2002 Ruling 2002-0129763 - XXXXXXXXXX

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 CCRA.

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

Principal Issues: Wind-up and bump transaction. Deductibility of indebtedness issued in the course of acquiring all the issued and outstanding shares of the subsidiary.

Position: Favourable rulings provided subject to certain limitations.

Reasons: The law.

XXXXXXXXXX 2002-012976

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX and your other correspondence, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. Except for the transactions that were the subject of an earlier advance income tax ruling dated XXXXXXXXXX, 2001 (#2001-011036 - the "Prior Ruling") you have advised us that to the best of your knowledge and that of the taxpayer involved none of the issues involved in this ruling request:

(a) is in an earlier return of the taxpayer or a related person;

(b) is being considered by a tax services office ("TSO") or taxation centre ("TC") in connection with a previously filed tax return of the taxpayer or a related person;

(c) is under objection by the taxpayer or a related person;

(d) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; or

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

DEFINITIONS

In this letter, unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars and unless otherwise indicated:

(a) XXXXXXXXXX;

(b) "AcquisitionCo" means XXXXXXXXXX and is more fully described in Paragraph 2;

(c) "AcquisitionCo Note 1" means a promissory note which: will be issued by AcquisitionCo, on the basis described in Paragraph 14, will have a principal amount equal to the Target Amalco Debt Repayment Amount, will mature on XXXXXXXXXX, will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of AcquisitionCo with the same principal amount as AcquisitionCo Note 1, will be prepayable, at the option of AcquisitionCo, at any time prior to its maturity date. AcquisitionCo will have the option to satisfy interest and principal payments which it is required to make thereunder by the issuance and delivery by AcquisitionCo to the holder of fully paid and non-assessable common shares of AcquisitionCo having a FMV, at the time of their issuance, of an amount equal to the amount of the required interest and principal payments;

(d) "AcquisitionCo Note 2" means a promissory note which: will be issued by AcquisitionCo, on the basis described in Paragraph 16, will have a principal amount equal to a portion of the amount of the PubcoSub Indebtedness, will mature on XXXXXXXXXX (subject to extension to XXXXXXXXXX), will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of AcquisitionCo with the same principal amount as AcquisitionCo Note 2, and which will be prepayable, at the option of AcquisitionCo, at any time prior to its maturity date;

(e) "AcquisitionCo Note 3" means a promissory note which: will be issued by AcquisitionCo, on the basis described in Paragraph 16, will have a principal amount equal to the amount by which the amount of the PubcoSub Indebtedness exceeds the principal amount of AcquisitionCo Note 2, will mature on XXXXXXXXXX, will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of AcquisitionCo with the same principal amount as AcquisitionCo Note 3, and which will be prepayable, at the option of AcquisitionCo, at any time prior to its maturity date;

(f) "Act" means the Income Tax Act (Canada), 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 to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provisions of the Act and the income tax regulations thereunder are referred to as the "Regulations";

(g) "ACB" means adjusted cost base as defined in section 54 and subsection 248(1);

(h) "AcquisitionCo Note 1 New Target Amalco Shares" means the preferred shares of Target Amalco described in paragraph 15;

(i) AcquisitionCo Note 2 New Target Amalco Shares" means the preferred shares of Target Amalco described in paragraph 17;

(j) AcquisitionCo Note 3 New Target Amalco Shares" means the preferred shares of Target Amalco described in paragraph 17;

(k) "AcquisitionCo Note 2 PubcoSub Indebtedness" means the indebtedness of PubcoSub described in paragraph 16;

(l) "AcquisitionCo Note 3 PubcoSub Indebtedness" means the indebtedness of PubcoSub described in paragraph 16;

(m) "AcquisitionCo Note 1 XXXXXXXXXX Shares" means the preferred shares of PubcoSub described in paragraph 14;

(n) "AcquisitionCo Note 1 XXXXXXXXXX Shares" means the preferred shares of Target Amalco described in paragraph 14;

(o) "agreed amount" has the meaning assigned by subsection 85(1);

(p) XXXXXXXXXX;

(q) "capital property" has the meaning assigned by section 54 and subsection 248(1);

(r) "CBCA" means the Canada Business Corporations Act;

(s) "XXXXXXXXXX AcquisitionCo Preferred Shares" means the preferred shares of AcquisitionCo described in Paragraph 10(b);

(t) "fair market value" ("FMV") means the amount at which property would be transferred by a willing buyer to a willing seller, in an open and unrestricted market, between informed parties under no compulsion to act, as would be determined in accordance with the basic principles of valuation endorsed by the Canadian Institute of Chartered Business Valuators;

(u) "Internal Reorganization" means any transaction or series of transactions involving only members of the Pubco Group including, without limitation, the transfer of shares or assets between members of the Pubco Group, the wind-up of a Pubco Group member into another Pubco Group member, the amalgamation of members of the Pubco Group with other members of the Pubco Group, or the transfer of funds between members of the Pubco Group pursuant to intercompany financing transactions;

(v) "InterCompany Debt" means, collectively, the indebtedness described in Paragraph 8;

(w) "New AcquisitionCo Preferred Shares" means the preferred shares of AcquisitionCo described in Paragraph 12(a);

(x) "New PubcoSub Preferred Shares" means the preferred shares of PubcoSub described in Paragraph 12(b);

(y) "New Target Amalco Preferred Shares" means the preferred shares of Target Amalco described in Paragraph 12(c);

(z) "Offer" means the public offer by Pubco and AcquisitionCo to purchase all of the Target Shares, as described in Paragraph 9 of the Prior Ruling;

(aa) "paid-up capital" ("PUC") means paid-up capital as that expression is defined in subsection 89(1);

(bb) "Paragraph" refers to a numbered paragraph in this letter or, where specifically identified as such, a numbered paragraph in the Prior Ruling;

(cc) "Pubco" means XXXXXXXXXX and is more fully described in Paragraph 1;

(dd) "Pubco Group" means, at any time, Pubco, AcquisitionCo and each person that was at that time related, as defined by subsection 251(2) as read without reference to paragraph 251(5)(b), to Pubco and AcquisitionCo, and includes any partnership all of the members of which are members of the Pubco Group;

(ee) "PubcoSub" means XXXXXXXXXX and is more fully described in Paragraph 4;

(ff) "PubcoSub 2" means XXXXXXXXXX and is more fully described in Paragraph 5;

(gg) "PubcoSub Indebtedness" means all of the indebtedness of PubcoSub owing to Pubco, determined immediately prior to the commencement of the Proposed Transactions including any accrued interest thereon and for greater certainty includes the indebtedness described in Paragraphs 8(a) and 13(b);

(hh) "PubcoSub Non-Voting Shares" means the new class of non-voting common shares of PubcoSub to be authorized by the Articles of Amendment described in Paragraph 19;

(ii) "PubcoSub Note 1" means a promissory note which: will be issued by PubcoSub, on the basis described in Paragraph 20, will have a principal amount equal to the principal amount of AcquisitionCo Note 1, will mature on XXXXXXXXXX, will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of PubcoSub with the same principal amount as PubcoSub Note 1, will be prepayable, at the option of PubcoSub, at any time prior to its maturity date. PubcoSub will have the option to satisfy interest and principal payments which it is required to make thereunder by the issuance and delivery by PubcoSub to the holder of fully paid and non-assessable PubcoSub Shares having a FMV, at the time of their issuance, of an amount equal to the amount of the required interest and principal payments;

(jj) "PubcoSub Note 2" means a promissory note which: will be issued by PubcoSub, on the basis described in Paragraph 20, will have a principal amount equal to the principal amount of AcquisitionCo Note 2, will mature on XXXXXXXXXX (subject to extension to XXXXXXXXXX), will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of PubcoSub with the same principal amount as PubcoSub Note 2, and which will be prepayable, at the option of PubcoSub, at any time prior to its maturity date;

(kk) "PubcoSub Note 3" means a promissory note which: will be issued by PubcoSub, on the basis described in Paragraph 20, will have a principal amount equal to the principal amount of AcquisitionCo Note 3, will mature on XXXXXXXXXX, will bear interest at the annual rate of XXXXXXXXXX%, will be exchangeable, at the option of the holder, for another note of PubcoSub with the same principal amount as PubcoSub Note 3, and which will be prepayable, at the option of PubcoSub, at any time prior to its maturity date;

(ll) "PubcoSub XXXXXXXXXX Preferred Shares" means the preferred shares of PubcoSub described in Paragraph 9(a);

(mm) "PubcoSub XXXXXXXXXX Preferred Shares" means the preferred shares of PubcoSub described in Paragraph 9(b);

(nn) "PubcoSub XXXXXXXXXX Preferred Shares" means the preferred shares of PubcoSub described in Paragraph 9(c);

(oo) "PubcoSub XXXXXXXXXX Preferred Shares" means the preferred shares of PubcoSub described in Paragraph 9(d);

(pp) "PubcoSub Shares" means the Ordinary Shares of PubcoSub which are voting common shares;

(qq) "Public Preferred Shares" means certain preferred shares of PubcoSub described in Paragraph 4;

(rr) "XXXXXXXXXX AcquisitionCo Preferred Shares" means the preferred shares of AcquisitionCo described in Paragraph 10(a);

(ss) "Take-Up Date" means XXXXXXXXXX, the date upon which Target Shares were acquired by Pubco and AcquisitionCo pursuant to the Offer;

(tt) "Target" means XXXXXXXXXX, a predecessor corporation of Target Amalco;

(uu) "Target Amalco" means XXXXXXXXXX, the corporation formed on the amalgamation of Target and TargetSubA and is more fully described in Paragraph 3;

(vv) "Target Amalco A Notes" means the demand promissory notes described in Paragraph 6;

(ww) "Target Amalco B Notes" means the promissory notes described in Paragraph 7;

(xx) XXXXXXXXXX;

(yy) "Target Amalco Debt Repayment Amount" means the aggregate of the amounts of indebtedness of Target Amalco which have been, or will have been, repaid on the basis described in Paragraphs 11(a), 11(c) and 13(a);

(zz) "Target Amalco XXXXXXXXXX Preference Shares" means the authorized Preference Shares - XXXXXXXXXX of Target Amalco which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares ($XXXXXXXXXX per share in respect of the currently issued and outstanding shares), plus any declared but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference on dissolution over the XXXXXXXXXX shares of Target Amalco for the return of the redemption amount plus declared but unpaid dividends; (iv) are subject to an annual non-cumulative dividend at the rate of XXXXXXXXXX% or such other rate as the directors may determine; and (v) are convertible into XXXXXXXXXX non-voting shares of Target Amalco at the option of the holder;

(aaa) XXXXXXXXXX;

(bbb) "Target Partnership" means XXXXXXXXXX, a general partnership described in Paragraph 7 of the Prior Ruling;

(ccc) XXXXXXXXXX;

(ddd) XXXXXXXXXX;

(eee) "TargetSubA" means the former XXXXXXXXXX, a predecessor corporation of Target Amalco;

(fff) "TargetSubB" means the former XXXXXXXXXX, a predecessor corporation of PubcoSub;

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

(hhh) "taxation year" has the meaning assigned by subsection 249(1); and

(iii) "Transferred Target Amalco Shares" means the shares of Target Amalco described in Paragraph 20;

FACTS

1. Pubco is a taxable Canadian corporation and a public corporation which is subject to the BCA and which has its head office in XXXXXXXXXX. Pubco's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX TSOs. As of the date hereof, the issued share capital of Pubco consists of a class of voting common shares and a class of non-voting common shares, which are listed for trading on at least one prescribed stock exchange, and which are widely held.

2. AcquisitionCo is a taxable Canadian corporation, which is subject to the BCA and which has its head office in XXXXXXXXXX. AcquisitionCo's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX TSO. As of the date hereof, the issued share capital of AcquisitionCo consists of a class of voting common shares and several classes of non-voting preferred and preference shares. Pubco owns all of the voting common shares and some of the issued non-voting preference shares of AcquisitionCo, while other members of the Pubco Group own the remaining issued non-voting preferred and preference shares.

3. Target Amalco is a taxable Canadian corporation and a public corporation, which is subject to the CBCA. Target Amalco's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX TSO. As part of a series of transactions that were the subject matter of the Prior Ruling, Target Amalco was formed as a result of the amalgamation of two predecessor corporations, TargetSubA and Target, on XXXXXXXXXX . Except for the Target Amalco XXXXXXXXXX Preferred Shares described in Paragraph 11, all the remaining issued and outstanding classes of shares of Target Amalco are owned by AcquisitionCo.

4. PubcoSub is a taxable Canadian corporation and a public corporation, which is subject to the CBCA. PubcoSub was formed by vertical amalgamation of its two predecessor corporations, PubcoSub and TargetSubB, on XXXXXXXXXX as part of an Internal Reorganization. Immediately prior to this vertical amalgamation, TargetSubB was a taxable Canadian corporation that was a wholly-owned subsidiary of PubcoSub. Prior to XXXXXXXXXX, TargetSubB was a wholly-owned subsidiary of Target and all the common shares of PubcoSub were owned by Pubco. Currently, all of the common shares and XXXXXXXXXX preferred shares of PubcoSub are owned by Target Amalco. Other XXXXXXXXXX preferred shares of PubcoSub are owned by Pubco and PubcoSub2 as described in Paragraph 9. PubcoSub also has XXXXXXXXXX other classes of preferred shares each of which are listed on a prescribed stock exchange and are widely held by persons who are unrelated persons with respect to members of the Pubco Group (the "Public Preferred Shares"). The aggregate redemption amount of the Public Preferred Shares is $XXXXXXXXXX. Pubco holds a small number of preferred shares from XXXXXXXXXX classes referred to above having an aggregate redemption amount of $XXXXXXXXXX .

5. PubcoSub 2 is a taxable Canadian corporation, which is subject to the XXXXXXXXXX. Pubco owns all of the issued and outstanding common shares of PubcoSub 2. Other members of the Pubco Group, including PubcoSub, own the issued and outstanding preferred shares of PubcoSub 2. PubcoSub 2 carries on a non-regulated enhanced data business and is a partner in the XXXXXXXXXX.

Target Amalco Notes

6. The Target Amalco A Notes consisted of XXXXXXXXXX The Target Amalco A Notes were originally issued by Target or TargetSubA to Pubco, as the case may be, in respect of amounts borrowed from Pubco to repay certain external debt, to acquire certain property and for operating purposes, and became obligations of Target Amalco to Pubco following the amalgamation of TargetSubA and Target described in Paragraph 3.

7. The Target Amalco B Notes consisted of XXXXXXXXXX The note dated XXXXXXXXXX was originally issued by TargetSubA to PubcoSub in respect of an amount borrowed from PubcoSub to acquire Target Partnership B Units. The notes dated XXXXXXXXXX were originally issued by Target to XXXXXXXXXX predecessors of PubcoSub in respect of amounts borrowed to repay certain external debt of Target. The Target Amalco B Notes became obligations of Target Amalco to PubcoSub following the amalgamation of TargetSubA and Target described in Paragraph 3.

InterCompany Debt

8. As of the date hereof (with amounts determined as of XXXXXXXXXX):

(a) Pubco holds several interest-bearing promissory notes of PubcoSub which are payable on demand with an aggregate principal amount of approximately $XXXXXXXXXX;

(b) PubcoSub 2 holds XXXXXXXXXX interest-bearing promissory notes of PubcoSub which are payable on demand with an aggregate principal amount of approximately $XXXXXXXXXX; and

(c) Target Amalco, PubcoSub and the Target Partnership have outstanding advances (excluding payables arising in the ordinary course of business) owing to other members of the XXXXXXXXXX (excluding each other) of approximately $XXXXXXXXXX.

In aggregate, the foregoing, together with any accrued interest thereon, constitute the "InterCompany Debt".

PubcoSub Preferred Shares

9. In addition to the Public Preferred Shares described in Paragraph 4, PubcoSub's share capital includes the following preferred shares that have been issued to members of the XXXXXXXXXX:

(a) XXXXXXXXXX Preferred Shares (the "PubcoSub XXXXXXXXXX Preferred Shares") with an aggregate redemption amount of $XXXXXXXXXX held by Pubco;

(b) XXXXXXXXXX Preferred Shares (the "PubcoSub XXXXXXXXXX Preferred Shares") with an aggregate redemption amount of $XXXXXXXXXX held by Pubco;

(c) XXXXXXXXXX Preferred Shares (the "PubcoSub XXXXXXXXXX Preferred Shares") with an aggregate redemption amount of $XXXXXXXXXX held by Target Amalco; and

(d) XXXXXXXXXX Preferred Shares (the "PubcoSub XXXXXXXXXX Preferred Shares") with an aggregate redemption amount of $XXXXXXXXXX held by PubcoSub 2.

PubcoSub Shareholding in AcquisitionCo

10. PubcoSub holds the following preferred shares of AcquisitionCo:

(a) XXXXXXXXXX Preferred Shares of AcquisitionCo (the "XXXXXXXXXX AcquisitionCo Preferred Shares") which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares ($XXXXXXXXXX per share in respect of the currently issued and outstanding shares), plus any accrued but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference on dissolution over the common shares of AcquisitionCo for the return of the redemption amount plus accrued but unpaid dividends; (iv) are subject to an annual cumulative dividend equal to the Prime Rate (as defined in the share terms) plus XXXXXXXXXX%; and (v) are convertible into common shares of AcquisitionCo at the option of the holder. The aggregate redemption amount, not including accrued but unpaid dividends, of the XXXXXXXXXX AcquisitionCo Preferred Shares is $XXXXXXXXXX; and

(b) XXXXXXXXXX Preference Shares (the "XXXXXXXXXX AcquisitionCo Preferred Shares") which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares ($XXXXXXXXXX per share in respect of the currently issued and outstanding shares), plus any accrued but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference on dissolution over the common shares of AcquisitionCo for the return of the redemption amount plus accrued but unpaid dividends; (iv) are subject to an annual cumulative dividend at the rate of XXXXXXXXXX%; and (v) are convertible into common shares of AcquisitionCo at the option of the holder. The aggregate redemption amount, not including accrued but unpaid dividends, of the XXXXXXXXXX AcquisitionCo Preferred Shares is $XXXXXXXXXX.

Transactions Following Prior Ruling

11. Following the amalgamation of TargetSubA and Target to form Target Amalco, as described in Paragraph 3 above, the following additional transactions were undertaken:

(a) Target Amalco issued to Pubco, as repayment in full of the aggregate principal amount of the Target Amalco A Notes and accrued interest thereon, XXXXXXXXXX Target Amalco XXXXXXXXXX Preference Shares having an aggregate redemption amount and FMV equal to $XXXXXXXXXX;

(b) PubcoSub repaid the principal amount of certain indebtedness and the accrued interest thereon (in aggregate $XXXXXXXXXX) owing to Pubco by transferring to Pubco the Target Amalco B Notes and the accrued interest thereon (with the aggregate FMV of such transferred property being equal to the amount of indebtedness and accrued interest thereon extinguished); and

(c) Target Amalco issued to Pubco, as repayment in full of the aggregate principal amount of the Target Amalco B Notes and accrued interest thereon, XXXXXXXXXX Target Amalco XXXXXXXXXX Preference Shares having an aggregate redemption amount and FMV equal to $XXXXXXXXXX.

12. The following amendments will be made to the Articles of AcquisitionCo, PubcoSub and Target Amalco:

(a) The Articles of AcquisitionCo will be amended to create a new class of preferred shares (the "New AcquisitionCo Preferred Shares") which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares, plus any declared but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference over all other classes of shares of AcquisitionCo as to dividends, redemptions, retractions and upon a dissolution for the return of the redemption amount plus any declared but unpaid dividends; (iv) are subject to an annual non-cumulative dividend at a rate to be determined by resolution of the directors prior to the issuance of such shares; and (v) are convertible into common shares of AcquisitionCo at the option of the holder.

(b) The Articles of PubcoSub will be amended to create a new class of preferred shares (the "New PubcoSub Preferred Shares") which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares, plus any declared but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference over all other classes of shares of PubcoSub (other than the Public Preferred Shares) as to dividends, redemptions, retractions and upon a dissolution for the return of the redemption amount plus any declared but unpaid dividends; (iv) are subject to an annual non-cumulative dividend at a rate to be determined by resolution of the directors prior to the issuance of such shares; and (v) are convertible into common shares of PubcoSub at the option of the holder.

(c) The Articles of Target Amalco will be amended to create a new class of preferred shares (the "New Target Amalco Preferred Shares") which: (i) are non-voting; (ii) are redeemable and retractable for an amount to be determined by a resolution of the directors prior to the issuance of such shares, plus any declared but unpaid dividends which have accumulated prior to the date of the redemption or retraction; (iii) have a preference over all other classes of shares of Target Amalco as to dividends, redemptions, retractions and upon a dissolution for the return of the redemption amount plus any declared but unpaid dividends; (iv) are subject to an annual non-cumulative dividend at a rate to be determined by resolution of the directors prior to the issuance of such shares; and (v) are convertible into common shares of Target Amalco at the option of the holder.

13. Prior to the commencement of the Proposed Transactions, the following transactions will have been completed in the sequence hereinafter indicated:

(a) Target Amalco will issue to Pubco, as consideration for the repurchase and settlement of the Target Amalco Convertible Debentures and accrued interest thereon, a number of New Target Amalco Preferred Shares having an aggregate redemption amount and FMV equal to the aggregate FMV of the Target Amalco Convertible Debentures and accrued interest thereon.

(b) PubcoSub 2 will transfer the indebtedness of PubcoSub owing to it as described in Paragraph 8(b), including any accrued interest thereon, to Pubco in repayment of a corresponding amount of the indebtedness of PubcoSub 2 to Pubco.

(c) PubcoSub 2 will transfer the remaining portion of the indebtedness of PubcoSub to it, as evidenced by advances, to AcquisitionCo in exchange for a number of New AcquisitionCo Preferred Shares having an aggregate FMV equal to the amount of such transferred indebtedness.

(d) AcquisitionCo will transfer the indebtedness of PubcoSub described in Paragraph 13(c) to Target Amalco for New Target Amalco Preferred Shares.

(e) Pubco will transfer two promissory notes receivable from PubcoSub, including any accrued interest thereon, to AcquisitionCo in exchange for New AcquisitionCo Preferred Shares.

(f) AcquisitionCo will transfer the promissory notes receivable from PubcoSub, as described in Paragraph 13(e), to PubcoSub in repayment of a corresponding amount of indebtedness of AcquisitionCo to PubcoSub.

(g) PubcoSub 2 will transfer the PubcoSub XXXXXXXXXX Preferred Shares it holds to AcquisitionCo in exchange for New AcquisitionCo Preferred Shares.

(h) PubcoSub will transfer certain promissory notes receivable from Pubco to AcquisitionCo for promissory notes receivable from AcquisitionCo.

(i) Target Amalco will repurchase the Target Amalco Warrants from Pubco for a cash payment equal to their FMV.

The transactions described above will result in the settlement or transfer to Target Amalco of a portion of the InterCompany Debt, with the balance of the InterCompany Debt being transferred to Target Amalco and ultimately extinguished through the Proposed Transactions described in Paragraphs 16, 17 and 21.

The settlement of the Target Amalco Convertible Debentures by the issuance of New Target Amalco Preferred Shares described in Paragraph 13(a) should have no effect on the FMV of the other issued and outstanding preferred or common shares of Target Amalco. Pubco currently has a preferred claim to Target Amalco's assets equal to the principal amount of the Target Amalco Convertible Debentures, which have priority over the entitlements of any issued and outstanding Target Amalco shares. By accepting the New Target Amalco Preferred Shares in satisfaction of the obligation represented by the Target Amalco Convertible Debentures, Pubco will continue to have a preferred claim to Target Amalco's assets equal to the aggregate redemption amount of the New Target Amalco Preferred Shares, which have priority over any other issued and outstanding Target Amalco Shares. Since the aggregate redemption amount of the New Target Amalco Preferred Shares will be equal to the FMV of the Target Amalco Convertible Debentures, the FMV of the other issued and outstanding Target Amalco shares will be unaffected.

In respect of some of the transactions described above, elections under subsection 85(1) will be made.

PROPOSED TRANSACTIONS

14. Pubco will transfer the Target Amalco XXXXXXXXXX Preference Shares issued to it, as described in Paragraphs 11(a) and 11(c), the New Target Amalco Preferred Shares issued to it, as described in Paragraph 13(a), the PubcoSub XXXXXXXXXX Preferred Shares, the PubcoSub XXXXXXXXXX Preferred Shares and any of the Public Preferred Shares it holds to AcquisitionCo in exchange for AcquisitionCo Note 1 and New AcquisitionCo Preferred Shares. The aggregate FMV of the consideration issued by AcquisitionCo to Pubco for such transferred property will equal the FMV thereof. For greater certainty, the agreement pursuant to which this transaction will be implemented will provide that a portion of the purchase price of the PubcoSub XXXXXXXXXX Preferred Shares (such portion not to exceed the lesser of the ACB or FMV of such shares) will be considered to have been paid by the issuance of a corresponding portion of the AcquisitionCo Note 1 and that a portion of the purchase price of the Target Amalco XXXXXXXXXX Preference Shares (such portion not to exceed the lesser of the ACB or FMV of such shares) will be considered to have been paid by the issuance of the remaining portion of the AcquisitionCo Note 1. The portion of the transferred PubcoSub XXXXXXXXXX Preferred Shares that is considered to have been paid for by the issuance of a portion of the AcquisitionCo Note 1 is hereinafter referred to as the "AcquisitionCo Note 1 XXXXXXXXXX Shares" and the portion of the transferred Target Amalco XXXXXXXXXX Preference Shares that is considered to have been paid for by the issuance of the remaining portion of AcquisitionCo Note 1 is hereinafter referred to as the "AcquisitionCo Note 1 XXXXXXXXXX Shares". A legend will be placed upon the new certificates, which will be issued to AcquisitionCo as a result of this transaction, which will indicate that the PubcoSub XXXXXXXXXX Preferred Shares (including the AcquisitionCo Note 1 XXXXXXXXXX Shares) and the Target Amalco XXXXXXXXXX Preference Shares (including the AcquisitionCo Note 1 XXXXXXXXXX Shares) were acquired by AcquisitionCo in exchange for consideration that included the issuance of a portion of AcquisitionCo Note 1.

Pubco and AcquisitionCo will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6), with respect to some of the transferred shares described above. For greater certainty, the PUC of the New AcquisitionCo Preferred Shares will not exceed the maximum amount that would be permitted, having regard to subsection 85(2.1).

15. AcquisitionCo will transfer the PubcoSub XXXXXXXXXX Preferred Shares, the PubcoSub XXXXXXXXXX Preferred Shares (including the AcquisitionCo Note 1 XXXXXXXXXX Shares) and the Public Preferred Shares acquired from Pubco, as described in Paragraph 14, and the PubcoSub XXXXXXXXXX Preferred Shares acquired from PubcoSub 2, as described in Paragraph 13(g), to Target Amalco in exchange for New Target Amalco Preferred Shares that have a FMV equal to the aggregate FMV of such transferred shares. AcquisitionCo and Target Amalco will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6), with respect to the transfer. For greater certainty, the agreement pursuant to which this transaction will be implemented will provide that a portion of the New Target Amalco Preferred Shares (the "AcquisitionCo Note 1 New Target Amalco Shares") having a FMV equal to the FMV of the AcquisitionCo Note 1 XXXXXXXXXX Shares will be considered to have been issued by Target Amalco in exchange for the AcquisitionCo Note 1 XXXXXXXXXX Shares. A legend will be placed upon the new certificates, which will be issued to AcquisitionCo as a result of this transaction, which will indicate that the AcquisitionCo Note 1 New Target Amalco Shares were issued to AcquisitionCo in exchange for the AcquisitionCo Note 1 XXXXXXXXXX Shares and that AcquisitionCo had financed the acquisition of the AcquisitionCo Note 1 XXXXXXXXXX Shares by the issuance of a portion of AcquisitionCo Note 1.

The addition to the stated capital of Target Amalco in respect of the New Target Amalco Preferred Shares that will be issued as consideration for the transferred shares described in this Paragraph under the CBCA will equal the cost (determined in accordance with subsection 85(1)) of such transferred shares immediately after their acquisition. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Transfer of PubcoSub Indebtedness

16. Pubco will transfer the PubcoSub Indebtedness to AcquisitionCo in exchange for AcquisitionCo Note 2 and AcquisitionCo Note 3 plus at least one New AcquisitionCo Preferred Share with a nominal FMV. The aggregate FMV of the consideration issued by AcquisitionCo for the PubcoSub Indebtedness will equal the FMV thereof. The rate of interest on each of AcquisitionCo Note 2 and AcquisitionCo Note 3 will be less than the blended rate of interest on the PubcoSub Indebtedness. Pubco and AcquisitionCo may jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6), with respect to the transfer of the PubcoSub Indebtedness. For greater certainty, the agreement pursuant to which this transaction will be implemented will provide that a portion of the purchase price of the PubcoSub Indebtedness which, in aggregate, has a FMV (i.e. the principal amount plus any accrued interest) equal to the principal amount of AcquisitionCo Note 2 will be considered to have been paid by the issuance of the AcquisitionCo Note 2 and a portion of the purchase price of the PubcoSub Indebtedness which, in aggregate, has a FMV (i.e. the principal amount plus any accrued interest) equal to the principal amount of AcquisitionCo Note 3 will be considered to have been paid by the issuance of the AcquisitionCo Note 3. The portion of the transferred PubcoSub Indebtedness that is considered to have been paid for by the issuance of the AcquisitionCo Note 2 is herein referred to as the "AcquisitionCo Note 2 PubcoSub Indebtedness" and the portion of the transferred PubcoSub Indebtedness that is considered to have been paid for by the issuance of the AcquisitionCo Note 3 is herein referred to as the "AcquisitionCo Note 3 PubcoSub Indebtedness". As a result of the winding-up of Target Amalco, as described in Paragraph 21, the PubcoSub Indebtedness will be extinguished.

The PUC of any New AcquisitionCo Preferred Shares issued as described in this Paragraph will be nominal.

17. AcquisitionCo will transfer the PubcoSub Indebtedness to Target Amalco in exchange for New Target Amalco Preferred Shares that have a FMV equal to the FMV (i.e. the principal amount plus any accrued interest) of the PubcoSub

Indebtedness. AcquisitionCo and Target Amalco may jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6), with respect to the transfer of the PubcoSub Indebtedness. For greater certainty, the agreement pursuant to which this transaction will be implemented will provide that a portion of the purchase price of the PubcoSub Indebtedness equal to the FMV of the AcquisitionCo Note 2 PubcoSub Indebtedness will be considered to have been paid by the issuance of a number of New Target Amalco Preferred Shares (the "AcquisitionCo Note 2 New Target Amalco Shares") with a FMV equal to the FMV of the AcquisitionCo Note 2 PubcoSub Indebtedness and that a portion of the PubcoSub Indebtedness equal to the FMV of the AcquisitionCo Note 3 PubcoSub Indebtedness will be considered to have been paid for by the issuance of a number of New Target Amalco Preferred Shares (the "AcquisitionCo Note 3 New Target Amalco Shares") with a FMV equal to the FMV of the AcquisitionCo Note 3 PubcoSub Indebtedness. A legend will be placed upon the share certificates, which will be issued to AcquisitionCo as a result of this transaction, which will indicate that the AcquisitionCo Note 2 New Target Amalco Shares were issued to AcquisitionCo in exchange for the AcquisitionCo Note 2 PubcoSub Indebtedness and the AcquisitionCo Note 3 New Target Amalco Shares were issued to AcquisitionCo in exchange for the AcquisitionCo Note 3 PubcoSub Indebtedness, respectively, and that AcquisitionCo had financed the cost of the AcquisitionCo Note 2 PubcoSub Indebtedness and the AcquisitionCo Note 3 PubcoSub Indebtedness, respectively, by the issuance of AcquisitionCo Note 2 and AcquisitionCo Note 3.

The addition to the stated capital of the New Target Amalco Preferred Shares that will be issued as consideration for the PubcoSub Indebtedness under the CBCA will be equal to the FMV (i.e. the principal amount plus any accrued interest) of the PubcoSub Indebtedness. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Recapitalization of Target Amalco

18. The following transactions will be undertaken to recapitalize Target Amalco:

(a) AcquisitionCo will transfer all of its XXXXXXXXXX common shares and XXXXXXXXXX common shares of Target Amalco to Target Amalco in exchange for one New Target Amalco Preferred Share;

(b) AcquisitionCo will transfer all of its Preference Shares - XXXXXXXXXX and Preference Shares - XXXXXXXXXX of Target Amalco to Target Amalco in exchange for a number of New Target Amalco Preferred Shares having an aggregate FMV equal to the aggregate FMV of the Preference Shares - XXXXXXXXXX and Preference Shares - XXXXXXXXXX so transferred; and

(c) AcquisitionCo will transfer all of its Target Amalco XXXXXXXXXX Preference Shares (including the AcquisitionCo Note 1 XXXXXXXXXX Shares) to Target Amalco in exchange for a number of New Target Amalco Preferred Shares having an aggregate FMV equal to the aggregate FMV of such transferred shares.

For greater certainty, the agreement pursuant to which this recapitalization will be implemented will provide that a portion of the New Target Amalco Preferred Shares (the "Second AcquisitionCo Note 1 New Target Amalco Shares") having an aggregate FMV equal to the aggregate FMV of the AcquisitionCo Note 1 XXXXXXXXXX Shares will be considered to have been issued by Target Amalco in exchange for the AcquisitionCo Note 1 XXXXXXXXXX Shares. A legend will be placed upon the new certificates, which will be issued to AcquisitionCo as a result of this recapitalization, which will indicate that the Second AcquisitionCo Note 1 New Target Amalco Shares were issued to AcquisitionCo in exchange for the AcquisitionCo Note 1 XXXXXXXXXX Shares and that AcquisitionCo had financed the acquisition of the AcquisitionCo Note 1 XXXXXXXXXX Shares by the issuance of a portion of AcquisitionCo Note 1.

Somersault

19. PubcoSub will file Articles of Amendment to authorize the issuance of a new class of non-voting common shares ("PubcoSub Non-Voting Shares"), and to exchange all of the outstanding PubcoSub Shares into PubcoSub Non-Voting Shares. Such PubcoSub Shares will be cancelled following this exchange.

20. AcquisitionCo will transfer all of its shares in Target Amalco (the "Transferred Target Amalco Shares", which following the recapitalization described in Paragraph 18, consist of one XXXXXXXXXX common share of Target Amalco and New Target Amalco Preferred Shares) to PubcoSub in exchange for PubcoSub Note 1, PubcoSub Note 2, PubcoSub Note 3, at least one PubcoSub Share and a number of New PubcoSub Preferred Shares having an aggregate FMV equal to the FMV of the Transferred Target Amalco Shares. For greater certainty, the rate of interest on PubcoSub Note 1, PubcoSub Note 2, and PubcoSub Note 3 will be greater than the rate of interest on the corresponding AcquisitionCo Note 1, AcquisitionCo Note 2 and AcquisitionCo Note 3, and the agreement pursuant to which this transaction will be implemented will provide that

(a) a portion of the purchase price of the New Target Amalco Preferred Shares equal to the aggregate FMV of the AcquisitionCo Note 1 New Target Amalco Shares and the Second AcquisitionCo Note 1 New Target Amalco Shares will be considered to have been paid by the issuance of PubcoSub Note 1;

(b) a portion of the purchase price of the New Target Amalco Preferred Shares equal to the FMV of the AcquisitionCo Note 2 New Target Amalco Shares will be considered to have been paid by the issuance of PubcoSub Note 2, and a portion of the purchase price of the New Target Amalco Preferred Shares equal to the FMV of the AcquisitionCo Note 3 New Target Amalco Shares will be considered to have been paid by the issuance of PubcoSub Note 3; and

(c) a legend will be placed upon the certificates, which will be issued to PubcoSub as a result of this transaction, which will indicate that the New Target Amalco Preferred Shares were acquired by PubcoSub in exchange for consideration that included PubcoSub Note 1, PubcoSub Note 2, and PubcoSub Note 3.

AcquisitionCo and PubcoSub will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6), with respect to the transfer of each property described above. The agreed amount in respect of each such election will not exceed the FMV of the transferred shares which are subject to the election and will not be less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) or (ii). The aggregate addition to the stated capital of PubcoSub in respect of the PubcoSub Shares and the New PubcoSub Preferred Shares that will be issued as consideration for the Transferred Target Amalco Shares under the CBCA will equal the amount by which the aggregate of the cost (determined pursuant to subsection 85(1)) of the Transferred Target Amalco Shares exceeds the aggregate principal amount of PubcoSub Note 1, PubcoSub Note 2, and PubcoSub Note 3. For greater certainty, the stated capital addition will not exceed the maximum amount that could be added to the PUC of the PubcoSub Shares and the New PubcoSub Preferred Shares, having regard to subsection 85(2.1).

Wind-up of Target Amalco

21. Target Amalco will be wound-up pursuant to subsection 210(3) of the CBCA with the result that:

(a) all of the property of Target Amalco will be distributed to, and all of the liabilities of Target Amalco will be discharged or assumed by, PubcoSub;

(b) any shares of PubcoSub distributed to PubcoSub on the winding-up will be cancelled by PubcoSub; and

(c) Articles of Dissolution will be filed and Target Amalco will be dissolved.

Pursuant to paragraph 88(1)(d), a designation will be made to increase the ACB of the Target Partnership A Units acquired by PubcoSub on the wind-up of Target Amalco.

ADDITIONAL INFORMATION

In addition to the additional information set out in Paragraphs 19 through 21 of the Prior Ruling:

22. The Proposed Transactions, in and of themselves, will not increase the amount to which the ACB of the Target Partnership A Units can be increased ("bumped") pursuant to a designation made under paragraph 88(1)(d).

23. Following the Proposed Transactions, some or all of the following transactions involving AcquisitionCo may be undertaken:

(a) AcquisitionCo may be recapitalized to effectively convert its existing preferred or preference shares (other than the New AcquisitionCo Preferred Shares) into common shares with a FMV equal to the FMV of such preferred or preference shares at the time of the recapitalization.

(b) As required by subsection 30(2) of the CBCA, PubcoSub will dispose of, or AcquisitionCo will redeem and cancel, the XXXXXXXXXX AcquisitionCo Preferred Shares and the XXXXXXXXXX AcquisitionCo Preferred Shares held by PubcoSub.

(c) AcquisitionCo may be wound-up into Pubco.

PURPOSE OF THE PROPOSED TRANSACTIONS

24. The purpose of the proposed transactions described in Paragraphs 14 to 17 is to better match inter-corporate interest expense to the particular business to which such costs relate. More particularly, the proposed transactions described in Paragraphs 14 and 16 enable Pubco to acquire a source of interest income and cash flow, namely AcquisitionCo Note 1, AcquisitionCo Note 2 and AcquisitionCo Note 3, that will replace its existing dividend income and cash flow, as the case may be, and which will enable Pubco to service a corresponding portion of its third party indebtedness.

25. The purpose of the recapitalization of Target Amalco described in Paragraph 18 is to average the ACB of AcquisitionCo's shares in Target Amalco prior to the transfer described in Paragraph 20 to prevent the triggering of a capital loss on such transfer.

26. The purpose of the amendment of PubcoSub's Articles to change the outstanding PubcoSub Shares into PubcoSub Non-Voting Shares as described in Paragraph 19 is to allow PubcoSub to acquire the shares of Target Amalco as contemplated in Paragraph 20. Prior to the amendment of PubcoSub's Articles, PubcoSub will be a "subsidiary body corporate" of Target Amalco pursuant to subsection 2(5) of the CBCA. Pursuant to paragraph 30(1)(b) of the CBCA, PubcoSub cannot acquire shares of Target Amalco while it is a subsidiary body corporate of Target Amalco. When the outstanding PubcoSub Shares are changed into PubcoSub Non-Voting Shares, PubcoSub will cease to be a subsidiary body corporate of Target Amalco.

27. The purpose of the proposed "somersault" transaction described in Paragraph 20 is to enable Target Amalco to become a wholly-owned subsidiary of PubcoSub so as to enable the businesses of Target Amalco and PubcoSub to be combined in a single corporation without holding a meeting of the holders of the PubcoSub Public Preferred Shares to approve the combination.

28. The purposes of the winding-up of Target Amalco into PubcoSub, as described in Paragraph 21 are, to combine as much of Pubco's principal operating businesses as possible in the same operating subsidiary (PubcoSub), to facilitate the use of non-capital losses carried forward in Target Amalco that might otherwise expire, to facilitate the bump to the ACB of the Target Partnership A Units as described in Paragraph 21 and to simplify the Pubco Group corporate structure.

RULINGS GIVEN

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. Provided that AcquisitionCo has a legal obligation to pay interest on the AcquisitionCo Note 1 issued as consideration for the shares described in Paragraph 14 and provided such shares, or the property substituted for such shares as described in Paragraphs 15, 18 and 20, is held, and continues to be held by AcquisitionCo for the purpose of producing income (other than income which is exempt), AcquisitionCo will, to the extent that such amount does not exceed a reasonable amount, be entitled to deduct, in computing its income for a taxation year, an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by AcquisitionCo in computing its income) as interest on the AcquisitionCo Note 1.

B. Provided that AcquisitionCo has a legal obligation to pay interest on the AcquisitionCo Note 2 and AcquisitionCo Note 3 issued as consideration for the respective portion of the PubcoSub Indebtedness described in Paragraph 16; and provided the PubcoSub Indebtedness or the property substituted for the PubcoSub Indebtedness as described in Paragraph 17 and 20 is held, and continues to be held by AcquisitionCo for the purpose of producing income (other than income which is exempt), AcquisitionCo will, to the extent that such amount does not exceed a reasonable amount, be entitled to deduct, in computing its income for a taxation year, an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by AcquisitionCo in computing its income) as interest on the AcquisitionCo Note 2 and AcquisitionCo Note 3, as the case may be. For greater certainty, if the interest rate on any indebtedness included in the PubcoSub Indebtedness that is acquired by AcquisitionCo as described in Paragraph 16, is less than the interest rate on the particular AcquisitionCo Note issued as consideration for such indebtedness, then the maximum amount AcquisitionCo will be entitled to deduct as interest will not exceed the interest income received or receivable on the particular indebtedness in the year provided that any such limitation will only apply during the period which commences upon the issuance of the particular AcquisitionCo Note by AcquisitionCo and ends at the time of the issuance of the New Target Amalco Preferred Shares by Target Amalco to AcquisitionCo in substitution for the PubcoSub Indebtedness as described in Paragraph 17.

C. Provided all the shares of Target Amalco as described in Paragraph 18 are held as capital property by AcquisitionCo and Target Amalco and AcquisitionCo do not file a joint election under subsection 85(1) in respect of any exchange of the shares of Target Amalco as described in paragraph 18:

(a) Subsection 51(1) will apply and subsection 51(2) will not apply to the exchange by AcquisitionCo of its XXXXXXXXXX common shares of Target Amalco for New Target Amalco Preferred Shares as described in Paragraph 18(a);

and

(b) Subsection 86(1) will apply and subsection 86(2) will not apply to the exchange by AcquisitionCo of its shares of Target Amalco (other than the XXXXXXXXXX common shares) for New Target Amalco Preferred Shares as described in Paragraphs 18(a), (b) and (c).

D. Provided that Target Amalco holds the PubcoSub Shares as capital property, subsection 86(1) will apply to the exchange of the PubcoSub Shares for the PubcoSub Non-Voting Shares as described in Paragraph 19 such that:

(a) the aggregate cost to Target Amalco of the PubcoSub Non-Voting Shares will be deemed to be equal to the aggregate ACB to Target Amalco of the PubcoSub Shares immediately before the exchange; and

(b) Target Amalco will be deemed to have disposed of the PubcoSub Shares for proceeds of disposition equal to the amount determined under (a).

For greater certainty, subsection 86(2) will not apply to the exchange.

E. Provided that PubcoSub has a legal obligation to pay interest on the PubcoSub Note 1, PubcoSub Note 2 and PubcoSub Note 3 issued as consideration for the particular Transferred Target Amalco Shares acquired by PubcoSub as described in Paragraph 20, and provided that such Transferred Target Amalco Shares are held, and continue to be held by PubcoSub for the purpose of producing income (other than income which is exempt), PubcoSub will, to the extent that such amount does not exceed a reasonable amount, be entitled to deduct, in computing its income for a taxation year, an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by PubcoSub in computing its income) as interest on the PubcoSub Note 1, PubcoSub Note 2 and PubcoSub Note 3.

F. The provisions of subsection 88(1) will apply to the winding-up of Target Amalco described in Paragraph 21 such that:

(a) each property of Target Amalco (other than an interest in a partnership) will be deemed to have been disposed of by Target Amalco for proceeds equal to the cost amount to Target Amalco of the property immediately before the winding-up by virtue of subparagraph 88(1)(a)(iii);

(b) the shares of the capital stock of Target Amalco owned by PubcoSub immediate before the winding-up will be deemed to have been disposed of by PubcoSub on the winding-up of Target Amalco for proceeds equal to the greater of the amounts determined under subparagraphs 88(1)(b)(i) and (ii); and

(c) subsection 84(2) will not apply to the winding-up of Target Amalco by virtue of paragraph 88(1)(d.1).

G. The distribution of any shares of PubcoSub to PubcoSub on the winding-up of Target Amalco and the cancellation of such shares by PubcoSub will not give rise to a deemed dividend under subsection 84(3).

H. The distribution of any shares of PubcoSub to PubcoSub on the winding-up of Target Amalco and the cancellation of such shares by PubcoSub will not result in a liability for tax under Part II.1 to PubcoSub for its taxation year in which the shares are so distributed and cancelled.

I. Provided that no property acquired by PubcoSub on the wind-up of Target Amalco or "any other property acquired by any person in substitution therefor" (within the meaning of that phrase for the purposes of clause 88(1)(c)(vi)(B)) is acquired by any person described in any of subclauses 88(1)(c)(vi)(B)(I), (II) or (III) as part of the series of transactions or events that includes the acquisition of control of Target Amalco by PubcoSub and the wind-up of Target Amalco, pursuant to paragraphs 88(1)(c) and (d), the cost to PubcoSub of the Target Partnership A Units acquired by PubcoSub on the winding-up of Target Amalco described in Paragraph 21 will be deemed to be the amount described in subparagraph 88(1)(c)(i) plus, subject to the provisions of subparagraphs 88(1)(d)(ii) and (iii), such portion of the amount, if any, by which:

(i) the aggregate ACB to PubcoSub of its shares of Target Amalco, immediately before the winding-up of Target Amalco, exceeds

(ii) the aggregate of the amounts determined under subparagraphs 88(1)(d)(i) and (i.1),

as is designated by PubcoSub in respect of the Target Partnership A Units acquired by PubcoSub in its tax return for the taxation year in which Target Amalco is wound up.

For greater certainty, pursuant to subsection 88(4), Target Amalco will be considered to be the same corporation as, and a continuation of, TargetSubA, for the purpose of determining whether the Target Partnership A Units were capital property owned by Target Amalco on the Take-Up Date, and for the purpose of determining when PubcoSub last acquired control of Target Amalco.

For greater certainty, the Target Partnership A Units will not be ineligible property for the purposes of paragraph 88(1)(c) solely as a result of any of the Facts or Proposed Transactions described herein or in the Prior Ruling or the transaction described in Paragraph 19 of the Prior Ruling provided that your understanding of the facts stated in Paragraph 19 is accurate.

J. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine any of the tax consequences confirmed in the rulings granted herein.

The above rulings are given subject to the limitations and qualifications set out in IC 70-6R5 and are binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX. These rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

Other Comments:

The CCRA is completing its review of the law relating to interest deductibility in light of recent Supreme Court of Canada ("SCC") decisions. Until this review is completed the CCRA will provide favourable rulings on paragraph 20(1)(c) only in the cases in which it would have ruled favourably prior to September 28, 2001. The proposed transaction described in Paragraph 21 is not in this category. However, our refusal to rule, pending the completion of such review, is intended to ensure that the implications of the SCC decisions are understood and applied in a consistent manner. Our refusal does not mean that the CCRA will reassess PubcoSub to deny the interest deducted on PubcoSub Note 1, PubcoSub Note 2 and/or PubcoSub Note 3 after completion of the Proposed Transaction described in Paragraph 21.

Nothing in this Ruling should be construed as implying that the CCRA has confirmed, reviewed or has made any determination in respect of:

(a) the FMV of any particular property referred to herein;

(b) the deductibility of any non-capital loss or other amount of any corporation or predecessor corporation; or

(c) any other tax consequence relating to the facts, proposed transactions, additional information or any transaction or event taking place either prior to the proposed transactions or subsequent to the proposed transactions, whether described in this letter or not other than those specifically described in the rulings given above,

including whether any such transaction or event is or is not considered to be part of the series of transactions or events described herein. For greater certainty, we specifically are not confirming, nor have we reviewed, or made any determination of, the tax consequences of the transactions described in Paragraphs 11, 12 and 13 of this letter.

Yours truly,

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