2010 Ruling 2010-0364221R3 - Loss consolidation using a limited partnership

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: Whether a change to the limited partnership interests of various Profitcos in New LP can be made without affecting the original ruling, which allowed a corporate group to undertake a loss consolidation in which Lossco earned interest income through various loans to New LP which then allocated the losses from the interest expense to various Profitcos.

Position: Yes.

Reasons: One of the reasons for undertaking the loss consolidation using a limited partnership was to allow changes to the limited partnership interests of the Profitcos, if necessary, to take into account deviations from the original profit expectations of such Profitcos.

XXXXXXXXXX
									2010-036422
									XXXXXXXXXX
	

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX , in which you requested an advance income tax ruling on behalf of the above-noted parties and related corporations (collectively the "Taxpayers"). The issues in this advance income tax ruling were the subject of previous advance income tax ruling #2008-030474 (the "Original Ruling"), dated XXXXXXXXXX , 2009. We also acknowledge the additional information provided to us in your electronic mail transmissions and during our telephone conversations XXXXXXXXXX .

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

i. in an earlier return of any of the Taxpayers or a related person;
ii. being considered by a tax services office or a tax centre in connection with a tax return already filed by any of the Taxpayers or a related person;
iii. under objection by any of 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 Directorate to any of the Taxpayers or a related person (other than the Original Ruling).

This document is based solely on the facts and proposed transactions described below. Any documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

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

LEGAL ENTITY DEFINITIONS

In this letter

(a) "ACo" means XXXXXXXXXX ;

(b) "BCo" means XXXXXXXXXX , a company governed by the CBCA;

(c) "CCo" means XXXXXXXXXX , a company governed by the
CBCA;

(d) "DCo" means XXXXXXXXXX , a company incorporated under the CBCA;

(e) "ECo" means XXXXXXXXXX , a company governed by the CBCA;

(f) "FCo" means XXXXXXXXXX , a company governed by the
XXXXXXXXXX ;

(g) "GCo" means XXXXXXXXXX , a company governed by the CBCA;

(h) "HCo" means XXXXXXXXXX , a company governed by the
CBCA;

(i) "ICo" means XXXXXXXXXX , a company governed by the XXXXXXXXXX .

(j) "JCo" means XXXXXXXXXX , a company governed by the CBCA;

(k) "KCo" means XXXXXXXXXX , a company governed by the XXXXXXXXXX ;

(l) "LCo" means XXXXXXXXXX , a company governed by the CBCA. LCo is a wholly-owned subsidiary of Subco and is a TCC;

(m) "LP General Partner" means Newco 2, as referred to in Paragraph 19;

(n) "LP Limited Partners" means Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, and LCo;

(o) "LP Partners" means Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, LCo and Newco 2;

(p) "Original LP Limited Partners" means all of the LP Limited Partners except for LCo;

(q) "Original LP Partners" refers to the LP Partners except for LCo;

(r) "Newco 1" means XXXXXXXXXX , a new corporation to be incorporated under the CBCA which is more fully described in Paragraphs 15 and 16;

(s) "Newco 2" means XXXXXXXXXX , which is a new corporation incorporated under the CBCA and is more fully described in Paragraph 17;

(t) "New LP" means XXXXXXXXXX , a new limited partnership to be established pursuant to the laws of XXXXXXXXXX which is more fully described in Paragraphs 18 and 19;

(u) "Parent" means XXXXXXXXXX , and is more fully described in Paragraph 1;

(v) "Parent Affiliated Group" means Parent and its subsidiaries; and

(w) "Subco" means XXXXXXXXXX , and is more fully described in Paragraph 2.

DEFINITIONS

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

(a) "Act" means the Income Tax Act, RSC 1985 (5th supp.), c.1, as amended to the date hereof, and, unless otherwise indicated, all statutory references are to the Act;

(b) "ACo Loans" means the loans made by Newco 1 to ACo described in
Paragraphs 22, 25, 26 and 27;

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

(d) "affiliated persons" has the meaning assigned by subsection 251.1(1);

(e) "arm's length" has the meaning assigned by subsection 251(1);

(f) XXXXXXXXXX ;

(g) "Canadian partnership" has the meaning assigned by subsection 102(1);

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

(i) "CBCA" means the Canada Business Corporations Act, and, where applicable, its predecessor's statutes;

(j) "CRA" means Canada Revenue Agency;

(k) "Daylight Loans" means the loans made by the financial institution to New LP described in Paragraphs 20, 25, 26 and 27;

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

(m) "dividend rental arrangement" has the meaning assigned by subsection 248(1);

(n) "excepted dividend" has the meaning assigned by section 187.1;

(o) "excluded dividend" has the meaning assigned by subsection 191(1);

(p) "financial intermediary corporation" has the meaning assigned by subsection 191(1);

(q) "GAAR" means the general anti-avoidance rule in section 245;

(r) "New LP Loans" means the loans made by ACo to New LP described in
Paragraphs 23 to 26 and 27;

(s) "non-capital loss" has the meaning assigned by subsection 111(8);

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

(u) "Paragraph" refers to a numbered paragraph in this letter;

(v) "Preferred Shares" means the preferred shares of Newco 1 described in
Paragraph 16;

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

(x) XXXXXXXXXX ;

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

(z) "specified financial institution" has the meaning assigned by subsection 248(1); and

(aa) "taxable Canadian corporation" or "TCC" has the meaning assigned by subsection 89(1).

Unless otherwise indicated in this letter, all dollar amounts referred to herein are in Canadian dollars.

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

FACTS

1. Parent is governed by the CBCA and is a public corporation and a TCC whose shares are listed on a designated stock exchange. Parent is a management holding corporation which forms, with its subsidiaries and affiliated corporations, a major international group of companies engaged in the XXXXXXXXXX business. The taxation year of Parent ends on XXXXXXXXXX . Consolidated revenues of Parent for the year ended XXXXXXXXXX totalled approximately $XXXXXXXXXX with a consolidated net income amounting to approximately $XXXXXXXXXX . Parent files its information returns with the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services Office. Parent's business number is XXXXXXXXXX and its address is XXXXXXXXXX .

2. Subco is a wholly-owned subsidiary of Parent incorporated under the CBCA and is a TCC. Subco carries on XXXXXXXXXX business through numerous subsidiaries. The taxation year of Subco ends on XXXXXXXXXX . In XXXXXXXXXX , Subco had gross revenue of approximately $XXXXXXXXXX and net income of approximately to $XXXXXXXXXX . In XXXXXXXXXX , Subco reported taxable income of approximately $XXXXXXXXXX . Subco files its information returns with the XXXXXXXXXX Tax Centre and deals with the XXXXXXXXXX Tax Services Office. Subco's business number is XXXXXXXXXX .

Subco has permanent establishments in XXXXXXXXXX Canadian provinces. Its allocation of income among the jurisdictions in its XXXXXXXXXX taxation year was as follows:

XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
Other					XXXXXXXXXX %
Outside Canada			XXXXXXXXXX %

It is reasonable to expect that the XXXXXXXXXX provincial allocation for Subco will be reflective of those for XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that Subco would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due to XXXXXXXXXX in XXXXXXXXXX , Subco earned less income than anticipated, and consequently it generated a loss of approximately $XXXXXXXXXX after its allocation of New LP's loss, which was generated by the interest expense.

3. ACo is governed by the CBCA and is a TCC. ACo, a wholly-owned subsidiary of Subco, is involved in the XXXXXXXXXX in Canada. The taxation year of ACo ends on XXXXXXXXXX . At the time of the Original Ruling, it was expected that ACo would generate non-capital losses of approximately $XXXXXXXXXX in its XXXXXXXXXX taxation year and would also generate smaller non-capital losses in its XXXXXXXXXX taxation years. Aggregate non-capital losses for ACo's XXXXXXXXXX taxation years were estimated to be approximately $XXXXXXXXXX . For the XXXXXXXXXX taxation year, ACo had gross revenues of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . In XXXXXXXXXX , ACo reported taxable income of $XXXXXXXXXX .

In XXXXXXXXXX , ACo had a permanent establishment in XXXXXXXXXX only and it is reasonable to expect that to be the case for XXXXXXXXXX .

4. BCo is a wholly-owned subsidiary of Subco and a TCC. BCo, together with its wholly-owned subsidiaries, CCo and DCo, is specialized in XXXXXXXXXX in Canada. The taxation year of BCo, CCo and DCo ends on XXXXXXXXXX . In XXXXXXXXXX , BCo and its above-mentioned subsidiaries had gross revenue of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . In XXXXXXXXXX , the aggregate taxable income for BCo, CCo and DCo's was approximately $XXXXXXXXXX .

In XXXXXXXXXX , BCo had permanent establishments in XXXXXXXXXX Canadian provinces. Its allocation of income among the provinces in XXXXXXXXXX was as follows:

XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
XXXXXXXXXX 				XXXXXXXXXX %
Other					XXXXXXXXXX %

In XXXXXXXXXX , CCo had permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in XXXXXXXXXX taxation year was as follows:

  XXXXXXXXXX  				  XXXXXXXXXX % 

  XXXXXXXXXX  				  XXXXXXXXXX %

  XXXXXXXXXX  				  XXXXXXXXXX %

  XXXXXXXXXX  				  XXXXXXXXXX %

It is reasonable to expect that the XXXXXXXXXX provincial allocations for BCo and CCo will be reflective of those for XXXXXXXXXX and XXXXXXXXXX .

In XXXXXXXXXX , DCo had a permanent establishment XXXXXXXXXX in XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX and XXXXXXXXXX . At the time of the Original Ruling, it was expected that BCo, CCo, and DCo would each generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset their respective annual share of the interest expense allocated to them as limited partners of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due to XXXXXXXXXX in XXXXXXXXXX , CCo and DCo earned less income than anticipated, and consequently it is no longer expected that they will generate sufficient taxable income in XXXXXXXXXX to fully offset their respective annual share of the interest expense allocated to them as a limited partner of New LP; however, the XXXXXXXXXX expectations for BCo were met and accordingly the original expectations for it for subsequent years have not changed.

5. ECo was a wholly-owned subsidiary of Subco and a TCC. ECo was specialized in XXXXXXXXXX . The taxation year of ECo ended on XXXXXXXXXX . In XXXXXXXXXX , ECo had gross revenue of approximately $XXXXXXXXXX and net income of $XXXXXXXXXX . In XXXXXXXXXX , ECo reported a net loss of $XXXXXXXXXX for income tax purposes.

In XXXXXXXXXX , ECo had permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year is as follows:

      XXXXXXXXXX  				XXXXXXXXXX %

      XXXXXXXXXX  				XXXXXXXXXX %

      Other						XXXXXXXXXX %

It is reasonable to expect that the XXXXXXXXXX provincial allocation for ECo will be reflective of those for XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that ECo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due to the XXXXXXXXXX in XXXXXXXXXX , ECo earned less income than anticipated.

On XXXXXXXXXX , Subco, ECo and FCo amalgamated to form Subco.

6. FCo was a wholly-owned subsidiary of Subco and a TCC. FCo was also specialized in XXXXXXXXXX . The taxation year of FCo ended on XXXXXXXXXX . In XXXXXXXXXX , FCo had gross revenue of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . In XXXXXXXXXX , FCo reported taxable income of $XXXXXXXXXX .

In XXXXXXXXXX , FCo had permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year was as follows:

  XXXXXXXXXX 				XXXXXXXXXX %

  XXXXXXXXXX  				XXXXXXXXXX %

  Other					XXXXXXXXXX % 

At the time of the Original Ruling, it was expected that FCo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. The XXXXXXXXXX expectations for FCo were met.

On XXXXXXXXXX , Subco, ECo and FCo amalgamated to form Subco.

7. GCo is a wholly-owned subsidiary of Subco and a TCC. GCo is involved in XXXXXXXXXX . The taxation year of GCo ends on XXXXXXXXXX . In XXXXXXXXXX , GCo had gross revenue of approximately $XXXXXXXXXX with net income amounting to approximately $XXXXXXXXXX . In XXXXXXXXXX , GCo reported taxable income of approximately $XXXXXXXXXX .

In XXXXXXXXXX , GCo had permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year was as follows:

   XXXXXXXXXX  				XXXXXXXXXX %

   XXXXXXXXXX 				XXXXXXXXXX %

   XXXXXXXXXX 				XXXXXXXXXX %

It is reasonable to expect that the XXXXXXXXXX provincial allocation for GCo will be reflective of those for XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that GCo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. The XXXXXXXXXX expectations for GCo were exceeded and accordingly it is now expected that GCo will generate sufficient income in XXXXXXXXXX and subsequent taxation years to allow it to fully offset a greater share of the interest expense allocated annually to the limited partners of New LP, in respect of interest paid or payable by New LP on the New LP Loans.

8. HCo is a wholly-owned subsidiary of Subco and a TCC. HCo operates a XXXXXXXXXX business. The taxation year of HCo ends on XXXXXXXXXX . In XXXXXXXXXX , HCo had gross revenue of approximately $XXXXXXXXXX with net income of approximately $XXXXXXXXXX . In XXXXXXXXXX , HCo reported a net loss of $XXXXXXXXXX for income tax purposes.

In XXXXXXXXXX , HCo had a permanent establishment in XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that HCo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due to the XXXXXXXXXX in XXXXXXXXXX , HCo earned less income than anticipated, and consequently it is no longer expected that it will generate sufficient taxable income in XXXXXXXXXX and subsequent years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP.

9. ICo is a wholly-owned subsidiary of Subco and a TCC. ICo is specialized in XXXXXXXXXX . The taxation year of ICo ends on XXXXXXXXXX. In XXXXXXXXXX , ICo had gross revenue of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . In XXXXXXXXXX, ICo reported taxable income of approximately $XXXXXXXXXX.

In XXXXXXXXXX , ICo had a permanent establishment in XXXXXXXXXX and it is reasonable to expect that to be the case for XXXXXXXXXX and XXXXXXXXXX.

At the time of the Original Ruling, it was expected that ICo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. The XXXXXXXXXX expectations for ICo were met and accordingly the original expectations for it for subsequent years remain the same.

10. JCo is a wholly-owned subsidiary of Subco and a TCC. JCo is involved in XXXXXXXXXX . The taxation year of JCo ends on XXXXXXXXXX . In XXXXXXXXXX , JCo had gross revenues of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . In XXXXXXXXXX , JCo reported taxable income of approximately $XXXXXXXXXX .

In XXXXXXXXXX , JCo had permanent establishments in XXXXXXXXXX . Its allocation of income among these provinces in its XXXXXXXXXX taxation year was as follows:

   XXXXXXXXXX 			XXXXXXXXXX %

   XXXXXXXXXX  			XXXXXXXXXX %

It is reasonable to expect that XXXXXXXXXX provincial allocations will be reflective of those for XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that JCo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. The XXXXXXXXXX expectations for JCo were met and accordingly the original expectations for it for subsequent years remain the same.

11. KCo is a wholly-owned subsidiary of Subco and a TCC. KCo is involved in XXXXXXXXXX . The taxation year of KCo ends on XXXXXXXXXX . In XXXXXXXXXX , KCo had gross revenue of approximately $XXXXXXXXXX with net income of approximately $XXXXXXXXXX . Its taxable income for XXXXXXXXXX was approximately $XXXXXXXXXX.

In XXXXXXXXXX , KCo had a permanent establishment XXXXXXXXXX in XXXXXXXXXX and it is reasonable to expect that to be the case in XXXXXXXXXX and XXXXXXXXXX .

At the time of the Original Ruling, it was expected that KCo would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due to the XXXXXXXXXX in XXXXXXXXXX , HCo earned less income than anticipated, and consequently it is no longer expected that it will generate sufficient taxable income in XXXXXXXXXX and subsequent years to fully offset its respective annual share of the interest expense allocated to them as a limited partner of New LP.

The XXXXXXXXXX expectations for KCo were met but it is no longer expected that it will generate sufficient taxable income in XXXXXXXXXX and subsequent years to fully offset its respective annual share of the interest expense allocated to it as a limited partner of New LP.

12. LCo is a wholly-owned subsidiary of Subco and a TCC. LCo is specialized in XXXXXXXXXX . The taxation year of LCo ends on XXXXXXXXXX. In XXXXXXXXXX , LCo had gross revenue of approximately $XXXXXXXXXX and net income of approximately $XXXXXXXXXX . Its taxable income in XXXXXXXXXX was approximately $XXXXXXXXXX . LCo was not part of the Original LP Limited Partners but will be part of the Amended LP Limited Partners. It is expected that LCo will generate sufficient taxable income in XXXXXXXXXX and subsequent taxation years to fully offset its annual share of the interest expense allocated to it as a limited partner of New LP, in respect of interest paid or payable by New LP on the New LP Loans.

13. At the time of the Original Ruling, the arm's length borrowings of the Parent Affiliated Group were reported to be approximately $XXXXXXXXXX . As of XXXXXXXXXX , an arm's-length financial institution confirmed in writing that Parent Affiliated Group's total borrowing capacity was between $XXXXXXXXXX to $XXXXXXXXXX [copy of written confirmation provided to us]. Furthermore, Parent and a number of its Canadian subsidiaries had concluded a centralized banking agreement (the "Cash Pooling Arrangement") with an arm's length financial institution [XXXXXXXXXX , which is referred to in this letter as the "Financial Institution"] to optimize their overall cash management. Pursuant to this existing arrangement, the Financial Institution offered to Parent and its participating subsidiaries a consolidated interest statement through the consolidation of the debit and credit balances of the accounts of all the participating entities. The Financial Institution computes and charge or pay interest, as the case may be, on the net daily closing consolidated balances at rates agreed in writing between Parent and the Financial Institution. Under the Cash Pooling Arrangement, the Financial Institution also offers to advance funds to any participating entity without additional interest/fees as long as the funds stay in the hands of any other participating entity.

14. In recent years, some loss consolidation transactions have been implemented among corporations within the Parent Affiliated Group. All of these transactions have been unwound including the typical loan/preferred share structure between ACo and LCo, which was unwound and replaced when the proposed transactions outlined below were implemented.

Pursuant to the Original Ruling, the following transactions as proposed in that ruling were completed:

15. ACo incorporated Newco 1 under the CBCA. Newco 1 is a TCC. Newco 1 issued common shares of its capital stock to ACo for nominal consideration. ACo has de jure control of Newco 1. The taxation year-end of Newco 1 is XXXXXXXXXX . Newco 1's activities are limited to those described in this letter. Newco 1 was added to the Cash Pooling Arrangement referred to in Paragraph 13. ACo is already part of the Cash Pooling Arrangement.

16. The authorized capital of Newco 1 consists of an unlimited number of common shares and preferred shares (the "Preferred Shares"). The common shares of Newco 1 are without par value and are voting. The holders of common shares are entitled to dividends at the discretion of the directors and are entitled to receive the remaining property of the corporation upon its winding-up or dissolution. The Preferred Shares are without par value and are non-voting. The Preferred Shares are redeemable and retractable for a redemption price equal to the fair market value of the consideration for which the shares are issued, plus any accrued but unpaid dividends. The PUC and the fair market value of the Preferred Shares are equal to the amount contributed. The holders of Preferred Shares are entitled to cumulative dividends, calculated daily by reference to the redemption/retraction price of the Preferred Shares at a rate equal to the interest rate on the New LP Loans plus a small spread of XXXXXXXXXX %. The dividends on the Preferred Shares are payable annually on the XXXXXXXXXX day of XXXXXXXXXX.

17. Subco incorporated Newco 2 under the CBCA. Newco 2 is a TCC. Newco 2 issued common shares of its capital stock to Subco for nominal consideration. Subco has de jure control of Newco 2. The taxation year-end of Newco 2 is XXXXXXXXXX . Newco 2's activities are limited to acting as the general partner of New LP. The authorized capital of Newco 2 consists of an unlimited number of common shares only. The common shares of Newco 2 are without par value and are voting. The holders of common shares are entitled to dividends at the discretion of the directors, and are entitled to receive the remaining property of the corporation upon its winding-up or dissolution.

18. Original LP Partners constituted a new limited partnership ("New LP") under the laws of XXXXXXXXXX . New LP is a Canadian partnership. The fiscal period end of New LP is XXXXXXXXXX . New LP was added to the Cash Pooling Arrangement. New LP's activities are limited to those described herein, including entering into daylight loans with the Financial Institution, purchasing the Preferred Shares and entering into the New LP Loans with ACo.

19. Newco 2 is the general partner of New LP (referred to in this letter as the
"LP General Partner"). Newco 2 has a XXXXXXXXXX % ownership interest in New LP and is entitled to a XXXXXXXXXX % share of the income or loss of New LP.

Subco, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo and KCo were the original limited partners of New LP (referred to in this letter as the "Original LP Limited Partners"). They have all been part of the Parent Affiliated Group for a number of years. Each of the Original LP Limited Partners had a different ownership interest in New LP. The percentage partnership ownership interest in New LP of each of the Original LP Limited Partners was as follows:

		LP Limited Partner 	Ownership Interest

		Subco				XXXXXXXXXX %
		BCo			  	XXXXXXXXXX %
		CCo			  	XXXXXXXXXX %
		DCo				XXXXXXXXXX %
		ECo			  	XXXXXXXXXX %
		FCo			  	XXXXXXXXXX %
		GCo				XXXXXXXXXX %
		HCo				XXXXXXXXXX %
		ICo			  	XXXXXXXXXX %
		JCo				XXXXXXXXXX %
		KCo			  	XXXXXXXXXX %

The Original LP Limited Partners shared in New LP's income or loss in proportion to their partnership percentage, as will the LP Limited Partners.

20. New LP borrowed an amount of $XXXXXXXXXX on a "daylight loan" basis (the "First Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement.

21. New LP used the proceeds received from the First Daylight Loan to subscribe for Preferred Shares having an aggregate redemption/retraction price equal to the amount contributed (i.e., $XXXXXXXXXX ). For greater certainty when considering the application of section 112, neither New LP, nor any of the LP Partners, will acquire, or be considered to have acquired the Preferred Shares in the ordinary course of business carried on by the respective entity.

22. Newco 1 used the $XXXXXXXXXX proceeds received from the Preferred Shares subscriptions described in Paragraph 21 to make a demand, interest-free loan to ACo in an amount equal to such proceeds (the "First ACo Loan"). Newco 1's recourse against ACo to obtain reimbursement of the First ACo Loan is limited to the amount of the First New LP Loan, as described in Paragraph 23, and related interest.

23. ACo used the proceeds received from the First ACo Loan to make a loan of $XXXXXXXXXX to New LP (the "First New LP Loan"). Simple interest accrues on the First New LP Loan and is calculated daily at an annual rate equal to a commercial rate in these facts and circumstances. The annual interest rate approximates XXXXXXXXXX %. The interest on the First New LP Loan is paid on XXXXXXXXXX of each year. ACo's recourse against New LP to obtain reimbursement of the First New LP Loan is limited to the Preferred Shares of Newco 1 owned by New LP. Furthermore, it is possible for New LP to pay off the First New LP Loan by transferring its Preferred Shares to ACo.

Besides the interest expense incurred by New LP in respect of the New LP Loans, New LP's "other expenses" to be included in the computation of its income for any taxation year are non-existent or negligible. Consequently, except as noted immediately following, no further reference to these other expenses need be made. For greater certainty, each year the amount of dividends payable on the Preferred Shares (see Paragraphs 16, 32, and 43(E)) will exceed the aggregate, in that particular year, of the amount of interest on the New LP Loans, plus the negligible amount of any other expenses incurred by New LP. Consequently, each year during which this loss utilization arrangement is in place, New LP will have net income computed in accordance with subsection 96(1).

24. New LP used the proceeds received from the First New LP Loan to repay the First Daylight Loan.

25. On the same day and right after the transactions described in Paragraphs 20 to 24 had been completed, New LP borrowed an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Second Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed were used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 20 to 24 in connection with the First Daylight Loan.

26. On the same day and right after the transactions described in Paragraph 25, New LP again borrowed an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Third Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed were used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 20 to 25 in connection with the First Daylight Loan and the Second Daylight Loan.

27. On the same day and right after the transactions described in Paragraph 26, New LP again borrowed an amount of $XXXXXXXXXX on a "daylight loan" basis (the "Fourth Daylight Loan") from the Financial Institution, pursuant to the Cash Pooling Arrangement. The funds so borrowed were used in the same manner, by the same parties, and for the same purposes, as described in Paragraphs 20 to 26 in connection with the First Daylight Loan, the Second Daylight Loan, and the Third Daylight Loan.

The purpose for carrying out the transactions pursuant to the Cash Pooling Arrangement, as opposed to a typical bank loan, was to permit New LP to fund the First Daylight Loan, the Second Daylight Loan, the Third Daylight Loan and the Fourth Daylight Loan (collectively referred to as the "Daylight Loans") without having to pay additional financing fees. The Daylight loans were made by the Financial Institution through covering New LP's overdrafts. Notwithstanding that there was no interest/fees charged for the Daylight Loans, the loans were real, wire transfers were made and there is an appropriate paper trail for the loans. There is no maximum amount that could be borrowed under the Cash Pooling Arrangement, but from a practical point of view, the amount so borrowed never exceeded the liquid assets of Parent Affiliated Group, which, at the time, were estimated at $XXXXXXXXXX . Therefore, in order not to exceed the amount of the Parent Affiliated Group's liquidities, New LP borrowed the total amount of the Daylight Loans (i.e., $XXXXXXXXXX ) in XXXXXXXXXX tranches of $XXXXXXXXXX each.

The total amount borrowed by New LP (estimated to be $XXXXXXXXXX ) was based on and will not exceed the borrowing capacity of the Parent Affiliated Group, as confirmed in writing by an arm's length financial institution. The interest rate on the Daylight Loans is a commercial arm's length rate, presently estimated to be XXXXXXXXXX % per annum.

28. On the XXXXXXXXXX day ofXXXXXXXXXX , while the New LP Loans are outstanding, New LP borrows from Parent, on a daylight loan basis, an amount equal to the interest payable by New LP on the New LP Loans on that day (the "New LP Daylight Loan"). The New LP Daylight Loan is a demand, interest free loan.

29. On the same XXXXXXXXXX day ofXXXXXXXXXX referred to in Paragraph 28, Subco will, if ACo does not have sufficient cash flow available, capitalize ACo in an amount corresponding to the XXXXXXXXXX % difference between the cumulative dividends payable by Newco 1 on the Preferred Shares and the interest payable by New LP on the New LP Loans for that particular year. No share is issued by ACo with respect to the contribution of capital and no amount is added to the stated capital of PUC of ACo. The amount of this contribution of capital is recorded as contributed surplus for accounting purposes. The contribution of capital is not reported as income for tax purposes and is not treated as income of ACo pursuant to generally accepted accounting principles.

30. New LP uses the proceeds received from the New LP Daylight Loan described in Paragraph 28 to pay the interest on the New LP Loans to ACo. The interest on the New LP Loans is paid annually on the XXXXXXXXXX day ofXXXXXXXXXX .

31. Upon receipt of the amounts described in Paragraphs 29 and 30, ACo makes a contribution of capital to Newco 1 in an amount equal to the dividend payable by Newco 1 on that day on the Preferred Shares held by New LP. No share is issued by Newco 1 with respect to the contribution of capital and no amount is added to the stated capital or PUC of Newco 1. The amount of this contribution of capital is recorded as contributed surplus for accounting purposes. The contribution of capital is not reported as income for tax purposes and is not treated as income of ACo pursuant to generally accepted accounting principles.

32. Upon receipt of the contribution described in Paragraph 31, Newco 1 pays a dividend to New LP, subject to the applicable solvency test, equal to the amount of the dividends payable by Newco 1 on the Preferred Shares, as referred to in Paragraph 16.

33. New LP uses the amount received as dividends from Newco 1 to repay the New LP Daylight Loan and, with the excess cash available, makes a cash distribution to the LP Partners in proportion of their ownership interests in New LP. The distribution is made annually, upon receipt of the dividend from Newco 1 on the XXXXXXXXXX day of XXXXXXXXXX .

Additional Information Per Original Ruling

34. At any time during the implementation of the proposed transactions described in the Original Ruling, the Preferred Shares, which have been issued as described in Paragraph 16, were not and will not be:

A. the subject of any undertaking that is referred to in subsection 112(2.2) as a "guarantee agreement";
B. the subject of a dividend rental arrangement;
C. the subject of any secured undertaking of the type described in paragraph 112(2.4)(a); or
D. issued for consideration that is or includes:

(i) an obligation of the type described in subparagraph 112(2.4)(b)(i); or
(ii) any right of the type described in subparagraph 112(2.4)(b)(ii).

35. None of Subco, ACo, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, LCo, Newco 1 and Newco 2 is or will be a financial intermediary corporation.

36. Subco, ACo, BCo, CCo, DCo, ECo, FCo, GCo, HCo, ICo, JCo, KCo, LCo,
Newco 1 and Newco 2 are or will be specified financial institutions.

37. Based on its existing assets and resources, Subco will have the ability to make the contributions of capital to ACo as described in Paragraphs 29 and 43(B).

Other Facts

38. As detailed above, it was expected at the time of the Original Ruling that the Original LP Limited Partners would generate sufficient annual taxable income in XXXXXXXXXX and subsequent taxation years to fully offset their respective annual share of the interest expense allocated to them as limited partners of New LP, in respect of interest paid or payable by New LP on the New LP Loans. However, due XXXXXXXXXX , these expectations were not realized. Instead of realizing taxable income, Subco generated a loss before its share of the New LP loss. The projected income for CCo, DCo, HCo and KCo for XXXXXXXXXX is lower than what was anticipated at the time of the Original Ruling, so that it is no longer expected that these corporations will generate sufficient taxable income in XXXXXXXXXX to fully offset their annual share of the interest expense allocated to them as limited partners of New LP.

It was estimated that the loss utilization arrangement would stay in existence for about XXXXXXXXXX years before it was completely unwound.

39. On XXXXXXXXXX , Subco, ECo and FCo amalgamated to form Subco.

40. Subco carried back its XXXXXXXXXX non-capital loss to a previous taxation year.

PROPOSED TRANSACTIONS

41. GCo and LCo will subscribe for XXXXXXXXXX and XXXXXXXXXX newly issued units of New LP, respectively, for $XXXXXXXXXX and $XXXXXXXXXX , respectively, based on the fair market value of these units at that time.

42. New LP will redeem all of the New LP units held by CCo, DCo, and KCo at fair market value so that they will no longer be limited partners of New LP after the redemption. New LP will also redeem, at fair market value, XXXXXXXXXX of the XXXXXXXXXX New LP units held by HCo and XXXXXXXXXX of the XXXXXXXXXX units held by Subco. After the proposed transactions in Paragraph 41 and this Paragraph, the percentage of LP units held by each of the LP Limited Partners will be as follows:

	Limited Partner		Percentage

	BCo				XXXXXXXXXX %
	GCo				XXXXXXXXXX %
	HCo				XXXXXXXXXX %
	ICo			  	XXXXXXXXXX %
	JCo			  	XXXXXXXXXX %
	LCo				XXXXXXXXXX %
	Subco				XXXXXXXXXX %
	Newco 2			XXXXXXXXXX %
				  	XXXXXXXXXX %

43. As stated in paragraph 33 of the Original Ruling, once it is expected that the interest income to be received by ACo in respect of the New LP Loans will be greater than the amount required to utilize ACo's available tax operating losses, the following transactions will occur to unwind the loss consolidation arrangement. In certain other circumstances (e.g., where it is no longer expected that the LP Partners will generate sufficient annual taxable income to fully offset their annual share of the interest expense allocated to them, in respect of interest paid or payable by New LP on the New LP Loans), the following transactions may also be undertaken to reduce the amount of the New LP Loans:

A. New LP will borrow from Parent, on a daylight loan basis, an amount equal to the amount of any accrued and unpaid interest on the New LP Loans on that day (the "New LP Final Daylight Loan"). The New LP Final Daylight Loan will be a demand, interest free loan.

B. Subco will, if ACo does not have sufficient cash flow available, capitalize ACo in an amount corresponding to the XXXXXXXXXX % difference between the cumulative dividends payable by Newco 1 on the Preferred Shares and the interest payable by New LP on the New LP Loans on that day. No share will be issued by ACo with respect to the contribution of capital and no amount will be added to the stated capital of PUC of ACo. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be reported as income for tax purposes and will not be treated as income of ACo pursuant to generally accepted accounting principles.

C. Upon receipt of the amount described in Paragraph 43(A), New LP will pay the accrued and unpaid interest on the New LP Loans.

D. Upon receipt of the amount described in Paragraphs 43(B) and (C), ACo will make a contribution of capital to Newco 1 in an amount equal to the accrued and unpaid dividends payable by Newco 1 on the Preferred Shares. No share will be issued by Newco 1 with respect to the contribution of capital and no amount will be added to the stated capital or PUC of Newco 1. The amount of this contribution of capital will be recorded as contributed surplus for accounting purposes. The contribution of capital will not be treated as income for tax purposes and will not be treated as income of Newco 1 pursuant to generally accepted accounting principles.

E. Upon receipt of the contribution described in Paragraph 43(D), Newco 1 will, subject to the applicable solvency test, pay a dividend to New LP equal to the amount of the dividends payable by Newco 1 on the Preferred Shares, as referred to in Paragraph 16.

F. New LP will use the amount received as dividends from Newco 1 to repay the New LP Final Daylight Loan and, with the excess cash available, make a distribution to the LP Partners in proportion of their ownership interests in New LP.

G. Newco 1 will redeem its issued and outstanding Preferred Shares held by
New LP in exchange for a promissory note equal to $XXXXXXXXXX (the
"Newco 1 Note"). The Newco 1 Note will be accepted as a final and unconditional payment of the redemption proceeds.

H. New LP will transfer the Newco 1 Note to ACo in payment of the New LP Loans from ACo.

I. The Newco 1 Note and the ACo Loans will be extinguished by offset at their principal amounts.

44. In the Original Ruling, it was estimated that the loss utilization arrangement described therein would stay in existence for about XXXXXXXXXX years before it was completely unwound, as contemplated in paragraph 43 above. This expectation remains the same.

PURPOSE OF PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to amend the tax consolidation proposals set out in the Original Ruling to take into account changing circumstances that have resulted in some of the Original LP Limited Partners earning less income than anticipated and some Original LP Limited Partners earning more than anticipated.

RULINGS

Provided that

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions,

(b) the proposed transactions are completed in the manner described above, and

(c) there are no other transactions which may be relevant to the rulings requested,

we rule that:

A. Subject to the conditions, limitations, qualifications and comments set out in the Original Ruling and this letter, the Proposed Transactions will not affect the rulings given in the Original Ruling, except that the reference therein to LP Limited Partners in Ruling C and the reference therein to LP Partners in Ruling D refer to the definitions of such terms as set out in this ruling. That is, these definitions include LCo.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R5, issued by the CRA on May 17, 2002, and are binding on the CRA provided the proposed transactions are entered into on or before XXXXXXXXXX . These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.
XXXXXXXXXX
Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

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

(b) the reasonableness or fair market value of any fees or expenditures referred to herein;

(c) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(d) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transactions;

(e) the application or non-application of the general anti-avoidance provisions of any province; nor

(f) any tax consequences relating to the Facts and Proposed Transactions described herein, other than those specifically described in the rulings given above. In particular, we are not commenting on the tax consequences of any other loss consolidation transactions referred to in Paragraph 13.

OPINION

Provided that the proposed addition of subsection 96(1.01) is enacted in substantially the same form as described in subsection 49(1) of the Income Tax Amendments Act, dated July 16, 2010, the adjusted cost base of the New LP units will reflect the partnership income allocable to the New LP units for the fiscal period of the partnership that is deemed by subparagraph 96(1.01)(b)(ii) to end immediately before the time that is immediately before the time that the holders of the New LP units cease to be members of New LP.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch