shares that are not mark-to-market property by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54 and from the computation of profit from the disposition of shares that are mark-to-market property by virtue of subsection 248(28);

(d) by virtue of subsection 112(3) for shares that are not mark-to-market property and by virtue of subsection 112(5.2) for shares that are mark-to-market property, will reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

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

(f) will be subject to tax under Part IV,

(g) will entitle the dividend payer to a dividend refund to the extent provided by subsection 129(1).

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

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

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

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

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

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

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

D. The provisions of subsection 86(1) will apply to the DC Share Exchange described in Paragraph 17.

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

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

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by Canada Revenue Agency (“CRA”) on May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX .

The above rulings are based on the Act and the Regulations in its present form and do not take into account any proposed amendments to the Act and the Regulations which, if enacted, could have an effect on the rulings provided herein.

Comments

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

(a) the FMV or the cost amount of any particular asset or the PUC of any shares referred to herein; and

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

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Branch