17 October 2012 Ruling 2010-0376681R3 - Internal reorganization - 55(3)(a)

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.

Principal Issues: Internal reorganization.

Position: Favourable rulings issued.

Reasons: In compliance with the law and previous positions.

XXXXXXXXXX

XXXXXXXXXX
2010-037668

XXXXXXXXXX , 2011

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge the information provided in correspondence and telephone conversations concerning your request. The information contained in documents submitted with your request forms part of this ruling only to the extent it is expressly referred to or described herein.

To the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in this ruling is:

(i) dealt with in an earlier return of the above-referenced taxpayer, or a related person,

(ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the above-referenced taxpayer or a related person,

(iii) under objection or appeal by the above-referenced taxpayer, or a related person,

(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

Further, the above-referenced taxpayer has advised that the Proposed Transactions described herein will not result in the taxpayer or any related person herein being unable to pay its outstanding tax liabilities.

Unless otherwise expressly stated, every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter (the “Act”), and the Income Tax Regulations thereunder are referred to as the “Regulations”.

DEFINITIONS

In this letter, unless otherwise specified, all monetary amounts are expressed in Canadian dollars and the following terms have the meanings specified:

“adjusted cost base” (also referred to as “ACB”) has the meaning assigned by section 54;

“Amalco” means the corporation formed on the amalgamation of Opco and Holdco as described in Paragraph 54;

“BCA” means the Canadian Business Corporations Act, R.C.S. 1985, c. C-44, as amended to the date hereof;

“Canadian-controlled private corporation” (also referred to as “CCPC”) has the meaning assigned by subsection 125(7);

“capital dividend account” (also referred to as “CDA”) has the meaning assigned in subsection 89(1);

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

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

“CRA” means the Canada Revenue Agency;

“dividend refund” has the meaning assigned by subsection 129(1);

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

“fair market value” (also referred to as “FMV”) means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm’s length and under no compulsion to act and contracting for a taxable purchase and sale, expressed in terms of cash;

“forgiven amount” has the meaning assigned by subsection 80(1);

“FoundationA” refers to XXXXXXXXXX , and a corporation constituted by virtue of Part III of the Québec Companies Act on XXXXXXXXXX ;

“FusionCoA” refers to XXXXXXXXXX created on the amalgamation of XXXXXXXXXX ;

“Holdco” refers to XXXXXXXXXX ;

“indebtedness” has the meaning assigned by subsection 80.01(3);

“Mr. A” refers to XXXXXXXXXX ;

“Mrs. A” refers to XXXXXXXXXX ;

“Mr. B1” refers to XXXXXXXXXX ;

“Mr. B2” refers to XXXXXXXXXX ;

“Mrs. B3” refers to XXXXXXXXXX .

“Newco” means any one of Newco1, Newco2, and Newco3, and “Newcos” means all of them, collectively;

“Newco1” has the meaning assigned in Paragraph 35;

“Newco1 Class A Shares” has the meaning assigned in Paragraph 37;

“Newco1 Class B Shares” has the meaning assigned in Paragraph 37;

“Newco1 Class C Shares” has the meaning assigned in Paragraph 48;

“Newco1 Class D Shares” has the meaning assigned in Paragraph 49;

“Newco1 Class E Shares” has the meaning assigned in Paragraph 49;

“Newco1 Class F Shares” has the meaning assigned in Paragraph 55;

“Newco2” has the meaning assigned in Paragraph 38;

“Newco2 Class A Shares” has the meaning assigned in Paragraph 40;

“Newco2 Class B Shares” has the meaning assigned in Paragraph 40;

“Newco2 Class C Shares” has the meaning assigned in Paragraph 48;

“Newco2 Class D Shares” has the meaning assigned in Paragraph 50;

“Newco2 Class E Shares” has the meaning assigned in Paragraph 50;

“Newco2 Class F Shares” has the meaning assigned in Paragraph 56;

“Newco3” has the meaning assigned in Paragraph 41;

“Newco3 Class A Shares” has the meaning assigned in Paragraph 43;

“Newco3 Class B Shares” has the meaning assigned in Paragraph 43;

“Newco3 Class C Shares” has the meaning assigned in Paragraph 48;

“Newco3 Class D Shares” has the meaning assigned in Paragraph 51;

“Newco3 Class E Shares” has the meaning assigned in Paragraph 51;

“Newco3 Class F Shares” has the meaning assigned in Paragraph 57;

“Note1” has the meaning assigned in Paragraph 49;

“Note2” has the meaning assigned in Paragraph 49;

“Note3” has the meaning assigned in Paragraph 50;

“Note4” has the meaning assigned in Paragraph 50;

“Note5” has the meaning assigned in Paragraph 51;

“Note6” has the meaning assigned in Paragraph 51;

“Note7” has the meaning assigned in Paragraph 55;

“Note8” has the meaning assigned in Paragraph 56;

“Note9” has the meaning assigned in Paragraph 57;

“Note10” has the meaning assigned in Paragraph 58;

“Note11” has the meaning assigned in Paragraph 59;

“Note 12” has the meaning assigned in Paragraph 60;

“Note13” has the meaning assigned in Paragraph 61;

“Note14” has the meaning assigned in Paragraph 62;

“Note15” has the meaning assigned in Paragraph 63;

“Opco” refers to XXXXXXXXXX , the corporation created on the amalgamation of FusionCoA and XXXXXXXXXX , further described in Paragraph 3;

“Opco Class XXXXXXXXXX Shares” has the meaning assigned in Paragraph 53;

“paid-up capital” (also referred to as “PUC”) has the meaning assigned by subsection 89(1);

“Paragraph” means a numbered paragraph in this letter;

“personal trust” has the meaning assigned by subsection 248(1);

“predecessor corporation” has the meaning assigned in Paragraph 54;

“Proposed Transactions” means the proposed transactions described in Paragraphs 35 to 66;

“PXXXXXXXXXX 1” refers to XXXXXXXXXX , a XXXXXXXXXX corporation XXXXXXXXXX ;

“PXXXXXXXXXX 2” refers to XXXXXXXXXX , a XXXXXXXXXX corporation XXXXXXXXXX ;

“refundable dividend tax on hand” (also referred to as “RDTOH”) has the meaning assigned in subsection 129(3);

“related person” means, in relation to a particular person, another person which is related to the particular person by virtue of subsection 251(2), as modified for the purposes of section 55 by paragraph 55(5)(e);

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

“RV” means redemption value;

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

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

“taxable Canadian corporation” (also referred to as “TCC”) has the meaning assigned by subsection 89(1);

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

“Trust” refers to XXXXXXXXXX as described in Paragraph 32; and

“XCo” refers to XXXXXXXXXX , the corporation created on the amalgamation of XXXXXXXXXX , further described in Paragraphs 27 and 28.

FACTS

1. Mr. A is married to Mrs. A. Mr. A and Mrs. A are Canadian residents.

2. Mr. B1, Mr. B2, and Mrs. B3 are siblings and the adult children of Mr. A and Mrs. A. Mr. B1, Mr. B2 and Mrs. B3 are Canadian residents.

Opco

3. Opco is a TCC and a CCPC and was incorporated under the BCA. Its year-end is XXXXXXXXXX . Opco XXXXXXXXXX. Opco files its income tax returns with the XXXXXXXXXX Tax Centre and its income tax affairs are administered by the XXXXXXXXXX Tax Services Office.

4. The issued shares of the capital stock of Opco are held as follows:

Shareholder Number and Class RV/FMV ACB PUC

Trust XXXXX class XXX XXXXXXX (footnote 1) XXXXX XXXX
XCo XXXXX class XXX XXXXXXX
XCo XXXXX class XXX XXXXXXX
Mr. A XXXXX class XXX XXXXXXX
Trust XXXXX class XXX XXXXXXX XXXXX XXXX
XCo XXXXX class XXX XXXXXXX
XCo XXXXX class XXX XXXXXXX
Mr. A XXXXX class XXX XXXXXXX

5. The shareholders of Opco hold their shares as capital property.

6. Opco’s class A shares are common non-voting shares. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class A shares rank after all other classes of shares.

7. Opco’s class B shares are preferred, non-voting, entitling their holder to a non-cumulative dividend not exceeding XXXXXXXXXX % of their RV, redeemable at the request of their holder or of Opco at an amount corresponding to the FMV of the consideration received for their issue, plus the amount of any declared and unpaid dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class B shares rank before the class F, G, and A shares, and pari passu with the class C, D, and E shares.

8. Opco’s class C shares are preferred, non-voting, entitling their holder to a non-cumulative dividend not exceeding XXXXXXXXXX % of their RV, redeemable at the request of their holder or of Opco at an amount corresponding to the FMV of the consideration received for their issue, plus the amount of any declared and unpaid dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class C shares rank before the class F, G, and A shares, and pari passu with the class B, D, and E shares

9. Opco’s class D shares are preferred, non-voting, entitling their holder to a non-cumulative dividend not exceeding XXXXXXXXXX % of their RV, redeemable at the request of their holder or of Opco at an amount corresponding to the FMV of the consideration received for their issue, plus the amount of any declared and unpaid dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class D shares rank before the class F, G, and A shares, and pari passu with the class B, C, and E shares.

10. Opco’s class E shares are preferred, non-voting, entitling their holder to a non-cumulative dividend not exceeding XXXXXXXXXX % of their RV, redeemable at the request of their holder or of Opco at an amount corresponding to the FMV of the consideration received for their issue, plus the amount of any declared and unpaid dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class E shares rank before the class F, G, and A shares, and pari passu with the class B, C, and D shares.

11. Opco’s class F shares are preferred, non-voting, entitling their holder to a non-cumulative dividend not exceeding XXXXXXXXXX % of their RV, redeemable at the request of Opco at an amount corresponding to their stated capital, plus the amount of any declared and unpaid dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class F shares rank before the class G and A shares, and after the class B, C, D, and E shares.

12. Opco’s class G shares are preferred, voting, not entitling their holder to any dividends. Upon a wind-up, dissolution or any other distribution of assets by the corporation, the class G shares rank before the class A shares, and after the class B, C, D, E, and F shares.

13. De facto and de jure control of Opco is held by Mr. A through the ownership of the Class XXXXXXXXXX shares. Mr. A has held Opco’s class XXXXXXXXXX shares since XXXXXXXXXX .

14. Opco holds, amongst other investments, XXXXXXXXXX common shares of the capital stock of PXXXXXXXXXX 1 with an ACB of $XXXXXXXXXX and XXXXXXXXXX common shares of the capital stock of PXXXXXXXXXX 2 with an ACB of $XXXXXXXXXX .

15. There is no shareholders agreement between Opco’s shareholders.

16. The amount of available capital losses of Opco as at XXXXXXXXXX is $XXXXXXXXXX . The amount of available non-capital losses of Opco as at XXXXXXXXXX is $XXXXXXXXXX . The amount of Opco’s charitable donations carried forward as at XXXXXXXXXX is $XXXXXXXXXX .

17. The RDTOH of Opco as at XXXXXXXXXX was $XXXXXXXXXX . The dividend refund for its XXXXXXXXXX year-end was $XXXXXXXXXX .

Holdco

18. Holdco was incorporated under the BCA on XXXXXXXXXX . Holdco XXXXXXXXXX. Holdco is a TCC and a CCPC. Holdco’s year-end is XXXXXXXXXX . Holdco deals with the XXXXXXXXXX Tax Services Office and files its corporate tax returns at the XXXXXXXXXX Tax Centre.

19. Except for the class XXXXXXXXXX shares held by Mr. A, all the issued shares of the capital stock of Holdco are held by Opco.

20. The shareholders of Holdco hold their shares as capital property.

21. Holdco’s class XXXXXXXXXX shares are preferred voting shares. Mr. A controls Holdco through the ownership of the class XXXXXXXXXX shares.

22. The other classes of shares of Holdco are non-voting.

23. The issued shares of the capital stock of Holdco, their holders as well as their tax characteristics are the following:

Shareholder Number and class RV/FMV ACB PUC

Opco XXXX class XXX N/D (footnote 2) XXXXXX XXXXXXX
Opco XXXX class XXX XXXXXXX XXXXXX XXXXXXX
Opco XXXX class XXX XXXXXXX XXXXXX XXXXXXX
Mr. A XXXX class XXX XXXXXXX XXXXXX XXXXXXX

24. Holdco holds, amongst other investments, XXXXXXXXXX common shares of PXXXXXXXXXX 1 with an ACB of $XXXXXXXXXX .

25. There is no shareholders agreement between Holdco’s shareholders.

26. The amount of Holdco’s non capital losses as at XXXXXXXXXX was $XXXXXXXXXX .

XCo

27. XCo is a TCC and a CCPC. The year-end of XCo is XXXXXXXXXX . XCo deals with the XXXXXXXXXX Tax Services Office and files its corporate tax returns at the XXXXXXXXXX Tax Centre.

28. XCo XXXXXXXXXX. The assets of XCo consist mainly of preferred shares of Opco.

29. XCo’s class XXXXXXXXXX shares are preferred voting shares. The other classes of shares issued are non-voting. All class XXXXXXXXXX shares of the capital stock of XCo are held by Mr. A. and give him control over XCo.

30. The shareholders of XCo hold their shares as capital property.

31. There is no shareholders agreement between XCo’s shareholders.

Trust

32. Trust is a personal trust. It was created on XXXXXXXXXX . It has been constituted for the benefit of Mr. A and Mrs. A’s born children, for the benefit of FoundationA XXXXXXXXXX . Mr. A and Mrs. A’s born children means Mr. A and Mrs. A’s children of first degree as well as the children of first degree of such children. The Trust deals with the XXXXXXXXXX Tax Services Office and files its tax returns at the XXXXXXXXXX Tax Centre.

33. Mr. A is Trust’s sole trustee.

34. Mr. B1, Mr. B2 and Mrs. B3 are beneficiaries of Trust.

PROPOSED TRANSACTIONS

35. Mr. A will incorporate a new corporation under the BCA (hereafter “Newco1”). Newco1 will be a TCC and a CCPC.

36. The authorized capital stock of Newco1 will consist of an unlimited number of class A, B, C, D, E and F shares with the following rights, privileges, conditions and restrictions:

(a) Class A

(i) Entitled to one vote per share;

(ii) Participating in the profit of the corporation; and

(iii) Entitled to the residue upon the dissolution or wind-up of the corporation.

(b) Class B

(i) Entitled to one thousand votes per share;

(ii) Not entitled to any dividend or participation;

(iii) Redeemable at the request of the holder or of the corporation at an amount corresponding to their stated capital;

(iv) Redeemable on the death of the holder at an amount corresponding to their stated capital;

(v) Upon the wind-up, dissolution or other distribution of assets by the corporation, the class B shares shall take rank after the class C, D, E and F shares.

(c) Class C

(i) Non-voting;

(ii) Entitled to a monthly, non-cumulative dividend, at a rate varying between XXXXXXXXXX % and XXXXXXXXXX of XXXXXXXXXX % of their RV, taking rank before any other class of shares;

(iii) Redeemable at the request of the holder at any time at an amount corresponding to their RV (the FMV of the consideration received for their issue, plus any declared and unpaid dividends). The RV will be subject to a price adjustment clause;

(iv) Where the shareholder(s) of the class C shares receive consideration for a reduction of the stated capital of the class C shares, the RV will be correspondingly reduced;

(v) Upon the wind-up, dissolution or any other distribution of assets by the corporation, the class C shares shall take rank before any other class of shares.

(d) Class D

(i) Non-voting;

(ii) Entitled to a monthly, non-cumulative dividend, at a rate varying between XXXXXXXXXX % and XXXXXXXXXX of XXXXXXXXXX % of their RV, taking rank after the class C, pari passu with class E and F shares, but before any other class of shares;

(iii) Redeemable at the request of the holder at any time at an amount corresponding to their RV (the FMV of the consideration received for their issue, plus any declared and unpaid dividends). The RV will be subject to a price adjustment clause;

(iv) Where the shareholder(s) of the class D shares receive consideration for a reduction of the stated capital of the class D shares, the RV will be correspondingly reduced;

(v) Upon the wind-up, dissolution or any other distribution of assets by the corporation, the class D shares shall take rank before class B and class A shares, after class C shares, and pari passu with class E and F shares.

(e) Class E

(i) Non-voting;

(ii) Entitled to a monthly, non-cumulative dividend, at a rate varying between XXXXXXXXXX % and XXXXXXXXXX of XXXXXXXXXX % of their RV, taking rank after the class C, pari passu with class D and F shares, but before any other class of shares;

(iii) Redeemable at the request of the holder at any time at an amount corresponding to their RV (the FMV of the consideration received for their issue, plus any declared and unpaid dividends). The RV will be subject to a price adjustment clause;

(iv) Where the shareholder(s) of the class E shares receive consideration for a reduction of the stated capital of the class E shares, the RV will be correspondingly reduced;

(v) Upon the wind-up, dissolution or any other distribution of assets by the corporation, the class E shares shall take rank before class B and class A shares, after class C shares, and pari passu with class D and F shares.
(f) Class F

(i) Non-voting;

(ii) Entitled to a monthly, non-cumulative dividend, at a rate varying between XXXXXXXXXX % and XXXXXXXXXX of XXXXXXXXXX % of their RV, taking rank after the class C pari passu with class D and E shares, but before any other class of shares;

(iii) Redeemable at the request of the holder at any time at an amount corresponding to their RV, (the FMV of the consideration received for their issue, plus any declared and unpaid dividend). The RV will be subject to a price adjustment clause;

(iv) Where the shareholder(s) of the class F shares receive consideration for a reduction of the stated capital of the class F shares, the RV will be correspondingly reduced;

(v) Upon the wind-up, dissolution or any other distribution of assets by the corporation, the class F shares shall take rank before class B and class A shares, after class C shares, and pari passu with class D and E shares.

Newco1, Newco2, and Newco3, as the case may be, will not be entitled to declare dividends or to redeem or purchase any shares of another class should this declaration, redemption or purchase prevent the ability of the corporation to redeem the class C, D, E or F shares at their full RV.

37. Upon the incorporation of Newco1, Mr. A will subscribe for XXXXXXXXXX class B shares (the “Newco1 Class B Shares”) for $XXXXXXXXXX . Subsequently, Mr. B1 will subscribe for XXXXXXXXXX class A shares (the “Newco1 Class A Shares”) for $XXXXXXXXXX .

38. Mr. A will incorporate a new corporation under the BCA (hereafter “Newco2”). Newco2 will be a TCC and a CCPC.

39. The authorized capital stock of Newco2 will consist of an unlimited number of class A, B, C, D, E, and F shares with the rights, privileges, conditions and restrictions the same as Newco1’s capital stock, as described in Paragraph 36.

40. Upon the incorporation of Newco2, Mr. A will subscribe for XXXXXXXXXX class B shares (the “Newco2 Class B Shares”) for $XXXXXXXXXX . Subsequently, Mr. B2 will subscribe for XXXXXXXXXX class A shares (the “Newco2 Class A Shares”) for $XXXXXXXXXX .

41. Mr. A will incorporate a new corporation under the BCA (hereafter “Newco3”). Newco3 will be a TCC and a CCPC.

42. The authorized capital stock of Newco3 will consist of an unlimited number of class A, B, C, D, E and F shares with the rights, privileges, conditions and restrictions the same as Newco1’s capital stock, as described in Paragraph 36.

43. Upon the incorporation of Newco3, Mr. A will subscribe for XXXXXXXXXX class B shares (the “Newco3 Class B Shares”) for $XXXXXXXXXX . Subsequently, Mrs. B3 will subscribe for XXXXXXXXXX class A shares (the “Newco3 Class A Shares”) for $XXXXXXXXXX .

44. Mr. A will control Newco1, Newco2, and Newco3 through the ownership of the Newco1 Class B Shares, the Newco2 Class B Shares, and the Newco3 Class B Shares, respectively.

45. [Reserved.]

46. Opco will split all its issued and outstanding class A shares in a ratio of XXXXXXXXXX for XXXXXXXXXX such that the class A shares of Opco will be replaced by a greater number of shares of the same class of stock of the same corporation in the same proportion for all shareholders. For greater certainty, there will be no change in the total paid-up capital represented by the issue, there will be no change in the interest, rights, or privileges of the shareholders and there will be no concurrent changes in the capital structure of the corporation or the rights and privileges of other shareholders.

47. The Trust will make a capital distribution in favour of Mr. B1, Mr. B2, and Mrs. B3. The Trust will distribute XXXXXXXXXX % of its class A shares of Opco and XXXXXXXXXX % of its class D shares of Opco to each of Mr. B1, Mr. B2, and Mrs. B3. This distribution will be made in satisfaction of part of Mr. B1, Mr. B2, and Mrs. B3’s capital interest in the Trust.

48. Mr. B1, Mr. B2, and Mrs B3 will each contemporaneously transfer all of his or her class A and D shares of Opco to Newco1, Newco2, and Newco3, respectively. As consideration therefore, Newco1, Newco2, and Newco3, as the case may be, will issue class C shares (the “Newco 1 Class C Shares”, the “Newco2 Class C Shares”, and the “Newco3 Class C Shares”, as the case may be) having a total RV equal to the FMV of the transferred shares.

Mr. B1, Mr. B2, and Mrs. B3 will jointly elect with Newco1, Newco2, and Newco3, respectively, in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount for each transfer will be an amount equal to the lesser of the cost amount of the shares transferred and the FMV of these shares.

The PUC of the Newco1 Class C Shares, Newco2 Class C Shares, and the Newco3 Class C Shares, as the case may be, issued as consideration for the transfer of the class A and D shares of the capital stock of Opco to Newco1, Newco2, and Newco3, as the case may be, will be equal to the aggregate PUC of the class A and D shares so transferred. For greater certainty, the increase to the PUC of the Newco1 Class C Shares, Newco2 Class C Shares, and Newco3 Class C Shares, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to paragraph 84.1(1)(a).

49. Opco will transfer a certain number of PXXXXXXXXXX 1 common shares and PXXXXXXXXXX 2 common shares to Newco1.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco1 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note1”) and will issue class D shares (the “Newco1 Class D Shares”) having a RV equal to the difference between the total FMV of the PXXXXXXXXXX 1 common shares transferred and the principal amount of Note1. The principal amount of Note 1 will be equal to $XXXXXXXXXX less the sum of the principal amount of Note 7, described in Paragraph 55, and the principal amount of Note 2, described below in this Paragraph. For greater certainty, the principal amount of Note1 will not be less than $XXXXXXXXXX .

As consideration for the transfer of the PXXXXXXXXXX 2 common shares, Newco1 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note2”) and will issue class E shares (the “Newco1 Class E Shares”) having a RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note2. The principal amount of Note2 will be equal to the lesser of :

(a) $XXXXXXXXXX less the principal amount of Note7, less $XXXXXXXXXX ; and

(b) the FMV of the PXXXXXXXXXX 2 common shares transferred multiplied by XXXXXXXXXX %.

Opco will jointly elect with Newco1 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to each transfer.

The agreed amount with respect to the shares of PXXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note1. The agreed amount with respect to the shares of PXXXXXXXXXX 2 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 2 shares transferred and the principal amount of Note2.

The PUC of the Newco1 Class D Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 1 shares, described above in this Paragraph, over the FMV of Note1. The PUC of the Newco1 Class E Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 2 shares, described above in this Paragraph, over the FMV of Note2. For greater certainty, the increase to the PUC of the Newco1 Class D Shares and the Newco1 Class E Shares, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

50. Opco will transfer a certain number of PXXXXXXXXXX 1 common shares and PXXXXXXXXXX 2 common shares to Newco2.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco2 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note3”) and will issue class D shares (the “Newco2 Class D Shares”) having a RV equal to the difference between the total FMV of the PXXXXXXXXXX 1 common shares transferred and the principal amount of Note3. The principal amount of Note3 will be equal to $XXXXXXXXXX less the sum of the principal amount of Note8, described in Paragraph 56, and the principal amount of Note4, described below in this Paragraph. For greater certainty, the principal amount of Note3 will not be less than $XXXXXXXXXX .

As consideration for the transfer of the PXXXXXXXXXX 2 common shares, Newco2 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note4”) and will issue class E shares (the “Newco2 Class E Shares”) having a RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note4. The principal amount of Note4 will be equal to the lesser of :

(a) $XXXXXXXXXX less the principal amount of Note8, less $XXXXXXXXXX ; and

(b) the FMV of the PXXXXXXXXXX 2 common shares transferred multiplied by XXXXXXXXXX %.

Opco will jointly elect with Newco2 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the shares of PXXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note3. The agreed amount with respect to the shares of PXXXXXXXXXX 2 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 2 shares transferred and the principal amount of Note4.

The PUC of the Newco2 Class D Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 1 shares, described above in this Paragraph, over the FMV of Note3. The PUC of the Newco2 Class E Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 2 shares, described above in this Paragraph, over the FMV of Note4. For greater certainty, the increase to the PUC of the Newco2 Class D Shares and the Newco2 Class E Shares, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

51. Opco will transfer a certain number of PXXXXXXXXXX 1 common shares and PXXXXXXXXXX 2 common shares to Newco3.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco3 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note5”) and will issue class D shares (the “Newco3 Class D Shares”) having a RV equal to the difference between the total FMV of the PXXXXXXXXXX 1 common shares transferred and the principal amount of Note5. The principal amount of Note5 will be equal to $XXXXXXXXXX less the sum of the principal amount of Note9, described in Paragraph 57, and the principal amount of Note6, described below in this Paragraph. For greater certainty, the principal amount of Note5 will not be less than $XXXXXXXXXX .

As consideration for the transfer of the PXXXXXXXXXX 2 common shares, Newco3 will issue a demand promissory note bearing interest at an annual rate of XXXXXXXXXX % (“Note6”) and will issue class E shares (the “Newco3 Class E Shares”) having a RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note6. The principal amount of Note6 will be equal to the lesser of:

(a) $XXXXXXXXXX less the principal amount of Note9, less $XXXXXXXXXX ; and

(b) the FMV of the PXXXXXXXXXX 2 common shares transferred multiplied by XXXXXXXXXX %.

Opco will jointly elect with Newco3 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the shares of PXXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note5. The agreed amount with respect to the shares of PXXXXXXXXXX 2 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 2 shares transferred and the principal amount of Note6.

The PUC of the Newco3 Class D Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 1 shares, described above in this Paragraph, over the FMV of Note5. The PUC of the Newco3 Class E Shares will be equal to the excess of the agreed amount on the transfer of the PXXXXXXXXXX 2 shares, described above in this Paragraph, over the FMV of Note6. For greater certainty, the increase to the PUC of the Newco3 Class D Shares and the Newco3 Class E Shares, as the case may be, will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

52. As a consequence of the transfers described in Paragraphs 49 to 51, Opco will realize a capital gain equal to the difference between the principal amount of the notes received and the ACB of the PXXXXXXXXXX 1 and PXXXXXXXXXX 2 common shares transferred. Charitable donations carried forward, non-capital losses and capital losses of Opco will be deducted by Opco in the calculation of its taxable income. In this regard, charitable donations will be used before the losses, to the limit specified in paragraph 110.1(1)(a).

53. Mr. A will transfer the XXXXXXXXXX class XXXXXXXXXX shares he holds in the capital stock of Holdco to Opco. As consideration, Opco will issue XXXXXXXXXX class XXXXXXXXXX shares (the “Opco Class XXXXXXXXXX Shares”) of its capital stock having a RV equal to the FMV of the shares transferred.

Mr. A and Opco will jointly elect in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the class XXXXXXXXXX shares transferred will be equal to the lesser amount between the cost amount of the shares transferred and their FMV.

The PUC of the Opco Class XXXXXXXXXX Shares will be equal to the PUC of Holdco’s class XXXXXXXXXX shares transferred. For greater certainty, the increase to the PUC of the Opco Class XXXXXXXXXX Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to paragraph 84.1(1)(a).

54. Opco and Holdco (each hereinafter “predecessor corporation”) will amalgamate, under the provisions of the BCA, to form Amalco. The by-laws of Amalco will be identical to Opco’s. The authorized capital stock of Amalco will be identical to Opco’s. As a consequence of the amalgamation:

(a) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of Opco and Holdco immediately before the merger will become property of Amalco by virtue of the merger;

(b) all of the liabilities (except amounts payable to any predecessor corporation) of Holdco and Opco immediately before the merger will become liabilities of Amalco by virtue of the merger; and

(c) all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before the merger, will receive shares of the capital stock of Amalco because of the merger. For greater certainty, in accordance with the BCA,

(i) the class A shares and class D shares of Opco held by the Trust, Newco1, Newco2, and Newco3 immediately before the merger will become, respectively, class A shares and class D shares of Amalco owned by the Trust, Newco1, Newco2, and Newco3 immediately after the merger;

(ii) the class XXXXXXXXXX shares, class XXXXXXXXXX shares, class XXXXXXXXXX shares, and class XXXXXXXXXX shares of Opco held by XCo immediately before the merger will become, respectively, class XXXXXXXXXX shares, class XXXXXXXXXX shares, class XXXXXXXXXX shares, and class XXXXXXXXXX shares of Amalco owned by XCo immediately after the merger; and

(iii) the class XXXXXXXXXX shares and class XXXXXXXXXX shares of Opco held by Mr. A immediately before the merger will become, respectively, class XXXXXXXXXX shares and class XXXXXXXXXX shares owned by Mr. A immediately after the merger.

Each class of shares of Amalco received by each shareholder of Opco on the merger, as described above, will have the same attributes as the corresponding class of shares of Opco owned immediately before the merger.

The total FMV of the shares of the capital stock of Amalco issued to each Opco shareholder will be equal to the FMV of the shares held by each Opco shareholder in the capital stock of Opco immediately before the merger. The shareholders of Opco will not receive any non-share consideration on the merger.

Any indebtedness between Opco and Holdco will be settled on the amalgamation.

55. Amalco will transfer a certain number of PXXXXXXXXXX 1 common shares to Newco1 such that the fair market value of the PXXXXXXXXXX 1 common shares transferred to Newco1 will be equal to:

The sum of $XXXXXXXXXX and the fair market value of the class A and class D shares of Opco transferred to Newco1, as described in Paragraph 48, less the value of the PXXXXXXXXXX 1 and PXXXXXXXXXX 2 common shares transferred to Newco1 as described in Paragraph 49.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco1 will issue a demand promissory note (“Note7”) bearing interest at an annual rate of XXXXXXXXXX % and having a principal amount equal to the ACB of the PXXXXXXXXXX 1 common shares transferred and will issue class F shares (the “Newco1 Class F Shares”) having a total RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note7.

Amalco will jointly elect with Newco1 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the shares of PXXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note7.

The PUC of the Newco1 Class F Shares will be equal to the excess of the agreed amount over the FMV of Note7. For greater certainty, the increase to the PUC of the Newco1 Class F Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

56. Amalco will transfer a certain number of PXXXXXXXXXX 1 common shares to Newco2 such that the fair market value of the PXXXXXXXXXX 1 common shares transferred to Newco2 will be equal to:

The sum of $XXXXXXXXXX and the fair market value of the class A and class D shares of Opco transferred to Newco2, as described in Paragraph 48, less the value of the PXXXXXXXXXX 1 and PXXXXXXXXXX 2 common shares transferred to Newco2 as described in Paragraph 50.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco2 will issue a demand promissory note (“Note8”) bearing interest at an annual rate of XXXXXXXXXX % and having a principal amount equal to the ACB of the PXXXXXXXXXX 1 common shares transferred and will issue class F shares (the “Newco2 Class F Shares”)
having a total RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note8.

Amalco will jointly elect with Newco2 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the shares of PXXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note8.

The PUC of the Newco2 Class F Shares will be equal to the excess of the agreed amount over the FMV of Note8. For greater certainty, the increase to the PUC of the Newco2 Class F Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

57. Amalco will transfer a certain number of PXXXXXXXXXX 1 common shares to Newco3 such that the fair market value of the PXXXXXXXXXX 1 common shares transferred to Newco3 will be equal to:

The sum of $XXXXXXXXXX and the fair market value of the class A and class D shares of Opco transferred to Newco3, as described in Paragraph 48, less the value of the PXXXXXXXXXX 1 and PXXXXXXXXXX 2 common shares transferred to Newco3 as described in Paragraph 51.

As consideration for the transfer of the PXXXXXXXXXX 1 common shares, Newco3 will issue a demand promissory note (“Note9”) bearing interest at an annual rate of XXXXXXXXXX % and having a principal amount equal to the ACB of the PXXXXXXXXXX 1 common shares transferred and will issue class F shares (the “Newco3 Class F Shares”) having a total RV equal to the difference between the total FMV of the shares transferred and the principal amount of Note9.

Amalco will jointly elect with Newco3 in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer.

The agreed amount with respect to the shares of XXXXXXXXXX 1 transferred will be equal to the greater of the cost amount of the PXXXXXXXXXX 1 shares transferred and the principal amount of Note9.

The PUC of the Newco3 Class F Shares will be equal to the excess of the agreed amount over the FMV of Note9. For greater certainty, the increase to the PUC of the Newco3 Class F Shares will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

57.1 For greater certainty, the aggregate fair market value of the PXXXXXXXXXX 1 and PXXXXXXXXXX 2 common shares transferred to each of Newco1, Newco2, and Newco3, as the case may be, described in Paragraphs 49, 50, 51, 55, 56, and 57, less the aggregate value of the promissory notes owing to Amalco by each of Newco1, Newco2, and Newco3, as the case may be, will be equal to the fair market value of the class A and class D shares of Opco transferred to each of Newco1, Newco2, and Newco3, as the case may be, as described in Paragraph 48.

58. Amalco will redeem the class A and D shares of its capital stock held by Newco1. As consideration, Amalco will issue a demand, non-interest bearing, promissory note (“Note10”) with a principal amount equal to the FMV of the shares redeemed.

59. Amalco will redeem the class A and D shares of its capital stock held by Newco2. As consideration, Amalco will issue a demand, non-interest bearing, promissory note (“Note11”) with a principal amount equal to the FMV of the shares redeemed.

60. Amalco will redeem the class A and D shares of its capital stock held by Newco3. As consideration, Amalco will issue a demand, non-interest bearing, promissory note (“Note 12”) with a principal amount equal to the FMV of the shares redeemed.

61. Newco1 will redeem the Newco1 Class D Shares, the Newco1 Class E Shares, and the Newco1 Class F Shares. As consideration, Newco1 will issue to Amalco a demand, non-interest bearing, promissory note (“Note13”) with a principal amount equal to the RV of the shares redeemed.

62. Newco2 will redeem the Newco2 Class D Shares, the Newco2 Class E Shares, and the Newco2 Class F Shares. As consideration, Newco2 will issue to Amalco a demand, non-interest bearing, promissory note (“Note14”) with a principal amount equal to the RV of the shares redeemed.

63. Newco3 will redeem the Newco3 Class D Shares, the Newco3 Class E Shares, and the Newco3 Class F Shares. As consideration, Newco3 will issue to Amalco a demand, non-interest bearing, promissory note (“Note15”) with a principal amount equal to the RV of the shares redeemed.

64. Amalco and Newco1 will agree to set-off the amount due under Note10 against the amount due under Note13 as payment in full. The obligations under Note10 and Note13 will be cancelled.

65. Amalco and Newco2 will agree to set-off the amount due under Note11 against the amount due under Note14 as payment in full. The obligations under Note11 and Note14 will be cancelled.

66. Amalco and Newco3 will agree to set-off the amount due under Note12 against the amount due under Note15 as payment in full. The obligations under Note12 and Note15 will be cancelled.

ADDITIONAL INFORMATION

67. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing of any applicable election forms in respect of the Proposed Transactions described in Paragraphs 48, 49, 50, 51, 53, 55, 56, and 57 which will be filed on or before the applicable due date.

68. Other than as described herein, no significant transactions have been completed prior to the date of this letter nor are there any other transactions currently being contemplated that would form part of the series of transactions or events that includes the Proposed Transactions.

69. There is no planned or anticipated sale of any of the shares transferred, as described in the Proposed Transactions, to a person not related to Opco, Holdco, Amalco, Newco1, Newco2 and Newco3.

70. Each of Newco1, Newco2, Newco3, Amalco, Opco and Holdco is not, and will not be, at the time of the Proposed Transactions, a “specified financial institution” or a “restricted financial institution”.

71. None of the shares of Newco1, Newco2, Newco3, Amalco, Opco and Holdco have been or will be at any time during the implementation of the Proposed Transactions described herein :

(a) Subject to an agreement referred to in subsection 112(2.2);

(b) Subject to a dividend rental arrangement referred to in subsection 112(2.3) or subsection 248(1);

(c) Issued or acquired in the course of a transaction, an event or a series of transactions or events referred to in subsection 112(2.5).

PURPOSES OF THE PROPOSED TRANSACTIONS

72. Mr. A, as sole trustee of Trust, wishes to begin to distribute to his children part of the property of Trust. This distribution is intended to allow each beneficiary to make decisions independent of each other so that each sibling can make their own succession planning, retirement planning and estate planning arrangements.

73. Mr. A wishes that each of Mr. B1, Mr. B2, and Mrs. B3 assume approximately XXXXXXXXXX % of Opco’s debt as part of the reorganization. Mr. A has calculated this amount to be $XXXXXXXXXX for each of Mr. B1, Mr. B2, and Mrs. B3. As a result, the total amount of the promissory notes that are owed to Amalco by each Newco, at the completion of the Proposed Transactions, will be equal to $XXXXXXXXXX .

74. The purpose of Mr. A maintaining control of Newco1, Newco2, and Newco3 is as follows:

(a) Because of the importance of the assets transferred, and in order to approve the transfer, Opco’s creditors require that Mr. A maintain control of the investments transferred to the new corporations.

(b) Following the transactions described above, the new corporations will still owe Amalco a total amount of $XXXXXXXXXX . Thus, Mr. A wishes to keep control over the investments transferred and the indebtedness of Newco1, Newco2 and Newco3 in order to protect his economic interest in Amalco.

(c) Mr. A is the largest shareholder of PXXXXXXXXXX 1 and PXXXXXXXXXX 2. As a result, Mr. A wishes to maintain control of Newco1, Newco2, and Newco3 XXXXXXXXXX .

75. It is speculated that, after the completion of the Proposed Transactions, it is more likely that the shares of PXXXXXXXXXX 2 would be disposed of by any of Newco1, Newco2, and Newco3 before the shares of PXXXXXXXXXX c1. As a result, the majority of the non-share consideration is issued on the transfer of the common shares of PXXXXXXXXXX 2 to increase the ACB of the PXXXXXXXXXX 2 shares held by each Newco. However, the ACB of the PXXXXXXXXXX 2 shares held by the Newcos is limited to XXXXXXXXXX % of the FMV of these shares, on the date of the transfer, to reduce the risk of incurring a loss at the time of any future disposition. As described in Paragraph 69, at the present time, there is no anticipated sale of PXXXXXXXXXX 2 shares to an unrelated party.

76. The purpose of the stock split of the class A shares of Opco, described in Paragraph 46, is to ensure that the total number of class A shares issued by Opco is divisible by 5 in order to facilitate the transfer of XXXXXXXXXX % of the class A shares of Opco to Mr. B1, Mr. B2, and Mrs. B3 as described in Paragraph 47.

77. The purpose of the amalgamation of Opco and Holdco is to simplify the corporate structure.

78. The ACB per share of the PXXXXXXXXXX 1 shares held by Opco is greater than the ACB per share of the PXXXXXXXXXX 1 shares held by Holdco. The purpose of two separate transfers of the PXXXXXXXXXX 1 shares (one before the amalgamation and one after the amalgamation) is to avoid the averaging of the ACB of the shares held by both Opco and Holdco.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of 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 set forth below.

A. Provided that there is no change in the total paid-up capital of the Opco class A shares or in the interest, rights, or privileges of the holders of the class A shares and provided there are no concurrent changes in the capital structure of Opco or in the rights and privileges of other shareholders, a holder of Opco class A shares will not be regarded as having disposed of those shares on the split of the class A shares of Opco, described in Paragraph 46.

B. Subsection 107(2) will apply to the distribution described in Paragraph 47 such that the application of subsection 107(2), in conjunction with subsection 107(1) and paragraph (a) of the definition of “cost amount” in subsection 108(1), will give rise to the following tax consequences:

(a) pursuant to paragraph 107(2)(a), the Trust will be deemed to have disposed of the class A and class D shares of Opco for proceeds of disposition equal to the cost amount to the Trust immediately before the distribution;

(b) pursuant to paragraph 107(2)(b), and subject to subsection 107(2.2), Mr. B1, Mr. B2, and Mrs. B3, as the case may be, will be deemed to have acquired the class A and class D shares of Opco so distributed at a cost equal to the aggregate of the cost amount of these shares to the Trust immediately before the distribution and the amount, if any, by which the ACB, immediately before the distribution (determined without reference to paragraph 107(1)(a)), to Mr. B1, Mr. B2, or Mrs. B3, as the case may be, of the part of the capital interest in the Trust disposed of exceeds the cost amount, immediately before the distribution, to Mr. B1, Mr. B2, and Mrs. B3, as the case may be, of the part of the capital interest in the Trust disposed of; and

(c) pursuant to paragraph 107(2)(c), each of Mr. B1, Mr. B2, and Mrs. B3 will be deemed to have disposed of part of his or her capital interest in the Trust for proceeds equal to the amount, if any, by which the cost of the class A and class D shares of Opco received as determined in (b) above exceeds the total of all amounts, each of which is an eligible offset (as defined in subsection 108(1)) of each of Mr. B1, Mr. B2, and Mrs. B3 at that time in respect of such capital interest.

C. Subsection 107(4.1) will not apply to the distribution made by Trust described in Paragraph 47.

D. Provided that the requisite joint elections are made in the prescribed form and within the time period provided by subsection 85(6), and provided that the particular property so transferred is eligible property, the provisions of subsection 85(1) will apply to the transfers described in Paragraphs 48, 49, 50, 51, 53, 55, 56, and 57 such that the agreed amount of each such transfer of eligible property will be deemed to be the transferor’s proceeds of disposition of the particular property and the transferee’s cost thereof pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

E. The amalgamation described in Paragraph 54 will, by virtue of subsection 87(1.1), be considered to be an amalgamation under provisions of subsection 87(1), and accordingly:

(a) by virtue of paragraph 87(11)(a), Opco will be deemed to have disposed of the shares of Holdco immediately before the amalgamation for proceeds equal to the proceeds that would be determined under paragraph 88(1)(b) if subsections 88(1) and (1.7) applied, with any modifications that the circumstances require, to the amalgamation;

(b) by virtue of paragraph 87(11)(b), the cost to Amalco of each capital property of Holdco acquired on the amalgamation will be deemed to be the amount that would have been the cost to Opco of the property if the property had been distributed at that time to Opco on a winding-up of Holdco and subsections 88(1) and (1.7) had applied to the winding-up;

(c) by virtue of paragraph 87(4)(a), each shareholder who, immediately before the amalgamation, owned shares of the capital stock of Opco will be deemed to have disposed of the shares for proceeds equal to the ACB of these shares immediately before the amalgamation;

(d) paragraphs 87(4)(c), (d) and (e) will not apply; and

(e) subsection 87(2.1) will apply.

E.1 Provided that the class A shares and class D shares of Opco held by the Trust, Newco1, Newco2, and Newco3 were capital property to the Trust, Newco1, Newco2, and Newco3 immediately before the amalgamation of Opco and Holdco, as described in Paragraph 54, the Trust, Newco1, Newco2, and Newco3 will be deemed to have acquired the class A shares and class D shares of Amalco at a cost equal to the adjusted cost base to the Trust, Newco1, Newco2, and Newco3 of, respectively, the class A shares and class D shares of Opco, determined immediately before the amalgamation.

Provided that the class XXXXXXXXXX shares, class XXXXXXXXXX shares, class XXXXXXXXXX shares, and class XXXXXXXXXX shares of Opco held by XCo were capital property to XCo immediately before the amalgamation of Opco and Holdco, as described in Paragraph 54, XCo will be deemed to have acquired the class XXXXXXXXXX shares, class XXXXXXXXXX shares, class XXXXXXXXXX shares, and class XXXXXXXXXX shares of Amalco at a cost equal to the adjusted cost base to XCo of, respectively, the class XXXXXXXXXX shares, class XXXXXXXXXX shares, class XXXXXXXXXX shares, and class XXXXXXXXXX shares of Opco, determined immediately before the amalgamation.

Provided that the class XXXXXXXXXX shares and class XXXXXXXXXX shares of Opco held by Mr. A were capital property to Mr. A immediately before the amalgamation of Opco and Holdco, as described in Paragraph 54, Mr. A will be deemed to have acquired the class XXXXXXXXXX shares and class XXXXXXXXXX shares of Amalco at a cost equal to the adjusted cost base to Mr. A of, respectively, the class XXXXXXXXXX shares and class XXXXXXXXXX shares of Opco, determined immediately before the amalgamation.

F. Subsection 80.01(3) will apply to the amalgamation of Opco and Holdco, described in Paragraph 54, such that any intercompany debts between Opco and Holdco will be deemed to have been settled immediately before the time that is immediately before the amalgamation by a payment made by the debtor, and received by the creditor, of an amount equal to the amount that would have been the creditor’s cost amount of the indebtedness, subject to paragraphs 80.01(3)(a) and (b), at that time.

G. As a result of the redemption by Amalco of its class A and class D shares described in Paragraphs 58 to 60, the redemption by Newco1 of the Newco1 Class D Shares, the Newco1 Class E Shares, and the Newco1 Class F Shares, as described in Paragraph 61, the redemption by Newco2 of the Newco2 Class D Shares, the Newco2 Class E Shares, and the Newco 2 Class F Shares, as described in Paragraph 62, and the redemption by Newco3 of the Newco3 Class D Shares, the Newco3 Class E Shares, and the Newco3 Class F Shares described in Paragraph 63, by virtue of subsection 84(3):

(a) Amalco will be deemed to have paid, and Newco1, Newco2, and Newco3, as the case may be, will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by Amalco in respect of its redemption of the class A and class D shares owned by Newco1, Newco2, and Newco3, as the case may be, exceeds the paid-up capital of such class of shares immediately before the redemption; and

(b) Newco1, Newco2, and Newco3, as the case may be, will be deemed to have paid, and Amalco will be deemed to have received, a taxable dividend equal to the amount by which the amount paid by Newco1, Newco2, and Newco3, as the case may be, in respect of the redemption of the Newco1 Class D Shares, the Newco1 Class E Shares, the Newco1 Class F Shares, the Newco2 Class D Shares, the Newco2 Class E Shares, the Newco2 Class F Shares, the Newco3 Class D Shares, the Newco3 Class E Shares, and the Newco3 Class F Shares, as the case may be, owned by Amalco exceeds the paid-up capital attributable to such shares immediately before the redemption; and

(c) The taxable dividends described in described in (a) and (b) above:

(i) 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;

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

(iii) will be excluded in determining the proceeds of disposition to the recipient of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54;

(iv) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

(v) will not be subject to tax under Part IV except to the extent that such payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend; and

(vi) will not be subject to tax under Part IV.1 or VI.1.

H. By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to the deemed dividends described in Ruling G, provided that there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) which is part of the series of transactions or events that includes the Proposed Transactions. For greater certainty, the Proposed Transactions, in and of
themselves, will not be considered to result in any disposition to, or increase in interest by, an unrelated person described in subparagraphs 55(3)(a)(i) to (v).

I. The set-off and cancellation of the promissory notes, described in Paragraphs 64 to 66, will not, in and of itself, result in a forgiven amount within the meaning thereof in subsection 80(1) or 80.01(1).

J. The provisions of subsections 15(1), 55(4), 56(2), 69(4), and 246(1) will not apply to any of the Proposed Transactions described herein, in and by themselves.

K. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by the CRA dated May 17, 2002 and are binding on the CRA provided that the Proposed Transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

COMMENTS

1. Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a) the PUC of any share or the ACB or FMV of any property referred to herein;

(b) the balance of CDA, RDTOH, non-capital losses, net capital losses, charitable gifts or any other tax account of any corporation; or

(c) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, including whether any of the Proposed Transactions would also be included in a series of transactions or events that includes other transactions or events that are not described in this letter.

2. In Paragraph 36 you have indicated that the Class C, Class D, Class E and Class F shares of Newco1, Newco2, and Newco3 will include a price adjustment clause. Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the FMV of the properties transferred and the redemption amount of the shares issued as consideration, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since its coming into effect will be due to circumstances that do not constitute proposed transactions that are seriously contemplated.

The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 XXXXXXXXXX
2 The FMV has not been determined.