2023 Ruling 2023-0964891R3 - Loss consolidation arrangement

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: (1) Whether Lossco would be entitled

to apply existing non-capital losses, investment tax credits and cumulative Canadian exploration expense against the interest income to be earned on the Profitco Note, and (2) Whether Profitco would be entitled to deduct the interest expense that would be paid or payable on the Profitco Note, and the Newco Preferred Shares Dividends that would be received on the Newco Preferred Shares.

Position: (1) Yes; (2) Yes

Reasons: Profitco would comply with the requirements found in paragraph 20(1)(c) and subsection 112(1), and the CRA views applicable to loss consolidations arrangements because Profitco and Lossco are and will continue to be Related Persons and Affiliated Persons throughout the Proposed Transactions. In addition, the Loss Consolidation transactions will be legally effective, and will not contemplate dollar amounts and time frames that are blatantly artificial.

XXXXXXXXXX 2023-096489

XXXXXXXXXX, 2023

Dear XXXXXXXXXX

Re :	Advance Income Tax Rulings Request – Loss Consolidation
	XXXXXXXXXX

We are writing in response of your letter dated XXXXXXXXXX, in which you requested an Advance Income Tax Ruling on behalf of the abovementioned taxpayers (“Taxpayers”). We also acknowledge the information provided in subsequence correspondence dated XXXXXXXXXX.

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 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.

The Taxpayers have also confirmed that the Proposed Transactions described herein will not result in the Taxpayers or any person related to the Taxpayers being unable to pay any of their existing liabilities.

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:

(i) 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, (“Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (“Regulations”);

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

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

DEFINITIONS:

“Aco” means XXXXXXXXXX, the corporation described in Paragraph 1;

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

XXXXXXXXXX;

“Additional Daylight Loan” means the daylight loan to be made by Lossco to fund the Contribution of Capital as further described in Paragraph 35(a);

“Affiliated Person” has the meaning assigned by section 251.1 without reference to the definition of “controlled” in subsection 251.1(3);

“Arm’s Length” has the meaning assigned by subsection 251(1);

“Bco” means XXXXXXXXXX, which is a corporation incorporated in XXXXXXXXXX;

“BIN” means the business identification of a corporation with the CRA;

“CBCA” means the Canada Business Corporations Act, R.S.C. 1985, c C-44;

“Cco” means XXXXXXXXXX, which is an investment holding company for the Parent Group;

“CRA” means the Canada Revenue Agency;

“Contribution of Capital” means the contribution of capital to be made by Lossco to Newco to fund the payment of the accrued and unpaid dividends on the Newco Preferred Shares as further described in Paragraph 35(a);

“Cumulative Canadian Exploration Expense” has the meaning assigned by subsection 66.1(6);

“Daylight Loan” means the loan of up to $XXXXXXXXXX with arm’s length commercial terms to be made to Lossco by an arm’s length financial institution as further described in Paragraph 26;

“Dco” means XXXXXXXXXX, which is the corporation mentioned in Paragraph 14;

“Dividend Rental Arrangement” has the meaning assigned by subsection 248(1);

“Eco” means XXXXXXXXXX, which is a Canadian Subsidiary Wholly-Owned Corporation of the Parent Group that was used to acquire all the outstanding shares of Dco on the Profitco Acquisition Date as further described in Paragraph 14;

“Excepted Dividend” has the meaning assigned by section 187.1;

“Excluded Dividend” has the meaning assigned by subsection 191(1);

“Fair Market Value” means the highest price available in an open and unrestricted market between informed and prudent parties dealing at Arm’s Length and under no compulsion to act, that is expressed in terms of cash;

“Financial Intermediary Corporation” has the meaning assigned by subsection 191(1);

“Guarantee Agreement” has the meaning assigned by subsection 112(2.2);

“Investment Tax Credit” has the meaning assigned by subsection 127(5);

“Lossco” means XXXXXXXXXX, which is the corporation described in Paragraph 7;

“Lossco Note” means the demand non-interest-bearing promissory note to be made by Newco to Lossco as further described in Paragraph 31;

“Loss Consolidation” means the series of transactions to be implemented to enable Profitco to pay an interest expense, and Lossco to receive interest income on the Profitco Note as further described in the Proposed Transactions;

“Loss Restriction Event” has the meaning assigned by subsection 251.2(2);

“Newco” means a Subsidiary Wholly-Owned Corporation to be formed by Lossco under the CBCA as further described in Paragraph 22;

“Newco Common Shares” means the common shares subscribed by Lossco upon Newco’s incorporation as further described in Paragraph 22;

“Newco Preferred Shares” means the preferred shares described in Paragraph 25;

“Newco Preferred Shares Dividends” means the Taxable Dividends paid on the Newco Preferred Shares as further described in Paragraph 35(b);

“Non-Capital Losses” has the meaning assigned by subsection 111(8);

“Paragraph” means a numbered paragraph in this letter;

“Parent” means XXXXXXXXXX, which is the corporation described in Paragraph 1;

“Parent Group” means Parent, Aco and all of their respective subsidiaries as further described in Paragraphs 3 and 4;

“Permanent Establishment” has the meaning assigned by subsection 400(2) of the Regulations;

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

“Profitco” means XXXXXXXXXX, which is the corporation resulting from the amalgamation of Eco and Dco as further described in Paragraph 15;

“Profitco Acquisition Date” means XXXXXXXXXX, which is the date when Eco acquired all the outstanding shares of Dco;

“Profitco Note” means the interest-bearing promissory note to be issued by Profitco as a result of the loan to be made by Lossco to Profitco as further described in Paragraph 27;

“Proposed Transactions” means the transactions described in Paragraphs 21 to 36;

“Provincial Allocation” refers to the allocation of the taxable income earned by Profitco and Lossco in the provinces where they respectively have a Permanent Establishment for the purposes of computing their Taxable Income Earned in the Year in a Province in accordance with the rules found in Part IV of the Regulations;

“Public Corporation” has the meaning assigned by subsection 89(1);

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

XXXXXXXXXX;

“Relatedco” means XXXXXXXXXX, which is a Canadian corporation that owns all the issued and outstanding shares in the capital stock of Bco, and that is indirectly controlled by Cco. As such, Relatedco will not be dealing at Arm’s Length with Lossco;

“Related Persons” has the meaning assigned by subsection 251(2);

“Specified Financial Institution” has the meaning assigned by subsection 248(1);

“Subsidiary Wholly-Owned Corporation” has the meaning assigned by subsection 248(1);

“Tax Attributes” means the outstanding balance of Lossco’s Non-Capital Losses, Cumulative Canadian Exploration Expense and Investment Tax Credits at the end of its taxation year ended XXXXXXXXXX;

“Taxable Income Earned in the Year in a Province” has the meaning assigned by subsection 124(4);

“Taxable Canadian Corporation” has the meaning assigned by subsection 89(1);

“Taxable Dividend” has the meaning assigned by subsection 89(1);

“Taxable Preferred Shares” has the meaning assigned by subsection 248(1);

“Term Preferred Shares” has the meaning assigned by subsection 248(1).

FACTS:

Parent Group

1. Parent is a public company headquartered in the XXXXXXXXXX whose shares are listed on the XXXXXXXXXX, and are traded as XXXXXXXXXX. Aco is a public company headquartered in XXXXXXXXXX whose shares are listed on the XXXXXXXXXX.

2. Parent and Aco XXXXXXXXXX.

3. The Parent Group is the XXXXXXXXXX.

4. The Parent Group’s activities span XXXXXXXXXX.

5. According to the consolidated financial statements of the Parent Group for its year ended XXXXXXXXXX, it had assets of approximately US$XXXXXXXXXX, and shareholder's equity of approximately US$XXXXXXXXXX.

6. As of XXXXXXXXXX, the Parent Group had approximately US$XXXXXXXXXX of cash and cash-equivalents, and an unused credit facility of US$XXXXXXXXXX.

Lossco

7. Lossco is a Taxable Canadian Corporation headquartered in XXXXXXXXXX and governed by the Business Corporations Act, XXXXXXXXXX, which carries XXXXXXXXXX. Lossco has a taxation year ending on XXXXXXXXXX.

8. Lossco is a Subsidiary Wholly-Owned Corporation of Bco, and an indirect subsidiary of Parent whose authorized capital consists of XXXXXXXXXX common shares, XXXXXXXXXX preferred shares.

9. Lossco and Profitco have continuously been Affiliated Persons since the Profitco Acquisition Date because they are both controlled by Parent.

10. During its taxation year ended XXXXXXXXXX, Lossco maintained Permanent Establishments in XXXXXXXXXX. Lossco’s Provincial Allocation for its taxation year ended XXXXXXXXXX was as follows: XXXXXXXXXX. Lossco does not expect that its Provincial Allocation will significantly change in the foreseeable future.

11. Lossco incurred the Non-Capital Losses, and generated the Investment Tax Credits as described below in the course of carrying its mining exploration business activities:

Non-Capital Losses

XXXXXXXXXX

Investment Tax Credits

XXXXXXXXXX

It is not expected that Lossco will realize Non-Capital Losses, and generate additional ITCs for its taxation year ended XXXXXXXXXX.

12. As of XXXXXXXXXX, the outstanding balance of Lossco’s Tax Attributes is estimated to be approximately equal to:

XXXXXXXXXX.

13. Absent the Proposed Transactions, Lossco’s Tax Attributes are expected to remain unused.

Profitco

14. On XXXXXXXXXX, the boards of directors of each of Parent and DCo jointly announced that they had reached an agreement pursuant to which Parent would acquire all the issued and outstanding shares of Dco through Eco on the Profitco Acquisition Date.

15. On XXXXXXXXXX, Dco and Eco amalgamated to form Profitco, which has a taxation year ending on XXXXXXXXXX. Profitco was continued under the XXXXXXXXXX on XXXXXXXXXX.

16. Profitco is a Subsidiary Wholly-Owned Corporation of Cco, and an indirect subsidiary of Parent whose authorized share capital consists of common shares, preferred shares (Canadian dollar) and preferred series XXXXXXXXXX shares (US dollar).

17. Profitco is a Taxable Canadian Corporation headquartered in XXXXXXXXXX, which XXXXXXXXXX.

18. During its taxation year ended XXXXXXXXXX, Profitco maintained Permanent Establishments in XXXXXXXXXX.

19. Profitco's Provincial Allocation for its taxation year ended XXXXXXXXXX. Profitco does not expect that its Provincial Allocation will significantly change in the foreseeable future.

20. Absent the Proposed Transactions, Profitco expects to earn taxable income of approximately $XXXXXXXXXX for its taxation years ending XXXXXXXXXX.

PROPOSED TRANSACTIONS:

Implementation of the Loss Consolidation

21. The transactions described in Paragraphs 22 to 36 will occur in the order and within the time limitations specified in this letter.

Incorporation of Newco

22. Lossco will incorporate Newco under the CBCA, and subscribe for Newco Common Shares for a nominal consideration.

23. Newco will be a Taxable Canadian Corporation having a taxation year ending XXXXXXXXXX. Newco will not be Financial Intermediary Corporation.

24. Considering that Newco will only invest the proceeds received upon the issuance of the Newco Preferred Shares to Profitco to make the Lossco Note as described in Paragraph 31, it will not carry on a business nor will it earn income from property.

25. Newco’s share capital will include an unlimited number of Newco Common Shares, and an unlimited number of Newco Preferred Shares having the following attributes:

a) non-voting;

b) non-participating;

c) redeemable at the option of the issuer and retractable at the option of the holder, subject to applicable law, at any time for an amount equal to the cash amount for which they were issued. The payment of the redemption or retraction price may be satisfied, at the issuer’s option, either by:

(i) the payment of cash,

(ii) the delivery of property having a Fair Market Value at the time of redemption equal to the aggregate redemption amount, or

(iii) the delivery of the Lossco Note,

together with an amount in cash equal to all declared and unpaid dividends, and any accrued dividends which have not been declared and paid up to but excluding the date fixed for such redemption or retraction; and

d) entitlement to a cumulative dividend, payable annually, calculated daily and accruing by reference to the redemption amount of Newco Preferred Shares at a fixed rate per annum equivalent to the rate per annum on the Profitco Note plus 5 basis points.

e) The dividend rate will be finalized when the Proposed Transactions are implemented.

Daylight Loan made to Lossco

26. Lossco will borrow an amount up to $XXXXXXXXXX according to Arm’s Length commercial terms applicable to this type of loan from an Arm’s Length financial institution (“Daylight Loan”). The exact principal amount of the Daylight Loan will be determined upon the implementation of the Proposed Transactions.

Profitco Note issued to Profitco

27. Lossco will use all the proceeds of the Daylight Loan to make a loan to Profitco (“Profitco Note”), which will be payable on demand and will bear interest at an annual rate to be based on market conditions at the time the Profitco Note is granted. The interest rate on the Profitco Note will not exceed a reasonable commercial rate applicable in these circumstances, which is currently estimated at XXXXXXXXXX% per annum.

28. The terms of the Profitco Note will provide that:

a) The recourse of Lossco with respect to the Profitco Note will be limited to the Newco Preferred Shares (together with all proceeds, fruits and revenues from such shares), and not to any other assets of Profitco.

b) The payment of the principal amount on the Profitco Note may be satisfied, at Profitco’s option, either through:

(i) the payment of cash to Lossco;

(ii) the transfer of property having an aggregate Fair Market Value equal to the principal amount of the Profitco Note at the time of its repayment;

(iii) the delivery of the Newco Preferred Shares; or

(iv) the set-off of the Profitco Note against the Lossco Note if Profitco owns the Lossco Note at the time of its repayment.

29. As security for the indebtedness evidenced by the Profitco Note, Profitco will grant an interest in the Newco Preferred Shares to Lossco.

Newco Preferred Shares issued to Profitco

30. Profitco will use the proceeds from the Profitco Note to subscribe for Newco Preferred Shares. The aggregate issue price, redemption amount, retractation amount, Fair Market Value, ACB and PUC of the Newco Preferred Shares issued to Profitco will be the same amount as the principal amount of Profitco Note.

Lossco Note issue to Lossco

31. Newco will use the proceeds from the issuance of the Newco Preferred Shares to make an interest-free loan to Lossco (“Lossco Note”).

32. The terms of the Lossco Note will provide that:

a) The recourse of Newco with respect to the Lossco Note will be limited to the Profitco Note, and not to any other assets of Lossco; and

b) The payment of the principal amount of the Lossco Note may be satisfied, at Lossco’s option, either through:

(i) the payment of cash to Newco;

(ii) the transfer of property to Newco having an aggregate Fair Market Value equal to the principal amount of the Lossco Note at the time of its repayment; or

(iii) the transfer of the Profitco Note to Newco.

33. As security for the indebtedness evidenced by the Lossco Note, Lossco will grant to Newco an interest in the Profitco Note.

Repayment of the Daylight Loan

34. Lossco will use the proceeds from the Lossco Note to repay the Daylight Loan.

Maintenance of the Loss Consolidation structure

35. The following transactions will occur, on the same date, at least once in the year when jointly determined by Lossco and Profitco and before the Loss Consolidation structure is unwound:

a) Pursuant to a capital contribution agreement, Lossco will make a contribution of capital to Newco in an amount equal to the accrued and unpaid Newco Preferred Shares Dividends (“Contribution of Capital”):

i. Lossco will fund each Contribution of Capital through a daylight loan to be entered with Relatedco (“Additional Daylight Loan”);

ii. No shares will be issued by Newco, and no amount will be added to the stated capital of the Newco Common Shares as a result of the Contribution of Capital. The amount of the Contribution of Capital will be recorded as contributed surplus for accounting purposes. For greater certainty, the Contribution of Capital will not be income to Newco pursuant to International Financial Reporting Standards, and

iii. Lossco will not claim, at any time, a Capital Loss in respect of its investment in Newco.

b) Subject to any applicable solvency test under the CBCA, Newco will pay the accrued and unpaid Newco Preferred Shares Dividends to Profitco;

c) Immediately after its receipt of the Newco Preferred Shares Dividends, Profitco will pay the accrued and unpaid interest on the Profitco Note to Lossco; and

d) Lossco will repay the Additional Daylight Loan.

Unwind of the Loss Consolidation structure

36. The Loss Consolidation structure will be unwound after a maximum of twelve (12) months after its implementation in the following manner:

a) Lossco will assign and deliver the Profitco Note to Newco as repayment of the Lossco Note;

b) Newco will redeem the Newco Preferred Shares held by Profitco for an amount equal to their aggregate redemption amount;

c) As payment for the redemption of the Newco Preferred Shares, Newco will transfer the Profitco Note to Profitco;

d) The Profitco Note will be legally extinguished under the doctrine of confusion XXXXXXXXXX; and

e) Lossco, as sole shareholder of Newco, will pass a resolution authorizing and requiring Newco to be wound-up into Lossco pursuant to subsection 88(1). As a consequence, Newco’s assets will be transferred to Lossco and Lossco will assume Newco’s liabilities.

ADDITIONAL INFORMATION:

37. The Proposed Transactions will be legally effective.

38. Lossco, Profitco and Newco are Related Persons and Affiliated Persons, and will continue to be Related Persons and Affiliated Persons throughout the Proposed Transactions.

39. Lossco’s use of the Tax Attributes depicted in Paragraph 12 as part of the Proposed Transactions will not be restricted by any of the provisions that apply upon the occurrence of a Loss Restriction Event.

40. It is not intended nor expected that the interest income to be earned by Lossco in the course of the Proposed Transactions will materially exceed an amount that could be fully sheltered with Lossco’s Tax Attributes.

41. It is expected that Profitco will earn income in excess of the interest expense to be incurred by Profitco as a result of the Proposed Transactions. However, it is possible that a Non-Capital Loss will arise in Profitco as a result of the Proposed Transactions. Any such Non-Capital Loss will be carried back to a prior taxation year or carried forward to a subsequent taxation year in accordance with the provisions of XXXXXXXXXX. For greater certainty, any such Non-Capital Loss will not be carried back to a taxation year in which Profitco and Lossco were not either Affiliated Persons or Related Persons.

42. The Newco Preferred Shares will be Term Preferred Shares, and Taxable Preferred Shares.

43. The dividend to be paid by Newco and received by Profitco on the Newco Preferred Shares as described in Paragraph 35b) will respectively qualify as an Excluded Dividend and an Excepted Dividend.

44. At all relevant times in the course of the Proposed Transactions, Profitco will be related to a particular corporation of the Parent Group that is described in paragraph (d) of the definition of Specified Financial Institution in subsection 248(1). However, Profitco will not acquire the Newco Preferred Shares in the ordinary course of its business.

45. At no time during the implementation of the Loss Consolidation Structure will the Newco Preferred Shares be:

a) the subject of a Guarantee Agreement;

b) the subject of a Dividend Rental Arrangement;

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

d) issued for consideration that is or includes:

(i) an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (if the Act were read without reference to paragraph 251(5)(b)); or

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

46. The terms of the Profitco Note are Arm’s Length including the interest rate on the Profitco Note, which is a commercial rate applicable to Arm’s Length transactions.

47. The treasurer of the Parent Group has provided a letter confirming that the Parent Group has the financial capacity to borrow the amounts of the Daylight Loan and the Additional Daylight Loan.

48. Lossco will have the financial capacity to borrow the Daylight Loan and the Additional Daylight Loan based on Parent Group’s existing and anticipated assets and resources.

49. Based on current financial projections, Profitco will have the financial capacity to pay the interest accruing on the Profitco Note using its own cash flow.

50. In the course of the implementation and the wind-up of the Loss Consolidation:

a. Newco will satisfy the relevant solvency test required under the CBCA to pay the dividends on the Newco Preferred Shares, described in Paragraph 35(b); and

b. Newco will satisfy the relevant solvency required under the CBCA to redeem the Newco Preferred Shares as described in Paragraph 36(c).

51. Dividends paid on the Newco Preferred Shares to Profitco will have no other purposes other than described under the heading “Purposes of the Proposed Transactions”.

52. The increase in the ACB of the Newco Common Shares that will result from the Capital Contribution will be eliminated as part of the unwinding of the Loss Consolidation pursuant to paragraph 88(1)(b).

53. Each of Profitco and Lossco files its income tax returns at the XXXXXXXXXX.

PURPOSES OF THE PROPOSED TRANSACTIONS:

54. The sole purpose of the Proposed Transactions is to consolidate taxable income, and Tax Attributes within a group of Related Persons and Affiliated Persons by causing Lossco to earn interest income on the Profitco Note so that it can use all its Tax Attributes, and having Profitco to incur interest expense so that it can reduce its income and taxable income.

55. The purpose of the payment and the receipt of dividends on the Newco Preferred Shares as described in Paragraph 35(b) is to provide a reasonable return on the Newco Preferred Shares. More specifically, none of the purposes of the dividends to be received by Profitco on the Newco Preferred Shares is to effect a significant reduction in the portion of the capital gain that, but for the dividend, would have been realized on a disposition of any shares of the capital stock of Newco or the Fair Market Value, or to effect a significant increase in the cost of any property.

56. The Proposed Transactions are not being undertaken to refresh Non-Capital Losses or facilitate the use of such Non-Capital Losses in a taxation year after the taxation year in which the Non-Capital Losses would otherwise have expired in the hands of Lossco.

57. The purpose of the Loss Consolidation is not to shift income to a lower rate province. Any shift of income between provinces will be incidental to the Proposed Transactions

RULINGS:

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions and the Purposes of the Proposed Transactions, the Proposed Transactions are completed in the manner described above, and there are no other transactions which may be relevant to the Rulings requested, we rule that:

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

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

C. No amount will be included in the income of Newco under any of section 9, or paragraphs 12(1)(c) or 12(1)(x) in respect of the Contribution of Capital that Newco received from Lossco.

D. The Newco Preferred Share Dividends received by Profitco as described in Paragraph 35(b) above, will be Taxable Dividends and such dividends will, pursuant to subsection 112(1), be deductible in computing the taxable income of Profitco for the taxation year in which the dividends are received by Profitco. For greater certainty such deduction will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3) or 112(2.4).

E. Part IV.1 and VI.1 will not apply to the Newco Preferred Share Dividends described in Ruling D.

F. Provided that the payment and receipt of the Newco Preferred Share Dividends, as described in Paragraph 35(b), have no purpose other as described in the “Purpose of the Proposed Transactions”, and the Proposed Transactions are undertaken in the manner described above, the provisions of subsection 55(2) will not apply in respect of the dividends referred in Ruling D that are received by Profitco on the Newco Preferred Shares.

G. The settlement of the Profitco Note and the Lossco Note as described in Paragraph 36(d) will not give rise to any “forgiven amount” for purposes of section 80.

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

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 described in Paragraphs 22 to 34 above are commenced and entered into on or before XXXXXXXXXX, and the remaining Proposed Transactions described in Paragraphs 35 and 36 are undertaken as described in 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.

OTHER COMMENTS:

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

a) the Fair Market Value or ACB of any property or the PUC of any shares referred to herein;

b) the amount of any Non-Capital Loss, Cumulative Canadian Exploration Expenses, Investment Tax Credits, net capital loss, or any other amount of any corporation referred to herein;

c) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transaction; and

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

An invoice for our fees in connection with the rulings request 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