1999 Ruling 9903153 - BUTTERFLY REORGANIZATION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the fojiowing 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.

XXXXXXXXXX 990315

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-referenced taxpayers. In your letters dated XXXXXXXXXX additional information was provided regarding the facts and proposed transactions described in your original letter. We also acknowledge the information provided during our various telephone conversatipns (XXXXXXXXXX).

All of the above-referenced taxpayers file their T2 Returns with the XXXXXXXXXX Tax Centre.

To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this request:

(a) is involved in an earlier return of the taxpayers or a related person,

(b) is being considered by a tax services office or taxation centre in connection with a tax return already filed by the taxpayers or a related person,

(c) is under objection,

(d) is before the courts or, if a judgment has been issued, the time limit for appeal has not expired, and

(e) is the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.

Definitions

In this letter the following terms have the meanings specified:

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

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

c) "agreed amount" in respect of a property means the amount that the transferor and the transferee agree upon in their election filed pursuant to subsections 85(1) , as applicable to the relevant transaction, in respect of the property. All agreed amounts referred to in this letter will be expressed in dollars;

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

e) "capital property" has the meaning assigned in section 54;

f) "connected" has the meaning assigned by subsection 186(4);

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

h) "dividend refund" has the meaning assigned by subsection 129(1);

i) "eligible property" has the meaning assigned by subsection 85(1.1);

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

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

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

m) “significant influence" has the meaning assigned by section 3050 of the CICA handbook and for purposes of this letter, 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;

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

o) "specified investment business" has the meaning assigned by subsection 125(7);

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

q) "taxable dividend" has the meaning assigned by subsection 89(1).

Facts

1. XXXXXXXXXX ("Mr. X") and XXXXXXXXXX ("Mr. Y") are unrelated persons who are residents of Canada.

2. XXXXXXXXXX ("Propertyco") is a TCC and a private corporation which was incorporated under the laws of XXXXXXXXXX. The issued share capital of Propertyco consists of XXXXXXXXXX common shares of which Mr. X and Mr. Y own XXXXXXXXXX each. None of the common shares of Propertyco were acquired in contemplation of the proposed transactions described herein. The shares of Propertyco represent capital property to their holder. Propertyco's fiscal year end is XXXXXXXXXX.

3. The assets of Propertyco are (with the exception described below relating to a portfolio investment) all active business assets comprised of accounts receivable, inventories, real property leased to XXXXXXXXXX, ("Opco"), equipment and goodwill. The rental income realised by Propertyco with respect to the real property leased to Opco is deemed to be active business income pursuant to subparagraph 129(G)(b)(i). Propertyco carries on the business of XXXXXXXXXX. Propertyco does have a portfolio investment in XXXXXXXXXX. This investment has a nominal fair market value and will be disposed of for fair market value cash consideration (to a person other than Opco or any corporation controlled by Mr. X and/or Mr. Y) prior to the proposed transactions described below.

4. Opco is a TCC and a private corporation which was incorporated under the laws of XXXXXXXXXX. The issued share capital of Opco is as follows:

Common shares XXXXXXXXXX
Preferred shares XXXXXXXXXX

Propertyco owns all the issued and outstanding common shares of Opco which it holds as capital property. The preferred shares issued by Opco are held as follows:

• XXXXXXXXXX preferred shares are held by XXXXXXXXXX, the son of Mr. X;
• XXXXXXXXXX preferred shares are held by XXXXXXXXXX, the son of Mr. Y.

The preferred shares of Opco are non-voting, non-cumulative redeemable retractable shares with a fixed redemption price of $XXXXXXXXXX each and a par value of $XXXXXXXXXX each.

The assets of Opco are comprised of accounts receivable, prepaid expenses, equipment, goodwill and, as at XXXXXXXXXX, an inter-company receivable due from Propertyco. The premises used for Opco's business are leased from Propertyco. Opco carries on the business ofXXXXXXXXXX. Its fiscal year end is XXXXXXXXXX.

Proposed Transactions

5. Immediately prior to the proposed transactions described below, Opco will pay a cash dividend of its entire cash balance to Propertyco such that Opco will not have any cash on hand at the time of the transfer of property described in paragraph 11 below.

6. Mr. X and Mr. Y will incorporate a new corporation under the laws of XXXXXXXXXX ("Newco") which will be a CCPC and a TCC. The authorized capital of Newco will include an unlimited number of common shares and a class of preference shares having the following attributes:

• entitled to one vote per share;
• entitled to non-cumulative dividends at XXXXXXXXXX percent per annum;
• redeemable and retractable at any time for an amount equal to the FMV of the consideration for which they were issued; and
• limitation on the payment of dividends on the common shares so as not to reduce the net assets of Newco below the aggregate redemption amount of the preferred shares,

7. Mr. X and Mr. Y will each transfer to Newco a number of common shares in Propertyco in exchange for common shares of Newco. No other consideration will be paid by Newco for such shares. The addition to the stated capital of the Newco common shares in respect of each such transfer will be equal to the FMV of the common shares of Propertyco that were transferred. The number of Propertyco common shares to be transferred to Newco by each of Mr. X and Mr. Y will be equal to that proportion of the common shares of Propertyco owned by such shareholder immediately before the transfer of property described in paragraph 11 that the net FMV of the business property of Propertyco, as represented by the common shares of Opco and the inter-company receivable from Opco, if any, is of the net FMV of all of the business property of Propertyco.

Immediately after the share transfers described herein, the FMV of the shares of Propertyco owned by each of Mr. X and Mr. Y will be equal to or approximate the amount determined by the formula

(A x B/C) + D

as found in subparagraph (b)(iii) of the definition of "permitted exchange" in subsection 55(1). In addition, no person other than Mr. X and Mr. Y will own any shares of Newco.

The number of common shares in Propertyco owned by Newco will be more than 10 percent of all the issued shares of Propertyco, having full voting rights in all circumstances, and their FMV will be more than 10 percent of the aggregate FMV of all shares of Propertyco.

8. Mr. X and Mr. Y will jointly elect under subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the shares of Propertyco to Newco at an agreed amount equal to the ACB of their respective shares in Propertyco, which amount is less than their FMV as of the date of transfer.

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

b) business property, comprising all of the assets of the Propertyco Group, other than cash or near cash property, any income from which would be income from a business (other than a specified investment business); and

c) investment property, comprising all of the assets of the Propertyco Group, other than cash or near cash property, any income from which would constitute income from property or from a specified investment business.

It is anticipated that the Propertyco Group will not have any investment property immediately before the transfer of property described in paragraph 11.

Propertyco will not exercise significant influence over any corporation other than Opco. For greater certainty, the fair market value of the shares of Opco and of any indebtedness receivable by Propertyco from Opco will be allocated between the three types of property described above by multiplying the fair market value of the shares of Opco or the mount receivable from Opco, as the case may be, by the proportion that the net fair mayket value of each type of property owned by Opco (as determined in paragraphs 9 and 10) is of the aggregate net fair market value of all of the property owned by Opco.

For greater certainty, any tax accounts, such as the balance of any non-capital losses, the balance in its RDTOII or capital dividend account, will not be considered property for the purposes of the proposed transactions described below.

l0. In determining, on a consolidated basis, the net fair market value of each type of property of Propertyco immediately before the transfer described in paragraph 11, the liabilities of Propertyco and Opco 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 Opco, immediately before the transfer described in paragraph 11, the liabilities of Opco will be allocated to, and will be d&ducted in the calculation of, the net fair market value of each type of property of Opco in the following manner:

i) current liabilities of Opco will be allocated to the cash or near cash property (including any cash, accounts receivable, inventory and prepaid expenses) of Opco 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 Opco. 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 Opco, Opco will be considered to have a negative amount of cash or near cash property;

ii) any accounts receivable, inventory and prepaid expenses of Opco 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 Opco and that will be collected, sold or consumed by Opco 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 Opco that relate o 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 Opco. Opco will be considered to have a negative amount of that type of property;

iv) any liabilities, other than current liabilities, of Opco 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 Opco 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 Propertyco immediately before the transfers of property described in paragraph 11, Propertyco will include the appropriate pro rata share of the net fair market value of each type of property of Opco, as determined in accordance with subparagraph (a) herein, and any liabilities of Propertyco will then be allocated to, and be deducted in the calculation of, the net fair market value of each type of property of Propertyco in the following manner:

i) current liabilities of Propertyco will be allocated to the cash or near cash property (including any cash, accounts receivable, inventory and prepaid expenses) of Propertyco 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 Propertyco;

ii) any accounts receivable, inventory and prepaid expenses of Propertyco that are initially classified in accordance with (i) above as cash or near cash property, that relate to a business carried on by Propertyco and that will be collected, sold or consumed by Propertyco, 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 Propertyco, 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; and

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 Propertyco, 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, in determining the consolidated net fair market value of each type of property of Propertyco, as described herein:

c) deferred revenue which represents revenue received in the ordinary course of business, the recognition of which has been deferred due to the legal obligation of the recipient either to provide services or deliver goods to the customer from which such revenue was received, will be treated as a liability, to the extent the amount of such deferred revenue gives rise to a legal obligation to pay such amount should the services not be provided or the goods not be delivered. The amount of any deferred revenue which does not represent such a legal obligation will not be considered a liability; and

d) the amount of any deferred taxes recorded on the financial statements of Propertyco or Opco will not be considered a liability of such corporation.

11. Propertyco will transfer to Newco at fair market value all of the Opco common shares, together with the inter-company receivable owing by Opco, if any, and a portion of its cash or near cash, if any, such that immediately following the transfer the net FMV of each type of property of Propertyco transferred to Newco as described herein will equal that proportion of the net FMV of all property of that type of Propertyco, determined immediately before the transfer described herein, that:

a) the aggregate FMV of the Propertyco shares owned by Newco immediately before the transfer;

is of

b) the aggregate FMV of all the issued and outstanding shares of Propertyco immediately before the transfer.

As consideration for the transfer of the XXXXXXXXXX common shares of Opco, and the transfer of the inter-company receivable, if any, owing to Propertyco by Opco, and cash or near cash property, if any, Newco will issue to Propertyco preference shares of its capital stock having a total redemption amount and FMV equal to the aggregate FMV of the property transferred to Newco as described herein.

The amount to be added to the stated capital of the Newco preference shares to be issued as described herein will be equal to the FMV of the consideration for which they were issued.

The number of voting preference shares of Newco issued to Propertyco will represent more than 10 percent of all the shares of Newco having full voting rights in all circumstances and their aggregate FMV will be more than 10 percent of the aggregate FMV of all the issued and outstanding shares of Newco.

For the purposes of subsection 191(4), the terms and conditions of the Newco preference shares to be issued as described herein will, at their time of issue, specify an amount in respect of each such share, including an amount for which the share is to be redeemed, acquired or cancelled. The amount to be specified in respect of each Newco preference share, pursuant to a resolution of the board of directors of Newco, will be expressed as a dollar amount, will not be determined by a formula and will equal the fair market value of the property to be received by Newco as consideration for such share. The agreement between Newco and Propertyco pursuant to which the Newco preference shares will be issued will also refer to the redemption price as a dollar amount.

12. Propertyco and Newco will jointly elect under subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), to transfer the XXXXXXXXXX common shares of Opco at an agreed amount equal to their ACB to Propertyco, which amount will not be greater than their FMV. For greater certainty, no election under subsection 85(1) will be made in respect of the transfer, if any, of the inter-company receivable or any cash or near cash property.

13. After the transaction described in paragraph 12 above, Newco will redeem its preference shares issued to Propertyco for an amount equal to their FMV, being their redemption amount. This amount will be paid by Newco issuing to Propertyco a noninterest bearing demand promissory note ( the "Newco Note") with a principal amount and FMV equal to the redemption amount of the preference shares. Propertyco will accept the Newco Note as full payment for the redemption price for each Newco preference share so redeemed.

14. At the end of the day on which the Newco preference shares are redeemed as described in paragraph 13 above, Newco will cause its first fiscal period to end. The purpose of Newco having its fiscal period end prior to the purchase for cancellation of the shares of Propertyco held by Newco is to avoid any potential circularity of the RDTOH calculation in the unforseen event that Propertyco were to have RDTOH at the end of its taxation year in which the purchase for cancellation takes place.

15. On the first business day following the end of Newco's first taxation year, Propertyco will purchase for cancellation its common shares held by Newco at their FMV. The purchase price will be paid by Propertyco issuing to Newco a non-interest bearing demand promi~sory note (the "Propertyco Note") with a principal amount and FMV equal to the FMV of the common shares held by Newco. Newco will accept the Propertyco Note as full payment of the purchase price for each Propertyco common share so purchased.

16. The Newco Note will be set off against the Propertyco Note in full satisfaction of the obligations thereunder.

17. Immediately following the completion of the proposed transactions described above, the net FMV of each type of property retained by Propertyco (determined in the manner described in paragraphs 9 and 10 above) will be equal to that proportion of the net FMV of all property of Propertyco of that type, determined immediately before the transfer desribed herein that:

a) the FMV of the Propertyco shares owned by Mr. X and Mr. Y, immediately before the transfer,

is of

b) the aggregate FMV of all of the issued and outstanding shares of Propertyco immediately before the transfer.

Additional Information

18. Other than as described herein no property has or will become property of Propertyco or Opco, and no liabilities have been or will be incurred by either such corporation, in contemplation of and before the proposed distribution of property by Propertyco to Newco.

19. No person has any right under a contract, in equity or otherwise, either imriediately or in the future and either contingently or absolutely,

a) to, or to acquire any shares of the capital stock of Propertyco, Opco or Newco or to control the voting rights of such shares,

b) to cause any such corporation to redeem, acquire or cancel any shares of its capital stock held by any other person,

c) to, or to acquire or control, voting rights in respect of any shares referred to in subparagraph (a) hereof, or

d) to cause a reduction in the voting rights in respect of any shares referred to in subparagraph (a) hereof.

20. Neither Propertyco nor Newco is, or will be at any time before the completion of the proposed transactions, a restricted financial institution or a specified financial institution.

21. There is not, and will not be at any time before the completion of the proposed transactions described herein, any guarantee agreement referred to in subsection 112(2.2) given by a specified financial institution, or by a specified person in relation to a specified financial institution within the meaning of that subsection, in respect of any share in the capital stock of Propertyco or Newco.

22. None of the shares of Propertyco or Newco has been or will be issued or acquired as part of a series of transactions of the type described in subsection 112(2.5).

23. Neither Propertyco nor Newco has, or will have, entered into a "dividend rental arrangement", as defined in subsection 248(1), in respect of any of the shares described herein.

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

25. Neither Propertyco nor Newco will have any RDTOH at the end of any taxation year that includes any of the proposed transactions,

26. At the time of the proposed transactions the common shares of Propertyco are not "taxable preferred shares" within the meaning assigned to that term in subsection 248(1).

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to separate the business of Opco from the business risks inherent in Propertyco's business and associated with its real property ownership.

Rulings Given

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

A. On the transfer of the common shares of Propertyo to Newco by Mr. X and Mr.Y respectively, as described in paragraphs 7 and 8 above, subsection 84.1(1) will apply, in respect of each transfer, to reduce the aggregate PUC, as otherwise determined, of the Newco common shares issued as consideration therefor, by the amount that the increase in the PUC, as otherwise determined, of the Newco common shares as a result of such transfer exceeds the greater of the PUC and the ACB, as determined under paragraphs 84.1(2)(a) and (a.1), of the such common shares of Propertyco so transferred.

B. The provisions of subsection 85(1) will apply to the transfer of the shares of Propertyco by each of Mr. X and Mr. Y to Newco, as described in paragraphs 7 and 8 above, with the result that the respective agreed amount in respect of the shares of Propertyco will be the proceeds of disposition of such shares property to Mr. X and Mr. Y, respectively, and the cost of such shares of Propertyco to Newco. For greater certainty, paragraph 85(1)(e.2) will not apply to such transfers.

C. The provisions of subsection 85(1) will apply to the transfer by Propertyco of the shares of Opco to Newco, as described in paragraphs 11 and 12 above, with the result that the agreed amount in respect of the shares of Opco will be the proceeds of disposition of such shares to Propertyco and the cost of such shares of Opco to Newco. For greater certainty, paragraph 85(1)(e.2) will not apply to such transfer.

D. The application of the provisions of subsection 85(2.1) will result in a reduction of the PUC of the preference shares of Newco issued to Propertyco as described in paragraphs 11 and 12 above to an aggregate amount equal to the cost to Newco of the Opco shares plus the aggregate of the FMV of any intercompany receivable owing by Opco and the FMV of any cash or near cash property which is transferred to Newco.

E. On the redemption by Newco of its preference shares held by Propertyco, as described in paragraph 13 above, Newco will be deemed by subsection 84(3) to have paid, and Propertyco will be deemed by that subsection to have received, a dividend equal to the amount by which the redemption price paid exceeds the PUC of those shares immediately before the redemption.

F. On the purchase for cancellation by Propertyco of its common shares held by Newco, as described in paragraph 14 above, Propertyco will be deemed by subsection 84(3) to have paid, and Newco will be deemed by that subsection to have received, a dividend equal to the amount by which the total purchase price paid for the shares exceeds the PUC in respect of those shares.

G. The taxable dividends referred to in Rulings E and F will be deductible under subsection 112(1) in computing the income of the recipient thereof and, for greater certainty, the deduction thereof will not be denied by any of subsections 112(2.1), (2.2) or (2.4).

H. No taxes under Part IV.1 will be payable by the recipient of any dividend referred to in Ruling E as such dividend will be an excepted dividend by virtue of paragraph (c) of the definition "excepted dividend" in section 187.1.

I. Provided that the specified amount referred to in paragraph 11 above in respect of the preference shares of Newco which are to be redeemed, as described in paragraph 13 above, is equal to the amount for which such shares were redeemed, no tax under Part VI.1 will be payable by the payer of the dividend referred to in Ruling E as such dividend will, pursuant to subsection 191(4), be an "excluded dividend" for purposes of section 191.1.

J. By virtue of subsections 186(2) and 186(4), Newco will be connected with Propertyco. Provided that the Newco is not entitled to a dividend refund (within the meaning of subsection 129(1)) in respect of its taxation year in which it is deemed to paythe dividend referred to in Ruling E above, Propertyco will not be subject to Part IV tax under subsection 186(1) in respect of such dividend.

K. By virtue of subsections 186(2) and 186(4), Propertyco will be connected with Newco. Provided that Propertyco is not entitled to a dividend refund (within the meaning of subsection 129(1)) in respect of its taxation year in which it is deemed to pay the dividend referred to in Ruling F above, Newco will not be subject to Part IV tax under subsection 186(1) in respect of such dividend.

L. The proposed transactions described herein will not, in and by themselves, cause the common shares of Propertyco to become "taxable preferred shares" within the meaning assigned in subsection 248(1).

M. 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); or

(c) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or (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 Rulings E and F above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

N. The extinguishment of the Newco Note held by Propertyco and the Propertyco Note held by Newco on the set-off and cancellation of such promissory notes as described in paragraph 16 above will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).

0. Subsections 15(1), 56(2) and 69(4) will not be applied as a result of the proposed transactions in and by themselves.

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

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

These 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 into law, could have an effect on the rulings provided herein.

Comments

Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed:

(a) the determination of the FMV or ACB of any property referred to herein, 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