30 November 1997 Ruling 9800983 - BUTTERFLY 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether prior transactions part of a series of transactions or events that include the proposed transactions.

Position:

Ruling given with proviso

Reasons:

Determination is a question of fact but, no apparent reason discernible from information submitted that they are part of the same series.

XXXXXXXXXX							3-980098
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested various advance income tax rulings. We also acknowledge your letter of XXXXXXXXXX and our various telephone conversations in connection herewith.

We understand that to the best of your knowledge and that of the taxpayers involved none of the issues involved in the requested rulings is being considered by a tax services office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.

Definitions

Non-Statutory Terms

In this letter unless otherwise expressly stated:

(a) XXXXXXXXXX;

(b) "butterfly reorganization" means a divisive reorganization of a corporation where the dividends received in the course of the reorganization were not subject to subsection 55(2) by virtue of the application of paragraph 55(3)(b);

(c) XXXXXXXXXX;

(d) XXXXXXXXXX;

(e) XXXXXXXXXX;

(f) XXXXXXXXXX;

(g) XXXXXXXXXX;

(h) XXXXXXXXXX;

(i) "Holdco" means XXXXXXXXXX;

(j) "Newco" means XXXXXXXXXX;

(k) XXXXXXXXXX;

(l) XXXXXXXXXX;

(m) XXXXXXXXXX;

(n) XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) "Subco" means XXXXXXXXXX;

(q) XXXXXXXXXX;

(r) XXXXXXXXXX;

(s) XXXXXXXXXX;

(t) XXXXXXXXXX;

(u) XXXXXXXXXX;

(v) XXXXXXXXXX;

(w) XXXXXXXXXX;

(x) XXXXXXXXXX;

Statutory Terms

In this letter unless otherwise expressly stated:

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

(b) "ACB" means the expression "adjusted cost base" which has the meaning assigned by section 54;

(c) XXXXXXXXXX;

(d) "CCA" means "capital cost allowance" which refers to a deduction allowed under section 1100 of the Regulations;

(e) XXXXXXXXXX;

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

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

(h) "cost amount" has the meaning assigned under subsection 248(1);

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

(j) "distribution" has the meaning assigned by subsection 55(1);

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

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

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

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

(o) "ITAR" means the Income Tax Application Rules;

(p) XXXXXXXXXX;

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

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

(s) "private corporation" has the meaning assigned by subsection 89(1);

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

(u) "Regulations" means the Income Tax Regulations;

(v) XXXXXXXXXX;

(w) "series of transactions or events" has the meaning assigned by subsection 248(10);

(x) XXXXXXXXXX;

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

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

(aa) "UCC" means the expression "undepreciated capital cost" which has the meaning assigned by subsection 13(21).

FACTS

1. XXXXXXXXXX is a corporation subsisting under the laws of XXXXXXXXXX and was formed on the amalgamation of XXXXXXXXXX. XXXXXXXXXX is a taxable Canadian corporation.

XXXXXXXXXX has an XXXXXXXXXX fiscal year end.

2. XXXXXXXXXX is a corporation subsisting under the laws of XXXXXXXXXX and was formed on the amalgamation of XXXXXXXXXX. XXXXXXXXXX.

XXXXXXXXXX was a corporation incorporated under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. All the issued and outstanding shares of XXXXXXXXXX were owned by XXXXXXXXXX. XXXXXXXXXX is a taxable Canadian corporation.

XXXXXXXXXX

XXXXXXXXXX has an XXXXXXXXXX fiscal year end.

3. XXXXXXXXXX

XXXXXXXXXX has an XXXXXXXXXX fiscal year end.

4. Newco is a corporation incorporated under the laws of the province of XXXXXXXXXX. Newco is a taxable Canadian corporation.

XXXXXXXXXX

accrues at approximately $XXXXXXXXXX per month. As at XXXXXXXXXX, Newco had accumulated non-capital losses on hand of approximately $XXXXXXXXXX.

Newco has an XXXXXXXXXX fiscal year end.

5. Holdco is a corporation incorporated under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. Holdco is a taxable Canadian corporation.

The only asset held by Holdco is the Class XXXXXXXXXX Common Shares of XXXXXXXXXX and Holdco has no liabilities.

Holdco has an XXXXXXXXXX fiscal year end.

6. Subco is a corporation incorporated under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. Subco is a taxable Canadian corporation.

The only asset held by Subco is XXXXXXXXXX and its only liability is a $XXXXXXXXXX loan payable to XXXXXXXXXX (as described in paragraph 24 below).

Subco has an XXXXXXXXXX fiscal year end.

7. XXXXXXXXXX is a corporation subsisting under the laws of XXXXXXXXXX and was incorporated on XXXXXXXXXX. XXXXXXXXXX is a taxable Canadian corporation. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX.

XXXXXXXXXX is the operating company in respect of the XXXXXXXXXX. The financial statements of XXXXXXXXXX have been prepared on the basis that XXXXXXXXXX leases the XXXXXXXXXX from its owners (and, in turn, sub-leases the XXXXXXXXXX).

XXXXXXXXXX

XXXXXXXXXX has an XXXXXXXXXX fiscal year end.

8. The shareholders of XXXXXXXXXX have entered into a series of agreements relating to their shareholdings in XXXXXXXXXX ("Internal Agreements") which gives each shareholder reciprocal rights to purchase the shares of another shareholder who defaults on its obligations under the agreements. XXXXXXXXXX are related. XXXXXXXXXX are each related to XXXXXXXXXX pursuant to paragraph 251(5)(b) and XXXXXXXXXX are related to each other pursuant to subsection 251(3).

9. The authorized and issued capital of XXXXXXXXXX is as follows:

Class of Shares Authorized Shares Issued Shares

XXXXXXXXXX

The XXXXXXXXXX% Preferred Shares are non-voting, non-cumulative, non-participating and redeemable with a nominal or par value of $XXXXXXXXXX per share.

The XXXXXXXXXX Class XXXXXXXXXX Common, Class XXXXXXXXXX Common and Class XXXXXXXXXX Common Shares have no nominal or par value and rank equally in all respects.

The shares of XXXXXXXXXX are held as follows:

Shareholder Class of Shares Number of Shares

XXXXXXXXXX

Holdco acquired its Class XXXXXXXXXX Common Shares from XXXXXXXXXX as a result of the transactions described in paragraph 24 below. XXXXXXXXXX acquired its Class XXXXXXXXXX Common Shares on XXXXXXXXXX from XXXXXXXXXX. XXXXXXXXXX had held the Class XXXXXXXXXX Common Shares of XXXXXXXXXX (or a predecessor) since XXXXXXXXXX. XXXXXXXXXX (or a predecessor or related corporation) has held the Class XXXXXXXXXX Common Shares of XXXXXXXXXX (or a predecessor) since XXXXXXXXXX.

The shares of XXXXXXXXXX constitute capital property to each of Holdco, XXXXXXXXXX. The ACB of the XXXXXXXXXX shares to each shareholder is greater than the paid-up capital of such shares and the fair market value of the XXXXXXXXXX shares to each shareholder will be greater than their ACB at the time of the amalgamation described in paragraph 30 below.

10. XXXXXXXXXX, directly and through subsidiaries, owns and operates the XXXXXXXXXX:

XXXXXXXXXX

XXXXXXXXXX

The fair market value of each of the above properties is equal to or in excess of its cost amount.

The book values of the other assets of XXXXXXXXXX on hand, as at XXXXXXXXXX, were as follows:

Investment in shares of Subco $ XXXXXXXXXX
Note receivable from Subco XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
Other receivable XXXXXXXXXX
Cash and short-term deposits XXXXXXXXXX
Prepaid property taxes and other items XXXXXXXXXX

Total $ XXXXXXXXXX

The outstanding principal amounts of the liabilities of XXXXXXXXXX, were as follows:

Mortgage payable $XXXXXXXXXX

Bank debt on rental properties XXXXXXXXXX

Advances to affiliated companies, net XXXXXXXXXX
of $XXXXXXXXXX due from Newco

Trade payables and accrued liabilities XXXXXXXXXX

Income taxes payable XXXXXXXXXX

Deferred income XXXXXXXXXX

$ XXXXXXXXXX

The balance of XXXXXXXXXX retained earnings as at XXXXXXXXXX was $XXXXXXXXXX. As at XXXXXXXXXX, XXXXXXXXXX had a net capital loss balance in the amount of $XXXXXXXXXX and an unamortized balance of XXXXXXXXXX costs of $XXXXXXXXXX.

All the figures described herein are based on the preliminary financial statements of XXXXXXXXXX.

11. The authorized and issued capital of XXXXXXXXXX is as follows:

	Class of Shares        Authorized Shares	  Issued Shares

XXXXXXXXXX

All the issued and outstanding shares of XXXXXXXXXX are held by XXXXXXXXXX.

12. The authorized and issued capital of XXXXXXXXXX is as follows:

Class of Shares Authorized Shares Issued Shares

Common Unlimited XXXXXXXXXX

All the issued and outstanding shares of XXXXXXXXXX are held by XXXXXXXXXX, and all the shares of XXXXXXXXXX are held by XXXXXXXXXX.

13. The authorized and issued capital of Newco is as follows:

Class of Shares Authorized Shares Issued Shares

Common XXXXXXXXXX XXXXXXXXXX

The shares of Newco are held as follows:

Shareholder Class of Shares Number of Shares

XXXXXXXXXX

The shares of Newco constitute capital property to each of XXXXXXXXXX. The paid-up capital and ACB to each of XXXXXXXXXX of their Newco common shares is $XXXXXXXXXX in each case. The fair market value of the Newco common shares is equal to or greater than the ACB of such shares to the respective holder.

14. The authorized and issued capital of Holdco is as follows:

Class of Shares Authorized Shares Issued Shares

Common XXXXXXXXXX XXXXXXXXXX

All the issued and outstanding shares of Holdco are held by Newco.

The shares of Holdco constitute capital property to Newco. The paid-up capital and ACB to Newco of the Holdco common shares are approximately $XXXXXXXXXX and $XXXXXXXXXX, respectively. The fair market value of the Holdco common shares is equal to or greater than the ACB of such shares to Newco.

15. The authorized and issued capital of Subco is as follows:

Class of Shares Authorized Shares Issued Shares

Common XXXXXXXXXX XXXXXXXXXX

All the issued and outstanding shares of Subco are held by XXXXXXXXXX.

The shares of Subco constitute capital property to XXXXXXXXXX. The paid-up capital and ACB to XXXXXXXXXX of the Holdco common shares are each $XXXXXXXXXX. The fair market value of the Subco common shares is equal to or greater than the ACB of such shares to the XXXXXXXXXX.

16. The authorized and issued capital of XXXXXXXXXX is as follows:

Class of Shares Authorized Shares Issued Shares

Common XXXXXXXXXX XXXXXXXXXX

All the issued and outstanding shares of XXXXXXXXXX are held by XXXXXXXXXX.

The shares of XXXXXXXXXX constitute capital property to XXXXXXXXXX. The paid-up capital and ACB to XXXXXXXXXX of the XXXXXXXXXX common shares are each $XXXXXXXXXX. The fair market value of the XXXXXXXXXX common shares is equal to or greater than the ACB of such shares to the XXXXXXXXXX.

17. XXXXXXXXXX

18. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) is or will be subject to a guarantee agreement, within the meaning referred to in subsection 112(2.2).

19. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) has been or will be issued or acquired as part of a transaction or event or series of transactions or events of the type described in subsection 112(2.5).

20. None of the issued shares referred to herein (including the shares to be issued as described in the proposed transactions) is or will be subject to a dividend rental arrangement.

COMPLETED TRANSACTIONS

21. The companies XXXXXXXXXX had owned shares in other Canadian companies which owned XXXXXXXXXX or XXXXXXXXXX properties.

XXXXXXXXXX

22. On XXXXXXXXXX, XXXXXXXXXX and its subsidiaries completed a XXXXXXXXXX (the "Plan") pursuant to the XXXXXXXXXX and the XXXXXXXXXX. On XXXXXXXXXX, XXXXXXXXXX.

The Plan included:

XXXXXXXXXX

XXXXXXXXXX

23. After implementation of the Plan, XXXXXXXXXX had XXXXXXXXXX shareholders owning more than 10% of its issued and outstanding shares. These were XXXXXXXXXX. The balance of such shares was owned by approximately XXXXXXXXXX different shareholders.

XXXXXXXXXX

24. XXXXXXXXXX

XXXXXXXXXX

The transactions that occurred on XXXXXXXXXX were as follows (the transactions described in paragraphs (a) and (b) below occurred on or before XXXXXXXXXX:

(a) XXXXXXXXXX transferred all of its Class XXXXXXXXXX Common shares in the capital of XXXXXXXXXX to Holdco (which at that time was a wholly-owned subsidiary of XXXXXXXXXX) in return for Common shares in the capital of Holdco. Holdco's sole asset was the shares of XXXXXXXXXX and Holdco had no liabilities.

(b) XXXXXXXXXX contributed cash to Holdco in exchange for additional Common shares in the capital of Holdco. Holdco paid several cash dividends to XXXXXXXXXX equal to its estimated share of the "safe income" of XXXXXXXXXX.

(c) Newco obtained a loan (the "Holdco Shares Loan") from XXXXXXXXXX for approximately $XXXXXXXXXX to finance the purchase from XXXXXXXXXX of the shares of Holdco.

(d) Newco purchased from XXXXXXXXXX all of the issued and outstanding shares of Holdco for a purchase price of approximately $XXXXXXXXXX pursuant to an agreement of purchase and sale entered into between Newco and XXXXXXXXXX.

(e) XXXXXXXXXX obtained a loan from XXXXXXXXXX for approximately $XXXXXXXXXX to directly and indirectly finance the purchase from XXXXXXXXXX of the assets referred to in paragraphs (f) and (g) below. XXXXXXXXXX used $XXXXXXXXXX of the loan to make a $XXXXXXXXXX loan to Subco bearing interest at XXXXXXXXXX% and to purchase $XXXXXXXXXX of Common shares of Subco.

(f) Subco purchased from XXXXXXXXXX ownership interest in XXXXXXXXXX for a purchase price of $XXXXXXXXXX pursuant to an agreement of purchase and sale entered into between XXXXXXXXXX (the “XXXXXXXXXX Assets Purchase Agreement”).

XXXXXXXXXX

(g) XXXXXXXXXX

(h) XXXXXXXXXX obtained a loan from XXXXXXXXXX for approximately $XXXXXXXXXX to finance the purchase from each of XXXXXXXXXX of its one-third undivided beneficial interest in the XXXXXXXXXX and all of its shares of XXXXXXXXXX.

(i) XXXXXXXXXX purchased from each of XXXXXXXXXX its one-third undivided beneficial interest in the XXXXXXXXXX and all of its shares of XXXXXXXXXX for an aggregate purchase price of approximately $XXXXXXXXXX each pursuant to an agreement of purchase and sale dated as of XXXXXXXXXX. XXXXXXXXXX each remained as registered owners of a one-third undivided interest in the XXXXXXXXXX as nominee and bare trustee on behalf of XXXXXXXXXX.

(j) XXXXXXXXXX used part of the proceeds from the sale of the shares of Holdco and XXXXXXXXXX, its interest in the XXXXXXXXXX land and its undivided interest in the XXXXXXXXXX to repay its proportionate share of the approximately $XXXXXXXXXX secured by a mortgage in respect of the XXXXXXXXXX (the "XXXXXXXXXX Loan"). Each of XXXXXXXXXX used the proceeds from the sale of its undivided interest in the XXXXXXXXXX and its shares of XXXXXXXXXX and the additional amount of approximately $XXXXXXXXXX to pay its proportionate share of the XXXXXXXXXX Loan. As a result of the above, the XXXXXXXXXX Loan was repaid in full.

25. On XXXXXXXXXX, XXXXXXXXXX purchased XXXXXXXXXX with legal title being held by a nominee corporation. The purchase price was approximately $XXXXXXXXXX. In XXXXXXXXXX, XXXXXXXXXX decided to participate in the ownership of

XXXXXXXXXX

The purchase was financed by XXXXXXXXXX obtaining a loan of approximately $XXXXXXXXXX and assuming a first mortgage of approximately $XXXXXXXXXX.

In order to ensure an early closing, XXXXXXXXXX had initially acquired XXXXXXXXXX from a subsidiary of the XXXXXXXXXX Pension Fund. The purchase price was considered attractive as the properties were not fully occupied and there was potential for an increased rate of return over the next few years.

XXXXXXXXXX

XXXXXXXXXX had approached XXXXXXXXXX to invest on the same basis as their ownership structure in XXXXXXXXXX. XXXXXXXXXX would have been acquired whether or not the butterfly reorganization described herein was carried out.

26. XXXXXXXXXX operations routinely generate excess cash which is invested in short-term money market investments which have a relatively low yield. The shareholders of XXXXXXXXXX have decided that such excess funds should be distributed to themselves so that each shareholder may use the funds to repay existing debt or fund their business operations. In order to distribute such funds, XXXXXXXXXX paid dividends totalling $XXXXXXXXXX to its shareholders XXXXXXXXXX. Holdco then paid dividends totalling $XXXXXXXXXX to Newco which in turn paid dividends totalling $XXXXXXXXXX to its two shareholders (XXXXXXXXXX). Dividends totalling $XXXXXXXXXX were paid by XXXXXXXXXX (and similarly distributed by Holdco and Newco). Further dividends are expected to be paid on a quarterly basis out of excess cash from operations commencing in XXXXXXXXXX. These dividends were not paid as part of the series of transactions that include the butterfly reorganization described herein and would have been paid whether or not the butterfly reorganization was carried out.

27. In order to consolidate borrowings and secure current favourable rates of interest on borrowings for the long term, on XXXXXXXXXX, XXXXXXXXXX and Newco re-financed their existing bank debt of $XXXXXXXXXX, plus amounts required for the transaction costs associated with the refinancing and the estimated capital expenditures of XXXXXXXXXX, with a new lender for a XXXXXXXXXX-year term on a fixed rate basis. The refinancing eliminated the business risk inherent in a floating interest rate by replacing debt having a floating rate equal to the Bankers' Acceptance Rate plus XXXXXXXXXX% with debt at an effective fixed rate of XXXXXXXXXX% maturing on XXXXXXXXXX.

The replacement borrowing was made by XXXXXXXXXX and was for approximately $XXXXXXXXXX. XXXXXXXXXX loaned a portion of the proceeds of the borrowing to Newco on an interest-bearing demand basis to allow Newco to repay its debt.

The replacement borrowing was not carried out as part of the series of transactions that include the butterfly reorganization described herein and would have been undertaken whether or not a butterfly reorganization was to take place.

PROPOSED TRANSACTIONS

28. XXXXXXXXXX will file articles of amendment to create a new class of preferred shares with the following attributes:

Class XXXXXXXXXX Preferred Shares

Class XXXXXXXXXX preferred shares, which shares are without nominal or par value, are non-voting, are entitled to a fixed preferential non-cumulative dividend at the rate of XXXXXXXXXX% of the redemption amount of such shares and are redeemable and retractable for an amount, determined by formula, equal to the fair market value of the property for which the shares will be issued.

For the purposes of subsection 191(4), the terms and conditions of the Class XXXXXXXXXX preferred shares described herein, will specify an amount in respect of each such share. The amount to be specified in respect of each such share, at the time of issuance, will be expressed as a dollar amount, will not be determined by a formula and will not exceed the fair market value of the consideration for which each such share will be issued.

29. XXXXXXXXXX will file articles of amendment to create a new class of preferred shares with the following attributes:

Class XXXXXXXXXX Preferred Shares

Class XXXXXXXXXX preferred shares, which shares are without nominal or par value, are non-voting, are entitled to a fixed preferential non- cumulative dividend at the rate of XXXXXXXXXX% of the redemption amount of such shares and are redeemable and retractable for an amount, determined by formula, equal to the fair market value of the property for which the shares will be issued.

For the purposes of subsection 191(4), the terms and conditions of the Class XXXXXXXXXX preferred shares described herein, will specify an amount in respect of each such share. The amount to be specified in respect of each such share, at the time of issuance, will be expressed as a dollar amount, will not be determined by a formula and will not exceed the fair market value of the consideration for which each such share will be issued.

30. Newco, Holdco, XXXXXXXXXX, and Subco (referred to in this paragraph as "predecessor corporations") will amalgamate under the provisions of the XXXXXXXXXX to form a new corporation ("XXXXXXXXXX Amalco") (the "Amalgamation") in such a manner that:

(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the Amalgamation will become property of XXXXXXXXXX Amalco by virtue of the Amalgamation;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of XXXXXXXXXX Amalco by virtue of the Amalgamation; and

(c) all the shareholders (except any predecessor corporation) of the predecessor corporations before the merger will receive shares of the capital stock of XXXXXXXXXX Amalco by virtue of the Amalgamation in the following manner:

(i) XXXXXXXXXX will receive for each of its Class XXXXXXXXXX common shares of XXXXXXXXXX Class XXXXXXXXXX common shares of XXXXXXXXXX Amalco and for each of its common shares of Newco XXXXXXXXXX Class XXXXXXXXXX common shares of XXXXXXXXXX Amalco;

(ii) XXXXXXXXXX will receive for each of its Class XXXXXXXXXX common shares of XXXXXXXXXX Class XXXXXXXXXX common shares of XXXXXXXXXX Amalco and for each of its common shares of Newco XXXXXXXXXX Class XXXXXXXXXX common shares of XXXXXXXXXX Amalco; and

(iii) all the shares of Subco, Holdco and the Class XXXXXXXXXX common shares of XXXXXXXXXX will be cancelled on the Amalgamation.

The stated capital of the shares of XXXXXXXXXX Amalco, immediately after the issue of such shares on the Amalgamation, will not exceed the aggregate of the paid-up capital of the shares of the predecessor corporations immediately before the Amalgamation (excluding the paid-up capital in respect of shares held by any other predecessor corporation).

The authorized share capital of XXXXXXXXXX Amalco will consist of:

(a) Class XXXXXXXXXX common shares that will be voting, participating and entitled to dividends at the discretion of the board of directors; and

(b) Class XXXXXXXXXX common shares that will be voting, participating, entitled to dividends at the discretion of the board of directors and convertible to Class XXXXXXXXXX common shares on a one- for-one basis.

31. In filing their income tax returns for the relevant years, Subco and XXXXXXXXXX. Amalco will apply the provisions of subsection 13(5.1) concurrently at the time of the Amalgamation to the disposition of the Ground Lease by Subco. As a result, the leasehold interest in the Ground Lease will be deemed to have been disposed of at that time for proceeds equal to the amount by which the capital cost of the particular leasehold interest exceeds the total of all amounts claimed by its holder in respect of that particular leasehold interest and deductible under paragraph 20(1)(a) in computing the holder's income in previous taxation years. The property acquired will be deemed to be depreciable property of a prescribed class acquired at that time and to the cost of this property will be added the capital cost of the leasehold interest in the Ground Lease immediately before the deemed disposition. However, there will be no claim for capital cost allowance on this property as there is no class in Schedule II of the Regulations in which land is included. On the disposition of the XXXXXXXXXX land the provisions of the Act which deal with recapture and terminal losses will apply.

32. XXXXXXXXXX

XXXXXXXXXX

33. XXXXXXXXXX Amalco will transfer, at fair market value, to XXXXXXXXXX the accounts receivable, furniture, operating equipment and prepaid expenses relating to the XXXXXXXXXX (the "XXXXXXXXXX Amalco Current Operating Assets"). In consideration for the transfer, XXXXXXXXXX will assume the current liabilities of XXXXXXXXXX Amalco in respect of the XXXXXXXXXX, other than the current portion of the long-term liabilities of XXXXXXXXXX Amalco and the accrued interest on such long-term liabilities and the bank debt, if any, of XXXXXXXXXX Amalco (the "XXXXXXXXXX Amalco Current Operating Liabilities") and XXXXXXXXXX will issue to XXXXXXXXXX Amalco a non-interest-bearing demand promissory note (the "XXXXXXXXXX Operating Note") with a principal amount equal to the excess, if any, of the fair market value of the XXXXXXXXXX Amalco Current Operating Assets over the principal amount of the XXXXXXXXXX Amalco Current Operating Liabilities. In the event that the principal amount of the XXXXXXXXXX Amalco Current Operating Liabilities exceeds the fair market value of the XXXXXXXXXX Amalco Current Operating Assets, XXXXXXXXXX Amalco will issue to XXXXXXXXXX a non-interest-bearing demand promissory note (the "XXXXXXXXXX Amalco Operating Note") with a principal amount equal to the excess, if any, of the principal amount of the XXXXXXXXXX Amalco Current Operating Liabilities over the fair market value of the XXXXXXXXXX Amalco Current Operating Assets.

No subsection 85(1) elections will be made in respect of the transfer of the XXXXXXXXXX Amalco Current Operating Assets.

XXXXXXXXXX, XXXXXXXXXX Amalco and XXXXXXXXXX will file a joint election, in the form and within the time referred to in subsection 20(25), to have the rules of subsection 20(24) apply to XXXXXXXXXX Amalco as the payer and to XXXXXXXXXX as the recipient in respect of any payment made by XXXXXXXXXX Amalco to XXXXXXXXXX in consideration for the assumption by XXXXXXXXXX of those undertakings.

34. XXXXXXXXXX Amalco will sell, at fair market value, to each of XXXXXXXXXX undivided interest in its beneficial interest in its real property, a XXXXXXXXXX% undivided interest in the XXXXXXXXXX, half of the shares of each corporation owned by XXXXXXXXXX Amalco (namely, XXXXXXXXXX and various real estate nominee corporations) and a XXXXXXXXXX% undivided interest in each of its other assets (other than the legal title to its real property) and will issue to each of XXXXXXXXXX a non-interest-bearing demand promissory note (XXXXXXXXXX, respectively), the principal amount of which will be equal to the amount, if any, by which the principal amount of the liabilities assumed by XXXXXXXXXX, as the case may be, in consideration for the assets transferred and note issued to it by XXXXXXXXXX Amalco exceeds the aggregate of amounts each of which is an amount determined in respect of each property transferred to it by XXXXXXXXXX Amalco equal to, where the particular property is an eligible property in respect of which an election under 85(1) is made, the agreed amount in such election, and, where the particular property is one in respect of which no such election is made, the fair market value of the property. As part of the transfer of assets, XXXXXXXXXX will each be responsible for, or entitled to, as the case may be, XXXXXXXXXX% of any liabilities of or amounts received by XXXXXXXXXX Amalco or a predecessor corporation for any period ending on or prior to the day on which the transfers described in this paragraph occur. As a result of such transfer, the fair market value of the cash and near-cash property, business property and investment property received by XXXXXXXXXX, as the case may be, will be equal to the proportion of the fair market value, immediately before the transfer, of all of the cash and near-cash property, business property and investment property, respectively, owned by XXXXXXXXXX Amalco immediately before the transfer, that:

(a) the fair market value, immediately before the transfer, of all the shares of the capital stock of XXXXXXXXXX Amalco owned by XXXXXXXXXX, as the case may be, at that time

		is of

(b) the fair market value, immediately before the transfer, of all the issued shares of the capital stock of XXXXXXXXXX Amalco at that time.

In consideration for the transfer of the assets of XXXXXXXXXX Amalco and the issuance of the XXXXXXXXXX Issue Note or the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note, as the case may be, XXXXXXXXXX will each assume XXXXXXXXXX% of the liabilities of XXXXXXXXXX Amalco and will each issue to XXXXXXXXXX Amalco Class XXXXXXXXXX Preferred shares in its capital stock with a redemption amount equal to the aggregate of the fair market value of the assets transferred to it by XXXXXXXXXX Amalco and the principal amount of the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note or the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note, as the case may be, less the principal amount of the liabilities assumed by it.

XXXXXXXXXX will each add to its stated capital account maintained for its Class XXXXXXXXXX Preferred shares an amount equal to the greater of $XXXXXXXXXX and the cost amount to XXXXXXXXXX Amalco of the Class XXXXXXXXXX Preferred shares in its capital.

35. XXXXXXXXXX Amalco will jointly elect with each of XXXXXXXXXX under subsection 85(1), within the time referred to in subsection 85(6), with respect to the transfer of certain eligible property by XXXXXXXXXX Amalco to XXXXXXXXXX referred to in paragraph 34 above. The agreed amount in respect of each such asset, other than in the case of eligible capital property and leasehold interests, will not be less than the lesser of the cost amount to XXXXXXXXXX Amalco of the particular property and the fair market value of the particular property at the time of the transfer.

In the case of eligible capital property and leasehold interests, the agreed amount will be an amount that will not be less than the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii) or subparagraphs 85(1)(e)(i), (ii) and (iii), as the case may be, however, the agreed amount in respect of any particular property will not be less than $10.

The liabilities assumed by XXXXXXXXXX will be allocated (based on their principal amount) to specific properties transferred by XXXXXXXXXX Amalco to XXXXXXXXXX, as the case may be, and the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note or the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note, as the case may be. The principal amount of liabilities to be allocated to a property in respect of which an election under subsection 85(1) will be made will not exceed the elected amount in such election in respect of the particular property. The principal amount of liabilities allocated to other property will not exceed the fair market value of the particular property.

36. Following the transfer described in paragraph 34 above, XXXXXXXXXX will each subscribe for one Class XXXXXXXXXX Common share in the capital of XXXXXXXXXX Amalco for XXXXXXXXXX each. The purpose of subscribing for one share each by XXXXXXXXXX is to allow XXXXXXXXXX Amalco to continue to hold legal title, as a bare trustee, to the real property of XXXXXXXXXX, received by them in the transfer described in paragraph 34 above, following the transfer of beneficial interest as described in paragraph 34 above.

37. XXXXXXXXXX will then redeem all of its Class XXXXXXXXXX Preferred shares held by XXXXXXXXXX Amalco and will each issue to XXXXXXXXXX Amalco a non-interest-bearing demand promissory note (the "XXXXXXXXXX Redemption Note" and the "XXXXXXXXXX Redemption Note") having a principal amount and fair market value equal to the redemption price of the Class XXXXXXXXXX Preferred shares of XXXXXXXXXX, as the case may be.

38. XXXXXXXXXX Amalco will purchase for cancellation all of its Class XXXXXXXXXX Common shares held by XXXXXXXXXX by issuing to each of XXXXXXXXXX a non-interest-bearing demand promissory note (the "XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note" and the "XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note", respectively), the principal amount of which will be equal to the fair market value of the XXXXXXXXXX Amalco Class XXXXXXXXXX Common shares purchased from XXXXXXXXXX, respectively.

39. The XXXXXXXXXX Redemption Note will be set off against the XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note and the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note and all the notes will be cancelled.

40. The XXXXXXXXXX Redemption Note will be set off against the XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note and the XXXXXXXXXX Amalco XXXXXXXXXX Issue Note and all the notes will be cancelled.

41. XXXXXXXXXX will enter into a co-owners' agreement to govern their relationship regarding the XXXXXXXXXX and a shareholders' agreement regarding their shareholdings in XXXXXXXXXX.

ADDITIONAL INFORMATION AND REPRESENTATIONS

42. The Amalgamation described in paragraph 30 above will take place on a day concurrently with the transaction described in paragraph 31 above and prior to the commencement of the transactions described in paragraphs 32, 33, 34, 35, 36, 37, 38, 39, 40 and 41 above. It is expected that the transactions described in paragraphs 32, 33, 34, 35, 36, 37, 38, 39, 40 and 41 will not commence until after such time has elapsed after the Amalgamation that XXXXXXXXXX Amalco has earned net income approximately equal to its non-capital losses carried forward immediately after the Amalgamation. The transactions described in paragraph 32 and 33 will occur on a day prior to the commencement of the transactions described in paragraphs 34, 35, 36, 37, 38, 39, 40 and 41. The transactions described in paragraphs 34, 35, 36, 37, 38, 39, 40 and 41 will occur on the same day in the order described herein (except the transactions described in paragraph 41 which may occur at any time on that day).

43. Except as described herein, none of XXXXXXXXXX, Newco, Holdco, Subco, XXXXXXXXXX Amalco, XXXXXXXXXX or any corporation controlled by any of them, has incurred or will incur any liabilities except for costs associated with the proposed transactions, and no assets have been or will be acquired or disposed of by any of such corporations, in contemplation of and before the distributions described in paragraph 34 above. Liabilities that have been or will be incurred or assets that have been or will be acquired or disposed of by any of such corporations in the ordinary course of their respective businesses are not considered to be incurred or acquired in contemplation of a distribution of property made in the course of the reorganization described above.

PURPOSE OF THE PROPOSED TRANSACTIONS

44. The purpose of the Proposed Transactions is to enable XXXXXXXXXX to hold their interest in the XXXXXXXXXX directly so that each will have greater flexibility in financing and also allow each to deal independently with the tax consequences from the operation of the XXXXXXXXXX.

RULINGS

Provided that the above statements are accurate and constitute complete disclosure of all of the relevant facts, proposed transactions and the purposes of the proposed transactions, we confirm the following:

A. On the amalgamation of Newco, Holdco, XXXXXXXXXX and Subco as described in paragraph 30 above, the provisions of:

(a) subsection 87(1) will apply;

(b) paragraph 87(2)(d) will apply in determining the capital cost and UCC to XXXXXXXXXX Amalco of depreciable property of a prescribed class;

(c) subsection 87(4) will apply, provided that the Common shares of Newco, and the Class XXXXXXXXXX Common shares and Class XXXXXXXXXX Common shares of XXXXXXXXXX were capital property to XXXXXXXXXX, as the case may be, immediately before the Amalgamation, such that:

(i) each of XXXXXXXXXX, as the case may be, will be deemed by paragraph 87(4)(a) to have disposed of its Common shares of Newco or Class XXXXXXXXXX Common Shares or Class XXXXXXXXXX Common shares, as the case may be, for proceeds equal to their respective ACB immediately before the Amalgamation; and

(ii) each of XXXXXXXXXX, as the case may be, will be deemed by paragraph 87(4)(b) to have acquired its Class XXXXXXXXXX Common shares of XXXXXXXXXX Amalco for an amount equal to the proceeds described in (i) above; and

(d) subsection 87(7) will apply to a debt or other obligation of Newco, Holdco, XXXXXXXXXX and Subco that became a debt or other obligation of XXXXXXXXXX Amalco where the amount payable by XXXXXXXXXX Amalco on the maturity of the debt or other obligation, as the case may be, is the same as the amount that would have been payable by the predecessor corporation on its maturity.

For greater certainty, the leasehold interest in the Ground Lease will become property of XXXXXXXXXX Amalco by virtue of the Amalgamation, otherwise than as a result of the acquisition of property of Subco by XXXXXXXXXX Amalco, pursuant to the purchase of such property by XXXXXXXXXX Amalco or as a result of the distribution of such property to XXXXXXXXXX Amalco on the winding-up of Subco.

B. At the time of the Amalgamation, each of Newco, Holdco, XXXXXXXXXX and Subco will be related to each other and to XXXXXXXXXX Amalco by virtue of subsections 251(2) and 251(3.1).

C. Provided that XXXXXXXXXX Amalco continues to use the property acquired from Newco, Holdco, XXXXXXXXXX and Subco, as described in paragraph 30 above, for the purpose of gaining or producing income (other than income which is exempt from taxation) from such property and XXXXXXXXXX Amalco has a legal obligation to pay interest in respect of the liabilities that became its liabilities by virtue of the amalgamation described in paragraph 30 above (other than liabilities in respect of which Newco, Holdco, XXXXXXXXXX and Subco were not entitled to deduct interest under paragraph 20(1)(c)), any such interest paid in the year or payable in respect of the year (depending on the method regularly followed by XXXXXXXXXX Amalco in computing its income for the purposes of the Act) by XXXXXXXXXX Amalco in respect of such liabilities, not in excess of a reasonable amount, will be deductible in computing the income of XXXXXXXXXX Amalco under paragraph 20(1)(c).

D. XXXXXXXXXX Amalco will be entitled to deduct in computing its income the undeducted balance of tenant inducement costs acquired from XXXXXXXXXX, as a result of the amalgamation described in paragraph 30 above, on the same basis as XXXXXXXXXX would have been entitled to deduct these amounts.

E. Provided that the shares of XXXXXXXXXX and Newco held by XXXXXXXXXX, prior to the proposed transactions described herein, constitute capital property to the particular holder, the shares of XXXXXXXXXX Amalco will represent capital property to XXXXXXXXXX, as the case may be, for the purposes of the proposed transactions described herein.

F. Provided that the principal amount of the XXXXXXXXXX Reimbursement Note, as described in paragraph 32 above, reduces the unamortized balance of the XXXXXXXXXX costs of XXXXXXXXXX Amalco, no amount will be required to be included by XXXXXXXXXX Amalco in computing its income in respect of the receipt of such note.

G. XXXXXXXXXX will be entitled to deduct in computing its income the undeducted balance of the XXXXXXXXXX costs acquired from XXXXXXXXXX Amalco, as described in paragraph 32 above, on the same basis as XXXXXXXXXX Amalco would have been entitled to deduct these amounts.

H. XXXXXXXXXX Amalco will not be required to include any amount in computing its income for a taxation year, in respect of the XXXXXXXXXX or the assignment of the XXXXXXXXXX, except such amounts that are received or receivable by XXXXXXXXXX Amalco or XXXXXXXXXX, as the case may be, from XXXXXXXXXX under the XXXXXXXXXX and such amounts will be required to be included in computing the income of XXXXXXXXXX Amalco or XXXXXXXXXX, as the case may be, in the taxation year such amounts become paid or payable.

I. Provided that XXXXXXXXXX continues to use the property acquired from XXXXXXXXXX Amalco, as described in paragraph 33 above, for the purpose of gaining or producing income (other than income which is exempt from taxation) from such property and XXXXXXXXXX has a legal obligation to pay interest in respect of the liabilities assumed by XXXXXXXXXX as described in paragraph 33 above (other than liabilities in respect of which XXXXXXXXXX Amalco was not entitled to deduct interest under paragraph 20(1)(c)), any such interest paid in the year or payable in respect of the year (depending on the method regularly followed by XXXXXXXXXX in computing its income for the purposes of the Act) by XXXXXXXXXX in respect of such liabilities, not in excess of a reasonable amount, will be deductible in computing the income of XXXXXXXXXX under paragraph 20(1)(c).

J. Provided that XXXXXXXXXX Amalco or a predecessor has included or will have included an amount in respect of the undertakings described in paragraph 33 above, in computing its income from its business pursuant to paragraph 12(1)(a) for the taxation year which includes the time of the transfer of assets described in paragraph 33 above or any preceding taxation year, the payment made by XXXXXXXXXX Amalco to XXXXXXXXXX in consideration for the assumption by XXXXXXXXXX of those undertakings, to the extent that the payment is reasonable:

(i) may, pursuant to paragraph 20(24)(a), be deducted in computing the income of XXXXXXXXXX Amalco for its fiscal period in which the payment takes place, and

(ii) will, pursuant to paragraph 20(24)(b), be deemed to be an amount described in paragraph 12(1)(a) in respect of XXXXXXXXXX.

K. The provisions of subsection 85(1) will apply, subject to the application of subsection 69(11) and of subsections 20(1.2) and 26(5) of the ITAR, to the transfer by XXXXXXXXXX Amalco of its properties that are eligible properties, in respect of which an election under subsection 85(1) is made, to XXXXXXXXXX, as described in paragraph 34 above, such that the agreed amount in respect of each transfer of such property will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a) and in respect of depreciable property, the transferee's capital cost of each such property will be determined in accordance with subsection 85(5). For the purposes of the joint elections described in paragraph 35 above, the reference to "the undepreciated capital cost to the taxpayer of all the property of that class immediately before the disposition..." in subparagraph 85(1)(e)(i) will be read to mean the proportion of the UCC to the taxpayer of all the property of that class that the capital cost of the property immediately before the disposition is of the capital cost of all property of that class immediately before the disposition.

For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers.

L. On the redemption of the XXXXXXXXXX Class XXXXXXXXXX Preferred shares and XXXXXXXXXX Class XXXXXXXXXX Preferred shares held by XXXXXXXXXX Amalco as described in paragraph 37 above, and the purchase for cancellation of the XXXXXXXXXX Amalco Class XXXXXXXXXX Common shares held by XXXXXXXXXX as described in paragraph 38 above, the amount, if any, by which the amount paid to redeem or purchase the particular shares exceeds the paid-up capital of the particular shares immediately before the redemption or the purchase for cancellation:

(i) will be deemed pursuant to paragraph 84(3)(a) to be a dividend paid by the issuer of such shares;

(ii) will be deemed pursuant to paragraph 84(3)(b) to be a dividend received by the holder of such shares;

(iii) will be included in income pursuant to paragraph 12(1)(j);

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

(v) by virtue of the application of paragraph (j) of the definition "proceeds of disposition" in section 54, the amount of a deemed dividend described in (ii) above will be excluded from the proceeds of disposition of the share, and any loss arising from the disposition of the share will be reduced by the amount of such dividends pursuant to subsection 112(3).

M. No taxes under Part IV of the Act will be payable in respect of a dividend described in Ruling L.

N. Part IV.1 of the Act will not apply to the deemed dividends described in Ruling L above, deemed to be paid as a result of the purchase for cancellation of the XXXXXXXXXX Amalco Class XXXXXXXXXX Common shares, because the dividends will be excepted dividends pursuant to paragraph (b) of the definition of "excepted dividend" in section 187.1.

O. Part VI.1 of the Act will not apply to the deemed dividends described in Ruling L above, deemed to be paid as a result of the purchase for cancellation of the XXXXXXXXXX Amalco Class XXXXXXXXXX Common shares, because the dividends will be excluded dividends pursuant to paragraph (a) of the definition of "excluded dividend" in subsection 191(1).

P. Each of the deemed dividends described in Ruling L above, deemed to be paid as a result of the redemption of the XXXXXXXXXX Class XXXXXXXXXX Preferred shares and XXXXXXXXXX Class XXXXXXXXXX Preferred shares, will, to the extent that the amount of the particular dividend does not exceed the amount by which the specified amount referred to in paragraph 28 or paragraph 29 above, as the case may be, exceeds the paid-up capital of the shares immediately before the redemption, be deemed to be an excluded dividend and an excepted dividend by virtue of subsection 191(4) and therefore will not be subject to tax under Part VI.1 or Part IV.1 of the Act.

Q. Provided that the transactions described in paragraphs 22, 23, 24, 25 26 and 27 above are not part of a series of transactions or events which includes the proposed transactions described herein, by virtue of the provisions of paragraph 55(3)(b), the provisions of subsection 55(2) will not apply to the deemed dividends described in Ruling L above, provided that, as part of the series of transactions that includes the proposed transactions described herein, there is no:

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

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

(c) acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(d) acquisition of property in the circumstances described in paragraph 55(3.1)(d)

which has not been described herein.

R. Pursuant to subsection 1102(14) of the Regulations, each property which, immediately before the amalgamation described in paragraph 30, is depreciable property of a prescribed class or separate prescribed class of XXXXXXXXXX and which is acquired by XXXXXXXXXX Amalco from XXXXXXXXXX on the amalgamation described in paragraph 30, will be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of XXXXXXXXXX Amalco.

S. Pursuant to subsection 1102(14) of the Regulations, each property which, immediately before the transfer described in paragraph 34, is depreciable property of a prescribed class or separate prescribed class of XXXXXXXXXX Amalco and which is acquired by XXXXXXXXXX, as the case may be, on the transfer described in paragraph 34, will be depreciable property of the same prescribed class or separate prescribed class, as the case may be, of XXXXXXXXXX, as the case may be.

T. Provided that the condition specified in paragraph 1100(2.2)(f) or (g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included by XXXXXXXXXX Amalco or XXXXXXXXXX, as the case may be, under paragraph 1100(2)(a) of the Regulations in respect of depreciable property of a prescribed class that is property acquired by XXXXXXXXXX Amalco from XXXXXXXXXX on the amalgamation described in paragraph 30 above and then by XXXXXXXXXX, as the case may be, from XXXXXXXXXX Amalco on the transfer described in paragraph 34 above.

U. Pursuant to subsection 1101(1ad) of the Regulations, each rental property (within the meaning given in subsection 1100(14) of the Regulations) which is acquired by XXXXXXXXXX Amalco from XXXXXXXXXX on the amalgamation described in paragraphs 30 above, and then by XXXXXXXXXX, as the case may be, from XXXXXXXXXX Amalco on the transfer described in paragraph 34 above and which would otherwise be rental property of a separate prescribed class under subsection 1101(1ac) of the Regulations, will be deemed not to be property of a separate prescribed class of XXXXXXXXXX Amalco or XXXXXXXXXX under subsection 1101(1ac) of the Regulations provided that such property was a rental property included in a prescribed class of XXXXXXXXXX other than a separate class prescribed under subsection 1101(1ac) of the Regulations.

V. Provided that XXXXXXXXXX, as the case may be, continues to use the property acquired from XXXXXXXXXX Amalco, as described in paragraph 34 above, for the purpose of gaining or producing income (other than income which is exempt from taxation) from such property and XXXXXXXXXX, as the case may be, has a legal obligation to pay interest in respect of the liabilities assumed by XXXXXXXXXX, as the case may be, as described in paragraph 34 above (other than liabilities in respect of which XXXXXXXXXX Amalco was not entitled to deduct interest under paragraph 20(1)(c)), any such interest paid in the year or payable in respect of the year (depending on the method regularly followed by XXXXXXXXXX, as the case may be, in computing its income for the purposes of the Act) by XXXXXXXXXX, as the case may be, in respect of such liabilities, not in excess of a reasonable amount, will be deductible in computing the income of XXXXXXXXXX, as the case may be, under paragraph 20(1)(c).

W. The cancellation of the XXXXXXXXXX Redemption Note, XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note and XXXXXXXXXX Amalco XXXXXXXXXX Issue Note, as described in paragraph 39 above, and the cancellation of the XXXXXXXXXX Redemption Note, XXXXXXXXXX Amalco XXXXXXXXXX Redemption Note and XXXXXXXXXX Amalco XXXXXXXXXX Issue Note, as described in paragraph 40 above, will not give rise to a "forgiven amount".

X. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not be applied as a result of the proposed transactions, in and by themselves.

Y. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 issued by Revenue Canada and are binding provided that the proposed transactions are completed before XXXXXXXXXX.

These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.

OPINION

1. In the event that the proposed amendment to paragraph 256(7)(b) is enacted as proposed in Bill C-28 in the form which received first reading by the House of Commons on December 10, 1997 it is our opinion that the Amalgamation will not result in an acquisition of control of any of Newco, Holdco, XXXXXXXXXX, Subco or XXXXXXXXXX for the purposes of provisions set out in the preamble to subsection 256(7).

2. Provided that:

(a) the transactions described in paragraphs 22, 23, 24, 25 26 and 27 above are not part of a series of transactions or events which includes the proposed transactions described herein;

(b) our understanding of the facts and proposed transactions described herein is correct;

(c) the proposed amendments to section 55 are enacted as proposed in Bill C-28 in the form which received first reading by the House of Commons on December 10, 1997; and

(d) as part of the series of transactions or events that includes the proposed transactions described herein, there is no:

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

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

(iii) acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(iv) acquisition of property in the circumstances described in paragraph 55(3.1)(d)

which has not been described herein,

it is our opinion that by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling L above and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

COMMENTS

1. Nothing in this letter should be construed as confirmation that Revenue Canada has reviewed or accepted

(a) the determination of the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares, or

(b) any tax consequences arising from the facts or proposed transactions described herein other than those specifically confirmed in the rulings given.

2. It is our view that subsection 69(11) will apply where there is a subsequent disposition of the property or a property substituted therefor within 3 years after XXXXXXXXXX Amalco's transfers of property to XXXXXXXXXX described herein that is part of the series of transactions described herein.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch