2024 Ruling 2023-0980661R3 - 55(3)(a) internal reorganization

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

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

Position: Yes, in compliance with the law.

XXXXXXXXXX									2023-098066

XXXXXXXXXX, 2024

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 above-named taxpayers (“Taxpayers”).

We understand that, to the best of your knowledge and that of the Taxpayers, none of the Proposed Transactions and/or issues involved in this Ruling are the same as, or substantially similar to, transactions and/or issues that are:

a) in a previously filed return of the Taxpayers or a related person and;

i. being considered by the Canada Revenue Agency in connection with such return;

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

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

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

The Tax Services Office of the Taxpayers is the XXXXXXXXXX.

The above-referenced Taxpayers have confirmed that the proposed transactions described herein will not affect their ability to pay any of their outstanding tax liabilities.

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 c.1 (5th Supp.) (the “Act”), as amended to the date of this letter;

ii. all terms used in this letter 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.

DEFINITIONS

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:

“ABC Partnership” means XXXXXXXXXX, a partnership between Individual A, Individual B and Individual C governed by the Act 1, as described in Paragraph 45;

“Aco” means XXXXXXXXXX, a corporation incorporated under Act 2, as described in Paragraph 3;

“Aco Amalco” means the corporation resulting from the First Amalgamation, as described in Paragraph 93;

“Aco Amalco Predecessor Corporations” means Aco and Dco, prior to the First Amalgamation described in Paragraph 93;

“Aco Class A and B Common Shares” has the meaning assigned in Paragraph 5a);

“Aco Class C, D, F, G, H and I Special Shares” has the meaning assigned in Paragraph 5b);

“Aco Class E Special Shares” has the meaning assigned in Paragraph 5c);

“Act 1” means the XXXXXXXXXX Partnerships Act, XXXXXXXXXX;

“Act 2” means the Business Corporations Act XXXXXXXXXX;

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

“agreed amount” in respect of a property 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);

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

“Bco” means XXXXXXXXXX, a corporation incorporated under Act 2, as described in Paragraph 10;

“Bco Class A and B Common Shares” has the meaning assigned in Paragraph 12a);

“Bco Class C, D, F, G, H and I Special Shares” has the meaning assigned in Paragraph 12b);

“Bco Class E Special Shares” has the meaning assigned in Paragraph 12c);

“Canadian partnership” has the meaning assigned by subsection 102(1);

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

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

“Cco” means XXXXXXXXXX, a corporation incorporated under Act 2, as described in Paragraph 18;

“Cco Class A and B Common Shares” has the meaning assigned in Paragraph 20a);

“Cco Class C, D, F, G, H and I Special Shares” has the meaning assigned in Paragraph 20b);

“Cco Class E Special Shares” has the meaning assigned in Paragraph 20c);

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

“CRA” means the Canada Revenue Agency;

“Dco” means XXXXXXXXXX, a corporation formed as a result of an amalgamation under Act 2, as described in Paragraph 27;

“Dco Business Assets” means XXXXXXXXXX owned by Dco as summarized in Paragraph 33;

“Dco Business Assets Distribution” means the distribution of Dco Business Assets to the TCs as described in Paragraph 79;

“Dco Class A, B and C Common Shares” has the meaning assigned in Paragraph 30a);

“Dco Class D, E and F Special Shares” has the meaning assigned in Paragraph 30b);

“Dco Class G Special Shares” has the meaning assigned in Paragraph 30c);

“Dco Note 1” means the demand, non-interest bearing promissory note described in Paragraph 85;

“Dco Note 2” means the demand, non-interest bearing promissory note described in Paragraph 86;

“Dco Note 3” means the demand, non-interest bearing promissory note described in Paragraph 85;

“Dco Note 4” means the demand, non-interest bearing promissory note described in Paragraph 85;

“Dco Note 5” means the demand, non-interest bearing promissory note described in Paragraph 86;

“Dco Note 6” means the demand, non-interest bearing promissory note described in Paragraph 85;

“Dco Note 7” means the demand, non-interest bearing promissory note described in Paragraph 85;

“Dco Note 8” means the demand, non-interest bearing promissory note described in Paragraph 85;

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

“distribution” has the meaning assigned by subsection 55(1);

“Eco” means XXXXXXXXXX, a corporation incorporated under Act 2, as described in Paragraph 36;

“Eco Assets” means the assets of Eco as summarized in Paragraph 42;

“Eco Assets Distribution” means the distribution of Eco Assets to TC1 as described in Paragraph 89;

“Eco Class A and B Common Shares” has the meaning assigned in Paragraph 39a);

“Eco Class A and B Special Shares” has the meaning assigned in Paragraph 39b);

“Eco Note” means the demand non-interest bearing demand promissory note described in Paragraph 92;

“eligible property” means, for the purposes of subsections 85(1) and (2), property for which an election may be made under that subsection;

“ERDTOH” means “eligible refundable dividend tax on hand” which has the meaning assigned by subsection 129(4);

“FFFC Share” means a share of the capital stock of a family farm or fishing corporation, within the meaning assigned by subsection 110.6(1);

“First Amalgamation” means the amalgamation of Aco and Dco, as described in Paragraph 93;

“First Reorganization” means the Proposed Transactions described in Paragraphs 69 to 73;

“FMV” or “fair market value” means the amount, expressed in money terms, that is 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, and contracting for a taxable purchase and sale;

“Fourth Reorganization” means the Proposed Transactions described in Paragraphs 89 to 92;

“GRIP” means “general rate income pool” as that expression is defined in subsection 89(1);

“Individual A” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“Individual B” means XXXXXXXXXX, an individual who is resident in Canada for the purpose of the Act;

“Individual C” means XXXXXXXXXX, an individual resident in Canada for the purpose of the Act;

“NERDTOH” means “non-eligible dividend tax on hand” which has the meaning assigned by subsection 129(4);

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

“Paragraph” means a numbered or lettered paragraph of this letter;

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

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

“Proposed Transactions” means the transactions described in Paragraphs 52 to 98;

“QSBC Share” means a qualified small business corporation share, within the meaning assigned by subsection 110.6(1);

“related” has the meaning assigned by subsection 251(2), as modified for the purposes of section 55, by subparagraph 55(5)(e)(i);

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

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

“Rollovers” refers to the tax-deferred transfers described in Paragraphs 56 to 61 (the “First Rollover”), in Paragraphs 62 to 65 (the “Second Rollover”) and in Paragraphs 66 to 68 (the “Third Rollover”);

“SBC” means a “small business corporation” as that expression is defined in subsection 248(1);

“Second Amalgamation” means the amalgamation of TC3 and Eco, as described in Paragraph 96;

“Second Reorganization” means the Proposed Transactions described in Paragraphs 74 to 78;

“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);

“taxable dividend” has the meaning assigned by subsection 89(1);

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

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

“TCs” means TC1, TC2, TC3, TC4, TC5 and TC6, collectively;

“TC1” means the new corporation to be incorporated by Individual B, as described in Paragraph 56;

“TC1 Common Shares” has the meaning assigned in Paragraph 57a);

“TC1 Note 1” is the demand, non-interest bearing promissory note issued by TC1 to Bco, as described in Paragraph 71;

“TC1 Note 2” is the demand, non-interest bearing promissory note issued by TC1 to Dco, as described in Paragraph 81;

“TC1 Note 3” is the demand, non-interest bearing promissory note issued by TC1 to Eco, as described in Paragraph 91;

“TC1 Special Shares” means the Special Shares of TC1 described in Paragraph 57b);

“TC2” means the new corporation to be incorporated by Individual B, as described in Paragraph 56;

“TC2 Common Shares” has the meaning assigned in Paragraph 57a);

“TC2 Note 1” is the demand, non-interest bearing promissory note issued by TC2 to Bco, as described in Paragraph 71;

“TC2 Note 2” is the demand, non-interest bearing promissory note issued by TC2 to Dco, as described in Paragraph 81;

“TC2 Special Shares” means the Special Shares of TC2 described in Paragraph 57b);

“TC3” means the new corporation to be incorporated by Individual C, as described in Paragraph 56;

“TC3 Amalco” means the corporation resulting from the Second Amalgamation, as described in Paragraph 96;

“TC3 Amalco Predecessor Corporations” means TC3 and Eco, prior to the Second Amalgamation described in Paragraph 96;

“TC3 Common Shares” has the meaning assigned in Paragraph 57a);

“TC3 Note 1” is the demand, non-interest bearing promissory note issued by TC3 to Cco, as described in Paragraph 76;

“TC3 Note 2” is the demand, non-interest bearing promissory note issued by TC3 to Dco, as described in Paragraph 81;

“TC3 Special Shares” means the Special Shares of TC3 described in Paragraph 57b);

“TC4” means the new corporation to be incorporated by Individual C, as described in Paragraph 56;

“TC4 Common Shares” has the meaning assigned in Paragraph 57a);

“TC4 Note 1” is the demand, non-interest bearing promissory note issued by TC4 to Cco, as described in Paragraph 76;

“TC4 Note 2” is the demand, non-interest bearing promissory note issued by TC4 to Dco, as described in Paragraph 81;

“TC4 Special Shares” means the Special Shares of TC4 described in Paragraph 57b);

“TC5” means the new corporation to be incorporated by Individual C, as described in Paragraph 56;

“TC5 Common Shares” has the meaning assigned in Paragraph 57a);

“TC5 Note 1” is the demand, non-interest bearing promissory note issued by TC5 to Cco, as described in Paragraph 76;

“TC5 Note 2” is the demand, non-interest bearing promissory note issued by TC5 to Dco, as described in Paragraph 81;

“TC5 Special Shares” means the Special Shares of TC5 described in Paragraph 57b);

“TC6” means the new corporation to be incorporated by Individual C, as described in Paragraph 56;

“TC6 Common Shares” has the meaning assigned in Paragraph 57a);

“TC6 Note 1” is the demand, non-interest bearing promissory note issued by TC6 to Cco, as described in Paragraph 76;

“TC6 Note 2” is the demand, non-interest bearing promissory note issued by TC6 to Dco, as described in Paragraph 81;

“TC6 Special Shares” means the Special Shares of TC6 described in Paragraph 57b);

“Third Reorganization” means the Proposed Transactions described in Paragraphs 79 to 88; and

“unrelated person” has the meaning assigned by paragraph 55(3.01)(a).

FACTS

1. Individual A, Individual B, and Individual C are each resident in Canada.

2. Individuals A, B and C are siblings.

Aco

3. Aco was incorporated on XXXXXXXXXX under Act 2.

4. Aco is a TCC and a CCPC and has a XXXXXXXXXX taxation year end.

5. The share capital of Aco consists of an unlimited number of the following classes of shares:

a) Aco Class A and B Common Shares with the following characteristics:

i. Voting;

ii. Entitled to dividends, to be determined at the discretion of the directors of Aco; and

iii. Participation in assets on distribution, subject to the residual, after payment to holders of Class C, D, F, G, H and I Special Shares.

b) Aco Class C, D, F, G, H and I Special Shares having the following characteristics:

i. Non-voting, non-participating except to their dividend entitlement;

ii. Redeemable and retractable at the redemption amount, equal to the FMV of the property received by Aco for the issuance of the particular class of Special Shares (minus any liabilities assumed by, and any non-share consideration given by Aco for such property) with a price adjustment clause, plus any declared but unpaid dividends;

iii. Non-cumulative dividend entitlement at a rate from XXXXXXXXXX% and up to XXXXXXXXXX%, (depending on the class of shares) per annum, multiplied by the redemption amount at the time of issuance, to be determined at the discretion of the directors of Aco; and

iv. Preference upon liquidation or wind-up over all common shares, to be paid the redemption price plus any declared but unpaid dividends.

c) Aco Class E Special Shares with the following characteristics:

i. Entitled to XXXXXXXXXX votes per share;

ii. Not entitled to receive dividends; and

iii. Not entitled to receive any property upon liquidation, dissolution and or winding-up of Aco, except for their PUC.

6. The issued and outstanding shares of the capital stock of Aco consists of XXXXXXXXXX Aco Class A Common Shares and XXXXXXXXXX Aco Class C Special Shares, all of which are owned by Individual A.

7. The shares of Aco are capital property to Individual A.

8. Aco’s assets are comprised of XXXXXXXXXX Dco Class A Common Shares, XXXXXXXXXX. Aco’s other assets are comprised of cash, accounts receivable, taxes recoverable, notes receivable from an unrelated person and marketable securities.

9. Aco’s liabilities are comprised of long-term debt, an amount due to Individual A, and HST payable.

Bco

10. Bco was incorporated on XXXXXXXXXX under Act 2.

11. Bco is a TCC and a CCPC and has a XXXXXXXXXX taxation year-end.

12. The share capital of Bco consists of an unlimited number of the following classes of shares:

a) Bco Class A and B Common Shares with the following characteristics:

i. Voting;

ii. Entitled to dividends, to be determined at the discretion of the directors of Bco; and

iii. Participation in assets on distribution, subject to the residual, after payment to holders of Class C, D, F, G, H and I Special Shares.

b) Bco Class C, D, F, G, H and I Special Shares having the following characteristics:

i. Non-voting, non-participating except to their dividend entitlement;

ii. Redeemable and retractable at the redemption amount, equal to the FMV of the property received by Bco for the issuance of the particular class of Special Shares (minus any liabilities assumed by, and any non-share consideration given by Bco for such property) with a price adjustment clause, plus any declared but unpaid dividends;

iii. Non-cumulative dividend entitlement at a rate from XXXXXXXXXX% and up to XXXXXXXXXX%, (depending on the class of shares) per annum, multiplied by the redemption amount at the time of issuance of each particular class of special shares, to be determined at the discretion of the directors of Bco; and

iv. Preference upon liquidation or wind-up over all common shares, to be paid the redemption price plus any declared but unpaid dividends.

c) Bco Class E Special Shares with the following characteristics:

i. Entitled to XXXXXXXXXX votes per share;

ii. Not entitled to receive dividends; and

iii. Not entitled to receive any property upon liquidation, dissolution and or winding-up of Bco, except for their PUC.

13. The issued and outstanding shares of the capital stock of Bco consists of XXXXXXXXXX Bco Class A Common Shares and XXXXXXXXXX Bco Class C Special Shares, all of which are owned by Individual B.

14. The shares of Bco are capital property to Individual B.

15. Bco’s assets are comprised of XXXXXXXXXX Dco Class B Common Shares, cash, taxes receivable and a note receivable from Dco.

16. Bco’s liabilities are comprised of long-term debt and an amount owing to Individual B.

17. Immediately before the Proposed Transactions, the shares of Bco, held by Individual B, will be QSBC Shares and/or FFFC Shares.

Cco

18. Cco was incorporated on XXXXXXXXXX under Act 2.

19. Cco is a TCC and a CCPC and has a XXXXXXXXXX taxation year-end.

20. The share capital of Cco consists of an unlimited number of the following classes of shares:

a) Cco Class A and B Common Shares with the following characteristics:

i. Voting;

ii. Entitled to dividends, to be determined at the discretion of the directors of Cco; and

iii. Participation in assets on distribution, subject to the residual, after payment to holders of Class C, D, F, G, H and I Special Shares.

b) Cco Class C, D F, G, H and I Special Shares having the following characteristics:

i. Non-voting, non-participating except to their dividend entitlement;

ii. Redeemable and retractable at the redemption amount, equal to the FMV of the property received by Cco for the issuance of the particular class of Special Shares (minus any liabilities assumed by, and any non-share consideration given by Cco for such property) with a price adjustment clause, plus any declared but unpaid dividends;

iii. Non-cumulative dividend entitlement at a rate from XXXXXXXXXX% and up to XXXXXXXXXX%, (depending on the class of shares) per annum, multiplied by the redemption amount at the time of issuance of each particular class of special shares, to be determined at the discretion of the directors of Cco; and

iv. Preference upon liquidation or wind-up over all common shares, to be paid the redemption price plus any declared but unpaid dividends.

c) Cco Class E Special Shares with the following characteristics:

i. Entitled to XXXXXXXXXX votes per share;

ii. Not entitled to receive dividends; and

iii. Not entitled to receive any property upon liquidation, dissolution and or winding-up of Cco, except for their PUC.

21. The issued and outstanding shares of the capital stock of Cco consists of XXXXXXXXXX Cco Class A Common Shares and XXXXXXXXXX Cco Class C Special Shares, all of which are owned by Individual C.

22. The shares of Cco are capital property to Individual C.

23. Cco’s assets are comprised of XXXXXXXXXX Dco Class C Common Shares, cash, tax receivable, marketable securities and receivables from related parties.

24. Cco’s liabilities are comprised of accounts payable and accrued liabilities, income tax payable.

25. In anticipation of the Proposed Transactions described herein, Cco repaid an amount owing to Individual C by transferring marketable securities to Individual C with a FMV equal to the amount owing.

26. Immediately before the Proposed Transactions, the shares of Cco, held by Individual C, will be QSBC Shares and/or FFFC Shares.

Dco

27. Dco is the corporation resulting from the amalgamation under Act 2 of XXXXXXXXXX on XXXXXXXXXX.

28. Dco is a TCC and a CCPC and has a XXXXXXXXXX taxation year-end.

29. Dco carries on an active business that XXXXXXXXXX. Dco owns XXXXXXXXXX. Dco also produces XXXXXXXXXX.

30. The share capital of Dco consists of an unlimited number of the following classes of shares:

a) Dco Class A, B and C Common Shares with the following characteristics:

i. Voting;

ii. Entitled to dividends, to be determined at the discretion of the directors of Dco; and

iii. Participation in assets on distribution, subject to the residual, after payment to holders of Class D, E and F Special Shares.

b) Dco Class D, E and F Special Shares with the following characteristics:

i. Non-voting, non-participating except to their dividend entitlement;

ii. Retractable at the redemption amount, equal to the FMV of the property received by Dco for the issuance of the Class D, E and F Special Shares (minus any liabilities assumed by, and any non-share consideration given by Dco for such property), with a price adjustment clause, plus any declared but unpaid dividends;

iii. Floating, non-cumulative dividend entitlement at a rate up to XXXXXXXXXX% per annum multiplied by the redemption price at the time of issuance, to be determined at the discretion of the directors of Dco; and

iv. Preference upon liquidation or wind-up over all common shares, to be paid the redemption price plus any declared but unpaid dividends.

c) Dco Class G Special Shares with the following characteristics:

i. Entitled to XXXXXXXXXX votes per share;

ii. Not entitled to receive dividends; and

iii. Not entitled to receive any property upon liquidation, dissolution and or winding-up of Dco, except for their PUC.

31. The issued and outstanding shares of the capital stock of Dco are owned as follows:

	Shareholder		Number		Class
	Aco			XXXXXXXXXX		Dco Class A Common Shares
	Bco			XXXXXXXXXX		Dco Class B Common Shares
	Cco			XXXXXXXXXX		Dco Class C Common Shares

32. Aco, Bco and Cco hold their shares in Dco as capital property.

33. Dco’s assets are comprised of accounts receivable, inventory, a receivable from Eco, other short term assets, capital assets, XXXXXXXXXX and amounts due from related parties.

34. Dco’s liabilities are comprised of bank debt and long-term debt, accounts payable and accrued liabilities, taxes payable and deferred income taxes.

35. Immediately before the implementation of the Proposed Transactions, Dco will be a SBC.

Eco

36. Eco was incorporated on XXXXXXXXXX under Act 2.

37. Eco is a TCC and a CCPC and has a XXXXXXXXXX taxation year-end.

38. Eco carries on an active business of XXXXXXXXXX owned by Dco.

39. The share capital of Eco consists of an unlimited number of the following classes of shares:

a) Eco Class A and Class B Common Shares with the following characteristics:

i. Voting;

ii. Entitled to dividends, to be determined at the discretion of the directors of Eco; and

iii. Participation in assets on distribution, subject to the residual, after payment to holders of Class A and B Special Shares.

b) Eco Class A and Class B Special Shares with the following characteristics:

i. Non-voting, non-participating except to their dividend entitlement;

ii. Redeemable and retractable at the redemption amount, equal to the FMV of the property received by Eco for the issuance of the Class A and B Special Shares (minus any liabilities assumed by, and any non-share consideration given by Eco for such property) with a price adjustment clause, plus any declared but unpaid dividends;

iii. Non-cumulative dividend entitlement at a rate from XXXXXXXXXX% and up to XXXXXXXXXX%, (depending on the class of shares) per annum, multiplied by the redemption amount at the time of issuance of each particular class of special shares, to be determined at the discretion of the directors of Eco; and

iv. Preference upon liquidation or wind-up over all common shares, to be paid the redemption price plus any declared but unpaid dividends.

40. The issued and outstanding shares of the capital stock of Eco are owned as follows:

	Shareholder		Number		Class
	Individual B	XXXXXXXXXX		Eco Common Shares
	Individual C	XXXXXXXXXX		Eco Common Shares

41. Individual B and Individual C hold their shares in Eco as capital property.

42. Eco’s assets include cash, accounts receivable, XXXXXXXXXX, taxes receivable, amounts owing from shareholders and a note receivable from related parties.

43. Eco’s liabilities are comprised of accounts payable, advances payable from related parties and deferred income tax.

44. Immediately before the implementation of the Proposed Transactions, the shares of Eco, held by Individual B and Individual C, will be QSBC Shares and/or FFFC Shares.

ABC Partnership

45. ABC Partnership is a general partnership governed by Act 1.

46. ABC Partnership is a Canadian Partnership and has a XXXXXXXXXX taxation year-end.

47. ABC Partnership owns XXXXXXXXXX by Eco under a XXXXXXXXXX arrangement.

48. Individuals A, B and C each own a one third interest in ABC Partnership.

49. Individuals A, B and C each hold their partnership interests in ABC Partnership as capital property.

50. ABC Partnership’s assets include an amount receivable from Eco and various capital assets used in its business.

51. ABC Partnership’s liabilities include an amount owing to Dco.

PROPOSED TRANSACTIONS

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

52. Dco will borrow from a third-party lender, secured by a mortgage on certain parcels of land that will be transferred by Dco to the TCs in the course of the Third Reorganization described in Paragraph 79. The amount borrowed will be retained by Dco such that the net FMV of the assets remaining in Dco following the Third Reorganization, will be equal to one third of the FMV of Dco’s net assets determined immediately before the Third Reorganization.

53. ABC Partnership will transfer all its property to Dco. In consideration, Dco will issue Class D Special Shares, Class E Special Shares and Class F Special Shares to ABC Partnership, and Dco will assume all of ABC Partnership’s liabilities.

54. Dco and ABC Partnership will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(2) apply to each eligible property transferred to Dco. The agreed amount in respect of each eligible property transferred will conform to the requirements specified in paragraphs 85(1)(b) to (e).

The amount added to the stated capital account in respect of the Class D Special Shares, Class E Special Shares and Class F Special Shares issued by Dco as partial consideration for the property of ABC Partnership, will not exceed the maximum amount that could be added to the aggregate PUC of the shares without a reduction taking place pursuant to subsection 85(2.1).

55. Within 60 days of the transfer described in Paragraph 53, ABC Partnership will be wound up and Individual A will receive the Class D Special Shares, Individual B will receive the Class F Special Shares and Individual C will receive the Class E Special Shares of Dco.

First Rollover

56. Individual B will incorporate TC1 and TC2 under Act 2 and Individual C will incorporate TC3, TC4, TC5 and TC6 (collectively referred to as “TCs”) under Act 2.

57. The authorized share capital of the TCs will consist of an unlimited number of each of the following classes of shares:

a) Voting and participating Common Shares without par value, and

b) Voting Special Shares that are non-participating, non-convertible and carrying a: (i) non-cumulative dividend entitlement computed based on a fixed percentage of the FMV of the consideration received for the shares when first issued; and (ii) redemption/retraction feature for an amount equal to the FMV of the property transferred to the corporation in consideration for the issuance of these shares.

58. The following share transfers will occur on the incorporation of TC1 and TC2:

a) Individual B will transfer a portion of their Bco Class A Common Shares to TC1 and in consideration, TC1 will issue TC1 Common Shares to Individual B;

b) Individual B will transfer all of their Bco Class C Special Shares to TC1 and in consideration, TC1 will issue TC1 Special Shares to Individual B; and

c) Individual B will transfer the remaining portion of their Bco Class A Common Shares to TC2 and in consideration, TC2 will issue TC2 Common Shares to Individual B.

59. Individual B and TC1 and Individual B and TC2 will respectively jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of Individual B’s Bco Class A Common shares to TC1 and TC2 and to the transfer of all of Individual B’s Bco Class C Special Shares to TC1, as described in Paragraph 58.

The amount added to the stated capital account of the respective shares issued to Individual B, in Paragraph 58, will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, of the respective shares transferred to TC1 and TC2, as the case may be; and (ii) the aggregate ACB to Individual B, immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

60. The following share transfers will occur on the incorporation of TC3, TC4, TC5 and TC6:

a) Individual C will transfer a portion of their Cco Class A Common Shares to TC3 and in consideration, TC3 will issue TC3 Common Shares to Individual C;

b) Individual C will transfer all of their Cco Class C Special Shares to TC3 and in consideration, TC3 will issue TC3 Special Shares to Individual C;

c) Individual C will transfer a portion of their Cco Class A Common Shares to TC4 and in consideration, TC4 will issue TC4 Common Shares to Individual C;

d) Individual C will transfer a portion of their Cco Class A Common Shares to TC5 and in consideration, TC5 will issue TC5 Common Shares to Individual C; and

e) Individual C will transfer a portion of their Cco Class A Common Shares to TC6 and in consideration, TC6 will issue TC6 Common Shares to Individual C.

61. Individual C and TC3, Individual C and TC4, Individual C and TC5 and Individual C and TC6 will respectively jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfers of the Cco Class A Common Shares to TC3, TC4, TC5 and TC6 and to the transfer of all of the Cco Class C Special Shares to TC3 as described in Paragraph 60.

The amount added to the stated capital account of the respective shares issued to Individual C, in Paragraph 60, will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, of the shares transferred to TC3, TC4, TC5 and TC6, as the case may be; and (ii) the aggregate ACB to Individual C, immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

Second Rollover

62. Individual A will transfer all of their Dco Class D Special Shares to Aco and in consideration, Aco will issue Aco Class F Special Shares to Individual A.

63. Individual B will transfer all of their Dco Class F Special Shares to TC1 and in consideration, TC1 will issue TC1 Special Shares to Individual B.

64. Individual C will transfer all of their Dco Class E Special Shares to TC3 and in consideration, TC3 will issue TC3 Special Shares to Individual C.

65. Individual A and Aco, Individual B and TC1 and Individual C and TC3 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of the Dco Class D Special Shares to Aco, the transfer of the Dco Class F Special Shares to TC1 and the transfer of the Dco Class E Special Shares to TC3, as described in Paragraphs 62 to 64. For greater certainty, the agreed amount will be the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital account of the shares issued to Individual A, Individual B and Individual C, in Paragraphs 62 to 64 respectively, will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, of the respective shares transferred to Aco, TC1 and TC3, as the case may be; and (ii) the aggregate ACB to Individual A, Individual B and Individual C immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

Third Rollover

66. Individual B will transfer all of their Eco Common Shares to TC1 and in consideration TC1 will issue TC1 Common Shares to Individual B.

67. Individual C will transfer all of their Eco Common Shares to TC3 and in consideration TC3 will issue TC3 Common Shares to Individual C.

68. Individual B and TC1 and Individual C and TC3 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfers of the Eco Common Shares to TC1 and TC3 as described in Paragraphs 66 and 67. For greater certainty, the agreed amount will be the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital account of the respective shares issued to Individual B and Individual C, in Paragraphs 66 and 67, will be restricted to the greater of (i) the aggregate PUC, immediately before the disposition, of respective shares transferred to TC1 and TC3, as the case may be; and (ii) the aggregate ACB to Individual B and Individual C immediately before the disposition, of such shares, taking into account any adjustments provided in paragraphs 84.1(2)(a) and (a.1).

First Reorganization

69. Bco will transfer all of its Dco Class B Common Shares to TC1 and TC2 as follows:

a) Bco will transfer a portion of its Dco Class B Common Shares to TC1 in consideration for TC1 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class B Common Shares transferred to TC1; and

b) Bco will transfer the remaining portion of its Dco Class B Common Shares to TC2 in consideration for TC2 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class B Common Shares transferred to TC2.

70. Bco and TC1 and Bco and TC2 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfers of the Dco Class B Common Shares to TC1 and TC2 as described in Paragraph 69. The agreed amount will be limited to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital in respect of the TC1 and TC2 Special Shares issued to Bco will not exceed the maximum amount that could be to be added to the PUC of the shares without a reduction in PUC pursuant to subsection 85(2.1).

71. Immediately after the share transfers described in Paragraph 69, TC1 and TC2 will redeem all of the TC1 and TC2 Special Shares held by Bco for an amount equal to the aggregate redemption amount and FMV of such shares. As sole consideration therefor, each of TC1 and TC2 will issue the TC1 Note 1 and the TC2 Note 1 to Bco respectively. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the aggregate redemption amount and FMV of the TC1 and TC2 Special Shares so redeemed. Bco will accept the TC1 Note 1 and the TC2 Note 1 as payment in full for the redemption of the TC1 and TC2 Special Shares, respectively.

72. By way of special resolution, TC1 and TC2 will resolve to wind-up and dissolve Bco pursuant to the provisions of Act 2. Articles of dissolution for each of TC1 and TC2 will be filed with the appropriate corporate registry office no later than 6 months following the commencement of the winding-up.

73. In the course of the winding-up of Bco:

a) TC1 and TC2 will assign and distribute the TC1 Note 1 to TC1 and TC2 Note 1 to TC2, with the result that all or substantially all of the property owned by Bco immediately before the winding-up of Bco will be distributed to TC1 and TC2; and

b) The obligation of TC1 and TC2 to Bco under the TC1 Note 1 and the TC2 Note 1, as the case may be, will be extinguished and canceled as a result of the assignment and distribution of TC1 Note 1 and the TC2 Note 1 described in Paragraph 73a).

Second Reorganization

74. Cco will transfer all of its Dco Class C Common Shares to TC3, TC4, TC5 and TC6 as follows:

a) Cco will transfer a portion of its Dco Class C Common Shares to TC3 in consideration for TC3 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC3;

b) Cco will transfer a portion of its Dco Class C Common Shares to TC4 in consideration for TC4 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC4;

c) Cco will transfer a portion of its Dco Class C Common Shares to TC5 in consideration for TC5 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC5; and

d) Cco will transfer a portion of its Dco Class C Common Shares to TC6 in consideration for TC6 Special Shares with a redemption amount and FMV equal to the FMV of the Dco Class C Common Shares transferred to TC6.

75. Cco and TC3, Cco and TC4, Cco and TC5 and Cco and TC6 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfers of the Dco Class C Common Shares to TC3, TC4, TC5 and TC6 as described in Paragraph 74. The agreed amount in respect of the transfers will be limited to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The amount added to the stated capital in respect of the TC3, TC4, TC5 and TC6 Special Shares issued to Cco will not exceed the maximum amount that may be added to the PUC of the shares without a reduction in PUC pursuant to subsection 85(2.1).

76. Immediately after the share transfers described in Paragraph 74, TC3, TC4, TC5 and TC6 will redeem all of the TC3, TC4, TC5 and TC6 Special Shares held by Cco for an amount equal to the aggregate redemption amount and FMV of such shares. As consideration therefor, TC3, TC4, TC5 and TC6 will issue the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1 to Cco respectively. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the aggregate redemption amount and FMV of the TC3, TC4, TC5 and TC6 Special Shares. Cco will accept the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1 as payment in full for the redemption of the TC3, TC4, TC5 and TC6 Special Shares, respectively.

77. By way of special resolution, TC3, TC4, TC5 and TC6 will resolve to wind-up and dissolve Cco pursuant to the provisions of Act 2. Articles of dissolution for each of TC3, TC4, TC5 and TC6 will be filed with the appropriate corporate registry office no later than 6 months following the commencement of the winding-up.

78. In the course of the winding-up of Cco:

a) TC3, TC4, TC5 and TC6 will assign and distribute the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1 to TC3, TC4, TC5 and TC6, with result that all or substantially all of the property owned by Cco, immediately before the winding-up of Cco will be distributed to TC3, TC4, TC5 and TC6; and

b) The obligation of TC3, TC4, TC5 and TC6 to Cco under the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1, as the case may be, will be extinguished and cancelled as a result of the assignment and distribution of the TC3 Note 1, the TC4 Note 1, the TC5 Note 1 and the TC6 Note 1, described in Paragraph 78a).

Third Reorganization

79. Dco will transfer certain Dco Business Assets (the “Dco Business Assets”) to the TCs in consideration for the issuance of TC1, TC2, TC3, TC4, TC5 and TC6 Special Shares, respectively, and the assumption of Dco liabilities.

80. Dco and TC1, Dco and TC2, Dco and TC3, Dco and TC4, Dco and TC5 and Dco and TC6 will respectively jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of the Dco Business Assets described in Paragraph 79. The agreed amount in respect of the Dco Business Assets transferred will not be less than the lesser of the amounts specified in paragraphs 85(1)(c.1), 85(1)(c.2) and 85(1)(e) and will not exceed the FMV of the property transferred.

The amount of the Dco liabilities assumed by the TCs, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property in accordance with paragraph 85(1)(b). The amount of liabilities assumed by the TCs, respectively, which are allocated by Dco to a particular property that is not subject to an election under subsection 85(1), will not exceed the FMV of any such property.

The amount added to the stated capital account for the Special Shares to be issued by the TCs as partial consideration for the Dco Business Assets Distribution, will not exceed the maximum amount that could be added to the aggregate PUC of each TC’s respective class of Special Shares without a reduction in PUC pursuant to subsection 85(2.1).

81. Immediately after the Dco Business Assets Distribution described in Paragraph 79, the TCs will redeem all of each TC’s class of Special Shares held by Dco for an amount equal to the aggregate redemption amount of such shares. As consideration therefor, the TCs will issue the TC1 Note 2, the TC2 Note 2, the TC3 Note 2, the TC4 Note 2, the TC5 Note 2 and the TC6 Note 2 to Dco.

Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the aggregate redemption amount of each TC’s class of Special Shares held by Dco. Dco will accept the TC1 Note 2, the TC2 Note 2, the TC3 Note 2, the TC4 Note 2, the TC 5 Note 2 and the TC6 Note 2 as payment in full for the redemption of the each TC’s class of Special Shares.

82. On a contemporaneous basis, Dco will purchase for cancellation or redeem all of the following shares:

a) Dco Class B Common Shares issued to TC1;

b) Dco Class F Special Shares issued to TC1;

c) Dco Class B Common Shares issued to TC2;

d) Dco Class C Common Shares issued to TC3;

e) Dco Class E Special Shares issued to TC3;

f) Dco Class C Common Shares issued to TC4;

g) Dco Class C Common Shares issued to TC5; and

h) Dco Class C Common Shares issued to TC6.

83. The purchases for cancellation described in Paragraphs 82a), c), d), f), g) and h) will be for an amount equal to the total of the FMV of the Dco Class B Common Shares issued to TC1 and TC2 and the Dco Class C Common Shares issued to TC3, TC4, TC5 and TC6, as the case may be.

84. The redemptions described in Paragraphs 82b) and e) will be for an amount equal to the aggregate redemption amount of the Dco Class F Special Shares issued to TC1 and the Dco Class E Special Shares issued to TC3, as the case may be.

85. As consideration for the purchases for cancellation described in Paragraphs 82a), c), d), f), g) and h), Dco will issue the Dco Note 1, Dco Note 3, Dco Note 4, Dco Note 6, Dco Note 7 and Dco Note 8, respectively. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the FMV of the Dco Class B Common Shares and Dco Class C Common Shares issued to the TCs.

86. As consideration for the redemptions, as described in Paragraphs 82b) and e), Dco will issue the Dco Note 2 and Dco Note 5. Each such promissory note will be non-interest bearing, payable on demand with a principal amount and FMV equal to the redemption amounts of the Dco Class F Special Shares and Dco Class E Special Shares issued to TC1 and TC3, respectively.

87. TC1 will accept the Dco Note 1 and the Dco Note 2, TC2 will accept the Dco Note 3, TC3 will accept the Dco Note 4 and the Dco Note 5, TC4 will accept the Dco Note 6, TC5 will accept the Dco Note 7 and TC6 will accept the Dco Note 8 as payment in full for the purchase for cancellation of the Dco Class B and Dco Class C Common Shares, and the redemptions of the Dco Class E and Dco Class F Special Shares, as the case may be.

88. The following promissory notes will be set-off against each other such that each promissory note will be cancelled in full satisfaction of its respective underlying obligations:

a) The amount owing by TC1 under the TC1 Note 2 will be set-off against the amount owing by Dco to TC1 under the Dco Note 1 and the Dco Note 2;

b) The amount owing by TC2 under the TC2 Note 2 will be set-off against the amount owing by Dco to TC2 under the Dco Note 3;

c) The amount owing by TC3 under the TC3 Note 2 will be set-off against the amount owing by Dco to TC3 under the Dco Note 4 and the Dco Note 5;

d) The amount owing by TC4 under the TC4 Note 2 will be set-off against the amount owing by Dco to TC4 under the Dco Note 6;

e) The amount owing by TC5 under the TC5 Note 2 will be set-off against the amount owing by Dco to TC5 under the Dco Note 7; and

f) The amount owing by TC6 under the TC6 Note 2 will be set-off against the amount owing by Dco to TC6 under the Dco Note 8.

Fourth Reorganization

89. Eco will transfer certain Eco Assets to TC1 in consideration for the issuance of TC1 Special Shares and the assumption of Eco liabilities.

90. Eco and TC1 will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer of the Eco Assets described in Paragraph 89. The agreed amount in respect of the Eco Assets transferred will not be less than the lesser of the amounts specified in paragraphs 85(1)(c.1), 85(1)(c.2) and 85(1)(e) and will not exceed the FMV of the property transferred.

The amount of the Eco liabilities assumed by TC1, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property in accordance with paragraph 85(1)(b). The amount of the Eco liabilities assumed by TC1, which are allocated by Eco to a particular property that is not subject to an election under subsection 85(1), will not exceed the FMV of such property.

For greater certainty, the amount added to the stated capital account for the TC1 Special Shares issued to Eco as partial consideration for the Eco Assets Distribution, will not exceed the maximum amount that could be added to the aggregate PUC of the TC1 Special Shares without a reduction in PUC pursuant to subsection 85(2.1).

91. Immediately after the Eco Assets Distribution described in Paragraph 89, TC1 will redeem all of the TC1 Special Shares held by Eco for an amount equal to the aggregate redemption amount and FMV of such shares. As consideration therefor, TC1 will issue the TC1 Note 3 to Eco, which will have a principal amount and FMV equal to the aggregate redemption amount and FMV of the TC1 Special Shares. Eco will accept the TC1 Note 3 as payment in full for the redemption of such shares.

92. Eco will purchase for cancellation the Eco Common Shares owned by TC1 for an amount equal to the total FMV of the Eco Common Shares. As consideration therefor, Eco will issue the Eco Note, which will be a non-interest bearing, due on demand, promissory note with a principal amount and FMV equal to the total FMV of the Eco Common Shares purchased for cancellation.

TC1 will accept the Eco Note as payment in full for the purchase for cancellation of the Eco Common Shares. The amount owing by TC1 to Eco under the TC1 Note 3 will be set-off against the amount owing by Eco to TC1 under the Eco Note, such that each note will be canceled in full satisfaction of its respective underlying obligations.

First Amalgamation

93. Aco and Dco, each of which will be a predecessor corporation to Aco Amalco, (the “Aco Amalco Predecessor Corporations”), will amalgamate to form Aco Amalco under the provisions of Act 2, whereby:

a) all of the property (except any amounts receivable from any Aco Amalco Predecessor Corporation or shares of the capital stock of another Aco Amalco Predecessor Corporation) of the Aco Amalco Predecessor Corporations immediately before the First Amalgamation will become property of Aco Amalco by virtue of the amalgamation;

b) all of the liabilities (except any amounts payable to any Aco Amalco Predecessor Corporation) of the Aco Amalco Predecessor Corporations immediately before the First Amalgamation will become liabilities of Aco Amalco by virtue of the First Amalgamation; and

c) all of the shareholders (except an Aco Amalco Predecessor Corporation) who owned shares of the capital stock of any Aco Amalco Predecessor Corporation immediately before the First Amalgamation will receive shares of the capital stock of Aco Amalco because of the First Amalgamation.

94. Aco Amalco will be a TCC and a CCPC.

95. The issued and outstanding shares of the capital stock of Aco Amalco will consist of XXXXXXXXXX Aco Amalco Common Shares and XXXXXXXXXX Aco Amalco Special Shares, all of which will be owned by Individual A.

The ACB, stated capital and PUC of Common and Special shares of Aco Amalco owned by Individual A will be equal to the aggregate stated capital and PUC of the XXXXXXXXXX Aco Class A Common Shares, XXXXXXXXXX Aco Class C Special Shares and the Aco Class F Special Shares, issued in Paragraph 62, immediately prior to the First Amalgamation.

Second Amalgamation

96. TC3 and Eco, each of which will be a predecessor corporation (the “TC3 Amalco Predecessor Corporations”), will amalgamate to form TC3 Amalco under the provisions of Act 2, whereby:

a) all of the property (except any amounts receivable from another TC3 Amalco Predecessor Corporation or shares of the capital stock of another TC3 Amalco Predecessor Corporation) of the TC3 Amalco Predecessor Corporations immediately before the Second Amalgamation will become property of TC3 Amalco by virtue of the Second Amalgamation;

b) all of the liabilities (except any amounts payable to another TC3 Amalco Predecessor Corporation) of the TC3 Amalco Predecessor Corporations immediately before the Second Amalgamation will become liabilities of TC3 Amalco by virtue of the Second Amalgamation; and

c) all of the shareholders (except a TC3 Amalco Predecessor Corporation) who owned shares of the capital stock of any TC3 Amalco Predecessor Corporation immediately before the Second Amalgamation will receive shares of the capital stock of TC3 Amalco because of the Second Amalgamation.

97. TC3 Amalco will be a TCC and a CCPC.

98. The issued and outstanding shares of the capital stock of TC3 Amalco will consist of XXXXXXXXXX TC3 Amalco Common Shares and XXXXXXXXXX TC3 Amalco Special Shares, all of which will be owned by Individual C.

The ACB, stated capital and PUC of the Common Shares and Special Shares of TC3 Amalco owned by Individual C will be equal to the aggregate stated capital and PUC of the XXXXXXXXXX Common Shares and XXXXXXXXXX Special Shares of TC3 immediately prior to the Second Amalgamation.

ADDITIONAL INFORMATION

99. None of the transactions described herein have been completed prior to the date of this letter and there are no other transactions, proposed or contemplated, other than as described herein, that would form part of the series of transactions or events that includes the Proposed Transactions. Specifically, there is no intention by any person to dispose of the shares of any of the corporations referred to herein to an unrelated person.

100. Immediately before the transfer of property in the course of the First Reorganization, described in Paragraph 69, the issued and outstanding shares of TC1 and TC2, will be QSBC Shares and/or FFFC Shares of Individual B.

101. Immediately after the cancellation of the promissory notes on the winding-up of Bco, described in Paragraph 73, the shares of TC1 and TC2, will be QSBC Shares and/or FFFC Shares of Individual B.

102. Immediately before the transfer of property in the course of the Second Reorganization, described in Paragraph 74, the issued and outstanding shares of TC3, TC4, TC5 and TC6, will be QSBC Shares and/or FFFC Shares of Individual C.

103. Immediately after the cancellation of the promissory notes on the winding-up of Cco, described in Paragraph 78, the shares of TC3, TC4, TC5 and TC6, will be QSBC Shares and/or FFFC Shares of Individual C.

104. Immediately before the transfer of property in the course of the Third Reorganization, described in Paragraph 79, the issued and outstanding shares of the TCs, owned by Individual B and Individual C, will be QSBC Shares and/or FFFC Shares of those individuals.

105. Immediately after the cancellation of the promissory notes, described in Paragraph 88, the shares of the TCs, owned by Individual B and Individual C, will be QSBC Shares and/or FFFC Shares of those individuals.

106. Immediately before the transfer of property in the course of the Fourth Reorganization, described in Paragraph 89, the issued and outstanding shares of TC1, will be QSBC Shares and/or FFFC Shares of Individual B.

107. Immediately after the cancellation of the promissory notes, described in Paragraph 92, the shares of TC1 will be QSBC Shares and/or FFFC Shares of Individual B.

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

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

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

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

d) issued for consideration that is or includes an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or

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

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

PURPOSE OF THE PROPOSED TRANSACTIONS

110. The purpose of incorporating six TCs is to facilitate future family tax planning that may involve the children of Individual B and Individual C.

111. The purpose of the wind-up of ABC Partnership, the Rollovers and the purpose of the First Reorganization and Second Reorganization is to simplify the corporate structure in anticipation of the Third Reorganization and the Fourth Reorganization.

112. The purpose of the Third Reorganization and the Fourth Reorganization is to allow Bco and Cco to separate their economic interests in Dco and Eco, which will facilitate the independent business planning objectives of Individual A, Individual B and Individual C.

113. The purpose of the First Amalgamation and Second Amalgamation is to simplify the corporate structure.

RULINGS GIVEN

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

A. As a result of the following redemptions and purchases for cancellation:

a) The redemptions by TC1 and TC2 of the Special Shares owned by Bco, as described in Paragraph 71 on the First Reorganization;

b) The redemptions by TC3, TC4, TC5 and TC6 of the Special Shares owned by Cco, as described in Paragraph 76 on the Second Reorganization;

c) The redemptions by TC1, TC2, TC3, TC4, TC5 and TC6 of the Special Shares owned by Dco, as described in Paragraph 81 on the Third Reorganization;

d) The purchase for cancellation of the Dco Class B and Dco Class C Common Shares and the redemptions of the Dco Class F Special Shares and Dco Class E Special Shares owned by TC1, TC2, TC3, TC4, TC5 and TC6, as described in Paragraph 82 on the Third Reorganization;

e) The redemption by TC1 of the TC1 Special Shares owned by Eco, as described in Paragraph 91 on the Fourth Reorganization; and

f) The purchase for cancellation by Eco of the Eco Common Shares owned by TC1, as described in Paragraph 92, on the Fourth Reorganization.

by virtue of subsection 84(3):

a) TC1 and TC2 will be deemed to have paid, and Bco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the TC1 Special Shares and TC2 Special Shares, as the case may be, owned by Bco, exceeds the aggregate PUC in respect of those shares immediately before the redemptions.

b) TC3, TC4, TC5 and TC6 will be deemed to have paid, and Cco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Special Shares in the capital of TC3, TC4, TC5 and TC6 owned by Cco exceeds the aggregate PUC in respect of those shares immediately before the redemptions.

c) The TCs will be deemed to have paid, and Dco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the Special Shares in the capital of the TCs owned by Dco exceeds the aggregate PUC in respect of those shares immediately before the redemptions.

d) Dco will be deemed to have paid, and each of the TCs will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of the Dco Class B Common shares and Dco Class C Common Shares or the redemption of the Dco Class F Special Shares and Dco Class E Special Shares owned by the TCs exceeds the aggregate PUC in respect of those shares immediately before the purchase for cancellation.

e) TC1 will be deemed to have paid, and Eco will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the redemption of the TC1 Special Shares owned by Eco exceeds the aggregate PUC in respect of those shares immediately before the redemptions.

f) Eco will be deemed to have paid, and TC1 will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid in respect of the purchase for cancellation of the Eco Common Shares owned by TC1 exceeds the aggregate PUC in respect of those shares immediately before the redemptions.

B. Subsection 84(2) and paragraph 88(2)(b) will apply to the distributions by Bco described in Paragraph 73 such that:

a) subject to b), c) and d) herein, Bco will be deemed to have paid dividends on the Bco Class A Common Shares held by TC1 and TC2, equal to the amount, if any, by which:

i. the amount or value of the funds or property distributed with respect of the shares of that class, as the case may be exceeds

ii. the amount, if any, by which the aggregate PUC in respect of the shares of that class is reduced on the distribution, as the case may be, and

each of TC1 and TC2 will be deemed to have received a taxable dividend equal to the proportion of the amount of the aforementioned excess that the number of Bco Class A Common Shares outstanding immediately before the distribution of Bco’s property;

b) pursuant to subparagraph 88(2)(b)(i), the portion of the dividend described in a. herein, that does not exceed the outstanding balance of Bco’s CDA, as determined immediately before the payment of the dividend described in a. herein, will be deemed, for the purposes of the subsection 83(2) election, to be the full amount of a separate capital dividend;

c) pursuant to subparagraph 88(2)(b)(iii), the portion of the dividend described in a) that exceeds the amount of the separate capital dividend referred to in Ruling B c) will be deemed to be a separate dividend that is a taxable dividend; and

d) pursuant to subparagraph 88(2)(b)(iv), each of TC1 and TC2 will be deemed to have received their proportional share of the separate capital dividend and taxable dividend described in Rulings B b) and c)

C. Subsection 84(2) and paragraph 88(2)(b) will apply to the distributions by Cco described in Paragraph 78 such that:

a) subject to b), c) and d) herein, Cco will be deemed to have paid dividends on the Cco Class A Common Shares held by TC3, TC4, TC5 and TC6, equal to the amount, if any, by which:

i. the amount or value of the funds or property distributed with respect of the shares of that class, as the case may be exceeds

ii. the amount, if any, by which the aggregate PUC in respect of the shares of that class is reduced on the distribution, as the case may be, and

each of TC3, TC4, TC5 and TC6 will be deemed to have received a taxable dividend equal to the proportion of the amount of the aforementioned excess that the number of Cco Class A Common Shares outstanding immediately before the distribution of Cco’s property;

b) pursuant to subparagraph 88(2)(b)(i), the portion of the dividend described in a. herein, that does not exceed the outstanding balance of Cco’s CDA, as determined immediately before the payment of the dividend described in a. herein, will be deemed, for the purposes of the subsection 83(2) election, to be the full amount of a separate capital dividend;

c) pursuant to subparagraph 88(2)(b)(iii), the portion of the dividend described in Ruling a) that exceeds the amount of the separate capital dividend referred to in Ruling C c) will be deemed to be a separate dividend that is a taxable dividend; and

d) pursuant to subparagraph 88(2)(b)(iv), each of TC3, TC4, TC5 and TC6 will be deemed to have received their proportional share of the separate capital dividend and taxable dividend described in Rulings C b) and c)

D. By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to the taxable dividends described in Ruling A or to any taxable dividends that are deemed to be received by TC1, TC2, TC3, TC4, TC5 and TC6 on the winding-up of Bco and Cco, and the resulting cancellation of the Bco Class A Common Shares and Cco Class A Common Shares, described in Rulings B and C, provided that there is no disposition (other than as described herein) or significant increase in interest (other than as described herein) that is described in any of subparagraphs 55(3)(a)(i) to (v). For greater certainty, the Proposed Transactions described herein, in and of themselves, will not be considered to result in any disposition or significant increase in interest described in subparagraphs 55(3)(a)(i) to (v).

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

The above 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 are completed within six months of the date of this letter, unless otherwise specified.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

OTHER COMMENTS

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

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

b) the balance of the CDA, GRIP, ERDTOH or NERDTOH of any corporation referred to herein;

c) the status of any shares of any corporation referred to herein and specifically, whether such shares are QSBC Shares or shares of the capital stock of a FFFC;

d) the allocation of safe income attributable to any share of any corporation referred to herein and the alignment of the adjusted cost base of shares of any corporation with such safe income (see generally, CRA documents 2020-0861031C6 and 2021-0889611E5);

e) any Part IV tax implications arising as a result of the Proposed Transactions, including whether a problem of circularity may arise on computing the Part IV tax or dividend refund of any corporation;

f) any other tax consequence relating to the facts, Proposed Transactions, additional information, or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions; and

g) whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purposes of any of the rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer. Furthermore, the operation of a price adjustment clause may invalidate one or more of the rulings provided. 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
Manager, Reorganizations Section II
For Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch