2016 Ruling 2015-0569561R3 - Split-up butterfly

Unedited CRA Tags

55(2), 55(3.1)

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Text of Severed Letter

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.

I. DEFINITIONS

II. FACTS

DC Class A Preference Shares

DC Class I Preference Shares

Investment Portfolio and Business of DC

III. SUBJECT TRANSACTIONS

Capital Dividend

Acquisition of a limited partnership interest in Partnership1

Acquisition of a limited partnership interest in Partnership2

IV. PROPOSED TRANSACTIONS

Preliminary Transactions

Redemption of DC Class I Preference Shares

Incorporation of Newcos

Incorporation of Subsidiary

Butterfly Transactions

Transfer of the DC Shares

Types of Property Analysis

Butterfly Transfer

Redemption of the Newco Non-Voting Preference Shares

Newco First Taxation Year

Winding-up, liquidation or dissolution of DC

Post-Butterfly Transactions

V. ADDITIONAL INFORMATION

VI. PURPOSES OF THE SUBJECT TRANSACTIONS AND THE PROPOSED TRANSACTIONS

VII. RULINGS

VIII. COMMENTS

Principal Issues: Whether the proposed split-up butterfly transactions described in the Ruling meet legislative and administrative requirements.

Position: Transactions meet requirements.

Reasons: Consistent with law and administrative requirements.

XXXXXXXXXX						2015-056956

XXXXXXXXXX, 2016

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information provided to us in subsequent letters and emails, and during our various telephone conversations.

To the best of your knowledge, and that of the taxpayer involved, none of the issues involved in this ruling request is

(i) in an earlier return of the taxpayers or persons related to the taxpayers;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or persons related to the taxpayers;

(iii) under objection by the taxpayers or persons related to the taxpayers;

(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 issued by the Income Tax Rulings Directorate.

I. DEFINITIONS

Unless otherwise expressly stated, every reference herein to the “Act” or to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision 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 the Income Tax Regulations thereunder are referred to as the “Regulations.”

Unless otherwise noted, all references herein to a currency are a reference to Canadian dollars.

In this letter, the following terms have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa:

“Act I” means the XXXXXXXXXX;

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

“Agreed Amount” in respect of a property 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;

“Amalgamation” refers to either Amalgamation1, Amalgamation2, Amalgamation3 or Amalgamation4 and “Amalgamations” refers to Amalgamation1, Amalgamations2, Amalgamation3 and Amalgamation4, collectively;

“Amalgamation1” means the amalgamation of Holdco1 and Newco1 to form Amalco1, as described in Paragraph 67(a);

“Amalgamation2” means the amalgamation of Holdco2 and Newco2 to form Amalco2, as described in Paragraph 67(b);

“Amalgamation3” means the amalgamation of Holdco3 and Newco3 to form Amalco3, as described in Paragraph 67(c);

“Amalgamation4” means the amalgamation of Holdco4 and Newco4 to form Amalco4, as described in Paragraph 67(d);

“Amalco” refers to either Amalco1, Amalco2, Amalco3 or Amalco4 and “Amalcos” refers to Amalco1, Amalco2 Amalco3 and Amalco4, collectively;

“Amalco1” means the new corporation to be formed on Amalgamation1;

“Amalco2” means the new corporation to be formed on Amalgamation2;

“Amalco3” means the new corporation to be formed on Amalgamation3;

“Amalco4” means the new corporation to be formed on Amalgamation4;

“Arm’s Length” has the meaning assigned by subsection 251(1);

“Butterfly Transfer” means the transfer of property by DC to each Newco, as described in Paragraph 52;

“CRA” means the Canada Revenue Agency;

“CCPC” means a “Canadian-controlled private corporation” as defined in subsection 125(7);

“Can Subco1” means XXXXXXXXXX, as described in Paragraph 9(d)(ii);

“Capital Dividend” means a dividend to which subsection 83(2) applies;

“CDA” means “capital dividend account” as defined by subsection 89(1);

“Capital Property” has the meaning assigned by section 54;

“Child1” means XXXXXXXXXX, as described in Paragraph 32;

“Child1 Transactions” has the meaning assigned by Paragraph 88;

“Child3” means XXXXXXXXXX, as described in Paragraph 32;

“Child3 Transactions” has the meaning assigned by Paragraph 88;

“Cost Amount” has the meaning assigned by subsection 248(1);

“DC” means XXXXXXXXXX, a corporation which is described in Paragraph 1;

“DC Acquisition1” means the acquisition by DC of the limited partnership interest in Partnership1, as described in Paragraph 28;

“DC Acquisition2” means the acquisition by DC of the limited partnership interest in Partnership2, as described in Paragraph 30;

“DC Business” has the meaning assigned by Paragraph 8;

“DC Class A Preference Shares” means the DC class A preference shares described in Paragraph 3;

“DC Class I Preference Shares” means the DC class I preference shares described in Paragraph 5;

“DC Common Shares” means the DC common shares;

“DC Shares” means the DC Class A Preference Shares and the DC Common Shares, collectively;

“DC Corporate Group” means the group of corporations controlled by DC;

“Distribution Property” has the meaning assigned by Paragraph 52;

“Dividend Refund” has the meaning assigned by subsection 129(1);

“Divided Rental Arrangement” has the meaning assigned by subsection 248(1);

“Effective Date” means a day on or prior to XXXXXXXXXX, as agreed upon by the parties;

“Eligible Dividend” has the meaning assigned by subsection 89(1);

“Eligible Property” has the meaning assigned by subsection 85(1.1);

“FMV” means fair market value, being the highest price available in an open and unrestricted market between informed prudent parties acting at Arm’s Length and without compulsion to act, expressed in terms of cash;

“Fixed Assets” has the meaning assigned by Paragraph 9(g);

“Financial Intermediary Corporation” has the meaning assigned by subsection 191(1);

“Foreign Subco1” means XXXXXXXXXX;

“Foreign Subco2” means XXXXXXXXXX;

“GRIP” means “general rate income pool” as defined in subsection 89(1);

“Forgiven Amount” has the meaning assigned by subsection 80(1) and subsection 80.01(1);

“Goodwill” means goodwill related to the DC Business, as described in Paragraph 9(g);

“Guarantee Agreement” has the meaning assigned by subsection 112(2.2);

“Holdco” refers to either Holdco1, Holdco2, Holdco3 or Holdco4 and “Holdcos” refers to Holdco1, Holdco2, Holdco3 and Holdco4, collectively;

“Holdco Transfer” means the transfer by each Holdco of that Holdco’s DC Shares to that Holdco’s respective Newco, as described in Paragraph 47;

“Holdco1” means XXXXXXXXXX, a corporation which is described in Paragraph 16;

“Holdco1 Class A Common Shares” means the Holdco1 class A common shares, as described in Paragraph 39(b);

“Holdco1 Class B Common Shares” means the Holdco1 class B common shares, as described in Paragraph 38;

“Holdco1 Class K Preference Shares” means the Holdco1 class K preference shares, as described in Paragraph 39;

“Holdco2” means XXXXXXXXXX, a corporation which is described in Paragraph 19;

“Holdco3” means XXXXXXXXXX, a corporation which is described in Paragraph 21;

“Holdco3 Class A Common Shares” means the Holdco3 class A common shares, as described in Paragraphs 23 and 35(a);

“Holdco3 Class B Common Shares” means the Holdco3 class B common shares, as referred to in Paragraph 21;

“Holdco3 Class C Common Shares” means the Holdco3 class C common shares, as described in Paragraph 34(b);

“Holdco3 Class K Preference Shares” means the Holdco3 class K preference shares, as described in Paragraph 34(a);

“Holdco4” means XXXXXXXXXX, a corporation which is described in Paragraph 24;

“Investment1” means the convertible debenture issued by Xco and owned by Partnership1, as described in Paragraph 12;

“Lease” has the meaning assigned by Paragraph 10(d);

“Newco” refers to either Newco1, Newco2, Newco3 or Newco4, and “Newcos” refers to Newco1, Newco2, Newco3 and Newco4, collectively;

“Newco Common Shares” refers to the common shares of either Newco1, Newco2, Newco3 or Newco4, as described in Paragraph 43(a);

“Newco Non-Voting Preference Shares” refers to the non-voting preference shares of either Newco1, Newco2, Newco3, or Newco4, as described in Paragraph 43(c);

“Newco Non-Voting Preference Share Redemption Amount” means the redemption amount of each non-voting preference share of either Newco1, Newco2, Newco3 or Newco4, as described in Paragraph 43(c)(ii);

“Newco Note” refers to either the Newco1 Note, the Newco2 Note, the Newco3 Note or the Newco4 Note, and “Newco Notes” refers to the Newco1 Note, the Newco2 Note, the Newco3 Note and the Newco4 Note, collectively;

“Newco Proportion” has the meaning assigned by Paragraph 52;

“Newco Voting Preference Shares” refers to the voting preference shares of either Newco1, Newco2, Newco3, or Newco4, as described in Paragraph 43(b);

“Newco Voting Preference Share Redemption Amount” means the redemption amount of each voting preference share of either Newco1, Newco2, Newco3 or Newco4, as described in Paragraph 43(b)(ii);

“Newco Transfer” means the transfer by each Newco of that Newco’s undivided interest in the Fixed Assets and the Goodwill to Subsidiary, as described in Paragraph 65;

“Newco1” means the corporation to be incorporated by Holdco1, as described in Paragraph 43;

“Newco1 Note” has the meaning assigned by Paragraph 55;

“Newco2” means the corporation to be incorporated by Holdco2, as described in Paragraph 43;

“Newco2 Note” has the meaning assigned by Paragraph 55;

“Newco3” means the corporation to be incorporated by Holdco3, as described in Paragraph 43;

“Newco3 Note” has the meaning assigned by Paragraph 55;

“Newco4” means the corporation to be incorporated by Holdco4, as described in Paragraph 43;

“Newco4 Note” has the meaning assigned by Paragraph 55;

“PUC” means “paid-up capital” as defined in subsection 89(1);

“Paragraph” means a numbered paragraph in this letter;

“Partnership1” means XXXXXXXXXX, as described in Paragraph 11;

“Partnership1 GP LP” means XXXXXXXXXX, as described in Paragraph 11;

“Partnership1 GP LP Note” means the promissory note issued by Partnership1 GP LP on behalf of Partnership1 to DC having a principal amount and FMV equal to the purchase price of Investment1 paid by DC on behalf of Partnership1, as described in Paragraph 28;

“Partnership1 GP Inc.” means XXXXXXXXXX, which was incorporated under Act I, as described in Paragraph 11;

“Partnership1 GP Inc. Parentco” means XXXXXXXXXX, as described in Paragraph 11;

“Partnership2” means XXXXXXXXXX, as described in Paragraph 13;

“Pre-1972 CSOH” means “pre-1972 capital surplus on hand” as defined in subsection 88(2.1);

“Proceeds of Disposition” has the meaning assigned by section 54;

“Proposed Transactions” means the transactions described in Paragraphs 42 to 68;

“RDTOH” means “refundable dividend tax on hand” as defined in subsection 129(3);

“Related Group” has the meaning assigned by subsection 251(4);

“Related Persons” means, in relation to a particular person, another person who is related to the particular person by virtue of subsection 251(2), as modified for the purposes of section 55 by paragraph 55(5)(e);

“Restricted Financial Institution” has the meaning assigned by subsection 248(1);

“Series of Transactions or Events” includes the transactions or events referred to in subsection 248(10);

“Settlor” means XXXXXXXXXX, the mother of the Siblings;

“Short-Term Preferred Shares” has the meaning assigned by subsection 248(1);

“Sibling” refers to either Sibling1, Sibling2, Sibling3 or Sibling4, and “Siblings” refers to Sibling1, Sibling2, Sibling3 and Sibling4, collectively;

“Sibling1” means XXXXXXXXXX;

“Sibling1 (XXXXXXXXXX) Family Trust” means the XXXXXXXXXX;

“Sibling1 XXXXXXXXXX Trust” means the XXXXXXXXXX, as described in Paragraph 17;

“Sibling1 XXXXXXXXXX Family Trust” means the XXXXXXXXXX, as described in Paragraph 17;

“Sibling2” means XXXXXXXXXX;

“Sibling2 XXXXXXXXXX Trust” means the XXXXXXXXXX;

“Sibling2 XXXXXXXXXX Family Trust” means the XXXXXXXXXX;

“Sibling3” means XXXXXXXXXX;

“Sibling3 XXXXXXXXXX Trust” means the XXXXXXXXXX;

“Sibling3 XXXXXXXXXX Family Trust” means the XXXXXXXXXX;

“Sibling4” means XXXXXXXXXX;

“Sibling4 XXXXXXXXXX Trust” means the XXXXXXXXXX;

“Sibling4 XXXXXXXXXX Family Trust” means the XXXXXXXXXX;

“Significant Influence” has the meaning assigned by section 3051.04 of the Accounting Standards for Private Enterprises or by IAS 28 of the International Financial Reporting Standards;

“Specified Class” has the meaning assigned by subsection 55(1);

“Specified Financial Institution” has the meaning assigned by subsection 248(1);

“Specified Investment Business” has the meaning assigned by subsection 125(7);

“Stated Capital” in respect of the share capital of a corporation has the meaning assigned by the statute by which the corporation is governed at the relevant time;

“Subject Transactions” means those completed transactions described in Paragraphs 26 to 41;

“Subsidiary” means the corporation to be incorporated by Holdco1, as described in Paragraph 45;

“Subsidiary Common Shares” means the common shares of Subsidiary, as described in Paragraph 45(a);

“Subsidiary Preference Shares” means the preference shares of Subsidiary, as described in Paragraph 45(b);

“Subsidiary Preference Share Redemption Amount” means the redemption amount of each Subsidiary Preference Share that Subsidiary issued to each Newco as consideration for that Newco’s Newco Transfer, as described in Paragraph 45(b)(ii);

“TCC” means “taxable Canadian corporation” as defined in subsection 89(1);

“Taxable Dividend” has the meaning assigned by subsection 89(l);

“Taxable Preferred Shares” has the meaning assigned by subsection 248(1);

“Taxation Year” has the meaning assigned by subsection 249(1);

“That Amount” has the meaning described in Paragraph 42;

“That Time” has the meaning described in Ruling C;

“Undepreciated Capital Cost” has the meaning assigned by subsection 13(21);

“USD” means United States Dollars;

“Xco” means XXXXXXXXXX, which was incorporated under Act I;

“Winding-up Distribution” means the distributions made by DC to each Newco in the course of the winding-up, liquidation or dissolution of DC, as described in Paragraphs 57 and 62, and Ruling C; and

“Winding-up Dividend” means the dividend arising on the Winding-up Distribution, by virtue of subsection 84(2) and paragraph 88(2)(b), as described in Paragraphs 58 to 60, and Ruling C.

Our understanding of the Facts, Subject Transactions, Proposed Transactions and purposes of the Subject Transactions and the Proposed Transactions are as follows:

II. FACTS

DC

1. DC is a CCPC and a TCC. DC was incorporated by issuance of letters patent dated XXXXXXXXXX under the XXXXXXXXXX and was subsequently continued under Act I.

DC’s address is XXXXXXXXXX. DC files its federal tax returns through the XXXXXXXXXX Taxation Centre and its tax services office is the XXXXXXXXXX Tax Services Office.

DC’s Taxation Year ends on XXXXXXXXXX.

2. The issued and outstanding share capital of DC consists of:

(a) XXXXXXXXXX common shares (“DC Common Shares”) (one vote per share), which are owned equally by XXXXXXXXXX Holdcos;

(b) XXXXXXXXXX class A preference shares (“DC Class A Preference Shares”), which are owned equally by the XXXXXXXXXX Holdcos; and

DC Class A Preference Shares

3. The DC Class A Preference Shares:

(a) are non-voting except at meetings of shareholders called for the purpose of authorizing the dissolution of DC or the sale of its undertakings or a substantial part thereof. The holders of the shares are otherwise not entitled to vote at any meeting of shareholders;

(b) are redeemable for $XXXXXXXXXX per share plus the amount of any declared but unpaid dividends thereon;

(c) are entitled to a non-cumulative preferential dividend of XXXXXXXXXX% per annum on the redemption amount, subject to the prior rights of the DC Class I Preference Shares, but in priority to the DC Common Shares;

(d) under neither the terms and conditions of the shares nor any agreement in respect of the shares, are the shares convertible into or exchangeable for other shares;

(e) the PUC and the ACB of each share is $XXXXXXXXXX; and

(f) on the liquidation, winding-up or dissolution of DC, entitled to receive their redemption amounts plus the amount of any declared but unpaid dividends thereon, subject to the prior rights of the DC Class I Preference Shares, but in priority to the DC Common Shares.

4. The DC Class A Preference Shares were originally issued in XXXXXXXXXX in payment of a stock dividend of $XXXXXXXXXX to the shareholders of DC Common Shares. DC filed an election under subsection 83(1) (as it then read) deeming such dividend to be paid out of DC’s Pre-1972 CSOH.

Additional DC Class A Preference Shares were issued, by way of stock dividends, on the payment of Capital Dividends on the DC Common Shares.

There have been some redemptions of the DC Class A Preference Shares.

Each time the DC Class A Preference Shares were issued by way of a stock dividend, the cost of such shares, at the time of issuance, to their original owner, was not equal to the FMV at that time of the consideration for which it was issued; however, an amount was added to the Stated Capital of the DC Class A Preference Shares equal to the aggregate redemption amount and FMV of the DC Class A Preference Shares so issued.

The PUC, the redemption amount and the ACB to the holder of each of the issued and outstanding XXXXXXXXXX DC Class A Preference Shares is $XXXXXXXXXX.

No dividends have been declared on the issued and outstanding DC Class A Preference Shares which remain unpaid.

DC Class I Preference Shares

5. The DC Class I Preference Shares:

(b) are redeemable for $XXXXXXXXXX per share plus any declared but unpaid dividends;

(c) are entitled to a cumulative preferential dividend as and when declared by the Board at a per annum rate equal to the XXXXXXXXXX prime lending rate plus a specified percentage;

(d) under neither the terms and conditions of the shares nor any agreement in respect of the shares, are convertible into or exchangeable for other shares;

(e) under neither the terms and conditions of the shares nor any agreement in respect of the shares, is any holder entitled to receive on the redemption, cancellation or acquisition of the shares by DC or by any person with whom DC does not deal at Arm’s Length (excluding any premium for early redemption) an amount that is greater than the total of the FMV of the consideration for which the shares were issued and the amount of declared but unpaid dividends thereon;

(f) the cost of each share, at the time of its issuance, to its original owner, was equal to the FMV at that time of the consideration for which it was issued; and

(g) on the liquidation, winding-up or dissolution of DC, have priority over all other issued classes of shares of DC to receive their redemption amounts (i.e., $XXXXXXXXXX per share) and the amount of any declared but unpaid dividends thereon.

6. The DC Class I Preference Shares were issued to Holdco1, Holdco2 and Holdco3 at various times for consideration of $XXXXXXXXXX per share, being the FMV of the consideration for which each such share was issued.

Consequently, the aggregate PUC in respect of the XXXXXXXXXX DC Class I Preference Shares held by Holdco2 is equal to their aggregate redemption amount.

The cumulative dividend payable on the XXXXXXXXXX DC Class I Preference Shares, as at XXXXXXXXXX, was $XXXXXXXXXX.

The DC Class I Preference Shares held by Holdco1 and Holdco3 were fully redeemed in XXXXXXXXXX and in XXXXXXXXXX, respectively.

Investment Portfolio and Business of DC

7. DC is used as an investment vehicle for the Siblings through their respective Holdcos. The aggregate FMV of DC is in the range of approximately $XXXXXXXXXX to $XXXXXXXXXX.

DC has operated as an investor in the XXXXXXXXXX sphere in Canada for the last XXXXXXXXXX years. DC manages the various portfolio investments it holds. From time to time, DC buys and sells investments. DC currently has XXXXXXXXXX employees.

8. DC also operates a business (“DC Business”) that provides management services for other entities within the DC Corporate Group.

DC’s Assets

9. DC’s assets include the following:

(a) cash, marketable securities (other than those held as portfolio investments described in Paragraphs 9(b), (c), (d) and (e)), and loans receivable (repayable on demand) from related corporations and some of the Siblings as follows:

As at XXXXXXXXXX,

(i) Foreign Subco1 owed $XXXXXXXXXX;

(ii) XXXXXXXXXX, a corporation incorporated under Act I, which is controlled by the Settlor, owed $XXXXXXXXXX;

(iii) Can Subco1 owed $XXXXXXXXXX;

(iv) Sibling1 owed $XXXXXXXXXX;

(v) Sibling2 owed $XXXXXXXXXX; and

(vi) Sibling3 owed $XXXXXXXXXX;

(b) interests in publicly-traded and non-publicly-traded funds;

(c) a State of Israel bond, which matures on XXXXXXXXXX and bears interest at the rate of XXXXXXXXXX%, paid semi-annually;

(d) all of the issued and outstanding shares of Foreign Subco1 and Can Subco1:

(i) Foreign Subco1 was incorporated in XXXXXXXXXX on XXXXXXXXXX and was used as a holding company to own shares of subsidiaries that held U.S. real estate investments.

Foreign Subco1 owns all of the issued and outstanding shares of Foreign Subco2.

Foreign Subco2 is a U.S. corporation (incorporated in the State of XXXXXXXXXX) which owns a U.S. real estate investment through a partnership. The partnership has one remaining property for sale and once it is sold, Foreign Subco2 will be wound up.

(ii) Can Subco1 was incorporated under Act I on XXXXXXXXXX, and was previously used by DC to execute non-disclosure agreements for potential new investments.

There is currently very little activity in Can Subco1;

(e) investments in public and private corporations, limited partnerships and co-tenancies:

(i) investments in public corporations include shares of XXXXXXXXXX.

XXXXXXXXXX. The assets of XXXXXXXXXX were subsequently sold to its primary creditor and the shares of XXXXXXXXXX held by DC now have no value;

(ii) investments in private corporations include: (A) shares of XXXXXXXXXX and (B) shares and warrants of XXXXXXXXXX;

(iii) investments in limited partnerships include:

(A) limited partnership interests in: XXXXXXXXXX.

Each of these XXXXXXXXXX limited partnerships has a number of third-party investors.

DC does not control or hold an interest in the general partner of each of these XXXXXXXXXX limited partnerships. The general partner of each of XXXXXXXXXX is indirectly controlled by Sibling2. The general partner of XXXXXXXXXX, the corporation described in Paragraph 9(a)(ii);

(B) limited partnership interests in XXXXXXXXXX;

(C) a limited partnership interest in Partnership1, which consists of XXXXXXXXXX units of Partnership1. DC acquired such interest on XXXXXXXXXX, as described in Paragraph 28; and

(D) a limited partnership interest in Partnership2, which consists of XXXXXXXXXX units of Partnership2. DC acquired such interest on XXXXXXXXXX, as described in Paragraph 30.

All of the limited partnerships described in Paragraph 9(e)(iii) are privately-held;

(iv) XXXXXXXXXX co-tenancy interests in real property, in which DC has small amounts of funds invested;

(f) XXXXXXXXXX.

The aggregate FMV of the XXXXXXXXXX is in the range of approximately $XXXXXXXXXX to $XXXXXXXXXX; and

(g) assets related to DC Business which consist of: (i) a small balance of fixed assets (the “Fixed Assets”), which includes office equipment, computers and leasehold improvements used in DC Business, and (ii) goodwill (the “Goodwill”) related to DC Business.

For greater certainty, DC does not have any significant influence over any corporations, partnerships or co-tenancies in which DC holds an interest, as described in Paragraph 9, other than Foreign Subco1, Foreign Subco2 (through DC’s shareholding in Foreign Subco1) and Can Subco1.

DC’s Liabilities

10. DC’s liabilities include:

(a) accounts payable of approximately $XXXXXXXXXX;

(b) a demand non-interest bearing loan due to Sibling4 in the amount of $XXXXXXXXXX;

(c) capital commitments to invest in Partnership1 of $XXXXXXXXXX, as described in Paragraph 28, and in Partnership2 of $XXXXXXXXXX, as described in Paragraph 30; and

(d) obligations under the lease (the “Lease”) of its office premises.

Partnership1

11. Partnership1 is a XXXXXXXXXX limited partnership. Partnership1 was formed on XXXXXXXXXX, by the filing of a declaration under XXXXXXXXXX law. Partnership1 was inactive prior XXXXXXXXXX.

Partnership1 was formed to operate as XXXXXXXXXX.

Currently, there is a total of XXXXXXXXXX issued units of Partnership1, of which XXXXXXXXXX are owned by DC and the balance by XXXXXXXXXX third-party investors with whom DC deals at Arm’s Length.

DC acquired the XXXXXXXXXX units of Partnership1 on XXXXXXXXXX, and it made a capital commitment of $XXXXXXXXXX to Partnership1, as described in Paragraph 28.

Currently, the total capital commitment by all the limited partners of Partnership1 is $XXXXXXXXXX.

The general partner of Partnership1 is Partnership1 GP LP which is a XXXXXXXXXX limited partnership.

The general partner of Partnership1 GP LP is Partnership1 GP Inc., which is governed by Act I. The limited partners of Partnership1 GP LP are XXXXXXXXXX third-party investors who deal at Arm’s Length with DC.

All of the shares of Partnership1 GP Inc. are owned by Partnership1 GP Inc. Parentco, which is governed by Act I.

All the issued and outstanding shares of Partnership1 GP Inc. Parentco are owned XXXXXXXXXX by Holdco3 and XXXXXXXXXX each is owned by XXXXXXXXXX of the limited partners of Partnership1 GP LP.

12. Partnership1’s assets included a convertible debenture (“Investment1”) issued by Xco.

Investment1 had a principal amount and FMV of $XXXXXXXXXX. It was to mature on XXXXXXXXXX. Interest accrued at XXXXXXXXXX% per annum, and was added to the principal amount of Investment1.

Partnership1 had the option to convert Investment1 into shares of Xco at any time. The conversion price was $XXXXXXXXXX per share which was based on a valuation agreed to by the parties prior to Investment1 being issued. Partnership1 converted Investment1 into XXXXXXXXXX class A preference shares of Xco on XXXXXXXXXX.

Xco is governed by Act I. It operates in the XXXXXXXXXX and is developing a XXXXXXXXXX.

Each of Partnership1 and Xco deals at Arm’s Length with DC.

Partnership2

13. Partnership2 is a limited partnership. It was formed on XXXXXXXXXX, under the laws of XXXXXXXXXX to make investments in XXXXXXXXXX.

The general partner of Partnership2 is a limited partnership, which is controlled by XXXXXXXXXX individuals, each of whom is unrelated to DC and the Siblings.

Partnership2 deals at Arm’s Length with DC.

DC acquired the XXXXXXXXXX units of Partnership2 on XXXXXXXXXX, and it made a capital commitment of $XXXXXXXXXX to Partnership2, as described in Paragraph 30.

The total capital commitment by all the limited partners of Partnership2 including DC is expected to reach $XXXXXXXXXX.

DC GRIP

14. On XXXXXXXXXX, DC had a balance of $XXXXXXXXXX in its GRIP account.

DC Shareholders

Control

15. DC is controlled by a Related Group that consists of 4 siblings: Sibling1, Sibling2, Sibling3 and Sibling4, through the Sibling1 XXXXXXXXXX Trust’s control over Holdco1 (by virtue of that trust’s XXXXXXXXXX Holdco1 class G voting preference shares), the Sibling2 XXXXXXXXXX Trust’s control over Holdco2 (by virtue of that trust’s XXXXXXXXXX Holdco 2 class G voting preference shares), the Sibling3 XXXXXXXXXX Trust’s control over Holdco3 (by virtue of that trust’s XXXXXXXXXX Holdco3 class G voting preference shares) and the Sibling4 XXXXXXXXXX Trust’s control over Holdco4 (by virtue of that trust’s XXXXXXXXXX Holdco4 class G voting preference shares), as described in Paragraphs 17, 20, 22 and 25.

Since the Siblings are related to each other, each of the Holdcos is related to each other by virtue of subparagraphs 251(2)(b)(ii) and (iii). As a result, Holdco1, Holdco2, Holdco3 and Holdco4 are a Related Group that controls DC. Therefore, each of the Holdcos is related to DC under subparagraph 251(2)(b)(ii).

However, for purposes of section 55, by virtue of subparagraph 55(5)(e)(i), the Siblings are deemed not to be related to each other. Consequently, for the purposes of that provision, the Holdcos are not related to each other and, therefore, each Holdco is not related to DC.

Each of the Siblings is resident in Canada for purposes of the Act.

The Siblings are the only XXXXXXXXXX directors of DC.

Holdco1

16. Holdco1 is a CCPC and a TCC. Holdco1 was incorporated under Act I. Holdco1’s address is XXXXXXXXXX.

Holdco1 files its federal tax returns through the XXXXXXXXXX Taxation Centre and is audited by the XXXXXXXXXX Tax Services Office. Holdco1’s Taxation Year ends on XXXXXXXXXX.

The issued and outstanding share capital of Holdco1 consists of:

(a) (i) XXXXXXXXXX Holdco1 class A non-voting preference shares; (ii) XXXXXXXXXX Holdco1 class B non-voting preference shares; (iii) XXXXXXXXXX Holdco1 class C non-voting preference shares; (iv) XXXXXXXXXX Holdco1 class E non-voting preference shares, and (v) XXXXXXXXXX Holdco1 class J non-voting preference shares, all of which are owned by Sibling1;

(b) XXXXXXXXXX Holdco1 class D non-voting preference shares, which are owned by the Sibling1 (XXXXXXXXXX) Family Trust;

(c) (i) XXXXXXXXXX Holdco1 class G voting preference shares (one vote per share) (no dividend entitlement), and (ii) XXXXXXXXXX Holdco1 class H non-voting convertible preference shares (no dividend entitlement) (convertible into Holdco1 Class B Common Shares (one vote per share) on a 1:1 basis), all of which are owned by the Sibling1 XXXXXXXXXX Trust;

(d) XXXXXXXXXX Holdco1 Class K Preference Shares, which are owned by the Sibling1 XXXXXXXXXX Family Trust; and

(e) XXXXXXXXXX Holdco1 Class A Common Shares (one vote per share), which are owned by the Sibling1 XXXXXXXXXX Family Trust.

There are no Holdco1 class F preference shares currently issued and outstanding.

None of the shares of Holdco1 were acquired as part of a Series of Transactions or Events that included any of the Proposed Transactions.

17. Holdco1 is controlled by the Sibling1 XXXXXXXXXX Trust through its XXXXXXXXXX Holdco1 Class G voting preference shares.

The trustees of the Sibling1 XXXXXXXXXX Trust are Sibling1, Sibling2 and Sibling4 and the sole beneficiary of that trust is Sibling1.

The trustees of the Silbing1 (XXXXXXXXXX) Family Trust are Sibling1 and the Settlor, and the beneficiaries of that trust are the issue of Sibling1.

The trustees of the Sibling1 XXXXXXXXXX Family Trust are Sibling1, Sibling2 and Sibling4, and the beneficiaries of that trust are Sibling1, his issue over the age of 18 years and after Sibling1’s death, his wife.

The trustees and the beneficiaries of the Sibling1 XXXXXXXXXX Family Trust are identical to the trustees and the beneficiaries of the Sibling1 XXXXXXXXXX Family Trust.

18. Prior to XXXXXXXXXX, the Sibling1 XXXXXXXXXX Family Trust owned XXXXXXXXXX Holdco1 Class B Common Shares. On XXXXXXXXXX, the Sibling1 XXXXXXXXXX Family Trust exchanged its XXXXXXXXXX Holdco1 Class B Common Shares for the XXXXXXXXXX Holdco1 Class K Preference Shares, as described in Paragraph 40.

On XXXXXXXXXX, the Sibling1 XXXXXXXXXX Family Trust was settled with XXXXXXXXXX Holdco1 Class A Common Shares from the Settlor, as described in Paragraph 41.

Holdco2

19. Holdco2 is a CCPC and a TCC. Holdco2 was incorporated under Act I. Holdco2’s address is XXXXXXXXXX.

Holdco2 files its federal tax returns through the XXXXXXXXXX Taxation Centre and is audited by the XXXXXXXXXX Tax Services Office. Holdco2’s Taxation Year ends on XXXXXXXXXX.

The issued and outstanding share capital of Holdco2 consists of:

(a) (i) XXXXXXXXXX Holdco2 class A non-voting preference shares; (ii) XXXXXXXXXX Holdco2 class B non-voting preference shares; (iii) XXXXXXXXXX Holdco2 class C non-voting preference shares; (iv) XXXXXXXXXX Holdco2 class E non-voting preference shares; and (v) XXXXXXXXXX Holdco2 class J non-voting preference shares, all of which are owned by Sibling2;

(b) (i) XXXXXXXXXX Holdco2 class G voting preference shares (one vote per share), and (ii) XXXXXXXXXX Holdco2 class H non-voting convertible preference shares (convertible into Holdco2 common shares on a 1:1 basis), all of which are owned by the Sibling2 XXXXXXXXXX Trust;

(c) XXXXXXXXXX Holdco2 class I non-voting preference shares, which are owned by the Sibling2 XXXXXXXXXX Family Trust; and

(d) XXXXXXXXXX Holdco2 class A voting common shares (one vote per share), which are owned by the Sibling2 XXXXXXXXXX Family Trust.

None of the shares of Holdco2 were acquired as part of a Series of Transactions or Events that included any of the Proposed Transactions.

20. Holdco2 is controlled by the Sibling2 XXXXXXXXXX Trust through its XXXXXXXXXX Holdco2 class G voting preference shares. The trustees of the Sibling2 XXXXXXXXXX Trust are Sibling2, Sibling3 and Sibling4 and the sole beneficiary of that trust is Sibling2.

The trustees of the Sibling2 XXXXXXXXXX Family Trust are Sibling2, Sibling3 and Sibling4, and the beneficiaries of that trust are Sibling2, his issue over the age of 18 years and after Sibling2’s death, his spouse.

Holdco3

21. Holdco3 is a CCPC and a TCC. Holdco3 was incorporated under Act I. Holdco 3’s address is XXXXXXXXXX.

Holdco3 files its federal tax returns through the XXXXXXXXXX Taxation Centre and is audited by the XXXXXXXXXX Tax Services Office. Holdco3’s Taxation Year ends on XXXXXXXXXX.

The issued and outstanding share capital of Holdco3 consists of:

(a) (i) XXXXXXXXXX Holdco3 class A non-voting preference shares; (ii) XXXXXXXXXX Holdco3 class B non-voting preference shares; (iii) XXXXXXXXXX Holdco3 class C non-voting preference shares; (iv) XXXXXXXXXX Holdco3 class D non-voting preference shares; (v) XXXXXXXXXX Holdco3 class E non-voting preference shares, and (vi) XXXXXXXXXX Holdco3 class J non-voting preference shares, all of which are owned by Sibling3;

(b) (i) XXXXXXXXXX Holdco3 class G voting preference shares (one vote per share) (no dividend entitlement) and (ii) XXXXXXXXXX Holdco3 class H non-voting convertible preference shares (no dividend entitlement) (convertible into Holdco3 Class A Common Shares (one vote per share) on a 1:1 basis), all of which are owned by the Sibling3 XXXXXXXXXX Trust;

(d) XXXXXXXXXX Holdco3 Class K Preference Shares, which are owned by the Sibling3 XXXXXXXXXX Family Trust; and

(e) XXXXXXXXXX Holdco3 Class C Common Shares (one vote per share), which are owned by the Sibling3 XXXXXXXXXX Family Trust.

There are no Holdco3 class F preference shares or Holdco3 class B common shares (“Holdco3 Class B Common Shares”) currently issued and outstanding.

None of the shares of Holdco3 were acquired as part of a Series of Transactions or Events that included any of the Proposed Transactions.

22. Holdco3 is controlled by the Sibling3 XXXXXXXXXX Trust through its XXXXXXXXXX Holdco3 class G voting preference shares. The trustees of the Sibling3 XXXXXXXXXX Trust are Sibling2, Sibling3 and Sibling4 and the sole beneficiary of that trust is Sibling3.

The trustees of the Sibling3 XXXXXXXXXX Family Trust are Sibling2, Sibling3 and Sibling4, and the beneficiaries of that trust are Sibling3, his issue over the age of 18 years and after the death of Sibling3, his spouse.

The trustees and the beneficiaries of the Sibling3 XXXXXXXXXX Family Trust are identical to the trustees and the beneficiaries of the Sibling3 XXXXXXXXXX Family Trust.

23. Prior to XXXXXXXXXX, the Sibling3 XXXXXXXXXX Family Trust owned XXXXXXXXXX Holdco3 class A common shares (the “Holdco3 Class A Common Shares”) (one vote per share).

On XXXXXXXXXX, the Sibling3 XXXXXXXXXX Family Trust exchanged its XXXXXXXXXX Holdco3 Class A Common Shares for the XXXXXXXXXX Holdco3 Class K Preference Shares, as described in Paragraph 35.

On XXXXXXXXXX, the Sibling3 XXXXXXXXXX Family Trust was settled with XXXXXXXXXX Holdco3 Class C Common Shares from the Settlor, as described in Paragraph 36.

Holdco4

24. Holdco4 is a CCPC and a TCC. Holdco4 was incorporated under Act I. Holdco4’s address is XXXXXXXXXX.

Holdco4 files its federal tax returns through the XXXXXXXXXX Taxation Centre and is audited by the XXXXXXXXXX Tax Services Office. Holdco4’s Taxation Year ends on XXXXXXXXXX.

The issued and outstanding share capital of Holdco4 consists of:

(a) (i) XXXXXXXXXX Holdco4 class A non-voting preference shares; (ii) XXXXXXXXXX Holdco4 class B non-voting preference shares; (iii) XXXXXXXXXX Holdco4 class C non-voting preference shares; (iv) XXXXXXXXXX Holdco4 class E non-voting preference shares, and (v) XXXXXXXXXX Holdco4 class J non-voting preference shares, all of which are owned by Sibling4;

(b) (i) XXXXXXXXXX Holdco4 class G voting preference shares (one vote per share) and (ii) XXXXXXXXXX Holdco4 class H non-voting convertible preference shares (convertible into Holdco4 common shares on a 1:1 basis), all of which are owned by the Sibling4 XXXXXXXXXX Trust; and

None of the shares of Holdco4 were acquired as part of a Series of Transactions or Events that included any of the Proposed Transactions.

25. Holdco4 is controlled by the Sibling4 XXXXXXXXXX Trust through its XXXXXXXXXX Holdco4 class G voting preference shares. The trustees of the Sibling4 XXXXXXXXXX Trust are Sibling1, Sibling2 and Sibling4 and the sole beneficiary of that trust is Sibling4.

The trustees of the Sibling4 XXXXXXXXXX Family Trust are Sibling1, Sibling2 and Sibling4, and the beneficiaries of that trust are Sibling4, his issue over the age of 18 years and after Sibling4’s death, his spouse.

III. SUBJECT TRANSACTIONS

Capital Dividend

26. On each of XXXXXXXXXX and XXXXXXXXXX, DC declared and paid a dividend of $XXXXXXXXXX on the DC Class A Preference Shares, pro rata, among the holders of the DC Class A Preference Shares. As each of the Holdcos owns an equal number of DC Class A Preference Shares, each Holdco received $XXXXXXXXXX on each dividend.

DC elected, pursuant to subsection 83(2), in prescribed manner and prescribed form, to treat the full amount of each dividend, as described in Paragraph 26, to be a Capital Dividend.

After the payment of the Capital Dividends described in Paragraph 26, the balance in DC’s CDA account was approximately $XXXXXXXXXX.

Acquisition of a limited partnership interest in Partnership1

27. Prior to XXXXXXXXXX, DC purchased Investment1. The purchase price was $XXXXXXXXXX. Partnership1 GP Inc. directed DC to acquire Investment1 in trust for Partnership1. DC paid the purchase price of Investment1 in cash.

28. On XXXXXXXXXX, Partnership1 GP Inc. had Partnership1 GP LP, on behalf of Partnership1, issue a promissory note (the “Partnership1 GP LP Note”) to DC, in an amount equal to the purchase price of Investment1 paid by DC. The Partnership1 GP LP Note was not convertible into other property.

On XXXXXXXXXX, in the ordinary course of its investment activities, DC acquired (“DC Acquisition1”) a limited partnership interest in Partnership1, which consisted of XXXXXXXXXX units of Partnership1. As consideration for the DC Acquisition1, DC made a $XXXXXXXXXX capital commitment to Partnership1.

On XXXXXXXXXX, Partnership1 made a capital call to all limited partners of Partnership1, including DC, in order to repay the Partnership1 GP LP Note and certain expenses of Partnership1.

DC funded $XXXXXXXXXX, its share of the capital call on XXXXXXXXXX. DC treated such amount as a capital contribution and added such amount to the ACB of its limited partnership interest in Partnership1 pursuant to subparagraph 53(1)(e)(iv).

No additional units of Partnership1 will be issued to DC when it funds its portion of any subsequent capital call by Partnership1.

On XXXXXXXXXX, the legal title to Investment1 was transferred by DC to Partnership1 and the Partnership1 GP LP Note was repaid by Partnership1.

29. The decision by DC to acquire the limited partnership interest in Partnership1 was made entirely for commercial reasons.

The DC Acquisition1 was not undertaken in contemplation of any of the Proposed Transactions and would have been undertaken irrespective of whether any of the Proposed Transactions will be implemented.

None of the Proposed Transactions will be undertaken in contemplation of the DC Acquisition1 and each would have been undertaken irrespective of whether the DC Acquisition1 was implemented.

Acquisition of a limited partnership interest in Partnership2

30. On XXXXXXXXXX, in the ordinary course of its investment activities, DC acquired (“DC Acquisition2”) a limited partnership interest in Partnership2, which consisted of XXXXXXXXXX units of Partnership2.

As consideration for the DC Acquisition2, DC made a $XXXXXXXXXX capital commitment to Partneship2.

On XXXXXXXXXX, an initial capital call was made by Partnership2 for XXXXXXXXXX% of the amounts committed by the limited partners of Partnership2. DC’s share of the capital call was $XXXXXXXXXX and was paid on that day.

No additional units of Partnership2 will be issued to DC when it funds its portion of any subsequent capital call by Partnership2.

DC treated the $XXXXXXXXXX as a capital contribution and added such amount to the ACB of its limited partnership interest in Partnership2 pursuant to subparagraph 53(1)(e)(iv).

31. The decision by DC to acquire the limited partnership interest in Partnership2 was made entirely for commercial reasons.

The DC Acquisition2 was not undertaken in contemplation of any of the Proposed Transactions and would have been undertaken irrespective of whether any of the Proposed Transactions will be implemented.

None of the Proposed Transactions will be undertaken in contemplation of the DC Acquisition2 and each would have been undertaken irrespective of whether the DC Acquisition2 was implemented.

“Freeze”

Child3 and Child1

32. Child3, the daughter of Sibling3, was married on XXXXXXXXXX.

Child1, the son of Sibling1 was married on XXXXXXXXXX.

Holdco3

33. Prior to XXXXXXXXXX, the Sibling3 XXXXXXXXXX Family Trust owned XXXXXXXXXX Holdco3 Class A Common Shares.

34. On XXXXXXXXXX, Holdco3 filed articles of amendment to create an unlimited number of class K preference shares (“Holdco3 Class K Preference Shares”) and an unlimited number of class C common shares (“Holdco3 Class C Common Shares”) with the following share attributes:

(a) Each Holdco3 Class K Preference Share is:

(i) non-voting;

(ii) redeemable and retractable for a redemption amount equal to the net FMV of the consideration received on issuance plus the amount of any declared but unpaid dividends thereon, subject to a price adjustment clause;

(iii) entitled to discretionary dividends (which are not limited to a percentage of the redemption amount of that Holdco3 Class K Preference Share), subject to the prior rights of the Holdco3 class A, B, C, D, E, F, I and J preference shares, but in priority to the Holdco3 Class A, B and C Common Shares; and

(iv) on the liquidation, winding-up or dissolution of Holdco3, entitled to the redemption amount, plus the amount of all declared but unpaid dividends thereon, subject to the prior rights of the Holdco3 class A, B, C, D, E, F, I and J preference shares, but in priority to the Holdco3 class G and H preference shares and the Holdco3 Class A, B and C Common Shares.

(b) Each Holdco3 Class C Common Share is:

(i) voting (one vote per share);

(ii) entitled to discretionary dividends, subject to the prior rights of all the Holdco3 preference shares. Dividends may be paid on Holdco3 Class C Common shares without dividends being declared on the Holdco3 Class A or B Common Shares; and

(iii) on the liquidation, winding-up or dissolution of Holdco3, entitled to receive the remaining property of Holdco3 rateably with the Holdco3 Class A and B Common Shares, but subject to the prior rights of all the Holdco3 preference shares.

35. On XXXXXXXXXX, after the filing of articles of amendment described in Paragraph 34:

(a) The Sibling3 XXXXXXXXXX Family Trust, one of the beneficiaries of which is Child3, exchanged its XXXXXXXXXX Holdco3 Class A Common Shares for XXXXXXXXXX Holdco3 Class K Preference Shares having an aggregate FMV and redemption amount equal to the aggregate FMV of the XXXXXXXXXX Holdco3 Class A Common Shares that the Sibling3 XXXXXXXXXX Family Trust owned immediately before such exchange.

The Sibling3 XXXXXXXXXX Family Trust held the XXXXXXXXXX Holdco3 Class A Common Shares as Capital Property immediately before such exchange.

For greater certainty, the aggregate PUC of the XXXXXXXXXX Holdco3 Class K Preference Shares issued to the Sibling3 XXXXXXXXXX Family Trust was equal to the aggregate PUC of the XXXXXXXXXX Holdco3 Class A Common Shares owned by the Sibling3 XXXXXXXXXX Family Trust immediately before such exchange.

The XXXXXXXXXX Holdco3 Class A Common Shares were then cancelled.

(b) The Settlor subscribed for XXXXXXXXXX Holdco3 Class C Common Shares for $XXXXXXXXXX.

36. On XXXXXXXXXX, after the marriage of Child3, the Settlor established the Sibling3 XXXXXXXXXX Family Trust by settling her XXXXXXXXXX Holdco3 Class C Common Shares by way of deed of gift on the Sibling3 XXXXXXXXXX Family Trust.

Under the terms of the Sibling3 XXXXXXXXXX Family Trust, no allocations of income or capital can be made to beneficiaries while they are minors.

Holdco1

37. Prior to XXXXXXXXXX, the Sibling1 XXXXXXXXXX Family Trust owned XXXXXXXXXX Holdco1 common shares (one vote per share).

38. On XXXXXXXXXX, Holdco1 filed articles of amendment to create an unlimited number of class K preference shares (“Holdco1 Class K Preference Shares”) and an unlimited number of class A common shares (“Holdco1 Class A Common Shares”), and to change the designation of the authorized and issued Holdco1 common shares to class B common shares (“Holdco1 Class B Common Shares”) pursuant to the provisions of Act I. Thus, the share attributes of the Holdco1 Class B Common Shares are exactly the same as the share attributes of the Holdco1 common shares before the designation was changed.

After the filing of the articles of amendment of Holdco1 described in Paragraph 38, the XXXXXXXXXX Holdco1 common shares owned by the Sibling1 XXXXXXXXXX Family Trust became the XXXXXXXXXX Holdco1 Class B Common Shares (one vote per share).

39. The share attributes of the Holdco1 Class K Preference Shares and the Holdco1 Class A Common Shares are as follows:

(a) Each Holdco1 Class K Preference Share is:

(i) non-voting;

(ii) redeemable and retractable for a redemption amount equal to the net FMV of the consideration received on issuance, plus the amount of any declared but unpaid dividends thereon, subject to a price adjustment clause;

(iii) entitled to discretionary dividends (which are not limited to a percentage of the redemption amount of the Holdco1 Class K Preference Share), subject to the prior rights of the Holdco1 class A, B, C, D, E, F and J preference shares, but in priority to the Holdco1 Class A and B Common Shares; and

(iv) on the liquidation, winding-up or dissolution of Holdco1, entitled to the redemption amount and the amount of any declared but unpaid dividends thereon, subject to the prior rights of the Holdco1 class A, B, C, D, E, F and J preference shares, but in priority to the Holdco1 class G and H preference shares, and the Holdco1 Class A and B Common Shares.

(b) Each Holdco1 Class A Common Share is:

(i) voting (one vote per share);

(ii) entitled to discretionary dividends, subject to the prior rights of all the Holdco1 preference shares. Dividends may be paid on the Holdco1 Class A Common Shares without dividends being declared on the Holdco1 Class B Common Shares; and

(iii) on liquidation, winding-up or dissolution of Holdco1, entitled to receive the remaining property of Holdco1 rateably with the Holdco1 Class B Common Shares, subject to the prior rights of all the Holdco1 preference shares.

40. On XXXXXXXXXX, after the filing of the articles of amendment of Holdco1 described in Paragraph 38:

(a) The Sibling1 XXXXXXXXXX Family Trust, one of the beneficiaries of which is Child1, exchanged its XXXXXXXXXX Holdco1 Class B Common Shares for XXXXXXXXXX Holdco1 Class K Preference Shares having an aggregate FMV and redemption amount equal to the aggregate FMV of the XXXXXXXXXX Holdco1 Class B Common Shares owned by the Sibling1 XXXXXXXXXX Family Trust immediately before such exchange.

The Sibling1 XXXXXXXXXX Family Trust held the XXXXXXXXXX Holdco1 Class B Common Shares as Capital Property immediately before such exchange.

For greater certainty, the aggregate PUC of the XXXXXXXXXX Holdco1 Class K Preference Shares issued to the Sibling1 XXXXXXXXXX Family Trust was equal to the aggregate PUC of the XXXXXXXXXX Holdco1 Class B Common Shares owned by the Sibling1 XXXXXXXXXX Family Trust immediately before such exchange.

The XXXXXXXXXX Holdco1 Class B Common Shares were then cancelled.

(b) The Settlor subscribed for XXXXXXXXXX Holdco1 Class A Common Shares for $XXXXXXXXXX.

41. On XXXXXXXXXX, after the marriage of Child1, the Settlor established the Sibling1 XXXXXXXXXX Family Trust by settling her XXXXXXXXXX Holdco1 Class A Common Shares by way of deed of gift on the Sibling1 XXXXXXXXXX Family Trust.

Under the terms of the Sibling1 XXXXXXXXXX Family Trust, no allocations of income or capital can be made to beneficiaries while they are minors.

IV. PROPOSED TRANSACTIONS

The Proposed Transactions will occur in the order described below unless otherwise indicated, with the exception of the filing of any applicable election forms, which will be filed by the applicable due date (unless otherwise indicated) following the completion of the Proposed Transactions.

Preliminary Transactions

Redemption of DC Class I Preference Shares

42. After the implementation of the transactions described in Paragraphs 43 to 46, DC will redeem all of Holdco2’s DC Class I Preference Shares for an amount (“That Amount”) equal to the total of their aggregate redemption amount (being $XXXXXXXXXX per share), plus the amount of all declared but unpaid dividends thereon.

That Amount will exceed the aggregate PUC of Holdco2’s DC Class I Preference Shares immediately before the redemption.

DC will pay cash to Holdco2 for that Amount.

Incorporation of Newcos

43. Holdco1, Holdco2, Holdco3 and Holdco4 will incorporate Newco1, Newco2, Newco3 and Newco4, respectively, pursuant to Act I. Each Newco will be a TCC and a CCPC.

The authorized share capital of each Newco will consist of an unlimited number of common shares (“Newco Common Shares”), an unlimited number of non-voting preference shares (“Newco Non-Voting Preference Shares”), and an unlimited number of voting preference shares (“Newco Voting Preference Shares”) having the following share attributes:

(a) Newco Common Shares will be:

(i) voting (one vote per share);

(ii) entitled to such non-cumulative dividends as the directors shall declare, provided no dividends may be declared on the Newco Common Shares if doing so would reduce the value of the net assets of the company to an amount which is less than the aggregate redemption amount of the issued and outstanding Newco Voting and Non-Voting Preference Shares, plus the amounts of all declared but unpaid dividends thereon; and

(iii) entitled to receive, on the liquidation, winding-up or dissolution of Newco, the residual value of the company after the Newco Voting and Non-Voting Preference Shares have received their redemption amounts plus the amounts of all declared but unpaid dividends.

(b) Each Newco Voting Preference Share will be:

(i) voting (one vote per share);

(ii) retractable and redeemable, subject to applicable law, at a redemption amount (the “Newco Voting Preference Share Redemption Amount”) equal to the aggregate FMV at that time of the DC Shares so transferred by that Newco’s respective Holdco to that Newco, as described in Paragraph 47, divided by the number of the Newco Voting Preference Shares issued as consideration therefor.

The Newco Voting Preference Share Redemption Amount is subject to a price adjustment clause;

(iii) entitled to such non-cumulative dividends as the directors may declare, but not exceeding XXXXXXXXXX% per annum of the Newco Voting Preference Share Redemption Amount; and

(iv) entitled to receive, on the liquidation, winding-up or dissolution of that Newco, the Newco Voting Preference Share Redemption Amount, plus the amount of all declared but unpaid dividends thereon, in priority to the liquidation entitlement of the Newco Common Shares; however, it will rank equally with the Newco Non-Voting Preference Shares to receive their respective redemption amounts, plus the amount of all declared but unpaid dividends thereon.

(i) non-voting;

(ii) retractable and redeemable, subject to applicable law, at a redemption amount (the “Newco Non-Voting Preference Share Redemption Amount”) equal to the aggregate FMV at that time of the Distribution Property transferred by DC to that Newco, less the amount of the liabilities of DC that that Newco assumed, as described in Paragraph 53(a), divided by the number of Newco Non-Voting Preference Shares issued as consideration therefor.

The Newco Non-Voting Preference Share Redemption Amount is subject to a price adjustment clause;

(iii) entitled to such non-cumulative dividends as the directors may declare, but not exceeding XXXXXXXXXX% per annum of the Newco Non-Voting Preference Share Redemption Amount; and

(iv) entitled to receive, on the liquidation, winding-up or dissolution of that Newco, the Newco Non-Voting Preference Share Redemption Amount, plus the amount of all the declared but unpaid dividends thereon, in priority to the liquidation entitlement of the Newco Common Shares; however, it will rank equally with the Newco Voting Preference Shares to receive their respective redemption amounts, plus the amount of all declared but unpaid dividends thereon.

44. Holdco1, Holdco2, Holdco3 and Holdco4 will subscribe for one common share of Newco1, Newco2, Newco3 and Newco4, respectively, for $XXXXXXXXXX.

Incorporation of Subsidiary

45. Holdco1 will incorporate a new corporation (“Subsidiary”) pursuant to Act I.

Subsidiary will be a TCC and a CCPC.

Subsidiary’s share capital will consist of an unlimited number of common shares (“Subsidiary Common Shares”) and an unlimited number of preference shares (“Subsidiary Preference Shares”) having the following share attributes:

(a) Each Subsidiary Common Share will be:

(i) voting (one vote per share);

(ii) entitled to such non-cumulative dividends as the directors shall declare, provided no dividends may be declared on the Subsidiary Common Shares if doing so would reduce the value of the net assets of the company to an amount which is less than the aggregate redemption amount of the issued and outstanding Subsidiary Preference Shares, plus the amount of all declared but unpaid dividends; and

(iii) entitled to receive, on the liquidation, winding-up or dissolution of Subsidiary, the residual value of the company after the Subsidiary Preference Shares have received their redemption amounts, plus the amounts of all declared but unpaid dividends thereon.

(b) Each Subsidiary Preference Share will be:

(i) non-voting;

(ii) retractable and redeemable, subject to applicable law, at a redemption amount (the “Subsidiary Preference Share Redemption Amount”) equal to the amount by which the aggregate FMV at that time of a particular Newco’s undivided interest in the Fixed Assets and the Goodwill so transferred to Subsidiary, exceeds the amount of that Newco’s liabilities assumed by Subsidiary, divided by the number of the Subsidiary Preference Shares issued to that Newco as consideration therefor, as described in Paragraph 65.

The Subsidiary Preference Share Redemption Amount is subject to a price adjustment clause;

(iii) entitled to such non-cumulative dividends as the directors may declare, but not exceeding XXXXXXXXXX% of the Subsidiary Preference Share Redemption Amount; and

(iv) entitled to receive, on the liquidation, winding-up or dissolution of Subsidiary, the Subsidiary Preference Share Redemption Amount, plus the amount of all declared but unpaid dividends thereon, in priority to the liquidation entitlement of the Subsidiary Common Shares.

46. On the incorporation of Subsidiary, each Newco will subscribe for one Subsidiary Common Share for $XXXXXXXXXX.

Butterfly Transactions

Transfer of the DC Shares

47. On the day before the Effective Date, each Holdco will transfer (the “Holdco Transfer”) all of that Holdco’s DC Shares to that Holdco’s respective Newco. As consideration therefor, that Holdco’s Newco will issue to that Holdco XXXXXXXXXX Newco Voting Preference Shares having an aggregate FMV and redemption amount equal to the aggregate FMV at that time of that Holdco’s DC Shares so transferred to that Holdco’s Newco.

Each Newco will hold its DC Shares as Capital Property.

48. In regard to each Holdco Transfer, each Holdco and that Holdco’s Newco will file a joint election, in prescribed form, and within the time limits referred to in subsection 85(6), but prior to the Amalgamation of that Holdco and that Holdco’s Newco described in Paragraph 68, to have the rules in subsection 85(1) apply in respect of that Holdco’s Holdco Transfer.

The Agreed Amount in each election will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) and will not exceed the aggregate FMV at that time of the DC Shares so transferred to that Holdco’s Newco.

For the purposes of the Act, the increase to the aggregate PUC of the XXXXXXXXXX Newco Voting Preference Shares, issued as consideration for the DC Shares to that Holdco’s Newco, as described in Paragraph 47, will be equal to the aggregate cost of those DC Shares to that Holdco’s Newco, as determined pursuant to subsection 85(1).

For greater certainty, the increase to the aggregate PUC of the XXXXXXXXXX Newco Voting Preference Shares so issued by that Holdco’s Newco will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

Types of Property Analysis

49. DC only has significant influence over Foreign Subco1, Foreign Subco2 and Can Subco1. Consequently, DC would normally be required to use the consolidated look-through method for determining the appropriate proportion of each of the XXXXXXXXXX types of property that the shares of Foreign Subco1, Foreign Subco2 and Can Subco1 would represent. However, since DC will transfer to each Newco that Newco’s Newco Proportion of the Foreign Subco1 shares and the Can Subco1 shares, as described in Paragraph 52, the determination using the consolidated look-through method will not actually be undertaken for the purposes of the definition of “distribution” in subsection 55(1).

50. Immediately before the Butterfly Transfer, the property of DC, other than the Foreign Subco1 shares and the Can Subco1 shares, will be classified into XXXXXXXXXX types of property, on a gross FMV basis, for the purposes of the definition of “distribution” in subsection 55(1), as follows:

(a) cash or near-cash property, comprising all of the current assets of DC, including any cash, marketable securities and other assets described in Paragraph 9(a);

(b) business property, comprising all of the assets of DC, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from a business (other than a Specified Investment Business), namely the assets described in Paragraph 9(g); and

(c) investment property, comprising all of the assets of DC, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or a Specified Investment Business, including the assets described in Paragraphs 9 (b), (c), (e) and (f), but for greater certainty, not including the assets described in Paragraph 9(d).

For greater certainty, for purposes of determining the gross FMV of the property of DC described in Paragraph 50:

(i) any tax accounts, such as any non-capital loss, net capital loss, the balance of any RDTOH, CDA or GRIP of DC, will not be considered property for purposes of the definition of “distribution” in subsection 55(1); and

(ii) no liabilities of DC will be allocated to, and deducted in, the calculation of the gross FMV of each type of property of DC.

Butterfly Transfer

51. On the Effective Date, DC will enter into an agreement with each of the Newcos pursuant to which DC will agree to distribute to each Newco that Newco’s Newco Proportion in any Dividend Refund or other tax-related refund, as described in Paragraph 62, it should subsequently receive.

52. On the Effective Date, immediately following the determination of its types of property described in Paragraph 50, DC will transfer (“Butterfly Transfer”) simultaneously to each Newco a proportionate share of all its:

(a) Can Subco1 shares;

(b) Foreign Subco1 shares;

(d) business property; and

(e) investment property,

(collectively referred to as the “Distribution Property”)

such that, immediately after the Butterfly Transfer, the aggregate FMV of each type of property so transferred to that Newco as described herein, will be equal to or approximate that proportion of the aggregate FMV of all property of DC of that type, determined immediately before the Butterfly Transfer (in each case, determined on the basis of the principles set out in Paragraphs 49 and 50), that:

(i) the aggregate FMV, immediately before the Butterfly Transfer, of all the DC Shares owned by that Newco at that time,

is of

(ii) the aggregate FMV, immediately before the Butterfly Transfer, of all the issued and outstanding shares of DC at that time.

(that proportion in respect of each Newco will be XXXXXXXXXX and is referred to as that Newco’s “Newco Proportion”)

For greater certainty, to the extent possible, having regard to the Newco Proportion, DC will transfer its loan receivable from Sibling1 to Newco1, from Sibling 2 to Newco2, and from Sibling3 to Newco3.

For the purposes of Paragraph 52, the expression “approximate that proportion” means that the discrepancy from that proportion, if any, will not exceed XXXXXXXXXX percent (XXXXXXXXXX%), determined as a percentage of the aggregate FMV of each type of property of DC which each such Newco has received as compared to what each such Newco would have received had such Newco received its appropriate pro rata share of the aggregate FMV of that type of property of DC.

The Distribution Property will be Eligible Property at the time of the Butterfly Transfer.

53. As consideration for the property so transferred by DC to each Newco on the Butterfly Transfer, that Newco will:

(a) assume its Newco Proportion of all the outstanding liabilities of DC; and

(b) issue to DC XXXXXXXXXX Newco Non-Voting Preference Shares having an aggregate redemption amount and FMV equal to the amount by which the aggregate FMV, at the time of the Butterfly Transfer, of the properties so transferred to that Newco, exceeds the aggregate amount of DC’s liabilities that that Newco assumed, as described in Paragraph 53(a).

For greater certainty, to the extent possible, having regard to the Newco Proportion, DC’s debt owing to Sibling4 will be assumed by Newco4.

DC will hold all the Newco Non-Voting Preference Shares as Capital Property.

54. DC and each Newco will jointly elect, in prescribed form and within the time limit referred to in subsection 85(6), but prior to the dissolution of DC described in Paragraph 63, to have the provisions of subsection 85(1) apply to the transfer, by DC, of each Eligible Property to that Newco on the Butterfly Transfer.

The Agreed Amount in respect of each Eligible Property so transferred to that Newco will be as follows:

(a) in the case of capital property (other than depreciable property of a prescribed class), an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

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

(c) in the case of eligible capital property, an amount equal to 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 respective property so transferred, nor will it be less than the amount permitted under paragraph 85(1)(b).

For greater certainty, the amount of DC’s liabilities to be assumed by each Newco and to be allocated to:

(i) a property that will be the subject of an election under subsection 85(1), will not exceed the Agreed Amount elected for such property; and

(ii) a property that will not be the subject of an election under subsection 85(1), will not exceed the FMV of such property.

For the purposes of the Act, the increase to the aggregate PUC of the XXXXXXXXXX Newco Non-Voting Preference Shares issued by a Newco to DC as consideration for the properties transferred by DC to that Newco, will be equal to the amount by which the aggregate cost of those properties to that Newco, as determined pursuant to subsection 85(1), where applicable, exceeds the aggregate amount of DC’s liabilities assumed by that Newco for those properties, as described in Paragraph 53(a).

For greater certainty, the increase to the aggregate PUC of the XXXXXXXXXX Newco Non-Voting Preference Shares so issued by that Newco will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

Redemption of the Newco Non-Voting Preference Shares

55. On the Effective Date, each Newco will redeem its XXXXXXXXXX Newco Non-Voting Preference Shares that were issued to DC, as described in Paragraph 53.

Each Newco will pay the aggregate Newco Non-Voting Redemption Amount by issuing to DC a non-interest-bearing demand promissory note (the “Newco1 Note,” the “Newco2 Note,” the “Newco3 Note,” and the “Newco4 Note”) having a principal amount and FMV equal to the aggregate Newco Non-Voting Redemption Amount of the Newco Non-Voting Preference Shares so redeemed.

DC will accept the Newco Notes as full payment of the purchase price of such shares with the risk of the notes being dishonoured.

Newco First Taxation Year

56. At the end of the day on which the Newco Non-Voting Preference Shares are redeemed, each Newco will cause its first Taxation Year to end.

Winding-up, liquidation or dissolution of DC

57. On the day after the Effective Date, prior to the close of business, the shareholders of DC will, by special resolution, resolve to wind up, liquidate or dissolve DC pursuant to the provisions of Act I.

On the winding-up, liquidation or dissolution of DC, under the terms of the agreement governing its winding-up, liquidation or dissolution, the Newco1 Note, the Newco2 Note, the Newco3 Note and the Newco4 Note will be assigned and distributed to Newco1, Newco2, Newco3 and Newco4, respectively. As a result of the assignment and distribution of the Newco Notes by DC, the obligations under the Newco Notes will be extinguished and such notes will be cancelled.

For greater certainty, on the winding-up, liquidation or dissolution of DC:

(a) each Newco Note will be considered to be distributed to the respective Newco in respect of the DC Class A Preference Shares owned by that Newco to the extent of the aggregate redemption amount of that Newco’s DC Class A Preference Shares.

The amount by which that Newco’s Newco Note exceeds the aggregate redemption amount of that Newco’s DC Class A Preference Shares, will be considered property distributed in respect of that Newco’s DC Common Shares; and

(b) the property distributed by DC in respect of that Newco’s DC Class A Preference Shares, as described in Paragraph 57(a), will not give rise to a dividend deemed under subsection 84(2), as the aggregate redemption amount of that Newco’s DC Class A Preference Shares will be equal to the amount by which their aggregate PUC is reduced on the Winding-up Distribution.

58. Immediately prior to the distribution of the Newco Notes by DC to the Newcos, as described in Paragraph 57, DC will elect, pursuant to subsection 83(2), in prescribed manner and in prescribed form, to treat the portion of the Winding-up Dividend, determined pursuant to subparagraph 88(2)(b)(i), as a separate Capital Dividend paid on the DC Common Shares.

Pursuant to subparagraph 88(2)(b)(iv), each of the Newcos will be deemed to have received a proportionate Capital Dividend on its DC Common Shares from DC.

59. The portion of the Winding-up Dividend that is deemed by subparagraph 88(2)(b)(ii) not to be a dividend on the DC Common Shares, will be included, pro rata, in determining each Newco’s Proceeds of Disposition of its DC Common Shares pursuant to paragraph (i) of the definition of Proceeds of Disposition.

60. DC will designate, pursuant to subsection 89(14), to treat all or a portion of the Winding-up Dividend that is deemed by subparagraph 88(2)(b)(iii) to be a separate dividend that is a Taxable Dividend, to be an Eligible Dividend, by notifying each of the Newcos in writing, within the time limit prescribed in subsection 89(14), that such dividend, or the portion of such dividend, is an Eligible Dividend.

61. Immediately after the distribution of the Newco Notes by DC described in Paragraph 57, but before the formal dissolution of DC, other than:

(a) the filing of the federal and provincial corporate tax returns and the necessary election forms, and the designation described in Paragraph 60; and

(b) the transactions described in Paragraphs 62 and 64 to 68,

DC will not own or acquire any property or carry on any activity or undertaking.

62. Following receipt of the Dividend Refund to which DC will become entitled as a result of the Proposed Transactions, or other tax-related refunds, DC will immediately distribute each such refund to each Newco on its DC Common Shares, based on that Newco’s Newco Proportion (under the terms of the agreement governing the winding-up, liquidation or dissolution of DC).

63. Within a reasonable time following the transfer of such refunds described in Paragraph 62, articles of dissolution will be filed by DC with the appropriate Corporate Registry and upon receipt of a certificate of dissolution, DC will be dissolved.

Post-Butterfly Transactions

64. On the day after the Effective Date, and prior to the close of business, the Newcos will enter into an agreement to share the costs (including insurance) related to their undivided interests in the XXXXXXXXXX formerly owned by DC. The agreement will also cover other issues, such as XXXXXXXXXX.

65. On the day after the Effective Date, and prior to the close of business, each Newco will transfer (that Newco’s “Newco Transfer”) its undivided interest in the Fixed Assets and the Goodwill to Subsidiary. In consideration therefor, Subsidiary will:

(a) assume that Newco’s liability under the Lease; and

(b) issue XXXXXXXXXX Subsidiary Non-Voting Preference Shares to that Newco having an aggregate FMV and redemption amount equal to the amount by which the aggregate FMV at that time of that Newco’s undivided interest in the Fixed Assets and the Goodwill so transferred to Subsidiary, exceeds that Newco’s liability assumed by Subsidiary, as described in Paragraph 65(a).

Each Newco and Subsidiary will elect jointly and in prescribed form and within the time limit referred to in subsection 85(6) to have the rules in subsection 85(1) apply to that Newco’s Newco Transfer. The Agreed Amount in respect of each Eligible Property so transferred will be as follows:

(i) in the case of capital property (other than depreciable property), an amount will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

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

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

For greater certainty, the liability of each Newco that Subsidiary assumed in consideration for the property received from that Newco, as described in Paragraph 65(a), will not exceed the Agreed Amount less XXXXXXXXXX with respect to such property for purposes of subsection 85(1).

XXXXXXXXXX of the former employees of DC will be employed by Subsidiary.

For the purposes of the Act, the increase to the aggregate PUC of the XXXXXXXXXX Subsidiary Non-Voting Preference Shares issued by Subsidiary to each Newco as consideration for the properties transferred by that Newco to Subsidiary, will be equal to the amount by which the aggregate cost of those properties to Subsidiary, as determined pursuant to subsection 85(1), where applicable, exceeds the aggregate amount of that Newco’s liability assumed by Subsidiary, as described in Paragraph 65(a).

For greater certainty, the increase to the aggregate PUC of the XXXXXXXXXX Subsidiary Non-Voting Preference Shares that Subsidiary issued to that Newco, will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

66. On the day after the Effective Date, Subsidiary will enter into agreements with each Newco to manage that Newco’s assets. Subsidiary may also enter into agreements with other entities in the former DC Corporate Group to provide management services to such entities.

67. Subsequent to the Effective Date and no later than XXXXXXXXXX, pursuant to the provisions of Act I:

(a) Holdco1 will amalgamate (“Amalgamation1”) with Newco1 to form Amalco1;

(b) Holdco2 will amalgamate (“Amalgamation2”) with Newco2 to form Amalco2;

(d) Holdco4 will amalgamate (“Amalgamation4”) with Newco4 to form Amalco4.

The authorized share capital of Amalco1, Amalco2, Amalco3 and Amalco4 will be identical to the authorized share capital of Holdco1, Holdco2, Holdco3 and Holdco4, respectively, immediately before their respective Amalgamations.

Each Amalco will be a TCC and a CCPC.

68. Pursuant to an amalgamation agreement in respect of each Amalgamation described in Paragraph 67:

(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of a particular predecessor corporation immediately before that Amalgamation will become property of the new corporation by virtue of that Amalgamation;

(b) all of the liabilities (except amounts payable to any predecessor corporation) of a particular predecessor corporation immediately before that Amalgamation will become liabilities of the new corporation by virtue of that Amalgamation; and

(c) all of the shareholders (except any predecessor corporation) of the predecessor corporations immediately before that Amalgamation will receive shares of the capital stock of the new corporation because of that Amalgamation.

For greater certainty, on each Amalgamation,

(i) each shareholder of each Holdco will receive the same number and class of shares of that Holdco’s respective Amalco as that shareholder owned in that Holdco immediately prior to that Holdco’s Amalgamation. All the shares of that Holdco will then be cancelled;

(ii) the FMV of each class of shares of that Holdco’s respective Amalco immediately after that Holdco’s Amalgamation, will be equal to the FMV of the same class of shares of that Holdco immediately before that Holdco’s Amalgamation;

(iii) the PUC of each class of shares of that Holdco’s respective Amalco immediately after that Holdco’s Amalgamation, will be equal to the PUC of the same class of shares of that Holdco immediately before that Holdco’s Amalgamation; and

(iv) all of the issued and outstanding shares of that Holdco’s respective Newco will be cancelled without any repayment of capital in respect thereof.

V. ADDITIONAL INFORMATION

69. With respect to each Newco’s Newco Transfer, the aggregate FMV, at the time of that transfer, of all the property of that Newco so transferred to Subsidiary, as described in Paragraph 65, will be less than XXXXXXXXXX% of the aggregate FMV, at the time of the Butterfly Transfer, of all the property (other than money and indebtedness that is not convertible into other property) received by that Newco on the Butterfly Transfer.

70. Except as described herein, no property has or will become property of DC or any corporation controlled by DC, and no liabilities have been or will be incurred by DC or any corporation controlled by DC, in contemplation of and before the Butterfly Transfer, otherwise than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

71. Prior to the Butterfly Transfer, as part of a Series of Transactions or Events that will include any of the Proposed Transactions, there has not been, or will not be, any disposition or acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(i) or (iii), or acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii).

72. None of DC or the Newcos is, or will be, at any time before the completion of the Proposed Transactions:

(a) a Specified Financial Institution;

(b) a Restricted Financial Institution; or

73. The DC Common Shares are not Taxable Preferred Shares or Short-Term Preferred Shares.

74. The DC Class A Preference Shares are Taxable Preferred Shares and Short-Term Preferred Shares. They are not shares of a Specified Class.

75. The DC Class I Preference Shares are Taxable Preferred Shares and Short-Term Preferred Shares. They are shares of a Specified Class.

76. The Newco Non-Voting Preference Shares will constitute Taxable Preferred Shares and Short-Term Preferred Shares.

77. None of the shares of DC and the Newcos is or will be, at any time during the implementation of the Proposed Transactions:

(a) the subject of any undertaking or agreement that is a Guarantee Agreement;

(b) the subject of a Dividend Rental Arrangement;

(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); or

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

78. DC holds its co-tenancy interests, as described in Paragraph 9(e)(iv), as Capital Property.

79. DC will hold its Newco Non-Voting Preference Shares received on the Butterfly Transfer as Capital Property.

80. Each Newco will hold its DC Common Shares as Capital Property.

81. It is anticipated that DC will have an RDTOH balance at the time of its winding-up, liquidation or dissolution, as described in Paragraph 57.

82. Each Newco will have the financial capacity to honour, upon presentation for payment, the amount payable under that Newco’s Newco Note, as described in Paragraph 55.

83. Other than the transactions described in Paragraphs 65 and 67, there are no current plans on the part of any of the Newcos to dispose of any of the property received by that Newco on the Butterfly Transfer.

84. None of the main purposes of the acquisition by each Newco of the DC Shares from that Newco’s respective Holdco is to enable DC to obtain a Dividend Refund.

85. The Child1 Transactions did not rely on any of the Proposed Transactions in order to produce a given result. In addition, the Proposed Transactions will not rely on any of the Child1 Transactions in order to produce a given result.

None of the Child1 Transactions was undertaken in contemplation of any of the Proposed Transactions and would have been undertaken irrespective of whether any of the Proposed Transactions will be implemented.

None of the Proposed Transactions will be undertaken in contemplation of any of the Child1 Transactions and each would have been undertaken irrespective of whether any of the Child1 Transactions was implemented.

86. The Child3 Transactions did not rely on any of the Proposed Transactions in order to produce a given result. In addition, the Proposed Transactions will not rely on any of the Child3 Transactions in order to produce a given result.

None of the Child3 Transactions was undertaken in contemplation of any of the Proposed Transactions and would have been undertaken irrespective of whether any of the Proposed Transactions will be implemented.

None of the Proposed Transactions will be undertaken in contemplation of any of the Child3 Transactions and each would have been undertaken irrespective of whether any of the Child3 Transactions was implemented.

VI. PURPOSES OF THE SUBJECT TRANSACTIONS AND THE PROPOSED TRANSACTIONS

87. The purpose for the Butterfly Transfer is to enable each Sibling through that Sibling’s Newco to have direct and separate control of that Sibling’s pro rata share of the assets of DC, so that that Sibling may deal with such assets independently from the other Siblings.

88. The purpose for:

(a) the “freeze,” by Sibling3 XXXXXXXXXX Family Trust, of its shareholding in Holdco3, before the marriage of Child3, by exchanging its XXXXXXXXXX Holdco3 Class A Common Shares for XXXXXXXXXX Holdco3 Class K Preference Shares, as described in Paragraph 35(a);

(b) the acquisition, by the Settlor, of the XXXXXXXXXX Holdco3 Class C Common Shares described in Paragraph 35(b), and the gifting, by the Settlor, of those shares to Sibling3 XXXXXXXXXX Family Trust after the marriage of Child3, as described in Paragraph 36;

(c) the “freeze,” by Sibling1 XXXXXXXXXX Family Trust, of its shareholding in Holdco1, before the marriage of Child1, by exchanging its XXXXXXXXXX Holdco1 Class B Common Shares for the XXXXXXXXXX Holdco1 Class K Preference Shares, as described in Paragraph 40(a); and

(d) the acquisition, by the Settlor, of the XXXXXXXXXX Holdco1 Class A Common Shares, as described in Paragraph 40(b), and the gifting, by the Settlor, of those shares to Sibling1 XXXXXXXXXX Family Trust after the marriage of Child1, as described in Paragraph 41,

(the transactions described in Paragraphs 88(a) and (b) are collectively referred to as the “Child3 Transactions” and the transactions described in Paragraphs 88(c) and (d) are collectively referred to as the “Child1 Transactions”)

is, in the event of a subsequent marriage breakdown, to exclude: (i) in the case of Child1, Child1’s beneficial interest in the Sibling1 XXXXXXXXXX Family Trust and in the Sibling1 XXXXXXXXXX Family Trust; and (ii) in the case of Child3, Child3’s beneficial interest in the Sibling3 XXXXXXXXXX Family Trust and in the Sibling3 XXXXXXXXXX Family Trust, from the net family property of Child1 and Child3, as the case may be, for the purposes of the XXXXXXXXXX Family Law Act.

89. The purpose for the incorporation of Newco1, Newco2, Newco3 and Newco4 is to avoid circularity in the calculation of DC’s RDTOH and Part IV tax that would otherwise result if the transfers of property on the Butterfly Transfer were made directly to each Holdco by DC.

90. The purpose for the redemption of the DC Class I Preference Shares owned by Holdco2, as described in Paragraph 42, is to ensure that each of the Newcos will own an equal shareholding in DC for the purposes of the Butterfly Transfer.

91. The purpose for the transfer of each Newco’s undivided interest in the Goodwill and Fixed Assets to Subsidiary, as described in Paragraph 65, and the entry into management agreements between Subsidiary and the Newcos described in Paragraph 66, is to facilitate and formalize an arrangement between Subsidiary and the Newcos pursuant to which Subsidiary would provide management services in respect of the assets held by the Newcos.

92. The purpose for the Amalgamations is to simplify the Siblings’ holdings and reduce the tax and other reporting required.

VII. RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant Facts, proposed transactions, Additional Information and the purposes of the Subject Transactions and the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are set forth below:

A. Subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to:

(a) the transfer, by each Holdco, of that Holdco’s DC Shares to its respective Newco, as described in Paragraph 47;

(b) the transfer, by DC, of each Eligible Property to each Newco on the Butterfly Transfer; and

(c) the transfer, by each Newco, of that Newco’s undivided interest in the Fixed Assets and the Goodwill to Subsidiary, as described in Paragraph 65,

such that the Agreed Amount in respect of each transfer of each Eligible Property will be deemed to be the transferor’s Proceeds of Disposition and the transferee’s cost thereof pursuant to paragraph 85(1)(a).

For greater certainty, paragraph 85(1)(e.2) will not apply to each transfer.

For the purposes of the joint elections described herein, the reference to “the Undepreciated Capital Cost to the taxpayer of all property of that class immediately before the disposition” found in subparagraph 85(1)(e)(i) shall be interpreted to mean that proportion of the Undepreciated Capital Cost to the taxpayer of all property of that class immediately before the disposition, that the FMV at that time of the property that is transferred is of the aggregate FMV at that time of all the property of that class.

B. Subsection 84(3) will apply, on the redemption by each Newco of that Newco’s XXXXXXXXXX Newco Non-Voting Preference Shares owned by DC, as described in Paragraph 55, to deem that Newco to have paid, and DC to have received at that time, a dividend that is a Taxable Dividend on such class of shares, equal to the amount, if any, by which the amount paid upon such redemption exceeds the aggregate PUC in respect of those shares immediately before such redemption.

C. As a result of the distributions (collectively referred to as the “Winding-up Distribution”) by DC to each Newco in the course of its winding-up, liquidation or dissolution, as described in Paragraphs 57 and 62,

(a) by virtue of subsection 84(2) and paragraph 88(2)(b), but subject to Rulings C(b) to (d), DC will be deemed to have paid at the time (“That Time”) of the Winding-up Distribution a dividend (the “Winding-up Dividend”) on the DC Common Shares equal to the amount by which:

(i) the aggregate FMV of the property of DC distributed by DC to the Newcos in respect of the DC Common Shares on the winding-up, liquidation or dissolution, exceeds

(ii) the amount, if any, by which the aggregate PUC of the DC Common Shares is reduced on the Winding-up Distribution, and

each of the Newcos will be deemed to have received at That Time a dividend equal to that proportion of the amount of the excess that the number of the DC Common Shares owned by that Newco immediately before That Time, is of the number of the DC Common Shares issued and outstanding immediately before That Time;

(b) pursuant to subparagraph 88(2)(b)(i), such portion of the Winding-up Dividend as does not exceed DC’s CDA, determined immediately before That Time, shall be deemed, for the purposes of the subsection 83(2) election referred to in Paragraph 58, to be the full amount of a separate dividend that is a Capital Dividend;

(i) DC’s Pre-1972 CSOH, determined immediately before That Time, and

(ii) the amount by which the Winding-up Dividend exceeds the portion thereof in respect of which DC has made an election under subsection 83(2) referred to in Paragraph 58,

shall be deemed not to be a dividend;

(d) pursuant to subparagraph 88(2)(b)(iii), the Winding-up Dividend, to the extent that it exceeds the total of:

(i) the portion thereof referred to in Ruling C(b) that is deemed to be a separate dividend, and

(ii) the portion thereof referred to in Ruling C(c) that is deemed not to be a dividend,

shall be deemed to be a separate dividend that is a Taxable Dividend; and

(e) pursuant to subparagraph 88(2)(b)(iv), each of the Newcos will be deemed to have received that Newco’s proportional share of the Capital Dividend and the Taxable Dividend referred to in Rulings C(b) and (d), respectively.

D. Any Taxable Dividend referred to in Ruling B, that is deemed to have been received by DC, and referred to in Ruling C(e), that is deemed to have been received by each of the Newcos:

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

(b) will be deductible by each recipient corporation in computing that recipient corporation’s taxable income, pursuant to subsection 112(1), for the Taxation Year in which such dividend is deemed to have been received.

For greater certainty, the provisions of subsection 112(2.1), (2.2), (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;

(c) will be excluded, pursuant to paragraph (j) of the definition of Proceeds of Disposition, in determining the Proceeds of Disposition to the recipient corporation of that recipient corporation’s shares so redeemed, purchased or cancelled;

(d) will, by virtue of subsection 112(3), reduce any loss that would otherwise be determined for the particular recipient corporation, in respect of that recipient corporation’s disposition of the shares on which the dividend is deemed to have been received;

(e) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b); and

(f) will not be subject to tax under Part IV.1 or Part VI.1.

E. Subsection 129(1.2) will not apply to deem the Taxable Dividend referred to in Ruling C(d) not to be a Taxable Dividend.

F. Provided that DC designates all or a portion of the Taxable Dividend referred to in Ruling C(d) to be an Eligible Dividend in the prescribed manner and within the time limit referred to in subsection 89(14), the designated amount will be added to the GRIP accounts of each of the Newcos to the extent of the portion of the Eligible Dividend that that Newco received, in the Taxation Year in which that Newco received that portion from DC, pursuant to variable E(a) of the definition of GRIP.

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

(a) an acquisition of property in circumstances described in paragraph 55(3.l)(a);

(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(d) an acquisition of shares in the circumstances described in subparagraph 55(3.l)(b)(iii); or

(e) an acquisition of property in the circumstances described in paragraph 55(3.l)(c) or 55(3.1)(d),

which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the Taxable Dividends referred to in Rulings C and D. For greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b) in respect of these dividends.

H. The distribution and extinguishment of the Newco Notes described in Paragraph 57 will not give rise to a Forgiven Amount. In addition, none of DC or the Newcos will otherwise realize any gain or incur any loss as a result of the distribution and extinguishment of the Newco Notes.

I. Each Amalgamation described in Paragraph 68 will be considered an amalgamation within the meaning of that term in subsection 87(1).

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

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

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R7 issued by the CRA on April 22, 2016 and are binding on the CRA provided that the Proposed Transactions are completed on or 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.

VIII. COMMENTS

1. We make no comment as to whether subsection 55(2) would or would not apply to the redemption, by DC, of all of Holdco2’s DC Class I Preference Shares, as described in Paragraph 42.

2. Unless otherwise confirmed, nothing in this ruling should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

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

(b) any other tax account of any corporation referred to herein;

(d) any other tax consequence relating to the facts, transactions, 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, including whether any of the Proposed Transactions would also be included in a Series of Transactions or Events that includes other transactions or events that are not described in this letter.

3. You have informed us that the redemption amount of those shares described in Paragraphs 34(a)(ii), 39(a)(ii), 43(b)(ii), 43(c)(ii), and 45(b)(ii) will be subject to a price adjustment clause.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the ACB or FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1: Price Adjustment Clauses.

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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2016 Ruling 2015-0569561R3 - Split-up butterfly

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I. DEFINITIONS

II. FACTS

DC

DC Class A Preference Shares

DC Class I Preference Shares

Investment Portfolio and Business of DC

DC’s Assets

DC’s Liabilities

Partnership1

Partnership2

DC GRIP

DC Shareholders

Control

Holdco1

Holdco2

Holdco3

Holdco4

III. SUBJECT TRANSACTIONS

Capital Dividend

Acquisition of a limited partnership interest in Partnership1

Acquisition of a limited partnership interest in Partnership2

“Freeze”

Child3 and Child1

Holdco3

Holdco1

IV. PROPOSED TRANSACTIONS

Preliminary Transactions

Redemption of DC Class I Preference Shares

Incorporation of Newcos

Incorporation of Subsidiary

Butterfly Transactions

Transfer of the DC Shares

Types of Property Analysis

Butterfly Transfer

Redemption of the Newco Non-Voting Preference Shares

Newco First Taxation Year

Winding-up, liquidation or dissolution of DC

Post-Butterfly Transactions

V. ADDITIONAL INFORMATION

VI. PURPOSES OF THE SUBJECT TRANSACTIONS AND THE PROPOSED TRANSACTIONS

VII. RULINGS

VIII. COMMENTS