2010 Ruling 2009-0329601R3 - Multi-wing Split-up 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: Split-up butterfly transaction.

Position: Favourable Rulings given.

Reasons: In compliance with the law and previous positions.

XXXXXXXXXX 									2009-032960

XXXXXXXXXX , 2010

Dear XXXXXXXXXX :

RE: Advance Income Tax Ruling
XXXXXXXXXX ("DC")
Account Number: XXXXXXXXXX
Tax Services Office: XXXXXXXXXX
Tax Centre: XXXXXXXXXX

We are writing in response to your letter dated XXXXXXXXXX in which you request an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the additional information provided in your letter dated XXXXXXXXXX and in your emails, as well as the information provided during our telephone conversations (XXXXXXXXXX ).

You have advised us that to the best of your knowledge, and that of the taxpayers involved, none of the issues contained in this advance income tax ruling:

1. is in an earlier return of the taxpayers or a related person;

2. is being considered by a tax services office or a taxation centre in connection with a previously filed tax return of the taxpayers or a related person;

3. is under objection by the taxpayers or a related person;

4. is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or

5. is the subject of a ruling previously considered by the Directorate.

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

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

(a) "Current Shareholders of DC" means Siblingco 1, Siblingco 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6;

(b) "DC" means XXXXXXXXXX a corporation incorporated in XXXXXXXXXX under the XXXXXXXXXX , the shareholding of which is described in Paragraph 3;

(c) "Investco A" means XXXXXXXXXX public company, the shares of the capital stock of which are traded on the XXXXXXXXXX Stock Exchange;

(d) "Investco B" means XXXXXXXXXX private holding company that owns shares of the capital stock of Investco A;

(e) "Investco C" means XXXXXXXXXX , a Canadian public corporation, the shares of the capital stock of which are traded on the XXXXXXXXXX Stock Exchange;

(f) "Sibling 1" means XXXXXXXXXX ;

(g) "Sibling 2" means XXXXXXXXXX ;

(h) "Sibling 3" means XXXXXXXXXX ;

(i) "Sibling 4" means XXXXXXXXXX ;

(j) "Sibling 5" means XXXXXXXXXX ;

(k) "Sibling 6" means XXXXXXXXXX ;

(l) "Siblingco 1" means XXXXXXXXXX a corporation incorporated under the XXXXXXXXXX , the shareholding of which is described in Paragraph 7;

(m) "Siblingco 2" means XXXXXXXXXX a corporation incorporated under the XXXXXXXXXX , the shareholding of which is described in Paragraph 8;

(n) "Siblings" means Sibling 1 through Sibling 6, collectively;

(o) "Subco 1" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(p) "Subco 2" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(q) "Subco 3" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(r) "Subco 4" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(s) "Subco 5" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(t) "Subco 6" means XXXXXXXXXX ., a corporation incorporated by DC under the XXXXXXXXXX , as described in the Preliminary Transactions;

(u) "Subcos" means Subco 1 through Subco 6, collectively;

(v) "TC1" means a corporation to be incorporated by Siblingco 1 under the XXXXXXXXXX as described in Paragraph 18;

(w) "TC2" means a corporation to be incorporated by Siblingco 2 under the XXXXXXXXXX as described in Paragraph 18;

(x) "TC3" means a corporation to be incorporated by Sibling 3 under the XXXXXXXXXX as described in Paragraph 18;

(y) "TC4" means a corporation to be incorporated by Sibling 4 under the XXXXXXXXXX as described in Paragraph 18;

(z) "TC5" means a corporation to be incorporated by Sibling 5 under the XXXXXXXXXX , as described in Paragraph 18;

(aa) "TC6" means a corporation to be incorporated by Sibling 6 under the XXXXXXXXXX , as described in Paragraph 18; and,

(bb) "TCs" means TC1 through TC6, collectively;

I. DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms or expressions have the meaning specified:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, as amended and, unless otherwise noted, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provisions of the Act;

(b) "adjusted cost base" or "ACB" has the meaning assigned to that term in section 54;

(c) "agreed amount" means the amount agreed on by the transferor and transferee in respect of the transfer of an eligible property in a joint election filed pursuant to subsection 85(1);

(d) "Canadian-controlled private corporation" or "CCPC" has the meaning assigned to that term in subsection 125(7);

(e) "capital dividend" means a dividend to which subsection 83(2) applies;

(f) "capital dividend account" or "CDA" has the meaning assigned to that term in subsection 89(1);

(g) "capital property" has the meaning assigned to that term in section 54;

(h) "CRA" means the Canada Revenue Agency;

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

(j) "dividend refund" has the meaning assigned to that term in subsection 129(1);

(k) "eligible dividend" has the meaning assigned to that term in subsection 89(1);

(l) "eligible property" has the meaning assigned to that term in subsection 85(1.1);

(m) "fair market value" or "FMV" means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm's length and under no compulsion to transact;

(n) "general rate income pool" or "GRIP" has the meaning assigned to that term in subsection 89(1);

(o) XXXXXXXXXX

(p) "paid-up capital" or "PUC" has the meaning assigned to that term in subsection 89(1);

(q) "Paragraph" means a numbered paragraph in this letter;

(r) "Preliminary Transactions" means the transactions that are described under the heading "Preliminary Transactions" in this letter;

(s) "Proposed Transactions" means the transactions that are described under the heading "Proposed Transactions" in this letter;

(t) "public corporation" has the meaning assigned to that term in subsection 89(1);

(u) "refundable dividend tax on hand" or "RDTOH" has the meaning assigned to that term in subsection 129(3);

(v) "related person" has the meaning assigned to that term in section 251;

(w) "series of transactions or events" includes the transactions or events referred to in subsection 248(10);

(x) "taxable Canadian corporation" has the meaning assigned to that term in subsection 89(1);

(y) "taxable dividend" has the meaning assigned to that term in subsection 89(1);

(z) "TC1 Note" means the promissory note issued by TC1 to DC as described in Paragraph 32 of the Proposed Transactions;

(aa) "TC2 GRIP Note" means the promissory note issued by TC2 to DC as described in Paragraph 32(a) of the Proposed Transactions;

(bb) "TC2 Note" means the promissory note issued by TC2 to DC as described in Paragraph 32(b) of the Proposed Transactions;

(cc) "TC3 GRIP Note" means the promissory note issued by TC3 to DC as described in Paragraph 32(a) of the Proposed Transactions;

(dd) "TC3 Note" means the promissory note issued by TC3 to DC as described in Paragraph 32(b) of the Proposed Transactions;

(ee) "TC4 GRIP Note" means the promissory note issued by TC4 to DC as described in Paragraph 32(a) of the Proposed Transactions;

(ff) "TC4 Note" means the promissory note issued by TC4 to DC as described in Paragraph 32(b) of the Proposed Transactions;

(gg) "TC5 GRIP Note" means the promissory note issued by TC5 to DC as described in Paragraph 32(a) of the Proposed Transactions;

(hh) "TC5 Note" means the promissory note issued by TC5 to DC as described in Paragraph 32(b) of the Proposed Transactions;

(ii) "TC6 GRIP Note" means the promissory note issued by TC6 to DC as described in Paragraph 32(a) of the Proposed Transactions;

(jj) "TC6 Note" means the promissory note issued by TC6 to DC as described in Paragraph 32(b) of the Proposed Transactions;

(kk) "TC Notes" means the TC1 Note, the TC2 GRIP Note, the TC2 Note, the TC3 GRIP Note, the TC3 Note, the TC4 GRIP Note, the TC4 Note, the TC5 GRIP Note, the TC5 Note, the TC6 GRIP Note and the TC6 Note; and,

(ll) "wholly owned corporation" has the meaning assigned to that term in subsection 85(1.3).

II. FACTS

1. DC is and will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. DC is a private holding corporation. The registered head office of DC is located in XXXXXXXXXX . DC's taxation year and fiscal period ends on XXXXXXXXXX of each year. DC engages in investment activities. As at XXXXXXXXXX , the value of DC's assets (before adjusting the cost of the shares of the investments from cost to FMV), net of liabilities, was approximately $XXXXXXXXXX . The FMV of the marketable security portfolio held by DC is approximately $XXXXXXXXXX and of that, over XXXXXXXXXX % represents shares held in the capital stock of Investco A, Investco B, and Investco C.

2. The assets of DC consist of:

a. cash, marketable securities (including portfolio investments, other than shares of the capital stock of Investco A, Investco B, and Investco C) and certain recoverable amounts in respect of income taxes;

b. holdings in Investco A, Investco B, and Investco C;

DC's liabilities consist of:

a. current liabilities which include accounts payable, accrued charges and certain amounts in respect of deferred income.

There has not been a material change in the composition of DC's assets and liabilities described herein, since XXXXXXXXXX . Moreover, there will not be any material change in the composition of DC's assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date the Proposed Transactions described herein are completed.

3. DC's authorized share capital consists of an unlimited number of Common Shares and an unlimited number of Class B Shares. Both classes of shares: 1) are voting; 2) entitle the holder to dividends; and 3) rank equally on liquidation, dissolution or wind-up. The Class B Shares may at any time be converted, at the option of the holder, into Common Shares.

DC has XXXXXXXXXX Class B Shares issued and outstanding, with an aggregate stated capital of and PUC of $XXXXXXXXXX . The DC Class B Shares are held by Siblingco 1 and the ACB of these shares to Siblingco 1 is $XXXXXXXXXX .

The issued and outstanding Common Shares of the capital stock of DC are held as follows:

Siblingco 2	XXXXXXXXXX
Sibling 3	XXXXXXXXXX
Sibling 4	XXXXXXXXXX
Sibling 5	XXXXXXXXXX
Sibling 6	XXXXXXXXXX
		XXXXXXXXXX 

The XXXXXXXXXX Common Shares of the capital stock of DC held by each of Siblingco 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6 have an aggregate stated capital and PUC of $XXXXXXXXXX and each shareholder has an ACB of $XXXXXXXXXX , respectively.

There has been no change to the shareholding of DC described above since XXXXXXXXXX

Siblingco 1, Siblingco 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6 collectively have de jure control of DC, prior to the commencement of the Proposed Transactions.

All of the Class B Shares and the Common Shares of the capital stock of DC represent capital property to the respective shareholders.

4. Each of the Siblings, except Sibling 1, is a resident of Canada for purposes of the Act. Sibling 1 is resident in XXXXXXXXXX for purposes of the Act.

5. DC has the following amounts in its tax accounts (computed as of XXXXXXXXX ):

a. RDTOH - $XXXXXXXXXX ;

b. GRIP - $XXXXXXXXXX ; and

c. CDA - $XXXXXXXXXX .

6. The primary assets of DC are shares of:

a. Investco A (a XXXXXXXXXX public company the shares of which are traded on the XXXXXXXXXX Stock Exchange);

b. Investco B (a XXXXXXXXXX private holding company that owns shares of Investco A); and

c. Investco C (a Canadian public corporation the shares of which are traded on the XXXXXXXXXX Stock Exchange).

The shares of the capital stock of Investco A, Investco B and Investco C are capital properties to DC.

The FMV and ACB, to DC, of the shares of the capital stock of Investco A are approximately $XXXXXXXXXX and $XXXXXXXXXX , respectively. The FMV and ACB, to DC, of the shares of the capital stock of Investco B are approximately $XXXXXXXXXX and $XXXXXXXXXX respectively. The FMV and ACB, to DC, of the shares of the capital stock of Investco C are approximately $XXXXXXXXXX and $XXXXXXXXXX , respectively.

DC does not have significant influence over Investco A, Investco B or Investco C.

The shares held by DC in Investco A, Investco B and Investco C will be classified as investment property.

7. Siblingco 1 is a taxable Canadian corporation. Siblingco 1 was incorporated under the XXXXXXXXXX in XXXXXXXXXX . The issued and outstanding share capital of Siblingco 1 consists of XXXXXXXXXX Class A shares and XXXXXXXXXX Class B shares. All of the issued and outstanding shares of the capital stock of Siblingco 1 are held by Sibling 1 and Sibling 1 has had de jure control of Siblingco 1 since its incorporation.

8. Siblingco 2 is and will be, at any relevant time and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Siblingco 2 was incorporated in XXXXXXXXXX under the XXXXXXXXXX . The issued and outstanding share capital of the corporation currently consists of XXXXXXXXXX common shares and XXXXXXXXXX Special Shares. All of the issued and outstanding shares of the capital stock of Siblingco 2 are held by Sibling 2 and Sibling 2 has had de jure control of Siblingco 2 since its incorporation.

9. Sibling 1, Sibling 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6 are related to each other by virtue of being siblings in accordance with paragraphs 251(2)(a) and 251(6)(a). Sibling 1, Sibling 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6 are each related to their respective holding companies, Siblingco 1, Siblingco 2, TC3, TC4, TC5 and TC6, pursuant to subparagraph 251(2)(b)(i). Siblingco 1 and TC1 and Siblingco 2 and TC2, respectively, are related to each other pursuant to subsection 256(6.1) and subparagraphs 251(2)(b)(i) or 251(2)(c)(i). Sibling 1, Sibling 2, Sibling 3, Sibling 4, Sibling 5 and Sibling 6 are related to DC under subparagraph 251(2)(b)(ii). DC is related to each of Siblingco 1, Siblingco 2, TC1, TC2, TC3, TC4, TC5 and TC6 under subparagraph 251(2)(c)(iii), and Siblingco 1, Siblingco 2, TC1, TC2, TC3, TC4, TC5 and TC6 are related to each other by virtue of subparagraph 251(2)(c)(ii).

However, for the purposes of section 55, by virtue of subparagraph 55(5)(e)(i):

a. the Siblings are not related to each other and are not related to DC; and

b. TC1, TC2, TC3, TC4, TC5 and TC6 will not be related to each other and will not be related to DC.

III. PRELIMINARY TRANSACTIONS

10. DC incorporated the Subcos under the XXXXXXXXXX . The authorized share capital of each of the Subcos consists of an unlimited number of common shares.

11. DC subscribed for XXXXXXXXXX common shares of the capital stock of each of the Subcos, with a subscription price of $XXXXXXXXXX per share. DC's ACB and PUC of its common shares of the capital stock of each of the Subcos is $XXXXXXXXXX .

12. Each of the Subcos, at any relevant time and for all purposes of the Act, will be a taxable Canadian corporation.

IV. PROPOSED TRANSACTIONS

13. DC will divide its shares of the capital stock of Investco A and Investco B into six equal portions and DC will then transfer one such portion to each of the Subcos.

14. In consideration for the transferred shares of the capital stock of Investco A and Investco B, each of the Subcos will issue XXXXXXXXXX common shares of the capital stock to DC.

15. DC will make a joint election under subsection 85(1) with each of the Subcos in prescribed form and in accordance with subsection 85(6) in respect of the transferred shares of the capital stock of Investco A and Investco B.

16. The agreed amount in the joint election will equal DC's ACB of the shares of the capital stock of Investco A and Investco B, which will not be greater than the FMV of those shares. The agreed amount in the joint election will be added to the stated capital of the common shares of each of the Subcos.

17. Each of the Subcos will be a wholly owned corporation of DC immediately after the transfer of the shares of the capital stock of Investco A and Investco B.

Permitted Exchanges

18. The Current Shareholders of DC will each incorporate one of the TCs. The authorized share capital of each of the TCs will consist of an unlimited number of common shares and an unlimited number of non-voting, redeemable and retractable preferred shares.

19. The TCs will not issue shares at the time of incorporation.

20. Each of the TCs will be a taxable Canadian corporation. TC2 through TC6 will be, at any relevant time and for all purposes of the Act, CCPCs.

21. The following transactions will occur:

a. Siblingco 1 will transfer XXXXXXXXXX Class B Shares of the capital stock of DC to TC1 in exchange for XXXXXXXXXX common shares of the capital stock TC1;

b. Siblingco 2 will transfer XXXXXXXXXX Common Shares of the capital stock of DC to TC2 in exchange for XXXXXXXXXX common shares of the capital stock of TC2;

c. Sibling 3 will transfer XXXXXXXXXX Common Shares of the capital stock of DC to TC3 in exchange for XXXXXXXXXX common shares of the capital stock of TC3;

d. Sibling 4 will transfer XXXXXXXXXX Common Shares of the capital stock of DC to TC4 in exchange for XXXXXXXXXX common shares of the capital stock of TC4;

e. Sibling 5 will transfer XXXXXXXXXX Common Shares of the capital stock of DC to TC5 in exchange for XXXXXXXXXX common shares of the capital stock of TC5; and

f. Sibling 6 will transfer XXXXXXXXXX Common Shares of the capital stock of DC to TC6 in exchange for XXXXXXXXXX common shares of the capital stock of TC6.

22. The TCs and the Current Shareholders of DC will make joint elections under subsection 85(1) in prescribed form and in accordance with subsection 85(6) in respect of each of the transactions described in the preceding Paragraph.

23. The agreed amount in each of the joint elections will equal the transferor's ACB of the transferred DC shares, which will not be greater than the FMV of those shares.

24. DC will use cash to settle all of its current liabilities.

Pro Rata Distribution

25. Immediately prior to the transfers of property described in the next Paragraph, all the property owned by DC will be determined and classified into two types of property for the purposes of the definition of "distribution" in subsection 55(1), as follows:

a. cash or near-cash property, including DC's short term investments and other marketable securities; and

b. investment property, including the shares of the capital stock of each of the Subcos and the shares of the capital stock of Investco C.

DC will have no business property immediately prior to the transfers of property described in the next Paragraph. For greater certainty, DC's CDA, GRIP and RDTOH will not be considered property for the purposes of this distribution.

26. DC has significant influence over each of the Subcos. Consequently, DC would normally be required to use the consolidated look-through method for determining the appropriate proportion of each of the three types of property (cash or near cash and investment and business property ) that the shares of each of the Subcos would represent. Since each of the Subcos will own identical properties and each of the TCs will receive all of the shares of the capital stock of one of the Subcos, the determination using the consolidated look-through method will not be undertaken for the purposes of the Proposed Transactions.

27. DC will transfer to each of the TCs a pro rata portion of its cash or near-cash property and investment property, as follows:

a. DC will transfer the shares of the capital stock of Subco 1, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC1;

b. DC will transfer the shares of the capital stock of Subco 2, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC2;

c. DC will transfer the shares of the capital stock of Subco 3, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC3;

d. DC will transfer the shares of the capital stock of Subco 4, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC4;

e. DC will transfer the shares of the capital stock of Subco 5, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC5; and

f. DC will transfer the shares of the capital stock of Subco 6, 1/6 of DC's shares of the capital stock of Investco C and 1/6 of DC's cash or near-cash properties to TC6.

28. Immediately following the transfers of property described in the previous Paragraph, the FMV of each type of property of DC received by each of the TCs, as the case may be, will be equal to or approximate the proportion determined by the formula:

A x B/C

Where:

A is the FMV, immediately before the transfers described in Paragraph 27, of all property of that type owned at that time by DC,

B is the FMV, immediately before the transfers described in Paragraph 27, of all of the shares of the capital stock of DC, owned by each TC with respect to the property received by the particular TC, as the case may be, and

C is the FMV, immediately before the transfers described in Paragraph 27, of all the issued shares of the capital stock of DC.

For the purposes of this paragraph, the expression "approximate the proportion" means that the discrepancy from that proportion, if any, would not exceed 1%, determined as a percentage of the FMV of each type of property which TC has received on such transfer as compared to what it would have received had it received its appropriate pro rata share of the FMV of that type of property.

29. Each of the TCs will issue preferred shares of their capital stock to DC as consideration for the properties that will be transferred by DC. The preferred shares of the capital stock issued by each of the TCs will have an aggregate redemption amount equal to the FMV of the transferred properties. The redemption amounts will be subject to adjustment in accordance with the terms of a price adjustment clause.

30. DC will make a joint election under subsection 85(1) with each of the TCs in prescribed form and in accordance with subsection 85(6) in respect of the eligible properties transferred by DC in each of the transactions described above in Paragraph 27.

31. The agreed amount in each of the joint elections will equal DC's ACB of the transferred properties, which will not be greater than the FMV of those properties.

Permitted Redemptions

32. Each of the TCs will redeem the preferred shares that were issued to DC as consideration for the transfers of property described above in Paragraph 27.

TC1 will issue to DC, in full payment of the aggregate redemption price, a demand, non-interest bearing promissory note having a principal amount and FMV equal to the redemption amount of the redeemed preferred shares.

TC2, TC3, TC4, TC5 and TC6 will each issue to DC, in full payment of the aggregate redemption price, two demand, non-interest bearing promissory notes having an aggregate principal amount and FMV equal to the redemption amount of the redeemed preferred shares such that:

a. one promissory note will be equal to XXXXXXXXXX of DC's estimated GRIP for the end of the taxation year in which the distribution described in Paragraph 27 is made plus XXXXXXXXXX of the PUC of the Common Shares; and

b. one promissory note will be equal to the aggregate redemption amount of the redeemed preferred shares minus the amount of the promissory note described in Paragraph 32(a).

33. After the share redemptions that are described in the preceding Paragraph take place, the first taxation year of each of the TCs will end.

The Winding-Up of DC

34. After the end of their first taxation years, the TCs will resolve to wind-up and dissolve DC pursuant to the relevant provisions in the XXXXXXXXXX .

35. In connection with the winding-up of DC, DC will make the following distributions:

a. the TC2 GRIP Note will be distributed to TC2;

b. the TC3 GRIP Note will be distributed to TC3;

c. the TC4 GRIP Note will be distributed to TC4;

d. the TC5 GRIP Note will be distributed to TC5; and

e. the TC6 GRIP Note will be distributed to TC6.

36. DC will designate, pursuant to subsection 89(14), the deemed dividend resulting from the distribution described in the preceding Paragraph to be an eligible dividend by notifying each of the relevant TCs in writing, in a timely manner, that the dividend is an eligible dividend.

37. In connection with the winding-up of DC, DC will make the following additional distributions:

a. the TC1 Note will be distributed to TC1;

b. the TC2 Note will be distributed to TC2;

c. the TC3 Note will be distributed to TC3;

d. the TC4 Note will be distributed to TC4;

e. the TC5 Note will be distributed to TC5; and

f. the TC6 Note will be distributed to TC6.

38. DC will elect, in the manner and form required under subsection 83(2), to treat the portion of the winding-up dividend referred to in subparagraph 88(2)(b)(i) as a separate capital dividend paid on the Common Shares of the capital stock of DC. Pursuant to subparagraph 88(2)(b)(iv), TC2, TC3, TC4, TC5 and TC6 will each be deemed to have received a proportionate capital dividend from DC.

39. Each of the TC Notes will be extinguished by virtue of the distributions described above in Paragraphs 35 and 37 and such notes will be cancelled.

40. Following the receipt of the dividend refund to which DC will become entitled as a result of the Proposed Transactions, DC will make a pro rata distribution of the refund to its shareholders. Specifically, a 1/6th share of the refund will be distributed to each of the TCs. After the distribution of the dividend refund, all the property of DC will have been distributed to the TCs on a pro rata basis.

41. Within a reasonable time following the distribution of the dividend refund, Articles of Dissolution will be filed with the Corporate Registrar pursuant to the XXXXXXXXXX and, upon receipt of a Certificate of Dissolution, DC will be dissolved.

V. ADDITIONAL INFORMATION

42. Other than as described in the Facts and the Preliminary and Proposed Transactions, no property has been or will be acquired or disposed of by DC, and no liabilities have been or will be incurred by DC, or a corporation controlled by it, in contemplation of and before the Proposed Transactions, except in the ordinary course of managing DC's affairs.

43. Except as described in this letter, none of the Current Shareholders of DC are contemplating the sale or transfer of any shares of DC or the TCs.

44. XXXXXXXXXX

45. None of the TCs or DC is or will be at the time of the Proposed Transactions a "specified financial institution" as that term is defined in subsection 248(1).

46. DC's CDA does not and will not, at any time, include any amount that is described in paragraphs 83(2.4)(a), or (c) to (e).

47. The main purpose for the acquisition of common shares of the capital stock of DC by TC2 through TC6 was to facilitate a tax-free divisive reorganization of DC amongst the Current Shareholders of DC for purposes of permitting the shareholders to independently pursue their investment objectives. For greater certainty, at no time was one of the main purposes of the acquisition of the common shares of the capital stock of DC to receive a capital dividend.

48. None of the shares of the TCs or DC are or will be, at any time throughout the series of transactions that includes the Proposed Transactions:

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

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

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

VI. PURPOSES OF THE PROPOSED TRANSACTIONS

49. The primary purpose of the proposed transactions is to make a pro rata distribution of DC's properties to its shareholders, so that the Siblings can independently pursue their investment objectives. The transactions are intended to achieve this purpose in a tax-deferred manner.

50. In Paragraphs 10 through 17, DC will incorporate six subsidiaries and transfer its shares of the capital stock of Investco A and Investco B to those subsidiaries in equal proportions. XXXXXXXXXX

51. In Paragraphs 18 through 23, the Current Shareholders of DC will each incorporate a new TC and transfer their DC shares to that TC. There are two purposes to these transactions: 1) in the case of the DC shareholders who are individuals, the transfer is necessary in order to facilitate the tax-free inter-corporate dividends that are the essence of a butterfly transaction; and 2) the year-end of the new corporations can be set to occur on a date that prevents the RDTOH circularity problem that sometimes arises in butterfly transactions.

52. In Paragraph 24, DC will settle its current liabilities using cash. The purpose of this transaction is to simplify the pro rata distribution of DC's properties.

53. In Paragraphs 34 through 41, DC will be wound-up and dissolved. The wind-up distributions will occur in three steps. The purpose of the first step is to transfer DC's GRIP to the holders of its Common Shares by designating the deemed dividend that arises to be an eligible dividend. The purpose of the second step is to complete the distribution of DC's properties to its shareholders, apart from DC's entitlement to a dividend refund. The purpose of the final step is to distribute the dividend refund to which DC became entitled, as a result of the Proposed Transactions.

VII. RULINGS GIVEN

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

A. Subject to the application of 69(11), provided 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 therefore, subsection 85(1) will apply to:

(i) the transfers of the shares of the capital stock of Investco A and Investco B owned by DC to the Subcos described in Paragraph 13 of the Proposed Transactions;

(ii) the transfers of Common Shares and Class B Shares of the capital stock of DC owned by the Current Shareholders of DC to the TCs described in Paragraph 21 of the Proposed Transactions; and,

(iii) the transfer of each property owned by DC to the TCs described in Paragraph 27 of the Proposed Transactions,

such that the agreed amount in respect of each such transfer will be deemed to be the transferor's proceeds of disposition of the particular property and the transferee's cost thereof, and the transferor's cost of the shares received as consideration for such disposition. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. Subsection 84(3) will apply to the redemption by each of the TCs of its preferred shares described in Paragraph 32 of the Proposed Transactions such that each TC will be deemed to have paid, and DC will be deemed to have received, a taxable dividend on such shares equal to the amount by which the amount paid to redeem the preferred shares of the TCs exceeds the PUC thereof immediately before such redemption.

C. Subsection 84(2) will apply to the distribution by DC described in Paragraph 35 of the Proposed Transactions such that DC will be deemed to have paid, and TC2, TC3, TC4, TC5 and TC6 will be deemed to have received, a dividend on the Common Shares of DC equal to the amount by which the value of the property distributed exceeds the PUC of the Common Shares immediately before the distribution.

D. Subsection 84(2) and paragraph 88(2)(b) will apply to the distributions by DC described in Paragraphs 37 and 40 of the Proposed Transactions such that:

(i) subject to (ii), (iii) and (iv) herein, DC will be deemed to have paid a dividend (a "winding-up dividend") on the Common Shares and the Class B Shares, as the case may be, equal to the amount by which

a) the amount or value of the funds or property distributed, as the case may be,

exceeds

b) the amount, if any, by which the PUC in respect of the Common Shares or Class B Shares, as the case may be, is reduced on the distribution

and each of the TCs will be deemed to have received a taxable dividend equal to that proportion of the amount of the excess that the number of the Common Shares or Class B Shares, as the case may be, held by the recipient is of the number of Common Shares or Class B shares, as the case may be, outstanding before the distribution;

(ii) pursuant to subparagraph 88(2)(b)(i), the portion of a winding-up dividend which arises from the distribution described in Paragraph 37 of the Proposed Transactions as does not exceed DC's CDA determined immediately before the payment of the winding-up dividend will be deemed, for the purposes of the subsection 83(2) election referred to in Paragraph 38 of the Proposed Transactions, to be the full amount of a separate dividend (the "Capital Dividend");

(iii) pursuant to subparagraph 88(2)(b)(iii), the winding-up dividend arising from the distribution described in Paragraph 37 of the Proposed Transactions, to the extent that it exceeds the amount of the Capital Dividend, will be deemed to be a separate dividend that is a taxable dividend; and

(iv) pursuant to subparagraph 88(2)(b)(iv), each of the TCs will be deemed to have received its proportional share of the dividends described in (ii) and (iii) herein.

E. The taxable dividends described in rulings B, C and D above:

(i) will be included in computing the income of the person deemed to have received such a dividend pursuant to subsection 82(1) and paragraph 12(1)(j);

(ii) will be deductible by the recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);

(iii) will be excluded in determining the recipient's proceeds of disposition of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54;

(iv) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

(v) will not be subject to tax under Part IV.1 or Part VI.1 by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1), respectively;

(vi) will not be subject to tax under Part IV except to the extent that the payer corporation is entitled to a dividend refund for its taxation year in which it paid such dividend, which, for greater certainty, will include the taxable dividends described in rulings C and D above; and

(vii) will, provided such a dividend is designated to be an eligible dividend in the prescribed manner and within the time referred to in subsection 89(14), be added to the GRIP accounts of TC2, TC3, TC4, TC5 and TC6 to the extent of the portion of the dividend that each respective TC received, in the taxation year in which it received that portion from DC, pursuant to variable E(a) of the definition of GRIP in subsection 89(1).

F. The Capital Dividend:

(i) will not be included in the income of TC2, TC3, TC4, TC5 and TC6 pursuant to paragraph 83(2)(b);

(ii) will be added to the CDA of TC2, TC3, TC4, TC5 and TC6 pursuant to paragraph (b) of the definition of "capital dividend account" in subsection 89(1); and

(iii) will be excluded in determining the proceeds of disposition of the DC Common Shares owned by TC2, TC3, TC4, TC5 and TC6 pursuant to paragraph (j) of the definition of "proceeds of disposition" in section 54.

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

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

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

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

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

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

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

H. The extinguishment of the TC Notes described in Paragraph 39 of the Proposed Transactions will not give rise to a "forgiven amount" within the meaning of subsections 80(1) or 80.01(1). In addition, neither DC nor the TCs will otherwise realize any gain or loss as a result of the extinguishment of the TC Notes.

I. Subsections 15(1), 56(2), and 246(1) will not apply to the Proposed Transactions.

J. Subsection 245(2) will not apply to the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the CRA provided that the Proposed Transactions 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.

COMMENTS

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

(a) the PUC of any share or the ACB or FMV of any property referred to herein;

(b) the balance of CDA, GRIP or RDTOH of any corporation; or,

(c) any other tax consequence relating to the Facts, Preliminary Transactions, Proposed Transactions or any transaction or event taking place either prior to the Preliminary and Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

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 FMV of the properties transferred or 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. In addition, any such adjustment could affect the ruling given in Ruling G above. Furthermore, none of the rulings given in this letter are intended to apply to or in the event of 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