2014 Ruling 2014-0528291R3 - 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 rule

Position: Yes

Reasons: It meets all 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)

2014-052829
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 2014

Dear Sir,
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX Tax Centre

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:

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

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

"Adjusted XXXXXXXXXX" means the portion of XXXXXXXXXX that will be retained by DC after an undivided interest of XXXXXXXXXX is sold to D in consideration for cash.

"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.

"Aggregate Investment Income" has the meaning assigned by subsection 129(4).

"Amalco" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that resulted from the Amalgamation. Amalco's authorized capital will be identical to Eco's authorized capital.

"Amalgamation" means the amalgamation of SCo and ECo to form Amalco on XXXXXXXXXX.

"XXXXXXXXXX" means a capital property owned by DC consisting of XXXXXXXXXX and that is not subject to any mortgages or other charges.

"Arm's Length" has the meaning assigned by subsection 251(1).

"BCA" means the Business Corporation 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). Property, other than cash or near-cash that is incidental to an active business also constitutes business property. Rental properties should be classified as business property if the rental income derived from them is or is deemed to be active business income pursuant to subsection 129(6).

"B" means XXXXXXXXXX who is an individual resident in Canada.

"C" means XXXXXXXXXX who is an individual 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).

"XXXXXXXXXX" means a capital property owned by DC consisting of XXXXXXXXXX and that is not subject to any mortgages or other charges.

"XXXXXXXXXX Sale" means DC's sale of an undivided interest in XXXXXXXXXX to D as further described in Paragraph 12.

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

"Capital Dividend Account" has the meaning assigned by subsection 89(1).

"Capital Gain" has the meaning assigned by paragraph 39(1)(a).

"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, which include accounts payable, accrued liabilities, amounts owing to shareholders, income taxes payable and the current portion of long-term debt, will be allocated to each 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.

If DC's current liabilities exceed its Cash or Near-Cash, the excess will be allocated proportionately to DC's Investment Property.

"CRA" means the Canada Revenue Agency.

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

"D" means XXXXXXXXXX who is an individual resident in Canada.

"DC" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was formed as a result of the amalgamation of XXXXXXXXXX and XXXXXXXXXX on XXXXXXXXXX. DC's authorized capital consists of an unlimited number of common shares.

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

"Distribution" means DC's transfer of Investment Property to Newco as further described in Paragraph 25.

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

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

"E" means XXXXXXXXXX who is an individual resident in Canada. E is the mother of D.

"ECo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX under the BCA XXXXXXXXXX.

ECo's authorized capital consists of an unlimited number of common shares and class A preferred shares.

The holders of the class A special shares are entitled to: (i) one vote per class A special shares that they own at all meetings of the shareholders; (ii) receive fixed and non-cumulative dividends, as and when declared by the directors of ECo, provided that such dividend cannot exceed an amount equal to XXXXXXXXXX% of $XXXXXXXXXX each year (the amount of $XXXXXXXXXX being referred to as the "Class A Redemption Amount") in respect of each such share that they own ; (iii) receive an amount equal to the Class A Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A special share that is redeemed or retracted; and (iv) receive an amount equal to the Class A Redemption Amount in respect of each class A preferred share that they own in the event of ECo's liquidation or wind-up.

Eco's issued and outstanding shares are held as follows: (i) SCo owns XXXXXXXXXX% of the XXXXXXXXXX issued and outstanding common shares, and (ii) I owns XXXXXXXXXX class A preferred shares having the following tax attributes: ACB: $XXXXXXXXXX, PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX.

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

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

"Estate" means the estate of J.

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

"Excess XXXXXXXXXX" means the beneficial ownership of an undivided interest in XXXXXXXXXX that will be sold to D as further described in Paragraph 12.

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

"F" means XXXXXXXXXX who is an individual resident in Canada.

"Family Trust" means the XXXXXXXXXX that was created on XXXXXXXXXX. The trustees of the Family Trust are G and H and its beneficiaries are the children of G and H.

"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).

"G" means XXXXXXXXXX who is an individual resident in Canada.

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

"H" means XXXXXXXXXX who is an individual resident in Canada. H is the wife of G.

"Holdco" means XXXXXXXXXX, which is a corporation incorporated under the BCA. Holdco's authorized capital includes an unlimited number of class A, B, C and D common shares, and an unlimited number of class E, F, G, H and I special shares.

The holders of class A, B, C and D common shares are entitled to: (i) one vote per share at all meetings of the shareholders; (ii) receive such non-cumulative dividends that the directors of Holdco may declare with the understanding that a dividend may be declared on any class without being declared on the others since each class of shares shall be mutually exclusive with respect to dividends; and (iii) receive an equal portion of the property and assets of Holdco available for distribution without preference being granted to the holders of any class of common shares but subject to the prior rights granted to the holders of class E special shares.

The holders of class E special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of Holdco, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to Holdco as consideration for the issuance of the class E special shares less the amount of non-share consideration, if any, paid by Holdco for the acquisition of such property dividend by the number of class E special shares issued as consideration or partial consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class E Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the Class E Special Redemption Amount in respect of each class E special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class E Special Redemption Amount together with all declared but unpaid dividends thereon in respect of each class E special share that they own in the event of Holdco's dissolution in priority to the holders of class F, G, H and I special shares and the holders of class A, B, C and D common shares.

The holders of class F special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of Holdco, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to Holdco as consideration for the issuance of the class F special shares less the amount of non-share consideration, if any, paid by Holdco for the acquisition of such property dividend by the number of class F special shares issued as consideration or partial consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class F Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the Class F Special Redemption Amount in respect of each class F special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class F Special Redemption Amount together with all declared but unpaid dividends thereon in respect of each class F special share that they own in the event of Holdco's dissolution after payment to the holders of class E special shares but in priority to the holders of class G, H and I special shares and the holders of class A, B, C and D common shares.

The holders of class G special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of Holdco, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to Holdco as consideration for the issuance of the class G special shares less the amount of non-share consideration, if any, paid by Holdco for the acquisition of such property dividend by the number of class G special shares issued as consideration or partial consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class G Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the Class G Special Redemption Amount in respect of each class G special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class G Special Redemption Amount together with all declared but unpaid dividends thereon in respect of each class G special share that they own in the event of Holdco's dissolution after payment to the holders of class E and F special shares but in priority to the holders of class H and I special shares and the holders of class A, B, C and D common shares.

The holders of class H special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of Holdco, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to Holdco as consideration for the issuance of the class H special shares less the amount of non-share consideration, if any, paid by Holdco for the acquisition of such property dividend by the number of class H special shares issued as consideration or partial consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class H Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the Class H Special Redemption Amount in respect of each class H special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class H Special Redemption Amount together with all declared but unpaid dividends thereon in respect of each class H special share that they own in the event of Holdco's dissolution after payment to the holders of class E, F and G special shares but in priority to the holders of class I special shares and the holders of class A, B, C and D common shares.

The holders of class I special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of Holdco, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to Holdco as consideration for the issuance of the class I special shares less the amount of non-share consideration, if any, paid by Holdco for the acquisition of such property dividend by the number of class I special shares issued as consideration or partial consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class I Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the Class I Special Redemption Amount in respect of each class I special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class I Special Redemption Amount together with all declared but unpaid dividends thereon in respect of each class I special share that they own in the event of Holdco's dissolution after payment to the holders of class E , F, G and H special shares but in priority to the holders of class A, B, C and D common shares.

Holdco's issued and outstanding shares are held as follows: (i) D owns XXXXXXXXXX class A common shares, and (ii) E owns XXXXXXXXXX class E special shares, XXXXXXXXXX class F special shares and XXXXXXXXXX class G special shares.

"I" means XXXXXXXXXX who is an individual resident in Canada. I is J's wife.

"Increased RDTOH Account" means DC's outstanding balance of its RDTOH after the XXXXXXXXXX Sale.

"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.

The net FMV of the Investment Property, immediately before the transfer of DC's property to Newco as further described in Paragraph 25 will be calculated as follows: (i) liabilities, other than current liabilities, that relate to a particular Investment Property will be allocated to that property to the extent of its FMV. Any excess of such liabilities over the FMV of that property is allocated to the Type of Property to which that property belongs; (ii) liabilities that pertain to Investment Property but not to a particular property will be allocated to Investment Property, but not in excess of the net FMV of such Investment Property after the allocation of liabilities to a particular property; (iii) 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 Cash and Near-Cash Property and Investment Property based on the relative remaining net FMV of Cash and Near-Cash property and Investment Property prior to the allocation of such excess unallocated liabilities. (iv) 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; and (v) any deferred charges, deferred taxes, and tax accounts will be ignored in determining the net FMV of Business Property.

"J" means XXXXXXXXXX who was an individual resident in Canada when he died on XXXXXXXXXX.

"XXXXXXXXXX" means a capital property owned by DC consisting of XXXXXXXXXX and that is not subject to any mortgages or other charges.

"Minister" means the Minister of National Revenue.

"NCo" means XXXXXXXXXX, which is Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX under the BCA. NCo carries on XXXXXXXXXX business. NCo has a taxation year ending XXXXXXXXXX of each year.

NCo's authorized share capital consists of an unlimited number of common shares, class A, B and C special shares.

The holders of class A special shares are entitled to: (i) one vote per class A special shares that they own at all meetings of the shareholders; (ii) receive a fixed and non-cumulative dividends, as and when declared by the directors of NCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to NCo as consideration for the issuance of the class A special shares divided by the number of class A special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class A Redemption Amount") in respect of each such share that they own; (iii) receive the Class A Redemption Amount in respect of each class A special share that they own if they are redeemed or retracted; and (iv) receive an amount equal to the Class A Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A special share that they own in the event of NCo's dissolution in priority to the holders of common shares pari passu and on a pro rata basis with the holders of class B special shares but in priority to any distribution to the holders of the class C special shares and the common shares.

The holders of class B special shares are not entitled to vote at all meetings of the shareholders. However the holders of the class B special shares are entitled: (i) receive a fixed and non-cumulative dividends, as and when declared by the directors of NCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to NCo as consideration for the issuance of the class B special shares divided by the number of class B special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class B Redemption Amount") in respect of each such share that they own; (iii) receive the Class B Redemption Amount in respect of each class B special share that they own if they are redeemed or retracted; and (ii) receive an amount equal to the Class B Redemption Amount together with all declared but unpaid dividends thereon in respect of each class B special share that they own in the event of NCo's dissolution in priority to the holders of common shares pari passu and on a pro rata basis with the holders of class A special shares but in priority to any distribution to the holders of the class C special shares and the common shares.

The holders of class C special shares are not entitled to receive any dividend in respect of the class C special shares that they own but they are entitled to: (i) XXXXXXXXXX votes per class C special share that they own at all meetings of the shareholders; (ii) receive an amount equal to the PUC of NCo attributable to the class C special shares divided by the number of class C special shares so issued by NCo ("Class C Redemption Amount") in respect of each class A special share that they own if they are redeemed; and (iii) receive in the event of NCo's dissolution or wind-up the remaining property of NCo subject to the prior rights of the holders of class A and B special shares but on a pro rata basis with the holders of common shares in NCo.

NCo's issued and outstanding shares are held as follows: (i) The Family Trust owns all the issued and outstanding common shares in NCo, and (ii) Each of G and H owns XXXXXXXXXX class A special shares in NCo.

"Newco" means the corporation to be incorporated by G pursuant to the BCA. Newco's authorized share capital will consist of an unlimited number of common shares and class A preferred shares.

The holders of Newco's class A preferred shares are entitled to: (i) one vote for each class A preferred share held at all meetings of Newco's shareholders; (ii) receive fixed and non-cumulative cash dividends, as and when declared by the directors of the corporation, not exceeding XXXXXXXXXX% of Newco's Redemption Amount in respect of each such share; (iii) receive an amount equivalent to the Newco Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A preferred share in the event of Newco's dissolution; (iv) receive the Newco Redemption Amount if all or part of the class A preferred shares are redeemed. Each class A preferred share in DC qualify as a Taxable Preferred Share.

The terms and conditions of the class A preferred shares will, at the time of their issuance, specify an amount in respect of each such share, for which the share is to be redeemed, acquired or cancelled. The amount to be specified in respect of each of such shares: (i) will be pursuant to a resolution of the board of directors of Newco; (ii) will be expressed as a dollar amount; (iii) will not be determined by a formula; (iv) will not exceed the FMV of the property received by Newco as consideration for the issuance of such share; and (v) will not be subject to change thereafter.

Newco has a taxation year ending on XXXXXXXXXX of each year.

"Newco Redemption Amount" means the FMV of the property that DC will assign to Newco in consideration for XXXXXXXXXX class A preferred shares in Newco less the consideration other than shares, if any, to be issued to DC as further described in Paragraph 25 divided by the number of class A preferred shares issued as consideration for the transferred property.

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

"Paragraph" means a numbered paragraph in this letter.

"Promissory Note 1" means the non-interest-bearing promissory note that DC will issue to Newco in consideration for the purchase for cancellation of the XXXXXXXXXX common shares as described in Paragraph 28. The principal amount of Promissory Note 1will be equal to the FMV of the XXXXXXXXXX common shares that Newco will hold in DC.

"Promissory Note 2" means the non-interest-bearing promissory note that Newco will issue to DC in consideration for the redemption of the XXXXXXXXXX class A preferred shares to be issued to DC as described in Paragraph 29. The principal amount of Promissory Note 2 will be equal to the net FMV of the property that DC will transfer to Newco as described in Paragraph 25.

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

"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).

"SCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX under the BCA to carry on XXXXXXXXXX business. SCo has a taxation year ending XXXXXXXXXX of each year.

SCo's authorized capital consists of an unlimited number of common shares and an unlimited number of class A, B, C, D, E, F and G special shares.

The holders of class A special shares are entitled to XXXXXXXXXX votes for each class A special share that they hold at all meetings of the shareholders. The holders of class A special shares are not entitled to receive any dividend but they are entitled to receive an amount equal to the stated capital for each class A special share that they own if they are redeemed, retracted or purchased for cancellation or if SCo is dissolved or wound-up.

The holders of class B special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of SCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to SCo as consideration for the issuance of the class B special shares divided by the number of class B special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class B Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the class B Special Redemption Amount (i.e. $XXXXXXXXXX per share) in respect of each class B special share that is redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class B Special Redemption Amount in respect of each class B special share that they own in the event of SCo's dissolution subject to the prior rights of the holders of class A special shares but in priority to the holders of class C, D, E and F special shares and the holders of common shares.

The holders of class C special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of SCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to SCo as consideration for the issuance of the class C special shares divided by the number of class C special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class C Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the class C Redemption Amount in respect of each class C special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class C Special Redemption Amount in respect of each class C special share that they own in the event of SCo's dissolution subject to the prior rights of the holders of class A special shares but in priority to the holders of class D, E and F special shares and the holders of common shares.

The holders of class D special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of SCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to SCo as consideration for the issuance of the class D special shares divided by the number of class D special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class D Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the class D Special Redemption Amount (i.e. $XXXXXXXXXX per share) in respect of each class D special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class D Special Redemption Amount in respect of each class D special share that they own in the event of SCo's dissolution subject to the prior rights of the holders of class A special shares but in priority to the holders of class E and F special shares and the holders of common shares.

The holders of class E special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive fixed and non-cumulative dividends, as and when declared by the directors of SCo, provided that such dividend cannot exceed XXXXXXXXXX% of the aggregated FMV of the property transferred to SCo as consideration for the issuance of the class E special shares divided by the number of class E special shares issued as consideration for such acquisition (the amount on which the dividend is calculated is referred to as the "Class E Special Redemption Amount") in respect of each such share that they own; (ii) receive an amount equal to the class E Special Redemption Amount in respect of each class D special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to the Class D Special Redemption Amount in respect of each class D special share that they own in the event of SCo's dissolution subject to the prior rights of the holders of class A special shares but in priority to the holders of class F special shares and the holders of common shares.

The holders of class F special shares are not entitled to vote at all meetings of the shareholders, and to receive any dividend in respect of the class F special shares that they own. However they are entitled to are to receive an amount equal to the stated capital for each class F special share that they own if they are redeemed, retracted or purchased for cancellation of if SCo is dissolved or wound-up.

The holders of class G special shares are not entitled to vote at all meetings of the shareholders. However they are entitled to: (i) receive cumulative preferred annual dividends at the rate of XXXXXXXXXX of SCo's net income subject in priority to the holders of common shares; (ii) receive an amount equal to $XXXXXXXXXX together with any unpaid cumulative dividends in respect of each class G special share that they own if they are redeemed, retracted or purchased for cancellation; and (iii) receive an amount equal to $XXXXXXXXXX together with any unpaid cumulative dividends in respect of each class G special share that they own in the event of SCo's dissolution or wind-up subject to the prior rights of the holders of class A, B, C, D and F special shares but in priority to the holders of common shares.

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

"Shareholder Loan" means the shareholder loan, if any, that D will receive from WCo to finance the acquisition of Excess XXXXXXXXXX. The principal of the Shareholder Loan will be equal to the amount by which the FMV of Excess XXXXXXXXXX exceeds the WCo Debt Repayment Amount.

"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.

"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 Capital Gain" has the meaning assigned by paragraph 38(a).

"Taxable Dividend" 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.

"UCC" means undepreciated capital cost as that term is defined in subsection 13(21).

"WCo" means XXXXXXXXXX, which is a Taxable Canadian Corporation and a CCPC that was incorporated on XXXXXXXXXX to carry on the business of XXXXXXXXXX. WCo has a taxation year ending on XXXXXXXXXX of each year.

WCo's authorized capital consists of XXXXXXXXXX common shares, XXXXXXXXXX class A special shares, XXXXXXXXXX class B special shares, XXXXXXXXXX class C special shares, XXXXXXXXXX class D special shares, XXXXXXXXXX class E special shares and XXXXXXXXXX class F special shares.

The holders of class A special shares are entitled to: (i) one vote for each class A special share held at all meetings of the shareholders; (ii) receive fixed and non-cumulative dividends as and when declared by the directors of WCo at the rate of XXXXXXXXXX% per month of the par value of $XXXXXXXXXX thereof in respect of each class A special share in priority to the holders of class B, C, D and E special shares and the holders of common shares in WCo. In that regard, WCo shall not declare or pay dividends on its class B, C, D and E special shares and on its common shares until the non-cumulative dividends on all the outstanding class A special shares has been paid, set aside or waived; (iii) receive an amount equal to the par value of $XXXXXXXXXX per share in respect of each class A special share that they own if they are redeemed, retracted or purchased for cancellation, and (iv) receive an amount equal to the par value of $XXXXXXXXXX per share together with all declared but unpaid dividends thereon in respect of each class A special share that they own in the event of WCo's dissolution in priority the holders of class B, C, D and E special shares and the holders of common shares in WCo.

The holders of class B special shares are not entitled to vote at all meetings of the shareholders. However, they are entitled to: (i) receive fixed and non-cumulative dividends as and when declared by the directors of WCo at the rate of XXXXXXXXXX% per month of the par value of $XXXXXXXXXX thereof in respect of each class B special share subject to the prior rights granted to the holders of class A special shares but in preference to the holders of class C, D and E special shares, and the holders of common shares. In that regard, WCo shall not declare or pay dividends on its class C, D and E special shares and on its common shares until the non-cumulative dividends on all class B special shares outstanding has been paid, set aside or waived; (iii) receive an amount equal to the par value of $XXXXXXXXXX per share in respect of each class B special share that they own if they are retracted or purchased for cancellation, and (iv) receive an amount equal to $XXXXXXXXXX per share together with all declared but unpaid dividends thereon in respect of each class B special share that they own in the event of WCo's dissolution subject to the prior rights granted to the holders of class A special shares but in preference to the holders of class C, D and E special shares and the holders of common shares in WCo.

The holders of class C special shares are not entitled to vote at all meetings of the shareholders. However, they are entitled to: (i) receive fixed and non-cumulative dividends as and when declared by the directors of WCo at the rate of XXXXXXXXXX% per month of the redemption amount in respect of each class C special share subject to the prior rights granted to the holders of class A and B special shares but in preference to the holders of class D and E special shares, and the holders of common shares. The redemption value in respect of each class C special share is equal to the aggregate FMV of the property acquired by WCo in exchange for the issuance of the class C special shares divided by the number of class C special shares issued in consideration for such property ("Class C Special Share Redemption Amount"). In that regard, WCo shall not declare or pay dividends on its class D and E special shares and on its common shares until the non-cumulative dividends on all class C special shares outstanding has been paid, set aside or waived; (iii) receive an amount equal to the Class C Special Share Redemption Amount in respect of each class C special share that they own if they are redeemed, retracted or purchased for cancellation, and (iv) receive an amount equal to the Class C Special Share Redemption Amount together with all declared but unpaid dividends thereon in respect of each class C special share that they own in the event of WCo's dissolution subject to the prior rights granted to the holders of class A and B special shares but in preference to the holders of class D and E special shares and the holders of common shares in WCo.

The holders of class D special shares are not entitled to vote at all meetings of the shareholders. However, they are entitled to: (i) receive fixed and non-cumulative dividends as and when declared by the directors of WCo at the rate of XXXXXXXXXX% per month of the redemption amount in respect of each class D special share subject to the prior rights granted to the holders of class A, B and C special shares but in preference to the holders of class E special shares, and the holders of common shares. The redemption value in respect of each class D special share is equal to the aggregate FMV of the property acquired by WCo in exchange for the issuance of the class D special shares divided by the number of class D special shares issued in consideration for such property ("Class D Special Share Redemption Amount"). In that regard, WCo shall not declare or pay dividends on its class E special shares and on its common shares until the non-cumulative dividends on all class D special shares outstanding has been paid, set aside or waived; (iii) receive an amount equal to the Class D Special Share Redemption Amount in respect of each class C special share that they own if they are redeemed, retracted or purchased for cancellation, and (iv) receive an amount equal to the Class D Special Share Redemption Amount together with all declared but unpaid dividends thereon in respect of each class C special share that they own in the event of WCo's dissolution subject to the prior rights granted to the holders of class A, B and C special shares but in preference to the holders of class E special shares and the holders of common shares in WCo.

The holders of class E special shares are not entitled to vote at all meetings of the shareholders. However, they are entitled to: (i) receive fixed and non-cumulative dividends as and when declared by the directors of WCo at the rate of XXXXXXXXXX% per month of the redemption amount in respect of each class E special share subject to the prior rights granted to the holders of class A, B, C and D special shares but in preference to the holders of common shares. The redemption value in respect of each class E special share is equal to the aggregate FMV of the property acquired by WCo in exchange for the issuance of the class E special shares divided by the number of class E special shares issued in consideration for such property ("Class E Special Share Redemption Amount"). In that regard, WCo shall not declare or pay dividends on its common shares until the non-cumulative dividends on all class E special shares outstanding has been paid, set aside or waived; (iii) receive an amount equal to the Class E Special Share Redemption Amount in respect of each class C special share that they own if they are redeemed, retracted or purchased for cancellation, and (iv) receive an amount equal to the Class E Special Share Redemption Amount together with all declared but unpaid dividends thereon in respect of each class C special share that they own in the event of WCo's dissolution subject to the prior rights granted to the holders of class A, B, C and D special shares but in preference to the holders of class F special shares and the holders of common shares in WCo.

The holders of class F special shares are not entitled to vote at all meetings of the shareholders and are not entitled to receive any dividends. However, they are entitled to: (i) receive an amount equal to the par value of $XXXXXXXXXX per share in respect of each class F special share that they own if they are redeemed or purchased for cancellation; and (ii) receive an amount equal to the par value of $XXXXXXXXXX per share in respect of each class F special share that they own in the event of WCo's dissolution subject to the prior rights granted to the holders of class A, B, C, D and E special shares but in preference to the holders of common shares in WCo.

"WCo Debt" means the aggregate amount of loans that D will have granted to WCo as of XXXXXXXXXX.

"WCo Debt Repayment Amount" means the amount of $XXXXXXXXXX that will be paid by WCo to D in order to repay the WCo Debt.

FACTS

DC

1. DC earns rental income from capital properties comprised of XXXXXXXXXX.

2. As of XXXXXXXXXX, the aggregate FMV of DC's assets will be as follows: Cash and Near-Cash ($XXXXXXXXXX) and Investment Properties ($XXXXXXXXXX). DC will not own any Business Property. DC's liabilities will include accounts payable and accrued liabilities ($XXXXXXXXXX), prepaid rent and deposits ($XXXXXXXXXX) and income taxes payable ($XXXXXXXXXX).

3. 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
SCo XXXXX $XXXXX $XXXXX $XXXXX
WCo XXXXX $XXXXX $XXXXX $XXXXX

4. D and F are the directors of DC.

5. On XXXXXXXXXX, the outstanding balance of DC's tax accounts will be as follows: (i) RDTOH: $XXXXXXXXXX, and (ii) CDA: $XXXXXXXXXX.

DC's shareholders

6. SCo and WCo are dealing at Arm's Length.

7. D owns XXXXXXXXXX common shares (ACB and PUC: $XXXXXXXXXX) and XXXXXXXXXX class B special shares in WCo (ACB and PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX). In addition, Holdco owns 1 class B special share in WCo (ACB and PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX).

8. Each of NCo, A, B, C and F own XXXXXXXXXX common shares in SCo (ACB and PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX). The Estate owns XXXXXXXXXX class A special shares (ACB, PUC and FMV: $XXXXXXXXXX), XXXXXXXXXX class B special shares in SCo (ACB: $XXXXXXXXXX, PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX) and XXXXXXXXXX class D special shares SCO. Each of A, B, C, F and G owns XXXXXXXXXX class F special shares (ACB, PUC and FMV: $XXXXXXXXXX).

9. Each of the shareholders of WCo is dealing at Arm's Length with each of the shareholders of SCo.

10. Neither WCo nor SCo has de jure control over DC.

PRE-BUTTERFLY TRANSACTIONS

The XXXXXXXXXX Sale

11. On XXXXXXXXXX, WCo will assign the WCo Debt Repayment Amount to D.

12. Immediately thereafter, DC will proceed with the XXXXXXXXXX Sale in consideration for cash.

13. The FMV of Adjusted XXXXXXXXXX will be equal to the aggregate FMV of XXXXXXXXXX and XXXXXXXXXX.

14. DC will retain the legal ownership of Excess XXXXXXXXXX as bare trustee for D.

15. [Reserved]

16. [Reserved]

17. The outstanding balance of DC's RDTOH will be increased as a result of the XXXXXXXXXX Sale.

The Capital Dividends and the Taxable Dividends paid by DC to WCo and SCo

18. On XXXXXXXXXX, DC will pay a Capital Dividend to each of WCo and SCo equal to half of the outstanding balance of DC's CDA on XXXXXXXXXX.

19. On XXXXXXXXXX, DC will pay a series of Taxable Dividends to each of WCo and SCo the aggregate amount of which will be equal to three times DC's Increased RDTOH Account.

20. The Capital Dividends and Taxable Dividends that DC will pay to WCo and SCo on XXXXXXXXXX will be paid with cash and any excess over the amount of cash held by DC will be paid through the issuance of a note.

The incorporation of Newco

21. On XXXXXXXXXX, G will incorporate Newco under the BCA. No shares will be issued upon Newco's incorporation.

PROPOSED TRANSACTIONS

The transfer of the DC shares held by Sco to Newco

22. On XXXXXXXXXX, SCo will transfer the XXXXXXXXXX common shares that it holds in DC to Newco in exchange for XXXXXXXXXX common shares in Newco having a FMV equal to the FMV of the DC shares transferred to SCo.

SCo and Newco 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 common shares to Newco. The Agreed Amount in respect of the transfer will not be greater than the FMV of the XXXXXXXXXX common 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 increase in the PUC of the Newco common shares will not exceed the aggregate maximum amount that could be added to the Stated Capital of such shares pursuant to subsection 85(2.1).

23. The DC common shares transferred to Newco will entitle Newco to more than XXXXXXXXXX% of the voting rights under all circumstances in respect of the issued capital of DC and will represent more than XXXXXXXXXX% of the FMV of all the issued and outstanding shares of the capital stock of DC such that Newco will be connected to DC pursuant to paragraph 186(4)(b) for part IV tax purposes.

The classification of DC's property

24. Immediately after SCo's transfer of all the common shares that it will hold in DC described in Paragraph 22, DC's property will be classified into 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. DC will only own Investment Property immediately prior to the Distribution.

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

25. Immediately after the determination of the net FMV of each Type of Property described in Paragraph 24, DC will transfer to Newco properties that it owned such that immediately after such property transfer, the net FMV of each Type of Property so transferred to Newco will be equal to or 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 Newco 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 each Type of Property that Newco has received on such transfer as compared with what Newco would have received if Newco had received its appropriate pro-rata share of the net FMV of that Type of Property.

26. As consideration for DC's Distribution, Newco will issue XXXXXXXXXX class A preferred shares having an aggregate redemption value equal to the aggregate net FMV of the property so transferred to Newco.

The Newco class A preferred shares issued to DC will entitle DC to more than XXXXXXXXXX% of the voting rights under all circumstances in respect of the issued capital of Newco and will represent more than XXXXXXXXXX% of the FMV of all the issued and outstanding shares of the capital stock of Newco such that DC will be connected to Newco pursuant to paragraph 186(4)(b) .

27. In respect of the Distribution, DC and Newco 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 Newco.

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 UCC 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 UCC 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 increase to the Stated Capital of the Newco class A preferred shares will not exceed the aggregate maximum amount that could be added to the PUC of such shares pursuant to subsection 85(2.1).

The purchase for cancellation of the DC common shares held by Newco

28. Immediately after the Distribution, on XXXXXXXXXX, DC will purchase for cancellation the XXXXXXXXXX common shares that Newco will hold in DC in consideration for the Promissory Note 1. Newco will accept Promissory Note 1 as full and absolute payment for the purchase for cancellation of the DC common shares.

The redemption of the Newco class A preferred shares held by DC

29. On XXXXXXXXXX, Newco will redeem the XXXXXXXXXX class A preferred shares that DC will hold in Newco in consideration for Promissory Note 2. DC will accept Promissory Note 2 as full and absolute payment for the redemption of the Newco class A preferred shares.

Cancellation of the Promissory Notes

30. Immediately after Newco's redemption of the class A preferred shares held by DC described in Paragraph 29, the principal owing by DC under Promissory Note 1 and the principal amount owing by Newco under Promissory Note 2 will be set-off in full satisfaction of the respective obligations of DC and Newco thereunder. As a result, Promissory Note 1 and Promissory Note 2 will be legally cancelled and extinguished.

Property Retained by DC

31. Immediately after the Distribution, the net FMV of the property of each Type of Property retained by DC will approximate that proportion of the aggregate net FMV of that Type of Property held by DC immediately before such transfer, that:

(a) The aggregate FMV of the XXXXXXXXXX common shares that WCo will hold in DC

is of

(b) The aggregate FMV of DC's issued and outstanding common shares immediately before the Distribution.

POST-BUTTERFLY TRANSACTION

32. On XXXXXXXXXX, Newco will amalgamate with ECo under the BCA to form Amalco such that:

(a) all of the property (except any amounts receivable from any predecessor corporation) of Eco and Newco immediately before the amalgamation will become property of Amalco by virtue of the Amalgamation;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of Eco and Newco immediately before the amalgamation will become liabilities of Amalco by virtue of the Amalgamation; and

(c) all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of Eco and Newco immediately before the Amalgamation will receive shares of the capital stock of Amalco because of the Amalgamation.

The authorized share of Amalco will consist of an unlimited number of common shares, and class A preferred shares.

The holders of the class A special shares will be entitled to: (i) one vote per class A special shares that they own at all meetings of the shareholders; (ii) receive fixed and non-cumulative dividends, as and when declared by the directors of Amalco, provided that such dividend cannot exceed an amount equal to XXXXXXXXXX% of $XXXXXXXXXX each year (the amount on which the dividend is calculated is referred to as the "Class A Redemption Amount") in respect of each such share that they own; (iii) receive an amount equal to the Class A Redemption Amount together with all declared but unpaid dividends thereon in respect of each class A special share that is redeemed or retracted; and (iv) receive an amount equal to the Class A Redemption Amount in respect of each class A preferred share that they own in the event of Amalco's liquidation or wind-up.

Amalco's issued and outstanding shares will be held as follows: (i) SCo will own XXXXXXXXXX% of the XXXXXXXXXX issued and outstanding common shares in Amalco, and (ii) I will own XXXXXXXXXX class A preferred shares having the following tax attributes: ACB: $XXXXXXXXXX, PUC: $XXXXXXXXXX and FMV: $XXXXXXXXXX.

ADDITIONAL INFORMATION

33. Each of DC and Newco 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.

34. 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).

35. None of DC and Newco 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.

36. None of the shares of DC and Newco 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 Newco its pro rata share of each Type of Property currently held by DC so that SCO can independently determine its investment policy with respect to the Investment Property that Newco will receive from DC as a result of the Distribution.

RULINGS

Provided that the above statements of facts, Pre-Butterfly Transactions, Proposed Transactions, Post-Butterfly Transaction, Additional Information and Purpose of the Proposed Transactions are accurate and constitute complete disclosure of all relevant information, our rulings are as follows:

A. Provided that DC elects in prescribed form and within the time determined under subsection 83(2), the Capital Dividend paid by DC described in Paragraph 18 will not be included in computing the income of WCo and SCo pursuant to paragraph 83(2)(b), and will be added to the Capital Dividend Account of WCo and SCo pursuant to the paragraph (b) of the definition of Capital Dividend Account.

B. 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 SCo's transfer of the XXXXXXXXXX common shares that it held in DC to Newco described in Paragraph 22 and DC's transfers of the property to Newco described in Paragraph 25 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 Newco. For greater certainty, paragraph 85(1)(e.2) shall not apply to the property transfers described in Paragraph 25.

C. On the redemption by Newco of the XXXXXXXXXX class A preferred shares as described in Paragraph 29, Newco 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 aggregate Newco Redemption Amount for all the Newco class A preferred shares to be redeemed paid by Newco exceeds the PUC of the XXXXXXXXXX class A preferred shares immediately before their redemption.

D. On the purchase for cancellation by DC of the XXXXXXXXXX common shares as described in Paragraph 28, DC will be deemed by paragraph 84(3)(a) to have paid and Newco 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 exceeds the PUC of the XXXXXXXXXX common shares immediately before their purchase for cancellation.

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

(a) will be excluded in determining DC's proceeds of disposition of the class A preferred shares that it holds in Newco 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 A preferred shares in Newco 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 Part IV.1 and VI.1 to the extent that the amount paid by Newco to DC on the redemption of each class A preferred shares, as described in Paragraph 29, is equal to the amount specified in respect of such share for the purposes of subsection 191(4);

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

(a) will be excluded in determining Newco's proceeds of disposition of the common shares that it holds 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 Newco pursuant to subsection 82(1) and paragraph 12(1)(j),

(c) will be deductible in computing the taxable income of Newco 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 Newco's disposition of the common shares 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 Part IV.1 and VI.1.

G. An acquisition of control of DC is deemed to have occurred at the beginning of the day when DC purchased for cancellation the XXXXXXXXXX common shares that Newco held in its capital stock as described in Paragraph 28 pursuant to subsection 256(9). In accordance with subsection 249(4), DC's taxation year will be deemed to have ended immediately before the time of the day when control of DC is deemed to have been acquired, and a new taxation year is deemed to have commenced at the beginning of that day. Despite the requirement found in subsection 249.1(7), DC will be entitled to change its taxation year-end to XXXXXXXXXX without the concurrence of the Minister pursuant to paragraph 249(4)(b).

H. 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 paragraph 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 Paragraph 19 and in rulings C and D above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption found in paragraph 55(3)(b).

I. The set-off and cancellation of Promissory Note 1 against Promissory Note2 described in Paragraph 30 will not, in and of itself, give rise to a Forgiven Amount, and neither DC nor Newco will realize a gain or incur any loss as a result of such set-off and cancellation.

J. The taxation years of Eco and Newco will be deemed to have ended immediately before the Amalgamation, and the taxation year of Amalco will be deemed to have commenced at the time of the Amalgamation by virtue of paragraph 87(2)(a).

K. 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.

L. 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 tax consequences resulting from the disposition of the Excess XXXXXXXXXX;

(c) the allocation of current liabilities to DC's Cash and Near-Cash Property giving rise to the Negative Net Cash or Near-Cash;

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

(e) any tax consequences relating to the Definitions, Facts, Pre-Butterfly Transactions, 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
Reorganizations Division
Income Tax Ruling Directorate
Legislative Policy and Regulatory Affairs Branch