30 November 1995 961621A - USE OF DEDUCTIONS AND CREDITS IN RELATED CORPORATE GROUP

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether transactions based upon ATR-44 may be utilized to utilize deductions and investment tax credits within a related corporate group.

Position:

Yes.

Reasons:

Our views remain as stated at the 1994 annual conference of the Canadian Tax Foundation as well as in Income Tax Technical News No. 3 dated January 30, 1995.

XXXXXXXXXX				961621

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX and subsequent correspondence in which you requested an advance income tax ruling on behalf of the above corporations with respect to the interest in XXXXXXXXXX.

To the best of your knowledge and that of the taxpayers involved in this ruling, none of the issues contained in this ruling is being considered by any office of Revenue Canada in connection with an income tax return previously filed and none of the issues contained herein is the subject of a notice of objection or is under appeal.

Each of XXXXXXXXXX files its income tax returns with the XXXXXXXXXX Taxation Centre, under account numbers XXXXXXXXXX respectively, and is served by the XXXXXXXXXX Tax Services Office. XXXXXXXXXX each have their head office at XXXXXXXXXX

Unless otherwise stated, all references to statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended (the "Act").

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1.XXXXXXXXXX is a corporation incorporated on XXXXXXXXXX under the Canada Business Corporations Act (the "CBCA") and is a "taxable Canadian corporation" within the meaning of subsection 89(1) of the Act.

The business of XXXXXXXXXX consists of

XXXXXXXXXX

2.The authorized share capital of XXXXXXXXXX consists of an unlimited number of Class XXXXXXXXXX Common Shares, each having a par value of $XXXXXXXXXX, of which XXXXXXXXXX have been issued.

All of the issued and outstanding shares of XXXXXXXXXX were issued to XXXXXXXXXX upon incorporation, for cash consideration of $XXXXXXXXXX, and are held by it as "capital property" within the meaning of section 54 of the Act. The aggregate adjusted cost base, as well as the aggregate paid-up capital, of the shares of XXXXXXXXXX held by XXXXXXXXXX is $XXXXXXXXXX

The terms "adjusted cost base" and "paid-up capital", as used in this letter, have the meanings assigned by section 54 and subsection 89(1) of the Act, respectively.

3.XXXXXXXXXX is a corporation incorporated under the laws of Canada and is a wholly-owned subsidiary of XXXXXXXXXX, a non-resident of Canada. XXXXXXXXXX is a "taxable Canadian corporation" within the meaning of subsection 89(1) of the Act.

XXXXXXXXXX carries on in Canada the business of XXXXXXXXXX

4.Each of XXXXXXXXXX is a "principal-business corporation", within the meaning of subsection 66(15) of the Act, whose "taxation year" for purposes of the Act ends on XXXXXXXXXX

5.As described in more detail in paragraphs 42.2 through 42.4 of the Ruling, in connection with the acquisition by XXXXXXXXXX of its interest in

XXXXXXXXXX

6. XXXXXXXXXX

7. XXXXXXXXXX

The terms "depreciable property" and "investment tax credit" as used herein have the meanings assigned by subsections 13(21) and 127(9) of the Act, respectively.

8. XXXXXXXXXX

9.On schedules forming part of the corporate income tax return filed for its taxation year ended XXXXXXXXXX reflected the following tax account balances (determined after making any claims for that year and which have arisen as a result of the ownership of XXXXXXXXXX:

Investment tax credit $XXXXXXXXXX

Scientific research and
experimental development expenditures $XXXXXXXXXX

Undepreciated capital cost $XXXXXXXXXX

Canadian exploration expense $XXXXXXXXXX

Non-capital losses $XXXXXXXXXX

Net capital losses $XXXXXXXXXX

In addition, XXXXXXXXXX has approximately $XXXXXXXXXX of costs incurred in respect of XXXXXXXXXX which are precluded, pursuant to subsection 13(26) of the Act, from being included in its undepreciated capital cost until the relevant property is considered to become "available for use" by it. A portion of such costs will become available for use during XXXXXXXXXX, however, the majority thereof will not become available for use until XXXXXXXXXX as provided in paragraph 13(27)(j) of the Act.

The terms "scientific research and experimental development", "undepreciated capital cost", "Canadian exploration expense", "non-capital loss" and "net capital loss" as used in this letter, have the meanings provided in subsection 248(1) of the Act.

10.XXXXXXXXXX is primarily debt financed and has only a nominal amount of equity capital as noted in paragraph 2 above. The balance sheet for XXXXXXXXXX as of XXXXXXXXXX reflected total assets of approximately $XXXXXXXXXX and long term debt of approximately $XXXXXXXXXX (which included approximately $XXXXXXXXXX owing to XXXXXXXXXX).

The balance sheet of XXXXXXXXXX as of XXXXXXXXXX reflected shareholders' equity on the consolidated and unconsolidated basis, of approximately $XXXXXXXXXX, respectively.

XXXXXXXXXX has unutilized lines of credit and a bank facility with financial institutions with which it deals at arm's length for purposes of the Act which aggregate approximately $XXXXXXXXXX. In addition, XXXXXXXXXX has short-term loan facilities and revolving term loan facilities, also with financial institutions with which it deals at arm's length for purposes of the Act, aggregating approximately $XXXXXXXXXX (U.S.) which were arranged through XXXXXXXXXX and are guaranteed by it. These lines of credit and loan facilities are as described in the notes to XXXXXXXXXX consolidated financial statements for the year ended XXXXXXXXXX. For greater certainty, XXXXXXXXXX has not increased its borrowing capacity in contemplation of the proposed transactions detailed below.

11.XXXXXXXXXX reported taxable income of approximately $XXXXXXXXXX on its XXXXXXXXXX corporate income tax return and such taxable income is forecast to increase to approximately $XXXXXXXXXX, respectively. It is not anticipated that any deduction which may arise to XXXXXXXXXX as a consequence of the proposed transactions detailed below, will result in it sustaining, or increasing, a non-capital loss for any taxation year. Furthermore, the projected net increase to XXXXXXXXXX cash flow is expected to be sufficient to meet any scheduled interest payments under the "XXXXXXXXXX Loan" described in paragraph 23 below.

12.As noted in paragraph 8 above, XXXXXXXXXX is expected to commence in XXXXXXXXXX. Cash flow projections, prepared on the basis of managements's reasonable assumptions and determined on an "operating" basis before any deduction for depreciation, indicate positive net cash flow to XXXXXXXXXX commencing in XXXXXXXXXX in the amount of approximately $XXXXXXXXXX. This amount is projected to increase to approximately $XXXXXXXXXX and to increase steadily until XXXXXXXXXX when it is projected to be approximately $XXXXXXXXXX

13.In calculating the "Loan Amount", as discussed in paragraphs 21 and 25 below, at the beginning of a particular taxation year of XXXXXXXXXX, only such portion of the XXXXXXXXXX and Tax Credits which would be deductible by XXXXXXXXXX in determining its income, or tax payable under Part I of the Act (on the assumption a sufficient amount of such tax would be payable to utilize the full amount of the portion of the Tax Credits otherwise deductible for that taxation year) as the case may be, for that taxation year (and which have not previously been taken into account in the determination of the Loan Amount), after consideration of all relevant provisions of the Act and the Income Tax Regulations (e.g., relevant restrictions concerning availability for use, the "half-year rule", various types of "assistance" with regard to the property, etc.) will be taken into account. For greater certainty, amounts in respect of property to be acquired or costs to be incurred subsequent to a particular taxation year will not be taken into account in calculating the "Loan Amount" for that taxation year.

Based upon calculations prepared for XXXXXXXXXX taking into account the above factors and utilizing detailed costing information available with regard to the XXXXXXXXXX and the Tax Credits which will be deductible by XXXXXXXXXX is estimated to be approximately $XXXXXXXXXX (represented by approximately $XXXXXXXXXX in respect of the XXXXXXXXXX and approximately $XXXXXXXXXX in respect of the Tax Credits). XXXXXXXXXX it is estimated that the aggregate deductions so available will be approximately $XXXXXXXXXX, respectively.

14. XXXXXXXXXX intends to retain ownership of its shares in XXXXXXXXXX and does not anticipate disposing of those shares.

15.For greater certainty, interest income arising to XXXXXXXXXX in respect of the "XXXXXXXXXX Loan" described in paragraph 23 below, will not constitute income from XXXXXXXXXX

16.The new corporation described in paragraph 19 below "Finco", is being utilized in order to shield the assets of XXXXXXXXXX from possible creditor claims in the event XXXXXXXXXX were to experience financial difficulty. In addition, the proposed transactions have been structured in the manner described below in order to avoid the need to make extensive and costly changes to the numerous agreements concerning the XXXXXXXXXX will remain the sole shareholder of "Finco".

17.To carry out the proposed transactions described herein, an interest rate will be established with reference to the prevailing interest rates at which XXXXXXXXXX would be able to borrow funds under the lines of credit and borrowing facilities described in paragraph 10 above (the "Rate"), at the beginning of XXXXXXXXXX taxation year, and subsequently, at the beginning of each taxation year. The Rate will be commercially reasonable.

18.i)XXXXXXXXXX is not, and neither it nor "Finco" will be, at any time a dividend paid as described in paragraph 26 below is received, a "specified financial institution" as defined in subsection 248(1) of the Act.

ii)None of the shares of XXXXXXXXXX or "Finco", issued or to be issued as described herein, is or will be:

a)subject to a "guarantee agreement", within the meaning referred to in subsections 112(2.2) of the Act; nor

b)issued in circumstances involving any "undertaking" or "consideration" of the type referred to in subsection 112(2.4) of the Act.

iii)A dividend paid as described in paragraph 26 below will not be received by Finco or XXXXXXXXXX, as the case may be, as part of a "dividend rental arrangement", as defined in subsection 248(1) of the Act, of that corporation.

iv)Neither XXXXXXXXXX nor Finco will be a corporation described in any of paragraphs (a) through (f) of the definition "financial intermediary corporation", as defined in subsection 191(1) of the Act, at the time any dividend is paid as described in paragraph 26 below.

v)For greater certainty, each of the proposed transactions described below will be fully carried out and will become legally effective.

Proposed Transactions

19.XXXXXXXXXX will cause a new corporation ("Finco") to be incorporated under the provisions of the CBCA. Finco will be a "taxable Canadian corporation" within the meaning of subsection 89(1) of the Act.

The authorized share capital of Finco will consist of an unlimited number of common shares, without par value, divided into Class XXXXXXXXXX Common Shares and Class XXXXXXXXXX Common Shares. Upon incorporation, XXXXXXXXXX will subscribe for XXXXXXXXXX Class XXXXXXXXXX Common Shares of Finco for cash consideration of $XXXXXXXXXX. Finco will add to the stated capital account maintained for its Class XXXXXXXXXX Common Shares the aggregate subscription price of $XXXXXXXXXX.

It is not anticipated that Finco will undertake activities other than those required in furtherance of the proposed transactions described herein.

20.XXXXXXXXXX will file Articles of Amendment under the CBCA to amend its authorized share capital to provide for the issuance of an unlimited number of preferred shares (the "Preferred Shares") to be issued in series. The Preferred Shares will be non-voting, have no par value, will be redeemable and retractable at their issue price of $XXXXXXXXXX per share, and will rank in priority to the Class XXXXXXXXXX Common Shares with regard to dividends as well as upon liquidation or winding-up of XXXXXXXXXX. In addition, the Preferred Shares will carry an annual cumulative dividend entitlement, payable at the end of each calendar quarter, equal to the Rate at the time the Preferred Shares are issued plus XXXXXXXXXX.

21.At the beginning of its XXXXXXXXXX taxation year, XXXXXXXXXX will borrow, in Canadian dollars, an amount from a financial institution with which it deals at arm's length for purposes of the Act (anticipated to be either XXXXXXXXXX). The amount so borrowed (the "Loan Amount") will be calculated by XXXXXXXXXX as the amount (XXXXXXXXXX) in respect of which interest thereon at the Rate, presented as a fixed percentage per annum, will yield interest income to XXXXXXXXXX for its XXXXXXXXXX taxation year approximating (without exceeding) the aggregate of:

(i)the portion of XXXXXXXXXX which will, subject to the limitations referred to in paragraph 13 above, be deductible by XXXXXXXXXX in computing its income for tax purposes for that taxation year; and

(ii)an amount calculated as the amount which would have to be added to XXXXXXXXXX taxable income, assuming such income would otherwise be nil and ignoring any other deductions or credits under the Act, such that XXXXXXXXXX would have tax payable under Part I of the Act for that taxation year equal to the portion of the Tax Credits which would, subject to the limitations referred to in paragraph 13 above, be deductible by XXXXXXXXXX in computing its tax payable under Part I of the Act for that taxation year.

However, the Loan Amount so determined will not exceed the portion of the normal borrowing capacity of XXXXXXXXXX (as described in paragraph 10 above) available at that time.

Immediately after borrowing the Loan Amount, XXXXXXXXXX will utilize all of the funds so borrowed to acquire Class XXXXXXXXXX Common Shares of Finco at a subscription price of $XXXXXXXXXX per share and the transactions described in paragraphs 22 through 24 below will be undertaken. Finco will add to the stated capital account maintained for its Class XXXXXXXXXX Common Shares the full subscription price of $XXXXXXXXXX per share.

22.Finco will utilize all of the funds received from XXXXXXXXXX, as described in the preceding paragraph, to acquire Preferred Shares of XXXXXXXXXX at a subscription price of $XXXXXXXXXX per share. XXXXXXXXXX will add to the stated capital account maintained for its Preferred Shares the full subscription price of $XXXXXXXXXX per share.

In accordance with the rights of such shares as described in paragraph 20 above, the Preferred Shares so issued will carry an annual cumulative dividend entitlement, payable at the end of each calendar quarter, equal to the Rate established at the beginning of XXXXXXXXXX

23.XXXXXXXXXX will utilize all of the funds received from Finco, as described in the preceding paragraph, to make a loan to XXXXXXXXXX (the "XXXXXXXXXX Loan"). The XXXXXXXXXX Loan will be denominated in Canadian dollars, payable on demand and bear interest, payable at the end of each calendar quarter, at the Rate established at the beginning of XXXXXXXXXX. Recourse with respect to the XXXXXXXXXX Loan will be limited to a first fixed and floating charge on the Class XXXXXXXXXX Common shares of Finco owned by XXXXXXXXXX from time to time. The XXXXXXXXXX Loan will not be a forgivable loan under the provisions of the agreements relating thereto.

It is intended that the principal amount of the XXXXXXXXXX Loan outstanding at a particular time will be equal to the aggregate redemption\retraction amount of the Preferred Shares outstanding at that time.

The term "principal amount", as used in this letter, has the meaning assigned by subsection 248(1) of the Act.

24.XXXXXXXXXX will utilize all of the proceeds of the XXXXXXXXXX Loan to repay in full the borrowing from the financial institution described in paragraph 21 above.

25.At the beginning of its XXXXXXXXXX taxation year, and each subsequent taxation year before the XXXXXXXXXX Loan is repaid as described in paragraph 29 below, XXXXXXXXXX will recalculate the Loan Amount as the amount (XXXXXXXXXX) in respect of which interest thereon at the Rate (as established for the relevant taxation year), presented as a fixed percentage per annum, will yield interest income to XXXXXXXXXX for the relevant taxation year approximating (without exceeding) the portion of the XXXXXXXXXX which will, subject to the limitations referred to in paragraph 13 above, be deductible by XXXXXXXXXX in computing its income for tax purposes for that taxation year.

Subject to the limitation that the revised Loan Amount will not exceed the unused portion of the normal borrowing capacity of XXXXXXXXXX (as described in paragraph 10 above) available at the relevant time, the transactions described below in this paragraph will be undertaken to revise the outstanding amount of the XXXXXXXXXX Loan to the revised Loan Amount.

If the revised Loan Amount exceeds the outstanding Loan Amount, an amount approximating that excess (XXXXXXXXXX) would be borrowed by XXXXXXXXXX from a financial institution with which it deals at arm's length for purposes of the Act in the manner described in paragraph 21 above and the transactions described in paragraphs 21 through 24 above would be repeated (with such changes as are necessary to reflect the relevant Rate and utilizing a different series where Preferred Shares are to be issued and the Rate has changed from that utilized for XXXXXXXXXX) with the result that the principal amount of the XXXXXXXXXX Loan would be increased by an amount equal to this additional borrowing.

If the revised Loan Amount is less than the outstanding Loan Amount, an amount of the XXXXXXXXXX Loan approximating that shortfall (XXXXXXXXXX) would be repaid by XXXXXXXXXX, either from existing cash resources or with funds borrowed from a financial institution with which it deals at arm's length for purposes of the Act. XXXXXXXXXX would redeem, at their aggregate redemption amount, such number of the Preferred Shares held by Finco having an aggregate redemption amount equal to the Shortfall. Finco would then utilize the amount so received by it to purchase for cancellation an identical number its Class XXXXXXXXXX Common Shares from XXXXXXXXXX. Where XXXXXXXXXX borrows funds to repay an amount of the XXXXXXXXXX Loan, such borrowings will be repaid in full from the funds received from Finco.

26.Interest on the outstanding balance of the XXXXXXXXXX Loan, as provided in paragraph 23 above and determined utilizing the relevant Rate, will be paid by XXXXXXXXXX immediately after the end of each calendar quarter. Immediately after each such payment:

i)dividends will be paid by XXXXXXXXXX to Finco on all of the Preferred Shares issued and outstanding at that time, in the full amount of their respective entitlements as provided in paragraph 20 above; and

ii)immediately thereafter, dividends in an amount equal to the aggregate amount of the dividends referred to in part i) of this paragraph, will be paid by Finco, on its Class XXXXXXXXXX Common Shares, to XXXXXXXXXX

At the time dividends are paid as described in parts i) and ii) of this paragraph, XXXXXXXXXX will be related to each other for the purposes of the Act. For greater certainty, each dividend paid by XXXXXXXXXX or Finco, as the case may be and as described in this paragraph, will be a "taxable dividend" within the meaning of subsection 89(1) of the Act.

27.The amount of interest in respect of the XXXXXXXXXX Loan which represents an expense to XXXXXXXXXX for a particular taxation year will, for greater certainty, be equal to the amount included in the determination of XXXXXXXXXX income for purposes of the Act for the same taxation year in respect of the XXXXXXXXXX Loan.

28. XXXXXXXXXX, as described in paragraph 13 above, it is unlikely that an adjustment to the Loan Amount will be required during taxation years while the XXXXXXXXXX Loan is outstanding ( XXXXXXXXXX ). However, if for unforseen reasons such an adjustment becomes necessary during a taxation year, it will be made at the beginning of a calendar quarter in the manner described in paragraph 25 above (making the changes necessary due to the revised context).

29.At the beginning of the first taxation year of XXXXXXXXXX will repay in full the XXXXXXXXXX Loan, either from existing cash resources or with funds borrowed from a financial institution with which it deals at arm's length for purposes of the Act. XXXXXXXXXX will utilize all of the funds so received to redeem all of its Preferred Shares held by Finco at their aggregate redemption amount. Finco will utilize the full amount so received to purchase for cancellation all of its Class XXXXXXXXXX Common Shares held by XXXXXXXXXX. Where XXXXXXXXXX borrows funds to repay the XXXXXXXXXX Loan, such borrowings will be repaid in full from the funds received from Finco.

Finco will be wound-up into XXXXXXXXXX pursuant to the provisions of subsection 88(1) of the Act.

Additional Information

30.XXXXXXXXXX operations will continue to be funded by a combination of borrowings from lenders with which it deals at arm's length for purposes of the Act and from

XXXXXXXXXX

31.It is not anticipated that the payment of any dividend by XXXXXXXXXX nor Finco as contemplated in paragraph 26 above will offend the corporate solvency tests under the CBCA. In particular, it is not anticipated that after the payment of any such dividend either corporation will be unable to pay its liabilities as they become due or that the realizable value of either corporation's assets will, as a result of such dividend, be less than the aggregate of its liabilities and stated capital of all classes of its shares.

32.It is anticipated that ultimately, but in any case after the repayment of XXXXXXXXXX in full and the termination of the proposed arrangements as contemplated in paragraph 29 above, XXXXXXXXXX will amalgamate pursuant to the provisions of subsection 87(1) of the Act.

Purpose of the Proposed Transactions

33.The purpose of the proposed transactions is to permit XXXXXXXXXX to avail itself of the income tax benefits of certain deductions and tax credits of XXXXXXXXXX

An amalgamation of XXXXXXXXXX or a wind-up of XXXXXXXXXX is not commercially feasible at present XXXXXXXXXX.

The purpose for dividing the common shares of Finco into Class XXXXXXXXXX and Class XXXXXXXXXX Common shares is to facilitate the tracking of relative paid-up capital.

Rulings Given

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and constitute complete disclosure thereof, and that the proposed transactions are carried out as set forth herein, the following rulings are given:

A.Provided that XXXXXXXXXX has a legal obligation to pay interest on the XXXXXXXXXX Loan described in paragraph 23 above, as modified by transactions described in paragraphs 25 and 28 above, XXXXXXXXXX may deduct the interest paid or payable in respect of a particular taxation year on the XXXXXXXXXX Loan (depending on the method regularly followed by XXXXXXXXXX in computing its income) pursuant to paragraph 20(1)(c) of the Act in computing its income for that year.

B.The dividends received by Finco on the Preferred Shares of XXXXXXXXXX and the dividends received by XXXXXXXXXX on the Class XXXXXXXXXX Common Shares of Finco, as described in paragraph 26 above, will be deductible in computing the taxable income of Finco or XXXXXXXXXX, as the case may be, for the taxation year in which the dividends are received, pursuant to subsection 112(1) of the Act, and, for greater certainty, such deduction will not be precluded by any of subsections 112(2.1) through (2.4) of the Act.

C.Part IV.I of the Act will not apply to the dividends which are, paid as described in paragraph 26 above, and received by:

a)Finco from XXXXXXXXXX on the Preferred Shares acquired by Finco pursuant to transactions contemplated in paragraphs 22, 25 and 28 above; and

b)XXXXXXXXXX from Finco on the Class XXXXXXXXXX Common Shares of Finco acquired by XXXXXXXXXX pursuant to transactions contemplated in paragraphs 21, 25 and 28 above;

because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1 of the Act.

D.Part VI.I of the Act will not apply to dividends paid as described in paragraph 26 above by:

a)XXXXXXXXXX to Finco on the Preferred Shares acquired by Finco pursuant to transactions contemplated in paragraphs 22, 25 and 28 above; and

b)Finco to XXXXXXXXXX on the Class XXXXXXXXXX Common Shares of Finco acquired by XXXXXXXXXX pursuant to transactions contemplated in paragraphs 21, 25 and 28 above;

because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1) of the Act.

E.The provisions of subsection 245(2) of the Act will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2, as amended, and are binding on Revenue Canada provided that the proposed transactions described in paragraphs 19 through 24 above are completed by XXXXXXXXXX.

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

Opinion

Notwithstanding the rulings given in this letter, if the provisions of draft section 143.2 of the Act are enacted as proposed by the Minister of Finance on June 20, 1996 the unpaid principal amount of the XXXXXXXXXX Loan will constitute a "limited-recourse amount" within the meaning of proposed subsection 143.2(1) of the Act. As such, it is our opinion that, pursuant to the provisions of proposed subsection 143.2(6) of the Act, certain expenditures made by XXXXXXXXXX would be reduced by the above "limited-recourse amount" if the shares of Finco constitute a "tax shelter investment" as defined in proposed subsection 143.2(1) of the Act.

However, it is also our opinion that, provided that there are no statements or representations, of the type referred to in the definition of "tax shelter" contained in subsection 237.1(1) of the Act, as amended, made or proposed to be made by any person in connection with the shares of Finco to be acquired by XXXXXXXXXX, those shares will not be a "tax shelter" within that definition.

The foregoing opinion is not an advance income tax ruling and, as explained in paragraph 21 of Information Circular 70-6R2 referred to above, is not binding on Revenue Canada.

Other Comments

I)Nothing in this ruling should be construed as implying that Revenue Canada has agreed to the cost or fair market value at any particular time of any property referred to herein as such a determination is a valuation matter which is beyond the scope of this ruling.

II)The above rulings and opinions do not imply approval, acceptance or confirmation of any tax implications to any taxpayer in respect of the facts and proposed transactions described herein, except to the extent expressly stated in the rulings and opinion given herein. In particular, we are not expressing any opinion or providing any rulings on XXXXXXXXXX for capital cost allowance purposes or as to whether, or to what extent, an amount is to be included in the determination of the investment tax credit of XXXXXXXXXX in respect of a particular property so acquired.

Yours truly,

Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch