2023 Ruling 2022-0943871R3 - Cross-border spin-off 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: Whether the proposed cross-border spin-off butterfly qualifies for the exemption in paragraph 55(3)(b).

Position: Yes.

Reasons: Meets the statutory requirements and our prior positions and rulings on cross-border butterfly reorganizations.

XXXXXXXXXX									2022-094387

XXXXXXXXXX, 2023

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX, and modified on XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer (the “Taxpayer”). We also acknowledge the information provided in subsequent correspondence.

We understand that to the best of your knowledge and that of the Taxpayer, none of the proposed transactions or issues involved in this ruling are the same as or substantially similar to transactions or issues that are:

i. in a previously filed tax return of the Taxpayer or a related person and:

A. being considered by the CRA in connection with any such tax return;

B. under objection by the Taxpayer or a related person; or

C. the subject of a current or completed court process involving the Taxpayer or a related person; or

ii. the subject of a ruling request previously considered by the Income Tax Ruling Directorate in relation to the Taxpayer or a related person.

The tax account number, address, Tax Services Office and the Tax Centre of the Taxpayer are as follows:

XXXXXXXXXX

This document is based solely on the facts and proposed transactions described below. The documentation submitted with the request does not form part of the facts and proposed transactions, and any references thereto are provided solely for the convenience of the reader.

Definitions

Unless otherwise stated:

i. all references herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, as amended, (the “Act”);

ii. all terms and conditions used herein that are defined in the Act have the meaning given in such definition;

iii. all references to monetary amounts are in Canadian dollars; and

iv. the singular should be read as plural and vice versa where the circumstances so require.

The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:

“XXXXXXXXXX Stock Plan” refers to the XXXXXXXXXX Stock Incentive Plan described in Paragraph 3;

“ACB” means “adjusted cost base” and has the meaning assigned by section 54;

“Accumulated Profits” at any time means accumulated profits determined at that time as that term is described in paragraphs 1.50 and 1.51 of Income Tax Folio S3-F6-C1, Interest Deductibility;

“agreed amount” means the amount agreed on by the transferor and transferee in respect of a transfer of an eligible property in a joint election filed pursuant to subsection 85(1);

“XXXXXXXXXX ESPP” refers to the employee stock purchase plan described in Paragraph 3;

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

“Butterfly percentage” means the proportion, expressed as a percentage, that the net FMV of the business property owned by DC that relates to Spin Business is of the net FMV of all of the business property of DC, determined immediately before the Distribution, and using the principles set out in Paragraphs 60 to 62;

“Capital of the DC Preferred Shares” at any time means the aggregate of the Contributed Capital of the DC Preferred Shares and the Accumulated Profits of DC determined at that time;

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

XXXXXXXXXX;

“Completed Transactions” means the transactions described in Paragraphs 46 and 47;

“Contributed Capital” at any time means contributed capital determined at that time as that term is described in paragraphs 1.49 of Income Tax Folio S3-F6-C1, Interest Deductibility;

“CRA” means the Canada Revenue Agency;

“DC” means XXXXXXXXXX, as described in Paragraph 10;

“DC Common Shares” means the common shares of the capital stock of DC described in Paragraph 53;

“DC Capital Reorganization” refers to the capital reorganization of DC, as described in Paragraph 53;

“DC Group” means DC and the corporations controlled directly or indirectly by DC;

“DC Loan” refers to the third party loan facility that DC used to fund the purchase of Sub 1, described in Paragraph 39;

“DC Note” means the amount owing by DC to Sub 1, as described in Paragraph 42;

“DC New Common Shares” means the common share of the capital stock of DC described in Paragraph 53;

“DC Preferred Shares” means the preferred shares of the capital stock of DC described in Paragraph 53;

“DC Redemption Amount” means the redemption amount of a DC Preferred Share, as described in Paragraph 53;

“DC Redemption Note” means the non-interest bearing demand promissory note to be issued by DC to TC, as described in Paragraph 68;

“DC Share Exchange” refers to the conversion by Forco 1 of each of its DC Common Share for one DC New Common Share and one DC Preferred Share, as described in Paragraph 54;

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

“Distribution” means the transfer of property described in Paragraph 65, which meets the definition of “distribution” assigned by subsection 55(1);

“Distribution Property” means the property relating to Spin Business owned by DC which will be transferred to TC pursuant to the Distribution, as described in Paragraph 65;

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

“DSUs” means “deferred stock units”, as described in Paragraph 3;

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

“ESPP” means “employee stock purchase plan”, as described in Paragraph 3;

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

“FMV” or “fair market value” means the highest price expressed in terms of money or money’s worth available in an open and unrestricted market between informed, prudent parties, acting at arm’s length and under no compulsion to act;

“First Spinco Distribution” refers to the distribution of the shares of the capital stock of Foreign Spinco from Foreign Services to Foreign Holdco, as described in Paragraph 74;

“XXXXXXXXXX Business” means the business described in Paragraph 5;

“Forco 1” means XXXXXXXXXX, a XXXXXXXXXX corporation;

“Forco 2” means XXXXXXXXXX, a XXXXXXXXXX corporation;

“Forco 3” means XXXXXXXXXX, a XXXXXXXXXX corporation;

“Forco 4” means XXXXXXXXXX, a XXXXXXXXXX corporation;

“Foreign Holdco” means XXXXXXXXXX;

“Foreign Pubco” means XXXXXXXXXX;

“Foreign Services” means XXXXXXXXXX;

“Foreign Services Debt” means the debt obligation described in Paragraph 43;

“Foreign Services Note” means the amount owing by Foreign Services to Foreign XXXXXXXXXX, as described in Paragraph 44;

“Foreign Spinco” means a corporation to be incorporated by Foreign Services, as described in Paragraph 46;

“Foreign Spinco Common Shares” means the common shares of the capital stock of Foreign Spinco described in Paragraph 46;

“Foreign Spinco Contribution” refers to the contribution by Foreign Services of its shares of the capital stock of Foreign XXXXXXXXXX and other assets and liabilities related to the XXXXXXXXXX Business to Foreign Spinco in exchange for Foreign Spinco Common Shares, as described in Paragraph 50;

“Foreign Spinco Term Loan” means the term loan to be made by one or more third-party lenders to Foreign Spinco, as described in Paragraph 70;

“Foreign XXXXXXXXXX” means XXXXXXXXXX;

“Foreign XXXXXXXXXX Loan” means the loan to be made by Foreign Spinco to Foreign XXXXXXXXXX, as described in Paragraph 71;

“Foreign XXXXXXXXXX Note” means the non-interest bearing promissory note to be issued by Foreign XXXXXXXXXX to Foreign Services, as described in Paragraph 48;

“Group” refers to the corporations controlled directly or indirectly by Foreign Pubco;

“non-resident” has the meaning assigned by subsection 248(1);

XXXXXXXXXX;

“Paragraph” refers to a numbered or lettered paragraph in this letter;

“PBOs” means “performance-based options”, as described in Paragraph 3;

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

“Proposed Transactions” means the transactions described in Paragraphs 48 to 76;

“PSUs” means “performance stock units”, as described in Paragraph 3;

“Pubco Group” means Foreign Pubco, together with its direct and indirect subsidiaries;

“PUC” means “paid-up capital” and has the meaning assigned by subsection 89(1);

“RSUs” means “time-based restricted stock units”, as described in Paragraph 3;

“Rulings” means the advance income tax rulings labelled “A” to “I” in this letter;

“Second Spinco Distribution” refers to the distribution of the shares of the capital stock of Foreign Spinco from Foreign Holdco to Foreign Pubco, as described in Paragraph 75;

“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);

“Spin Business” means the business of Sub 1;

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

“Stock Exchange” means the XXXXXXXXXX Stock Exchange;

“Sub 1” means XXXXXXXXXX, as described in Paragraph 20;

“Sub 2” means XXXXXXXXXX, as described in Paragraph 20;

“Sub 3” means XXXXXXXXXX, as described in Paragraph 20;

“Sub 4” means XXXXXXXXXX, as described in Paragraph 20;

“Sub 5” means XXXXXXXXXX, as described in Paragraph 21;

“Sub 6” means XXXXXXXXXX, as described in Paragraph 22 a);

“Sub 7” means XXXXXXXXXX, as described in Paragraph 22 b);

“Sub 8” means XXXXXXXXXX, as described in Paragraph 22 c);

“Sub 9” means XXXXXXXXXX, as described in Paragraph 23;

“Sub 10” means XXXXXXXXXX, as described in Paragraph 24 a);

“Sub 11” means XXXXXXXXXX, as described in Paragraph 24 b);

“Sub 12” means XXXXXXXXXX, as described in Paragraph 24 c);

“Sub 13” means XXXXXXXXXX, as described in Paragraph 25;

“Sub 14” means XXXXXXXXXX, as described in Paragraphs 26 and 27;

“Sub 15” means XXXXXXXXXX., as described in Paragraphs 28 a) and 33 a);

“Sub 16” means XXXXXXXXXX, as described in Paragraphs 28 b), 33 b) and 34;

“Sub 17” means XXXXXXXXXX, as described in Paragraphs 28 c), 33 c) and 36;

“Sub 18” means XXXXXXXXXX, as described in Paragraphs 28 d), 33 d) and 35 b);

“Sub 19” means XXXXXXXXXX, as described in Paragraph 28 e);

“Sub 20” means XXXXXXXXXX, as described in Paragraph 28 f);

“Sub 21” means XXXXXXXXXX, as described in Paragraph 28 g);

“Sub 22” means XXXXXXXXXX, as described in Paragraph 28 h) and 35 a);

“Sub 23” means XXXXXXXXXX, as described in Paragraphs 29 and 30;

“Sub 24” means XXXXXXXXXX, as described in Paragraph 31 a);

“Sub 25” means XXXXXXXXXX, as described in Paragraphs 31 b) and 32 a);

“Sub 26” means XXXXXXXXXX, as described in Paragraphs 32 b) and 33 e);

“taxable Canadian property” has the meaning assigned by subsection 248(1);

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

“TBOs” means “time-based options”, as described in Paragraph 3;

“TBO-Rs” means “retention time-based options”, as described in Paragraph 3;

“TC” means a corporation incorporated by Foreign Spinco, as described in Paragraph 47;

“TC Common Shares” means the common shares of the capital stock of TC, as described in Paragraph 47 a);

“TC Preferred Shares” means the preferred shares of the capital stock of TC described in Paragraph 47 b);

“TC Redemption Amount” means the redemption amount of a TC Preferred Share, as described in Paragraph 47 b);

“TC Redemption Note” means the non-interest bearing demand promissory note described in Paragraph 67;

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

“Third Spinco Distribution” refers to the distribution of the shares of the capital stock of Foreign Spinco from Foreign Pubco to Foreign Pubco’s shareholders, as described in Paragraph 76;

“Three-Party Share Exchange” means the share exchange described in Paragraph 59; and

“XXXXXXXXXX Business” means the business described in Paragraph 6.

Facts

A complete description of all the relevant facts is as follows:

Foreign Pubco

1. Foreign Pubco is the parent corporation of the Pubco Group. Foreign Pubco is a non-resident corporation. The issued and outstanding shares of the capital stock of Foreign Pubco consist of common shares that are widely held and publicly traded on the Stock exchange under the symbol “XXXXXXXXXX”. As of XXXXXXXXXX, there were approximately XXXXXXXXXX outstanding common shares of the capital stock of Foreign Pubco. Foreign Pubco does not currently have any other issued and outstanding shares.

2. To the best of Foreign Pubco’s knowledge, no one shareholder or group of related shareholders of Foreign Pubco owns more than 10% of the common shares of the capital stock of Foreign Pubco.

3. Foreign Pubco maintains an equity award plan, the XXXXXXXXXX Stock Incentive Plan (as amended, the “XXXXXXXXXX Stock Plan”), pursuant to which it may issue share-based compensation including TBOs, TBO-Rs, PBOs, RSUs, PSUs, and DSUs. XXXXXXXXXX also maintains an ESPP, the XXXXXXXXXX Employee Stock Purchase Plan (the “XXXXXXXXXX ESPP”). It is expected that similar share-based compensation arrangements for employees of the XXXXXXXXXX Business that relate to the equity of Foreign Spinco will be developed.

Business of the Pubco Group

4. Headquartered in the US, the Pubco Group has two primary business lines: XXXXXXXXXX businesses (collectively, the “XXXXXXXXXX Business”) and the XXXXXXXXXX business (the “XXXXXXXXXX Business”).

5. The XXXXXXXXXX Business provides XXXXXXXXXX.

6. The XXXXXXXXXX Business provides XXXXXXXXXX.

7. Foreign Pubco is the parent of a group of domestic and foreign corporations (the “Group”). For the purposes of the letter, any entities that are not part of the Proposed Transactions have not been disclosed.

8. As of XXXXXXXXXX, Foreign Pubco’s market capitalization is in excess of US$XXXXXXXXXX.

9. On XXXXXXXXXX, Foreign Pubco announced its intention to spin-off the XXXXXXXXXX Business into an independent, publicly-traded corporation.

DC Group

10. DC is a TCC. It is governed by the XXXXXXXXXX. DC is a resident of Canada under the Act. DC’s taxation year and fiscal period end on XXXXXXXXXX of each year.

11. DC is directly owned by Forco 1.

12. The issued and outstanding shares of the capital stock of DC consist of XXXXXXXXXX common shares.

13. Forco 2 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Forco 1.

14. Forco 3 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Forco 2.

15. Forco 4 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Forco 3.

16. Foreign Services directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Forco 4;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Forco 3; and

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Foreign XXXXXXXXXX.

17. Foreign XXXXXXXXXX directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 1.

18. Foreign Holdco directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Foreign Services.

19. Foreign Pubco directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock Foreign Holdco.

20. DC directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 1;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 2;

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 3; and

d) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 4.

21. Sub 2 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 5.

22. Sub 3 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 6;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 7; and

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock Sub 8.

23. Sub 6 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 9.

24. Sub 4 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 10;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 11; and

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 12.

25. Sub 10 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 13.

26. Sub 11 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 14.

27. Sub 12 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 14.

28. Sub 14 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 15;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 16;

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 17;

d) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 18;

e) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 19;

f) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 20;

g) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 21; and

h) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 22.

29. Sub 15 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 23;

30. Sub 16 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 23.

31. Sub 21 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 24; and

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 25.

32. Sub 22 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 25; and

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 26.

33. Sub 25 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 15;

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 16;

c) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 17;

d) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 18; and

e) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 26.

34. Sub 11 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 16.

35. Sub 21 directly owns:

a) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 22; and

b) XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 18.

36. Sub 13 directly owns XXXXXXXXXX% of the issued and outstanding shares of the capital stock of Sub 17.

Corporate activities of Foreign Pubco

37. On XXXXXXXXXX, Foreign Services formed a XXXXXXXXXX corporation, Forco 4. On XXXXXXXXXX, Foreign Services transferred all of the shares of the capital stock of XXXXXXXXXX, a holding company that held the majority of the Group’s non-XXXXXXXXXX operations, to Forco 4 as a contribution to capital. Immediately thereafter, XXXXXXXXXX was converted to a XXXXXXXXXX.

On XXXXXXXXXX, pursuant to an integrated plan, Forco 2 acquired treasury shares of the capital stock of Forco 3 in exchange for XXXXXXXXXX and XXXXXXXXXX common shares. Immediately thereafter and subject to a binding agreement, Forco 4 transferred its shares in the Group’s non-XXXXXXXXXX subsidiaries to Forco 2 in exchange of shares of the capital stock of Forco 3.

The Transactions described in this Paragraph were not done in contemplation of the Proposed Transactions and does not form part of a series of transactions that includes any of the Proposed Transactions.

38. On XXXXXXXXXX, Foreign Services acquired XXXXXXXXXX. At the time of the acquisition, XXXXXXXXXX. owned XXXXXXXXXX% of the shares of the capital stock of Sub 1, which owned XXXXXXXXXX% of the shares of the capital stock of XXXXXXXXXX.

39. On XXXXXXXXXX, DC borrowed $XXXXXXXXXX from a third-party lender under an existing third-party term loan facility, which is due in XXXXXXXXXX (the “DC Loan”):

• $XXXXXXXXXX was used to purchase Sub 1 (and indirectly XXXXXXXXXX) from XXXXXXXXXX;
• $XXXXXXXXXX, which has now been reimbursed, was loaned to Sub 1 to repay its existing obligation with XXXXXXXXXX.; and
• $XXXXXXXXXX was used to pay an origination fee.

40. On XXXXXXXXXX (a wholly-owned subsidiary of Foreign XXXXXXXXXX), Sub 1 and XXXXXXXXXX. amalgamated to form a new corporation, which took the name of Sub 1. DC owns XXXXXXXXXX common shares of the capital stock of Sub 1 and Foreign XXXXXXXXXX owns XXXXXXXXXX common shares of the capital stock Sub 1.

The acquisition of XXXXXXXXXX. and the amalgamation were not done in contemplation of the Proposed Transactions and do not form part of a series of transactions that includes any of the Proposed Transactions.

41. On XXXXXXXXXX, Foreign Services transferred XXXXXXXXXX% of its ownership in XXXXXXXXXX to Foreign XXXXXXXXXX. On XXXXXXXXXX was converted to a XXXXXXXXXX under XXXXXXXXXX.

The transfer described in this Paragraph was not done in contemplation of the Proposed Transactions and does not form part of a series of transactions that includes any of the Proposed Transactions.

42. Sub 1 has a receivable of approximately US$XXXXXXXXXX due from DC (the “DC Note”).

43. Foreign Services has a non-contingent debt owing to third-party lenders of approximately US$XXXXXXXXXX as of XXXXXXXXXX (the “Foreign Services Debt”).

44. Foreign XXXXXXXXXX has a receivable of approximately US$XXXXXXXXXX due from Foreign Services (the “Foreign Services Note”).

Tax audit and Dispute Status

45. XXXXXXXXXX.

Beyond these matters, the DC Group is not aware of any tax audit or tax dispute matters involving the corporations within the DC Group. Unless otherwise indicated, it is not known when these tax audits will be completed or whether the CRA or the relevant provincial tax authorities will issue any reassessments prior to the Proposed Transactions.

Completed Transactions

46. On XXXXXXXXXX, Foreign Services incorporated Foreign Spinco under the laws of XXXXXXXXXX. The authorized share capital of Foreign Spinco includes an unlimited number of voting, fully participating common shares with a par value of $XXXXXXXXXX per share (the “Foreign Spinco Common Shares”). On the incorporation of Foreign Spinco, Foreign Services subscribed for Foreign Spinco Common Shares for nominal cash consideration.

47. On XXXXXXXXXX, Foreign Spinco incorporated TC under the XXXXXXXXXX. TC will be a TCC. No share of the capital stock of TC was issued on incorporation. The authorized share capital of TC consists of:

a) an unlimited number of voting, fully participating common shares (the “TC Common Shares”); and

b) an unlimited number of preferred shares (the “TC Preferred Shares”) with the following terms and conditions:

i. non-voting;

ii. each TC Preferred Share will entitle the holder to receive non-cumulative dividends if and when declared by the board of directors of TC;

iii. each TC Preferred Share will be redeemable and retractable, subject to applicable law, at any time at the option of the holder or TC for a redemption amount (the “TC Redemption Amount”) equal to the quotient obtained when:

(A) the FMV of the consideration paid to TC for the issuance of the TC Preferred Shares,

is divided by:

(B) the number of TC Preferred Shares issued as consideration for the Distribution Property;

plus that amount which is equal to all declared but unpaid dividends on such TC Preferred Share;

iv. except with the consent in writing of the holders of all of the TC Preferred Shares, no dividend shall at any time be declared and paid on, or declared and set apart for payment on, the TC Common Shares unless, after the payment of such dividend, the realizable value of the assets of TC would not be less than the aggregate TC Redemption Amount, plus any declared but unpaid dividends thereon; and

v. in the event of the dissolution, liquidation or winding-up of TC, whether voluntary or involuntary, or any other distribution of assets of TC among its shareholders for the purpose of winding-up its affairs, the holders of TC Preferred Shares will be entitled to receive from the assets of TC an amount equal to the aggregate TC Redemption Amount (plus any declared but unpaid dividends thereon) before any amount will be paid or any assets of TC are distributed upon any liquidation, dissolution or winding-up of TC to the holders of the TC Common Shares. After payment to the holders of TC Preferred Shares of the amount so payable to them, such holders shall not be entitled to share in any further distribution of the assets of TC.

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 within the applicable due dates, unless otherwise indicated, following the completion of the Proposed Transactions.

48. Foreign XXXXXXXXXX will make a distribution to Foreign Services of an amount of approximately US$XXXXXXXXXX to be paid in full by the issuance of a non-interest bearing promissory note payable on demand (the “Foreign XXXXXXXXXX Note”).

49. Foreign XXXXXXXXXX will distribute the Foreign Services Note to Foreign Services, which will result in the Foreign Services Note being extinguished.

50. Foreign Services will contribute the stock of Foreign XXXXXXXXXX and other assets and liabilities related to the XXXXXXXXXX Business to Foreign Spinco in exchange for Foreign Spinco Common Shares (the “Foreign Spinco Contribution”).

51. Foreign Spinco will subscribe for TC Common Shares for a nominal cash consideration.

52. Sub 1 will reduce the PUC of its common shares held by DC and Foreign XXXXXXXXXX by an amount to be determined payable by way of a distribution (i) to DC, of the DC Note and an amount of cash; and (ii) to Foreign XXXXXXXXXX, of an amount of cash.

The DC Note will be extinguished as DC will be the debtor and the creditor of the DC Note.

53. DC will reorganize its capital (the “DC Capital Reorganization”) by filing articles of amendment under the XXXXXXXXXX to create and authorize the issuance of the following new classes of shares:

a) an unlimited number of preferred shares (the “DC Preferred Shares”) with the following terms and conditions:

i. non-voting;

ii. each DC Preferred Share will entitle the holder to receive non-cumulative dividends if and when declared by the board of directors of DC;

iii. each DC Preferred Share will be redeemable and retractable, subject to applicable law, at any time at the option of the holder or DC, for a redemption amount (the “DC Redemption Amount”) equal to the quotient obtained when:

(A) the amount equal to the aggregate FMV of all of the issued and outstanding DC Common Shares, determined immediately prior to the DC Share Exchange, multiplied by Butterfly Percentage;

is divided by:

(B) the number of DC Preferred Shares issued on the DC Share Exchange;

plus that amount which is equal to all declared and unpaid dividends on such DC Preferred Share;

iv. except with the consent in writing of the holders of all of the DC Preferred Shares, no dividend shall at any time be declared and paid on, or declared and set apart for payment on any other class of DC shares unless, after the payment of such dividend, the realizable value of the assets of DC would not be less than the total of the aggregate DC Redemption Amount, plus any declared but unpaid dividends thereon; and

v. in the event of the dissolution, liquidation or winding-up of DC, whether voluntary or involuntary, or any other distribution of assets of DC among its shareholders for the purpose of winding-up its affairs, the holders of DC Preferred Shares will be entitled to receive from the assets of DC an amount equal to the aggregate DC Redemption Amount (plus any declared but unpaid dividends thereon) before any amount will be paid or any assets of DC are distributed upon any liquidation, dissolution or winding-up of DC to the holders of any other class of DC shares. After payment to the holders of DC Preferred Shares of the amount so payable to them, such holders shall not be entitled to share in any further distribution of the assets of DC.

b) redesignate the existing common shares as Class A Common Shares (the “DC Common Shares”) and create an unlimited number of Class B Common Shares (the “DC New Common Shares”), with terms and conditions identical to the DC Common Shares immediately before such amendment, except that each DC New Common Share will entitle the holder to two votes per share (instead of one vote per share).

54. Forco 1 will exchange each of its DC Common Shares for one DC New Common Share and one DC Preferred Share (the “DC Share Exchange”). The DC Common Shares so exchanged will be cancelled. The aggregate FMV of DC Common Shares immediately before the DC Share Exchange will equal the aggregate FMV of the DC New Common Shares and of the DC Preferred Shares immediately following the DC Share Exchange. DC and Forco 1 will not make a joint election under the provisions of subsection 85(1) with respect to the DC Share Exchange.

The aggregate addition to the stated capital in respect of the DC New Common Shares and the DC Preferred Shares issued by DC on the DC Share Exchange will be equal to the aggregate stated capital of the DC Common Shares, immediately before the DC Share Exchange. Such aggregate stated capital will be apportioned between the DC New Common Shares and the DC Preferred Shares in proportion to the relative aggregate FMV of such shares.

For greater certainty, the aggregate PUC of the DC New Common Shares and the DC Preferred Shares will be subject to the application of subsection 86(2.1).

55. Forco 1 will distribute the DC New Common Shares and DC Preferred Shares to Forco 2.

56. Forco 2 will distribute the DC New Common Shares and DC Preferred Shares to Forco 3.

57. Forco 3 will distribute the DC New Common Shares and DC Preferred Shares to Forco 4 and Foreign Services in proportion of their respective ownership interests.

58. Forco 4 will distribute its DC New Common Shares and DC Preferred Shares to Foreign Services.

59. Pursuant to a three-party transfer agreement between Foreign Services, TC and Foreign Spinco (the “Three-Party Share Exchange”), Foreign Services will transfer its DC Preferred Shares to TC for a purchase price equal to the aggregate FMV of such DC Preferred Shares in the following manner:

a) TC will agree to pay the purchase price for the DC Preferred Shares transferred to it by Foreign Services by issuing TC Common Shares to Foreign Spinco having an aggregate FMV at the time of the transfer equal to the aggregate FMV of the DC Preferred Shares so transferred to it by Foreign Services. TC, Foreign Spinco and Foreign Services will agree that TC Common Shares will be issued to Foreign Spinco in respect of and by virtue of the disposition by Foreign Services of the DC Preferred Shares to TC;

b) Foreign Services will agree to pay the purchase price for the Foreign Spinco Common Shares issued to it as described in Paragraph 59 c) by transferring all of DC Preferred Shares to TC;

c) Foreign Spinco will agree to pay the purchase price for the TC Common Shares issued to it as described in Paragraph 59 b) by issuing Foreign Spinco Common Shares to Foreign Services having an aggregate FMV at that time equal to the aggregate FMV of the TC Common Shares issued to it, which will be equal to the aggregate FMV of the DC Preferred Shares.

In connection with the Three-Party Share Exchange, TC will add an amount to the stated capital of the TC Common Shares equal to the aggregate stated capital of the DC Preferred Shares transferred to TC. For greater certainty, the aggregate PUC of the TC Common Shares will be subject to the application of paragraph 212.1(1.1)(b).

The aggregate FMV, immediately before the Distribution, of the Foreign Spinco Common Shares owned by Foreign Services will be equal to or approximate the amount determined by the formula:

(A × B/C) + D

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1) on the assumption that Foreign Services is the participant, DC is the distributing corporation and Foreign Spinco is the acquiror.

Types of Property Analysis

60. DC will be considered to have significant influence over a corporation or a partnership if it has significant influence over that corporation or that partnership, or over any other corporation or partnership that has significant influence over that corporation or that partnership, or if DC in combination with corporations or partnerships over which it has significant influence have significant influence over that corporation or that partnership.

61. Immediately before the Distribution, 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 or partnership over which DC has the ability to exercise significant influence. The assets of DC, determined on a consolidated look-through basis as described herein, will be classified into the following three types of property for purposes of the definition of “distribution” in subsection 55(1):

a) cash or near-cash property, comprising all of the current assets of the DC Group, including cash, short-term deposits and similar amounts receivable within one year, marketable securities (except portfolio investments), accounts receivable (including HST/GST/PST/QST receivables), inventory and prepaid expenses;

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, for purposes of the Act, be income from property or from a specified investment business.

For greater certainty, for purposes of these determinations:

d) for the purposes of determining the aggregate FMV of each type of property of DC, the aggregate FMV of the shares of the capital stock of any corporation, or the FMV of any partnership interest, over which any corporation or partnership has the ability to exercise significant influence and of any indebtedness receivable by any such corporation or partnership from a corporation or partnership over which it has significant influence will be allocated among the types of property described in Paragraphs 61 a), b), and c) by multiplying the aggregate FMV of the shares of the capital stock, the partnership interest, or the indebtedness receivable from the particular corporation or partnership, as the case may be, by the proportion that the aggregate net FMV of each type of property owned by the corporation or partnership (as determined in accordance with the methodologies described herein) is of the aggregate net FMV of all property owned by such corporation or partnership (as determined in accordance with the methodologies described herein);

e) any tax accounts such as the balance of any non-capital losses of the DC Group or the balance of any refundable dividend tax on hand or capital dividend account, if any, will not be considered property;

f) the amount of any deferred or future income tax asset will not be considered property;

g) advances and loans receivable, including those owing from non-arm’s length persons, or portions thereof, that are (i) due within the next 12 months, (ii) have no fixed term of repayment, or (iii) are payable or callable on demand will be considered cash or near-cash property;

h) advances and loans receivable, including those owing from non-arm’s length persons, or portions thereof, that are not due within the next 12 months and that are not payable or callable on demand, or will remain outstanding for 12 months or more, will be considered business property;

i) accounts receivable will be classified as cash or near-cash property even if they are not expected to be paid within 12 months;

j) income and other taxes receivable (excluding HST/GST/PST/QST) within a year, as well as any corresponding interest and penalties, which relate to either: an assessment, additional assessment, reassessment or variance thereof received prior to the Distribution or a return filed for a taxation year for which no assessment, additional assessment, reassessment or variance thereof has been received prior to the Distribution, will be classified as cash or near-cash property. Income and other taxes receivable (excluding HST/GST/PST/QST) that relate to taxation years for which a return has not been filed will not be considered property; and

k) HST/GST/PST/QST receivable within a year, which relates to reporting periods ending prior to the Distribution for which a return has been filed, will be classified as cash or near-cash property. HST/GST/PST/QST receivable that relates to reporting periods ending after the Distribution or to reporting periods for which a return has not been filed will not be considered property.

62. In determining, on a consolidated look-through basis, the net FMV of each type of property of the DC Group immediately before the Distribution, the liabilities of DC and any corporation or partnership over which DC exercises significant influence will be allocated to, and will be deducted in the calculation of, the net FMV of each type of property of DC and such corporation or partnership, in the following manner:

a) in determining the net FMV of each type of property of a corporation or partnership over which DC exercises significant influence immediately before the Distribution, the liabilities of that corporation or partnership (other than an amount owing by such corporation or partnership to another corporation or partnership that has the ability to exercise significant influence over the debtor corporation) will be allocated to, and deducted in the calculation of, the net FMV of each type of property of that particular corporation or partnership as follows:

i. current liabilities of such corporation or partnership will be allocated to each cash or near-cash property of the corporation or partnership in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of the corporation. To the extent that the total amount of current liabilities to be allocated to the cash or near-cash property exceeds the total FMV of all the cash or near-cash property, such corporation or partnership will be considered to have a negative amount of cash or near-cash property;

ii. following the allocation of current liabilities to each cash or near-cash property as described in Paragraph 62 a)i., provided that the net FMV of the cash or near-cash property of such corporation or partnership is positive, any

1. accounts receivables (including HST/GST/PST/QST receivables, and accounts receivables owing from non-arm’s length persons other than any amount owing by such corporation or partnership to another corporation or partnership that has the ability to exercise significant influence over the debtor corporation),

2. inventories, or

3. prepaid expenses

of such corporation or partnership may be reclassified as business property of such corporation or partnership, and excluded from the net FMV of the cash or near-cash property, to the extent that such property will be collected, sold, used or consumed in the ordinary course of business to which such property relates;

iii. liabilities, other than current liabilities, of such corporation or partnership that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property and liabilities that pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property. To the extent that the total amount of liabilities that are to be allocated to a particular type of property as described herein exceeds the total FMV of that type of property, such corporation or partnership will be considered to have a negative amount of that type of property; and

iv. if any liabilities remain after the allocations described in Paragraphs 62 a)i. and iii. are made, such excess unallocated liabilities will then be allocated to each type of property of such corporation or partnership, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities. However, where a corporation or partnership is considered to have a negative amount of a type of property because of Paragraphs 62 a)i. and iii., for purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property.

b) in determining, on a consolidated look-through basis, the net FMV of each type of property of DC immediately before the Distribution, DC will include the appropriate pro rata share of the net FMV of each type of property of any corporation or partnership over which DC exercises significant influence and, for greater certainty, the appropriate negative amount of such type of property of any such corporation or partnership, as determined in accordance with Paragraph 62 a), and any liabilities of DC will be allocated to, and be deducted in the calculation of, the net FMV of each type of property of DC in the following manner:

i. current liabilities of DC will be allocated to the cash or near-cash property of DC in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of DC. The allocation of current liabilities as described herein will not exceed the aggregate FMV of all the cash or near-cash property of DC;

ii. following the allocation of current liabilities to each cash or near-cash property in Paragraph 62 b)i., any remaining net aggregate FMV of any

1. accounts receivables (including HST/GST/PST/QST receivables, and accounts receivables owing from non-arm’s length persons other than any amount owing by such corporation or partnership to DC that DC has the ability to exercise significant influence over the debtor corporation),

2. inventories, or

3. prepaid expenses

of DC may be reclassified as business property and excluded from the cash or near-cash property to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates.

iii. liabilities of DC, other than current liabilities, that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property and liabilities that pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property, but not in excess of the net FMV of that type of property after the allocation of liabilities to a particular property as described herein; and

iv. if any liabilities remain after the allocations described in Paragraphs 62 b)i. and b)iii. are made, such excess unallocated liabilities will then be allocated to each type of property of DC, on the basis of the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities, but after the allocation of the liabilities described in Paragraphs 62 b)i. and b)iii.

For greater certainty, for the purposes of these determinations:

c) no amount will be considered to be a liability unless it represents a legal liability which is capable of quantification. For greater certainty, an obligation that is contingent at the time of the Distribution will not be considered to be a liability as the amount does not represent a legal liability that is capable of quantification at that time;

d) the amount of any deferred or future income tax liability will not be considered a liability because such amount does not represent a legal liability;

e) current liabilities will include amounts with no fixed term of repayment and amounts normally classified as current liabilities, including the portion of any long-term debt or advance due within one year, owing to both arm’s length and non-arm’s length parties;

f) any current pension plan liability (i.e., the current portion of the statutorily created pension plan liability), current post retirement benefit liability and current liability insurance liabilities of the DC Group will be allocated to cash or near-cash property, and any non-current pension plan liability (i.e., non-current portion of the statutorily created pension plan liability), non-current post retirement benefit liability and non-current liability insurance liabilities of the DC Group will be allocated to business property;

g) income or other taxes due and payable within a year (excluding HST/GST/PST/QST), as well as any corresponding interest and penalties, which relate to either an assessment, additional assessment, reassessment or variance thereof received prior to the Distribution or a return filed for a taxation year for which no assessment, additional assessment, reassessment or variance thereof has been received prior to the Distribution, will be classified as current liabilities. Income and other taxes payable (excluding HST/GST/PST/QST) that relate to taxation years for which a return has not been filed will be classified as contingent liabilities unless they represent non-resident withholding tax or similar non-income taxes which are payable pursuant to the applicable legislation; and

h) HST/GST/PST/QST payable which relate to reporting periods ending prior to the Distribution for which a return has been filed, will be classified as current liabilities. HST/GST/PST/QST payables that relate to reporting periods ending after the Distribution or to reporting periods for which a return has not been filed will not be considered a liability.

63. Based on the principles described in Paragraphs 60 to 62, it is anticipated that DC will only have business property at the time of the Distribution.

64. As DC does not directly own assets or have any employees of any of the XXXXXXXXXX Business or the XXXXXXXXXX Business and operates the XXXXXXXXXX Business and the XXXXXXXXXX Business through its subsidiaries, the Distribution will involve transferring shares of the capital stock of corporations that conduct the Spin Business, and to the extent applicable, transferring cash and near-cash property to and having certain of its liabilities assumed by TC.

Distribution of the Spin Business

65. DC will transfer all its assets relating to Spin Business (the “Distribution Property”) to TC for a purchase price equal to the FMV of the Distribution Property (the “Distribution”). The Distribution Property will include the shares of the capital stock of Sub 1 that are held by DC, and, to the extent necessary, an amount of cash and near-cash property.

As consideration for the Distribution Property, TC will :

a) if applicable, assume all or certain liabilities of DC; and

b) issue TC Preferred Shares to DC having an aggregate FMV and TC Redemption Amount equal to the amount by which the aggregate FMV of the Distribution Property transferred to TC exceeds the aggregate amount of the liabilities assumed by TC in Paragraph 65 a).

In connection with the Distribution:

c) DC and TC will jointly elect, in the prescribed form and manner and within the time specified in subsection 85(6), to have subsection 85(1) apply in respect of the transfer of each eligible property transferred to TC and in respect of which TC Preferred Shares have been issued as full or partial consideration as described in Paragraph 65 b).

d) a subsection 85(1) election will not be made for the transfer of cash or near-cash property;

e) the agreed amount in respect of each eligible property so transferred will be, in the case of capital property (other than depreciable property of a prescribed class), an agreed amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the FMV of the particular eligible property transferred, nor will it be less than the amount permitted under paragraph 85(1)(b);

f) the amount of any liabilities assumed by TC which are allocated to a particular eligible property that is the subject of an election under subsection 85(1) as described in Paragraph 65 will not exceed the agreed amount for that particular property;

g) the amount of any liabilities assumed by TC which are allocated to a particular property that is not the subject of an election under subsection 85(1) will not exceed the FMV of such particular property,

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

i) in determining the net aggregate FMV of each type of property that has been received by TC, a liability assumed by TC will be allocated to the same type of property to which such liability was allocated in determining the aggregate net FMV of each type of property of DC (as determined using the principles set out in Paragraphs 60 to 62. For greater certainty, a current liability, or a portion thereof, allocated to an account receivable, inventory or prepaid expense of DC that will be reclassified as business property in accordance with Paragraph 62 will be considered to be a liability allocated to a business property.

66. Immediately following the transfer of the Distribution Property to TC and the assumption of liabilities by TC as described in Paragraph 65, the net FMV of each type of property received by TC will be equal to or approximate that proportion of the net FMV of all property of DC of that type (as determined immediately before such transfer and using the principles set out in Paragraphs 60 to 62 that:

a) the aggregate FMV of all DC Preferred Shares owned by TC immediately before the transfer;

is of

b) the aggregate FMV of all the issued and outstanding shares of the capital stock of DC immediately before the transfer.

In the event that DC has cash or near-cash property at the time of the transfer, then no later than 45 days after the date of the transfer of the Distribution Property by DC to TC as described in Paragraph 65, DC will transfer to TC any cash or near-cash property that is required to ensure that the FMV of the cash or near cash-property of DC transferred to TC as described in Paragraph 65 will approximate that proportion described above and such transfer will be considered to have been property transferred to TC as part of the Distribution Property for purposes of section 55.

The expression “approximate that proportion” means that the discrepancy from that proportion, if any, would not exceed 1% determined as a percentage of the aggregate net FMV of each type of property that TC will receive (or DC will retain) as compared to what TC would have received (or DC would have retained) had it received (or retained) its appropriate pro rata share of the aggregate net FMV of that type of property.

Share Redemptions

67. TC will redeem all of the outstanding TC Preferred Shares held by DC for an amount equal to their aggregate FMV and TC Redemption Amount. For greater certainty, there will be no declared and unpaid dividends on the TC Preferred Shares. In satisfaction of the aggregate TC Redemption Amount for such shares, TC will issue to DC a non-interest bearing promissory note, payable on demand (the “TC Redemption Note”) with a principal amount and FMV equal to the aggregate TC Redemption Amount of the shares so redeemed. DC will accept the TC Redemption Note in full payment of the aggregate TC Redemption Amount of the redeemed shares. No designation will be made under subsection 89(14) with respect to the dividend deemed to arise under subsection 84(3) on the redemption of the TC Preferred Shares.

68. DC will redeem all of the outstanding DC Preferred Shares held by TC for an amount equal to their aggregate FMV and DC Redemption Amount. For greater certainty, there will be no declared and unpaid dividends on the DC Preferred Shares. In satisfaction of the aggregate DC Redemption Amount for such shares, DC will issue to TC a non-interest bearing promissory note, payable on demand (the “DC Redemption Note”) with a principal amount and FMV equal to the aggregate DC Redemption Amount of the shares so redeemed. TC will accept the DC Redemption Note in full payment of the aggregate DC Redemption Amount of the redeemed shares. No designation will be made under subsection 89(14) with respect to the dividend deemed to arise under subsection 84(3) on the redemption of the DC Preferred Shares.

69. DC and TC will enter into a set-off agreement, pursuant to which the principal amount owing by DC to TC under the DC Redemption Note and the principal amount owing by TC to DC under the TC Redemption Note will be set-off in full against each other. Following the set-off, each such note will be considered to be paid in full and will be cancelled.

XXXXXXXXXX Spin-off

70. Foreign Spinco will borrow an amount of approximately US$XXXXXXXXXX from one or more third-party lenders (the “Foreign Spinco Term Loan”).

71. Foreign Spinco will lend the proceeds of the Foreign Spinco Term Loan to Foreign XXXXXXXXXX under substantially similar terms as the Foreign Spinco Term Loan (the “Foreign XXXXXXXXXX Loan”).

72. Using the proceeds of the Foreign XXXXXXXXXX Loan, Foreign XXXXXXXXXX will repay a portion of the Foreign XXXXXXXXXX Note held by Foreign Services.

73. Using the proceeds from the repayment of the Foreign XXXXXXXXXX Note, Foreign Services will repay Foreign Services Debt. Foreign Services will not segregate or otherwise trace the use of the proceeds.

74. Foreign Services will distribute all of the Foreign Spinco Common Shares it holds to Foreign Holdco (the “First Spinco Distribution”).

75. Foreign Holdco will distribute all of the Foreign Spinco Common Shares it holds to Foreign Pubco (the “Second Spinco Distribution”).

76. Foreign Pubco will distribute all of the Foreign Spinco Common Shares it holds to Foreign Pubco’s shareholders (the “Third Spinco Distribution”). Foreign Pubco’s shareholders that otherwise would be entitled to receive a fractional Foreign Spinco Common Share will receive cash in lieu thereof. A distribution agent will aggregate all such fractional shares, cause such fractional shares to be sold in the open market at prevailing market prices and distribute the proceeds to each shareholder entitled thereto in accordance with such holder’s proportional interest in the aggregate number of shares sold.

Additional information

77. None of the corporations involved in the Proposed Transactions are, or will be, specified financial institutions or financial intermediary corporations.

78. The DC Preferred Shares and the TC Preferred Shares will not, at any time during the implementation of the Proposed Transactions, be:

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

b) the subject of a “dividend rental arrangement” as contemplated in subsection 112(2.3);

c) a share that is issued or acquired as part of a transaction or event or a series of transactions or events of the type described in subsection 112(2.5);

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

e) acquired in the “ordinary course of the business” carried on by the holder;

f) 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).

79. Foreign Pubco is not aware of an anticipated or expected transaction to occur as part of the same series of transactions or events as the Proposed Transactions that will result in an acquisition of control or takeover of any one or more of Foreign Pubco, Foreign Services, Foreign Spinco, DC, TC or Sub 1. Moreover, Foreign Pubco was not involved in the past three years in any meaningful discussion or plan or project regarding a transaction that will result in an acquisition of control or takeover of any one or more of Foreign Pubco, Foreign Services, Foreign Spinco, DC, TC or Sub 1.

80. Except as described in this letter, no property has or will become property of the DC Group and no liabilities have been or will be incurred or paid by the DC Group in contemplation of and before the Proposed Transactions other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

81. As part of the series of transactions that includes the Proposed Transactions, there will not be:

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

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

c) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii).

82. At no time, during the course of a series of transactions or events that includes the dividends described in Ruling D, will:

a) 10% or more of the FMV of the shares of the capital stock of Foreign XXXXXXXXXX be derived from any of the shares of the capital stock of DC or TC; and

b) 10% or more of the FMV of the shares of the capital stock of Foreign Spinco be derived from any of the shares of the capital stock of DC or TC.

More specifically, during the course of a series of transactions or events that includes the dividends described in Ruling D, will:

c) at no time before the Foreign Spinco Term Loan described in Paragraph 70 is issued, the aggregate FMV of the TC Common Shares be expected to be in excess of US$XXXXXXXXXX;

d) at no time after the Foreign Spinco Term Loan described in Paragraph 70 is issued, the aggregate FMV of the TC Common Shares be expected to be in excess of US$XXXXXXXXXX;

e) at no time during the portion of the series of transactions or events commencing immediately prior to the Three-Party Share Exchange and terminating when the Foreign Spinco Term Loan described in Paragraph 70 is issued, the aggregate FMV of the shares of the capital stock of Foreign Spinco be expected to be less than US$XXXXXXXXXX; and

f) at no time during the portion of the series of transactions or events commencing when the Foreign Spinco Term Loan detailed at Paragraph 70 is issued and terminating at the end of the series of transactions or events, the aggregate FMV of the shares of the capital stock of Foreign Spinco be expected to be less than US$XXXXXXXXXX.

83. At no time, during the course of the series of transactions or events that includes the dividend described in Ruling D, will the shares of the capital stock of DC, TC, Foreign Services or Foreign Spinco be acquired by any person or partnership who was not related to the vendor or, as part of the series, ceased to be related to the vendor, otherwise than as described herein (taking into consideration paragraph 55(3.2)(c), if applicable).

84. For the purposes of paragraph 82 a), in determining the portion of the FMV of the shares or debt of a particular corporation which is derived from the shares of another corporation, any indebtedness of the particular corporation that is not a secured debt or a debt related to a particular property will be considered to reduce the FMV of each property of the particular corporation (or indirectly the FMV derived from shares owned by the particular corporation) pro rata in proportion to the relative FMV of all property of the particular corporation.

85. The DC Common Shares will not constitute taxable Canadian property at the time these shares are exchanged by Forco 1 on the DC Share Exchange. Accordingly, Forco 1 will not apply for a clearance certificate under section 116 in respect of the transfer of such shares, and will not file a Canadian corporate income tax return to report the disposition of these shares.

86. The DC New Common Shares and the DC Preferred Shares will not constitute taxable Canadian property at the time of the transactions described in Paragraphs 55 to 58. Accordingly, Forco 1, Forco 2, Forco 3 and Forco 4 will not apply for a clearance certificate under section 116 in respect of the transfer of such shares, and will not file a Canadian corporate income tax return to report the disposition of these shares.

87. The DC Preferred Shares will not constitute taxable Canadian property at the time those shares are transferred by Foreign Services to TC on the Three-Party Share Exchange. Accordingly, Foreign Services will not apply for a clearance certificate under section 116 in respect of this transfer, and will not file a Canadian corporate income tax return to report the disposition of these shares.

88. DC and TC will not have any eligible or non-eligible refundable dividend tax on hand within the meaning of subsection 129(4) at any time during the course of the Proposed Transactions.

89. TC will hold the DC Preferred Shares as capital property.

90. DC will hold the TC Preferred Shares as capital property.

91. TC will have the financial capacity to honour the TC Redemption Note described in Paragraph 67.

92. DC will have the financial capacity to honour the DC Redemption Note described in Paragraph 68.

93. The implementation of the Proposed Transactions will not result in either DC or TC being unable to pay their respective Canadian tax liabilities.

94. Following the Foreign Spinco Contribution and within 3 days following the Third Spinco Contribution, Foreign Services, Foreign Holdco or Foreign Pubco may contribute an immaterial portion of the shares of the capital stock of Foreign Spinco (approximately US$XXXXXXXXXX value) to its donor-advised fund, which is an account owned for U.S. federal income tax purposes by a third-party public charity.

Purposes of the Proposed Transactions

95. The purpose of the Proposed Transactions is to facilitate the spin-off of the XXXXXXXXXX Business to the shareholders of Foreign Pubco. Foreign Pubco believes that the Proposed Transactions will enhance the ability of each of DC and Foreign Spinco to pursue independent corporate objectives and strategies and will maximize value to shareholders for the following reasons:

a) The senior management and board of directors of each of DC and Foreign Spinco will be able to focus solely on the core business of the respective company and thereby customize such company’s business strategies. The Proposed Transactions are expected to improve the ability of each business to pursue a distinct growth strategy best suited to its respective customer base and operating platform. Enhanced management focus will improve performance and reduce inefficiencies that result from operating the businesses under a single management team and board of directors. The Proposed Transactions will also minimize distraction by removing any requirement that senior management oversees both the XXXXXXXXXX Business and the XXXXXXXXXX Business.

b) The Proposed Transactions will eliminate the current internal competition for capital between the two businesses and create flexibility for more efficient allocation of capital, allowing each business to optimize its capital structure and capital deployment priorities.

c) The Proposed Transactions will create a focused “equity currency” for each business that is expected to enhance the aggregate equity value of Foreign Pubco and Foreign Spinco. Separate publicly traded shares for each business will be more transparent for investors, as investors will be better able to value each business. Each business will be able to access the capital markets, make acquisitions and attract and retain employees using equity linked solely to its own performance, and the anticipated price uplift will make the issuance of equity for capital raising, acquisitions and compensation more efficient.

d) In addition to enhancing equity-based compensation programs by creating a pure play equity for each business, the Proposed Transactions will otherwise better position each business to recruit, compensate and retain executives and other employees with relevant expertise. The “pure play” nature of the businesses will enable each to attract and retain employees with relevant experience. The XXXXXXXXXX Business’ anticipated status as a public company has already rendered its senior management positions more attractive to top-tier candidates, a dynamic expected to continue following the Proposed Transactions.

e) The Proposed Transactions will resolve customer/competitor conflicts. Specifically, customers and potential customers of the XXXXXXXXXX Business compete with the XXXXXXXXXX Business and accordingly are less inclined to contract with the XXXXXXXXXX Business while the two businesses are combined.

Rulings

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

A. On the DC Share Exchange, as described in Paragraph 54, the provisions of subsections 86(1) and (2.1) will apply, and the provisions of subsection 86(2) will not apply, to the disposition of the DC Common Shares owned by Forco 1 in exchange for the DC New Common Shares and the DC Preferred Shares.

B. As a result of the Three-Party Share Exchange, as described in Paragraph 59:

a) the provisions of subsection 84(1) and paragraph 212.1(1.1)(a) will not apply to deem a dividend to be paid by TC, or to be received by Foreign Services;

b) the provisions of subsection 212.1(1.1)(b) will apply such that the amount added to the PUC of the TC Common Shares in connection with the Three-Party Share Exchange will not exceed the PUC, immediately before the Three-Party Share exchange, of the DC Preferred Shares transferred to TC; and

c) the aggregate cost to TC of the DC Preferred Shares that TC will acquire from Foreign Services in connection with the Three-Party Share Exchange will be equal to the aggregate FMV at the time of such shares.

C. Subject to the application of subsection 69(11), the provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply to the transfer of Distribution Property by DC to TC as described in Paragraph 65, such that the agreed amount in respect of each transfer of eligible property will be deemed to be DC’s proceeds of disposition and TC’s cost of such property pursuant to paragraph 85(1)(a).

D. Subsection 84(3) will apply to:

a) the redemption of TC Preferred Shares held by DC, as described in Paragraph 67, such that TC will be deemed to have paid and DC will be deemed to have received; and

b) the redemption of DC Preferred Shares held by TC, as described in Paragraph 68, such that DC will be deemed to have paid and TC will be deemed to have received

a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption and any such dividend:

c) 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;

d) 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), (2.1), (2.3) or (2.4);

e) 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;

f) will, by virtue of the provision of subsection 112(3), reduce any loss arising from the redemption to TC and DC which would otherwise be determined;

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

h) will not be subject to tax under Parts IV.1 and VI.1.

E. By virtue of the provisions of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends described in Ruling D, provided that:

a) XXXXXXXXXX% or more of the FMV of any one of the Foreign Spinco Common Shares is not, at any time during the course of the series of transactions or events that includes the taxable dividends described in Ruling D, derived directly or indirectly, from one or more of shares of TC or DC; and

b) as part of the series of transactions or events that includes the dividends described in that Ruling, there is not:

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

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

(iv) an acquisition of shares of the capital stock of DC in the circumstances described in subparagraph 55(3.1)(b)(iii)

which has not been described herein, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b) to any of the dividends described in that Ruling.

For the purposes of subclause 55(3.1)(b)(i)(A)(II), in determining whether 10% or more of the FMV of the Foreign Spinco Common Shares is derived from one or more shares of the capital stock of TC or DC, as described in Ruling Ea) above, any indebtedness of Foreign Spinco that is not a secured debt and that is not a debt related to a particular property will be considered to reduce the FMV of each property of Foreign Spinco pro rata in proportion to the relative FMV of all property of Foreign Spinco.

F. The set-off and cancellation of the DC Redemption Note held by TC and the TC Redemption Note held by DC, as described in Paragraph 69, will not give rise to a “forgiven amount” within the meaning of subsections 80(1) or 80.01(1). Neither TC or DC will realize any gain or incur any loss as a result of the set-off and resultant cancellation of the DC Redemption note or TC Redemption Note.

G. Provided that DC has a legal obligation to pay interest on the DC Loan, and to the extent the DC Loan does not exceed the Capital of the DC Preferred Shares, determined immediately before the redemption described in Paragraph 68, and provided that the capital so redeemed was being used for purposes that would have qualified for interest deductibility had that capital been borrowed money, the Proposed Transactions will not, in and of themselves, cause the interest, or a reasonable amount in respect thereof on the DC Loan, to not be deductible pursuant to subparagraph 20(1)(c)(i).

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

I. Subsection 245(2) will not apply to the Proposed Transaction, in and of 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 70-6R12 issued on April 1, 2022, and are binding on the CRA, provided that the Proposed Transactions described in Paragraphs 48 to 76 are completed no later than six (6) 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, could have an effect on the rulings provided herein.

Comments

Unless otherwise expressly confirmed, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, 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 stated capital or PUC in respect of any share referred to herein;

b. any other tax account of any corporation referred to herein;

c. the characterization of any property described herein to the holder thereof; or

d. whether any property is taxable Canadian property;

e. whether all applicable tax under Part XIII was or would be withheld and remitted to CRA;

f. the application of the proposed Excessive Interest and Financing Expenses Limitation rules contained in draft legislation released on November 3, 2022 to the Proposed Transactions; and

g. 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, 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, 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 the Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch