1999 Ruling 9900413 - BUTTERFLY RULING (SPLIT-UP)

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 (See Statement of Principal Issues attached with Ruling).

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

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

XXXXXXXXXX
XXXXXXXXXX 3-990041
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling Request

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;

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

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

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) “BCA” means the Business Corporations Act (XXXXXXXXXX), S.A. 1981, c.B-15, as amended;

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

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

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

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

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

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

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

(l) “private corporation” has the meaning assigned by subsection 89(1);

(m) “RDTOH” means refundable dividend tax on hand as that expression is defined in subsection 129(3);

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

(o) “series of transactions or events” includes the transactions or events referred to in subsection 248(10);

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

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

(r) “stated capital” has the meaning assigned by XXXXXXXXXX BCA;

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

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

(u) “UCC” means undepreciated capital cost” as that expression is defined in subsection 13(21).

FACTS

1. XXXXXXXXXX (“DC”) is a taxable Canadian corporation and a Canadian-controlled private corporation. It was incorporated under the XXXXXXXXXX and was continued under the BCA. Its issued and outstanding shares consist of:

(a) XXXXXXXXXX Class “A” voting common shares; and

(b) XXXXXXXXXX Class “I” non-voting common shares.

Each of the Class “A” and Class “I” shares of DC has an ACB and PUC of $XXXXXXXXXX per share.

XXXXXXXXXX (“Individual A”) owns XXXXXXXXXX Class “A” common shares and XXXXXXXXXX Class “I” non-voting shares of DC, while XXXXXXXXXX (“Individual B”) owns XXXXXXXXXX Class “I” non-voting shares of DC and XXXXXXXXXX (“Individual C”) owns XXXXXXXXXX Class “I” non-voting shares of DC.

None of the shares of DC has been acquired by any person in contemplation of the proposed transactions described below.

Individuals A, B and C are siblings, are all mature adults and are residents of Canada for purposes of the Act.

The property of DC includes:

(c) XXXXXXXXXX rental properties;

(d) XXXXXXXXXX ( the “Joint Venture”);

(e) XXXXXXXXXX parcels of non-revenue producing land including XXXXXXXXXX that have been held for many years for future development of additional rental properties (the “Development Lands”);

(f) certain office equipment, a small amount of accounts receivable and prepaid expenses relating to the rental properties; and

(g) all of the issued and outstanding shares of XXXXXXXXXX (“Subco”). The issued and outstanding shares of Subco have nominal ACB and PUC.

As of XXXXXXXXXX, the liabilities of DC included:

(h) shareholder loans of $XXXXXXXXXX, of which $XXXXXXXXXX was owing to Individual A;

(i) due to affiliated companies of $XXXXXXXXXX, of which

(i) $XXXXXXXXXX was owing to XXXXXXXXXX (“Transferee”);

(ii) $XXXXXXXXXX was owing to Subco;

(iii) the balance was owing to XXXXXXXXXX (“Xco.”); and

(j) various third party indebtedness in the aggregate of $XXXXXXXXXX.

DC’s taxation year ends on XXXXXXXXXX of every year. The real property referred to in (c), (d) and (e) above is capital property to DC.

2. Transferee is a taxable Canadian corporation and a Canadian-controlled private corporation. It is governed by the provisions of the BCA. The authorized share capital of Transferee consists of an unlimited number of Class “A” common shares. The issued and outstanding shares of Transferee consist of XXXXXXXXXX Class “A” common shares, which are all owned by Individual A. The Class “A” common shares of Transferee have nominal ACB and PUC.

Transferee’s taxation year ends on XXXXXXXXXX of every year.

3. Xco. is a taxable Canadian corporation and a Canadian-controlled private corporation. All the issued and outstanding shares of Xco. are owned by XXXXXXXXXX, the father of Individuals A, B and C.

Xco. owns and operates several rental properties and is the other XXXXXXXXXX% participant in the Joint Venture.

Xco. owes Individual A some $XXXXXXXXXX.

4. Subco is a taxable Canadian corporation and a Canadian-controlled private corporation. It acts as the leasing agent with respect to the various rental properties owned by DC and Xco. Its assets consist of trade accounts receivable, office equipment and $XXXXXXXXXX due from related parties of which $XXXXXXXXXX is due from DC.

5. Neither DC nor Transferee had any RDTOH at the end of its respective XXXXXXXXXX taxation year. It is not expected that DC or Transferee will have any RDTOH or CDA at the end of its respective taxation year which includes the proposed transactions described below.

PROPOSED TRANSACTIONS

6. Pursuant to the provisions of the BCA, the Articles of Incorporation of Transferee will be amended to create Class C preferred shares and Class D preferred shares in an unlimited number having the following attributes:

(a) redeemable and retractable for a redemption amount equal to the fair market value of the property received therefor (net of liabilities assumed) by the corporation at the time of issuance;

(b) entitled to a non-cumulative dividend at the fixed rate of XXXXXXXXXX% per annum;

(c) entitled to a return of the redemption amount on a liquidation, dissolution, or winding-up of the corporation in preference to the common shares;

(d) may be purchased, redeemed or cancelled by the corporation in the manner provided in the BCA at the option of either the corporation or the holder for a price not less than the lesser of:

(i) the aggregate redemption amount of such shares to be purchased at the particular time; and

(ii) the realizable value of the net assets of the corporation immediately before such purchase;

(e) any preference, right, condition or limitation attaching to the preferred shares can only be amended by a special resolution of the holders of each class of shares of the corporation each voting separately as a class;

(f) a restriction on the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of the corporation so as to reduce the value of the preferred shares then outstanding;

(g) the holders of the Class “C” preferred Shares will be entitled to one vote per share at all meetings of the shareholders; and

(h) the Class “D” preferred shares will be non-voting, except as provided in the BCA.

7. Pursuant to the provisions of the BCA, the Articles of Continuance of DC will be amended such that:

(a) each issued and authorized Class “A” voting common share of DC will be entitled to XXXXXXXXXX votes; and

(b) each issued and authorized Class “I” non-voting common share of DC will be entitled to one vote.

8. Individual A will transfer her XXXXXXXXXX Class “A” and XXXXXXXXXX Class “I” common shares of DC to Transferee at fair market value. As the sole consideration, Transferee will issue Class “D” preferred shares having a fair market value and a redemption and retraction amount equal to the fair market value of the Class “A” and Class “I” shares of DC so transferred to Transferee.

For the purpose of the BCA, the amount to be added to the stated capital of the Transferee Class “D” preferred shares will be equal to the aggregate PUC of the Class “A” and Class “I” shares of DC so transferred to the Transferee.

Individual A and Transferee will jointly elect in prescribed form and within the time period referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer. The agreed amount in respect of the shares so transferred will be equal to their ACB to Individual A immediately before the transfer, which will not exceed the fair market value of the shares.

9. Immediately before the transfer of property described in paragraph 11 below, the property of DC will be determined on a consolidated basis by including the appropriate pro-rata share of the assets of any corporation over which DC has the ability to exercise significant influence (DC and such corporations will hereinafter be referred to as the "DC 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 DC Group, including any cash, liquid investments, accounts receivable, inventory and prepaid expenses;

(b) business property comprising all of the assets of the DC Group, if any, 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 DC 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.

All of the activities of DC Group relate to real estate rentals. Throughout its XXXXXXXXXX taxation year, DC had more than 5 full-time employees. For the XXXXXXXXXX taxation years, DC did not have more than 5 full-time employees. It is anticipated that DC will not have any business property immediately before the transfer of property described in paragraph 11 below.

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

For the purposes of this paragraph and paragraph 10 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, DC will not have significant influence over any corporation other than Subco.

For greater certainty, the fair market value of the shares of Subco and of any indebtedness receivable by DC from Subco will be allocated between the three types of property described above by multiplying the fair market value of the shares of Subco or amount receivable from Subco, as the case may be, by the proportion that the net fair market value of each type of property owned by Subco (as determined in this paragraph and paragraph 10 below) is of the aggregate net fair market value of all of the property owned by Subco.

10. In determining, on a consolidated basis, the net fair market value of each type of property of DC immediately before the transfers described in paragraph 11 below, the liabilities of DC and any corporation over which DC 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 DC exercises significant influence, immediately before the transfer described in paragraph 11 below, the liabilities of that particular corporation (other than any amount owing by such corporation to DC) 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) 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;

(iii) 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, if any, and investment property 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)(ii) above.

(b) In determining, on a consolidated basis, the net fair market value of each type of property of DC immediately before the transfer of property described in paragraph 11 below, DC will include the appropriate pro rata share of the net fair market value of each type of property of any corporation over which DC exercises significant influence, as determined in accordance with subparagraph (a) herein, and any liabilities of DC will then be allocated to, and be deducted in the calculation of, the net fair market value of each type of property of DC in the following manner:

(i) current liabilities of DC will be allocated to the cash or near cash property (including any cash, accounts receivable, inventory and prepaid expenses) of DC 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 DC (such allocation will result in a net fair market value of cash or near cash property of nil);

(ii) liabilities of DC, 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;

(iii) if any liabilities remain after the allocations described in steps (b)(i) and (b)(ii) above are made (“excess unallocated liabilities”), such excess unallocated liabilities will then be allocated to the cash or near cash property, business property, if any, and investment property of DC, based on the relative net fair market value of each type of property prior to the allocation of such excess unallocated liabilities (since the net fair market value of its cash and near cash property will be nil and assuming it has no business property, DC will allocate all excess unallocated liabilities against its investment property).

For greater certainty, 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.

11. DC will transfer to Transferee at fair market value:

(a) the cash or near cash property;

(b) business property, if any; and

(c) investment property which includes the XXXXXXXXXX rental properties, the XXXXXXXXXX Development Land and office equipment.

As a result of such transfers, the net fair market value of each type of property so transferred to Transferee as described herein (determined after allocating and deducting, in the manner described in paragraph 10 above, the liabilities of DC which are to be assumed by Transferee on the settlement of the Transferee Redemption Note as described in paragraph 16 below) will approximate that proportion of the net fair market value of all of that type property of DC, determined immediately before the transfer described herein that:

(d) the aggregate fair market value of the DC shares owned by Transferee, immediately before the transfer,

is of

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

For the purpose of this paragraph and paragraph 17 below, the expression “approximate that proportion” means that the discrepancy from that proportion, if any, would not exceed XXXXXXXXXX%, determined as a percentage of the fair market value of each type of property which Transferee has received (or DC has retained) as compared to what Transferee would have received (or DC 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 DC transferred to Transferee 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 DC immediately before the transfer.

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

(f) issue XXXXXXXXXX Class “C” preferred shares of Transferee having an aggregate fair market value and redemption and retraction amount equal to the fair market value of the property transferred to Transferee as described herein.

12. DC and Transferee 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 Transferee of any eligible property of DC 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)(c.1)(i) or (ii), in the case of property described in paragraph 85(1)(c.1), and

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

In each case, the agreed amount will not exceed the fair market value of the respective property.

13. Pursuant to XXXXXXXXXX the BCA, the addition to the stated capital of Transferee in respect of the issuance of the Transferee Class “C” preferred shares will equal the aggregate of the cost (determined pursuant to subsection 85(1) of the Act, where relevant) of the property transferred to Transferee as described in paragraph 11 above.

14. Immediately following the transfers of property described in paragraph 11 above, Transferee will redeem from DC all of the Transferee Class “C” preferred shares for an amount equal to their fair market value, being the aggregate of the Transferee redemption amount (“Transferee Redemption Amount”) of the Transferee Class “C” preferred shares so redeemed and will issue to DC in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate of the Transferee Redemption Amount (the “Transferee Redemption Note”). DC will accept the Transferee Redemption Note as full payment of the Transferee Redemption Amount in respect of each redeemed Transferee Class “C” preferred share with the risk of the note being dishonored.

15. DC will purchase for cancellation from Transferee all of its DC shares for an amount equal to their fair market value, and will issue to Transferee in consideration therefor a demand non-interest bearing promissory note with a principal amount and fair market value equal to the aggregate fair market value of the DC shares so purchased for cancellation (“the DC Redemption Note”). Transferee will accept the DC Redemption Note as full and absolute payment of the purchase amount in respect of each DC share with the risk of the note being dishonored.

16. Transferee will pay the principal amount of the Transferee Redemption Note by:

(a) transferring to DC the DC Redemption Note; and

(b) assuming various indebtedness of DC including:

(i) $XXXXXXXXXX owing to Individual A;

(ii) $XXXXXXXXXX owing to Transferee; and

(iii) $XXXXXXXXXX owing to Xco:

which will be accepted by DC in full payment of Transferee’s obligation.

The DC Redemption Note and the Transferee Redemption Note will both thereupon be marked paid in full and cancelled.

17. Immediately following the settlement of the Transferee Redemption Note as described in paragraph 16 above, the net fair market value of each type of property retained by DC (determined after allocating and deducting, in the manner described in paragraph 10 above, the liabilities of DC which are to be retained by DC) will approximate that proportion of the net fair market value of all of that type property of DC, determined immediately before the transfer described herein that:

(a) the aggregate fair market value of the DC shares owned by Individuals B and C, immediately before the transfer,

is of

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

ADDITIONAL INFORMATION

18. None of the corporations referred to herein is or will be, at any time during the series of transactions herein described, a specified financial institution or a restricted financial institution.

19. No property has or will become property of DC or any corporation controlled by DC, and no liabilities have been or will be incurred by DC, or any corporation controlled by DC, in contemplation of and before the transfers of property described in paragraph 11, except in the ordinary course of business, or as described herein.

20. Except as outlined herein, neither DC nor Transferee has any specific intention of disposing of any assets currently owned by it to an unrelated person following the proposed transactions and neither DC nor Transferee will dispose of any of its assets as part of a series of transactions which includes the proposed transactions.

21. 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 DC or Transferee.

22. Neither DC nor Transferee 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 or to be purchased for cancellation as part of the proposed transactions.

23. None of the shares of DC or Transferee has been or will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5) of the Act.

24. Neither DC nor Transferee has been, or will be, at any time before the completion of the proposed transactions described herein, a corporation described in any of paragraphs (a) to (f) of the definition of “financial intermediary corporation” in subsection 191(1) of the Act.

25. Each of DC and Transferee 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.

26. None of the parties is contemplating an acquisition of control of any DC, Transferee, Subco or any other corporation except as described herein.

PURPOSE OF THE PROPOSED TRANSACTIONS

27. Individual A wishes to separate her interests from her siblings in order to pursue her own individual investment and estate planning objectives.

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. Subject to the application of the provisions of subsections 20(1.2) and 26(5) of the Income Tax Application Rules, 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 in (b) herein, the provisions of subsection 85(1) will apply to:

(a) the transfer by Individual A to Transferee, as described in paragraph 8 above, of her Class “A” and Class “I” common shares of DC; and

(b) the transfer by DC to Transferee as described in paragraph 11 above, of each eligible property which is the object of the election described in paragraph 12 above,

such that the agreed amount in respect of each transfer will be deemed to be the proceeds of disposition to the transferor and, subject to the application of subsection 85(5) with respect to any depreciable property so transferred, the cost thereof to Transferee pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. Subsection 84(3) will apply:

(a) on the redemption, as described in paragraph 14, of the Transferee Class “C” preferred shares held by DC, to deem Transferee to have paid and DC to have received; and

(b) on the purchase for cancellation, as described in paragraph 15, of the DC shares held by Transferee, to deem DC to have paid and Transferee to have received:

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

(c) 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;

(d) 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);

(e) 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;

(f) will reduce any loss arising from the redemption, acquisition or cancellation of those shares pursuant to subsection 112(3) of the Act;

(g) will not be subject to tax under Part IV of the Act, except as provided in paragraph 186(1)(b) of the Act, as DC and Transferee will be connected to each other by virtue of subsection 186(4) of the Act; and

(h) will not be subject to tax under Parts IV.1 and VI.1 of the Act by virtue of paragraph (b) of the definition of “excepted dividend” in section 187.1 of the Act and paragraph (a) of the definition of “excluded dividend” in subsection 191(1) of the Act because each of DC and Transferee will have a substantial interest, within the meaning assigned by subsection 191(2) of the Act, in the payer corporation immediately before the redemption or purchase for cancellation of such shares.

C. The repayment of the Transferee Redemption Note held by DC and the DC Redemption Note held by Transferee will not give rise to a “forgiven amount” within the meaning of subsection 80(1) or 80.01(1). Neither DC nor Transferee will realize any gain or incur any loss as a result of the repayment and resultant cancellation of the Transferee Redemption Note and the DC Redemption Note, as the case may be, as described in paragraph 16 above.

D. 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 B above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

E. The provisions of subsections 15(1) and 56(2) will not apply to any of the proposed transactions described above, in and by themselves.

F. The addition of voting rights to the Class “I” shares of DC and the increase in the number of votes per share for the Class “A” shares of DC described in paragraph 7 will not result in a disposition of such shares for the purposes of the Act.

G. As a result of the proposed transactions described above, in and by 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.

COMMENTS

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

13

.../cont’d

.../cont’d