2013 Ruling 2013-0476331R3 - Split-up 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: Whether the butterfly dividends arising on the proposed transactions are exempt from the application of subsection 55(2) under paragraph 55(3)(b).

Position: Yes.

Reasons: Meet the requirements of paragraph 55(3)(b).

XXXXXXXXXX
2013-047633

XXXXXXXXXX, 2013

Dear Sir:

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 numerous emails and during various telephone conversations (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 above-referred taxpayer or a related person;

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

(iii) under objection by the above-referred 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 not expired; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

Unless otherwise expressly stated, all references 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, R.S.C. 1985, c.1 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and the Income Tax Regulations, C.R.C., c. 945 thereunder are referred to as the "Regulations".

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

Definitions of names

Throughout this letter, the entities mentioned in this letter will be referred to as follows:

"A" refers to XXXXXXXXXX;

"B" refers to XXXXXXXXXX;

"C" refers to XXXXXXXXXX, a deceased individual;

"C Trust" refers to the XXXXXXXXXX;

"Child A1" refers to XXXXXXXXXX;

"Child A2"refers to XXXXXXXXXX;

"Child B1" refers to XXXXXXXXXX;

"Child B2" refers to XXXXXXXXXX;

"D" refers to XXXXXXXXXX, wife of XXXXXXXXXX;

"DC" refers to XXXXXXXXXX;

"DC Shareholders" refers to A, B, Child A1, Child A2, Child B1 and Child B2;

"Family Trust" means XXXXXXXXXX, an inter vivos trust;

"Individual 1" means XXXXXXXXXX;

"Individual 2" means XXXXXXXXXX;

"TC" refers to TC1, TC2, TC3 or TC4

"TC1" refers to a corporation to be incorporated by A under the XXXXXXXXXX of which A, Child A1 and Child A2 will be the only shareholders, as described in Paragraph 12;

"TC2" refers to a corporation to be incorporated by B under the XXXXXXXXXX of which B will be the sole shareholder and director, as described in Paragraph 12;

"TC3" refers to a corporation to be incorporated by Child B1 under the XXXXXXXXXX of which Child B1 will be the sole shareholder and director, as described in Paragraph 12;

"TC4" refers to a corporation to be incorporated by Child B2 under the XXXXXXXXXX of which Child B2 will be the sole shareholder and director, as described in Paragraph 12; and

"TCs" means TC1 through TC4, collectively.

Each of the above-mentioned entities is a resident of Canada for the purposes of the Act.

DEFINITIONS

Unless otherwise noted, the following terms have the meanings ascribed to them below and, where the circumstances so require, the singular should be read as plural and vice versa:

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

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

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

(d) "Articles" means, in relation to a particular corporation, the constating documents of the corporation;

(e) "CRA" means the Canada Revenue Agency;

(f) "Canadian-controlled private corporation" (hereinafter "CCPC") has the meaning assigned by subsection 125(7);

(g) "capital dividend" means a dividend to which subsection 83(2) applies;

(h) "capital dividend account" (hereinafter "CDA") has the meaning assigned by subsection 89(1);

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

(j) "DC "A" Shares" means the special preferred shares, Series "A" of the capital stock of DC that are currently issued and outstanding;

(k) "DC "B" Shares" means the special preferred shares, Series "B" of the capital stock of DC;

(l) "DC "C" Shares" means the special preferred shares, Series "C" of the capital stock of DC that are currently issued and outstanding;

(m) "DC Common Shares" means the common shares of the capital stock of DC that are currently issued and outstanding;

(n) "disposition" has the meaning assigned by subsection 248(1);

(o) "distribution" has the meaning assigned by subsection 55(1);

(p) "distribution property "has the meaning assigned in paragraph 20;

(q) "dividend refund" has the meaning assigned by subsection 129(1);

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

(s) "eligible dividend" has the meaning assigned by subsection 89(1);

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

(u) "fair market value" (hereinafter "FMV") means the highest price expressed in terms of money or money's worth, available in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact;

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

(w) "forgiven amount" has the meaning assigned by subsection 80(1) or 80.01(1);

(x) "general rate income pool" (hereinafter "GRIP") has the meaning assigned by subsection 89(1);

(y) "guarantee agreement" has the meaning assigned by subsection 112(2.2);

(z) XXXXXXXXXX;

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

(bb) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;

(cc) "pre-1972 CSOH" means "pre-1972 capital surplus on hand" as that expression is defined in subsection 88(2.1);

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

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

(ff) "Proposed Transactions" means the proposed transactions which are described in Paragraphs 12 to 33 inclusively;

(gg) "refundable dividend tax on hand" (hereinafter "RDTOH") has the meaning assigned by subsection 129(3);

(hh) "related person" means, in relation to a particular person, another person who is related to the particular person by virtue of subsection 251(2), as modified for the purposes section 55 by paragraph 55(5)(e);

(ii) "restricted financial institution" has the meaning assigned by subsection 248(1);

(jj) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);

(kk) "short-term preferred shares" has the meaning assigned by subsection 248(1);

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

(mm) "specified investment business" (hereinafter "SIB") has the meaning assigned by subsection 125(7);

(nn) "taxable Canadian corporation" (hereinafter "TCC") has the meaning assigned by subsection 89(1);

(oo) "taxable dividend" has the meaning assigned by subsection 89(1);

(pp) "taxable preferred shares" has the meaning assigned by subsection 248(1);

(qq) "taxation year" has the meaning assigned by subsection 249(1);

(rr) "TC Preferred Shares" means the new Class "A" preferred shares that each of TC1 through TC4 will be authorized to issue under its Articles.

(ss) "TC Preferred Shares Redemption Amount" in respect of a particular TC, means the amount for which the TC Preferred Shares of the particular TC will be redeemed by such TC as described in Paragraph 24;

(tt) "TC Redemption Notes" and "TC Redemption Note" have the meaning assigned in Paragraph 24; and

(uu) "term preferred share" has the meaning assigned by subsection 248(1).

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

FACTS

DC

1. DC was formed by amalgamation under the XXXXXXXXXX on XXXXXXXXXX. DC is and will be, at any relevant time and for all purposes of the Act, a CCPC, a TCC and a SIB. DC's taxation year and fiscal period end is XXXXXXXXXX. DC engages in investment activities. As at XXXXXXXXXX, the value of DC's assets (before adjusting the cost of the investments from cost to FMV), net of liabilities, was approximately $XXXXXXXXXX. The FMV of the marketable security portfolio held by DC is approximately $XXXXXXXXXX as at XXXXXXXXXX.

2. DC's balance sheet as at XXXXXXXXXX consisted of:

(a) a small amount of cash. The cash balance represents dividends received and the proceeds from the sales of investments. A small balance is maintained to cover operating expenses;

(b) investments which are made up of publicly traded Canadian stocks. These investments are managed by investment managers who endeavour to keep the portfolios invested in publicly traded instruments at all times.

(c) some nominal payables and accruals related to the operation of the corporation; and

(d) a payable to C Trust (hereinafter the "Payable") that is non-interest-bearing with no set terms of repayment.

There has not been a material change in the composition of DC's assets and liabilities described herein, since XXXXXXXXXX. Moreover, there will not be any material change in the composition of DC's assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date the Proposed Transactions described herein are completed.

3. The authorized share capital of DC consists of XXXXXXXXXX DC Common Shares, voting, participating and without par value; and XXXXXXXXXX special preferred shares each issuable in series:

• DC "A" Shares: with a par value of $XXXXXXXXXX; retractable at $XXXXXXXXXX per share (hereinafter the "Retraction Price"); voting (XXXXXXXXXX votes per share); entitling the holders to discretionary non-cumulative, preferential dividend in an amount determined in the discretion of the Directors, provided that such dividend shall not exceed in any calendar year the amount that is equal to the rate of XXXXXXXXXX % per annum on the Retraction Price; in the event of liquidation, dissolution or winding-up of DC, whether voluntary or involuntary or for reorganization or otherwise, or upon any distribution of assets of DC, the holders are entitled to the Retraction Price together with any dividends declared but unpaid;
• DC "B" Shares: with a par value of $XXXXXXXXXX; redeemable and retractable at $XXXXXXXXXX per share (hereinafter the "DC "B" Shares Redemption Price"); non-voting; entitling the holders to discretionary non-cumulative dividend; in the event of liquidation, dissolution or winding-up of DC, whether voluntary or involuntary or for reorganization or otherwise, or upon any distribution of assets of DC, the holders are entitled to the DC "B" Shares Redemption Price together with any dividends declared but unpaid; and
• DC "C" Shares: without par value; redeemable and retractable at $XXXXXXXXXX (hereinafter the "DC "C" Shares Redemption Price") per share; non-voting; entitling the holders to discretionary non-cumulative, preferential dividend in an amount determined in the discretion of the Directors, provided that such dividend shall not exceed in any calendar year the amount that is equal to the rate of XXXXXXXXXX % per annum on the DC "C" Shares Redemption Price; in the event of liquidation, dissolution or winding-up of DC, whether voluntary or involuntary or for reorganization or otherwise, or upon any distribution of assets of DC, the holders are entitled to the DC "C" Shares Redemption Price together with any dividends declared but unpaid.

With respect to the voting rights attached to the DC "A" Shares, C passed away on XXXXXXXXXX and his spouse on XXXXXXXXXX.

4. The shares of DC are currently held as follows:

Shareholder Class Number of Shares PUC $ ACB $

A DC Common Shares XXX XXX XXX
DC "C" Shares XXX XXX XXX

A and Individual 2(in DC Common Shares XXX XXX XXX
Trust for Child A1) DC "C" Shares XXX XXX XXX

Child A2 DC Common Shares XXX XXX XXX
DC "C" Shares XXX XXX XXX

B DC Common Shares XXX XXX XXX
DC "C" Shares XXX XXX XXX

Child B1 DC Common Shares XXX XXX XXX
DC "C" Shares XXX XXX XXX

Child B2 DC Common Shares XXX XXX XXX
DC "C" Shares XXX XXX XXX

None of the shares of DC were acquired by the above-referred shareholders in contemplation of the Proposed Transactions.

All of the issued and outstanding DC Common Shares, DC "A" Shares and DC "C" Shares are capital property of each of the above-referred shareholders.

5. DC has estimated its tax accounts as at XXXXXXXXXX as follows:

(a) RDTOH: $XXXXXXXXXX

(b) GRIP: $XXXXXXXXXX

(c) CDA: $XXXXXXXXXX

(d) pre-1972 CSOH: XXXXXXXXXX

(e) Non-capital losses: $XXXXXXXXXX

6. The directors of DG are Individual 1 and Individual 2.

The DC Common Shares and the DC "C" Shares were previously held by the Family Trust, which it originally purchased from treasury on XXXXXXXXXX. On XXXXXXXXXX, the Family Trust allocated out these shares to its beneficiaries but for Child A1 and Child A2. On XXXXXXXXXX, the Family Trust allocated XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to each of Child A1 and Child A2. A and Individual 2 hold the XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares in trust for Child A1 until he reaches the age of XXXXXXXXXX.

The Family Trust was wound up on XXXXXXXXXX.

C Trust

7. On XXXXXXXXXX, C passed away and his XXXXXXXXXX DC "A" Shares and XXXXXXXXXX DC "B" Shares were then held by C Trust.

The executors of the C Trust are Individual 1 and Individual 2 who both deals at arm's length with DC and DC Shareholders.

All decisions of the executors of the C Trust from time to time are to be determined by a unanimous vote.

The residual capital and income beneficiaries of the C Trust are A, B, Child A1, Child A2, Child B1, Child B2 and D. The residue of C Trust is to be divided equally into two parts. The first part is to be distributed XXXXXXXXXX% to B, XXXXXXXXXX% to Child B1 and XXXXXXXXXX% to Child B2. The second part is to be distributed XXXXXXXXXX% to A, XXXXXXXXXX% to D, XXXXXXXXXX% to Child A1 and XXXXXXXXXX% to Child A2.

All of the beneficiaries of C Trust are resident of Canada for the purposes of the Act.

8. All of the XXXXXXXXXX issued DC "B" Shares, which were held by the C Trust, have been redeemed on XXXXXXXXXX.

These shares were redeemed as part of the administration of C Trust in order to generate liquidity and to benefit from DC's CDA and RDTOH.

A, B, Child A1, Child A2, Child B1 and Child B2

9. A and B are siblings and were the step children of C.

10. Child A1 and Child A2 are siblings and are the children of A. Child A1 is currently XXXXXXXXXX years of age.

11. Child B1 and Child B2 are siblings and are the children of B.

PROPOSED TRANSACTIONS

Incorporation of the TCs

12. The following incorporations will occur:

(a) A will incorporate TC1. The authorized share capital of TC1 will consist of: 1) XXXXXXXXXX voting and participating common shares with a par value of $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate; and 2) XXXXXXXXXX voting, redeemable and retractable TC1 Preferred Shares. The redemption value of the TC1 Preferred Shares will be equal to the value of the assets received in exchange for the shares, less the value of any other consideration issued for the assets received. For the purpose of subsection 191(4), the amount specified in respect of each TC1 Preferred Share which is to be redeemed, acquired or cancelled, will be the amount specified by a director or officer of TC1 in a certificate that is made: (i) effective concurrently with the issuance of such TC1 Preferred Share; and (ii) pursuant to a resolution of the board of directors of TC1 duly passed and evidenced in writing authorizing the issuance of such TC1 Preferred Share, such amount to be expressed as a dollar amount (and not expressed as a formula), such amount to be not subject to change thereafter, and such amount to be equal to the FMV of the consideration for which such TC1 Preferred Share is issued. A and Child A2 will be appointed as directors of TC1. Child A1 will be appointed as director TC1 once he has reached the age of majority.

(b) B will incorporate TC2. The authorized share capital of TC2 will consist of: 1) XXXXXXXXXX voting and participating common shares with a par value of $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate; and 2) XXXXXXXXXX voting, redeemable and retractable TC2 Preferred Shares. The redemption value of the TC Preferred Shares will be equal to the value of the assets received in exchange for the shares, less the value of any other consideration issued for the assets received. For the purpose of subsection 191(4), the amount specified in respect of each TC2 Preferred Share which is to be redeemed, acquired or cancelled, will be the amount specified by a director or officer of TC2 in a certificate that is made: (i) effective concurrently with the issuance of such TC2 Preferred Share; and (ii) pursuant to a resolution of the board of directors of TC2 duly passed and evidenced in writing authorizing the issuance of such TC2 Preferred Share, such amount to be expressed as a dollar amount (and not expressed as a formula), such amount to be not subject to change thereafter, and such amount to be equal to the FMV of the consideration for which such TC2 Preferred Share is issued. B will be appointed as sole director of TC2.

(c) Child B1 will incorporate TC3. The authorized share capital of TC3 will consist of: 1) XXXXXXXXXX voting and participating common shares with a par value of $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate; and 2) XXXXXXXXXX voting, redeemable and retractable TC3 Preferred Shares. The redemption value of the TC3 Preferred Shares will be equal to the value of the assets received in exchange for the shares, less the value of any other consideration issued for the assets received. For the purpose of subsection 191(4), the amount specified in respect of each TC3 Preferred Share which is to be redeemed, acquired or cancelled, will be the amount specified by a director or officer of TC3 in a certificate that is made: (i) effective concurrently with the issuance of such TC3 Preferred Share; and (ii) pursuant to a resolution of the board of directors of TC3 duly passed and evidenced in writing authorizing the issuance of such TC3 Preferred Share, such amount to be expressed as a dollar amount (and not expressed as a formula), such amount to be not subject to change thereafter, and such amount to be equal to the FMV of the consideration for which such TC3 Preferred Share is issued. Child B1 will be appointed as sole director of TC3.

(d) Child B2 will incorporate TC4. The authorized share capital of TC4 will consist of: 1) XXXXXXXXXX voting and participating common shares with a par value of $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate; and 2) XXXXXXXXXX voting, redeemable and retractable TC4 Preferred Shares. The redemption value of the TC4 Preferred Shares will be equal to the value of the assets received in exchange for the shares, less the value of any other consideration issued for the assets received. For the purpose of subsection 191(4), the amount specified in respect of each TC4 Preferred Share which is to be redeemed, acquired or cancelled, will be the amount specified by a director or officer of TC4 in a certificate that is made: (i) effective concurrently with the issuance of such TC4 Preferred Share; and (ii) pursuant to a resolution of the board of directors of TC4 duly passed and evidenced in writing authorizing the issuance of such TC4 Preferred Share, such amount to be expressed as a dollar amount (and not expressed as a formula), such amount to be not subject to change thereafter, and such amount to be equal to the FMV of the consideration for which such TC4 Preferred Share is issued. Child B2 will be appointed as sole director of TC4.

13. The TCs will not issue shares at the time of incorporation.

14. Each of the TCs is and will be, at any relevant time and for all purposes of the Act, a CCPC and a TCC.

Permitted Exchanges

15. The following transactions will occur:

(a) A will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC1 in exchange for XXXXXXXXXX common shares of the capital stock of TC1;

(b) A and Individual 2, on behalf of Child A1, will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC1 in exchange for XXXXXXXXXX common shares of the capital stock of TC1;

(c) Child A2 will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC1 in exchange for XXXXXXXXXX common shares of the capital stock of TC1;

(d) B will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC2 in exchange for XXXXXXXXXX common shares of the capital stock of TC2;

(e) Child B1 will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC3 in exchange for XXXXXXXXXX common shares of the capital stock of TC3; and

(f) Child B2 will transfer XXXXXXXXXX DC Common Shares and XXXXXXXXXX DC "C" Shares to TC4 in exchange for XXXXXXXXXX common shares of the capital stock of TC4.

16. Each of the TCs and its shareholder(s) will make joint elections under subsection 85(1) in prescribed form and in accordance with subsection 85(6) in respect of each of the transactions described in the preceding Paragraph.

17. The agreed amount in each of the joint elections will equal the transferor's ACB of the transferred DC Common Shares and DC "C" Shares, which will not be greater than the FMV of those shares.

Pro Rata Distribution

18. Immediately prior to the transfers of property described in Paragraph 20, all the property owned by DC will be determined and classified into two types of property for the purposes of the definition of distribution, as follows:

(a) cash or near-cash property, including DC's cash, accounts receivable, prepaid expenses, short term investments and other marketable securities; and

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

DC will have no business property immediately prior to the transfers of property described in Paragraph 20.

For greater certainty, for the purposes of the distribution;

(c) Tax accounts or other tax related amounts of DC, such as CDA, GRIP and RDTOH will not be considered property for the purposes of the distribution;

(d) No amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification; and

(e) The amount of any deferred tax will not be considered to be a property or a liability, as the case may be, for the purposes of the Proposed Transactions.

19. In determining the net FMV of its cash or near cash property and investment property immediately before the transfers, as described in the preceding Paragraph, the liabilities of DC will be allocated to, and be deducted in the calculation of the net FMV of each such type of property of DC in the following manner:

(a) current liabilities of DC will be allocated to cash or near cash property (including any cash, accounts receivable, prepaid expenses, short term investments and other marketable securities) in the proportion that the FMV of each such property is of the FMV of all cash or near cash property. The allocation of current liabilities as described herein will not exceed the aggregate FMV of all cash or near cash property of DC;

(b) liabilities of DC, other than current liabilities, that relate to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its FMV. Liabilities that pertain to a type of property, but not to a particular property, will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property, as described herein;

(c) if any liability (hereinafter referred to as "excess unallocated liability") remain after the allocations described in steps a) and b) are made, such excess unallocated liabilities, will then be allocated to the cash or near cash property and investment property of DC based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities. For greater certainty, the Payable will be considered as an excess unallocated liability.

20. Immediately following the determination of its types of property, as described in Paragraph 18, DC will contemporaneously transfer to each of the TCs a proportionate share of each type of property owned by DC (hereinafter the "distribution property"), as determined in accordance with the preceding Paragraph, such that, immediately following such property transfer, the aggregate FMV of each type of property of DC transferred to a particular TC, will be equal to or approximate the proportion determined by the formula:

A x B/C

Where:

A is the FMV, immediately before the transfer, of all property of that type owned at that time by DC,

B is the FMV, immediately before the transfer, of all of the shares of the capital stock of DC, owned by the particular TC, and

C is the FMV, immediately before the transfer, of all the issued and outstanding shares of the capital stock of DC.

For the purposes of this Paragraph, the expression "approximate the proportion" means that the discrepancy from that proportion, if any, will not exceed one percent (1%), determined as a percentage of the FMV of each type of property that each of the TCs has received on such transfer as compared to what it would have received had it received its appropriate pro rata share of the FMV of that type of property.

21. In consideration for the distribution property transferred by DC to each of the TCs as described in the preceding Paragraph, each of the TCs will:

(a) assume an appropriate amount of liabilities of DC (so that on a net basis each of the TCs will receive its pro rata share of each type of property owned by DC); and

(b) issue to DC XXXXXXXXXX TC Preferred Shares of its capital stock having an aggregate TC Preferred Shares Redemption Amount and aggregate FMV equal to the FMV of the property received at the time of the transfer, less the amount of the liabilities of DC assumed by TC as described in a).

The liabilities assumed by each of the TCs will not exceed the aggregate of the agreed amounts in respect of such properties.

22. DC will make a joint election under subsection 85(1) with each of the TCs in prescribed form and in accordance with subsection 85(6) in respect of the eligible properties transferred by DC in each of the transactions described above in Paragraph 20.

23. The agreed amount in each of the joint elections will be equal to the lesser of the amounts specified in subparagraph 85(1)(c.1)(i) and (ii).

Permitted Redemptions

24. Each of the TCs will redeem the TC Preferred Shares that were issued to DC as consideration for the transfer of property described above in Paragraph 20. Each of the TCs will issue to DC, in full payment of the aggregate TC Preferred Shares Redemption Amount, a demand, non-interest-bearing promissory note (hereinafter the "TC Redemption Note") having a principal amount and FMV equal to the TC Preferred Shares Redemption Amount of the redeemed TC Preferred Shares.

25. Immediately after the share redemptions that are described in the preceding Paragraph take place, the first taxation year of each of the TCs will end.

Winding-Up of DC

26. After the end of their first taxation year, the TCs and C Trust will resolve to wind-up and dissolve DC pursuant to the relevant provisions of the XXXXXXXXXX.

27. In connection with the winding-up of DC, DC will:

(a) assign and distribute the TC1 Redemption Note to TC1;

(b) assign and distribute the TC2 Redemption Note to TC2;

(c) assign and distribute the TC3 Redemption Note to TC3;

(d) assign and distribute the TC4 Redemption Note TC4; and

(e) distribute an amount of assets to C Trust equal to the Retraction Price and FMV of the DC "A" Shares.

28. DC will elect, in the manner and form required under subsection 83(2), to treat the portion of the winding-up dividend referred to in subparagraph 88(2)(b)(i) as a separate capital dividend paid on the DC Common Shares and/or the DC "C" Shares. Pursuant to subparagraph 88(2)(b)(iv), TC1, TC2, TC3 and TC4 will each be deemed to have received a proportionate capital dividend from DC.

29. DC will designate, pursuant to subsection 89(14), to treat a portion of the winding-up dividend referred to in subsection 88(2)(b)(iii), which is deemed to be a separate dividend, to be an eligible dividend by notifying each of the relevant TCs in writing, in a timely manner, that the dividend is an eligible dividend.

30. As a result of the assignment and distribution of the TC Redemption Notes held by DC as described in a) through d) in Paragraph 27, the obligation of each of the TCs under its own note will be extinguished and cancelled.

31. Immediately after the distribution as described in Paragraph 27, but before the formal dissolution of DC, DC will not own or acquire any property or carry on any activity or undertaking.

32. Any dividend refund to which DC becomes entitled as a result of the Proposed Transactions described herein, or any tax refund as a result of over payment of tax instalments, will be distributed (under the terms of the agreement governing the winding-up of DC) to each of the TCs and C Trust on a pro rata basis.

33. Within a reasonable time following the distribution of such tax refund, articles of dissolution will be filed by DC with the appropriate Corporate Registry and upon receipt of a certificate of dissolution, DC will be dissolved.

ADDITIONAL INFORMATION

34. Except as described in the Facts and the Proposed Transactions, no property has been or will be acquired by DC, in contemplation of and before the transfer by DC of its properties to each of the TCs as described in Paragraph 20, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

35. Except as described in this letter, none of the current shareholders of DC and/or of the TCs are contemplating the sale or transfer of any shares of DC and/or the TCs.

36. 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.

37. None of DC or the TCs is or will be, at any time during a series of transactions or events that includes the Proposed Transactions, a specified financial institution or a restricted financial institution.

38. None of the shares of DC nor any of the shares of any of the TCs (including the shares to be issued as described in the Proposed Transactions) 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) the subject of a dividend rental arrangement; or

(c) issued or acquired as part of a series of transactions or events of the type described in subsection 112(2.5).

39. The main purpose for the acquisition of the DC Common Shares and the DC "C" Shares by TC1 through TC4 will be to facilitate a tax-free divisive reorganization of DC amongst the DC Shareholders for purposes of permitting the shareholders to independently pursue their investment objectives. For greater certainty, at no time will one of the main purposes of the acquisition of the DC Common Shares and the DC "C" Shares be to receive a capital dividend.

40. 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 the paragraphs (a) to (f) of the definition of financial intermediary corporation.

41. None of the DC Common Shares is a taxable preferred share, a short-term preferred share or a term preferred share.

42. 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.

PURPOSES OF THE PROPOSED TRANSACTIONS

43. The purpose of the Proposed Transactions is to carry out a divisive reorganization so as to allow the DC Shareholders to own directly their pro rata share of DC's property in order to allow them to invest their share of the distribution property in the manner that best meets their objectives and investment goals, and address personal estate planning objectives on an individual and independent basis.

RULINGS GIVEN

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

A. Subject to the application of subsection 69(11), provided the appropriate joint elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and provided that each particular property so transferred is an eligible property in respect of which shares have been issued as full or partial consideration therefor, subsection 85(1) will apply to:

(a) the transfers of DC Common Shares and DC "C" Shares by the DC Shareholders to the TCs described in Paragraph 15 of the Proposed Transactions; and

(b) the transfer of each property owned by DC to the TCs described in Paragraph 20 of the Proposed Transactions,

such that the agreed amount in respect of each such transfer will be deemed to be the transferor's proceeds of disposition of the particular property and the transferee's cost thereof, and the transferor's cost of the shares received as consideration for such disposition.

For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. On the redemption by each of the TCs of its TC Preferred Shares owned by DC, as described in Paragraph 24 of the Proposed Transactions, by virtue of paragraphs 84(3)(a) and 84(3)(b), each of the TCs will be deemed to have paid, and DC will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the TC Preferred Shares issued by each of the TCs exceeds the PUC thereof immediately before the redemption.

C. Subsection 84(2) and paragraph 88(2)(b) will apply to the distributions by DC described in Paragraphs 26 to 33 of the Proposed Transactions such that:

(a) subject to (b), (c) and (d) herein, DC will be deemed to have paid a dividend (hereinafter a "winding-up dividend") on the DC Common Shares and the DC "C" Shares, as the case may be, equal to the amount by which:

(i) the amount or value of the funds or property distributed, as the case may be,

exceeds

(ii) the amount, if any, by which the PUC in respect of the DC Common Shares or DC "C" Shares, as the case may be, is reduced on the distribution

and each of the TCs will be deemed to have received a taxable dividend equal to that proportion of the amount of the excess that the number of the DC Common Shares or DC "C" Shares, as the case may be, held by the recipient is of the number of DC Common Shares or DC "C" shares, as the case may be, outstanding before the distribution;

(b) pursuant to subparagraph 88(2)(b)(i), the portion of a winding-up dividend which arises from the distribution described in Paragraphs 26 to 33 of the Proposed Transactions as does not exceed DC's CDA determined immediately before the payment of the winding-up dividend will be deemed, for the purposes of the subsection 83(2) election referred to in Paragraph 28 of the Proposed Transactions, to be the full amount of a separate dividend which will be referred to as the "capital dividend";

(c) pursuant to subparagraph 88(2)(b)(iii), the winding-up dividend arising from the distribution described in Paragraphs 26 to 33 of the Proposed Transactions, to the extent that it exceeds the amount of the capital dividend, will be deemed to be a separate dividend that is a taxable dividend; and

(d) pursuant to subparagraph 88(2)(b)(iv), each of the TCs will be deemed to have received its proportional share of the dividends described in (b) and (c) herein.

D. The taxable dividends described in rulings B and C above:

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

(b) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);

(c) will be excluded in determining the recipient's proceeds of disposition of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;

(d) will, by virtue of subsection 112(3), 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 by virtue of paragraph (c) of the definition of "excepted dividend" in section 187.1;

(f) will not be subject to tax under Part VI.1, with respect to Ruling B, to the extent that the amount paid on the redemption does not exceed the amount specified in respect of those shares for the purposes of subsection 191(4), as the dividends will be deemed to be "excluded dividend" pursuant to subsection 191(4), and , with respect to Ruling C, by virtue of paragraph (a) of the definition of "excluded dividend" in subsection 191(1), respectively;

(g) will not be subject to tax under Part IV except to the extent that the payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend, which, for greater certainty, will include the taxable dividends described in rulings B and C above; and

(h) will, provided such a dividend or a portion of such a dividend is designated to be an eligible dividend in the prescribed manner and within the time referred to in subsection 89(14), be added to the GRIP accounts of TC1, TC2, TC3 and TC4 to the extent of the portion of the dividend that each respective TC received, in the taxation year in which it received that portion from DC, pursuant to variable E(a) of the definition of GRIP in subsection 89(1).

E. The capital dividend described in Ruling C above:

(a) will not be included in the income of TC1, TC2, TC3, and TC4 pursuant to paragraph 83(2)(b);

(b) will be added to the CDA of TC1, TC2, TC3 and TC4 pursuant to paragraph (b) of the definition of "capital dividend account" in subsection 89(1); and

(c) will be excluded in determining the proceeds of disposition of the DC Common Shares or the DC "C" Shares, as the case may be, owned by TC1, TC2, TC3 and TC4 pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54.

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

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

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

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

(d) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii); or,

(e) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or 55(3.1)(d),

which has not been described in the Facts and the Proposed Transactions, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in rulings B and C above, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

G. The extinguishment of the TC Redemption Notes described in Paragraph 30 of the Proposed Transactions will not give rise to a "forgiven amount" within the meaning of subsections 80(1) or 80.01(1). In addition, neither DC nor the TCs will otherwise realize any gain or loss as a result of the extinguishment of the TC Redemption Notes.

H. Subsections 15(1), 56(2), 56(4) and 246(1) will not apply to the Proposed Transactions.

I. Subsection 245(2) will not apply to the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on 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 Act in its present form and do not take into account any proposed amendments to the Act which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise expressively confirmed, 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. With respect to the FMV of the DC « A » Shares, please refer to Income Tax Technical News No. 38, released on September 22, 2008 "Value of Company Attributable to Voting Non-Participating Shares" and to CRA's answer to question 26 of the Round Table on Federal Taxation of the 2009 Association de planification fiscale et financière Conference.

(b) the balance of CDA, GRIP or RDTOH of any corporation; or

(c) 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.

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 FMV of the properties transferred and 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. In addition, any such adjustment could affect the ruling given in Ruling F above. Furthermore, none of the rulings given in this letter are intended to apply to, or in the event of, the operation of a price 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 Income Tax Folio S4-F3-C1, dated March 28, 2013.

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

Yours truly,

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