30 November 1996 Ruling 9704443 - 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.

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: no contentious issues

Position: N/A

Reasons: N/A

XXXXXXXXXX							3-970444
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the above taxpayers. We also acknowledge your letter of XXXXXXXXXX.

To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling:

is in an earlier return of the taxpayer or a related person,

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

is under objection by the taxpayer or related person,

is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or

is the subject of a ruling previously issued by the Directorate.

Definitions and Abbreviations:

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

"Act" means the Income Tax Act, R.S.C. 1985, c. 1 (5th supplement), as amended as at the date hereof, and any reference to any Part, section, subsection, paragraph or subparagraph is a reference to the specified Part or provision of the Act;

"adjusted cost base" ("ACB") has the meaning assigned by section 54;

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

"capital dividend account" has the meaning assigned by subsection 89(1);

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

"cost amount" has the meaning assigned by subsection 248(1);

"eligible property" has the meaning assigned in subsection 85(1.1.);

"Holdcos" refers to XXXXXXXXXX, collectively, and individually each may be referred to as a particular "Holdco";

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

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

"refundable dividend tax on hand" ("RDTOH") has the meaning assigned by subsection 129(3);

"related persons" has the meaning assigned by subsection 251(2);

"specified financial institution" ("SFI") has the meaning assigned by subsection 248(1);

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

"taxable preferred share" has the meaning assigned by subsection 248(1).

In this letter, the names of various persons referred to herein are abbreviated as follows:

Abbreviated Name Full Name

XXXXXXXXXX

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

Facts

XXXXXXXXXX is a TCC and a CCPC which has a fiscal year end and tax year of XXXXXXXXXX. It was incorporated under the laws of XXXXXXXXXX. The issued shares of XXXXXXXXXX are held as capital property by their holders as follows:

XXXXXXXXXX

The Class XXXXXXXXXX Preference Shares entitle the holder to one vote per share. The Common Shares entitle the holders to one vote per share. The Class XXXXXXXXXX Preference Shares are non-voting. The Class XXXXXXXXXX Preference Shares and Class XXXXXXXXXX Preference Shares are redeemable for $XXXXXXXXXX per share and are entitled to $XXXXXXXXXX per share on the wind-up of XXXXXXXXXX.

The PUC of the issued classes of shares of XXXXXXXXXX is as follows:

XXXXXXXXXX

Each of the shareholders of XXXXXXXXXX acquired their Class XXXXXXXXXX or Class XXXXXXXXXX Preference Shares out of the treasury of XXXXXXXXXX for the subscription price of $XXXXXXXXXX per share, and each of XXXXXXXXXX acquired their one Common Share out of the treasury of XXXXXXXXXX for the subscription price of $XXXXXXXXXX.

The ACB and fair market value of the Class XXXXXXXXXX Preference Shares and Class XXXXXXXXXX Preference Shares is $XXXXXXXXXX per share. The Common Shares were issued in XXXXXXXXXX. The ACB of the Common Shares to their holder is their fair market value on "valuation day" (December 31, 1971) in accordance with subsection 26(3) of the Income Tax Application Rules, net of amounts deducted pursuant to subparagraph 53(2)(a)(i), which ACB is more than the original cost and less than the present fair market value of the Common Shares. The Common Shares of XXXXXXXXXX referred to herein are not taxable preferred shares.

XXXXXXXXXX

All of the individuals are resident in Canada.

As at XXXXXXXXXX the capital dividend account balance of XXXXXXXXXX was $XXXXXXXXXX and XXXXXXXXXX had RDTOH of $XXXXXXXXXX. No dividends have been declared or paid by XXXXXXXXXX since XXXXXXXXXX.

The only activity of XXXXXXXXXX involves the investment of its funds. The property of XXXXXXXXXX consists of cash, current receivables, and non-interest-bearing advances to certain related corporations (none of which are involved in the transactions proposed herein) which are capital property, and marketable securities which are capital property. These marketable securities represent portfolio investments of XXXXXXXXXX as XXXXXXXXXX does not have significant influence, within the meaning of section 3050 of the CICA Handbook, over any corporations in which it holds marketable securities. Some of the marketable securities owned by XXXXXXXXXX have a fair market value in excess of their ACB and some have a fair market value less than their ACB.

The balance of any RDTOH will not be considered to be property of XXXXXXXXXX in applying the provisions of the Act for the transactions proposed herein.

The liabilities of XXXXXXXXXX consist of current accounts payable and shareholders' loans repayable on demand without interest.

The individuals described in paragraph 1 above also own all the shares in another corporation, XXXXXXXXXX. Neither XXXXXXXXXX owns shares in one another.

Immediately before the transfers of property described in paragraph 30 below, the property of XXXXXXXXXX will be classified into three types of property for the purposes of paragraph 55(3)(b), as follows:

cash or near cash property, being the current assets of XXXXXXXXXX including cash, accounts receivable, advances to affiliates, and marketable securities;

investment property, being all of the assets of XXXXXXXXXX other than cash or near cash property, any income from which would, for the purposes of the Act, be income from property or a specified investment business; and

business property, being all of the assets of XXXXXXXXXX other than cash or near cash and investment property, any income from which would, for the purposes of the Act, be income from a business other than a specified investment business.

XXXXXXXXXX will provide to each Holdco its undertaking to distribute one-third of any dividend refund to which XXXXXXXXXX will become entitled as a result of the proposed transactions described below. For the purpose of determining the types of property of XXXXXXXXXX, a right to receive an amount as its dividend refund by each of the Holdcos will be classified as cash or near cash property. The term "specified investment business" has the meaning assigned by subsection 125(7).

In determining the net fair market value of each type of property owned by XXXXXXXXXX immediately before the transfers of property described in paragraph 30 below, the liabilities of XXXXXXXXXX will be allocated to and be deducted in the calculation of the net fair market value of each type of property of XXXXXXXXXX as follows:

Current liabilities (including the current portion of long-term debt) will be allocated to each cash or near cash property to the extent of the fair market value of such property.

Liabilities, other than current liabilities, will be first allocated to the specific properties to which they relate, if any, and then to other properties of the same type, to the extent of the net fair market value of that particular type of property.

Excess unallocated liabilities (including current liabilities remaining unallocated after step (a) above), if any, will then be allocated to the cash or near cash, investment and business property of XXXXXXXXXX on a pro rata basis, based on the relative net fair market value of each type of property resulting after the allocation of liabilities in accordance with the rules described in steps (a) and (b) above and prior to the allocation of each excess liability.

Additional Information

No liabilities will be incurred and no assets will be acquired or disposed of, by XXXXXXXXXX in contemplation of and before the proposed transactions.

Neither XXXXXXXXXX nor any of the Holdcos is, or will be at the time of the proposed transactions, an SFI.

None of the shares of XXXXXXXXXX or the Holdcos has been or will be, at any time during the implementation of the proposed transactions described herein:

the subject of any undertaking that is referred to in subsection 112(2.2) as a "guarantee agreement";

a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5); or

the subject of a dividend rental arrangement as that term is defined in subsection 248(1).

None of the parties is contemplating a disposition of any of the shares of XXXXXXXXXX or any of the Holdcos, other than as described herein.

None of the parties is contemplating an acquisition of control of any of the Holdcos or XXXXXXXXXX, other than as described herein.

It is not contemplated that any of the parties will sell or transfer any property to a partnership or person who is not related to the vendor or transferor as part of the series of transactions or events described herein, other than in the normal course of business or as described herein.

XXXXXXXXXX files its federal income tax returns at the XXXXXXXXXX Taxation Centre and is audited by the XXXXXXXXXX Tax Services Office.

Proposed Transactions

Prior to the date of closing (the "Closing Date"), each of XXXXXXXXXX, as incorporators and first directors, will incorporate XXXXXXXXXX, respectively, pursuant to the laws of XXXXXXXXXX. Each of the Holdcos will be a TCC and a CCPC.

The authorized capital of each of the Holdcos will consist of an unlimited number of Common Shares, an unlimited number of Class XXXXXXXXXX Preference Shares and an unlimited number of Class XXXXXXXXXX Preference Shares.

The Common Shares will entitle the holder to one vote per share.

The Class XXXXXXXXXX Preference Shares will be non-voting shares, and will be redeemable and retractable for an amount that is specified to be equal to the fair market value of the net consideration for which such Class XXXXXXXXXX Preference Shares are issued, as determined by the directors of the corporation at the time such shares are issued. The holders of Class XXXXXXXXXX Preference Shares will be entitled to non-cumulative dividends at a discretionary rate, as and when declared by the directors.

The Class XXXXXXXXXX Preference Shares will be non-voting shares. They will be redeemable and retractable for the amount paid up thereon. The holders of Class XXXXXXXXXX Preference Shares will be entitled to non-cumulative dividends at a discretionary rate, as and when declared by the directors.

Upon incorporation, each of XXXXXXXXXX will subscribe for XXXXXXXXXX common shares of their respective Holdco for $XXXXXXXXXX per share.

Prior to the Closing Date, XXXXXXXXXX will declare and pay a dividend on its Common Shares and elect pursuant to subsection 83(2) that the full amount of such dividend be deemed to be a capital dividend. The amount of the dividend will equal the amount of the XXXXXXXXXX capital dividend account at the time of the declaration of the dividend.

On the Closing Date, XXXXXXXXXX will transfer, at fair market value, his one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX to XXXXXXXXXX Holdco. XXXXXXXXXX will respectively receive XXXXXXXXXX Common Shares and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX Holdco as consideration for the one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX so transferred.

XXXXXXXXXX Holdco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time limits referred to in subsection 85(6), to transfer the one Common Share of XXXXXXXXXX referred to in paragraph 24 above at an amount equal to the ACB to XXXXXXXXXX immediately before the transfer. The ACB of the share so transferred will be less than its fair market value at the time of the transfer. No such election will be made with respect to the transfer by XXXXXXXXXX of his XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX since the ACB of those shares to XXXXXXXXXX will be equal to their fair market value.

For the purposes of the corporate law of XXXXXXXXXX, XXXXXXXXXX Holdco will add $XXXXXXXXXX to the stated capital account in respect of its Common Shares as a result of its issuance of XXXXXXXXXX Common Shares to XXXXXXXXXX and will add $XXXXXXXXXX to the stated capital account in respect of its Class XXXXXXXXXX Preference Shares as a result of its issuance of XXXXXXXXXX Class XXXXXXXXXX Preference Shares to XXXXXXXXXX, both such amounts being equal to the paid-up capital of the shares of XXXXXXXXXX so transferred.

On the Closing Date, XXXXXXXXXX will transfer, at fair market value, her one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX to XXXXXXXXXX Holdco. XXXXXXXXXX will respectively receive XXXXXXXXXX Common Shares and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX Holdco as consideration for the one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX so transferred.

XXXXXXXXXX Holdco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time limits referred to in subsection 85(6), to transfer the one Common Share of XXXXXXXXXX referred to in paragraph 26 above at an amount equal to the ACB to XXXXXXXXXX immediately before the transfer. The ACB of the share so transferred will be less than its fair market value at the time of the transfer. No such election will be made with respect to the transfer by XXXXXXXXXX of her XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX since the ACB of those shares to XXXXXXXXXX will be equal to their fair market value.

For the purposes of the corporate law of XXXXXXXXXX Holdco will add $XXXXXXXXXX to the stated capital account in respect of its Common Shares as a result of its issuance of XXXXXXXXXX Common Shares to XXXXXXXXXX and will add $XXXXXXXXXX to the stated capital account in respect of its Class XXXXXXXXXX Preference Shares as a result of its issuance of the XXXXXXXXXX Class XXXXXXXXXX Preference Shares to XXXXXXXXXX, both such amounts being equal to the paid-up capital of the shares of XXXXXXXXXX so transferred.

On the Closing Date, XXXXXXXXXX will transfer, at fair market value, her one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX to XXXXXXXXXX Holdco. XXXXXXXXXX will respectively receive XXXXXXXXXX Common Shares and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX Holdco as consideration for the one Common Share and XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX so transferred.

XXXXXXXXXX Holdco will jointly elect pursuant to subsection 85(1), in prescribed form and within the time limits referred to in subsection 85(6), to transfer the one Common Share of XXXXXXXXXX referred to in paragraph 28 above at an amount equal to the ACB to XXXXXXXXXX immediately before the transfer. The ACB of the share so transferred will be less than its fair market value at the time of the transfer. No such election will be made with respect to the transfer by XXXXXXXXXX of her XXXXXXXXXX Class Preference Shares of XXXXXXXXXX since the ACB of those shares to XXXXXXXXXX will be equal to their fair market value.

For the purposes of the corporate law of XXXXXXXXXX, XXXXXXXXXX Holdco will add $XXXXXXXXXX to the stated capital account in respect of its Common Shares as a result of its issuance of XXXXXXXXXX Common Shares to XXXXXXXXXX and will add $XXXXXXXXXX to the stated capital account in respect of its Class XXXXXXXXXX Preference Shares as a result of its issuance of the XXXXXXXXXX Class XXXXXXXXXX Preference Shares to XXXXXXXXXX, both such amounts being equal to the paid-up capital of the shares of XXXXXXXXXX so transferred.

On the Closing Date and subsequent to the transfers described in paragraphs 24, 26 and 28 above, XXXXXXXXXX will transfer, at fair market value, to each of XXXXXXXXXX a proportionate amount of each type of property owned by XXXXXXXXXX at that time such that the aggregate of the fair market value of each type of property received by recipient will be equal to the proportion of the fair market value of all property of the particular type owned by XXXXXXXXXX immediately before the transfer that:

the aggregate of the fair market value, immediately before the transfer, of all shares of the capital stock of XXXXXXXXXX owned by the recipient at that time

is of:

the fair market value, immediately before the transfer, of all the issued shares of the capital stock of XXXXXXXXXX at that time.

To the extent that the transfers result in a Holdco owing fractional interests in the marketable securities, the Holdcos may sell the fractional interests among themselves for fair market value consideration, however any such sales will be made within the parameters of paragraph 55(3.1)(c).

As consideration for the transferred properties referred to above, each Holdco will:

assume one-third of the current accounts payable of XXXXXXXXXX, and one-third of the shareholder loans of XXXXXXXXXX; and

issue to XXXXXXXXXX Class XXXXXXXXXX Preference Shares of its capital stock having an aggregate redemption amount and fair market value equal to the amount by which the fair market value of the transferred properties received by it as a result of the transfers described herein exceeds the fair market value of the liabilities of XXXXXXXXXX assumed by it.

The liabilities assumed by Newco will be specifically allocated to particular properties.

In respect of the transfer referred to in paragraph 30 above, XXXXXXXXXX and each of the Holdcos will jointly elect pursuant to subsection 85(1), in prescribed form and within the time limits referred to in subsection 85(6), to transfer the marketable securities which have a fair market value greater than their ACB to the Holdcos at an agreed amount which will be equal to an amount not greater than the fair market value of such property and not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The purpose of electing at such an amount is to cause capital gains to result from the transfer which will then be used to offset any capital losses that are created when the securities whose fair market value is less than their ACB are transferred.

For greater certainty, the liabilities assumed by any Holdco as consideration for the transfer of any marketable securities included in the subsection 85(1) elections will not be greater than the agreed amount for such securities. The liabilities assumed by any Holdco as consideration for the transfer of any assets for which no subsection 85(1) election will be made will not be greater than the fair market value of such assets.

For the purposes of the corporate law of XXXXXXXXXX, the amount that will be added to the stated capital account of the Class XXXXXXXXXX Preference Shares of a Holdco corporation upon the issue of Class XXXXXXXXXX Preference Shares by such Holdco to XXXXXXXXXX as consideration for marketable securities with respect to which an election will be made pursuant to subsection 85(1), will not exceed the aggregate of the amounts elected by XXXXXXXXXX and such Holdco with respect to such securities, less the amounts of liabilities of XXXXXXXXXX assumed by such Holdco as consideration for such securities. The amount that will be added to the stated capital account of the Class XXXXXXXXXX Preference Shares of a Holdco upon the issue of Class XXXXXXXXXX Preference Shares by such Holdco to XXXXXXXXXX in consideration for assets for which no election will be made pursuant to subsection 85(1), will be equal to the full amount of the consideration received for such Class XXXXXXXXXX Preference shares less the amounts of liabilities of XXXXXXXXXX assumed by such Holdco as consideration for such assets.

On the day following the Closing Date, each of the Holdcos will redeem the XXXXXXXXXX Class XXXXXXXXXX Preference Shares of the Holdco owned by XXXXXXXXXX for the aggregate redemption price of such XXXXXXXXXX Class XXXXXXXXXX Preference Shares and issue to XXXXXXXXXX, as payment therefor, two promissory notes payable on demand. One promissory note issued by each Holdco will have a principal amount equal to the redemption price of XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX owned by the Holdco. The other promissory note shall have a principal amount equal to the aggregate redemption price of the XXXXXXXXXX Class XXXXXXXXXX Preference Shares less the principal amount of the first promissory note. As a result, XXXXXXXXXX will receive six promissory notes (two from each Holdco).

Each of the Holdcos will cause its taxation year to end at the end of the day on which the redemption of its Class XXXXXXXXXX Preference Shares of the Holdcos occurs.

On the day following the date of the redemption of the Class XXXXXXXXXX Preference Shares of the Holdcos, XXXXXXXXXX will redeem XXXXXXXXXX Class XXXXXXXXXX Preference Shares of XXXXXXXXXX owned by each of the Holdcos. The redemption price for such shares will be paid by XXXXXXXXXX assigning to each of the Holdcos the promissory note issued by that Holdco having a principal amount equal to the redemption price of such shares.

On the day following the date of redemption of the Class XXXXXXXXXX Preference Shares of the Holdcos, XXXXXXXXXX will purchase for cancellation the one Common Share of XXXXXXXXXX owned by each of the Holdcos. The purchase price for such shares will be paid by XXXXXXXXXX assigning to each of the Holdcos the second promissory note issued by that Holdco.

As a result of the assignment and distribution of the notes described in paragraphs 35 and 36 above, the obligations under the notes will be satisfied and the notes cancelled.

Following receipt of the dividend refund to which XXXXXXXXXX will become entitled as a result of the proposed transactions described herein, XXXXXXXXXX will distribute one-third of such amount to each of the Holdcos. The refund will not arise until after the end of the fiscal year in which the dividend was paid (or deemed paid).

XXXXXXXXXX will subscribe for 1 Common Share in the capital stock of XXXXXXXXXX for $XXXXXXXXXX immediately after XXXXXXXXXX redeems the three Common Shares owned by the Holdcos. The purpose of this is the requirement to have a common shareholder for the continued existence of XXXXXXXXXX.

XXXXXXXXXX Holdco will redeem the XXXXXXXXXX Class XXXXXXXXXX Preference Shares in it owned by XXXXXXXXXX for $XXXXXXXXXX cash or a non-interest-bearing demand note that will not be convertible into other property. XXXXXXXXXX Holdco will redeem the XXXXXXXXXX Class XXXXXXXXXX Preference Shares in it owned by XXXXXXXXXX for $XXXXXXXXXX cash or a non-interest-bearing demand note that will not be convertible into other property. XXXXXXXXXX Holdco will redeem the XXXXXXXXXX Class XXXXXXXXXX Preference Shares in it owned by XXXXXXXXXX for $XXXXXXXXXX cash or a non-interest-bearing demand note that will not be convertible into other property.

Other transactions

XXXXXXXXXX Holdco will acquire all of the shares in XXXXXXXXXX for a negotiated fair market value. The consideration to be paid by XXXXXXXXXX Holdco for such acquisition will be cash and debt (not convertible into any other property) equal to the negotiated price. The cash and debt will be paid with assets received by XXXXXXXXXX Holdco from XXXXXXXXXX in the course of the reorganization described above.

Over the course of time, each Holdco will repay the shareholder loans assumed in paragraph 30 above for cash.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to allow XXXXXXXXXX to be independent from each other with respect to their share of the family corporations. By having their own separate holding corporation, each will be able to make decisions as to investments and distributions independent of one another. To the extent possible, the siblings wish to effect the separation of their interests at the least possible tax cost.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts and proposed transactions and the purpose of the proposed transactions, we confirm the following:

Provided the relevant parties jointly elect under subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), in respect of the transfers of property described in paragraphs 24, 26, 28 and 30 above, a vendor's proceeds of disposition of, and a purchaser's cost of, a particular property transferred will, by virtue of paragraph 85(1)(a), be deemed to be equal to the amounts agreed upon in respect of that property, as described in paragraphs 25, 27, 29 and 31 above, respectively. For greater certainty, paragraph 85(1)(e.2) will not be applicable in respect of the transfers.

Upon the redemptions by each of the Holdcos of its Class XXXXXXXXXX Preference Shares held by XXXXXXXXXX as described in paragraph 33 above, and upon the purchase for cancellation by XXXXXXXXXX of its common shares held by each of the Holdcos, as described in paragraph 36 above, the amount by which the amount paid on the redemption or purchase for cancellation, as the case may be, exceeds the paid-up capital of the particular shares so redeemed or purchased will be deemed to be a dividend paid by the particular payor and received by the particular recipient, by virtue of paragraph 84(3)(a) or 84(3)(b), as applicable. Each such dividend will be deductible by the particular recipient under subsection 112(1) in computing its taxable income for the taxation year in which it is deemed to have received such dividend and such deduction will not be precluded by any of subsections 112(2.1) to (2.4). The provisions of subsection 112(3) will apply to any loss which may otherwise arise to the recipient as a result of the redemption or purchase for cancellation.

The provisions of subsection 55(2) will not apply to the dividends described in ruling B above by virtue of the application of paragraph 55(3)(b) provided that, as part of the series of transactions or events that includes the proposed transactions described herein, there is no:

disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii); or

acquisition of property in the circumstances described in subparagraphs 55(3.1)(c) or (d)which has not been described herein.

The dividends described in ruling B above will not be subject to tax under Part IV except as provided in paragraph 186(1)(b).

The dividend described in ruling B above that is deemed to be received by XXXXXXXXXX from each of the Holdcos on the redemption of the Class XXXXXXXXXX Preference Shares of the Holdco held by XXXXXXXXXX will be deemed to be an excepted dividend, as defined in paragraph 187.1(b), and an "excluded dividend", by virtue of paragraph (a) of the definition of "excluded dividend" found in subsection 191(1), and therefore will not be subject to tax under Parts IV.1 and VI.1, respectively.

The Common Shares of XXXXXXXXXX that are purchased for cancellation as described in ruling B above will not be considered to become taxable preferred shares as a result of the proposed transactions described above, in and by themselves.

The cancellation of the notes, as described in paragraph 37 above, will not give rise to a "forgiven amount" for purposes of section 80.

The provisions of subsection 85(4) will not operate to deny any loss realized on the transfer of securities whose fair market value is less than their ACB as described in paragraph 30 above.

The provisions of subsections 15(1), 56(2) and 246(1) will not be applied as a result of the proposed transactions described herein, in and by themselves.

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

These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada provided that the proposed transactions described herein are completed by XXXXXXXXXX.

Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.

Comments

Nothing in this letter should be construed as our confirmation of the tax consequences of any transaction except those consequences expressly confirmed above.

Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed the determination of the adjusted cost base or paid-up capital of any shares referred to herein.

In the event of a subsequent disposition of any shares of any of the Holdcos or XXXXXXXXXX, nothing in this ruling should be construed as implying that the transactions described herein will not, for the purposes of paragraph 110.6(7)(a), be considered as part of a series of transactions or events which includes such subsequent disposition of shares. The phrase "series of transactions or events" has the meaning assigned by subsection 248(10).

Yours truly,

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