2014 Ruling 2011-0415811R3 - Internal reorganization

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 the transfers by Subco 2 of all of its FA 1 Shares, and by Subco 3 of all of its FA 2 Shares, to Can Holdco, as described below, in each case, would be subject to the application of paragraph 85(1)(e.2)?

Position: No.

Reasons: Based on the specific unique facts of the present situation, it would not be reasonable to regard any part of the excess, as described in paragraph 85(1)(e.2), as a benefit that Subco 2 or Subco 3 desired to have conferred on a person related to Subco 2 or Subco 3. Consequently, paragraph 85(1)(e.2) would not apply. However, in another case, depending on its specific facts, paragraph 85(1)(e.2) could apply.

XXXXXXXXXX 2011-041581

XXXXXXXXXX, 2014

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX) and correspondence concerning your request. The information or documents submitted with your request are part of this letter only to the extent described herein.

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

(i) dealt with in a return of the above-referenced 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 above-referenced taxpayer or a related person;

(iii) under objection by the above-referenced 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 of the CRA.

Further, the above-referenced taxpayer has advised that the transactions described herein will not result in the above-referenced taxpayer or any related person described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

Unless otherwise expressly stated, every reference herein to the "Act" or to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and the Income Tax Regulations thereunder are referred to as the "Regulations."

Unless otherwise noted, all references herein to a currency are a reference to Canadian dollars.

In this letter, the following terms have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa:

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

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

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

"Arrangement" has the meaning assigned by Paragraph 17;

"BCA1" means the Business Corporations Act XXXXXXXXXX;

"BCA2" means the XXXXXXXXXX Business Corporations Act, XXXXXXXXXX;

"BCA3" means the Business Corporations Act XXXXXXXXXX;

"Can Holdco" means XXXXXXXXXX;

"Can Holdco Common Shares" has the meaning assigned by Paragraph 37;

"Can Holdco Convertible Series A Shares" has the meaning assigned by Paragraph 37;

"Can Holdco Non-Convertible Series B Shares" has the meaning assigned by Paragraph 37;

"Can Holdco Non-Convertible Series C Shares" has the meaning assigned by Paragraph 37;

"CRA" means the Canada Revenue Agency;

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

"XXXXXXXXXX Treaty" means the XXXXXXXXXX;

"Closing Date" means XXXXXXXXXX, or such other date as may be agreed between the parties to the Proposed Transactions;

"controlled foreign affiliate" has the meaning assigned by subsection 95(1);

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

"fair market value" ("FMV") means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act and contracting for a taxable purchase and sale expressed in terms of cash;

"FA 1" means XXXXXXXXXX;

"FA 2" means XXXXXXXXXX;

"XXXXXXXXXXCo" means XXXXXXXXXX;

"non-resident" has the meaning assigned by subsection 248(1);

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

"Paragraph" means a numbered paragraph in this letter;

"Parent" means XXXXXXXXXX;

"Parent-FA 2 Purchase Price" has the meaning assigned by Paragraph 41;

"Parent Group" means Parent and all of those corporations, partnerships and entities over which Parent has the ability to exercise control;

"Parent Transfer Agreement" has the meaning assigned by Paragraph 41;

"Partnership 1" means XXXXXXXXXX, as described in Paragraph 25;

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

"proceeds of disposition" has the meaning assigned by section 54;

"Proposed Transactions" means the transactions set out in Paragraphs 39 to 60;

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

"related persons" or "persons related to each other" has the meaning assigned by subsection 251(2);

"stated capital" has, in relation to Subco 2, Subco 3 and Can Holdco, the meaning assigned by the BCA2; and in relation to Subco 1, the meaning assigned by the BCA1;

"Subco 1" means XXXXXXXXXX;

"Subco 1 Capital Reduction" has the meaning assigned by Paragraph 56;

"Subco 1 Distribution" has the meaning assigned by Paragraph 57;

"Subco 2" means XXXXXXXXXX;

"Subco 2 Capital Reduction" has the meaning assigned by Paragraph 54;

"Subco 2 Distribution" has the meaning assigned by Paragraph 55;

"Subco 2-FA 1 Purchase Price" has the meaning assigned by Paragraph 45;

"Subco 2 Note" has the meaning assigned by Paragraph 48;

"Subco 2 Note Cash Payment" has the meaning assigned by Paragraph 52;

"Subco 2 Transfer Agreement" has the meaning assigned by Paragraph 45;

"Subco 3" means XXXXXXXXXX;

"Subco 3 Capital Reduction" has the meaning assigned by Paragraph 58;

"Subco 3 Distribution" has the meaning assigned by Paragraph 59;

"Subco 3-FA 2 Purchase Price" has the meaning assigned by Paragraph 43;

"Subco 3 Note" has the meaning assigned by Paragraph 49;

"Subco 3 Note Cash Payment" has the meaning assigned by Paragraph 53;

"Subco 3 Transfer Agreement" has the meaning assigned by Paragraph 43;

"Subco 4" means XXXXXXXXXX;

"Subco 5" means XXXXXXXXXX;

"Subco 6" means XXXXXXXXXX;

"Subco 7" means XXXXXXXXXX;

"Subco 8" means XXXXXXXXXX;

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

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

Our understanding of the Facts, Proposed Transactions and purposes of the Proposed Transactions are as follows:

FACTS

Parent

1. Parent is a public corporation and a TCC with its head office in XXXXXXXXXX. Parent was incorporated under the XXXXXXXXXX of XXXXXXXXXX on XXXXXXXXXX and continued under the BCA2 on XXXXXXXXXX. Parent's corporate business number is XXXXXXXXXX. Parent files its tax returns with the XXXXXXXXXX Tax Centre and it deals with the XXXXXXXXXX Tax Services Office.

2. Parent's authorized share capital consists of common shares and XXXXXXXXXX preferred shares.

Parent's common shares are voting and are listed on the XXXXXXXXXX.

Parent's XXXXXXXXXX preferred shares are non-voting and are redeemable for an amount equal to the amount paid-up in respect of such shares plus accrued and unpaid dividends. In certain circumstances, holders of such preferred shares may be entitled to a premium for redemptions occurring prior to a particular date. Parent's XXXXXXXXXX preferred shares are listed on the XXXXXXXXXX.

3. The Parent Group carries on a XXXXXXXXXX business in Canada and XXXXXXXXXX through directly and indirectly held subsidiary entities that comprise the Parent Group. The Parent Group also carries on XXXXXXXXXX business primarily in XXXXXXXXXX Canada.

Parent Group Structure

4. Parent owns:

(A) all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 1, and all of the issued and outstanding XXXXXXXXXX preferred shares (being XXXXXXXXXX preferred shares) of Subco 1;

(B) all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 3;

(C) all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 6;

(D) XXXXXXXXXX% of all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of FA 2;

(E) one Can Holdco Common Share (being the only issued and outstanding voting common share of Can Holdco); and

(F) all of the issued and outstanding common shares of Subco 7 (being XXXXXXXXXX common shares).

The remaining XXXXXXXXXX% of all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of FA 2 is owned by Subco 3.

5. Subco 3, Subco 6 and Subco 7 are all TCCs and are governed by the BCA2.

Subco 2, Subco 3, Subco 6 and Subco 7 own all of the issued and outstanding shares of Subco 5 as follows:

(A) Subco 3 owns all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 5;

(B) Subco 6 owns all of the issued and outstanding, XXXXXXXXXX preferred shares (being XXXXXXXXXX preferred shares) of Subco 5;

(C) Subco 7 owns all of the issued and outstanding XXXXXXXXXX preferred shares (being XXXXXXXXXX preferred shares) of Subco 5; and

(D) Subco 2 owns all of the issued and outstanding XXXXXXXXXX Preferred shares (being XXXXXXXXXX Preferred shares) of Subco 5.

6. Subco 5 is a TCC and is governed by the BCA2.

Subco 5 and XXXXXXXXXX arm's length financial institutions own all of the issued and outstanding shares of Subco 4 as follows:

(A) Subco 5 owns all of issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 4; and

(B) XXXXXXXXXX arm's length financial institutions own all of the issued and outstanding XXXXXXXXXX preferred shares (being XXXXXXXXXX preferred shares) of Subco 4. The Subco 4 XXXXXXXXXX preferred shares are non-voting and redeemable for an amount equal to the amount paid-up in respect of such shares plus accrued and unpaid dividends. In certain circumstances the holder of XXXXXXXXXX preferred shares may be entitled to a premium on the redemption of such shares.

Subco 5 also owns all of the issued and outstanding common shares of Subco 8 (being XXXXXXXXXX common shares).

Subco 8 is a TCC and is governed by the BCA3.

7. Subco 4 is a TCC incorporated by XXXXXXXXXX, Subco 4 was continued under the Corporations Act, XXXXXXXXXX on XXXXXXXXXX and is currently governed by the BCA3.

Subco 4 owns all of the issued and outstanding, XXXXXXXXXX preferred shares (being XXXXXXXXXX preferred shares) of Subco 1.

8. Subco 1 is a TCC, which was incorporated under the BCA1 on XXXXXXXXXX.

Subco 1 owns all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of Subco 2.

9. Subco 2 is a public corporation and a TCC. Subco 2 was incorporated under a XXXXXXXXXX on XXXXXXXXXX and continued under the BCA2 on XXXXXXXXXX.

Subco 2 owns all of the issued and outstanding voting common shares (being XXXXXXXXXX common shares) of FA 1.

10. FA 1 is a corporation, which was incorporated under the laws of the State of XXXXXXXXXX on XXXXXXXXXX.

11. FA 2 is a corporation, which was incorporated under the laws of the State of XXXXXXXXXX on XXXXXXXXXX.

12. Parent controls each of Subco 1, Subco 2, Subco 3, Subco 4, Subco 5, Subco 6, Subco 7, Subco 8, Can Holdco, FA 1 and FA 2 through its direct or indirect shareholding interest in them. Consequently, each of these corporations is related to Parent and to each other under subparagraph 251(2)(b)(i) or 251(2)(c)(i).

Parent, Subco 1, Subco 2 and FA 1

Subco 1

13. Subco 1's business number is XXXXXXXXXX. It files its returns with the XXXXXXXXXX Tax Centre and it deals with the XXXXXXXXXX Tax Services Office.

The issued and outstanding share capital of Subco 1 consists of:

(a) XXXXXXXXXX voting common shares, all of which are owned by Parent;

(b) XXXXXXXXXX non-voting and redeemable preferred shares, all of which are owned by Parent;

(c) XXXXXXXXXX non-voting and redeemable preferred shares, all of which are owned by Subco 4; and

(d) XXXXXXXXXX non-voting and redeemable preferred shares, all of which are owned by Subco 8.

As at XXXXXXXXXX, the aggregate PUC of the issued and outstanding Subco 1 common shares was approximately $XXXXXXXXXX and Parent's aggregate ACB of its Subco 1 common shares was approximately $XXXXXXXXXX.

Parent's Subco 1 common shares constitute capital property to Parent.

14. The assets of Subco 1 include:

(A) all of the issued and outstanding voting common shares of Subco 2; and

(B) XXXXXXXXXX% of all of the issued and outstanding voting common shares of XXXXXXXXXXCo, as well as all of the issued and outstanding, non-voting and redeemable XXXXXXXXXX and XXXXXXXXXX preferred shares of XXXXXXXXXXCo.

The remaining XXXXXXXXXX% of all of the issued and outstanding voting common shares of XXXXXXXXXXCo are owned by an entity that deals at arm's length with Parent.

XXXXXXXXXXCo is a TCC and a holding corporation. XXXXXXXXXXCo owns, through a wholly-owned subsidiary, approximately XXXXXXXXXX% of XXXXXXXXXX, a privately-held XXXXXXXXXX company which operates in the province of XXXXXXXXXX and XXXXXXXXXX.

Subco 2

15. Subco 2's business number is XXXXXXXXXX. It files its returns with the XXXXXXXXXX Tax Centre and it deals with the XXXXXXXXXX Tax Services Office.

The issued and outstanding share capital of Subco 2 consists of XXXXXXXXXX voting common shares, all of which are owned by Subco 1.

As at XXXXXXXXXX, the aggregate PUC of the issued and outstanding Subco 2 common shares was approximately $XXXXXXXXXX and Subco 1's aggregate ACB of its Subco 2 common shares was approximately $XXXXXXXXXX.

16. Subco 2 owns all of the issued and outstanding voting common shares of FA 1. Subco 2's FA 1 Shares constitute capital property to Subco 2.

As at XXXXXXXXXX, Subco 2's aggregate ACB of its FA 1 Shares was approximately $XXXXXXXXXX. Currently, the aggregate FMV of Subco 2's FA 1 Shares is approximately XXXXXXXXXX $XXXXXXXXXX.

17. Prior to XXXXXXXXXX, Parent was a subsidiary wholly-owned corporation of Subco 2 and the common shares of Subco 2 were listed on the XXXXXXXXXX.

On XXXXXXXXXX, Subco 2 (XXXXXXXXXX), Parent (XXXXXXXXXX), shareholders of Subco 2 and option holders of Subco 2 undertook a series of transactions by way of a plan of arrangement (the "Arrangement") under the BCA2, XXXXXXXXXX.

18. In XXXXXXXXXX and XXXXXXXXXX, Parent subscribed for additional Subco 2 common shares for cash consideration of approximately $XXXXXXXXXX.

19. On XXXXXXXXXX, Parent transferred all of its Subco 2 common shares to Subco 1 in exchange for: (a) XXXXXXXXXX Subco 1 common shares, (b) XXXXXXXXXX Subco 1 XXXXXXXXXX preferred shares and (c) a non-interest bearing promissory note in the principal amount of $XXXXXXXXXX, as part of an internal organization of the Parent Group.

Subco 1 has held the common shares of Subco 2 continuously since that time.

Subco 1's Subco 2 common shares constitute capital property to Subco 1.

20. Between XXXXXXXXXX and XXXXXXXXXX, Subco 1 made cash capital contributions to Subco 2 of approximately $XXXXXXXXXX.

21. Of the approximate $XXXXXXXXXX of the PUC of the Subco 2 common shares described in Paragraph 15, approximately $XXXXXXXXXX was in respect of Parent's cash subscription in Subco 2 as described in Paragraph 18 and $XXXXXXXXXX was in respect of Subco 1's cash capital contributions to Subco 2 as described in Paragraph 20.

22. XXXXXXXXXX

FA 1

23. FA 1 is a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the XXXXXXXXXX Treaty.

The authorized share capital of FA 1 consists of XXXXXXXXXX voting common shares without par value (the "FA 1 Shares") and XXXXXXXXXX preferred shares of $XXXXXXXXXX par-value per share. The issued and outstanding share capital of FA 1 consists of XXXXXXXXXX FA 1 Shares, all of which are owned by Subco 2.

FA 1 owns, directly and indirectly, a number of entities in XXXXXXXXXX. FA 1 is a controlled foreign affiliate of Parent.

Subco 2 and FA 1's business – XXXXXXXXXX assets of the Parent Group

24. The assets held by Subco 2 and FA 1 constitute the majority of the assets used in the Parent Group's XXXXXXXXXX business as described below.

25. Subco 2 and FA 1 together, directly or indirectly, own and operate the Parent Group's primary XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX.

FA 1 owns an approximate XXXXXXXXXX% (direct and indirect) ownership interest in Partnership 1 in the form of:

XXXXXXXXXX

26. Subco 2 and FA 1 also own the Parent Group's XXXXXXXXXX% direct and indirect interest in the XXXXXXXXXX."

In addition, Subco 2 and FA 1 directly and indirectly own and operate the Parent Group's XXXXXXXXXX.

XXXXXXXXXX

27. Further, Subco 2 and FA 1 also hold direct or indirect interests in other XXXXXXXXXX assets XXXXXXXXXX.

Parent, Subco 3 and FA 2

Subco 3

28. Subco 3's business number is XXXXXXXXXX. Subco 3 files its returns with the XXXXXXXXXX Tax Centre and it deals with the XXXXXXXXXX Tax Services Office.

The issued and outstanding share capital of Subco 3 consists of XXXXXXXXXX voting common shares, all of which are owned by Parent.

As at XXXXXXXXXX, the aggregate PUC of the issued and outstanding Subco 3 common shares was approximately $XXXXXXXXXX and Parent's aggregate ACB of its Subco 3 common shares was approximately $XXXXXXXXXX.

29. Subco 3 owns and operates a XXXXXXXXXX. It also owns XXXXXXXXXX% of FA 2 (being XXXXXXXXXX common shares of FA 2).

30. XXXXXXXXXX

Parent's Subco 3 common shares constitute capital property to Parent.

FA 2

31. FA 2 is a non-resident of Canada for purposes of the Act and a resident of XXXXXXXXXX for purposes of the XXXXXXXXXX Treaty.

The authorized share capital of FA 2 consists of XXXXXXXXXX voting common shares with a par value of $XXXXXXXXXX each (the "FA 2 Shares"). The issued and outstanding share capital of FA 2 consists of XXXXXXXXXX FA 2 Shares, of which Parent owns XXXXXXXXXX shares (XXXXXXXXXX%) and Subco 3 owns XXXXXXXXXX shares (XXXXXXXXXX%).

The FA 2 Shares constitute capital property to each of Parent and Subco 3.

32. FA 2 owns, directly and indirectly, a number of entities in XXXXXXXXXX. FA 2 is a controlled foreign affiliate of Parent.

FA 2, through its various subsidiaries, owns XXXXXXXXXX in XXXXXXXXXX and investments in partnerships that own and operate XXXXXXXXXX in XXXXXXXXXX.

33. As at XXXXXXXXXX, Parent's aggregate ACB of its FA 2 Shares was approximately $XXXXXXXXXX. Currently, the aggregate FMV of Parent's FA 2 Shares is approximately XXXXXXXXXX $XXXXXXXXXX.

34. As at XXXXXXXXXX, Subco 3's aggregate ACB of its FA 2 Shares was approximately $XXXXXXXXXX. Currently, the aggregate FMV of Subco 3's FA 2 Shares is approximately XXXXXXXXXX $XXXXXXXXXX.

35. XXXXXXXXXX

Parent and Can Holdco

Can Holdco

36. Can Holdco is a TCC, which was incorporated under the BCA2 on XXXXXXXXXX (with a view to undertaking the Proposed Transactions). Can Holdco's business number is XXXXXXXXXX. Can Holdco will file its tax returns with the XXXXXXXXXX Tax Centre and deals with the XXXXXXXXXX Tax Services Office.

37. The authorized share capital of Can Holdco consists of:

(A) an unlimited number of voting common shares (the "Can Holdco Common Shares");

(B) an unlimited number of voting, no par value, redeemable and retractable Series A Preferred Shares that are convertible into Can Holdco Common Shares at the holder's option (the "Can Holdco Convertible Series A Shares");

(C) an unlimited number of voting, no par value, redeemable and retractable Series B Preferred Shares (the "Can Holdco Non-Convertible Series B Shares"); and

(D) an unlimited number of voting, no par value, redeemable and retractable Series C Preferred Shares (the "Can Holdco Non-Convertible Series C Shares").

Each of the Can Holdco Convertible Series A Shares, the Can Holdco Non-Convertible Series B Shares and the Can Holdco Non-Convertible Series C Shares:

(i) is redeemable and retractable at a redemption amount equal to the FMV of the property transferred to Can Holdco less the FMV of the non-share consideration to be provided by Can Holdco in exchange for the property, divided by the number of the Can Holdco Convertible Series A Shares, the Can Holdco Non-Convertible Series B Shares or the Can Holdco Non-convertible Series C Shares, as the case may be, issued as consideration for such transfer, plus all declared but unpaid dividends thereon; and

(ii) is entitled to dividends, as and when declared by the board of directors of Can Holdco.

The Can Holdco Common Shares rank below the Can Holdco Convertible Series A Shares, the Can Holdco Non-Convertible Series B Shares and the Can Holdco Non-Convertible Series C Shares with respect to dividends and distributions on liquidation, dissolution or winding-up.

The Can Holdco Convertible Series A Shares, the Can Holdco Non-Convertible Series B Shares and the Can Holdco Non-Convertible Series C Shares rank pari passu with respect to distributions on liquidation, dissolution or winding-up.

38. The issued and outstanding share capital of Can Holdco consists of one Can Holdco Common Share that was issued by Can Holdco to Parent upon its incorporation.

PROPOSED TRANSACTIONS

Each of the following proposed transactions shall take place sequentially on the Closing Date.

Amendments

39. The articles of incorporation of Can Holdco will be amended such that:

(A) each of the Can Holdco Non-Convertible Series B Shares will be redeemable and retractable for an amount equal to Subco 3's aggregate ACB of its FA 2 Shares, at the time of the transfer, so transferred to Can Holdco as described in Paragraph 43, divided by the number of the Can Holdco Non-Convertible Series B Shares issued as consideration for such transfer, plus all declared but unpaid dividends thereon; and

(B) each of the Can Holdco Non-Convertible Series C Shares will be redeemable and retractable for an amount equal to Subco 2's ACB of its FA 1 Shares, at the time of the transfer, so transferred to Can Holdco as described in Paragraph 45, divided by the number of the Can Holdco Non-Convertible Series C Shares issued as consideration for such transfer, plus all declared but unpaid dividends thereon.

The articles of incorporation of Can Holdco will also be amended to modify the terms of the price adjustment clause in respect of the Can Holdco Non-Convertible Series B Shares and the Can Holdco Non-Convertible Series C Shares.

40. The authorized share capital of FA 2 will be amended such that the number of FA 2 Shares authorized for issuance will be increased from XXXXXXXXXX to XXXXXXXXXX FA 2 Shares or such greater number as is required.

Transfer of Parent's FA 2 Shares to Can Holdco

41. Parent will transfer to Can Holdco all of its FA 2 Shares pursuant to a share transfer agreement (the "Parent Transfer Agreement") at a purchase price equal to the aggregate FMV of such FA 2 Shares at the time of the transfer (the "Parent-FA 2 Purchase Price"). As sole consideration for the transfer, Can Holdco will issue to Parent a number of Can Holdco Common Shares having an aggregate FMV equal to the aggregate FMV of the FA 2 Shares, at the time of the transfer, so transferred by Parent to Can Holdco.

The Parent Transfer Agreement will specify that the Parent-FA 2 Purchase Price is subject to a price adjustment clause which will adjust the Parent-FA 2 Purchase Price upward or downward depending on any adjustment to the FMV of the FA 2 Shares to be transferred by Parent to Can Holdco, as described in this Paragraph.

42. Parent and Can Holdco will jointly elect in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer to Can Holdco of Parent's FA 2 Shares, which will be eligible properties, as described in Paragraph 41. The agreed amount for the purposes of the election will be the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

Can Holdco will add to its stated capital account maintained for the Can Holdco Common Shares an amount equal to the agreed amount in the subsection 85(1) election, as referred to in this Paragraph. For greater certainty, the increase to the PUC of the Can Holdco Common Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Transfer of Subco 3's FA 2 Shares to Can Holdco

43. Subco 3 will transfer to Can Holdco all of its FA 2 Shares pursuant to a share transfer agreement (the "Subco 3 Transfer Agreement") at a purchase price (the "Subco 3-FA 2 Purchase Price") equal to Subco 3's aggregate ACB of its FA 2 Shares at the time of the transfer. As sole consideration for the transfer, Can Holdco will issue to Subco 3 Can Holdco Non-Convertible Series B Shares having an aggregate redemption amount and FMV equal to the Subco 3-FA 2 Purchase Price.

The Subco 3 Transfer Agreement will specify that the Subco 3-FA 2 Purchase Price and the aggregate redemption amount of the Can Holdco Non-Convertible Series B Shares issued to Subco 3 in exchange for Subco 3's FA 2 Shares are subject to a price adjustment clause which will adjust the Subco 3-FA 2 Purchase Price and the aggregate redemption amount of the Can Holdco Non-Convertible Series B Shares issued to Subco 3 upward or downward depending on any adjustment to the ACB to Subco 3 of the FA 2 Shares to be transferred by Subco 3 to Can Holdco, as described in this Paragraph.

44. Subco 3 and Can Holdco will jointly elect in prescribed form and within the time determined under subsection 85(6) for the provisions of subsection 85(1) to apply to the transfer to Can Holdco of Subco 3's FA 2 Shares, which will be eligible properties, as described in Paragraph 43. The agreed amount for the purposes of the election will be the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

Can Holdco will add to its stated capital account maintained for the Can Holdco Non-Convertible Series B Shares an amount equal to the agreed amount in the subsection 85(1) election, as referred to in this Paragraph. For greater certainty, the increase to the PUC of the Can Holdco Non-Convertible Series B Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Transfer of Subco 2's FA 1 Shares to Can Holdco

45. Subco 2 will transfer to Can Holdco all of its FA 1 Shares pursuant to a share transfer agreement (the "Subco 2 Transfer Agreement") at a purchase price (the "Subco 2-FA 1 Purchase Price") equal to Subco 2's aggregate ACB of its FA 1 Shares at the time of the transfer. As sole consideration for the transfer, Can Holdco will issue to Subco 2 Can Holdco Non-Convertible Series C Shares having an aggregate redemption amount and FMV equal to the Subco 2-FA 1 Purchase Price.

The Subco 2 Transfer Agreement will specify that the Subco 2-FA 1 Purchase Price and the aggregate redemption amount of the Can Holdco Non-Convertible Series C Shares issued to Subco 2 in exchange for Subco 2's FA 1 Shares are subject to a price adjustment clause which will adjust the Subco 2-FA 1 Purchase Price and the aggregate redemption amount of the Can Holdco Non-Convertible Series C Shares issued to Subco 2 upward or downward depending on any adjustment to the ACB to Subco 2 of the FA 1 Shares to be transferred by Subco 2 to Can Holdco, as described in this Paragraph.

46. Subco 2 and Can Holdco will jointly elect in prescribed form and within the time determined under subsection 85(6) for the provisions of subsection 85(1) to apply to the transfer to Can Holdco of Subco 2's FA 1 Shares, which will be eligible properties, as described in Paragraph 45. The agreed amount for the purposes of the election will be the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

Can Holdco will add to its stated capital account maintained for the Can Holdco Non-Convertible Series C Shares an amount equal to the agreed amount in subsection 85(1) election, as referred to in this Paragraph. For greater certainty, the increase to the PUC of the Can Holdco Non-Convertible Series C Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Transfer of Can Holdco's FA 1 Shares to FA 2

47. Can Holdco will transfer all of its FA 1 Shares to FA 2 in exchange for additional FA 2 Shares having an aggregate FMV equal to the aggregate FMV, at the time of the transfer, of the FA 1 shares so transferred by Can Holdco to FA 2.

Redemption of the Can Holdco Non-Convertible Series C Shares

48. Can Holdco will redeem the Can Holdco Non-Convertible Series C Shares held by Subco 2 for an amount equal to the aggregate redemption amount and FMV of such shares so redeemed, and will issue to Subco 2 in consideration therefor a demand non-interest bearing promissory note (the "Subco 2 Note") with a principal amount and FMV equal to the aggregate redemption amount and FMV of the Can Holdco Non-Convertible Series C Shares so redeemed.

Subco 2 will accept the Subco 2 Note as full and absolute payment and satisfaction of the aggregate redemption amount of the Can Holdco Non-Convertible Series C Shares so redeemed.

The terms of the Subco 2 Note will contain an acknowledgement that the principal amount of the Subco 2 Note is subject to an adjustment clause which will adjust the principal amount of the Subco 2 Note upward or downward depending on any adjustment to the aggregate redemption amount of the Can Holdco Non-Convertible Series C Shares being redeemed, as described in Paragraph 45.

Redemption of the Can Holdco Non-Convertible Series B Shares

49. Can Holdco will redeem the Can Holdco Non-Convertible Series B Shares held by Subco 3 for an amount equal to the aggregate redemption amount and FMV of such shares so redeemed and will issue to Subco 3 in consideration therefor a demand non-interest bearing promissory note (the "Subco 3 Note") with a principal amount and FMV equal to the aggregate redemption amount and FMV of the Can Holdco Non-Convertible Series B Shares so redeemed.

Subco 3 will accept the Subco 3 Note as full and absolute payment and satisfaction of the aggregate redemption amount of the Can Holdco Non-Convertible Series B Shares so redeemed.

The terms of the Subco 3 Note will contain an acknowledgement that the principal amount of the Subco 3 Note is subject to an adjustment clause which will adjust the principal amount of the Subco 3 Note upward or downward depending on any adjustment to the aggregate redemption amount of the Can Holdco Non-Convertible Series B Shares being redeemed, as described in Paragraph 43.

Share subscription by Parent in Can Holdco

50. Parent will draw down on its existing credit facilities an amount equal to the aggregate principal amount of the Subco 2 Note and the Subco 3 Note.

51. Parent will subscribe for additional Can Holdco Common Shares for cash in an amount equal to the aggregate principal amount of the Subco 2 Note and the Subco 3 Note.

The total share subscription amount as described herein will be subject to an adjustment clause which will adjust the total subscription amount upward or downward depending on any adjustment to the aggregate principal amount of the Subco 2 Note and the Subco 3 Note, as described in Paragraphs 48 and 49, respectively.

Redemptions of the Subco 2 Note and the Subco 3 Note

52. Can Holdco will pay to Subco 2 an amount in cash equal to the principal amount and FMV of the Subco 2 Note (the "Subco 2 Note Cash Payment") in full repayment and satisfaction of the Subco 2 Note. The Subco 2 Note will be cancelled.

The amount of the Subco 2 Note Cash Payment will be subject to an adjustment clause which will adjust the amount of the Subco 2 Note Cash Payment upward or downward depending on any adjustment to the principal amount of the Subco 2 Note, as described in Paragraph 48.

53. Can Holdco will pay to Subco 3 an amount in cash equal to the principal amount and FMV of the Subco 3 Note (the "Subco 3 Note Cash Payment") in full repayment and satisfaction of the Subco 3 Note. The Subco 3 Note will be cancelled.

The amount of the Subco 3 Note Cash Payment will be subject to an adjustment clause which will adjust the amount of the Subco 3 Note Cash Payment upward or downward depending on any adjustment to the principal amount of the Subco 3 Note, as described in Paragraph 49.

Subco 2 Capital Reduction and Subco 2 Distribution

54. Subco 2 will reduce the stated capital of its issued and outstanding common shares (the "Subco 2 Capital Reduction") held by Subco 1 in accordance with the provisions of the BCA2 by an amount that will be equal to the entire amount of the Subco 2 Note Cash Payment.

55. Concurrently with the Subco 2 Capital Reduction, Subco 2 will distribute (the "Subco 2 Distribution") to Subco 1, in a single cash distribution, on or before the date that is XXXXXXXXXX months from the date of the transfer by Subco 2 of all of its FA 1 Shares to Can Holdco, as described in Paragraph 45, an amount that will be equal to the entire amount of the Subco 2 Note Cash Payment received by Subco 2 from Can Holdco.

The resolution of the board of directors of Subco 2 to effect the Subco 2 Capital Reduction and the Subco 2 Distribution will specify that the amounts of the Subco 2 Capital Reduction and the Subco 2 Distribution are subject to an adjustment clause which will adjust the amounts of the Subco 2 Capital Reduction and the Subco 2 Distribution upward or downward depending on any adjustment to the amount of the Subco 2 Note Cash Payment, as described in Paragraph 52.

Subco 1 Capital Reduction and Subco 1 Distribution

56. Subco 1 will reduce the stated capital of its issued and outstanding common shares (the "Subco 1 Capital Reduction") held by Parent in accordance with the provisions of the BCA1 by an amount that will be equal to the entire amount of the Subco 2 Distribution.

57. Concurrently with the Subco 1 Capital Reduction, Subco 1 will distribute (the "Subco 1 Distribution") to Parent an amount that will be equal to the entire amount of the Subco 2 Distribution.

The resolution of the board of directors of Subco 1 to effect the Subco 1 Capital Reduction and the Subco 1 Distribution will specify that the amounts of the Subco 1 Capital Reduction and the Subco 1 Distribution are subject to an adjustment clause which will adjust the amounts of the Subco 1 Capital Reduction and the Subco 1 Distribution upward or downward depending on any adjustment to the amount of the Subco 2 Distribution, as described in Paragraph 55.

Subco 3 Capital Reduction and Subco 3 Distribution

58. Subco 3 will reduce the stated capital of its issued and outstanding common shares (the "Subco 3 Capital Reduction") held by Parent in accordance with the provisions of the BCA2 by an amount that will be equal to the entire amount of the Subco 3 Note Cash Payment.

59. Concurrently with the Subco 3 Capital Reduction, Subco 3 will distribute (the "Subco 3 Distribution") to Parent an amount that will be equal to the entire amount of the Subco 3 Note Cash Payment.

The resolution of the board of directors of Subco 3 to effect the Subco 3 Capital Reduction and the Subco 3 Distribution will specify that the amounts of the Subco 3 Capital Reduction and the Subco 3 Distribution are subject to an adjustment clause which will adjust the amounts of the Subco 3 Capital Reduction and the Subco 3 Distribution upward or downward depending on any adjustment to the amount of the Subco 3 Note Cash Payment, as described in Paragraph 53.

Repayment by Parent on its existing credit facilities

60. Parent will repay its draw on its existing credit facilities for an amount that will be equal to the aggregate amount of the Subco 1 Distribution received from Subco 1 and the Subco 3 Distribution received from Subco 3, as described in Paragraphs 57 and 59, respectively.

ADDITIONAL INFORMATION

61. In connection with the Proposed Transactions, an application has been made to the XXXXXXXXXX pursuant to Article XXXXXXXXXX of the XXXXXXXXXX Treaty.

XXXXXXXXXX.

62. The entire amount of the Subco 2 Distribution will not exceed the aggregate PUC of the issued and outstanding Subco 2 common shares, at the time of the Subco 2 Capital Reduction, that arose from the cash capital contributions made by Subco 1 to Subco 2, as described in Paragraphs 20 and 21.

63. The Subco 2 Capital Reduction and the Subco 2 Distribution are not being made in lieu of ordinary course dividends that would otherwise have been paid by Subco 2 to Subco 1.

Subco 2 declares and pays to Subco 1 regular dividends on a quarterly basis. In XXXXXXXXXX dividends in the amount of $XXXXXXXXXX were paid by Subco 2 to Subco 1 on XXXXXXXXXX respectively. In XXXXXXXXXX, dividends in the amount of $XXXXXXXXXX were paid by Subco 2 to Subco 1 on XXXXXXXXXX, respectively. The amount of the dividend paid on XXXXXXXXXX consists of the regular quarterly dividend and proceeds from the sale by Subco 2 of certain XXXXXXXXXX assets that occurred on XXXXXXXXXX.

The proceeds from the regular dividends are used by the Parent Group to fund their ordinary business operations.

64. The sale, by Subco 2, of all of its FA 1 Shares to Can Holdco, as described in Paragraph 45, is a transaction that is outside the ordinary course of the business of Subco 2.

65. The amount of the Subco 1 Distribution will not exceed the aggregate PUC of the Subco 1 common shares issued and outstanding at the time of the Subco 1 Capital Reduction.

66. The amount of the Subco 3 Distribution will not exceed the aggregate PUC of the Subco 3 common shares issued and outstanding at the time of the Subco 3 Capital Reduction.

67. Immediately before the time of the transfer, by Can Holdco, of its FA 1 Shares to FA 2, as described in Paragraph 47, all or substantially all of the property of FA 1 may constitute "excluded property" (within the meaning assigned by subsection 95(1)) of FA 1.

68. (a) Can Holdco's transfer of its FA 1 Shares to FA 2, as described in Paragraph 47, is not part of a transaction or event or a series of transactions or events the purpose of which is to dispose of the FA 1 Shares to a person or partnership that, immediately after the transaction, event or series, will be a person or partnership (other than a foreign affiliate of Can Holdco in respect of which Can Holdco has a qualifying interest (within the meaning assigned by paragraph 95(2)(m)) at the time of the transaction or event or throughout the series, as the case may be) with whom Can Holdco is dealing at arm's length.

(b) At the time of the transfer by Can Holdco of all of its FA 1 Shares to FA 2, as described in paragraph 47, the ACB to Can Holdco of its FA 1 Shares will not be greater than the amount that would, absent subsection 85.1(3), be Can Holdco's proceeds of disposition of such FA 1 Shares.

69. (a) For a period of XXXXXXXXXX years commencing on the date that the Proposed Transactions are implemented, Parent will not dispose of its shares of Can Holdco directly or indirectly to a person who is not a related person in relation to Parent.

(b) Parent will not, as part of a series of transactions or events that includes the Proposed Transactions, acquire directly, in any manner whatever or by any means whatever, any of (i) the FA 1 Shares that are transferred by Subco 2 to Can Holdco, as described in paragraph 45; or (ii) the FA 2 Shares that are transferred by Subco 3 to Can Holdco, as described in paragraph 43.

PURPOSES OF THE PROPOSED TRANSACTIONS

70. The purpose of the Proposed Transactions is to combine the two XXXXXXXXXX groups indirectly owned by Parent, consisting of FA 1 and its subsidiaries and FA 2 and its subsidiaries, within a single ownership chain under Can Holdco, which combination will provide the following benefits to the Parent Group:

(A) The resulting single ownership chain of XXXXXXXXXX companies within the Parent Group will streamline the corporate structure and eliminate complexities that arise with the current structure.

XXXXXXXXXX.

(B) Additionally, the proposed restructuring will improve efficiency in the Parent Group's financial reporting.

XXXXXXXXXX.

(C) Furthermore, with the elimination of FA 1 from being a subsidiary of Subco 2, the credit rating analysis performed by XXXXXXXXXX and XXXXXXXXXX with respect to Subco 2 will be simplified and provide a truer picture for Subco 2's debt holders.

XXXXXXXXXX.

71. The purpose for the transfers by Subco 3 of its FA 2 Shares, and by Subco 2 of its FA 1 Shares, to Can Holdco, as described in Paragraphs 43 and 45, respectively, occurring at the ACB to the respective transferors of such FA 2 Shares and FA 1 Shares as opposed to occurring at their FMV, is to restrict the increase in Parent's ACB of its Can Holdco Common Shares arising from its subscription for additional common shares in Can Holdco, as described in Paragraph 51, to the sum of Subco 3's aggregate ACB of its FA 2 Shares and Subco 2's aggregate ACB of its FA 1 Shares, as described in Paragraphs 43 and 45, respectively.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the Proposed Transactions, and provided that the Proposed Transactions are undertaken in the manner described above, our rulings are set forth below:

A. Subsection 85(1) will apply, and paragraph 85(1)(e.2) will not apply, to

(a) the transfer, by Parent, of all of its FA 2 Shares to Can Holdco, as described in Paragraph 41;

(b) the transfer, by Subco 3, of all of its FA 2 Shares to Can Holdco, as described in Paragraph 43, and

(c) the transfer, by Subco 2, of all of its FA 1 Shares to Can Holdco, as described in Paragraph 45,

such that the agreed amount in respect of each such transfer will be deemed to be the transferor's proceeds of disposition and the respective transferee's cost thereof.

B. The transfer, by Subco 2, of its FA 1 Shares to Can Holdco, as described in Paragraph 45, will not, in and by itself, cause the FA 1 Shares that are capital property to Subco 2 immediately before the transfer, not to be capital property to Can Holdco immediately after the transfer.

C. Provided that the FA 1 Shares constitute capital property to Can Holdco, the provisions of paragraphs 85.1(3)(b), (c) and (d) will apply to the transfer by Can Holdco of all of its FA 1 Shares to FA 2, as described in Paragraph 47.

D. Subject to the application of subsection 40(3), each of

(a) the Subco 2 Capital Reduction;

(b) the Subco 1 Capital Reduction; and

(c) the Subco 3 Capital Reduction,

will not, in and by itself, result in a disposition:

(d) in the case of (a) described above, by Subco 1 of its Subco 2 common shares;

(e) in the case of (b) described above, by Parent of its Subco 1 common shares; and

(f) in the case of (c) described above, by Parent of its Subco 3 common shares.

E. The provisions of subsection 84(2) will apply, and subsection 84(4.1) will not apply, to the Subco 2 Distribution such that Subco 2 will be deemed to have paid, and Subco 1 will be deemed to have received, a dividend on the Subco 2 common shares held by Subco 1 only to the extent, if any, that the amount of the Subco 2 Distribution exceeds the amount by which the PUC of the issued and outstanding Subco 2 common shares is reduced on the Subco 2 Distribution.

F. By virtue of subparagraph 53(2)(a)(ii),

(a) an amount equal to the entire amount of the Subco 2 Distribution received by Subco 1 on the Subco 2 Capital Reduction will be deducted in computing the ACB to Subco 1 of its Subco 2 common shares;

(b) an amount equal to the entire amount of the Subco 1 Distribution received by Parent on the Subco 1 Capital Reduction will be deducted in computing the ACB to Parent of its Subco 1 common shares; and

(c) an amount equal to the entire amount of the Subco 3 Distribution received by Parent on the Subco 3 Capital Reduction will be deducted in computing the ACB to Parent of its Subco 3 common shares.

To the extent such amount exceeds the ACB to such shareholder of the shares described in (a), (b) and (c) above, as the case may be, such shareholder will be deemed to have a capital gain pursuant to subsection 40(3).

G. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not apply to:

(a) the transfer, by Subco 3, of all of its FA 2 Shares to Can Holdco, as described in Paragraph 43; and

(b) the transfer, by Subco 2, of all of its FA 1 Shares to Can Holdco, as described in Paragraph 45.

H. 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 any of the rulings given.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX.

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

COMMENTS

1. Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a) the PUC of any share or the ACB or FMV of any property referred to herein; or

(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.

2. You have informed us that the transactions described in Paragraphs 41, 43, 45, 48, 49, 51, 52, 53, 55, 57 and 59 will be subject to a price adjustment clause or an adjustment clause. Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the ACB or FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause or an adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.

Yours truly,

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