2007 Ruling 2007-0223921R3 - XXXXXXXXXX - Sequential S-Off 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: Sequential Spin-Off Butterfly

Position: Favourable rulings given.

Reasons: The law.

XXXXXXXXXX  							2007-022392

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: XXXXXXXXXX ("DC")
XXXXXXXXXX ("DC Sub")
XXXXXXXXXX ("Sisterco")
XXXXXXXXXX ("Numberco") and
XXXXXXXXXX (Debtorco")
(collectively referred to herein as the "taxpayers")
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, and your other correspondence, in which you requested an advance income tax ruling on behalf of the taxpayers. You have advised that to the best of your knowledge, and that of the responsible officers of each of the taxpayers, none of the issues involved in this Ruling is:

(i) in an earlier return of any of the taxpayers or a related person;

(ii) being considered by a tax services office (TSO) or taxation centre (TC) in connection with a previously filed tax return of any of the taxpayers or a related person;

(iii) under objection by any of the taxpayers or a related person;

(iv) before the courts or if a judgment has been issued the time limit for appeal to a higher court has expired; or

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate.

You have also advised that to the best of your knowledge, and that of the responsible officers of each of the taxpayers, that the proposed transactions will not result in any of the taxpayers or any related person described herein being unable to pay its existing outstanding tax liabilities.

DEFINITIONS

In this letter, all monetary amounts are expressed in Canadian dollars unless otherwise indicated, and 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 from time to time and consolidated to the date of this letter and unless otherwise expressly stated every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause, is a reference to the relevant provision of the Act, and the Income Tax Regulations thereunder are referred to as the Regulations;

(b) "adjusted cost base" ("ACB") has the meaning assigned by subsection 248(1);

(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) "BCA" means the Business Corporations Act XXXXXXXXXX;

(e) "BN" means the business number issued to the particular entity by CRA;

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

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

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

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

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

(k) "DC Spin-Off Property" means the Numberco Common Shares and the New Subco Common Shares;

(l) "DC Sub Spin-Off Property" means the DC Sub Spin-Off Real Estate, the Debtorco Debt and the Numberco Debt described in Paragraph 5;

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

(n) "dividend refund" has the meaning assigned by subsection 129(1);

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

(p) "eligible property" has the meaning assigned by subsection 85(1.1);

(q) "fair market value" ("FMV") means the highest price available in an open and unrestricted market between informed prudent parties acting at arms length (within the meaning assigned by subsection 251(1)) under no compulsion to act and contracting for a taxable purchase and sale;

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

(s) "forgiven amount" has the meaning assigned by subsections 80(1) and 80.01(1);

(t) "former business property" has the meaning assigned by section 44;

(u) "guarantee agreement" has the meaning assigned by subsection 112(2.2);

(v) "Paragraph" refers to a numbered paragraph in this advance income tax ruling;

(w) "predecessor corporation" has the meaning assigned by subsection 87(1);

(x) "proceeds of disposition" ("POD") has the meaning assigned by section 54;

(y) "Proposed Transactions" means the transactions described in Paragraphs 14 to 42;

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

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

(bb) "restricted financial institution" has the meaning assigned by subsection 248(1);

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

(dd) "Sibling1" means XXXXXXXXXX;

(ee) "Sibling2" means XXXXXXXXXX;

(ff) "significant influence" has the meaning assigned by section 3050 of the CICA Handbook;

(gg) "SIN" means Social Insurance Number;

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

(ii) "specified investment business" has the meaning assigned by subsection 125(7);

(jj) "stated capital" means the amount of capital determined in respect of a class or series of shares in accordance with the BCA;

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

(ll) "taxable Canadian corporation" ("TCC") has the meaning assigned by subsection 89(1); and

(mm) "taxable dividend" has the meaning assigned by subsection 89(1).

FACTS

1. DC is a TCC and a CCPC. DC came into existence as a result of the amalgamation of XXXXXXXXXX predecessor corporations (XXXXXXXXXX), on XXXXXXXXXX, under the BCA. DC is a holding corporation and its head office is located in XXXXXXXXXX. DC's fiscal period and taxation year ends on XXXXXXXXXX DC files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs.

2. The issued and outstanding share capital of DC consists of XXXXXXXXXX Class A non-voting non-participating shares ("DC Class A Shares"); XXXXXXXXXX Class B non-voting non-participating shares ("DC Class B Shares"); and XXXXXXXXXX voting common shares ("DC Common Shares") having 1 vote per share. Sibling1 and Sibling2 own each class of DC's shares in equal proportions and have held such shares as capital property. Sibling1 and Sibling2 are adult siblings who are resident in Canada for the purposes of the Act.

Sibling1 and Sibling2 have owned all the DC Common Shares since XXXXXXXXXX. Sibling1 and Sibling2 have owned all the DC Class A Shares and XXXXXXXXXX DC Class B Shares (i.e. XXXXXXXXXX each) since XXXXXXXXXX, when such shares were purchased from their XXXXXXXXXX who passed away on XXXXXXXXXX. The remaining XXXXXXXXXX DC Class B Shares owned by Sibling1 and Sibling2 (i.e. XXXXXXXXXX each) were acquired on XXXXXXXXXX, as a bequest from their XXXXXXXXXX's estate. None of the shares of DC have been acquired by Sibling1 or Sibling2 in contemplation of the Proposed Transactions.

The aggregate PUC of the DC Class A Shares is approximately $XXXXXXXXXX. The aggregate PUC of the DC Class B Shares is approximately $XXXXXXXXXX and the aggregate PUC of the DC Common Shares is approximately $XXXXXXXXXX.

DC's assets consist of all the shares of DC Sub and Numberco, as described in Paragraphs 4 and 7, respectively, and a loan receivable from DC Sub in the amount of $XXXXXXXXXX. DC has no significant liabilities. DC does not have RDTOH or a balance in its CDA.

3. DC Sub is a TCC and a CCPC. DC Sub was formed on XXXXXXXXXX, under the provisions of the BCA, as amended by Articles of Amendment dated XXXXXXXXXX. DC Sub's fiscal period and taxation year ends on XXXXXXXXXX. DC Sub's head office is located in XXXXXXXXXX. DC Sub files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. DC Sub is engaged in the business of XXXXXXXXXX.

4. The issued and outstanding share capital of DC Sub consists of XXXXXXXXXX common shares ("DC Sub Common Shares") and XXXXXXXXXX Class B special shares ("DC Sub Class B Shares"). DC has owned all the issued and outstanding shares of DC Sub since XXXXXXXXXX. The shares of DC Sub are capital property to DC. The aggregate PUC of the DC Sub Common Shares is $XXXXXXXXXX and the aggregate PUC of the DC Sub Class B Shares is $XXXXXXXXXX. DC has not acquired any of the shares of DC Sub in contemplation of the Proposed Transactions.

5. DC Sub's assets consist of accounts receivable, trade receivables, inventories, prepaid expenses, goodwill, land and a building (the "DC Sub Spin-Off Real Estate") having the municipal address of XXXXXXXXXX and other assets. The DC Sub Spin-Off Real Estate is the principal facility that is used in DC Sub's XXXXXXXXXX business. DC Sub has an amount receivable (the "Mortgage Receivable"), which arose on the sale of a former business property to an arm's-length party in XXXXXXXXXX. The Mortgage Receivable has a maturity date of XXXXXXXXXX. Since the proposed distribution by DC Sub described in Paragraph 25 will not take place until sometime after XXXXXXXXXX, the Mortgage Receivable will be treated as a current asset for the purposes of this proposed distribution.

Currently, DC Sub is owed the following amounts from various associated corporations: approximately $XXXXXXXXXX in respect of a non-interest bearing debt receivable owing by Sisterco (the "Sisterco Debt"); approximately $XXXXXXXXXX in respect of a non-interest bearing debt receivable owing by Numberco (the "Numberco Debt"); and approximately $XXXXXXXXXX in respect of an interest bearing debt receivable owing by Debtorco (the "Debtorco Debt") as described in more detail in Paragraph 11. None of these debt receivables have any specific formal repayment terms and there is no intention on the part of DC Sub to demand payment of such amounts in the near future. Moreover, even if such a demand were made, Debtorco, Numberco or Sisterco, as the case may be, would not have the financial ability to repay any amount owing by it without assistance from Sibling1 and Sibling2 or the other companies they control or without otherwise liquidating all of its assets.

DC Sub's liabilities consist of bank indebtedness, XXXXXXXXXX loans, accounts payable, a first mortgage payable and a second mortgage payable that are secured on the DC Sub Spin-Off Real Estate (hereinafter collectively referred to as the "Spin-Off Mortgage"), sundry liabilities and the $XXXXXXXXXX amount owing to DC. DC Sub incurred the first mortgage when it acquired the DC Sub Spin-Off Real Estate. DC Sub incurred the second mortgage for the sole purpose of loaning those funds, along with other funds it had on hand at the time, to Debtorco under the Debtorco Debt. Debtorco used the Debtorco Debt proceeds to purchase the Debtorco Property as described in Paragraph 11. The cost amount of the DC Sub Spin-Off Real Estate currently exceeds the outstanding amount of the Spin-Off Mortgage.

DC Sub is expected to have RDTOH and a balance in its CDA immediately prior to the commencement of the Proposed Transactions.

6. Numberco is a TCC and a CCPC. Numberco was incorporated on XXXXXXXXXX, under the BCA. Numberco's fiscal period and taxation year ends on XXXXXXXXXX. Numberco's head office is located in XXXXXXXXXX . Numberco files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs.

7. The issued and outstanding share capital of Numberco consists of XXXXXXXXXX common shares ("Numberco Common Shares") all of which are owned by DC. The aggregate PUC of the Numberco Common Shares is approximately $XXXXXXXXXX. DC has held the Numberco Common Shares since Numberco was incorporated as capital property. DC has not acquired the Numberco Common Shares in contemplation of the Proposed Transactions.

8. Numberco owns land and a building having the municipal address of XXXXXXXXXX (the "Numberco Property"). The Numberco Property is Numberco's only asset and is rented to DC Sub. DC Sub uses the Numberco Property in its XXXXXXXXXX business. Numberco's rental income is deemed to be active business income pursuant to subsection 129(6).

Numberco's liabilities consist of some current liabilities and the Numberco Debt. Numberco does not have any RDTOH or a balance in its CDA.

9. Debtorco is a TCC and a CCPC. Debtorco was incorporated on XXXXXXXXXX, under the BCA. Debtorco's fiscal period and taxation year ends on XXXXXXXXXX. Debtorco's head office is located in XXXXXXXXXX. Debtorco files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs.

10. The issued and outstanding share capital of Debtorco consists of XXXXXXXXXX common shares ("Debtorco Common Shares"). Sibling1 and Sibling2 each own XXXXXXXXXX Debtorco Common Shares. The aggregate PUC of the Debtorco Common Shares is approximately $XXXXXXXXXX. Each of Sibling1 and Sibling2 has beneficially owned the Debtorco Common Shares since Debtorco was incorporated and has held those shares as capital property. The Debtorco Common Shares have not been acquired by Sibling1 or Sibling2 in contemplation of the Proposed Transactions.

11. Debtorco owns land and a building adjacent to the DC Sub Spin-Off Real Estate having the municipal address of XXXXXXXXXX (the "Debtorco Property"). The Debtorco Property is Debtorco's only asset. The Debtorco Property was acquired by Debtorco, using funds borrowed from DC Sub, to permit the expansion of DC Sub's XXXXXXXXXX business and other related business operations, which include the business operations of Sisterco. The Debtorco Property has been improved by XXXXXXXXXX. The land is currently being used by DC Sub to XXXXXXXXXX while the building is being used by Sisterco in its XXXXXXXXXX business. No formal written lease agreements have been entered into between the tenants and Debtorco. However, rent is paid by DC Sub to Debtorco for both its use of the premises as well as the use by Sisterco. Debtorco's rental income is deemed to be active business income pursuant to subsection 129(6).

Debtorco's only significant liability is the Debtorco Debt owing to DC Sub. While no formal repayment terms have been established, principal payments under the Debtorco Debt are being made to more or less match DC Sub's repayment obligations under the Spin-Off Mortgage. Debtorco has no RDTOH or balance in its CDA.

12. Sisterco is a TCC and a CCPC that was incorporated on XXXXXXXXXX, under the BCA. The issued and outstanding share capital of Sisterco consists of XXXXXXXXXX common shares. Sibling2 and Sibling1 own the common shares of Sisterco in equal proportions. Sisterco is in the XXXXXXXXXX business and its only significant asset is inventory. XXXXXXXXXX Sisterco used to operate out of DC Sub's premises, but now operates out of the building owned by Debtorco. No formal written lease agreement has been entered into. However, Sisterco, by way of an informal sublease with DC Sub, pays DC Sub an amount in respect of the use of such property as a component of management services charged by DC Sub.

13. DC Sub does not own shares of any corporation. However, DC Sub does have significant influence over each of Numberco, Debtorco and Sisterco for the following reasons:

• a demand by DC Sub for repayment of the Numberco Debt, Debtorco Debt and Sisterco Debt, as the case may be, would have a serious and destabilizing effect on such debtor corporation; and
• the Numberco Property is used solely by DC Sub in the XXXXXXXXXX business carried on by it and the Debtorco Property is used by DC Sub and Sisterco in the XXXXXXXXXX business carried on by each such corporation. As each of these properties were acquired for the express purpose of carrying on DC Sub's XXXXXXXXXX business and related business operations either directly by DC Sub or indirectly through Sisterco, the business operations carried on by Debtorco, Numberco and Sisterco are wholly-dependent on DC Sub.

PROPOSED TRANSACTIONS

Incorporation of Bare Trusteeco and Transfers of Legal Title

14. A new corporation ("Bare Trusteeco") will be incorporated pursuant to the provisions of the BCA. Bare Trusteeco will be a TCC and a CCPC. The authorized share capital of Bare Trusteeco will consist of an unlimited number of common shares. On the incorporation of Bare Trusteeco each of Sibling1 and Sibling2 will subscribe for XXXXXXXXXX common shares in Bare Trusteeco for nominal consideration.

Bare Trusteeco will have no property other than the property described in this Paragraph and will have no purpose or activity other than to acquire legal title (but not beneficial title) to the DC Sub Spin-Off Real Estate and to hold such title to such property solely as nominee agent and bare trustee for the beneficial owner of such property.

Specifically, DC Sub will transfer legal title to the DC Sub Spin-Off Real Estate to Bare Trusteeco. DC Sub will enter into a bare trust agreement with Bare Trusteeco in respect of the DC Sub Spin-Off Real Estate. The terms of the bare trust agreement will include the following:

(a) Bare Trusteeco will hold legal title to the DC Sub Spin-Off Real Estate as nominee, agent and bare trustee for the sole benefit and account of DC Sub and, for greater certainty, DC Sub will be the only beneficiary of such bare trust and will remain the beneficial owner of such property; and

(b) Bare Trusteeco, as agent for DC Sub, will deal with the property described in (a) exclusively as directed by DC Sub while it is the beneficial owner.

On the subsequent transfer of the beneficial ownership of the DC Sub Spin-Off Real Estate by DC Sub to New Subco as contemplated in Paragraph 25, a similar bare trust agreement between New Subco and Bare Trusteeco will be executed as described in Paragraph 27.

Reorganization of DC Sub's Capital

15. DC Sub will file Articles of Amendment under the BCA to create and authorize the issuance of an unlimited number of DC Sub New Common Shares and XXXXXXXXXX DC Sub Class C Shares.

16. The terms and conditions of the DC Sub New Common Shares will be identical to the terms and conditions of the DC Sub Common Shares except that holders of the DC Sub New Common Shares will be entitled to XXXXXXXXXX votes per share.

17. The DC Sub Class C Shares will have the following terms and conditions:

(a) each DC Sub Class C Share will be redeemable, subject to applicable law, at any time at the option of DC Sub at a redemption amount equal to XXXXXXXXXX of the aggregate FMV of the DC Sub Spin-Off Real Property immediately before the distribution described in Paragraph 25 less the principal amount of the Spin-Off Mortgage at the time such indebtedness is assumed by New Subco as described in Paragraph 25;

(b) each DC Sub Class C Share will be retractable subject to applicable law at any time at the option of the holder at a retraction amount equal to the redemption amount described in (a) above;

(c) the holder of each DC Sub Class C Share will be entitled to a non-cumulative non-preferential XXXXXXXXXX% cash dividend as and when declared by the board of directors from time to time which dividend need not also be declared on any other class of shares of DC Sub;

(d) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of DC Sub if the resulting realizable value of the net assets of DC Sub after payment of the dividends would be less than the aggregate of the redemption amounts of all of the DC Sub Class C Shares then outstanding;

(e) the holder of each DC Sub Class C Share will be entitled upon the liquidation dissolution or winding-up of DC Sub to a payment in priority to all other classes of shares of DC Sub ranking junior to the DC Sub Class C Shares of an amount equal to the redemption amount thereof to the extent of the amount or value of property available under applicable law for payment to shareholders upon dissolution but will be entitled to no more than the amount of that payment; and

(f) the holder of each DC Sub Class C Share will not be entitled to vote at meetings of shareholders of DC Sub.

DC Sub Share Exchange

18. Pursuant to the Articles of Amendment filed to create the new share classes as provided in Paragraph 15, DC will exchange (the "DC Sub Share Exchange") all of its DC Sub Common Shares for an equal number of DC Sub New Common Shares and XXXXXXXXXX DC Sub Class C Shares having an aggregate FMV equal to the aggregate FMV of the DC Sub Common Shares that were issued and outstanding immediately before the DC Sub Share Exchange.

In connection with the DC Sub Share Exchange:

(a) for the purposes of the BCA, the addition to the stated capital (and paid-up capital) of the DC Sub New Common Shares will be $XXXXXXXXXX and the addition to the stated capital (and paid-up capital) of the DC Sub Class C Shares will be $XXXXXXXXXX. For greater certainty, the aggregate of the additions to the stated capital accounts of the DC Sub New Common Shares and the DC Sub Class C Shares will not exceed the paid-up capital of the DC Sub Common Shares immediately prior to the DC Sub Share Exchange; and

(b) the DC Sub Common Shares will be cancelled.

No joint election will be filed under subsection 85(1) in respect of the new shares of DC Sub received by DC on the DC Sub Share Exchange and DC will hold its DC Sub New Common Shares and DC Sub Class C Shares as capital property.

DC Sub Spin-Off

19. A new corporation ("New Subco") will be incorporated pursuant to the provisions of the BCA. New Subco will be a TCC and a CCPC. The authorized share capital of New Subco will consist of an unlimited number of common shares ("New Subco Common Shares") and an unlimited number of special shares ("New Subco Special Shares"). No shares of New Subco will be issued on incorporation.

20. The terms and conditions of the New Subco Special Shares will be as follows:

(a) each New Subco Special Share will be redeemable subject to applicable law at any time at the option of New Subco at a redemption amount equal to the aggregate net FMV of the consideration for which such share was issued (plus any declared but unpaid dividends);

(b) each New Subco Special Share will be retractable subject to applicable law at any time at the option of the holder at a retraction amount equal to the redemption amount described in (a) above;

(c) the holder of each New Subco Special Share will be entitled to a non-cumulative non-preferential dividend not exceeding XXXXXXXXXX% as and when declared by the board of directors from time to time which dividend need not also be declared on any other class of shares of New Subco;

(d) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of New Subco if the resulting realizable value of the net assets of New Subco after payment of the dividends would be less than the aggregate of the redemption amounts of all of the New Subco Special Shares then outstanding;

(e) the holder of each New Subco Special Share will be entitled upon the liquidation, dissolution or winding-up of New Subco to a payment, in priority to all other classes of shares of New Subco ranking junior to the New Subco Special Shares, of an amount equal to the redemption amount thereof to the extent of the amount or value of property available under applicable law for payment to shareholders upon dissolution but will be entitled to no more than the amount of that payment; and

(f) the holder of each New Subco Special Share will not be entitled to vote at meetings of shareholders of New Subco.

21. Immediately following the DC Sub Share Exchange described in Paragraph 18, DC will transfer to New Subco all of its DC Sub Class C Shares and, as consideration therefor, New Subco will issue to DC XXXXXXXXXX New Subco Common Shares having an aggregate FMV equal to the aggregate FMV of the DC Sub Class C Shares that DC transferred to New Subco.

22. In respect of DC's transfer of DC Sub Class C Shares to New Subco described in Paragraph 21, New Subco and DC will jointly elect in prescribed form and within the time limit referred to in subsection 85(6) to have the provisions of subsection 85(1) apply. The agreed amount in respect of the DC Sub Class C Shares so transferred to New Subco will equal the cost amount to DC of its DC Sub Class C Shares at the time of such transfer. For greater certainty, the agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) nor will such agreed amount be less than the amount permitted under paragraph 85(1)(b).

For the purposes of the BCA, the addition to the stated capital of the New Subco Common Shares issued by New Subco to DC as consideration for the DC Sub Class C Shares transferred to New Subco, as described in Paragraph 21, will be equal to the paid-up capital of the DC Sub Class C Shares, being $XXXXXXXXXX.

23. Immediately before the transfer of property described in Paragraph 25, the property of DC Sub will be classified into the following three types of property on a net FMV basis for the purposes of the definition of distribution in subsection 55(1) as follows:

(a) cash or near-cash property, comprising all of the current assets of the DC Sub, including cash, accounts receivable, trade receivables, inventory and prepaid expenses and, including for greater certainty, the Mortgage Receivable;

(b) investment property, comprising all of the assets of the DC Sub other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or from a specified investment business; and

(c) business property, comprising all of the assets of the DC Sub other than cash or near-cash property, any income from which would, for purposes of the Act be income from a business carried on by the DC Sub (other than a specified investment business), including goodwill.

For greater certainty, for the purposes of this distribution:

(d) any tax accounts such as the balance of any non-capital losses of DC Sub, RDTOH or any positive balance of CDA will not be considered property;

(e) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification;

(f) the amount of any deferred income tax will not be considered a liability because such amount does not represent a legal obligation of the DC Sub; and

(g) the Spin-Off Mortgage will be allocated to the DC Sub Spin-Off Property.

23.1 As mentioned in Paragraph 13, DC Sub is considered to have significant influence over each of Debtorco, Numberco and Sisterco. For the purpose of allocating the FMV of the Debtorco Debt, Numberco Debt and Sisterco Debt among each of the three types of property described in Paragraph 23, the amount of the indebtedness receivable from the particular corporation will be multiplied by the proportion that the net FMV of each type of property owned by the particular corporation is of the total net FMV of all the property owned by such corporation. For this purpose, the net FMV of each type of property owned by Debtorco, Numberco and Sisterco, as the case may be, will be determined in the same manner as described in Paragraphs 23 and 24, but ignoring the Debtorco Debt, Numberco Debt and Sisterco Debt owing by such corporation to DC Sub, as the case may be, and on the assumption that the references to DC Sub in Paragraphs 23 and 24 are replaced with Debtorco, Numberco and Sisterco, respectively, as the case may be. It is expected that as a result of such allocations, the FMV of the Numberco Debt, the Debtorco Debt and the Sisterco Debt will be business property of DC Sub immediately prior to the transfers of property described in Paragraph 25.

24. In determining the net FMV of each type of property of DC Sub immediately before the transfer of property described in Paragraph 25, the liabilities of DC Sub, will be allocated to, and be deducted in the calculation of, the net FMV of each type of property of DC Sub in the following manner:

(i) current liabilities of DC Sub will be allocated to the cash or near cash property of DC Sub in the proportion that the FMV of each such property is of the FMV of all cash or near cash property of DC Sub. The allocation of current liabilities as described herein will not exceed the aggregate FMV of the cash or near cash property of DC Sub;

(ii) following the allocation of current liabilities to each cash or near-cash property in (i) above, any remaining net FMV of any accounts receivable, trade receivable, inventories and prepaid expenses of DC Sub will be reclassified as business property and excluded from the cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;

(iii) liabilities, other than current liabilities, of DC Sub that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and

(iv) if any liabilities remain after the allocations described in subparagraphs (i) and (iii) above are made ("excess DC Sub unallocated liabilities"), such excess DC Sub unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of DC Sub based on the relative net FMV of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in subparagraphs (i) and (iii) above.

Based on the types of property determinations as described above DC Sub will only have business property.

25. Immediately following the determination of the net FMV of each of the three types of property of DC Sub, as described in Paragraphs 23, 23.1 and 24, DC Sub will transfer the DC Sub Spin-Off Property to New Subco and, as consideration therefor, New Subco will:

(a) assume the Spin-Off Mortgage;

(b) issue a non-interest bearing demand note (the "Purchased Debt Note") to DC Sub having a FMV and principal amount equal to the aggregate FMV and principal amount of the Debtorco Debt and the Numberco Debt; and

(c) issue a number of New Subco Special Shares having an aggregate FMV and redemption amount equal to the aggregate FMV of the DC Sub Spin-Off Property less the FMV of the non-share consideration paid by New Subco as described in (a) and (b) above.

such that immediately thereafter, the net FMV of each type of property so transferred to New Subco by DC Sub will approximate that proportion of the net FMV of all the property of that type owned by DC Sub determined immediately before the transfer of the DC Sub Spin-Off Property by DC Sub to New Subco that:

(i) the aggregate FMV of the DC Sub Class C Shares owned by New Subco immediately before the transfer

is of

(ii) the aggregate FMV of all of the issued and outstanding shares of DC Sub immediately before the transfer.

For the purpose of this Paragraph, the expression "approximate that proportion" means that the discrepancy from that proportion if any would not exceed 1% determined as a percentage of the net FMV of each type of property which New Subco has received as compared to what New Subco would have received had it received its appropriate pro rata share of the net FMV of that type of property.

26. DC Sub and New Subco will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC Sub Spin-Off Property described in Paragraph 25 that is eligible property and in respect of which New Subco Special Shares have been issued as full or partial consideration therefore. The agreed amount specified in each election will be equal to the cost to DC Sub of the particular transferred property at the time of such transfer. For greater certainty, the agreed amount in each joint election will not be less than:

(a) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and

(b) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of property described in paragraph 85(1)(c.1);

nor will such agreed amount be less than the amount permitted under paragraph 85(1)(b).

For the purposes of the BCA, the amount added to the stated capital of the New Subco Special Shares will equal the amount by which the aggregate cost to New Subco (determined pursuant to subsection 85(1), where relevant) of the DC Sub Spin-Off Property exceeds the aggregate amount of the non-share consideration paid by New Subco for such property as described in Paragraph 25.

27. On the distribution of property described in Paragraph 25, New Subco will receive beneficial ownership of the DC Sub Spin-Off Real Estate, legal title of which has been transferred to Bare Trusteeco, as described in Paragraph 14. Accordingly, coincident with the transfer of the beneficial ownership of the DC Sub Spin-Off Real Estate by DC Sub to New Subco, New Subco will enter into a bare trust agreement with Bare Trusteeco similar to the bare trust agreement described in Paragraph 14, the terms of which will include that Bare Trusteeco will hold legal title (and not beneficial ownership) to DC Sub Spin-Off Real Estate as nominee, agent and bare trustee for the sole benefit and account of New Subco as principal and beneficial owner.

28. Following the transfer of the DC Sub Spin-Off Property by DC Sub to New Subco as described in Paragraph 25:

(a) New Subco will redeem all of the New Subco Special Shares held by DC Sub and New Subco will issue to DC Sub, as payment therefor, a demand non-interest bearing promissory note (the "New Subco Note") having a principal amount and FMV equal to the aggregate redemption amount and FMV of the New Subco Special Shares so redeemed. DC Sub will accept the New Subco Note as full payment for the redemption price of its New Subco Special Shares with the risk of such note being dishonoured. At the end of the day on which the redemption by New Subco of the New Subco Special Shares takes place New Subco will cause its first taxation year to end; and

(b) Immediately following the end of New Subco's first taxation year, DC Sub will redeem all of the DC Sub Class C Shares held by New Subco for an amount equal to their FMV and DC Sub will issue to New Subco, as payment therefor, a demand non-interest bearing promissory note (the "DC Sub Note") having a principal amount and FMV equal to the aggregate FMV of the DC Sub Class C Shares so redeemed. New Subco will accept the DC Sub Note as full payment for the redemption price of the DC Sub Class C Shares with the risk of such note being dishonoured.

The aggregate principal amount and FMV of the Purchased Debt Note and the New Subco Note will be equal to the principal amount and FMV of the DC Sub Note. Each of DC Sub and New Subco will have the financial capacity to honour upon presentation for payment the amount payable under its promissory note(s) issued by it as described above.

29. The principal amount owing to New Subco by DC Sub under the DC Sub Note and the principal amounts owing to DC Sub by New Subco under the New Subco Note and the Purchased Debt Note, will be set off in full against each other and will be marked paid in full and cancelled.

Reorganization of DC's Capital

30. DC will file Articles of Amendment under the BCA to create and authorize the issuance of an unlimited number of DC New Common Shares and XXXXXXXXXX DC Class C Shares.

31. The terms and conditions of the DC New Common Shares will be the same as the terms and conditions of the DC Common Shares except that holders of the DC New Common Shares will be entitled to XXXXXXXXXX votes per share.

32. The DC Class C Shares will have the following terms and conditions:

(a) each DC Class C Share will be redeemable subject to applicable law at any time at the option of DC at a redemption amount equal to XXXXXXXXXX of the aggregate of the FMV of the DC Spin-Off Property;

(b) each DC Class C Share will be retractable subject to applicable law at any time at the option of the holder at a retraction amount equal to the redemption amount described in (a) above;

(c) the holder of each DC Class C Share will be entitled to a non-cumulative non-preferential XXXXXXXXXX% dividend as and when declared by the board of directors from time to time which dividend need not also be declared on any other class of shares of DC;

(d) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of DC if the resulting realizable value of the net assets of DC after payment of the dividends would be less than the aggregate of the redemption amounts of all of the DC Class C Shares then outstanding;

(e) the holder of each DC Class C Share will be entitled upon the liquidation, dissolution or winding-up of DC to a payment, in priority to all other classes of shares of DC ranking junior to the DC Class C Shares, of an amount equal to the redemption amount thereof to the extent of the amount or value of property available under applicable law for payment to shareholders upon dissolution but will be entitled to no more than the amount of that payment; and

(f) the holder of each DC Class C Share will not be entitled to vote at meetings of shareholders of DC.

DC Share Exchange

33. Pursuant to the Articles of Amendment filed to create the new share classes as provided in Paragraph 30, Sibling1 and Sibling2 will each exchange (the "DC Share Exchange") all of their DC Common Shares for XXXXXXXXXX DC New Common Shares and XXXXXXXXXX DC Class C Shares. The aggregate FMV of all of the shares received by each of Sibling1 and Sibling2 will equal the aggregate FMV of such holder's DC Common Shares immediately before the DC Share Exchange.

In connection with the DC Share Exchange:

(a) for the purpose of the BCA, the aggregate of the additions to the stated capital accounts of the DC New Common Shares and the DC Class C Shares will not exceed the paid-up capital of the DC Common Shares immediately prior to the DC Share Exchange. For greater certainty, the addition to the stated capital (and paid-up capital) of the DC New Common Shares will be $XXXXXXXXXX and the addition to the stated capital (and paid-up capital) of the DC Class C Shares will be $XXXXXXXXXX; and

(b) the DC Common Shares will be cancelled.

No joint election under subsection 85(1) will be filed in respect of the DC Share Exchange and each of Sibling1 and Sibling2 will hold their DC New Common Shares and DC Class C Shares as capital property.

DC Spin-Off

34. A new corporation ("New Holdco") will be incorporated pursuant to the provisions of the BCA. New Holdco will be a TCC and a CCPC. The authorized share capital of New Holdco will consist of an unlimited number of special shares (the "New Holdco Special Shares") and an unlimited number of common shares (the "New Holdco Common Shares"). No shares of New Holdco will be issued on incorporation.

35. The New Holdco Special Shares will have the following terms and conditions:

(a) each New Holdco Special Share will be redeemable subject to applicable law at any time at the option of New Holdco at a redemption amount equal to the aggregate net FMV of the consideration for which such share was issued divided by the total number of issued New Holdco Special Shares (plus any declared but unpaid dividends);

(b) each New Holdco Special Share will be retractable subject to applicable law at any time at the option of the holder at a retraction amount equal to the redemption amount described in (a) above;

(c) the holder of each New Holdco Special Share will be entitled to a non-cumulative XXXXXXXXXX% dividend as and when declared by the board of directors from time to time which dividend need not also be declared on any other class of shares of New Holdco;

(d) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of New Holdco if the resulting realizable value of the net assets of New Holdco after payment of the dividends would be less than the aggregate of the redemption amounts of all of the New Holdco Special Shares then outstanding;

(e) the holder of each New Holdco Special Share will be entitled, upon the liquidation dissolution or winding-up of New Holdco, to a payment in priority to all other classes of shares of New Holdco ranking junior to the New Holdco Special Shares, of an amount equal to the redemption amount thereof to the extent of the amount or value of property available under applicable law for payment to shareholders upon dissolution but will be entitled to no more than the amount of that payment; and

(f) the holder of each New Holdco Special Share will not be entitled to vote at meetings of shareholders of New Holdco.

36. Immediately following the DC Share Exchange described in Paragraph 33, each of Sibling1 and Sibling2 will contemporaneously transfer to New Holdco all of their DC Class C Shares and, as consideration therefor, New Holdco will issue to each of Sibling1 and Sibling2, XXXXXXXXXX New Holdco Common Shares having an aggregate FMV equal to the aggregate FMV of the DC Class C Shares that such individual transferred to New Holdco.

37. New Holdco will jointly elect with each of Sibling1 and Sibling2, in prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of DC Class C Shares described in Paragraph 36. The agreed amount in respect of the DC Class C Shares so transferred will be equal to the cost amount to Sibling1 and Sibling2, as the case may be, of such person's DC Class C Shares at the time of the transfer. For greater certainty, the agreed amount will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) nor will such agreed amount be less than the amount permitted under paragraph 85(1)(b).

For the purposes of the BCA, the addition to the stated capital of the New Holdco Common Shares issued by New Holdco as consideration for the DC Class C Shares transferred to it, as described in Paragraph 36, will equal the paid-up capital of the DC Class C Shares, being $XXXXXXXXXX. For greater certainty, such amount will not exceed the amount determined as B for the purposes of paragraph 84.1(1)(a).

38. Immediately before the transfer of property described in Paragraph 41, the property of DC will be determined on a consolidated basis, by including the appropriate pro rata share of the assets of any corporation over which DC has the ability to exercise significant influence (DC and such corporations being referred to in this Paragraph and Paragraph 39 as the "DC Group"), into the following three types of property for the purposes of the definition of distribution in subsection 55(1) as follows:

(a) cash or near cash property, comprising all of the current assets of the DC Group including any cash, accounts receivable, trade receivables, inventory and prepaid expenses and, including for greater certainty, the Mortgage Receivable and the $XXXXXXXXXX loan receivable from DC Sub;

(b) investment property, comprising all of the assets of the DC Group other than cash or near cash property, any income from which would, for purposes of the Act, be income from property or from a specified investment business; and

(c) business property, comprising all of the assets of the DC Group other than cash or near cash property, any income from which would, for the purposes of the Act, be income from a business (other than a specified investment business).

For the purposes of this distribution, DC will be considered to have significant influence over DC Sub, New Subco, Numberco, Debtorco and Sisterco and for greater certainty:

(d) the FMV of the shares of DC Sub, New Subco and Numberco will be allocated among the three types of property described above by multiplying the FMV of the shares of such corporation by the proportion that the net FMV of each type of property owned by the particular corporation (as determined in accordance with this Paragraph and Paragraph 39) is of the total net FMV of all the property owned by the particular corporation.

(e) the classification of the FMV of Numberco Debt, Debtorco Debt, Sisterco Debt owing to DC Sub will be determined as described in Paragraph 23.1;

(f) any tax accounts such as the balance of any non-capital losses of the DC Group or the balance of any RDTOH or CDA of the DC Group will not be considered property;

(g) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification; and

(h) the amount of any deferred income tax will not be considered a liability for the purposes of the proposed transactions described herein because such amount does not represent a legal obligation of the DC Group.

39. In determining, on a consolidated basis, the net FMV of each of the three types of property immediately before the transfers of property described in Paragraph 40, the liabilities of DC and any corporation over which DC has the ability to exercise significant influence will be allocated to, and be deducted in the calculation of the net FMV of, each such type of property of DC or such corporation, as the case may be, in the following manner:

(a) in determining, immediately before the transfer described in Paragraph 40, the net FMV of each type of property of a corporation over which DC has the ability to exercise significant influence, the liabilities of that corporation (other than any amount owing by such corporation to DC) will be allocated to, and be deducted in the calculation of, the net FMV of a type of property of that particular corporation in the following manner:

(i) current liabilities of such corporation will be allocated to the cash or near cash property of such corporation in the proportion that the FMV of each such property is of the FMV of all cash or near cash property owned by that corporation. To the extent that the total current liabilities so allocated exceed the total FMV of all cash or near cash property of that particular corporation, such corporation will be considered to have a negative amount of cash or near cash property;

(ii) following the allocation of current liabilities to cash or near-cash property as described in (a)(i) above, provided that the net FMV of the cash or near cash property of such corporation is positive, any remaining net FMV of any accounts receivable, trade receivables, inventories and prepaid expenses of such corporation will be reclassified as business property of such corporation and excluded from the net FMV of the cash or near-cash property, to the extent that such property will be collected, sold, used or consumed in the ordinary course of business to which such property relates;

(iii) liabilities, other than current liabilities, of such corporation that relate to a particular property, will then be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property. To the extent that the allocation of liabilities to a type of property as described herein exceeds the aggregate FMV of all the particular type of property of such corporation, such corporation will be considered to have a negative amount of that type of property; and

(iv) any liabilities, other than current liabilities, of such corporation which do not relate to a particular type of property will then be allocated to the cash or near cash property, investment property and business property of such corporation based on the relative net FMV of each type of property prior to the allocation of such liabilities but after the allocation of the liabilities described in subparagraphs (a)(i) and (a)(iii) above. However, where a corporation is considered to have a negative amount of a type of property because of (a)(i) or (a)(iii) above, for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property; and

(b) in determining, on a consolidated basis, the net FMV of each type of property of DC immediately before the transfer of property described in Paragraph 40, DC will include the appropriate pro rata share of the net FMV of each type of property of any corporation over which DC has the ability to exercise significant influence and, for greater certainty the appropriate negative amount of such types of property of such corporation, as determined in accordance with subparagraph (a) herein, and any liabilities of DC, will then be allocated to, and be deducted in the calculation of, the net FMV of each type of property of DC in the following manner:

(i) current liabilities of DC will be allocated to the cash or near cash property of DC in the proportion that the FMV of each such property is of the FMV of all cash or near cash property of DC. The allocation of current liabilities as described herein will not exceed the aggregate FMV of the cash or near cash property of DC;

(ii) following the allocation of current liabilities to each cash or near-cash property in (b)(i) above, any remaining net FMV of any accounts receivable, trade receivable, inventories and prepaid expenses of DC will be reclassified as business property and excluded from the cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;

(iii) liabilities, other than current liabilities, of DC that relate to a particular property will then be allocated to the particular property (and effectively to the type of property to which the property belongs) to the extent of its FMV. The liabilities pertaining to a type of property but not to a particular property will then be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described herein; and

(iii) if any liabilities remain after the allocations described in (b)(i) and (b)(iii) above are made ("excess DC unallocated liabilities"), such excess DC unallocated liabilities will then be allocated to the cash or near cash property, investment property and business property, if any, of DC based on the relative net FMV of each type of property prior to the allocation of such remaining liabilities, but after the allocation of the liabilities described in subparagraphs (b)(i) and (b)(iii) above.

Based on the types of property determinations described in Paragraph 38 and this Paragraph, DC will only have business property.

40. Immediately following the determination of the net FMV of DC's three types of property as described in Paragraphs 38 and 39, DC will transfer the DC Spin-Off Property to New Holdco. As consideration therefor, New Holdco will issue to DC a number of New Holdco Special Shares having an aggregate FMV and redemption amount equal to the aggregate FMV of the DC Spin-Off Property so transferred to New Holdco such that immediately thereafter, the net FMV of each type of property so transferred to New Holdco by DC will approximate that proportion of the net FMV of all the property of that type owned by DC determined immediately before the transfer of the DC Spin-Off Property by DC to New Holdco that:

(a) the aggregate FMV of the DC Class C Shares owned by New Holdco immediately before the transfer

is of

(b) the aggregate FMV of all of the issued and outstanding shares of DC immediately before the transfer.

For the purpose of this Paragraph the expression "approximate that proportion" means that the discrepancy from that proportion if any would not exceed 1% determined as a percentage of the net FMV of each type of property which New Holdco has received as compared to what New Holdco would have received had it received its appropriate pro rata share of the net FMV of that type of property.

41. DC and New Holdco will jointly elect, in prescribed form and within the time referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of the DC Spin-Off Property described in Paragraph 40. The agreed amount specified in each election will be equal to the cost amount to DC of the particular transferred property at the time of such transfer. For greater certainty, each agreed amount will not be less than the lesser of the amounts specified in subparagraph 85(1)(c.1)(i) and (ii) nor will such agreed amount be less than the amount permitted under paragraph 85(1)(b).

For the purposes of the BCA, the addition to the stated capital of the New Holdco Special Shares issued by New Holdco to DC as consideration for the DC Spin-Off Property will be equal to the aggregate cost of such property to New Holdco as determined pursuant to subsection 85(1) and having regard to subsection 85(2.1).

42. Immediately after the transfer of the DC Spin-Off Property by DC to New Holdco as described in Paragraph 40:

(a) New Holdco will redeem all of the New Holdco Special Shares held by DC and New Holdco will issue to DC as payment therefor, a demand non-interest bearing promissory note (the "New Holdco Note") having a principal amount and FMV equal to the aggregate redemption amount and FMV of the New Holdco Special Shares so redeemed. DC will accept the New Holdco Note as full satisfaction for the redemption price of its New Holdco Special Shares so redeemed; and

(b) DC will redeem all of the DC Class C Shares held by New Holdco for an amount equal to their aggregate FMV at that time and DC will issue to New Holdco, as payment therefor, a demand non-interest bearing promissory note (the "DC Note") having a principal amount and FMV equal to the aggregate redemption amount and FMV of the DC Class C Shares. New Holdco will accept the DC Note as full satisfaction for the redemption price of its DC Class Special Shares so redeemed.

The principal amount and FMV of the DC Note and New Holdco Note will be equal to each other. The principal amount owing to New Holdco by DC under the DC Note and the principal amount owing to DC by New Holdco under the New Holdco Note will be set off in full against each other and will be marked paid in full and cancelled.

Additional Information

43. The Proposed Transactions will occur in the order presented unless otherwise indicated with the exception of filing the applicable election forms as described in Paragraphs 22, 26, 37 and 41, which will be filed within the applicable due date following the completion of the Proposed Transactions.

44. After the completion of the Proposed Transactions, New Subco as landlord will enter into a commercial lease with DC Sub as tenant to lease the DC Sub Spin-Off Real Estate. DC Sub will continue to use the DC Sub Spin-Off Real Estate in its XXXXXXXXXX business.

45. None of the corporations described herein (including the corporations to be incorporated as described in the Proposed Transactions) is, or will be, a specified financial institution, a restricted financial institution, or a corporation described in any of paragraphs (a) to (f) of the definition of financial intermediary corporation at any time during a series of transactions or events that includes the Proposed Transactions.

46. Except as otherwise described herein, no property has been, or will be, acquired by DC (or its predecessor corporations) or by DC Sub and no liabilities have been, or will be, incurred by DC (or its predecessor corporations) or by DC Sub in contemplation of and the before the transfers of property described in Paragraphs 25 and 40.

47. None of the shares of any corporation described herein (including any shares to be issued as described in the Proposed Transactions) is or will be, at any time during a series of transactions or events that includes the Proposed Transactions:

(i) the subject of any undertaking that is a guarantee agreement;

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

(iii) the subject of a dividend rental arrangement.

Purpose of the Proposed Transactions

48. The purpose of the Proposed Transactions is to creditor protect the real property that is used directly or indirectly by DC Sub in its XXXXXXXXXX business together with the funds advanced by DC Sub to Numberco and Debtorco that were used to fund the acquisition of such real properties. The taxpayers also wish to separate the real property from the business operations for estate planning purposes.

49. The purpose of the transfer by DC Sub of registered legal title to the DC Sub Spin-Off Real Estate to Bare Trusteeco described in Paragraph 14 is to allow the subsequent transfer of the beneficial ownership of such property to New Subco, as described in Paragraph 25, to be exempt from XXXXXXXXXX tax.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are as set forth below.

A. Provide the appropriate joint elections are filed in the prescribed form and manner within the time limits specified in subsection 85(6), the provisions of subsection 85(1) will apply to:

(a) the transfer by DC of its DC Sub Class C Shares to New Subco as described in Paragraph 21;

(b) the transfer by DC Sub of the DC Sub Spin-Off Property to New Subco as described in Paragraph 25;

(c) the respective transfers by each of Sibling1 and Sibling2 of the DC Class C Shares to New Holdco as described in Paragraph 36; and

(d) the transfer by DC of the DC Spin-Off Property to New Holdco as described in Paragraph 40.

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. The transfer by DC Sub of its legal title to the DC Sub Spin-Off Real Estate to Bare Trusteeco described in Paragraph 14 will not constitute a disposition for the purposes of the Act provided Bare Trusteeco can reasonably be considered to act as agent for DC Sub and ultimately New Subco, as described in Paragraph 27, with respect to all dealings with DC Sub Spin-Off Real Estate.

C. Subsection 84(3) will apply on the redemption of:

(a) the New Subco Special Shares held by DC Sub described in Paragraph 28(a), to deem New Subco to have paid and DC Sub to have received;

(b) the DC Sub Class C Shares held by New Subco described in Paragraph 28(b), to deem DC Sub to have paid and New Subco to have received;

(c) the New Holdco Class C Shares held by DC described in Paragraph 42(a) to, deem New Holdco to have paid and DC to have received; and

(d) the DC Class C Shares held by New Holdco described in Paragraph 42(b) to, deem DC to have paid and New Holdco to have received;

a dividend on such shares equal to the amount if any by which the aggregate amount paid upon such redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption and any such dividend:

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

(f) will be deductible by each recipient of such dividend in computing its respective taxable income pursuant to subsection 112(1) and, for greater certainty, the provisions of subsections 112 (2.1) (2.2) (2.3) or (2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividend;

(g) will be excluded from the proceeds of disposition of the shares by virtue of paragraph (j) of the definition of "proceeds of disposition" in section 54;

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

(i) will not be subject to tax under Part IV.1 and Part VI.1.

D. Each corporation that is deemed to have received a dividend described in Ruling C will be subject to tax under subsection 186(1) only to the extent that the particular corporation that is deemed to have paid such dividend is entitled to a dividend refund in respect of its taxation year in which it is deemed to pay that dividend and then only to the extent of the amount calculated in paragraph 186(1)(b).

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

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

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

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

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

(e) an acquisition of property in the circumstances described in subparagraph 55(3.1)(c) or (d);

which has not been described herein, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling C and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

F. The set-off and cancellation of the DC Sub Note held by New Subco and the New Subco Note and Purchased Debt Note held by DC Sub described in Paragraph 29 will not give rise to a forgiven amount.

G. The provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, in respect of the DC Sub Share Exchange described in Paragraph 18.

H. The provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, in respect of the DC Share Exchange described in Paragraph 33.

I. The set-off and cancellation of the DC Note held by New Holdco and the New Holdco Note held by DC described in Paragraph 42 will not give rise to a forgiven amount.

J. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not apply to any of the Proposed Transactions, in and by themselves.

K. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and are binding on CRA provided that the Proposed Transactions are completed by XXXXXXXXXX. The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

OTHER COMMENTS

Unless otherwise confirmed in the above rulings, 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 paid-up capital of any share or the adjusted cost base or fair market value of any property referred to herein;

(b) any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the 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, including whether any of the Proposed Transactions would also be included in a series of transactions or events that include other transactions or events that are not described in this letter.

Yours truly,

XXXXXXXXXX
Manager
Corporate Reorganizations Section II
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch