2010 Ruling 2009-0350491R3 - Alter Ego Trust Planning

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: 1. Whether s. 88(1)(d) bump is available where alter ego trust holds shares of subsidiary. 2. Whether 88(1)(d.3) will apply to deem acquisition of control from non-arm's length person. 3. Whether partnerships and trusts are to be recharacterized as corporations for the purposes of ascertaining specified shareholders for the purpose of s. 88(1)(c)(vi). 4. Whether alter ego trust may claim charitable donation tax credit upon making gift to registered charity. 5. Whether capital losses arising on share-for-share exchange involving trust and wholly-owned subsidiary that are denied under subsection 40(3.6) will be realized on dispositions of shares to beneficiaries and donees of trust and are available to be carried back by trust to offset capital gains realized by trust pursuant to s. 104(4).

Position: 1. Yes 2. Yes 3. Yes 4. Yes 5. Yes

Reasons: 1. Technical requirements are met. 2. Shares of subsidiary are acquired as a consequence of death pursuant to the directions of the settlor in the terms governing the alter ego trust, trustees of the alter ego trust under equitable obligation to transfer shares of subsidiary to parent on the death of the settlor. 3. Wording of s. 88(1)(c.2) provides that recharacterization rules are to be taken into account for the purposes of s. 88(1)(c)(vi). 4. Trustee has full discretion to make voluntary transfer of property to charity in accordance with the intent of the settlor. 5. Property of trust will be fully distributed before the end of the third taxation year of the trust following the year in which it is deemed to dispose of its property pursuant to s. 104(4).

XXXXXXXXXX 				2009-035049
					XXXXXXXXXX 

XXXXXXXXXX , 2010

Dear Sir:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX (the "Taxpayers")

We are writing in response to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the Taxpayers confirming the continued application of certain of the rulings contained in our letter dated XXXXXXXXXX , 2005 (File number 2005-0155371) (the "XXXXXXXXXX 2005 Ruling"). The XXXXXXXXXX 2005 Ruling confirmed the continued application of certain of the rulings contained in our letter dated XXXXXXXXXX , 2004 (File number 2004-006027) as modified in two supplementary rulings dated XXXXXXXXXX , 2005 and XXXXXXXXXX , 2005 (collectively, the "Existing Ruling"), subject to statutory amendments enacted or court decisions rendered after December 22, 2005. The Existing Ruling is binding on the Canada Revenue Agency to the extent that the proposed transactions described therein were completed before XXXXXXXXXX .

Documents submitted with this request are part of this document only to the extent described herein. Documents submitted in connection with the XXXXXXXXXX 2005 Ruling or the Existing Ruling may be part of this document only to the extent described therein, and only to the extent that the XXXXXXXXXX 2005 Ruling and the Existing Ruling are part of this document.

You have advised us that to the best of your knowledge, and that of the Taxpayers, none of the issues contained herein is:

(a) in an earlier return of a Taxpayer or a person related to a Taxpayer;

(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of a Taxpayer or a person related to a Taxpayer;

(c) under objection by a Taxpayer or a person related to a Taxpayer;

(d) the subject of a ruling (other than the XXXXXXXXXX 2005 Ruling and the Existing Ruling) previously issued by the Income Tax Rulings Directorate; or

(e) before the Courts.

BACKGROUND

The transactions contemplated in the Existing Ruling fall into two categories. The first category, set out in paragraphs 26 to 41 of the Existing Ruling, (the "Initial Transactions") were to be implemented during the lifetime of Mr. X. The second category involves a series of transactions, set out in paragraphs 42 to 55 of the Existing Ruling that would be implemented on and after the death of Mr. X (the "Post-Mortem Transactions"). As reflected in the Facts set out below, the Initial Transactions have been implemented. The purpose of this letter is to confirm that the rulings given in the XXXXXXXXXX 2005 Ruling and the Existing Ruling with respect to the Post-Mortem Transactions will continue to apply after XXXXXXXXXX .

Unless otherwise indicated, all statutory references in this letter are to the Income Tax Act (Canada) R.S.C. 1985 c. 1 (5th Suppl.) (the "Act"). All monetary references are to Canadian dollars.

DEFINITIONS

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

(b) "Agreed Amount" in respect of an eligible property means the amount that the transferor and transferee of the property agree upon in their election under subsection 85(1) in respect of that property;

(c) XXXXXXXXXX ;

(d) "Canada Corporations Act" means the Canada Corporations Act, R.S. 1970 c. C-32;

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

(f) "CHARITY" is XXXXXXXXXX ;

(g) "CHARITY 2" is the XXXXXXXXXX ;

(h) "Charity Portion" has the meaning given in paragraph 33(g) of the Existing Ruling;

(i) "Class A Preference shares" means the Class A Preference Shares in the capital stock of XCO which are redeemable, retractable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class B Preference shares, Class C Preference shares, Class D Preference shares, Class E Preference shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(j) "Class B Preference shares" means the Class B Preference Shares in the capital stock of XCO which are redeemable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class D Preference shares, Class E Preference shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(k) "Class C Preference shares" means the Class C Preference Shares in the capital stock of XCO which are redeemable, retractable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class B Preference shares, Class D Preference shares, Class E Preference shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(l) "Class D Preference shares" means the Class D Preference Shares in the capital stock of XCO which are redeemable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class E Preference shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(m) "Class E Preference shares" means the Class E Preference Shares in the capital stock of XCO are which redeemable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(n) "Class F Preference shares" means the Class F Preference Shares in the capital stock of XCO which are redeemable, retractable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon, but only after XCO makes any payments required to be made to the holders of Class A Preference shares, Class B Preference shares, Class C Preference shares, Class D Preference shares and Class E Preference shares;

(o) "Class G Preference shares" means the Class G Preference Shares in the capital stock of XCO which are redeemable, retractable, non-voting, which carry an entitlement to a fixed non-cumulative dividend of XXXXXXXXXX % per annum on the redemption price thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class A Preference shares, Class B Preference shares, Class C Preference shares, Class D Preference shares, Class E Preference shares, Class F Preference shares and Class H Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(p) "Class H Preference shares" means the Class H Preference Shares in the capital stock of XCO which carry an entitlement to a fixed, cumulative dividend of XXXXXXXXXX % per annum on the redemption value thereof and entitle their holder(s) to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the Common shares, Class A Preference shares, Class B Preference shares, Class C Preference shares, Class D Preference shares, Class E Preference shares and Class F Preference shares in an amount not exceeding the aggregate of their redemption price and any unpaid dividends declared thereon;

(q) "Class J Preference shares" means the Class J Preference shares in the capital stock of XCO, added to the authorized capital of XCO in the manner described in paragraph 36 of the Existing Ruling, which are non-voting, preference shares that are redeemable and retractable for an amount equal to the value of the consideration received for such shares, entitle their holders to receive a fixed, non-cumulative dividend that is calculated by multiplying the redemption price thereof by the per annum rate of interest prescribed by paragraph 4301(c) of the
Income Tax Regulations at the time of the issuance of the share, and entitle their holders to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the holders of all other classes of shares of
XCO, other New XCO Preferred Shares, in an amount not exceeding their redemption price;

(r) [Reserved];

(s) "Family Trust" means the XXXXXXXXXX , which does not deal at arm's length with Mr. X for purposes of the Act;

(t) "Final Distribution Date" has the meaning given in paragraph 33(k) of the Existing Ruling;

(u) "First Agreement" has the meaning given in paragraph 37 of the Existing Ruling;

(v) [Reserved];

(w) "Gift" has the meaning given in Paragraph 41;

(x) "Income Tax Regulations" means the Income Tax Regulations, C.R.C., c. 945;

(y) "Material Date" means the day that is one day after the death of Mr. X;

(z) "Mr. X" is XXXXXXXXXX ;

(aa) "New XCO Common Shares" means the Class A Common shares in the capital stock of XCO, added to the authorized capital of XCO in the manner described in paragraph 36 of the Existing Ruling, which are voting, participating common shares, which will entitle their holders to XXXXXXXXXX votes per share, to receive dividends as and when declared by the directors of XCO and to share in the remaining property and assets of XCO on its dissolution, liquidation, winding-up or distribution of capital on a pro-rata basis with any holders of voting Common shares in the capital stock of XCO, but subject to the prior rights of holders of all classes of Preference shares in the capital stock of XCO;

(bb) "New XCO Preferred Shares" means the Class I Preference shares in the capital stock of XCO, added to the authorized capital of XCO in the manner described in paragraph 36 of the Existing Ruling, which are non-voting, preference shares, which are redeemable and retractable for $XXXXXXXXXX per share, entitle their holders to receive a fixed, non-cumulative dividend that is calculated by multiplying the redemption price thereof by the per annum rate of interest prescribed by paragraph 4301(c) of the Income Tax Regulations at the time of the issuance of the share, and which entitle their holders to the property and assets of XCO on a liquidation, dissolution, winding-up or return of capital in priority to the holders of Class J Preference shares in an amount not exceeding their redemption price;

(cc) "Newco" means the wholly-owned subsidiary of the Trust that is to be incorporated by the Trust after the death of Mr. X as described in Paragraph 31;

(dd) "Newco Common Shares" has the meaning given in Paragraph 31;

(ee) "Newco Preferred Shares" has the meaning given in Paragraph 31;

(ff) "New Shares" has the meaning given in Paragraph 38;

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

(gg.1) "Paragraph" means a numbered paragraph of this letter;

(hh) "qualified donee" has the meaning assigned by subsection 149.1(1);

(ii) "registered charity" has the meaning assigned by subsection 248(1);

(jj) "Second Agreement" has the meaning given in Paragraph 33;

(kk) "Second Exchange" has the meaning given in Paragraph 33;

(ll) "SOCIETY" means XXXXXXXXXX ;

(mm) XXXXXXXXXX ;

(nn) "Society Distribution Date" has the meaning given in paragraph 33(j) of the Existing Ruling;

(oo) "Society Portion" has the meaning given in paragraph 33(g) of the Existing Ruling;

(pp) "Subject Shares" has the meaning given in Paragraph 38;

(qq) "Subsidiaries" has the meaning given in Paragraph 5;

(rr) "Subsidiary Shares" has the meaning given in Paragraph 5;

(ss) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(tt) "Third Agreement" has the meaning given in Paragraph 38;

(uu) "Third Exchange" has the meaning given in Paragraph 38;

(vv) "Trust" means the XXXXXXXXXX , a trust formed under the laws of the Province of XXXXXXXXXX in the manner described in paragraphs 26 to 35 of the Existing Ruling;

(ww) "Trust Indenture" means the Trust Indenture of the Trust as described in paragraphs 28 to 35 of the Existing Ruling, containing the terms of the draft version of XXXXXXXXXX that was submitted on XXXXXXXXXX for the purposes of the request for the Existing Ruling;

(xx) "Trustco" means XXXXXXXXXX ;

(yy) "XCO" means XXXXXXXXXX ;

(zz) "XCO Distributed or Substituted Property" has the meaning given in Ruling D, below; and

(aaa) "XCO Person" has the meaning given in Ruling D, below.

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

FACTS

1. Mr. X was born on XXXXXXXXXX and is a resident of XXXXXXXXXX . Mr. X is an individual who is a resident of Canada for the purposes of the Act. His principal residence is located at XXXXXXXXXX . Mr. X files his tax returns with the XXXXXXXXXX Tax Centre and his tax affairs are administered by the XXXXXXXXXX Tax Services Office.

2. XCO is a corporation governed by the CBCA and is a taxable Canadian corporation for the purposes of the Act. Its main office and principal place of business is located at XXXXXXXXXX . It files its tax returns with the XXXXXXXXXX Tax Centre and its tax affairs are administered by the XXXXXXXXXX Tax Services Office.

3. The authorized share capital of XCO consists of:

(a) an unlimited number of Class A Preference shares;

(b) an unlimited number of Class B Preference shares;

(c) an unlimited number of Class C Preference shares;

(d) an unlimited number of Class D Preference shares;

(e) an unlimited number of Class E Preference shares;

(f) an unlimited number of Class F Preference shares;

(g) an unlimited number of Class G Preference shares;

(h) an unlimited number of Class H Preference shares;

(i) an unlimited number of Class I Preference shares;

(j) an unlimited number of Class J Preference shares;

(k) an unlimited number of voting Common shares; and

(l) an unlimited number of Class A Common shares.

4. The issued share capital of XCO is as follows:

      Shareholder		Number and Class of Shares

      The Trust		XXXXXXXXXX  New XCO Common Shares

The Family Trust XXXXXXXXXX New XCO Preferred Shares

5. XCO is the sole shareholder of a number of subsidiary companies (the "Subsidiaries"), the shares of which are held by XCO as capital property for the purposes of the Act (the "Subsidiary Shares").

6. SOCIETY is a not-for-profit corporation governed by the XXXXXXXXXX . To the best of the Taxpayers' knowledge, SOCIETY has not been assigned a business number.

7. The members and directors of SOCIETY are XXXXXXXXXX . The officers of SOCIETY are as follows:

      Officer				Title

      XXXXXXXXXX 		PresidentXXXXXXXXXX 

      XXXXXXXXXX 		Secretary & Treasurer

8. Mr. X is not related to any of the members, directors or officers of SOCIETY for the purposes of the Act.

9. XXXXXXXXXX .

10. XXXXXXXXXX .

11. XXXXXXXXXX .

12.	The Constitution of SOCIETY provides that (a) the objects of SOCIETY are to support CHARITY 2 or, in the event CHARITY 2 ceases to be a qualified donee, as defined pursuant to subsection 149.1(1), to support such other qualified donees as shall be designated by the Board of Directors of SOCIETY and (b) on the
	winding-up or dissolution of SOCIETY, after the payment or discharge of its debts and certain expenditures, the remaining funds and property will be distributed to CHARITY 2 or, where CHARITY 2 is not a qualified donee, to such other qualified donees as designated by the Board of Directors of SOCIETY.

13. On XXXXXXXXXX , the By-Laws of SOCIETY were amended to:

(a) delete the provisions that provide for the replacement of members of SOCIETY immediately upon the death of Mr. X with the directors of SOCIETY at that time;

(b) delete the provisions that prohibit persons over the age of XXXXXXXXXX , other than Mr. X and XXXXXXXXXX , from being eligible to be elected as a director of SOCIETY; and

(c) delete the provisions that permit the members of SOCIETY to appoint a Patron, along with the provisions that allow the Patron to deem that a member of SOCIETY is not in good standing and is thereby precluded from voting on any resolutions to be voted on by members.

14. In accordance with By-Laws of SOCIETY, XXXXXXXXXX , acting in their capacities as members of SOCIETY, will elect directors of SOCIETY at each annual general meeting and will determine the admission of its future members.

15. CHARITY is a not-for-profit corporation governed by the Canada Corporations Act and is a registered charity, as defined pursuant to subsection 248(1). The members of CHARITY are XXXXXXXXXX . The directors of CHARITY are XXXXXXXXXX . Its officers are as follows:

Officer			Title

XXXXXXXXXX 			President

XXXXXXXXXX 			Secretary & Treasurer

16. With the exception of XXXXXXXXXX , Mr. X is not related to any of the members, directors or officers of CHARITY for the purposes of the Act.

17. XXXXXXXXXX is a XXXXXXXXXX with the XXXXXXXXXX , which renders XXXXXXXXXX services to Mr. X and XCO.

18. XXXXXXXXXX is a XXXXXXXXXX indirectly controlled by Mr. X and XCO.

19. XXXXXXXXXX is XXXXXXXXXX and is a XXXXXXXXXX of a number of publicly-traded corporations.

20.	The Letters Patent of CHARITY provide that (a) the objects of CHARITY are to support CHARITY 2 or, in the event CHARITY 2 ceases to be a qualified donee, to support such other qualified donees as shall be designated by the Board of
	Directors of CHARITY and (b) on the winding-up or dissolution of CHARITY, after the payment or discharge of its debts and certain expenditures, the remaining funds and property will be distributed to CHARITY 2 or, where CHARITY 2 is not a qualified donee, to such other qualified donees as designated by the Board of Directors of CHARITY. 

21. On XXXXXXXXXX , By-Law No. 2 of CHARITY was amended to:

(a) delete the provisions that provide for the replacement of members of CHARITY immediately upon the death of Mr. X with the directors of CHARITY at that time;

(b) delete the provisions that prohibit persons over the age of XXXXXXXXXX , other than Mr. X and XXXXXXXXXX , from being eligible to be elected as a director of CHARITY; and

(c) delete the provisions that permit the members of CHARITY to appoint a Patron, along with the provisions that allow the Patron to deem that a member of CHARITY is not in good standing and is thereby precluded from voting on any resolutions to be voted on by members.

22. In accordance with By-Law No. 2 of CHARITY, XXXXXXXXXX , being the members of CHARITY, will elect directors of CHARITY at each annual general meeting and will determine the admission of its future members.

23. CHARITY 2 is a not-for-profit corporation governed by the XXXXXXXXXX and is a registered charity. The business number of CHARITY 2 is XXXXXXXXXX . The members of CHARITY 2 are Mr. X, XXXXXXXXXX . Its directors are Mr. X, XXXXXXXXXX , who is the XXXXXXXXXX of Mr. X, XXXXXXXXXX , XXXXXXXXXX , who is the XXXXXXXXXX of Mr. X, and XXXXXXXXXX . Mr. X is not related to any of XXXXXXXXXX for the purposes of the Act. As stated in Paragraph 16, Mr. X is not related to XXXXXXXXXX for the purposes of the Act.

24. The Constitution of CHARITY 2 provides that its purposes are to:

(a) XXXXXXXXXX ;

(b) XXXXXXXXXX ; and

(c) XXXXXXXXXX .

25. Mr. X settled the Trust on XXXXXXXXXX by making a gift of $XXXXXXXXXX to Trustco. The Trust was established and is governed under the laws of XXXXXXXXXX .

26. Trustco is the sole trustee of the Trust. Trustco was incorporated on XXXXXXXXXX under the XXXXXXXXXX . Mr. X owns XXXXXXXXXX common shares of Trustco, which represent XXXXXXXXXX % of the issued shares of Trustco.

27. The terms of the Trust are as described in the Existing Ruling.

28. On XXXXXXXXXX , the transactions contemplated in the First Agreement were implemented.

29. On XXXXXXXXXX , Mr. X transferred the XXXXXXXXXX New XCO Common Shares that he received pursuant to the First Agreement to the Trust. Also on XXXXXXXXXX , Mr. X transferred the XXXXXXXXXX New XCO Preferred Shares that he received pursuant to the First Agreement to the Family Trust.

PROPOSED TRANSACTIONS

30. Upon the death of Mr. X, the XXXXXXXXXX common shares of Trustco will be transmitted to the executors of Mr. X's will.

31. In accordance with the terms of the Trust Indenture, Newco will be incorporated under the CBCA after the death of Mr. X. The authorized share capital of Newco will consist of an unlimited number of voting Class A Common shares ("Newco Common Shares") and an unlimited number of Class B Preference shares ("Newco Preferred Shares"). The Newco Preferred Shares will be redeemable and retractable at a redemption price equal to the fair market value of the consideration for which such shares were issued, have voting rights equivalent to those attached to the Newco Common Shares, have a non-cumulative dividend entitlement and a preferential entitlement to share in the remaining property and assets of Newco on its dissolution, liquidation, winding-up or distribution of capital.

32. Upon incorporation of Newco, the Trust will be issued one Newco Common Share.

33. After the death of Mr. X, the Trust and Newco, in accordance with the terms of the Trust Indenture, will enter into an agreement (the "Second Agreement") pursuant to which the Trust will transfer its XXXXXXXXXX New XCO Common Shares to Newco in consideration for the issuance by Newco of XXXXXXXXXX Newco Common Shares (the "Second Exchange"). The Second Agreement will provide that the aggregate amount of $XXXXXXXXXX will be added to the stated capital account maintained in respect of the Newco Common Shares and no additional amount will be added to any other stated capital or contributed surplus account of Newco as a consequence of the issuance of the XXXXXXXXXX Newco Common Shares to the Trust.

34. The Trust and Newco will file a joint election pursuant to subsection 85(1) in respect of the disposition by the Trust of the XXXXXXXXXX New XCO Common Shares under the Second Exchange, within the time limits prescribed by subsection 85(6). The Trust and Newco will elect an aggregate Agreed Amount that is equal to the fair market value of the XXXXXXXXXX New XCO Common Shares at the time of the Second Exchange for the purposes of such election.

35. After the death of Mr. X, but prior to the winding-up of XCO described in Paragraph 36, the XXXXXXXXXX New XCO Preferred Shares issued to Mr. X pursuant to the First Agreement will be redeemed by XCO for cash proceeds of $XXXXXXXXXX .

36. After the Second Exchange has been completed, XCO will be wound up and the Subsidiary Shares will be distributed by XCO to Newco. Pursuant to paragraph 88(1)(d), Newco will designate, in its return of income under Part I of the Act for the taxation year in which XCO is wound up, amounts to be added to the cost of the Subsidiary Shares in accordance with paragraph 88(1)(c), which in the aggregate will not exceed the amount by which the adjusted cost base of New XCO Common Shares held by the Trust immediately prior to the winding-up exceeds the amounts determined in respect of XCO pursuant to subparagraphs 88(1)(d)(i) and 88(1)(d)(i.1), and in no case will an amount designated in respect of a Subsidiary Share exceed the amount by which the fair market value of the particular Subsidiary Share exceeded its adjusted cost base to XCO at the time immediately after the death of Mr. X.

37. In accordance with the terms of the Trust Indenture, as described in paragraph 33 of the Existing Ruling, Trustco, in its capacity as trustee of the Trust, will, after the Material Date, allocate the property held pursuant to the Trust between the Charity Portion and the Society Portion in such proportions as Trustco shall determine. It is intended that the trustee will allocate sufficient property to the Charity Portion such that the subsequent gift of the Charity Portion to CHARITY will give rise to a deduction from the taxes otherwise payable by the Trust pursuant to Part I sufficient to offset all taxes otherwise owing by the Trust, provided however that under no circumstances will less than XXXXXXXXXX % of the Newco Common Shares be allocated to the Charity Portion. Consequently, it is expected that XXXXXXXXXX % of the Newco Common Shares will be allocated to the Charity Portion and XXXXXXXXXX % of the Newco Common Shares will be allocated to the Society Portion. The $XXXXXXXXXX cash amount gifted by Mr. X to settle the Trust will be allocated to the Charity Portion.

38. After the winding-up of XCO is completed, Newco and the Trust will enter into an agreement (the "Third Agreement") pursuant to which the Trust will exchange XXXXXXXXXX Newco Common Shares (the "Subject Shares") for XXXXXXXXXX Newco Preferred Shares (the "New Shares") and cash of $XXXXXXXXXX (the "Third Exchange"). The Trust will retain XXXXXXXXXX Newco Common Share as part of the Charity Portion. The majority of the Newco Preferred Shares received by the Trust on the Third Exchange will be allocated to the Charity Portion.

39. The Third Agreement will provide that the Directors of Newco shall determine that the amount to be added to the stated capital account of Newco maintained in respect of the Newco Preferred Shares as a consequence of the issuance of the New Shares to the Trust shall be equal to the fair market value of the Subject Shares, determined as of the time of the issuance of the New Shares, less $XXXXXXXXXX .

40. In accordance with the terms of the Trust Indenture, as described in paragraph 33 of the Existing Ruling, upon the Society Distribution Date, the Trust will gift all of the property allocated to the Society Portion, which will consist exclusively of Newco Preferred Shares, to SOCIETY.

41. After the Society Distribution Date, but prior to the Final Distribution Date and in the same taxation year as the taxation year in which the transaction contemplated in the Third Agreement occurs, the Trust will make a gift to CHARITY of the one Newco Common Share, the remaining Newco Preferred Shares and any other property allocated to the Charity Portion (the "Gift"). The Gift will be subject to a direction that the gifted property, and property substituted therefor, must be retained by CHARITY for not less than XXXXXXXXXX years.

42. As a consequence of the Gift, there will be no property held in the Trust that will be available for distribution on the Final Distribution Date.

ADDITIONAL INFORMATION

43. Throughout the period commencing at the time the Trust is created as described in paragraphs 26 to 35 of the Existing Ruling and ending on the death of Mr. X, CHARITY and SOCIETY will each deal at arm's length with Mr. X.

44. Mr. X will not serve again as a member, director or officer of CHARITY or SOCIETY and will not serve on any committee or on the Advisory Council of either CHARITY or SOCIETY in the event such council or committees are formed. Mr. X will not attend any meetings of the members or directors of either CHARITY or SOCIETY, nor will he receive notice of such meetings. Mr. X will ensure that during his lifetime, that Mr. X and the corporations directly and indirectly controlled by Mr. X do not engage in any financial transactions with CHARITY or SOCIETY, with the exception of any gifts that Mr. X or a corporation directly or indirectly controlled by Mr. X, may make to CHARITY or SOCIETY.

45. The books and records of CHARITY and SOCIETY will not be maintained or stored within any premises under the control of Mr. X, XCO or any person related to Mr. X or XCO. The head office and official addresses of CHARITY and SOCIETY will not be located at any premises or location under the control of Mr. X, XCO or any person related to Mr. X or XCO.

46. XXXXXXXXXX

47. Throughout the period commencing at the time the Trust is created as described in paragraphs 26 to 35 of the Existing Ruling, CHARITY and SOCIETY will each deal at arm's length with the Trust at all times up to and including the moment of the death of Mr. X if the Act were read without reference to paragraph 251(1)(b).

48. The only property that CHARITY 2 will acquire from the Trust, SOCIETY and CHARITY as part of the series of transactions that includes the winding-up of XCO will be property described in subparagraph 88(1)(c.3)(iii).

49. Immediately before the winding-up of XCO described in Paragraph 36, the adjusted cost base of the New XCO Common Shares held by Newco will not be less than (i) the paid-up capital of such shares and (ii) the aggregate of the cost amount to XCO of properties owned by it immediately before the winding-up of XCO and the amount of money of XCO on hand at that time.

50. No election will be made pursuant to subsection 83(2) with respect to the dividend that Newco is deemed to have paid to the Trust as a consequence of the sale of the Subject Shares contemplated under the Third Agreement, nor will the Trust designate any portion of a taxable dividend received on the Subject Shares as permitted under subsections 104(19) and (20).

51. The Subsidiary Shares will be capital property at all times.

52. Upon receiving the Gift of the Newco Common Share and Newco Preferred Shares, as described in Paragraph 41, CHARITY will acquire control of Newco. In addition, the fair market value of the Newco Preferred Shares so acquired by CHARITY will be greater than XXXXXXXXXX % of all of the issued and outstanding shares of Newco at the time the Newco Preferred Shares are acquired by CHARITY.

53. No election will be made by the Trust pursuant to subparagraph 104(4)(a)(ii.1).

PURPOSES OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to structure the estate plan of Mr. X in an efficient manner such that CHARITY and SOCIETY will receive Mr. X.'s wealth after Mr. X.'s death. Under applicable wills and estate legislation, it is not certain that Mr. X's wealth, the vast majority of which consists of the shares of XCO, could devolve to CHARITY and SOCIETY in the manner contemplated by the proposed transactions if the shares of XCO formed part of Mr. X's estate. Consequently, Mr. X's interest in XCO was transferred to the Trust in the manner described in the Existing Ruling.

XXXXXXXXXX
The purpose of the transfer of Newco Preferred Shares to CHARITY by way of gift is to allow the Trust to claim a charitable donation tax credit to reduce any tax liability payable by the Trust. It is intended that the trustee of the Trust will allocate sufficient property to the Charity Portion, such that the subsequent gift of the Charity Portion will result in a charitable tax credit sufficient to offset all taxes owing by the Trust, provided however that under no circumstances will less than XXXXXXXXXX % of the Newco Common Shares be allocated to the Charity Portion. Based upon present tax rates, it is anticipated that XXXXXXXXXX % of the Newco Common Shares will be allocated to the Charity Portion and the other XXXXXXXXXX % will be allocated to the Society Portion. The purpose of the Third Exchange, which results in the disposition of Newco Common Shares for Newco Preferred Shares and cash under the Third Agreement, is to allow the Trust to make a gift to CHARITY that gives rise to a charitable donation tax credit that can fully offset the Trust's tax liability, as would be the case had the shares of XCO formed part of Mr. X's estate.

RULINGS GIVEN

Provided that the above statements constitute a complete and accurate disclosure of all the relevant facts, purposes of the proposed transactions and the proposed transactions, we rule as follows:

A. For the purposes of the provisions of the Act enumerated in subsection 256(7), the transmission of the shares of Trustco from Mr. X to the executors of his estate upon the death of Mr. X will not, in and of itself, result in an acquisition of control of Trustco and will not, in and of itself, result in an acquisition of control of XCO.

B. Provided that the Trust and Newco jointly file an election pursuant to subsection 85(1) in the prescribed form and manner and within the time specified in subsection 85(6), the provisions of subsection 85(1), other than paragraph 85(1)(e.2), will apply to the exchange of shares made pursuant to the Second Agreement such that the cost of the XXXXXXXXXX Newco Common Shares acquired by the Trust, determined immediately after the Second Exchange, will be equal to the total of the fair market value of the XXXXXXXXXX New XCO Common Shares, determined as of the time of the transaction contemplated in the Second Agreement.

C. Paragraphs 88(1)(a) and 88(1)(b) will apply to the winding-up of XCO such that (i) XCO will be deemed to have disposed of the Subsidiary Shares for proceeds equal to their adjusted cost base immediately before the winding-up and (ii) Newco will be deemed to have disposed of the XXXXXXXXXX New XCO Common Shares for proceeds equal to their adjusted cost base.

D. Pursuant to paragraphs 88(1)(c) and 88(1)(d), the cost to Newco of each Subsidiary Share that becomes property of Newco on the winding-up of XCO described in Paragraph 36 will be deemed to be the amount deemed by paragraph 88(1)(a) to be the proceeds of disposition of the Subsidiary Share to XCO, plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), and provided that no property acquired by Newco on the winding-up of XCO, or "any other property acquired by any person in substitution therefor" (within the meaning of the phrase for the purposes of clause 88(1)(c)(vi)(B)) ("XCO Distributed or Substituted Property") is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) (on the assumption that the "subsidiary" referred to in those subclauses is XCO and the "parent" is Newco) (an "XCO Person") as part of the series of the transactions or events that includes the proposed transactions described herein, such portion of the amount, if any, by which:

(i) the aggregate of the adjusted cost base to Newco of each New XCO Common Share immediately before the winding-up

exceeds

(ii) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),

as is designated by Newco under paragraph 88(1)(d) in respect of the Subsidiary Share in its return of income under Part I of the Act for the taxation year in which the winding-up of XCO occurred, in accordance with Paragraph 36.

E. Provided that at all times from the time of the creation of the Trust until the time that is immediately after the death of Mr. X (i) Mr. X deals at arm's length with each of CHARITY and SOCIETY, (ii) CHARITY, CHARITY 2 and SOCIETY deal at arm's length with each other, and (iii) the fair market value of the interest of SOCIETY in the Trust is not greater than XXXXXXXXXX % of the fair market value of all interests in the Trust, none of the transactions described herein will, in and of
themselves, result in XCO Distributed or Substituted Property being acquired by an XCO Person.

F. Pursuant to subsection 84(3), the Trust will be deemed to have received a dividend from Newco as a consequence of the sale of the Subject Shares pursuant to the Third Agreement in an amount equal to the amount by which the aggregate of the amount added to the paid-up capital of the New Shares and $XXXXXXXXXX exceeds the paid-up capital of the Subject Shares.

G. At the time of the issuance of the New Shares pursuant to the Third Agreement, the paid-up capital of the New Shares will be equal to the fair market value of the Subject Shares, determined as of the time of the sale, less $XXXXXXXXXX .

H. The amount of the dividend that the Trust is deemed to receive on the Third Exchange will not be included in computing the proceeds of disposition realized by the Trust on the disposition of the Subject Shares to Newco.

I. Subject to subsection 40(3.6), the Trust will realize a capital loss on the disposition of Subject Shares on the Third Exchange equal to the amount by which the total of the adjusted cost base of the Subject Shares and the amount of any costs incurred by the Trust for the purpose of disposing of the Subject Shares to Newco exceeds the paid-up capital of the Subject Shares at the time of the disposition.

J. Pursuant to paragraphs 40(3.6)(a) and (b) and paragraph 53(1)(f.2), the capital loss from the disposition of the Subject Shares on the Third Exchange will be deemed to be nil, and, in computing the adjusted cost base of each Newco Preferred Share and the Newco Common Share held by the Trust immediately after the Third Exchange, there shall be added the proportion of the amount of the capital loss of the Trust on the disposition of Subject Shares on the Third Exchange, determined without reference to subsection 40(3.6), that

(i) the fair market value, determined immediately after the Third Exchange, of the particular Newco Preferred Share or Newco Common Share, as the case may be,

is of

(ii) the fair market value, determined immediately after the Third Exchange, of all of the Newco Preferred Shares and the Newco Common Share owned by the Trust.

K. Provided that before the end of the third taxation year of the Trust following the taxation year of the Trust in which the death of Mr. X occurs, the Trust distributes all of its remaining property and ceases to exist, any capital losses that, but for the application of subsection 40(3.4), would have been realized by the Trust on the disposition of the Newco Preferred Shares described in Paragraph 40, will be capital losses of the Trust at a time that is no later than the end of the third taxation year of the Trust immediately following the taxation year of the Trust in which the death of Mr. X occurs.

L. Provided that CHARITY owns the Newco Preferred Shares and the Newco Common Share acquired from the Trust throughout the XXXXXXXXXX -day period commencing at the time immediately after the Trust disposes of the Newco Preferred Shares and the Newco Common Share to CHARITY, the Trust will realize a capital loss on the disposition of Newco Preferred Shares and the Newco Common Share equal to the amount, if any, by which the total of the adjusted cost base of the Newco Preferred Shares and the Newco Common Share so disposed of and any costs incurred by the Trust for the purpose of disposing of the Newco Preferred Shares and the Newco Common Share exceeds the fair market value of the Newco Preferred Shares and the Newco Common Share, determined at the time of the disposition.

M. Provided that CHARITY is a "qualified donee" as defined in subsection 149.1(1) at the time of the Gift, the Trust may include in its "total charitable gifts", as defined in subsection 118.1(1), for the taxation year that includes that time an amount equal to the fair market value of the Newco Preferred Shares and the Newco Common Share at that time.

N. Paragraph 251(1)(a) and paragraph 251(1)(b) will not apply to deem the Trust and Newco to not deal with each other at arm's length immediately after the time of the Gift.

O. Subsection 245(2) will not be applied to the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the rulings given.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada Revenue Agency provided that the undertakings described in paragraph 2 of the COMMENTS below are fulfilled.

As the Proposed Transactions may not be carried out for several years, we wish to emphasize the limitations on the validity of the above rulings that are explained in paragraph 14 of Information Circular 70-6R5. In particular, the above rulings are based on the law in its present form and do not take into account any statutory amendments (whether currently proposed or not) that are enacted after the date of this letter, or any court decisions rendered after the date of this letter.

OPINION

Subsections 248(35) and (36) were proposed to be introduced under subsection 187(23) of Bill C-10 (39th Parliament), which received second reading in the Senate on December 4, 2007. The 39th Session of the Parliament of Canada was dissolved on September 7th, 2008 and as a result the provisions of Bill C-10 (39th Parliament) were not enacted into law, and cannot become law unless they are reintroduced. As of the date of this letter, subsections 248(35) and (36) have not been reintroduced into the 40th Session of the Parliament of Canada. Provided that subsections 248(35) and (36) are reintroduced and enacted in substantially the same manner as the version that was released by the Minister of Finance on July 18, 2005 and passed by the House of Commons in the 39th Session of Parliament, they will not apply to reduce, for the purposes set out in subsection 248(35), the fair market value otherwise determined or the adjusted cost base otherwise determined of the Newco Common Share and the Newco Preferred Shares that are gifted by the Trust to CHARITY, as described in Paragraph 41.

As indicated in paragraph 22 of Information Circular 70-6R5, an expression of opinion is not an advance income tax ruling and, accordingly, is not binding on the Canada Revenue Agency.

COMMENTS

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

(a) the determination of the adjusted cost base, paid-up capital or fair market value of any property referred to herein;

(b) whether CHARITY or CHARITY 2 is currently a charitable organization, qualified donee or private foundation or will have such status at any particular time;

(c) whether any of the parties to the transactions described herein deal at arm's length, except as expressly stated in Ruling N, above; or

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

2. Although the Trust Indenture provides that all of the property of the Trust must be distributed prior to the end of the third taxation year of the Trust immediately following the death of Mr. X, it is anticipated that the Third Exchange will be implemented and the Gift will be made in the same taxation year of the Trust in which the death of Mr. X occurs (the "Terminal Year"), in which case the amount of any capital losses realized by the Trust will be available to offset the capital gains that will be realized by the Trust in the Terminal Year in respect of the disposition of New XCO Common Shares pursuant to subsection 104(4).

However, if Mr. X dies late in the year, there may not be sufficient time to carry out the Third Exchange and to make the Gift in the Terminal Year. Such transactions would occur in the taxation year of the Trust following the Terminal Year. Under such circumstances, it is anticipated that the gains realized by the Trust in respect of the disposition of New XCO Common Shares pursuant to subsection 104(4) will give rise to a substantial amount of tax that will become payable by the Trust XXXXXXXXXX days after the end of the Terminal Year. It is anticipated that the amount of such gains will be offset in full by deducting the net capital losses of the Trust for the taxation year of the Trust immediately following the Terminal Year. Nonetheless, for some period of time, taxes will be owing by the Trust under such circumstances and interest will accrue and become owing by the Trust in respect of such taxes.

In the event that the Third Exchange and the Gift do not occur in the Terminal Year, a number of undertakings have been proposed by the Taxpayers, which must be fulfilled in order for the rulings contained herein to be binding on the Canada Revenue Agency. In the event that any of the undertakings set out below are not honoured, the above rulings are void and will not be binding on the Canada Revenue Agency. The undertakings are as follows:

(a) the return of income for the Terminal Year will be filed within XXXXXXXXXX days from the end of the Terminal Year;

(b) a written acknowledgment of the taxes payable by the Trust for the Terminal Year will be submitted in conjunction with the filing of the return of income for the Terminal Year, which will also indicate that such liability will be reduced upon deducting the Trust's net capital losses that will arise in a subsequent taxation year of the Trust;

(c) the Trust will, if required by the Canada Revenue Agency, provide security to defer collection of the taxes payable by the Trust for the Terminal Year, which may entail providing a letter of credit, a pledge of corporate shares or a cash payment to the Canada Revenue Agency;

(d) arrangements will be made with the Canada Revenue Agency for the payment of any interest that may accrue on the amount of any taxes payable by the Trust for the Terminal Year;

(e) an objection to the assessment of income of the Trust for the Terminal Year will not be made solely for the purpose of prohibiting the Minister from carrying out any act of collecting the taxes payable by the Trust for the Terminal Year, including the actions described in paragraphs (a) to (g) of subsection 225.1(1);

(f) the trustee(s) of the Trust will take all reasonable steps to ensure that the Third Exchange and the Gift will occur prior to the end of the taxation year of the Trust immediately following the Terminal Year and that the return of income for such taxation year will be filed and the request to deduct the net capital losses of the Trust for such taxation year in the Terminal Year will be made prior to the end of such taxation year;

(g) in the event that the Third Exchange and the Gift do not occur prior to the end of the taxation year of the Trust immediately following the Terminal Year, the trustee(s) of the Trust will take all reasonable steps to ensure that such transactions and related tax filings occur forthwith; and

(h) the trustee(s) or other legal representatives of the Trust will make an application for a certificate pursuant to subsection 159(2) prior to distributing the property of the Trust to Charity and Society as contemplated in the Proposed Transactions.

Yours truly,

for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch