30 November 1996 Ruling 9703993 - ESTATE FREEZE

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: Estate freeze

Position: Meets policy on estate freezes

Reasons: Shares have appropriate attributes, no attribution

XXXXXXXXXX							970399
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge your letters of XXXXXXXXXX.

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein:

(i)is in an earlier return of the taxpayer or a related person;

(ii)is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

(iii)is under objection by the taxpayer or a related person;

(iv)is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; and

(v)is the subject of a ruling previously issued by the Directorate.

Definitions

In this letter, the following terms have the meanings specified:

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

"adjusted cost base" has the meaning assigned by section 54 of the Act;

"agreed amount" has the meaning assigned by subsection 85(1) of the Act;

"BCA" means the Business Corporations Act (XXXXXXXXXX), and, where applicable, its predecessor statutes;

"capital property" has the meaning assigned by section 54 of the Act;

"CBCA" means the Canada Business Corporations Act, and where applicable, its predecessor statutes;

"Child 1" means XXXXXXXXXX;

"Child 2" means XXXXXXXXXX;

"designated person" has the meaning assigned by subsection 74.5(5) of the Act;

"Father" means XXXXXXXXXX, who is a resident of Canada living in XXXXXXXXXX;

"Foundation" means XXXXXXXXXX;

"HoldcoA" means XXXXXXXXXX;

"HoldcoB" means XXXXXXXXXX;

"ITAR" refers to the Income Tax Application Rules;

"Middleco" means XXXXXXXXXX;

"Mother" means XXXXXXXXXX;

"paid-up capital" has the meaning assigned by subsection 89(1) of the Act;

"private corporation" has the meaning assigned by subsection 89(1) of the Act;

"proceeds of disposition" has the meaning assigned by section 54 of the Act;

"public corporation" has the meaning assigned by subsection 89(1) of the Act;

"Sideco" means XXXXXXXXXX;

"small business corporation" has the meaning assigned by subsection 248(1) of the Act;

"taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act; and

"V-day" means the expression "valuation day" and has the meaning assigned by section 24 of the ITAR.

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

Facts

Father is a resident of Canada and is married to Mother. They have two children, Child 1 and Child 2, both of whom are over the age of 18. Child 1 is a resident of XXXXXXXXXX and Child 2 is a resident of Canada.

HoldcoA is a private corporation and a taxable Canadian corporation which is governed by the BCA. HoldcoA is not a small business corporation. HoldcoA's authorized share capital includes an unlimited number of common shares. Father owns all the XXXXXXXXXX common shares of HoldcoA, being the only class of issued and outstanding shares. The adjusted cost base of the shares of HoldcoA is $XXXXXXXXXX and the paid-up capital and stated capital of the shares of HoldcoA is $XXXXXXXXXX.

Middleco is a private corporation and a taxable Canadian corporation. The issued and outstanding share capital of Middleco consists of XXXXXXXXXX non-voting Class XXXXXXXXXX shares and XXXXXXXXXX voting Class XXXXXXXXXX shares. All of the Class XXXXXXXXXX shares are held by the Foundation. The Class XXXXXXXXXX shares are held by Father, HoldcoA, HoldcoB, Sideco, the Foundation, a subsidiary of the Foundation and by or on behalf of various family members. The Class XXXXXXXXXX shares held by Father, HoldcoA, HoldcoB and Sideco (as more fully described in paragraphs 4, 5, 6 and 7 below) represent approximately XXXXXXXXXX% of the Class XXXXXXXXXX shares issued and outstanding and approximately XXXXXXXXXX% of the participating shares of Middleco. The paid-up capital of the Class XXXXXXXXXX Shares of Middleco is $XXXXXXXXXX per share.

Father owns XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco (the "Subject Shares"). The adjusted cost base of the Subject Shares is $XXXXXXXXXX. The Subject Shares were acquired by Father in XXXXXXXXXX from the treasury of Middleco in consideration for shares of a XXXXXXXXXX corporation that he transferred to Middleco. The shares of the XXXXXXXXXX corporation had been owned by Father since before V-Day. However, since Father did not become a resident of Canada until XXXXXXXXXX, the V-Day value of the shares of the XXXXXXXXXX corporation was not relevant due to subsection 26(10) of the ITAR. The adjusted cost base to Father of the shares of the XXXXXXXXXX corporation was deemed by former subsection 48(3) of the Act to be their fair market value at the time Father became a resident of Canada. That adjusted cost base was used in a section 85 election that was filed in respect of the transfer of the shares of the XXXXXXXXXX corporation to Middleco in XXXXXXXXXX. By virtue of subsection 26(10) of the ITAR, the Subject Shares of Middleco are not deemed, for the purposes of subsection 26(5) of the ITAR, to have been acquired before V-Day.

HoldcoA owns XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco having an adjusted cost base of $XXXXXXXXXX. These Class XXXXXXXXXX Shares were acquired from Father in XXXXXXXXXX and were, for the purposes of paragraph 26(8)(e) of the ITAR, pre V-Day shares of Father that had been owned by Father on XXXXXXXXXX. Pursuant to paragraph 26(5)(a) of the ITAR, these Class XXXXXXXXXX Shares are deemed to have been owned by HoldcoA on V-Day.

HoldcoB is a private corporation and a taxable Canadian corporation. Father owns XXXXXXXXXX% of the shares of HoldcoB. HoldcoB owns XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco.

Father has owned since before becoming a resident of Canada XXXXXXXXXX% of the shares of Sideco, which is a corporation that is not resident in Canada. Sideco has owned since before XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco.

The shares of HoldcoA, HoldcoB, Middleco and Sideco are held as capital property by Father.

The main asset of Middleco is a controlling position in XXXXXXXXXX, a public corporation and a taxable Canadian corporation.

Proposed Transactions

The authorized share capital of HoldcoA will be amended in accordance with the provisions of the BCA to include an unlimited number of special shares with the following attributes:

voting;

redeemable and retractable at a redemption amount equal to the subscription amount;

entitled to dividends at the discretion of the directors in an amount of up to XXXXXXXXXX% of the redemption amount; and

entitled to a return of the subscription amount on a winding-up or dissolution of Holdco.

Father will be issued, for an aggregate subscription price of $XXXXXXXXXX, XXXXXXXXXX special shares of HoldcoA.

Father will transfer the Subject Shares of Middleco to HoldcoA in return for:

a demand, non-interest bearing promissory note of HoldcoA ("Note A") having a principal amount not exceeding the paid-up capital of the Subject Shares of Middleco; and

XXXXXXXXXX common shares of HoldcoA issued from treasury.

The amount to be added to the stated capital of the common shares of HoldcoA pursuant to the BCA on the issuance referred to in paragraph 12(b) will be an amount equal to the adjusted cost base of those shares less the principal amount of Note A referred to in paragraph 12(a) above.

In respect of the transfer of the Subject Shares of Middleco to HoldcoA described in paragraph 12 above, Father and HoldcoA will jointly elect pursuant to subsection 85(1) of the Act, in prescribed form and within the time referred to in subsection 85(6) of the Act. The agreed amount will be equal to the adjusted cost base to Father of the Subject Shares of Middleco so transferred, which amount will not exceed the fair market value of such shares.

Following the transfer of the Class XXXXXXXXXX Shares of Middleco to HoldcoA, the stated capital of the common shares of HoldcoA will be reduced by $XXXXXXXXXX, an amount which does not exceed the paid-up capital of such shares. HoldcoA will pay the amount of $XXXXXXXXXX to Father (financed, if necessary, with a daylight loan) and Father will immediately loan $XXXXXXXXXX to HoldcoA to be evidenced by a demand, non-interest bearing promissory note of HoldcoA having a principal amount of $XXXXXXXXXX ("Note B"). Following the reduction of stated capital, the stated capital of the common shares of HoldcoA will be $XXXXXXXXXX.

Following the reduction of stated capital, HoldcoA will undertake a capital reorganization by filing Articles of Amendment under the BCA to convert all the common shares of HoldcoA (the "Former Common Shares") held by Father (including those acquired on the transfer described in paragraph 12 above) into XXXXXXXXXX fixed-value preference shares having share conditions as follows:

redeemable and retractable at the aggregate amount equal to the fair market value of the Former Common Shares (the "Redemption Amount"), subject to adjustment should this valuation be established to be incorrect;

non-cumulative, non-preferential dividends at the discretion of the directors in an amount of up to XXXXXXXXXX% of the Redemption Amount;

provision that a dividend or other distribution may not be paid to the holders of its shares if after the dividend or distribution there would be insufficient assets in HoldcoA to satisfy the Redemption Amount of the preference shares;

convertible into common shares having a fair market value at the time of conversion equal to the Redemption Amount;

non-voting, except as required by law on changes affecting the class; and

priority over common shares to receive the Redemption Amount on a winding-up or dissolution of HoldcoA.

In accordance with the provisions of the BCA, the stated capital of the preference shares of HoldcoA will be equal to the stated capital of the Former Common Shares of HoldcoA. It is expected that such stated capital will be $XXXXXXXXXX.

The XXXXXXXXXX (the "Family Trust") will be settled with $XXXXXXXXXX of cash by XXXXXXXXXX. The provisions of the Family Trust will include the following:

the sole trustee will be Father. The power of appointing an additional or substitute trustee or trustees (who shall not be required to remain in or be residents of the province of XXXXXXXXXX or any other specific jurisdiction) shall be vested in Father, or in the case of his mental incapacity or death, in his legal personal representatives. Father, or in the case of his mental incapacity or death, his legal personal representatives, shall have the absolute power from time to time, at any time or times to remove without cause any trustee as a trustee upon giving not less than XXXXXXXXXX days notice addressed to each of the trustees;

the beneficiaries of the Family Trust shall include all children and other issue of Father, and any corporation incorporated under the laws of Canada, or under the laws of any province of Canada, that is wholly-owned by a child or other issue of Father, whether or not the corporation was incorporated at the time of the settlement of the Family Trust. Issue is not confined to children but includes children and all other lineal descendants;

subject to paragraph (f) below, the Family Trust will terminate on the later of (1) the date of death of the last to die of Father, Child 1 and Child 2 (the "Division Date") or (2) the date when all beneficiaries of Father alive on the Division Date have attained the age of XXXXXXXXXX years;

until the Division Date, the trustee may pay and apply all or such part or parts of the net income of the Trust Fund, as the trustee shall from time to time in his absolute discretion determine, to or for the benefit of any one or more of the beneficiaries to the exclusion of any one or more of the beneficiaries. Any net income from the Trust Fund which is not paid or applied in any year or within three months thereafter shall be accumulated by the trustee and added to the capital of the Trust Fund to be dealt with as part thereof. If after the expiration of the Accumulation Period (being the maximum period of time permitted by the laws of XXXXXXXXXX for the accumulation of income), the trustee continues to hold the Trust Fund, then thereafter the trustee shall pay and apply all of the net income of the Trust Fund, as the trustee shall from time to time in his absolute discretion determine, to or for the benefit of any one or more of the beneficiaries to the exclusion of any one or more of the beneficiaries. In exercising the discretion as to payment of the net income to the beneficiaries pursuant to this section, during the lifetime of Father, the trustee shall not be permitted to pay any of the net income to or for the benefit of any beneficiary who has not attained the age of 18 years, including a corporate beneficiary the shareholder of which has not attained the age of 18 years;

the trustee will have the discretion to distribute all or part of the capital of the Family Trust at any time to any one or more of the beneficiaries to the exclusion of any one or more of the beneficiaries. In exercising the discretion as to payment of the capital to the beneficiaries pursuant to this section during the lifetime of Father, the trustee shall not be permitted to pay any capital to or for the benefit of any beneficiary who has not attained the age of 18 years, including a corporate beneficiary the shareholder of which has not attained the age of 18 years;

on the Division Date, the trustee shall divide the Trust Fund among the issue of Father alive on the Division Date. If there are no issue of Father then alive, the trustee shall divide the Trust Fund equally among the nieces and nephews of Father then alive. Should a beneficiary, niece, nephew or other person become entitled to receive a share of the Trust Fund on the Division Date and is under the age of XXXXXXXXXX years, the trustee shall hold such share in trust and shall keep such share invested. The Trustee shall pay all or such part or parts of the net income derived from such share and such part or parts of the capital of such share, as the trustee from time to time in his absolute discretion shall determine, to or for the benefit of the beneficiary until he or she attains the age of XXXXXXXXXX years when the remaining amount of such share shall be paid to him or her for his or her own use absolutely;

if on or after the Division Date, any beneficiary or other person shall acquire a vested interest in any share of the Trust Fund before attaining the age of majority, the trustee shall keep invested such share until he attains the age of majority; however discretion is provided to the trustee to pay amounts out of such capital for the benefit of such beneficiary or other person or to pay or transfer all of the capital of the Trust Fund to which the beneficiary is entitled to or for the benefit of such beneficiary or other person;

in making any payment or transfer to, or in applying any amounts to or for the benefit of any beneficiary or person under the age of majority, the trustee is, following the death of Father, authorized and empowered to make such payment or transfer, or apply such amounts, to any one or more of the following persons provided such person shall not be the settlor:

such beneficiary or person;

any parent of such beneficiary or person;

any person having custody of such beneficiary or person;

any person who is the guardian of the property of such beneficiary or person;

any other person or persons, whether or not such person has custody of such beneficiary or person, who, in the absolute discretion of the trustee, has the care of such beneficiary or person;

subject to paragraph (k) below, the trustee may in his absolute discretion transfer and convey the whole or any share of the Trust Fund save and except any such share which shall have indefeasibly vested in possession in one or more of the beneficiaries to any other trust or settlement to be held by the trustees of such other trust or settlement with and subject to the powers and provisions of such other trust or settlement provided that such other trust or settlement shall not infringe the rule against perpetuities applicable to the Family Trust and one or more of the beneficiaries alive at the date of such transfer and conveyance shall be one or more of the beneficiaries of such other trust or settlement;

every discretion or power conferred on the trustee by the Trust deed or by law shall be an absolute discretion or power and in cases where there are more than two trustees every decision required at any time or from time to time to be made by the trustees may be made by a majority of the trustees, and no trustee shall be held liable for any loss or damage occurring as a result of such trustee concurring or refusing or failing to concur in an exercise of any such discretion or power; and

the settlement made shall be irrevocable by the settlor and no part of the capital or income of the Trust Fund shall revert for or be paid or lent or applied to or for the benefit of the settlor in any manner or in any circumstances whatsoever.

Following the exchange of shares described in paragraph 16 above and the settling of the Family Trust described in paragraph 17 above, HoldcoA will issue XXXXXXXXXX common shares (the New Common Shares") at a subscription price of $XXXXXXXXXX in the aggregate to the Family Trust.

HoldcoA will not declare or pay dividends or make other distributions to the holders of its shares if after the dividend or distribution there would be insufficient assets in HoldcoA to satisfy the Redemption Amount of the preference shares and to settle in full the aggregate principal amount outstanding at the time of Note A and Note B. HoldcoA will not settle the principal amount of Note A or Note B for an amount which is less than the lesser of the principal amount of the promissory note settled and its net assets (determined without any deduction for Note A or Note B, as the case may be) at the time of such settlement. HoldcoA will not acquire any of its preference shares by purchase, redemption or cancellation for an amount per share which is less than the lesser of the Redemption Amount per share and its net assets per outstanding preference share at the time of such acquisition.

In accordance with Canadian Institute of Chartered Accountants Handbook Section 3860 and Emerging Issue Committee 69, generally accepted accounting principles ("GAAP") requires the fixed-value preference shares received for the Former Common Shares referred to in paragraph 16 above to be recorded as a liability to shareholders in the shareholders' interests section (the "liability") on the balance sheet of HoldcoA. The amount of the liability plus the amount of Note B will be greater than the capital of the Former Common Shares. The difference between (i) the amount recorded as the total liability in respect of these preference shares and Note B and (ii) the accounting capital of the Former Common Shares will, in accordance with GAAP, be charged to the retained earnings of HoldcoA resulting in a deficit.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to effect an estate freeze in respect of XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco so that any future increase in value in respect of such shares will accrue to the holder of the common shares of HoldcoA, namely, the Family Trust. The Class XXXXXXXXXX Shares of Middleco held by HoldcoB and Sideco will not be subject to the estate freeze. The reason for the creation of the class of special voting shares of HoldcoA is to separate voting control of HoldcoA from the other classes of shares so that Father can, at a subsequent time, during his lifetime or through his will, leave control of HoldcoA to a person whether or not that person also received or is to receive all or any of the preference shares or common shares of HoldcoA. The reason for the use of Note A and Note B is to facilitate future tax-free payments to Father from HoldcoA. The reason for the use of the Family Trust is to provide flexibility as to who will receive the benefit of the common shares of HoldcoA. Corporations owned by Child 1 and Child 2 will become beneficiaries of the Family Trust in case Child 1 or Child 2 is a non-resident at the time a distribution would otherwise have been made to that child and which would have been subject to the proposed rule in the Notice of Ways & Means Motion of October 2, 1996 to the effect that property so distributed is deemed to have been disposed of at fair market value.

Rulings

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

Subject to the application of the provisions of subsections 20(1.2) and 26(5) of the ITAR and to the application of paragraph 88(2.2)(b) of the Act, which applies for the purposes stated in the preamble to subsection 88(2.2) of the Act, the provisions of subsection 85(1) will apply to the transfer by Father of the Subject Shares of Middleco to HoldcoA as described in paragraph 12 above such that the agreed amount in respect of such transfer shall be deemed to be Father's proceeds of disposition and HoldcoA's cost thereof pursuant to paragraph 85(1)(a) of the Act. For greater certainty, paragraph 85(1)(e.2) of the Act will not apply to the transfer referred to herein.

The cost to Father of Note A received as consideration for the transfer of the Subject Shares of Middleco to HoldcoA as described in paragraph 12 above will be deemed by paragraph 85(1)(f) of the Act to be equal to the fair market value thereof at the time of the disposition.

The cost to Father of the XXXXXXXXXX common shares of HoldcoA received as consideration for the transfer of the Subject Shares of Middleco to HoldcoA as described in paragraph 12 above will be deemed by paragraph 85(1)(h) of the Act to be equal to the deemed proceeds of disposition of the Subject Shares of Middleco to Father less the fair market value of Note A at the time of the disposition.

The application of section 84.1 to the transfer of the Subject Shares of Middleco to HoldcoA, as described in paragraph 12 above, will not result in a dividend being deemed to have been paid by HoldcoA under paragraph 84.1(1)(b) of the Act.

The application of section 84.1 to the transfer of the Subject Shares of Middleco to HoldcoA, as described in paragraph 12 above, will result in a deduction to the paid-up capital of the Former Common Shares of HoldcoA issued as consideration for such transfer to the extent that the paid-up capital of the Subject Shares of Middleco so transferred exceeds the adjusted cost base, as adjusted pursuant to paragraph 84.1(2)(a) or (a.1) of the Act, of the Subject Shares of Middleco to Father.

On the reduction of the stated capital of the common shares of HoldcoA as described in paragraph 15 above,

HoldcoA will not be deemed to have paid, and Father will not be deemed to have received a dividend pursuant to subsection 84(4) on such reduction of stated capital;

subparagraph 53(2)(a)(ii) will apply to reduce the adjusted cost base to Father of the common shares of HoldcoA by an amount equal to the amount received by Father on such reduction of stated capital; and

the cost to Father of Note B will be equal to the principal amount of the note.

The provisions of subsection 86(1) of the Act will apply, and the provisions of subsection 86(2) of the Act will not apply, to the exchange of shares described in paragraph 16 above, such that:

(i)the cost to Father of the XXXXXXXXXX preference shares of HoldcoA received on the exchange will be deemed by paragraph 86(1)(b) of the Act to be an amount equal to the adjusted cost base to Father, immediately before the exchange, of the Former Common Shares of HoldcoA;

(ii)Pursuant to paragraph 86(1)(c) of the Act, Father will be deemed to have disposed of the Former Common Shares of HoldcoA for proceeds of disposition equal to the cost to Father of the XXXXXXXXXX preference shares determined in (i) above.

The provisions of subsection 86(2.1) will apply to adjust the paid-up capital of the preference shares of HoldcoA received by Father on the capital reorganization described in paragraph 16 above to the extent that the amount added to the stated capital of such preference shares exceeds the paid-up capital of the Former Common Shares of HoldcoA immediately before the capital reorganization.

The provisions of subsections 84(1) and 84(3) will not apply to the reorganization of capital of HoldcoA, as described in paragraph 16 above.

By virtue of subsection 25(5) of the ITAR, the XXXXXXXXXX Class XXXXXXXXXX Shares of Middleco described in paragraph 4 above will, for the purposes of paragraph 26(8)(e) of the ITAR, retain their character as pre V-Day shares of HoldcoA and the Subject Shares of Middleco acquired by HoldcoA as described in paragraph 12 above will be post V-Day shares.

Provided that a designated person has not received or otherwise obtained the use of any of the income or capital of the Family Trust, and no deduction has been made by the Family Trust in computing its income under subsection 104(6) or (12) in respect of amounts paid or payable to, or included in the income of, that person while being a designated person in respect of Father, then by virtue of the provisions of subsection 74.4(4), subsection 74.4(2) will not apply to the transfer by Father of the Subject Shares of Middleco to HoldcoA, as described in paragraph 12 above.

Subsection 74.3(1) of the Act will not apply in respect of:

(i)the exchange of the Former Common Shares for the preference shares of HoldcoA as described in paragraph 16 above; and

(ii)the acquisition of the New Common Shares of HoldcoA by the Family Trust as described in paragraph 18 above.

Subsection 75(2) of the Act will not apply in respect of the New Common Shares of HoldcoA to be acquired by the Family Trust as described in paragraph 18 above.

For the purposes of the application of Part I.3 of the Act to HoldcoA:

the legal nature of the preference shares described in paragraph 16 above will determine their classification for purposes of Part I.3, with the result that they will be treated as capital stock;

pursuant to subsection 181(3), the amount to be included in capital under paragraph 181.2(3)(a) is the amount reflected on the balance sheet, being the Redemption Amount;

provided that the accounting treatment described in paragraph 20 above is in accordance with GAAP, the deficit arising in HoldcoA due to such accounting treatment will be deductible in computing the capital of HoldcoA pursuant to paragraph 181.2(3)(i); and

the difference between the Redemption Amount of the preference shares of HoldcoA and the accounting capital of the Former Common Shares will not be a "reserve" as defined in subsection 181(1).

The provisions of subsections 15(1), 56(2) and 246(1) of the Act will not apply to any of the proposed transactions, in and of themselves.

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

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada, Customs, Excise and Taxation on December 30, 1996 and are binding provided that the proposed transactions 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 to the Act which, if enacted, could have an effect on the rulings provided herein.

Comments

1.Nothing in this ruling should be construed as implying that Revenue Canada, Customs, Excise and Taxation has agreed to or reviewed:

(a)the determination of the fair market value, adjusted cost base or V-day value of any particular asset or share or the paid-up capital of any shares referred to herein;

(b)any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. For greater certainty, we are not commenting on any tax consequences relating to the distribution of any property by the Family Trust to any beneficiary, including a corporate beneficiary referred to in paragraph 17(b) above.

2.Nothing in this letter should be construed as confirming that, for the purposes of any of the rulings given herein, any adjustment to the redemption price of the preference shares referred to in paragraph 16(a) above pursuant to the operation of the price adjustment clause will be effective retroactively to the time of the exchange of the Former Common Shares of HoldcoA for the preference shares of HoldcoA.

The operation of a price adjustment clause is not a proposed transaction and, consequently, advance income tax rulings are not given by the Department in respect thereof. The Department's general position with respect to price adjustment clauses is as stated in Interpretation Bulletin IT-169 issued by Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch