2014 Ruling 2014-0525441R3 - loss consolidation arrangement

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.

See news post

Principal Issues: Is the loss consolidation arrangement acceptable?

Position: Yes

Reasons: Within established parameters. Similar to past rulings.

XXXXXXXXXX
2014-052544

XXXXXXXXXX, 2014

Dear XXXXXXXXXX:

Re: Advance Income Tax Rulings Request
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayers (the "Taxpayers"). We also acknowledge the information provided in various emails and telephone conversations with our office.

We understand that to the best of your knowledge and that of the Taxpayers, none of the issues involved in the ruling request is:

(i) is in an earlier return of any of the Taxpayers or a related person;
(ii) is being considered by a tax services office or a taxation centre in connection with any previously filed tax return of any of the Taxpayers or a related person;
(iii) is under objection by any of the Taxpayers or a related person; is before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(iv) the subject of a ruling previously issued by the Directorate to any of the Taxpayers or a related person.

Further, the above-referenced taxpayers have advised that the Proposed Transactions described herein will not result in the taxpayers or any related person being unable to pay its outstanding tax liabilities.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.

DEFINITIONS

In this letter, all references to a monetary amount are in Canadian dollars and the following terms or expressions have the meaning specified:

a. "Act" means the Income Tax Act, R.S.C. 1985. c.1 (5th Supp.), as amended to the date hereof and unless otherwise stated, every reference to a part, section, subsection, paragraph, or subparagraph and clause or subclause is a reference to the relevant provision of the Act, and the Income Tax Regulations thereunder are referred to as the "Regulations";

b. "Adjusted cost base" or "ACB" has the meaning assigned by subsection 248(1) and section 54;

c. "Affiliated persons" has the meaning assigned by subsection 251.1(1);

d. XXXXXXXXXX;

e. XXXXXXXXXX;

f. "Canadian partnership" has the meaning assigned by subsection 248(1) and subsection 102(1);

g. "CBCA" means the Canada Business Corporations Act (Canada), and where applicable, its predecessor statutes;

h. "CRA" means the Canada Revenue Agency;

i. "Dividend rental arrangement" has the meaning assigned by subsection 248(1);

j. "Eligible dividend" has the meaning assigned by subsection 89(1);

k. "Excepted dividend" has the meaning assigned by section 187.1;

l. "Excluded dividend" has the meaning assigned by subsection 191(1);

m. XXXXXXXXXX;

n. XXXXXXXXXX;

o. "GAAR" means the general anti-avoidance rule and encompasses the provisions set out in Part XVI;

p. "GP Co" means the corporation to be established under the CBCA as described in Paragraph 18 below;

q. "GP Interest" means the general partnership interest in New LP issued to GP Co as described in Paragraph 20 below;

r. "Holdco" means XXXXXXXXXX;

s. XXXXXXXXXX;

t. XXXXXXXXXX;

u. "Lossco" means any one of Lossco A, Lossco B, and Lossco C;

v. "Lossco A" means the XXXXXXXXXX;

w. "Lossco B" means XXXXXXXXXX;

x. "Lossco C" means XXXXXXXXXX;

y. "Losscos" means, collectively, Lossco A, Lossco B, and Lossco C;

z. "LP Interests" means the limited partnership interests in New LP issued to Lossco A, Lossco B, and Lossco C as described in Paragraph 20 below;

aa. "New LP" means the limited partnership to be established pursuant to the laws of the province of XXXXXXXXXX as described in Paragraph 20 below;

bb. "New LP Partners" means the founding partners of New LP, being GP Co, Lossco A, Lossco B and Lossco C;

cc. "Newco" means the corporation to be established under the CBCA as described in Paragraph 15 below;

dd. "Newco Loans" means the non-interest bearing loans made by Newco to Parent as described in Paragraph 24 below;

ee. "Newco Preferred Shares" means the shares of the capital stock of Newco to be issued by Newco to Subsidiary as described in Paragraph 23 below;

ff. "Non-capital loss" has the meaning assigned by subsection 248(1) and subsection 111(8);

gg. XXXXXXXXXX;

hh. XXXXXXXXXX;

ii. "Paid-up capital" or "PUC" has the meaning assigned by subsection 248(1) and subsection 89(1);

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

kk. "Parent" means XXXXXXXXXX;

ll. "Parent Loans" means the non-interest bearing loans made by Parent to New LP as described in Paragraph 21 below;

mm. "Partnership Agreement" means the agreement between the partners governing New LP;

nn. "Preferred Shares" means the preferred shares of Newco described in Paragraph 16 below;

oo. "Proposed Transactions" means the transactions described in Paragraphs 15 to 29 below;

pp. "Public corporation" has the meaning assigned by subsection 248(1) and subsection 89(1);

qq. "Related persons" has the meaning assigned by subsection 251(2);

rr. XXXXXXXXXX;

ss. "Short-term preferred shares" has the meaning assigned by subsection 248(1);

tt. XXXXXXXXXX;

uu. "Subsidiary" means XXXXXXXXXX;

vv. "Subsidiary Loans" means the loans made by New LP to Subsidiary as described in Paragraph 22 below;

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

xx. "Taxable Canadian corporation" has the meaning assigned by subsection 248(1) and subsection 89(1);

yy. "Taxable preferred shares" has the meaning assigned by subsection 248(1);

zz. XXXXXXXXXX;

aaa. "Term preferred shares" has the meaning assigned by subsection 248(1);

bbb. XXXXXXXXXX; and

ccc. "Unrelated person or partnership" has the meaning assigned by paragraph 55(3.01)(a).

FACTS

1. Parent is a XXXXXXXXXX. Parent's authorized and issued share capital includes XXXXXXXXXX. Parent's issued and outstanding XXXXXXXXXX shares are traded XXXXXXXXXX.

2. Parent is a taxable Canadian corporation, a XXXXXXXXXX, a public corporation, a XXXXXXXXXX. XXXXXXXXXX.

3. Subsidiary was incorporated under the XXXXXXXXXX and Subsidiary has been a subsidiary wholly-owned corporation of Parent since XXXXXXXXXX. Subsidiary is a taxable Canadian corporation, a XXXXXXXXXX.

Subsidiary's taxable income for its XXXXXXXXXX preceding taxation years before XXXXXXXXXX was as follows:

Taxation Year Ending Taxable Income
XXXXXXXXXX XXXXXXXXXX

4. Subsidiary expects its taxable income for its XXXXXXXXXX taxation year to be approximately $XXXXXXXXXX. Subsidiary's gross revenues and net income before tax for financial reporting purposes for the year ended XXXXXXXXXX were approximately $XXXXXXXXXX and $XXXXXXXXXX, respectively. Subsidiary has a permanent establishment in the province of XXXXXXXXXX and the province of XXXXXXXXXX. Subsidiary's gross revenue and salaries were allocated, for purposes of Part IV of the Regulations, in respect of its XXXXXXXXXX taxation year as follows:

Province Gross Revenue Salary and Wages
XXXXXXXXXX XXXXXXXXXX XXXXXXXXXX

It is reasonable to expect that the allocation of Subsidiary's gross revenue and salaries and wages as shown above will be reflective of the allocation of gross revenue and salaries and wages of Subsidiary's XXXXXXXXXX and XXXXXXXXXX taxation years.

5. Holdco was incorporated under the CBCA and has been a subsidiary wholly-owned corporation of Parent since XXXXXXXXXX. Holdco is a taxable Canadian corporation, a XXXXXXXXXX.

Losscos

6. Lossco A was incorporated under the XXXXXXXXXX and has been a subsidiary wholly-owned corporation of Holdco since XXXXXXXXXX. Lossco A is a taxable Canadian corporation, a XXXXXXXXXX.

7. In its XXXXXXXXXX taxation year, Lossco A incurred $XXXXXXXXXX of non-capital losses resulting from XXXXXXXXXX. Lossco A carried back $XXXXXXXXXX of its XXXXXXXXXX non-capital losses to its XXXXXXXXXX and XXXXXXXXXX taxation years. The remaining non-capital losses in the amount of $XXXXXXXXXX are available for carryforward to Lossco A's XXXXXXXXXX and subsequent taxation years. Lossco A's gross revenues and net loss before tax for financial reporting purposes for the year ended XXXXXXXXXX were approximately $XXXXXXXXXX and $XXXXXXXXXX, respectively.

8. XXXXXXXXXX.

9. Lossco B was incorporated under the XXXXXXXXXX and has been a subsidiary wholly-owned corporation of Lossco A since XXXXXXXXXX. Lossco B is a taxable Canadian corporation, XXXXXXXXXX.

10. In its XXXXXXXXXX taxation year, Lossco B incurred $XXXXXXXXXX of non-capital losses resulting from XXXXXXXXXX. Lossco B carried back $XXXXXXXXXX of its XXXXXXXXXX non-capital losses to its XXXXXXXXXX and XXXXXXXXXX taxation years. The remaining non-capital losses in the amount of $XXXXXXXXXX are available for carryforward to Lossco B's XXXXXXXXXX and subsequent taxation years.

Lossco B's gross revenues and net loss before tax for financial reporting purposes for the year ended XXXXXXXXXX were approximately $XXXXXXXXXX and $XXXXXXXXXX, respectively.

11. XXXXXXXXXX.

12. Lossco C was incorporated under the XXXXXXXXXX and has been a subsidiary wholly-owned corporation of Lossco A since XXXXXXXXXX. Lossco C is a taxable Canadian corporation, a XXXXXXXXXX.

13. In its XXXXXXXXXX taxation year, Lossco C incurred $XXXXXXXXXX of non-capital losses resulting from XXXXXXXXXX. Lossco C carried back $XXXXXXXXXX of its XXXXXXXXXX non-capital losses to its XXXXXXXXXX and XXXXXXXXXX taxation years. The remaining non-capital losses in the amount of $XXXXXXXXXX are available for carryforward to Lossco C's XXXXXXXXXX and subsequent taxation years. Lossco C's gross revenues and net loss before tax for financial reporting purposes for the year ended XXXXXXXXXX were approximately $XXXXXXXXXX and approximately $XXXXXXXXXX, respectively.

14. XXXXXXXXXX.

PROPOSED TRANSACTIONS

The following proposed transactions will be completed.

15. Parent will incorporate Newco under the CBCA. Newco will be a taxable Canadian corporation, a XXXXXXXXXX. Newco's fiscal and taxation year-end will be XXXXXXXXXX. Newco's activities will be limited to those described in the Proposed Transactions, including making the Newco Loans as described in Paragraph 24 below.

16. Newco's authorized capital will consist of an unlimited number of common shares and an unlimited number of preferred shares (the "Preferred Shares").

The Preferred Shares will have the following attributes:

a. non-voting;
b. non-participating;
c. redeemable at the option of the issuer, subject to applicable law, at any time for an amount equal to the cash amount for which they were issued. The payment of the redemption price may be satisfied, at the issuer's option, either by (i) payment of cash, (ii) delivery of property having a fair market value at the time of redemption equal to the aggregate redemption amount, or (iii) delivery of a demand promissory note, in each case together with an amount in cash equal to all accrued and unpaid dividends (whether or not declared) to but excluding the date fixed for such redemption; and
d. entitlement to a cumulative dividend, payable monthly, and accruing by reference to the redemption price of the Newco Preferred Shares together with all accrued and unpaid dividends for completed monthly periods (whether or not declared) at a rate equal to XXXXXXXXXX% per annum.

17. On incorporation of Newco, Parent will acquire XXXXXXXXXX common shares of Newco for $XXXXXXXXXX.

18. Parent will incorporate GP Co under the laws of the CBCA. GP Co will be a taxable Canadian corporation, a XXXXXXXXXX. GP Co's fiscal and taxation year-end will be XXXXXXXXXX. GP Co will act as the general partner of New LP and will not carry on any other business.

19. GP Co's authorized capital will consist of a class of common shares. On incorporation of GP Co, Parent will acquire XXXXXXXXXX common shares of GP Co for $XXXXXXXXXX.

20. The New LP Partners will form New LP under the laws of the province of XXXXXXXXXX. GP Co will be the general partner of New LP and Lossco A, Lossco B and Lossco C will be the limited partners of New LP. New LP will be a Canadian partnership, and its fiscal period-end will be XXXXXXXXXX. New LP's activities will be limited to those described in the Proposed Transactions, including the issuance of a limited partnership interest to each of Lossco A, Lossco B and Lossco C, the issuance of a general partnership interest to GP Co, and making the Subsidiary Loans as described in Paragraph 22 below. The Partnership Agreement will provide for income to be allocated to each partner that is a member of New LP at the end of its fiscal period, or at the time immediately before the commencement of its dissolution, in proportion to each partner's ownership percentage at the end of its fiscal period or immediately before the commencement of its dissolution, whichever is applicable.

On the formation of New LP, GP Co will acquire a general partnership interest in New LP for $XXXXXXXXXX (the "GP Interest"), and each of Lossco A, Lossco B and Lossco C will acquire a limited partnership interest in New LP for, in aggregate, $XXXXXXXXXX (the "LP Interests").

Based on contributions to New LP described in this paragraph, each of the New LP Partner's percentage ownership interest in New LP will be approximately as follows:

GP Co – XXXXXXXXXX%
Lossco A – XXXXXXXXXX%
Lossco B – XXXXXXXXXX%
Lossco C – XXXXXXXXXX%

21. On a particular day to be determined by Parent, Parent will make a series of loans to New LP (the "Parent Loans") that in aggregate will not exceed $XXXXXXXXXX. The Parent Loans will be non-interest bearing, denominated in Canadian dollars and repayable on demand of the holder or at the option of New LP.

22. On the same day as the Proposed Transactions described in Paragraph 21, New LP will use the aggregate proceeds it receives from the Parent Loans to make a series of loans to Subsidiary (the "Subsidiary Loans"). The Subsidiary Loans will not exceed $XXXXXXXXXX. Each Subsidiary Loan will bear interest at XXXXXXXXXX% per annum and will be denominated in Canadian dollars. The interest on the Subsidiary Loans will be paid monthly on the last day of each month and will compound monthly. XXXXXXXXXX.

It is expected that Subsidiary will be able to use all of the interest expense incurred on the Subsidiary Loans either against taxable income generated in the current year or by carrying back any loss incurred in its current taxation year against its taxable income for its XXXXXXXXXX prior taxation years.

Other than the interest income received on the Subsidiary Loans, New LP will not have any other source of revenue and does not expect to incur substantial expenses. As a result, for the one fiscal period of New LP in which it owns the Subsidiary Loans, New LP will have net income, computed in accordance with subsection 96(1), equal to the interest income received by it on the Subsidiary Loans.

23. On the same day as the Proposed Transactions described in Paragraph 21, Subsidiary will use the total proceeds it receives from the Subsidiary Loans to subscribe for Preferred Shares in the capital stock of Newco (the "Newco Preferred Shares") having an aggregate redemption amount equal to their aggregate subscription price. The aggregate subscription price for the Newco Preferred Shares will not exceed $XXXXXXXXXX.

24. On the same day as the Proposed Transactions described in Paragraph 21, Newco will use the total proceeds it receives from the issuance of the Newco Preferred Shares to make a series of loans to Parent (the "Newco Loans"). The Newco Loans will not exceed $XXXXXXXXXX. The Newco Loans will be non-interest bearing, denominated in Canadian dollars and repayable on demand of the holder or at the option of Parent.

25. On each Newco Preferred Share dividend payment date and each corresponding Subsidiary Loan interest payment date, the following Proposed Transactions will occur in sequence:

(a) Pursuant to a capital contribution agreement, Parent will make a contribution of capital to Newco in an amount equal to the amount of the dividends on the Newco Preferred Shares payable on such date. No shares will be issued by Newco with respect to the contribution of capital and no amount will be added to the legal stated capital or PUC of any of Newco's issued and outstanding shares. The contribution of capital will not be reported as income for tax purposes or pursuant to generally accepted accounting principles;

(b) Upon receipt of the capital contribution described in Paragraph 25(a) above, Newco will, subject to any applicable corporate law solvency tests, declare and pay the dividends on the Newco Preferred Shares payable on such date. The dividends paid on the Newco Preferred Shares will be eligible dividends; and

(c) On each Subsidiary Loan interest payment date, Subsidiary will pay to New LP all interest on the Subsidiary Loans payable on such date.

26. Once the interest income earned by New LP in respect of the Subsidiary Loans is equal to and not more than the aggregate non-capital losses of the Losscos, the following transactions will be undertaken to unwind the transactions described in Paragraphs 15 to 24 above:

(a) Parent will make a contribution of capital to Newco in an amount equal to the amount of any accrued and unpaid dividends, if any, on the Newco Preferred Shares. No shares will be issued by Newco with respect to the contribution of capital and no amount will be added to the legal stated capital or PUC of any of Newco's issued and outstanding shares. The contribution of capital will not be reported as income for tax purposes or pursuant to generally accepted accounting principles;

(b) Upon receipt of the capital contribution described in Paragraph 26(a), Newco will, subject to any applicable corporate law solvency tests, declare and pay the accrued and unpaid dividends on the Newco Preferred Shares. The dividends paid on the Newco Preferred Shares will be eligible dividends;

(c) Subsidiary will pay any accrued and unpaid interest on the Subsidiary Loans;

(d) Immediately after the Proposed Transaction described in Paragraph 26(c), Newco will, subject to applicable corporate law solvency tests, redeem all of the outstanding Newco Preferred Shares and deliver its interest in the Newco Loans to Subsidiary in full satisfaction of the redemption amount. The redemption amount of the Newco Preferred Shares redeemed and the principal amount of the Newco Loans so delivered will not exceed $XXXXXXXXXX;

(e) Immediately after the Proposed Transaction described in Paragraph 26(d), Subsidiary will fully repay the Subsidiary Loans and deliver its interest in the Newco Loans to New LP in full satisfaction of its obligations under such loans;

(f) Immediately after the Proposed Transaction described in Paragraph 26(e), the principal amount owing by Parent to New LP under the Newco Loans will be set-off against the principal amount owing by New LP to Parent under the Parent Loans such that each such loan will be cancelled in full satisfaction of their respective underlying obligations; and

(g) It is anticipated that the Proposed Transactions described in paragraphs 26(a) to (f) will be completed on the same day and on a day that is on or before the month end in which the Proposed Transactions are initiated.

27. On the same day as described in Paragraph 26(g), the GP Co will cause New LP to be dissolved such that it will cease to exist. On the dissolution, New LP will distribute a proportionate interest in all of the property it owns to GP Co as general partner, and the Losscos as limited partners, in proportion to their respective partnership ownership percentages as reflected in Paragraph 20 above. The cash received as interest on the Subsidiary loans, and the cash from the GP Interest and LP Interests subscriptions, will be New LP's only property at the time of its dissolution.

28. XXXXXXXXXX.

29. Immediately after the Proposed Transactions described in paragraphs 26 and 27, Newco and GP Co will commence winding-up into Parent in accordance with the provisions of the CBCA and each winding-up will be one to which subsection 88(1) applies.

ADDITIONAL INFORMATION

30. XXXXXXXXXX.

31. XXXXXXXXXX.

32. XXXXXXXXXX.

33. XXXXXXXXXX.

34. At no time during the implementation of the Proposed Transactions described in this letter will the Newco Preferred Shares, or the Holdco, Lossco A, Lossco B, Lossco C shares be:

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

(b) the subject of a dividend rental arrangement;

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

(d) issued for consideration that is or includes:

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

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

35. None of the corporations involved in the Proposed Transactions is or will be a financial intermediary corporation.

36. At the time of the Proposed Transactions:

(a) Parent will have the ability to make the contributions of capital to Newco as described in Paragraphs 25(a) and 26(a).

(b) Newco will have the financial capacity to satisfy the applicable solvency test and liquidity test under the CBCA required to pay the dividends on the Newco Preferred Shares, described in Paragraphs 25(b) and 26(b).

(c) Newco will have the financial capacity to satisfy the applicable solvency test and liquidity test under the CBCA required to redeem the Newco Preferred Shares as described in Paragraphs 26(d).

(d) At the time of the Proposed Transactions, Lossco A, Lossco B and Lossco C will have the financial capacity to satisfy the applicable solvency test and liquidity test under the XXXXXXXXXX, required to pay the dividends described in Paragraphs 28(a), 28(b), and 28(c).

(e) At the time of the Proposed Transactions, Holdco will have the financial capacity to satisfy the applicable solvency test and liquidity test under the CBCA, required to pay the dividends described in Paragraphs 28(d).

37. Parent, Newco, Subsidiary, GP Co, Holdco, Lossco A, Lossco B, and Lossco C are affiliated persons and are related to each other and will continue to be affiliated and related to each other throughout the Proposed Transactions.

38. Parent will not claim, at any time, a capital loss in respect of its investment in Newco.

39. XXXXXXXXXX.

40. XXXXXXXXXX.

PURPOSE OF PROPOSED TRANSACTIONS

41. The purpose of the Proposed Transactions is to effect a consolidation of Subsidiary's profits, and the Losscos' non-capital losses by (i) having Subsidiary incur interest expense on the Subsidiary Loans thereby allowing Subsidiary to reduce its current year taxable income, and to create non-capital losses that may be carried-back and used to reduce its taxable income in its prior taxation years; and (ii) having the Losscos, as partners of New LP, receive an allocation of interest income from New LP, thus permitting the Losscos to use their non-capital losses carried forward. The non-capital losses incurred by the Losscos are expected to be applied against Subsidiary's taxable income in its XXXXXXXXXX taxation years.

42. The Proposed Transactions to effect a consolidation of the Losscos' non-capital losses and Subsidiary's profits will be structured in the manner set out in Paragraphs 15 to 29 above to ensure that neither Parent, nor any of its subsidiary wholly-owned corporations, XXXXXXXXXX.

43. XXXXXXXXXX.

44. XXXXXXXXXX.

RULINGS

On the basis that the above statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and purpose of the proposed transactions, we provide the following rulings:

A. Provided that Subsidiary has a legal obligation to pay interest on the Subsidiary Loans, and Subsidiary continues to hold the Newco Preferred Shares it acquires, in the manner described in Paragraph 23, for the purpose of gaining or producing income from property, Subsidiary will be entitled, pursuant to paragraph 20(1)(c), to deduct the lesser of (i) the interest paid or payable (depending on the method regularly followed by Subsidiary in computing its income for purposes of the Act) in respect of the year on the Subsidiary Loans or (ii) a reasonable amount in respect thereof; and any resulting non-capital loss incurred by Subsidiary in its XXXXXXXXXX taxation year will be deductible by it, pursuant to paragraph 111(1)(a), in computing its taxable income for the three preceding taxation years.

B. The dividends received by Subsidiary (Paragraphs 25(b),and 26(b)), Lossco A (Paragraphs 28(a) and 28(b)), Holdco (Paragraph 28(c)) and Parent (Paragraph 28(d)) will be taxable dividends, and such dividends will, pursuant to subsection 82(1) and paragraph 12(1)(j), be required to be included in the computation of each respective recipient's income.

C. Dividends received by Subsidiary (Paragraphs 25(b),and 26(b)), Lossco A (Paragraphs 28(a) and 28(b)), Holdco (Paragraph 28(c)) and Parent (Paragraph 28(d)), will, pursuant to subsection 112(1), be deductible in computing each respective recipient's taxable income for the year in which the dividends are received and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3) or 112(2.4).

D. Part IV.1 and Part VI.1 will not apply to the dividends described in Ruling C above because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1, as read in conjunction with paragraph 191(2)(a), and will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1), as read in conjunction with paragraph 191(2)(a).

E. Subsections 103(1) and 103(1.1) will not apply to redetermine the allocation of any income or loss of New LP from the manner described in Paragraph 20 above.

F. If New LP ceases to exist on its dissolution as described in Paragraph 27, paragraph 98(1)(a) will not apply to deem New LP not to have ceased to exist on its dissolution as all of New LP's property will be distributed to its partners upon dissolution.

G. Pursuant to subsection 99(1), New LP's fiscal period will be deemed to end immediately before the time that is immediately before the time New LP ceases to exist (without regard to paragraph 98(1)(a)). As a result of this deemed year end, subsection 96(1)(f) will apply to require each Lossco and GP Co to report its proportionate share, as described in Paragraph 20, of New LP's net income computed in accordance with subsection 96(1), in respect of New LP's deemed fiscal year end.

H. By virtue of paragraph 53(1)(e), each Lossco will include, in computing the ACB of its New LP limited partnership interest, its proportionate share of New LP's net income for the deemed year-end described in Ruling G above.

I. No amount will be included in the income of Newco pursuant to section 9 or paragraphs 12(1)(c) or 12(1)(x) in respect of the contributions of capital made by Parent to Newco, as described in Paragraphs 25(a) and 26(a).

J. The provisions of subsections 15(1), 56(2), 69(1), 69(11) and 246(1) will not apply as a result of entering into the Proposed Transactions, in and of themselves.

K. The set-off and cancellation of the Newco Loans against the Parent Loans described in Paragraphs 26(f) above will not, in and of itself, give rise to a forgiven amount within the meaning of subsection 80(1) or section 80.01.

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

M. The general anti-avoidance provision of a province with which the Government of Canada has entered into a tax collection agreement will not be applied, as a result of the Proposed Transactions, in and of themselves, to re-determine the tax consequences confirmed in the rulings given above, in respect of a taxation year in respect of which such tax collection agreement is in effect.

N. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends referred to in Ruling C provided there is not a disposition of property to, or increase in interest by, an unrelated person described in any of subparagraphs 55(3)(a)(i) to (v) which is part of the series of transactions or events that includes the Proposed Transactions. For greater certainty, the Proposed Transactions, in and by themselves, will not be considered to result in any disposition of property to, or increase in interest by, an unrelated person described in any of subparagraphs 55(3)(a)(i) to (v).

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX. In addition, the above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise 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) the amount of any non-capital loss or any other tax account of any corporation referred to herein;

(c) the application or non-application of a general anti-avoidance provision of any province that has not entered into a tax collection agreement with the Government of Canada;

(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.

Yours sincerely,

XXXXXXXXXX
for Director
Partnerships and Corporate Financing Section
International Division
Income Tax Rulings Directorate