30 November 1997 Ruling 9800973 - BUTTERFLY RULING (SPIN-OFF)

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: Butterfly Ruling which contains several issues

Position: (See Statement of Principal Issues attached with Ruling)

Reasons: (See Statement of Principal Issues attached with Ruling)

XXXXXXXXXX
XXXXXXXXXX 							3-980097
XXXXXXXXXX 

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

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 taxpayer. In your letters of XXXXXXXXXX you provided additional information concerning the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversations (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; or

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

Definitions

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

(a) 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”);

(b) XXXXXXXXXX;

(c) “ACB” means “adjusted cost base” as that expression is defined in section 54 and subsection 248(1);

(d) “agreed amount” has the meaning assigned by subsection 85(1);

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

(f) “Business 1” means the XXXXXXXXXX business of DC;

(g) “Business 2” means the XXXXXXXXXX business of DC;

(h) “Business 3” means the XXXXXXXXXX business of DC, which relates to the XXXXXXXXXX Business 3 also includes all the shares of Subco3 held by DC. Subco3 manages DC’s XXXXXXXXXX business as agent for DC;

(i) “CBCA” means the Canada Business Corporations Act, R.S.C. 1985, c.C-44, as amended;

(j) “capital property” has the meaning assigned by the definition in section 54;

(k) “Corp.A” means XXXXXXXXXX

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

(m) “DC” means XXXXXXXXXX which was formed as a result of the amalgamation of former XXXXXXXXXX and one of its subsidiary wholly-owned corporations, XXXXXXXXXX;

(n) “depreciable property” has the meaning assigned by subsection 13(21);

(o) “eligible capital property” has the meaning assigned by section 54;

(p) “eligible property” has the meaning assigned by subsection 85(1.1);

(q) “ITAR” refers to the Income Tax Application Rules;

(r) XXXXXXXXXX;

(s) “PUC” means paid-up capital as that expression is defined in subsection 89(1);

(t) “prepaid expenses” means rights arising from prepaid expenses;

(u) “prescribed stock exchange” has the meaning assigned by section 3200 of the Regulations;

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

(w) “public corporation” has the meaning assigned by subsection 89(1);

(x) “Regulations” means Income Tax Regulations;

(y) “related persons” has the meaning assigned by section 251;

(z) “series of transactions or events” has the meaning assigned by subsection 248(10);

(aa) “significant influence” has the meaning assigned by section 3050 of the CICA Handbook;

(ab) “specified class” has the meaning assigned by subsection 55(1);

(ac) “specified financial institution” has the meaning assigned under subsection 248(1);

(ad) “specified investment business” (“SIB”) has the meaning assigned by subsection 125(7);

(ae) “stated capital” has the meaning assigned by XXXXXXXXXX as the case may be;

(af) “Subco1” means XXXXXXXXXX, an indirect subsidiary corporation of DC that is a taxable Canadian corporation;

(ag) “Subco2” means XXXXXXXXXX a public corporation governed by the XXXXXXXXXX and a taxable Canadian corporation;

(ah) “Subco3” means XXXXXXXXXX, a subsidiary wholly-owned corporation of DC;

(ai) “subsidiary wholly-owned corporation” has the meaning assigned by subsection 248(1);

(aj) “taxable Canadian corporation” has the meaning assigned by subsection 89(1);

(ak) “Transferee1” means XXXXXXXXXX; and

(al) “Transferee2” means XXXXXXXXXX.

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

FACTS

1. DC is a public corporation and a taxable Canadian corporation. DC is not a specified financial institution. The common shares of DC are listed for trading on the XXXXXXXXXX. DC’s taxation year ends on XXXXXXXXXX.

2. As of XXXXXXXXXX, the issued and outstanding capital of DC consisted of:

(a) approximately XXXXXXXXXX common shares (the “DC Common Shares”) with an aggregate PUC of approximately $XXXXXXXXXX;

(b) XXXXXXXXXX Series C XXXXXXXXXX% cumulative, redeemable preferred shares with an aggregate PUC of $XXXXXXXXXX; and

(c) XXXXXXXXXX Series F preferred shares with an aggregate PUC of $XXXXXXXXXX.

In addition, as at XXXXXXXXXX, outstanding options on XXXXXXXXXX DC Common Shares were outstanding under DC’s stock option plan, exercisable at prices varying from $XXXXXXXXXX per share for periods up to XXXXXXXXXX. An additional XXXXXXXXXX options on DC Common Shares will vest over the next XXXXXXXXXX years, XXXXXXXXXX each year.

The Series C preferred shares were issued at $XXXXXXXXXX per share and they were redeemed on XXXXXXXXXX at $XXXXXXXXXX each. The redemption of the Series C preferred shares was made for business reasons and is not related to the proposed transactions described below. In particular, due to the current financial markets, DC can raise capital at a significantly lower cost than the cumulative dividend rate payable on the Series C preferred shares.

The Series F preferred shares were issued on XXXXXXXXXX for $XXXXXXXXXX per share and are widely held.

XXXXXXXXXX

You have represented that the Series F preferred shares of DC are shares of a specified class.

DC has authorized series G preferred shares, but none of the shares has been issued.

3. To the best of the knowledge of the directors and senior officers of DC, as of the date hereof no person or related group of persons beneficially owns, directly or indirectly, more than 10% of the issued and outstanding DC Common Shares, other than Corp.A and persons related to Corp.A (“Corp.A Group”), who own in aggregate approximately XXXXXXXXXX% of the issued and outstanding DC Common Shares. In addition, approximately XXXXXXXXXX% of the DC Common Shares are held by Subco1.

4. DC’s unconsolidated liabilities, as of XXXXXXXXXX, consisted of the following:

(a) accounts payable of approximately $XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX;

(d) XXXXXXXXXX;

(e) XXXXXXXXXX;

(f) XXXXXXXXXX;

(g) XXXXXXXXXX;

(h) XXXXXXXXXX.

5. DC currently carries on 3 major business segments: Business 1, Business 2 and Business 3. DC has a number of subsidiaries and owns shares of other corporations with particulars as described in paragraphs 6, 7, 8 and 9 below.

6. The activities of Business 1 are conducted through a number of business units and corporations.

XXXXXXXXXX

DC and/or its affiliates have also made the following investments with respect to Business 1:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX;

(d) XXXXXXXXXX.

7. Business 2 is carried on by Subco2, a public corporation governed by the XXXXXXXXXX and a taxable Canadian corporation, in which DC holds a XXXXXXXXXX% interest, holding approximately XXXXXXXXXX common shares (the “Subco2 Common Shares”) and XXXXXXXXXX preferred shares (the “Subco2 Preferred Shares”) thereof. The ACB to DC of the Subco2 Common Shares is approximately $XXXXXXXXXX and the PUC of the Subco2 Common Shares is approximately $XXXXXXXXXX. The ACB and the PUC to DC of the Subco2 Preferred Shares is approximately $XXXXXXXXXX.

You have advised us that DC will sell the XXXXXXXXXX Subco2 Preferred Shares for consideration that will consist only of cash or indebtedness that is not convertible into other property, or of any combination thereof, prior to the commencement of the proposed transactions described below.

8. Subco3 is a taxable Canadian corporation which manages Business 3 as agent for DC. Business 3 is predominately in XXXXXXXXXX. The assets of Business 3 include:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX.

9. Historically DC has grown through a combination of internally generated expansion and the acquisition of assets or interests in other corporations which complement existing business operations or facilitate achievement of corporate objectives. Similarly, from time to time, assets or corporate interests have been sold or rationalized where continued ownership is inconsistent with current business operations or corporate objectives. On or about XXXXXXXXXX, DC entered into a letter of intent to acquire all of the issued and outstanding shares of

XXXXXXXXXX

XXXXXXXXXX

All of the acquisitions referred to herein were or will be made in the ordinary course of Business 1 and are not related to the proposed transactions described below.

Prior to the commencement of the proposed transactions described below, each of XXXXXXXXXX will be wound up into DC pursuant to subsection 88(1).

10. On or about XXXXXXXXXX DC disposed of its XXXXXXXXXX% interest in XXXXXXXXXX for consideration consisting of cash in the amount of $XXXXXXXXXX and a non-convertible note receivable in the amount of $XXXXXXXXXX due on XXXXXXXXXX (collectively hereinafter referred to as the Sale Proceeds).

You have advised us that DC has, either directly or indirectly, entered into unconditional commitments to use the Sale Proceeds to acquire various business properties, including shares of corporations over which DC will exercise significant influence. Details of these commitments have been provided in the schedule which was attached to your letter of XXXXXXXXXX.

11. DC owns approximately $XXXXXXXXXX worth of shares of XXXXXXXXXX (“Investco”), an investment holding corporation that owns preferred shares in associated and affiliated corporations and a $XXXXXXXXXX preferred share interest in XXXXXXXXXX (“Investment A”).

You have advised us that, prior to the commencement of the proposed transactions described below, DC will sell the $XXXXXXXXXX worth of shares of Investco and the $XXXXXXXXXX preferred share interest in Investment A for consideration that will consist only of cash or indebtedness that is not convertible into other property, or any combination thereof. As a result of the foregoing, it is anticipated that DC will not have any investment property immediately before the transfer of property described in paragraphs 26 and 29 below.

Proposed Transactions

12. Transferee1 will be incorporated under the XXXXXXXXXX and will be a taxable Canadian corporation. Transferee1 will not be a specified financial institution.

Transferee1’s authorized capital will include an unlimited number of Transferee1 Common Shares and an unlimited number of Transferee1 Preferred Shares which may be issued in series, having the following attributes:

(a) each Transferee1 Common Share will be a fully participating voting common share;

(b) each Transferee1 Preferred Share will be redeemable, subject to applicable law, at any time at the option of Transferee1 at the Transferee1 Redemption Amount which will equal the aggregate net fair market value of the consideration for which such shares are issued, divided by the number of Transferee1 Preferred Shares issued;

(c) the holder of each Transferee1 Preferred Share will not be entitled to vote at meetings of shareholders of Transferee1, other than as provided under the XXXXXXXXXX; and

(d) for the purpose of subsection 191(4) of the Act, the terms and conditions of the Transferee1 Preferred Shares to be issued as described herein will, at the time of their issue, specify an amount in respect of each share, including an amount for which the share is to be redeemed, acquired or cancelled. The amount to be specified in respect of each Transferee1 Preferred Share will be pursuant to a resolution of the board of directors of Transferee1, will be expressed as a dollar amount, will not be determined by a formula and will be equal to the fair market value of the property received by Transferee1 as consideration for such share.

No shares of Transferee1 will be issued prior to the transactions described in paragraph 21 below.

13. Transferee2 will be incorporated under the XXXXXXXXXX and will be a taxable Canadian corporation. Transferee2 will not be a specified financial institution.

Transferee2’s authorized capital will consist of an unlimited number of Transferee2 Common Shares and an unlimited number of Transferee2 Preferred Shares which may be issued in series, having the following attributes:

(a) each Transferee2 Common Share will be a fully participating voting common share;

(b) each Transferee2 Preferred Share will be redeemable, subject to applicable law, at any time at the option of Transferee2 at the Transferee2 Redemption Amount which will equal the amount by which the aggregate net fair market value of the consideration for which such shares are issued divided by the number of Transferee2 Preferred Shares so issued;

(c) the holder of each Transferee2 Preferred Share will not be entitled to vote at meetings of shareholders of Transferee2, other than as provided under the XXXXXXXXXX; and

(d) for the purpose of subsection 191(4) of the Act, the terms and conditions of the Transferee2 Preferred Shares to be issued as described herein will, at the time of their issue, specify an amount in respect of each share, including an amount for which the share is to be redeemed, acquired or cancelled. The amount to be specified in respect of each Transferee2 Preferred Share will be pursuant to a resolution of the board of directors of Transferee2, will be expressed as a dollar amount, will not be determined by a formula and will be equal to the fair market value of the property received by Transferee2 as consideration for such share.

No shares of Transferee2 will be issued prior to the transactions described in paragraph 23 below.

14. Under DC’s stock option plan, the board of directors of DC may, in its absolute discretion, determine the manner in which all unexercised options granted under the plan in respect of DC Common Shares will be treated as a result of the Plan of Arrangement as described below, including changing the date upon which any option vests or expires. It is expected that the Board of Directors of DC will adjust the option prices of the outstanding options to reflect the change in value of the DC Common Shares as a result of the Plan of Arrangement described below. No other amendments to the option plans are contemplated.

15. Subject to, among other things, the appropriate shareholder and court approvals, the transactions described in paragraphs 16 to 36 below will be undertaken pursuant to a plan of arrangement (the “Plan of Arrangement”) under XXXXXXXXXX. With the exception of the filing of elections under the Act, these transactions will occur by virtue of the Plan of Arrangement and will be designated in the Plan of Arrangement to occur on the date (the “Transaction Date”) on which the Plan of Arrangement is effective, and in the order set out below. The Transaction Date will be on a date that will be subsequent to the receipt of the advance income tax rulings provided in this letter.

16. Each shareholder of DC will be entitled to dissent from the Plan of Arrangement pursuant to the provisions of the XXXXXXXXXX. Where a shareholder so dissents, such dissenting shareholder will cease to be a shareholder of DC on the Transaction Date, and immediately prior to the transactions undertaken pursuant to the Plan of Arrangement such that the DC Common Shares held by such a shareholder will no longer be considered to be outstanding as common shares for the purpose of the corporate law transactions comprising the Plan of Arrangement. After the completion of the proposed transactions comprising the Plan of Arrangement, each such dissenting shareholder will be entitled to be paid the fair market value of the DC Common Shares in respect of which the right of dissent is exercised.

17. As part of the Plan of Arrangement, Subco1 will amalgamate with DC to form DCAmalco pursuant to subsection 87(1) of the Act. Each holder of DC Common Shares or Subco1 Class A preferred shares (except any predecessor corporation) will receive common shares of DC Amalco (hereinafter referred to as the DCAmalco Common Shares) having an aggregate fair market value equal to the aggregate fair market value of the DC Common Shares or Subco1 Class A preferred shares, as the case may be, held by such person immediately before the merger. Each holder of the DC Series F preferred shares will receive Series F preferred shares of DCAmalco which will have the same share attributes and redemption amount as the existing DC Series F preferred shares and which will have an aggregate fair market value equal to the aggregate fair market value of the DC Series F preferred shares held by such person immediately before the merger.

The aggregate stated capital of the DCAmalco Common Shares will not exceed the aggregate PUC, immediately before the amalgamation, of the DC Common Shares and Subco1 Class A preferred shares (excluding any such shares owned by a predecessor corporation). The aggregate stated capital of the Amalco Series F preferred shares will not exceed the aggregate PUC, immediately before the amalgamation, of the DC Series F preferred shares.

The shares of Subco1 held by DC and the shares of DC held by Subco1 will be cancelled on the amalgamation.

DC Amalco will not be a specified financial institution.

The Articles of Amalgamation of DCAmalco will be amended in such manner that, in addition to any other shares that may be authorized for issue, its share capital will include the following three new classes of shares:

(a) an unlimited number of New DCAmalco Common Shares, which will be fully participating voting common shares;

(b) an unlimited number of non-voting, redeemable, retractable Class A Preferred Shares having an aggregate redemption amount equal to that proportion of the fair market value of all of the issued and outstanding shares of DCAmalco that the net fair market value of the business property to be transferred to Transferee1 as described in paragraph 26 below is of the net fair market value of all of the business property of DCAmalco; and

(c) an unlimited number of non-voting, redeemable, retractable Class B Preferred Shares having an aggregate redemption amount equal to that proportion of the fair market value of all of the issued and outstanding shares of DCAmalco that the net fair market value of the business property to be transferred to Transferee2 as described in paragraph 29 below is of the net fair market value of all of the business property of DCAmalco.

For the purpose of subsection 191(4) of the Act, the terms and conditions of the Class A Preferred Shares and Class B Preferred Shares, as the case may be, will, at the time of their issue, specify an amount in respect of each share, including an amount for which the share is to be redeemed, acquired or cancelled. The amount to be specified in respect of each of the Class A Preferred Shares and Class B Preferred Shares, as the case may be, will be pursuant to a resolution of the board of directors of DCAmalco, will be expressed as a dollar amount, will not be determined by a formula and will be equal to the fair market value of the property received by DCAmalco as consideration for such share.

18. Each DCAmalco Common Share held by a shareholder of DCAmalco, other than a dissenting shareholder (such non-dissenting shareholders of DCAmalco are hereinafter referred to as the “DCAmalco Shareholders”), will be exchanged for one New DCAmalco Common Share, one DCAmalco Class A Preferred Share and one DCAmalco Class B Preferred Share (the “Share Exchange”). No other consideration will be received by any DCAmalco Shareholder in respect of the Share Exchange. The DCAmalco Common Shares will be cancelled on the Share Exchange. No election under subsection 85(1) of the Act will be filed in respect of the Share Exchange.

For the purposes of the XXXXXXXXXX, the aggregate amount to be added to the stated capital of the New DCAmalco Common Shares, the DCAmalco Class A Preferred Shares and the DCAmalco Class B Preferred Shares will not exceed the aggregate PUC of the DCAmalco Common Shares owned by the DCAmalco Shareholders immediately before the Share Exchange and such aggregate stated capital will be allocated to the New DCAmalco Common Shares, the DCAmalco Class A Preferred Shares and the DCAmalco Class B Preferred Shares in proportion to their respective fair market value.

19. Immediately before the transfer of property described in paragraphs 26 and 29 below, the property of DCAmalco will be determined on a consolidated basis by including the appropriate pro-rata share of the assets of any corporation over which DCAmalco has the ability to exercise significant influence (DCAmalco and such corporations will hereinafter be referred to as the "DCAmalco Group"), which assets will be classified into three types of property for the purposes of the definition of “distribution” in subsection 55(1), as follows:

(a) cash or near cash property, comprising all of the current assets of the DCAmalco Group, including any cash, liquid investments, accounts receivable, inventory and prepaid expenses;

(b) business property, comprising all of the assets of the DCAmalco Group, other than cash or near cash property, any income from which would, for the purposes of the Act, be income from a business (other than a SIB); and

(c) investment property, comprising all of the assets of the DCAmalco Group, other than cash or near cash property, any income from which would, for purposes of the Act, be income from property or a SIB.

It is anticipated that the DCAmalco Group will not have any investment property immediately before the transfer of property described in paragraphs 26 and 29 below.

For greater certainty, any tax accounts, such as the balance of any non-capital losses of the DCAmalco Group, will not be considered property for purposes of the proposed transactions described herein.

Since DCAmalco has commitments to spend the Sale Proceeds to acquire business property, the Sale Proceeds will be classified as business property for the purpose of the proposed transactions described below. To the extent that any member of the DCAmalco Group does not exercise significant influence over such corporations, the investments described in subparagraphs 6(a) to (d) and the investment in Canadian Venture described in paragraph 8 will be considered business property for the purpose of the proposed transactions described below.

For the purpose of calculating the net fair market value of the types of property of DCAmalco, any particular member of the DCAmalco Group will be considered to own its respective partnership share of each property owned by any partnership of which such member is a partner.

For the purposes of this paragraph and paragraph 20 below, a corporation will be considered to have significant influence over a corporation if it has significant influence over that corporation or over any other corporation that has significant influence over that corporation.

For greater certainty, the fair market value of the shares of any corporation over which a corporate shareholder has the ability to exercise significant influence and of any indebtedness receivable by the corporate shareholder from such a corporation will be allocated between the three types of property described above by multiplying the fair market value of the shares of the particular corporation or amount receivable from the particular corporation, as the case may be, by the proportion that the net fair market value of each type of property owned by the particular corporation (as determined in this paragraph and paragraph 20 below) is of the aggregate net fair market value of all of the property owned by such corporation.

20. In determining, on a consolidated basis, the net fair market value of each type of property of DCAmalco immediately before the transfers described in paragraphs 26 and 29 below, the liabilities of DCAmalco and any corporation over which DCAmalco exercises significant influence will be allocated to, and will be deducted in the calculation of, the net fair market value of each such type of property of such corporation in the following manner:

(a) in determining the net fair market value of each type of property of a corporation over which DCAmalco exercises significant influence, immediately before the transfer described in paragraphs 26 and 29 below, the liabilities of that particular corporation (other than any amount owing by such corporation to DCAmalco) will be allocated to, and will be deducted in the calculation of, the net fair market value of each type of property of the particular corporation in the following manner:

(i) current liabilities of such corporation will be allocated to the cash or near cash property (including any cash, accounts receivable, inventory and prepaid expenses) of such corporation in the proportion that the fair market value of each such property is of the fair market value of all cash or near cash property owned by the particular corporation. To the extent that the allocation of current liabilities as described herein exceeds the aggregate fair market value of the cash or near cash property of the particular corporation, such corporation will be considered to have a negative amount of cash or near cash property;

(ii) any accounts receivable, inventory and prepaid expenses of the particular corporation that are initially classified in accordance with (i) above as cash or near cash property, that will relate to a business that will be carried on by it and that will be collected, sold or consumed by that particular corporation in the ordinary course of that business, will then be classified as business property and the net fair market value thereof, determined after the allocation of current liabilities described in (i) above, will be included in the net fair market value of business property and will not be included in the net fair market value of cash or near cash property;

(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property, will then be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its fair market value. Liabilities that pertain to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities that pertain to a particular type of property as described herein exceeds the aggregate fair market value of all that particular type of property of the particular corporation, the particular corporation will be considered to have a negative amount of that type of property;

(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, business property and investment property, if any, of such corporation based on the relative net fair market value of each type of property prior to the allocation of such liabilities, but after the allocation of the liabilities described in subparagraphs (a)(i) and (a)(iii) above.

(b) In determining, on a consolidated basis, the net fair market value of each type of property of DCAmalco immediately before the transfer of property described in paragraphs 26 and 29 below, DCAmalco will include the appropriate pro rata share of the net fair market value of each type of property of any corporation over which DCAmalco exercises significant influence, as determined in accordance with subparagraph (a) herein, and any liabilities of DCAmalco will then be allocated to, and be deducted in the calculation of, the net fair market value of each type of property of DCAmalco in the following manner:

(i) current liabilities of DCAmalco will be allocated to the cash or near cash property (including any cash, accounts receivable, inventory and prepaid expenses) of DCAmalco in the proportion that the fair market value of each such property is of the fair market value of all cash or near cash property owned by it. The allocation of current liabilities as described herein will not exceed the aggregate fair market value of the cash or near cash property of DCAmalco;

(ii) any accounts receivable, inventory and prepaid expenses of DCAmalco that are initially classified in accordance with (i) above as cash or near cash property, that relate to a business carried on by DCAmalco and that will be collected, sold or consumed by DCAmalco, Transferee1 or Transferee2, as the case may be, in the ordinary course of that business, will then be classified as business property and the net fair market value thereof, determined after the allocation of current liabilities described in (i) above, will be included in the net fair market value of business property and will not be included in the net fair market value of cash or near cash property;

(iii) liabilities of DCAmalco, other than current liabilities, that relate to a particular property will be allocated to the particular property (and effectively to the type to which the particular property belongs) to the extent of its fair market value. The liabilities that pertain to a type of property, but not to a particular property, then will be allocated to that type of property, but not in excess of the net fair market value of such type of property after the allocation of liabilities to a particular property as described herein;

(iv) if any liabilities remain after the allocations described in steps (b)(i) and (b)(iii) above are made (“excess unallocated liabilities”), such excess unallocated liabilities will then be allocated to the cash or near cash property, business property and investment property, if any, of DCAmalco, based on the relative net fair market value of each type of property prior to the allocation of such excess unallocated liabilities.

For greater certainty, and for the purposes of subparagraph (b) hereof, the amount to be paid to any dissenting shareholders of DCAmalco for their interest in the DCAmalco Common Shares and the debentures of DCAmalco which are due on XXXXXXXXXX as described in paragraph 4(b) above will represent current liabilities of DCAmalco. Also, the amount of any deferred income taxes will not be considered a liability for the purposes of the proposed transactions described herein because such amount does not represent a legal obligation of the particular corporation.

For the purpose of calculating the net fair market value of the types of property of DCAmalco, the liabilities of any particular member of the DCAmalco Group will be considered to include its respective partnership share of each liability of any partnership of which such member is a partner.

21. In accordance with the Plan of Arrangement, and prior to the transfer described in paragraphs 26 and 29 below, the DCAmalco Shareholders, will transfer all of their DCAmalco Class A Preferred Shares to Transferee1 in exchange for an identical number of Transferee1 Common Shares.

Immediately after the share-for-share exchange described herein, the fair market value of each DCAmalco Shareholder’s shares of the capital stock of Transferee1 will be equal to or approximate the amount determined by the formula

			(A x B) + D
				      C

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1). In addition, no person who is not a DCAmalco Shareholder will own any shares of Transferee1.

The amount to be added to the stated capital of Transferee1 in respect of the issuance of the Transferee1 Common Shares as described herein will not exceed the aggregate PUC of the DCAmalco Class A Preferred Shares transferred to Transferee1.

22. In respect of the transfer by any member of the Corp.A Group of its DCAmalco Class A Preferred Shares to Transferee1 as described in paragraph 21 above, such member of the Corp.A Group and Transferee1 will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), in respect of the disposition of DCAmalco Class A Preferred Shares. The agreed amount in respect of such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the fair market value of the DCAmalco Class A Preferred Shares.

23. In accordance with the Plan of Arrangement, and prior to the transfer described in paragraphs 26 and 29 below, the DCAmalco Shareholders will transfer all of their DCAmalco Class B Preferred Shares to Transferee2 in exchange for an identical number of Transferee2 Common Shares.

Immediately after the share-for-share exchange described herein, the fair market value of each DCAmalco Shareholder’s shares of the capital stock of Transferee2 will be equal to or approximate the amount determined by the formula

			(A x B) + D
				      C

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1). In addition, no person who is not a DCAmalco Shareholder will own any shares of Transferee2.

The amount to be added to the stated capital of Transferee2 in respect of the issuance of the Transferee2 Common Shares as described herein will not exceed the aggregate PUC of the DCAmalco Class B Preferred Shares transferred to Transferee2.

24. In respect of the transfer by any member of the Corp.A Group of its DCAmalco Class B Preferred Shares to Transferee2 as described in paragraph 23 above, such member of the Corp.A Group and Transferee2 will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), in respect of the disposition of DCAmalco Class B Preferred Shares. The agreed amount in respect of such election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii) and will not exceed the fair market value of the DCAmalco Class B Preferred Shares.

25. Following the issue by Transferee1 and Transferee2 of its common shares to the DCAmalco Shareholders as described in paragraphs 21 and 23 above, each of Transferee1 and Transferee2 will elect in prescribed manner in accordance with subparagraph (c)(i) of the definition of “public corporation” in subsection 89(1) of the Act to be a public corporation and at the time of the election, each of Transferee1 and Transferee2 will comply with prescribed conditions as stipulated in subsection 4800(1) of the Regulations relating to the number of its shareholders, dispersal of ownership of its shares, public trading of its shares and size of the corporation. Each of Transferee1 and Transferee2 will also elect in its return of income for its first taxation year to be a public corporation from the commencement of the year, in accordance with the definition of “public corporation” in subsection 89(1) of the Act.

26. Contemporaneously with the transfer described in paragraph 29 below, DCAmalco will transfer to Transferee1 at fair market value:

(a) all of its common shares of Subco2;

(b) cash or near cash property; and

(c) investment property, if any;

such that, immediately after the transfer, the net fair market value of the cash or near cash property, the business property and investment property, if any, of DCAmalco (after allocating and deducting, in the manner described in paragraph 20 above, the liabilities of DCAmalco which are to be assumed by Transferee1 as described below) which is represented by the Subco2 shares, as well as any additional cash or near cash property and investment property, if any, of DCAmalco which is transferred to Transferee1 as described herein, will approximate that proportion of the net fair market value of all of that type of property of DCAmalco, determined immediately before the transfer referred to herein that:

(d) the aggregate fair market value of the DCAmalco Class A Preferred Shares owned by Transferee1, immediately before the transfer,

		is of

(e) the aggregate fair market value of all of the issued and outstanding shares of DCAmalco immediately before the transfer.

For the purpose of this paragraph, paragraph 29 and paragraph 34 below, the expression “approximate that proportion” means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the fair market value of each type of property which the particular transferee corporation has received (or DCAmalco has retained) as compared to what that transferee corporation would have received (or DCAmalco would have retained) had it received (or retained) its appropriate pro rata share of the fair market value of that type of property. However, the aggregate net fair market value of all property of DCAmalco transferred to Transferee1 as described herein will be equal to the proportion determined by (d) and (e) above of the aggregate net fair market value of all property of DCAmalco immediately before the transfer.

As consideration for the transfer of property described herein, Transferee1 will:

(f) assume debt of DCAmalco that is allocable to the property of DCAmalco transferred to Transferee1 as described in (a), (b) and (c) above, all determined in accordance with paragraph 20, but not exceeding the aggregate of the agreed amounts in the joint elections under subsection 85(1) described in paragraph 27 below; and

(g) issue Transferee1 Preferred Shares having an aggregate fair market value and redemption amount equal to the fair market value of the property transferred to Transferee1 as described herein less the amount of the liabilities of DCAmalco assumed by Transferee1 as described in paragraph (f) above.

As a result of the acquisition by Transferee1 of the common shares of Subco2 as described herein, Transferee1 will acquire control of Subco2. Subco2 will not elect in its return of income for its taxation year ending immediately before that time not to have subsection 256(9) of the Act apply with respect to this acquisition of control.

27. DCAmalco and Transferee1 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, with respect to the transfer to Transferee1 of any eligible property of DCAmalco that has a fair market value in excess of its cost amount. Specifically, the agreed amount in each joint election will not be less than the least of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1). In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

28. Pursuant to XXXXXXXXXX, the addition to the stated capital of Transferee1 in respect of the issuance of the Transferee1 Preferred Shares will equal the amount by which the aggregate of the cost (determined pursuant to subsection 85(1) of the Act, where relevant) of the property transferred to Transferee1 as described in paragraphs 26 and 27 exceeds the principal amount of the liabilities of DCAmalco assumed by Transferee1 as described in paragraph 26(f).

29. Contemporaneously with the transfers described in paragraph 26 above, DCAmalco will transfer to Transferee2 at fair market value all of its business property relating to Business 3 and certain of its cash or near cash property and investment property, if any, such that, immediately after the transfer, the net fair market value of the cash or near cash property, business property and investment property, if any, of DCAmalco transferred to Transferee2, as described herein, will approximate that proportion of the net fair market value of all of that type of property of DCAmalco determined immediately before the transfer referred to herein that:

(a) the aggregate fair market value of the DCAmalco Class B Preferred Shares owned by Transferee2, immediately before the transfer,

		is of

(b) the aggregate fair market value of all of the issued and outstanding shares of DCAmalco immediately before the transfer.

The aggregate net fair market value of all property of DCAmalco transferred to Transferee2 as described herein will be equal to the proportion determined by (a) and (b) above of the aggregate net fair market value of all property of DCAmalco immediately before the transfer.

As consideration for the transfer of property described herein, Transferee2 will:

(c) assume debt of DCAmalco that is allocable to DCAmalco’s cash or near cash property, business property and investment property, if any, transferred to Transferee2, all determined in accordance with paragraph 20, but not exceeding the aggregate of the agreed amounts in the joint elections under subsection 85(1) described in paragraph 30 below; and

(d) issue Transferee2 Preferred Shares having an aggregate fair market value and redemption amount equal to the fair market value of the property transferred to Transferee2 as described herein less the amount of the liabilities of DCAmalco assumed by Transferee2 as described in paragraph (c) above.

30. DCAmalco and Transferee2 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, with respect to the transfer to Transferee2 of any eligible property of DCAmalco that has a fair market value in excess of its cost amount. Specifically, the agreed amount in each joint election will not be less than the least of:

(a) the amounts specified in subparagraphs 85(1)(d)(i), (ii) or (iii) in the case of eligible capital property,

(b) the amounts specified in subparagraphs 85(1)(e)(i), (ii) or (iii) in the case of depreciable property of a prescribed class,

(c) the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1), and

(d) in respect of any other property, an amount not exceeding the fair market value of the property at that time.

In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

31. Pursuant toXXXXXXXXXX, the addition to the stated capital of Transferee2 in respect of the issuance of the Transferee2 Preferred Shares will equal the amount by which the aggregate of the cost (determined pursuant to subsection 85(1) of the Act, where relevant) of the property transferred to Transferee2 as described in paragraphs 29 and 30 exceeds the principal amount of the liabilities assumed by Transferee2 as described in paragraph 29(c).

32. Immediately following the transfers of property described in paragraphs 26 and 29, Transferee1 will redeem from DCAmalco all of the Transferee1 Preferred Shares for an amount equal to their fair market value, being the aggregate of the Transferee1 Redemption Amounts of the Transferee1 Preferred Shares so redeemed and will issue to DCAmalco in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate of the Transferee1 Redemption Amounts (the “Transferee1 Redemption Note”). DCAmalco will accept the Transferee1 Redemption Note as full payment of the Transferee1 Redemption Amount in respect of each redeemed Transferee1 Preferred Share with the risk of the note being dishonored.

DCAmalco will redeem from Transferee1 all of its DCAmalco Class A Preferred Shares for an amount equal to their fair market value, being their aggregate redemption amounts, and will issue to Transferee1 in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate redemption amounts of the DCAmalco Class A Preferred Shares (“the DCAmalco Redemption Note 1”). Transferee1 will accept the DCAmalco Redemption Note 1 as full and absolute payment of the redemption amount in respect of each DCAmalco Class A Preferred Share with the risk of the note being dishonored.

DCAmalco will pay the principal amount of the DCAmalco Redemption Note 1 by transferring to Transferee1 the Transferee1 Redemption Note which will be accepted by Transferee1 in full payment of DCAmalco’s obligation. Transferee1 will pay the principal amount of the Transferee1 Redemption Note by transferring to DCAmalco the DCAmalco Redemption Note 1 which will be accepted by DCAmalco in full payment of Transferee1’s obligation. The DCAmalco Redemption Note 1 and the Transferee1 Redemption Note will both thereupon be marked paid in full and cancelled.

33. Immediately following the transfers of property described in paragraphs 26 and 29, Transferee2 will redeem from DCAmalco all of its Transferee2 Preferred Shares for an amount equal to their fair market value, being the aggregate of the Transferee2 Redemption Amounts of the Transferee2 Preferred Shares so redeemed, and will issue to DCAmalco in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate of the Transferee2 Redemption Amounts (“the Transferee2 Redemption Note”). DCAmalco will accept the Transferee2 Redemption Note as full payment of the Transferee2 Redemption Amount in respect of each redeemed Transferee2 Preferred Share with the risk of the note being dishonored.

DCAmalco will redeem from Transferee2 all of its DCAmalco Class B Preferred Shares for an amount equal to their fair market value, being their aggregate redemption amounts, and will issue to Transferee2 in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate redemption amounts of the DCAmalco Class B Preferred Shares so redeemed (“the DCAmalco Redemption Note 2”). Transferee2 will accept the DCAmalco Redemption Note 2 as full and absolute payment of the redemption amount in respect of each DCAmalco Class B Preferred Share with the risk of the note being dishonored.

DCAmalco will pay the principal amount of the DCAmalco Redemption Note 2 by transferring to Transferee2 the Transferee2 Redemption Note which will be accepted by Transferee2 in full payment of DCAmalco’s obligation. Transferee2 will pay the principal amount of the Transferee2 Redemption Note by transferring to DCAmalco the DCAmalco Redemption Note 2 which will be accepted by DCAmalco in full payment of Transferee2’s obligation. The DCAmalco Redemption Note 2 and the Transferee2 Redemption Note will both thereupon be marked paid in full and cancelled.

34. Immediately following the proposed transactions described above, the net fair market value of each type of property retained by DCAmalco, determined in the manner described in paragraphs 19 and 20 above, will approximate that proportion of the aggregate net fair market value of that type of property of DCAmalco, determined immediately before the transfers described in paragraph 26 and 29 above, that :

(a) the aggregate fair market value, immediately before the transfer of property described in paragraphs 26 and 29, of the New DCAmalco Common shares and Class F Preferred Shares of DCAmalco

		is of 

(b) the aggregate fair market value, immediately before the transfer of property, of all of the issued and outstanding shares of DCAmalco.

35. As part of the Plan of Arrangement and subject to the approval of not less than two-thirds of the shareholders of Subco2, Subco2 and Transferee1 will be amalgamated pursuant to XXXXXXXXXX to form NewTransferee1 in such manner that

(a) (i) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of Subco2 and Transferee1 immediately before the merger will become property of NewTransferee1 by virtue of the merger;

(ii) all of the liabilities (except amounts payable to any predecessor corporation) of Subco2 and Transferee1 immediately before the merger will become liabilities of NewTransferee1 by virtue of the merger; and
(iii) all of the shareholders (except any predecessor corporation) who own shares of Subco2 and Transferee1 immediately before the merger will receive shares of NewTransferee1 because of the merger;

(b) NewTransferee1’s share capital will be comprised of NewTransferee1 Common Shares and NewTransferee1 Preferred shares. Each NewTransferee1 Common Share will be a fully participating voting common share. Each NewTransferee1 Preferred Share will have the same share attributes and redemption amount as the existing Subco2 Preferred Shares;

(c) each holder of Transferee1 Common Shares and Subco2 Common Shares (except any predecessor corporation) will receive NewTransferee1 Common Shares having an aggregate fair market value equal to the aggregate fair market value of the Transferee1 Common Shares and Subco2 Common Shares held by such person immediately before the merger, and each holder of Subco2 Preferred Shares (except any predecessor corporation) will receive NewTransferee1 Preferred Shares having an aggregate fair market value equal to the aggregate fair market value of the Subco2 Preferred Shares held by such person immediately before the merger; and

(d) the aggregate stated capital of the NewTransferee1 Common Shares will not exceed the aggregate PUC, immediately before the amalgamation, of the Transferee1 Common Shares and Subco2 Common Shares (excluding any such shares owned by a predecessor corporation). The aggregate stated capital of the NewTransferee1 Preferred Shares will not exceed the aggregate PUC, immediately before the amalgamation, of the Subco2 Preferred Shares (excluding any such shares owned by a predecessor corporation).

For greater certainty, the amalgamation of Subco2 and Transferee1 will occur on the same date as control of Subco2 is acquired by Transferee1 as described in paragraph 26 above. No time will be specified in the certificate of amalgamation as the effective time of the amalgamation.

36. Upon completion of the foregoing transactions, each of DCAmalco, NewTransferee1 and Transferee2 will operate as separate entities. The NewTransferee1 Common Shares, the NewTransferee1 Preferred Shares and the Transferee2 Common Shares will be listed for trading on one or more of the prescribed stock exchanges in Canada.

Additional Information

37. No property has or will become property of DC, DCAmalco or any corporation controlled by such corporation or a predecessor corporation of any such corporation, and no liabilities (other than those incurred in relation to fees and expenses of the Plan of Arrangement) have been or will be incurred by DC, DCAmalco or any corporation controlled by such corporation or a predecessor corporation of any such corporation, in contemplation of and before the transfers of property described in paragraphs 26 and 29, except in the ordinary course of business, or as described herein.

38. Except as outlined herein, DCAmalco does not have any specific intention of disposing of any assets currently owned by it to an unrelated person following the proposed transactions and none of DCAmalco, Transferee1, NewTransferee1 or Transferee2 will dispose of any of its assets as part of a series of transactions which includes the proposed transactions.

39. There are not, and will not be at any time prior to the completion of the proposed transactions, any agreements or undertakings which constitute or include a “guarantee agreement”, as defined in subsection 112(2.2), in respect of any of the shares of DCAmalco, Transferee1, or Transferee2.

40. None of DCAmalco, Transferee1 or Transferee2 has, or will have, entered into a “dividend rental arrangement”, as defined in subsection 248(1), in respect of any of the shares to be redeemed as part of the proposed transactions.

41. None of the shares of DCAmalco, Transferee1 or Transferee2 will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5) of the Act.

42. None of DCAmalco, Transferee1 or Transferee2 will be a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation” in subsection 191(1) of the Act.

43. Each of DCAmalco, Transferee1 and Transferee2 will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the proposed transactions.

Purpose of the Proposed Transactions

44. The purpose of the proposed transactions can be summarized as follows:

(a) The separation of DC’s businesses into three separate independent corporations will enhance the ability of such corporations to pursue their independent strategies through an increased management focus on growth and profitability in their respective businesses.

(b) The economics of Business 1, Business 2 and Business 3 are essentially unrelated to each other, and, accordingly, it would be preferable to give the DC Shareholders the choice to make independent investment decisions in respect of their holdings in each business.

(c) The separation of DC into three separate independent corporations will create three less diversified corporations. It is anticipated that the capital markets will find it easier to effectively value these three new corporations when comparing them to more specific industry benchmarks and performance criteria.

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:

A. For each DCAmalco Shareholder who holds DCAmalco Common Shares as capital property, 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 Share Exchange described in paragraph 18 above, such that:

(i) the cost of the New DCAmalco Common Shares, DCAmalco Class A Preferred Shares and DCAmalco Class B Preferred Shares received on the Share Exchange will be deemed by paragraph 86(1)(b) of the Act to be an amount equal to that proportion of the aggregate ACB to the particular DCAmalco Shareholder, immediately before the Share Exchange, of the DCAmalco Common Shares, that

(a) the fair market value, immediately after the Share Exchange, of the New DCAmalco Common Shares, DCAmalco Class A Preferred Shares or DCAmalco Class B Preferred Shares, as the case may be,

			is of

(b) the fair market value, immediately after the Share Exchange, of all the shares of DCAmalco received by the particular DCAmalco Shareholder for the DCAmalco Common Shares; and

(ii) pursuant to paragraph 86(1)(c) of the Act, each particular DCAmalco Shareholder will be deemed to have disposed of the DCAmalco Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the particular DCAmalco Shareholder of the New DCAmalco Common Shares, DCAmalco Class A Preferred Shares and DCAmalco Class B Preferred Shares determined in (i) above.

B. No dividend will be deemed to arise pursuant to subsection 84(1) or (3) of the Act with respect to the Share Exchange described in paragraph 18 above.

C. Subject to the provisions of subsection 26(26) of the ITAR and provided that a DCAmalco Shareholder who, immediately before the share-for-share exchange described in paragraphs 21 and 23 above, holds DCAmalco Class A Preferred Shares or DCAmalco Class B Preferred Shares,

(a) holds those shares as capital property;

(b) deals at arm’s length with Transferee1 and Transferee2 immediately before such share-for-share exchange;

(c) does not include any portion of the gain or loss otherwise determined, from the disposition of those shares, in computing his income for the taxation year in which the exchange takes place;

(d) does not file an election under subsection 85(1) or 85(2) with either Transferee1 or Transferee2 with respect to those shares; and

(e) does not receive any consideration other than the Transferee1 Common Shares or Transferee2 Common shares in exchange for those shares;

		and further provided that immediately after the exchange:

(f) no such holder or any person or persons with whom the holder does not deal at arm’s length, or no such holder together with any person or persons with whom the holder does not deal at arm’s length, will

(i) control Transferee1 or Transferee2, or

(ii) beneficially own shares of Transferee1 or Transferee2, having a fair market value of more than 50% of the fair market value of all of the outstanding shares of Transferee1 or Transferee2,

		then, pursuant to paragraph 85.1(1)(a) such holder shall be deemed

(g) to have disposed of his or her DCAmalco Class A Preferred Shares for proceeds of disposition equal to his or her ACB of those shares immediately before the share-for-share exchange,

(h) to have disposed of his or her DCAmalco Class B Preferred Shares for proceeds of disposition equal to his or her ACB of those shares immediately before the share-for-share exchange,

(i) to have acquired the Transferee1 Common Shares at a cost equal to his or her ACB of the DCAmalco Class A Preferred Shares immediately before the share-for-share exchange, and

(j) to have acquired the Transferee2 Common Shares at a cost equal to his or her ACB of the DCAmalco Class B Preferred Shares immediately before the share-for-share exchange.

D. Subject to the application of the provisions of subsections 20(1.2) and 26(5) of the ITAR, to the application of subsection 69(11) of the Act and of paragraph 88(2.2)(b) of the Act, which applies for the purpose stated in the preamble to subsection 88(2.2) of the Act, and subject also to the application of subsection 13(21.2) as it may apply to the transfers referred to herein, the provisions of subsection 85(1) will apply to:

(a) the transfer by a member of the Corp.A Group of its DCAmalco Class A Preferred Shares to Transferee1 and its DCAmalco Class B Preferred Shares to Transferee2, as the case may be, as described in paragraphs 21 and 23 above, who jointly files an election with Transferee1 and Transferee2, as the case may be, pursuant to subsection 85(1) in respect of such transfer, as described in paragraphs 22 and 24 above;

(b) the transfer by DCAmalco to Transferee1, as described in paragraph 26 above, of each eligible property which is the object of the election described in paragraph 27 above; and

(c) the transfer by DCAmalco to Transferee2, as described in paragraph 29 above, of each eligible property which is the object of the election described in paragraph 30 above,

such that the agreed amount in respect of each transfer will be deemed to be the proceeds of disposition to the transferor and the cost thereof to the transferee. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

For the purpose of the joint election in respect of depreciable property of Business 3, the reference to “the undepreciated capital cost to the taxpayer of all the property of that class immediately before the disposition...” in subparagraph 85(1)(e)(i) of the Act will be read to mean the proportion of the undepreciated capital cost to DCAmalco of all the property of that class that the capital cost of the property immediately before the disposition is of the capital cost of all property of that class immediately before the disposition.

E. Subsection 84(3) will apply on the redemption:

(a) as described in paragraph 32, of the Transferee1 Preferred Shares held by DCAmalco, to deem Transferee1 to have paid and DCAmalco to have received;

(b) as described in paragraph 33, of the Transferee2 Preferred Shares held by DCAmalco, to deem Transferee2 to have paid and DCAmalco to have received;

(c) as described in paragraph 32, of the DCAmalco Class A Preferred Shares held by Transferee1, to deem DCAmalco to have paid and Transferee1 to have received;

(d) as described in paragraph 33, of the DCAmalco Class B Preferred Shares held by Transferee2, to deem DCAmalco to have paid and Transferee2 to have received;

a dividend on such shares equal to the amount, if any, by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption, and any such dividend

(e) will be included in computing the income, pursuant to subsection 82(1) and paragraph 12(1)(j), of the person deemed to have received such dividend;

(f) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is deemed to have been received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4);

(g) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54; and

(h) provided that the amount paid on the redemption of the DCAmalco Class A Preferred Shares, DCAmalco Class B Preferred Shares, Transferee1 Preferred Shares and Transferee2 Preferred Shares, as the case may be, is equal to the amount specified in respect of such shares as described in paragraphs 12, 13 and 17 above, the dividends referred to in (a), (b), (c) and (d) will not be subject to tax under Parts IV.1 and VI.1 of the Act because they will be dividends deemed by paragraph 191(4)(d) to be “excluded dividends” as defined in subsection 191(1) and “excepted dividends” as defined in section 187.1.

F. The repayment of the Transferee1 Redemption Note held by DCAmalco, the Transferee2 Redemption Note held by DCAmalco, the DCAmalco Redemption Note 1 held by Transferee1, and the DCAmalco Redemption Note 2 held by Transferee2 as described in paragraphs 32 and 33 will not give rise to a “forgiven amount” within the meaning of subsection 80(1) or 80.01(1). None of DCAmalco, Transferee1 or Transferee2 will realize any gain or incur any loss as a result of the repayment and resultant cancellation of the Transferee1 Redemption Note, the Transferee2 Redemption Note, the DCAmalco Redemption Note 1 and the DCAmalco Redemption Note 2, as the case may be, as described in paragraphs 32 and 33 above.

G. Provided that as part of the series of transactions or events that includes the proposed transactions described herein, there is not:

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

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

(c) an acquisition of shares in the circumstances described in subparagraph 55(3.1)(b)(iii);

(d) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(d);

which has not been described herein, then by virtue of paragraph 55(3)(b) subsection 55(2) will not apply to the taxable dividends referred to in Ruling E above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

H With respect to the amalgamation of Transferee1 and Subco2 described in paragraph 35 above:

(a) the provisions of subsection 87(1) will apply;

(b) provided that the Transferee1 Common Shares, Subco2 Common Shares and Subco2 Preferred Shares were capital property to the holders thereof immediately before the amalgamation, the provisions of subsection 87(4) of the Act, other than paragraphs (c), (d), and (e) thereof, will apply such that:

(i) each such Transferee1 Shareholder or Subco2 Shareholder (other than Transferee1) will be deemed by paragraph 87(4)(a) to have disposed of his or her Transferee1 Common Shares, Subco2 Common Shares or Subco2 Preferred Shares, as the case may be, for proceeds of disposition equal to his or her ACB of such shares immediately before the amalgamation; and

(ii) each such Transferee1 Shareholder or Subco2 Shareholder (other than Transferee1) will be deemed by paragraph 87(4)(b) to have acquired his or her NewTransferee1 Common Shares or NewTransferee1 Preferred Shares, as the case may be, for an amount equal to that proportion of the proceeds described in (i) above that

(a) the fair market value, immediately after the amalgamation, of all new shares of that particular class so acquired by the Transferee1 Shareholder or the Subco2 Shareholder, as the case may be,

				is of

(b) the fair market value, immediately after the amalgamation, of all new shares so acquired by the Transferee1 Shareholder or the Subco2 Shareholder, as the case may be.

I. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not apply to any of the proposed transactions described in paragraphs 12 to 36 above, in and of themselves.

J. As a result of the proposed transactions described in paragraphs 12 to 36 above, in and of themselves, subsection 245(2) will not be applied to redetermine the tax consequences confirmed in the rulings given above.

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.

Opinion

Provided that no election pursuant to subsection 256(9) of the Act is filed with respect to the acquisition of control of Subco2 as described in paragraph 26 above and no time is specified in the certificate of amalgamation obtained in respect of the amalgamation described in paragraph 35 above and both the transactions described in paragraphs 26 and 35 are executed on the same day and in the same sequence as described, Subco2 will have only one deemed year end as a result of the acquisition of control of Subco2 by Transferee1 and the amalgamation of Transferee1 and Subco2.

The foregoing opinion is given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3.

Comments

1. We make no comment as to whether the Class A Preferred Shares and Class B Preferred Shares of DCAmalco will be “excluded property” within the meaning of subsection 116(6) of the Act.

2. 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 or ACB of any particular asset or share or the PUC of any shares referred to herein; or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

Yours truly,

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