2019 Ruling 2018-0781491R3 - Split-up Butterfly

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: Do the Proposed Transactions qualify for the butterfly exemption under paragraph 55(3)(b)?

Position: Yes.

Reasons: Standard butterfly reorganization.

XXXXXXXXXX							2018-078149

XXXXXXXXXX, 2019

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge the information provided in subsequent correspondence and during our various telephone conversations in connection with your request. The information that you provided in such correspondence and in the telephone discussions form part of this letter only to the extent described herein.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues contained herein:

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

(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person;

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

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired;

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

DEFINITIONS

In this letter, the singular should be read as plural and vice versa where the circumstances so require, all monetary amounts are expressed in Canadian dollars unless otherwise specified, and unless otherwise indicated or the context otherwise requires, the following terms have the meanings specified:

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

“Aco” means XXXXXXXXXX, a corporation existing under the BCA;

“Act” means 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, unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph, and clause or subclause, is a reference to the relevant provision of the Act;

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

“aggregate investment income” has the meaning assigned by subsection 129(4);

“approximate the proportion” means, for the purposes of Paragraphs 45(a), 45(b), and 48, a discrepancy from that proportion, if any, that would not exceed XXXXXXXXXX percent (XXXXXXXXXX%), determined as a percentage of the FMV of each type of property which Sonco and Daughter Holdco will each receive as compared to what Sonco and Daughter Holdco would have each received had each such corporation received its appropriate pro rata share of the FMV of that type of property;

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

XXXXXXXXXX;

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

“BCA” means the XXXXXXXXXX;

“Bco” means XXXXXXXXXX, all of the shares of which are owned by the husband of Mother;

“BN” means the business number assigned by the CRA to a particular corporation for income tax purposes;

“Butterfly Transactions” means the transactions described in Paragraphs 40 to 57;

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

“capital gain” has the meaning assigned by section 54;

“capital loss” has the meaning assigned by paragraph 39(1)(b);

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

“Cco” means XXXXXXXXXX;

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

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

“contributed surplus” has the meaning assigned by section XXXXXXXXXX of the XXXXXXXXXX;

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

“CRA” means the Canada Revenue Agency;

“Daughter” means XXXXXXXXXX;

“Daughter Holdco” means a corporation to be incorporated by Daughterco under the BCA as described in Paragraph 40;

“Daughter Holdco Distribution Property” means the property owned by DC that will be transferred to Daughter Newco, as described in Paragraph 47(b);

“Daughter Holdco Common Shares” means the common shares in the capital of Daughter Holdco described in Paragraph 40;

“Daughter Holdco Preferred Shares” means the preferred shares in the capital of Daughter Holdco described in Paragraph 40;

“Daughter Newco” means a corporation to be incorporated by Daughter Holdco under the BCA as described in Paragraph 43;

“Daughter Newco Common Shares” means the common shares in the capital of Daughter Newco described in Paragraph 43;

“Daughter Newco Preferred Shares” means the preferred shares in the capital of Daughter Newco described in Paragraph 43;

“Daughter Newco Redemption Note” means the promissory note described in Paragraph 52;

“Daughter Subco 1” means XXXXXXXXXX, a corporation incorporated by DC under the BCA as described in Paragraph 22;

“Daughter Subco 1 Common Shares” means the common shares in the capital of Daughter Subco 1 described in Paragraph 22;

“Daughter Subco 2” means a corporation to be incorporated by DC under the BCA as described in Paragraph 32;

“Daughter Subco 2 Common Shares” means the common shares in the capital of Daughter Subco 2 described in Paragraph 32;

“Daughterco” means XXXXXXXXXX, a corporation existing under the BCA, the shareholding of which is described in Paragraph 17;

“Daughterco 2” means XXXXXXXXXX, a CCPC and a taxable Canadian corporation existing under the BCA all of the shares of which are owned by Granddaughter;

“Daughterco Common Shares” means the common shares in the capital of Daughterco described in Paragraph 17;

“Daughterco Preferred Shares” means the preferred shares in the capital of Daughterco described in Paragraph 17;

“DC” means XXXXXXXXXX, a corporation existing under the BCA, as described in Paragraph 1;

“DC Class G Shares” means the Class G shares in the capital of DC described in Paragraph 2;

“DC Class H Shares” means the Class H shares in the capital of DC described in Paragraph 2;

“DC Common Shares” means the common shares in the capital of DC described in Paragraph 2;

“DC Group” means DC and all of those corporations, partnerships and trusts over which DC has the ability to exercise significant influence;

“DC Redemption Amount” means the per-share redemption amount of a DC Class G Share, as described in Paragraph 3(b);

“DC Share Conversion” means the reorganization of the capital of DC that occurred in XXXXXXXXXX, as described in Paragraph 5;

“DC Transfers” means the transfers of property by DC to Son Newco and Daughter Newco as described in Paragraph 47;

“depreciable property” has the meaning assigned by subsection 13(21);

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

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

“dividend refund” has the meaning assigned by subsection 129(1);

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

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

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

“eligible RDTOH” means “eligible refundable dividend tax on hand” as defined in subsection 129(4);

“Estate Freeze” means the estate freeze undertaken by Mother in XXXXXXXXXX as described in Paragraph 3;

“financial intermediary corporation” has the meaning assigned by subsection 191(1);

“fiscal period” has the meaning assigned by subsection 249.1(1);

“FMV” means fair market value, which refers to the highest price expressed in terms of money or money’s worth, available in an open and unrestricted market between knowledgeable, informed prudent parties acting at arm’s length, neither party being under any compulsion to transact;

“forgiven amount” has the meaning assigned by subsection 80(1) or 80.01(1);

“Fund” means XXXXXXXXXX;

“Granddaughter” means XXXXXXXXXX, the daughter of Daughter;

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

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

XXXXXXXXXX;

“Investco A” means XXXXXXXXXX public company, the ordinary shares of the capital stock of which are traded on the XXXXXXXXXX;

“Investco A Post V-Day Shares” has the meaning assigned in Paragraph 8(a);

“Investco A Pre V-Day Shares” has the meaning assigned in Paragraph 8(a);

“Investco B” means XXXXXXXXXX private holding company;

“Investco B Pre V-Day Pool 1 Shares” has the meaning assigned in Paragraph 8(b);

“Investco B Pre V-Day Pool 2 Shares” has the meaning assigned in Paragraph 8(b);

“Investco C” means XXXXXXXXXX, a Canadian public corporation, the common shares of the capital stock of which are traded on the XXXXXXXXXX;

“Investco C Post V-Day Shares” has the meaning assigned in Paragraph 8(c);

“Investco C Pre V-Day Shares” has the meaning assigned in Paragraph 8(c);

“Investco C Series I Shares” has the meaning assigned in Paragraph 8(c);

“Investco C Series III Shares” has the meaning assigned in Paragraph 8(c);

“ITAR” means the Income Tax Application Rules, R.S.C. 1985, c. 2 (5th Supp.) as amended to the date hereof;

“LP I” means XXXXXXXXXX;

“LP II” means XXXXXXXXXX;

“Mother” means XXXXXXXXXX, and who is the mother of Daughter and Son;

“Nominee Agreement 1” means the nominee and bare trustee agreement described in Paragraph 36;

“Nominee Agreement 2” means the nominee and bare trustee agreement described in Paragraph 37;

“Nominee Agreement 3” means the nominee and bare trustee agreement described in Paragraph 38;

“Nominee Agreements” means, collectively, Nominee Agreement 1, Nominee Agreement 2, and Nominee Agreement 3;

“non-eligible dividend” means a taxable dividend that is not an eligible dividend;

“non-eligible RDTOH” means “non-eligible refundable dividend tax on hand” as defined in subsection 129(4);

“Paragraph” means a numbered paragraph in this letter;

“Portfolio Investments” has the meaning assigned by Paragraph 9(c);

“post V-day” means properties that are not “pre V-day” properties;

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

“Pre-Butterfly Transactions” means the transactions described in Paragraphs 31 to 39;

“pre V-day” means properties owned or deemed to be owned prior to V-day;

“Preliminary Transactions” means the transactions described in the “Preliminary Transactions” section of this letter;

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

“proceeds of disposition” has the meaning assigned by section 54;

“Proposed Transactions” means the transactions described in the “Proposed Transactions” section of this letter;

“Pubco” means XXXXXXXXXX;

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

“RDTOH” means “refundable dividend tax on hand” as defined in former subsection 129(3) (as it applied to taxation years beginning before XXXXXXXXXX);

“Real Properties” means collectively, Real Property 1, Real Property 2 and Real Property 3;

“Real Property 1” means the land and building located at XXXXXXXXXX;

“Real Property 2” means the land and building located at XXXXXXXXXX;

“Real Property 3” means lands and buildings located at XXXXXXXXXX;

“Real Property 4” means XXXXXXXXXX, a real property formerly owned by DC through which DC carried on XXXXXXXXXX;

“Regulations” means the Income Tax Regulations, C.R.C., c.945, as amended to the date hereof;

“REIT” means XXXXXXXXXX;

“restricted financial institution” has the meaning assigned by subsection 248(1);

“safe-income determination time” has the meaning assigned by subsection 55(1);

“safe income on hand” means income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for a transaction, event or series of transactions or events;

“Sale Notes” means the promissory notes described in Paragraph 16(d);

“Securities Act” means XXXXXXXXXX;

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

“Shareholder Advances” has the meaning assigned by Paragraph 13;

“significant influence” has the meaning assigned by section XXXXXXXXXX of the XXXXXXXXXX;

“SIN” means Social Insurance Number;

“Son” means XXXXXXXXXX;

“Son Newco” means a corporation to be incorporated by Sonco under the BCA as described in Paragraph 44;

“Son Newco Common Shares” means the common shares in the capital of Son Newco described in Paragraph 44;

“Son Newco Preferred Shares” means the preferred shares in the capital of Son Newco described in Paragraph 44;

“Son Newco Redemption Note” means the promissory note described in Paragraph 51;

“Son Subco 1” means XXXXXXXXXX, a corporation incorporated by DC under the BCA as described in Paragraph 21;

“Son Subco 1 Common Shares” means the common shares in the capital of Son Subco 1 described in Paragraph 21;

“Son Subco 2” means a corporation to be incorporated by DC under the BCA as described in Paragraph 31;

“Son Subco 2 Common Shares” means the common shares in the capital of Son Subco 2 described in Paragraph 31;

“Sonco” means XXXXXXXXXX, a corporation existing under the BCA, the shareholding of which is described in Paragraph 18;

“Sonco Common Shares” means the common shares in the capital of Sonco described in Paragraph 18;

“Sonco Distribution Property” means the property owned by DC that will be transferred to Son Newco, as described in Paragraph 47(a);

“specified financial institution” has the meaning assigned by subsection 248(1);

“specified investment business” has the meaning assigned by subsection 125(7);

“stated capital” means the amount included in the stated capital account attributable to a share;

“stated capital account” has the meaning assigned by the BCA;

“Subcos” means, collectively, Daughter Subco 1, Daughter Subco 2, Son Subco 1, and Son Subco 2;

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

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

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

“term preferred share” has the meaning assigned by subsection 248(1);

“terminal loss” means a deduction pursuant to subsection 20(16);

“Titleco 1” means XXXXXXXXXX, a corporation incorporated by DC under the BCA as described in Paragraph 23;

“Titleco 1 Common Shares” means the common shares in the capital of Titleco 1 described in Paragraph 23;

“Titleco 2” means XXXXXXXXXX, a corporation incorporated by DC under the BCA as described in Paragraph 24;

“Titleco 2 Common Shares” means the common shares in the capital of Titleco 2 described in Paragraph 24;

“Titleco 3” means XXXXXXXXXX, a corporation incorporated by DC under the BCA as described in Paragraph 25;

“Titleco 3 Common Shares” means the common shares in the capital of Titleco 3 described in Paragraph 25;

“Titlecos” means, collectively, Titleco 1, Titleco 2, and Titleco 3;

XXXXXXXXXX;

XXXXXXXXXX; and,

“V-day” means “valuation day” and has the meaning assigned by section 24 of the ITAR.

FACTS

1. DC is and will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. DC is a private holding corporation and carries on a specified investment business. The registered head office of DC is located in XXXXXXXXXX. DC’s taxation year and fiscal period ends on XXXXXXXXXX of each year.

2. DC’s authorized share capital consists of:

(a) an unlimited number of common shares (the “DC Common Shares”),

(b) XXXXXXXXXX Class G Shares (the “DC Class G Shares”); and

(c) an unlimited number of Class H shares (the “DC Class H Shares”).

Both the DC Common Shares and the DC Class G Shares are voting (each entitled to XXXXXXXXXX per share) and entitle the holder to discretionary dividends, except that the dividends paid on the DC Class G Shares are limited to a maximum of XXXXXXXXXX% of the aggregate of the DC Redemption Amount.

3. The current issued and outstanding share capital of DC consists of:

(a) XXXXXXXXXX DC Common Shares with an aggregate stated capital and PUC of $XXXXXXXXXX. Daughterco owns XXXXXXXXXX DC Common Shares, which have an ACB to Daughterco of $XXXXXXXXXX. Sonco owns XXXXXXXXXX DC Common Shares, which have an ACB to Sonco of $XXXXXXXXXX. The XXXXXXXXXX DC Common Shares were issued as part of an estate freeze undertaken by Mother in XXXXXXXXXX (the “Estate Freeze”).

(b) XXXXXXXXXX DC Class G Shares, with a stated capital, and PUC, of $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate prior to the Preliminary Transactions. The DC Class G Shares are redeemable and retractable at, subject to a price adjustment clause, $XXXXXXXXXX per share (the “DC Redemption Amount”). Mother owns all of the XXXXXXXXXX DC Class G Shares, which have an ACB to Mother of $XXXXXXXXXX prior to the Preliminary Transactions.

None of the DC Class H Shares are currently outstanding. Daughterco, Sonco, and Mother each own their respective shares of DC as capital property.

4. Daughter, Son and Mother are residents of Canada for the purposes of the Act.

History of DC’s shareholding

5. As part of the Estate Freeze, Mother received redeemable and retractable preferred shares of DC. These preferred shares as well as other special or preferred shares issued to her in XXXXXXXXXX on the transfer of property to DC by Mother were converted or exchanged into XXXXXXXXXX DC Class G Shares in XXXXXXXXXX (the “DC Share Conversion”). The DC Share Conversion was reported by Mother as a tax deferred exchange by virtue of subsection 86(1). Immediately after the DC Share Conversion, the PUC of the DC Class G Shares held by Mother was $XXXXXXXXXX and her ACB was $XXXXXXXXXX. Subsequent to the DC Share Conversion, the PUC of the DC Class G Shares was reduced to $XXXXXXXXXX. The reduction of $XXXXXXXXXX in the PUC of the DC Class G Shares was added to the contributed surplus of DC.

6. The following transactions on the shares held in the capital stock of DC occurred after the DC Share Conversion:

(a) During XXXXXXXXXX, DC redeemed XXXXXXXXXX DC Class G Shares held by Mother. The redemption was reported to result in a deemed dividend paid by DC and received by Mother by virtue of subsection 84(3). Mother utilized the after tax funds she received on the redemption of the XXXXXXXXXX DC Class G Shares to acquire from DC XXXXXXXXXX DC Class H Shares. The ACB and PUC of the DC Class H Shares was $XXXXXXXXXX;

(b) On XXXXXXXXXX, DC redeemed XXXXXXXXXX DC Class G Shares held by Mother. The redemption was reported to result in a deemed dividend paid by DC and received by Mother by virtue of subsection 84(3). DC made a capital dividend election pursuant to subsection 83(2) in respect of the full amount of the deemed dividend;

(c) On XXXXXXXXXX, DC redeemed the DC Class H Shares held by Mother in consideration for an $XXXXXXXXXX;

(d) On XXXXXXXXXX, DC redeemed XXXXXXXXXX and XXXXXXXXXX, respectively, of the DC Class G Shares held by Mother. The redemptions were reported to result in deemed dividends paid by DC and received by Mother by virtue of subsection 84(3). DC made capital dividend elections pursuant to subsection 83(2) in respect of the full amount of each deemed dividend.

As a result of the redemptions by DC of the DC Class G Shares held by Mother, DC’s contributed surplus was reported under the XXXXXXXXXX to have been reduced pro rata based on the number of DC Class G Shares redeemed such that as at XXXXXXXXXX the contributed surplus of DC in respect of the remaining DC Class G Shares issued on the DC Share Conversion was $XXXXXXXXXX.

The main reasons for the redemptions of the DC Class G Shares in XXXXXXXXXX was to distribute a large portion of DC’s capital dividend account to Mother and to minimize the income tax that would arise on Mother’s death or on the death of her spouse if he survives her.

7. There has been no change to the shareholding of DC since the redemptions of the DC Class G Shares in XXXXXXXXXX, as described in Paragraph 6(d).

Assets, liabilities and tax accounts of DC

8. Prior to the Preliminary Transactions, the majority of the FMV of DC’s properties consisted of shares of Investco A, Investco B, and Investco C, as follows:

(a) XXXXXXXXXX pre V-day ordinary shares (the “Investco A Pre V-Day Shares”) and XXXXXXXXXX post V-day ordinary shares (the “Investco A Post V-Day Shares”) of Investco A;

(b) XXXXXXXXXX pre V-day ordinary shares (the “Investco B Pre V-Day Pool 1 Shares”) and XXXXXXXXXX pre V-day ordinary shares (the “Investco B Pre V-Day Pool 2 Shares”) of Investco B. The Investco B Pre V-day Pool 1 Shares and the Investco B Pre V-day Pool 2 Shares were acquired in separate non-arm’s length transactions that were subject to subsection 26(5) of the ITAR. The ACB of each of the Investco B Pre V-Day Pool 1 Shares and the Investco B Pre V-Day Pool 2 Shares was maintained separately by DC for purposes of computing any capital gains or losses on the disposition of these shares.

(c) XXXXXXXXXX pre V-day common shares (the “Investco C Pre V-Day Shares”), XXXXXXXXXX post V-day common shares (the “Investco C Post V-Day Shares”), XXXXXXXXXX Series I preferred shares (the “Investco C Series I Shares”), and XXXXXXXXXX Series III preferred shares (the “Investco C Series III Shares”) of Investco C.

9. The other properties of DC consisted of the following, prior to the Preliminary Transactions:

(a) cash denominated in XXXXXXXXXX and in Canadian dollars, term deposits, prepaid expenses, accounts receivable, interest receivables, depreciable property (consisting of property associated with the Real Properties, including parking lots, office furniture, and computers);

(b) XXXXXXXXXX limited partnership units in LP II (the “LP II Units”). LP II’s stated objective is to provide investors with exposure to stable lease income and capital appreciation from a portfolio of XXXXXXXXXX. For LP II’s fiscal periods ending on XXXXXXXXXX, the income allocated by LP II to DC consisted of rental income and eligible dividends;

(c) other investments (the “Portfolio Investments”) consisting of the following:

(i) XXXXXXXXXX common shares and XXXXXXXXXX series 2 bonds of Pubco;

(ii) XXXXXXXXXX units of REIT;

(iii) XXXXXXXXXX units of Fund; and

(iv) XXXXXXXXXX shares of Cco;

(d) the Real Properties. Real Property 1 (XXXXXXXXXX) and Real Property 2 are leased by DC to arm’s length persons. Real Property 3 (XXXXXXXXXX) is leased by DC to Daughterco 2 for use in XXXXXXXXXX carried on by Daughterco 2. The rental income received by DC from Daughterco 2 in respect of Real Property 3 will be reported by DC as active business income by virtue of subsection 129(6). The Real Properties are held by DC as capital property;

(e) non-interest bearing advances of approximately $XXXXXXXXXX, payable on demand, and not convertible into other property, to Daughterco and Sonco, the Sale Notes, and recoverable amounts in respect of income taxes and government remittances.

10. Investco B has voting control of Investco A through its ownership of a majority of the ordinary shares of the capital stock of Investco A.

11. The voting control of Investco C is held by Aco. Mother is XXXXXXXXXX of Aco. Investco C holds voting control of Pubco. DC is related to each of Investco C, Aco and Pubco for general purposes of the Act, but not for purposes of section 55, because each of Investco C, Aco, and Pubco is controlled by Mother’s brother. Neither DC, nor Mother, owns directly or indirectly XXXXXXXXXX% or more of the voting shares of, or units in, Investco A, Investco B, Investco C, LP II, Aco, or Pubco.

12. The shares or units held by DC in Investco A, Investco B, LP II, Fund, and Cco prior to the Preliminary Transactions constituted capital property to DC. The shares, units or bonds that DC holds in Investco C, Pubco, and REIT constitute capital property to DC.

13. DC’s liabilities consisted of accounts payable and accrued liabilities, tenant deposits, and shareholder advances of approximately $XXXXXXXXXX owing to Mother (the “Shareholder Advances”) prior to the Preliminary Transactions. The Shareholder Advances are non-interest-bearing, payable on demand, and not convertible into other property.

14. There has not been a material change in the composition of DC’s assets or liabilities described herein since XXXXXXXXXX (except as described in the Preliminary Transactions). Moreover, there will not be any material change in the composition of DC’s assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date the Proposed Transactions described herein are completed.

The estimated FMV of DC on or around XXXXXXXXXX was estimated to be approximately $XXXXXXXXXX.

15. DC has the following approximate amounts in its tax accounts as of XXXXXXXXXX:

(a) RDTOH: $XXXXXXXXXX;

(b) GRIP: $XXXXXXXXXX;

(c) CDA: $XXXXXXXXXX;

(d) capital losses carry forward: $XXXXXXXXXX; and

(e) to the best of DC’s knowledge, XXXXXXXXXX Pre-1972 CSOH.

DC’s tax accounts will be approximately the same at the time the Proposed Transactions are completed. There is an unrealized capital loss on the XXXXXXXXXX held by DC of approximately $XXXXXXXXXX as at XXXXXXXXXX. It is expected that DC will realize its capital loss, if any, on the XXXXXXXXXX as part of the DC Transfers. For its XXXXXXXXXX taxation year, DC should have XXXXXXXXXX balance in its opening eligible RDTOH.

Recent activities of DC

16. Over the recent years, DC engaged in the following transactions, all of which were independent of the Proposed Transactions and all of which would have occurred regardless of whether the Proposed Transactions were undertaken and the Proposed Transactions would occur regardless of whether such transactions were completed:

(a) DC periodically makes new loan advances to Daughterco and Sonco, which Daughterco and Sonco use to make premium payments on life insurance policies. The new advances have the same terms as the existing advances. They are non-interest-bearing, payable on demand, and not convertible into other property.

(b) DC makes regular repayments on the Shareholder Advances to fund XXXXXXXXXX.

(c) XXXXXXXXXX.

(d) On XXXXXXXXXX, DC sold Real Property 4 and all of the assets used in connection with Real Property 4 (XXXXXXXXXX) to Bco for a price that was equal to the FMV of the transferred assets. Bco paid this price by paying $XXXXXXXXXX cash to DC, and by issuing XXXXXXXXXX promissory notes to DC, each with a principal amount of $XXXXXXXXXX (the “Sale Notes”). The Sale Notes have identical terms. Each Sale Note is payable within XXXXXXXXXX days of a demand by DC, and is not convertible into any other property.

The capital loss of $XXXXXXXXXX and the terminal loss of $XXXXXXXXXX, incurred by DC on the disposition of Real Property 4 were reported by DC to be nil by virtue of paragraphs 40(3.4)(a) and 13(21.2)(e). It is expected that the amount of the capital loss (determined without reference to paragraph 40(3.4)(a)) and a terminal loss will be realized by DC following the completion of the Proposed Transactions in relation to the disposition of Real Property 4 that occurred on XXXXXXXXXX in accordance with the provisions of subsections 40(3.4) and 13(21.2).

(e) In XXXXXXXXXX, unitholders of LP I, which included DC, received an offer to exchange their LP I units for new LP II units. LP II offered certain advantages as an investment vehicle, including an open ended term with no fixed termination date, the ability to be re-opened to new investment, redemption features to provide exit options, a flexible distribution reinvestment plan, and an improved fee structure. The exchange was expected to create a larger and more diversified XXXXXXXXXX portfolio going forward. DC accepted the offer and, on XXXXXXXXXX, DC exchanged its LP I units for LP II units. DC made an election under subsection 97(2) in respect of this exchange.

(f) In its XXXXXXXXXX taxation year, DC disposed of a portion of its investment in the shares of Investco A for cash consideration resulting in capital gains. The purpose of the dispositions of the shares in Investco A by DC was to use the deduction available under section 110.1 for charitable gifts made by DC in its XXXXXXXXXX taxation year, which deduction would have otherwise expired if not used by DC in its XXXXXXXXXX taxation year.

Daughterco and Sonco

17. Daughterco is and will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Daughterco was incorporated under the BCA. The issued and outstanding share capital of Daughterco consists of XXXXXXXXXX Preference Shares (the “Daughterco Preferred Shares”) and XXXXXXXXXX Class A Common Shares (the “Daughterco Common Shares”). All of the issued and outstanding Daughterco Preferred Shares are held by Daughter and represent at least XXXXXXXXXX% of the FMV of all the issued shares of the capital stock of Daughterco. All of the issued and outstanding Daughterco Common Shares are held in a Canadian resident personal trust, the beneficiaries of which are individuals resident in Canada and are Granddaughter and the other children (and other descendants) of Daughter. Each beneficiary’s share of the accumulating income or capital of the trust depends on the exercise of discretionary powers by the sole trustee of the trust.

Daughter has had de jure control of Daughterco since its incorporation. The Daughterco Preferred Shares and the Daughterco Common shares were issued in XXXXXXXXXX as part of an estate freeze of Daughter’s holdings in Daughterco.

18. Sonco is and will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Sonco was incorporated under the BCA. The issued and outstanding share capital of Sonco currently consists of XXXXXXXXXX common shares (the “Sonco Common Shares”). The Sonco Common Shares are held by Son. Son has had de jure control of Sonco since its incorporation.

PRELIMINARY TRANSACTIONS

19. On XXXXXXXXXX, DC increased the stated capital of the DC Class G Shares by $XXXXXXXXXX, an amount approximately equal to the difference between:

(a) the FMV of these shares; and

(b) the ACB and PUC of the shares to Mother.

The increase in the stated capital was reported to result in a deemed dividend paid by DC and received by Mother of $XXXXXXXXXX (being equal to the difference between the reduction in contributed surplus of $XXXXXXXXXX reported in the financial statements of DC for the year ended XXXXXXXXXX and the amount of the increase in stated capital of $XXXXXXXXXX) by virtue of paragraph 84(1)(c.3). DC elected under subsection 83(2) for this dividend to be a capital dividend (DC filed the election and payed the appropriate late filing penalty computed under subsection 83(4)).

20. On XXXXXXXXXX, DC increased the stated capital of the DC Common Shares by $XXXXXXXXXX. The increase in the stated capital was reported to result in a dividend paid by DC on the DC Common Shares, equal to the amount of the stated capital increase, pursuant to subsection 84(1). DC will apply for a dividend refund in the manner specified in paragraph 129(1)(b), equal to the amount of its RDTOH at the end of its XXXXXXXXXX taxation year. DC designated a portion of this dividend to be an eligible dividend in accordance with subsection 89(14). The amount of the eligible dividend was $XXXXXXXXXX, an amount approximately equal to DC’s GRIP at the end of its XXXXXXXXXX taxation year. The remaining portion of the dividend was a non-eligible dividend.

Transfers to Titlecos, Son Subco 1 and Daughter Subco 1

21. On XXXXXXXXXX, DC incorporated Son Subco 1. The authorized share capital of Son Subco 1 consists of common shares (the “Son Subco 1 Common Shares”). DC acquired XXXXXXXXXX Son Subco 1 Common Shares upon the incorporation of Son Subco 1, for $XXXXXXXXXX consideration.

22. On XXXXXXXXXX, DC incorporated Daughter Subco 1. The authorized share capital of Daughter Subco 1 consists of common shares (the “Daughterco Subco 1 Common Shares”). DC acquired XXXXXXXXXX Daughterco Subco Common Shares upon the incorporation of Daughter Subco 1, for $XXXXXXXXXX consideration.

23. On XXXXXXXXXX, DC incorporated Titleco 1. The authorized share capital of Titleco 1 consists of common shares (the “Titleco 1 Common Shares”). DC acquired XXXXXXXXXX Titleco 1 Common Shares for $XXXXXXXXXX.

24. On XXXXXXXXXX, DC incorporated Titleco 2. The authorized share capital of Titleco 2 consists of common shares (the “Titleco 2 Common Shares”). DC acquired XXXXXXXXXX Titleco 2 Common Shares for $XXXXXXXXXX.

25. On XXXXXXXXXX, DC incorporated Titleco 3. The authorized share capital of Titleco 3 consists of common shares (the “Titleco 3 Common Shares”). DC acquired XXXXXXXXXX Titleco 3 Common Shares for $XXXXXXXXXX.

26. On XXXXXXXXXX, DC transferred XXXXXXXXXX units of LP II, XXXXXXXXXX units of Fund, and XXXXXXXXXX shares of Cco to Son Subco 1 for one Son Subco 1 Common Share; and transferred the other XXXXXXXXXX units of LP II, XXXXXXXXXX units of Fund, and XXXXXXXXXX shares of Cco to Daughter Subco 1 for one Daughter Subco 1 Common Share. DC made a joint election under subsection 85(1) with each of Son Subco 1 and Daughter Subco 1, where applicable, in respect to each transferred property. The agreed amount for the purposes of the election for each such property was equal to the cost amount of the property.

27. On XXXXXXXXXX, DC transferred XXXXXXXXXX Investco B Pre V-day Pool 1 Shares to Son Subco 1 for one Son Subco 1 Common Share; and transferred the other XXXXXXXXXX Investco B Pre V-day Pool 1 Shares to Daughter Subco 1 for one Daughter Subco 1 Common Share. DC will make a joint election under subsection 85(1) with each of Son Subco 1 and Daughter Subco 1, where applicable, with respect to each transferred property in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property.

28. On XXXXXXXXXX, DC transferred XXXXXXXXXX Investco B Pre V-day Pool 2 Shares to Son Subco 1 for one Son Subco 1 Common Share; and transferred the other XXXXXXXXXX Investco B Pre V-day Pool 2 Shares to Daughter Subco 1 for one Daughter Subco 1 Common Share. DC will make a joint election under subsection 85(1) with each of Son Subco 1 and Daughter Subco 1, where applicable, with respect to each transferred property in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property.

28.1 On or about XXXXXXXXXX, DC made a loan to Daughterco (the “Daughterco Loan”) with a principal amount of $XXXXXXXXXX, being approximately equal to the amount of Part IV tax payable by Daughterco as a result of the dividend deemed to have been received by Daughterco on its DC Common Shares as a result of the increase in the stated capital of the DC Common Shares described in Paragraph 20. The Daughterco Loan is non-interest-bearing, payable on demand, and not convertible into other property.

29. On XXXXXXXXXX, DC transferred XXXXXXXXXX Investco A Pre V-day Shares to Son Subco 1 for one Son Subco 1 Common Share; and transferred the other XXXXXXXXXX Investco A Pre V-day Shares to Daughter Subco 1 for one Daughter Subco 1 Common Share. DC will make a joint election under subsection 85(1) with each of Son Subco 1 and Daughter Subco 1, where applicable, with respect to each transferred property in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property.

30. On XXXXXXXXXX, DC transferred XXXXXXXXXX Investco A Post V-day Shares to Son Subco 1 for one Son Subco 1 Common Share; and transferred the other XXXXXXXXXX Investco A Post V-day Shares to Daughter Subco 1 for one Daughter Subco 1 Common Share. DC will make a joint election under subsection 85(1) with each of Son Subco 1 and Daughter Subco 1, where applicable, with respect to each transferred property in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property.

30.1 Following the transfers described in Paragraphs 26 to 28 and 29 to 30:

(a) the issued and outstanding Son Subco 1 Common Shares will have an aggregate FMV equal to the aggregate FMV of the property transferred by DC to Son Subco 1, as described in Paragraphs 21, 26 to 28 and 29 to 30; and

(b) the issued and outstanding Daughter Subco 1 Common Shares will have an aggregate FMV equal to the aggregate FMV of the property transferred by DC to Daughter Subco 1, as described in Paragraphs 22, 26 to 28 and 29 to 30.

PROPOSED TRANSACTIONS

Pre-Butterfly Transactions

31. DC will incorporate Son Subco 2. The authorized share capital of Son Subco 2 will consist of common shares (the “Son Subco 2 Common Shares”). DC will acquire XXXXXXXXXX Son Subco 2 Common Shares upon the incorporation of Son Subco 2, for $XXXXXXXXXX.

32. DC will incorporate Daughter Subco 2. The authorized share capital of Daughter Subco 2 will consist of common shares (the “Daughter Subco 2 Common Shares”). DC will acquire XXXXXXXXXX Daughter Subco 2 Common Shares upon the incorporation of Daughter Subco 2, for $XXXXXXXXXX.

33. DC will transfer XXXXXXXXXX of the Investco C Pre V-Day Shares to Son Subco 2 for XXXXXXXXXX Son Subco 2 Common Share; and will transfer XXXXXXXXXX of the Investco C Pre V-Day Shares to Daughter Subco 2 for XXXXXXXXXX Daughter Subco 2 Common Share. DC will make a joint election under subsection 85(1) with each of Son Subco 2 and Daughter Subco 2, where applicable, with respect to each transferred property in prescribed form and within the time limits prescribed by subsection 85(6). The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property.

34. DC will increase the stated capital of the DC Common Shares by $XXXXXXXXXX, an amount approximately equal to the remaining CDA of DC immediately prior to the time of such increase in stated capital, less $XXXXXXXXXX. DC will be deemed to have paid a dividend to each of Daughterco and Sonco, equal to XXXXXXXXXX% of the amount of the stated capital increase pursuant to subsection 84(1). DC will elect under subsection 83(2) for this dividend to be a capital dividend.

35. DC will increase the stated capital of the DC Class G Shares by $XXXXXXXXXX, an amount approximately equal to the remaining CDA of DC immediately prior to the time of such increase in stated capital. DC will be deemed to have paid a dividend to Mother equal to the amount of the stated capital increase, pursuant to subsection 84(1). DC will elect under subsection 83(2) for this dividend to be a capital dividend.

36. DC will transfer registered title to Real Property 1 to Titleco 1 in exchange for nominal cash consideration. DC and Titleco 1 will enter into a nominee agreement, pursuant to which Titleco 1 will agree to hold the registered title to Real Property 1 as nominee and bare trustee exclusively for the use, benefit and advantage of DC (“Nominee Agreement 1”). Pursuant to Nominee Agreement 1, all proceeds, income, profits, losses, benefits and advantages accruing from Real Property 1 shall be held in trust by Titleco 1 as nominee and bare trustee for DC, and DC shall agree to indemnify and save harmless Titleco 1 from all claims, charges, encumbrances, obligations, responsibilities, acts or omissions undertaken or incurred by Titleco 1 in its capacity as nominee and bare trustee of the registered title to Real Property 1. Further, Titleco 1 will agree to transfer its legal interest in Real Property 1 as DC may direct.

37. DC will transfer registered title to Real Property 2 to Titleco 2 in exchange for nominal cash consideration. DC and Titleco 2 will enter into a nominee agreement, pursuant to which Titleco 2 will agree to hold the registered title to Real Property 2 as nominee and bare trustee exclusively for the use, benefit and advantage of DC (“Nominee Agreement 2”). Pursuant to Nominee Agreement 2, all proceeds, income, profits, losses, benefits and advantages accruing from Real Property 2 shall be held in trust by Titleco 2 as nominee and bare trustee for DC, and DC shall agree to indemnify and save harmless Titleco 2 from all claims, charges, encumbrances, obligations, responsibilities, acts or omissions undertaken or incurred by Titleco 2 in its capacity as nominee and bare trustee of the registered title to Real Property 2. Further, Titleco 2 will agree to transfer its legal interest in Real Property 2 as DC may direct.

38. DC will transfer registered title to Real Property 3 to Titleco 3 in exchange for nominal cash consideration. DC and Titleco 3 will enter into a nominee agreement, pursuant to which Titleco 3 will agree to hold the registered title to Real Property 3 as nominee and bare trustee exclusively for the use, benefit and advantage of DC (“Nominee Agreement 3”). Pursuant to Nominee Agreement 3, all proceeds, income, profits, losses, benefits and advantages accruing from Real Property 3 shall be held in trust by Titleco 3 as nominee and bare trustee for DC, and DC shall agree to indemnify and save harmless Titleco 3 from all claims, charges, encumbrances, obligations, responsibilities, acts or omissions undertaken or incurred by Titleco 3 in its capacity as nominee and bare trustee of the registered title to Real Property 3. Further, Titleco 3 will agree to transfer its legal interest in Real Property 3 as DC may direct.

39. DC will repay $XXXXXXXXXX on the Shareholder Advances.

Butterfly Transactions

40. Daughterco will incorporate Daughter Holdco. The authorized share capital of Daughter Holdco will be a class of common shares (the “Daughter Holdco Common Shares”) and a class of preferred shares (the “Daughter Holdco Preferred Shares”). The Daughter Holdco Common Shares will be fully participating common shares, and will be entitled to XXXXXXXXXX per share. The terms of the Daughter Holdco Preferred Shares will be as follows:

a) the shares will be non-voting;

b) each share will be redeemable and retractable at any time for a redemption amount equal to the FMV of the property received by Daughter Holdco on the issuance of all of the Daughter Holdco Preferred Shares divided by XXXXXXXXXX and subject to a price adjustment clause; and

c) the shares will be entitled to a non-cumulative dividend at the discretion of the directors but not to exceed XXXXXXXXXX% per annum.

41. Daughterco will transfer its XXXXXXXXXX DC Common Shares to Daughter Holdco. As consideration for the transfer, Daughter Holdco will issue XXXXXXXXXX Daughter Holdco Common Shares. The Daughter Holdco Common Shares issued to Daughterco will have an aggregate FMV equal to the aggregate FMV of the DC Common Shares transferred by Daughterco to Daughter Holdco.

Daughterco and Daughter Holdco will jointly elect pursuant to subsection 85(1) in prescribed form and within the time limits prescribed by subsection 85(6) with respect of the transfer and the agreed amount for the purposes of the election will be equal to the aggregate ACB to Daughterco of its DC Common Shares transferred to Daughter Holdco. The increase in the stated capital of the Daughter Holdco Common Shares will be limited to the agreed amount in respect of the transfer.

42. At the same time as the transfer described in Paragraph 41, Mother will transfer her XXXXXXXXXX DC Class G Shares to Daughter Holdco, in exchange for XXXXXXXXXX Daughter Holdco Preferred Shares. The Daughter Holdco Preferred Shares issued to Mother will have an aggregate FMV equal to the aggregate FMV of the DC Class G Shares transferred by Mother to Daughter Holdco.

Mother and Daughter Holdco will jointly elect pursuant to subsection 85(1) in prescribed form and within the time limits prescribed by subsection 85(6) with respect of the transfer and the agreed amount for the purposes of the election will be equal to the aggregate ACB to Mother of her DC Class G Shares transferred to Daughter Holdco. The increase in the stated capital of the Daughter Holdco Common Shares will be limited to the agreed amount in respect of the transfer.

43. Daughter Holdco will incorporate Daughter Newco. The authorized share capital of Daughter Newco will be a class of common shares (the “Daughter Newco Common Shares”) and a class of preferred shares (the “Daughter Newco Preferred Shares”). The Daughter Newco Common Shares will be fully participating common shares, and will be entitled to one vote per share. The terms of a Daughter Newco Preferred Share will be as follows:

a) non-voting;

b) redeemable and retractable at any time for an amount equal to the amount by which the FMV of the property received on the issuance of all of the shares of that class less liabilities assumed, divided by XXXXXXXXXX; and

c) entitled to a non-cumulative dividend at the discretion of the directors but not to exceed XXXXXXXXXX% of their redemption amount per annum.

Daughter Holdco will subscribe for XXXXXXXXXX Daughter Newco Common Shares upon its formation, for nominal consideration.

44. Sonco will incorporate Son Newco. The authorized share capital of Son Newco will be a class of common shares (the “Son Newco Common Shares”) and a class of preferred shares (the “Son Newco Preferred Shares”). The Son Newco Common Shares will be fully participating common shares, and will be entitled to one vote per share. The terms of a Son Newco Preferred Share will be as follows:

a) non-voting;

b) each share is redeemable and retractable at any time for an amount equal to the amount by which the FMV of the property received on the issuance of all of the shares of that class less liabilities assumed, divided by XXXXXXXXXX; and

c) entitled to a non-cumulative dividend at the discretion of the directors but not to exceed XXXXXXXXXX% of their redemption amount per annum.

Sonco will subscribe for XXXXXXXXXX Son Newco Common Shares upon its formation, for nominal consideration.

45. Immediately prior to the DC Transfers:

(a) DC will transfer the following properties to Son Subco 2, for one Son Subco 2 Common Share:

(i) XXXXXXXXXX% of the common shares of Pubco, the Series II bonds of Pubco, the units of REIT, the Investco C Series I Shares, and the Investco C Series III Shares; and

(ii) A portion of the Investco C Post V-Day Shares, such that immediately following the DC Transfers, the FMV of all investment property (as determined in Paragraph 46) so transferred directly or indirectly to Sonco will be equal to or approximate the proportion determined by the formula described in Paragraph 48.

(b) DC will transfer the following properties to Daughter Subco 2, for one Daughter Subco 2 Common Share:

(i) XXXXXXXXXX% of the common shares of Pubco, the Series II bonds of Pubco, the units of REIT, the Investco C Series I Shares, and the Investco C Series III Shares; and

(ii) A portion of the Investco C Post V-Day Shares, such that immediately following the DC Transfers, the FMV of all investment property (as determined in Paragraph 46) that is so transferred directly or indirectly to Daughter Holdco will be equal to or approximate the proportion determined by the formula described in Paragraph 48.

DC will make a joint election under subsection 85(1) with each of Son Subco 2 and Daughter Subco 2, where applicable, in prescribed form and within the time limits prescribed by subsection 85(6) with respect to each property transferred. The agreed amount for the purposes of the election for each such property will be equal to the cost amount of the property. For greater certainty, the amount that will be added to the stated capital of the Son Subco 2 Common Share and the Daughter Subco 2 Common Share issued to DC will not exceed the amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

45.1 Following the transfers of property from DC to Son Subco 2 and Daughter Subco 2, as described in Paragraphs 33 and 45:

(a) the issued and outstanding Son Subco 2 Common Shares will have an aggregate FMV equal to the aggregate FMV of the property so transferred by DC to Son Subco 2, as described in Paragraphs 31, 33 and 45; and

(b) the issued and outstanding Daughter Subco 1 Common Shares will have an aggregate FMV equal to the aggregate FMV of the property so transferred by DC to Daughter Subco 1, as described in Paragraphs 32, 33 and 45.

46. Immediately prior to the DC Transfers, the property of DC will be determined on a consolidated look-through basis by including the appropriate pro rata share of the assets of any corporation, partnership or trust over which DC has the ability to exercise significant influence. The property of DC, determined on a consolidated look-through basis as described herein, will be classified into the following three types of property for the purposes of the definition of distribution:

(a) cash or near-cash property, comprising all of the current assets of the DC Group, including cash, short-term deposits, prepaid expenses, accounts receivable, interest receivable, and marketable securities (except for the Portfolio Investments), if any;

(b) business property, comprising all of the assets of the DC Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from an active business (other than a specified investment business) including goodwill; and

(c) investment property, comprising all of the assets of the DC Group, other than cash or near-cash property, any income from which would be, for purposes of the Act, income from property or from a specified investment business.

For greater certainty, for purposes of this determination:

(d) any tax accounts, such as the balance of a company’s CDA, GRIP, Pre-1972 CSOH, eligible RDTOH, non-eligible RDTOH, or capital losses will not be considered property;

(e) advances that have a term of less than XXXXXXXXXX months or are due on demand will be considered cash or near-cash property;

(f) Real Property 3 and the property associated with Real Property 3, which includes the registered title to Real Property 3 held by Titleco 3, the beneficial ownership of Real Property 3, and the depreciable property associated with Real Property 3, will be considered business property. The DC Group will not own any other business property;

(g) all of the property owned by each of the Subcos, which include the units held in LP II, Real Property 1, Real Property 2, and the property associated with Real Property 1 and Real Property 2, which include the registered title to Real Property 1 and Real Property 2 held by Titleco 1 and Titleco 2, respectively, the beneficial ownership of Real Property 1 and Real Property 2, and the depreciable property associated with Real Property 1 and Real Property 2, will be considered investment property;

(h) DC is considered to have significant influence over a corporation, partnership or trust if DC has significant influence over that corporation, partnership or trust or over any other corporation, partnership or trust that has significant influence over that corporation, partnership or trust or if DC, in combination with corporations, partnerships or trusts over which it as significant influence, has significant influence over that corporation, partnership, or trust. For greater certainty, DC will not have significant influence over any corporations, partnerships, or trusts other than the Subcos and the Titlecos; and

(i) for the purposes of determining the FMV of each type of property of DC, the FMV of the shares held by DC in each of the Subcos and the Titlecos will be allocated among the three types of property described above, by multiplying the FMV of the shares of the particular corporation by the proportion that the FMV of each type of property owned by the particular corporation (as determined in accordance with the methodologies described in this Paragraph) is of the aggregate FMV of all the property owned by such corporation (as determined in accordance with the methodologies described in this Paragraph).

47. DC will transfer the following properties to Son Newco and Daughter Newco (the “DC Transfers”):

(a) DC will transfer the following properties (the “Sonco Distribution Property”) to Son Newco:

(i) all of the Son Subco 1 Common Shares and Son Subco 2 Common Shares;

(ii) a proportionate share of DC’s cash and near-cash property;

(iii) a proportionate share of DC’s business property, including a proportionate share of the Titleco 3 Common Shares; and

(iv) Real Property 1 and Real Property 2, including the property associated with Real Property 1 and Real Property 2, and including the XXXXXXXXXX Titleco 1 Common Shares and the XXXXXXXXXX Titleco 2 Common Shares.

(b) DC will transfer the following properties (the “Daughter Holdco Distribution Property”) to Daughter Newco:

(i) all of the Daughter Subco 1 Common Shares and Daughter Subco 2 Common Shares;

(ii) a proportionate share of DC’s cash and near-cash property; and

(iii) a proportionate share of DC’s business property, including a proportionate share of the Titleco 3 Common Shares.

48. Immediately following the DC Transfers, the FMV of each type of property transferred to each of Son Newco and Daughter Newco will be equal to or approximate the proportion determined by the formula:

A * B / C

Where:

A is the FMV, immediately before the DC Transfers, of all property of that type owned at that time by DC;

B is the aggregate FMV, immediately before the DC Transfers, of all of the shares of the capital stock of DC, owned at that time by Sonco or Daughter Holdco, as the case may be; and

C is the aggregate FMV, immediately before the DC Transfers, of all the issued and outstanding shares of the capital stock of DC.

49. As consideration for the DC Transfers:

(a) each of Son Newco and Daughter Newco, as the case may be, will assume its proportionate share of the liabilities of DC such that the amount of the liabilities assumed by Son Newco or Daughter Newco, as the case may be, will equal the proportion of the aggregate amount of the liabilities of DC, determined immediately before the DC Transfers, that:

i) the aggregate FMV, immediately before the DC Transfers, of the shares of the capital stock of DC held by Sonco and Daughter Holdco, as applicable;

is of

ii) the aggregate FMV, immediately before the DC Transfers, of all of the issued and outstanding shares of the capital stock of DC;

(b) Son Newco will issue XXXXXXXXXX Son Newco Preferred Shares with an aggregate FMV equal to the aggregate FMV of the Sonco Distribution Property, less the aggregate amount of the liabilities assumed by Son Newco in connection with the transfer; and

(c) Daughter Newco will issue XXXXXXXXXX Daughter Newco Preferred Shares with an aggregate FMV equal to the aggregate FMV of the Daughter Holdco Distribution Property, less the aggregate amount of the liabilities assumed by Daughter Newco in connection with the transfer.

50. In respect of the DC Transfers:

(a) DC will jointly elect with Daughter Newco and Son Newco, as the case may be, in the prescribed form and manner and within the time limits prescribed by subsection 85(6), to have the provisions of subsection 85(1) apply in respect of the transfer of each eligible property of DC that is transferred by DC to Daughter Newco and Son Newco, as the case may be. The agreed amount in respect of each eligible property so transferred will not be greater than the FMV of such property nor will it be less than the amount permitted under paragraph 85(1)(b). For greater certainty, the agreed amount in respect of each such transferred property will be within the limits prescribed as follows:

(i) in the case of capital property (other than depreciable property of a prescribed class), an amount not less than 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 not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii).

(b) the amount of the liabilities assumed by each of Daughter Newco and Son Newco, as the case may be, which are allocated to a particular eligible property that is the subject of an election under subsection 85(1), will not exceed the agreed amount for that particular property. For greater certainty, the aggregate amount of the liabilities assumed in respect of all eligible properties will not exceed the aggregate agreed amount in respect of all such properties;

(c) Daughter Newco will add an amount to the stated capital of the Daughter Newco Preferred Shares equal to the amount by which the aggregate cost to Daughter Newco of the properties transferred to Daughter Newco (determined pursuant to subsection 85(1), where relevant) exceeds the aggregate amount of the liabilities assumed by Daughter Newco on the transfer. For greater certainty, the amount that will be added to the stated capital of the Daughter Newco Preferred Shares will not exceed the amount that could have been added, having regard to subsection 85(2.1);

(d) Son Newco will add an amount to the stated capital of the Son Newco Preferred Shares equal to the amount by which the aggregate cost to Son Newco of the properties transferred to Son Newco (determined pursuant to subsection 85(1), where relevant) exceeds the aggregate amount of the liabilities assumed by Son Newco on the transfer. For greater certainty, the amount that will be added to the stated capital of the Son Newco Preferred Shares will not exceed the amount that could have been added, having regard to subsection 85(2.1);

(e) Titleco 1 and Titleco 2, together with Son Newco, will each amend and restate Nominee Agreement 1 and Nominee Agreement 2, respectively, to remove DC as a party, with all of the benefits and obligations of the beneficial owner thereunder; and to add Son Newco as a party. As required by any lease agreement(s) in respect of Real Property 1 and Real Property 2, Son Newco and the particular Titleco shall provide notification to tenants and/or amend such lease agreement(s) as required further to the exclusive beneficial ownership of the particular Real Property by Son Newco; and

(f) Titleco 3, Daughter Newco and Son Newco will amend and restate Nominee Agreement 3, to remove DC as a party, with all of the benefits and obligations of the beneficial owner thereunder; and to add Daughter Newco and Son Newco as parties. Pursuant to the amended and restated Nominee Agreement 3, Titleco 3 will agree to hold the registered title to Real Property 3 as nominee and bare trustee exclusively for the use, benefit and advantage of Daughter Newco and Son Newco (in proportion to their undivided interests in the beneficial ownership of Real Property 3). All proceeds, income, profits, losses, benefits and advantages accruing from Real Property 3 shall be held in trust by Titleco 3 as nominee and bare trustee for Daughter Newco and Son Newco (in proportion to their undivided interests in the beneficial ownership of Real Property 3), and Daughter Newco and Son Newco shall agree to indemnify and save harmless Titleco 3 from all claims, charges, encumbrances, obligations, responsibilities, acts or omissions undertaken or incurred by Titleco 3 in its capacity as nominee and bare trustee of the registered title to Real Property 3. Further, Titleco 3 will agree to transfer its legal interest in Real Property 3 as Daughter Newco and Son Newco may direct.

51. Son Newco will redeem the XXXXXXXXXX Son Newco Preferred Shares held by DC for an amount equal to their aggregate redemption amount and FMV. As consideration therefor, Son Newco will issue to DC a non-interest-bearing demand promissory note (the “Son Newco Redemption Note”) with a principal amount and FMV equal to the redemption amount of the shares so redeemed. DC will accept the Son Newco Redemption Note in full payment of the aggregate redemption amount of the redeemed shares.

52. Daughter Newco will redeem the XXXXXXXXXX Daughter Newco Preferred Shares held by DC for an amount equal to their aggregate redemption amount and FMV. As consideration therefor, Daughter Newco will issue to DC a non-interest bearing demand promissory note (the “Daughter Newco Redemption Note”) with a principal amount and FMV equal to the redemption amount of the shares so redeemed. DC will accept the Daughter Newco Redemption Note in full payment of the aggregate redemption amount of the redeemed shares.

53. Sonco will resolve to wind-up and dissolve Son Newco under the applicable provisions of the BCA. In connection with this dissolution:

(a) Son Newco will distribute all of its property to Sonco, and Sonco will assume all of Son Newco’s obligations, including the amount owing to DC under the Son Newco Redemption Note. Articles of Dissolution will then be filed and Son Newco will be formally dissolved;

(b) the Nominee Agreements will be amended and restated, to remove Son Newco as a party, with all of the benefits and obligations of the beneficial owner thereunder; and to add Sonco as a party, with all of the benefits and obligations previously held by Son Newco under each of the Nominee Agreements.

54. Daughter Holdco will resolve to wind-up and dissolve Daughter Newco under the applicable provisions of the BCA. In connection with this dissolution:

(a) Daughter Newco will distribute all of its property to Daughter Holdco, and Daughter Holdco will assume all of Daughter Newco’s obligations, including the amount owing to DC under the Daughter Newco Redemption Note. Articles of Dissolution will then be filed and Daughter Newco will be formally dissolved;

(b) Nominee Agreement 3 will be amended and restated, to remove Daughter Newco as a party, with all of the benefits and obligations of the beneficial owner thereunder; and to add Daughter Holdco as a party, with all of the benefits and obligations previously held by Daughter Newco under Nominee Agreement 3.

55. Daughter Holdco and Sonco will resolve to wind-up and dissolve DC under the applicable provisions of the BCA. In connection with the dissolution, DC will distribute all of its assets to Daughter Holdco and Sonco in accordance with their shareholdings. In particular, DC will:

(a) assign and distribute the Daughter Newco Redemption Note to Daughter Holdco; and

(b) assign and distribute the Son Newco Redemption Note to Sonco.

As a result of the assignment and distribution of the Daughter Newco Redemption Note to Daughter Holdco, and the assignment and distribution of the Son Newco Redemption Note to Sonco, the obligations under the Daughter Newco Redemption Note and the Son Newco Redemption Note will be extinguished and such notes will be cancelled.

For the purposes of the Act, in particular subsection 84(2), the FMV of the Daughter Newco Redemption Note received by Daughter Holdco and the Son Newco Redemption Note received by Sonco, will be allocated among the classes of shares of DC held by Daughter Holdco or Sonco, as the case may be, based on the relative aggregate FMV of the shares of each class of DC held by Daughter Holdco (i.e., the DC Class G Shares and the DC Common Shares) and by Sonco (i.e., the DC Common Shares).

56. To the extent that the CDA of DC has a positive balance immediately before the winding-up of DC, DC will elect under subsection 83(2), in prescribed manner and prescribed form, to treat the portion of the winding-up dividend referred to in subparagraph 88(2)(b)(i) as a separate capital dividend paid on the DC Common Shares. Pursuant to subparagraph 88(2)(b)(iv), Daughter Holdco and Sonco will each be deemed to have received a proportionate capital dividend from DC.

To the extent that DC has a GRIP balance at the end of its taxation year that includes its winding-up, DC will designate a portion of the winding-up dividend referred to in subparagraph 88(2)(b)(iii) on the DC Common Shares, equal to such GRIP balance, to be an eligible dividend pursuant to subsection 89(14).

57. DC will file any tax returns and election forms before their respective due dates and, in the case of an election under subsection 83(2), in the prescribed manner provided in that subsection and subsections 83(3) and (4). Following receipt of the dividend refund to which DC will become entitled as a result of the payment of the winding-up dividends on its dissolution as described in Paragraph 56, and, if not received prior to the DC Transfers, as a result of the increase in the stated capital of the DC Common Shares, as described in Paragraph 20, DC will distribute to each of Sonco and Daughter Holdco its proportionate share of such dividend refund, as determined in Paragraph 48. DC will then be formally dissolved.

An agreement will be prepared whereby Daughter Holdco and Sonco will agree that all assets or liabilities of DC, if any, not known by this time will be subsequently shared between Daughter Holdco and Sonco on the basis that each of Daughter Holdco and Sonco will receive, with respect to any property of a particular type, its proportionate share thereof, as determined in Paragraph 48, and with respect to any liability, its proportionate share thereof, as determined in Paragraph 49(a).

ADDITIONAL INFORMATION

58. Mother has de jure control of DC prior to the commencement of the Proposed Transactions.

59. The Proposed Transactions will occur in the order presented unless otherwise indicated, subject to the following exceptions:

(a) the applicable election forms will be filed within the applicable due dates following the completion of the Proposed Transactions; and

(b) the filing of any articles of dissolution or certificate of cancellation may occur following the completion of the Proposed Transactions.

60. Except as described herein, no property has been or will be acquired or disposed of by DC, or a corporation controlled by it, in contemplation of and before the DC Transfers, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

61. Except as described herein, none of the shareholders of DC, Daughterco, Daughter Holdco, Daughter Newco, Sonco, or Son Newco are contemplating the sale or transfer of any shares of DC, Daughterco, Daughter Holdco, Daughter Newco, Sonco, or Son Newco.

62. Each of DC, Daughterco, Daughter Holdco, Daughter Newco, Sonco and Son Newco is or will be a specified financial institution because each is or will be related to Pubco (for general purposes of the Act, but not for purposes of section 55) and since Pubco controls a corporation that is a bank. Neither DC, Daughter Holdco, Daughter Newco, Sonco nor Son Newco is or will be at the time of the Proposed Transactions a financial intermediary corporation or a restricted financial institution.

63. The DC Common Shares and the DC Class G Shares are term preferred shares and the Daughter Newco Preferred Shares and the Son Newco Preferred Shares will be term preferred shares.

Each of the DC Common Shares, DC Class G Shares, Daughter Newco Preferred Shares and Son Newco Preferred Shares were or will be acquired outside of the ordinary course of business of the respective acquirers.

64. [Reserved]

65. None of the shares of Daughterco, Sonco, Daughter Holdco, Daughter Newco, Son Newco, the Subcos or DC are or will be, at any time throughout the series of transactions that includes the Proposed Transactions:

(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); or

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

(e) issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5);

66. Each of Son Newco and Daughter Newco will have the financial capacity to honour, upon presentation for payment, the amount payable under the Son Newco Redemption Note and the Daughter Newco Redemption Note, as the case may be.

67. The amount of the dividend received by each of Daughterco and Sonco on the DC Common Shares, as described in Paragraph 20, did not exceed the amount of the safe income on hand determined immediately before the safe-income determination time for this dividend that could reasonably be considered to contribute to the capital gain that could be realized on a disposition of such shares at fair market value, immediately before the dividend.

68. DC is not expected to have any CDA immediately before its winding-up, as described in Paragraph 55.

69. At a time that is after the completion of the Proposed Transactions, Daughter Holdco may purchase the undivided interest in the beneficial ownership of Real Property 3 (as well as the undivided interest in the depreciable properties associated with Real Property 3, and the shares of Titleco 3) held by Sonco, in exchange for cash equal to the FMV of those properties. If this occurs, Titleco 3, together with Daughter Holdco, will enter into a new nominee agreement, pursuant to which Titleco 3 will agree to hold the registered title to Real Property 3 as nominee and bare trustee exclusively for the use, benefit and advantage of Daughter Holdco. Pursuant to said nominee agreement, all proceeds, income, profits, losses, benefits and advantages accruing from Real Property 3 shall be held in trust by Titleco 3 as nominee and bare trustee for Daughter Holdco, and Daughter Holdco shall agree to indemnify and save harmless Titleco 3 from all claims, charges, encumbrances, obligations, responsibilities, acts or omissions undertaken or incurred by Titleco 3 in its capacity as nominee and bare trustee of the registered title to Real Property 3. Further, Titleco 3 will agree to transfer its legal interest in Real Property 3 as Daughter Holdco may direct.

The transfer of property described in this Paragraph will occur only if the total fair market value of the transferred property is not greater than XXXXXXXXXX% of the total fair market value of all the property (other than money and indebtedness that is not convertible into other property) that is received by Sonco on the wind-up and dissolution of Son Newco described in Paragraph 53.

69.1 At a time that is after the completion of the Proposed Transactions, Daughterco will repay the Daughterco Loan owing to Daughter Holdco and Sonco once it has sufficient cash on hand. Daughterco will also repay its other advances owing to Daughter Holdco and Sonco, and Sonco will repay its advances owing to Daughter Holdco.

70. None of the property received by Sonco on the winding-up of Son Newco described in Paragraph 53, and none of the property received by Daughter Holdco on the winding-up of Daughter Newco described in Paragraph 54, will be acquired by a person unrelated to Sonco or Daughter Holdco, as the case may be, or by a partnership, as part of a series of transactions or events that includes the Proposed Transactions, in the circumstances described in paragraph 55(3.1)(c).

PURPOSES OF THE PRELIMINARY TRANSACTIONS AND PROPOSED TRANSACTIONS

71. The primary purpose of the Proposed Transactions is to make a pro rata distribution of DC’s properties to Daughter Holdco and Sonco, so that Daughter and Son can independently pursue their investment and estate planning objectives. The transactions are intended to achieve this purpose in a tax-deferred manner.

72. The purpose of the increase in the stated capital of the DC Class G Shares described in Paragraph 19 was to distribute a portion of DC’s CDA to Mother, and to increase the ACB and PUC of her DC Class G Shares to the FMV of these shares.

73. The purpose of the increase in the stated capital of the DC Common Shares in Paragraphs 20 and 34 is to distribute the remaining CDA, GRIP, and RDTOH balances of DC to Daughterco and Sonco before the Butterfly Transactions.

74. The purpose of the incorporation of the Titlecos and the Subcos described in Paragraphs 21 to 25 and 31 to 32 and the transfer of property to the Titlecos and to the Subcos as described in Paragraphs 26 to 30, 33 and 36 to 38 is to facilitate the distribution of DC’s property to Daughter Holdco and Sonco as part of the Butterfly Transactions. These transactions minimize any eligible RDTOH or non-eligible RDTOH that may otherwise arise in DC in the taxation year in which the Butterfly Transactions are implemented because any aggregate investment income earned or the total taxes payable under Part IV, if any, in respect of the property so transferred will be reported by the Subcos and not DC. The transfer of the registered title to each of the Real Properties to the Titlecos will result in nominal XXXXXXXXXX land transfer taxes, as the consideration for the transfer of the registered title of the Real Properties will be nominal.

The main purpose for the incorporation of Son Subco 1 and Daughter Subco 1 was to transfer DC’s investment in Investco A and Investco B to new holding companies. There are several reasons for holding the investments in Investco A and Investco B through separate companies, including mitigating XXXXXXXXXX and simplifying insider trading requirements relating to future transfers. It may be possible to mitigate the amount of XXXXXXXXXX that would otherwise be charged, or filings that would otherwise be required, on the future transfer of the Son Subco 1 Common Shares and the Daughter Subco 1 Common Shares (although no such transfers are planned as of the date of this letter) in a manner that, to the best of DC’s knowledge, is consistent with common tax planning arrangements. The insider trading windows for Investco A are not the same as for Investco C and Pubco. Therefore, if there were to be future transactions with respect to the shares of Son Subco 1 and Daughter Subco 1, or alternatively Son Subco 2 or Daughter Subco 2, which required insider trading filings, filings would only be required in respect of the public corporation shares held by the relevant Subcos.

The transfer of DC’s properties to the Subcos occurs in multiple steps because of legal and commercial restrictions on the timing of the transfer of certain properties, such as insider trading restrictions for the period in which shares of publicly traded companies can be traded either in XXXXXXXXXX, or in Canada under the Securities Act. Although DC is not believed to be subject to these insider trading restrictions in respect of the corporations whose shares are transferred in these Paragraphs, it wishes to transfer these shares only within the insider trading windows, for greater certainty.

75. The purpose of the repayment of $XXXXXXXXXX of the Shareholder Advances described in Paragraph 39 is for Mother to use the cash received to fund XXXXXXXXXX.

75.1 Daughterco holds property other than the XXXXXXXXXX DC Common Shares. Accordingly, one of the purposes of the incorporation of Daughter Holdco, as described in Paragraph 40, and of the transfer of the XXXXXXXXXX DC Common Shares by Daughterco to Daughter Holdco and the transfer of the XXXXXXXXXX DC Class G Shares by Mother to Daughter Holdco, as described in Paragraphs 41 and 42, is to separate Daughterco’s investment in the DC Common Shares (and indirectly, Daughterco’s investment in the Daughter Holdco Distribution Property) from its other investments and such that Daughter Holdco will hold the joint investments by Mother and Daughterco in respect of the Daughter Holdco Distribution Property.

76. The main purpose for the acquisition of shares of the capital stock of DC by Daughter Holdco, as described in Paragraphs 41 and 42, will be to facilitate a tax-free divisive reorganization of DC amongst the DC shareholders for purposes of permitting Daughter and Son to independently pursue their investment objectives. For greater certainty, at no time will one of the main purposes of the acquisition of the shares of the capital stock of DC to receive a capital dividend.

77. One of the purposes of the transfer of the XXXXXXXXXX DC Class G Shares by Mother to Daughter Holdco, as described in Paragraph 42, is to reorganize Mother’s ownership interest in DC, such that this ownership interest is indirectly held through Daughter Holdco, to simplify the butterfly reorganization.

78. The purpose of the transfers of DC’s property to Daughter Newco and Son Newco (rather than to Daughter Holdco and Sonco) described in Paragraphs 47(a) and 47(b) is to prevent a circular calculation of Part IV tax from arising from the share redemptions described in Paragraphs 51 and 52.

79. The purpose of the wind-up of Son Newco and Daughter Newco as described in Paragraphs 53 and 54 is to enable Daughter Holdco and Sonco to receive an indirect transfer of property, as stipulated in the definition of “distribution” in subsection 55(1).

RULINGS REQUESTED

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, transactions, additional information, and the purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:

A. Subject to the application of subsection 69(11), provided the appropriate joint elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6) and provided that each particular property so transferred is an eligible property in respect of which shares have been issued as full or partial consideration therefor, subsection 85(1) will apply to:

a) the transfer, by DC, of property to Son Subco 2 and the transfer, by DC, of property to Daughter Subco 2 described in Paragraph 33;

b) the transfer of the DC Common Shares owned by Daughterco to Daughter Holdco described in Paragraph 41;

c) the transfer of the DC Class G Shares owned by Mother to Daughter Holdco described in Paragraph 42; and

d) the transfer, by DC, of the Sonco Distribution Property to Son Newco, and the transfer, by DC, of the Daughter Holdco Distribution Property to Daughter Newco on the DC Transfers,

such that the agreed amount in respect of each such transfer will be deemed to be the transferor’s proceeds of disposition of the particular property and the transferee’s cost thereof.

For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

For the purposes of the joint elections, the reference in subparagraph 85(1)(e)(i) to “the undepreciated capital cost to the taxpayer of all of the property of that class immediately before the disposition” shall be interpreted to mean that proportion of the UCC to DC of all the property of that class immediately before the disposition that the FMV of the property at that time that is transferred, is of the aggregate FMV at that time of all the property of that class.

B. As a result of the redemption by Son Newco of the Son Newco Preferred Shares held by DC as described in Paragraph 51 and the redemption by Daughter Newco of the Daughter Newco Preferred Shares held by DC as described in Paragraph 52, by virtue of subsection 84(3), each of Son Newco and Daughter Newco, as the case may be, will be deemed to have paid, and DC will be deemed to have received, a taxable dividend on such shares equal to the amount, if any, by which the aggregate amount paid by Son Newco and Daughter Newco, as the case may be, in respect of its redemption of the Son Newco Preferred Shares and the Daughter Newco Preferred Shares, owned by DC exceeds the PUC of such shares immediately before the redemption;

C. As a result of the distributions by DC in the course of its winding-up as described in Paragraph 55:

a) by virtue of paragraph 88(2)(b) and subsection 84(2), but subject to (b) to (d) below, DC will be deemed to have paid, and each of Sonco and Daughter Holdco, as the case may be, will be deemed to have received, a dividend (each referred to as a “winding-up dividend”) on each particular class of shares of DC held by such corporation, equal to the proportion of the amount by which the aggregate FMV of the property of DC distributed to each of Sonco and Daughter Holdco, as the case may be, on the winding-up and allocated to a particular class of shares of DC exceeds the amount, if any, by which the PUC of such class of shares of DC is reduced as a result of the distribution, that the number of shares of such class of shares of DC held by Sonco or Daughter Holdco, as the case may be, is of the number of all shares of that particular class of DC outstanding immediately before that time, and

b) pursuant to subparagraph 88(2)(b)(i), such portion of any winding-up dividend referred to in (a) as does not, in aggregate, exceed DC's CDA (if any) immediately before the payment of such winding-up dividend will be deemed, for purposes of the election under subsection 83(2) referred to in Paragraph 56, to be the full amount of a separate dividend;

c) pursuant to subparagraph 88(2)(b)(ii), such portion of any winding-up dividend referred to in (a) that is equal to the lesser of (A) DC's Pre-1972 CSOH (if any), as determined immediately before the payment of such winding-up dividend; and (B) the amount by which such winding-up dividend exceeds the portion of thereof in respect of which DC elects under subsection 83(2), will be deemed not to be a dividend; and

d) pursuant to subparagraph 88(2)(b)(iii), any winding-up dividend, to the extent that it exceeds the portion thereof referred to in (b) that is deemed to be a separate dividend and the portion thereof referred to in (c) that is deemed not to be a dividend, will be deemed to be a separate dividend that is a taxable dividend.

D. The taxable dividends described in rulings B and C:

a) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;

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

c) will be excluded in determining the proceeds of disposition to the recipient corporation of the shares which are redeemed pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54;

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

e) will not be subject to tax under Part IV.1 or Part VI.1; and

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

E. Provided that, as part of the series of transactions or events that includes the Proposed Transactions, there is not:

a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);

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

c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

d) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii);

e) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c); or 55(3.1)(d),

which has not been described in the Facts, Preliminary Transactions, Proposed Transactions, and Additional Information, then by virtue of paragraph (55)(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in rulings B and C above, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

F. Subject to subsection 69(11), the provisions of subsection 88(1) will apply in respect of the winding-up of Son Newco described in Paragraph 53 and the winding-up of Daughter Newco described in Paragraph 54.

G. The assumption by Sonco of the Son Newco Redemption Note described in Paragraph 53, the assumption by Daughter Holdco of the Daughter Newco Redemption Note described in Paragraph 54, and the distribution and extinguishment of the Daughter Newco Redemption Note and the Son Newco Redemption Note in the course of the winding-up of DC described in Paragraph 55 will not give rise to a forgiven amount. In addition, none of DC, Son Newco, Sonco, Daughter Newco, or Daughter Holdco, as the case may be, will otherwise realize any gain or incur any loss therefrom.

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

I. Subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R9 dated April 23, 2019. They are binding on the CRA, provided that the Proposed Transactions are completed before XXXXXXXXXX.

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

COMMENTS

Unless otherwise expressively 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 FMV, ACB of any property referred to herein or the PUC in respect of any share referred to herein;

b) the balance of the RDTOH, GRIP, non-capital losses, CDA, or any other tax account of any corporation referred to herein;

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

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 FMV of the properties transferred and 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, or in the event of, 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, dated November 26, 2015.

Yours truly,

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