2023 Ruling 2022-0954211R3 - Estate Freeze and Corporate Attribution

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 subsection 74.4(2) applies to certain of the proposed transactions.

Position: No. Favourable ruling given.

Reasons: No designated person receives a benefit or can receive a benefit while being a designated person.

XXXXXXXXXX 									2022-095421 

XXXXXXXXXX, 2023

Re: Advance Income Tax Ruling – Estate Freeze (2022-095421)
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, as amended by your correspondence of XXXXXXXXXX, in which you requested an advance income tax ruling (the “Ruling”) on behalf of the above-named taxpayers (the “Taxpayers”). We understand that to the best of your knowledge and that of the Taxpayers, 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 Taxpayers or a related person and:

A. being considered by the Canada Revenue Agency (the “CRA”) in connection with such return;

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

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

ii. the subject of a ruling request previously considered by the Income Tax Rulings Directorate.

This letter is based solely on the Facts and Proposed Transactions described below. The documentation submitted with the ruling request does not form part of the Facts and Proposed Transactions, and any references thereto are provided solely for the convenience of the reader.

Unless otherwise stated:

(a) all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the “Regulations”);

(b) all terms and conditions used in this Ruling that are defined in the Act (or in the Regulations) have the meaning given in such definition;

(c) all references to monetary amounts are in Canadian dollars;

(d) all values are approximations as of XXXXXXXXXX and are to the best of the knowledge of the Taxpayers; and

(e) the singular should be read as plural and vice versa where the circumstances so require.

DEFINITIONS

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

“Aco” means XXXXXXXXXX, a taxable Canadian corporation incorporated under XXXXXXXXXX, as amended;

“Aco Articles of Amendment” means the amendment of the Articles of Aco wherein the Aco Pref 1 Shares will be deleted as shares that Aco is authorized to issue and the Aco New Common Shares, Aco Pref 2 Shares, and Aco Pref 3 Shares will be created;

“Aco Common Shares” means the non-voting common shares of Aco which have a discretionary dividend entitlement and, subject to the prior rights of the Aco SV Shares and Aco Pref 1 Shares, are entitled to, in the event of a liquidation, dissolution or winding up of Aco, the remaining assets and property of Aco, and immediately following the Aco Articles of Amendment, are, subject to the prior rights of the Aco SV Shares, Aco Pref 2 Shares, and Aco Pref 3 Shares, together with the Aco New Common Shares, entitled to, in the event of a liquidation, dissolution or winding up of Aco, the remaining assets and property of Aco;

“Aco Pref 1 Shares” means the non-voting preferred shares of Aco (none of which are currently outstanding), having a discretionary dividend entitlement and which are redeemable and retractable for, and entitled in priority to the Aco Common Shares, but subject to the prior rights of the Aco SV Shares, in the event of a liquidation, dissolution or winding up of Aco, the amount of $XXXXXXXXXX per share;

“Aco Pref 2 Shares” means the new non-voting preferred shares of Aco described in Paragraph 29(b);

“Aco Pref 3 Shares” means the new non-voting preferred shares of Aco described in Paragraph 29(c);

“Aco New Common Shares” means the new non-voting common shares of Aco described in Paragraph 29(a);

“Aco SV Shares” means the special voting shares of Aco entitled to one vote per share, with no entitlement to dividends and which are redeemable and retractable for, and entitled in priority to the Aco Pref 1 Shares and Aco Common Shares in the event of a liquidation, dissolution or winding up of Aco, the amount of XXXXXXXXXX per share, and immediately following the Aco Articles of Amendment, are redeemable and retractable for, and entitled in priority to the Aco Pref 2 Shares, Aco Pref 3 Shares, Aco Common Shares, and Aco New Common Shares, in the event of a liquidation, dissolution or winding up of Aco, the amount of XXXXXXXXXX per share;

“Accumulation End Date” means the date of the applicable maximum accumulation period as set by the XXXXXXXXXX, as amended from time to time;

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

“Aunt” means XXXXXXXXXX, the aunt of Parent 1 and a resident of Canada;

“Bco” means XXXXXXXXXX a taxable Canadian corporation incorporated under the XXXXXXXXXX, as amended;

“Bco Common Shares” means the voting common shares of Bco which have a discretionary dividend entitlement;

“Bco Note” means the non-interest bearing note payable to Aco by Bco in the amount of $XXXXXXXXXX;

“Cco” means XXXXXXXXXX, a taxable Canadian corporation incorporated under the XXXXXXXXXX, as amended;

“Cco Common Shares” means the voting common shares of Cco which have a discretionary dividend entitlement;

“Cco Note” means the non-interest bearing note payable to Aco by Cco in the amount of $XXXXXXXXXX;

“CCPC” means “Canadian-controlled private corporation” and has the meaning assigned in subsection 125(7);

“CDA” means “capital dividend account” and has the meaning assigned in subsection 89(1);

“Cousin 1” means XXXXXXXXXX the daughter of Uncle and Aunt, and who is over the age of 18 and a resident of Canada;

“Cousin 2” means XXXXXXXXXX the son of Uncle and Aunt, and who is over the age of 18 and a resident of Canada;

“Dco” means XXXXXXXXXX, a taxable Canadian corporation incorporated under the XXXXXXXXXX, as amended;

“Dco Common Shares” means the voting common shares of Dco which have a discretionary dividend entitlement;

“Dco Note” means the non-interest bearing note payable to Aco by Dco in the amount of $XXXXXXXXXX;

“Dco Pref Shares” means the preferred shares of Dco, which are entitled to discretionary dividends and redeemable and retractable for the amount of $XXXXXXXXXX per share;

“Division Date” means the earliest of (i) the date that is one day before the twenty-first anniversary of the date the Second Trust was settled unless the trustees determine that it would be advisable to defer the distribution of the trust property to a date after this date (ii) a date that the trustees designate in writing as the Division Date; and (iii) the twenty-first anniversary of the death of the last survivor of the individual beneficiaries who were alive on the date the Second Trust was settled;

“Eco” means XXXXXXXXXX;

“First Trust” means the XXXXXXXXXX which was settled on XXXXXXXXXX, is a resident of Canada and has the First Trust Trustee as its only Trustee;

“First Trust Settlor” means XXXXXXXXXX, a resident of Canada at the time of the settlement of the First Trust;

“First Trust Trustee” means Parent 1;

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

“Fco” means XXXXXXXXXX;

“Gco” means XXXXXXXXXX, a taxable Canadian corporation incorporated under the Business Corporations Act XXXXXXXXXX, as amended;

“Gco Common Shares” means the voting common shares of Gco which will have a discretionary dividend entitlement;

“Grandparent 1” means XXXXXXXXXX, the father of Parent 2 and a resident of Canada;

“Grandparent 2” means XXXXXXXXXX, the mother of Parent 2 and a resident of Canada;

“Paragraph” means a numbered paragraph in this letter;

“Parent 1” means XXXXXXXXXX, a resident of Canada;

“Parent 2” means XXXXXXXXXX, a resident of Canada;

“Proposed Transactions” means the proposed transactions described in Paragraphs 25 to 30;

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

“resident of Canada” means resident of Canada for the purposes of the Act;

“SBC” means “small business corporation” and has the meaning assigned in subsection 248(1);

“Second Trust” means the new trust to be established as described in Paragraph 28;

“Second Trust Beneficiaries” means the beneficiaries of the Second Trust as described in Paragraph 28(b);

“Second Trust Settlor” means an individual, resident of Canada, who is not related (as defined in subsection 251(2)) to Parent 1 or Parent 2, and who deals at arm’s length with the Second Trust Trustees and the Second Trust Beneficiaries;

“Second Trust Trustees” means Parent 1, Parent 2, and Unrelated Trustee;

“Siblings” means XXXXXXXXXX, each of who is a resident of Canada;

“Uncle” means XXXXXXXXXX the uncle of Parent 1 and a resident of Canada; and

“Unrelated Trustee” means an individual, resident in Canada, who is not related (as defined in subsection 251(2)) to Parent 1 and Parent 2.

FACTS

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

1. The First Trust was settled by the First Trust Settlor on XXXXXXXXXX with $XXXXXXXXXX. The beneficiaries of the First Trust were, and currently are: Parent 1, Parent 2, the Siblings, any future issue of Parent 1 and Parent 2, Grandparent 1, Grandparent 2, Uncle, Aunt, Cousin 1 and Cousin 2, and any future issue of Uncle and Aunt.

2. Parent 1 incorporated Aco on XXXXXXXXXX. Aco has authorized an unlimited number of Aco SV Shares, Aco Pref 1 Shares, and Aco Common Shares. The current shareholders of Aco and their shareholdings are:

(a) Parent 1: XXXXXXXXXX Aco SV Shares; and

(b) the First Trust: XXXXXXXXXX Aco Common Shares.

3. On XXXXXXXXXX, Parent 1 entered into a share purchase agreement with Aco and transferred XXXXXXXXXX common shares of Eco with an FMV of $XXXXXXXXXX to Aco in exchange for XXXXXXXXXX Aco Pref 1 Shares and XXXXXXXXXX Aco SV Shares pursuant to section 85.

4. On XXXXXXXXXX, the First Trust subscribed for XXXXXXXXXX Aco Common Shares for $XXXXXXXXXX which was paid out of the funds used to settle the First Trust.

5. Eco was a CCPC until XXXXXXXXXX at which time it ceased to be a CCPC XXXXXXXXXX.

6. Eco and Aco were connected corporations within the meaning of subsection 186(4) during the period from Aco’s incorporation to XXXXXXXXXX.

7. Eco and Aco were SBCs until Eco ceased to be a CCPC in XXXXXXXXXX.

8. Aco paid taxable dividends to Parent 1 on the Aco Pref 1 Shares as follows: $XXXXXXXXXX.

9. Aco redeemed all of the XXXXXXXXXX Aco Pref 1 Shares held by Parent 1 on XXXXXXXXXX for their redemption amount of $XXXXXXXXXX. Parent 1 continued to own, and currently owns, the XXXXXXXXXX Aco SV Shares, which have a redemption amount of $XXXXXXXXXX in aggregate and an FMV of $XXXXXXXXXX in aggregate.

10. Aco is a CCPC that has the following assets:

		Aco Assets				FMV ($)
		Cash					XXXXX
		Bco Common Shares			XXXXX
		Bco Note				XXXXX
		Cco Common Shares			XXXXX
		Cco Note				XXXXX
		Cco Common Shares and
		Dco Pref Shares			XXXXX
		Portfolio investments		XXXXX
		Eco Shares				XXXXX
		Fco Shares				XXXXX
		Total					XXXXX

11. Aco has a balance in its CDA of $XXXXXXXXXX.

12. Bco is a CCPC that is wholly owned by Aco and provides XXXXXXXXXX. Bco has the following assets and liabilities:

		Bco Assets and 			FMV ($)
		Liabilities
		Cash					XXXXX
		Bco Note				XXXXX
		Total					XXXXX 

13. Bco’s only issued shares are XXXXXXXXXX Bco Common Shares with an ACB and PUC of $XXXXXXXXXX, all of which are owned by Aco.

14. Cco is a CCPC that is wholly owned by Aco and is an XXXXXXXXXX. Cco has the followings assets and liabilities:

		Cco Assets and			FMV ($)
		Liabilities
		Cash					XXXXX
		Portfolio investments		XXXXX
		Investments in US sub		XXXXX
		Cco Note				XXXXX
		Total					XXXXX

15. Cco’s only issued shares are XXXXXXXXXX Cco Common Shares with a PUC and ACB of $XXXXXXXXXX, all of which are owned by Aco.

16. Dco is a CCPC that is wholly owned by Aco and owns XXXXXXXXXX. Dco has the following assets and liabilities:

		Dco Assets and			FMV ($)
		Liabilities
		Cash					XXXXX
		XXXXX					XXXXX
		Dco Note				XXXXX
		Total					XXXXX

17. Dco’s only issued shares are XXXXXXXXXX Dco Common Shares and XXXXXXXXXX Dco Pref Shares all of which are owned by Aco with a nominal ACB.

18. Dco has a balance in its CDA of $XXXXXXXXXX.

19. Gco was incorporated by Aco on XXXXXXXXXX and at that time issued XXXXXXXXXX Gco Common Shares to Aco for $XXXXXXXXXX. These are currently its only issued and outstanding shares.

20. Parent 1 is XXXXXXXXXX.

21. Parent 1 is the spouse of Parent 2.

22. Parent 1 and Parent 2 are the parents of the Siblings.

23. The Siblings are all under the age of 18.

24. Grandparent 1 is the spouse of Grandparent 2.

PROPOSED TRANSACTIONS

25. Aco will transfer the Bco Note, Cco Note, Dco Note, Bco Common Shares, Cco Common Shares, Dco Pref Shares, and Dco Common Shares to Gco in exchange for XXXXXXXXXX Gco Common Shares. The transfer of the Cco Note will not result in a gain or loss. The transfers of the Bco Note and Dco Note will result in losses but these losses will be denied to Aco under paragraph 40(2)(e.1). The transfers of the Bco Common Shares, Cco Common Shares, Dco Common Shares, and Dco Pref Shares will result in small capital gains or “suspended” losses under subsections 40(3.3) and (3.4).

26. Immediately after the transfers outlined in Paragraph 25, the directors of Aco will resolve to declare a dividend in kind on the outstanding XXXXXXXXXX Aco Common Shares (all held by the First Trust), with such dividend to be paid on the date of such resolution by the transfer of the XXXXXXXXXX Gco Common Shares and a schedule attached to the directors resolution will be completed once the FMV of the XXXXXXXXXX Gco Common Shares is known (after the date of the resolution). In addition, once the FMV of the XXXXXXXXXX Gco Common Shares is confirmed, the directors of Aco will resolve to authorize the amount of the dividend resulting from the distribution of the XXXXXXXXXX Gco Common Shares to be out of the CDA of Aco and the late filing of the applicable tax election. Aco will file the necessary prescribed form with the CRA immediately after the directors authorization of the amount, in order for the dividend to be paid out of the CDA of Aco. The disposition of the XXXXXXXXXX Gco Common Shares will not result in a gain or loss to Aco.

27. Immediately after the receipt of the XXXXXXXXXX Gco Common Shares by the First Trust, the First Trust Trustee will determine to distribute as capital the XXXXXXXXXX Gco Common Shares to Parent 1. The First Trust’s ACB and the FMV of the XXXXXXXXXX Gco Common Shares should be the same at this point in time.

28. The Second Trust Settlor will form the Second Trust with a settlement of $XXXXXXXXXX. The Second Trust will be a personal trust. The Second Trust will be established and governed by, and construed under, the laws of the Province of XXXXXXXXXX. The relevant terms of the Second Trust will include the following:

(a) the trustees of the Second Trust will be Parent 1, Parent 2 and an Unrelated Trustee. The maximum number of trustees will be five and the minimum number of trustees will be (i) if a trust company is a trustee one; (ii) if at least one of Parent 1 or Parent 2 is a trustee two; and (iii) in any other case three. If the number of trustees is at any time fewer than the minimum number of trustees required, the remaining trustee or trustees must appoint a trustee or trustees, as the case may be, to attain the minimum number required and may not exercise any of their powers, other than their powers of appointment of trustees, unless and until such minimum numbers are attained;

(b) the beneficiaries of the Second Trust will be (i) Parent 1 and Parent 2; (ii) the Siblings; and (iii) any future issue of Parent 1 and Parent 2;

(c) until the Division Date, the trustees may pay and apply all or such part or parts of the net income and capital of the trust fund, as the trustees shall from time to time in their absolute discretion determine, to or for the benefit of any one or more of the beneficiaries to the exclusion of any one or more of the beneficiaries. Any income of the Second Trust not declared payable, paid or distributed to or for the benefit of a beneficiary in a taxation year of the Second Trust, net of any taxes payable by the Trust on that income, is to be accumulated by the trustees and added to the capital of the Second Trust at the beginning of the subsequent taxation year, provided that after the Accumulation End Date, the trustees shall pay to or apply for the benefit of such one or more of the beneficiaries to the exclusion, even to the complete exclusion, of the other or others, as the trustees determine, the whole of the income derived from the trust fund, in such proportions and in such manner as the trustees determine;

(d) on the Division Date, the trustees must distribute the whole of the trust fund then remaining, less any debts and other liabilities properly chargeable to the trust fund, as follows (i) first in satisfaction of all vested interests; (ii) second, the income (if any) of the Second Trust for the taxation year that includes the Division Date, to or for the benefit of one or more of the Second Trust Beneficiaries in such proportions as the trustees determine; and (iii) third, to or for the benefit of any one or more of the Second Trust Beneficiaries, in such proportions as the trustees determine;

(e) The trustees’ discretion as to the allocation, declaration as payable, payment, or distribution of income or capital to or for the benefit of any of the Second Trust Beneficiaries is absolute and unfettered and all exercises of the discretion are binding upon all the Second Trust Beneficiaries and may not be subject to question or review by any person, official, authority, court or tribunal even though the effect is to confer an advantage on any one or more of the Second Trust Beneficiaries, or could otherwise be considered, but for the foregoing, as not being an impartial exercise by the trustees of their discretion or duties under the trust deed or as not maintaining an even hand among the beneficiaries;

(f) notwithstanding the provisions described in clauses (c), (d) and (e) above, and any other provision on the Second Trust deed, a beneficiary who has not attained the age of 18 years may not receive or otherwise obtain the use of any of the income or capital of the Second Trust;

(g) notwithstanding the provisions described in clauses (c), (d) and (e) above, and any other provision of the Second Trust deed, while Parent 1 is alive and a spouse or common-law partner of Parent 2, Parent 2 may not receive or otherwise obtain the use of any of the income or capital of the Second Trust;

(h) until such time (if any) as an amount of income or capital is allocated or declared payable by the trustees to or for the benefit of a Second Trust Beneficiary, the interests of that Second Trust Beneficiary in the trust fund or any income derived from the trust fund is merely contingent and not vested or subject to divestment. As such, no Second Trust Beneficiary has any right or power to anticipate, pledge, assign, sell, transfer, alienate or encumber his or her interests in the trust property or any income derived from the trust fund in any way, nor is any such interest, in any manner, liable for or subject to the debts, liabilities or obligations of any Second Trust Beneficiary or claims of any sort against a Second Trust Beneficiary. No trustee shall participate in any attempt by a Second Trust Beneficiary to deal with his or her interest in any manner that is precluded by this provision; and

(i) no part of the income or capital of the trust fund (i) may be paid, lent or applied to or for the benefit of the Second Trust Settlor; (ii) may be paid, lent or applied to or for the benefit of any person determined by the Second Trust Settlor; or (iii) shall require the Second Trust Settlor’s consent with respect to the distribution of such income or capital.

29. The Aco Articles of Amendment will be filed and Aco will delete the Aco Pref 1 Shares as shares that Aco is authorized to issue and create the Aco New Common Shares, Aco Pref 2 Shares, and Aco Pref 3 Shares. Pursuant to a share exchange agreement and under Section 86, all of the Aco Common Shares held by the First Trust will be exchanged for approximately XXXXXXXXXX Aco Pref 2 Shares and approximately XXXXXXXXXX Aco Pref 3 Shares. It is intended that the aggregate FMV of the XXXXXXXXXX Aco Pref 2 Shares will be approximately equal to XXXXXXXXXX% of the FMV of the Aco Common Shares at the time of the exchange. The terms and conditions of the Aco Pref 2 Shares will specify $XXXXXXXXXX as the specified amount for each Aco Pref 2 Share for the purposes of subsection 191(4). The directors of Aco will confirm the FMV of an Aco Pref 3 Share on the issuance date by a resolution within 3 months after the date the Aco Articles of Amendment are filed. A price adjustment clause will be included in the share exchange agreement but the Aco Pref 2 Shares will not be subject to any adjustments under the agreement (or under the share rights and restrictions of the Aco Pref 2 Shares).

(a) The Aco New Common Shares will have the following rights and restrictions: non-voting common shares of Aco, with a discretionary dividend entitlement but not entitled to any dividends until such time as there are no Aco Pref 2 Shares or Aco Pref 3 Shares issued and outstanding and subject to the prior rights of the Aco SV Shares, Aco Pref 2 Shares, and Aco Pref 3 Shares, and together with the Aco Common Shares, are entitled to, in the event of a liquidation, dissolution or winding up of Aco, the remaining assets and property of Aco.

(b) The Aco Pref 2 Shares will have the following rights and restrictions: non-voting preferred shares of Aco, having a discretionary dividend entitlement, redeemable and retractable for, and entitled in priority to the Aco Common Shares, Aco New Common Shares, and Aco Pref 3 Shares, but subject to the prior rights of the Aco SV Shares, in the event of a liquidation, dissolution or winding up of Aco, the amount of $XXXXXXXXXX per share. The Aco Pref 2 Shares will not be subject to a price adjustment clause.

(c) The Aco Pref 3 Shares will have the following rights and restrictions: non-voting preferred shares of Aco having a discretionary dividend entitlement, redeemable and retractable for, and entitled in priority to the Aco Common Shares and Aco New Common Shares, but subject to the prior rights of the Aco SV Shares and Aco Pref 2 Shares, in the event of a liquidation, dissolution or winding up of Aco, an amount per share equal to the aggregate FMV of all of the issued and outstanding Aco Common shares immediately before the share exchange described in this Paragraph 29, less the aggregate FMV of the Aco Pref 2 Shares issued on such share exchange, divided by the number of Aco Pref 3 Shares issued on such share exchange, subject to a price adjustment clause.

30. The Second Trust will use $XXXXXXXXXX of the $XXXXXXXXXX that it received from the Second Trust Settlor on the settlement of the Second Trust to subscribe for XXXXXXXXXX Aco New Common Shares.

PURPOSES OF THE PROPOSED TRANSACTIONS

31. The purpose of the Proposed Transactions described in Paragraphs 25 to 27 is to reorganize the group of companies currently held directly and indirectly by the First Trust in order to distribute to the extent possible property from the First Trust to Parent 1 that is not the shares of Eco or Fco so that Parent 1 can acquire personal use properties/assets and make personal investments.

32. The purpose of the Proposed Transactions described in Paragraphs 28 to 30 is to implement an estate freeze in respect of the FMV of the Aco Common Shares so that the future increase in the FMV of Aco will accrue to the Aco New Common Shares to be held by the Second Trust which should limit any capital gain on a disposition of the Aco Pref 2 Shares and Aco Pref 3 Shares held by the First Trust to the FMV of the Aco Common Shares at the time of the transfer of the Aco Common Shares by the First Trust to Aco as described in Paragraph 29.

33. The purpose of the creation and issuance of the Aco Pref 3 Shares in the Proposed Transactions described in Paragraph 29 is to allow for the terms and conditions of the Aco Pref 2 Shares to specify an amount in accordance with the requirements in subsection 191(4).

ADDITIONAL INFORMATION

34. The First Trust does not restrict Parent 2 and the Siblings from receiving or otherwise obtaining the use of any of the income or capital of the First Trust and therefore does not satisfy and has never satisfied the requirements in paragraph 74.4(4)(b).

35. The terms of the First Trust and the Second Trust do not allow for beneficiaries to be added. To the extent the terms of either trust are amended to allow for beneficiaries to be added, no corporation with a trust as a shareholder will be added as a beneficiary.

36. The principal amount of the Dco Note is $XXXXXXXXXX but its FMV is only $XXXXXXXXXX since it is limited by the FMV of DCo’s underlying assets, which have declined in value since the issuance of the Dco Note XXXXXXXXXX.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions, additional information, and purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, and there are no other transactions which may be relevant, we confirm the following:

A. Subsection 74.4(2) will not apply to deem interest to have been received by the First Trust as a result of the Proposed Transactions described in Paragraphs 28 to 30.

B. Provided that the terms and conditions of the Second Trust are as described in Paragraph 28 and the Second Trust Trustees do not contravene them, subsections 74.1(2) and 74.3(1) will not apply in respect of the settlement of the Second Trust as described in Paragraph 28.

C. Subsection 245(2) will not be applied as a result of the Proposed Transactions described in Paragraphs 28 to 30, in and by themselves, to redetermine the tax consequences confirmed in the Rulings given.

The above Rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions are completed no later than six (6) months after the date of this letter. The above Rulings are based on the law as it presently reads 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 or ACB of any property or the PUC of any shares referred to herein;

b) the amount of any gain or loss realized by any corporation described herein;

c) whether any gain or loss realized by any corporation described herein is on account of income or capital;

d) the balances of the CDA or any other tax account for any corporation described herein;

e) whether the FMV of the XXXXXXXXXX Gco Common Shares, and thus the amount of the dividend described in Paragraph 26, will exceed or be exceeded by Aco’s CDA immediately before the dividend becomes payable;

f) whether any person described herein deals, or does not deal, with any other person at arm’s length;

g) whether any person described herein is a resident of Canada;

h) the First Trust’s (and the First Trust Trustee’s) and the Second Trust’s (and the Second Trust Trustees’) ability to complete the Proposed Transactions under the respective trust deed terms;

i) whether a dividend received (or deemed to have been received) by any corporation on the Aco Pref 2 Shares and/or Aco Pref 3 Shares is subject to Part IV.1 tax. It is acknowledged however that the Proposed Transactions do not currently contemplate the receipt by any corporation of a dividend on the Aco Pref 2 Shares or Aco Pref 3 Shares (only potentially a receipt by the First Trust and its beneficiaries, all of whom are individuals); and

j) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically described in the Rulings given above.

In addition to the Comments immediately above:

a) a dividend paid (or deemed to have been paid) by Aco to the First Trust on the Aco Pref 2 Shares (other than a dividend deemed to have been paid by Aco on a redemption, acquisition or cancellation of the Aco Pref 2 Shares to which subsection 84(2) or 84(3) applies) will not be an “excluded dividend” as defined in subsection 191(1) and may therefore be subject to Part VI.1 tax;

b) a dividend paid (or deemed to have been paid) by Aco to the First Trust on the Aco Pref 3 Shares will not be an “excluded dividend” as defined in subsection 191(1) and may therefore be subject to Part VI.1 tax. With respect to a dividend deemed to have been paid by Aco on a redemption, acquisition or cancellation of the Aco Pref 3 Shares to which subsection 84(2) or 84(3) applies, the terms and conditions of the Aco Pref 3 Shares do not specify an amount in accordance with the requirements in subsection 191(4);

c) for greater certainty, the Proposed Transactions contained in Paragraphs 28 to 30 will form part of any series of transactions or events implemented to avoid, reduce, or defer the tax consequences, described in subsection 104(4), to the First Trust on its 21st anniversary; and

d) 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. 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 will be forwarded to you under separate cover.

Yours truly,

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