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. Will subsection 55(2) apply to the redemptions of the shares described in the proposed transactions?
2. Will Canco1 be able to designate an amount, in accordance with paragraph 88(1)(d), in respect of the shares of the capital stock of Canco2 that were held by Canco4 (Canco4 being wound-up into Canco1)?
3. Will there be a "forgiven amount" within the meaning of subsections 80(1) or 80.01(1) when the mutually-held notes are set-off against the other?
Position: 1. No
2. Subject to some conditions, yes.
3. In the particular situation, no.
Reasons: 1. The exception provided in paragraph 55(3)(a) will apply.
2. Subject to some conditions, the shares of the capital stock of Canco2 do not appear to be ineligible property.
3. The notes are of an equal amount.
XXXXXXXXXX 2010-037974
XXXXXXXXXX , 2011
Dear Sir:
Re: Advance Income Tax Rulings
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided in your letters of XXXXXXXXXX .
We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues described herein is:
(i) dealt with in an earlier tax return of any of the taxpayers or any related person;
(ii) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the taxpayers or a related person;
(iii) under objection by 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 not expired; or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.
Except as otherwise stated, a reference in this ruling to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act.
Unless otherwise indicated, all references to monetary amounts are in Canadian dollars.
Throughout this letter, the corporate and individual taxpayers will be referred to as follows:
"A" refers to XXXXXXXXXX ;
"CANCO1" refers to XXXXXXXXXX ;
"CANCO2" refers to XXXXXXXXXX ;
"CANCO3" refers to XXXXXXXXXX ;
"CANCO4" refers to XXXXXXXXXX ;
"HOLDCO1" refers to XXXXXXXXXX ;
"OPCO1" refers to XXXXXXXXXX ;
"OPCO2" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO3" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO4" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO5" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO6" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO7" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO8" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO9" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO10" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO11" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO12" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO13" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"OPCO14" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"REALCO1" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"REALCO2" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"REALHOLDCO" refers to XXXXXXXXXX ;
"SUBHOLDCO1" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"SUBHOLDCO2" refers to a new corporation to be incorporated under the name of XXXXXXXXXX ;
"SUBHOLDCO3" refers to a new corporation to be incorporated under the name of XXXXXXXXXX .
DEFINITIONS
In this letter, the following terms or expressions have the meaning specified.
a) "ACB" has the meaning assigned to the expression "adjusted cost base" in section 54;
b) "Act" refers to the Income Tax Act (Canada);
c) "arm's length" has the meaning assigned by subsection 251(1);
d) "Business Number" means the tax identification number assigned by the CRA to the particular entity;
e) "CBCA" refers to the Canada Business Corporations Act R.S.C. 1985 C. C-44 and the regulations thereto, as amended;
f) "CCPC" refers to "Canadian-controlled private corporation", as defined in subsection 125(7);
g) "CDA" has the meaning assigned to the expression "capital dividend account" in subsection 89(1);
h) "CRA" means the Canada Revenue Agency;
i) "capital property" has the meaning assigned by section 54;
j) "disposition" has the meaning assigned by subsection 248(1);
k) "fair market value" means the highest price, expressed in terms of money or money's worth, obtainable in an open and unrestricted market between knowledgeable, informed and prudent parties acting at arm's length, neither party being under any compulsion to transact;
l) "forgiven amount" has the meaning assigned by subsection 80(1);
m) "GRIP" refers to "General Rate Income Pool", as defined in subsection 89(1);
n) "guarantee agreement" has the meaning assigned by paragraph 112(2.2);
o) "Paragraph" means a numbered paragraph in this Ruling;
p) "person" has the meaning assigned by subsection 248(1);
q) "proceeds of disposition" has the meaning assigned by section 54;
r) "Promissory Notes" means the respective promissory notes to be issued by the corporations, mentioned in Paragraphs 35, 36, 41, 42, 47, 48, 61, 62, 68 and 69 by the respective corporations named in the said Paragraphs on the redemption or purchase for cancellation of the shares on the basis described in these Paragraphs.
s) "Proposed Transactions" means the proposed transactions which are described in Paragraphs 22 to 73;
t) "PUC" means "paid-up capital" within the meaning assigned by subsection 89(1);
u) "RDTOH" refers to "Refundable Dividend Tax On Hand", as defined in subsection 129(3);
v) "series of transactions or events" has the meaning assigned by subsection 248(10);
w) "specified financial institution" has the meaning assigned by subsection 248(1);
x) "Stated Capital" has, in relation to a corporation that exists under the CBCA, the meaning referred to in subsection 26(1) of the CBCA;
y) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);
z) "taxation year" has the meaning assigned by subsection 249(1).
FACTS
1. CANCO1 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the XXXXXXXXXX . CANCO1 is a taxable Canadian corporation. CANCO1 is and will be, at any relevant time and for all purposes of the Act, a CCPC. CANCO1 has a taxation year end of XXXXXXXXXX . The mailing address of CANCO1 is XXXXXXXXXX . CANCO1 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. CANCO1's Business Number is XXXXXXXXXX . CANCO1 carries on a number of businesses, which consist of a XXXXXXXXXX . CANCO1 also owns all the shares of CANCO4 and of CANCO3.
CANCO1's GRIP balance at XXXXXXXXXX was nil.
CANCO1's RDTOH balance at XXXXXXXXXX was nil.
CANCO1's current CDA balance is nil.
2. The issued and outstanding share capital of CANCO1 (the "CANCO1 Shares") consists of XXXXXXXXXX Class A common, voting shares which have a paid-up capital of $XXXXXXXXXX per share.
3. A purchased the CANCO1 Shares on XXXXXXXXXX from XXXXXXXXXX , at their then fair market value, $XXXXXXXXXX . The CANCO1 Shares are capital property to A. The ACB to A of the CANCO1 Shares is equal to their cost.
4. CANCO2 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the XXXXXXXXXX . CANCO2 is a taxable Canadian corporation. CANCO2 is and will be, at any relevant time and for all purposes of the Act, a CCPC. CANCO2 has a taxation year end of XXXXXXXXXX . The mailing address of CANCO2 is XXXXXXXXXX . CANCO2 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. CANCO2's Business Number is XXXXXXXXXX . CANCO2 carries on a number of businesses, which consist of a XXXXXXXXXX .
CANCO2's GRIP balance at XXXXXXXXXX was nil.
CANCO2's RDTOH balance at XXXXXXXXXX was nil.
CANCO2's current CDA balance is nil.
5. The issued and outstanding share capital of CANCO2 (the "CANCO2 Shares") consists of XXXXXXXXXX Class A common, voting shares which have an aggregate paid-up capital of $XXXXXXXXXX .
6. The CANCO2 Shares are all owned by CANCO4, having been purchased by CANCO4 on XXXXXXXXXX from an arm's length person for $XXXXXXXXXX . On XXXXXXXXXX , the fair market value of the CANCO2 Shares owned by Canco4 was equal to $XXXXXXXXXX . The CANCO2 Shares are capital property to CANCO4. The ACB to CANCO4 of the CANCO2 Shares is equal to their cost.
7. CANCO4 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the XXXXXXXXXX . CANCO4 is a taxable Canadian corporation. Canco4 is and will be, at any relevant time and for all purposes of the Act, a CCPC. CANCO4 has a taxation year end of XXXXXXXXXX . The mailing address of CANCO4 is XXXXXXXXXX . CANCO4 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. CANCO4's Business Number is XXXXXXXXXX . CANCO4 does not carry on an active business and only acts as a holding corporation for the shares of CANCO2.
8. The issued and outstanding share capital of CANCO4 (the "CANCO4 Shares") consists of XXXXXXXXXX Class A common, voting shares which have an aggregate paid-up capital of $XXXXXXXXXX .
9. The CANCO4 Shares are all owned by CANCO1, having been purchased from an arm's length party on XXXXXXXXXX for a cash consideration of $XXXXXXXXXX . The CANCO4 Shares are capital property to CANCO1. The ACB to CANCO1 of the CANCO4 Shares is equal to their cost. CANCO4 did not declare any dividend on the shares of its capital stock since their acquisition by CANCO1.
10. CANCO3 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the XXXXXXXXXX . CANCO3 is a taxable Canadian corporation. CANCO3 is and will be, at any relevant time and for all purposes of the Act, a CCPC. CANCO3 has a taxation year end of XXXXXXXXXX . The mailing address of CANCO3 XXXXXXXXXX . CANCO3 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. CANCO3's Business Number is XXXXXXXXXX . CANCO3 carries on a number of businesses, which businesses consist of a XXXXXXXXXX .
CANCO3's GRIP balance at XXXXXXXXXX was nil.
CANCO3's RDTOH balance at XXXXXXXXXX was nil.
CANCO3's current CDA balance is nil.
11. The issued and outstanding share capital of CANCO3 (the "CANCO3 Shares") consists of XXXXXXXXXX common shares with an aggregate paid-up capital of $XXXXXXXXXX .
12. The CANCO3 Shares are all owned by CANCO1, having been purchased from an arm's length party on XXXXXXXXXX for $XXXXXXXXXX . The CANCO3 Shares are capital property to CANCO1. The ACB to CANCO1 of the CANCO3 Shares is equal to their cost.
13. OPCO1 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the XXXXXXXXXX . OPCO1 is a taxable Canadian corporation. OPCO1 is and will be, at any relevant time and for all purposes of the Act, a CCPC. OPCO1 has a taxation year end of XXXXXXXXXX . The mailing address of OPCO1 is XXXXXXXXXX . OPCO1 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. OPCO1's Business Number is XXXXXXXXXX . OPCO1 carries on the business of XXXXXXXXXX .
14. The issued and outstanding share capital of OPCO1 (the "OPCO1 Shares") consists of XXXXXXXXXX Class A common shares which have a paid-up capital of $XXXXXXXXXX per share.
15. The OPCO1 Shares are owned by A, who was issued the shares on the incorporation of OPCO1, at the price of $XXXXXXXXXX per share. The OPCO1 Shares are capital property to A. The ACB to A of the OPCO1 Shares is equal to their cost.
16. HOLDCO1 is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the CBCA. HOLDCO1 is a taxable Canadian corporation and a private corporation. HOLDCO1 has a taxation year end of XXXXXXXXXX . The mailing address of HOLDCO1 is XXXXXXXXXX . HOLDCO1 files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. HOLDCO1's Business Number is XXXXXXXXXX . HOLDCO1 is an inactive holding company.
17. The issued and outstanding share capital of HOLDCO1 (the "HOLDCO1 Shares") consists of XXXXXXXXXX common shares which have an aggregate paid-up capital of $XXXXXXXXXX .
18. The HOLDCO1 Shares are all owned by A, who was issued the shares on the incorporation of HOLDCO1, for $XXXXXXXXXX per share. The HOLDCO1 Shares are capital property to A. The ACB to A of the HOLDCO1 Shares is equal to their cost.
19. REALHOLDCO is a corporation which was incorporated on XXXXXXXXXX pursuant to the provisions of the CBCA. REALHOLDCO is a taxable Canadian corporation and a private corporation. REALHOLDCO has a taxation year end of XXXXXXXXXX . The mailing address of REALHOLDCO is XXXXXXXXXX . REALHOLDCO files its tax returns at the XXXXXXXXXX Taxation Centre and it deals with the XXXXXXXXXX Tax Services Office. REALHOLDCO's Business Number is XXXXXXXXXX . REALHOLDCO carries on the business of XXXXXXXXXX .
20. The issued and outstanding share capital of REALHOLDCO (the "REALHOLDCO Shares") consists of XXXXXXXXXX common shares which have an aggregate paid-up capital of $XXXXXXXXXX .
21. The REALHOLDCO Shares are all owned by A, who was issued the shares on the incorporation of REALHOLDCO, for $XXXXXXXXXX per share. The REALHOLDCO Shares are capital property to A. The ACB to A of the REALHOLDCO Shares is equal to their cost.
PROPOSED TRANSACTIONS
22. OPCO1 will file articles of amendment to change its name to XXXXXXXXXX .
23. A will transfer his OPCO1 Shares to HOLDCO1 for Class A Preference shares of the capital stock of HOLDCO1 having an aggregate fair market value and Redemption amount equal to the aggregate fair market value of the OPCO1 Shares transferred to HOLDCO1.
a. For purposes of the CBCA, the increase to the Stated Capital of the Class A Preference shares of the capital stock of HOLDCO1 that are to be issued to A as consideration for the OPCO1 Shares will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).
b. A and HOLDCO1 will file a joint election in the prescribed form and within the time limits referred to in subsection 85(6) to have the provisions of subsection 85(1) apply with respect to the share transfer. The agreed amount in the joint election will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. The Class A Preference shares of the capital stock of HOLDCO1 are, inter alia, redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such Class A Preference shares then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the Class A Preference shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of the Class A Preference shares below the redemption amount payable for that class of preference shares then issued and outstanding.
24. CANCO4 will be wound up into CANCO1 pursuant to section XXXXXXXXXX of the XXXXXXXXXX and, accordingly, the CANCO2 Shares formerly held by CANCO4 (the "Transferred Shares") will be transferred and assigned to CANCO1.
25. CANCO1 will designate, in respect of the Transferred Shares, in its income tax return of income for the taxation year in which CANCO4 is wound up, an amount pursuant to paragraph 88(1)(d), equal to the difference between:
a. the ACB to CANCO1 of the CANCO4 Shares immediately before the winding-up and
b. the total of the amounts computed in accordance with subparagraphs 88(1)d)(i) and (i.1)
However, in no case shall the amount so designated in respect of the Transferred Shares exceed the difference between:
a. the fair market value of the Transferred Shares on XXXXXXXXXX as described in paragraph 6 above; and
b. the ACB, to CANCO4, of the Transferred Shares.
26. CANCO1, CANCO2 and CANCO3 will be continued under the provisions of the CBCA.
27. Each operating company will incorporate the following subsidiary corporations :
a. CANCO2 will incorporate:
i. OPCO2;
ii. OPCO3; and
iii. OPCO4.
b. CANCO3 will incorporate:
i. OPCO5;
ii. OPCO6; and
iii. OPCO7.
c. CANCO1 will incorporate:
i. OPCO8;
ii. OPCO9;
iii. OPCO10;
iv. OPCO11;
v. OPCO12;
vi. OPCO13;
vii. OPCO14;
viii. SUBHOLDCO1; and
ix. SUBHOLDCO2.
d. REALHOLDCO will incorporate:
i. REALCO1; and
ii. REALCO2.
A will incorporate SUBHOLDCO3.
These various corporations will be incorporated under the provisions of the CBCA. These corporations will be taxable Canadian corporations and will be, at any relevant time and for all purposes of the Act, CCPCs.
28. CANCO2 will retain the real property it owns and will transfer its:
a. XXXXXXXXXX , as a going concern, to OPCO2;
b. XXXXXXXXXX , as a going concern, to OPCO3;
c. XXXXXXXXXX , as a going concern, to OPCO4.
29. CANCO3 will retain the real property it owns and will transfer its:
a. XXXXXXXXXX , as a going concern, to OPCO5;
b. XXXXXXXXXX , as a going concern, to OPCO6;
c. XXXXXXXXXX , as a going concern, to OPCO7.
30. CANCO1 will retain the real property it owns and will transfer its:
a. XXXXXXXXXX , as a going concern, to OPCO8;
b. XXXXXXXXXX , as a going concern, to OPCO9;
c. XXXXXXXXXX , as a going concern, to OPCO10;
d. XXXXXXXXXX , as a going concern, to OPCO11;
e. XXXXXXXXXX , as a going concern, to OPCO12;
f. XXXXXXXXXX , as a going concern, to OPCO13;
g. XXXXXXXXXX , as a going concern, to OPCO14.
31. All the agreements for the transfers provided for in paragraphs 28 to 30 will adhere to the following format:
a. Each asset which comprises the division will be transferred in exchange for consideration equal to its fair market value.
b. The transferor and the transferee in each case will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of those assets which are eligible property (as defined in subsection 85(1.1)). Assuming that each debt related to a specific asset that is an eligible property is lower than that amount, the agreed amount of an eligible property will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii) or in subparagraphs 85(1)(d)(i), (ii) and (iii) or in subparagraphs 85(1)(e)(i), (ii) and (iii), as the case may be. As well, such agreed amount will not be less than the amount described in paragraph 85(1)(b).
c. The consideration to be paid for each asset will consist of the assumption of debt up to the agreed amount of that asset less a nominal amount, in case of an eligible property, and of the issuance of preference shares of the capital stock of the transferee with a fair market value and Redemption amount equal to the amount by which the fair market value of the asset transferred exceeds the amount of the debt assumed with respect to that transfer.
d. The agreements in respect of the transfers will contain a price adjustment clause.
e. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of the purchasing corporation that are to be issued to selling corporations as consideration for the eligible property (as defined in subsection 85(1.1)) of the division being purchased will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
f. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
32. The CANCO2 Shares, will be divided into two parts by determining the number of the CANCO2 Shares that represents the amount by which the value of the land and building exceeds the debts of CANCO2 (the "CANCO2 Real Estate shares") and the number of the CANCO2 Shares that represents the value of the division subsidiaries (the "CANCO2 Subsidiary shares").
33. CANCO1 will transfer the CANCO2 Subsidiary shares to SUBHOLDCO1 for consideration consisting of preference shares of the capital stock of SUBHOLDCO1 with a fair market value and redemption amount equal to the fair market value of the CANCO2 Subsidiary shares.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO1 that are to be issued to CANCO1 as consideration for the CANCO2 Subsidiary shares will not exceed the amount determined as B for the purposes of paragraph 85(2.1))(a).
b. CANCO1 and SUBHOLDCO1 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO2 Subsidiary shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO2 Subsidiary shares to CANCO1 and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
34. CANCO2 will transfer its shares of the capital stock of OPCO2, OPCO3 and OPCO4, to SUBHOLDCO1 pursuant to agreements which will adhere to the following formula:
a. The shares of the capital stock of each of Opco2, Opco3 and Opco4 will be transferred, respectively, in exchange for a class of preference shares of the capital stock of SUBHOLDCO1. The fair market value and the redemption amount of the particular class of preference shares so issued in consideration of the transfer of the shares of a particular subsidiary will be equal to the fair market value of the shares of the capital stock of that subsidiary.
b. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO1 that are to be issued to CANCO2 as consideration for each of the shares of the capital stock of Opco2, Opco3 and Opco4 will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
c. CANCO2 and SUBHOLDCO1 in each case will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the shares of Opco2, Opco3 and Opco4. The agreed amounts will in each case be the cost amount, as defined in subsection 248(1), of the shares of Opco2, Opco3 or Opco4, as the case may be, to the transferor and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
d. The agreement in respect of these transfers will contain a price adjustment clause.
e. Preference shares of the particular classes issued will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
35. CANCO2 will purchase for cancellation the CANCO2 Subsidiary shares held by SUBHOLDCO1 and issue a Promissory Note for the value of these shares.
36. SUBHOLDCO1 will redeem its preference shares held by CANCO2 and issue a Promissory Note for the redemption amount.
37. These mutually-held promissory notes, which will be of an equal amount, will be set off one against the other and cancelled.
38. The CANCO3 Shares, will be divided into two parts by determining the number of the CANCO3 Shares that represents the amount by which the value of the land and building exceeds the debts of CANCO3 (the "CANCO3 Real Estate shares") and the number of the CANCO3 Shares that represents the value of the division subsidiaries (the "CANCO3 Subsidiary shares").
39. CANCO1 will transfer the CANCO3 Subsidiary shares to SUBHOLDCO2 for consideration consisting of preference shares of the capital stock of SUBHOLDCO2 with a fair market value and a redemption amount equal to the fair market value of the CANCO3 Subsidiary shares:
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO2 that are to be issued to CANCO1 as consideration for the CANCO3 Subsidiary shares will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
b. CANCO1 and SUBHOLDCO2 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO3 Subsidiary shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO3 Subsidiary shares to CANCO1 and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
40. CANCO3 will transfer its shares of the capital stock of OPCO5, OPCO6 and OPCO7 to SUBHOLDCO2 pursuant to agreements which will adhere to the following formula:
a. The shares of the capital stock of each of Opco5, Opco6 and Opco7 will be transferred, respectively, in exchange for a class of preference shares of the capital stock of SUBHOLDCO2. The fair market value and the redemption amount of the particular class of preference shares so issued in consideration of the transfer of the shares of a particular subsidiary will be equal to the fair market value of the shares of the capital stock of that subsidiary.
b. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO2 that are to be issued to CANCO3 as consideration for each of the shares of the capital stock of Opco5, Opco6 and Opco7 will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
c. CANCO3 and SUBHOLDCO2 in each case will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the shares of Opco5, Opco6 and Opco7. The agreed amounts will in each case be the cost amount, as defined in subsection 248(1), of the shares of Opco5, Opco6 or Opco7, as the case may be, to the transferor and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
d. The agreement in respect of these transfers will contain a price adjustment clause.
e. Preference shares of the particular classes issued will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
41. CANCO3 will purchase for cancellation the CANCO3 Subsidiary shares held by SUBHOLDCO2 and issue a Promissory Note for the value of these shares.
42. SUBHOLDCO2 will redeem its preference shares held by CANCO3 and issue a Promissory Note for the redemption amount.
43. These mutually-held promissory notes, which will be of an equal amount, will be set off one against the other and cancelled.
44. The CANCO1 Shares, will be divided into two parts by determining the number of the CANCO1 Shares that represents the amount by which the value of the land and building of CANCO1 and of the CANCO2 Real Estate shares and the CANCO3 Real Estate shares exceeds the debts of CANCO1 (the "CANCO1 Real Estate shares") and the number of the CANCO1 Shares that represents the value of its division subsidiaries and of the shares of the capital stock of SUBHOLDCO1 and SUBHOLDCO2 ("CANCO1 Subsidiary shares").
45. A will transfer the CANCO1 Subsidiary shares to SUBHOLDCO3 for consideration consisting of preference shares of the capital stock of SUBHOLDCO3 with a fair market value and a redemption amount equal to the fair market value of the CANCO1 Subsidiary shares.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO3 that are to be issued to A as consideration for the CANCO1 Subsidiary shares will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).
b. A and SUBHOLDCO3 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO1 Subsidiary shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO1 Subsidiary shares to A and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
46. CANCO1 will transfer its shares of the capital stock of OPCO8, OPCO9, OPCO10, OPCO11, OPCO12, OPCO13, OPCO14, SUBHOLDCO1 and SUBHOLDCO2 to SUBHOLDCO3 pursuant to agreements which will adhere to the following formula:
a. The shares of the capital stock of each of these subsidiaries will be transferred, respectively, in exchange for a class of preference shares of the capital stock of SUBHOLDCO3. The fair market value and the redemption amount of the particular class of preference shares so issued in consideration of the transfer of the shares of a particular subsidiary will be equal to the fair market value of the shares of the capital stock of that subsidiary.
b. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of SUBHOLDCO3 that are to be issued to CANCO1 as consideration for each of the shares of the capital stock of the various subsidiaries will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
c. CANCO1 and the SUBHOLDCO3 in each case will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the shares of a subsidiary. The agreed amounts will in each case be the cost amount, as defined in subsection 248(1), of the shares of the subsidiary to the transferor and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
d. The agreement in respect of these transfers will contain a price adjustment clause.
e. Preference shares of the particular classes so issued will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
47. CANCO1 will purchase for cancellation the CANCO1 Subsidiary shares held by SUBHOLDCO3 and issue a Promissory Note for the value of these shares.
48. SUBHOLDCO3 will redeem its preference shares held by CANCO1 and issue a Promissory Note for the redemption amount.
49. These mutually-held promissory notes, which will be of an equal amount, will be set off one against the other and cancelled.
50. At this stage, A will own:
a. the shares of the capital stock of HOLDCO1, whose only assets will be:
i. the shares of the capital stock of OPCO1;
b. The Real Estate shares of CANCO1, whose only asset will be :
i. the land and building owned by CANCO1;
ii. the remaining shares of the capital stock of CANCO2, whose only assets will be land and building;
iii. the remaining shares of the capital stock of CANCO3, whose only assets will be land and building.
c. the shares of the capital stock of SUBHOLDCO3, whose assets will consist of the shares of the capital stock of:
i. OPCO8;
ii. OPCO9;
iii. OPCO10;
iv. OPCO11;
v. OPCO12;
vi. OPCO13;
vii. OPCO14;
viii. SUBHOLDCO1, whose assets will consist of shares of the capital stock of:
A. OPCO2;
B. OPCO3;
C. OPCO4;
ix. SUBHOLDCO2, whose assets will consist of shares of the capital stock of:
A. OPCO5;
B. OPCO6; and
C. OPCO7.
51. A will transfer the shares of the capital stock of SUBHOLDCO3 to HOLDCO1 for preference shares of the capital stock of HOLDCO1 having an aggregate fair market value and redemption amount equal to the aggregate fair market value of the SUBHOLDCO3 Shares transferred to HOLDCO1.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of HOLDCO1 that are to be issued to A as consideration for the SUBHOLDCO3 Shares will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).
b. A and HOLDCO1 will file a joint election in the prescribed form and within the time limits referred to in subsection 85(6) to have the provisions of subsection 85(1) apply with respect to the share transfer. The agreed amount in the joint election will be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
52. SUBHOLDCO3 will be wound up into HOLDCO1 pursuant to section 211 of the CBCA and, accordingly, all the shares of the capital stock of the following corporations, formerly held by SUBHOLDCO3 (the "Distributed Shares"), will be transferred and assigned to HOLDCO1:
a. OPCO8;
b. OPCO9;
c. OPCO10;
d. OPCO11;
e. OPCO12;
f. OPCO13;
g. OPCO14;
h. SUBHOLDCO1, whose assets will consist of shares of the capital stock of:
i. OPCO2;
ii. OPCO3;
iii. OPCO4;
i. SUBHOLDCO2, whose assets will consist of shares of the capital stock of:
iv. OPCO5;
v. OPCO6; and
vi. OPCO7.
53. HOLDCO1 will not designate any amount pursuant to paragraph 88(l)(d) in relation the winding-up of SUBHOLDCO3.
54. SUBHOLDCO1 will be wound up into HOLDCO1 pursuant to section 211 of the CBCA and, accordingly, all the shares of the capital stock of the following corporations, formerly held by SUBHOLDCO1 ( the "SUBHOLDCO1 Owned Shares"), will be transferred and assigned to HOLDCO1:
a. OPCO2;
b. OPCO3;
c. OPCO4.
55. SUBHOLDCO2 will be wound up into HOLDCO1 pursuant to section 211 of the CBCA and, accordingly, all the shares of the capital stock of the following corporations, formerly held by SUBHOLDCO2 ( the "SUBHOLDCO2 Owned Shares"), will be transferred and assigned to HOLDCO1:
a. OPCO5;
b. OPCO6; and
c. OPCO7.
56. After the winding-up of SUBHOLDCO1 and SUBHOLDCO2 into HOLDCO1, HOLDCO1 will own the shares of the capital stock of the following corporations directly:
a. OPCO1;
b. OPCO2;
c. OPCO3;
d. OPCO4;
e. OPCO5;
f. OPCO6;
g. OPCO7;
h. OPCO8;
i. OPCO9;
j. OPCO10;
k. OPCO11;
l. OPCO12;
m. OPCO13; and
n. OPCO14.
57. A will transfer the CANCO1 Real Estate shares to REALHOLDCO for consideration consisting of preference shares of the capital stock of REALHOLDCO with a fair market value and a redemption amount equal to the fair market value of the CANCO1 Real Estate shares.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of REALHOLDCO that are to be issued to A as consideration for the CANCO1 Real Estate shares will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).
b. A and REALHOLDCO will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO1 Real Estate shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO1 Real Estate shares to A and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
58. The CANCO1 common shares owned by REALHOLDCO will be divided into three parts by determining the number of common shares that:
a. represents the land and building originally in CANCO1;
b. represents the land and building originally in CANCO2 (the "CANCO2 Portion"); and
c. represents the land and building originally in CANCO3 (the "CANCO3 Portion").
59. REALHOLDCO will transfer the number of CANCO1 common shares representing the CANCO2 Portion to REALCO1 for consideration consisting of preference shares of the capital stock of REALCO1 with a fair market value and a redemption amount equal to the fair market value of the CANCO2 PORTION of the CANCO1 shares.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of REALCO1 that are to be issued to REALHOLDCO as consideration for the CANCO2 PORTION of the CANCO1 shares will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
b. REALHOLDCO and REALCO1 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO2 PORTION of the CANCO1 shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO2 PORTION of the CANCO1 shares to REALHOLDCO and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
60. CANCO1 will transfer the remaining shares of the capital stock of CANCO2 to REALCO1 for consideration consisting of preference shares of the capital stock of REALCO1 with a fair market value and a redemption amount equal to the fair market value of the remaining shares of the capital stock of CANCO2.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of REALCO1 that are to be issued to CANCO1 as consideration for the CANCO2 shares will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
b. CANCO1 and REALCO1 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the shares of CANCO2. The agreed amount will be the cost amount, as defined in subsection 248(1), of the shares of CANCO2 to CANCO1 and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
61. CANCO1 will purchase for cancellation its shares held by REALCO1 and issue a Promissory Note for the value of these shares.
62. REALCO1 will redeem its preference shares held by CANCO1 and issue a Promissory Note for the redemption amount.
63. These mutually-held promissory notes, which will be of an equal amount, will be set off against each other and cancelled.
64. At this stage, REALHOLDCO will own the shares of the capital stock of REALCO1 which in turn will own the shares of the capital stock of CANCO2, whose sole assets will consist of the land and building.
65. REALCO1 will be wound up into REALHOLDCO pursuant to section 211 of the CBCA and, accordingly, all the shares of the capital stock of CANCO2 formerly held by REALCO1 will be transferred and assigned to REALHOLDCO.
66. REALHOLDCO will transfer the number of CANCO1 common shares that represents the CANCO3 PORTION to REALCO2 for consideration consisting of preference shares of the capital stock of REALCO2 with a fair market value and a redemption amount equal to the fair market value of the CANCO3 PORTION of the CANCO1 shares.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of REALCO2 that are to be issued to REALHOLDCO as consideration for the CANCO3 PORTION of the CANCO1 shares will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
b. REALHOLDCO and REALCO2 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the CANCO3 PORTION of the CANCO1 shares. The agreed amount will be the cost amount, as defined in subsection 248(1), of the CANCO3 PORTION of the CANCO1 shares to REALHOLDCO and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
67. CANCO1 will transfer the shares of the capital stock of CANCO3 to REALCO2 for consideration consisting of preference shares of the capital stock of REALCO2 with a fair market value and a redemption amount equal to the fair market value of the shares of the capital stock of CANCO3.
a. For purposes of the CBCA, the increase to the Stated Capital of the preference shares of the capital stock of REALCO2 that are to be issued to CANCO1 as consideration for the shares of the capital stock of CANCO3 will not exceed the amount determined as B for the purposes of paragraph 85(2.1)(a).
b. CANCO1 and REALCO2 will jointly elect in prescribed form and within the time permitted under section 85 to have the provisions of subsection 85(1) apply to the transfer of the shares of CANCO3. The agreed amount will be the cost amount, as defined in subsection 248(1), of the shares of the capital stock of CANCO3 to CANCO1 and such elected amount will in addition be equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).
c. The agreement in respect of this transfer will contain a price adjustment clause.
d. Preference shares of the particular class will, inter alia, be redeemable at the option of the holder at a redemption amount equal to the fair market value of the aggregate consideration for which such preference shares of that class then outstanding were issued plus any declared and unpaid dividends on that share. Furthermore, no dividend will be declared or paid on or set apart for payment on other class of shares for an amount that would reduce the fair market value of the preferred shares below their redemption amount, or that would have the effect of reducing the assets available on a winding-up for distribution to the holders of that particular class of preference shares below the redemption amount payable for the particular class of preference shares then issued and outstanding.
68. CANCO1 will purchase for cancellation its shares held by REALCO2 and issue a Promissory Note for the value of these shares.
69. REALCO2 will redeem its preference shares held by CANCO1 and issue a Promissory Note for the redemption amount.
70. These mutually-held promissory notes, which will be of an equal amount, will be set off against each other and cancelled.
71. At this stage, REALHOLDCO will own the shares of the capital stock of REALCO2 which in turn will own the shares of the capital stock of CANCO3, whose sole assets will consist of the land and building.
72. REALCO2 will be wound up into REALHOLDCO pursuant to section 211 of the CBCA and, accordingly, all the shares of the capital stock of CANCO3 formerly held by REALCO2 will be transferred and assigned to REALHOLDCO.
73. As a result, REALHOLDCO will end up owning directly the shares of the capital stock of :
a. CANCO1 which will own the CANCO1 land and building;
b. CANCO2 which will own the CANCO2 land and building; and
c. CANCO3 which will own the CANCO3 land and building.
74. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of the filing of the applicable election forms, as described in Paragraphs 23, 31, 33, 34, 39, 40, 45, 46, 51, 57, 59, 60, 66 and 67, which will be filed within the applicable due date following the completion of the Proposed Transactions.
75. There have been no significant transactions, other than those described herein, that have been completed prior to the date of this letter nor are there any other significant transactions, proposed or contemplated, other than those described herein, that will take place as part of the series of transactions or events that includes the Proposed Transactions. Specifically, there is no intention by any person to dispose of the shares of any of the corporations referred to herein to a person that was not a related person to A, immediately prior to such disposition. While some of the new corporations have been incorporated by agents on behalf of A, REALHOLDCO, CANCO1, CANCO2 or CANCO3, as the case may be, these corporations have not been organized nor had their first post-incorporation meetings.
76. None of the corporations referred to herein (including the corporations to be or that have been incorporated as described in the Proposed Transactions) is or will be, at any time during the series of transactions herein described, a specified financial institution or a restricted financial institution.
77. There will not be at any time prior to the completion of the Proposed Transactions, any agreements or undertakings which constitute or include a guarantee agreement in respect of any of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions).
78. None of the corporations referred to herein (including the corporations to be or that have been incorporated as described in the Proposed Transactions) will have entered into a dividend rental arrangement in respect of any of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions).
79. None of the issued shares referred to herein (including the shares to be issued as described in the Proposed Transactions) 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).
80. None of the corporations referred to herein (including the corporations to be incorporated as described in the Proposed Transactions) is or will be, at any time before the completion of the Proposed Transactions, a corporation described in any of paragraphs (a) to (f) of the definition "financial intermediary corporation" in subsection 191(1).
PURPOSE OF THE PROPOSED TRANSACTIONS
81. The purpose of the Proposed Transactions is to permit the transfer of each operating business into its own separate corporation, to be owned by HOLDCO1 and to have the land and buildings remain with the original corporate owners, the shares of which will now be owned by REALHOLDCO. This will create operating efficiencies, permit the financing of each XXXXXXXXXX separately and thus enhance their competitive position.
RULINGS GIVEN
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant Facts, Proposed Transactions, Additional Information and the Purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:
A. Provided the elections required pursuant to subsection 85(6) are filed in the prescribed form and within the prescribed time and provided that the particular property so transferred is an eligible property, the provisions of subsection 85(1) will apply to:
i) The transfer by A of the OPCO1 Shares to HOLDCO1 as described in Paragraph 23;
ii) The transfer of the assets of its XXXXXXXXXX by CANCO2 to OPCO2 as described in Paragraph 28a.;
iii) The transfer of the assets of its XXXXXXXXXX by CANCO2 to OPCO3 as described in Paragraph 28b.;
iv) The transfer of the assets of XXXXXXXXXX by CANCO2 to OPCO4 as described in Paragraph 28c.;
v) The transfer of the assets of its XXXXXXXXXX by CANCO3 to OPCO5 as described in Paragraph 29a.;
vi) The transfer of the assets of its XXXXXXXXXX by CANCO3 to OPCO6 as described in Paragraph 29b.;
vii) The transfer of the assets of its XXXXXXXXXX by CANCO3 to OPCO7 as described in Paragraph 29c.;
viii) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO8 as described in Paragraph 30a.;
ix) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO9 as described in Paragraph 30b.;
x) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO10 as described in Paragraph 30c.;
xi) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO11 as described in Paragraph 30d.;
xii) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO12 as described in Paragraph 30e.;
xiii) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO13 as described in Paragraph 30f.;
xiv) The transfer of the assets of its XXXXXXXXXX by CANCO1 to OPCO14 as described in Paragraph 30g.;
xv) The transfer of the CANCO2 Subsidiary shares by CANCO1 to SUBHOLDCO1 as described in Paragraph 33;
xvi) The transfer by CANCO2 of its shares of the capital stock of OPCO2, OPCO3 and OPCO4, to SUBHOLDCO1 as described in Paragraph 34;
xvii) The transfer of the CANCO3 Subsidiary shares by CANCO1 to SUBHOLDCO2 as described in Paragraph 39;
xviii) The transfer by CANCO3 of its shares of the capital stock of OPCO5, OPCO6 and OPCO7 to SUBHOLDCO2 as described in Paragraph 40;
xix) The transfer of the CANCO1 Subsidiary shares by A to SUBHOLDCO3 as described in Paragraph 45;
xx) The transfer by CANCO1 of its shares of the capital stock of OPCO8, OPCO9, OPCO10, OPCO11, OPCO12, OPCO13, OPCO14, SUBHOLDCO1 and SUBHOLDCO2 to SUBHOLDCO3 as described in Paragraph 46;
xxi) The transfer of the shares of the capital stock of SUBHOLDCO3 by A to HOLDCO1 as described in Paragraph 51;
xxii) The transfer of the CANCO1 Real Estate shares by A to REALHOLDCO as described in Paragraph 57;
xxiii) The transfer of the CANCO2 Portion of the CANCO1 shares by REALHOLDCO to REALCO1 as described in Paragraph 59;
xxiv) The transfer by CANCO1 of its remaining shares of the capital stock of CANCO2 to REALCO1 as described in Paragraph 60;
xxv) The transfer of the CANCO3 Portion of the CANCO1 shares by REALHOLDCO to REALCO2 as described in Paragraph 66; and
xxvi) The transfer by CANCO1 of its remaining shares of the capital stock of CANCO3 to REALCO2 as described in Paragraph 67;
such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor's proceeds of disposition of the particular property 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 herein.
B. Subsection 84(3) will apply:
i) on the following redemptions:
a. by SUBHOLDCO1 of its preference shares held by CANCO2 as described in Paragraph 36;
b. by SUBHOLDCO2 of its preference shares held by CANCO3 as described in Paragraph 42;
c. by SUBHOLDCO3 of its preference shares held by CANCO1 as described in Paragraph 48;
d. by REALCO1 of its preference shares held by CANCO1 as described in Paragraph 62;
e. by REALCO2 of its preference shares held by CANCO1 as described in Paragraph 69;
ii) on the following purchases for cancellation:
a. by CANCO2 of the CANCO2 Subsidiary shares held by SUBHOLDCO1, as described in Paragraph 35;
b. by CANCO3 of the CANCO3 Subsidiary shares held by SUBHOLDCO2, as described in Paragraph 41;
c. by CANCO1 of the CANCO1 Subsidiary shares held by SUBHOLDCO3, as described in Paragraph 47;
d. by CANCO1 of its common shares held by REALCO1, as described in Paragraph 61; and
e. by CANCO1 of its common shares held by REALCO2, as described in Paragraph 68;
to deem each of the redeeming corporations or every purchasing corporation, as the case may be, to have paid, and each of the former shareholder corporations to have received, a dividend on such class of shares equal to the amount, if any, by which the amount paid upon each such redemption or purchase for cancellation, as the case may be, exceeds the PUC in respect of such shares immediately before such redemption or purchase for cancellation, as the case may be.
C. Any dividend, deemed to be received pursuant to subsection 84(3) as a consequence of the redemptions or purchases for cancellation provided for in Ruling B, to the extent that it is a taxable dividend:
i) will be included, pursuant to subsection 82(1) and paragraph 12(1)(j), in computing the income of the corporation deemed to have received such dividend;
ii) will be deductible pursuant to subsection 112(1) by the corporation deemed to have received such dividend; and
iii) will not be a dividend to which any of the provisions of subsections 112(2.1), (2.2), (2.3) or (2.4) apply.
D. Any dividend, deemed to be received pursuant to subsection 84(3) as a consequence of the redemptions or purchases for cancellation provided for in Ruling B:
i) will be excluded, pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54, in determining the proceeds of disposition to the recipient corporation of the shares so redeemed;
ii) by virtue of subsection 112(3), will reduce the loss, if any, in respect of the disposition of the shares on which the particular dividend is deemed to be received; and
iii) will not be subject to tax under Part IV.1 and Part VI.1.
E. Provided that the particular corporation that is deemed to have paid a dividend in Ruling B is not entitled to a dividend refund in respect of its taxation year in which it is deemed to pay that dividend, the corporation that is deemed to have received such dividend will not be subject to tax under Part IV.
F. By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the taxable dividends referred to in Ruling B provided there is not a disposition of property or an increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) which is part of the series of transactions or events that includes the Proposed Transactions. For greater certainty, the Proposed Transactions, in and by themselves, will not be considered to result in any disposition to, or increase in interest by, an unrelated person described in subparagraphs 55(3)(a)(i) to (v).
G. The cancellation of the Promissory Notes, as described in Paragraphs 37, 43, 49, 63 and 70, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).
H. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not apply to the Proposed Transactions described herein, in and by themselves.
I. The provisions of paragraphs 88(1)(c) and (d) will apply to the winding-up of CANCO4 as described in Paragraph 24 such that, for purposes of the Act, the cost to CANCO1 of property described in paragraph 25 that CANCO4 owned without interruption at and since the time CANCO1 last acquired control of CANCO4 and that became property of CANCO1 on the winding-up of CANCO4, will be deemed to be the amount described in subparagraph 88(1)(c)(i) plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), and, provided that
i) no such property acquired by CANCO1 on the winding-up of CANCO4 or "any property acquired by any person in substitution therefore" (within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II), or (III) (on the assumption that the "subsidiary" referred to in those subclauses is CANCO4 and the "parent" is CANCO1) as part of the series of transactions or events that includes the winding-up of CANCO4, and
ii) that such property was capital property, but not depreciable property, of CANCO4 at the time CANCO1 last acquired control of CANCO4,
such portion of the amount, if any, by which:
iii) the aggregate of the ACB to CANCO1 of its shares in the capital stock of CANCO4 immediately before the winding-up
exceeds
iv) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),
as is designated by CANCO1 under paragraph 88(1)(d) in respect of such property in its return of income under Part I for its taxation year in which CANCO4 was so wound up.
For greater certainty, property that will be distributed to CANCO1 on the winding-up of CANCO4 will not be ineligible property for the purposes of paragraph 88(1)(c) solely as a result of any of the Facts or Proposed Transactions described herein.
J. 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 above.
The above rulings are given subject to the limitation and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the CRA provided that the Proposed Transactions are completed before 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.
It is our view that no amount may be designated in respect of each property of the respective subsidiary distributed to the parent on the winding-up of SUBHOLDCO3 into HOLDCO1 as described in Paragraph 52, on the winding-up of SUBHOLDCO1 into HOLDCO1 as described in paragraph 54, on the winding-up of SUBHOLDCO2 into HOLDCO1 as described in paragraph 55, on the winding-up of REALCO1 into REALHOLDCO as described in paragraph 65, and on the winding-up of REALCO2 into REALHOLDCO as described in paragraph 72, since all the property distributed on those winding-up will constitute "ineligible property" pursuant to subparagraph 88(1)(c)(v).
Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed:
(a) the amount of the designation under paragraph 88(1)(d) that CANCO1 intends to make;
(b) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically confirmed in the rulings given above;
(c) the determination of the fair market value or ACB of any property referred to herein, the PUC in respect of any share referred to herein, or the outstanding balance of various tax accounts for any of the corporate entities described herein;
(d) the balance of CDA, RDTOH or GRIP of any corporation.
Nothing in this letter should be construed as confirmation, express or implied, that, for the purpose of any of the rulings given above, any adjustment to the fair market value of the properties transferred and the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the rulings given in this letter are intended to apply to the operation of a price adjustment clause, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Interpretation Bulletin IT-169.
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
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