2008 Ruling 2008-0268041R3 - Purchase of Target and Bump

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: Acquisition of control of a Target. Amalgamation of the Target with the parent, and bump of the cost of capital property (mainly shares of the capital stock of subsidiaries) held by the Target.

Position: Favourable opinion provided.

Reasons: In compliance with the law and a comfort letter issued by the Department of Finance.

XXXXXXXXXX 									2008-026804

XXXXXXXXXX , 2008

Dear Sir:

Re: Advance Income Tax Ruling
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 and e-mails of XXXXXXXXXX , and during our various telephone conversations in connection with your ruling request (XXXXXXXXXX ).

This ruling replaces and rescinds Letter no. 2006-019432, dated XXXXXXXXXX , 2007.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues involved in this letter is:

(i) involved in an earlier return of the taxpayers or a 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 the taxpayers or a related person,
(iv) before the courts or if a judgment has been issued, the time limit for appeal to a higher court has expired, or
(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate (other than Letter XXXXXXXXXX , Ruling XXXXXXXXXX and Letter XXXXXXXXXX ).

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

LEGAL ENTITY DEFINITIONS

In this letter, except in Paragraph 67, the taxpayers will be referred to as follows:

(a) "Amalco I" means the corporation resulting from the amalgamation of Newco I and Target, as described in Paragraph 63;

(b) "Amalco II" means the corporation resulting from the amalgamation of Amalco I and NewSubco, as described in Paragraph 66;

(c) "Bidco" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of BuyerSubco III;

(d) "Buyerco" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX ;

(e) "Buyerco Group" means Buyerco and its subsidiaries;

(f) "BuyerSubco I" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of Buyerco;

(g) "BuyerSubco II" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of BuyerSubco I;

(h) "BuyerSubco III" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of BuyerSubco II;

(i) "BuyerSubco IV" means XXXXXXXXXX ., a corporation incorporated with limited liability in XXXXXXXXXX , which is an indirect wholly-owned subsidiary of Buyerco;

(j) "BuyerSubco V" means XXXXXXXXXX , a corporation incorporated under the laws of XXXXXXXXXX , which is a subsidiary wholly-owned corporation of BuyerSubco III;

(k) "Holdco" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX , which was wound-up into BuyerSubco III on XXXXXXXXXX , as described in Paragraph 21;

(l) "Holdco II" means XXXXXXXXXX , a corporation incorporated under the CBCA on XXXXXXXXXX and continued under the XXXXXXXXXX on XXXXXXXXXX , which is a subsidiary wholly-owned corporation of BuyerSubco III and a taxable Canadian corporation. XXXXXXXXXX ;

(m) "New Bidco" means the corporation resulting from the amalgamation of Holdco II and Bidco, as described in Paragraph 57;

(n) "Newco I" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX . Bidco instructed XXXXXXXXXX to cause Newco I to be incorporated, with Bidco as the incorporator. Newco I has not issued shares from its capital stock since incorporation;

(o) "Newco II" means XXXXXXXXXX ., a corporation incorporated under the laws of XXXXXXXXXX on XXXXXXXXXX , which is a subsidiary of Bidco and a taxable Canadian corporation;

(p) "NewSubco" means XXXXXXXXXX ., a corporation incorporated under the XXXXXXXXXX , an indirect wholly-owned subsidiary of Target;

(q) "PredecessorCo" means XXXXXXXXXX .;

(r) "Target" means XXXXXXXXXX , formerly XXXXXXXXXX , a corporation that resulted from the amalgamation of PredecessorCo and XXXXXXXXXX on XXXXXXXXXX under the laws of XXXXXXXXXX ;

(s) "TargetSubco I" means XXXXXXXXXX , a subsidiary wholly-owned corporation of Target;

(t) "TargetSubco II" means XXXXXXXXXX , a subsidiary wholly-owned corporation of TargetSubco I and an indirect wholly-owned subsidiary of Target;

(u) "TargetSubco III" means XXXXXXXXXX , a corporation incorporated under the CBCA, which is a subsidiary wholly-owned corporation of Target;

(v) "Vendor" means XXXXXXXXXX ;

(w) "VendorSubco I" means XXXXXXXXXX , a corporation incorporated under the laws of Canada, which is a subsidiary wholly-owned corporation of Vendor.

(x) "VendorSubco II" means XXXXXXXXXX ., which is a subsidiary wholly-owned corporation of Vendor;

(y) "Wco" means XXXXXXXXXX .

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified.

(a) "ACB" has the meaning assigned to the expression "Adjusted Cost Base" in section 54;

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

(c) "Agreed Amount" has the meaning assigned by subsection 85(1);

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

(e) "Bidco Loan" means the non-interest bearing demand loan of $XXXXXXXXXX made by Newco II to Bidco on XXXXXXXXXX , as described in Paragraph 49;

(f) "Bump Properties" includes XXXXXXXXXX :

XXXXXXXXXX

(g) "BuyerSubco I Note" means the note receivable by TargetSubco II from BuyerSubco I of approximately XXXXXXXXXX , as described in Paragraph 44;

(h) "BuyerSubco III Debt A" means the debt originally owed by BuyerSubco III to BuyerSubco I and contributed by BuyerSubco I to BuyerSubco II, as described in Paragraph 9;

(i) "BuyerSubco III Debt B" means the debt originally owed by BuyerSubco III to BuyerSubco IV and assigned by BuyerSubco IV to BuyerSubco II, as described in Paragraph 9;

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

(k) "CBCA" means the Canada Business Corporations Act, as amended;

(l) XXXXXXXXXX

(m) "XXXXXXXXXX Debenture" means the XXXXXXXXXX debenture issued by BuyerSubco IV to XXXXXXXXXX , as described in Paragraph 9;

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

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

(p) "depreciable property" has the meaning assigned by subsection 13(21);

(q) "Dissenting Shareholder" means a registered holder of preferred shares of the capital stock of Target who validly exercises dissent rights in respect of XXXXXXXXXX , as described in Paragraph 60;

(r) "Eligible Capital Property" has the meaning assigned by section 54;

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

(t) "First Daylight Loan" means the daylight loan of $XXXXXXXXXX made by an Arm's Length financial institution to Target on XXXXXXXXXX , as described in Paragraph 47;

(u) "FMV" means fair market value;

(v) XXXXXXXXXX

(w) "Holdco II Note 1" means the interest bearing promissory note of approximately $XXXXXXXXXX issued on XXXXXXXXXX by Holdco II to BuyerSubco III, as described in Paragraph 52;

(x) "Holdco II Note 2" means the interest bearing promissory note of approximately $XXXXXXXXXX issued on XXXXXXXXXX by Holdco II to BuyerSubco III, as described in Paragraph 52;

(y) "XXXXXXXXXX Assets" means the operating assets of the XXXXXXXXXX transferred by Target to NewSubco, as described in Paragraph 53;

(z) "Loan A" means the interest bearing loan of approximately $XXXXXXXXXX made by BuyerSubco I to BuyerSubco III between XXXXXXXXXX , as described in Paragraph 25;

(aa) "Loan B" means the interest bearing loan of approximately $XXXXXXXXXX made by BuyerSubco III to Bidco between XXXXXXXXXX , as described in Paragraph 26;

(bb) "Loan C" means a non-interest bearing demand loan of approximately $XXXXXXXXXX made by BuyerSubco II to BuyerSubco III on XXXXXXXXXX , as described in Paragraph 27;

(cc) "Loan D" means the non-interest bearing demand loan of approximately $XXXXXXXXXX made by BuyerSubCo III to Bidco on XXXXXXXXXX , as described in Paragraph 28;

(dd) "Loan E" means a portion of the Loan C (approximately $XXXXXXXXXX ) assigned by BuyerSubco II to BuyerSubco I on XXXXXXXXXX , as described in Paragraph 35;

(ee) "Loan F" means a portion of the Loan D (approximately $XXXXXXXXXX ) owed by Bidco to BuyerSubco III that became an interest bearing loan on XXXXXXXXXX , as described in Paragraph 37;

(ff) XXXXXXXXXX ;

(gg) "Newco II Common Shares" means the common shares issued from the capital stock of Newco II. The Newco II Common Shares have the following attributes:

• each Newco II Common Share entitles the holder to one vote; and
• the holder of Newco II Common Shares is entitled to receive dividends if, as and when declared at the discretion of Newco II directors, and are entitled to receive the remaining property of Newco II upon its winding-up or dissolution;

(hh) "Newco II Preferred Shares" means the preferred shares issued from the capital stock of Newco II. The Newco II Preferred Shares have the following attributes:

• on-voting;
• entitled to a cumulative dividend at an annual rate of XXXXXXXXXX %;
• redeemable at the option of holder for an amount equal to the issue price plus any accrued but unpaid dividend, by Newco II;
• retractable at any time at the option of the holder for an amount equal to the issue price plus any accrued but unpaid dividends; and
• entitled to priority over the Newco II Common Shares and all other shares ranking junior to the Newco II Preferred shares with respect to the payment of dividends and the distribution of assets of Newco II in the event of any liquidation, dissolution or winding-up of Newco II or the other distribution of assets of Newco II among its shareholders for purposes of winding-up its affairs;

(ii) "non-resident" has the meaning assigned by subsection 248(1).

(jj) XXXXXXXXXX

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

(ll) XXXXXXXXXX ;

(mm) "Proposed Transactions" means the transactions described in Paragraphs 54 to 66 herein;

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

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

(pp) "Replacement Note 1" means a note of approximately US$XXXXXXXXXX issued by BuyerSubco I as part of the consideration for the cancellation of BuyerSubco I Note, as described in Paragraph 44;

(qq) "Replacement Note 2" means a note of approximately $XXXXXXXXXX issued by BuyerSubco I as part of the consideration for the cancellation of BuyerSubco I Note, as described in Paragraph 44;

(rr) "Replacement Note 3" means a note of approximately $XXXXXXXXXX issued by BuyerSubco I as part of the consideration for the cancellation of BuyerSubco I Note, as described in Paragraph 44;

(ss) "Replacement Note 4" means a note of approximately $XXXXXXXXXX issued by BuyerSubco I as part of the consideration for the cancellation of Replacement Note 2, as described in Paragraph 44;

(tt) "Replacement Note 5" means a note of approximately $XXXXXXXXXX issued by BuyerSubco I as part of the consideration for the cancellation of Replacement Note 2, as described in Paragraph 44;

(uu) "Second Daylight Loan" means a daylight loan of $XXXXXXXXXX to be made by an Arm's Length financial institution to Target in order to unwind the Loss Utilization Arrangement, as described in Paragraph 54 b);

(vv) "Share Purchase Agreement" means the share purchase agreement entered into between Buyerco, BuyerSubco III, Vendor and VendorSubco I, pursuant to which BuyerSubco III purchased and VendorSubco I sold common shares of the capital stock of Target for a total consideration of approximately $XXXXXXXXXX , as described in Paragraph 9;

(ww) "Specified Shareholder" has the meaning assigned by subparagraph 88(1)(c.2)(iii) and subsection 248(1);

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

(yy) "Target Loan" means the interest bearing demand loan of $XXXXXXXXXX made by Bidco to Target on XXXXXXXXXX , as described in Paragraph 50;

(zz) "taxable Canadian corporation" has the meaning assigned in subsection 89(1);

FACTS

Facts relating to the Buyerco Group

1. Buyerco is a publicly held corporation that is listed on the XXXXXXXXXX stock exchanges.

XXXXXXXXXX

2. The shares of the capital stock of Buyerco are widely held by the public.

To the best of Buyerco's knowledge, no shareholder, other than XXXXXXXXXX , currently owns directly or indirectly 10% or more of the shares of any class of the capital stock of Buyerco. To the best of Buyerco's knowledge, the XXXXXXXXXX largest common shareholders of Buyerco immediately before XXXXXXXXXX were:

Shareholder %

XXXXXXXXXX
XXXXXXXXXX

In XXXXXXXXXX acquired ownership of the shares of the capital stock of Buyerco owned by XXXXXXXXXX

XXXXXXXXXX was the registered owner of approximately XXXXXXXXXX % of the shares of the capital stock of Buyerco and held these shares for various investors who, through brokerage firms or other investment firms, were the beneficial owners of the said shares.

3. XXXXXXXXXX

4. BuyerSubco I is a subsidiary wholly-owned corporation of Buyerco. BuyerSubco II is a subsidiary wholly-owned corporation of BuyerSubco I. BuyerSubco III is a subsidiary wholly-owned corporation of BuyerSubco II. Holdco was a subsidiary wholly-owned corporation of BuyerSubco III prior to Holdco's wind-up on XXXXXXXXXX , as described in Paragraph 21. Prior to the wind-up of Holdco on XXXXXXXXXX , Bidco was a subsidiary wholly-owned corporation of Holdco. After the wind-up of Holdco and prior to XXXXXXXXXX , Bidco was a subsidiary wholly-owned corporation of BuyerSubco III. Since XXXXXXXXXX , Bidco is a subsidiary wholly-owned corporation of Holdco II as a result of the transfer of all the shares of the capital stock of Bidco by BuyerSubco III to Holdco II, as described in Paragraph 52. Holdco II is a subsidiary wholly-owned corporation of BuyerSubco III. BuyerSubco IV is an indirect wholly-owned subsidiary of Buyerco. BuyerSubco V is a subsidiary wholly-owned corporation of BuyerSubco III.

Buyerco, BuyerSubco I, BuyerSubco II and BuyerSubco IV are non-residents. BuyerSubco III, BuyerSubco V, Holdco, Holdco II and Bidco are taxable Canadian corporations.

Facts relating to Target

5. Target is a public corporation XXXXXXXXXX are listed on the XXXXXXXXXX Stock Exchange. Target is a taxable Canadian corporation.

XXXXXXXXXX

6. The authorized share capital of Target consists of an unlimited number of XXXXXXXXXX shares, XXXXXXXXXX .

Upon the acquisition of control of Target on XXXXXXXXXX , Target had issued and outstanding: (i) approximately XXXXXXXXXX shares, XXXXXXXXXX
As of the date hereof XXXXXXXXXX Target currently has issued and outstanding: (i) approximately XXXXXXXXXX

7. To the best of Target's knowledge, no shareholder, other than Bidco, currently owns directly or indirectly 10% or more of the shares of any class of the issued and outstanding shares of Target. To the best of Target's knowledge, the XXXXXXXXXX largest common shareholders of Target immediately before XXXXXXXXXX were:

Shareholder %

XXXXXXXXXX
XXXXXXXXXX

To the best of Target's knowledge, the XXXXXXXXXX largest common shareholders of Target XXXXXXXXXX :

Shareholder %

XXXXXXXXXX
XXXXXXXXXX

The above shareholding information was obtained from the non-objecting beneficial owners ("NOBO") lists of Target shares. XXXXXXXXXX

In accordance with securities law, any shareholder owning more than a 10% interest in a public corporation must disclose its ownership. There have been no such disclosures with respect to Target since XXXXXXXXXX , other than the disclosures made by Vendor and BuyerSubco III.

8. Subject to Paragraph 7 above, Target and Buyerco are not aware that, and have no reason to believe that, at the time of the acquisition of control of Target by Bidco on XXXXXXXXXX or at any time during the preceding XXXXXXXXXX period, any single shareholder of Target, alone or together with persons not dealing at arm's length with such shareholder, owned 10% or more of the shares of the capital stock of Target.

Facts relating to the acquisition of Target

9. On XXXXXXXXXX , BuyerSubco III purchased XXXXXXXXXX shares of the capital stock of Target owned by VendorSubco I, representing approximately XXXXXXXXXX % of the then XXXXXXXXXX shares of the capital stock of Target. The purchase price was established at $XXXXXXXXXX per share, or $XXXXXXXXXX in aggregate.

XXXXXXXXXX .

10. XXXXXXXXXX

11. XXXXXXXXXX

12. On XXXXXXXXXX , Buyerco announced its intention to make an offer to purchase, through its XXXXXXXXXX wholly-owned subsidiary Bidco, all of the XXXXXXXXXX shares of the capital stock of Target XXXXXXXXXX for a cash consideration of $XXXXXXXXXX for each XXXXXXXXXX share.

XXXXXXXXXX

13. XXXXXXXXXX

14. XXXXXXXXXX

15. XXXXXXXXXX

16. On XXXXXXXXXX and as part of its take-over bid, Bidco paid for XXXXXXXXXX shares of the capital stock of Target, representing approximately XXXXXXXXXX % of the XXXXXXXXXX shares of the capital stock of Target, with a cash consideration of approximately $XXXXXXXXXX .

As a result of this acquisition of shares, Bidco acquired de jure control of Target on XXXXXXXXXX .

At the time Bidco acquired control of Target, Target held the Bumped Properties as capital properties.

17. XXXXXXXXXX

18. XXXXXXXXXX

19. XXXXXXXXXX

20. XXXXXXXXXX

Preliminary Transactions

21. On XXXXXXXXXX , Holdco was wound-up into BuyerSubco III in such a manner that all the assets of Holdco were acquired by BuyerSubco III and all of the liabilities of Holdco were assumed by BuyerSubco III. The provisions of subsection 88(1) applied to the wind-up of Holdco.

22. On XXXXXXXXXX , BuyerSubco III transferred all of the XXXXXXXXXX shares of the capital stock of Target it owned to Bidco for FMV consideration. The consideration for this transfer was paid in full by Bidco by the issuance to BuyerSubco III of XXXXXXXXXX shares of Bidco.

BuyerSubco III and Bidco elected, jointly and in prescribed form and within the time limit referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the shares of the capital stock of Target to Bidco. The Agreed Amount specified in the election in respect of the shares of the capital stock of Target was equal to the ACB to BuyerSubco III of the transferred shares immediately before the transfer, which amount did not exceed the FMV of such shares.

The PUC in respect of the common shares of the capital stock of Bidco issued to BuyerSubco III was subject to the provisions of subsection 85(2.1).

Facts relating to the financing of the Buyerco Group

23. On XXXXXXXXXX , BuyerSubco III issued XXXXXXXXXX preference shares, XXXXXXXXXX at $XXXXXXXXXX per share, to BuyerSubco II, in full payment of the BuyerSubco III Debt A and the BuyerSubco III Debt B payable to BuyerSubco II and referred to in Paragraph 9 above.

24. The acquisitions of the shares of the capital stock of Target described in Paragraphs 15 to 18 above were financed as described in Paragraphs 25 to 29 below.

25. XXXXXXXXXX , BuyerSubco I made, pursuant to a credit facility between BuyerSubco I and BuyerSubco III, an interest bearing loan of approximately $XXXXXXXXXX to BuyerSubco III (the "Loan A").

26. XXXXXXXXXX , BuyerSubco III used the proceeds of the Loan A owed to BuyerSubco I to make an interest bearing loan of $XXXXXXXXXX to Bidco (the "Loan B").

27. On XXXXXXXXXX , BuyerSubco II made, pursuant to a credit facility between BuyerSubco II and BuyerSubco III, a non-interest bearing loan of approximately $XXXXXXXXXX to BuyerSubco III.

On XXXXXXXXXX , BuyerSubco II made, pursuant to the credit facility referred to above, a non-interest bearing loan, payable on demand, of approximately $XXXXXXXXXX to BuyerSubco III (the "Loan C").

28. BuyerSubco III used approximately $XXXXXXXXXX of the proceeds of the loan from BuyerSubco II to XXXXXXXXXX .

On XXXXXXXXXX , BuyerSubco III used the proceeds of the Loan C owed to BuyerSubco II to make a non-interest bearing loan, payable on demand, of approximately $XXXXXXXXXX to Bidco (the "Loan D").

29. Bidco used the proceeds of the Loan B and Loan D owed to BuyerSubco III to XXXXXXXXXX .

30. On XXXXXXXXXX , BuyerSubco V issued approximately $XXXXXXXXXX of XXXXXXXXXX

31. XXXXXXXXXX

32. On XXXXXXXXXX , BuyerSubco V used the proceeds from the issuance of the XXXXXXXXXX to make an interest bearing loan of approximately $XXXXXXXXXX to Bidco.

33. On XXXXXXXXXX , Bidco used the proceeds of the loan from BuyerSubco V to repay approximately $XXXXXXXXXX of the Loan D owed to BuyerSubco III. Immediately after that time, the balance of the Loan D amounted to approximately $XXXXXXXXXX .

34. On XXXXXXXXXX , BuyerSubco III used the proceeds received from Bidco in partial repayment of Loan D to repay approximately $XXXXXXXXXX of Loan C owed to BuyerSubco II. Immediately thereafter, the balance of the Loan C amounted to approximately $XXXXXXXXXX .

35. On XXXXXXXXXX , BuyerSubco II assigned to BuyerSubco I approximately $XXXXXXXXXX of the Loan C owed by BuyerSubco III (the "Loan E"). Immediately thereafter, the balance of the Loan C owed by BuyerSubco III to BuyerSubco II amounted to approximately $XXXXXXXXXX .

36. On XXXXXXXXXX , BuyerSubco I and BuyerSubco III agreed that the Loan E owed by BuyerSubco III to BuyerSubco I would become an interest bearing loan.

37. On XXXXXXXXXX , BuyerSubco III and Bidco agreed that approximately $XXXXXXXXXX of the balance of the Loan D owed by Bidco to BuyerSubco III would become an interest bearing loan (the "Loan F"). Immediately thereafter, the balance of the Loan D amounted to approximately $XXXXXXXXXX .

38. On XXXXXXXXXX , BuyerSubco III issued approximately $XXXXXXXXXX worth of its preferred shares to BuyerSubco II in settlement of the balance of the Loan C and the other non-interest bearing loan of approximately $XXXXXXXXXX referred to in Paragraph 27 and owed to BuyerSubco II.

39. On XXXXXXXXXX , Bidco issued approximately $XXXXXXXXXX worth of its common shares to BuyerSubco III in full repayment of the balance of the Loan D.

40. On XXXXXXXXXX :

• BuyerSubco V issued notes of approximately XXXXXXXXXX to Arm's Length financial institutions under a XXXXXXXXXX .
• BuyerSubco V used the proceeds received under the XXXXXXXXXX to make an interest bearing loan of approximately XXXXXXXXXX to Bidco.
• Bidco used the proceeds of the loan from BuyerSubco V to pay down approximately $XXXXXXXXXX of the Loan F owed to BuyerSubco III. Immediately after that time, the balance of the Loan F amounted to approximately $XXXXXXXXXX.
• BuyerSubco III used the proceeds received from Bidco in partial repayment of Loan F to pay down approximately $XXXXXXXXXX of the Loan E owed to BuyerSubco I. Immediately after that time, the balance of the Loan E amounted to approximately $XXXXXXXXXX .

41. On XXXXXXXXXX :

• BuyerSubco V borrowed approximately XXXXXXXXXX from Arm's Length financial institutions, under a XXXXXXXXXX agreement.
• BuyerSubco V used the proceeds received under the XXXXXXXXXX agreement to make an interest bearing loan of approximately XXXXXXXXXX to Bidco.
• Bidco used the proceeds of the loan from BuyerSubco V to pay down approximately $XXXXXXXXXX of the Loan F owed to BuyerSubco III. Immediately after that time, the balance of the Loan F amounted to approximately $XXXXXXXXXX
• BuyerSubco III used the proceeds received from Bidco in partial repayment of Loan F to pay down approximately $XXXXXXXXXX of the Loan E owed to BuyerSubco I. Immediately after that time, the balance of the Loan E amounted to approximately $XXXXXXXXXX .

42. On XXXXXXXXXX , BuyerSubco III contributed the Loan B owed by Bidco and the balance of the Loan F owed by Bidco to the share capital of Bidco with no shares being issued from the capital stock of Bidco. The Loan B and the balance of Loan F were cancelled, as Bidco became the creditor and debtor of such loans at that time. The stated capital of the common shares of Bidco was increased by approximately $XXXXXXXXXX , which was the total of the balances of the Loan B and Loan F at that time.

43. On XXXXXXXXXX :

• BuyerSubco V issued notes of approximately US$XXXXXXXXXX to Arm's Length financial institutions.
• BuyerSubco V used the proceeds from the notes to make an interest bearing loan of approximately US$XXXXXXXXXX to Bidco.
• Bidco reduced by an amount of approximately $XXXXXXXXXX the PUC in respect of the common shares of the capital stock of Bidco held by Holdco II. As payment for the PUC reduction, Bidco distributed the proceeds of the loan from BuyerSubco V.
• Holdco II used the proceeds received on the PUC reduction in respect of the common share of the capital stock of Bidco to pay down approximately $XXXXXXXXXX of the Holdco II Note 2. Immediately after that time, the balance of the Holdco II Note 2 amounted to approximately $XXXXXXXXXX .
• BuyerSubco III used the proceeds received from Holdco II in partial repayment of Holdco II Note 2 to pay down approximately US$XXXXXXXXXX of the Loan E owed to BuyerSubco I.

44. On XXXXXXXXXX :

• TargetSubco II paid a dividend in kind of approximately a US$XXXXXXXXXX by distributing a note receivable from BuyerSubco I of approximately US$XXXXXXXXXX (the "BuyerSubco I Note") to TargetSubco I.
• TargetSubco I paid a dividend in kind of approximately US$XXXXXXXXXX by distributing the BuyerSubco I Note to Target.
• Target paid a dividend in kind of approximately US$XXXXXXXXXX by distributing the BuyerSubco I Note to Bidco.
• Immediately thereafter, the BuyerSubco I Note was converted into three replacement notes: the Replacement Note 1 (approximately US$XXXXXXXXXX ), the Replacement Note 2 (approximately $XXXXXXXXXX ) and the Replacement Note 3 (approximately $XXXXXXXXXX ).
• Bidco paid a dividend in kind of approximately US$XXXXXXXXXX to Holdco II by distributing the Replacement Note 2.
• Immediately thereafter, the Replacement Note 2 was converted into two replacement notes: the Replacement Note 4 (approximately $XXXXXXXXXX ) and the Replacement Note 5 (approximately $XXXXXXXXXX ).
• Holdco II assigned the Replacement Note 4 to BuyerSubco III in final repayment of the Holdco II Note 2 and assigned to BuyerSubco III the Replacement Note 5 as partial repayment of the Holdco II Note 1.
• BuyerSubco III assigned the Replacement Note 4 to BuyerSubco I in final repayment of the Loan E. The Replacement Note 4 was cancelled, as BuyerSubco I became the creditor and debtor of such note at that time.
• BuyerSubco III assigned the Replacement Note 5 to BuyerSubco I in partial payment of Loan A. The Replacement Note 5 was cancelled, as BuyerSubco I became the creditor and debtor of such note at that time.

XXXXXXXXXX

45. XXXXXXXXXX

XXXXXXXXXX

46. XXXXXXXXXX

47. XXXXXXXXXX

48. XXXXXXXXXX

49. XXXXXXXXXX

50. XXXXXXXXXX

51. XXXXXXXXXX

Facts relating to the drop-down of the shares of the capital stock of Bidco

52. On XXXXXXXXXX , BuyerSubco III transferred all the shares of the capital stock of Bidco to Holdco II for FMV consideration. The consideration for this transfer was as follows:

• settlement of a $XXXXXXXXXX interest-free note receivable by Holdco II from BuyerSubco III;
• issuance by Holdco II of a promissory note of approximately $XXXXXXXXXX (the "Holdco II Note 1") bearing interest at an annual rate of XXXXXXXXXX %;
• issuance by Holdco II of a promissory note of approximately $XXXXXXXXXX (the "Holdco II Note 2") bearing interest at an annual rate of XXXXXXXXXX %; and
• issuance of XXXXXXXXXX common shares from the capital stock of Holdco II having a PUC equal to approximately $XXXXXXXXXX .

BuyerSubco III and Holdco II elected, jointly and in prescribed form and within the time limit referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of all the shares of the capital stock of Bidco to Holdco II. The Agreed Amount specified in the election in respect of all the shares of the capital-stock of Bidco was equal to the ACB to BuyerSubco III of the transferred shares immediately before the transfer, which amount did not exceed the FMV of such shares.

The PUC in respect of the XXXXXXXXXX common shares of the capital stock of Holdco II issued to BuyerSubco III was subject to the provisions of subsection 85(2.1).

XXXXXXXXXX

53. XXXXXXXXXX

PROPOSED TRANSACTIONS

XXXXXXXXXX

54. XXXXXXXXXX

Proposed transactions relating to the redemption of XXXXXXXXXX shares of the capital stock of Target

55. Pursuant to their terms, the XXXXXXXXXX shares, XXXXXXXXXX , of the capital stock of Target, described in Paragraph 6 above, will be redeemed by Target on XXXXXXXXXX .

Proposed transactions relating to the "Bump" under paragraphs 88(1)(c) and (d)

56. Bidco, Holdco II, Target, Newco I and NewSubco will enter into an XXXXXXXXXX pursuant to which the transactions described in Paragraphs 57 to 66 below will occur XXXXXXXXXX . These transactions will be designated XXXXXXXXXX to occur on the effective date specified XXXXXXXXXX and in the order set out below.

57. Holdco II and Bidco will be amalgamated to form New Bidco. As a consequence, all the assets and liabilities of Holdco II and Bidco will become assets and liabilities of New Bidco, and all the shares of the capital stock of Bidco will be cancelled. No shares of the capital stock of New Bidco will be issued such that the issued and outstanding shares of the capital stock of Holdco II will become the shares of the capital stock of New Bidco. The provisions of subsection 87(1) will apply to the amalgamation.

58. New Bidco will transfer all of the common shares of the capital stock of Target to Newco I for FMV consideration. The consideration for this transfer will be paid in full by Newco I by the issuance to New Bidco of common shares and debt of Newco I. The principal amount of the debt will not exceed the ACB to New Bidco of the transferred shares immediately before the transfer, and will not exceed approximately $XXXXXXXXXX .

The debt issued by Newco I to New Bidco will include interest bearing debt and may include non-interest bearing debt. Furthermore, the debt issued by Newco I to New Bidco will be subordinate in right of payment to Newco I's other debt obligations. The non-interest bearing subordinated debt issued by Newco I will be payable on demand. The terms of both the interest bearing debt and the non-interest bearing debt will provide that the rate of interest payable may be varied in the future in accordance with the terms of the debt.

New Bidco and Newco I will elect, jointly and in prescribed form and within the time limit referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the common shares of the capital stock of Target to Newco I. The Agreed Amount specified in the election in respect of the common shares of the capital stock of Target will be equal to the ACB to New Bidco of the transferred shares immediately before the transfer, which amount will not exceed the FMV of such shares.

The amount to be added, as a result of the acquisition of the common shares of the capital stock of Target by Newco I, to the stated capital account maintained in respect of the common shares of the capital stock of Newco I will be equal to the difference between the ACB to New Bidco of the transferred shares immediately before the transfer and the aggregate principal amount of the debt issued by Newco I.

59. Newco I will acquire all of the issued and outstanding XXXXXXXXXX shares of the capital stock of Target (XXXXXXXXXX ) in consideration for XXXXXXXXXX shares of the capital stock of Newco I, having the same terms and conditions as the XXXXXXXXXX shares of the capital stock of Target and a FMV of approximately $XXXXXXXXXX .

The transaction described above is intended to occur on a tax-deferred basis, unless a particular shareholder decides otherwise.

The aggregate addition to the stated capital account of the XXXXXXXXXX shares of the capital stock of Newco I will be equal to the PUC of the XXXXXXXXXX shares of Target transferred.

60. Each XXXXXXXXXX share of the capital stock of Target held by a Dissenting Shareholder will be transferred by the holder, without any further act or formality on its part, to Newco I. In exchange, Newco I will be deemed to have issued to such Dissenting Shareholder, as consideration for Newco I's acquisition of such XXXXXXXXXX share of the capital stock of Target, an obligation to pay to the holder fair value for such XXXXXXXXXX share of the capital stock of Target.

From and after the transfer to Newco I of a Dissenting Shareholder's XXXXXXXXXX shares of the capital stock of Target, a Dissenting Shareholder will cease to have any rights as a shareholder of Target, and will have no right as a shareholder of Newco I, Amalco I or Amalco II. The only rights of a Dissenting Shareholder would be the right to be paid by Newco I the fair value of the XXXXXXXXXX shares of the capital stock of Target held by such Dissenting Shareholder immediately prior to the transfer.

Further to the transactions described in Paragraph 59 and in this Paragraph, Target will be a subsidiary wholly-owned corporation of Newco I.

61. XXXXXXXXXX

62. The stated capital of the shares of the capital stock of Target will be reduced to $XXXXXXXXXX , without any payment thereon.

63. Target and Newco I will be amalgamated to form Amalco I. As a consequence, all of the assets and liabilities of Target and Newco I will become assets and liabilities of Amalco I, and all the shares of the capital stock of Target will be cancelled. No shares of the capital stock of Amalco I will be issued such that the issued and outstanding shares of the capital stock of Newco I will become the shares of the capital stock of Amalco I. This amalgamation will be governed by subsection 87(1).

In connection with this amalgamation, in the return of income for its first taxation immediately following the amalgamation, Amalco I will designate an amount under the provisions of subsection 87(11) and paragraph 88(1)(d) to increase, within the limits described in paragraph 88(1)(d), the cost of certain capital property (other than "ineligible property") of Target, being the Bump Properties, that Target owned without interruption at and since the time Bidco acquired control of Target as described in Paragraph 16, and that became property of Amalco I pursuant to the amalgamation described in this Paragraph.

64. NewSubco will redeem the XXXXXXXXXX redeemable special shares of its capital stock owned by TargetSubco III for FMV consideration.

65. The stated capital of the shares of the capital stock of NewSubco will be reduced to $XXXXXXXXXX , without any payment thereon.

66. Amalco I and NewSubco will amalgamate to form Amalco II. As a consequence, all the assets and liabilities of Amalco I and NewSubco will become assets and liabilities of Amalco II, and all the shares of the capital stock of NewSubco will be cancelled. No shares of the capital stock of Amalco II will be issued such that the issued and outstanding shares of the capital stock of Amalco I will become the shares of the capital stock of Amalco II. The provisions of subsection 87(1) will apply to the amalgamation.

ADDITIONAL INFORMATION

67. The federal business number of the parties referred to herein, the location of the tax services office and taxation centre where their returns are filed, and the address of their head office are as follows:

      XXXXXXXXXX
      -  Business Number: 		XXXXXXXXXX
      -  Tax Services Office:  	XXXXXXXXXX
      -  Taxation Centre:  		XXXXXXXXXX
	-  Address:				XXXXXXXXXX 

      XXXXXXXXXX
      -  Business Number: 		XXXXXXXXXX
      -  Tax Services Office:  	XXXXXXXXXX
      -  Taxation Centre:  		XXXXXXXXXX
	-  Address:				XXXXXXXXXX 

      XXXXXXXXXX
      -  Business Number: 		XXXXXXXXXX
      -  Tax Services Office:  	XXXXXXXXXX
      -  Taxation Centre:  		XXXXXXXXXX
	-  Address:				XXXXXXXXXX 

PURPOSES OF THE PROPOSED TRANSACTIONS

68. The purposes of the Proposed Transactions are to allow a tax efficient integration of Target into the Buyerco Group and, more specifically, to achieve an increase in the tax cost of the Bump Properties.

OPINIONS

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

Opinions on the application of the "Bump" rules

XXXXXXXXXX

However, we understand that the Department of Finance has issued a comfort letter dated February 23, 2007 (the "Comfort Letter"), indicating that it is prepared to recommend to the Minister of Finance that the definition of "specified person" in subparagraph 88(1)(c.2)(i) be amended, applicable to windings-up that begin after 2006, so that, in respect of property acquired before the beginning of the winding-up of the subsidiary, a specified person would include a person that is related to the parent (within the meaning of subparagraph 88(1)(c.2)(i)) from the time the parent was incorporated until the beginning of the winding-up of the subsidiary.

If the recommended amendment in the Comfort Letter is enacted and is effective for the period in which the transactions referred to in the preceding paragraphs took place, we are of the opinion that the provisions of subsections 87(11) and 88(1) would apply to the vertical amalgamation of Target and Newco I to form Amalco I as described in Paragraph 63 such that, for purposes of the Act, and provided that no property that became property of Amalco I on such amalgamation or "any property acquired by any person in substitution therefor" (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 Target and the "parent" is Newco I) as part of the series of transactions or events that includes the Proposed Transactions described herein, the cost to Amalco I of each property owned by Target at the time Bidco acquired control of Target and that became property of Amalco I pursuant to the amalgamation would be deemed by paragraph 88(1)(c) to be the cost amount of such property plus, provided that such property is capital property, but not Depreciable Property, the amount designated by Amalco I under paragraph 88(1)(d) in respect of the property as described in Paragraph 63.

For greater certainty, and if the recommended amendment in the Comfort Letter is enacted and is effective for the period in which the transactions referred to in the preceding paragraphs took place, we are of the opinion that property that became property of Amalco I on the vertical amalgamation of Target and Newco I would 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.

Opinion on the general anti-avoidance rule

If the recommended amendment in the Comfort Letter is enacted and is effective for the period in which the transactions referred to in the preceding paragraphs took place, we are of the opinion that the provisions of subsection 245(2) would not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences of the opinions given above.

COMMENTS

The opinions given above are based on amendments to the Act recommended by the Department of Finance and, as such, are not advance income tax rulings.

Furthermore, nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

(a) the determination of the FMV or Cost Amount of any property referred to herein, or the PUC in respect of any share referred to herein;
(b) any provincial tax consequences of the Proposed Transactions;
(c) any tax consequences relating to XXXXXXXXXX ;
(d) the impact of the designation that Amalco I will make under paragraph 88(1)(d), as described in Paragraph 63, on the amount of any exempt deficit or taxable deficit of any foreign affiliate (or "lower-tier foreign affiliate") of Target; or
(e) any tax consequences relating to the Facts and Proposed Transactions described herein other than those specifically dealt with in the opinions given above.

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