2015 Ruling 2014-0536651R3 - 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.

Principal Issues: Whether the loss consolidation within the related and affiliated group is acceptable.

Position: Yes.

Reasons: It falls within the CRA's policy for loss consolidations.

XXXXXXXXXX
2014-053665

XXXXXXXXXX, 2015

Dear XXXXXXXXXX:

Re: Advance Income Tax Rulings Request
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge the information provided in correspondence and telephone conversations concerning your request. Any information you have provided to us forms part of this ruling only to the extent it is expressly referred to or described herein.

To the best of your knowledge and that of the above-referenced taxpayers, none of the issues involved in this ruling is:

(i) in an earlier return of the taxpayers or a related person;

(ii) being considered by a Tax Service Office or Taxation Centre in connection with previously filed tax returns of the taxpayers or a related person;

(iii) under objection by the taxpayers or a related person;

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

(v) the subject of a ruling previously considered by the Directorate.

You have also advised that to the best of your knowledge, and that of the taxpayers, the Proposed Transactions will not result in the taxpayers or any related person described herein being unable to pay its existing outstanding tax liabilities.

Unless otherwise indicated, all statutory references contained in this letter are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended to the date hereof (the “Act”) and all monetary amounts are expressed in Canadian dollars.

DEFINITIONS

In this letter, unless otherwise expressly stated:

(a) “adjusted cost base” has the meaning assigned by section 54;

(b) “affiliated persons” has the meaning assigned by section 251.1;

(c) “agreed amount” means the amount that a transferor and transferee have agreed upon in a joint election under subsection 85(1) in respect of a transfer of eligible property;

(d) “arm’s length” has the meaning assigned by subsection 251(1);

(e) “BCA” means the XXXXXXXXXX Business Corporations Act, XXXXXXXXXX;

(f) “capital property” has the meaning assigned by section 54;

(g) “Canco” means XXXXXXXXXX, a corporation described in Paragraph 1;

(h) “Canco Loan” has the meaning assigned in Paragraph 23;

(i) “Contribution Loan” has the meaning described in Paragraph 26;

(j) “CRA” means the Canada Revenue Agency;

(k) “Daylight Loan #1” has the meaning assigned in Paragraph 19;

(l) “Daylight Loan #2” has the meaning assigned in Paragraph 20;

(m) “dividend rental arrangement” has the meaning assigned by subsection 248(1);

(n) “eligible property” has the meaning assigned by subsection 85(1.1);

(o) “fair market value” means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm’s length and under no compulsion to act, expressed in terms of cash;

(p) “guarantee agreement” has the meaning assigned by subsection 112(2.2);

(q) “Holdco” means XXXXXXXXXX, a corporation described in Paragraph 2;

(r) “Lossco” means a corporation to be incorporated by Canco as described in Paragraph 17;

(s) “Lossco Common Shares” has the meaning assigned in Paragraph 18;

(t) “Lossco Loan” has the meaning assigned in Paragraph 21;

(u) “Newco” means a corporation to be incorporated by Canco as described in Paragraph 13;

(v) “Newco Common Shares” has the meaning assigned in Paragraph 37;

(w) “Newco Note” has the meaning assigned in Paragraph 30;

(x) “Newco Preferred Shares” has the meaning assigned in Paragraph 22;

(y) “non-capital loss” has the meaning assigned by subsection 111(8);

(z) “paid-up capital” has the meaning assigned by subsection 89(1);

(aa) “Paragraph” means a numbered paragraph in this letter;

(bb) “Parent” means XXXXXXXXXX, a corporation described in Paragraph 4.

(cc) “principal amount” has the meaning assigned by subsection 248(1);

(dd) “private corporation” has the meaning assigned by subsection 89(1);

(ee) “Proposed Transactions” means the transactions described in Paragraph 13 to 38;

(ff) “related” has the meaning assigned by subsection 251(2);

(gg) “Subsidiary” means XXXXXXXXXX, a corporation described in Paragraph 9;

(hh) “taxable Canadian corporation” has the meaning assigned by subsection 89(1);

(ii) “taxable dividend” has the meaning assigned by subsection 89(1);

(jj) “taxation year” has the meaning assigned by subsection 249(1); and

(kk) “X Inc.” means XXXXXXXXXX, a corporation described in Paragraph 3.

FACTS

1. Canco was incorporated under the BCA and is a taxable Canadian corporation and a private corporation. Canco’s fiscal period and taxation year ends on XXXXXXXXXX. The authorized capital of Canco includes common shares and preferred shares. Currently, XXXXXXXXXX common shares and XXXXXXXXXX preferred shares of Canco are issued and outstanding. Canco files its tax return with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.

2. All of the issued and outstanding common shares of Canco are owned by Holdco, a corporation formed under the laws of BCA and a taxable Canadian corporation for the purposes of the Act.

3. All of the issued and outstanding preferred shares of Canco are owned by X Inc., a corporation formed under the laws of BCA and a taxable Canadian corporation for the purposes of the Act. All of the issued and outstanding common shares of X Inc. are owned by Holdco.

4. The ultimate parent of Holdco is Parent, a public corporation, the shares of which are listed and traded on the XXXXXXXXXX Stock Exchange.

5. Canco’s core business focuses on XXXXXXXXXX in the provinces of XXXXXXXXXX and XXXXXXXXXX. In the taxation year ended XXXXXXXXXX, Canco had permanent establishments in XXXXXXXXXX and XXXXXXXXXX. The allocation of taxable income between XXXXXXXXXX and XXXXXXXXXX was approximately XXXXXXXXXX% and XXXXXXXXXX%, respectively. Canco expects its fiscal XXXXXXXXXX taxable income allocation to be similar.

6. Canco’s Canadian subsidiaries are involved in businesses that include XXXXXXXXXX.

7. On XXXXXXXXXX, Canco had cumulative non-capital losses available for carryforward of approximately $XXXXXXXXXX.

8. The non-capital losses of Canco carried forward from prior years are as follows:

Year of Origin Non-Capital Loss
XXXXXXXXXX $XXXXXXXXXX

9. Subsidiary was incorporated under the BCA and is a taxable Canadian corporation and a private corporation. Subsidiary’s fiscal period and taxation year ends on XXXXXXXXXX. Subsidiary is authorized to issue XXXXXXXXXX of shares, designated as common shares in an unlimited number. Currently, XXXXXXXXXX common shares of Subsidiary are issued and outstanding. Subsidiary files its tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.

10. Canco owns XXXXXXXXXX of the issued and outstanding common shares of Subsidiary. The remaining XXXXXXXXXX issued and outstanding common shares of Subsidiary are owned by an arm’s length Canadian corporation (“Yco”).

11. Subsidiary’s business consists entirely of XXXXXXXXXX. Subsidiary operates through a permanent establishment in XXXXXXXXXX. XXXXXXXXXX% of Subsidiary’s taxable income is allocated to XXXXXXXXXX.

12. Subsidiary’s annual taxable income is estimated to be approximately $XXXXXXXXXX in its XXXXXXXXXX and XXXXXXXXXX taxation years, without considering the Proposed Transactions.

PROPOSED TRANSACTIONS

13. Canco will incorporate Newco under the BCA. Newco will be a taxable Canadian corporation. The taxation year of Newco will end on XXXXXXXXXX. The authorized share capital of Newco will consist of an unlimited number of common shares and preferred shares. The activities of Newco will be limited to the activities of investing the proceeds it receives upon the issuance of the Newco Preferred Shares to Lossco (as described in Paragraph 22), in the Canco Loan (as described in Paragraph 23).

14. The common shares of Newco will be voting. The holders of common shares will be entitled to dividends at the discretion of the directors, and, subject to the rights of the holders of the preferred shares, to receive, in the event of the liquidation, dissolution or winding-up of Newco, the assets and property of Newco available for distribution.

15. The preferred shares of Newco will be non-voting shares. The preferred shares will be redeemable and retractable for a redemption price equal to the fair market value of the consideration for which the shares are issued. The holders of preferred shares will be entitled to cumulative dividends, calculated daily by reference to the redemption/retraction price of the preferred shares at a rate equal to the sum of the interest rate on the Lossco Loan plus XXXXXXXXXX%. The dividends on the preferred shares will be payable XXXXXXXXXX.

16. Canco will subscribe for XXXXXXXXXX common shares of Newco for $XXXXXXXXXX. Canco will hold the common shares of Newco as capital property and will control Newco.

17. Canco will incorporate Lossco under the BCA. Lossco will be a taxable Canadian corporation. The taxation year of Lossco will end on XXXXXXXXXX. The activities of Lossco will be limited to investing the proceeds it receives from Canco upon the issuance of the Lossco Loan (as described in Paragraph 21), in the Newco Preferred Shares (as described in Paragraph 22). Lossco will be connected to Newco by virtue of the application of subsection 186(2), paragraphs 186(4)(a) and 251(1)(a) and subparagraph 251(2)(b)(i).
The authorized share capital of Lossco will consist of an unlimited number of common shares. The common shares will be voting shares. The holders of common shares will be entitled to dividends at the discretion of the directors.

18. Canco will subscribe for XXXXXXXXXX common shares of Lossco for $XXXXXXXXXX (the “Lossco Common Shares”). Canco will hold the Lossco Common Shares as capital property and will control Lossco.

19. Parent, or a non-resident subsidiary of Parent, will borrow from an arm’s length financial institution on a daylight loan basis (the “Daylight Loan #1”) on arm’s length commercial terms customary for this type of loan. Parent will have the borrowing capacity to borrow the amount of the Daylight Loan #1 from an arm’s length financial institution. The Daylight Loan #1 is estimated to be approximately $XXXXXXXXXX.

20. Parent, or a non-resident subsidiary of Parent, will use the entire proceeds received from the Daylight Loan #1 to make a daylight loan to Canco (the “Daylight Loan #2”). The Daylight Loan #2 will bear interest at a rate which will not exceed what would be a reasonable commercial rate in these circumstances.

21. Canco will use the entire proceeds received from the Daylight Loan #2 to make a loan to Lossco (the “Lossco Loan”). The Lossco Loan is expected to bear interest at a rate of XXXXXXXXXX% which will not exceed what would be a reasonable commercial rate in these circumstances. Interest on the Lossco Loan will be payable XXXXXXXXXX on specified dates each XXXXXXXXXX or such time that the Lossco Loan is repaid.

22. Lossco will use the entire proceeds received from the Lossco Loan to subscribe for preferred shares of Newco (the “Newco Preferred Shares”) having an aggregate redemption/retraction price and fair market value equal to the subscription proceeds. Lossco will not acquire the Newco Preferred Shares in its ordinary course of business. The full amount of the subscription proceeds will be added to the stated capital of the Newco Preferred Shares and will form part of the permanent capital of Newco. The paid-up capital of the Newco Preferred Shares will be equal to their redemption/retraction amount.

The amount of dividends on the Newco Preferred Shares held by Lossco will be sufficient to permit Lossco to realize a profit on its investment activity, after the deduction of all its expenses (not only its interest expenses).

23. Newco will use the entire proceeds received on the subscription of the Newco Preferred Shares to make a non-interest bearing loan to Canco (the “Canco Loan”). The Canco Loan will be payable, in whole or in part, on demand.

24. Canco will use the entire proceeds received from the Canco Loan to repay the Daylight Loan #2.

25. Parent, or a non-resident subsidiary of Parent, will use the entire proceeds received from the repayment of the Daylight Loan #2 to repay the Daylight Loan #1.

26. While the Lossco Loan is outstanding, Canco will, XXXXXXXXXX, borrow from Parent, or a non-resident subsidiary of Parent, on a daylight loan basis (the “Contribution Loan”) on arm's-length commercial terms customary for this type of loan and will use the borrowed funds to make contributions of capital to Newco in an amount equal to the dividends payable by Newco on the Newco Preferred Shares. Canco will have the borrowing capacity to borrow the amount of the capital contributions from an arm's-length financial institution. No shares will be issued to Canco with respect to these contributions of capital and no amount will be added to the stated capital accounts or PUC of Newco. The amount of each contribution of capital will be recorded by Newco as contributed surplus for accounting purposes. The contributions of capital will not be treated as income for tax purposes or pursuant to International Financial Reporting Standards.

27. Upon receipt of the contributions of capital, described in Paragraph 26, Newco will use the amount received to pay all accrued and unpaid dividends on the Newco Preferred Shares.

28. Upon receipt of the payment of the dividends, described in Paragraph 27, Lossco will pay all accrued and unpaid interest due and payable on the Lossco Loan, pursuant to the terms of the Lossco Loan.

29. Upon receipt of the payment of the interest, described in Paragraph 28, Canco will repay the Contribution Loan.

30. The loss consolidation arrangement, including the Lossco Loan and the Canco Loan, as described in Paragraphs 13 to 29, will be wound up approximately XXXXXXXXXX months after commencement of the loss consolidation arrangement. The following transactions will be effected to unwind the loss consolidation arrangement:

(a) Newco will redeem the Newco Preferred Shares in consideration for a non-interest bearing promissory note (the “Newco Note”). The Newco Note will have a principal amount and fair market value equal to the redemption amount and fair market value of the Newco Preferred Shares redeemed;

(b) Lossco will repay the Lossco Loan by assigning the Newco Note to Canco in full satisfaction of the amount due under the Lossco Loan. The Lossco Loan will be cancelled;

(c) Canco and Newco will agree to set-off the amounts due under the Newco Note against the amount due under the Canco Loan as payment in full. The obligation under the Newco Note and the Canco Loan will be cancelled.

31. The articles of Subsidiary will be amended to create a new class of preferred shares, of which an unlimited number will be authorized to be issued. The preferred shares will be non-voting. The preferred shares will be redeemable and retractable for an amount equal to the fair market value of the consideration for which the shares are issued.

32. Forthwith after the proposed transactions described in Paragraphs 30 and 31 above, Canco will transfer to Subsidiary the Lossco Common Shares in exchange for XXXXXXXXXX preferred share of Subsidiary (the “Subsidiary Special Share”) having a redemption/retraction price equal to the fair market value of the Lossco Common Shares so transferred (the “Redemption Amount”). The fair market value of the Lossco Common Shares will be determined taking into consideration interest rates, the amount and estimated time of utilization of the non-capital losses of Lossco, the minority shareholding by an arm’s length third party, and other factors. The adjusted cost base of the Lossco Common Shares will be less than the fair market value of the Lossco Common Shares at the time of the disposition.

33. Canco and Subsidiary will file a joint election, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the Lossco Common Shares to Subsidiary. The agreed amount in respect of the Lossco Common Shares transferred will be equal to the adjusted cost base of the Lossco Common Shares, by virtue of paragraph 85(1)(c.1).

34. Subsidiary will add to its stated capital account maintained for the Subsidiary Special Share the agreed amount pursuant to subsection 85(1), as referred to in Paragraph 33. For greater certainty, the increase to the paid-up capital of the Subsidiary Special Share will not exceed the maximum amount that could be added to the paid-up capital of such share, having regard to subsection 85(2.1).

35. Subsidiary will redeem for cash consideration the Subsidiary Special Share issued to Canco, for an amount equal to its Redemption Amount, as described in Paragraph 32.

36. Subsidiary will cause Lossco to be wound-up. The assets of Lossco will be distributed to Subsidiary and its liabilities, if any, will be assumed by Subsidiary. The provisions of subsection 88(1) will apply to the wind-up of Lossco. Lossco will be legally dissolved within a short period of time thereafter.

37. Subsidiary will subscribe for common shares of Newco for fair market value consideration. Newco will subsequently purchase for cancellation common shares of Newco held by Canco (the “Newco Common Shares”) for consideration equal to the fair market value of the Newco Common Shares at the time of the purchase for cancellation. At the time of the purchase for cancellation of the Newco Common Shares, the fair market value of the Newco Common Shares will be less than the adjusted cost base of the Newco Common Shares, resulting in a capital loss.

38. Subsidiary will cause Newco to be wound-up. The assets of Newco will be distributed to Subsidiary and its liabilities, if any, will be assumed by Subsidiary. The provisions of subsection 88(1) will apply to the wind-up of Newco. Newco will be legally dissolved within a short period of time thereafter.

Additional Information

39. Lossco will not be used for any purposes other than those described in the Proposed Transactions. In addition, Lossco should never be insolvent. Canco will not claim, at any time, a capital loss in respect of its capital contribution to Newco.

40. After the transactions described in Paragraphs 13 to 30 above, the FMV of the common shares of Lossco should be equal to the aggregate of (i) the value of the tax savings resulting from the use of the Lossco’s Non-Capital Losses and (ii) any amount of cash held by Lossco net of any liability. Such FMV is expected to be no more than approximately $XXXXXXXXXX.

41. Neither the Newco Preferred Shares described in Paragraph 22 nor the Subsidiary Special Share described in Paragraph 32 will be, at any time during the implementation of the Proposed Transactions described herein:

(a) the subject of any undertaking that is 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) other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b); or

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

42. Neither Lossco nor Canco will be a “specified financial institution”, as that term is defined in subsection 248(1), at any time in their taxation years in which the Newco Preferred Shares and the Subsidiary Special Share are redeemed, as described in Paragraphs 30 and 35, respectively.

43. None of the corporations involved in the Proposed Transactions is or will be a “restricted financial institution” as defined in subsection 248(1), or a “financial intermediary corporation” as defined in subsection 191(1).

44. Canco and Subsidiary are related persons and affiliated persons. Canco, Subsidiary, Lossco and Newco will be, throughout the series of transitions that includes the Proposed Transaction, related persons and affiliated persons. Canco and Subsidiary will continue to be related persons and affiliated persons going forward. In this context, Canco and Subsidiary are affiliated persons as that meaning is assigned by section 251.1 if read without reference to the definition of ‘controlled’ in subsection 251.1(3).

45. The Proposed Transactions will not result in Canco deducting any interest expense, in any taxation year of Lossco commencing after the commencement of the Proposed Transactions, that would otherwise have been denied under subsection 18(4) had the Proposed Transactions not been undertaken.

46. For greater certainty, no amount in respect of any non-capital loss of Canco arising from the Proposed Transactions, will be deducted by Subsidiary in computing its income for any taxation year that ends more than XXXXXXXXXX taxation years after the end of Canco’s taxation year in which the non-capital loss being deducted arose or would arise in the absence of undertaking the Proposed Transactions.

Other Representations

47. The Lossco Loan is being made to Lossco, instead of having Canco make the Lossco Loan directly to Subsidiary, due to constraints related to Subsidiary’s specific debt covenants.

48. The purpose of incorporating Newco is to have Newco issue the Newco Preferred Shares to Lossco rather than having Canco issue preferred shares to Lossco, which would result in corporate incest.

49. The Daylight Loan #1 is made to Parent and not to Canco because Canco cannot borrow from third-parties according to debt covenants imposed on Parent.

50. Yco will not make compensation payments in respect of the Proposed Transactions.

Purpose of the Proposed Transactions

51. The purpose of the Proposed Transactions is to (i) allow Subsidiary to offset taxable income with the non-capital losses of Lossco that would be created by the interest expense on the Lossco Loan, and (ii) to use non-capital losses of Canco.

RULINGS

Provided that the preceding statements, including the additional information, constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we rule as follows:

A. Provided that Lossco has a legal obligation to pay interest on the Lossco Loans, and the Newco Preferred Shares continue to be held by Lossco for the purpose of gaining or producing income therefrom, Lossco will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct, in computing its income for a taxation year, the lesser of (i) the interest paid or payable on the Lossco Loan in respect of that taxation year; or (ii) a reasonable amount in respect thereof.

B. No amount will be included in the income of Newco, pursuant to section 9, paragraph 12(1)(c) or 12(1)(x) of the Act, in respect of the contributions of capital to be made by Canco to Newco as described in Paragraph 26.

C. The dividends received by Lossco on the Newco Preferred Shares, as described in Paragraph 27, will be taxable dividends and such dividends will,

(a) pursuant to subsection 112(1) of the Act, be deductible in computing the taxable income of Lossco for the taxation year in which the dividends were received, and for greater certainty, such deductions will not be precluded by any of subsections 112 (2.1), 112(2.2), 112(2.3) or 112(2.4) of the Act; and

(b) not be subject to tax under Part IV, except to the extent that paragraph 186(1)(b) of the Act applies to impose such tax.

D. Subsection 84(3) of the Act will apply to the redemption of the Subsidiary Special Share, described in Paragraph 35, to deem Subsidiary to have paid and Canco to have received a dividend equal to the amount, if any, by which the amount paid upon such redemption exceeds the paid-up capital in respect of such shares immediately before such redemption, and any such dividend:

(a) will be included in computing the income of Canco pursuant to subsection 82(1) and paragraph 12(1)(j) of the Act;

(b) will be deductible by Canco pursuant to subsection 112(1) of the Act in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4) of the Act;

(c) will be excluded in determining the proceeds of disposition, to Canco, of the shares so redeemed pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54 of the Act;

(d) will, by virtue of subsection 112(3) of the Act, reduce the loss, if any, in respect of the disposition of the shares on which such dividend is deemed to have been received; and

(e) will not be subject to tax under Part IV, except to the extent that paragraph 186(1)(b) of the Act applies to impose such tax.

E. Provided that Canco and Subsidiary jointly file an election pursuant to subsection 85(1) within the time allowed by subsection 85(6), the provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply so that the agreed amount in respect of Canco's transfer of the Lossco Common Shares to Subsidiary, described in Paragraph 32, will be deemed to be Canco's proceeds of disposition and Subsidiary's cost of the Lossco Common Shares pursuant to paragraph 85(1)(a).

F. Provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) as part of a series of transactions or events that includes the receipt of the taxable dividends described in either of Rulings C or D herein, then by virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends described in Rulings C and D. For greater certainty, the Proposed Transactions described herein, in and by themselves, will not be considered to result in any disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v).

G. Provided that the requirements of paragraphs 88(1.1)(a) and (b) are satisfied, subsection 88(1.1) will apply after the winding up of Lossco into Subsidiary, described in Paragraph 36, to permit Subsidiary to deduct the non-capital losses of Lossco in computing its taxable income for any taxation year commencing after the commencement of the winding-up, subject to the limitations in paragraph 88(1.1)(e) and section 111. For this purpose, Lossco will not be considered to have been wound up until it has been formally dissolved.

H. By virtue of paragraph 40(3.6)(a), the capital loss incurred by Canco on the purchase for cancellation of the Newco Common Shares, as described in Paragraph 37, will be deemed to be nil. Paragraph 40(3.6)(b) and paragraph 53(1)(f.2) will not apply to add the capital loss denied under paragraph 40(3.6)(a) to the adjusted cost base of a class of the capital stock of Newco owned by Canco immediately after the disposition. For greater certainty, subsections 40(3.3) and 40(3.4) will not apply with respect to Canco's capital loss on the purchase for cancellation of the Newco Common Shares.

I. Subsections 15(1), 56(2), 69(1), 69(4), 69(11) and 246(1) will not apply to the Proposed Transactions in and by themselves.

J. The provisions of subsection 245(2) will not apply, as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

K. 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 by themselves, to determine the tax consequences confirmed in the rulings given above, in respect of a taxation year in respect of which such a tax collection agreement is in effect.

The above ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R6 dated August 29, 2014 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.

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; 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;

(c) whether any of the corporations referred to herein are related or affiliated corporations; or

(d) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not.

Yours sincerely,

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