2007 Ruling 2007-0233881R3 - XXXXXXXXXX Corporate Reorganization

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: Payment of several dividends in a series - application of subsection 55(2).

Position: Subsection 55(2) should not apply if each dividend is protected by safe income.

Reasons: See above.

XXXXXXXXXX 2007-023388

XXXXXXXXXX , 2007

Re: XXXXXXXXXX
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 described in this letter. 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) "agreed amount" in respect of a property means the amount that the transferor and transferee of the property have agreed upon in an election under subsection 85(1);

(c) "AL" means XXXXXXXXXX;

(d) "AR" means XXXXXXXXXX;

(e) "arm's length" has the meaning assigned by section 251;

(f) "BA" means XXXXXXXXXX;

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

(h) "BL" means XXXXXXXXXX;

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

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

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

(l) "DC" means XXXXXXXXXX;

(m) "DE" means XXXXXXXXXX;

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

(o) "DP" means XXXXXXXXXX;

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

(q) "EN" means XXXXXXXXXX;

(r) "fair market value" means the highest price available in an open and unrestricted market between informed and prudent parties dealing at arm's length;

(s) "F" means XXXXXXXXXX;

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

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

(v) "J" means XXXXXXXXXX;

(w) "LA" means XXXXXXXXXX;

(x) "MU" means XXXXXXXXXX;

(y) "OL" means XXXXXXXXXX;

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

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

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

(cc) "Proposed Transactions" means the transactions described in Paragraphs 26 to 56;

(dd) "related person" has the meaning assigned by section 251;

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

(ff) "S" means XXXXXXXXXX;

(gg) "safe-income determination time" has the meaning assigned by subsection 55(1);

(hh) "safe income on hand" in respect of a particular share of a corporation at a particular time means the portion of the unrealized gain inherent in such share of the corporation at that time that cannot reasonably be considered to be attributable to anything other than income earned or realized (as determined pursuant to subsection 55(5)), to the extent that it is on hand, by any corporation after 1971 and before the safe-income determination time for the transaction, event or series of transactions or events that includes the Proposed Transactions;

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

(jj) "Sibling 1" means XXXXXXXXXX;

(kk) "Sibling 1 Co" means XXXXXXXXXX;

(ll) "Sibling 2" means XXXXXXXXXX;

(mm) "Sibling 2 Co" means XXXXXXXXXX;

(nn) "Sibling 3" means XXXXXXXXXX;

(oo) "Sibling 3 Co" means XXXXXXXXXX;

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

(qq) "stated capital" has the meaning assigned by section XXXXXXXXXX of the BCA;

(rr) "taxable dividend" has the meaning assigned by subsection 89(1);

(ss) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(tt) "TCN" means XXXXXXXXXX;

(uu) "TCO" means XXXXXXXXXX;

(vv) "TG" means XXXXXXXXXX;

(ww) "TG II" means XXXXXXXXXX;

(xx) "TH" means XXXXXXXXXX;

(yy) "TPH" XXXXXXXXXX; and

(zz) "TPU" XXXXXXXXXX.

The facts, proposed transactions and purposes of the Proposed Transactions are as set forth below.

FACTS

1. Each of Sibling 1, Sibling 2 and Sibling 3 is an individual resident in Canada. Sibling 1, Sibling 2 and Sibling 3 (collectively referred to as the "Siblings" and any one in the singular as a "Sibling") are brothers. The Siblings, directly or indirectly, own interests in numerous corporations as more fully described below, and which are collectively referred to as the "Corporate Group". More specifically, the corporations included in the Corporate Group are AL, AR, BA, BL, DE, DP, DC, EN, LA, MU, OL, TCN, TCO, TG, TG II, TH, TPH, TPU, Sibling 1 Co, Sibling 2 Co and Sibling 3 Co. With the exception of DP, DC, AL and LA all of the corporations included in the Corporate Group are controlled (directly or indirectly) by one or more of the Siblings and are related persons in respect of each other. The shares of each corporation included in the Corporate Group are held as capital property.

2. J is an individual resident in Canada and is the father of Sibling 1, Sibling 2 and Sibling 3. J does not currently own shares of any corporation included in the Corporate Group.

3. S is an individual resident in Canada. S is not related to Sibling 1, Sibling 2, Sibling 3 and J and deals at arm's length with such persons. S owns a minority interest (i.e. XXXXXXXXXX% of the common shares) in TPH and TPU, as described in Paragraphs 24 and 25.

4. F is an individual resident in Canada. F is not related to Sibling 1, Sibling 2, Sibling 3 and J and deals at arm's length with such persons. F owns a minority interest (XXXXXXXXXX%) in TPH and TPU, as described in Paragraphs 24 and 25, respectively.

5. AL is a corporation incorporated under the BCA. AL is a Canadian-controlled private corporation and a taxable Canadian corporation. AL has a taxation year ending on XXXXXXXXXX. AL files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. AL performs contract work for related persons. AL has XXXXXXXXXX common shares issued and outstanding. DE and XXXXXXXXXX. each own XXXXXXXXXX common shares of AL. XXXXXXXXXX. is a taxable Canadian corporation. XXXXXXXXXX. is not related to any corporation in the Corporate Group and deals at arm's length with each of Sibling 1, Sibling 2, Sibling 3 and J.

6. AR is a corporation incorporated under the BCA. AR is a Canadian-controlled private corporation and a taxable Canadian corporation. AR has a taxation year ending on XXXXXXXXXX. AR files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. AR earns management fees. AR has XXXXXXXXXX common shares issued and outstanding, all of which are owned by DE.

7. BA is a corporation incorporated under the BCA. BA is a Canadian-controlled private corporation and a taxable Canadian corporation. BA has a taxation year ending XXXXXXXXXX. BA files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. BA is engaged in XXXXXXXXXX. BA has XXXXXXXXXX common shares issued and outstanding, all of which are owned by DE.

8. BL is a corporation incorporated under the BCA. BL is a Canadian-controlled private corporation and a taxable Canadian corporation. BL has a taxation year ending on XXXXXXXXXX. BL files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. BL is winding down its XXXXXXXXXX business. BL has XXXXXXXXXX common shares issued and outstanding. Sibling 1 and Sibling 3 each own XXXXXXXXXX common shares of BL while Sibling 2 owns XXXXXXXXXX of a common share of BL.

9. Sibling 1 Co is a corporation incorporated under the BCA. Sibling1 Co is a Canadian-controlled private corporation and a taxable Canadian corporation. Sibling 1 Co has a taxation year ending on XXXXXXXXXX . Sibling 1 Co files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. Sibling 1 Co is Sibling 1's holding company. Sibling 1 Co has XXXXXXXXXX common shares issued and outstanding, all of which are owned by Sibling 1.

10. DE is a corporation incorporated under the BCA. DE is a Canadian-controlled private corporation incorporated and a taxable Canadian corporation. DE has a taxation year ending XXXXXXXXXX. DE files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. DE is a holding corporation for Sibling 1, Sibling 2 and Sibling 3. DE has XXXXXXXXXX common shares issued and outstanding. Each of Sibling 1, Sibling 2 and Sibling 3 own XXXXXXXXXX common share of DE. DE's property includes common shares of TPH, LA, MU, AR, AL, BA, DP and TPU as described elsewhere in this letter.

11. DP is a corporation incorporated under the BCA. DP is a Canadian-controlled private corporation and a taxable Canadian corporation. DP has a taxation year ending on XXXXXXXXXX. DP files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. DP is the direct parent corporation of DC. The issued and outstanding shares of DP consist of XXXXXXXXXX class B shares (which are non-cumulative, non-voting and redeemable for $XXXXXXXXXX per share), XXXXXXXXXX class C shares (which are non-cumulative, non-voting and redeemable for $XXXXXXXXXX per share) and XXXXXXXXXX common shares. TH owns XXXXXXXXXX class B shares and XXXXXXXXXX class C shares of DP. DE owns XXXXXXXXXX common shares of DP. Several individuals who deal at arm's length with each of Sibling 1, Sibling 2, Sibling 3 and J and who reside in Canada own the majority (i.e. XXXXXXXXXX%) of each class of shares of DP.

12. DC is a corporation incorporated under the BCA. DC is a Canadian-controlled private corporation and a taxable Canadian corporation. DC has a taxation year ending on XXXXXXXXXX. DC files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. DC is a XXXXXXXXXX company. DC has XXXXXXXXXX common shares issued and outstanding, all of which are owned by DP.

13. EN is a corporation incorporated under the BCA. EN is a Canadian-controlled private corporation and a taxable Canadian corporation. EN has a taxation year ending on XXXXXXXXXX. EN files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX. EN has XXXXXXXXXX common shares issued and outstanding. TPH owns XXXXXXXXXX common shares of EN, while the remaining 1XXXXXXXXXX common shares are owned by XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX is not related to any corporation in the Corporate Group and deals at arm's length with each of Sibling 1, Sibling 2, Sibling 3 and J.

14. LA is a corporation incorporated under the BCA. LA is a Canadian-controlled private corporation and a taxable Canadian corporation. LA has a taxation year ending on XXXXXXXXXX. LA files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX LA has XXXXXXXXXX common shares issued and outstanding. DE owns XXXXXXXXXX common shares of LA. XXXXXXXXXX owns XXXXXXXXXX of the remaining XXXXXXXXXX common shares of LA and XXXXXXXXXX. owns the other XXXXXXXXXX common shares of LA. Each of XXXXXXXXXX is a taxable Canadian corporation. Neither XXXXXXXXXX is related to any corporation in the Corporate Group and each deals at arm's length with each of Sibling 1, Sibling 2, Sibling 3 and J.

15. Sibling 2 Co is a corporation incorporated under the BCA. Sibling 2 Co is a Canadian-controlled private corporation and a taxable Canadian corporation. Sibling 2 Co has a taxation year ending on XXXXXXXXXX. Sibling 2 Co files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX administers its federal tax affairs. Sibling 2 Co is Sibling 2's holding company. Sibling 2 Co has XXXXXXXXXX common shares issued and outstanding, all of which are owned by Sibling 2.

16. MU is a corporation incorporated under the BCA. MU is a Canadian-controlled private corporation and a taxable Canadian corporation. MU has a taxation year ending on XXXXXXXXXX. MU files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX. MU has XXXXXXXXXX XXXXXXXXXX common shares issued and outstanding. DE owns XXXXXXXXXX common shares of MU and XXXXXXXXXX. owns XXXXXXXXXX common shares of MU. XXXXXXXXXX XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX. is not related to any corporation in the Corporate Group and deals at arm's length with each of Sibling 1, Sibling 2, Sibling 3 and J.

17. OL is a corporation incorporated under the BCA. OL is a Canadian-controlled private corporation and a taxable Canadian corporation. OL has a taxation year ending on XXXXXXXXXX. OL files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX. OL has XXXXXXXXXX common shares issued and outstanding. Each of Sibling 1, Sibling 2 and Sibling 3 own XXXXXXXXXX common shares of OL.

18. Sibling 3 Co is a corporation incorporated under the BCA. Sibling 3 Co is a Canadian-controlled private corporation and a taxable Canadian corporation. Sibling 3 Co has a taxation year ending on XXXXXXXXXX. Sibling 3 Co files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. Sibling 3 Co is Sibling 3's holding company. Sibling 3 Co has XXXXXXXXXX common shares issued and outstanding, all of which are owned by Sibling 3.

19. TCN is a corporation incorporated under the BCA. TCN is a Canadian-controlled private corporation and a taxable Canadian corporation. TCN has a taxation year ending on XXXXXXXXXX. TCN files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX TCN has XXXXXXXXXX common shares issued and outstanding, all of which are owned by TG.

20. TCO is a corporation incorporated under the BCA. TCO is a Canadian-controlled private corporation and a taxable Canadian corporation. TCO has a taxation year ending on XXXXXXXXXX. TCO files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. TCO is inactive. TCO has XXXXXXXXXX common shares issued and outstanding, all of which are owned by TH.

21. TG is a corporation incorporated under the BCA. TG is a Canadian-controlled private corporation and a taxable Canadian corporation. TG has a taxation year ending on XXXXXXXXXX. TG files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. TG is a holding company that owns shares in TH and TCN. TG has XXXXXXXXXX class A shares, XXXXXXXXXX class B shares and XXXXXXXXXX common shares issued and outstanding. Each of Sibling 1 Co and Sibling 3 Co own XXXXXXXXXX common shares, XXXXXXXXXX class A shares and XXXXXXXXXX class B shares of TG. Sibling 2 Co owns XXXXXXXXXX common shares, XXXXXXXXXX class A shares and XXXXXXXXXX class B shares of TG.

22. TG II is a corporation incorporated under the BCA. TG II is a Canadian-controlled private corporation and a taxable Canadian corporation. TG II has a taxation year ending on XXXXXXXXXX. TG II files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. TG II does not currently own shares in any corporation. After the completion of the Proposed Transactions, TG II will be a holding company that will own shares in TPH, DP, LP, AR and AL. TG II has XXXXXXXXXX common shares issued and outstanding. Sibling 1 Co, Sibling 2 Co and Sibling 3 Co each own XXXXXXXXXX common shares of TG II.

23. TH is a corporation incorporated under the BCA. TH is a Canadian-controlled private corporation and a taxable Canadian corporation. TH has a taxation year ending on XXXXXXXXXX. TH files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. TH is a holding company that owns shares in TCO, DP and TPU. TH has XXXXXXXXXX common shares issued and outstanding, all of which are owned by TG.

24. TPH is a corporation incorporated under the BCA. TPH is a Canadian-controlled private corporation and a taxable Canadian corporation. TPH has a taxation year ending on XXXXXXXXXX. TPH files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. TPH is a holding company that owns shares in EN. TPH has XXXXXXXXXX common shares issued and outstanding. DE owns XXXXXXXXXX common shares of TPH. S and F each own XXXXXXXXXX common shares of TPH.

25. TPU is a corporation incorporated under the BCA. TPU is a Canadian-controlled private corporation and a taxable Canadian corporation. TPU has a taxation year ending on XXXXXXXXXX. TPU files its federal returns at the XXXXXXXXXX TC and the XXXXXXXXXX TSO administers its federal tax affairs. XXXXXXXXXX. The issued and outstanding shares of TPU consist of XXXXXXXXXX class B shares (having a redemption value of $XXXXXXXXXX per share or $XXXXXXXXXX in the aggregate) and XXXXXXXXXX common shares. TH owns XXXXXXXXXX class B shares of TPU and DE owns XXXXXXXXXX common shares of TPU. S and F each own XXXXXXXXXX class B shares and XXXXXXXXXX common shares of TPU. Each of S's and F's XXXXXXXXXX common shares of TPU have, and will have, at the time TPU pays the dividends to S Co and F Co as described in Paragraph 35, a fair market value representing more than 10% of the fair market value of all the issued and outstanding shares of TPU.

PROPOSED TRANSACTIONS

26. Each of Sibling 1 Co, Sibling 2 Co, Sibling 3 Co (collectively referred to as the "Sibling Cos" and any one in the singular as a "Sibling Co"), DE, TG, TH and TPH will, pursuant to articles of amendment under the BCA, create and authorize an unlimited number of a new class of special shares ("Special A Shares"). The Special A Shares will be non-voting, and will be redeemable and retractable for $XXXXXXXXXX each, having a non-cumulative dividend entitlement of XXXXXXXXXX% per annum calculated on the redemption amount.

The articles of amendment for each of the Sibling Cos will also set out that if any one of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co, as the case may be, at any time, acquires any of its Special A Shares by way of a purchase, redemption or cancellation, such corporation will pay the lesser of the aggregate redemption price of the shares to be purchased, redeemed or cancelled at that time and the net realizable value of the assets less liabilities of the corporation immediately before such acquisition divided by the number of shares issued. The terms of these Special A Shares will also state that no dividends will be paid on other classes of shares so as to reduce the value of the Special A Shares below the redemption amount thereof. The Special A Shares shall have a provision that any preference, right, condition or limitation attaching to them can be amended only on a XXXXXXXXXX majority vote of the holders thereof and on a XXXXXXXXXX majority vote of the holders of the other classes of shares, each voting separately.

Each of the Sibling Cos will also, pursuant to articles of amendment under the BCA, create and authorize an unlimited number of a new class of special shares ("Special B Shares). The Special B Shares will have one vote per share, and will be redeemable and retractable for $XXXXXXXXXX each, with a non-cumulative dividend entitlement of XXXXXXXXXX% per annum calculated on the redemption amount.

27. Sibling 1 Co, Sibling 2 Co and Sibling 3 Co will incorporate Newco Financial under the BCA and will each subscribe for one common share of Newco Financial for $XXXXXXXXXX on incorporation. The directors of Newco Financial will be Sibling 1, Sibling 2 and Sibling 3. The directors will unanimously determine the name of Newco Financial and its officers. The purpose for incorporating Newco Financial is to have it serve as the banker for the Corporate Group.

28. TG II will, pursuant to articles of amendment under the BCA, create and authorize an unlimited number of a new class of special shares ("Special C Shares"). The Special C Shares will have one vote per share, and will be redeemable and retractable for $XXXXXXXXXX each, with a non-cumulative dividend entitlement of XXXXXXXXXX% per annum calculated on the redemption amount.

29. On a contemporaneous basis with the share transfers described in Paragraphs 30 and 31, Sibling 3 will transfer to Sibling 3 Co his XXXXXXXXXX common shares of BL (having an approximate fair market value of $XXXXXXXXXX), 1 common share of DE (having an approximate fair market value of $XXXXXXXXXX) and XXXXXXXXXX common shares of OL (having an approximate fair market value of $XXXXXXXXXX). As consideration therefor, Sibling 3 Co will issue XXXXXXXXXX of its Special A Shares to Sibling 3 having an aggregate redemption amount and fair market value equal to the aggregate fair market value of all the shares transferred to Sibling Co 3.

The addition to the stated capital under the BCA of the Special A Shares issued by Sibling 3 Co as consideration for the shares transferred to it, as described above, will not exceed the aggregate paid-up capital of such transferred shares.

30. On a contemporaneous basis with the share transfers described in Paragraphs 29 and 31, Sibling 1 will transfer to Sibling 1 Co his XXXXXXXXXX common shares of BL (having an approximate fair market value of $XXXXXXXXXX), 1 common share of DE (having an approximate fair market value of $XXXXXXXXXX) and XXXXXXXXXX common shares of OL (having an approximate fair market value of $XXXXXXXXXX). As consideration therefor, Sibling 1 Co will issue XXXXXXXXXX of its Special A Shares to Sibling 1 having an aggregate redemption amount and fair market value equal to the aggregate fair market value of all the shares transferred to Sibling Co 1.

The addition to the stated capital under the BCA of the Special A Shares issued by Sibling 1 Co as consideration for the shares transferred to it, as described above, will not exceed the aggregate paid-up capital of such transferred shares.

31. On a contemporaneous basis with the share transfers described in Paragraphs 29 and 30, Sibling 2 will transfer to Sibling 2 Co his XXXXXXXXXX common share of BL (having an approximate fair market value of $XXXXXXXXXX), 1 common share of DE (having an approximate fair market value of $XXXXXXXXXX) and XXXXXXXXXX common shares of OL (having an approximate fair market value of $XXXXXXXXXX). As consideration therefor, Sibling 2 Co will issue XXXXXXXXXX of its Special A Shares to Sibling 2 having an aggregate redemption amount and fair market value equal to the aggregate fair market value of the shares transferred to Sibling Co 2.

The addition to the stated capital under the BCA of the Special A Shares issued by Sibling 2 Co as consideration for the shares transferred to it, as described above, will not exceed the aggregate paid-up capital of such transferred shares.

32. S will transfer his XXXXXXXXXX common shares of TPH and XXXXXXXXXX common shares of TPU to a new taxable Canadian corporation ("S Co") that will have been incorporated by him under the BCA. As consideration therefor, S Co will issue a number of its common shares to S having an aggregate fair market value equal to the aggregate fair market value of all the shares so transferred to S Co.

The addition to the stated capital under the BCA of the Special A Shares issued by S Co as consideration for the shares transferred to it, as described above, will not exceed the aggregate paid-up capital of such transferred shares.

33. F will transfer his XXXXXXXXXX common shares of TPH and XXXXXXXXXX common shares of TPU to a new taxable Canadian corporation ("F Co") that will have been incorporated by him under the BCA. As consideration therefor, F Co will issue a number of its common shares to F having an aggregate fair market value equal to the aggregate fair market value of all the shares so transferred to F Co.

The addition to the stated capital under the BCA of the Special A Shares issued by F Co as consideration for the shares transferred to it, as described above, will not exceed the aggregate paid-up capital of such transferred shares.

34. In respect of each of the share transfers described in Paragraphs 29 to 33, each respective transferor and transferee, as the case may be, 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 to such transfer. The agreed amount in respect of each particular share that is transferred and that is an eligible property of the particular transferor will be equal to the cost amount of such property to such transferor immediately before such transfer, which, for greater certainty, in each case, will be equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

35. Each of the following corporations will pay taxable dividends on its common shares and the following corporations will receive such dividends:

Dividend Payer Dividend Recipient

DC DP
EN TPH and XXXXXXXXXX
TPU DE, S Co and F Co
TPH DE, S Co and F Co
AL DE and XXXXXXXXXX

In each case, the amount of the taxable dividend paid by the particular dividend payer will not exceed the amount of safe income on hand of the particular dividend payer that is attributable to the particular dividend recipient's shares of the dividend payer at the safe-income determination time. In addition, before TPU pays dividends on its common shares, TPU will be required to pay a non-cumulative taxable dividend on its class B shares held by TH, S and F. The taxable dividend that TPU will pay on these class B shares will not exceed the amount of its safe income on hand that is attributable to the particular dividend recipient's class B shares at the safe-income determination time. If a dividend payer requires funds to pay such dividends, a loan will be made to the particular dividend payer and such loans will be properly documented.

36. DE will transfer to TG II its XXXXXXXXXX common shares of DP; XXXXXXXXXX common shares of TPH; XXXXXXXXXX common shares of LA; XXXXXXXXXX common shares of AL; XXXXXXXXXX common shares of TPU; and XXXXXXXXXX common shares of AR. As consideration therefor, TG II will issue a number of its Special C Shares to DE having an aggregate redemption amount and fair market value equal to the aggregate fair market value of all the shares transferred to it by DE.

The addition to the stated capital under the BCA of the Special C Shares issued by TG II as consideration for the shares transferred to it by DE, as described above, will not exceed the aggregate paid-up capital of all such transferred shares and, for greater certainty, such amount will not exceed the maximum amount that could be added to the PUC of such Special C Shares, having regard to subsection 85(2.1).

37. TG II will transfer to TPH its XXXXXXXXXX common shares of TPU and, as consideration therefor, TPH will issue a number of its Special A Shares to TG II having an aggregate redemption amount and fair market value equal to the aggregate fair market value of such transferred shares.

The addition to the stated capital under the BCA of the Special C Shares issued by TPH as consideration for the shares transferred to it by TG II, as described above, will not exceed the aggregate paid-up capital of such transferred shares and, for greater certainty, such amount will not exceed the maximum amount that could be added to the PUC of such Special C Shares, having regard to subsection 85(2.1).

38. S Co will transfer to TPH its XXXXXXXXXX common shares of TPU and, as consideration therefor, TPH will issue a number of its Special A Shares to S Co having an aggregate redemption amount and fair market value equal to the aggregate fair market value of the shares transferred to it by S Co.

The addition to the stated capital under the BCA of the Special A Shares issued by TPH as consideration for the shares transferred to it by S Co, as described above, will not exceed the aggregate paid-up capital of such transferred shares and, for greater certainty, such amount will not exceed the maximum amount that could be added to the PUC of such Special A Shares, having regard to subsection 85(2.1).

39. F Co will transfer to TPH its XXXXXXXXXX common shares of TPU and, as consideration therefor, TPH will issue a number of its Special A Shares to F Co having an aggregate redemption amount and fair market value equal to the aggregate fair market value of the shares transferred to it by F Co.

The addition to the stated capital under the BCA of the Special A Shares issued by TPH as consideration for the shares transferred to it by F Co, as described above, will not exceed the aggregate paid-up capital of such transferred shares and, for greater certainty, such amount will not exceed the maximum amount that could be added to the PUC of such Special A Shares, having regard to subsection 85(2.1).

40. In respect of the share transfers described in Paragraphs 36 to 39, each respective transferor and transferee, as the case may be, 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 to such transfer. The agreed amount in respect of each particular share that is transferred and that is an eligible property of the particular transferor will be equal to the cost amount of such property to such transferor immediately before such transfer, which, for greater certainty, in each case, will be equal to the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii).

41. DE, S Co and F Co will lend to TPH an amount equal to the amount of the dividend proceeds that each corporation received from TPU and TPH, as the case may be, as described in Paragraph 35 (expected to be, in the aggregate, approximately $XXXXXXXXXX). As evidence of such indebtedness, TPH will issue to each of DE, S Co and F Co a demand promissory note having a principal amount equal to the amount of the dividend proceeds loaned by such corporation to TPH and each such promissory note will be secured by a general security agreement.

42. TPH will lend to TPU an amount equal to the amount of the dividend proceeds that DE, S Co and F Co received from TPU, as described in Paragraph 35, and loaned to TPH as described in Paragraph 41 (expected to be approximately $XXXXXXXXXX). As evidence of such indebtedness, TPU will issue a demand promissory note having a principal amount equal to the amount of the dividend proceeds loaned by TPH and such promissory note will be secured by a general security agreement.

43. DE will pay a taxable dividend on its common shares to each of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co in proportion to their shareholdings in DE. The amount of these taxable dividends will not exceed the amount of safe income on hand that is attributable to the common shares of DE held by the particular dividend recipient at the safe-income determination time.

44. Each of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co will subscribe for common shares in Newco Financial for an amount equal to the amount received from DE as a taxable dividend as described in Paragraph 43. One common share will be issued for each dollar so received by Newco Financial.

45. Newco Financial will lend to TG II an amount equal to the proceeds of issue of common shares as described in Paragraph 44. As evidence of such indebtedness TG II will issue a demand promissory note having a principal amount equal to the amount of the dividend proceeds loaned by Newco Financial and such note will be secured by a general security agreement.

46. Sibling 1 Co will issue to Sibling 1, XXXXXXXXXX Special B Shares for $XXXXXXXXXX in total. Similarly, Sibling 2 Co will issue to Sibling 2, XXXXXXXXXX Special B Shares for $XXXXXXXXXX in total and Sibling 3 Co will issue to Sibling 3, XXXXXXXXXX Special B Shares for $XXXXXXXXXX in total.

In addition, pursuant to the articles of amendment filed to create the new share classes as provided in Paragraph 26, Sibling 1 will exchange his XXXXXXXXXX common shares of Sibling 1 Co for XXXXXXXXXX Special A Shares of Sibling 1 Co having an aggregate fair market value equal to the XXXXXXXXXX common shares of Sibling 1 Co so exchanged. Similarly, Sibling 2 Co will exchange his XXXXXXXXXX common shares of Sibling 2 Co for XXXXXXXXXX Special A Shares of Sibling 2 Co having an aggregate fair market value equal to the XXXXXXXXXX common shares of Sibling 2 Co so exchanged and Sibling 3 will exchange his XXXXXXXXXX common shares of Sibling 3 Co for XXXXXXXXXX Special A Shares of Sibling 3 Co having an aggregate fair market value equal to the XXXXXXXXXX common shares of Sibling 3 Co so exchanged. No joint election will be filed under subsection 85(1) in respect of these share exchanges.

The addition to the stated capital under the BCA of the XXXXXXXXXX Special A Shares issued by Sibling 1 Co on the share exchange described above, will not exceed the aggregate paid-up capital of the XXXXXXXXXX common shares of Sibling 1 Co so exchanged. Similarly, the addition to the stated capital under the BCA of the XXXXXXXXXX Special A Shares issued by Sibling 2 Co on the share exchange described above, will not exceed the aggregate paid-up capital of the XXXXXXXXXX common shares of Sibling 2 Co so exchanged and the addition to the stated capital under the BCA of the XXXXXXXXXX Special A Shares issued by Sibling 3 Co on the share exchange described above, will not exceed the aggregate paid-up capital of the 60 common shares of Sibling 3 Co so exchanged.

47. J will subscribe for XXXXXXXXXX common shares in each of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co for $XXXXXXXXXX.

48. J will settle three irrevocable trusts, one for the benefit of Sibling 1's issue ("Sibling 1 Trust"), one for the benefit of Sibling 2's issue ("Sibling 2 Trust") and one for the benefit of Sibling 3's issue ("Sibling 3 Trust"). J will transfer his common shares of Sibling 1 Co to Sibling 1 Trust, his common shares of Sibling 2 Co to Sibling 2 Trust and his common shares of Sibling 3 Co to Sibling 3 Trust. The trustees of each trust will be Sibling 1, Sibling 2 and Sibling 3, respectively, and XXXXXXXXXX other persons. No income of any of these trusts will be distributable to any beneficiary unless and until such beneficiary attains the age of XXXXXXXXXX years. Otherwise the division of the trust assets and the distribution or accumulation of income by the trustees to the beneficiaries will be at the discretion of the trustees. Decisions will be made by a majority of the trustees.

49. TCN will pay a taxable dividend to TG on its common shares in an amount not exceeding its safe income on hand and that is attributable to TG's common shares of TCN at the safe-income determination time.

50. TG will pay to Sibling 1 Co, Sibling 2 Co and Sibling 3 Co, in proportion to their shareholdings in TG, a taxable dividend on its class A shares, Class B shares and common shares in an amount not exceeding its safe income on hand and that is attributable to the particular dividend recipient's TG shares of that class at the safe-income determination time.

51. Each of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co will subscribe for common shares of Newco Financial for an amount equal to its proportionate share of the dividends paid by TG as described in Paragraph 50. One common share will be issued for each dollar so received by Newco Financial.

52. Newco Financial will lend to TG an amount equal to the amount by which the taxable dividends described in Paragraph 50 exceed the amount of the taxable dividend described in Paragraph 49. Newco Financial will lend to TCN an amount equal to the amount of the taxable dividend as described in Paragraph 49. Each such loan will be evidenced by a demand promissory note issued by TG and TCN, as the case may be, each having a principal amount equal to the amount of the dividend proceeds loaned to such corporation by Newco Financial and each such note will be secured by a general security agreement.

53. BA will pay a taxable dividend to DE on its common shares in an amount not exceeding its safe income on hand that is attributable to DE's common shares of BA at the safe-income determination time.

54. DE will pay to Sibling 1 Co, Sibling 2 Co and Sibling 3 Co, in proportion to their shareholdings in DE, a taxable dividend on its common shares in an amount equal to the taxable dividend described in Paragraph 53. For greater certainty, the amount of the taxable dividends paid by DE will not exceed its safe income on hand and that is attributable to such dividend recipient's common shares of DE at the safe-income determination time. In addition, DE's safe income on hand will have been reduced by the amount of the taxable dividend paid by it as described in Paragraph 43.

55. Each of Sibling 1 Co, Sibling 2 Co and Sibling 3 Co will subscribe for common shares of Newco Financial for an amount equal to its proportionate share of the taxable dividend as described in Paragraph 54. One common share will be issued for each dollar so received by Newco Financial.

56. Newco Financial will lend to BA an amount equal to the proceeds of issue of its common shares as described in Paragraph 55. As evidence of such indebtedness BA will issue a demand promissory note having a principal amount equal to the amount of the share issue proceeds loaned by Newco Financial and such note will be secured by a general security agreement.

ADDITIONAL INFORMATION

57. The Proposed Transactions will occur in the order presented unless otherwise indicated, with the exception of any applicable election forms referred to in Paragraphs 34 and 40, which will be filed on or before the applicable due date.

58. It is contemplated that over the next several months the various operating corporations that are included in the Corporate Group and that have become indebted to Newco Financial as a result of the Proposed Transactions will repay such indebtedness. Newco Financial will become the banker for the Corporate Group.

59. 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.

60. 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.

61. Other than as described herein, no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v) occurred or will occur and no dividends were paid or will be paid as part of a series of transactions or events that included any of the dividends paid as part of the Proposed Transactions.

PURPOSE OF PROPOSED TRANSACTIONS

62. The overall purposes of the Proposed Transactions are as follows:

(i) to achieve some creditor-proofing by having several of the operating corporations in the Corporate Group pay taxable dividends to their various holding corporations (and other corporate shareholders). The dividend proceeds would then, where required, be loaned back to the particular operating corporation on a fully secured basis;

(ii) to use Newco Financial as an internal financing company to provide financing for the business operations of Corporate Group on an ongoing basis; and

(iii) to achieve some estate planning by freezing each Sibling's respective interest in Sibling 1 Co, Sibling 2 Co and Sibling 3 Co, as the case may be, and having new common shares of such corporation held by a family trust that has been established for the benefit of such Sibling's issue.

63. The purpose for each of the share transfers described in Paragraphs 29, 30 and 31, is to enable each of the Siblings to "freeze" the value of their shares of the corporations that are transferred to their Sibling Co as described in those Paragraphs.

64. The purpose of the share transfers described in Paragraph 36 is to separate the contracting companies from companies holding investments represented by real property.

65. The purpose of the transfers described in Paragraphs 37, 38 and 39 is to consolidate ownership of the TPU common shares in TPH. The purpose of the share transfers described in Paragraphs 32 and 33 is to enable the taxable dividends paid out of safe income by TPH and TPU as described in Paragraph 35 to be received by S Co and F Co (rather than S and F personally) as non-taxable inter-corporate dividends.

66. The purpose of the share subscriptions described in Paragraphs 44, 51 and 55 is to finance Newco Financial.

67. The purpose of the transactions described in Paragraph 46 is to enable Sibling 1, Sibling 2 and Sibling 3 to freeze the value of their shares in Sibling 1 Co, Sibling 2 Co and Sibling 3 Co while retaining control of those corporations. The purpose of the transactions described in Paragraphs 47 and 48 is to enable J to gift the shares to the trusts so that such property will be exempt from the equalization formula XXXXXXXXXX The trusts will facilitate the estate freezing in favour of the issue of Sibling 1, Sibling 2 and Sibling 3.

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. Subject to the application of subsection 69(11), provided 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 each of the share transfers described in Paragraphs 29, 30, 31, 32, 33, 36, 37, 38 and 39, such that the agreed amount in respect of each such transfer will be deemed to be the particular transferor's proceeds of disposition and the particular transferee's cost thereof. For greater certainty, paragraph 85(1)(e.2) will not apply in respect of these share transfers.

B. Each of each of the taxable dividends described in Paragraphs 35, 43, 49, 50, 53 and 54:

(a) will be included in computing the income of the particular dividend recipient pursuant to subsection 82(1) and paragraph 12(1)(j);

and where the particular dividend recipient is a corporation, each such taxable dividend:

(b) will be deductible by the particular dividend recipient pursuant to subsection 112(1) in computing its taxable income for the year in which such dividend is received, and such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) or (2.4); and

(c) with the exception of the taxable dividend received by XXXXXXXXXX described in Paragraph 35, will not be subject to tax under Part IV except to the extent that such corporation paying the dividend is entitled to a dividend refund for its taxation year in which it paid such dividend.

C. The provisions of subsection 55(2) will not apply to a taxable dividend that is received by a corporation resident in Canada described in Ruling B, provided that the full amount of the particular taxable dividend does not exceed the safe income on hand that is attributable to the particular shares of the particular corporation on which the dividend was paid immediately before the safe income determination time.

D. The provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, in respect of the share exchanges described in Paragraph 46.

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.

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 cost amount, adjusted cost base or fair market value of any property referred to herein;

(b) the amount of safe income on hand of any corporation or the safe income determination time for any dividend that is paid as part of the series of transactions or events that includes the Proposed Transactions; or

(c) 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 ruling given above.

Yours truly,

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