1999 Ruling 9905033 - 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 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 reorganization

Position: routine

Reasons:

XXXXXXXXXX
XXXXXXXXXX							990503
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.

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

Non-Statutory Terms

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

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX;

(d) XXXXXXXXXX;

(e) XXXXXXXXXX;

(f) XXXXXXXXXX;

(g) XXXXXXXXXX;

(h) "management agreement" means an agreement pursuant to which one party to the agreement manages XXXXXXXXXX owned or leased by another party to the agreement;

(i) "Management Business" means the XXXXXXXXXX management business carried on by xxxxxxxxxx;

(j) "management services agreement" means an agreement pursuant to which one party to the agreement provides the services of employees and other services, facilities and assistance to another party to the agreement to enable that other party to perform its obligations under management agreements and other agreements to which it is a party;

(k) "Ownership Business" means the XXXXXXXXXX ownership business carried on by XXXXXXXXXX;

(l) "shared services agreement" means an agreement whereby two or more parties to an agreement agree to share services for xxxxxxxxxx;

(m) "Transferee1" has the meaning set out in paragraph 21 below; and

(n) "Transferee2" has the meaning set out in paragraph 22 below.

Statutory Terms

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

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

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

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

(c.1) "approximate that proportion" means a discrepancy from that portion, if any, that would not exceed XXXXXXXXXX% determined as a percentage of the fair market value of each type of property which Transferee1 and Transferee2 have received as compared to what they would have received if they had received their appropriate pro-rata share of the fair market value of that type of property;

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

(e) "depreciable property" has the meaning assigned by subsection 13(21);

(f) "eligible capital property" has the meaning assigned by section 54;

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

(h) XXXXXXXXXX;

(i) "PUC" means paid-up capital as that expression is defined in subsection 89(1);

(j) "prepaid expenses" means rights arising from prepaid expenses;

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

(l) "proceeds of disposition" has the meaning assigned by section 54;

(m) "public corporation" has he meaning assigned by subsection 89(1);

(n) "related persons" has the meaning assigned by section 251;

(o) "series of transactions or events" includes the meaning assigned by subsection 248(10);

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

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

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

(s) "stated capital" has the meaning assigned by section 26 of the CBCA or XXXXXXXXXX, as the case may be; and

(t) "taxable Canadian corporation" has the meaning assigned by subsection 89(1).

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

FACTS

1. XXXXXXXXXX is a corporation existing under the laws of Canada. It was formed on the amalgamation of XXXXXXXXXX.

2. XXXXXXXXXX is a corporation existing under the laws of Canada. It was incorporated on XXXXXXXXXX.

3. XXXXXXXXXX is a corporation existing under the laws of Canada. It was incorporated on XXXXXXXXXX

4. XXXXXXXXXX is a corporation existing under the laws of Ontario. It was formed on the amalgamation of XXXXXXXXXX.

5. Each of XXXXXXXXXX is a taxable Canadian corporation. None of such corporations is

(a) a public corporation or a private corporation,

(b) a specified financial institution, or

(c) a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).

Each of such corporations has a XXXXXXXXXX year-end.

XXXXXXXXXX

However, due to corporate acquisitions that might occur before the issuance of an advance income tax ruling, it is uncertain whether the companies in the XXXXXXXXXX group might be considered specified financial institutions at some relevant time in the carrying out of the proposed transactions.

6.

XXXXXXXXXX

XXXXXXXXXX has a XXXXXXXXXX year-end.

7. The issued share capital of XXXXXXXXXX is comprised of XXXXXXXXXX Common Shares. All of such shares are owned by XXXXXXXXXX. There are no other issued shares in the capital of XXXXXXXXXX. The ACB of the XXXXXXXXXX Common Shares to XXXXXXXXXX is estimated to be $XXXXXXXXXX.

8. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX, which is an indirect wholly-owned subsidiary of XXXXXXXXXX, a public corporation.

9. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX.

10. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX acquired the shares of XXXXXXXXXX in XXXXXXXXXX.

11. Each unit of XXXXXXXXXX represents an equal beneficial ownership interest of the holder thereof in XXXXXXXXXX. Each unit carries one vote at meetings of unitholders and a holder thereof is entitled to participate equally and rateably in distributions by XXXXXXXXXX.

XXXXXXXXXX owns XXXXXXXXXX units of XXXXXXXXXX, representing approximately XXXXXXXXXX % of the XXXXXXXXXX issued and outstanding units of XXXXXXXXXX,

In XXXXXXXXXX announced its intention to commence normal course purchases of units of XXXXXXXXXX through the facilities of XXXXXXXXXX. As at XXXXXXXXXX approximately XXXXXXXXXX units had been purchased by XXXXXXXXXX since the announcement. XXXXXXXXXX has announced that it expects to purchase a total of approximately XXXXXXXXXX units in this manner by XXXXXXXXXX.

XXXXXXXXXX accounts for its interest in XXXXXXXXXX on an equity basis of accounting.

12. XXXXXXXXXX

13. XXXXXXXXXX

14.

XXXXXXXXXX

15.

XXXXXXXXXX

16. In XXXXXXXXXX made the following acquisitions:

(a) XXXXXXXXXX

(b) As referred to in paragraph 10 above, in XXXXXXXXXX acquired all of the issued and outstanding shares of XXXXXXXXXX.Refer to paragraph 18 below for a description of XXXXXXXXXX business.

(c) XXXXXXXXXX

17.

XXXXXXXXXX

18.

XXXXXXXXXX

19.

XXXXXXXXXX

20.

XXXXXXXXXX

XXXXXXXXXX

PROPOSED TRANSACTIONS

21. A new corporation ("Transferee1") will be incorporated under the CBCA and will be a taxable Canadian corporation.

Transferee1's authorized capital will include an unlimited number of Transferee1 Common Shares and an unlimited number of Transferee1 Preferred Shares, issuable in series. The terms and Conditions of the Transferee1 Common Shares and Transferee1 Preferred Shares will be as follows:

(a) the Transferee1 Common Shares will be voting, entitled to dividends, if, as, and when declared by the board of directors of Transferee1, and fully participating; and

(b) the Transferee1 Preferred Shares will be:

(i) non-voting,

(ii) entitled to a cumulative annual dividend, in priority to the Transferee1 Common Shares, of an amount per share equal to a fixed percentage of the Redemption Price (defined below) of each share,

(iii) entitled to an amount, in priority to the Transferee1 Common Shares on a liquidation, dissolution or winding-up of Transferee1 of an amount per share equal to the Redemption Amount (defined below) of each share, and

(iv) redeemable, subject to applicable law, at any time at the option of either the holder of the share or Transferee1 for an amount per share (determined by formula) equal to the total of (i) an amount equal to the aggregate net fair market value of the consideration for which the Transferee1 Preferred Shares were first issued, divided by the number of Transferee1 Preferred Shares issued at the time of the first issuance of Transferee1 Preferred Shares (the "Redemption Price"), and (ii) the amount of accrued and unpaid dividends on each Transferee1 Preferred Share to the date fixed for redemption (the aggregate amount so determined is referred to as the "Redemption Amount").

No shares of Transferee1 will be issued prior to the transactions described in paragraph 27A below.

22. A new corporation ("Transferee2") will be incorporated under the CBCA and will be a taxable Canadian corporation.

Transferee2's authorized capital will include an unlimited number of Transferee2 Common Shares and an unlimited number of Transferee2 Preferred Shares, issuable in series. The terms and Conditions of the Transferee2 Common Shares and Transferee2 Preferred Shares will be as follows:

(a) the Transferee2 Common Shares will be voting, entitled to dividends, if, as, and when declared by the board of directors of Transferee2, and fully participating; and

(b) the Transferee2 Preferred Shares will be:

(i) non-voting,

(ii) entitled to a cumulative annual dividend, in priority to the Transferee2 Common Shares, of an amount per share equal to a fixed percentage of the Redemption Price (defined below) of each share,

(iii) entitled to an amount, in priority to the Transferee2 Common Shares, on a liquidation, dissolution or winding-up of Transferee2 of an amount per share equal to the Redemption Amount (defined below) of each share, and

(iv) redeemable, subject to applicable law, at any time at the option of either the holder of the share or Transferee2 for an amount per share (determined by formula) equal to the total of (i) an amount equal to the aggregate net fair market value of the consideration for which the Transferee2 Preferred Shares were first issued, divided by the number of Transferee2 Preferred Shares issued at the time of the first issuance of Transferee2 Preferred Shares (the "Redemption Price"), and (ii) the amount of accrued and unpaid dividends on each Transferee2 Preferred Share to the date fixed for redemption (the aggregate amount so determined is referred to as the “Redemption Amount").

No shares of Transferee2 will be issued prior to the transactions described in paragraph 27B below.

23. Articles of Amendment will be filed in respect of XXXXXXXXXX such that, in addition to the XXXXXXXXXX Common Shares and any other shares that may be authorized for issue, its share capital will include XXXXXXXXXX New Common Shares, XXXXXXXXXX Class A Preferred Shares and XXXXXXXXXX Class B Preferred Shares. The terms and conditions of the XXXXXXXXXX New Common XXXXXXXXXX Class A Preferred Shares and XXXXXXXXXX Class B Preferred Shares will be as follows:

(a) the XXXXXXXXXX New Common Shares will be voting (with two votes per share), entitled to dividends, if, as, and when declared by the board of directors of XXXXXXXXXX, and fully participating;

(b) the XXXXXXXXXX Class A Preferred Shares will be:

(i) non-voting,

(ii) entitled to a cumulative annual dividend, in priority to the XXXXXXXXXX Common Shares and XXXXXXXXXX New Common Shares, of an amount per share equal to a fixed percentage of the Redemption Price (defined below) of each share,

(iii) entitled to an amount, in priority to the XXXXXXXXXX Common Shares and XXXXXXXXXX New Common Shares, on a liquidation, dissolution or winding-up of XXXXXXXXXX of an amount per share equal to the Redemption Amount (defined below) of each share, and

(iv) redeemable, subject to applicable law, at any time at the option of either the holder of the share or XXXXXXXXXX for an amount per share (determined by formula) equal to the total of (4) an amount equal to that proportion of the fair market value of all of the issued and outstanding shares in the capital of XXXXXXXXXX (immediately before the transfer of property described in paragraph 30A below) that the net fair market value of the business property to be transferred by XXXXXXXXXX to Transferee1 as set out in paragraph 30A below (immediately before the transfer of property described in paragraph 30A below) is of the net fair market value of all of the business property of XXXXXXXXXX (immediately before the transfer of property described in paragraph 30A below), divided by the number of XXXXXXXXXX Class A Preferred Shares issued at the time of the first issuance of XXXXXXXXXX Class A Preferred Shares (the "Redemption Price"), and (ii) the amount of accrued and unpaid dividends on each XXXXXXXXXX Class A Preferred Share to the date fixed for redemption (the aggregate amount so determined is referred to as the "Redemption Amount"); and

(c) the XXXXXXXXXX Class B Preferred Shares will be:

(i) non-voting

(ii) entitled to a cumulative annual dividend, in priority to the XXXXXXXXXX Common Shares, XXXXXXXXXX New Common Shares and XXXXXXXXXX Class A Preferred Shares, of an amount per share equal to a fixed percentage of the Redemption Price (defined below) of each share

(iii) entitled to an amount, in priority to the
XXXXXXXXXX Common Shares, XXXXXXXXXX New Common Shares and XXXXXXXXXX Class A Preferred Shares, on a liquidation, dissolution or winding-up of XXXXXXXXXX of an amount per share equal to the Redemption Amount (defined below) of each share, and

(iv) redeemable, subject to applicable law, at any time at the option of either the holder of the share or XXXXXXXXXX for an amount per share (determined by formula) equal to the total of (i) an amount equal to that proportion of the fair market value of all of the issued and outstanding shares in the capital of XXXXXXXXXX (immediately before the transfer of property described in paragraph 30A below) that the net fair market value of the business property to be transferred by XXXXXXXXXX to Transferee2 as set out in paragraph 30B below (immediately before the transfer of property described in paragraph 30B below) is of the net fair market value of all of the business property of XXXXXXXXXX (immediately before the transfer of property described in paragraph 30B below), divided by the number of XXXXXXXXXX Class B Preferred Shares issued at the time of the first issuance of XXXXXXXXXX Class B Preferred Shares (the “Redemption Price"), and (ii) the amount of accrued and unpaid dividends on each XXXXXXXXXX Class B Preferred Share to the date fixed for redemption (the aggregate amount so determined is referred to as the "Redemption Amount")

24. The XXXXXXXXXX Management Services Agreement will be divided and restated as two management services agreements (the "XXXXXXXXXX Management Services Agreement 1" and the "XXXXXXXXXX Management Services Agreement 2")

XXXXXXXXXX

25. XXXXXXXXXX will transfer at fair market value the XXXXXXXXXX Management Services Agreement 2 to XXXXXXXXXX.

In consideration, XXXXXXXXXX will:

(a) assume XXXXXXXXXX obligations under the XXXXXXXXXX Management Services Agreement 2, and

(b) issue additional shares in its capital to XXXXXXXXXX.

XXXXXXXXXX and XXXXXXXXXX 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 transfer of the XXXXXXXXXX Management Services Agreement 2. The agreed amount in respect of such election will not be less than the greater of $10 and the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), and will not exceed the fair market value of the XXXXXXXXXX Management Services Agreement 2.

26 Each issued and outstanding XXXXXXXXXX Common Share will be exchanged for one XXXXXXXXXX New Common Share, one XXXXXXXXXX Class A Preferred Share and one XXXXXXXXXX Class B Preferred Share (the "Share Exchange").

No election under subsection 85(1) will be filed in respect of the Share Exchange.

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

27. XXXXXXXXXX will effect share transfers as follows:

27A.XXXXXXXXXX will transfer at fair market value all of its XXXXXXXXXX Class A Preferred Shares to Transferee1.

In consideration for the transfer, Transferee1 will issue XXXXXXXXXX Transferee1 Common Shares to XXXXXXXXXX No person other than XXXXXXXXXX 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 XXXXXXXXXX Class A Preferred Shares transferred to Transferee1.

XXXXXXXXXX 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 transfer of the XXXXXXXXXX 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) and (ii), and will not exceed the fair market value of the XXXXXXXXXX Class A Preferred Shares.

27B. XXXXXXXXXX will transfer at fair market value all of its XXXXXXXXXX Class B Preferred Shares to Transferee2.

In consideration for the transfer, Transferee2 will issue XXXXXXXXXX Transferee2 Common Shares to XXXXXXXXXX. No person other than XXXXXXXXXX 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 XXXXXXXXXX Class B Preferred Shares transferred to Transferee2. XXXXXXXXXX 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 transfer of the XXXXXXXXXX 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) and (ii), and will not exceed the fair market value of the XXXXXXXXXX Class B Preferred Shares.

28. Immediately before the transfers of property described in paragraph 30 below, for the purposes of the definition of "distribution” in subsection 55(1), the property of XXXXXXXXXX will be classified, using the consolidated look-through approach, into the following three types of property:

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

(b) business property, comprising all assets, 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 assets, 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, after applying the consolidated look-through approach, XXXXXXXXXX will not have any investment property immediately before the transfers of property described in paragraph 30 below,

For greater certainty, for purposes of the types of property classification, XXXXXXXXXX cash on hand in an amount of approximately $XXXXXXXXXX as described in paragraph 20 above will be treated as a business property of XXXXXXXXXX.

For purposes of the types of property classification, a corporation that is a member of a partnership will be considered to own its respective partnership share of each property owned by the partnership.

For purposes of the types of property classification, a particular corporation will be considered to have significant influence over another corporation if it has significant influence over that other corporation or over any other corporation that has significant influence over that other corporation. For greater certainty, a particular corporation will be considered to have significant influence over another corporation with which it is related where the particular corporation has a material shareholding in that other corporation or material indebtedness receivable from that other corporation.

Subject to the limitation set out in the following sentence, for purposes of the types of property classification, the look-through approach will be applied in respect of (a) any shares held by a particular corporation in any other corporation over which the particular corporation has the ability to exercise significant influence, (b) any indebtedness receivable by a particular corporation from any other corporation over which the particular corporation has the ability to exercise significant influence,(c) XXXXXXXXXX interest in XXXXXXXXXX, and (d) XXXXXXXXXX shares of XXXXXXXXXX. For purposes of the discussion that follows, a corporation the shares of which or receivable from which are looked-through for classifying the types of property of a particular corporation will be referred to, in relation to that corporation, as a "Look-Through Corporation".

For purposes of the types of property classification, XXXXXXXXXX will be considered to be a person that is a corporation having one class of issued shares having full voting rights under all circumstances, each holder of a unit of XXXXXXXXXX will be considered to own the proportion of the number of issued shares of the capital stock of the corporation that the fair market value of the holder's units of XXXXXXXXXX is of the fair market value of all of the units of XXXXXXXXXX, and XXXXXXXXXX property will be considered to be owned by the corporation.

For greater certainty, the fair market value of the shares held by a particular corporation in a Look-Through Corporation and of any indebtedness receivable by a particular corporation from a Look-Through Corporation will be allocated between the three types of property described above by multiplying the fair market value of the shares of or amount receivable from the Look-Through Corporation, as the case may be, by the proportion that the net fair market value of each type of property of the Look-Through Corporation (as determined in this paragraph and paragraph 29 below) is of the aggregate net fair market value of all property of the Look-Through Corporation. For this purpose, the types of property classification will begin at the lowest tier Look-Through Corporation.

29. In determining, on a consolidated basis, the net fair market value of each type of property of XXXXXXXXXX immediately before the transfers of property described in paragraph 30 below, the liabilities of a particular corporation 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, on a consolidated basis, the net fair market value of each type of property of a particular corporation (other than XXXXXXXXXX) immediately before the transfers of property described in paragraph 30 below, the principal amount of the liabilities of the particular corporation (other than liabilities of a Look-Through Corporation which are looked-through for purposes of the types of property classification as set out in paragraph 28 above) 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 the particular corporation will be allocated to the cash or near-cash property (including any cash, accounts receivable, inventory and prepaid expenses) of the particular corporation in the proportion that the fair market value of each such property is of the fair market value of all the cash or near-cash property of 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, the particular 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 the particular corporation 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 of the particular corporation 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 the business property of the particular corporation and will not be included in the net fair market value of the cash or near-cash property of the particular corporation.

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

(b) In determining, on a consolidated basis, the net fair market value of each type of property of XXXXXXXXXX immediately before the transfers of property described in paragraph 30 below, the principal amount of the liabilities of XXXXXXXXXX will be allocated to, and be deducted in the calculation of, the net fair market value of each type of property of XXXXXXXXXX in the following manner:

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

(ii) Any accounts receivable, inventory and prepaid expenses of XXXXXXXXXX that are initially classified in accordance with (i) above as cash or near-cash property, that relate to a business carried on by XXXXXXXXXX and that will be collected, sold or consumed by XXXXXXXXXX or Transferee1 in the ordinary course of that business, will then be classified as business pr6perty of XXXXXXXXXX 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 the business property of XXXXXXXXXX and will not be included in the net fair market value of the cash or near-cash property of XXXXXXXXXX.

(iii) Liabilities of XXXXXXXXXX, 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 the property's 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 (i),(ii) and (iii) above are made ("excess unallocated liabilities"), such excess unallocated liabilities will then be allocated to the cash or near-cash property, if any, business property and investment property, if any, of XXXXXXXXXX, 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, the amount of any deferred income taxes of a particular corporation will not be considered a liability for purposes of the types of property classification because such amount does not represent a legal obligation of the particular corporation.

For purposes of the types of property classification, the liabilities of a particular corporation that is a member of a partnership will be considered to include its respective partnership share of any liabilities of the partnership.

30. XXXXXXXXXX will effect transfers of property as follows:

30A. XXXXXXXXXX will transfer at fair market value to Transferee1:

(a) all of its business property relating to the Management Business,

(b) certain cash or near-cash property, if any, and

(c) certain investment property, if any.

For greater certainty, the property transferred by XXXXXXXXXX to Transferee1 will include the XXXXXXXXXX Management Services Agreement 1, the XXXXXXXXXX Shared Services Agreement and the management agreements relating to the XXXXXXXXXX. The property transferred by XXXXXXXXXX to Transferee1 will not include any rights of management in respect of XXXXXXXXXX.

Transferee1 will also assume XXXXXXXXXX obligations under the XXXXXXXXXX Management Services Agreement, the XXXXXXXXXX Shared Services Agreement and the management agreements relating to the XXXXXXXXXX.

In consideration for the transfer:

(d) as to an amount equal to the principal amount of the liabilities, Trapsferee1 will assume liabilities of XXXXXXXXXX, and

(e) as to an amount equal to the amount, if any, by which (i) the aggregate fair market value of the property transferred to Transferee1, exceeds (ii) the amount set out in (d) above, Transferee1 will issue XXXXXXXXXX Transferee1 Preferred Shares to XXXXXXXXXX.

In no event will the principal amount of the liabilities of XXXXXXXXXX assumed by Transferee1 exceed the aggregate of amounts each of which is an amount determined in respect of a particular property transferred to Transferee1 equal to, in the case of a property in respect of which an election under subsection 85(1) is made, the agreed amount in respect of such property, and, in the case of a property in respect of which no election under subsection 85(1) is made, the fair market value of the property.

The net fair market value of the cash or near-cash property, if any, the busines5 property and the investment property, if any, of XXXXXXXXXX transferred to Transferee1 will be determined using the same methodology as that set out in paragraphs 28 and 29 above (except that in that exercise references therein to XXXXXXXXXX will be read as references to Transferee1)

Immediately after the transfer, the net fair market value of the cash or near-cash property, if any, the business property and the investment property, if any, of XXXXXXXXXX transferred to Transferee1 as described herein, will approximate that proportion of the net fair market value of all of that type of property of XXXXXXXXXX, determined immediately before the transfer referred to herein, that:

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

is of

(g) the aggregate fair market value of all of the issued and outstanding shares of XXXXXXXXXX, immediately before the transfer.

The aggregate net fair market value of all property of XXXXXXXXXX transferred to Transferee1 as described herein will be equal to the proportion determined by (f) and (g) above of the aggregate net fair market value of all property of XXXXXXXXXX immediately before the transfer.

XXXXXXXXXX and Transferee1 will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer to Transferee1 of any eligible property. The agreed amount in each joint election will not be less than the greater of $XXXXXXXXXX and:

(h) in the case of eligible capital property, the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii),

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

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

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)

The amount to be added to the stated capital of Transferee1 in respect of the issuance of the Transferee1 Preferred Shares will equal the amount by which (i) the aggregate cost of the property transferred to Transferee1 (determined pursuant to subsection 85(1), where relevant), exceeds (ii) the aggregate principal amount of the liabilities of XXXXXXXXXX assumed by Transferee1.

30B. XXXXXXXXXX will transfer at fair market value to

Transferee2:

(a) all of its shares of XXXXXXXXXX,

(b) all of its interest in XXXXXXXXXX,

(c) certain cash or near-cash property, it any, and

(d) certain investment property, if any.

In consideration for the transfer:

(e) as to an amount equal to the principal amount of the liabilities, Transferee2 will assume liabilities of XXXXXXXXXX, and

(f) as to an amount equal to the amount, if any, by which (i) the aggregate fair market value of the property transferred to Transferee2, exceeds (ii) the amount set out in (e) above, Transferee2 will issue XXXXXXXXXX Transferee2 Preferred Shares to XXXXXXXXXX,

In no event will the principal amount of the liabilities of XXXXXXXXXX assumed by Transferee2 exceed the aggregate of amounts each of which is an amount determined in respect of a particular property transferred to Transferee2 equal to, in the case of a property in respect of which an election under subsection 85(1) is made, the agreed amount in respect of such property, and, in the case of a property in respect of which no election under subsection 85(1) is made, the fair market value of the property.

The net fair market value of the cash or near-cash property, if any, the business property and the investment property, if any, of XXXXXXXXXX transferred to Transferee2 will be determined using the same methodology as that set out in paragraphs 28 and 29 above (except that in that exercise references therein to XXXXXXXXXX will be read as references to Transferee2)

Immediately after the transfer, the net fair market value of the cash or near-cash property, if any, the business property and the investment property, if any, of XXXXXXXXXX transferred to Transferee2 as described herein, Will approximate that proportion of the net fair market value of all of that type of property of XXXXXXXXXX, determined immediately before the transfer referred to herein, that:

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

is of

(h) the aggregate fair market value of all of the issued and outstanding shares of XXXXXXXXXX, immediately before the transfer.

The aggregate net fair market value of all property of XXXXXXXXXX transferred to Transferee2 as described herein will be equal to the proportion determined by (g) and (h) above of the aggregate net fair market value of all property of XXXXXXXXXX immediately before the transfer. XXXXXXXXXX and Transferee2 will jointly elect pursuant to subsection 85(1), in prescribed form and within the time referred to in subsection 85(6), with respect to the transfer to Transferee2 of any eligible property. The agreed amount in each joint election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii). 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)

The amount to be added to the stated capital of Transferee2 in respect of the issuance of the Transferee2 Preferred Shares will equal the amount by which (i) the aggregate cost of the property transferred to Transferee2 (determined pursuant to subsection 85(1), where relevant), exceeds (ii) the aggregate principal amount of the liabilities of XXXXXXXXXX assumed by Transferee2.

31. Share redemptions will take place as follows:

31A Transferee1 will redeem from XXXXXXXXXX all of the Transferee1 Preferred Shares for an amount equal to their fair market value. In consideration therefor, Transferee1 will issue to XXXXXXXXXX a non-interest- bearing demand promissory note with a principal amount equal to the aggregate Redemption Amount of the Transferee1 Preferred Shares (the “Transferee1 Redemption Note"). XXXXXXXXXX will accept the Transferee1 Redemption Note as full payment of the aggregate Redemption Amount of the Transferee1 Preferred Shares with the risk of the note being dishonoured.

XXXXXXXXXX will redeem from Transferee1 all of the XXXXXXXXXX Class A Preferred Shares for an amount equal to their fair market value. In consideration therefor, XXXXXXXXXX will issue to Transferee1 a non-interest- bearing demand promissory note with a principal amount equal to the aggregate Redemption Amount of the XXXXXXXXXX Class A Preferred Shares (the "XXXXXXXXXX Redemption Note 1"). Transferee1 will accept the XXXXXXXXXX Redemption Note 1 as full payment of the aggregate Redemption Amount of the XXXXXXXXXX Class A Preferred Shares with the risk of the note being dishonoured.

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

31B Transferee2 will redeem from XXXXXXXXXX all of the Transferee2 Preferred Shares for an amount equal to their fair market value. In consideration therefor, Transferee2 will issue to XXXXXXXXXX a non-interest-bearing demand promissory note with a principal amount equal to the aggregate Redemption Amount of the Transferee2 Preferred Shares (the “Transferee2 Redemption Note"). XXXXXXXXXX will accept the Transferee2 Redemption Note as full payment of the aggregate Redemption Amount of the Transferee2 Preferred Shares with the risk of the note being dishonoured.

XXXXXXXXXX will redeem from Transferee2 all of the XXXXXXXXXX Class B Preferred Shares for an amount equal to their fair market value. In consideration therefor, XXXXXXXXXX will issue to Transferee2 a non-interest-bearing demand promissory note with a principal amount equal to the aggregate Redemption Amount of the XXXXXXXXXX Class B Preferred Shares (the “XXXXXXXXXX Redemption Note 2"). Transferee2 will accept the XXXXXXXXXX Redemption Note 2 as full payment of the aggregate Redemption Amount of the XXXXXXXXXX Class B Preferred Shares with the risk of the note being dishonoured,

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

32. Transferee1 and XXXXXXXXXX will enter into one or more management agreements pursuant to which Transferee1 will manage XXXXXXXXXX.

33. XXXXXXXXXX and XXXXXXXXXX will enter into:

(a) one or more management agreements pursuant to which XXXXXXXXXX will manage the XXXXXXXXXX, and

(b) a management services agreement pursuant to which XXXXXXXXXX will provide the services of employees and other services, facilities and assistance to XXXXXXXXXX to allow XXXXXXXXXX to carry out its obligations under the management agreement relating to the XXXXXXXXXX.

34. Transferee2 will be wound-up into its parent, XXXXXXXXXX. As a result of the wind-up, the assets and liabilities of Transferee2 will become assets and liabilities of XXXXXXXXXX.

35. Upon completion of the foregoing transactions, each of XXXXXXXXXX will operate as separate entities.

ADDITIONAL INFORMATION

36. The transactions described in paragraphs 21 through 35 will occur as follows:

(a) the transactions referred to in paragraphs 26 and 27 and 30 and 31 above will occur on the same day in the order in which they are set out above;

(b) the transactions set out in paragraphs 27A and 27B will occur at the same time; the transactions set out in paragraphs 30A and 30B will occur at the same time; the transactions set out in paragraphs 3lA and 31B will occur at the same time;

(c) the transactions referred to in paragraphs 21 through 25 above will occur in any order on one or more days before the transactions referred to in (a) above (other than the transactions referred to in paragraphs 24 and 25 above which will occur in the order in which they are set out above) ; and

(d) the transactions referred to in paragraphs 33 through 35 above will occur in the order in which they are set out above on one or more days after the transactions referred to in (a) above.

37. No property has or will become property of XXXXXXXXXX or any corporation controlled by XXXXXXXXXX or a predecessor corporation of XXXXXXXXXX, and no liabilities (other than those incurred in relation to fees and expenses of the proposed transactions) have been or will be incurred by XXXXXXXXXX or any corporation controlled by XXXXXXXXXX or a predecessor corporation of XXXXXXXXXX, in contemplation of and before the transfers of property described in paragraph 30 above, except in the ordinary course of business, or as described herein.

38. 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 XXXXXXXXXX, Transferee1 or Transferee2.

39. None of XXXXXXXXXX, 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.

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

41. Neither Transferee1 nor Transferee2 will be a specified financial institution or a corporation described in any of paragraphs (a) to (f) of the definition of "financial intermediary corporation" in subsection 191(1).

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

43.XXXXXXXXXX is contemplating a transaction (the “joint Venture Transaction") relating to the Management Business with certain arm’s length U.S. residents.

XXXXXXXXXX

44.

XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

45. The principal purposes of the proposed transactions are as follows:

(a) to simplify the corporate structure of the XXXXXXXXXX group including, in particular, XXXXXXXXXX, for management, operations, administration and reporting purposes;

(b) to make the corporate structure of the XXXXXXXXXX group including, in particular, XXXXXXXXXX, more transparent and thereby better understood and easier to analyze for investors, rating agencies and financial institutions and other creditors;

(c) to segregate and focus management of the separate businesses of XXXXXXXXXX and to permit a more direct relationship between the regular and incentive compensation of management with the related separate business;

(d) to permit the separate businesses to access capital and debt markets on a separate basis as stand-alone entities; and

(e) to facilitate mergers, acquisitions and other corporate transactions by the separate businesses including, in particular, the Joint Venture Transaction described in paragraph 43.

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, we rule as follows:

A. Provided that XXXXXXXXXX holds the XXXXXXXXXX Common Shares as capital property, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the Share Exchange described in paragraph 26 above, such that:

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

(a) the fair market value, immediately after the Share Exchange, of the XXXXXXXXXX New Common Shares, XXXXXXXXXX Class A Preferred Shares or XXXXXXXXXX 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 XXXXXXXXXX received by XXXXXXXXXX for the XXXXXXXXXX Common Shares; and

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

B. No dividend will be deemed to arise pursuant to subsection 84(1) or (3) with respect to the Share Exchange.

C. Subject to the application of subsection 69(11) and of paragraph 88(2.2)(b), which applies for the purpose stated in the preamble to subsection 88(2.2), the provisions of subsection 85(1) will apply to:

(a) the transfer by XXXXXXXXXX to XXXXXXXXXX, as described in paragraph 25 above, of the XXXXXXXXXX Management Services Agreement 2;

(b) the transfer by XXXXXXXXXX to Transferee1 as described in paragraph 27A above, of the XXXXXXXXXX Class A Preferred Shares;

(c) the transfer by XXXXXXXXXX to Transferee2, as described in paragraph 27B above, of the XXXXXXXXXX Class B Preferred Shares;

(d) the transfer by XXXXXXXXXX to Transferee1, as described in paragraph 30A above, of each eligible property which is the subject of the election described in paragraph 30A above; and

(e) the transfer by XXXXXXXXXX to Transferee2, as described in paragraph 30B above, of each eligible property which is the subject of the election described in paragraph 30B 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 the Management Business, 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) will be read to mean the proportion of the undepreciated capital cost to XXXXXXXXXX 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.

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

(a) of the Transferee1 Preferred Shares held by XXXXXXXXXX, as described in paragraph 31A, to deem Transferee1 to have paid and XXXXXXXXXX to have received;

(b) of the XXXXXXXXXX Class A Preferred Shares held by Transferee1, as described in paragraph 31A, to deem XXXXXXXXXX to have paid and Transferee1 to have received;

(c) of the Transferee2 Preferred Shares held by XXXXXXXXXX, as described in paragraph 31B, to deem Transferee2 to have paid and XXXXXXXXXX to have received;

(d) of the XXXXXXXXXX Class B Preferred Shares held by Transferee2, as described in paragraph 31B, to deem XXXXXXXXXX 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 result in a deduction 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 in an amount equal to the amount of such dividend, 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) will not be subject to tax under Parts VI. 1 and IV. 1 because they will be "excluded dividends" as defined in subsection 191(1) and "excepted dividends" as defined in section 187.1,

E. The repayment of the Transferee1 Redemption Note and Transferee2 Redemption Note held by XXXXXXXXXX and the XXXXXXXXXX Redemption Note 1 held by Transferee1 and the XXXXXXXXXX Redemption Note 2 held by Transferee2 as described in paragraph 31 will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1). None of XXXXXXXXXX, 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 XXXXXXXXXX Redemption Note 1 and the XXXXXXXXXX Redemption Note 2, as described in paragraph 31 above.

F. 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 shares in the circumstances described in subparagraph 55(3.1)(b)(iii);

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

G. The provisions of subsection 88(1) will apply to the winding-up of Transferee2 into XXXXXXXXXX described in paragraph 34 above such that:

(a) Transferee2 will be deemed pursuant to paragraph 88(1)(a) to have disposed of its XXXXXXXXXX shares and its interest in XXXXXXXXXX for an amount equal to the cost amount to Transferee2 of such shares or interest immediately before the winding-up;

(b) XXXXXXXXXX will be deemed pursuant to paragraph 88(1)(b) to have disposed of its Transferee2 Common Shares for proceeds of disposition equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii); and

(c) XXXXXXXXXX will be deemed by paragraph 88(1)(c) to have acquired the XXXXXXXXXX shares and the interest in XXXXXXXXXX distributed to it on the winding-up for an amount equal to the proceeds of disposition to Transferee2 of each property

H. 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 21 to 35 above, in and of themselves.

I. The provisions of subsection 112(3) will apply to reduce any loss which otherwise would be determined for Transferee1, Transferee2 and XXXXXXXXXX as a result of the redemption of shares described above

J. Section 245 will not be applied as a result of the proposed transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996, and are binding provided that the proposed transactions are completed before 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 these rulings should be construed as implying that Revenue Canada has reviewed, accepted or otherwise agreed to:

(a) the determination of the ACB, the fair market value, 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