2023 Ruling 2023-0974281R3 - Loss consolidation

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 loss consolidation arrangement is acceptable.

Position: Yes.

Reasons: The proposed transactions would be legally effective, and comply with the requirements applicable to these types of loss consolidations. Favourable rulings were issued in respect of similar transactions in the following documents: 2018-0772921R3, 2017-0693691R3, 2000-0014543 and 9418413.

XXXXXXXXXX 2023-097428

XXXXXXXXXX, 2023

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling Request
XXXXXXXXXX

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

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, except for file no. 2017-069369. However, the proposed transactions described in the file no. 2017-069369 were never implemented for commercial reasons.

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, and in support of 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”); and

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

DEFINITIONS:

“XXXXXXXXXX Agreement” means the agreement signed by Government of XXXXXXXXXX and Aco as described in Paragraph 28;

“XXXXXXXXXX Amendments” refers to the amendments introduced to the XXXXXXXXXX Agreement as described in Paragraph 29;

“XXXXXXXXXX Amendments” refers to the further amendments that were made to the XXXXXXXXXX Agreement as described in Paragraph 30;

“XXXXXXXXXX Amendments” refers to the additional amendments made to the XXXXXXXXXX Agreement as described in Paragraph 31;

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

“ACo” means XXXXXXXXXX, which was subsequently named XXXXXXXXXX;

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

“Agreed Amount” in respect of a property means the amount that the transferor and the transferee of an Eligible Property have agreed upon in a joint election pursuant to subsection 85(1) in respect of the transferred property;

“Amalgamation” refers to the merger of two corporations each of which is a Taxable Canadian Corporation to form one corporate entity in such manner that the requirements listed in paragraphs 87(1)(a) to (c) are satisfied;

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

“Assets” means the beneficial ownership of XXXXXXXXXX License (which was originally acquired by ACo) and the immoveable properties related to the XXXXXXXXXX License (including XXXXXXXXXX) each of which will be held by Canco as a capital property immediately before the Transfer Time;

“BCXXXXXXXXXXA” means the Business Corporations Act XXXXXXXXXX, as amended to the date of this letter;

“BCo” means XXXXXXXXXX;

“Canco” means XXXXXXXXXX, which is the corporation that was formed as a result of the Canco Amalgamation;

“CCA” means capital cost allowance as determined by paragraph 20(1)(a) and section 1100 of the Regulations;

“Canco Amalgamation” refers to the Amalgamation of CCo and DCo to form Canco as described in Paragraph 11;

“Capital Gain” has the meaning assigned by paragraph 39(1)(a);

“Capital Loss” has the meaning assigned by paragraph 39(1)(b);

“CBCA” means the Canada Business Corporations Act, RSC 1985, c. C-44, as amended and consolidated to the date of this letter;

“CCo” means XXXXXXXXXX, which is the corporation that was formed as a result of the CCo Amalgamation;

“CCo Amalgamation” refers to the Amalgamation of ACo and BCo to form CCo as further described in Paragraph 9;

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

“CRA” means the Canada Revenue Agency;

“CEC” means cumulative eligible capital, which has the meaning assigned by subsection 14(5), as it applied at the time immediately before XXXXXXXXXX;

“DCo” means XXXXXXXXXX, which acquired all the issued and outstanding shares of CCo on XXXXXXXXXX, prior to amalgamating with CCo to form Canco as further described in Paragraph 10;

“Depreciable Property” has the meaning assigned by subsection 13(21);

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

“ECE” means eligible capital expenditure, which has the meaning assigned by subsection 14(5), as it applied at the time immediately before XXXXXXXXXX;

“Eligible Capital property” has the meaning assigned by section 54, as it applied at the time immediately before XXXXXXXXXX;

“Eligible Property” has the meaning assigned by subsection 85(1.1);

“FMV” means fair market value, which refers to 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;

“Foreign Parent Group” means Foreign Parent and the corporate entities over which Foreign Parent has de jure control;

“Foreign Holdco” means XXXXXXXXXX, which is an investment holding company as further described in Paragraphs 5 to 8;

“Foreign Parent” means the XXXXXXXXXX, which is a foreign corporation governed by the laws of XXXXXXXXXX as further described in Paragraphs 1 to 4;

“Government Right” has the meaning assigned by subsection 21(3) of the ITAR;

“Holding Period” means the period of at least two weeks immediately after the Transfer during which Subco will lease the Assets to Canco as further described in Paragraphs 63 and 64;

“ITAR” means the Income Tax Application Rules, RSC 1985, c.2 (5th suppl.) as amended to the date of this letter;

XXXXXXXXXX License” means the XXXXXXXXXX license XXXXXXXXXX originally granted to ACo XXXXXXXXXX;

XXXXXXXXXX;

“Lease Agreement” has the meaning described in Paragraph 63;

“Nominee Agreement” refers to the agreement pursuant to which the legal title of the Assets retained by Canco may be assigned, at any time, to a nominee to be designated by Subco as further descried in Paragraph 58;

“Paragraph” refers to a paragraph of this letter;

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

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

“Proceeds of Disposition” has the meaning assigned by section 54;

“Proposed Transactions” means the transactions described in Paragraphs 56 to 70;

“Provincial Allocation” refers to the allocation of the taxable income earned by Canco in the provinces where it has a Permanent Establishment for the purposes of computing its Taxable Income Earned in the Year in a Province in accordance with the rules found in Part IV of the Regulations;

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

“XXXXXXXXXX” means the Business Corporations Act XXXXXXXXXX, as amended to the date of this letter;

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

“Relevant Agreements” means the XXXXXXXXXX Agreement as amended by the XXXXXXXXXX Amendments, the XXXXXXXXXX Amendments and the XXXXXXXXXX Amendments;

“Subco” means XXXXXXXXXX, which is a Wholly-Owned Corporation of Canco for the purposes of subsection 85(1), and a Subsidiary Wholly-Owned Corporation of Canco;

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

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

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

“Transfer” refers to Canco’s transfer of the beneficial ownership of the Assets to Subco in consideration for common shares of the capital stock of Subco as further described in Paragraphs 56 to 62;

“Transfer Time” refers to the date and time of the Transfer;

“UCC” means undepreciated capital cost, which has the meaning assigned by subsection 13(21);

“V-Day Value” means the FMV of the XXXXXXXXXX License as at XXXXXXXXXX;

“Wholly-Owned Corporation” has the meaning assigned by subsection 85(1.3); and

“Wind-Up” refers to the winding-up of Subco into Canco as further described in Paragraphs 65 and 66.

FACTS:

Foreign Parent

1. Foreign Parent is a corporation governed by the laws of XXXXXXXXXX.

2. Foreign Parent, which is part of the Foreign Parent Group, is a global XXXXXXXXXX whose business consists in XXXXXXXXXX through its subsidiaries. Foreign Parent Group produces XXXXXXXXXX.

3. The outstanding common stock of Foreign Parent is primarily listed on the XXXXXXXXXX Stock Exchange but is also publicly traded on other stock exchanges.

4. Foreign Parent is not a resident of Canada and does not carry on business in Canada for the purpose of the Act.

Foreign Holdco

5. Foreign Holdco is a corporation governed by the laws of XXXXXXXXXX.

6. Foreign Parent owns all of the issued and outstanding common shares of the capital stock of Foreign Holdco.

7. Foreign Holdco is not a resident of Canada and does not carry on business in Canada for the purpose of the Act.

8. Foreign Holdco owns all the issued and outstanding shares of the capital stock of Canco.

Canco

9. On XXXXXXXXXX, ACo and BCo amalgamated to form CCo. All the property of ACo and BCo including the XXXXXXXXXX License, became property of CCo in the course of the CCo Amalgamation.

10. On XXXXXXXXXX, DCo acquired all the issued and outstanding shares of the capital stock of CCo.

11. On XXXXXXXXXX, CCo and DCo amalgamated to form Canco. All the property of CCo and DCo, including the XXXXXXXXXX License, became property of Canco in the course of the Canco Amalgamation.

12. Canco is a Taxable Canadian Corporation and a Private Corporation that was originally governed by the XXXXXXXXXX. On XXXXXXXXXX, Canco was continued under the XXXXXXXXXX. Canco’s financial and taxation year-end is XXXXXXXXXX.

13. The authorized share capital of Canco consists of common shares and preferred shares, both denominated in Canadian dollar, and preferred series 1 shares denominated in US dollar.

14. The only issued and outstanding shares of the capital stock of Canco are XXXXXXXXXX common shares, all of which are owned by Foreign Holdco.

15. Canco owns all the issued and outstanding common shares of the capital stock of Subco.

16. Canco is involved in various aspects of the XXXXXXXXXX each of which is responsible for its business operations.

17. During its taxation year ending XXXXXXXXXX, Canco maintained a Permanent Establishment in XXXXXXXXXX. Canco’s Provincial Allocation for its taxation year ended XXXXXXXXXX was as follows: XXXXXXXXXX. Canco’s Provincial Allocation is not expected to change significantly in the foreseeable future.

18. As at XXXXXXXXXX, Canco had a Capital Loss carryforward balance of $XXXXXXXXXX. Canco does not expect to realize significant capital gains in the foreseeable future.

19. As at XXXXXXXXXX, Canco had a UCC balance of $XXXXXXXXXX in respect of its XXXXXXXXXX.

20. Back in the XXXXXXXXXX, Canco acquired XXXXXXXXXX and, in accordance with the Relevant Agreements, Canco was granted the right to XXXXXXXXXX.

21. The capital cost of the XXXXXXXXXX, which are used by Canco for the purpose of carrying on its business, were included in the relevant prescribed classes of Schedule II to the Regulations.

22. Canco’s head office and mailing address is XXXXXXXXXX.

Subco

23. Subco is a Private Corporation and a Taxable Canadian Corporation that was incorporated on XXXXXXXXXX under the BCA for the sole purpose of undertaking a series of transaction that were never implemented. As a result, Subco never carried on any business since its incorporation.

24. The authorized capital of Subco consists of common shares denominated in Canadian dollar.

25. The only issued and outstanding share of the capital stock of Subco is 1 common share, which is owned by Canco.

26. Subco’s financial and taxation year-end is XXXXXXXXXX.

27. Subco’s head office is XXXXXXXXXX.

Relevant Agreements

28. On XXXXXXXXXX, pursuant to the XXXXXXXXXX as it read at that time, the Government of XXXXXXXXXX granted ACo certain rights, XXXXXXXXXX (“XXXXXXXXXX Agreement”) XXXXXXXXXX.

29. The XXXXXXXXXX Agreement was amended on XXXXXXXXXX when ACo agreed to abandon its rights granted under the XXXXXXXXXX Agreement in respect of the XXXXXXXXXX. XXXXXXXXXX of XXXXXXXXXX.

30. The XXXXXXXXXX Agreement was also amended on XXXXXXXXXX when CCo was issued the XXXXXXXXXX.

31. The XXXXXXXXXX Agreement was further and lastly amended on XXXXXXXXXX Concurrently with XXXXXXXXXX Canco was granted XXXXXXXXXX Amended XXXXXXXXXX License XXXXXXXXXX and XXXXXXXXXX Amended Permit XXXXXXXXXX.

32. The Amended XXXXXXXXXX License XXXXXXXXXX authorizes Canco to: XXXXXXXXXX.

33. The Amended Permit XXXXXXXXXX entitles Canco to XXXXXXXXXX.

34. The Amended XXXXXXXXXX License XXXXXXXXXX and the Amended Permit XXXXXXXXXX are separate intangible assets XXXXXXXXXX.

35. The Amended XXXXXXXXXX License XXXXXXXXXX and the Amended Permit XXXXXXXXXX are collectively XXXXXXXXXX referred as the XXXXXXXXXX License.

Acquisition of the XXXXXXXXXX License

ACo’s acquisition of the XXXXXXXXXX License

36. On XXXXXXXXXX, ACo acquired the XXXXXXXXXX License pursuant to the XXXXXXXXXX Agreement.

37. The XXXXXXXXXX License qualified as a Government Right in respect of a business carried on by Aco throughout the period beginning XXXXXXXXXX until the CCo Amalgamation.

38. The total of all amounts each of which was an expenditure incurred by ACo for the purpose of acquiring the XXXXXXXXXX License was approximately equal to XXXXXXXXXX.

39. The V-Day Value of the XXXXXXXXXX License to ACo was also approximately equal to XXXXXXXXXX.

40. The total amount of the expenditures that ACo incurred in respect of the XXXXXXXXXX License, which would have qualified as an ECE to be added to its CEC if it had been incurred after XXXXXXXXXX, was approximately equal to XXXXXXXXXX.

41. Further to the introduction of the Eligible Capital Property regime, ACo did not incur any ECE in respect of the XXXXXXXXXX License before the CCo Amalgamation.

42. The XXXXXXXXXX License was consistently used by ACo in the course of carrying on its business until the CCo Amalgamation.

CCo’s acquisition of the XXXXXXXXXX License upon the CCo Amalgamation

43. On XXXXXXXXXX, the XXXXXXXXXX License became property of CCo as a result of the CCo Amalgamation.

44. The XXXXXXXXXX License qualified as an Eligible Capital Property to CCo immediately after the CCo Amalgamation.

45. For the purposes of determining any amount relating to CEC, ECE and Eligible Capital Property in respect of CCo’s business, CCo was deemed to be the same corporation as, and a continuation of ACo and BCo pursuant to former paragraph 87(2)(f) as it read before it was repealed as part of the XXXXXXXXXX Budget effective XXXXXXXXXX.

46. Immediately after the CCo Amalgamation, CCo had a CEC balance of XXXXXXXXXX in respect of its business. In addition, CCo did not incur any ECE in respect of the XXXXXXXXXX License that would have been added to its CEC until the Canco Amalgamation.

47. The XXXXXXXXXX License was consistently used by CCo in the course of carrying on its business after the CCo Amalgamation until the Canco Amalgamation.

Canco’s acquisition of the XXXXXXXXXX License upon the Canco Amalgamation

48. On XXXXXXXXXX, the XXXXXXXXXX License became property of Canco as a result of the Canco Amalgamation.

49. For the purposes of computing Canco’s tax liability under the Act, and as determined by section 21 of the ITAR, the XXXXXXXXXX License XXXXXXXXXX is deemed to be a Government Right that was granted to Canco in respect of a business that it carried on throughout the period beginning XXXXXXXXXX pursuant to the continuity rule found in subsection 21(2.1) of the ITAR.

50. The capital cost and V-Day Value of the XXXXXXXXXX License that Canco is deemed to have acquired is approximately equal to XXXXXXXXXX.

51. As a result of the Canco Amalgamation, Canco is deemed to have acquired the XXXXXXXXXX License in the course of a transaction undertaken with a person with which it was not dealing at Arm’s Length pursuant to subsection 21(2.2) of the ITAR.

52. Immediately after the Canco Amalgamation, Canco had a CEC balance of XXXXXXXXXX in respect of its business pursuant to former paragraph 87(2)(f) as it read before it was repealed as part of the XXXXXXXXXX Budget effective XXXXXXXXXX.

53. Further to the repeal of the Eligible Capital Property regime as part of the Budget XXXXXXXXXX, the XXXXXXXXXX License was included into new XXXXXXXXXX for CCA purposes. None of the amounts added to Canco’s XXXXXXXXXX on XXXXXXXXXX pursuant to the transitional rule XXXXXXXXXX were attributable to the XXXXXXXXXX License.

54. Effective XXXXXXXXXX, the XXXXXXXXXX License was also deemed to have a capital cost of XXXXXXXXXX pursuant to the transitional rule found in paragraph 13(38)(b).

55. The XXXXXXXXXX License was consistently used by Canco in the course of carrying on its business after the Canco Amalgamation.

55.1 The XXXXXXXXXX License, which constitutes Depreciable Property to Canco, has a FMV of $XXXXXXXXXX (the value range arrived at by the formal valuation was $XXXXXXXXXX). The FMV of the XXXXXXXXXX License has been determined by an expert valuator based on generally accepted valuation principles.

PROPOSED TRANSACTIONS:

Transfer of the Assets to Subco

56. Before the end of XXXXXXXXXX, Canco will complete the Transfer.

57. Immediately after the Transfer, Subco will be entitled to the use and benefit of the Assets.

58. However, Canco will retain legal title of the Assets under XXXXXXXXXX pursuant to which Subco may, at any time, require Canco to deliver the legal title to such Assets to any person to be designated by Subco.

59. Considering that Subco will enjoy and bear all the incidents and obligations of the ownership in respect of each of the Assets immediately after the Transfer and during the Holding Period, the FMV attributed to the legal title of the Assets to be retained by Canco will be nominal.

60. Canco and Subco will jointly elect, in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the Transfer. For each of the Assets, the Agreed Amount specified in the election will be within the specific limits provided in subsection 85(1).

61. The Agreed Amount to be elected in respect of the XXXXXXXXXX License will be greater than its capital cost but will not exceed the aggregate of:

a) the V-Day Value of the XXXXXXXXXX License; and

b) the lesser of the FMV of the XXXXXXXXXX License at the time of the Transfer or the amount of Canco’s Capital Loss carryforward balance at the end of the taxation year in which the Proposed Transactions will be implemented.

62. The common shares in the capital stock of Subco to be issued to Canco in the course of the Transfer will have an ACB and a PUC equal to the aggregate of the Agreed Amount to be elected for each of the Assets transferred to Subco.

Subco’s leasing of the Assets to Canco during the Holding Period

63. During the Holding Period, Subco will lease the Assets to Canco at Arm’s Length terms and conditions pursuant to the Lease Agreement in consideration for Subco’s right to receive lease payments from Canco. In addition, Subco will not commence to use the Assets for a purpose other than to earn leasing income during the Holding Period.

64. Subco will assume the risk of gain and loss in respect of the Assets during the Holding Period.

Subco’s winding-up into Canco

65. Subco will be wound-up into Canco at the end of the Holding Period pursuant to the provisions of subsection 88(1).

66. As a result of the Wind-Up, all the Assets (including the XXXXXXXXXX License) and the liabilities of Subco will be assigned to Canco, and the Nominee Agreement will be terminated.

67. Subco will be dissolved as soon as practically possible after the Wind-Up.

68. For the purposes of sections 13 and 20 (and any regulations made for the purpose of paragraph 20(1)(a)), Canco will consider that the capital cost of each Depreciable Property to be acquired from Subco on the Wind-Up will be equal to the capital cost of the Depreciable Property to Subco before the Wind-Up as determined under paragraph 13(7)(e).

69. For its taxation year ending XXXXXXXXXX, Canco will not deduct any CCA in respect of the Assets that it acquired from Subco on the Wind-Up to the extent that Subco claimed CCA on the Assets as part of the series of transactions that includes the Proposed Transactions.

70. Canco and Subco will carry out all necessary legal steps to give full effect to the Proposed Transactions.

PURPOSE OF THE PROPOSED TRANSACTIONS:

The purpose of the Proposed Transactions is to facilitate a tax-efficient use of Canco’s available Capital Losses within the Foreign Parent Group since it is not expected to realize significant Capital Gains in a near future.

More particularly, the Proposed Transactions are intended to enable Canco to use some or all of its Capital Losses to offset all of the Capital Gain that will be realized upon the Transfer, and to subsequently reacquire the Assets at an increased Cost Amount on which Canco will be entitled to claim additional CCA.

RULINGS GIVEN:

Provided that the preceding statements constitute complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. Provided that the Transfer is legally effective, it will result in a Disposition of the Assets by Canco to Subco for the purposes of determining Canco’s liability under the Act.

B. Provided the appropriate election is filed by Canco and Subco in prescribed form and manner within the time limits specified in subsection 85(6) and provided that the Transfer constitutes a disposition of Eligible Property in respect of each of the Assets, the provisions of subsection 85(1) will apply to the Transfer described in Paragraphs 56 to 58, and 60 to 62 such that:

i) the Agreed Amount in respect of such Assets will be deemed to be the Proceeds of Disposition of the Assets to Canco thereof and the cost of such Assets to Subco;

ii) the cost and the PUC of the Subco common shares that Canco will receive in consideration for the transfer of the Assets will be equal to the aggregate of the Agreed Amount elected for each of the Assets transferred to Subco upon the Transfer; and

iii) for greater certainty, paragraph 85(1)(e.2) will not apply to the Transfer.

C. The transfer of the XXXXXXXXXX License as a result of the Transfer will be subject to subsection 21(1) of the ITAR such that the proceeds of disposition of the XXXXXXXXXX License will be equal to the amount, if any, by which the Agreed Amount elected in respect of the XXXXXXXXXX License as determined under paragraph 85(1)(e) exceeds the greater of the amounts described in paragraphs 21(1)(a) and (b) of the ITAR. Moreover, the cost to Subco of the XXXXXXXXXX License as a result of the Transfer will be determined pursuant to subsection 21(2) of the ITAR.

D. For the purposes of sections 13 and 20 and any regulations made for the purposes of paragraph 20(1)(a), the provisions of paragraph 13(7)(e) will apply where the capital cost of a Depreciable Property to be acquired by Subco as a result of the Transfer, determined without reference to paragraph 13(7)(e), exceeds the capital cost of that Depreciable Property to Canco before its disposition, such that the capital cost to Subco of such Depreciable Property will be equal to the amount described in subparagraph 13(7)(e)(ii).

E. The provisions of subsection 88(1) will apply to the Wind-Up as described in Paragraph 65, such that:

i) each property of Subco that will be distributed to Canco on the Wind-Up will be deemed to have been disposed of by Subco for proceeds equal to the Cost Amount to Subco of that property pursuant to subparagraph 88(1)(a)(iii);

ii) the shares in the capital stock of Subco held by Canco immediately before the Wind-Up will be deemed to have been disposed of by Canco for proceeds equal to the amount determined pursuant to paragraph 88(1)(b); and

iii) each property of Subco to be distributed to Canco on the Wind-Up will be deemed to have been acquired by Canco for an amount equal to the amount deemed by paragraph 88(1)(a) to be the Proceeds of Disposition of that property to Subco pursuant to paragraph 88(1)(c).

F. In respect of any of the Assets that is a Depreciable Property that is respectively acquired by Subco upon the Transfer as described in Paragraphs 56 to 58, and 60 to 62, and Canco upon the Wind-Up as described in Paragraphs 65 and 66:

i) subsection 1102(14) of the Regulations will apply to deem each of the Assets that is Depreciable Property immediately before the Transfer and the Wind-Up that will be acquired respectively by Subco and Canco to be a Depreciable Property of the same prescribed class as that respectively of Canco and Subco;

ii) provided that the requirements described in paragraph 1100(2.2)(f) or (g) of the Regulations are satisfied, paragraph 1100(2.2)(h) of the Regulations will apply so that no amount will be included in element F for the purpose of computing the amount determined under variable C of the formula provided in subsection 1100(2) of the Regulations;

iii) subsection 1102(20) of the Regulations will not apply to the Proposed Transactions.

G. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences as described in the rulings given.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R12 dated April 1, 2022. They are binding on the CRA provided that the Proposed Transactions are completed before XXXXXXXXXX unless otherwise specified.

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 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 outstanding balance of various tax accounts, such as capital losses, of any corporation referred to herein;

c) the provincial income tax implications under the Proposed Transactions; and

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

Nothing in this letter should be construed as a confirmation, express or implied, that, for the purpose 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 of property, and issuance of shares.

An invoice for our fees in connection with this Ruling 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