2001 Ruling 2001-0077213 - Split- Up Butterfly

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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: Split up Butterfly

Position: Standard Butterfly

Reasons: n/a

XXXXXXXXXX 						2001-007721

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX in which you requested advance income tax rulings on behalf of the above-noted taxpayers. We acknowledge your letters of XXXXXXXXXX and our telephone conversations in connection herewith.

Throughout this letter the corporate and individual taxpayers will be referred to as follows:

XXXXXXXXXX Aco
XXXXXXXXXX Daughter 1
XXXXXXXXXX Daughter 2
XXXXXXXXXX Father

To the best of your knowledge, and that of the taxpayers named herein, none of the issues involved in this advance income tax ruling request is under objection or appeal or is being considered by any tax services office or taxation centre of the Canada Customs and Revenue Agency in connection with any income tax return already filed.

You advised that the proposed transactions described herein, will have no impact on outstanding tax liabilities of Aco, Daughter 1, Daughter 2 or a related person.

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

DEFINITIONS

In this letter, the following terms have the meanings specified:

(a) "ACB" means "adjusted cost base" as that expression is defined in section 54;

(b) "Act" means the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, and all references to a statute are to the Act, unless otherwise indicated;

(c) "agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in their election under subsection 85(1) in respect of the property;

(d) "CCRA" means, on or after November 1, 1999, the Canada Customs and Revenue Agency and before November 1, 1999, Revenue Canada Taxation;

(e) "CDA" means the capital dividend account of Aco as defined by subsection 89(1);

(f) "disposition" has the meaning assigned by section 54;

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

(h) "Effective Date" has the meaning ascribed to it in Paragraph 7;

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

(j) "FMV" means fair market value;

(k) "Bco" refers to the corporation described in Paragraph 13;

(l) "BcoSub" refers to the corporation described in Paragraph 15;

(l.1) "BcoSub Note" refers to the debt described in Paragraph 25;

(m) "Aco Shares" mean all the issued and outstanding shares of Aco;

(n) "Aco Note #1" has the meaning ascribed to it in Paragraph 27;

(o) "Aco Note #2" has the meaning ascribed to it in Paragraph 27;

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

(q) "Holdco" refers to either Bco or Cco, and "Holdcos" refers to Bco and Cco, collectively;

(r) "Cco" refers to the corporation described in Paragraph 14;

(s) "CcoSub" refers to the corporation described in Paragraph 15;

(t) "CcoSub Note" refers to the debt described in Paragraph 25;

(u) XXXXXXXXXX;

(v) "Paragraph" means a numbered Paragraph in this letter;

(w) "POD" means "proceeds of disposition" as that expression is defined in section 54;

(x) "Pre-1972 CSOH" means "pre-1972 capital surplus on hand" as that expression is defined in subsection 88(2.1);

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

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

(aa) "RDTOH" means "refundable dividend tax on hand" as that expression is defined in subsection 129(3);

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

(cc) "related persons" has the meaning assigned by section 251;

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

(ee) "Sibling" refers to either Daughter 1 or Daughter 2, and "Siblings" refers to Daughter 1 and Daughter 2, collectively;

(ff) "stated capital" has the meaning assigned by XXXXXXXXXX;

(gg) "Subco" refers to either BcoSub or CcoSub, and "Subcos" refers to BcoSub and CcoSub, collectively;

(hh) "Subscription Shares" means the Aco common shares issued to Bco and Cco pursuant to Paragraph 24;

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

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

(kk) "Transferred Property" refers to all the property of Aco owned at the Effective Date transferred to BcoSub and CcoSub as described in Paragraph 22; and

(ll) "V-Day Value" means the fair market value of the Aco common shares held by Daughter 1 and Daughter 2 on December 31, 1971 referred to in Paragraph 5.

FACTS

1. Aco is a corporation incorporated under the XXXXXXXXXX. Aco is a private corporation and a taxable Canadian corporation. The principal address of Aco is XXXXXXXXXX. Aco is serviced by the XXXXXXXXXX Tax Services Office and its business number is XXXXXXXXXX. Aco has an XXXXXXXXXX taxation year end.

2. Aco is an investment holding corporation whose sole activity is to earn income from property.

3. Daughter 1, Daughter 2 and Father are individuals resident in Canada. Daughter 1 and Daughter 2 are sisters and are the daughters of Father.

4. The authorized and issued share capital of Aco is as follows:

Authorized Shares Issued and Outstanding Shares
XXXXXXXXXX common shares XXXXXXXXXX common shares
The common shares in the capital of Aco are entitled to one vote per share, are entitled to dividends if, as, and when declared by the board of directors of the corporation and are entitled to the remaining assets of the corporation on a liquidation, dissolution or winding-up of the corporation.

5. The beneficial ownership, aggregate ACB and PUC and the aggregate percentage of votes associated with the shares in the capital of Aco are as follows:

Shareholder Class of Shares Number of Shares ACB PUC Percentage of Votes
Daughter 1 Common XXXXXXXXXX $XXXXXXXXXX $XXXXXXXX XXXXXXXXX
Daughter 2 Common XXXXXXXXXX $XXXXXXXXXX $XXXXXXXX XXXXXXXXX

The FMV of the common shares in the capital of Aco is substantially in excess of Daughter 1 & Daughter 2's ACB. The ACB of the Aco common shares held by Daughter 1 and Daughter 2 is the V-Day Value of such shares which is greater than the original cost of such shares to Daughter 1 and Daughter 2.

6. As at XXXXXXXXXX:

(i) Aco's main liabilities are amounts payable to Daughter 1 and Daughter 2 respectively in the amount of $XXXXXXXXXX pursuant to non-interest-bearing demand loans and the amounts referred to in Paragraph 11 which will result in an amount owing to each of Daughter 1 and Daughter 2 of $XXXXXXXXXX;

(ii) Aco has RDTOH of approximately $XXXXXXXXXX;

(iii) Aco has a CDA of approximately $XXXXXXXXXX; and

(iv) Aco has Pre-1972 CSOH of approximately $XXXXXXXXXX.

ADDITIONAL INFORMATION AND REPRESENTATIONS

7. The proposed transactions described in Paragraphs 11 through 15 will occur on one or more days prior to the Effective Date. The proposed transactions described in Paragraphs 17 through 28 will occur in the order in which they are set out below on a date agreed to by the parties (the "Effective Date").

8. No property has or will become property of Aco or any corporation controlled by such corporation or a predecessor corporation of any such corporation, and no liabilities have been or will be incurred by Aco or any corporation controlled by such corporation or a predecessor corporation of any such corporation, in contemplation of and before the proposed transfer of property described in Paragraph 22.

9. None of the Aco Shares or any of the issued shares of the Siblings' Holdcos or Subcos is or will be subject to a guarantee agreement or a dividend rental arrangement and none of such shares 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).

10. Neither Bco nor Cco has any intention of disposing of any of their assets as part of a series of transactions which includes the Proposed Transactions, otherwise than on a basis which would not cause the provisions in paragraph 55(3.1)(c) to deny the exception in paragraph 55(3)(b) to the dividends resulting from the transactions described in Paragraphs 25 and 27.

PRE-BUTTERFLY TRANSACTION

11. Prior to the Proposed Transactions, Aco will declare and pay a dividend, equal to the amount of its capital dividend account which is estimated to be $XXXXXXXXXX, on its common shares. The payment of such a dividend will be by way of the delivery of two demand, non-interest-bearing promissory notes each in the amount of $XXXXXXXXXX to Daughter 1 and Daughter 2 respectively.

12. Aco will file an election in respect of the full amount of the dividend of $XXXXXXXXXX, in the prescribed manner and form referred to in subsection 83(2) and section 2101 of the Regulations.

PROPOSED TRANSACTIONS

13. Daughter 1 will incorporate a new corporation ("Bco") under the XXXXXXXXXX and will subscribe for 1 common share in the capital thereof for $XXXXXXXXXX. Bco will be a private corporation and a taxable Canadian corporation.

Bco's authorized capital will consist of or include an unlimited number of common shares and an unlimited number of voting, redeemable, retractable preferred shares. The terms and conditions of the common and voting preferred shares will be as follows:

(a) the common shares will be voting (with one vote per share), entitled to dividends, if, as, and when declared by the board of directors of Bco, and fully participating; and

(b) the voting, redeemable, retractable preferred shares will be voting (with one vote per share), entitled to dividends, if, as, and when declared by the board of directors of Bco, entitled to an amount, in priority to the common shares, on a liquidation, dissolution or winding-up of Bco of an amount per share equal to the total of $XXXXXXXXXX and the amount of any declared but unpaid dividends to the date fixed for liquidation, dissolution or winding-up and redeemable and redeemable or retractable at an amount per share equal to the total of $XXXXXXXXXX and the amount of any declared but unpaid dividends to the date fixed for redemption or retraction.

The common shares of Bco will have rights and restrictions attached thereto that will ensure that dividends cannot be paid on the shares if to do so would reduce the value of the net assets of the company to less than the aggregate of the redemption amounts of all the issued preferred shares described in Paragraph 30.

14. Daughter 2 will incorporate a new corporation ("Cco") under the XXXXXXXXXX and will subscribe for 1 common share in the capital thereof for $XXXXXXXXXX. Cco will be a private corporation and a taxable Canadian corporation.

Cco's authorized capital will consist of or include an unlimited number of common shares and an unlimited number of voting, redeemable, retractable preferred shares. The terms and conditions of the common and voting preferred shares will be as follows:

(a) the common shares will be voting (with one vote per share), entitled to dividends, if, as, and when declared by the board of directors of Cco, and fully participating; and

(b) the voting preferred shares will be voting (with one vote per share), entitled to dividends, if, as, and when declared by the board of directors of Cco, and entitled to an amount, in priority to the common shares, on a liquidation, dissolution or winding-up of Cco of an amount per share equal to the total of $XXXXXXXXXX and the amount of any declared but unpaid dividends to the date fixed for liquidation, dissolution or winding-up and redeemable and retractable at an amount per share equal to the total of $XXXXXXXXXX and the amount of any declared but unpaid dividends to the date fixed for redemption or retraction.

The common shares of shares of Cco will have rights and restrictions attached thereto that will ensure that dividends cannot be paid on the shares if to do so would reduce the value of the net assets of the company to less than the aggregate of the redemption amounts of all the issued preferred shares described in Paragraph 30.

15. Bco and Cco will each incorporate a wholly-owned subsidiary under the XXXXXXXXXX ("BcoSub" and "CcoSub", respectively) and will each subscribe for one common share in the capital of their respective Subcos for $XXXXXXXXXX.

16. The Subcos' authorized capital will each consist of or include an unlimited number of common shares. The common shares will be voting, entitled to dividends, if, as, and when declared by the board of directors of the Subco, and fully participating.

17. Daughter 1 will sell, at FMV, all of her shares in the capital of Aco to Bco. As sole consideration for such transfer, Bco will issue to Daughter 1 XXXXXXXXXX common shares. Bco will add to the stated capital account maintained for its common shares an amount not to exceed the PUC of the Aco common shares transferred.

18. Daughter 1 and Bco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amounts in respect of the shares transferred to Bco will not:

(a) exceed the FMV of the shares at the time of transfer; or

(b) be less than the lesser of the FMV of the shares at the time of their transfer and their ACB.

19. Daughter 2 will sell, at FMV, all of her shares in the capital of Aco to Cco. As sole consideration for such transfer, Cco will issue to Daughter 2 XXXXXXXXXX common shares. Cco will add to the stated capital account maintained for its common shares an amount not to exceed the PUC of the Aco common shares transferred.

20. Daughter 2 and Cco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer. The agreed amounts in respect of the shares transferred to Cco will not:

(a) exceed the FMV of the shares at the time of transfer; or

(b) be less than the lesser of the FMV of the shares at the time of their transfer and their ACB.

21. Immediately before the transfer of property at the Effective Date, the property of Aco will be classified into three types of property for the purposes of paragraph 55(3)(b), as follows:

(a) cash or near cash property, comprising all of the current assets of Aco, including any cash, deposits, and accounts receivable;

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

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

Aco will not have any business property at the time of the transfer. For greater certainty, any tax accounts, such as the balance of RDTOH, pre-1972 CSOH or capital dividend account of Aco, will not be considered property for purposes of the proposed transactions described herein.

22. Immediately following the determination of the FMV of its cash or near cash property and investment property, as described in Paragraph 21, at the Effective Date, Aco will transfer to each of BcoSub and CcoSub a pro-rata share (50%) of all of its cash or near cash property and investment property.

For greater certainty, the transfer will be made on a gross FMV basis. Each of BcoSub and CcoSub will receive 50% of each type of property of Aco and assume 50% of each liability of Aco as described herein.

As consideration for the property transferred, each of BcoSub and CcoSub will:

(a) assume the liabilities of Aco represented by indebtedness to Daughter 1 or Daughter 2, as the case may be;

(b) assume one-half of all liabilities of Aco other than those described in (a); and

(c) issue to Aco XXXXXXXXXX common shares of their respective capital with a FMV not exceeding the FMV of the Transferred Property at the time of the transfer less the amount of the liabilities referred to in (a) and (b).

The aggregate of the liabilities assumed by BcoSub or CcoSub, as the case may be, will not exceed the aggregate of the agreed amounts in respect of the properties transferred to BcoSub or CcoSub, as the case may be.

Each of BcoSub and CcoSub will add to the stated capital account maintained for its common shares an amount equal to the aggregate of the cost amount of the properties transferred less the amount of the liabilities assumed by the particular transferee.

23. Aco and BcoSub and Aco and CcoSub will jointly elect in prescribed form and within the time limit referred to subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of each property of Aco that is an eligible property transferred. The agreed amount in respect of each eligible property so transferred will not:

(a) be less than the amount of the non-share consideration received for such eligible property;

(b) exceed the FMV of that eligible property; or

(c) be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) or (ii).

24. Each of BcoSub and CcoSub will subscribe for 1 common share in the capital of Aco for $XXXXXXXXXX (the "Subscription Shares").

25. Each of BcoSub and CcoSub will purchase for cancellation all of the common shares in its capital held by Aco for an amount equal to the FMV of such shares.

In consideration, the Subcos will each issue a non-interest-bearing demand promissory note to Aco (the "BcoSub Note" and the "CcoSub Note", respectively) with a principal amount, stated by formula, equal to the purchase price of the shares so purchased for cancellation.

26. Aco will purchase for cancellation all of the shares in its capital held by Bco and Cco for an amount equal to the FMV of such shares. As consideration for such purchases, Aco will issue to each of Bco and Cco a non-interest-bearing demand promissory note (the "Aco Note #1" and the "Aco Note #2", respectively) with a principal amount, stated by formula, equal to the purchase price of the shares purchased from Bco and Cco, respectively.

27. BcoSub and CcoSub will then be wound up, each into its respective parent, Bco and Cco. As a result of the wind-ups, the BcoSub Note will become a liability of Bco and the CcoSub Note will become a liability of Cco.

28. The BcoSub Note will be set off against the Aco Note # 1 and they will be cancelled.

The CcoSub Note will be set off against the Aco Note #2 and they will be cancelled.

29. Aco will claim a dividend refund within the meaning assigned by paragraph 129(1)(a) with respect to the deemed taxable dividend pursuant to subsection 84(3) arising on the purchase for cancellation by Aco of all of the shares in its capital held by Bco and Cco.

POST-BUTTERFLY TRANSACTIONS

30. Daughter 1 and Daughter 2 will each exchange their respective common shares in Bco and Cco for redeemable, retractable preferred shares in Bco and Cco, respectively. The aggregate redemption amount of the Bco and Cco preferred shares issued to Daughter 1 and Daughter 2, respectively, will be equal to the fair market value of the Bco and Cco common shares transferred by Daughter 1 and Daughter 2 to Bco and Cco, respectively, in consideration for the issuance of such preferred shares.

Daughter 1 and Bco and Daughter 2 and Cco will jointly elect in prescribed form within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of their respective common shares to the particular transferee. The agreed amount in each case will not:

(i) exceed the fair market value of the shares so transferred; or

(ii) be less than the lesser of the FMV of the shares at the time of their transfer and their ACB.

The paid-up capital of the redeemable, retractable preferred shares issued by Bco and Cco will be equal to the paid-up capital of the common shares exchanged by Daughter 1 and Daughter 2 for such preferred shares.

31. Immediately after the share exchange by Daughter 1 and Daughter 2 described in Paragraph 30, Father will subscribe for XXXXXXXXXX common shares in the capital of each of Bco and Cco for $XXXXXXXXXX.

32. Father will gift by Deed of Gift the XXXXXXXXXX common shares he holds in each of Bco and Cco to Daughter 1 and Daughter 2, respectively.

33. The shareholders of Aco will resolve to wind up Aco by filing Articles of Dissolution pursuant to the XXXXXXXXXX following receipt of the dividend refund described in Paragraph 29. In connection with the winding up of Aco, each of Bco and Cco will receive 50% of the dividend refund received by Aco.

No agreement or resolution relating to the winding up of Aco or the distribution of its property will provide for the cancellation of any shares of Aco.

PURPOSES OF THE PROPOSED TRANSACTIONS

34. The purposes for the proposed transactions are:

(a) principally to enable each of Daughter 1 and Daughter 2 to have a direct and separate ownership of their respective pro-rata share of the property of Aco so that each may deal with such property independently from the other during their lives and by their respective wills; and

(b) to ensure that any future increase in value of the common shares they each hold in Bco and Cco not be part of their net family property as defined in the Family Law Act R.S.O., Chap. F.2 in the event of a marriage breakdown.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purposes of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we confirm the following:

A. Provided that each of the Siblings holds her shares in the capital of Aco as capital property, the provisions of subsection 85(1) will apply to the transfer of the common shares of Aco, as described in Paragraphs 17 and 19, by the Siblings such that the amounts agreed upon in respect of each transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a).

Provided that each of the Siblings holds her shares in the capital of Aco as capital property immediately before the share transfer to Bco and Cco, respectively, the share transfers will not, in and of themselves, cause the Siblings' shares to be received and held by the Siblings in their respective Holdco not to be capital property.

B. The provisions of subsection 85(1) will apply, subject to the application of subsection 69(11), to the transfer of eligible property by Aco to each of the Subcos, as described in Paragraph 22, with the result that the agreed amounts in respect of each transfer will be deemed pursuant to paragraph 85(1)(a) to be the POD of that property to Aco and the cost of that property to the respective transferee.

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

C. On the purchase for cancellation by BcoSub and CcoSub of their common shares held by Aco, as described in Paragraph 25, the purchase for cancellation by Aco of its common shares held by Bco and Cco, as described in Paragraph 26, and as a result of the distributions by Aco on its winding-up:

(i) by virtue of paragraphs 84(3)(a) and 84(3)(b), each payer will be deemed to have paid, and each recipient will be deemed to have received, a taxable dividend at that time equal to the amount, if any, by which the amount paid to purchase the particular shares exceeds the PUC of those shares immediately before the purchase;

(ii) (A) pursuant to paragraph 88(2)(b) and subsection 84(2), but subject to (B) below, each of Bco and Cco will be deemed to have received a dividend (the "winding-up dividend") on its common share of Aco equal to the amount by which the dividend refund distributed to the particular transferee as described in Paragraph 33 by Aco exceeds the amount by which the PUC of the common share of Aco held by the particular transferee is reduced by such distribution;

(B) pursuant to subparagraph 88(2)(b)(ii), the portion of the winding-up dividend that is equal to Aco's pre-1972 CSOH as determined immediately before the payment of the winding-up dividend will be deemed not to be a dividend;

(C) pursuant to subparagraph 88(2)(b)(iii), the winding-up dividend, to the extent that it exceeds the portion referred to in (B) above that is deemed not to be a dividend, will be deemed to be a separate dividend that is a taxable dividend;

(iii) by virtue of subsection 186(2) and paragraph 186(4)(a), each of Bco and Cco will be connected with Aco, and each of the Subcos will be connected with Aco by virtue of paragraph 186(4)(a). Consequently, no taxes under Part IV of the Act will be payable in respect of the dividends described in (i) and (ii) except to the extent of the amount, if any, determined under paragraph 186(1)(b);

(iv) the dividends referred to in (i) and (ii) will be included in computing the income of the recipient pursuant to subsection 82(1) and paragraph 12(1)(j);

(v) the dividends referred to in (i) and (ii) will be deductible by each recipient pursuant to subsection 112(1). For greater certainty, the provisions of subsections 112(2.1), 112(2.2), 112(2.3) and 112(2.4) will not apply to deny the subsection 112(1) deduction in respect of such dividends;

(vi) by virtue of the application of paragraph (j) of the definition of "proceeds of disposition" in section 54, the amount of a deemed dividends referred to in (i) and (ii) will be excluded from the proceeds of disposition of the shares, and any loss arising from the disposition of those shares will be reduced by the amount of such dividends pursuant to subsection 112(3); and

(v) the dividends referred to in (i) and (ii) will not be subject to tax under Parts IV.1 and Part VI.1 of the Act by virtue of paragraph (b) of the definition of "excepted dividend" in section 187.1 and paragraph (a) of the definition of "excluded dividend" in subsection 191(1) because the recipient will have a substantial interest, within the meaning assigned by paragraph 191(2)(a) and subsection 191(3), in the payer corporation at the time the dividend was paid.

D. The repayment by way of set-off of each of the BcoSub Note and the CcoSub Note and the Aco Note #1 and Aco Note #2 described in Paragraph 28, will not give rise to a "forgiven amount" within the meaning of subsections 80(1) or 80.01(1). Neither Aco nor either of the Holdcos will realize any gain or incur any loss as a result of the repayment and resultant cancellation of these notes as described in Paragraph 28.

E. 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 C above, provided that, as part of the series of transactions 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

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

which has not been described herein.

F. The provisions of subsection 88(1) will apply to the winding-up of each Subco into the respective Holdco as described in Paragraph 27 and for greater certainty the shares in the capital of the Subcos held by the respective Holdcos immediately before the winding-up will be deemed by paragraph 88(1)(b) to have been disposed of by the respective Holdco for POD equal to the greater of the amounts described in subparagraphs 88(1)(b)(i) and (ii).

G. The provisions of subsections 15(1), 56(2), 69(1), 69(4) and 246(1) will not apply to any of the proposed transactions described in Paragraphs 13 through 30 and Paragraph 33, in and of themselves.

H. Subsection 245(2) will not be applied to the proposed transactions described in Paragraphs 13 through 33, 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 70-6R4 dated January 29, 2001 issued by the CCRA 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.

COMMENTS

Nothing in this ruling should be construed as confirmation, express or implied, of:

(a) the determination of the FMV or ACB 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 above other than those specifically confirmed in the rulings given.

Yours truly,

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