2017 Ruling 2016-0663831R3 - Standard Loss Consolidation

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a lossco will be entitled to apply its non-capital losses against the interest income generated as part of the loss consolidation transactions and whether profitcos will be entitled to deduct the corresponding interest expense.

Position: Yes.

Reasons: Conforms to our requirements for such rulings.

XXXXXXXXXX						2016-066383

XXXXXXXXXX, 2017

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

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

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

i. in a previously filed tax return of any of the Taxpayers or a related person;

ii. being considered by a tax services office or a tax centre in connection with a previously filed tax return of any of the Taxpayers or a related person;

iii. under objection by any of the Taxpayers or a related person;

iv. the subject of a current or completed court process involving the Taxpayers or a related person; or

v. the subject of a ruling request previously considered by the Directorate.

The Taxpayers have also confirmed that the proposed transactions described herein will not result in the Taxpayers or any person related to the Taxpayers being unable to pay any of their outstanding tax liabilities.

Unless specified otherwise, all statutory references herein are to provisions or parts of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended to the date hereof (the “Act”) and all references to monetary amounts are in Canadian dollars. This document is based solely on the facts described below. Any documentation submitted with your request does not form part of the facts except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.

DEFINITIONS

“affiliated persons” has the meaning assigned by subsection 251.1(1);

“CBCA” means the Canada Business Corporations Act (Canada), and where applicable, its predecessor statutes;

“CRA” means the Canada Revenue Agency;

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

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

“Foreign Authority” means the XXXXXXXXXX in Foreign Country;

“Foreign Country” means XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX;

“Lossco 1” means XXXXXXXXXX;

“Lossco 2” means XXXXXXXXXX;

“Losscos” means collectively Lossco 1 and Lossco 2;

“Lossco 1 Loan” means an interest bearing loan made by Lossco 1 to Profitco as described in Paragraph 23 below;

“Lossco 2 Loan” means an interest bearing loan made by Lossco 2 to Profitco as described in Paragraph 23 below;

“Lossco Loans” means collectively the Lossco 1 Loan and the Lossco 2 Loan;

“Newco 1” is a corporation to be incorporated under the CBCA, as described in Paragraph 20;

“Newco 2” is a corporation to be incorporated under the CBCA, as described in Paragraph 20;

“Newcos” means collectively Newco 1 and Newco 2;

“Newco 1 Common Shares” will be issued by Newco 1 to Lossco 1 and has the meaning assigned in Paragraph 20;

“Newco 2 Common Shares” will be issued by Newco 2 to Lossco 2 and has the meaning assigned in Paragraph 20, and together with the Newco 1 Common Shares, the “Newco Common Shares”;

“Newco 1 Loan” means a non-interest bearing loan made by Newco 1 to Lossco 1, as described in Paragraph 25 below;

“Newco 2 Loan” means a non-interest bearing loan made by Newco 2 to Lossco 2, as described in Paragraph 25 below;

“Newco Loans” means collectively the Newco 1 Loan and the Newco 2 Loan;

“Newco 1 Note” means a non-interest bearing promissory note issued by Newco 1 to Profitco as described in paragraph 32 below;

“Newco 2 Note” means a non-interest bearing promissory note issued by Newco 2 to Profitco as described in paragraph 32 below;

“Newco Notes” means collectively the Newco 1 Note and the Newco 2 Note;

“Newco 1 Preferred Shares” means preferred shares to be issued by Newco 1 to Profitco as described in Paragraph 20;

“Newco 2 Preferred Shares” means preferred shares to be issued by Newco 2 to Profitco as described in Paragraph 20;

“Newco Preferred Shares” means collectively the Newco 1 Preferred Shares and the Newco 2 Preferred Shares;

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

“Paragraph” refers to a paragraph in this letter;

“Parent” means XXXXXXXXXX;

“Payment Period” means a calendar XXXXXXXXXX;

“Profitco” means XXXXXXXXXX;

“Proposed Transactions” means the transactions described in paragraphs 20 to 34;

“related persons” has the meaning assigned by section 251;

“Subsidiary 1” means XXXXXXXXXX;

“Subsidiary 2” means XXXXXXXXXX;

“Subsidiaries” means collectively Subsidiary 1 and Subsidiary 2;

“Subsidiary 1 Loan” means the loan made by Subsidiary 1 to Lossco 1, the principal amount of which will equal the aggregate principal amounts of the Lossco 1 Loan, as described in paragraph 22 below;

“Subsidiary 2 Loan” means the loan made by Subsidiary 2 to Lossco 2, the principal amount of which will equal the aggregate principal amounts of the Lossco 2 Loan, as described in paragraph 22 below;

“Subsidiary Loans” means collectively the Subsidiary 1 Loan and the Subsidiary 2 Loan;

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

“Treaty” means the XXXXXXXXXX.

FACTS

1. Parent, through its subsidiary corporations, is a XXXXXXXXXX.

2. Parent is a corporation incorporated under the laws of Foreign Country, a non-resident of Canada for purposes of the Act and a resident of Foreign Country for the purposes of the Treaty. Parent is XXXXXXXXXX and XXXXXXXXXX. There have been no acquisitions of control of Parent or of any of its subsidiary corporations that are participants to the Proposed Transactions, including direct or indirect parent corporations of such subsidiary corporations, and there are no planned acquisitions of such corporations, including Parent.

3. The consolidated financial statements of Parent for its fiscal year ended XXXXXXXXXX indicate that Parent and its accounting consolidated group had:

a) total assets of approximately XXXXXXXXXX$XXXXXXXXXX;

b) total liabilities of approximately XXXXXXXXXX$XXXXXXXXXX; and

c) total equity of approximately XXXXXXXXXX$XXXXXXXXXX.

4. Subsidiary 1 is an indirect wholly-owned subsidiary of Parent. Subsidiary 1 is a corporation incorporated under the laws of Foreign Country, a non-resident of Canada for the purposes of the Act and a resident of Foreign Country for purposes of the Treaty. Subsidiary 1 and its directly and indirectly owned subsidiaries and other entities collectively form part of the XXXXXXXXXX operations of the corporate group.

5. Subsidiary 2 is an indirect wholly-owned subsidiary of Parent. Subsidiary 2 is a corporation incorporated under the laws of Foreign Country, a non-resident of Canada for purposes of the Act and a resident of Foreign Country for purposes of the Treaty. Subsidiary 2 is XXXXXXXXXX. Subsidiary 2 is the parent corporation of directly and indirectly owned subsidiaries and other entities that collectively XXXXXXXXXX.

6. Profitco has been a wholly-owned subsidiary of Lossco 1 since XXXXXXXXXX, and an indirect wholly owned subsidiary of Parent since incorporation on XXXXXXXXXX. Profitco is incorporated under the CBCA and is a taxable Canadian corporation. Its registered address is XXXXXXXXXX, its taxation centre is XXXXXXXXXX Taxation Centre and its Tax Services Office is the XXXXXXXXXX Tax Services Office and its business number is XXXXXXXXXX. Profitco’s taxation year-end is XXXXXXXXXX. Profitco provides XXXXXXXXXX in Canada.

7. Profitco’s taxable income for its XXXXXXXXXX prior taxation years for which tax returns have been filed with the CRA is as follows:

Taxation Year Ending	Taxable Income / (loss)
XXXXXXXXXX			XXXXXXXXXX

8. It is expected that Profitco will be able to fully utilize the deductions resulting from interest paid or payable on the Lossco Loans either against its income for a current taxation year in which the Proposed Transactions are undertaken or by carrying back any non-capital loss for that taxation year to be deducted against its taxable income for one or more of its XXXXXXXXXX prior taxation years.

9. Profitco’s stand-alone financial statements for its taxation year end XXXXXXXXXX, indicate that Profitco has assets of $XXXXXXXXXX.

10. Profitco has a permanent establishment in each of the provinces and territories listed below and, for its taxation year ending XXXXXXXXXX, its gross revenue and salaries and wages for purposes of Part IV of the Regulations was allocated as follows:

Province/Territory	Gross Revenue	Salaries & Wages	Percentage
XXXXXXXXXX			XXXXXXXXXX		XXXXXXXXXX		XXXXXXXXXX

11. Lossco 1 has been an indirect wholly-owned subsidiary of Parent since XXXXXXXXXX. Lossco 1 is incorporated under the XXXXXXXXXX and is a taxable Canadian corporation. Its registered address is XXXXXXXXXX, its taxation centre is the XXXXXXXXXX Taxation Centre and its Tax Services Office is the XXXXXXXXXX Tax Services Office and its business number is XXXXXXXXXX. Lossco 1’s taxation year-end is XXXXXXXXXX. Lossco 1 is a Canadian XXXXXXXXXX and regulated by XXXXXXXXXX. Lossco 1 will XXXXXXXXXX enter into the Proposed Transactions.

12. At XXXXXXXXXX, Lossco 1 had non-capital losses available for carry forward of $XXXXXXXXXX, which may be summarized as follows:

Taxation year ending:	Non-capital losses
XXXXXXXXXX			XXXXXXXXXX

13. Lossco 1’s financial statements for its taxation year-end XXXXXXXXXX, indicate that Lossco 1 has assets of $XXXXXXXXXX.

14. Lossco 1 has a permanent establishment in each of the provinces and territories listed below and, for its taxation year ending XXXXXXXXXX, its gross revenue and salaries and wages for purposes of Part IV of the Regulations was allocated as follows:

Province/Territory	Gross Revenue	Salaries & Wages	Percentage
XXXXXXXXXX			XXXXXXXXXX		XXXXXXXXXX		XXXXXXXXXX

15. Lossco 1 is XXXXXXXXXX for the XXXXXXXXXX taxation years. XXXXXXXXXX.

16. Lossco 2 is an indirect subsidiary of Subsidiary 2 and wholly owned by XXXXXXXXXX, a corporation incorporated under the laws of Foreign Country, a non-resident of Canada for purposes of the Act and a resident of Foreign Country for the purposes of the Treaty. Lossco 2 has been an indirect subsidiary of Subsidiary 2 since its incorporation on XXXXXXXXXX. Lossco 2 is incorporated under the CBCA and is a taxable Canadian corporation. Its registered address is XXXXXXXXXX, its taxation centre is the XXXXXXXXXX Taxation Centre and its Tax Services Office is the XXXXXXXXXX Tax Services Office and its business number is XXXXXXXXXX. Lossco 2’s taxation year-end is XXXXXXXXXX. Lossco 2 holds a XXXXXXXXXX.

17. At XXXXXXXXXX, Lossco 2 had non-capital losses available for carry forward of $XXXXXXXXXX, which may be summarized as follows:

Taxation year ending:	Non-capital losses
XXXXXXXXXX			XXXXXXXXXX

18. Lossco 2’s financial statements for its taxation year-end XXXXXXXXXX, indicate that Lossco 2 has assets of $XXXXXXXXXX.

19. Lossco 2 has a permanent establishment solely in the province of XXXXXXXXXX.

PROPOSED TRANSACTIONS

20. The Losscos will incorporate the relevant Newcos under the CBCA. The Newcos will be taxable Canadian corporations. The taxation year-end of the Newcos for purposes of the Act will be XXXXXXXXXX. The Losscos will subscribe for common shares of the relevant Newcos (the “Newco 1 Common Shares” and “Newco 2 Common Shares” collectively the “Newco Common Shares”) on incorporation for an aggregate subscription price payable to the relevant Newcos of $XXXXXXXXXX each. The Losscos will hold the Newco Common Shares as capital property. The Newcos will not carry on any business other than the proposed loss consolidation and their activities will be limited to investing the proceeds received upon issuance of the Newco Preferred Shares, as described in Paragraph 24, in the Newco Loans to the relevant Losscos, as described in Paragraph 25. The Newcos will XXXXXXXXXX. The authorized share capital of each of the Newcos will consist of two classes of shares, common shares and preferred shares (the “Newco Preferred Shares”).

21. The Newco Preferred Shares will be non-voting, cumulative dividend paying, redeemable, retractable preferred shares and dividends will be paid monthly. The cumulative dividends payable on each Newco Preferred Shares will be calculated as a percentage of the redemption/retraction price of the Newco Preferred Shares, which is equal to the interest rate on the relevant Lossco Loans plus a small spread of XXXXXXXXXX%. The cumulative dividends payable on each Newco Preferred Shares will be XXXXXXXXXX% per annum.

22. On a particular day to be determined by the relevant Subsidiaries and Losscos, the following Subsidiary Loans will be made:

a) Subsidiary 1 will make the Subsidiary 1 Loan to Lossco 1 for a principal amount of $XXXXXXXXXX; and

b) Subsidiary 2 will make the Subsidiary 2 Loan to Lossco 2 for a principal amount of $XXXXXXXXXX.

Each of the Subsidiary Loans will be repayable on demand and will not bear interest. The Subsidiaries will source the funds for the relevant Subsidiary Loans from their respective working capital.

23. Losscos will use the proceeds received by it from the Subsidiary Loans to make the following Lossco Loans:

a) Lossco 1 will advance the Lossco 1 Loan to Profitco with a principal amount of $XXXXXXXXXX, bearing interest at a rate of XXXXXXXXXX% per annum;

b) Lossco 2 will advance the Lossco 2 Loan to Profitco with a principal amount of $XXXXXXXXXX bearing interest at a rate of XXXXXXXXXX% per annum.

Interest on the Lossco Loans will be computed daily and paid monthly. The interest rate on the Lossco Loans will not exceed what would be a reasonable commercial rate in these circumstances. The recourse of each of the Losscos under the relevant Lossco Loans will be limited to amounts received by the Profitco in respect of the relevant Newco Preferred Shares.

24. Profitco will use the proceeds from the Lossco Loans as follows:

a) Profitco will subscribe for the Newco 1 Preferred Shares for $XXXXXXXXXX which will have an aggregate redemption price and stated capital equal to $XXXXXXXXXX; and

b) Profitco will subscribe for the Newco 2 Preferred Shares for $XXXXXXXXXX which will have an aggregate redemption price and stated capital equal to $XXXXXXXXXX.

25. The Newcos will use the proceeds from the relevant Newco Preferred Shares as follows:

a) Newco 1 will make the Newco 1 Loan to Lossco 1. The principal amount of the Newco 1 Loan will equal the principal amount of Lossco 1 Loan; and

b) Newco 2 will make the Newco 2 Loan to Lossco 2. The principal amount of the Newco 2 Loan will equal the principal amount of Lossco 2 Loan.

Each of the Losscos will secure their obligations under the relevant Newco Loans by granting a security interest to the Newcos in the relevant Lossco Loans.

26. The Losscos will use the proceeds from the Newco Loans to repay the Subsidiary Loans to the relevant Subsidiaries.

27. All of the transactions described in Paragraphs 22 to 26 will take place on the same day.

28. Prior to the start of each Payment Period, the Losscos will make a contribution of capital to each Newco in an amount equal to the accrued dividends payable at the end of the Payment Period by such Newco on its Newco Preferred Shares held by the Profitco. No shares will be issued by the Newcos with respect to these contributions of capital and no amount will be added to the stated capital of any class of shares of the Newcos, or for greater certainty, to the paid-up capital of any class of shares of the Newcos. For accounting purposes, the amount of the contributions of capital will be recorded as contributed surplus. The contributions of capital will not be treated as income of the Newcos pursuant to the XXXXXXXXXX. Losscos will not claim any deduction in computing income in respect of any capital contributions made to the relevant Newcos.

29. Each of the Newcos will pay all accrued and unpaid dividends on its Newco Preferred Shares held by Profitco in cash at the end of the Payment Period from the contributions of capital received under Paragraph 28.

30. Upon receipt of the payments of dividends described in Paragraph 29, Profitco will pay all accrued and unpaid interest due and payable on the Lossco Loans to the applicable Lossco in cash, pursuant to the terms of the Lossco Loans.

31. The loss consolidation arrangement will be unwound, at the latest:

a) Within XXXXXXXXXX between Lossco 1 and Profitco, subject to XXXXXXXXXX; and

b) Within XXXXXXXXXX between Lossco 2 and Profitco.

32. The following transactions will occur to unwind the loss consolidation arrangement between Lossco and Profitco:

a) Each Lossco will contribute capital to the applicable Newco equal to the amount of the accrued and unpaid dividends on its Newco Preferred Shares;

b) Using the capital received from the Losscos, each Newco will pay the balance of the accrued and unpaid dividends on its Newco Preferred Shares to Profitco;

c) Profitco will pay in cash to the Losscos all accrued and unpaid interest in respect of each of the Lossco Loans;

d) Each Lossco will repay the applicable Newco Loan by assigning the corresponding Lossco Loan to the relevant Newco in full satisfaction of the principal amount due under the relevant Newco Loan;

e) Each of the Newcos will redeem its Newco Preferred Shares held by Profitco in consideration for a non-interest bearing demand promissory note issued by such Newco (each a “Newco Note”). The Newco Notes will have a principal amount and fair market value equal to the redemption price and the fair market value of the corresponding Newco Preferred Shares; and

f) Each of the Newcos and Profitco will set-off the amounts due under the relevant Lossco Loans against the amounts due under the relevant Newco Note as payment in full of each of these obligations.

For greater certainty, the arrangement between the Losscos and Profitco may be partially unwound throughout the XXXXXXXXXX but will be fully unwound in its entirety within the XXXXXXXXXX.

33. The unwind mechanism as described in Paragraph 32 and the legal set-off provisions in the Lossco Loans and Newco Preferred Shares are expected to result in the principal amount of the Newco Loans, the principal amount of the Lossco Loans and Newco Preferred Shares not being recognized on each of the relevant balance sheets of the Profitco, the Losscos and the Newcos under XXXXXXXXXX.

34. Following completion of the transactions described in Paragraph 32, the Newcos will be wound up into the relevant Losscos. The Losscos, as sole shareholder of the relevant Newcos immediately before the winding-up, will pass a resolution authorizing and requiring each Newco to be wound up into the relevant Lossco. In addition, a general conveyance of the remaining assets of each Newco and assumption of liabilities of each Newco, if any, will be executed between each Newco and Lossco. Each Newco will file articles of dissolution with the appropriate corporate registry within a reasonable time after the winding-up resolution is passed.

ADDITIONAL INFORMATION

35. The expected interest deductions, taxable income and carry back of non-capital losses of Profitco as a result of the Proposed Transactions are as follows (XXXXXXXXXX):

Taxation year	Taxable		Interest		Carry back of
ending:		income/Loss		deductions -	non-capital losses
			before the		Proposed		to prior taxation
			Proposed		Transactions	years
			Transactions

XXXXXXXXXX		XXXXXXXXXX		XXXXXXXXXX		XXXXXXXXXX

36. The estimated tax refund of federal and provincial income taxes to Profitco as a result of the Proposed Transactions is as follows (XXXXXXXXXX):

Jurisdiction XXXXXXXXXX
XXXXXXXXXX

OTHER REPRESENTATIONS

37. The Newco Preferred Shares will not at any time during the implementation of the Proposed Transactions be:

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

b. the subject of a dividend rental arrangement;

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

d. issued for consideration that is or includes:

i. an obligation of the type described in subparagraph 112(2.4)(b)(i), 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).

38. Profitco and the Losscos are related persons and affiliated persons and have been related persons and affiliated persons since XXXXXXXXXX.

39. Neither Profitco nor any of the Losscos is a “XXXXXXXXXX” as defined in subsection XXXXXXXXXX.

40. Neither the Losscos nor Profitco is a XXXXXXXXXX. Profitco and Losscos are specified XXXXXXXXXX within the meaning assigned by subsection 248(1). Profitco and the Losscos are not “XXXXXXXXXX” as defined in subsection XXXXXXXXXX or “XXXXXXXXXX” as defined in subsection XXXXXXXXXX. Profitco will not acquire the Newco Preferred Shares in the ordinary course of its business.

41. There is no intention for Profitco to generate a significant loss carry-forward balance as a result of the Proposed Transactions (having regard to the expected carryback of losses to prior taxation years), and the Taxpayers will seek to unwind the individual arrangements at a time that is intended to prevent any significant loss carry-forward balance.

42. The payment of dividends on the Newco Preferred Shares have no purpose other than the purpose described under the heading “Purpose of the Proposed Transactions”.

43. The Proposed Transactions will be legally effective.

44. At all times, Losscos will have the financial capacity to make the relevant capital contributions to Newcos described in Paragraph 28.

45. At all times, Profitco will have the solvency and liquidity to service the Lossco Loans.

46. At the time it is required to pay the dividends on the Newco Preferred Shares, described in Paragraph 29, and at the time it is required to redeem shares as described in paragraph 32, each of the Newcos will have the financial capacity to satisfy the applicable solvency and liquidity test under the CBCA (having regard to the contributions of capital received from Lossco).

47. The Newco Preferred Shares will be term preferred shares.

48. Each of the Lossco Loans will be a term loan with a maturity date not later than XXXXXXXXXX after the date such Lossco Loan is advanced. Profitco will have the right to prepay its obligations under the Lossco Loans without penalty.

49. Each of the Newco Loans will be a demand loan.

50. Any change in activities of the Newcos other than that described in the Proposed Transactions will require prior written consent from the relevant Losscos and Profitco.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to effect a tax consolidation of Profitco and the Losscos by causing Losscos to earn interest income on the Lossco Loans, thus permitting each of the Losscos to utilize its non-capital loss carry forwards and to have the Profitco incur interest expense to reduce its income for its current taxation year, and to the extent this creates non-capital losses for Profitco, to carry back the non-capital losses to reduce its taxable income from prior taxation years.

The purpose of both the payment and the receipt of the dividends on each of the Newcos Preferred Shares, as described in Paragraph 20, is to provide a reasonable return on the Newco Preferred Shares issued by the Newcos to Profitco and to fund the interest payments by Profitco on the Lossco Loans. Furthermore, the purpose of the dividends is not to reduce the fair market value or capital gain of any share, nor to increase the total cost amounts of properties of Profitco.

RULINGS PROVIDED

Provided that

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions,

(b) the proposed transactions are completed in the manner described above, and

(c) there are no other transactions which may be relevant to the rulings requested,

we rule that:

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

B. The dividends received (or deemed to be received) by Profitco in respect of the Newco Preferred Shares in a taxation year will be taxable dividends that will be deductible in computing the taxable income of Profitco for the taxation year in which the dividends are received pursuant to subsection 112(1), and for greater certainty, such deductions will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3) or 112(2.4).

C. Provided that the purpose of the dividends in Paragraphs 29 and 32 is what is described in the “Purpose of the Proposed Transactions” above and the Proposed Transactions are undertaken in the manner described above, subsection 55(2) will not apply in respect of the dividends described in Paragraphs 29 and 32 above.

D. Profitco will be entitled to carry-back to its prior taxation years the non-capital losses that are expected to arise as a result of the deductions described in Ruling A above, subject to any applicable restrictions in section 111.

E. The provisions of subsections 15(1), 56(2), 69(1), 69(4), 69(11) and 246(1) will not apply as a result of entering into the Proposed Transactions, in and by themselves.

F. The settlement of the Newco Loans, the Lossco Loans and the Newco Notes as described in Paragraph 32 will not give rise to any “forgiven amount” for purposes of section 80.

G. None of the Profitcos will be subject to Part IV tax with respect to any dividends received from the Newcos except to the extent that paragraph 186(1)(b) applies to impose such tax.

H. The receipt by the Newcos of capital contributions from Lossco as described in Paragraph 28 will not be included in the income of the Newcos.

I. The provisions of subsection 88(1) will apply to the winding-up of the Newcos into Lossco as described in Paragraph 34, such that:

a. Each Newco will be deemed, pursuant to paragraph 88(1)(a), to have disposed of its assets for an amount equal to the cost amount to the respective Newco immediately before the winding-up;

b. Lossco will be deemed, pursuant to paragraph 88(1)(b), to have disposed of each of the Newcos’ common shares that it owns for proceeds of disposition equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii); and

c. Lossco will be deemed, pursuant to paragraph 88(1)(c), to have acquired the assets of the Newcos that are distributed to Lossco on the winding-up for an amount equal to the proceeds of disposition to the respective Newco.

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

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

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R7 dated April 22, 2016, and are binding on the CRA provided that the Proposed Transactions are entered into on or before XXXXXXXXXX.

The above rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

COMMENTS

Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

(a) the fair market value or adjusted cost base of any property or the paid-up capital of any shares referred to herein;

(b) the reasonableness or fair market value of any fees or expenditures referred to herein;

(c) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(d) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transactions;

(e) subject to Ruling K, the application or non-application of a general anti-avoidance provision of any province; and

(f) any tax consequences relating to the Facts and Proposed Transactions described herein, other than those specifically described in the rulings given above.

Yours sincerely,

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