2014 Ruling 2013-0500251R3 - Butterfly Reorganization

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

Principal Issues: Whether the proposed transaction qualifies for the butterfly exemption found in paragraph 55(3)(b)

Position: Yes

Reasons: The proposed transaction meets the requirements found in paragraph 55(3)(b), and is not subject to any of the butterfly exemption denial rules found in 55(3.1)(a), (b) and (c)

2013-050025

XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 2014

Dear Sir,

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX Tax Services Office

This is in reply to your letter in which you requested an advance income tax ruling on behalf of the above-referenced taxpayer ("Rulings Request"). The information that you provided in the aforementioned letter and our email correspondence only forms part of this letter to the extent described herein.

To the best of your knowledge and that of the above-referenced taxpayer, none of the issues raised in the Rulings Request is:

(i) in an earlier income tax return of the above-referenced taxpayer or a person related to that taxpayer;

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

(iii) under objection by the above-referenced taxpayer or a person related to that taxpayer;

(iv) before the courts or, if a judgement 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.

Furthermore, the above-referenced taxpayer has confirmed that the proposed transactions described herein will not result in it or any related person described herein being unable to pay any of its outstanding tax liabilities.

Unless otherwise expressly stated, all statutory references herein are to sections or subsections, paragraphs or subparagraphs and clauses or subclauses of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter, and all references to monetary amounts are in Canadian dollars.

DEFINITIONS

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

"ACB" means adjusted cost base as that term is defined by section 54.

"Agreed Amount" means the amount that the transferor and transferee of an Eligible Property have agreed in a joint election filed pursuant to the rules found in section 85.

"Amalco" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that resulted from the amalgamation of 7XCo and 8XCo.

"Amalgamation" means the amalgamation of 2XCo and 4XCo to form DC on XXXXXXXXXX.

"Articles of Amendment" means the articles of amendment that 6XCo and 5XCo will send to the Director pursuant to XXXXXXXXXX of the BCA to increase their respective authorized share capital as further described in Paragraphs 29 and 30.

"Articles of Dissolution" means the articles of dissolution that each of New6XCo, New5XCo and DC will send in prescribed form to the Director pursuant to XXXXXXXXXX of the BCA as further described in Paragraphs 57, 60 and 70.

"Articles of Incorporation" means the articles of incorporation that New6XCo and New5XCo will send to the Director pursuant to XXXXXXXXXX of the BCA.

"BCA" means the Business Corporations Act XXXXXXXXXX.

"Business Property" means all of the assets of DC, other than Cash or Near-Cash Property, any income of which would, for the purposes of the Act, be income from the business of DC (other than a Specified Investment Business).

The net FMV of the Business Property, immediately before the transfer of DC's property to New6XCo and New5XCo as further described in Paragraphs 47 and 50 will be calculated as follows: (i) liabilities, other than current liabilities, that relate to a particular Business Property will be allocated to that property to the extent of its FMV; (ii) liabilities that pertain to Business Property but not to a particular property will be allocated to Business Property; (iii) deferred revenue, representing revenue received or receivable in the ordinary course of DC's business, the recognition of which has been deferred due to the legal obligation of DC to render services or deliver products from which such revenue was received, will be considered a liability only to the extent that it gives rise to a legal obligation to repay the amount should the services not be provided or the products not be delivered; (iv) any deferred charges, deferred taxes, and tax accounts will be ignored in determining the net FMV of Business Property; (v) provided that the amount of Cash or Near-Cash Property exceeds DC's current liabilities, the FMV of all accounts receivable, Inventory and prepaid expenses of DC that will relate to the DC's business, net of allocated liabilities, will be reclassified as Business Property and the net FMV thereof will be included in the net FMV of the Business Property and will not be included in the net FMV of the Cash or Near-Cash Property; (vi) any liabilities that remain after the allocation to Cash or Near-Cash Property and the allocations and reclassifications described above in this definition will be allocated to the Business Property based on the relative net FMV of the Business Property prior to the allocation of such excess unallocated liabilities. To the extent that the liabilities allocated to Business Property exceed the total FMV of the Business Property, DC will be considered to have a negative amount of Business Property.

"1X" means XXXXXXXXXX, who is 5X's daughter and who is a resident in Canada.

"CCPC" means "Canadian-controlled private corporation" as that term is defined in subsection 125(7).

"CDA" means "capital dividend account" as that term is defined in subsection 89(1).

"CRA" means the Canada Revenue Agency.

"Capital Dividend" has the meaning assigned by subsection 83(2).

"Capital Property" has the meaning assigned by section 54.

"Cash or Near-Cash" means all the current assets of DC, including: (i) cash; (ii) accounts receivable; (iii) Inventory; (iv) income taxes recoverable; (v) prepaid expenses; and (vi) deposits and advances to related persons, shareholders of DC or persons related to such shareholders that are due within the next 12 months or those with no fixed term of repayment.

In determining the net FMV of the Cash or Near-Cash Property, immediately before the transfer: (i) current liabilities will be allocated to a Cash or Near-Cash Property of DC in the proportion that the net FMV of each such property is of the FMV of all its Cash or Near-Cash Property; (ii) deferred revenue, representing revenue received or receivable in the ordinary course of DC's business, the recognition of which has been deferred due to the legal obligation of DC to render services or deliver products from which such revenue was received, will be considered a liability only to the extent that it gives rise to a legal obligation to repay the amount should the services not be provided or the products not be delivered; (iii) any deferred charges, deferred taxes, and tax accounts will be ignored in determining the net FMV of the Cash or Near-Cash Property. Current liabilities will include accounts payable, accrued liabilities, amounts owing to shareholders, income taxes payable and the current portion of long-term debt.

"Certificate of Dissolution" means the certificate of dissolution that will be issued upon receipt of the Articles of Dissolution pursuant to XXXXXXXXXX of the BCA.

"CRA" means the Canada Revenue Agency.

"Cost Amount" has the meaning assigned by subsection 248(1).

"DC" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that resulted from the Amalgamation. DC has a taxation year ending on XXXXXXXXXX of each year.

DC's authorized capital consists of an unlimited number of common shares, class A preferred shares, class B preferred shares, and class C preferred shares. The holders of DC's common shares are entitled to: (i) one vote for each common share held at all meetings of DC's shareholders; (ii) receive such non-cumulative dividends that the directors of DC may declare subject to the prior rights granted to the class A, B and C preferred shareholders, and (iii) receive a portion of DC's remaining property if DC is liquidated subject to the prior rights granted to the class A, B and C preferred shareholders.

The holders of DC's class A preferred shares are entitled to: (i) one vote for each class A preferred share held at all meetings of DC's shareholders; (ii) receive fixed and non-cumulative cash dividends, as and when declared by the directors of the corporation, at the rate of up to XXXXXXXXXX% per annum of the DC Redemption Amount in respect of each such share in priority to the holders of common shares and class B and C preferred shares; (iii) receive an amount equivalent to the DC Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of DC's dissolution in priority to the holders of common shares and class B and C preferred shares; (iv) receive the DC Redemption Amount if all or part of the class A preferred shares are redeemed. For greater clarity, DC shall not declare any dividend, redeem, purchase or make any capital distribution in respect of any other shares of the corporation unless DC has sufficient assets to redeem each outstanding class A preferred share at its DC Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A preferred share. Each class A preferred share in DC qualify as a Taxable Preferred Share.

The holders of DC's class B preferred shares are not entitled to vote at any meeting of DC's shareholders. However, they are entitled to: (i) receive fixed and non-cumulative cash dividends, as and when declared by the directors of the corporation, at the rate of up to XXXXXXXXXX% per annum of the DC Redemption Amount in respect of each such share in priority to the holders of common shares and class C preferred shares; (ii) receive an amount equivalent to the DC Redemption Amount together with all declared but unpaid dividends thereon in respect of each class B preferred share in the event of DC's dissolution in priority to the holders of common shares and class C preferred shares; (iii) receive the DC Redemption Amount together with all declared but unpaid dividends in respect of each of the then outstanding class B preferred shares so redeemed.

The holders of DC's class C preferred shares are not entitled to vote at any meeting of DC's shareholders. However, they are entitled to: (i) receive fixed and non-cumulative cash dividends, as and when declared by the directors of the corporation, at the rate of up to XXXXXXXXXX% per annum of the DC Redemption Amount in respect of each such share in priority to the holders of common shares; (ii) receive an amount equivalent to the DC Redemption Amount together with all declared but unpaid dividends thereon in respect of each class C preferred share in the event of DC's dissolution in priority to the holders of common shares; (iii) receive the DC Redemption Amount together with all declared but unpaid dividends in respect of each of the then outstanding class C preferred shares so redeemed.

"DC Promissory Note 1" means the non-interest-bearing promissory note that DC will issue to 6XCo in consideration for the purchase for cancellation of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares that 6XCo will hold in DC as further described in Paragraph 63. The principal amount and FMV of DC Promissory Note 1 will be equal to the aggregate FMV of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares that 6XCo will hold in DC.

"DC Promissory Note 2" means the interest-bearing promissory note that DC will issue to 5XCo in consideration for the purchase for cancellation of the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares that 5XCo will hold in DC as described in Paragraph 64. The principal amount and FMV of DC Promissory Note 2 will be equal to the aggregate FMV of the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares that 5XCo will hold in DC.

"DC Redemption Amount" means an amount equal to $XXXXXXXXXX per share payable to each holder of a class A, B or C preferred share in DC upon the redemption, at the option of DC or the holder of such preferred share, of such class A, B or C preferred share in DC.

"Depreciable Property" has the meaning assigned by subsection 13(21).

"Director" means the person appointed by the Minister of XXXXXXXXXX to carry out the duties and exercise the powers of the Director under the BCA.

"Distribution" means DC's transfer of each Type of Property to New6XCo and New5XCo as further described in Paragraphs 47 and 50.

"Dividend Refund" has the meaning assigned by subsection 129(1).

"Dividend Rental Arrangement" has the meaning assigned by subsection 248(1).

"Eligible Capital Property" has the meaning assigned by section 54.

"Eligible Property" has the meaning assigned by subsection 85(1.1).

"Estate Freeze" means the estate freeze to be completed by 5X after the transfer of the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares in DC to 5XCo as further described in Paragraphs 32 and 33.

"Excepted Dividend" has the meaning assigned by paragraph 187.1(1)(b).

"Excluded Dividend" has the meaning assigned by paragraph 191(1)(a).

"Financial Intermediary Corporation" has the meaning assigned by subsection 191(1).

"FMV" means fair market value, which refers to the amount, expressed in money terms, that is the highest price available in an open and unrestricted market between informed and prudent parties dealing at arm's length and under no compulsion to act.

"Forgiven Amount" has the meaning assigned by subsection 80(1) or 80.01(1).

"2XCo" means XXXXXXXXXX, which was a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX pursuant to the BCA.

Prior to the Amalgamation, 6X held XXXXXXXXXX common shares and XXXXXXXXXX class A preferred shares (voting) in 2XCo whereas 5X held XXXXXXXXXX common shares and XXXXXXXXXX class A preferred shares (voting) in that corporation. Immediately before that time, 2XCo's assets included XXXXXXXXXX common shares in XXXXXXXXXXCo, marketable securities having an aggregate FMV of $XXXXXXXXXX and non-interest bearing promissory notes issued by XXXXXXXXXXCo having an aggregate principal amount of $XXXXXXXXXX.

"GRIP" means general rate income pool as that term is defined in subsection 89(1).

"3X" means XXXXXXXXXX, who is 5X's former husband and who is a resident of Canada.

"Inventory" has the meaning assigned by subsection 248(1).

"Investment Property" of an entity means all of the assets other than Cash or Near-Cash Property, any income from which would, for the purposes of the Act, be income from property or from a Specified Investment Business of that entity. Any liabilities of that entity other than current liabilities or liabilities allocated to Business Property will be allocated to the Cash or Near-Cash Property, Investment Property and Business Property of that entity, based on the relative net FMV of each Type of Property prior to the allocation of such excess unallocated liabilities but after the allocation of the other liabilities.

"4X" means XXXXXXXXXX who is the father of 6X and 5X and who passed away on XXXXXXXXXX.

"4XCo" means XXXXXXXXXX, which was a Taxable Canadian Corporation and a CCPC that was incorporated pursuant to the BCA on XXXXXXXXXX.

Prior to the Amalgamation, 6X held XXXXXXXXXX class B preferred shares (non-voting) in 4XCo whereas 5X held XXXXXXXXXX class C preferred shares (non-voting) in that corporation. Immediately before that time, 4XCo held XXXXXXXXXX common shares in XXXXXXXXXXCo, and marketable securities having an aggregate FMV equal to $XXXXXXXXXX.

"XXXXXXXXXXCo" means XXXXXXXXXX, which is a Related Person in respect to DC that was incorporated on XXXXXXXXXX pursuant to the BCA, and that carries on the business of XXXXXXXXXX.

"XXXXXXXXXXCo Note Receivable" means the aggregate amount of the non-interest-bearing promissory notes originally issued by XXXXXXXXXXCo to 2XCo on XXXXXXXXXX in order to fund its business activities, which was subsequently converted into an interest-bearing promissory note on XXXXXXXXXX for tax planning considerations at a time when the outstanding balance payable was equal to $XXXXXXXXXX to be repaid in XXXXXXXXXX annual instalments with the first payment being due XXXXXXXXXX days following the end of 4XCO's XXXXXXXXXX year. On XXXXXXXXXX, XXXXXXXXXXCo Note Receivable was further amended to provide for the repayment of the outstanding balance payable at that time in XXXXXXXXXX annual payments. As of XXXXXXXXXX, the principal amount of the XXXXXXXXXXCo Note Receivable was equal to $XXXXXXXXXX.

"5X" means XXXXXXXXXX, who is an individual resident in Canada.

"5XCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was originally incorporated pursuant to the BCA on XXXXXXXXXX, and which has a taxation year ending XXXXXXXXXX of each year.

Under the Articles of Amendment, 5XCo's authorized capital will consist in an unlimited number of common shares, class A preferred shares and class C preferred shares. 5XCo's common shares are voting, participating and eligible for a non-cumulative dividend, if and when declared by 5XCo's directors, subject to the prior rights granted to the holders of 5XCo's class A and C preferred shares.

The holders of 5XCo's class A preferred shares will be entitled to: (i) one vote for each class A preferred share held at all meetings of 5XCo's shareholders; (ii) receive an amount equal to $XXXXXXXXXX per share upon their redemption or retraction; (iii) receive an amount equivalent to their redemption amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of 5XCo's dissolution in priority to the holders of common shares and class C preferred shares in 5XCo; and (iv) receive a non-cumulative dividend, if and when declared by 5XCo's directors, equal to XXXXXXXXXX% of their redemption amount per share per annum in priority to the holders of common shares and class C preferred shares in 5XCo.

The holders of 5XCo's class C preferred shares will not be entitled to vote at any meeting of 5XCo's shareholders. However, they are entitled: (i) receive an amount equal to $XXXXXXXXXX per share upon their redemption or retraction; (ii) receive an amount equivalent to their redemption amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of 5XCo's dissolution in priority to the holders of common shares in 5XCo; and (iii) receive a non-cumulative dividend, if and when declared by 5XCo's directors, equal to XXXXXXXXXX% of their redemption amount per share per annum in priority to the holders of common shares in 5XCo.

"5X Family Trust 1" means the XXXXXXXXXX, which was settled by 4X on XXXXXXXXXX and whose beneficiaries include 5X, 5X's children, the issue of 5X's children, a corporation whose shareholders are any one or more of the aforementioned individual beneficiaries and a trust whose beneficiaries are any one or more of the aforementioned individual or corporate beneficiaries. 5X, 1X and 3X are the trustees of 5X Family Trust 1.

"5X Family Trust 2" means the XXXXXXXXXX that will be settled by 5X immediately after 5X's transfer of the XXXXXXXXXX class A preferred shares, and the XXXXXXXXXX class C preferred shares that she holds in DC as further described in Paragraphs 32 and 33, and whose beneficiaries include 5X, 5X's children and the issue of 5X's children. 5X and 1X will be the trustees of 5X Family Trust 2.

"Minister" means the Minister of XXXXXXXXXX.

"NewXXXXXXXXXXCo" means a Taxable Canadian Corporation and a CCPC formed by the amalgamation of XXXXXXXXXXCo and XXXXXXXXXX in XXXXXXXXXX.

"New5XCo" means a Taxable Canadian Corporation and a CCPC that will be incorporated under the BCA as further described in Paragraph 42. New5XCo will have a taxation year ending XXXXXXXXXX of each year.

New5XCo's authorized capital will include an unlimited number of common shares and class X preferred shares. New5XCo's common shares will be voting, participating but will not be eligible to receive dividends if and when declared by the directors of New5XCo.

New5XCo's class X preferred shares will be non-voting, non-participating, redeemable and retractable at a redemption price of $XXXXXXXXXX per share and will not entitle their holders to receive dividends. Each New5XCo's class X preferred share will qualify as a Taxable Preferred Share.

"New5XCo Class X Redemption Amount" in respect of the class X preferred shares to be issued by New5XCo means the amount equal to the excess of the FMV of the property received by New5XCo as further described in Paragraph 50 less the FMV of the portion of DC's liabilities to be assumed by New5XCo as described in Paragraph 51.

"New5XCo Note" means the non-interest-bearing promissory note that New5XCo will issue to DC on the redemption of the New5XCo class X preferred shares that DC will hold in New5XCo. The principal amount and FMV of the New5XCo Note will be equal to the New5XCo Class X Redemption Amount for the New5XCo class X preferred shares so redeemed by New5XCo.

"New6XCo" means a Taxable Canadian Corporation and a CCPC that will be incorporated under the BCA as further described in Paragraph 39. New6XCo will have a taxation year ending XXXXXXXXXX of each year.

New6XCo's authorized capital will include an unlimited number of common shares and class X preferred shares. New6XCo's common shares will be voting, participating but will not be eligible to receive dividends if and when declared by the directors of New6XCo.

New6XCo's class X preferred shares will be non-voting, non-participating, redeemable and retractable at a redemption price of $XXXXXXXXXX per share and will not entitle their holders to receive dividends. Each New6XCo's class X preferred share will qualify as a Taxable Preferred Share.

"New6XCo Class X Redemption Amount" in respect of the class X preferred shares to be issued by New6XCo means the amount equal to the excess of the FMV of the property received by New6XCo as further described in Paragraph 47 less the FMV of the portion of DC's liabilities to be assumed by New6XCo as described in Paragraph 48.

"New6XCo Note" means the non-interest-bearing promissory note that New6XCo will issue to DC on the redemption of the New6XCo class X preferred shares that DC will hold in New6XCo. The principal amount and FMV of the New6XCo Note will be equal to the New6XCo Class X Redemption Amount for the New6XCo class X preferred shares so redeemed by New6XCo.

"PUC" means paid-up capital as that term is defined in subsection 89(1).

"Paragraph" means a numbered paragraph in this letter.

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

"R" means XXXXXXXXXX, who is an individual resident in Canada.

"6XCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was originally incorporated pursuant to the BCA on XXXXXXXXXX, and which has a taxation year ending XXXXXXXXXX of each year.

Under the Articles of Amendment, 6XCo's authorized capital consists of an unlimited number of common shares, class A preferred shares and class C preferred shares. 6XCo's common shares are voting, participating and eligible for a non-cumulative dividend, if and when declared by 6XCo's directors, subject to the prior rights granted to the holders of 6XCo's class A and C preferred shares.

The holders of 6XCo's class A preferred shares are entitled to: (i) one vote for each class A preferred share held at all meetings of 6XCo's shareholders; (ii) receive an amount equal to $XXXXXXXXXX per share upon their redemption; (iii) receive an amount equivalent to their redemption amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of 6XCo's dissolution in priority to the holders of common shares and class C preferred shares in 6XCo; and (iv) receive a non-cumulative dividend, if and when declared by 6XCo's directors, equal to XXXXXXXXXX% of their redemption amount per share per annum in priority to the holders of common shares and class C preferred shares in 6XCo.

The holders of 6XCo's class C preferred shares are not entitled to vote at any meeting of 6XCo's shareholders. However, they are entitled: (i) receive an amount equal to $XXXXXXXXXX per share upon their redemption; (ii) receive an amount equivalent to their redemption amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of 6XCo's dissolution in priority to the holders of common shares in 5XCo; and (iii) receive a non-cumulative dividend, if and when declared by 6XCo's directors, equal to XXXXXXXXXX% of their redemption amount per share per annum in priority to the holders of common shares in 6XCo.

"6X Family Trust" means the XXXXXXXXXX, which was settled by 4X on XXXXXXXXXX and whose beneficiaries include 6X, 8X, 6X's children, the issue of 6X's children, a corporation whose shareholders are any one or more of the aforementioned individual beneficiaries and a trust whose beneficiaries are any one or more of the aforementioned individual or corporate beneficiaries. 6X, 8X and 7X are the trustees of the 6X Family Trust.

"RDTOH" means refundable dividend tax on hand as that term is defined in subsection 129(3).

"Related Person" has the meaning assigned by subsection 251(2).

"Restricted Financial Institution" has the meaning assigned by subsection 248(1).

"7X" means XXXXXXXXXX, who is 6X's daughter and who is a resident in Canada.

"7XCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX.

"Series of Transactions or Events" includes the related transactions or events referred to in subsection 248(10).

"Stated Capital" means the amount reported in the Stated Capital Account attributable to a share.

"Stated Capital Account" refers to the account that a corporation is required to maintain for each class of shares that it issues in accordance with XXXXXXXXXX of the BCA.

"Special Resolution" has the meaning assigned by XXXXXXXXXX of the BCA.

"Specified Financial Institution" has the meaning assigned by subsection 248(1).

"Specified Investment Business" has the meaning assigned by subsection 125(7).

"Specified Shareholder" has the meaning assigned by subsection 248(1).

"Substantial Interest" has the meaning assigned by subsection 191(2).

"Taxable Canadian Corporation" has the meaning assigned by subsection 89(1).

"Taxable Preferred Share" has the meaning assigned by subsection 248(1).

"Type of Property" means one of the following three (3) types of property into which DC's property will be classified: (a) Cash or Near-Cash property; (b) Business Property; and (c) Investment Property. For greater certainty, any tax accounts of DC including the outstanding balance of its capital and non-capital losses available for carry-forward, GRIP, RDTOH or CDA will not be considered property of DC.

"8X" means 6X's wife, XXXXXXXXXX, who is an individual resident in Canada.

"8XCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX.

FACTS

DC

1. DC is an investment holding corporation.

2. As of XXXXXXXXXX, the FMV of DC's assets was as follows: cash ($XXXXXXXXXX), interest receivable ($XXXXXXXXXX), marketable securities consisting of publicly traded Canadian and US stocks, bonds and other financial instruments ($XXXXXXXXXX) and XXXXXXXXXXCo Note Receivable. As of XXXXXXXXXX, DC's liabilities only included income taxes payable ($XXXXXXXXXX).

3. Immediately after the Amalgamation, 6X held XXXXXXXXXX common shares, XXXXXXXXXX class A preferred shares and XXXXXXXXXX class B preferred shares in DC and 5X held XXXXXXXXXX common shares, XXXXXXXXXX class A preferred shares and XXXXXXXXXX class C preferred shares in that corporation.

4. Prior to entering into the Proposed Transactions, the issued and outstanding shares of the capital stock of DC, which represent Capital Property to its shareholders, will be held as follows:

Shareholder # common shares PUC ACB FMV

6XCo XXXXXXX $XXXXXXX $XXXXXXX $XXXXXXX

5XCo XXXXXXX $XXXXXXX $XXXXXXX $XXXXXXX

Shareholder # class A preferred PUC ACB FMV
shares (voting)

6X XXXXXXX $XXXXXXX $XXXXXXX $XXXXXXX

5X XXXXXXX $XXXXXXX $XXXXXXX $XXXXXXX

Shareholder # class C preferred PUC ACB FMV
Shares (non-voting)

5X XXXXXXX $XXXXXXX $XXXXXXX $XXXXXXX

5. 6X, 8X and 5X are the directors of DC.

6. As of XXXXXXXXXX, the outstanding balance of DC's tax accounts was as follows: (i) RDTOH: $XXXXXXXXXX, (ii) GRIP: $XXXXXXXXXX, and (iii) CDA: $XXXXXXXXXX.

DC's shareholders

7. 5X and 6X are siblings.

8. [Reserved]

9. 5X owns all the issued and outstanding common shares in 5XCo.

10. [Reserved]

11. 6X owns all the issued and outstanding common shares in 6XCo.

12. 6X has de jure control of DC.

PRE-BUTTERFLY TRANSACTIONS

The non-interest bearing promissory notes dated XXXXXXXXXX and XXXXXXXXXX issued to DC

13. On XXXXXXXXXX, 2XCo and 4XCo respectively held XXXXXXXXXX and XXXXXXXXXX common shares in XXXXXXXXXXCo. 4XCo also held XXXXXXXXXX preference shares in XXXXXXXXXXCo.

14. On XXXXXXXXXX, XXXXXXXXXXCo paid a cash dividend of $XXXXXXXXXX to 2XCo, and $XXXXXXXXXX to 4XCo out of its accumulated retained earnings.

15. On XXXXXXXXXX, 2XCo loaned the $XXXXXXXXXX cash dividend that it had received to XXXXXXXXXXCo in consideration for a non-interest-bearing promissory note in the amount of $XXXXXXXXXX that is not convertible into other property.

16. On XXXXXXXXXX, XXXXXXXXXXCo paid a cash dividend of $XXXXXXXXXX to 2XCo and $XXXXXXXXXX to 4XCo out of its accumulated retained earnings.

17. On XXXXXXXXXX, 2XCo loaned the $XXXXXXXXXX cash dividend that it had received to XXXXXXXXXXCo in consideration for a non-interest-bearing promissory note in the amount of $XXXXXXXXXX that is not convertible into other property.

The estate freeze completed by XXXXXXXXXXCo

18. Immediately after the Amalgamation, DC held XXXXXXXXXX common shares in XXXXXXXXXXCo, non-interest-bearing promissory notes issued by XXXXXXXXXXCo having an aggregate principal amount equal to $XXXXXXXXXX and marketable securities consisting of Canadian and US stocks, bonds and other financial instruments having an aggregate FVM of $XXXXXXXXXX.

19. On XXXXXXXXXX, the XXXXXXXXXX common shares that DC held in XXXXXXXXXXCo were exchanged for XXXXXXXXXX class A preferred shares in XXXXXXXXXXCo redeemable for $XXXXXXXXXX per share. Immediately thereafter, each of the 6X Family Trust and the 5X Family Trust 1 subscribed for XXXXXXXXXX new common shares in XXXXXXXXXXCo.

The non-interest bearing promissory note dated XXXXXXXXXX issued to DC

20. On XXXXXXXXXX, XXXXXXXXXXCo redeemed XXXXXXXXXX class A preferred shares that DC held in XXXXXXXXXXCo in exchange for cash consideration of $XXXXXXXXXX.

21. On XXXXXXXXXX, DC transferred cash to XXXXXXXXXXCo in consideration of a non-interest-bearing promissory note in the amount of $XXXXXXXXXX that is not convertible into other property.

22. On XXXXXXXXXX, XXXXXXXXXXCo redeemed the outstanding XXXXXXXXXX class A preferred shares that DC held in that corporation in exchange for cash consideration of $XXXXXXXXXX.

The 6X Family Trust's acquisition of all the common shares in XXXXXXXXXXCo

23. On XXXXXXXXXX, the 6X Family Trust transferred the XXXXXXXXXX common shares that it held in XXXXXXXXXXCo to 7XCo in consideration for XXXXXXXXXX common shares in 7XCo.

24. On XXXXXXXXXX, the 5X Family Trust 1 transferred the XXXXXXXXXX common shares that it held in XXXXXXXXXXCo to 8XCo in consideration for XXXXXXXXXX common shares in 8XCo.

25. On XXXXXXXXXX, the 6X Family Trust and 7XCo purchased the XXXXXXXXXX common shares that the 5X Family Trust 1 held in 8XCo for an aggregate consideration of $XXXXXXXXXX consisting of cash in the amount of $XXXXXXXXXX and an interest-bearing promissory note with a principal amount equal to $XXXXXXXXXX.

26. On XXXXXXXXXX, 7XCo and 8XCo amalgamated to form Amalco.

27. The 6X Family Trust holds all the issued and outstanding shares in Amalco, which owns all the issued and outstanding shares in NewXXXXXXXXXXCo as well as interest-bearing Promissory notes issued by NewXXXXXXXXXXCo whose aggregate principal amount is equal to $XXXXXXXXXX.

28. [Reserved]

PROPOSED TRANSACTIONS

Increase in the authorized share capital of 6XCo and 5XCo

29. 6XCo will file Articles of Amendment to increase its authorized share capital to include an unlimited number of class A preferred shares, and class C preferred shares.

30. 5XCo will file Articles of Amendment to increase its authorized share capital to include an unlimited number of class A preferred shares, and class C preferred shares.

The transfer of the DC shares held by 6X and 5X

31. 6X will transfer the XXXXXXXXXX class A preferred shares that he holds in DC to 6XCo in exchange for XXXXXXXXXX class A preferred shares in 6XCo having a FMV equal to the FMV of the DC shares transferred to 6XCo.

6X and 6XCo will jointly elect under subsection 85(1), in prescribed form and within the time limits prescribed by subsection 85(6), in respect of the transfer of the DC class A preferred shares to 6XCo. The Agreed Amount in respect of the transfer will not be greater than the FMV of the XXXXXXXXXX class A preferred shares in DC at the time of the transfer. Specifically, the Agreed Amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate amount to be added to the Stated Capital of the 6XCo class A preferred shares to be issued to will be equal to the PUC attributable to the class A preferred shares in DC that 6X will transfer to 6XCo. For greater certainty, the increase in the Stated Capital of the 6XCo class A preferred shares will not exceed the greater of the PUC and the ACB of the XXXXXXXXXX class A preferred shares that 6X holds in DC in accordance with paragraph 84.1(1)(a).

32. 5X will transfer the XXXXXXXXXX class A preferred shares that she holds in DC to 5XCo in exchange for XXXXXXXXXX class A preferred shares in 5XCo having a FMV equal to the FMV of the DC shares transferred to 5XCo.

5X and 5XCo will jointly elect under subsection 85(1), in prescribed form and within the time limits prescribed by subsection 85(6), in respect of the transfer of the DC class A preferred shares to 5XCo. The Agreed Amount in respect of the transfer will not be greater than the FMV of the XXXXXXXXXX class A preferred shares in DC at the time of the transfer. Specifically, the Agreed Amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate amount to be added to the Stated Capital of the 5XCo class A preferred shares to be issued to 5X will be equal to the PUC attributable to the class A preferred shares in DC that 5X will transfer to 5XCo. For greater certainty, the increase in the Stated Capital of the 5XCo class A preferred shares will not exceed the greater of the PUC and the ACB of the XXXXXXXXXX class A preferred shares that 5X holds in DC in accordance with paragraph 84.1(1)(a).

33. 5X will transfer the XXXXXXXXXX class C preferred shares that she holds in DC to 5XCo in exchange for XXXXXXXXXX class C preferred shares in 5XCo having a FMV equal to the FMV of the DC shares transferred to 5XCo.

5X and 5XCo will jointly elect under subsection 85(1), in prescribed form and within the time limits prescribed by subsection 85(6), in respect of the transfer of the DC class C preferred shares to 5XCo. The Agreed Amount in respect of the transfer will not be greater than the FMV of the XXXXXXXXXX class C preferred shares in DC at the time of the transfer. Specifically, the Agreed Amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate amount to be added to the Stated Capital of the 5XCo class C preferred shares to be issued to 5X will be equal to the PUC attributable to the class C preferred shares in DC that 5X will transfer to 5XCo. For greater certainty, the increase in the Stated Capital of the 5XCo class C preferred shares will not exceed the greater of the PUC and the ACB of the XXXXXXXXXX class C preferred shares that 5X holds in DC in accordance with paragraph 84.1(1)(a).

The estate freeze to be completed by 5X

34. Immediately after 5X's transfer of the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares that she holds in DC to 5XCo as further described in Paragraphs 32 and 33, 5X will settle the 5X Family Trust 2.

35. 5X will transfer the XXXXXXXXXX common shares that she holds in 5XCo in exchange for such number of class A preferred shares in 5XCo having a FMV equal to the FMV of the common shares in 5XCo so transferred to 5XCo.

5X and 5XCo will jointly elect under subsection 85(1), in prescribed form and within the time limits prescribed by subsection 85(6), in respect of the transfer of the common shares in 5XCo to 5XCo. The Agreed Amount in respect of the transfer will not be greater than the FMV of the XXXXXXXXXX common shares in 5XCo at the time of the transfer. Specifically, the Agreed Amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

The aggregate amount to be added to the Stated Capital of the class A preferred shares to be issued by 5XCo in consideration for the XXXXXXXXXX common shares that 5X holds in 5XCo will not exceed the aggregate cost to 5XCo of such property. For greater certainty, the increase to the Stated Capital of the 5XCo class A preferred shares will not exceed the maximum amount that could be added to the Stated Capital of such shares without a consequential adjustment being made pursuant to subsection 85(2.1).

36. The 5X Family Trust 2 will subscribe for new common shares in 5XCo in exchange for a nominal amount of cash to be funded by a an interest-bearing promissory note to be issued by an arm's length person. The principal amount of that promissory note will be equal to the nominal cash so loaned to the 5X Family Trust 2.

37. The promissory note to be issued to the 5X Family Trust 2 will have to be repaid with dividends that 5XCo will pay to the 5X Family Trust 2 on before XXXXXXXXXX of the taxation year in which the funds will be loaned to the 5X Family Trust 2.

38. 5X will continue to control 5XCo further to the completion of the estate freeze described in Paragraphs 35 and 36.

Incorporation of New6XCo and New5XCo

39. New6XCo will be incorporated.

40. New6XCo will file Articles of Incorporation to authorize the issuance of common shares and class X preferred shares in New6XCo.

41. Upon New6XCo's incorporation, 6XCo will subscribe for common shares in New6XCo in exchange for nominal cash consideration.

42. New5XCo will be incorporated.

43. New5XCo will file Articles of Incorporation to authorize the issuance of common shares and class X preferred shares in New5XCo.

44. Upon New5XCo's incorporation, 5XCo will subscribe for common shares in New5XCo in exchange for nominal cash consideration.

The classification of DC's property

45. Immediately prior to the transfers of property described in Paragraphs 47 and 50, DC's property will be classified into three Types of Property. For the purposes of determining the FMV of each Type of Property, no amount will be considered to be a liability of DC unless it represents a true legal liability that is capable of quantification. Furthermore, the amount of any deferred income tax will not be considered a liability because such amount does not represent a legal obligation of DC.

46. [Reserved]

Transfer of a pro rata portion of each Type of Property held by DC to New6XCo

47. Immediately after the determination of the net FMV of each Type of Property, DC will transfer to New6XCo properties that it owned such that immediately after such property transfers, the net FMV of each Type of Property so transferred to New6XCo will approximate the proportion determined by the following formula:

A x B/C

Where:

A: is the net FMV, immediately before the transfer, of all property of that Type of Property owned at that time by DC;

B: is the aggregate FMV, immediately before the transfer, of all the shares of DC owned by 6XCo at that time; and

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

For the purposes of this Paragraph, the expression "approximate that proportion" means that the discrepancy of that proportion, if any, will not exceed XXXXXXXXXX percent (XXXXXXXXXX%) determined as a percentage of the net FMV of all the property of each Type of Property which New6XCo will receive as compared to what New6XCo would have received if New6XCo had received its appropriate pro rata share of the net FMV of all the property of that Type of Property.

48. As consideration for DC's transfers of property to New6XCo described in Paragraph 47:

a) New6XCo will assume a portion of the aggregate liabilities of DC immediately before the property transfers in the proportion described in Paragraph 47; and

b) New6XCo will issue class X preferred shares having an aggregate redemption value equal to the New6XCo Class X Redemption Amount.

For greater clarity, the aggregate FMV of all such consideration to be paid by New6XCo to DC will be equal to the aggregate FMV of the property transferred to New6XCo.

49. In respect of the property transfer described in Paragraph 47, DC and New6XCo will jointly elect in prescribed form and within the time specified in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of each property of DC that is an Eligible Property to New6XCo.

The Agreed Amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

Specifically, the Agreed Amount in respect of each Eligible Property will be as follows:

a) In the case of property described in paragraph 85(1)(c.1), an amount equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii);

b) In the case of inventory described in paragraph 85(1)(c.2), an amount determined by the formula listed in subparagraph 85(1)(c.2)(i);

c) In the case of Eligible Capital Property, an amount equal to the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii); and

d) In the case of Depreciable Property of a prescribed class, an amount equal to the least of the amounts specified in subparagraph 85(1)(e).

For the purpose of the joint elections under subsection 85(1) described in this Paragraph, the reference to the undepreciated capital cost to the taxpayer of all the property of that class immediately before the disposition in subparagraph 85(1)(e)(i) will be read to mean the proportion of the undepreciated capital cost to DC of all the property of that class that the capital cost of the property immediately before the disposition is of the aggregate capital costs of all property of that class immediately before the disposition.

The aggregate amount to be added to the Stated Capital of the class X preferred shares to be issued by New6XCo as partial consideration for the transferred property described in Paragraph 48 will not exceed the aggregate cost to New6XCo of such property less the amount of DC's liabilities so assumed by New6XCo. For greater certainty, the increase to the Stated Capital of the New6XCo class X preferred shares will not exceed the aggregate maximum amount that could be added to the Stated Capital of such shares without a consequential adjustment being made pursuant to subsection 85(2.1).

Transfer of a pro rata portion of each Type of Property held by DC to New5XCo

50. Immediately after the determination of the net FMV of each Type of Property, DC will transfer to New5XCo properties that it owned such that immediately after such property transfers, the net FMV of the property of each Type of Property so transferred to New5XCo will approximate the proportion determined by the following formula:

A x B/C

Where:

A: is the net FMV, immediately before the transfer, of all property of that Type of Property owned at that time by DC;

B: is the aggregate FMV, immediately before the transfer, of all the shares of DC owned by 5XCo at that time; and

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

For the purposes of this Paragraph, the expression "approximate that proportion" means that the discrepancy of that proportion, if any, will not exceed XXXXXXXXXX percent (XXXXXXXXXX%), determined as a percentage of the net FMV of all the property of each Type of Property which New5XCo will receive as compared to what New5XCo would have received if New5XCo had received its appropriate pro rata share of the net FMV of all the property of that Type of Property.

51. As consideration for DC's transfer of property to New5XCo described in Paragraph 50:

a) New5XCo will assume a portion of DC's liabilities immediately before the property transfers in the proportion described in Paragraph 50; and

b) New5XCo will issue class X preferred shares having an aggregate redemption value equal to the New5XCo Class X Redemption Amount.

For greater clarity, the aggregate FMV of all such consideration to be paid by New5XCo to DC will be equal to the aggregate FMV of the property transferred to New5XCo.

52. In respect of the property transfer described in Paragraph 50, DC and New5XCo will jointly elect in prescribed form and within the time specified in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of each property of DC that is an Eligible Property to New5XCo.

The Agreed Amount will not exceed the FMV of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

Specifically, the Agreed Amount in respect of each Eligible Property will be as follows:

a) In the case of property described in paragraph 85(1)(c.1), an amount equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii);

b) In the case of inventory described in paragraph 85(1)(c.2), an amount determined by the formula listed in subparagraph 85(1)(c.2)(i);

c) In the case of Eligible Capital Property, an amount equal to the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii); and

d) In the case of Depreciable Property of a prescribed class, an amount equal to the least of the amounts specified in subparagraph 85(1)(e).

For the purpose of the joint elections under subsection 85(1) described in this Paragraph, the reference to the undepreciated capital cost to the taxpayer of all the property of that class immediately before the disposition in subparagraph 85(1)(e)(i) will be read to mean the proportion of the undepreciated capital cost to DC of all the property of that class that the capital cost of the property immediately before the disposition is of the aggregate capital costs of all property of that class immediately before the disposition.

The aggregate amount to be added to the Stated Capital of the class X preferred shares to be issued by New5XCo as partial consideration for the transferred property described in Paragraph 51 will not exceed the aggregate cost to New5XCo of such property less the amount of DC's liabilities so assumed by New5XCo. For greater certainty, the increase to the Stated Capital of the New5XCo class X preferred shares will not exceed the aggregate maximum amount that could be added to the Stated Capital of such shares without a consequential adjustment being made pursuant to subsection 85(2.1).

The redemption of the New6XCo class X preferred shares and the New5XCo class X preferred shares held by DC

53. Immediately after the transfers of property described in Paragraph 47, New6XCo will redeem all of the New6XCo class X preferred shares held by DC in consideration for the New6XCo Note. DC will accept the New6XCo Note as full and absolute payment for the redemption amount of the New6XCo class X preferred shares.

54. Immediately after the transfers of property described in Paragraph 50, New5XCo will redeem all of the New5XCo class X preferred shares held by DC in consideration for the New5XCo Note. DC will accept the New5XCo Note as full and absolute payment for the redemption amount of the New5XCo class X preferred shares.

The winding-up of New6XCo and New5XCo

55. Immediately after the redemption of the class X preferred shares that New6XCo will have issued to DC as further described in Paragraph 48, 6XCo will pass a special resolution to wind-up and dissolve New6XCo under the applicable provisions of the BCA.

56. In the course of New6XCo's winding-up, all properties of New6XCo will be distributed to 6XCo and all the liabilities of New6XCo (including the New6XCo Note with 4XCo's consent) will be assumed by 6XCo.

57. New6XCo will file Articles of Dissolution with the Director after it obtains the consent from the Minister to its dissolution. Upon receipt of the Articles of Dissolution, the Director will issue a Certificate of Dissolution to New6XCo. New6XCo will cease to exist on the date shown on the Certificate of Dissolution.

58. Immediately after the redemption of the class X preferred shares that New5XCo will have issued to DC as further described in Paragraph 51, 5XCo will pass a special resolution to wind-up and dissolve New5XCo under the applicable provisions of the BCA.

59. In the course of New5XCo's winding-up, all properties of New5XCo will be distributed to 5XCo and all the liabilities of New5XCo (including the New5XCo Note with 4XCo's consent) will be assumed by 5XCo.

60. New5XCo will file Articles of Dissolution with the Director after it obtains the consent from the Minister to its dissolution. Upon receipt of the Articles of Dissolution, the Director will issue a Certificate of Dissolution to New5XCo. New5XCo will cease to exist on the date shown on the Certificate of Dissolution.

The PUC increase in respect of the common shares in DC

61. DC's shareholders will pass a special resolution to increase the Stated Capital of the common shares in DC by an amount equal to the outstanding balance of DC's CDA at that time.

62. DC will file the appropriate election within the time prescribed under subsection 83(2) in respect of the dividend deemed to have been paid by DC and received by 6XCo and 5XCo as a result of the PUC increase in respect of the DC common shares described in Paragraph 61.

DC's purchase for cancellation of all the shares that each of 6XCo and 5XCo holds in DC

63. DC will purchase for cancellation the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares that 6XCo will hold in DC for their aggregated redemption value in consideration for the DC Promissory Note 1. DC will accept the DC Promissory Note 1 as full and absolute payment for the purchase for cancellation of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares to be redeemed by DC.

64. DC will purchase for cancellation the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares that 5XCo will hold in DC for their aggregated FMV or redemption value in consideration for the DC Promissory Note 2. DC will accept the DC Promissory Note 2 as full and absolute payment for the purchase for cancellation of the XXXXXXXXXX common shares and the redemption of the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares to be redeemed by DC.

Cancellation of the Promissory Notes

65. Immediately after the transaction described in Paragraph 63, the principal amount owing by 6XCo under the New6XCo Note and the principal amount owing by DC under the DC Promissory Note 1 will be set off against one another in full satisfaction of the respective obligations of 6XCo and DC thereunder. As a result, the New6XCo Note and the DC Promissory Note 1 will be legally cancelled and extinguished.

66. Immediately after the transaction described in Paragraph 64, the principal amount owing by 5XCo under the New5XCo Note and the principal amount owing by DC under DC Promissory Note 2 will be set off against one another in full satisfaction of the respective obligations of 5XCo and DC thereunder. As a result, the New5XCo Note and the DC Promissory Note 2 will be legally cancelled and extinguished.

The distribution of the dividend refund that may arise from the Proposed Transactions

67. Any Dividend Refund to which DC may become entitled as a result of the Proposed Transactions will be distributed to each of 6XCo and 5XCo in the same proportion as further described in Paragraphs 47 and 50.

The winding-up of DC
68. Prior to the transactions described in Paragraphs 63 and 64, DC's shareholders will pass a special resolution to wind-up and dissolve DC under the applicable provisions of the BCA.

69. At the time when DC's winding-up is initiated, all properties of DC will have been distributed and all liabilities of DC, if any, will have been assumed by 6XCo and 5XCo.

70. DC will file Articles of Dissolution with the Director within a reasonable period of time after the receipt of the Dividend Refund, if any, referred in Paragraph 67 and after it obtains the consent of the Minister to its dissolution. Upon receipt of the Articles of Dissolution, the Director will issue a Certificate of Dissolution to DC.

71. DC will cease to exist on the date shown on the Certificate of Dissolution.

POST-BUTTERFLY TRANSACTIONS

72. Subsequent to the implementation of the Proposed Transactions, 6XCo will dispose of a portion of the marketable securities that it will receive from DC as further described in Paragraph 47 having an aggregate FMV of XXXXXXXXXX% or less of the FMV, at the time of the transfers of property described in Paragraphs 47 and 50, of all the property received on such transfers (other than money and indebtedness that is not convertible into other property) on the open market for cash.

73. 6XCo will loan the cash proceeds arising from the transaction described in Paragraph 72 to 7XCo in exchange for an interest-bearing promissory note having a principal amount equal to $XXXXXXXXXX.

74. 7XCo will use the cash proceeds to be received from 6XCo described in Paragraph 73 to repay a loan owing to XXXXXXXXXXCo having a principal amount of $XXXXXXXXXX.

75. XXXXXXXXXXCo will use the cash proceeds arising from 7XCo's repayment of the loan described in Paragraph 74 to fund its business activities.

ADDITIONAL INFORMATION

76. Each of DC, 6XCo and 5XCo will have the financial capacity to honour, upon presentation for payment, the amount payable under any promissory note issued as part of the Proposed Transactions.

77. Except as described in this letter, no property has been or will be acquired, and no liabilities have been or will be incurred by DC in contemplation of and before the Distribution, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

78. None of DC, New6XCo, New5XCo, 6XCo and 5XCo is or will be at any time during a Series of Transactions or Events that includes the Proposed Transactions a Specified Financial Institution, a Restricted Financial Institution or a corporation described in any of the paragraphs (a) to (f) of the definition of Financial Intermediary Corporation.

79. None of the shares of DC, New6XCo, New5XCo, 6XCo and 5XCo is, or will be, at any time during the Series of Transactions or Events that includes the Proposed Transactions:

a) the subject of any undertaking or agreement which constitutes a guarantee agreement as defined in subsection 112(2.2);

b) the subject of a Dividend Rental Arrangement; or

c) a share that is issued or acquired as part of a transaction, event or Series of Transaction or Events of the type described in subsection 112(2.5).

PURPOSE OF THE PROPOSED TRANSACTIONS:

The purpose of the Proposed Transactions is to transfer to each of 6XCo and 5XCo their pro rata share each Type of Property currently held by DC so that 6X and 5X can independently determine their respective investment policies with respect to the property that 6XCo and 5XCo will receive from DC as a result of the Distribution.

RULINGS

Provided that the above statements of facts, Proposed Transactions, post-butterfly transactions, additional information and purpose of the Proposed Transactions are accurate and constitute complete disclosure of all relevant information, our rulings are as follows:

A. Subject to the application of subsection 69(11), provided that the appropriate elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and that each particular property described below is an Eligible Property in respect of which shares have been issued as full or partial consideration therefor, the provisions of subsection 85(1) will apply to DC's transfers of the property to New6XCo and New5XCo described in Paragraphs 47 and 50 with result that the Agreed Amount in respect of each transfer of Eligible Property will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to DC and the cost thereof to New6XCo and New5XCo. For greater certainty, paragraph 85(1)(e.2) shall not apply to the property transfers described in Paragraphs 47 and 50.

B. On the redemption by New6XCo and New5XCo of the class X preferred shares described in Paragraphs 53 and 54, New6XCo and New5XCo will be deemed by paragraph 84(3)(a) to have paid and DC will be deemed by paragraph 84(3)(b) to have received a Taxable Dividend equal to the amount by which the New6XCo Class X Redemption Amount and the New5XCo Class X Redemption Amount to be paid by New6XCo and New5XCo respectively exceeds the PUC of the class X preferred shares immediately before their redemption by New6XCo and New5XCo.

C. On the purchase for cancellation by DC of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares described in Paragraph 63, DC will be deemed by paragraph 84(3)(a) to have paid and 6XCo will be deemed by paragraph 84(3)(b) to have received a Taxable Dividend equal to the amount by which the amount paid by DC on the purchase for cancellation of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares exceeds the aggregate PUC of the XXXXXXXXXX common shares and the XXXXXXXXXX class A preferred shares immediately before their purchase for cancellation by DC.

D. On the purchase for cancellation by DC of the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares described in Paragraph 64, DC will be deemed by paragraph 84(3)(a) and 5XCo will be deemed by paragraph 84(3)(b) to have received a Taxable Dividend equal to the amount by which the amount paid by DC on the purchase for cancellation of the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares exceeds the aggregate PUC of the XXXXXXXXXX common shares, the XXXXXXXXXX class A preferred shares and the XXXXXXXXXX class C preferred shares immediately before their purchase for cancellation by DC.

E. To the extent that a dividend described in Ruling B is a Taxable Dividend, such dividend:

a) will be excluded in determining DC's proceeds of disposition of the class X preferred shares that it holds in New6XCo and New5XCo pursuant to paragraph (j) of the definition of proceeds of disposition in subsection 54(1),

b) will be included in computing DC's income pursuant to subsection 82(1) and paragraph 12(1)(j),

c) will be deductible in computing DC's taxable income for the taxation year in which such a dividend is deemed to be received pursuant to subsection 112(1), and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3), or (2.4) will not apply to deny the deduction of such deemed dividend;

d) will reduce any loss that would otherwise be realized as a result of DC's disposition of the class X preferred shares in New6XCo and New5XCo in respect of which the dividend is deemed to be received pursuant to subsection 112(3); and

e) will not be subject to tax under Parts IV.1 and VI.1 because it qualifies as an Excepted Dividend and an Excluded Dividend as each of New6XCo and New5XCo will have a Substantial Interest in DC, and DC will have a Substantial Interest in each of New6XCo and New5XCo at the time of the redemption of class X preferred shares that DC will hold in New6XCo and New5XCo.

F. To the extent that a dividend described in Rulings C and D is a Taxable Dividend, such dividend:

a) will be excluded in determining 6XCo's and 5XCo's proceeds of disposition of the common shares, the class A preferred shares and the class C preferred shares that each of 6XCo and 5XCo will hold in DC pursuant to paragraph (j) of the definition of proceeds of disposition in subsection 54(1),

b) will be included in computing the income of 6XCo and 5XCo pursuant to subsection 82(1) and paragraph 12(1)(j),

c) will be deductible in computing the taxable income of 6XCo and 5XCo for the taxation year in which such a dividend is deemed to be received pursuant to subsection 112(1), and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3), or (2.4) will not apply to deny the deduction of such deemed dividend;

d) will reduce any loss that would otherwise be realized as a result of the disposition of the common shares, the class A preferred shares and the class C preferred shares that each of 6XCo and 5XCo will hold in DC in respect of which the dividend is deemed to be received pursuant to subsection 112(3);

e) will be subject to tax under Part IV under paragraph 186(1)(b) to the extent that DC is entitled to a Dividend Refund for the taxation year in which it will be deemed to have paid such a dividend; and

f) will not be subject to tax under Parts IV.1 and VI.1 as they respectively qualify as an Excepted Dividend and an Excluded Dividend on the basis that 6XCo and 5XCo will have a Substantial Interest in DC, and DC will have a Substantial Interest in each of 6XCo and 5XCo at the time the common shares, class A preferred shares and class C preferred shares in DC are so purchased for cancellation.

G. Provided that, as part of the Series of Transaction or Events that includes the Proposed Transactions, there is not:

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

e) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) and (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 B, C and D above. For greater certainty, subsection 55(3.1) will not apply to deny the exemption found in paragraph 55(3)(b).

H. The set-off and cancellation of the New6XCo Note against the DC Promissory Note 1 and the New5XCo Note against the DC Promissory Note 2 will not, in and of itself, give rise to a Forgiven Amount, and neither DC nor 6XCo and 5XCo will realize a gain or incur any loss as a result of such set-off and cancellation.

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

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

These 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 within six months of the date of this letter.

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

Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed:

a) the determination of the amount of the ACB, PUC or FMV of any shares referred to herein;

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

c) any tax consequences relating to the definitions, facts, Proposed Transactions, post-butterfly transactions and additional information described herein, other than those described in the rulings given above, including whether any subsequent transaction or event is or is not considered to be part of the Series of Transactions or Events described herein.

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

Yours truly,

XXXXXXXXXX, Manager
Reorganizations Division
Income Tax Ruling Directorate
Legislative Policy and Regulatory Affairs Branch