2013 Ruling 2013-0490341R3 - No-type of property spin-off 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: Creation of a new public corporation to own the distributing corporation and the transferee corporation. Spin-off of some foreign assets to the transferee corporation.

Position: Favourable rulings given.

Reasons: In compliance with the Act and previous positions.

XXXXXXXXXX
2013-049034

XXXXXXXXXX, 2013

Sir,

Re: Advance Income Tax Ruling Request
Taxpayer: XXXXXXXXXX

This is in reply to your letters and emails of XXXXXXXXXX in which you requested certain advance income tax rulings regarding the proposed transactions described herein.

To the best of your knowledge, and that of Old Pubco, none of the issues involved in this advance rulings request is:

(i) in an earlier return of Old Pubco or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of Old Pubco or a related person;

(iii) under objection by Old Pubco 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 rulings previously issued by the Income Tax Rulings Directorate.

Except as otherwise noted, all statutory references in this request for an advance income tax ruling are references to the provisions of the Act. Unless otherwise noted, all references to currency are to Canadian dollars.

Definitions of the taxpayers

Throughout this letter, except in Paragraph 43, the taxpayers will be referred to as follows:

(a) "Canco 1" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(b) "Canco 2" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, of which Old Pubco owns XXXXXXXXXX% of all the issued and outstanding shares;

(c) "Canco 3" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(d) "Canco 4" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(e) "Canco 5" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(f) "Canco 6" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, of which Old Pubco owns XXXXXXXXXX% of all the issued and outstanding shares;

(g) "Canco 7" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, of which Old Pubco owns XXXXXXXXXX% of the issued and outstanding voting common shares and all the issued and outstanding preferred shares;

(h) "Canco 8" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(i) "Canco 9" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX, of which Old Pubco owns XXXXXXXXXX% of all the issued and outstanding voting common shares and XXXXXXXXXX% of all the issued and outstanding preferred shares;

(j) XXXXXXXXXX;

(k) XXXXXXXXXX;

(l) XXXXXXXXXX;

(m) XXXXXXXXXX;

(n) XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) "Newco" means a corporation to be incorporated under the XXXXXXXXXX by New Pubco;

(q) "New Forco Holding 1" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(r) "New Forco Holding 2" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(s) "New Forco Holding 3" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(t) "New Forco Holding Group" means collectively New Forco Holding 1, New Forco Holding 2 and New Forco Holding 3;

(u) "New Forco Holding Sub 1" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of New Forco Holding 3;

(v) "New Forco Holding Sub 2" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of New Forco Holding Sub 1;

(w) "New Forco Holding Sub Group" means collectively New Forco Holding Sub 1 and New Forco Holding Sub 2;

(x) XXXXXXXXXX;

(y) XXXXXXXXXX;

(z) "New Pubco" means a corporation to be incorporated under the XXXXXXXXXX by Old Pubco;

(aa) "Old Forco 1" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(bb) "Old Forco 2" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX of which Old Pubco owned XXXXXXXXXX% of all the issued and outstanding shares;

(cc) "Old Forco 3" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(dd) "Old Forco 4" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX which is a subsidiary wholly-owned corporation of Old Pubco;

(ee) "Old Forco 5" means XXXXXXXXXX, a limited liability corporation created under the laws of XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(ff) "Old Forco 6" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX, which is a subsidiary wholly-owned corporation of Old Pubco;

(gg) "Old Forco Group" means Old Forco 2, Old Forco 3, Old Forco 4, Old Forco 5 and Old Forco 6;

(hh) "Old Pubco" means XXXXXXXXXX, a corporation amalgamated pursuant to the XXXXXXXXXX, the common shares of which are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX"; and

(ii) XXXXXXXXXX.

DEFINITIONS

In this letter, unless otherwise noted, the following terms have the meaning specified herein:

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

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

"Agreed Amount" means the amount that a taxpayer and a corporation have agreed on in their joint election in accordance with subsection 85(1);

"Business Day" means a day other than a Saturday, Sunday or statutory holiday;

"Business Hours" means the hours during a Business Day in which banks are open for business in XXXXXXXXXX for the transaction of banking business;

"Butterfly Proportion" means the fraction A/B where:

A is the net FMV of the Spin-off Properties to be transferred by Old Pubco to Newco, as described in Paragraph 25, and determined immediately before such transfer and using the principles set out in Paragraph 25; and

B is the net FMV of all property owned by Old Pubco immediately before the transfer of the Spin-off Properties to Newco, as described in Paragraph 25 and using the principles set out in Paragraph 25;

"Canco Group Shares" means collectively all the shares owned by Old Pubco in the capital stock of Canco 1, Canco 2, Canco 3, Canco 4, Canco 5, Canco 6, Canco 7, Canco 8 and Canco 9;

XXXXXXXXXX;

"CRA" means the "Canada Revenue Agency";

"Dividend Policy" has the meaning assigned in Paragraph 13;

"DRA" has the meaning assigned to the expression "dividend rental arrangement" in subsection 248(1);

XXXXXXXXXX;

"Effective Date" means XXXXXXXXXX;

"Effective Time" means XXXXXXXXXX (XXXXXXXXXX Time) on the Effective Date XXXXXXXXXX;

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

XXXXXXXXXX;

"FMV" means "fair market value", being the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and without compulsion to act, expressed in terms of cash;

"Hedging Contract 1" means the internal hedging contract entered into by Old Pubco with New Forco Holding 2 to mitigate foreign exchange exposure in respect of the Old Pubco External Multicurrency Debt;

"Hedging Contract 2" has the meaning assigned in Paragraph 30;

XXXXXXXXXX;

"Information Circular" means the management information circular dated XXXXXXXXXX, as described in Paragraph 14;

XXXXXXXXXX;

XXXXXXXXXX;

"LRIP" has the meaning assigned to the expression "low rate income pool" in subsection 89(1);

"Newco Common Shares" has the meaning assigned in Paragraph 17;

"Newco Note" means the demand promissory note with a principal amount equal to the Newco PS Redemption Amount issued by Newco to Old Pubco as described in Paragraph 26;

"Newco Preferred Shares" has the meaning assigned in Paragraph 17;

"Newco PS Redemption Amount" means the aggregate amount that will be paid by Newco in consideration for the redemption of the Newco Preferred Shares, as described in Paragraph 17;

"Newco Redemption Deemed Dividend" means the dividend that will be deemed to have been paid by Newco and received by Old Pubco pursuant to subsection 84(3) on the redemption of the Newco Preferred Shares, as described in Paragraph 26;

XXXXXXXXXX;

"New Forco Holding Group Shares" means collectively all the issued and outstanding shares of the capital stock of New Forco Holding 1, New Forco Holding 2 and New Forco Holding 3 held by Old Pubco;

"New Pubco Common Shares" means the common shares, voting and participating, to be issued from the capital stock of New Pubco as part of the Proposed Transactions, as described in Paragraph 16;

"New Pubco Multicurrency Credit Facilities" has the meaning assigned in Paragraph 29;

"New Pubco Multicurrency External Debt" has the meaning assigned in Paragraph 29;

"Normal Course Dividends" means any dividends paid or to be paid in the future under the Dividend Policy of Old Pubco and New Pubco, as described in Paragraph 13;

XXXXXXXXXX;

"Old Forco Group Shares" means collectively all the issued and outstanding shares of the capital stock of Old Forco 2, Old Forco 3, Old Forco 4, Old Forco 5 and Old Forco 6 owned by Old Pubco;

"Old Pubco Capital Reorganization" means the reorganization of capital described in Paragraph 23;

"Old Pubco Common Shares" means the XXXXXXXXXX common shares of the capital stock of Old Pubco issued to the public as at XXXXXXXXXX;

"Old Pubco Multicurrency Credit Facilities" means XXXXXXXXXX. The credit facilities were available to (i) XXXXXXXXXX (ii) to repay any outstanding amounts due by Old Pubco (iii) refinance all or part of the indebtedness of XXXXXXXXXX (iv) finance the XXXXXXXXXX (v) to finance future business acquisitions and (vi) general corporate purposes, including to finance working capital expenditure requirements of Old Pubco;

"Old Pubco Multicurrency External Debt" means the amount that, as of the date hereof, has been drawn on the Old Pubco Multicurrency Credit Facilities which is estimated at approximately $XXXXXXXXXX, the proceeds of which have been used by Old Pubco XXXXXXXXXX;

"Old Pubco Multicurrency Internal Debt" has the meaning assigned in Paragraph 30;

"Old Pubco New Common Shares" has the meaning assigned in Paragraph 23;

"Old Pubco New Preferred Shares" has the meaning assigned in Paragraph 23;

"Old Pubco Note" means the demand promissory note with a principal amount equal to the Old Pubco PS Redemption Amount issued by Old Pubco to Newco, as described in Paragraph 27;

"Old Pubco PS Redemption Amount" means the aggregate amount that will be paid by Old Pubco in consideration for the redemption of the Old Pubco New Preferred Shares, as described in Paragraph 23;

"Old Pubco Redemption Deemed Dividend" means the dividend that will be deemed to have been paid by Old Pubco and received by Newco pursuant to subsection 84(3) on the redemption of the Old Pubco New Preferred Shares, as described in Paragraph 27;

"Paragraph" refers to a numbered paragraph in this letter;

"Public Share Exchange" has the meaning assigned in Paragraph 18;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

"Proposed Transactions" means the transactions described in Paragraphs 16 to 31 herein;

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

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

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

XXXXXXXXXX;

"Regulations" means the Income Tax Regulations, C.R.C. 1977, c. 945, as amended to the date hereof;

"SFI" has the meaning assigned to the expression "specified financial institution" in subsection 248(1).

"specified shareholder" has the meaning assigned by subsection 248(1) as modified by subsections 55(3.2) and (3.3);

"Spin-off Properties" means all the Old Forco Group Shares and the New Forco Holding Group Shares owned by Old Pubco immediately prior to the distribution described in Paragraph 25;

XXXXXXXXXX;

"Subsidiary wholly-owned corporation" has the meaning assigned in subsection 248(1);

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

"taxable Canadian corporation" has the meaning assigned in subsection 89(1);

XXXXXXXXXX;

"XXXXXXXXXX" means the "XXXXXXXXXX" which is a "designated stock exchange" as defined under subsection 248(1); and

XXXXXXXXXX.

FACTS

1. XXXXXXXXXX.

2. Old Pubco is a publicly traded corporation that was formed in connection with XXXXXXXXXX.

3. XXXXXXXXXX.

4. XXXXXXXXXX.

5. XXXXXXXXXX.

6. XXXXXXXXXX.

7. XXXXXXXXXX.

8. Since the XXXXXXXXXX and without considering the transactions described in Paragraphs 6 and 7, the PUC in respect of the Old Pubco Common Shares was increased by an additional $XXXXXXXXXX, XXXXXXXXXX.

9. Old Pubco is a taxable Canadian corporation and a public corporation that has annual taxable income of approximately $XXXXXXXXXX for its fiscal year ended XXXXXXXXXX. Old Pubco has no LRIP balance as of the date hereof.

10. As at XXXXXXXXXX, the shareholding of Old Pubco consisted of XXXXXXXXXX common shares issued to the public and all shareholders of Old Pubco are dealing at arm's length with Old Pubco.

The PUC in respect of these shares amounts to approximately $XXXXXXXXXX. Such capital was used for the purpose of earning income from business or property. From such amount of capital, an amount of approximately $XXXXXXXXXX and $XXXXXXXXXX XXXXXXXXXX. The remaining portion of the PUC attributable to the Old Pubco Common Shares (approximately $XXXXXXXXXX) is considered to be capital used by Old Pubco for the purpose of earning income from its business or from the Canco Group Shares.

Old Pubco's current market capitalization is estimated at approximately $XXXXXXXXXX. The common share are voting and participating without par value. XXXXXXXXXX.

11. As of XXXXXXXXXX, based on public records, XXXXXXXXXX outstanding shares of Old Pubco. XXXXXXXXXX the only XXXXXXXXXX specified shareholders of Old Pubco.

12. As of the date hereof, the attributes and FMV of the issued and outstanding shares of the capital stock of the corporations of the Old Forco Group and New Forco Holding Group are currently estimated as follows:

Issuer Class of shares Number of shares ACB($) FMV($)

New Forco Holding 1 Common shares XXXX XXXX XXXX

New Forco Holding 2 Common shares XXXX XXXX XXXX

New Forco Holding 3 Common shares XXXX XXXX XXXX

Old Forco 2 Common shares XXXX XXXX XXXX

Old Forco 3 Common shares XXXX XXXX XXXX

Old Forco 4 Common shares XXXX XXXX -

Old Forco 5 Membership Interest XXXX% XXXX XXXX

Old Forco 6 Common shares XXXX XXXX XXXX

Total XXXX XXXX

Old Pubco has never received any dividends on any of the Old Forco Group Shares as of the date hereof. With respect to the New Forco Holding Group Shares, as of XXXXXXXXXX, Old Pubco has only received a dividend of $XXXXXXXXXX on the shares of New Forco Holding 1, which was deductible under paragraph 113(1)(a).

13. Old Pubco's dividend policy ("Dividend Policy") is to declare and pay cash dividends on a quarterly basis. XXXXXXXXXX.

XXXXXXXXXX.

XXXXXXXXXX, it is anticipated that New Pubco will keep the same dividend policy as that of Old Pubco.

14. On XXXXXXXXXX, Old Pubco issued a management information circular ("Information Circular") in respect of the annual and special meeting of the shareholders of Old Pubco to be held on XXXXXXXXXX. XXXXXXXXXX.

15. On XXXXXXXXXX, Old Pubco held its annual and special meeting of shareholders concerning, XXXXXXXXXX.

PROPOSED TRANSACTIONS

With the exception of the filing of elections under the Act and the listing of New Pubco on the XXXXXXXXXX, it is contemplated that the Proposed Transactions described in Paragraphs 18 to 22, inclusive, XXXXXXXXXX will occur and shall be deemed to occur in the order set out below, each occurring one minute apart commencing at the Effective Time.

According to the Information Circular, the rights and privileges of the shareholders of New Pubco will be equal to the rights of the shareholders of Old Pubco given that New Pubco will be continued under XXXXXXXXXX, as described in Paragraph 21 below.

Preliminary Steps XXXXXXXXXX

16. At least one day prior to the Effective Time, Old Pubco will incorporate New Pubco pursuant to the provisions of the XXXXXXXXXX. New Pubco will be a taxable Canadian corporation. The authorized share capital of New Pubco will consist of an unlimited number of common shares ("New Pubco Common Shares") and an unlimited number of preferred shares. On the incorporation, one New Pubco Common Share will be issued to Old Pubco.

17. At least one day prior to the Effective Time, New Pubco will incorporate Newco pursuant to the provisions of the XXXXXXXXXX and one common share will be issued to New Pubco. Newco will be a taxable Canadian corporation. The authorized share capital of Newco will consist of an unlimited number of common shares ("Newco Common Shares") and at least one class of preferred shares ("Newco Preferred Shares") which will have the following terms and conditions:

(i) each Newco Preferred share will be redeemable, subject to applicable law, at any time at the option of Newco at an amount equal to the aggregate FMV of the Spin-off Properties, at the time of the issuance of the Newco Preferred Shares, divided by the number of Newco Preferred Shares issued by Newco as consideration for the transfer of the Spin-off Properties, subject to any adjustment under the price adjustment clause ("Newco PS Redemption Amount");

(ii) subject to applicable law, each Newco Preferred Share will be retractable at any time at the option of the holder thereof at the Newco PS Redemption Amount;

(iii) the holder of each Newco Preferred Share will be entitled to non-cumulative cash dividends as declared by the directors of Newco from time to time, which dividends need not also to be declared on any other class of shares of Newco;

(iv) the holder of each Newco Preferred Share will be entitled, upon the liquidation, dissolution or winding-up of Newco, to a payment in priority to all other classes of shares of Newco equal to the Newco PS Redemption Amount to the extent of the amount or value of property available under applicable law for payment to shareholders of Newco upon such liquidation, dissolution or winding-up, but will not be entitled to any additional amount; and

(v) the holder of each Newco Preferred Share will not be entitled to vote at any meeting of the shareholders of Newco, other than as provided under applicable law.

XXXXXXXXXX

18. The shareholders of Old Pubco will transfer to New Pubco all their Old Pubco Common Shares in exchange for New Pubco Common Shares (the "Public Share Exchange"). Each of the shareholders of Old Pubco will be dealing at arm's length with New Pubco immediately before the exchange. None of the shareholders of Old Pubco will, jointly with New Pubco, file an election under subsection 85(1) or subsection 85(2) with respect to the exchange.

An amount corresponding to the legal stated capital for the Old Pubco Common Shares will be added to legal stated capital of New Pubco. According to subsection 85.1(2.1), the PUC in respect of the New Pubco Common Shares will be reduced by the amount of the increase of the PUC in respect of the New Pubco Common Shares over the PUC in respect of the Old Pubco Common Shares.

19. Simultaneously with the Public Share Exchange described above, the New Pubco Common Share issued to Old Pubco upon incorporation will be cancelled.

20. XXXXXXXXXX.

21. New Pubco will be continued under the provisions of XXXXXXXXXX.

22. New Pubco will reduce the stated capital in respect of the New Pubco Common Shares by an amount of $XXXXXXXXXX without payment or distributions thereon. The reduction in the stated capital should be accompanied by a corresponding increase in the contributed surplus account of New Pubco for accounting purposes.

Post XXXXXXXXXX Steps – Prior to Business Hours

Each transactions described below will occur in the order set out below, each occurring one minute apart commencing after the completion of the transaction described in Paragraph 22.

23. Pursuant to the XXXXXXXXXX, Old Pubco will amend its articles of incorporation to (i) create a new class of common shares ("Old Pubco New Common Shares"), and a new class of preferred shares ("Old Pubco New Preferred Shares") and (ii) convert all the issued and outstanding Old Pubco Common Shares into Old Pubco New Common Shares and Old Pubco New Preferred Shares (the "Old Pubco Capital Reorganization"). Such shares will have the rights and conditions as described below:

(i) Each Old Pubco New Common Share will be a fully participating voting common share with the holder thereof entitled to two votes at each meeting of the shareholders of Old Pubco. By virtue of such additional votes, the terms and conditions of the Old Pubco New Common Shares will be slightly different than the Old Pubco Common Shares, but otherwise will have the same attributes as the Old Pubco Common Shares; and

(ii) The Old Pubco New Preferred Shares will have the following terms and conditions:

a. Each Old Pubco New Preferred Share will be redeemable, subject to applicable law, at any time at the option of Old Pubco at the Old Pubco PS Redemption Amount being the result of an amount equal to the aggregate FMV of all of the Old Pubco Common shares outstanding immediately before the Old Pubco Capital Reorganization, multiplied by the Butterfly Proportion, subject to any adjustment under the price adjustment clause, divided by the number of Old Pubco New Preferred Shares issued on the Old Pubco Capital Reorganization;

b. subject to applicable law, each Old Pubco New Preferred Share will be retractable at any time at the option of the holder thereof at the Old Pubco PS Redemption Amount;

c. the holder of each Old Pubco New Preferred Share will be entitled to non-cumulative cash dividends as are declared by the directors of Old Pubco from time to time, which dividends need not also to be declared on any other class of shares of Old Pubco;

d. the holder of each Old Pubco New Preferred Share will be entitled, upon the liquidation, dissolution or winding-up of Old Pubco, to a payment in priority to all other classes of shares of Old Pubco of an amount equal to the Old Pubco PS Redemption Amount to the extent of the amount or value of property available under applicable law for payment to shareholders of Old Pubco upon such liquidation, dissolution or winding-up, but will not be entitled to any additional amount; and

e. the holder of each Old Pubco New Preferred Share will not be entitled to vote at any meeting of the shareholders of Old Pubco, other than as provided under applicable law.

No election will be filed under subsection 85(1).

The amount that will be added pursuant to XXXXXXXXXX to the legal stated capital of Old Pubco will be equal to the aggregate PUC of the Old Pubco Common Shares and will be allocated between the Old Pubco New Common Shares and the Old Pubco New Preferred Shares ratably based on their respective FMV. The provisions of subsection 86(2.1) will not apply to reduce the aggregate PUC of the Old Pubco New Common Shares or of the Old Pubco New Preferred Shares as there will be no increase in the PUC of all the shares of the capital stock of Old Pubco as a result of the acquisition by Old Pubco of the Old Pubco Common Shares.

24. New Pubco will transfer to Newco the Old Pubco New Preferred Shares, in exchange for Newco Common Shares. New Pubco and Newco 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 of the Old Pubco New Preferred Shares.

The Agreed Amount will be an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) and will not exceed the FMV of the respective property transferred. Accordingly, the Agreed Amount will be equal to the ACB to New Pubco of the Old Pubco New Preferred Shares.

The amount that will be added pursuant to XXXXXXXXXX to the legal stated capital of Newco will be set at an amount equal to the Agreed Amount described above. The provisions of subsection 85(2.1) will not apply to reduce the aggregate PUC of the Newco Common Shares as the cost to Newco of the property acquired (i.e., the Old Pubco New Preferred Shares), immediately after the acquisition and determined under subsection 85(1), will be equal to the increase in the PUC in respect of all the Newco Common Shares as a result of the transfer.

25. Immediately before the transfer by Old Pubco of the Spin-off Properties to Newco, as described in this Paragraph, the FMV of the property of Old Pubco will be determined as though there was only one type of property, as contemplated by subsection 55(3.02), on a net FMV basis. For greater certainty:

(a) any tax accounts, such as the balance of any non-capital losses, net capital losses and tax pools, will not be considered to be property of Old Pubco for the purposes of determining the net FMV of the property of Old Pubco as described herein; and

(b) no amount will be considered to be a liability of Old Pubco unless it represents a true legal liability which is capable of quantification.

Old Pubco will transfer to Newco the Spin-off Properties in consideration for the issuance of the Newco Preferred Shares. More specifically:

(i) Old Pubco and Newco 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 share transfer;

(ii) the Agreed Amount will be equal to the aggregate ACB of the Old Forco Group Shares and New Forco Group Shares and will be an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) and will not exceed the FMV of the respective property transferred;

(iii) the ACB to Old Pubco of the Newco Preferred Shares will be equal to the Agreed Amount for the transfer;

(iv) pursuant to subsection 85(2.1), the PUC of the Newco Preferred Shares shall not exceed the cost to Newco of the property acquired (i.e., the Spin-off Properties), immediately after the acquisition and determined under subsection 85(1);

(v) by virtue of subsection 40(3.3) and paragraph 40(3.4)(a), any loss realized by Old Pubco on the disposition of the Spin-off Properties will be deemed to be nil and the amount of such loss as otherwise determined under the Act (without reference to paragraph 40(2)(g) and subsection 40(3.4) but for greater certainty, taking into account the application of subsection 93(2)), will, for the purposes of paragraph 40(3.4)(b), be deemed to be a loss of Old Pubco from the disposition of the particular property at the time that is immediately before the first time, after the disposition, that any of the events described in paragraph 40(3.4)(b) occurs.

26. Newco will redeem from Old Pubco all of the issued and outstanding Newco Preferred Shares for an amount equal to the Newco PS Redemption Amount and will issue to Old Pubco, as payment thereof, a non-interest-bearing demand promissory note having a FMV and a principal amount equal to the Newco PS Redemption Amount ("Newco Note"). The terms of the Newco Note will be such that the amount of the principal will be adjusted to reflect any adjustment of value on the Newco Preferred Shares by operation of the price adjustment clause. Old Pubco will accept the Newco Note as full and absolute payment of the Newco PS Redemption Amount.

By virtue of paragraphs 84(3)(a) and (b) and with respect to the redemption of each Newco Preferred Share, Newco will be deemed to have paid and Old Pubco will be deemed to have received a taxable dividend equal to the excess of the amount paid to redeem each Newco Preferred Share over the PUC thereof (the "Newco Redemption Deemed Dividend").

Newco will designate the Newco Redemption Deemed Dividend to be an eligible dividend for purposes of subsection 89(14).

27. Old Pubco will redeem from Newco all of the outstanding Old Pubco New Preferred Shares for an amount equal to the Old Pubco PS Redemption Amount and will issue to Newco, as payment thereof, a non-interest-bearing demand promissory note having a FMV and a principal amount equal to the Old Pubco PS Redemption Amount ("Old Pubco Note"). The terms of the Old Pubco Note will be such that the amount of the principal will be adjusted to reflect any adjustment of value of the Old Pubco New Preferred Shares by operation of the price adjustment clause.
Newco will accept the Old Pubco Note as full and absolute payment of the Old Pubco PS Redemption Amount.

By virtue of paragraphs 84(3)(a) and (b) and with respect to the redemption of each Old Pubco New Preferred Share, Old Pubco will be deemed to have paid and Newco will be deemed to have received a taxable dividend equal to the excess of the amount paid to redeem each Old Pubco New Preferred Share over the PUC thereof (the "Old Pubco Redemption Deemed Dividend").

Old Pubco will designate the Old Pubco Redemption Deemed Dividend to be an eligible dividend for purposes of subsection 89(14).

28. The Newco Note will be set off against the Old Pubco Note in full satisfaction of the respective obligations under each note and the notes will be cancelled.

Post XXXXXXXXXX Steps – During Business Hours

29. On the Effective Date if it is a Business Day, or the first Business Day following the Effective Date, but during Business Hours, New Pubco will enter into multicurrency credit facilities XXXXXXXXXX ("New Pubco Multicurrency Credit Facilities"), or may alternatively be added to the existing Old Pubco Multicurrency Credit Facilities. The New Pubco Multicurrency Credit Facilities will bear interest at XXXXXXXXXX plus an applicable margin up to XXXXXXXXXX% that will vary depending on the type of advances and the Company's ratio. New Pubco will draw down an amount in multiple currencies equal to the Old Pubco Multicurrency External Debt ("New Pubco Multicurrency External Debt").

The New Pubco Multicurrency External Debt will not contain any features that would allow the lender to acquire equity interests in New Pubco or any of its subsidiaries or allow the lender to exchange indebtedness for shares of New Pubco or any of its subsidiaries, nor will such debt contain any features that track the value of any equity interests in New Pubco or any of its subsidiaries.

30. Old Pubco will borrow from New Pubco an amount (denominated in same currencies as the New Pubco Multicurrency External Debt) equal to the New Pubco Multicurrency External Debt at an interest rate that will mirror the interest rate payable on the New Pubco Multicurrency External Debt, plus a small spread ("Old Pubco Multicurrency Internal Debt"). This rate will not be in excess of an arm's length rate. The borrowed funds will be transferred into Old Pubco's bank account.

Simultaneously, Old Pubco will enter into an internal hedging contract ("Hedging Contract 2") with New Forco Holding 2 to mitigate foreign exchange exposure in respect of the Old Pubco Internal Multicurrency Debt.

31. Old Pubco will repay the Old Pubco Multicurrency External Debt with the cash received in Paragraph 30 above and will settle the internal Hedging Contract 1 with New Forco Holding 2.

ADDITIONAL INFORMATION

32. As part of the Public Share Exchange described in Paragraph 18, XXXXXXXXXX will enter into an amended and restated XXXXXXXXXX Agreement in respect of Old Pubco will apply in respect of New Pubco in the same manner as they applied to Old Pubco immediately prior to the Public Share Exchange. Pursuant to such agreement, effective as of the effective date of the Public Share Exchange, (a) XXXXXXXXXX shall apply to securities of New Pubco in place of securities of Old Pubco; (c) New Pubco will assume jointly and severally with Old Pubco all of the covenants, liabilities and obligations of Old Pubco under the XXXXXXXXXX.

33. To the knowledge of Old Pubco, any disposition or acquisition of shares of the capital stock of Old Pubco or of New Pubco (other than as a result of the Public Share Exchange) by shareholders of Old Pubco and New Pubco should not be done in contemplation of the Proposed Transactions.

34. As of the date hereof, Old Pubco is not contemplating to issue Old Pubco Common Shares and New Pubco is not contemplating to issue New Pubco Common Shares, or any other type of securities, either by way of public offering or private placement, as part of the Proposed Transactions.

35. Newco and New Pubco will have a XXXXXXXXXX year-end. Old Pubco has a XXXXXXXXXX year-end.

36. None of Old Pubco and Newco is, or will be, at any time during the series of transactions described herein a "private corporation".

37. Old Pubco will not be liquidated as part of the series of transaction or event that includes the Proposed Transactions.

38. None of the shares of the capital stock of Old Pubco or Newco is, or will be, at any time during the implementation of the Proposed Transactions:

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

(ii) the subject of a "dividend rental arrangement" referred to in subsection 112(2.3), as that term is defined in subsection 248(1);

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

(iv) issued for consideration that is or includes:

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

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

39. None of Old Pubco, Newco or any corporation that is a related person of either of them is, or will be, at any time during the series of transactions described herein:

(i) a corporation described in any of paragraphs (a) to (f) of the definition "financial intermediary corporation" in subsection 191(1), or

(ii) a "specified financial institution" ("SFI") or a "restricted financial institution" as defined under subsection 248(1).

40. It is expected that Newco will receive dividends from New Forco Holding 1, New Forco Holding 2 and New Forco Holding 3 and will pay dividends to New Pubco and that Old Pubco will pay dividends to New Pubco, in order to fund the Normal Course Dividends to be paid by New Pubco to the public shareholders.

41. In the upcoming weeks or months and after the completion of the Proposed Transactions, Old Pubco will borrow money from New Pubco in order to return capital to New Pubco, thereby allowing New Pubco to earn interest income that will be sheltered with its operating expenses.

42. XXXXXXXXXX.

43. The federal business number of XXXXXXXXXX, the location of the tax services office and taxation centre where its returns are filed, and the address of its head office are as follows:

Business Number: XXXXXXXXXX
Tax Services Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX
Head office address:
XXXXXXXXXX

PURPOSES OF THE PROPOSED TRANSACTIONS

44. The purposes of the reorganization are the following:

(a) it will provide a holding structure XXXXXXXXXX;
(b) XXXXXXXXXX;
(c) XXXXXXXXXX
(d) it will create a new holding structure for the Old Forco Group Shares and New Forco Holding Group Shares.

45. The purpose of the reduction of stated capital without consideration, as described in Paragraph 22, is to allow for New Pubco to meet the solvency test under applicable corporate law in order to be able to pay in the future the Normal Course Dividends.

RULINGS GIVEN

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

A. Provided that a shareholder of Old Pubco (the "Vendor") who, immediately before the Public Share Exchange as described in Paragraph 18:

(a) holds the Old Pubco Common Shares as capital property;

(b) does not receive any consideration other than the New Pubco Common Shares in exchange for the Old Pubco Common Shares;

(c) deals at arm's length with New Pubco immediately before the Public Share Exchange;

(d) does not file an election under subsections 85(1) or (2) with respect to the Public Share Exchange;

(e) does not include any portion of the gain or loss otherwise determined in computing his or her income for that year; and

(f) is not a person described in paragraph 85.1(2)(e) who has included any portion of the gain or loss in computing its foreign accrual property income (as defined in subsection 95(1)) for that year,
and further provided that immediately after such Public Share Exchange:

(g) the particular Vendor or persons with whom such Vendor does not deal at arm's length, or the particular Vendor together with any other person or persons with whom such Vendor does not deal at arm's length, will not control New Pubco or beneficially own shares of the capital stock of New Pubco having an aggregate FMV representing more than 50% of the aggregate FMV of all outstanding shares of the capital stock of New Pubco;
then pursuant to paragraph 85.1(1)(a):

(h) such Vendor will be deemed to have disposed of such Old Pubco Common Shares for proceeds of disposition equal to the aggregate ACB of such Old Pubco Common Shares to the particular Vendor immediately before the Public Share Exchange; and

(i) such Vendor will be deemed to have acquired such New Pubco Common Shares at an aggregate cost equal to the aggregate ACB to such Vendor of the Old Pubco Common Shares immediately before the Public Share Exchange;

and pursuant to paragraph 85.1(1)(b) the cost to New Pubco of each Old Pubco Common Share acquired from each such Vendor will be deemed to be the lesser of its FMV immediately before the Public Share Exchange and the PUC of such Old Pubco Common Share immediately before the Public Share Exchange.

B. The provisions of subsection 86(1) will apply and the provisions of subsection 86(2) will not apply to the Old Pubco Capital Reorganization pursuant to which New Pubco will exchange the Old Pubco Common Shares in consideration for Old Pubco New Common Shares and Old Pubco New Preferred Shares, as described in Paragraph 23, provided that

(a) New Pubco holds the Old Pubco Common Shares as capital property; and

(b) New Pubco and Old Pubco do not file an election under subsection 85(1) in respect of the Old Pubco Capital Reorganization;

such that

(c) pursuant to paragraph 86(1)(b), the cost to New Pubco of the Old Pubco New Common Shares and the Old Pubco New Preferred Shares, respectively, will be deemed to be the proportion of the ACB to New Pubco of such Old Pubco Common Shares immediately before the exchange that

(i) the FMV, immediately after the exchange, of the Old Pubco New Common Shares, or of the Old Pubco New Preferred Shares, as the case may be, received by New Pubco

is of

(ii) the FMV, immediately after the exchange, of all the shares of the capital stock of Old Pubco acquired by New Pubco on the exchange;

(d) pursuant to paragraph 86(1)(c), New Pubco will be deemed to have disposed of the Old Pubco Common Shares for aggregate proceeds of disposition equal to the aggregate cost to New Pubco of the Old Pubco New Common Shares and Old Pubco New Preferred Shares received by New Pubco as determined in (c) above; and

(e) pursuant to subsection 86(2.1), the aggregate PUC of the Old Pubco New Common Shares and Old Pubco New Preferred Shares will be equal to the PUC of the Old Pubco Common Shares which were exchanged for the Old Pubco New Common Shares and Old Pubco New Preferred Shares.

C. Subsection 84(3) will apply:

(a) on the redemption, as described in Paragraph 26, of the Newco Preferred Shares owned by Old Pubco, to deem Newco to have paid, and Old Pubco to have received; and

(b) on the redemption, as described in Paragraph 27, of the Old Pubco New Preferred Shares owned by Newco, to deem Old Pubco to have paid, and Newco to have received;

a dividend on the Newco Preferred Shares and the Old Pubco New Preferred Shares, respectively, equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC, in respect of the shares redeemed, immediately before such redemption,

and any such dividend:

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

(d) will be deductible, pursuant to subsection 112(1), by the corporation deemed to have received such dividend;

(e) will not be a dividend to which any of subsections 112(2.1), (2.2), (2.3) or (2.4) apply to deny the subsection 112(1) deduction described in (d) above;

(f) will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining the proceeds of disposition to the recipient corporation of the shares which are redeemed;

(g) by virtue of subsection 112(3), will reduce the loss, if any, in respect of the disposition of the shares on which the particular dividend is deemed to be received; and

(h) will not be subject to tax under Parts IV.1 or VI.1.

D. Provided that:

(a) there is not a distribution by Old Pubco to a corporation that is not an acquiror before the day that is three years after the Effective Date; and

(b) there is not a distribution by New Pubco and by Newco before the date that is three years after the Effective Date;

and as part of a series of transactions or events that includes the taxable dividends referred to in Ruling C above, there is not:

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

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

(e) an acquisition of any shares of Old Pubco in contemplation of the distribution in the circumstances described in subparagraph 55(3.1)(b)(iii);

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

E. The set-off and cancellation of the Old Pubco Note held by Newco and the Newco Note held by Old Pubco, described in Paragraph 28, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1) and neither Old Pubco nor Newco will realize any gain or incur any loss therefrom.

F. To the extent interest paid or payable by Old Pubco on the Old Pubco Multicurrency Internal Debt is paid pursuant to a legal obligation and for the purpose of gaining or producing income from a business or property and to the extent the Old Pubco Multicurrency Internal Debt does not exceed the PUC of the Old Pubco New Preferred Shares, determined immediately before the redemption described in Paragraph 27, pursuant to paragraph 20(1)(c) and subsection 20(3), Old Pubco will be entitled to deduct in a taxation year the interest paid or payable on the Old Pubco Multicurrency Internal Debt in respect of the taxation year to the extent such amount does not exceed a reasonable amount in respect thereof.

G. The provisions of subsections 15(1), 56(2), 56(4), 69(4) and 246(1) will not apply to any of the Proposed Transactions described herein, in and by themselves.

H. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to re-determine the tax consequences confirmed in the Rulings given above.

The above rulings are given subject to the limitations and qualifications set forth 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, could have an effect on the rulings provided herein.

COMMENTS

1. Unless otherwise 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, or the outstanding balance of various tax accounts for any of the corporate entities described 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.

Nothing in this letter should be construed as a confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the 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 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, Price Adjustment Clauses, which replaces and cancels Interpretation Bulletin IT-169.

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