2011 Ruling 2010-0388951R3 - Public Corporation Spin-Off

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: Is the proposed public company "no-types of property" spin-off exempt from the application of 55(2)?

Position: Not in these circumstances under current legislation.

Reasons: In the recent past the DC acquired another corporation that carried on a complementary business to that which it now sought to spin-off to a new public corporation. It is our view that this acquisition is described in paragraph 55(3.1)(a) with the result that 55(2) applies to the spin-off series of transactions. However, if legislation is enacted consistent with the November 26, 2004 Department of Finance comfort letter respecting the application of 55(3.1)(a), the taxpayers' series of transactions should not be subject to 55(2).

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									2010-038895

XXXXXXXXXX , 2011

Dear XXXXXXXXXX :

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge your subsequent communications with us in respect of this ruling.

We note your reference to advance income tax ruling 2007-023750, as well as supplemental advance income tax ruling 2008-028870, which were previously issued by this Directorate in respect of substantially similar proposed transactions to those described herein.

Preliminary Matters

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

(a) in an earlier return of the taxpayers or any related person;

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

(c) under objection by the taxpayers or any related person;

(d) before the courts; or

(e) the subject of a ruling previously considered by the Directorate for the taxpayers or related persons, except as referred to above.

Except as otherwise stated, a reference in this ruling application to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act and all references to monetary amounts are in Canadian dollars.

DEFINITIONS:

In this letter, the following terms have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa:

"acquiror" has the meaning assigned in the definition of "specified corporation" in subsection 55(1);

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended;

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

"agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in an election under subsection 85(1);

"Amalco" means the corporation resulting from the amalgamation of Spinco and Bco as set out in Paragraph 33;

"Amalco Common Shares" means the common shares of Amalco;

"Amalco Stock Option" means an option described in Paragraph 33(f);

"arm's length" has the meaning assigned by section 251;

"BCA" means the XXXXXXXXXX Business Corporations Act, XXXXXXXXXX , as amended;

"Bco" means XXXXXXXXXX ;

"Bco Shares" means the common shares of Bco, as described in Paragraph 6;

"Butterfly Proportion" means the fraction A/B where:

A is the net fair market value of the Spin-off Property to be transferred by DC to Spinco as described in Paragraph 27 determined immediately before such transfer; and

B is the net fair market value of all property owned by DC immediately before the transfer of the Spin-off Property to Spinco as described in Paragraph 27;

"capital property" has the meaning assigned by section 54;

"Cco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"controlled foreign affiliate" has the meaning assigned in subsection 95(1);

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

"CRA" means the Canada Revenue Agency;

"DC" means XXXXXXXXXX ;

"DC Butterfly Share Redemption Amount" means the amount described in Paragraph 22(b)(i);

"DC Butterfly Shares" means the new class of special shares in the capital of DC described in Paragraph 22(b);

"DC Common Shares" means the common shares in the capital of DC, which trade on the Stock Exchange under the symbol "XXXXXXXXXX ";

"DC DSU" means a deferred share unit under the DC DSU Plan, as described in Paragraph 14;

"DC DSU Plan" means the deferred share unit plan of DC, as described in Paragraph 14;

"DC New Common Shares" means the new common shares of DC described in Paragraph 22(a);

"DC Redemption Note" means the non-interest bearing demand promissory note to be issued by DC as described in Paragraph 30;

"DC Shareholder" means a holder of a DC Common Share;

"DC Stock Option" means a right to acquire one DC Common Share under the DC Stock Option Plan, as described in Paragraph 13;

"DC Stock Option Plan" means the existing stock option plan of DC as described in Paragraph 13;

"Dco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"designated stock exchange" has the meaning assigned in subsection 248(1);

"disposition" has the meaning assigned in subsection 248(1);

"Dissenting Shareholder" means a shareholder of DC who dissents from the Plan of Arrangement, as described in Paragraph 21;

"distribution" has the meaning assigned by subsection 55(1);

"Eco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"Effective Date" means the effective date of the Plan of Arrangement;

"excluded property" has the meaning assigned by subsection 95(1);

"exempt surplus" has the meaning assigned by subsection 5907(1) of the Regulations;

"Fco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"fair market value" means the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length;

"General Partner" means XXXXXXXXXX ;

"Holdco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"In the Money Amount" means, in relation to a particular stock option in respect of which the fair market value of the shares that are the subject of the option exceeds the exercise price of the option, the amount of such excess;

"Keepco" means XXXXXXXXXX , a corporation existing under the laws of XXXXXXXXXX ;

"New Bco" means XXXXXXXXXX , the corporation resulting from the amalgamation of Old Bco and Opco1 described in Paragraph 7(j);

"New DC Stock Options" has the meaning assigned by Paragraph 25;

"New Opco2" means XXXXXXXXXX , the corporation resulting from the amalgamation of Opco2 and Opco3 under XXXXXXXXXX and continued on XXXXXXXXXX from XXXXXXXXXX to the BCA, as XXXXXXXXXX ;

"Newco1" means a newly incorporated corporation described in Paragraph 7(m);

"Newco2" means a newly incorporated corporation described in Paragraph 7(o);

"Newco2 Note" means a promissory note described in Paragraph 7(p);

"Old BCo" means XXXXXXXXXX , a corporation governed by the BCA which was renamed XXXXXXXXXX on XXXXXXXXXX ;

"Opco1" means XXXXXXXXXX ;

"Opco1 Notes" means promissory notes owing by Opco1;

"Opco 2" means XXXXXXXXXX ;

"Opco3" means XXXXXXXXXX ;

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

"Paragraph" refers to a numbered paragraph in this letter;

"Participant" means a DC Shareholder, other than a Dissenting Shareholder;

"Partnership" means XXXXXXXXXX ;

"Plan of Arrangement" means the proposed plan of arrangement under the BCA to effect the divisive reorganization described in Paragraphs 22 to 25 and 27 to 34;

"Proposed Transactions" means the transactions referred to in Paragraphs 15 to 34;

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

"recognized stock exchange" has the meaning assigned by subsection 248(1);

"Regulations" refers to the Income Tax Regulations;

"related person" has the meaning assigned by subsection 251(2);

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

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

"short-term preferred share" has the meaning assigned by subsection 248(1);

"Spinco" means the taxable Canadian corporation described in Paragraph 18;

"Spinco Common Shares" means the common shares of Spinco, as described in Paragraph 18(a);

"Spinco Redemption Note" means the non-interest-bearing demand promissory note to be issued by Spinco as described in Paragraph 29;

"Spinco Reorganization Share Redemption Amount" means the amount described in Paragraph 18(b)(i);

"Spinco Reorganization Shares" means the class of preferred shares in the capital of Spinco described in Paragraph 18(b);

"Spinco Stock Options" has the meaning assigned by Paragraph 25;

"Spin-off Property" means all of the Bco Shares held by DC immediately prior to the implementation of the Plan of Arrangement;

"stated capital account" has the meaning assigned by section 26 of the BCA;

"Stock Exchange" means the XXXXXXXXXX Stock Exchange;

"subject corporation" has the meaning assigned by subsection 186(3);

"subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);

"Target" means XXXXXXXXXX ;

"Target Shares" means XXXXXXXXXX ;

"Target Sub1" means XXXXXXXXXX ;

"Target Sub1 Shares" means XXXXXXXXXX ;

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

"taxable preferred share" has the meaning assigned by subsection 248(1).

FACTS

General Facts Relating to DC

1. DC is a public corporation and a taxable Canadian corporation and is governed by the BCA. DC is not a subject corporation. DC's head office is located in XXXXXXXXXX .

2. [Reserved].

3. The authorized capital of DC consists of an unlimited number of DC Common Shares and an unlimited number of preferred shares. As of XXXXXXXXXX , the outstanding capital of DC consisted of XXXXXXXXXX DC Common Shares.

4. To the knowledge of the directors and senior officers of DC, as of the date hereof, no person or related group of persons beneficially owns, directly or indirectly, XXXXXXXXXX % or more of the DC Common Shares. XXXXXXXXXX

General Facts Relating to Bco, Cco, Dco, Eco, Fco, Holdco and Keepco

4.1. On XXXXXXXXXX , DC acquired XXXXXXXXXX approximately XXXXXXXXXX % of Target Shares.

4.2. XXXXXXXXXX

5. Bco is a taxable Canadian corporation and a subsidiary wholly-owned corporation of DC.

6. The authorized capital of Bco consists of an unlimited number of Bco Shares and an unlimited number of preferred shares issuable in series. The outstanding capital of Bco consists of XXXXXXXXXX Bco Shares, all of which are held by DC.

7. DC consolidated part of its operations with the operations of Target as follows:

XXXXXXXXXX

8. Each of Holdco and Fco is a subsidiary wholly-owned corporation and controlled foreign affiliate of DC.

9. Cco, Dco and Keepco are controlled foreign affiliates of DC and subsidiary wholly-owned corporations of Holdco. Eco, a subsidiary wholly-owned corporation of Cco, is also a controlled foreign affiliate of DC.

Description of DC's Business Operations

10. DC, both itself and through direct and indirect subsidiaries, carries on business in two separate and distinct business segments. The two business units offer different products and services, and each is managed separately. The two business units are described below.

XXXXXXXXXX

11. [Reserved]

12. For the fiscal period ended XXXXXXXXXX , the revenue from DC's XXXXXXXXXX business represented approximately XXXXXXXXXX % of DC's total revenues, while the revenue from DC's XXXXXXXXXX business represented approximately XXXXXXXXXX % of DC's total revenues. XXXXXXXXXX .

DC Stock Options and DC DSUs

13. DC has the DC Stock Option Plan for directors, officers and employees of DC and its affiliates. Under the terms of the DC Stock Option Plan, each DC Stock Option entitles the holder upon vesting (and other than in a "blackout period") to acquire one DC Common Share at an exercise price equal to XXXXXXXXXX . As of XXXXXXXXXX , there were XXXXXXXXXX DC Stock Options outstanding.

14. DC has the DC DSU Plan for directors of DC and certain key employees and XXXXXXXXXX employees. Each DC DSU is represented by a bookkeeping entry in the books of DC. Upon a holder of DC DSU's ceasing to be an employee of DC, such holder's DSU's are redeemed for a cash payment equal to the number of DSUs credited to the notional account of the holder on the books of DC multiplied by XXXXXXXXXX . The DC DSU Plan is a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations. As of XXXXXXXXXX , there were XXXXXXXXXX DC DSU's outstanding.

PROPOSED TRANSACTIONS

Packaging of DC's XXXXXXXXXX Business Under Bco

15. Holdco will distribute to DC, as a dividend-in-kind, all of its shares of Keepco.

16. Holdco currently has exempt surplus of approximately XXXXXXXXXX as at XXXXXXXXXX . The Keepco shares currently have an aggregate adjusted cost base to Holdco of approximately XXXXXXXXXX and a fair market value that is no greater than the exempt surplus amount of Holdco.

17. DC will transfer to Bco all of its shares of Holdco and Fco in exchange for Bco Shares. DC and Bco will jointly elect, in prescribed form and within the time determined under subsection 85(6), for the provisions of subsection 85(1) to apply to the transfer of the Holdco and Fco shares to Bco. The agreed amount will not exceed the fair market value of the transferred property, nor will it be less than the amount permitted under paragraph 85(1)(c.1).

Incorporation of Spinco

18. Spinco was incorporated XXXXXXXXXX under the BCA and is a taxable Canadian corporation. Prior to the remaining Proposed Transactions, Spinco will not have any assets or liabilities. No shares of Spinco were issued on incorporation or will be issued prior to the issue of Spinco Common Shares as described in Paragraph

24. Spinco's Articles of Incorporation provide that its authorized capital will include:

(a) Spinco Common Shares, each of which will be a fully participating, voting, common share with the holder thereof being entitled to one vote at each meeting of the shareholders of Spinco; and

(b) Spinco Reorganization Shares having the following attributes:

(i) each Spinco Reorganization Share will be redeemable, subject to applicable law, at any time at the option of Spinco at the Spinco Reorganization Share Redemption Amount, being an amount equal to the aggregate fair market value of the Spin-off Property at the time of its transfer to Spinco as described in Paragraph 27 less the value of the non-share consideration to be provided by Spinco, divided by the number of Spinco Reorganization Shares issued as consideration for such transfer, plus any declared but unpaid dividends thereon;

(ii) each Spinco Reorganization Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Spinco Reorganization Share Redemption Amount;

(iii) the holder of each Spinco Reorganization Share will be entitled to a non-cumulative cash dividend as and when declared by the board of directors of Spinco from time to time, which dividend need not also be declared on any other class of shares of Spinco;

(iv) there will be a provision restricting the payment of dividends on other classes of shares so that no dividends may be paid on any other class of shares of Spinco if the resulting realizable value of the net assets of Spinco after the payment of the dividends would be less than the aggregate of the Spinco Reorganization Share Redemption Amount relating to all of the Spinco Reorganization Shares then outstanding;(iv)

(v) for the purpose of subsection 191(4), the terms and conditions of the Spinco Reorganization Shares to be issued as described in Paragraph 27 will, at the time of their issue, specify an amount in respect of each Spinco Reorganization Share. The amount to be specified in respect of each Spinco Reorganization Share will:

(A) be pursuant to a resolution of the board of directors of Spinco;

(B) be expressed as a dollar amount;

(C) not be determined by a formula; and

(D) not exceed the net fair market value of the property received by Spinco in consideration for its issue;

(vi) the holder of each Spinco Reorganization share will be entitled, upon the liquidation, dissolution or winding-up of Spinco, to a payment of an amount equal to the Spinco Reorganization Share Redemption Amount to the extent of the amount of value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(vii) the holder of each Spinco Reorganization Share will not be entitled to vote at meetings of shareholders of Spinco, other than as provided by the BCA.

Shareholder Approval and Dissent Rights

19. On XXXXXXXXXX a management information circular was mailed to holders of DC Common Shares in contemplation of a meeting of those holders to, among other things, approve the Plan of Arrangement.

20. Subject to, among other things, the required shareholder and court approvals, the transactions described in Paragraphs 22 to 25 and 27 to 34 will be undertaken pursuant to the Plan of Arrangement under the BCA. With the exception of the filing of any elections under the Act, these transactions will occur by virtue of the Plan of Arrangement and will be designated in the Plan of Arrangement to occur on the Effective Date.

21. Each DC Shareholder will be entitled to dissent from the Plan of Arrangement in accordance with the provisions of the Plan of Arrangement and the BCA. Under the Plan of Arrangement, any Dissenting Shareholder will be considered to have ceased to be a shareholder of DC, at the time that the Plan of Arrangement becomes effective, but immediately before any other transactions that will occur under the Plan of Arrangement. Accordingly, the DC Common Shares held by a Dissenting Shareholder will be considered to have been purchased by DC pursuant to the exercise of a statutory right of dissent by the Dissenting Shareholder and will no longer be considered to be outstanding for the purpose of the remaining corporate law transactions under the Plan of Arrangement. After the completion of the Plan of Arrangement, each such Dissenting Shareholder will be entitled to be paid the fair value of its DC Common Shares in respect of which the right of dissent was exercised.

Reorganization of DC's Share Capital

22. The articles of DC will be amended to change the designation of DC Common Shares from "Common Shares" to "XXXXXXXXXX Common Shares", to increase the voting rights of the DC Common Shares to XXXXXXXXXX votes per share (the purpose of which is to create a distinction between the DC Common Shares and the newly authorized DC New Common Shares in order to support their being treated as separate classes of shares under the BCA) and to create the following new classes of shares:

(a) DC New Common Shares, each of which will be a fully participating, voting, common share with the holder thereof entitled to one vote at meetings of the shareholders of DC, but which otherwise will have attributes the same as the DC Common Shares; and

(b) DC Butterfly Shares with the following attributes:

(i) each DC Butterfly Share will be redeemable, subject to applicable law, at any time at the option of DC at the DC Butterfly Share Redemption Amount, being an amount equal to the aggregate fair market value of all of the DC Common Shares outstanding immediately before the exchange of DC Common Shares described in Paragraph 23, multiplied by the Butterfly Proportion, then divided by the number of issued and outstanding DC Butterfly Shares, plus any declared but unpaid dividends thereon;

(ii) each DC Butterfly Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the DC Butterfly Share Redemption Amount;

(iii) the holder of each DC Butterfly Share will be entitled to a non-cumulative cash dividend as and when declared by the board of directors of DC from time to time, which dividend need not also be declared on any other class of shares of DC;

(iv) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of DC if the resulting realizable value of the net assets of DC after payment of the dividends would be less than the aggregate of the DC Butterfly Share Redemption Amount relating to all of the DC Butterfly Shares then outstanding;

(v) for the purpose of subsection 191(4), the terms and conditions of the DC Butterfly Shares to be issued as described in Paragraph 23 will, at the time of their issue, specify an amount in respect of each DC Butterfly Share. The amount to be specified in respect of each DC Butterfly Share will:

(A) be pursuant to a resolution of the board of directors of DC;

(B) be expressed as a dollar amount;

(C) not be determined by a formula; and

(D) will not exceed the fair market value of the property received by DC in consideration for its issuance;

(vi) the holder of each DC Butterfly Share will be entitled, upon the liquidation, dissolution or winding-up of DC, to a payment in priority to all other classes of shares of an amount equal to the DC Butterfly Share Redemption Amount to the extent of the amount of value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(vii) the holder of each DC Butterfly Share will not be entitled to vote at meetings of shareholders of DC, other than as provided by the BCA.

Exchange of DC Common Shares

23. Each Participant will exchange each of the Participant's DC Common Shares for consideration consisting of XXXXXXXXXX DC New Common Share and XXXXXXXXXX DC Butterfly Share. In connection with the exchange:

(a) the DC Common Shares so exchanged will be cancelled;

(b) the aggregate addition to the stated capital in respect of the DC New Common Shares and the Butterfly Shares to be issued by DC on the exchange described in this Paragraph will not exceed the paid-up capital of the DC Common Shares (excluding any DC Common Shares owned by the Dissenting Shareholders) immediately before the exchange. For greater certainty, the aggregate paid-up capital of the DC Common Shares will be allocated between the DC New Common Shares and the DC Butterfly Shares based on the proportion that the fair market value of the DC New Common Shares or the DC Butterfly Shares, as the case may be, is of the fair market value of all new shares issued by DC in the exchange;

(c) DC will not file a joint election under the provisions of subsection 85(1) with any Participant in respect of this exchange; and

(d) the DC New Common Shares will be listed for trading on the Stock Exchange.

Transfer of DC Butterfly Shares to Spinco

24. Each Participant will transfer all of such Participant's DC Butterfly Shares to Spinco in exchange for Spinco Common Shares. As sole consideration for the DC Butterfly Shares transferred to it, Spinco will issue Spinco Common Shares to each Participant, on the basis of XXXXXXXXXX Spinco Common Share for each DC Butterfly Share transferred by the particular Participant. In connection with such exchange:

(a) It is not contemplated that Spinco will file a joint election under the provisions of subsection 85(1) with any Participant in respect of this transfer;

(b) Pursuant to the BCA, the amount added to the stated capital of the Spinco Common Shares on such transfer will be an amount equal to the aggregate paid-up capital of the transferred DC Butterfly Shares; and

(c) The Spinco Common Shares will be listed on a designated stock exchange at the time of their issue.

The fair market value, immediately before the transfer described in Paragraph 27, of each Participant's Spinco Common Shares will equal or approximate the amount determined by the formula: (A x B/C) + D in respect of such Participant, as set out in subparagraph (b)(iii) of the definition "permitted exchange" in subsection 55(1). In this paragraph, "approximate the amount" means that the discrepancy of the amount, if any, between the fair market value of the Spinco Common Shares received by a particular Participant and the fair market value of the Spinco Common Shares that the particular Participant would have received had the Participant received its proportionate number of Spinco Common Shares, will not exceed XXXXXXXXXX % of the amount so determined under such formula.

Replacement of Existing DC Stock Options

25. The Plan of Arrangement will amend the DC Stock Option Plan specifically to take into account the stock option exchanges described in this paragraph, and will also cause the Spinco Stock Option plan to come into force. Immediately after this and the prior transfer of the DC Butterfly Shares to Spinco described in Paragraph 24, the DC Stock Options will be exchanged for new stock options issued by DC and Spinco. In particular, each holder of DC Stock Options will dispose of a portion of such holder's respective rights under the DC Stock Options to each of DC and Spinco in consideration for the granting to the particular holder of New DC Stock Options to acquire DC New Common Shares and Spinco Stock Options to acquire Spinco Common shares in such a manner that:

(a) the particular holder will receive no consideration for the exchange of such DC Stock Options other than New DC Stock Options and Spinco Stock Options;

(b) the original exercise price of a holder's DC Stock Options will be allocated to the New DC Stock Options and the Spinco Stock Options acquired by such holder on the exchange, such that an amount equal to the Butterfly Proportion of such original exercise price (rounded up to the nearest whole cent) will be payable to Spinco for each Spinco Common Share acquired under the Spinco Stock Options, and an amount equal to the remainder of the original exercise price (rounded up to the nearest whole cent) will be payable to DC for each DC New Common Share acquired under the New DC Stock Options;

(c) the other material financial terms and conditions of the New DC Stock Options and the Spinco Stock Options will parallel those of the DC Stock Options, and in particular, the number of New DC Common Shares and Spinco Common Shares to be issued in each case will be such that, for each DC Common Share that the holder would have been entitled to acquire under the DC Stock Option, the holder will become entitled to acquire XXXXXXXXXX New DC Common Share under the corresponding New DC Stock Option and XXXXXXXXXX Spinco Common Share under the corresponding Spinco Stock Option; and

(d) the DC Stock Options will be cancelled upon the foregoing transfers.

The issuance by Spinco of the Spinco Stock Options will be in anticipation of the transfer of the Spin-off Property as described in Paragraph 27 and will form part of the non-share consideration relating to such transfer.

Adjustment to the Number of DC DSUs

26. Pursuant to the terms of the DC DSU Plan, the number of the DC DSUs recorded in the account of each participant in the DC DSU Plan will be proportionately adjusted to reflect the difference in the fair market value of a DC Common Share that will arise solely as a result of the Proposed Transactions. The reduction in the fair market value of a DC Common Share will be determined by subtracting (x) the weighted average trading price of a DC New Common Share on the Stock Exchange for a five day trading period beginning on the first trading day immediately after the Effective Date on which the DC New Common Shares trade on an "ex-distribution" basis on the Stock Exchange, from (y) the weighted average trading price of a DC Common Share on the Stock Exchange for the five day trading period ending on the Effective Date. There will be no other changes to the DC DSU Plan.

Transfer of Spin-off Property to Spinco

27. Immediately before the transfer by DC of the Spin-off Property to Spinco as described in this Paragraph, the fair market value of the property of DC will be determined as though there was only one type of property, as contemplated by subsection 55(3.02), on a net fair market value basis. For greater certainty:

(a) any tax accounts, such as the balance of any non-capital losses, net capital losses and tax pools, will not be considered to be property of DC for the purposes of determining the net fair market value of the property of DC as described herein; and

(b) no amount will be considered to be a liability of DC unless it represents a true legal liability which is capable of quantification.

DC will then transfer the Spin-off Property to Spinco. As consideration for the transfer of the Spin-off Property, Spinco:

(c) will have granted the Spinco Stock Options, as described in Paragraph 25; and

(d) will issue Spinco Reorganization Shares, having an aggregate fair market value and redemption amount equal to the fair market value, at the time of the transfer, of the Spin-off Property less an amount equal to the aggregate fair market value at such time of the Spinco Stock Options so issued.

For this purpose, the aggregate fair market value at such time of the Spinco Stock Options so granted will be determined as the amount equal to the aggregate In the Money Amount of the Spinco Stock Options at such time. This in turn will be determined as the aggregate In the Money Amount of the DC Stock Options, determined immediately before the Effective Date and measured by reference to the closing price of the DC Common Shares on the Stock Exchange on the day preceding the Effective Date, multiplied by the Butterfly Proportion.

As a result of the transfer of the Spin-off Property to Spinco, the net fair market value of the property received by Spinco will be equal to or approximate the Butterfly Proportion of the net fair market value of all property owned by DC immediately before the transfer. Any difference between the fair market value of the Spin-off Property transferred to Spinco and the Butterfly Proportion of the net fair market value of all property owned by DC immediately before such transfer will not exceed XXXXXXXXXX % of the Butterfly Proportion of the net fair market value of all property owned by DC immediately before the transfer.

DC and Spinco will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Spin-off Property. The agreed amount in respect of the election will not exceed the fair market value of the Spin-off Property. The agreed amount will be an amount equal to the greater of the cost amount of the Spin-off Property to DC and the fair market value of the non-share consideration, being the issuance of the Spinco Stock Options.

Pursuant to the BCA, the amount added to the stated capital of the Spinco Reorganization shares to be issued by Spinco to DC as described herein will be equal to the agreed amount for the Spin-off Property less the value of the non-share consideration.

Elimination of Cross Shareholdings

28. In the Plan of Arrangement, each of Spinco and DC will designate the dividends deemed to be paid by each of them as a consequence of the redemption of the Spinco Reorganization Shares (described in Paragraph 29 below) and the DC Butterfly Shares (described in Paragraph 30 below), respectively, to be eligible dividends for purposes of subsection 89(14) of the Act.

29. Spinco will redeem all of the Spinco Reorganization Shares held by DC and will issue to DC, as payment therefor, the Spinco Redemption Note having a principal amount and fair market value equal to the aggregate of the Spinco Reorganization Share Redemption Amounts of the Spinco Reorganization Shares so redeemed, XXXXXXXXXX . DC will accept the Spinco Redemption Note as full payment of the Spinco Reorganization Share Redemption Amounts of the Spinco Reorganization Shares so redeemed, with the risk of the Spinco Redemption Note being dishonoured.

30. DC will redeem the DC Butterfly Shares held by Spinco and will issue to Spinco, as payment therefor, the DC Redemption Note having a principal amount and fair market value equal to the aggregate of the DC Butterfly Share Redemption Amounts of the DC Butterfly Shares so redeemed, XXXXXXXXXX . Spinco will accept the DC Redemption Note as full payment of the DC Butterfly Share Redemption Amounts of the DC Butterfly Shares so redeemed, with the risk of the DC Redemption Note being dishonoured.

Set-off of Notes

31. DC will satisfy its obligations under the DC Redemption Note by transferring the Spinco Redemption Note to Spinco and Spinco will accept the Spinco Redemption Note in full satisfaction of DC's obligations under the DC Redemption Note. Similarly, Spinco will satisfy its obligations under the Spinco Redemption Note by transferring the DC Redemption Note to DC and DC will accept the DC Redemption Note in full satisfaction of Spinco's obligations under the Spinco Redemption Note. The DC Redemption Note and the Spinco Redemption Note will both be cancelled.

Deletion of Spinco Reorganization Shares

32. The articles of Spinco will be amended by deleting the Spinco Reorganization Shares from the share capital which Spinco is authorized to issue.

Amalgamation of Spinco and Bco

33. Spinco and Bco will amalgamate under the provisions of the BCA to form Amalco, in such a manner that on and by virtue of the amalgamation:

(a) all of the property (except any amounts receivable from, or shares of the capital stock of, any predecessor corporation) of the predecessor corporations immediately before the merger will become property of Amalco;

(b) all the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of Amalco;

(c) all the shares in the capital stock of Bco that are owned or held by Spinco immediately prior to the merger will be cancelled for no consideration;

(d) each issued and outstanding Spinco Common Share will become one Amalco Common Share;

(e) the stated capital of the Amalco Common Shares immediately after the amalgamation will be equal to the aggregate of the paid-up capital of the Spinco Common Shares; and

(f) each outstanding Spinco Stock Option will become an Amalco Stock Option, being an option to acquire the same number of Amalco Common Shares, for the same exercise price and on the same terms as are provided in the Spinco Stock Option Plan, and Amalco will assume and become subject to the Spinco Stock Option Plan.

Deletion of DC Butterfly Shares

34. The articles of DC will be amended to delete the DC Butterfly Shares from the share capital which DC is authorized to issue. In addition, the DC Common Shares will be deleted from DC's authorized share capital.

ADDITIONAL INFORMATION

35. Prior to the Plan of Arrangement, it is expected that DC will have a non-convertible inter-company receivable owing to it by Bco. XXXXXXXXXX .

36. DC has in effect a shareholder rights plan that will continue in effect after the Plan of Arrangement. At the meeting of holders of DC Common Shares held to approve the Plan of Arrangement as described in Paragraph 19, DC shareholders will be asked to conditionally approve the adoption of a shareholder rights plan for Amalco. If approved, rights would be issued under that shareholder rights plan immediately after completion of the Plan of Arrangement in respect of Amalco Common Shares outstanding at that time.

37. DC has in effect a normal course issuer bid that has been approved by the Stock Exchange and that will expire on or before XXXXXXXXXX . The DC normal course issuer bid complies in all respects with the requirements of the Stock Exchange. No DC Common Shares have been purchased by DC under its normal course issuer bid since the first quarter of XXXXXXXXXX , and DC has suspended any future purchases of DC Common Shares under its normal course issuer bid until
completion of the Proposed Transactions. Following completion of the Plan of Arrangement, DC may from time to time repurchase its own shares through the facilities of the Stock Exchange pursuant to, and within the limitations and conditions specified in, its normal course issuer bid as described above.

38. Each of the DC New Common Shares, the Spinco Common Shares and the Amalco Common Shares will be listed on a designated stock exchange. The listing of the DC New Common Shares will occur on or before the issuance of the DC New Common Shares as described in Paragraph 23 above. The listing of the Spinco Common Shares will occur on or before the issuance of the Spinco Common Shares as described in Paragraph 24 above.

39. Neither DC nor Spinco is, or will be, at any time during the Proposed Transactions, a specified financial institution or a restricted financial institution.

40. Except as described herein, no debts have been or will be incurred or paid and no property has been or will be acquired by DC or any corporation controlled by DC in contemplation of the distribution, other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

41. Except as specifically described herein, there is no expectation or intention of DC or Spinco or Amalco to dispose of any property owned by it following completion of the Plan of Arrangement as part of the series of transactions including the Proposed Transactions, other than in the ordinary course of business.

42. None of the shares of DC, Bco or Spinco described herein is or will be, at any time during the implementation of the Proposed Transactions:

(a) the subject of any undertaking or agreement that is referred to in subsection 112(2.2) as a "guarantee agreement";

(b) a share that is issued or acquired as part of a transaction, event or series of transactions or events of the type described in subsection 112(2.5); or

(c) the subject of a "dividend rental arrangement" as that term is defined in subsection 248(1).

43. Following completion of the Proposed Transactions, certain services will be provided by DC to Amalco for a transitional period in consideration for an arm's length management fee to be paid to DC.

44. Effective XXXXXXXXXX , Bco sold certain assets XXXXXXXXXX .

XXXXXXXXXX subsidiary of Bco, XXXXXXXXXX , sold the shares of its XXXXXXXXXX subsidiary, XXXXXXXXXX , pursuant to a term sheet signed with an arm's length purchaser on XXXXXXXXXX for a cash payment of XXXXXXXXXX $XXXXXXXXXX .

45. Bco disposed of further non-core properties for cash and indebtedness as part of the rationalization of redundant assets following the amalgamation of New Opco2 and Bco.

XXXXXXXXXX

45.1. Bco is in the process disposing of further non-core properties as part of the rationalization of redundant assets following the amalgamation of New Opco2 and Bco:

XXXXXXXXXX

46. DC completed two separate internal reorganizations (in XXXXXXXXXX and in XXXXXXXXXX ) prior to its XXXXXXXXXX year-end, as follows:

XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

DC intends to spin-off the XXXXXXXXXX business in Bco, Cco, Dco, Eco and Fco and it intends to retain the XXXXXXXXXX business and the XXXXXXXXXX
business carried on as a division of DC and in Keepco. DC believes that it is in the best interests of the DC Shareholders that DC spin off its XXXXXXXXXX business to a separate public corporation, Amalco, for the following reasons:

1. The separation of DC's business between DC and Amalco will enhance the ability of each separate public corporation to pursue its independent opportunities, objectives and strategies that may not be available to them as part of a consolidated DC.

2. The spin-off will result in DC and Amalco having dedicated management teams focused on the core assets of the respective company.

3. The spin-off will allow the separate businesses to access capital for growth on the basis of their individual visions and strategies.

4. The spin-off of Amalco as a separate public corporation should increase shareholder value for the DC Shareholders since DC's remaining businesses and Amalco's business should ultimately achieve a higher valuation on a stand-alone basis.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions, purposes of the Proposed Transactions and additional information, we confirm the following:

Transfer of Holdco and Fco Shares to Bco

A. Provided that the requisite joint elections are filed in prescribed form and within the prescribed time and subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfer of the Holdco shares and Fco shares described in Paragraph 17 with result that the agreed amount in respect of the Holdco shares and Fco shares will be deemed pursuant to paragraph 85(1)(a) to be proceeds of disposition thereof to DC and the cost thereof to Bco.

For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfers described in Paragraph 17.

Dissenting Shareholders

B. On the purchase by DC of DC Common Shares held by a Dissenting Shareholder as described in Paragraph 21:

(a) subject to the application of subsection 55(2), the Dissenting Shareholder will be deemed by paragraph 84(3)(b) to have received a dividend equal to the amount by which any payment from DC to the Dissenting Shareholder in respect of the purchase of such person's DC Common Shares exceeds the paid-up capital of such shares immediately prior to their purchase;

(b) subsections 212(2) and 215(1) will apply (subject to the provisions of any applicable income tax convention) to require DC to withhold and remit XXXXXXXXXX % of the amount of any such dividend deemed to have been paid to a Dissenting Shareholder who is a non-resident person of Canada; and

(c) paragraph (j) of the definition of "proceeds of disposition" in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition of the DC Common Shares recognized by the Dissenting Shareholder as a result of the purchase of such shares by DC, provided that the shares were held as capital property by the Dissenting Shareholder.

Reorganization of DC Capital

C. The amendment to the terms of the DC Common Shares to increase the voting rights, as described in Paragraph 22, will not result in a disposition of the DC Common Shares, in and of itself.

D. On the exchange of DC Common Shares by a Participant, as described in Paragraph 23, the provisions of subsection 86(1) will apply and the provisions of subsections 86(2) and (2.1) will not apply to the disposition of each DC Common Share by a Participant for XXXXXXXXXX DC New Common Share and XXXXXXXXXX DC Butterfly share provided that:

(a) the particular Participant holds the DC Common Shares as capital property; and

(b) the particular Participant and DC do not file an election under subsection 85(1) or (2) in respect of the exchange,

such that:

(c) the Participant will be deemed by paragraph 86(1)(b) to have acquired the DC New Common Shares and the DC Butterfly Shares at a cost equal to the proportion of the adjusted cost base to the Participant of such DC Common Shares immediately before the exchange that:

(A) the fair market value, immediately after the exchange, of the DC New Common Shares or the DC Butterfly Shares, as the case may be, received by the particular Participant;

is of

(B) the fair market value, immediately after that exchange, of all the shares of DC acquired by the Participant on the exchange; and

(d) pursuant to paragraph 86(1)(c), such Participant will be deemed to have disposed of the Participant's DC Common Shares for aggregate proceeds of disposition equal to the aggregate cost to the Participant of the DC New Common Shares and DC Butterfly Shares received by the Participant as determined in (c) above.

Transfer of DC Butterfly Shares to Spinco

E. Provided that a Participant who, immediately before the exchange of DC Butterfly Shares as described in Paragraph 24:

(a) holds such DC Butterfly Shares as capital property;

(b) does not receive any consideration other than the Spinco Common Shares in exchange for the DC Butterfly Shares;

(c) deals at arm's length with Spinco immediately before the exchange;

(d) does not file an election under subsections 85(1) or (2) with respect to the exchange; and

(e) does not include any portion of the gain or loss otherwise determined in computing his or her income for that year;

and further provided that immediately after such exchange:

(f) the particular Participant or persons with whom such Participant does not deal at arm's length, or the particular Participant together with any other person or persons with whom such Participant does not deal at arm's length, will not control Spinco or beneficially own shares of Spinco having an aggregate fair market value representing more than XXXXXXXXXX % of the aggregate fair market value of all outstanding shares of Spinco;

then pursuant to paragraph 85.1(1)(a):

(g) such Participant will be deemed to have disposed of such DC Butterfly Shares for proceeds of disposition equal to the aggregate adjusted cost base of such DC Butterfly Shares to the particular Participant immediately before the exchange; and

(h) such participant will be deemed to have acquired such Spinco Common Shares at an aggregate cost equal to the aggregate adjusted cost base to such Participant of the DC Butterfly Shares immediately before the exchange;

and pursuant to paragraph 85.1(1)(b) the cost to Spinco of each DC Butterfly Share acquired from each such Participant will be deemed to be the lesser of its fair market value immediately before the exchange and the paid-up capital of such DC Butterfly Share immediately before the exchange.

Exchange of Existing DC Stock Options

F. The provisions of subsection 7(1.4) will apply with respect to each exchange by a particular holder of DC Stock Options that are subject to the provisions of subsection 7(1) for New DC Stock Options and Spinco Stock Options, as described in Paragraph 25, provided that the aggregate In The Money Amount of the New DC Stock Options and Spinco Stock Options received by the holder does not exceed the aggregate In The Money Amount of the DC Stock Options exchanged by the holder, with the result that for the purposes of section 7:

(a) such holder will be deemed not to have disposed of the DC Stock Options and not to have acquired the New DC Stock Options and the Spinco Stock Options;

(b) the New DC Stock Options and the Spinco Stock Options will be deemed to be the same as, and a continuation of the corresponding DC Stock Options; and

(c) Spinco will be deemed in respect of such stock options to be the same person as, and a continuation of, DC.

Increase in Number of DC DSUs

G. The increase in the number of outstanding DC DSUs as described in Paragraph 26 will not, in and by itself, cause the DC DSU Plan not to be a prescribed plan or arrangement as described in paragraph 6801(d) of the Regulations.

Transfer of Spin-off Property to Spinco

H. Provided that the requisite joint elections are filed in prescribed form and within the prescribed time and subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfer of the Spin-off Property by DC to Spinco described in Paragraph 27 with the result that the agreed amount in respect of the Spin-off Property will be deemed pursuant to paragraph 85(1)(a) to be the proceeds of disposition thereof to DC and the cost thereof to Spinco.

For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the transfer described in Paragraph 27.

Elimination of Cross-Shareholdings

I. As a result of the redemption by Spinco of the Spinco Reorganization Shares described in Paragraph 29:

(a) Spinco will be deemed by paragraph 84(3)(a) to have paid, and DC will be deemed by paragraph 84(3)(b) to have received, a dividend equal to the amount by which the amount paid on such redemption exceeds the paid-up capital of the Spinco Reorganization Shares;

(b) the amount of such deemed dividend will be included in DC's income pursuant to subsection 82(1) and paragraph 12(1)(j);

(c) the amount of such deemed dividend will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining DC's proceeds of disposition for the Spinco Reorganization Shares;

(d) DC will be entitled, pursuant to subsection 112(1), to deduct the amount of such deemed dividend in computing its taxable income for the taxation year in which such dividend is deemed to be received and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) and (2.4) will not apply to deny the deduction of such deemed dividend;

(e) to the extent that the amount paid by Spinco to DC on the redemption of the Spinco Reorganization Shares does not exceed the amount specified in respect of those shares for the purposes of subsection 191(4), the deemed dividend referred to in (a) above will not be subject to tax under Part IV.1 or Part VI.1 on the basis that the dividend will be deemed to be an excepted dividend and an excluded dividend, as the case may be, pursuant to subsection 191(4); and

(f) the provisions of subsection 112(3) will apply to reduce any loss that would otherwise be realized by DC as a result of the redemption of the Spinco Reorganization Shares.

J. As a result of the redemption by DC of the DC Butterfly Shares held by Spinco described in Paragraph 30:

(a) DC will be deemed by paragraph 84(3)(a) to have paid, and Spinco will be deemed by paragraph 84(3)(b) to have received, a dividend equal to the amount by which the amount paid on such redemption exceeds the paid-up capital of the DC Butterfly Shares;

(b) the amount of such deemed dividend will be included in Spinco's income pursuant to subsection 82(1) and paragraph 12(1)(j);

(c) the amount of such deemed dividend will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining Spinco's proceeds of disposition for the DC Butterfly Shares;

(d) Spinco will be entitled, pursuant to subsection 112(1), to deduct the amount of such deemed dividend in computing its taxable income for a taxation year in which such dividend is deemed to be received and, for greater certainty, the provisions of subsections 112(2.1), (2.2), (2.3) and (2.4) will not apply to deny the deduction of such deemed dividend;

(e) to the extent that the amount paid by DC to Spinco on the redemption of the DC Butterfly Shares does not exceed the amount specified in respect
of those shares for the purposes of subsection 191(4), the deemed dividend referred to in (a) above will not be subject to tax under Part IV.1 or Part VI.1 on the basis that the dividend will be deemed to be an excepted dividend and an excluded dividend, as the case may be, pursuant to subsection 191(4); and

(f) the provisions of subsection 112(3) will apply to reduce any loss that would otherwise be realized by Spinco as a result of the redemption of the DC Butterfly Shares.

K. Subsection 55(2) will apply to the taxable dividends referred to in Rulings I and J on the basis that the acquisition by DC of the Target Shares was an acquisition of property described in paragraph 55(3.1)(a) so that paragraph 55(3)(b) will not apply to such dividends.

However, provided that

(a) there is not a distribution by DC to a corporation that is not an acquiror before the day that is XXXXXXXXXX years after the Effective Date; and

(b) there is not a distribution by Spinco or Amalco before the day that is XXXXXXXXXX years after the Effective Date;

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

(c) an acquisition of property in the circumstances described in paragraph 55(3.1)(a) (other than as described in Paragraphs 4.1 and 7);

(d) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(e) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(f) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(g) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) or (d);

paragraph 55(3)(b) would have applied, and subsection 55(2) would not have applied, to the taxable dividends referred to in Rulings I and J above.

Set-off of Notes

L. The cost to DC of the Spinco Redemption Note issued to DC as described in Paragraph 29 and the cost to Spinco of the DC Redemption Note issued to Spinco as described in Paragraph 30 will, in each case, upon the issuance thereof be equal to its principal amount and, as such, neither DC nor Spinco will realize any gain or incur any loss therefrom.

M. The payment and cancellation of the Spinco Redemption Note and the DC Redemption Note described in Paragraph 30 will not, in either case, give rise to a "forgiven amount" within the meaning thereof in subsection 80(1) or subsection 80.01(1).

Amalgamation of Spinco and Bco

N. The amalgamation of Spinco and Bco referred to in Paragraph 33 will be an amalgamation described in subsection 87(1) and, upon the amalgamation, provided that the Spinco Common Shares are held by a particular holder thereof as capital property the provisions of subsections 87(4), other than paragraphs 87(4)(c) to (e), will apply to such holder.

O. The provisions of subsection 7(1.4) will apply on the amalgamation of Spinco and Bco as described in Paragraph 33 with respect to each outstanding Spinco Stock Option that is subject to the provisions of subsection 7(1) and that becomes an Amalco Stock Option on the amalgamation, provided that the aggregate In The Money Amount of the Amalco Stock Options received by the holder does not exceed the aggregate In The Money Amount of the Spinco Stock Options held by the holder immediately before the amalgamation, with the result that for the purposes of section 7:

(a) such holder will be deemed not to have disposed of the Spinco Stock Options and not to have acquired the Amalco Stock Options;

(b) the Amalco Stock Options will be deemed to be the same as, and a continuation of the Spinco Stock Options and hence, by virtue of Ruling F(b), a continuation of the corresponding DC Stock Options; and

(c) Amalco will be deemed in respect of such stock options to be the same person as, and a continuation of, Spinco and, by virtue of Ruling F(c), of DC.

Qualified Investment

P. The DC New Common Shares, the Spinco Common Shares and the Amalco Common Shares will be "qualified investments":

(a) for a registered retirement savings plan by virtue of paragraph (a) of the definition of "qualified investment" in subsection 146(1);

(b) for a registered education savings plan by virtue of paragraph (a) of the definition of "qualified investment" in subsection 146.1(1);

(c) for a registered retirement income fund by virtue of paragraph (a) of the definition of "qualified investment" in subsection 146.3(1);

(d) for a deferred profit sharing plan by virtue of paragraph (d) of the definition of "qualified investment" in section 204; and

(e) for a registered disability savings plan by virtue of paragraph (a) of the definition of "qualified investment" in subsection 205(1); and

(f) for a tax-free savings account by virtue of paragraph (a) of the definition of "qualified investment" in subsection 207.01(1).

P.1. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not be applied as a result of the transactions proposed in Paragraphs 29 through 31, in and of themselves.

Q. 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.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by the CRA on 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 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 reviewed or accepted:

(a) that XXXXXXXXXX or any other investment manager or fund manager who holds shares of DC, Spinco or Amalco does not own such shares for purposes of determining whether it is a specified shareholder of any such corporation;

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

(c) any tax consequences relating to the facts and Proposed Transactions described herein other than those specifically described in the rulings given above; or

(d) whether, for the purposes of paragraph 55(3.1)(b), an acquisition or disposition of shares occurs as part of a series of transactions or events in which the dividends described in Rulings I and J are received. The determination is a question of fact which will depend on the circumstances.

OPINIONS

A. Provided that proposed clause 256(7)(a)(i)(E) is enacted in substantially the same manner as contained in the July 16, 2010 legislative proposals (which, before the dissolution of the 40th Parliament of Canada on March 26, 2011, were proposed to be enacted as the Income Tax Amendments Act, 2010), it is our opinion that no acquisition of control of Bco will be considered to have occurred as a result of the Proposed Transactions, in and of themselves.

B. With respect to Ruling K, we understand that the Department of Finance has issued a comfort letter on November 26, 2004, indicating that it was prepared to recommend to the Minister of Finance that paragraph 55(3.1)(a) be amended to prevent that paragraph from applying where a distribution referred to in paragraph 55(3.1)(a) is by a "specified corporation" as defined in subsection 55(1). If such an amendment is ever enacted and is effective for the period in which these Proposed Transactions take place, paragraph 55(3.1)(a) may not apply where the transactions described in Paragraphs 4.1 and 7 are carried out before a distribution and, if it does not, then subject to all other reservations set forth in the rulings above subsection 55(2) should not apply to the dividends described in rulings I and J.

The foregoing opinions are not rulings and as noted in Information Circular 70-6R5 are not binding on the CRA.

Yours truly,

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