1998 Ruling 9825963 - INTERNAL REORGANIZATION

Unedited CRA Tags

55(3)(a)

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Text of Severed Letter

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.

DEFINITIONS

FACTS

Significant Transactions

Proposed Transactions

Transfer of XXXXXXXXXX Properties to Newco 1

Transfer of XXXXXXXXXX Business Properties to XXXXXXXXXX

SUBSEQUENT TRANSACTIONS

Subsequent Possible Transactions

ADDITIONAL INFORMATION

PURPOSE OF PROPOSED TRANSACTIONS

RULINGS

COMMENTS

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.

XXXXXXXXXX
XXXXXXXXXX 982596
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Proposed Reorganization of XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers.

To the best of your client's and your knowledge, none of the issues involved in this ruling request is:

a) in an earlier return of the XXXXXXXXXX Group or other related person;

b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the XXXXXXXXXX Group or other related person;

c) under objection by the XXXXXXXXXX Group or other related person;

d) before the courts and no judgement has been issued which may be under appeal to a higher court; or

e) the subject of a ruling previously issued by the Directorate.

DEFINITIONS

In this letter, unless otherwise expressly stated:

XXXXXXXXXX

"ACB" means "adjusted cost base" as defined in section 54;

"Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp), c.i. as amended 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;

"agreed amount" is the amount the taxpayer and the corporation have agreed on in their elections for the purposes of subsection 85(1), as modified by subsection 85(1) where appropriate;

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

"Assumed XXXXXXXXXX Business Liabilities" means all of the current and non-current liabilities of XXXXXXXXXX, which will be assumed by XXXXXXXXXX on the transfer of the XXXXXXXXXX Business Properties;

"Assumed XXXXXXXXXX Liabilities" means all of the current and non-current liabilities of XXXXXXXXXX, which will be assumed by Newco 1 on the transfer of the XXXXXXXXXX Properties;

"Canadian partnership" has the meaning assigned by subsection 102(1);

"capital property" has the meaning assigned by section 54;

"CBCA" means the Canada Business Corporations Act;

XXXXXXXXXX

"XXXXXXXXXX Consolidated Financial Statements" means the financial statements of XXXXXXXXXX for the year ended XXXXXXXXXX;

"XXXXXXXXXX Group" means XXXXXXXXXX, each of which is, directly or indirectly, a wholly-owned subsidiary of XXXXXXXXXX as of the date hereof;

XXXXXXXXXX

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

XXXXXXXXXX

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

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

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

XXXXXXXXXX

"FMV" means fair market value, being that 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;

XXXXXXXXXX

"XXXXXXXXXX Business Note" means the non-interest-bearing demand promissory note to be issued by XXXXXXXXXX to XXXXXXXXXX, with a principal amount and FMV equal to the XXXXXXXXXX Business Repurchase Amount multiplied by the number of XXXXXXXXXX Common Shares to be purchased from XXXXXXXXXX for cancellation;

"XXXXXXXXXX Business Properties" means the properties, which are to be transferred by XXXXXXXXXX to XXXXXXXXXX in exchange for the assumption by XXXXXXXXXX of the Assumed XXXXXXXXXX Business Liabilities and the issuance by XXXXXXXXXX of the XXXXXXXXXX Preferred Shares, as described in Paragraph 78;

"XXXXXXXXXX Business Repurchase Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX Common Shares transferred to XXXXXXXXXX as described in Paragraph 84, divided by the number of XXXXXXXXXX Common Shares transferred;

"XXXXXXXXXX Common Shares" means the fully participating and voting common shares and the fully participating Class A Non-Voting shares of XXXXXXXXXX, as described in Paragraph 15;

XXXXXXXXXX

"XXXXXXXXXX Note" means the non-interest-bearing demand promissory note to be issued by XXXXXXXXXX to Newco 1, with a principal amount and FMV equal to the XXXXXXXXXX Repurchase Amount multiplied by the number of XXXXXXXXXX Common Shares to be purchased from Newco 1 for cancellation;

"XXXXXXXXXX Properties" means the properties, which are to be transferred by XXXXXXXXXX to Newco 1 in exchange for the assumption by Newco 1 of the Assumed XXXXXXXXXX Liabilities and the issuance by Newco 1 of the Newco 1 Class B Preferred Shares, as described in Paragraph 66;

"XXXXXXXXXX Repurchase Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX Common Shares transferred to Newco 1 as described in Paragraph 72, divided by the number of XXXXXXXXXX Common Shares transferred;

XXXXXXXXXX

"foreign affiliate" has the meaning assigned by subsection 95(1);

"ITAR" means Income Tax Application Rules;

XXXXXXXXXX

"New LP" means a limited partnership to be formed under the laws of XXXXXXXXXX, as described in Paragraph 46;

"Newco 1" means a corporation to be incorporated under the CBCA, as described in Paragraph 53;

"Newco 1 Class A Preferred Shares" means Class A preferred shares of Newco 1, which shall have the following terms and conditions:

(1) each Newco 1 Class A Preferred Share will be redeemable, subject to applicable law, at any time at the option of Newco 1 at the Newco 1 Class A Redemption Amount, plus any declared but unpaid dividends on such share;

(2) each Newco 1 Class A Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Newco 1 Class A Redemption Amount, plus any declared but unpaid dividends on such share;

(3) the holders of each Newco 1 Class A Preferred Share will be entitled to a non-cumulative cash dividend as and when declared by the Board of Directors from time to time, which dividend need not also be declared on any other class of shares of Newco 1;

(4) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of Newco 1 if the resulting realizable value of the net assets of Newco 1 after payment of the dividends would be less than the aggregate of the Newco 1 Class A Redemption Amount of all the Newco 1 Class A Preferred Shares then outstanding;

(5) to the extent of the amount or value of property available under applicable law for payment to shareholders, upon the liquidation, dissolution or winding-up of Newco 1, in respect of each Newco 1 Class A Preferred Share, a holder will be entitled to a payment in priority to all holders of other classes of shares of Newco 1 of an amount up to the Newco 1 Class A Redemption Amount, plus any declared but unpaid dividends on such share, but will be entitled to no more than the amount of that payment; and

(6) the holder of each Newco 1 Class A Preferred Share will be entitled to one vote per share at meetings of shareholders of Newco 1;

"Newco 1 Class B Preferred Shares" means preferred shares of Newco 1, which shall have the following terms and conditions:

(1) each Newco 1 Class B Preferred Share will be redeemable, subject to applicable law, at any time at the option of Newco 1 at the Newco 1 Class B Redemption Amount, plus any declared but unpaid dividends on such share;

(2) each Newco 1 Class B Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Newco 1 Class B Redemption Amount, plus any declared but unpaid dividends on such share;

(3) the holders of each Newco 1 Class B Preferred Share will be entitled to a non-cumulative cash dividend as and when declared by the Board of Directors from time to time, which dividend need not also be declared on any other class of shares of Newco 1;

(4) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of Newco 1, if the resulting realizable value of the net assets of Newco 1 after payment of the dividends would be less than the aggregate of Newco 1 Class B Redemption Amount of all the Newco 1 Class B Preferred Shares then outstanding;

(5) to the extent of the amount or value of property available under applicable law for payment to shareholders, upon the liquidation, dissolution or winding-up of Newco 1, in respect of each Newco 1 Class B Preferred Share, a holder will be entitled to a payment in priority to all holders of other classes of shares of Newco 1, except the Newco 1 Class A Preferred Shares, of an amount up to the Newco 1 Class B Redemption Amount, plus any declared but unpaid dividends on such share, but will be entitled to no more than the amount of that payment; and

(6) the holder of each Newco 1 Class B Preferred Share will be entitled to one vote per share at meetings of shareholders of Newco 1;

"Newco 1 Class A Redemption Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX Properties less the amount of the Assumed XXXXXXXXXX Liabilities, all determined at the time of the issuance of the Newco 1 Class A Preferred Shares, divided by the number of Newco 1 Class A Preferred Shares then outstanding;

"Newco 1 Class B Redemption Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX Properties less the amount of the Assumed XXXXXXXXXX Liabilities, all determined at the time of the issuance of the Newco 1 Class B Preferred Shares, divided by the number of Newco 1 Class B Preferred Shares then outstanding;

"Newco 1 Common Shares" means fully participating and voting common shares of Newco 1;

"Newco 1 XXXXXXXXXX Note" means the non-interest-bearing demand promissory note to be issued by Newco 1 to XXXXXXXXXX, with a principal amount and FMV equal to the Newco 1 Class B Redemption Amount multiplied by the number of Newco 1 Class B Preferred Shares to be redeemed;

"Newco 1 XXXXXXXXXX Note" means the non-interest-bearing demand promissory note to be issued by Newco 1 to XXXXXXXXXX, with a principal amount and FMV equal to the Newco 1 Class A Redemption Amount multiplied by the number of Newco 1 Class A Preferred Shares to be redeemed;

XXXXXXXXXX

"Paragraph" refers to a numbered paragraph in this letter;

XXXXXXXXXX

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

"Proposed Transactions" means the transactions described in Paragraphs 46 to 89;

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

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

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

XXXXXXXXXX

"XXXXXXXXXX Business Note" means the non-interest-bearing demand promissory note to be issued by XXXXXXXXXX to XXXXXXXXXX, with a principal amount and FMV equal to the XXXXXXXXXX Business Redemption Amount multiplied by the number of XXXXXXXXXX Preferred Shares to be redeemed;

"XXXXXXXXXX Business Redemption Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX plus the XXXXXXXXXX Business Properties less the amount of the Assumed XXXXXXXXXX Business Liabilities, all determined at the time of the issuance of the XXXXXXXXXX Preferred Shares, divided by the number of XXXXXXXXXX Preferred Shares then outstanding;

"XXXXXXXXXX Common Shares" means the outstanding, fully participating and voting common shares of XXXXXXXXXX as described in Paragraph 4;

"XXXXXXXXXX Repurchase Amount" means an amount equal to the aggregate FMV of the XXXXXXXXXX Common Shares transferred to Newco 1 as described in Paragraph 60, divided by the number of XXXXXXXXXX Common Shares transferred;

"XXXXXXXXXX Preferred Shares" means preferred shares of XXXXXXXXXX, which shall have the following terms and conditions:

(1) each XXXXXXXXXX Preferred Share will be redeemable, subject to applicable law, at any time at the option of XXXXXXXXXX at the XXXXXXXXXX Business Redemption Amount, plus any declared but unpaid dividends on such share;

(2) each XXXXXXXXXX Preferred Share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the XXXXXXXXXX Business Redemption Amount, plus any declared but unpaid dividends on such share;

(3) the holders of each XXXXXXXXXX Preferred Share will be entitled to a non-cumulative cash dividend as and when declared by the Board of Directors from time to time, which dividend need not also be declared on any other class of shares of XXXXXXXXXX;

(4) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of XXXXXXXXXX if the resulting realizable value of the net assets of XXXXXXXXXX after payment of the dividends would be less than the aggregate of XXXXXXXXXX Business Redemption Amount of all the XXXXXXXXXX Preferred Shares then outstanding;

(5) to the extent of the amount or value of property available under applicable law for payment to shareholders, upon the liquidation, dissolution or winding-up of XXXXXXXXXX, in respect of each XXXXXXXXXX Preferred Share, a holder will be entitled to a payment in priority to all holders of other classes of shares of XXXXXXXXXX of an amount up to the XXXXXXXXXX Business Redemption Amount, plus any declared but unpaid dividends on such share, but will be entitled to no more than the amount of that payment; and

(6) the holder of each XXXXXXXXXX Preferred Share will be entitled to one vote per share at meetings of shareholders of XXXXXXXXXX.

XXXXXXXXXX

"series of transactions" includes related transactions or events as provided for in subsection 248(10);

"XXXXXXXXXX Agreement" means the agreement between XXXXXXXXXX;

XXXXXXXXXX

"stated capital" means stated capital as that expression is used in the XXXXXXXXXX or the CBCA, as the case may be;

XXXXXXXXXX

"substantial interest" has the meaning assigned by subsection 191(2);

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

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

XXXXXXXXXX

Our understanding of the statements of facts, purposes of the proposed transactions and proposed transactions is as follows:

FACTS

XXXXXXXXXX Group of Companies

1. XXXXXXXXXX is a taxable Canadian corporation and a public corporation which is subject to the CBCA and which has its head office in XXXXXXXXXX. As of the date hereof, the issued capital of XXXXXXXXXX consists of approximately XXXXXXXXXX common shares, XXXXXXXXXX. Class B Non-Voting shares and XXXXXXXXXX Class C Non-Voting shares. XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.

2. XXXXXXXXXX carries on business primarily as a holding company. XXXXXXXXXX owns XXXXXXXXXX% of its subsidiaries directly or indirectly with the exception of its XXXXXXXXXX% interest in XXXXXXXXXX.

XXXXXXXXXX

4. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and which has its head office in XXXXXXXXXX and is a wholly-owned subsidiary of XXXXXXXXXX. It is neither a private corporation nor a public corporation. As of the date hereof, the issued capital of XXXXXXXXXX consists of XXXXXXXXXX common shares. XXXXXXXXXX files its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.

XXXXXXXXXX

7. XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX was part of a group of companies acquired by XXXXXXXXXX is currently inactive.

8. XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of XXXXXXXXXX carries on business primarily as a holding and management company. It has three direct subsidiaries, XXXXXXXXXX which were incorporated in XXXXXXXXXX. They are each taxable Canadian corporations subject to the XXXXXXXXXX and have since purchased adjoining parcels of land in XXXXXXXXXX.

9. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and which is a wholly-owned subsidiary of XXXXXXXXXX was incorporated and became operative in XXXXXXXXXX. Its purpose is to XXXXXXXXXX.

10. XXXXXXXXXX are each taxable Canadian corporations which are subject to the CBCA. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX which is a wholly-owned subsidiary of XXXXXXXXXX. XXXXXXXXXX

11. XXXXXXXXXX is a taxable Canadian corporation, which is subject to the CBCA, of which XXXXXXXXXX owns XXXXXXXXXX shares forming XXXXXXXXXX % of its share capital. XXXXXXXXXX is engaged in the business of XXXXXXXXXX.

12. XXXXXXXXXX. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX. This company was incorporated in XXXXXXXXXX for the purpose of XXXXXXXXXX.

13. XXXXXXXXXX is a U.S. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX. This company was incorporated for the purpose of providing XXXXXXXXXX.

14. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and which has its head office in XXXXXXXXXX. It is a public corporation. XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX. As of the date hereof, the issued capital of XXXXXXXXXX consists of approximately XXXXXXXXXX common shares and Class A Non-Voting shares. XXXXXXXXXX has filed its income tax returns at the XXXXXXXXXX Tax Services Office under account number XXXXXXXXXX.

15. XXXXXXXXXX was purchased by XXXXXXXXXX on XXXXXXXXXX and carries on business of XXXXXXXXXX.

16. XXXXXXXXXX is a taxable Canadian Corporation which is subject to the XXXXXXXXXX and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX has been used by management to provide financing for XXXXXXXXXX and other companies owned directly and indirectly by XXXXXXXXXX.

17. XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX is engaged in the business of XXXXXXXXXX.

18. XXXXXXXXXX is a taxable Canadian Corporation which is subject to the CBCA and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX is the general partner of XXXXXXXXXX and its sole purpose is to hold partnership units in XXXXXXXXXX.

19. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX holds XXXXXXXXXX partnership units in XXXXXXXXXX is the beneficial owner of such partnership units.

20. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and which is indirectly a wholly-owned subsidiary of XXXXXXXXXX holds XXXXXXXXXX partnership units in XXXXXXXXXX is the beneficial owner of such partnership units.

21. XXXXXXXXXX is a Canadian partnership, and is registered under the XXXXXXXXXX, the general partner of which is XXXXXXXXXX, and the beneficial limited partner of which is XXXXXXXXXX.

22. XXXXXXXXXX is a U.S. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is indirectly a wholly-owned subsidiary of XXXXXXXXXX and is currently inactive.

23. XXXXXXXXXX is a U.S. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is indirectly a wholly-owned subsidiary of XXXXXXXXXX and is engaged in the business of XXXXXXXXXX.

24. XXXXXXXXXX is a U.S. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is indirectly a wholly-owned subsidiary of XXXXXXXXXX and is currently inactive.

25. XXXXXXXXXX is a U.S. corporation and a non-resident of Canada for the purposes of the Act. XXXXXXXXXX is indirectly a wholly-owned subsidiary of XXXXXXXXXX and it owns XXXXXXXXXX.

26. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and is wholly-owned by XXXXXXXXXX. It was incorporated in XXXXXXXXXX for the purpose of XXXXXXXXXX.

27. XXXXXXXXXX is a taxable Canadian corporation which is subject to the XXXXXXXXXX and is wholly-owned by XXXXXXXXXX. The company is currently inactive.

28. XXXXXXXXXX is a taxable Canadian corporation which is subject to the CBCA and is indirectly a wholly-owned subsidiary of XXXXXXXXXX. The company is currently inactive.

29. XXXXXXXXXX is a U.S. public company which owns approximately XXXXXXXXXX % of the equity of XXXXXXXXXX.

30.

XXXXXXXXXX

31.

XXXXXXXXXX

32.

XXXXXXXXXX

33.

XXXXXXXXXX

34.

XXXXXXXXXX .

35.

XXXXXXXXXX

36.

XXXXXXXXXX

37.

XXXXXXXXXX

38.

XXXXXXXXXX

39.

XXXXXXXXXX

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XXXXXXXXXX .

41.

XXXXXXXXXX

42.

XXXXXXXXXX

Significant Transactions

The following is a description of all significant transactions involving the XXXXXXXXXX Group which have been completed or which are intended to be completed prior to the completion of the Proposed Transactions:

43.

XXXXXXXXXX

44.

XXXXXXXXXX

45.

XXXXXXXXXX

45.1

XXXXXXXXXX .

The members of XXXXXXXXXX will elect jointly in prescribed form and within the time limits referred to in subsection 85(6), to have the rules of subsection 85(2) apply to the transfer of the XXXXXXXXXX. The amount agreed upon in such election in respect of the XXXXXXXXXX will be an amount equal to or greater than the lesser of the amounts described in subparagraph 85(1)(c.1)(i) and (ii), but less than the FMV of the XXXXXXXXXX.

The amount added to the stated capital account maintained by XXXXXXXXXX in respect of the XXXXXXXXXX Preferred Shares issued to XXXXXXXXXX was equal to the FMV of the XXXXXXXXXX. Subsection 85(2.1) will apply to reduce the PUC of the XXXXXXXXXX Preferred Shares so issued.

The XXXXXXXXXX Preferred Shares are capital property to XXXXXXXXXX.

None of the foregoing transactions occurred in contemplation of the Proposed Transactions and the terms and timing of each of them was not affected by the Proposed Transactions. Each of such transactions occurred in the ordinary course of business or as a part of the general business plans of the XXXXXXXXXX Group which would have been completed whether or not the Proposed Transactions are undertaken.

Proposed Transactions

46. For U.S. tax purposes, XXXXXXXXXX will form a limited partnership ("New LP") that will be governed by the laws of XXXXXXXXXX will each contribute one dollar of capital to New LP. New LP will be a Canadian Partnership.

47. XXXXXXXXXX will transfer all of the shares of XXXXXXXXXX Holdco owned at that time to New LP. The shares of XXXXXXXXXX Holdco are capital property to XXXXXXXXXX. The transfer of the shares of XXXXXXXXXX Holdco to New XXXXXXXXXX is being carried out for certain US tax purposes and will not result in a tax benefit as that expression is defined in section 245 of the Act.

48. The aggregate transfer price of the shares of XXXXXXXXXX Holdco will be equal to the value of the shares at the time of transfer to New LP. As consideration for the transfer, XXXXXXXXXX will receive an increased partnership interest.

49. XXXXXXXXXX and the members of New LP will elect jointly in prescribed form and within the time limits referred to in subsection 96(4), to have the rules of subsection 97(2) apply to the transfer of XXXXXXXXXX Holdco shares to New LP as described in Paragraph 47. The amount agreed upon in such election in respect of the shares transferred will be equal to the lesser of amounts described in subparagraph 85(1)(c.1)(i) and (ii).

50. XXXXXXXXXX interests in New LP will be based on the FMV of contributions made to New LP.

51. XXXXXXXXXX will be dissolved in the manner contemplated in subsection 98(3). Pursuant to subsection 98(3), each partner will jointly elect in respect of the partnership interest, in prescribed form and within the time referred to in subsection 96(4), such that each partner's proceeds of disposition of the partner's interest in the partnership, and the partnership's proceeds of disposition of the property of the partnership shall be determined in accordance with the rules in subsection 98(3). No amount will be designated under paragraph 98(3)(c).

52. XXXXXXXXXX will sell its undivided interest in each property of XXXXXXXXXX received on the dissolution of the partnership to XXXXXXXXXX at its FMV.

53. Newco 1 will be incorporated under the CBCA at some time prior to the commencement of the above-noted transactions. Newco 1 will initially be incorporated without any share capital, but will be under the direction and control of XXXXXXXXXX from its inception. Immediately thereafter, one Newco 1 Common Share will be issued to XXXXXXXXXX for XXXXXXXXXX. Newco 1 will be a taxable Canadian corporation. The authorized capital of Newco 1 will consist of an unlimited number of Common Shares, an unlimited number of Class A Preferred Shares, and an unlimited number of Class B Preferred Shares. Newco 1 will be organized with officers and directors but will not have any assets (other than cash of XXXXXXXXXX) or liabilities prior to the completion of the transactions described in Paragraphs 54 through 77.

Transfer of XXXXXXXXXX Properties to Newco 1

54. XXXXXXXXXX will transfer the following properties (collectively, the " XXXXXXXXXX Properties") to Newco 1:

- all of its XXXXXXXXXX equipment included in Class 8 and Class 17 pursuant to Schedule II of the Regulations;

- all of its XXXXXXXXXX included in Class 8 and XXXXXXXXXX pursuant to Schedule II of the Regulations; and

- such part of those assets which would otherwise be included in the assets described in (i) and (ii) above which are not currently available for use pursuant to subsection 13(26), referred to as "assets not currently available for use".

55. The aggregate transfer price of the XXXXXXXXXX Properties will be equal to the FMV of such properties at the time of the transfer and the agreement entered into by XXXXXXXXXX and Newco 1 will include a price adjustment clause relating to the FMV of the XXXXXXXXXX Properties. As consideration for the XXXXXXXXXX Properties, Newco 1 will assume liabilities related thereto and certain other liabilities (the "Assumed XXXXXXXXXX Liabilities") and will issue to XXXXXXXXXX Newco 1 Class A Preferred Shares. The Assumed XXXXXXXXXX Liabilities will not include any portion of the principal amount of the XXXXXXXXXX Note that will be issued later, as described in Paragraph 63.

56. XXXXXXXXXX and Newco 1 will elect jointly in prescribed form and within the time limits referred to in subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of any eligible property of XXXXXXXXXX which is transferred to Newco 1 as described in Paragraph 54. The amount agreed upon in such elections in respect of each of the eligible properties so transferred will be equal to:

- in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraph 85(1)(c.1)(i) and (ii); and

- in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii).

57. For greater certainty, the agreed amount for any eligible property included in the subsection 85(1) elections referred to herein will not be less than the amount of any respective liabilities included in the Assumed XXXXXXXXXX Liabilities as consideration for the transfer of such property.

58. The amount added to the stated capital account maintained by Newco 1 in respect of the Newco 1 Class A Preferred Shares issued to XXXXXXXXXX will be equal to the amount by which the aggregate FMV of the XXXXXXXXXX Properties exceeds the Assumed XXXXXXXXXX Liabilities.

59. The Newco 1 Class A Preferred Shares will be capital property to XXXXXXXXXX.

60. XXXXXXXXXX will transfer to Newco 1 a number of XXXXXXXXXX Common Shares. The number of XXXXXXXXXX Common Shares transferred to Newco 1 will have an aggregate FMV equal to the FMV of all the XXXXXXXXXX Properties less the amount of Assumed XXXXXXXXXX Liabilities. As sole consideration for the transferred XXXXXXXXXX Common Shares, Newco 1 will issue to XXXXXXXXXX. Newco 1 Common Shares. The XXXXXXXXXX Newco 1 Common Shares issued to XXXXXXXXXX will have a FMV that will be equal to the FMV of the number of the XXXXXXXXXX Common Shares transferred. The Newco 1 Common Shares will be capital property to XXXXXXXXXX.

61. With respect to the transfer of a number of XXXXXXXXXX Common Shares described in Paragraph 60, XXXXXXXXXX and Newco 1 will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer. The agreed amount for the XXXXXXXXXX Common Shares transferred will be expressed in dollars and will be equal to the lesser of the cost amount to XXXXXXXXXX of the XXXXXXXXXX Common Shares transferred and the FMV thereof.

62. The amount that will be added to the stated capital account maintained by Newco 1 in respect of the Newco 1 Common Shares issued to XXXXXXXXXX as consideration for the XXXXXXXXXX Common Shares transferred will be equal to the cost of the XXXXXXXXXX Common Shares transferred determined pursuant to subsection 85(1).

63. Immediately after the transfer of the XXXXXXXXXX Common Shares described in Paragraph 60, XXXXXXXXXX will repurchase for cancellation all the issued and outstanding XXXXXXXXXX Common Shares transferred to Newco 1 at their FMV and, in consideration thereof, XXXXXXXXXX will issue a non-interest-bearing demand promissory note (the "XXXXXXXXXX Note") in favour of Newco 1 having a principal amount and FMV equal to the XXXXXXXXXX Repurchase Amount multiplied by the number of XXXXXXXXXX Common Shares purchased for cancellation from Newco 1. Newco 1 will accept the XXXXXXXXXX Note as full payment for the repurchase amount of the XXXXXXXXXX Common Shares so repurchased.

64. Immediately after the repurchase of the XXXXXXXXXX Common Shares described in Paragraph 63, Newco 1 will redeem all of the Newco 1 Class A Preferred Shares held by XXXXXXXXXX at the Newco 1 Class A Redemption Amount and, in consideration thereof, Newco 1 will issue a non-interest-bearing demand promissory note (the "Newco 1 XXXXXXXXXX Note") in favour of XXXXXXXXXX having a principal amount and FMV equal to the Newco 1 Class A Redemption Amount multiplied by the number of Newco 1 Class A Preferred Shares so redeemed. XXXXXXXXXX will accept the Newco 1 XXXXXXXXXX Note as full payment for the redemption amount of the Newco 1 Class A Preferred Shares so redeemed.

65. XXXXXXXXXX and Newco 1 will set-off, against each other, the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note. The XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note will be cancelled.

Transfer of XXXXXXXXXX Properties to Newco 1

66. XXXXXXXXXX will transfer the following properties (collectively, the " XXXXXXXXXX Properties") to Newco 1:

- all of its XXXXXXXXXX equipment included in Class 8 and Class 17 pursuant to Schedule II of the Regulations;

- all of its XXXXXXXXXX included in Class 8 and XXXXXXXXXX pursuant to Schedule II of the Regulations;

- XXXXXXXXXX

67. The aggregate transfer price of the XXXXXXXXXX Properties will be equal to the FMV of such properties at the time of the transfer and the agreement entered into by XXXXXXXXXX and Newco 1 will include a price adjustment clause relating to the FMV of the XXXXXXXXXX Properties. As consideration for the XXXXXXXXXX Properties, Newco 1 will assume liabilities related thereto and certain other liabilities (the "Assumed XXXXXXXXXX Liabilities") and will issue to XXXXXXXXXX Newco 1 Class B Preferred Shares. The Assumed XXXXXXXXXX Liabilities will not include any portion of the principal amount of the XXXXXXXXXX Note that will be issued later, as described in Paragraph 75.

68. XXXXXXXXXX and Newco 1 will elect jointly in prescribed form and within the time limits referred to in subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of any eligible property of XXXXXXXXXX which is transferred to Newco 1 as described in Paragraph 66. The amount agreed upon in such elections in respect of each of the eligible properties so transferred will be equal to:

- in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii).

69. For greater certainty, the agreed amount for any eligible property included in the subsection 85(1) elections referred to herein will not be less than the amount of any respective liabilities included in the Assumed XXXXXXXXXX Liabilities as consideration for the transfer of such property.

70. The amount added to the stated capital account maintained by Newco 1 in respect of the Newco 1 Class B Preferred Shares issued to XXXXXXXXXX will be equal to the amount by which the aggregate FMV of the XXXXXXXXXX Properties exceeds the Assumed XXXXXXXXXX Liabilities.

71. The Newco 1 Class B Preferred Shares will be capital property to XXXXXXXXXX.

72. XXXXXXXXXX will transfer to Newco 1 a number of XXXXXXXXXX Common Shares. The number of XXXXXXXXXX Common Shares transferred to Newco 1 will have an aggregate FMV equal to the FMV of all the XXXXXXXXXX Properties less the amount of Assumed XXXXXXXXXX Liabilities. As sole consideration for the transferred XXXXXXXXXX Common Shares, Newco 1 will issue to XXXXXXXXXX Newco 1 Common Shares. The XXXXXXXXXX Newco 1 Common Shares issued to XXXXXXXXXX will have a FMV that will be equal to the FMV of the number of the XXXXXXXXXX Common Shares transferred. The Newco 1 Common Shares will be capital property to XXXXXXXXXX.

73. With respect to the transfer of a number of XXXXXXXXXX Common Shares described in Paragraph 72, XXXXXXXXXX and Newco 1 will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer. The agreed amount for the XXXXXXXXXX Common Shares transferred will be expressed in dollars and will be equal to the lesser of the cost amount to XXXXXXXXXX of the XXXXXXXXXX Common Shares transferred and the FMV thereof.

74. The amount that will be added to the stated capital account maintained by Newco 1 in respect of the Newco 1 Common Shares issued to XXXXXXXXXX as consideration for the XXXXXXXXXX Common Shares transferred will be equal to the cost of the XXXXXXXXXX Common Shares transferred determined pursuant to subsection 85(1).

75. Immediately after the transfer of the XXXXXXXXXX Common Shares described in Paragraph 72, XXXXXXXXXX will repurchase for cancellation all the issued and outstanding XXXXXXXXXX Common Shares transferred to Newco 1 at their FMV and, in consideration thereof, XXXXXXXXXX will issue a non-interest-bearing demand promissory note (the "XXXXXXXXXX Note") in favour of Newco 1 having a principal amount and FMV equal to the XXXXXXXXXX Repurchase Amount multiplied by the number of XXXXXXXXXX Common Shares purchased for cancellation from Newco 1. Newco 1 will accept the XXXXXXXXXX Note as full payment for the repurchase amount of the XXXXXXXXXX Common Shares so repurchased.

76. Immediately after the repurchase of the XXXXXXXXXX Common Shares described in Paragraph 75, Newco 1 will redeem all of the Newco 1 Class B Preferred Shares held by XXXXXXXXXX at the Newco 1 Class B Redemption Amount and, in consideration thereof, Newco 1 will issue a non-interest-bearing demand promissory note (the "Newco 1 XXXXXXXXXX Note") in favour of XXXXXXXXXX having a principal amount and FMV equal to the Newco 1 Class B Redemption Amount multiplied by the number of Newco 1 Class B Preferred Shares so redeemed. XXXXXXXXXX will accept the Newco 1 XXXXXXXXXX Note as full payment for the redemption amount of the Newco 1 Class B Preferred Shares so redeemed.

77. XXXXXXXXXX and Newco 1 will set-off, against each other, the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note. The XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note will be cancelled.

Transfer of XXXXXXXXXX Business Properties to XXXXXXXXXX

78. After the transfer of the XXXXXXXXXX Properties to Newco 1, XXXXXXXXXX will transfer all of its other properties, other than its investment in New LP and any debt relating thereto to XXXXXXXXXX (collectively, the "XXXXXXXXXX Business Properties").

79. The aggregate transfer price of the XXXXXXXXXX Business Properties will be equal to the FMV of such properties at the time of the transfer and the agreement entered into by XXXXXXXXXX and XXXXXXXXXX will include a price adjustment clause relating to the FMV of the XXXXXXXXXX Business Properties. As consideration for the XXXXXXXXXX Business Properties, XXXXXXXXXX will assume liabilities related thereto and certain other liabilities (the "Assumed XXXXXXXXXX Business Liabilities") and will issue to XXXXXXXXXX such number of XXXXXXXXXX Preferred Shares as will have an aggregate redemption value equal to the FMV of the XXXXXXXXXX Business Properties less than the Assumed XXXXXXXXXX Business Liabilities. The Assumed XXXXXXXXXX Business Liabilities will not include any portion of the principal amount of the XXXXXXXXXX Business Note that will be issued later, as described in Paragraph 87 or any amounts due to XXXXXXXXXX.

80. XXXXXXXXXX will elect jointly in prescribed form and within the time limits referred to in subsection 85(6), to have the rules of subsection 85(1) apply to the transfers of any eligible property of XXXXXXXXXX which is transferred to XXXXXXXXXX as described in Paragraph 78. The amount agreed upon in such elections in respect of each of the eligible properties so transferred will be equal to:

- in the case of capital property (other than depreciable property of a prescribed class) and inventory, an amount equal to the lesser of the amounts described in subparagraph 85(1)(c.1)(i) and (ii);

- in the case of depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

- in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii), except that, the least of such amounts is nil, the elected amount will be XXXXXXXXXX.

81. For greater certainty, the agreed amount for any eligible property included in the subsection 85(1) elections referred to herein will not be less than the amount of any respective liabilities included in the assumed XXXXXXXXXX Business Liabilities as consideration for the transfer of such property.

82. The amount added to the stated capital account maintained by XXXXXXXXXX in respect of the XXXXXXXXXX Preferred Shares issued to XXXXXXXXXX will be equal to the amount by which the aggregate FMV of the XXXXXXXXXX Business Properties exceeds the Assumed XXXXXXXXXX Business Liabilities.

83. The XXXXXXXXXX Preferred Shares will be capital property to XXXXXXXXXX.

84. XXXXXXXXXX will transfer to XXXXXXXXXX a number of XXXXXXXXXX Common Shares. The number of XXXXXXXXXX Common Shares transferred to XXXXXXXXXX will have an aggregate FMV equal to the FMV of the XXXXXXXXXX plus the FMV of the XXXXXXXXXX Business Properties less the amount of Assumed XXXXXXXXXX Business Liabilities. As sole consideration for the transferred XXXXXXXXXX Common Shares, XXXXXXXXXX will issue to XXXXXXXXXX Common Shares. The XXXXXXXXXX Common Shares issued to XXXXXXXXXX will have a FMV that will be equal to the FMV of the number of the XXXXXXXXXX Common Shares transferred. The XXXXXXXXXX Common Shares will be capital property to XXXXXXXXXX.

85. With respect to the transfer of the number of XXXXXXXXXX Common Shares described in Paragraph 84, XXXXXXXXXX will elect, jointly and in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer. The agreed amount for the transferred XXXXXXXXXX Common Shares will be expressed in dollars and will be equal to the lesser of the cost amount to XXXXXXXXXX of the XXXXXXXXXX Common Shares transferred and the FMV thereof.

86. The amount that will be added to the stated capital account maintained by XXXXXXXXXX in respect of the XXXXXXXXXX Common Shares issued to XXXXXXXXXX as consideration for the XXXXXXXXXX Common Shares transferred will be equal to the cost of the XXXXXXXXXX Common Shares transferred pursuant to subsection 85(1).

87. Immediately after the transfer of the XXXXXXXXXX Common Shares described in Paragraph 84, XXXXXXXXXX will repurchase for cancellation all the issued and outstanding XXXXXXXXXX Common Shares transferred to XXXXXXXXXX at their FMV and, in consideration thereof, XXXXXXXXXX will issue a non-interest bearing demand promissory note (the "XXXXXXXXXX Business Note") in favour of XXXXXXXXXX having a principal amount and FMV equal to the XXXXXXXXXX Business Repurchase Amount multiplied by the number of XXXXXXXXXX Common Shares repurchased from XXXXXXXXXX will accept the XXXXXXXXXX Business Note as full payment for the repurchase amount of the XXXXXXXXXX Common Shares so repurchased.

88. Immediately after the repurchase of the XXXXXXXXXX Common Shares described in Paragraph 87, XXXXXXXXXX will redeem all of the XXXXXXXXXX Preferred Shares held by XXXXXXXXXX at the XXXXXXXXXX Business Redemption Amount multiplied by the number of XXXXXXXXXX Preferred Shares so redeemed, and, in consideration thereof, XXXXXXXXXX will issue a non-interest-bearing demand promissory note (the "XXXXXXXXXX Business Note") in favour of XXXXXXXXXX having a principal amount and FMV equal to the XXXXXXXXXX Business Redemption Amount multiplied by the number of XXXXXXXXXX Preferred Shares so redeemed. XXXXXXXXXX will accept the XXXXXXXXXX Business Note as full payment for the redemption amount of the XXXXXXXXXX Preferred Shares so redeemed.

89. XXXXXXXXXX will set-off, against each other, the XXXXXXXXXX Business Note and the XXXXXXXXXX Business Note. The XXXXXXXXXX Business Note and the XXXXXXXXXX Business Note will be cancelled.

SUBSEQUENT TRANSACTIONS

89.1 On or before XXXXXXXXXX will be continued under the CBCA. On or before XXXXXXXXXX, these companies along with certain inactive companies will amalgamate with XXXXXXXXXX in accordance with the long-form amalgamation provisions of the CBCA to form a new entity. The amalgamated entity will carry on business under the name "XXXXXXXXXX". The amalgamation represents a housekeeping measure to consolidate various companies in the XXXXXXXXXX group, all of which are inactive except for XXXXXXXXXX. The amalgamation is intended to coincide with the normal year-ends of the predecessor corporations.

On or before XXXXXXXXXX will be continued under the CBCA. On or before XXXXXXXXXX will amalgamate in accordance with the long-form amalgamation provisions of the CBCA to form a new entity. The amalgamated entity will carry on business under the name "XXXXXXXXXX". The amalgamation is intended to coincide with the normal year-ends of the predecessor corporations.

Subsequent Possible Transactions

The following transactions may be undertaken:

90. The shares of XXXXXXXXXX Holdco may be transferred to a XXXXXXXXXX limited liability company and/or a wholly-owned foreign affiliate. The shares of XXXXXXXXXX may be transferred to XXXXXXXXXX Holdco.

91. XXXXXXXXXX may be reorganized such that there are three U.S. subsidiaries owned by one U.S. Corporation XXXXXXXXXX. One or more inactive subsidiaries in the XXXXXXXXXX Group may be combined with one of the operating entities.

ADDITIONAL INFORMATION

92. None of the corporations is or will be a "specified financial institution" as defined in subsection 248(1).

93. There are not, and will not be, at any time prior to the completion of the proposed transactions described above, any agreements (or undertakings) which constitute or include a "guarantee aggrement" as defined in subsection 112(2.2), in respect of any shares referred to in this ruling.

94. None of the dividends described in this ruling will be received on a share of the capital stock of a corporation as part of a dividend rental arrangement as defined in subsection 248(1).

95. None of the shares referred to in this ruling has been or will be issued or acquired as part of a transaction or event or a series of transactions or events contemplated by subsection 112(2.5).

PURPOSE OF PROPOSED TRANSACTIONS

96. The purpose of the Proposed Transactions can be summarized as follows:

The Proposed Transactions are intended to separate the operations of XXXXXXXXXX on a tax-deferred basis into three separate corporations: XXXXXXXXXX. This segregation of operations is intended to achieve the following business purposes:

- Provide flexibility in financing the operations of each company;

- XXXXXXXXXX; and

- Provide flexibility with respect to operations XXXXXXXXXX. Segregating the XXXXXXXXXX and XXXXXXXXXX Properties from XXXXXXXXXX achieves this purpose.

97.

XXXXXXXXXX

RULINGS

Provided the above statements constitute complete and accurate disclosure of all the relevant facts and proposed transactions, we rule as follows:

A) Provided the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of the shares of XXXXXXXXXX Holdco by XXXXXXXXXX to New LP, as described in Paragraph 47, the provisions of subsection 97(2) will apply such that:

(i) the agreed amount in respect of each such property will be deemed to be the transferor's proceeds of disposition thereof and the transferee's cost thereof;

and

(ii) in computing, at any time after the transfers, the transferor's ACB of its interest in New LP immediately after the transfers, there shall be added or subtracted the amount, if any, described in paragraph 97(2)(b) in respect of each transfer.

B) Provided that the requisite election is made and filed within the time permitted by the Act, and provided that XXXXXXXXXX ceases to exist, the provisions of subsection 98(3) will apply to the dissolution of the XXXXXXXXXX (as described in Paragraph 51) to determine the amount of each former partner's proceeds of disposition of the person's interest in the partnership, the cost to each such person of the person's undivided interest in the property of the partnership and the partnership's proceeds of disposition of the property of the partnership.

Transfer of XXXXXXXXXX Properties to Newco 1

C) Upon the filing of the appropriate elections, the provisions of subsection 85(1) will apply to the transfer of each eligible property by XXXXXXXXXX to Newco 1 as described in Paragraphs 54 to 57 such that:

(i) the agreed amounts in respect of each such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a);

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

(iii) for the purposes of determining the agreed amounts of depreciable property of a prescribed class, 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 undepreciated capital cost to the taxpayer of all the property of that class that the capital cost to the taxpayer of the property of that class transferred is of the capital cost to the taxpayer of all property of the class.

D) Provided that the condition specified in paragraph 1100(2.2)(g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property that is acquired by Newco 1 from XXXXXXXXXX, as described in Paragraph 54.

E) Provided that Newco 1 continues to use the XXXXXXXXXX Properties, or any property substituted therefor, for the purpose of gaining or producing income from its business and has a legal obligation to pay interest on any particular Assumed XXXXXXXXXX Liabilities (other than any Assumed XXXXXXXXXX Liabilities in respect of which XXXXXXXXXX would not have been entitled to deduct interest pursuant to paragraph 20(1)(c)), an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by Newco 1 in computing its income) as interest, or a reasonable amount in respect thereof, whichever is the lesser, on any such Assumed XXXXXXXXXX Liabilities will be deductible by Newco 1, pursuant to paragraph 20(1)(c), in computing its income for each such year.

F) Subsection 85(2.1) will be applicable in computing the PUC of Newco 1 Class A Preferred Shares referred to in Paragraph 55.

G) Upon filing of the appropriate elections, with respect to the transfer of the XXXXXXXXXX Common Shares by XXXXXXXXXX to Newco 1, described in Paragraph 60:

(i) the provisions of subsection 85(1) will apply such that the agreed amount in respect of such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a);

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

(iii) pursuant to paragraph 85(1)(h), the cost to XXXXXXXXXX of the XXXXXXXXXX Newco 1 Common Shares received for the XXXXXXXXXX Common Shares transferred to Newco 1 will be deemed to be equal to the proceeds of disposition that will be deemed to be received by XXXXXXXXXX in respect of the XXXXXXXXXX Common Shares as determined under paragraph 85(1)(a).

H) Subsection 85(2.1) will not apply to reduce the PUC of the Newco 1 Common Shares issued to XXXXXXXXXX as consideration for the transfer of XXXXXXXXXX Common Shares as described in Paragraph 60.

I) As a result of the repurchase by XXXXXXXXXX of the XXXXXXXXXX Common Shares as described in Paragraph 63 and the redemption of the Newco 1 Class A Preferred Shares by Newco 1 as described in Paragraph 64:

(a) by virtue of paragraphs 84(3)(a) and 84(3)(b):

(i) XXXXXXXXXX will be deemed to have paid, and Newco 1 will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the repurchase of the XXXXXXXXXX Common Shares exceeds the PUC thereof; and

(ii) Newco 1 will be deemed to have paid, and XXXXXXXXXX will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the Newco 1 Class A Preferred Shares exceeds the PUC thereof;

(b) a taxable dividend deemed to have been received by XXXXXXXXXX and Newco 1 as a result of the repurchase and redemption referred to in Paragraphs 63 and 64 will, by virtue of subparagraph 82(1)(a)(ii) and paragraph 12(1)(j), be included in computing the income of the recipient for the year in which it is received; and will, by virtue of subsection 112(1), be deductible in computing the income of the recipient in the year in which it is received. For greater certainty, such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);

(c) in computing the capital gain or loss realized by Newco 1 and XXXXXXXXXX on the disposition of shares referred to in Paragraphs 63 and 64 which will occur as a result of the repurchase and redemption of such shares by Newco 1 and XXXXXXXXXX referred to in Paragraphs 63 and 64, paragraph (j) of the definition of "proceeds of disposition" in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition which Newco 1 and XXXXXXXXXX would otherwise be considered to have received as a result of such redemption. Any taxable dividends deemed to arise in respect of the redemptions and repurchases of shares will, pursuant to subsection 112(3), reduce the amount of any loss arising on the redemptions and repurchases ;

and

(d) by virtue of subsection 186(2) and paragraph 186(4)(a), Newco 1 will be connected with XXXXXXXXXX and XXXXXXXXXX will be connected with Newco 1. Consequently, provided that neither XXXXXXXXXX nor Newco 1 is entitled to a dividend refund (within the meaning of subsection 129(1)) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) or (ii) herein, neither XXXXXXXXXX nor Newco 1 will be subject to Part IV tax under subsection 186(1) in respect of such dividend.

J) By virtue of the definition of "substantial interest" as set out under paragraph 191(2)(a), XXXXXXXXXX will have a substantial interest in Newco 1 immediately before the redemption of the Newco 1 Class A Preferred Shares as described in Paragraph 64 and Newco 1 will have a substantial interest in XXXXXXXXXX immediately before the repurchase of the XXXXXXXXXX Common Shares as described in Paragraph 63 . Consequently, no tax will be payable under either section 187.2 or section 191.1 in respect of the dividends described in ruling I.

K) By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to the deemed dividends described in ruling I provided that there is no disposition or increase in interest as described in any of subparagraphs 55(3)(a)(i) to (v), which is part of a series of transactions or events as part of which the dividend was received.

L) The set-off and cancellation of the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note as described in Paragraph 65, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).

M) The dispositions of the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note which will occur on the set-off and cancellation of each such note, as described in Paragraph 65, will not result in any income, gain or loss, for the purposes of the Act, to either XXXXXXXXXX or Newco 1.

Transfer of the XXXXXXXXXX Properties to Newco 1

N) Upon filing of the appropriate elections, the provisions of subsection 85(1) will apply to the transfer of each eligible property by XXXXXXXXXX to Newco 1 as described in Paragraphs 66 to 69 such that:

(i) the agreed amounts in respect of each such transfer shall be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a);

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

O) Provided that the condition specified in paragraph 1100(2.2)(g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property that is acquired by Newco 1 from XXXXXXXXXX, as described in Paragraph 66.

P) Provided that Newco 1 continues to use the XXXXXXXXXX Properties, or any property substituted therefor, for the purpose of gaining or producing income from its business and has a legal obligation to pay interest on any particular Assumed XXXXXXXXXX Liabilities (other than any Assumed XXXXXXXXXX Liabilities in respect of which XXXXXXXXXX would not have been entitled to deduct interest pursuant to paragraph 20(1)(c)), an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by Newco 1 in computing its income) as interest, or a reasonable amount in respect thereof, whichever is the lesser, on any such Assumed XXXXXXXXXX Liabilities will be deductible by Newco 1, pursuant to paragraph 20(1)(c), in computing its income for each such year.

Q) The provisions of subsection 85(2.1) will apply to reduce the PUC of the Newco 1 Class B Preferred Shares referred to in Paragraph 67.

R) Upon filing the appropriate elections, with respect to the transfer of the XXXXXXXXXX Common Shares by XXXXXXXXXX to Newco 1, as described in Paragraph 72:

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

S) Subsection 85(2.1) will not apply to reduce PUC of the Newco 1 Common Shares issued to XXXXXXXXXX as consideration for the transfer of XXXXXXXXXX Common Shares as described in Paragraph 72.

T) As a result of the repurchase by XXXXXXXXXX of the XXXXXXXXXX Common Shares as described in Paragraph 75 and the redemption of the Newco 1 Class B Preferred Shares by Newco 1 as described in Paragraph 76:

(a) by virtue of paragraphs 84(3)(a) and 84(3)(b):

and

(b) a taxable dividend deemed to have been received by XXXXXXXXXX and Newco 1 as a result of the repurchase and redemption referred to in Paragraphs 75 and 76 will, by virtue of subparagraph 82(1)(a)(ii) and paragraph 12(1)(j), be included in computing the income of the recipient for the year in which it is received; and will, by virtue of subsection 112(1), be deductible in computing the income of the recipient in the year in which it is received. For greater certainty, such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);

(c) in computing the capital gain or loss realized by Newco 1 and XXXXXXXXXX on the disposition of shares referred to in Paragraphs 75 and 76 which will occur as a result of the repurchase and redemption of such shares by Newco 1 and XXXXXXXXXX referred to in Paragraphs 75 and 76, paragraph (j) of the definition of "proceeds of disposition" in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition which Newco 1 and XXXXXXXXXX would otherwise be considered to have received as a result of such redemption. Any taxable dividends deemed to arise in respect of the repurchases and redemptions of such shares will, pursuant to subsection 112(3), reduce the amount of any loss arising on the repurchases and redemptions; and

U) By virtue of the definition of "substantial interest" as set out under paragraph 191(2)(a), XXXXXXXXXX will have a substantial interest in Newco 1 immediately before the redemption of the Newco 1 Class B Preferred Shares as described in Paragraph 76 and Newco 1 will have a substantial interest in XXXXXXXXXX immediately before the repurchase of the XXXXXXXXXX Common Shares as described in Paragraph 75. Consequently, no tax will be payable under either section 187.2 or section 191.1 in respect of the dividends described in ruling T.

V) By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to, or in respect of, the deemed dividends described in Ruling T, provided there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v), which is part of a series of transactions or events as a part of which the dividend was received.

W) The set-off and cancellation of the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note as described in Paragraph 77, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).

X) The dispositions of the XXXXXXXXXX Note and the Newco 1 XXXXXXXXXX Note which will occur on the set-off and cancellation of each such note, as described in Paragraph 77, will not result in any income, gain or loss, for the purposes of the Act, to either XXXXXXXXXX or Newco 1.

Transfer of XXXXXXXXXX Business Properties to XXXXXXXXXX

Y) Provided that the appropriate elections are filed within the prescribed time limit, the provisions of subsection 85(1) will apply to the transfer of each eligible property by XXXXXXXXXX to XXXXXXXXXX as described in Paragraphs 78 to 81 such that:

(i) the agreed amounts in respect of each such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a);

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

Z) Provided that the condition specified in paragraph 1100(2.2)(g) of the Regulations is satisfied, paragraph 1100(2.2)(h) of the Regulations will apply such that no amount will be included under paragraph 1100(2)(a) of the Regulations in respect of depreciable property that is acquired by XXXXXXXXXX from XXXXXXXXXX, as described in Paragraph 78.

AA) Provided that XXXXXXXXXX continues to use the XXXXXXXXXX Business Properties, or any property substituted therefor, for the purpose of gaining or producing income from its business and has a legal obligation to pay interest on any particular Assumed XXXXXXXXXX Business Liabilities (other than any Assumed XXXXXXXXXX Business Liabilities in respect of which XXXXXXXXXX would not have been entitled to deduct interest pursuant to paragraph 20(1)(c)), an amount paid in the year or payable in respect of the year (depending upon the method regularly followed by XXXXXXXXXX in computing its income) as interest, or a reasonable amount in respect thereof, whichever is the lesser, on any such Assumed XXXXXXXXXX Business Liabilities will be deductible by XXXXXXXXXX, pursuant to paragraph 20(1)(c), in computing its income for each such year.

BB) The provisions of subsection 85(2.1) will apply to reduce the PUC of the XXXXXXXXXX Preferred Shares referred to in Paragraph 79.

CC) Provided the requisite election is made and filed within the time permitted by the Act, with respect to the transfer of the XXXXXXXXXX Common Shares by XXXXXXXXXX to XXXXXXXXXX, as described in Paragraph 84, the provisions of subsection 85(1) will apply such that:

(i) the agreed amount in respect of such transfer will be deemed to be the transferor's proceeds of disposition and the transferee's cost thereof pursuant to paragraph 85(1)(a);

(ii) for greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein;

and

(iii) pursuant to paragraph 85(1)(h), the cost to XXXXXXXXXX of the XXXXXXXXXX Common Shares received for the XXXXXXXXXX Common Shares transferred to XXXXXXXXXX will be deemed to be equal to the proceeds of disposition that will be deemed to be received by XXXXXXXXXX in respect of the XXXXXXXXXX Common Shares as determined under paragraph 85(1)(a).

DD) Subsection 85(2.1) will not apply to reduce PUC of the XXXXXXXXXX Common Shares issued to XXXXXXXXXX as consideration for the transfer of XXXXXXXXXX Common Shares as described in Paragraph 84.

EE) As a result of the repurchase by XXXXXXXXXX of the XXXXXXXXXX Common Shares as described in Paragraph 87 and the redemption of the XXXXXXXXXX Preferred Shares by XXXXXXXXXX as described in Paragraph 88:

(a) by virtue of paragraphs 84(3)(a) and 84(3)(b):

(i) XXXXXXXXXX will be deemed to have paid, and XXXXXXXXXX will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the XXXXXXXXXX Common Shares exceeds the PUC thereof; and

(ii) XXXXXXXXXX will be deemed to have paid, and XXXXXXXXXX will be deemed to have received, a taxable dividend equal to the amount by which the amount paid in respect of the redemption of the XXXXXXXXXX Preferred Shares exceeds the PUC thereof;

(b) a taxable dividend deemed to have been received by XXXXXXXXXX and XXXXXXXXXX as a result of the repurchase and redemption referred to in Paragraphs 87 and 88 will, by virtue of subparagraph 82(1)(a)(ii) and paragraph 12(1)(j), be included in computing the income of the recipient for the year in which it is received; and will, by virtue of subsection 112(1), be deductible in computing the income of the recipient in the year in which it is received and, for greater certainty, such deduction will not be prohibited by any of subsections 112(2.1), (2.2), (2.3) and (2.4);

(c) in computing the capital gain or loss realized by XXXXXXXXXX and XXXXXXXXXX on the disposition of shares referred to in Paragraphs 87 and 88 which will occur as a result of the repurchase and redemption of such shares by XXXXXXXXXX and XXXXXXXXXX referred to in Paragraphs 87 and 88, paragraph (j) of the definition of "proceeds of disposition" in section 54 will apply to exclude the amount of such deemed dividend from the proceeds of disposition which XXXXXXXXXX and XXXXXXXXXX would otherwise be considered to have received as a result of such redemption. Any taxable dividends deemed to arise in respect of the repurchases and redemptions of such shares will, pursuant to subsection 112(3), reduce the amount of any loss arising on the repurchases and redemptions of such shares ; and

(d) by virtue of subsection 186(2) and paragraph 186(4)(a), XXXXXXXXXX will be connected with XXXXXXXXXX and XXXXXXXXXX will be connected with XXXXXXXXXX. Consequently, provided that neither XXXXXXXXXX nor XXXXXXXXXX is entitled to a dividend refund (within the meaning of subsection 129(1)) in respect of its taxation year in which it is deemed to pay the dividends referred to in (a)(i) or (ii) herein, neither XXXXXXXXXX nor XXXXXXXXXX will be subject to Part IV tax under subsection 186(1) in respect of such dividend.

FF) By virtue of the definition of "substantial interest" as set out under paragraph 191(2)(a), XXXXXXXXXX will have a substantial interest in XXXXXXXXXX immediately before the redemption of the XXXXXXXXXX Preferred Shares as described in Paragraph 88 and XXXXXXXXXX will have a substantial interest in XXXXXXXXXX immediately before the repurchase of the XXXXXXXXXX Common Shares as described in Paragraph 87. Consequently, no tax will be payable under either section 187.2 or section 191.1 in respect of the dividends described in ruling EE.

GG) By virtue of paragraph 55(3)(a), subsection 55(2) will not apply to, or in respect of, the deemed dividends described in ruling EE, provided there is no disposition or increase in interest described in any of subparagraphs 55(3)(a)(i) to (v), which is part of a series of transactions or events as part of which the dividend was received.

HH) The set-off and cancellation of the XXXXXXXXXX Business Note and the XXXXXXXXXX Business Note as described in Paragraph 89, will not give rise to a "forgiven amount" within the meaning of subsection 80(1) or 80.01(1).

II) The dispositions of the XXXXXXXXXX Business Note and the XXXXXXXXXX Business Note which will occur on the set-off and cancellation of each such note, as described in Paragraph 89, will not result in any income, gain or loss, for the purposes of the Act, to either XXXXXXXXXX or XXXXXXXXXX.

JJ) The provisions of subsections 15(1), 56(2), 56(4) and 246(1) will not apply as a result of the Proposed Transactions described herein, in and by themselves.

KK) Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences in the rulings given.

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

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

COMMENTS

1. Nothing in this letter should be interpreted as confirming that:

(a) for purposes of the Act, any adjustment made pursuant to any price adjustment clause in respect of a transaction subsequent to the time of such transaction will be effective, retroactively, to the time of such transaction;

(b) for purposes of the Act, any amount paid pursuant to any price adjustment clause, in respect of a transaction subsequent to the time of such transaction will be an additional payment of the redemption of any shares redeemed; or

(c) in the event that any adjustment is made pursuant to any such price adjustment clause, the proposed transactions referred to above will be considered to have been carried out as described herein.

The operation of a price adjustment clause is not a proposed transaction and, consequently, advance rulings are not given by the Department in respect thereof. The Department's general position with respect to price adjustment clauses in agreements is set out in Interpretation Bulletin IT-169 dated August 6, 1974.

2. Nothing in this ruling should be construed as implying that Revenue Canada has reviewed, accepted or otherwise agreed to:

- the determination of the adjusted cost base of any share or the paid-up capital of any shares referred to herein; or

- any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. In particular, we are not commenting on the tax consequences of any of the transactions described in Paragraphs 43 through 45.1 and in Paragraphs 89.1, 90 and 91. Furthermore, we cannot confirm that the possible transactions described in Paragraphs 89.1, 90 and 91 will not affect the rulings given above until all of the circumstances of such possible transactions are more specifically determined.

Yours truly,

for Director
Reorganization and International Division
Income Tax Rulingsand
Interpretations Directorate
Policy and Legislation Branch

.../cont'd

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1998 Ruling 9825963 - INTERNAL REORGANIZATION

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DEFINITIONS

FACTS

Significant Transactions

Proposed Transactions

Transfer of XXXXXXXXXX Properties to Newco 1

Transfer of XXXXXXXXXX Properties to Newco 1

Transfer of XXXXXXXXXX Business Properties to XXXXXXXXXX

SUBSEQUENT TRANSACTIONS

Subsequent Possible Transactions

ADDITIONAL INFORMATION

PURPOSE OF PROPOSED TRANSACTIONS

RULINGS

COMMENTS