2021 Ruling 2020-0874961R3 - 55(3)(a) Internal Reorganization

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

Principal Issues: Whether the proposed reorganization meets the requirements of paragraph 55(3)(a).

Position: Yes.

Reasons: Meets legislative requirements.

XXXXXXXXXX								2020-087496

XXXXXXXXXX, 2021

RE: Advance Income Tax Ruling – 55(3)(a)
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information provided in various email correspondence as well as information provided during telephone conversations (XXXXXXXXXX).

PRELIMINARY MATTERS

To the best of your knowledge, and that of the responsible officers of the above-noted taxpayer, none of the proposed transactions or issues involved in this ruling request are the same as or substantially similar to transactions or issues that are:

(a) in a previously filed tax return of the above-noted taxpayer or a related person and:

i. being considered by the CRA in connection with such return;
ii. under objection by the above-noted taxpayer or a related person; or
iii. the subject of a current or completed court process involving the above-noted taxpayer or a related person; or

(b) the subject of a ruling request previously considered by the Income Tax Rulings Directorate.

Unless otherwise stated, all references herein to a part, section, subsection, paragraph, subparagraph, clause or subclause is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended (the “Act”), or the Income Tax Regulations, C.R.C., c. 945, as amended (the “Regulations”), as appropriate, and all references to monetary amounts are in Canadian dollars.

DEFINITIONS

In this ruling application, unless otherwise specified, the following terms have the meanings specified below:

“A Common Shares” means the Class A common shares in the capital of DC, which carry XXXXXXXXXX votes per share;

“A Shares” means the Class A special shares in the capital of DC, which are non-voting;

“Act1” means XXXXXXXXXX;

“Act2” means XXXXXXXXXX;

“adjusted cost base” or “ACB” means “adjusted cost base” as that expression is defined in section 54;

“arm’s length” has the meaning assigned by section 251;

“B Common Shares” means the Class B common shares in the capital of DC, which are fully participating and carry XXXXXXXXXX votes per share;

“B Shares” means the Class B special shares in the capital of DC, which carry XXXXXXXXXX votes per share;

“Butterflied Property” means the XXXXXXXXXX shares so transferred by DC to each of the TC’s as described in Paragraph 29. It is intended that approximately $XXXXXXXXXX worth of XXXXXXXXXX shares will be distributed to each TC, however, this number will be adjusted slightly, though not more than necessary, depending on the trading price of the XXXXXXXXXX shares on the day of the transfer to ensure that only whole shares of XXXXXXXXXX will be transferred by DC as part of the distribution described in Paragraph 29;

“C Shares” means the Class C special shares in the capital of DC, which carry XXXXXXXXXX vote per share and are redeemable/retractable for $XXXXXXXXXX per share;

“Canadian-controlled private corporation” or “CCPC” has the meaning assigned by subsection 125(7);

“capital property” has the meaning assigned by section 54 and subsection 248(1);

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

“Child 1” means XXXXXXXXXX, daughter of Father and sibling of Child 2 and Child 3;

“Child 2” means XXXXXXXXXX, son of Father and sibling of Child 1 and Child 3;

“Child 3” means XXXXXXXXXX, son of Father and sibling of Child 1 and Child 2;

“Children” means Child 1, Child 2 and Child 3, collectively, and “Child” means any one of them in the singular;

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

“DC” means the corporation formed on the amalgamation of PC1 and PC2 under Act1;

“DC Note” means the non-interest bearing promissory note issued by DC to each TC as consideration for the redemption by DC of the Transferred C Shares owned by each TC, having a principal amount and FMV equal to the aggregate redemption amount of the DC shares so redeemed;

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

“Eligible Corporation” has the meaning assigned by the trust deed establishing Trust 2 and means any corporation where one or more beneficiaries of Trust 2 has a direct or indirect beneficial interest and no one other than any such beneficiary or beneficiaries has any direct or indirect beneficial interest in such corporation;

“eligible persons” means any person or class of persons (other than Father), any Eligible Trust, Eligible Corporation, charity, charitable organization or charitable trust;

“Eligible Trust” has the meaning assigned by the trust deed establishing Trust 2 and means any trust where one or more beneficiaries of Trust 2 has a direct or indirect beneficial interest and no one other than any such beneficiary or beneficiaries has any direct or indirect beneficial interest in such trust;

“Father” means XXXXXXXXXX, father of the Children;

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

“Mother” means XXXXXXXXXX, mother of the Children and is (and at all material times was) the spouse of Father;

“paid-up capital” or “PUC” has the meaning assigned to that term by subsection 89(1);

“Paragraph” means a numbered paragraph in this letter;

“PC1” means XXXXXXXXXX, a corporation incorporated and subsisting under Act1 and a proposed predecessor corporation to DC;

“PC1 A Common Voting Shares” means the Class A common shares of PC1, which carry XXXXXXXXXX vote per share;

“PC1 A Voting Shares” means the Class A special shares of PC1, which carry XXXXXXXXXX vote per share;

“PC1 B Common Voting Shares” means the Class B common shares of PC1, which carry XXXXXXXXXX vote per share;

“PC1 B Super Voting Shares” means the Class B special shares of PC1, which carry XXXXXXXXXX votes per share;

“PC1 C Non-Voting Shares” means the Class C special shares of PC1 that are non-voting;

“PC2” means XXXXXXXXXX, a corporation incorporated and subsisting under Act2 and a proposed predecessor corporation to DC;

“PC2 Common Voting” means the common shares of PC2 which carry XXXXXXXXXX vote per share;

“PC2 A Non-Voting Shares” means the Class A special shares that are non-voting;

“PC2 B Voting Shares” means the Class B special shares which carry XXXXXXXXXX vote per share;

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

“Proposed Transactions” means the proposed transactions described in Paragraphs 19 to 32;

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

“XXXXXXXXXX;

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

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

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

“TC1” means the new corporation incorporated by Child 1 and Father under Act2;

“TC2” means the new corporation incorporated by Child 2 and Father under Act2;

“TC3” means the new corporation incorporated by Child 3 and Father under Act2;

“TCs” means TC1, TC2 and TC3, collectively, and “TC” means any of TC1, TC2 and TC3 in the singular;

“TC Class A Preferred Shares” means the Class A Preferred Shares of a TC, which are described in Paragraph 20.c;

“TC Note” means the non-interest bearing promissory note issued by each TC to DC as consideration for the redemption by TC of its Class A Preferred Shares owned by DC, having a principal amount and FMV equal to the aggregate redemption amount of the TC Class A Preferred Shares so redeemed;

“Transferred C Shares” means the number of C Shares in the capital stock of DC that are transferred by each Child to its respective TC as described in Paragraphs 26-28. The number of C Shares in the capital stock of DC that will be transferred will depend on the trading price of XXXXXXXXXX shares on the day of transfer. It is intended that approximately $XXXXXXXXXX worth of XXXXXXXXXX shares will be distributed by DC to each TC, however, this number (and thus, the number of C Shares so transferred) will be adjusted slightly, but not more than necessary, depending on the trading price of XXXXXXXXXX shares on the day of transfer to ensure that only whole shares of XXXXXXXXXX are transferred by DC as part of the distribution described in Paragraph 29;

“Trust 1” means XXXXXXXXXX, a discretionary personal trust settled by Father on XXXXXXXXXX for the benefit of Mother and the Children, and wound-up on XXXXXXXXXX; and

“Trust 2” means XXXXXXXXXX, a discretionary personal trust settled by Father on XXXXXXXXXX for the benefit of Mother and the Children.

FACTS

1. Father is an individual resident in Canada for the purpose of the Act. Each of Child 1, Child 2 and Child 3 is an adult child of Father and an individual resident in Canada for the purpose of the Act.

2. PC1 is a TCC and a CCPC. The only undertaking is the investment of its funds in marketable securities. As of the date of this letter, PC1’s assets consist solely of XXXXXXXXXX.

3. The authorized share capital of PC1 consists of an unlimited number of:

a. PC1 A Common Voting Shares;

b. PC1 B Common Voting Shares;

c. PC1 A Voting Shares;

d. PC1 B Super-Voting Shares; and

e. PC1 C Non-Voting Shares.

4. PC2 is a TCC and a CCPC. PC2’s assets consist solely of XXXXXXXXXX PC1 C Non-Voting Shares and a small amount of cash.

5. The authorized share capital of PC2 consists of an unlimited number of:

a. PC2 Common Voting;

b. PC2 A Non-Voting Shares; and

c. PC2 B Voting Shares.

6. PC1’s issued and outstanding shares are held as follows:

a. Father owns XXXXXXXXXX PC1 A Common Voting Shares with an ACB of $XXXXXXXXXX and XXXXXXXXXX PC1 B Super-Voting Shares with an ACB of $XXXXXXXXXX;

b. PC2 owns XXXXXXXXXX PC1 C Non-Voting Shares with an ACB of $XXXXXXXXXX; and

c. Trust 2 owns XXXXXXXXXX PC1 B Common Voting Shares with an ACB of $XXXXXXXXXX.

Father has de jure control of PC1.

7. The PUC of the issued and outstanding shares of PC1 is:

a. PC1 A Common Voting Shares: $XXXXXXXXXX per share ($XXXXXXXXXX total);

b. PC1 B Common Voting Shares: $XXXXXXXXXX per share ($XXXXXXXXXX total);

c. PC1 B Super-Voting Shares: $XXXXXXXXXX per share ($XXXXXXXXXX total); and

d. PC1 C Non-Voting Shares: $XXXXXXXXXX ($XXXXXXXXXX total).

8. The PC1 B Super-Voting Shares are redeemable and retractable for $XXXXXXXXXX each.

9. The PC1 C Non-Voting Shares in the capital of PC1 are redeemable and retractable for $XXXXXXXXXX each.

10. The PC1 A Common Voting Shares are participating and rank pari passu with the PC1 B Common Voting Shares, therefore their aggregate FMV is equal to XXXXXXXXXX% of the total value of the outstanding shares of PC1 less the aggregate value of the PC1 B Super-Voting Shares and PC1 C Non-Voting Shares.

11. The PC1 B Common Voting Shares are participating and rank pari passu with the PC1 A Common Voting shares, therefore their aggregate FMV is equal to XXXXXXXXXX% of the fair market value of the outstanding shares of PC1 less the aggregate value of the PC1 B Super-Voting shares and PC1 C Non-Voting Shares.

12. Prior to XXXXXXXXXX, Trust 1 held XXXXXXXXXX PC2 Common Voting Shares. XXXXXXXXXX, in anticipation of its upcoming XXXXXXXXXX anniversary, Trust 1 distributed its XXXXXXXXXX PC2 Common Voting Shares in the capital stock of PC2 to each of the Children in equal proportions.

13. PC2’s issued and outstanding shares are held as follows:

a. Father owns XXXXXXXXXX PC2 B Voting Shares with an ACB of $XXXXXXXXXX; and

b. Each of the Children owns XXXXXXXXXX PC2 Common Voting Shares with an ACB of $XXXXXXXXXX.

Father has de jure control of PC2.

14. The PUC of the issued and outstanding shares of PC2 is:

a. PC2 B Voting Shares: $XXXXXXXXXX per share ($XXXXXXXXXX total); and

b. PC2 Common Voting Shares: $XXXXXXXXXX per share ($XXXXXXXXXX total).

15. The XXXXXXXXXX PC2 B Voting Shares are redeemable and retractable for $XXXXXXXXXX each.

16. The XXXXXXXXXX PC2 Common Voting Shares are participating and their FMV is equivalent to the FMV of the PC1 C Non-Voting Shares owned by PC2.

17. The shares of PC1 and PC2 are held as capital property by each of the shareholders.

18. The taxation year end of PC1 and PC2 is XXXXXXXXXX.

PROPOSED TRANSACTIONS

The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of filing the applicable election forms, which will be filed on or before the applicable dates prescribed by the Act.

Incorporation of TCs

19. Child 1 and Father will incorporate TC1, Child 2 and Father will incorporate TC2, and Child 3 and Father will incorporate TC3.

20. Each of the TCs will have an authorized share capital consisting of an unlimited number of the each of following classes of shares:

a. Class A common shares – entitled to: (i) XXXXXXXXXX vote per share; (ii) non-cumulative dividends at the discretion of the Board of Directors, ranks behind all class of preferred shares; (iii) fully participating; and (iv) on liquidation, dissolution or wind-up, ranks behind all classes of preferred shares but pari passu with other class of common shares;

b. Class B common shares – entitled to: (i) XXXXXXXXXX vote per share; (ii) non-cumulative dividends at the discretion of the Board of Directors, ranks behind all class of preferred shares and Class A common shares; (iii) fully participating; and (iv) on liquidation, dissolution or wind-up, ranks behind all classes of preferred shares but pari passu with other class of common shares;

c. Class A preferred shares – (i) non-voting; (ii) redeemable/retractable for $XXXXXXXXXX/share; (iii) entitled to non-cumulative dividends at the discretion of the Board of Directors; and (iv) on liquidation, dissolution or wind-up, ranks in priority to Class B preferred shares and Class V special shares and all classes of common shares;

d. Class B preferred shares – (i) non-voting; (ii) redeemable/retractable for $XXXXXXXXXX/share; (iii) entitled to non-cumulative dividends at the discretion of the Board of Directors; and (iv) on liquidation, dissolution or wind-up, ranks in priority to Class V special shares and all class of common shares but behind Class A preferred shares; and

e. Class V special shares – (i) XXXXXXXXXX vote per share; (ii) redeemable/retractable for $XXXXXXXXXX per share; (iii) not entitled to dividends; and (iv) on liquidation, dissolution or wind-up, ranks behind Class A and Class B preferred shares but has priority over all classes of common shares.

21. Each Child will initially subscribe for 1 Class A common share for $XXXXXXXXXX in his or her respective TC using personal funds. Father will subscribe for XXXXXXXXXX Class V special shares for $XXXXXXXXXX per share in each TC. Father will have de jure control over each of the TCs.

22. The directors of each of TC1, TC2 and TC3 will initially be Father and the Child who incorporated the particular TC (i.e., Father and Child 1 are the directors of TC1, Father and Child 2 are the directors of TC2, and Father and Child 3 are the directors of TC3).

Continuance of PC2 to XXXXXXXXXX

23. PC2 will file articles of continuance under Act1 to continue its existence out of XXXXXXXXXX and into XXXXXXXXXX.

Amalgamation of PC1 and PC2

24. PC1 and PC2 will amalgamate in accordance with the provisions of Act1 to form DC. The authorized share capital of DC shall consist of an unlimited number of each of the following classes of shares:

a. A Common Shares;

b. B Common Shares;

c. A Shares;

d. B Shares; and

e. C Shares.

25. On amalgamation, DC will issue the following shares to the former shareholders of PC1 and PC2:

Shareholder	Shares Owned		Predecessor		Shares		Total		Total
        in predecessor	Corporation		received	PUC & ACB	Votes
        corporation 					on
        prior to 					amalgamation
        amalgamation

XXXXXX	XXXXXX		XXXXXX		XXXXXX	XXXXXX	XXXXXX

For greater certainty, the amalgamation of PC1 and PC2 to form DC will be governed by subsection 87(1). Father will have de jure control of DC.

Transfer of DC shares to TCs

26. Child 1 will transfer the Transferred C Shares held in the capital stock of DC to TC1 pursuant to subsection 85(1). As sole consideration for the transfer, Child 1 will receive XXXXXXXXXX Class A common shares of TC1 having an aggregate FMV equal to the FMV of the DC shares so transferred. Child 1 and TC1 will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to this share transfer. For greater certainty, the agreed amount will be the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital account in respect of the XXXXXXXXXX Class A common shares of TC1 issued to Child 1 will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, in respect of the Transferred C Shares of DC transferred to TC1; and (ii) the aggregate ACB to Child 1, immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

27. Child 2 will (contemporaneously with the transfer described in Paragraph 26) transfer the Transferred C Shares held in the capital stock of DC to TC2 pursuant to subsection 85(1). As sole consideration for the transfer, Child 2 will receive XXXXXXXXXX Class A common shares of TC2 having an aggregate FMV equal to the FMV of the DC shares so transferred. Child 2 and TC2 will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to this share transfer. For greater certainty, the agreed amount will be the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital account in respect of the XXXXXXXXXX Class A common shares of TC2 issued to Child 2 will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, in respect of the Transferred C Shares of DC transferred to TC2; and (ii) the aggregate ACB to Child 2, immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

28. Child 3 will (contemporaneously with the transfers described in Paragraphs 26 and 27) transfer the Transferred C Shares held in the capital stock of DC to TC3 pursuant to subsection 85(1). As sole consideration for the transfer, Child 3 will receive XXXXXXXXXX Class A common shares of TC3 having an aggregate FMV equal to the FMV of the DC shares so transferred. Child 3 and TC3 will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to this share transfer. For greater certainty, the agreed amount will be the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital account in respect of the XXXXXXXXXX Class A common shares of TC3 issued to Child 3 will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, in respect of the Transferred C Shares of DC transferred to TC3; and (ii) the aggregate ACB to Child 3, immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

Transfer of XXXXXXXXXX Shares to TCs

29. DC will contemporaneously transfer the Butterflied Property to each of the TCs pursuant to subsection 85(1). As sole consideration for the transfer, DC will receive a number of Class A preferred shares from each of the TCs, with an aggregate redemption value equal to the FMV of the Butterflied Property so transferred to each TC. DC and each of the TCs will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to this transfer of assets from DC to each of the TCs. The agreed amount will be limited to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital in respect of the Class A preferred shares of each of the TCs issued to DC will not exceed the maximum amount permitted to be added to the PUC of the shares, having regard to subsection 85(2.1).

Share Redemptions and Set-Off of Notes

30. Immediately following the transfer of the Butterflied Property described above in Paragraph 29, each TC will simultaneously redeem its Class A preferred shares owned by DC for an amount equal to the aggregate redemption amount and FMV of such shares. As sole consideration for the redemption of these shares, each of the TCs will issue a TC Note to DC which will have a principal amount and FMV equal to the aggregate FMV and the redemption amount of the Class A preferred shares of each of the TCs so redeemed. DC will accept the TC Notes as payment in full for the Class A preferred shares so redeemed.

31. DC will (contemporaneously with the redemption described in Paragraph 30) simultaneously redeem the Transferred C Shares owned by each TC for an amount equal to the aggregate redemption amount and FMV of such shares. As sole consideration for the redemption of these shares, DC will issue to each of the TCs a DC Note which will have a principal amount and FMV equal to the aggregate FMV and the redemption amount of the C Shares so redeemed. Each TC will accept the DC note as payment in full for the C Shares so redeemed.

32. Each DC Note will be set-off against its respective TC Note and cancelled. The set-offs will be accepted as full payment against the outstanding balance of promissory notes by each holder, the result of which is that all obligations under each such note will be extinguished.

ADDITIONAL INFORMATION

33. There have been no transactions, other than as described herein, that have been completed prior to the date of this letter nor are there any other transactions, proposed or contemplated, other than as described herein, that would form part of the series of transactions or events that includes the Proposed Transactions. Specifically, there is no intention by any person to dispose of the shares of any of the corporations referred to herein to a person or partnership that was not a related person to DC or any of the TCs, as the case may be, immediately prior to such disposition. XXXXXXXXXX.

34. XXXXXXXXXX.

35. The Children have had very limited, if any, involvement in the investment decisions made by PC1, the predecessor to DC. Father has had de jure control of PC1 and PC2, the predecessors to DC, since incorporation and has made all the decisions relating to the investment of PC1’s assets. The organization of the TCs will simply mirror and continue the existing decision making structure of PC1/DC after the assets are split.

36. Under the terms of Trust 1, the trustees have the authority to appoint an eligible person as a beneficiary, however, that authority was never exercised and expired upon the distribution of Trust 1’s property.

37. Under the terms of Trust 2, the trustees have the authority to appoint an eligible person as a beneficiary, however, that authority has not been exercised such that all the existing beneficiaries of Trust 2 will be related to DC and will be related to TC1, TC2 and TC3 following the creation of these corporations. In addition, Trust 2 has not acquired property, directly or indirectly, in any manner whatever, from any eligible persons or a person with whom any of the eligible persons does not deal at arm’s length or a person with whom the latter does not deal with at arm’s length. Each of DC, TC1, TC2 and TC3 is dealing at arm’s length with all eligible persons. None of the eligible persons or a person with whom any eligible person does not deal at arm’s length has ever given a guarantee on behalf of Trust 2 or provided any financial assistance whatever to Trust 2.

38. None of the shares described in this letter will be at any time during the series of events or transactions that includes the Proposed Transactions:

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

b. the subject of a “dividend rental agreement” referred to in subsection 112(2.3) as that term is defined in subsection 248(1);

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

d. issued for consideration that is or includes 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

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

39. None of the corporations described in this letter will be at any time during the series of events or transactions that includes the Proposed Transactions, a restricted financial institution, a specified financial institution, or a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation in subsection” 191(1).

40. As part of the series of transactions or events that includes any of the Proposed Transactions, there will not be:

a. a disposition of property described in subparagraphs 55(3)(a)(i), (iii) or (iv); or

b. a significant increase described in subparagraphs 55(3)(a)(ii) or (v).

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to divide a portion of the assets of DC among Child 1, Child 2 and Child 3 so that each such person has direct and separate ownership of those assets through a holding company controlled by Father. This will allow the Children to increase their involvement and invest such assets in accordance with Father’s leveraged investment philosophy, in a way that will be subject to the guidance and ultimate voting control of Father, while allowing each Child to make investment decisions independently of his/her siblings.

The purpose of the Proposed Transactions is also to duplicate a structure, both in terms of control and economic interest, XXXXXXXXXX.

RULINGS GIVEN

Provided that the above statements of Facts, Proposed Transactions, Additional Information and Purpose of the Proposed Transactions are accurate and constitute a complete disclosure of all relevant information, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to any of the taxable dividends received by DC, TC1, TC2 and TC3 arising from the redemptions described in Paragraphs 30 and 31, provided that as part of a series of transactions or events that includes any of the Proposed Transactions, there is no disposition or significant increase in interest as described in any of subparagraphs 55(3)(a)(i) to (v). For greater certainty, the Proposed Transactions described herein, in and of themselves, will not be considered to result in any disposition or significant increase in interest described in subparagraphs 55(3)(a)(i) to (v).

B. Subsection 55(4) will not apply to the Proposed Transactions.

These rulings are subject to the limitations and qualifications set out in Information Circular IC 70-6R11 dated April 1, 2021, and are binding on the CRA provided that the Proposed Transactions are completed no later than six months after the date of this letter. The above rulings are based on the law as it reads at the date of this letter and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

OTHER COMMENTS

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

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

(b) the balance of any tax account, including but not limited to ERDTOH/NERDTOH;

(c) any Part IV tax implications arising as a result of the Proposed Transactions, including whether a problem of circularity may possibly arise when computing the Part IV tax and dividend refund of any corporation. We do not provide any comments on that possible issue; and

(d) any other tax consequence relating to the facts, additional information, 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, 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 purposes of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to 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 Price Adjustment Clauses.

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

Yours Truly,

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

UNCLASSIFIED