2010 Ruling 2008-0281481R3 - Butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Whether the distribution of DC's cash & near cash and investment property to holding companies to be respectively incorporated by each sibling for the benefit of their respective family qualifies for the butterfly exemption stated in paragraph 55(3)(b) of the Act;

Position: (1) Yes

Reasons: (1) The various transactions completed prior to the distribution of DC's property meets the requirements listed in paragraph 55(3)(b), and will not be subject the butterfly exemption denial rule stated in subparagraphs 55(3.1)(b)(ii) of the Act.

XXXXXXXXXX
									2008-028148
									XXXXXXXXXX 

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX , which was amended XXXXXXXXXX in response to our requests for additional information dated XXXXXXXXXX wherein you requested an advance income tax ruling ("ruling request") on behalf of XXXXXXXXXX .

PRELIMINARY MATTERS

1. To the best of your knowledge, none of the issues involved in this ruling request:

(a) is in an earlier return of XXXXXXXXXX or a related person;

(b) is being considered by a tax services office ("TSO") or a taxation centre in connection with a previously filed tax return of XXXXXXXXXX or a related person;

(c) is under objection by XXXXXXXXXX or a Related Person,

(d) is before the Courts; or

(e) is the subject of a ruling previously considered by the CRA.

XXXXXXXXXX also represents that the Proposed Transactions described herein will not result in XXXXXXXXXX or any Related Person described herein being unable to pay its existing outstanding tax liabilities. Unless otherwise indicated, all references to monetary amounts in this letter are in Canadian dollars.

DEFINITIONS

2. In this letter, unless the context otherwise requires, the following terms have the meaning specified below:

"A" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"A Family" means A, B, C, D and E;

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

"ACo" means a corporation to be incorporated by A under the provisions of the CBCA.

"ACo Note" has the meaning ascribed thereto in paragraph 25 below;

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended and consolidated to the date hereof. Unless otherwise specified, any reference in this letter to a provision number is a reference to a provision of the Act;

"Agreed Amount" means the amount that a transferor and a transferee have agreed upon in a joint election filed pursuant to subsection 85(1) in respect of a transfer of Eligible Property as adjusted in accordance with paragraphs 85(1)(b) to 85(1)(e.4) inclusively;

"Arm's Length" has the meaning assigned by subsection 251(1);

"Articles of Dissolution" means the articles of dissolution that DC will send pursuant to subsection 210(4) of the CBCA after DC has distributed all its property, and discharged all of its liabilities;

"B" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"B Family" means F, G, H, I and J;

"BCo" means a corporation to be incorporated by F under the provisions of the CBCA;

"BCo Note" has the meaning ascribed thereto in paragraph 25 below;

"C" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"Capital Dividend" means a dividend in respect of which an election was made pursuant to subsection 83(2);

"Capital Property" has the meaning assigned by section 54;

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

"CCPC" has the meaning assigned to "Canadian-controlled private corporation" by subsection 125(7);

"CDA" has the meaning assigned to "capital dividend account" by subsection 89(1);

"Certificate of Dissolution" means the certificate of dissolution that the Minister shall issue upon receipt upon receipt of DC's Articles of Dissolution pursuant to subsection 210(5) of the CBCA;

"Cost Amount" has the meaning assigned by subsection 248(1);

"CRA" means the Canada Revenue Agency;

"D" means XXXXXXXXXX , an individual who does not reside in Canada for the purposes of the Act;

"DC" means XXXXXXXXXX , which was incorporated on XXXXXXXXXX under the CBCA. The registered office of DC is located at XXXXXXXXXX . DC's taxation year and fiscal period ends on XXXXXXXXXX of each year. DC files its federal returns at the XXXXXXXXXX taxation centre.

"Director" means the director appointed by the Minister to carry out the duties and exercise the powers of the Director under the CBCA;

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

"Dividend Refund" has the meaning assigned by subsection 129(1);

"Dividend Rental Arrangement" has the meaning assigned by subsection 248(1);

"E" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"Eligible Property" has the meaning assigned by subsection 85(1.1);

"F" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"FMV" means the fair market value of a property, being the highest price available in an open and unrestricted market, between informed prudent parties, acting at Arm's Length and with no compulsion to act, expressed in cash;

"Forgiven Amount" has the meaning assigned by subsections 80(1) and 80.01(1);

"G" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"H" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"I" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"Issuing Corporation" means Aco, Bco or DC;

"J" means XXXXXXXXXX , an individual who resides in Canada for the purposes of the Act;

"Loss Property" or "Loss Properties" has the meaning ascribed thereto in paragraph 9 below;

"Minister" means the Minister of Consumer and Corporate Affairs designated to act as the Minister for the purposes of the CBCA;

"Net Capital Loss" has the meaning assigned by subsection 111(8);

"Non-Capital Loss" has the meaning assigned by subsection 111(8);

"Notes" has the meaning ascribed in paragraph 28 below;

"Participants" means ACo, BCo and DC;

"Premium" means an amount with respect to a share of the Issuing Corporation equal to the difference between the FMV, at the moment it is issued, of the property received by the Issuing Corporation as consideration for such share and the total of:

(a) the amount added at the time of its issuance to the Stated Capital Account maintained for the class of shares to which that share belongs; and

(b) the FMV of the consideration paid by the Issuing Corporation for the property otherwise than by the issuance of such share;

"Private Corporation" has the meaning assigned by subsection 89(1);

"Proceeds of Disposition" has the meaning assigned by section 54;

"Proposed Transactions" means the transactions described in the proposed transaction section of this letter;

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

"RDTOH" has the meaning assigned to "refundable dividend tax on hand" by subsection 129(3);

"Related" has the meaning as signed by subsection 251 (2);

"Series of Transactions or Events" has the meaning assigned to that term by the Common Law, and includes any related transaction or event referred to in subsection 248(10);

"Special Resolution" has the meaning assigned by subsection 2(1) of the CBCA;

"Specified Investment Business" has the meaning assigned by subsection 125(7);

"Stated Capital Account" refers to the account maintained in accordance with subsection 26(1) of the CBCA for each class of shares issued by DC;

"Taxable Canadian Corporation" has the meaning assigned by subsection 89(1);

"Taxable Dividend" has the meaning assigned by subsection 89(1);

"Testamentary Trust" has the meaning assigned by subsection 108(1);

"Trust" means the Testamentary Trust established as a result of X's death;

"Trustees" means A and F who are acting as trustees for the Trust;

"Types of Property" means the three (3) types of property into which DC's assets may be classified into for the purposes of the Distribution: (a) cash or near cash property, comprising all of DC's current assets, cash, marketable securities (other than portfolio investments) and accounts receivable; (b) business property, comprising all of DC's assets other than cash or near cash property, any income from which would, for purposes of the Act, be income from a business (other than a Specified Investment Business) carried on by DC; and (c) investment property, comprising all of DC's assets other than cash or near cash property, any income
from which would, for purpose of the Act, be income from property or a Specified Investment Business;

"Winding-Up Dividend" has the meaning assigned by subsection 84(2);

"X" means XXXXXXXXXX ; and

"Y" means X's wife.

FACTS

3. DC is a CCPC and a Taxable Canadian Corporation, which carries on a Specified Investment Business.

4. The authorized capital of DC consists of an unlimited number of Class A common shares, Class B common shares, Class A preferred shares, Class B preferred shares and Class C preferred shares, all without par value and having the following rights and privileges:

(a) The Class A common shares are voting, participating (pari passu with the Class B commons shares) and entitled to receive discretionary dividends (pari passu with the Class B common shares) after the payment of any dividend to which the holder of the Class A preferred shares, Class B preferred shares and Class C preferred shares may be entitled.

(b) The Class B common shares are non-voting, participating (pari passu with the Class A common shares) and entitled to receive discretionary dividends (pari passu with the Class A common shares) after the payment of any dividend to which the holder of the Class A preferred shares, Class B preferred shares and Class C preferred shares may be entitled.

(c) The Class A preferred shares are non-voting, non-participating, redeemable, retractable and are entitled to receive, in preference and priority to any other class of shares, a non-cumulative monthly dividend equal to XXXXXXXXXX % of their redemption price.

(d) The Class B preferred shares are non-voting, non-participating, redeemable and are entitled to receive, in preference and priority to the Class C preferred shares, the Class A common shares and the Class B common shares a non-cumulative dividend equal to XXXXXXXXXX % of their redemption price.

(e) The Class C preferred shares are voting, non-participating, redeemable and are entitled to receive, in preference and priority to the Class A common shares and the Class B common shares, a non-cumulative dividend equal to XXXXXXXXXX % of their redemption price.

5. X and Y are the parents of A and F. B is the husband of A. C, D and E are the children of A and B. All of them are over 18 years old. F and G are former husband and wife (i.e. divorced). H, I and J are the children of F and G. All of them are over 18 years old.

6. The issued and outstanding shares of DC are owned as follows:

Shareholder 	Number and		Voting	ACB		PUC 		FMV
			class of shares

A			XXXX Class A	Yes		XXXX $	XXXX $	$ XXXX			Common
B			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
C			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
D			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
E			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
F			XXXX Class A 	Yes		XXXX $	XXXX $	$ XXXX
			Common
G			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
H			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common
I			XXXX Class B	No		XXXX $	XXXX $	$ XXXX			Common
J			XXXX Class B	No		XXXX $	XXXX $	$ XXXX
			Common

7. Each DC's shareholders holds his/her shares of DC as Capital Property.

8. DC's assets consist exclusively of a portfolio of marketable securities held for investment purposes and having a FMV of approximately $XXXXXXXXXX . DC's liabilities consist primarily of a promissory note in the amount of $XXXXXXXXXX owed to the Trust, and a promissory note in the amount of $XXXXXXXXXX owed to A.

9. The aggregate Net Capital Losses accrued on certain securities (collectively, the "Loss Properties" or individually a "Loss Property") held by DC on XXXXXXXXXX was approximately $XXXXXXXXXX . At the time of the Proposed Transactions, DC will not have any Non-Capital Loss and Net Capital Loss.

10. On XXXXXXXXXX , the balance of DC's RDTOH was approximately XXXXXXXXXX , and the balance of DC's CDA was approximately $XXXXXXXXXX .

PROPOSED TRANSACTIONS

Incorporation of ACo and BCo

11. A will incorporate ACo.

12. F will incorporate BCo.

13. The only undertaking of ACo and BCo will be the investment of their respective funds. Each of ACo and BCo will be a Taxable Canadian Corporation and a Private Corporation.

14. The authorized share capital of each of ACo and BCo will consist of an unlimited number of Class A common shares, Class B common shares, Class A preferred shares and Class B preferred shares, all without par value and having the following rights and privileges:

(a) The Class A common shares will be voting, participating (pari passu with the Class B common shares) and entitled to receive discretionary dividends (pari passu with the Class B common shares) after the payment of any dividends to which the Class A preferred shares, might be entitled.

(b) The Class B common shares will be non-voting, participating (pari passu with the Class A common shares) and entitled to receive discretionary dividends (pari passu with the Class A common shares) after the payment of any dividends to which the Class A preferred shares, might be entitled.

(c) The Class A preferred shares will be voting, non participating, redeemable and retractable at a redemption price equal to the amount included to the Stated Capital Account maintained for that class of shares plus the Premium and entitled to receive a monthly non-cumulative dividend equal to XXXXXXXXXX % of their redemption price.

(d) The Class B preferred shares will be voting (XXXXXXXXXX votes per share), non participating, redeemable and retractable at a redemption price equal to the amount included to the Stated Capital Account maintained for that class of shares, and not entitled to receive dividends.

Transfer of DC shares to ACo and BCo

15. Immediately after the incorporation of ACo and BCo, the following share transfers will take place:

(a) A will transfer her XXXXXXXXXX Class A common shares of DC to ACo and, as consideration therefor, ACo will issue XXXXXXXXXX Class A common shares of its capital stock having an aggregate FMV equal to the aggregate FMV, at that time, of the XXXXXXXXXX Class A common shares of DC transferred to ACo by A. The aggregate addition to the Stated Capital Account maintained for the Class A common Shares of ACo so issued will, pursuant to subsection 26(3) of the CBCA, be equal the aggregate PUC attributable to the XXXXXXXXXX Class A common shares of DC transferred to ACo by A, which will not exceed the maximum amount that could be added to the PUC of such shares without giving rise to an adjustment under section 84.1.

(b) Each of B, C, D and E will transfer their respective XXXXXXXXXX Class B common shares of DC to ACo and, as consideration therefor, ACo will issue to each of them XXXXXXXXXX Class B common shares of its capital stock having an aggregate FMV equal to the aggregate FMV of the XXXXXXXXXX Class B common Shares of DC transferred to ACo by each of them. The aggregate addition to the Stated Capital Account maintained for the Class B common shares of ACo so issued will be equal the aggregate PUC attributable to each of the XXXXXXXXXX Class B common shares of DC transferred to ACo by each of B, C, D and E, and will not exceed the maximum amount that could be added to the PUC of such shares without giving rise to an adjustment under section 84.1.

(c) F will transfer his XXXXXXXXXX Class A common shares of DC to BCo and, as consideration therefor, BCo will issue XXXXXXXXXX Class A common shares of its capital stock having an aggregate FMV equal to the aggregate FMV, at that time, of the XXXXXXXXXX Class A common shares of DC transferred to BCo by F. The aggregate addition to the Stated Capital Account maintained for the Class A common shares of BCo so issued will, pursuant to subsection 26(3) of the CBCA, be equal the aggregate PUC attributable to the XXXXXXXXXX Class A common shares of DC transferred to BCo by F, and will not exceed the maximum amount that could be added to the PUC of such shares without giving rise to an adjustment under section 84.1.

(d) Each of G, H, I, and J will transfer their respective XXXXXXXXXX Class B common shares of DC to BCo and, as consideration therefor, BCo will issue to each of them XXXXXXXXXX Class B common shares of its capital stock having an aggregate FMV equal to the aggregate FMV of the XXXXXXXXXX Class B common Shares of DC transferred to BCo by each of them. The aggregate addition to the Stated Capital Account maintained for the Class B common shares of BCo so issued will be equal the aggregate PUC attributable to each of the XXXXXXXXXX Class B common shares of DC transferred to BCo by each of G, H, I and J, and will not exceed the maximum amount that could be added to the PUC of such shares without giving rise to an adjustment under section 84.1.

16. In regard to each of the share transfers described in paragraph 15 above, ACo and each of A, B, C, D and E as well as BCo and each of F, G, H, I and J will file a joint election, in prescribed form, and within the time limits referred to in subsection 85(6) to have the provisions of subsection 85(1) apply in respect of each of the share transfers. The Agreed Amount in each election will be equal to the respective transferor's ACB of the particular class of shares of DC transferred to ACo or BCo (as the case may be) and for greater certainty, such Agreed Amount will not be less than the lesser of the two amounts described in paragraph 85(1)(c.1).

Transfer of DC's assets to ACo and BCo

The transferred assets

17. Immediately before the transfer of property described in paragraph 20 below, it is anticipated that DC will not own any Type of Property that qualifies as a business property. Therefore, the only Types of Property that will be transferred to ACo and BCo will be cash or near cash property and investment property.

The allocation of DC's liabilities to the transferred assets

18. In determining the net FMV of the Types of Property to be transferred to ACo and BCo, DC`s liabilities will be allocated in the following manner:

(a) Current liabilities of DC (including the current portion of long-term debts) will be allocated to the cash and near cash property (including any cash, accounts receivable and prepaid expenses) of DC in the proportion that the FMV of each such property is of the FMV of all cash and near-cash property owned by DC. The amount of current liabilities allocated as described herein will not exceed the aggregate FMV of the cash and near cash property held by DC.

(b) Liabilities of DC, other than current liabilities, that relate to a particular property (and effectively to the Type of Property to which the particular property belongs) will be allocated to that particular property to the extent of the property's FMV. Any excess of such liabilities over the FMV of the particular property is allocated to the Type of Property to which the particular property belongs. Liabilities that pertain to a Type of Property but not to a particular property are then allocated to that Type of Property. DC will be considered to have a negative net FMV for that Type of Property to the extent that the allocation of liabilities to a particular Type of Property exceeds the aggregate FMV of all property of that particular type of Property.

(c) Any remaining liability other than the liabilities of DC described in paragraphs (a) and (b) above will be allocated to the cash and near cash property and investment property of DC based on the remaining net FMV of each such Type of Property after the allocation of liabilities described in paragraphs (a) and (b) above.

19. For greater certainty, the following rules will apply in determining the net FMV of each Type of Property as described in paragraph 18 above:

(a) a liability will not be considered as such unless it represents a legal obligation which can be quantified;

(b) the amount of deferred taxes in respect of a property will not be considered a liability; and

(c) DC's tax accounts such as the balance of its non-capital losses, RDTOH or CDA, if any, will not be considered as DC's property.

The proportionate transfer of DC's net assets to ACo and BCo

20. DC will then transfer to each of ACo and BCo XXXXXXXXXX % of the property of every Type of Property that it owns such that, immediately after the transfer, the net FMV of all the properties of each Type of Property received by ACo and BCo will be equal to or approximate the amount determined by the formula A x B/C where:

A is the FMV of all the properties of that Type of Property owned by DC immediately before the transfer;

B is the FMV of all the shares of the capital stock of DC respectively owned by the recipient of the property immediately before the transfer; and

C is the FMV of the all the shares of the capital stock of DC immediately before the transfer.

21. For the purposes of calculating the amount described in paragraph 20 above, the expression "approximates the proportion" means that the discrepancy between that proportion and the percentage of the net FMV of each Type of Property which ACo and BCo would have received had it received its pro rata share of the net FMV of that Type of Property does not exceed XXXXXXXXXX %.

22. DC and each of ACo and BCo 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 each Eligible Property that is respectively transferred by DC to ACo and BCo as described in paragraph 20 above. The Agreed Amount in respect of each Eligible Property so transferred will not be less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). In addition, the Agreed Amount will not exceed the FMV of the particular property nor will it be less that the amount permitted in paragraph 85(1)(b).

The consideration to be issued by ACo and BCo

23. As consideration for the property so transferred by DC as described in paragraph 20 above, each of ACo and BCo will:

(a) Assume their pro-rata share of DC's liabilities. The amount of DC's liabilities to be assumed by each of ACo and BCo will not exceed the aggregate ACB of the property respectively transferred to each of ACo and BCo.

(b) Issue to DC XXXXXXXXXX Class A preferred shares of their capital stock having a FMV and aggregate redemption amount equal to the amount by which the FMV of DC's assets respectively transferred to ACo and BCo exceeds the amount of the liabilities respectively assumed by each of ACo and BCo.

24. The amount added to the Stated Capital Account in respect of the XXXXXXXXXX Class A preferred shares respectively issued by each of ACo and BCo as described in paragraph 23 above will be equal to the excess of the aggregate ACB of all the property transferred to each of ACo and BCo over the aggregate liabilities assumed by each of ACo and BCo.

The redemption of the Class A preferred shares that DC held in ACo and BCo

25. Each of ACo and BCo will redeem the 100 Class A preferred shares of its capital stock owned by DC for an amount equal to their FMV, and will issue to DC a non-interest bearing promissory note (respectively the "ACo Note" and the "BCo Note") payable on demand having a principal amount and a FMV equal to the FMV of the XXXXXXXXXX Class A preferred shares DC held in ACo and BCo. DC will accept the ACo Note and BCo Note as full payment for the XXXXXXXXXX Class A preferred shares.

26. At the end of the day on which the Class A preferred shares of each of ACo and BCo are redeemed, each of ACo and BCo will cause its first taxation year to end.

The PUC increase in respect of DC's Class A common shares

27. Following the redemption of the Class A preferred shares that DC owned in ACo and BCo as described in paragraph 25 above, DC's shareholders will pass a Special Resolution to increase the Stated Capital of its Class A common shares by an amount equal to the outstanding balance of DC's CDA at that time. DC will file the appropriate election within the time prescribed under subsection 83(2) in respect of the dividend deemed to arise from the PUC increase in respect of its Class A common shares.

The winding-up of DC

28. On the day following the redemption of the Class A preferred shares of ACo and BCo as described in paragraph 25 above, the DC shareholders will, by special resolution, resolve to wind-up and dissolve DC under the applicable provisions of the CBCA. In connection with the winding-up, DC will distribute the ACo Note to ACo and the BCo Note to BCo (collectively, the "Notes"). As a result of the assignment and distribution of the Notes, the obligations under the Notes will be extinguished and legally cancelled.

29. Prior to the distribution of the Notes, DC will file the appropriate election in prescribed manner and prescribed form pursuant to subsection 83(2) so that the full amount of any resulting dividend referred to in subparagraph 88(2)(b)(i) be deemed to be a Capital Dividend to the extent of DC's CDA at the time that the dividend became payable.

30. Following the completion of the Proposed Transactions, all properties of DC will have been distributed and all liabilities of DC either discharged or assumed by ACo or BCo.

31. Should DC be entitled to receive a Dividend Refund in the course of the Proposed Transactions, it will distribute, as part of the winding-up, XXXXXXXXXX of such amount to each of ACo and BCo. The Dividend Refund, if any, will not arise until after the end of the fiscal period in which the Proposed Transactions are completed.

32. Articles of Dissolution will be filed with the Director. Upon receipt of the Articles of Dissolution, the Director will issue a Certificate of Dissolution. DC will cease to exist on the date shown on the Certificate of Dissolution.

PURPOSE OF THE PROPOSED TRANSACTIONS

33. The purpose of the Proposed Transactions is to permit the A Family and the B Family to separate their interests in DC in order to allow their respective members to collectively own and manage their investment business in a corporation independently from the members of the other family.

ADDITIONAL INFORMATION

34. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing of the applicable election forms described in paragraphs 22 and 29 above, which will be filed before the applicable due date.

34.1 DC occasionally acquires additional investment property and sells the investment property it holds, sometimes pursuant to the recommendation of an investment advisor.

35. Apart from the transactions described in paragraph 34.1 above, no property has or will become property of DC in contemplation of, and before the transfer described in Paragraph 20 above. In addition, no liabilities have been, or will be incurred or
discharged by DC in contemplation of and before the transfer described in Paragraph 20 above.

36. Except as otherwise described herein, no shares of DC or of any other corporation referred to herein has been acquired or will be acquired or disposed of as part of a Series of Transactions or Events that includes the Proposed Transactions.

37. Subsequent to the implementation of the Proposed Transactions, neither ACo nor BCo intends to transfer or sell any of the assets that it will receive in the course of the Proposed Transactions with the exception of the occasional acquisition of additional investment property or sale of the investment property they respectively hold, sometimes pursuant to the recommendation of an investment advisor.

38. At any time during the series of transactions or events that includes the Proposed Transactions, none of the issued shares referred herein (including the shares to be issued as part of the Proposed Transactions):

(a) is or will be subject to a guarantee agreement within the meaning referred to in subsection 112(2.2);

(b) is or will be part of a Dividend Rental Arrangement; or

(c) has been or will be issued or acquired as part of a transaction or event or Series of Transactions or Events of the type described in subsection 112(2.5).

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, the purpose of the Proposed Transactions and the additional information, and that the Proposed Transactions are completed in the manner described above, our rulings are as follows:

A. Subject to the application of subsection 69(11), and provided that the appropriate joint elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6), and provided that each particular property so transferred is an Eligible Property in respect of which shares have been issued as full or partial consideration therefor, the provisions of subsection 85(1) will apply to:

(a) the transfer of the Class A common and Class B common shares of DC to each of ACo and BCo as described in paragraph 15 above;

(b) the transfers of DC's property to each of ACo and BCo as described in Paragraph 20 above;

such that the Agreed Amount in respect of each such transfers will be deemed to be the transferor's Proceeds of Disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a). For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to above.

B. Provided that, as part of the Series of Transactions or Events that includes the Proposed Transactions, there is not:

(a) an acquisition of property in circumstances described in paragraph 55(3.1)(a);

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

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

(d) an acquisition of shares of DC in the circumstances described in subparagraph 55(3.1)(b)(iii); or

(e) an acquisition of property in the circumstances described in subparagraphs 55(3.1)(c) or 55(3.1)(d) which has not been described herein,

which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to any dividends resulting from either the redemption by ACo or BCo of its Class A preferred shares owned by DC or the winding-up of DC and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption to the application of subsection 55(2) provided by paragraph 55(3)(b).

C. The Proposed Transactions will not, in and by themselves, trigger the application of subsections 15(1), 56(2) and 246(1).

D. Subsection 245(2) will not apply as a result of the Proposed Transactions in and by themselves to re-determine the tax consequences confirmed in the rulings given.

The above rulings are 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 steps described in the Proposed Transactions are completed within 6 months of the date of this letter. Moreover, the above rulings are based on the law as it presently reads, and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

OTHER COMMENTS

Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of:

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

(b) the FMV or the ACB of any particular asset, the PUC of any share, and the outstanding balance of various tax accounts such as RDTOH for any of the corporate entities described herein; and

(c) the related transactions to be included in the Series of Transactions or Events that includes the receipt of a dividend deemed to be paid and received in the course to the Proposed Transactions.

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

Yours truly,

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