2015 Ruling 2013-0490651R3 - Single-wing Split-up Farm 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 transactions meet statutory requirements?

Position: Yes.

Reasons: Meets the requirements of the law.

XXXXXXXXXX 2013-049065

XXXXXXXXXX, 2015

Dear XXXXXXXXXX:

Re: XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office)
Advance Income Tax Ruling Request

This is in reply to your letter in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided in correspondence and telephone conversations concerning your request. You have advised that to the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein is:

(a) in an earlier tax return of the taxpayer or a related person;

(b) being considered by a Tax Services Office or Taxation Centre in connection with any tax return previously filed by the taxpayer or a related person;

(c) under objection or appeal by the taxpayer or a related person;

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

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

DEFINITIONS

In this letter, all monetary amounts are expressed in Canadian dollars unless otherwise indicated, and the following terms or expressions have the meaning specified:

"Act" means the Income Tax Act, 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 expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Act;

"Act1" means the XXXXXXXXXX;

"Act2" means the XXXXXXXXXX;

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

"agreed amount" means the amount agreed on by the transferor and the transferee in respect of the transfer of an eligible property in a joint election filed pursuant to subsection 85(1);

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

"BN" means the business number assigned to the particular entity by the CRA;

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

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

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

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

"CRA" means the Canada Revenue Agency;

"DC" means XXXXXXXXXX, a corporation described in Paragraph 1 and 2;

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

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

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

"fair market value" 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, expressed in terms of cash;

"forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);

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

"Lot1" refers to a XXXXXXXXXX acre parcel of land, XXXXXXXXXX;

"Lot2" refers to a XXXXXXXXXX acre parcel of land, XXXXXXXXXX;

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

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

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

"Promissory Note1" means the non-interest bearing demand promissory note issued by TC to DC on the redemption of the TC Preferred Share whose principal amount and fair market value will be equal to the TC Preferred Share redemption amount described in Paragraph 21;

"Promissory Note2" means the non-interest bearing demand promissory note issued by DC to TC on the repurchase of the XXXXXXXXXX common shares held by TC whose principal amount and fair market value will be equal to the aggregate fair market value of the common shares repurchased as described in Paragraph 22;

"Proposed Transactions" means the transactions described in Proposed Transactions section of this letter;

"qualified farm property" has the meaning assigned in subsection 110.6(1);

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

"related person" has the meaning assigned by subsection 251(2);

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

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

"Sibling1" means XXXXXXXXXX, the sibling of Sibling2;

"Sibling2" means XXXXXXXXXX, the sibling of Sibling1;

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

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

"stated capital" has, in relation to a corporation that exists under Act1 or Act2, the meaning assigned by the Act1 or Act2, respectively;

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

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

"TC" means a corporation that will be incorporated pursuant to Act2;

"TC Preferred Share" has the meaning assigned by Paragraph 18(b); and

"V-Day Value" means the fair market value of the XXXXXXXXXX common shares of DC referred to in Paragraph 3 as at XXXXXXXXXX.

FACTS

1. DC is and will be, at any relevant time and for all purposes of the Act, a Canadian-controlled private corporation and a taxable Canadian corporation. DC was incorporated under Act1 on XXXXXXXXXX. DC carries on farming operations in XXXXXXXXXX and reports its farming income, for tax purposes, on an accrual basis. DC's taxation year and fiscal period ends on XXXXXXXXXX.

2. DC's authorized share capital is XXXXXXXXXX common shares without par value.

3. On the incorporation of DC, each of Sibling1 and Sibling2 subscribed for XXXXXXXXXX common shares of DC for $XXXXXXXXXX per share. The paid up capital of the XXXXXXXXXX common shares of DC is $XXXXXXXXXX and the adjusted cost base to each of Sibling1 and Sibling2 of their respective XXXXXXXXXX common shares is $XXXXXXXXXX.

4. Sibling1 and Sibling2 are Canadian residents.

5. The shares of DC represent capital property to each of Sibling1 and Sibling2.

6. The approximate V-Day Value of the XXXXXXXXXX common shares is $XXXXXXXXXX.

7. The main assets of DC are Lot1 and Lot2. Approximately XXXXXXXXXX% of the estimated fair market value of DC is derived from Lot1 and Lot2. The approximate fair market value of Lot1 is $XXXXXXXXXX and the approximate fair market value of Lot2 is $XXXXXXXXXX.

8. It is not expected that DC will have any balance in its capital dividend account, general rate income pool or refundable dividend tax on hand at the end of its taxation year in which the Proposed Transactions are completed.

9. As of XXXXXXXXXX, DC had farm losses of $XXXXXXXXXX and these losses will be retained by DC.

PROPOSED TRANSACTIONS

10. The articles of DC will be amended to create and authorize the issuance of an unlimited number of the following shares:

(a) Class B common shares, fully participating, voting, entitling the holder to discretionary non-cumulative dividends and without par value;

(b) Class C common shares, fully participating, non-voting, entitling the holder to discretionary non-cumulative dividends and without par value;

(c) Class D common shares, fully participating, non-voting, entitling the holder to discretionary non-cumulative dividends and without par value;

(d) Class E preferred shares, fully participating, non-voting, redeemable at $XXXXXXXXXX per share and without par value;

(e) Class F preferred shares, fully participating, non-voting, redeemable at an amount to be set by the directors at the time of issuance and with par value of $XXXXXXXXXX;

(f) Class G preferred shares, fully participating, non-voting, redeemable at an amount equal to the difference between the fair market value of the property acquired and the non-share consideration given to be set by the directors at the time of issuance and without par value;

(g) Class H preferred shares, fully participating, non-voting, redeemable at an amount equal to the difference between the fair market value of the property acquired and the non-share consideration given to be set by the directors at the time of issuance and without par value; and

(h) Class I preferred shares, non-participating, voting, redeemable at $XXXXXXXXXX per share and with par value of $XXXXXXXXXX.

11. Sibling1 will incorporate TC. The authorized share capital of TC will consist of an unlimited number of the following shares:

(a) Class A common shares, fully participating, voting and without par value;

(b) Class B common shares, fully participating, voting and without par value;

(c) Class C common shares, fully participating, non-voting and without par value;

(d) Class D common shares, fully participating, non-voting and without par value;

(e) Class E preferred shares, fully participating, non-voting, redeemable at $XXXXXXXXXX per share and without par value;

(f) Class F preferred shares, fully participating, non-voting, redeemable at an amount to be set by the directors at the time of issuance and with par value of $XXXXXXXXXX;

(g) Class G preferred shares, fully participating, non-voting, redeemable at an amount equal to the difference between the fair market value of the property acquired and the non-share consideration given to be set by the directors at the time of issuance and without par value;

(h) Class H preferred shares, fully participating, non-voting, redeemable at an amount equal to the difference between the fair market value of the property acquired and the non-share consideration given to be set by the directors at the time of issuance and without par value; and

(i) Class I preferred shares, non-participating, voting, redeemable at $XXXXXXXXXX per share and with par value of $XXXXXXXXXX.

12. At the time of incorporation of TC, Sibling1 will subscribe for XXXXXXXXXX Class A common shares at $XXXXXXXXXX per share for an aggregate of subscription price of $XXXXXXXXXX.

13. Sibling1 will transfer all of his shares of DC to TC and, as consideration therefor, Sibling1 will receive XXXXXXXXXX Class G preferred shares of TC with an aggregate fair market value equal to the aggregate fair market value, at the time of the transfer, of the DC shares transferred by Sibling1 to TC.

Sibling1 and TC will file a joint election in the prescribed form and within the term referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer described in this Paragraph. The agreed amount for purposes of such election will not be less than the lesser of the two amounts specified in paragraph 85(1)(c.1), nor will such amount exceed the fair market value of the XXXXXXXXXX common shares of DC that are transferred by Sibling1 to TC.

The increase to the paid-up capital of the Class G preferred shares of TC will not exceed the paid-up capital attributable to the common shares of DC for which such Class G preferred shares of TC were issued. For greater certainty, the increase to the paid-up capital of the Class G preferred shares of TC will not exceed the maximum amount that could be added to the paid-up capital of such shares without adjustment according to paragraph 84.1(1)(a).

14. Immediately before the transfer of property described in Paragraph 16, the property owned by DC will be classified into the following three types of property for the purposes of the definition of distribution:

(a) cash or near cash property, comprising all of the current assets of DC, including cash, GST receivable, other taxes receivable, bank accounts, accounts receivable, and inventory;

(b) investment property, comprising all 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 specified investment business; and

(c) business property, comprising all 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 an active business carried on by DC (other than a specified investment business).

(d) for greater certainty, for the purposes of this distribution:

i. tax accounts or other tax related amounts of DC, such as the balance of non-capital losses, net capital losses, refundable dividend tax on hand and/or capital dividend account, if any, will not be considered property, as the case may be;

ii. no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification; and

iii. 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.

15. In determining the net fair market value immediately before the transfer, described in Paragraph 16, of DC's cash or near cash property, investment property and business property, the liabilities of DC will be allocated in the following manner:

(a) Current liabilities of DC will be allocated to cash or near cash property (including any cash, accounts receivable and prepaid expenses) in the proportion that the fair market value of each such property is of the fair market value of all cash or near cash property. The allocation of current liabilities as described herein will not exceed the aggregate fair market value of all cash or near cash property of DC.

(b) Liabilities, 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 fair market value. 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 fair market value of such type of property after the allocation of liabilities to a particular property, as described herein.

(c) If any liabilities remain after the allocations described in steps (a) and (b) are made, such liabilities, will be allocated to the cash or near cash property, investment property, and business property based on the relative net fair market value of each type of property.

16. Immediately following the classification of its property into the three types of property as described in Paragraph 14, DC will transfer to TC a pro rata portion of the net fair market value of each type of property owned by DC, as determined in accordance with Paragraphs 14 and 15, such that immediately following such property transfers and any corresponding liability assumptions, the net fair market value of each of the three types of property of DC so transferred to TC will, for greater certainty, approximate that proportion determined by the formula:

A x B/C

where:

A is the net fair market value, immediately before the transfer, of all property of that type owned at that time by DC;

B is the fair market value, immediately before the transfer, of all of the shares of the capital stock of DC owned, at that time, by TC; and

C is the fair market value, immediately before the transfer, of all the issued and outstanding shares of the capital stock of DC at that time.

For the purposes of this Paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion, if any, will not exceed XXXXXXXXXX, determined as a percentage of the net fair market value of each type of property that TC will receive as compared to what it would have received had it received its appropriate pro rata share of the net fair market value of that type of property of DC.

17. On the transfer described in Paragraph 16 a portion of the beneficial ownership of Lot2 will be transferred by DC to TC. DC will retain legal title of Lot2 and will hold a portion of the legal title of Lot2 (such portion of legal title being equivalent to the portion of the beneficial ownership of Lot2 transferred by DC to TC on the transfer described in Paragraph 16) as nominee, agent and bare trustee and for the sole benefit of TC.

18. As consideration for the property transferred by DC to TC, TC will:

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

(b) issue to DC one Class H non-voting preferred share ("TC Preferred Share") having a redemption amount and fair market value equal to the aggregate fair market value of the property received by TC less the amount of the liabilities of DC assumed by TC as described in (a) above.

19. DC and TC will file a joint election in the prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of each eligible property that is transferred by DC to TC as described in Paragraph 16. The agreed amount in respect of each eligible property so transferred will not be greater than the fair market value of such property nor will it be less than the amount permitted under paragraph 85(1)(b). For greater certainty, the agreed amount in respect of each such transferred property will be within the limits prescribed as follows:

(a) in the case of capital property (other than depreciable property of a prescribed class), an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

(b) in the case of depreciable property of a prescribed class, an amount not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii);

(c) in the case of eligible capital property, an amount not less than the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii); and

(d) in the case of inventory, described in paragraph 85(1)(c.2), the amount determined in that paragraph.

For greater certainty, the aggregate of such elected amounts will be greater than the aggregate amount of DC's liabilities so assumed by TC, as described in Paragraph 18(a).

20. The increase to the paid-up capital of the TC Preferred Share that is issued to DC as consideration for the property transferred by DC to TC will not exceed the aggregate cost of such property to TC, as determined pursuant to subsection 85(1), where applicable, less the aggregate amount of DC's liabilities assumed by TC for such property. For greater certainty, the increase to the paid-up capital of the TC Preferred Share will not exceed the maximum amount that could be added to the paid-up capital of such shares without adjustment according to subsection 85(2.1).

21. Immediately following the transfer of property described in Paragraph 16, TC will redeem the TC Preferred Share for an amount equal to its redemption amount. As consideration therefor, TC will issue to DC Promissory Note1. DC will accept Promissory Note1 as full payment for the aggregate redemption amount of the TC Preferred Share so redeemed.

22. Immediately following the transfer of property described in Paragraphs 16, DC will purchase for cancellation all of the common shares held by TC for an amount equal to their aggregate fair market value. As consideration therefor, DC will issue to TC Promissory Note2. TC will accept Promissory Note2 as full payment for the aggregate fair market value of the common shares.

23. The principal amount owing by TC to DC under Promissory Note1 will be set-off against the principal amount owning by DC to TC under Promissory Note2 such that each such note will be cancelled in full satisfaction of their respective underlying obligations.

24. DC will lease at fair market value from TC the portion of Lot2 beneficially owned by TC pursuant to the aforementioned reorganization.

ADDITIONAL INFORMATION

25. Except as described herein, no property transferred to TC in the course of the reorganization contemplated herein will, thereafter, be transferred directly or indirectly, as part of a series of transactions which includes the Proposed Transactions, to an unrelated person or partnership.

26. Paragraph 17 and 24 will not result in the creation of a partnership for legal purposes with respect to TC's and DC's investments or interest in Lot2. Any agreements that will be entered into by TC and DC and their successors or assigns (individually referred to as "Party" and collectively as the "Parties"), in respect of Lot2 will indicate that: (i) the Parties do not intend to create a partnership as they will not be carrying on business in common with a view to profit; (ii) no Parties can act on behalf of any other Party without obtaining prior consent from that other Party; (iii) each Party has a well-defined and separate interest in, and ownership of, the properties subject to the agreement; (iv) a Party cannot charge and/or grant security over Lot2 as a whole (ie. the other Party's interests) as each Party only has the right to deal with its own interest in Lot2; (v) profit and loss is calculated by each Party individually and there is no mechanism in the agreement that deals with the allocation of profit and loss; and (vi) the liability of a Party is limited to its own expenses.

27. The Proposed Transactions described herein will occur in the order presented unless otherwise indicated, with the exception of the filing of the applicable election forms described in Paragraphs 13 and 19, which will be filed by the applicable due date following completion of the Proposed Transactions.

28. No property has or will become property of DC in contemplation of and before the transfer described in Paragraph 16, except as otherwise described herein.

29. Except as specifically described in the Proposed Transactions, there is no expectation or intention that DC or TC will dispose of any property as part of a series of transactions or events that includes the Proposed Transactions, other than in the ordinary course of such corporation's business.

30. None of the shares of DC or TC will be at any time during a series of transactions or events that includes the Proposed Transactions:

(a) the subject of a guarantee agreement;

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

(c) the subject of a dividend rental agreement.

31. Each of DC and TC 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.

32. DC is not, and TC will not be, a restricted financial institution nor a specified financial institution.

33. None of the parties is contemplating a disposition of any of the shares of DC or TC, other than as described herein.

34. None of the parties is contemplating an acquisition of control of DC or TC, other than as described herein.

35. Immediately following completion of the Proposed Transactions, the net fair market value of each type of property retained by DC, determined in the manner described in Paragraph 14, will approximate the proportion of the net fair market value of all property of DC of that type (after allocating and deducting liabilities, in the manner described in Paragraph 15), determined immediately before the transfer described in Paragraph 16, that:

(a) the aggregate fair market value, immediately before the transfer described in Paragraph 16, of all the shares in the capital stock of DC owned by all shareholders of DC other than TC, is of

(b) the aggregate fair market value, immediately before the transfer, of all of the issued and outstanding shares of DC.

PURPOSES OF THE PROPOSED TRANSACTIONS

36. The purpose of the Proposed Transactions is to divide the assets of DC on a pro rata basis between Sibling1 and Sibling2 on a tax deferred basis using a single-wing butterfly transaction to allow both Siblings to deal with such assets separately (other than any such assets held in co-ownership after the butterfly) and carry on separate farming businesses independent of one another.

37. The purpose of the bare trust agreement entered into between DC and TC described in Paragraph 17 is to allow the transfer of a portion of the beneficial ownership of Lot2, described in Paragraph 16, to be exempt from XXXXXXXXXX property transfer tax under a specific exemption in the XXXXXXXXXX.

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 completed in the manner described above, our rulings are as set forth below.

A. Subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfer described in Paragraph 13 such that the agreed amount in respect of such transfer will be deemed to be Sibling1's proceeds of disposition and TC's, as the case may be, cost of acquisition. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfer referred to herein.

B. Subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfers of eligible property held by DC to TC as described in Paragraph 16, such that the agreed amount in respect of each such transfer will be deemed to be DC's proceeds of disposition and TC's cost of such property. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

For the purposes of the joint elections described herein, the reference to the "undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition" found in subparagraph 85(1)(e)(i) shall be interpreted to mean that proportion of the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition, that the fair market value at that time of the property that is transferred is of the fair market value at that time of all property of that class.

C. The application of subsection 84.1(1) to the transfer of shares described in Paragraph 13 will not result in a dividend being deemed to be paid by TC to the respective transferor pursuant to paragraph 84.1(1)(b).

D. As a result of the redemption by TC of the TC Preferred Share described in Paragraph 21, by virtue of subsection 84(3), TC will be deemed to have paid, and DC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by TC in respect of its redemption of the TC Preferred Share owned by DC exceeds the paid-up capital of such class of shares immediately before the redemption.

E. As a result of the purchase for cancellation of the common shares described in Paragraph 22, by virtue of subsection 84(3), DC will be deemed to have paid, and TC will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by DC in respect of its purchase for cancellation of the common shares owned by TC exceeds the paid-up capital of such class of shares immediately before the redemption.

F. The taxable dividends received by TC and DC, as described in Rulings D and E:

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

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

(c) will be excluded in determining the proceeds of disposition to the recipient 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 give rise to tax under Part IV except as provided in paragraph 186(1)(b) that the payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend; and

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

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

(a) an acquisition of property in circumstances described in paragraph 55(3.l)(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 shares in the circumstances described in subparagraph 55(3.l)(b)(iii); or

(e) an acquisition of property in the circumstances described in subparagraph 55(3.l)(c) or 55(3.1)(d);

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

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

I. The set-off and cancellation of Promissory Note1 owing by TC against Promissory Note2 owing by DC, as described in Paragraph 23, will not, in and of itself, give rise to a forgiven amount and neither DC nor TC will realize a gain or incur a loss as a result of such set-off and cancellation.

J. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed herein.

The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R6 dated August 29, 2014 and are binding on CRA provided that the Proposed Transactions are completed no later than six months of the date of this letter. 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.

OTHER COMMENTS

1. Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:

(a) the paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein;

(b) any relevant provincial legislation or common law or any tax consequences arising as a result thereof;

(c) the balance of the capital dividend account, general rate income pool, or refundable dividend tax on hand of any corporation; or

(d) 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. 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 fair market value 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. In addition, any subsequent adjustment could affect Ruling G above. Furthermore, none of the rulings given in this letter are intended to apply to 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.

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