2011 Ruling 2011-0409641R3 - Internal Reorganisation - 55(3)(a) and (b)

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.

Position: Favourable rulings provided.

Reasons: In compliance with the law and previous positions.

XXXXXXXXXX
					2011-040964
					XXXXXXXXXX 

XXXXXXXXXX , 2011

Dear Sir:

Re: Advance Income Tax Ruling - XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided in your e-mails of XXXXXXXXXX and during our various telephone conversations in connection with your ruling request (XXXXXXXXXX ).

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues described herein is:

(i) dealt with in an earlier return of the taxpayers 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 taxpayers or a related person,

(iii) under objection by the taxpayers 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 (other than the Original Rulings).

Unless otherwise indicated, all references to monetary amounts are in Canadian dollars.

Throughout this letter, except in Paragraph 15, the corporate and individual taxpayers will be referred to as follows:

(a) "XXXXXXXXXX " means XXXXXXXXXX , a corporation incorporated under the CBCA which is a wholly-owned subsidiary of Holdco.

(b) "Child I" means XXXXXXXXXX .

(c) "Child II" means XXXXXXXXXX .

(d) "Childco I" means XXXXXXXXXX , a corporation incorporated under the CBCA which is wholly-owned by Child I.

(e) "Childco II" means XXXXXXXXXX a corporation incorporated under the CBCA which is wholly-owned by Child II.

(f) "Children" means Child I and Child II, the children of Parent I and Parent II.

(g) "Eligible Charity I" means XXXXXXXXXX , a "registered charity" within the meaning assigned by subsection 248(1).

(h) "Eligible Charity II" means XXXXXXXXXX , a "registered charity" within the meaning assigned by subsection 248(1).

(i) "Familyco" means XXXXXXXXXX , a corporation incorporated under the CBCA, the shareholding of which is described in Paragraph 5.

(j) "Grandchild" means XXXXXXXXXX , the daughter of Child II and his wife, XXXXXXXXXX .

(k) "Holdco" means XXXXXXXXXX , a corporation continued under the CBCA, the shareholding of which is described in Paragraph 3.

(l) "Newco" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX which is controlled by Parent I.

(m) "Parent I" means XXXXXXXXXX .

(n) "Parent II" means XXXXXXXXXX , the spouse of Parent I.

(o) "Parents" means Parent I and Parent II.

(p) "Trustees" has the meaning assigned by the XXXXXXXXXX Trust Deed, the XXXXXXXXXX Trust Deed and the XXXXXXXXXX Trust Deed, as the context requires.

(q) "XXXXXXXXXX " means XXXXXXXXXX , a corporation incorporated under the CBCA which is a wholly-owned subsidiary of Holdco.

(r) "XXXXXXXXXX Trust" means the trust established under the laws of the province of XXXXXXXXXX pursuant to the XXXXXXXXXX Trust Deed for the benefit of the XXXXXXXXXX Trust Beneficiaries.

(s) "XXXXXXXXXX Trust Beneficiaries" means Parent I, Parent II and their issue, Newco and Eligible Charity II and if all other beneficiaries are dead, Eligible Charity I or other registered charities. The Children and the Grandchild are the only current issue of the Parents.

(t) "XXXXXXXXXX Trust" means the XXXXXXXXXX , a trust resident in Canada established under the laws of the province of XXXXXXXXXX pursuant to the XXXXXXXXXX Trust Deed for the benefit of the XXXXXXXXXX Trust Beneficiaries.

(u) "XXXXXXXXXX Trust Beneficiaries" means Parent I, Parent II and their issue, Childco I, Childco II, and Eligible Charity II and if all other beneficiaries are dead, Eligible Charity I or other registered charities. The Children and the Grandchild are the only current issue of the Parents.

(v) "XXXXXXXXXX Trust" means the trust established under the laws of the province of XXXXXXXXXX pursuant to the XXXXXXXXXX Trust Deed for the benefit of the XXXXXXXXXX Trust Beneficiaries.

(w) "XXXXXXXXXX Trust Beneficiaries" means, Parent I, Parent II and their issue and, if all the other beneficiaries are dead, Eligible Charity I, Eligible Charity II or other charities. The Children and the Grandchild are the only current issue of the Parents.

DEFINITIONS

In this letter, unless otherwise noted, the following terms have the meaning specified herein:

(a) "ACB" has the meaning assigned to the expression "adjusted cost base" in section 54.

(b) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph, clause or subclause is a reference to the relevant provision of the Act.

(c) "CBCA" means the Canada Business Corporations Act, R.S.C. 1985 c. C.44, as amended to the date hereof.

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

(e) "CDA" has the meaning assigned to the expression "capital dividend account" in subsection 89(1).

(f) "CRA" means the Canada Revenue Agency.

(g) "Dividend Refund" has the meaning assigned to that expression in subsection 129(1).

(h) "Eligible Dividend" has the meaning assigned by subsection 89(1).

(i) "Familyco Distribution" means the distribution described in Paragraph 11.

(j) "FMV" means fair market value.

(k) "GRIP" has the meaning assigned to the expression "general rate income pool" in subsection 89(1).

(l) "Holdco Deemed Dividends" means the deemed dividends described in Paragraph 8.

(m) "Original Rulings" means the advance income tax rulings that were issued on XXXXXXXXXX , 2008 and XXXXXXXXXX , 2009 to the taxpayers (Rulings document No. 2007-0255961R3 and No. 2009-0346361R3 respectively).

(n) "Paragraph" refers to a numbered paragraph in this letter.

(o) "Proposed Transactions" means the transactions described in Paragraphs 8 to 13.

(p) "PUC" means "paid-up capital" within the meaning assigned by subsection 89(1).

(q) "RDTOH" means "refundable dividend tax on hand" within the meaning assigned by subsection 129(3).

(r) "XXXXXXXXXX Trust Deed" means the deed of settlement that was signed on XXXXXXXXXX between XXXXXXXXXX (as settlor) and Parent I, Parent II and XXXXXXXXXX (as trustees) on the establishment of the XXXXXXXXXX Trust.

(s) "XXXXXXXXXX Trust Deed" means the deed of settlement that was signed on XXXXXXXXXX on the establishment of the XXXXXXXXXX Trust.

(t) "XXXXXXXXXX Trust Deed" means the deed of settlement that was signed on XXXXXXXXXX between XXXXXXXXXX (as settlor) and XXXXXXXXXX (as trustees) on the establishment of XXXXXXXXXX Trust.

(u) "84(2) Deemed Dividends" means the deemed dividends described in Paragraph 12.

FACTS

1) All the transactions described in the Original Rulings have been carried out as of the date hereof.

2) On XXXXXXXXXX , further to a reorganization of Holdco's share capital, XXXXXXXXXX Trust exchanged on a tax deferred basis, in accordance with subsection 86(1), XXXXXXXXXX common shares of the capital stock of Holdco in consideration for XXXXXXXXXX Class F preferred shares of the capital stock of Holdco with a FMV and redemption amount equal to the FMV of the common shares of the capital stock of Holdco transferred (i.e., approximately $XXXXXXXXXX ).

On the same day, XXXXXXXXXX Trust subscribed to XXXXXXXXXX common shares of the capital stock of Holdco in consideration for $XXXXXXXXXX .

In December XXXXXXXXXX , Holdco redeemed XXXXXXXXXX Class F preferred shares of the capital stock of Holdco for $XXXXXXXXXX .

3) The shareholding of Holdco is currently as follows:

Shareholder		Class of shares		Number		ACB		PUC
							of shares
Parent I		Class A, voting 		XXXXX			XXXXX		XXXXX
Familyco		Class D, non-voting	XXXXX			$XXXXX	$XXXXX
XXXX Trust		Class F, non-voting	XXXXX			$XXXXX	$XXXXX
The XXXX Trust	Common Shares		XXXXX			$XXXXX	$XXXXX

The Class A shares are voting preferred shares redeemable at an amount equal to $XXXXXXXXXX per share less the aggregate of each PUC reduction made after XXXXXXXXXX . The Class A shares are entitled to a fixed non-cumulative preferential dividend.

The Class D shares are non-voting preferred shares redeemable an amount equal to $XXXXXXXXXX per share less the aggregate of each PUC reduction made after XXXXXXXXXX and are entitled to a non-cumulative preferential dividend.

The Class F shares are non-voting preferred shares redeemable an amount equal to $XXXXXXXXXX per share less the aggregate of each PUC reduction made after XXXXXXXXXX and are entitled to a non-cumulative preferential dividend.

The common shares of the capital stock of Holdco held by XXXXXXXXXX Trust are non-voting.

The aggregate FMV of the Class D preferred shares of the capital stock of Holdco owned by Familyco is $XXXXXXXXXX .

4) Parent I has had de jure control of Holdco since XXXXXXXXXX .

Holdco's assets consist essentially of shares of the capital stock of XXXXXXXXXX , shares of the capital stock of XXXXXXXXXX , and investment portfolios.

As of XXXXXXXXXX , Holdco has a GRIP balance of $XXXXXXXXXX , an RDTOH balance of $XXXXXXXXXX and a XXXXXXXXXX CDA balance.

5) The shareholding of Familyco is currently as follows:

Shareholder	Class of			Number	ACB		PUC		Appro. FMV
		shares			of shares					of shares

Parent I	Class C preferred,	XXXX		$XXXX		$XXXX		$XXXX
		voting

Parent II	Class C preferred,	XXXX		$XXXX		$XXXX		$XXXX
		voting

Child I	Class A common		XXXX		$XXXX		$XXXX		$XXXX
		shares, voting 

Child II	Class B common		XXXX		$XXXX		$XXXX		$XXXX
		shares, voting

Child I	Class E preferred,	XXXX		$XXXX		$XXXX		$XXXX
		non-voting

Child II	Class D preferred,	XXXX		$XXXX		$XXXX		$XXXX
		non-voting

The Class A shares are voting common shares, entitled pari passu with Class B shares to dividends and to receive the remaining property of the corporation upon its liquidation or winding-up.

The Class B shares are voting common shares entitled pari passu with Class A shares to dividends and to receive the remaining property of the corporation upon liquidation or winding-up.

The Class C shares are voting preferred shares redeemable and retractable at an amount equal to $XXXXXXXXXX per share less the aggregate of each PUC reduction made after XXXXXXXXXX . They are also entitled in priority on Class A, B, D and E to a non-cumulative preferential dividend and to receive upon liquidation or winding-up of the corporation such redemption price.

The Class D shares are non-voting preferred shares redeemable and retractable at an amount equal to $XXXXXXXXXX per share less the aggregate of each a PUC reduction made after XXXXXXXXXX . They are also entitled in priority on Class A and B but pari passu with Class E to a non-cumulative preferential dividend and to receive upon liquidation or winding-up of the corporation such redemption price. As of the date thereof, PUC reduction for an aggregate amount of $XXXXXXXXXX has been made such that the redemption price of the issued and outstanding Class D shares should be $XXXXXXXXXX .

The Class E shares are non-voting preferred shares redeemable and retractable at an amount equal to $XXXXXXXXXX per share less the aggregate of each a PUC reduction made after XXXXXXXXXX . They are also entitled in priority on Class A and B but pari passu with Class D to a non-cumulative preferential dividend and to receive upon liquidation or winding-up of the corporation such redemption price. As of the date thereof, PUC reduction for an aggregate amount of $XXXXXXXXXX has been made such that the redemption price of the issued and outstanding Class E shares should be $XXXXXXXXXX .

6) Parent I and Parent II, as a group, have had de jure control of Familyco since its incorporation.

Familyco's only assets are cash and Class D preferred shares of the capital stock of Holdco.

As of XXXXXXXXXX , Familyco has a XXXXXXXXXX GRIP balance, an RDTOH balance of approximately $XXXXXXXXXX and a XXXXXXXXXX CDA balance.

7) Parent I has always had de jure control of Newco.

PROPOSED TRANSACTIONS

8) Holdco will redeem successively XXXXXXXXXX Class D shares of its capital stock for a cash consideration of $XXXXXXXXXX and XXXXXXXXXX Class D shares of its capital stock for a cash consideration of $XXXXXXXXXX .

Pursuant to subsection 84(3), Holdco will be deemed to have paid and Familyco will be deemed to have received a dividend of an amount of $ XXXXXXXXXX and $XXXXXXXXXX respectively (the "Holdco Deemed Dividends").

Familyco will include the amount of the Holdco Deemed Dividends in computing its income and will deduct a corresponding amount pursuant to subsection 112(1) in computing its taxable income.

Holdco will designate in writing in accordance with subsection 89(14) the deemed dividend of $XXXXXXXXXX as an Eligible Dividend.

After the redemption of the Class D preferred shares of the capital stock of Holdco, the only type of assets of Familyco will be "cash and near-cash".

9) Child I will transfer all of his Class A common shares and Class E preferred shares of the capital stock of Familyco to Childco I in consideration for the issuance by Childco I of a number of common shares with a FMV equal to the FMV of the Class A common shares and the Class E preferred shares of the capital stock of Familyco transferred.

Child I will jointly elect with Childco I 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 will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

Childco I will add an amount equal to the aggregate of the PUC of the Class A common shares and the Class E preferred shares of the capital stock of Familyco to the stated capital of the common shares of the capital stock of Childco I.

10) Child II will transfer all of his Class B common shares and Class D preferred shares of the capital stock of Familyco to Childco II in consideration for the issuance by Childco II of a number of common shares with a FMV equal to the FMV of the Class B common shares and the Class D preferred shares of the capital stock of Familyco transferred.

Child II will jointly elect with Childco II 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 will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

Childco II will add an amount equal to the aggregate of the PUC of the Class B common shares and the Class D preferred shares of the capital stock of Familyco to the stated capital of the common shares of the capital stock of Childco II.

11) Familyco will be wound up and the assets of Familyco, composed only of "cash and near-cash", will be distributed to the Familyco shareholders (the "Familyco Distribution") in accordance with the terms and conditions of each class of shares of Familyco share capital, more particularly as follows:

Class of shares	Shareholder		Number of shares	Amount Received

Class A common		Childco I		XXXX 			XXXX% of the remaining assets:
shares, voting								approximately $XXXX

Class B common		Childco II		XXXX			XXXX% of the remaining assets: shares, voting								approximately $XXXX

Class C preferred,	Parent I		XXXX			$XXXX
voting			Parent II		XXXX			$XXXX

Class D preferred,	Childco II		XXXX			$XXXX
non-voting

Class E preferred,	Childco I		XXXX			$XXXX
non-voting

12) On the Familyco Distribution, Childco I and Childco II will receive amounts that exceed the aggregate PUC of the Class A, Class B, Class D and Class E shares of the capital stock of Familyco respectively. Childco I and Childco II will be deemed to have received dividends equal to the amount of such excess respectively pursuant to subsection 84(2) (the "84(2) Deemed Dividends").

Each of Childco I and Childco II will include its portion of the amount of the 84(2) Deemed Dividends in computing its income and will deduct a corresponding amount pursuant to subsection 112(1) in computing its taxable income.

Familyco will designate in writing in accordance with subsection 89(14) the deemed dividends on the Class D and Class E preferred shares of its capital stock, of $XXXXXXXXXX and $XXXXXXXXXX respectively, as Eligible Dividends.

13) Should Familyco be entitled to receive a Dividend Refund in the course of the Proposed Transactions, it will distribute, as part of the winding-up, such amount in accordance with the terms and conditions of each class of shares of Familyco share capital.

Familyco will be legally dissolved. Articles of dissolution will be filed. Upon receipt of the articles of dissolution, a certificate of dissolution will be issued. Familyco will cease to exist on the date shown on the certificate of dissolution.

ADDITIONAL INFORMATION

14) Holdco, Familyco, Childco I and Childco II will be, at any relevant time and for all purposes of the Act, CCPCs and will have a XXXXXXXXXX year-end.

15) The federal business number of the parties referred to herein, the location of the tax services office and taxation centre where their returns are filed, and the address of their head office are as follows:

XXXXXXXXXX

Business Number: XXXXXXXXX
Tax Services Office: XXXXXXXXXX
Tax Centre: XXXXXXXXXX

Address :
XXXXXXXXXX

XXXXXXXXXX
Business Number: XXXXXXXXXX
Tax Services Office: XXXXXXXXXX
Tax Centre: XXXXXXXXXX
Address : XXXXXXXXXX

XXXXXXXXXX
Business Number: XXXXXXXXXX
Tax Services Office: XXXXXXXXXX
Tax Centre:
XXXXXXXXXX
Address : XXXXXXXXXX

XXXXXXXXXX
Business Number: XXXXXXXXXX
Tax Services Office: XXXXXXXXXX
Tax Centre:
XXXXXXXXXX
Address : XXXXXXXXXX

16) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to exercise the power of appointment in Article XXXXXXXXXX of the XXXXXXXXXX Trust Deed. In particular, the Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to appoint all or part of the trust fund to a trust having as a beneficiary a person who is not a beneficiary of the XXXXXXXXXX Trust.

17) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to add as a beneficiary any of the persons described in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed.

18) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to exercise the power of appointment in Article XXXXXXXXXX of the XXXXXXXXXX Trust Deed. In particular, the Trustees of the XXXXXXXXXX Trust will undertake, for a period of XXXXXXXXXX years from the date of this letter, not to appoint all or part of the trust fund to a trust having as a beneficiary a person who is not a beneficiary of the XXXXXXXXXX Trust.

19) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to add as a beneficiary any of the persons described in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed.

20) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to exercise the power of appointment in Article XXXXXXXXXX of the XXXXXXXXXX Trust Deed. In particular, the Trustees of the XXXXXXXXXX Trust will undertake, for a period of XXXXXXXXXX years from the date of this letter, not to appoint all or part of the trust fund to a trust having as a beneficiary a person who is not a beneficiary of the XXXXXXXXXX Trust.

21) The Trustees of the XXXXXXXXXX Trust undertake, for a period of XXXXXXXXXX years from the date of this letter, not to add as a beneficiary any of the persons described in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed, except Eligible Charity II.

22) None of the persons who could be added as a beneficiary to the XXXXXXXXXX Trust pursuant to subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed are considered beneficiaries of the XXXXXXXXXX Trust at law until such time as the Trustees have exercised the power of appointment granted in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed and have documented such exercise in the manner required by the terms of the XXXXXXXXXX Trust.

23) None of the persons who could be added as a beneficiary to the XXXXXXXXXX Trust pursuant to subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed are considered beneficiaries of the XXXXXXXXXX Trust at law until such time as the Trustees have exercised the power of appointment granted in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed and have documented such exercise in the manner required by the terms of the XXXXXXXXXX Trust.

24) None of the persons who could be added as a beneficiary to the XXXXXXXXXX Trust pursuant to subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed are considered beneficiaries of the XXXXXXXXXX Trust at law until such time as the Trustees have exercised the power of appointment granted in subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed and have documented such exercise in the manner required by the terms of the XXXXXXXXXX Trust.

25) None of the persons who could be added as a beneficiary to the XXXXXXXXXX Trust, the XXXXXXXXXX Trust or the XXXXXXXXXX Trust, pursuant to subparagraph XXXXXXXXXX of the XXXXXXXXXX Trust Deed, the XXXXXXXXXX Trust Deed or the XXXXXXXXXX Trust Deed, is a person described in paragraph 248(25)(a) or (b).

26) The XXXXXXXXXX Trust Beneficiaries, the XXXXXXXXXX Trust Beneficiaries or the XXXXXXXXXX Trust Beneficiaries are not beneficiaries of any other trust (other than the XXXXXXXXXX Trust, the XXXXXXXXXX Trust or the XXXXXXXXXX Trust), except for the fact that: (i) Parent II has a Registered Retirement Income Fund with an Arm's Length financial institution of which she is the annuitant and Parent I the sole beneficiary; and (ii) Child I has a Registered Retirement Savings Plan with an Arm's Length financial institution of which he is the annuitant and Child II the sole beneficiary.

PURPOSE OF THE PROPOSED TRANSACTIONS

27) The purpose of the Proposed Transactions is to allow Child I and Child II to have independence and control with respect to some of the funds held indirectly in Holdco and to simplify the corporate structure of the group.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant Facts, Proposed Transactions, Additional Information and the Purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:

A. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the Holdco Deemed Dividends, described in Paragraph 8 of the Proposed Transactions, provided that there is not a disposition of property or an 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 Facts and the Proposed Transactions, in and by themselves, will not be considered to result in a disposition to, or increase in interest by, an unrelated person described in subparagraphs 55(3)(a)(i) to (v).

B. Subsection 84(2) will apply to the Familyco Distribution described in Paragraphs 11 to 13 of the Proposed Transactions such that:

Familyco will be deemed to have paid a dividend on the Class A common shares, Class B common shares, Class C preferred shares, Class D preferred shares and Class E preferred shares of its capital stock, as the case may be, equal to the amount by which

a) the amount or value of the funds or property distributed, as the case may be, exceeds
b) the amount, if any, by which the PUC in respect of the Class A common shares, Class B common shares, Class C preferred shares, Class D preferred shares and Class E preferred shares, as the case may be, is reduced on the distribution,

and each of the Familyco shareholders will be deemed to have received a taxable dividend equal to that proportion of the amount of the excess that the number of the Class A common shares, Class B common shares, Class C preferred shares, Class D preferred shares and Class E preferred shares, as the case may be, held by the recipient is of the number of Class A common shares, Class B common shares, Class C preferred shares, Class D preferred shares and Class E preferred shares, as the case may be, outstanding before the distribution.

C. Provided that, as part of the series of transactions or events that includes the Proposed Transactions, there is not:

(i) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);
(ii) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);
(iii) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);
(iv) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii); or,
(v) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or 55(3.1)(d),

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

D. Familyco will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the Dividend Refund to which Holdco will become entitled for its taxation year in which the dividend is paid, that the amount of such dividend received by Familyco is of the aggregate of all taxable dividends paid by Holdco in its taxation year in which such dividend is paid.

E. Childco I and Childco II will, pursuant to paragraph 186(1)(b), be subject to Part IV tax in an amount equal to that proportion of the Dividend Refund to which Familyco will become entitled for its taxation year in which the dividends are paid, that the amount of such dividends received by each of Childco I and Childco II is of the aggregate of all taxable dividends paid by Familyco in its taxation year in which such dividends are paid.

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

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

The above 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 CRA provided that the Proposed Transactions described in Paragraph 8 to 12 are completed before XXXXXXXXXX . The Proposed Transaction described in Paragraph 13 has to be completed within 3 months after Familyco receives a Dividend Refund in the course of this ruling.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

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

(a) the determination of the FMV or ACB of any property referred to herein or the PUC in respect of any share referred to herein. With respect to the FMV of the Class C shares of the capital stock of Familyco, please refer to Income Tax Technical News no. 38, "Value of Company Attributable to Voting Non Participating Shares" and to CRA's answer to question 26 of the Round Table on Federal Taxation of the APFF-2009 Conference dealing with the same issue.

(b) the determination of the outstanding balance of various tax accounts such as GRIP, RDTOH and CDA for any of the corporate entities described herein.

(c) any provincial tax consequences of the proposed transactions.

(d) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically confirmed in the rulings given above.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

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