2015 Ruling 2014-0559181R3 - Internal 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 paragraph 55(3)(a) will apply in the context of an internal spin-off reorganization.

Position: Yes.

Reasons: There is no transaction described in subparagraphs 55(3)(a)(i) to (v) as part of the series of transactions as part of which the dividends will be received.

XXXXXXXXXX 2014-055918

XXXXXXXXXX, 2015

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling

XXXXXXXXXX (« Aco »)
Business Number: XXXXXXXXXX
Tax Service Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX

XXXXXXXXXX (« Bco »)
Business Number: XXXXXXXXXX
Tax Service Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX

XXXXXXXXXX (« Cco »)
Business Number: XXXXXXXXXX
Tax Service Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX

XXXXXXXXXX(« Dco »)
Business Number: XXXXXXXXXX
Tax Service Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX

XXXXXXXXXX (« Eco »)
Business Number: XXXXXXXXXX
Tax Service Office: XXXXXXXXXX
Taxation Centre: XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, and XXXXXXXXXX (and related emails) in which you requested an advance income tax ruling on behalf of the above-named taxpayers.

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

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

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person,

(c) under objection by the taxpayers or a related person,

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

(e) the subject of a ruling previously considered by the Directorate involving the taxpayers or a related person (except advance income tax ruling no. 2012-0437881R3).

DEFINITIONS

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

"ACB" means adjusted cost base, as defined in section 54;

"Aco" means XXXXXXXXXX, the corporation described in Paragraph 1;

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof. Unless otherwise stated, all statutory references are to the Act and all terms and conditions used herein that are defined in the Act have the meaning given in such definition;

"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 an eligible property;

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

"Bco" means XXXXXXXXXX, the corporation described in Paragraph 2;

"Bco Note1" means the note payable described in Paragraph 12;

"Bco Note2" means the note payable described in Paragraph 17;

"Bco Note3" means the note payable described in Paragraph 22;

XXXXXXXXXX;

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

"CBCA" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44;

"Cco" means XXXXXXXXXX, the corporation described in Paragraph 5;

"Cco Common Shares" means the common shares described in Paragraph 5;

"Cco Note" means the note payable described in Paragraph 13;

"Cco Preferred Shares" means the preferred shares described in Paragraph 5;

"Class A Common Shares" means the common shares of the capital stock of Bco described in Paragraph 2;

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

"CRA" means Canada Revenue Agency;

"Dco" means XXXXXXXXXX, the corporation described in Paragraph 6;

"Dco Common Shares" means the common shares described in Paragraph 6;

"Dco Note" means the note payable described in Paragraph 18;

"Dco Preferred Shares" means the preferred shares described in Paragraph 6;

"Division1" means XXXXXXXXXX, the division transferred in Paragraph 10;

"Division2" means XXXXXXXXXX, the division transferred in Paragraph 15;

"Division3" means XXXXXXXXXX, the division transferred in Paragraph 20;

"Division4" means the XXXXXXXXXX activities related to XXXXXXXXXX division of Bco;

"Eco" means XXXXXXXXXX, the corporation described in Paragraph 7;

"Eco Common Shares" means the common shares described in Paragraph 7;

"Eco Note" means the note payable described in Paragraph 23;

"Eco Preferred Shares" means the preferred shares described in Paragraph 7;

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

"fair market value" (also referred as "FMV") means the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact;

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

"LRIP" means "low rate income pool", as defined in subsection 89(1);

"Management" means the management of Ultimate Parentco;

"Optionholders" means any holder of options of Ultimate Parentco;

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

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

"Parentco" means XXXXXXXXXX, the corporation described in Paragraph 8;

"permanent establishment" has the meaning assigned by Regulation 400(2) of the Income Tax Regulations, CRC, c. 945 (Income Tax Act);

"Proposed Transactions" means the transactions described in Paragraphs 10 to 24;

"XXXXXXXXXXBCA" means the Business Corporations Act XXXXXXXXXX;

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

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

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

"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 section XXXXXXXXXX of the XXXXXXXXXXBCA;

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

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

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

"Ultimate Parentco" means XXXXXXXXXX, the corporation described in Paragraph 9.

FACTS

1. Aco is a taxable Canadian corporation incorporated under the CBCA. Parentco holds all of the issued common shares of the capital stock of Aco. Aco has a XXXXXXXXXX fiscal year end. Aco is a holding company that owns interests, directly or indirectly, in companies involved in XXXXXXXXXX. The activities of Aco are realized through its subsidiaries which are actively engaged in Canada.

2. Bco is a taxable Canadian corporation incorporated under the XXXXXXXXXXBCA. Aco holds all of the issued and outstanding Class A Common Shares of the capital stock of Bco. Bco is a subsidiary wholly-owned corporation of Aco. The Class A common shares of the capital stock of Bco are voting and participating. Bco has a XXXXXXXXXX fiscal year end. Bco is XXXXXXXXXX. Bco has XXXXXXXXXX operating subsidiaries located in the Province of XXXXXXXXXX that are included in Division 4. Another subsidiary of Bco located in XXXXXXXXXX is included in Division 3.

Bco has no LRIP balance as of the date hereof.

3. Bco operates four business divisions:

? XXXXXXXXXX ("Division1") having an approximate FMV of $XXXXXXXXXX ;
? XXXXXXXXXX ("Division2") having an approximate FMV of $XXXXXXXXXX;
? XXXXXXXXXX ("Division3") having an approximate FMV of $XXXXXXXXXX; and
? XXXXXXXXXX activities related to the XXXXXXXXXX ("Division4") having an approximate FMV of $XXXXXXXXXX.

4. Aco and Bco operate through permanent establishments in XXXXXXXXXX.

5. Cco is a taxable Canadian corporation incorporated under the XXXXXXXXXXBCA. Aco holds all of the issued and outstanding common shares of the capital stock of Cco. Cco is a subsidiary wholly-owned corporation of Aco. Cco has a XXXXXXXXXX fiscal year end. The authorized share capital of the capital stock of Cco consists of an unlimited number of common shares ("Cco Common Shares") and an unlimited number of preferred shares ("Cco Preferred Shares"). Cco is currently inactive.

The Cco Common Shares have the following attributes:

• Voting; and
• Participating.

The Cco Preferred Shares have the following attributes:

• non-voting;
• non-participating;
• redeemable at the option of the issuer and retractable at the option of the holder, subject to applicable law, at any time for an amount equal to the cash amount for which they were issued (i.e. $XXXXXXXXXX); and
• no dividend entitlement.

Cco has no LRIP balance as of the date hereof.

6. Dco is a taxable Canadian corporation incorporated under the XXXXXXXXXXBCA. Aco holds all of the issued and outstanding common shares of the capital stock of Dco. Dco is a subsidiary wholly-owned corporation of Aco. Dco has a XXXXXXXXXX fiscal year end. The authorized share capital of the capital stock of Dco consists of an unlimited number of common shares ("Dco Common Shares") and an unlimited number of preferred shares ("Dco Preferred Shares"). Dco is currently inactive.

The Dco Common Shares have the following attributes:

• Voting; and
• Participating.

The Dco Preferred Shares have the following attributes:

• non-voting;
• non-participating;
• redeemable at the option of the issuer and retractable at the option of the holder, subject to applicable law, at any time for an amount equal to the cash amount for which they were issued (i.e. $XXXXXXXXXX); and
• no dividend entitlement.

Dco has no LRIP balance as of the date hereof.

7. Eco is a taxable Canadian corporation incorporated under the XXXXXXXXXXBCA. Aco holds all of the issued and outstanding common shares of the capital stock of Eco. Eco is a subsidiary wholly-owned corporation of Aco. Eco has a XXXXXXXXXX fiscal year end. The authorized share capital of the capital stock of Eco consists of an unlimited number of common shares ("Eco Common Shares") and an unlimited number of preferred shares ("Eco Preferred Shares"). Eco is currently inactive.

The Eco Common Shares have the following attributes:

• Voting; and
• Participating.

The Eco Preferred Shares have the following attributes:

• non-voting;
• non-participating;
• redeemable at the option of the issuer and retractable at the option of the holder, subject to applicable law, at any time for an amount equal to the cash amount for which they were issued (i.e. $XXXXXXXXXX);
• no dividend entitlement.

Eco has no LRIP balance as of the date hereof.

8. Parentco is a XXXXXXXXXX corporation and is a subsidiary wholly-owned corporation of Ultimate Parentco. Parentco and its subsidiaries provide XXXXXXXXXX services which include XXXXXXXXXX. Parentco and its subsidiaries also possess know-how in those related areas. Parentco and its subsidiaries generate most of their revenues in XXXXXXXXXX.

9. Ultimate Parentco is a XXXXXXXXXX corporation and a public corporation whose common shares are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX". The market capitalization of Ultimate Parentco is approximately XXXXXXXXXX as of XXXXXXXXXX. Ultimate Parentco operates as a XXXXXXXXXX and a worldwide XXXXXXXXXX company. Ultimate Parentco XXXXXXXXXX.

PROPOSED TRANSACTIONS

10. Bco will transfer Division1's assets having a FMV of $XXXXXXXXXX to Cco. In consideration, Cco will issue Cco Preferred Shares with an aggregate FMV equal to the FMV of Division1's assets transferred at this time by Bco.

Bco and Cco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to transfer Bco Division1's assets at the agreed amount to Cco. The agreed amount in respect of each such transferred property will be equal to:

(a) in the case of depreciable property of a prescribed class, the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(b) in the case of eligible capital property, the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

In each case, the agreed amount will not exceed the FMV of the property transferred.

The increase in the PUC of the Cco Preferred 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).

11. Aco will transfer a number of Class A Common Shares of the capital stock of Bco having a FMV equal to the FMV of the Cco Preferred Shares issued in Paragraph 10. In consideration, Cco will issue Cco Common Shares having a FMV equal to the Class A Common Shares of the capital stock of Bco so transferred.

Aco and Cco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to transfer the Class A Common Shares of the capital stock of Bco at an agreed amount equal to the ACB of the shares so transferred.

The agreed amount will not exceed the FMV of the Class A Common Shares of the capital stock of Bco so transferred.

The increase in the PUC of the Cco 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).

12. Bco will purchase for cancellation its Class A Common Shares held by Cco for an amount equal to the FMV of such shares. In consideration, Bco will issue a non-interest bearing note payable on demand ("Bco Note1") having a principal amount and a FMV equal to the FMV of the Class A Common Shares. Cco will accept the Bco Note1 as a full and absolute payment for the amount due to Cco from the purchase for cancellation of the Class A Common Shares of the capital stock of Bco.

Bco will designate the dividend resulting from the purchase for cancellation of the Class A Common Shares held by Cco to be an eligible dividend for purposes of subsection 89(14).

13. Cco will redeem the Cco Preferred Shares owned by Bco for an amount equal to the aggregate redemption amount and FMV of such shares. In consideration, Cco will issue a non-interest bearing note payable on demand ("Cco Note") having a principal amount and a FMV equal to the aggregate redemption amount and FMV of the Cco Preferred Shares. Bco will accept the Cco Note as a full and absolute payment for the amount due to Bco from the redemption of the Cco Preferred Shares.

Cco will designate the dividend resulting from the redemption of the Cco Preferred Shares held by Bco to be an eligible dividend for purposes of subsection 89(14).

14. Immediately following the transactions described in Paragraphs 12 and 13, the obligations under the Bco Note1 and the Cco Note will be legally set-off against each other as payment in full of such notes and the notes will be cancelled.

15. Bco will transfer Division2's assets having a FMV of $XXXXXXXXXX to Dco. In consideration, Dco will issue Dco Preferred Shares with an aggregate FMV equal to the FMV of Division2's assets transferred at this time by Bco.

Bco and Dco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to transfer Bco Division2's assets at the agreed amount to Dco. The agreed amount in respect of each such transferred property will be equal to:

(a) in the case of depreciable property of a prescribed class, the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(b) in the case of eligible capital property, the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

In each case, the agreed amount will not exceed the FMV of the property transferred.

The increase in the PUC of the Dco Preferred 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).

16. Aco will transfer a number of Class A Common Shares of the capital stock of Bco having a FMV equal to the FMV of the Dco Preferred Shares issued in Paragraph 15. In consideration, Dco will issue Dco Common Shares having a FMV equal to the Class A Common Shares of the capital stock of Bco so transferred.

Aco and Dco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to transfer the Class A Common Shares of Bco at an agreed amount equal to the ACB of the shares so transferred.

The agreed amount will not exceed the FMV of the Class A Common Shares of the capital stock of Bco so transferred.

The increase in the PUC of the Dco 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).

17. Bco will purchase for cancellation its Class A Common Shares held by Dco for an amount equal to the FMV of such shares. In consideration, Bco will issue a non-interest bearing note payable on demand ("Bco Note2") having a principal amount and a FMV equal to the FMV of the Class A Common Shares. Dco will accept the Bco Note2 as a full and absolute payment for the amount due to Dco from the purchase for cancellation of the Class A Common Shares of the capital stock of Bco.

Bco will designate the dividend resulting from the purchase for cancellation of the Class A Common Shares held by Dco to be an eligible dividend for purposes of subsection 89(14).

18. Dco will redeem the Dco Preferred Shares owned by Bco for an amount equal to the aggregate redemption amount and FMV of such shares. In consideration, Dco will issue a non-interest bearing note payable on demand ("Dco Note") having a principal amount and a FMV equal to the aggregate redemption amount and FMV of the Dco Preferred Shares. Bco will accept the Dco Note as a full and absolute payment for the amount due to Bco from the redemption of the Dco Preferred Shares.

Dco will designate the dividend resulting from the redemption of the Dco Preferred Shares held by Bco to be an eligible dividend for purposes of subsection 89(14).

19. Immediately following the transactions described in Paragraphs 17 and 18, the obligations under the Bco Note2 and the Dco Note will be legally set-off against each other as payment in full of such notes and the notes will be cancelled.

20. Bco will transfer Division3's assets having an approximate FMV of $XXXXXXXXXX to Eco. In consideration, Eco will issue Eco Preferred Shares with an aggregate FMV equal to the FMV of Division3's assets transferred at this time by Bco.

Bco and Eco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to transfer Bco Division3's assets at the agreed amount to Eco. The agreed amount in respect of such transferred property will be equal to:

(a) in the case of depreciable property of a prescribed class, the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(b) in the case of eligible capital property, the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

In each case, the agreed amount will not exceed the FMV of the property transferred.

The increase in the PUC of the Eco Preferred 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).

21. Aco will transfer a number of Class A Common Shares of the capital stock of Bco having a FMV equal to the FMV of the Eco Preferred Shares issued in Paragraph 20. In consideration, Eco will issue Eco Common Shares having a FMV equal to the Class A Common Shares of Bco so transferred.

Aco and Eco will jointly elect under subsection 85(1), within the time prescribed by subsection 85(6), to the transfer Class A Common Shares of Bco at an agreed amount equal to the ACB of the shares so transferred.

The agreed amount will not exceed the FMV of the Class A Common Shares of the capital stock of Bco so transferred.

The increase in the PUC of the Eco 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).

22. Bco will purchase for cancellation its Class A Common Shares held by Eco for an amount equal to the FMV of such shares. In consideration, Bco will issue a non-interest bearing note payable on demand ("Bco Note3") having a principal amount and a FMV equal to the FMV of the Class A Common Shares. Eco will accept the Bco Note3 as a full and absolute payment for the amount due to Eco from the purchase for cancellation of the Class A Common Shares of the capital stock of Bco.

Bco will designate the dividend resulting from the purchase for cancellation of the Class A Shares held by Eco to be an eligible dividend for purposes of subsection 89(14).

23. Eco will redeem the Eco Preferred Shares owned by Bco for an amount equal to the aggregate redemption amount and FMV of such shares. In consideration, Eco will issue a non-interest bearing note payable on demand ("Eco Note") having a principal amount and a FMV equal to the aggregate redemption amount and FMV of the Eco Preferred Shares. Bco will accept the Eco Note as a full and absolute payment for the amount due to Bco from the redemption of the Eco Preferred Shares.

Eco will designate the dividend resulting from the redemption of the Eco Preferred Shares held by Bco to be an eligible dividend for purposes of subsection 89(14).

24. Immediately following the transactions described in Paragraphs 22 and 23, the obligations under the Bco Note3 and the Eco Note will be set-off against each other as payment in full of such notes and the notes will be cancelled.

ADDITIONAL INFORMATION

25. The issued Class A Common Shares, Cco Preferred Shares, Dco Preferred Shares and Eco Preferred Shares will not, at any time during the implementation of the Proposed Transactions, be:

(a) shares that will be acquired in the ordinary course of the business carried on by either Bco, Cco, Dco or Eco;

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

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

(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).

26. None of the corporations involved in the Proposed Transactions has or will have entered into a "dividend rental arrangement" as defined by subsection 248(1) with respect to any of the shares redeemed for the purposes of completing the Proposed Transactions.

27. At all relevant times during the Proposed Transactions, Bco, Cco, Dco and Eco are neither "restricted financial institutions" nor "specified financial institutions" within the meaning assigned by subsection 248(1).

28. The portion of the FMV of the shares of Ultimate Parentco derived from Aco before the Proposed Transactions is much less than XXXXXXXXXX% of the value of Ultimate Parentco.

29. Management is not aware and has no reason to believe that, as at XXXXXXXXXX, any person, alone or together with persons not dealing at arm's length, held, owned or exercised control or direction over more than XXXXXXXXXX% of the common shares of the capital stock of Ultimate Parentco.

30. Management is not aware and has no reason to believe that any person holding, owning or exercising control or direction over any of the shares of the capital stock of Ultimate Parentco is aware of the Proposed Transactions.

31. The Proposed Transactions are not going to be publicly disclosed to the shareholders of Ultimate Parentco.

32. Management has no reason to believe that any of the transactions as described in the Proposed Transactions or the Additional Information section will have any material impact on the trading price of the shares of the capital stock of Ultimate Parentco or the value of the options held by the Optionholders;

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to simplify the Canadian corporate structure in order to facilitate management and standardize with the structure currently in place in XXXXXXXXXX. The Proposed Transactions will enable Bco to spin-off its assets in order to divide the operations of Bco into four distinct divisions, on a tax-deferred basis.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant Facts, Proposed Transactions, Additional Information and the Purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:

A. Subject to the application of subsection 69(11), provided that the appropriate elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and that each particular property described below is an eligible property in respect of which shares have been issued as full or partial consideration therefor, the provisions of subsection 85(1) will apply to Division1, Division2 and Division3's assets of Bco transferred to Cco, Dco and Eco respectively described in Paragraphs 10, 15 and 20 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 Bco and the cost thereof to Cco, Dco and Eco respectively. For greater certainty, paragraph 85(1)(e.2) shall not apply to the transfers described in Paragraphs 10, 15 and 20.

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 the transfer of Class A Shares of the capital stock of Bco held by Aco to Cco, Dco and Eco respectively described in Paragraphs 11, 16 and 21 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 Aco and the cost thereof to Cco, Dco and Eco respectively. For greater certainty, paragraph 85(1)(e.2) shall not apply to the transfers described in Paragraphs 11, 16 and 21.

C. On the purchase for cancellation of all Class A Common Shares held by Cco, Dco and Eco and as respectively described in Paragraphs 12, 17 and 22 above, Bco will be deemed by paragraph 84(3)(a) to have paid and Cco, Dco and Eco will be deemed by paragraph 84(3)(b) to have received taxable dividends equal to the amount, if any, by which the amount paid to purchase for cancellation those shares exceeds the paid-up capital of those shares immediately before the purchase for cancellation.

D. On the redemption of all Cco Preferred Shares, Dco Preferred Shares and Eco Preferred Shares held by Bco and as respectively described in Paragraphs 13, 18 and 23 above, Cco, Dco and Eco will be deemed by paragraph 84(3)(a) to have paid and Bco will be deemed by paragraph 84(3)(b) to have received taxable dividends equal to the amount, if any, by which the amount paid to redeem those shares exceeds the paid-up capital of those shares immediately before the redemption.

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

a) will be excluded in determining Cco, Dco and Eco's proceeds of disposition of the Class A Common Shares that it hold in Bco pursuant to paragraph (j) of the definition of proceeds of disposition in subsection 54(1);
b) will be included in computing Cco, Dco and Eco's income pursuant to subsection 82(1) and paragraph 12(1)(j);
c) will be deductible in computing Cco, Dco and Eco'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; and
d) will reduce any loss that would otherwise be realized as a result of Cco, Dco and Eco's disposition of the Class A Common Shares in Bco in respect of which the dividend is deemed to be received pursuant to subsection 112(3).

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

a) will be excluded in determining Bco's proceeds of disposition of the Cco Preferred Shares, Dco Preferred Shares and Eco Preferred Shares that it holds in Cco, Dco and Eco pursuant to paragraph (j) of the definition of proceeds of disposition in subsection 54(1);
b) will be included in computing Bco's income pursuant to subsection 82(1) and paragraph 12(1)(j);
c) will be deductible in computing Bco'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; and
d) will reduce any loss that would otherwise be realized as a result of Bco's disposition of the Cco Preferred Shares, Dco Preferred Shares and Eco Preferred Shares in respect of which the dividend is deemed to be received pursuant to subsection 112(3).

G. The set-off of Bco Note1 with Cco Note, Bco Note2 with Dco Note and Bco Note3 with Eco Note as described respectively in Paragraphs 14, 19 and 24 above will not, in and of themselves, result in a forgiven amount within the meaning thereof in subsection 80(1) or 80.01(1), and none of Bco, Cco, Dco and Eco will realize any gain or sustain any loss as a result of such set-off.

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

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

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R6 issued on August 29, 2014, and are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX.

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

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

(a) the PUC of any share or the ACB or FMV of any property referred to herein;

(b) the balance of LRIP or any other tax account of any corporation; or,

any other tax consequence relating to the Facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

Advance Income Tax Ruling no. 2012-0437881R3 issued on XXXXXXXXXX, 2012 ("the 2012 Ruling")

In a letter dated XXXXXXXXXX, you submitted a request to have a written confirmation that the 2012 Ruling would continue to be binding upon the CRA following the implementation of the Proposed Transactions.

The pertinent facts are the same as outlined in the 2012 Ruling. The proposed transactions in the 2012 Ruling have been carried out in the XXXXXXXXXX fiscal year.

The conditions provided in the 2012 Ruling would be maintained and respected and the proposed transactions in the 2012 Ruling were completed in the manner described in the said 2012 Ruling.

Bco, through its XXXXXXXXXX, will generate sufficient income to absorb the interest expense resulting from the loss consolidation transactions that were the object of the 2012 Ruling. Therefore, no modification is required to any of the loss consolidation transactions.

As a result of the Proposed Transactions, no new business activities will be created within the corporate group as only existing operations will be transferred into sister corporations so that the different existing activities are carried through four divisions. Moreover, the Proposed Transactions will be made in a tax-deferred manner and will not have the effect of creating new tax obligations.

Considering the above, we hereby confirm that, subject to the conditions, limitations, qualifications and comments set out in the 2012 Ruling, as amended by this letter, the advance income tax rulings given in the 2012 Ruling will continue to be binding on the CRA.

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

Yours truly,

XXXXXXXXXX
For Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch