2014-0548621R3 Post Mortem Pipeline Planning

Principal Issues: Whether section 84.1 or subsection 84(2) apply to the proposed transactions

Position: Favourable rulings provided.

Reasons: In accordance with the provisions of the Act and our previous positions.

Author: XXXXXXXXXX
Section: Section 84.1 and subsection 84(2)

XXXXXXXXXX                                      2014-054862

XXXXXXXXXX, 2015

Dear Sir,

Re:   Advance Income Tax Ruling

XXXXXXXXXX (Business Number XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office), XXXXXXXXXX and XXXXXXXXXX  (individually sometimes referred to as the “Taxpayer” and collectively sometimes referred to as the “Taxpayers”)

This is in reply to your letter in which you requested an advance income tax ruling on behalf of the Taxpayers.  We also acknowledge the information provided in your emails.

We understand that to the best of your knowledge and that of the Taxpayers involved, none of the issues described herein is:

(a)   in a previously filed return of the Taxpayer or a related person;

(b)   being considered by a tax services office or tax centre in connection with a previously filed tax return of the Taxpayer or a related person;

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

(d)   before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has expired; and

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

Unless otherwise noted, all references herein to sections or components thereof are references to the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended, or the Income Tax Regulations, C.R.C., c. 945, as appropriate, and all references to monetary amounts are in Canadian dollars. 

DEFINITIONS:

“A” means the late XXXXXXXXXX, the spouse of the late B.

“Act1” means the Business Corporations Act, XXXXXXXXXX.

“adjusted cost base” has the meaning assigned by section 54.

“Arm’s Length” has the meaning assigned by subsection 251(1).

“B” means the late XXXXXXXXXX, the spouse of the late A.

“Beneficiary1” means XXXXXXXXXX, a Canadian resident and sibling of Beneficiary2, Beneficiary3 and Beneficiary4.

“Beneficiary2” means XXXXXXXXXX, a Canadian resident and sibling of Beneficiary1, Beneficiary3 and Beneficiary4.

“Beneficiary3” means XXXXXXXXXX, a Canadian resident and sibling of Beneficiary1, Beneficiary2 and Beneficiary4.

“Beneficiary4” means XXXXXXXXXX, a Canadian resident and sibling of Beneficiary1, Beneficiary2 and Beneficiary3.

“Canadian-controlled private corporation” has the meaning assigned by subsection 125(7).

“Capital Property” has the meaning assigned by subsection 54(1).

“Corporation” means XXXXXXXXXX.

“CRA” means the Canada Revenue Agency.

“Debt1” means the XXXXXXXXXX non-interest bearing demand promissory notes, with an aggregate remaining principal amount of $XXXXXXXXXX, that were issued by the Corporation to the Trust as consideration for the redemption of all the Class E preferred shares and XXXXXXXXXX Class F preferred shares held by the Trust.

“Estate” means the estate of B whose beneficiaries are Beneficiary1, Beneficiary2, Beneficiary3 and Beneficiary4, who are the children of A and B.

“Executor” means Beneficiary2, the executor of the Estate, who was appointed as executor of the Estate pursuant to the terms of the Will.

“fair market value” means the highest price available in an open and unrestricted market between informed, prudent parties, acting at arm’s length and under no compulsion to act, expressed in terms of cash.

“general rate income pool” has the meaning assigned by subsection 89(1).

“Holdco1” means XXXXXXXXXX, a Canadian-controlled private corporation and taxable Canadian corporation incorporated on XXXXXXXXXX under Act1, which has a taxation year end of XXXXXXXXXX, BN# XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office. The shareholder of Holdco1 is Beneficiary1.

“Holdco2” means XXXXXXXXXX, a Canadian-controlled private corporation and taxable Canadian corporation incorporated on XXXXXXXXXX under Act1, which has a taxation year end of XXXXXXXXXX, BN# XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office. The shareholder of Holdco2 are Beneficiary 2 and Spouse 1.

“Holdco3” means XXXXXXXXXX, a Canadian-controlled private corporation and taxable Canadian corporation incorporated on XXXXXXXXXX under Act1, which has a taxation year end of XXXXXXXXXX, BN# XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office. The shareholders of Holdco3 are Beneficiary3 and Spouse 2.

“Holdco4” means XXXXXXXXXX, a Canadian-controlled private corporation and taxable Canadian corporation incorporated on XXXXXXXXXX under Act1, which has a taxation year end of XXXXXXXXXX, BN# XXXXXXXXXX, XXXXXXXXXX Taxation Centre, XXXXXXXXXX Tax Services Office. The shareholders of Holdco4 are Beneficiary4 and Spouse 3.

“Marketable Securities” means the diversified portfolio of investment property held by the Corporation that includes cash and cash equivalents, shares of public corporations and units in mutual fund trusts.

“Newco” means a new corporation incorporated under Act1.

“paid-up capital” has the meaning assigned by subsection 89(1).

“Paragraph” refers to a numbered paragraph in this letter.

“PN” means the promissory note issued by Newco to the Estate in partial consideration for the transfer of the XXXXXXXXXX Class C common shares of the Corporation by the Estate.

“PN1” means the promissory note issued by Newco to the Trust in full consideration for the transfer of the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the Corporation by the Trust.

“Proceeds of Disposition” has the meaning assigned at section 54.

“refundable dividend tax on hand” has the meaning assigned by subsection 129(3).

“Spouse 1” means XXXXXXXXXX, the spouse of Beneficiary2.

“Spouse 2” means XXXXXXXXXX, the spouse of Beneficiary3.

“Spouse 3” means XXXXXXXXXX, the spouse of Beneficary4.

“taxable Canadian corporation” has the meaning assigned by subsection 89(1).

“Trust” means XXXXXXXXXX, an inter vivos trust.

“Trustees” means Beneficiary2 and Beneficiary4.

“Will” means B’s last will and testament.

FACTS

1.    The Corporation was incorporated under Act1 on XXXXXXXXXX and was at all relevant times a Canadian-controlled private corporation and a taxable Canadian corporation. The Corporation has a taxation year end of XXXXXXXXXX. 

2.    The Corporation is a holding corporation whose only assets are the Marketable Securities. The fair market value of the Marketable Securities as of XXXXXXXXXX, is $XXXXXXXXXX.

3.    The Corporation’s authorized share capital is as follows:

(a)   XXXXXXXXXX Class A common shares, voting, participating and without par value;

(b)   XXXXXXXXXX Class B common shares, voting, participating and without par value;

(c)   XXXXXXXXXX Class C common shares, voting, non-participating, and with par value of $XXXXXXXXXX each;

(d)   XXXXXXXXXX Class D common shares, non-voting, participating and without par value;

(e)   XXXXXXXXXX Class E preferred shares, non-voting, fixed non-cumulative dividend at a rate of XXXXXXXXXX% per annum, redeemable and retractable at $XXXXXXXXXX per share, and with par value of $XXXXXXXXXX each;

(f)   XXXXXXXXXX Class F preferred shares, non-voting, fixed non-cumulative dividend at a rate of XXXXXXXXXX% per annum, redeemable and retractable at $XXXXXXXXXX, and par value of $XXXXXXXXXX each; and

(g)   XXXXXXXXXX Class I preferred shares, non-voting, fixed non-cumulative dividend at a rate of XXXXXXXXXX% per annum, redeemable and retractable at $XXXXXXXXXX, and par value of $XXXXXXXXXX each.

4.    On XXXXXXXXXX, A held XXXXXXXXXX Class A common shares, XXXXXXXXXX Class E preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation and B held XXXXXXXXXX Class B common shares and XXXXXXXXXX Class E preferred shares of the capital stock of the Corporation.

4.1   A and B, the parents of Benefciariy1, Beneficairy2, Beneficiary 3 and Beneficairy4, are Canadian residents for purposes of the Act.

5.    On XXXXXXXXXX, A exchanged XXXXXXXXXX Class A common shares of the capital stock of the Corporation for XXXXXXXXXX Class F preferred shares of the capital stock of the Corporation and B exchanged XXXXXXXXXX Class B common shares of the capital stock of the Corporation for XXXXXXXXXX Class F preferred shares of the capital stock of the Corporation. Each exchange was reported as taking place pursuant to the provisions of section 86.

6.    On XXXXXXXXXX, A and B each subscribed for XXXXXXXXXX Class C common shares of the capital stock of the Corporation for a subscription price of $XXXXXXXXXX per share and each of Holdco1, Holdco2, Holdco3 and Holdco4 each subscribed for XXXXXXXXXX Class D common shares of the capital stock of the Corporation for a subscription price of $XXXXXXXXXX per share.

7.    On XXXXXXXXXX, the Trust was settled by A and B for their exclusive benefit during their lifetimes. The beneficiaries of the Trust after the last to die of A and B are Beneficiary1, Beneficiary2, Beneficiary3 and Beneficiary4.

8.    On XXXXXXXXXX, A and B retained their XXXXXXXXXX Class C preferred shares of the capital stock of the Corporation and transferred all their remaining shares of the capital stock of the Corporation to the Trust. As a result, the Trust held all the issued and outstanding Class E, Class F and Class I preferred shares of the capital stock of the Corporation.

9.    Since XXXXXXXXXX, the Corporation redeemed all of the Class E preferred shares and XXXXXXXXXX Class F preferred shares of the capital stock of the Corporation held by the Trust as follows:

(a)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(b)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(c)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(d)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(e)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(f)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(g)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(h)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(i)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(j)   XXXXXXXXXX, XXXXXXXXXX Class E preferred shares;

(k)   XXXXXXXXXX, XXXXXXXXXX Class F preferred shares; and

(l)   XXXXXXXXXX, XXXXXXXXXX Class F preferred shares.
These shares were redeemed from time to time to provide income to the Trust and for the Corporation to obtain a refund of its refundable dividend tax on hand. The redemptions were reported as having resulted in the Corporation being deemed to have paid and the Trust being deemed to have received a dividend pursuant to subsection 84(3). Some of these deemed dividends were designated as eligible dividends under subsection 89(14). The share redemptions also reduced the capital gains to be realized on the last to die of A and B.

After the redemptions described in this Paragraph, the only issued and outstanding shares of the capital of the Corporation held by the Trust were XXXXXXXXXX Class I preferred share and XXXXXXXXXX Class F preferred shares.

10.   As consideration for all the redemptions described in Paragraph 9, the Corporation issued Debt1 to the Trust.

11.   The Trustees have been trustees of the Trust since XXXXXXXXXX.

12.   Each Trustee is a resident of Canada, all decisions pertaining to the Trust are made in Canada, and the Trust’s central management and control is located in Canada.

13.   A died on XXXXXXXXXX. A and B held de jure control of the Corporation prior to A’s death.

14.   As a consequence of A’s death, B acquired the XXXXXXXXXX Class C common shares of the capital stock of the Corporation formerly held by A.

15.   B died on XXXXXXXXXX. B held de jure control of the Corporation prior to B’s death. Immediately before B’s death, B held XXXXXXXXXX Class C common shares of the capital stock of the Corporation with paid-up capital of $XXXXXXXXXX and adjusted cost base to B of $XXXXXXXXXX.

16.   The XXXXXXXXXX Class C common shares of the capital stock of the Corporation held by B were Capital Property to B. Pursuant to paragraph 70(5)(a), immediately before B’s death, B is deemed to have disposed of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation and to have received proceeds of disposition equal to the fair market value of those shares immediately before B’s death. The XXXXXXXXXX Class C common shares of the capital stock of the Corporation were not qualified small business corporation shares and, consequently, B, was not eligible to claim the deduction under section 110.6 on the shares nor did B, or any person not dealing at Arm’s Length with B, previously claim the deduction under that provision in respect of those shares.

17.   The Estate is deemed to have acquired the XXXXXXXXXX Class C common shares of the capital stock of the Corporation that were held by B at the time of B’s death at a cost equal to their fair market value immediately before B’s death pursuant to paragraph 70(5)(b). These shares of the capital stock of the Corporation are Capital Property to the Estate.

18.   Immediately before B’s death, the Trust still held XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation and Debt1. The XXXXXXXXXX Class F preferred shares of the capital stock of the Corporation had an aggregate fair market value of $XXXXXXXXXX, paid-up capital of $XXXXXXXXXX and adjusted cost base to the Trust of $XXXXXXXXXX. The XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation had an aggregate fair market value of $XXXXXXXXXX, paid-up capital of $XXXXXXXXXX and an adjusted cost base to the Trust of $XXXXXXXXXX.

19.   Pursuant to paragraph 104(4)(a), at the end of the day on which B deceased, the Trust is deemed to have disposed of the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation and of Debt1 for proceeds of disposition equal to the fair market value of the shares and Debt1, determined at the end of that day, and to have reacquired the shares and Debt1 immediately after that day for an amount equal to their fair market value. The XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation were not qualified small business corporation shares and, consequently, the Trust, if applicable, or any person not dealing at Arm’s Length with the Trust, was not eligible to claim the deduction under section 110.6 or previously claimed any deduction under that provision in respect of those shares.

20.   Following the death of B, the issued and outstanding shares of the Corporation consisted of XXXXXXXXXX Class C common shares, XXXXXXXXXX Class D common shares, XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares which were held as follows:

(a)   Estate – XXXXXXXXXX Class C common shares;

(b)   Holdco1 – XXXXXXXXXX Class D common shares;

(c)   Holdco2 – XXXXXXXXXX Class D common shares;

(d)   Holdco3 – XXXXXXXXXX Class D common shares;

(e)   Holdco4 – XXXXXXXXXX Class D common shares; and

(f)   Trust – XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares.

21.   Pursuant to the Will, Beneficiary1, Beneficiary2, Beneficiary3 and Beneficiary4 will acquire an equal portion of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation.

22.   The mix and value of the Marketable Securities remain substantially the same as before B’s death. There will not be any material change to the investment activities carried on by the Corporation from the date of the ruling request until the date the Proposed Transactions are completed and thereafter. 

PROPOSED TRANSACTIONS

23.   The Estate will incorporate Newco. Newco will be a Canadian-controlled private corporation and a taxable Canadian corporation. The authorized share capital of Newco will consist of:

(a)   XXXXXXXXXX Class A common shares, voting, non-participating and with par value of $XXXXXXXXXX each. These shares are not entitled to dividends and are limited to the return of their PUC on liquidation or winding up; and

(b)   XXXXXXXXXX Class B common shares, non-voting, participating and with par value of $XXXXXXXXXX each.

24.   Upon incorporation of Newco, the Estate will subscribe for 1 Class A common share for $XXXXXXXXXX cash consideration.

25.   The Trust and Newco are not dealing with each other at Arm’s Length.

26.   The Estate will transfer XXXXXXXXXX Class C common shares of the capital stock of the Corporation to Newco in consideration for the PN and XXXXXXXXXX Class A common shares of the capital stock of Newco. The principal amount of the PN will be equal to the fair market value of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation as at the date of B’s death, less an amount of $XXXXXXXXXX. The fair market value of the XXXXXXXXXX Class A common shares of the capital stock of Newco will be the excess, if any, between the fair market value of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation as at the date of the transfer and the fair market value of the XXXXXXXXXX Class C shares of the capital stock of the Corporation as at the date of B’s death plus $XXXXXXXXXX.

The Estate and Newco will file a joint election in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer described in this Paragraph. The agreed amount will be equal to the adjusted cost base of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation immediately before the transfer. The agreed amount in respect of each share so transferred will not be less than the lesser of the two amounts specified in paragraph 85(1)(c.1) nor will be less than the amount described in paragraph 85(1)(b).

Newco will add to the stated capital of the XXXXXXXXXX Class A common shares of the capital stock of Newco an amount that will not exceed the paid-up capital, immediately before the disposition, of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation.

The sum of the principal amount of the PN and the amount added to the paid-up capital in respect of the XXXXXXXXXX Class A common shares of the capital stock of Newco will not exceed the fair market value of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation at the date of B’s death. 

27.   The Trust will transfer XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation to Newco in consideration for PN1. The principal amount of PN1 will be equal to $XXXXXXXXXX, being the fair market value of the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation at the date of transfer.

28.   Each of Holdco1, Holdco2, Holdco3 and Holdco4 will transfer its respective XXXXXXXXXX Class D common shares of the capital stock of the Corporation to Newco and each will receive as consideration XXXXXXXXXX Class B common shares of the capital stock of Newco. The aggregate fair market value of the XXXXXXXXXX Class B common shares of the capital stock of Newco issued to each Holdco will be equal to the aggregate fair market value, at the time of the transfer, of the XXXXXXXXXX Class D common shares of the capital stock of the Corporation.

Each Holdco and Newco will file a joint election in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(1) apply to the transfer described in this Paragraph. The agreed amount in respect of each share so transferred will not be less than the lesser of the two amounts specified in paragraph 85(1)(c.1), nor will it exceed the fair market value of such shares transferred by each Holdco to Newco.

Newco will add to the stated capital of the XXXXXXXXXX Class B common shares of the capital stock of Newco an amount that will not exceed the paid-up capital, immediately before the disposition, of the XXXXXXXXXX Class D common shares of the capital stock of the Corporation.

29.   For a period of one year after the transfer of the shares of the Corporation to Newco, the asset allocation of the Marketable Securities as well as the investment activities carried on by the Corporation in respect of the Marketable Securities will be governed by the same guidelines as before the implementation of the Proposed Transactions (see Additional Information below).

30.   During the one year time period following the acquisition of the shares of the Corporation, Newco will pay taxable dividends on the Class B common shares equal to the amount of dividends received from the Corporation. Such dividends will be paid from the current year’s earnings of the Corporation and for greater certainty, these dividends will not be funded through a disposition of corporate assets or investments, including the Marketable Securities.

31.   During the one year time period following the acquisition of the shares of the capital stock of the Corporation by Newco, the Trust will transfer Debt1 to Newco in exchange for a promissory note payable by Newco to the Trust having the same principal amount and terms and conditions as Debt1.

32.   During the one year time period following the acquisition of the shares of the capital stock of the Corporation by Newco, the Corporation will pay part of Debt1 up to a maximum amount of $XXXXXXXXXX. Newco in turn will pay part of the promissory note payable by it to the Trust up to a maximum amount of $XXXXXXXXXX. While the Corporation may sell some of its Marketable Securities to repay part of Debt1, up to a maximum amount of $XXXXXXXXXX, it will continue carrying on its business with the remaining Marketable Securities.

33.   After at least one year has elapsed since the acquisition of the shares of the capital stock of the Corporation by Newco, the Corporation and Newco will amalgamate pursuant to Act1 to form Amalco.

34.   In accordance with subsection 87(1), all the property and all the liabilities of the Corporation and Newco immediately before the amalgamation will become the property and liabilities of Amalco. In addition, all of the shareholders who owned shares of the capital stock of Newco immediately before the amalgamation will receive shares in Amalco.

35.   The authorized share capital of Amalco will be the same as Newco’s authorized share capital. Moreover, the tax attributes of each class of shares that the Estate  and the Trust will hold in Amalco after the amalgamation will be identical to the tax attributes of the corresponding class of issued and outstanding shares that the Estate and the Trust held in Newco prior to the amalgamation.

36.   The PN and PN1 will be repaid over a period of time that will not be shorter than one year after the date of the amalgamation of the Corporation and Newco and the amount of the repayment, if any, in any given quarter of the period of one year after the date of the amalgamation will not exceed XXXXXXXXXX% of the aggregate principal amount of the PN and PN1when they were issued.

37.   While Amalco may sell some of the Marketable Securities to repay the PN and PN1, it will continue carrying on its investment business with the remaining Marketable Securities.

38.   Once all debts and liabilities of the Trust have been ascertained and settled, the Trustees will complete the administration of the Trust in accordance with the trust agreement in exercising their discretion in distributing the Trust property to the beneficiaries.

39.   Once all debts and liabilities of the Estate have been ascertained and settled, the Executor will complete the administration of the Estate and distribute the residue to Beneficiary 1, Beneficiary 2, Beneficiary3 and Beneficiary4 in accordance with the terms of the Will.

ADDITIONAL INFORMATION

The Corporation engages investment advisors to manage the Marketable Securities. The Corporation’s business is the investment of its capital to produce income and long-term appreciation in the value of its Marketable Securities. The Marketable Securities are invested to provide diversification across asset classes and geography. The investment allocation is changed periodically according to anticipated market conditions and changes in investment objectives. Beneficiary2 actively oversees the investment of the Marketable Securities by following market trends and developments and consulting with the investment advisors. The management process is driven by the establishment of a customized investment policy statement. Beneficiary2 is responsible for establishing, monitoring, and periodically revising the investment policy statement. The investment policy statement provides guidelines and constraints for the management of the assets and defines the Marketable Securities strategic asset mix or allocation. The investment policy statement is designed to meet the shareholders’ objectives taking into account return expectations, risk tolerance, income requirement, tax considerations, liquidity needs and time horizon.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the Proposed Transactions is to return to the Estate and the Trust an amount equal to the value of the shares of the capital stock of the Corporation immediately before B’s death, while minimizing the inherent double tax that can result from the application of subsection 70(5) with respect to the Estate and paragraph 104(4)(a) with respect to the Trust and the eventual application of subsection 84(2) or 84(3). 

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant Facts, Proposed Transactions, Additional Information and Purpose of the Proposed Transactions and provided that the Proposed Transactions are completed in the manner described above, we confirm the following:

A.    Section 84.1 will not apply to deem the Estate to have received a dividend from Newco, on the disposition to Newco of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation, described in Paragraph 26, provided that the fair market value, immediately after the disposition, of the PN is equal to or less then the adjusted cost base to the Estate, immediately before the disposition, of the XXXXXXXXXX Class C common shares of the capital stock of the Corporation.

B.    Section 84.1 will not apply to deem the Trust to have received a dividend from Newco, on the disposition to Newco of the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation, as described in Paragraph 27, provided that the fair market value, immediately after the disposition, of the PN1 is equal to or less then the aggregate adjusted cost base to the Estate, immediately before the disposition, of the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation.

C.    Subsection 84(2) will not apply as a result of the Proposed Transactions, in and by themselves, to deem the Corporation to have paid, and the Estate to have received, a dividend on the XXXXXXXXXX Class D common shares of the capital stock of the Corporation held by the Estate.

D.    Subsection 84(2) will not apply as a result of the Proposed Transactions, in and by themselves, to deem the Corporation to have paid, and the Trust to have received, a dividend on the XXXXXXXXXX Class F preferred shares and XXXXXXXXXX Class I preferred shares of the capital stock of the Corporation held by Trust.

E.    The provisions of subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences stated in the rulings given above. 

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70‑6R6 dated August 29, 2014 and are binding on the CRA provided that the Proposed Transactions are completed within six months of the date of this letter, unless otherwise specified. 

The above rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act and the Regulations which, if enacted, could have an effect on the rulings provided herein. 

OTHER COMMENTS

Unless otherwise confirmed in the above rulings, nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or has made any determination in respect of:

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

(b)   any other tax consequence relating to the facts, Proposed Transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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