2014-0563061R3 55(3)(a)

Principal Issues: Whether the proposed transactions described in the Ruling meet legislative and administrative requirements?

Position: Transactions meet requirements.

Reasons: Consistent with law and administrative requirements.

Author: XXXXXXXXXX
Section: 55(2), 55(3)(a)

XXXXXXXXXX                                                                                                               2014-056306

XXXXXXXXXX

XXXXXXXXXX, 2015

Dear XXXXXXXXXX:

Re:   XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayer.  We also acknowledge the additional information provided to us in subsequent letters and emails, and during our various telephone conversations.

To the best of your knowledge, and that of the taxpayer involved, none of the issues involved in this ruling request is

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

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

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

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

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

I.    DEFINITIONS

Unless otherwise expressly stated, every reference herein to the “Act” or to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C.  1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and the Income Tax Regulations thereunder are referred to as the “Regulations.”

Unless otherwise noted, all references herein to a currency are a reference to Canadian dollars.

In this letter, the following terms have the meanings specified and, where the circumstances so require, the singular should be read as plural and vice versa:

“Act I” means the XXXXXXXXXX;

“Act II” means the XXXXXXXXXX;

“Agreed Amount” in respect of a property means the amount that a transferor and transferee have agreed upon in a joint election under subsection 85(1) in respect of a transfer of an eligible property;

“ACB” means adjusted cost base, as defined in section 54;

“Amalco 1” means XXXXXXXXXX, the corporate entity formed on Amalgamation 1, as described in Paragraph 30;

“Amalco 1 Receivable” has the meaning assigned by Paragraph 13;

“Amalco 2 ULC” means the corporate entity to be formed on Amalgamation 2, as described in Paragraph 48;

“Amalco 2 ULC Class A Common Shares” has the meaning assigned by Paragraph 48;

“Amalco 2 ULC Class B Common Shares” has the meaning assigned by Paragraph 48;

“Amalco 3” means XXXXXXXXXX.  It was formed on the amalgamation of Canco 7 and its wholly-owned subsidiary Canco 8, as described in Paragraph 27(g)(iv).  XXXXXXXXXX;

“Amalgamation 1” means the amalgamation of Canco 2 and Canco 4 to form Amalco 1, as described in Paragraph 30(b);

“Amalgamation 2” means the amalgamation of Canco 3 ULC and FinCan ULC to form Amalco 2 ULC, as described in Paragraph 48;

“Arm's Length” has the meaning assigned by subsection 251(1);

“Bank” means XXXXXXXXXX;

“Bank Loan” means the short term XXXXXXXXXX loan facility provided by the Bank to Forco 8, as described in Paragraph 36;

“Business 1” means the XXXXXXXXXX business carried on by the Foreign Pubco Corporate Group, as described in Paragraph 20;

“Business 2” means the XXXXXXXXXX business carried on by the Foreign Pubco Corporate Group, as described in Paragraph 20;

“Business 3” means the XXXXXXXXXX business carried on by the Foreign Pubco Corporate Group, as described in Paragraph 20;

“Business 4” means XXXXXXXXXX business carried on by the Foreign Pubco Corporate Group prior to the External Spin-Off, as described in Paragraph 21;

“CRA” means the Canada Revenue Agency;

“Canadian Businesses 1 and 2” means Businesses 1 and 2 carried on in Canada through the Canadian Group;

“Canadian Business 4” means Business 4 carried on in Canada through the Canadian Group;

“CCPC” means a “Canadian-controlled private corporation” as defined in subsection 125(7);

“Canadian Group” means the Canadian entities that are part of the Foreign Pubco Corporate Group;

“Canco 1 ULC” means XXXXXXXXXX;

“Canco 1 ULC Class A Common Shares” means the class A common shares in the capital of Canco 1 ULC as described in Paragraph 35;

“Canco 1 ULC Note” means the promissory note to be issued by Canco 1 ULC, as more particularly described in Paragraph 46;

“Canco 1 ULC Preferred Shares” means the class of preferred shares in the capital of Canco 1 ULC as described in Paragraph 35;

“Canco 1 ULC Preferred Share Redemption Amount” has the meaning assigned by Paragraph 35(b);

“Canco 1 ULC Shares” means the common shares of Canco 1 ULC;

“Canco 1 ULC Transfer” has the meaning assigned by Paragraph 44;

“Canco 2” means XXXXXXXXXX;

“Canco 3” means XXXXXXXXXX;

“Canco 3 ULC” means Canco 3 after the continuation under Act I as described in Paragraph 32;

“Canco 3 ULC Common Shares” means the class of common shares in the capital of Canco 3 ULC, as described in Paragraph 32;

“Canco 3 ULC Dividend” means the dividend, deemed by subsection 84(3), to have been paid by Canco 1 ULC and received by Canco 3 ULC, arising on the redemption of Canco 3 ULC’s Canco 1 ULC Preferred Share, as described in Ruling C;

“Canco 3 ULC Note” means the promissory note to be issued by Canco 3 ULC, as more particularly described in Paragraph 45;

“Canco 3 ULC Preferred Shares” means the class of preferred shares in the capital of Canco 3 ULC as described in Paragraph 34;

“Canco 3 ULC Preferred Share Redemption Amount” has the meaning assigned by Paragraph 34(a);

“Canco 4” means XXXXXXXXXX;

“Canco 5” means XXXXXXXXXX;

“Canco 5 Transfer” has the meaning assigned by Paragraph 41;

“Canco 6” means XXXXXXXXXX;

“Canco 7” means XXXXXXXXXX;

“Canco 8” means XXXXXXXXXX;

“Capital Property” has the meaning assigned by section 54;

“Controlled Foreign Affiliate” has the meaning assigned by subsection 95(1);

“Cost Amount” has the meaning assigned by subsection 248(1);

“Disposition” has the meaning assigned by subsection 248(1);

“Dividend Payer” has the meaning assigned by clause 55(3)(a)(iii)(A);

“Dividend Recipient” has the meaning assigned by paragraph 55(3)(a);

“Exempt Surplus” has the meaning assigned by subsection 5907(1) of the Regulations;

“External Spin-Off” means the transactions completed in XXXXXXXXXX, as described in Paragraph 27;

“FMV” means fair market value, being the highest price available in an open and unrestricted market between informed prudent parties acting at Arm’s Length and without compulsion to act, expressed in terms of cash;

“FinCan ULC” means XXXXXXXXXX;

“FinCan ULC Common Shares” has the meaning assigned by Paragraph 19;

“Fiscally Transparent Entity” means an entity that is not regarded as an entity subject to tax under the XXXXXXXXXX.  It is the members of the entity that are subject to tax on the income earned by the entity;

“Forco 1” means XXXXXXXXXX;

“Forco 2” means XXXXXXXXXX;

“Forco 3” means XXXXXXXXXX;

“Forco 4” means XXXXXXXXXX;

“Forco 5” means XXXXXXXXXX;

“Forco 6” means XXXXXXXXXX;

“Forco 7” means XXXXXXXXXX;

“Forco 8” means XXXXXXXXXX;

“Forco 8 Receivable 1” has the meaning assigned by Paragraph 18;

“Forco 8 Receivable 2” has the meaning assigned by Paragraph 51;

“Forco 9” means XXXXXXXXXX;

“Forco 9 Transfer 1” has the meaning assigned by Paragraph 42;

“Forco 9 Transfer 2” has the meaning assigned by Paragraph 43;

“Forco 10” means XXXXXXXXXX;

“Forco 11” means XXXXXXXXXX;

“Forco 12” means XXXXXXXXXX;

“Foreign Affiliate” has the meaning assigned by subsection 95(1);

“FAPI” means foreign accrual property income, as defined in subsection 95(1);

“Foreign Pubco” means XXXXXXXXXX;

“Foreign Pubco Corporate Group” means the XXXXXXXXXX group of corporations controlled by Foreign Pubco;

“Foreign Sub 1” means XXXXXXXXXX;

“Foreign Sub 2” means XXXXXXXXXX;

“Foreign Sub 3” means XXXXXXXXXX;

“Foreign Sub 4” means XXXXXXXXXX;

“Foreign Sub 5” means XXXXXXXXXX;

“Foreign Sub 6” means XXXXXXXXXX;

“Foreign Sub 7” means XXXXXXXXXX;

“Foreign Sub 8” means XXXXXXXXXX;

“Foreign Sub 9” means XXXXXXXXXX;

“Foreign Xco” means XXXXXXXXXX, as described in Paragraph 23(j);

“Forgiven Amount” has the meaning assigned by subsection 80(1) and subsection 80.01(1);

XXXXXXXXXX;

XXXXXXXXXX;

XXXXXXXXXX

XXXXXXXXXX

“Loss Consolidation” means the transactions described in Paragraph 30;

“PUC” means paid-up capital, as defined in subsection 89(1);

“Paragraph” means a numbered paragraph in this letter;

“Proceeds of Disposition” has the meaning assigned by section 54;

“Proportionate Value Ratio” means the fraction A/B where: (i) “A” is equal to the aggregate FMV of the FinCan ULC Common Shares owned by Canco 1 ULC immediately before the disposition of those shares, as described in Paragraph 44; and (ii) “B” is equal to the aggregate FMV of all property owned by Canco 1 ULC immediately before the disposition of the FinCan ULC Common Shares, as described in Paragraph 44;

“Proposed Transactions” means the transactions described in Paragraphs 34 to 52;

“Purchase Note” has the meaning assigned by Paragraph 41;

“RDTOH” means “refundable dividend tax on hand” as defined in subsection 129(3);

“Related Persons” means, in relation to a particular person, another person who is related to the particular person by virtue of subsection 251(2), as modified for the purposes of section 55 by paragraph 55(5)(e);

“Series Of Transactions Or Events” includes the transactions or events referred to in subsection 248(10);

“Short-Term Preferred Shares” has the meaning assigned by subsection 248(1);

“Specified Financial Institution” has the meaning assigned by subsection 248(1);

“Specified Amount” has the meaning assigned by subsection 90(15);

“Spinco” means XXXXXXXXXX;

“Stated Capital” in respect of the share capital of a corporation has the meaning assigned by the statute by which the corporation is governed at the relevant time;

“Stock Exchange” means the XXXXXXXXXX;

“Subject Transactions” means those completed transactions described in Paragraphs 28 to 33;

“TCC” means taxable Canadian corporation, as defined in subsection 89(1);

“Taxable Canadian Property” has the meaning assigned by subsection 248(1);

“Taxable Dividend” has the meaning assigned by subsection 89(l);

“Taxable Preferred Shares” has the meaning assigned by subsection 248(1);

“Taxable Surplus” has the meaning assigned by subsection 5907(1) of the Regulations;

“Taxation Year” has the meaning assigned by subsection 249(1);

“Term Preferred Shares” has the meaning assigned by subsection 248(1);

“Treaty I” means the XXXXXXXXXX;

“Treaty II” means the XXXXXXXXXX; and

“XXXXXXXXXX Restructuring” means the transactions that occurred in XXXXXXXXXX, as described in Paragraph 24.

Our understanding of the Facts, Subject Transactions, Proposed Transactions and purposes of the XXXXXXXXXX Restructuring, External Spin-Off, Subject Transactions and Proposed Transactions are as follows:

II.   FACTS

The Current Foreign Pubco Corporate Group Structure

Foreign Pubco

1.    Foreign Pubco is the parent corporation in the Foreign Pubco Corporate Group and is a corporation governed by the laws of XXXXXXXXXX.  Foreign Pubco is not a resident of Canada for the purposes of the Act.

Foreign Pubco’s common shares are listed for trading on the Stock Exchange under the ticker “XXXXXXXXXX”.  The current market capitalization of Foreign Pubco is approximately XXXXXXXXXX.

Foreign Pubco owns all of the issued and outstanding common shares of Forco 1.

Forco 1

2.    Forco 1 is a corporation governed by the laws of XXXXXXXXXX, and it is not a resident of Canada for the purposes of the Act.

3.    Forco 1 owns:

(a)   all of the issued and outstanding common shares of Forco 2;

(b)   XXXXXXXXXX% of the issued and outstanding common shares of Forco 3.  The remaining XXXXXXXXXX% is owned by Forco 2, as described in Paragraph 4(b); and

(c)   XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1.  Of the remaining XXXXXXXXXX%, XXXXXXXXXX% is owned by Canco 5, as described in Paragraph 17(a), and XXXXXXXXXX% is owned by Amalco 1, as described in Paragraph 18(b).

Forco 2, Forco 4, Forco 5, Forco 6, Forco 7 and Forco 8

4.    Forco 2 is a corporation governed by the laws of XXXXXXXXXX, and it is not a resident of Canada for the purposes of the Act. 

Forco 2 owns:

(a)   all of the issued and outstanding common shares of Forco 4; and

(b)   XXXXXXXXXX% of all of the issued and outstanding common shares of Forco 3.

5.    Forco 4 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 4 owns all of the issued and outstanding common shares of Forco 5. 

6.    Forco 5 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 5 owns all of the issued and outstanding common shares of Forco 6.

7.    Forco 6 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 6 owns all of the issued and outstanding common shares of Forco 7. 

8.    Forco 7 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 7 owns all of the issued and outstanding common shares of Forco 8.

9.    Forco 8 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 8 is the Foreign Pubco Corporate Group finance entity.

Forco 3, Foreign Sub 2 and Forco 9

10.   Forco 3 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 3 owns all of the issued and outstanding common shares of: (a) Foreign Sub 2 and (b) Forco 9.

Forco 3 acquired the Foreign Sub 2 common shares and the Forco 9 common shares on the XXXXXXXXXX Restructuring, as described in Paragraphs 24(k) and 24(r), respectively.

Foreign Sub 2

11.   Foreign Sub 2 is a corporation governed by the laws of XXXXXXXXXX.

Foreign Sub 2 was involved in the XXXXXXXXXX Restructuring, as described in Paragraph 24(p).

Foreign Sub 2 owns all of the issued and outstanding common shares of Foreign Sub 3, Foreign Sub 5, Foreign Sub 7 and Foreign Sub 8.

Forco 9

12.   Forco 9 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

Forco 9 is treated as a corporation for the purposes of the XXXXXXXXXX.  Forco 9 is eligible for benefits under Treaty 1.

Forco 9 owns:

(a)   XXXXXXXXXX Canco 1 ULC Share (there are no other issued Canco 1 ULC Shares), and

(b)   all of the issued and outstanding Canco 3 ULC Common Shares (i.e., XXXXXXXXXX shares).

Forco 9 acquired (i) the XXXXXXXXXX Canco 1 ULC Share from Forco 3 on XXXXXXXXXX, as described in Paragraph 24(r), and (ii) all of the issued and outstanding Canco 3 common shares (i.e., XXXXXXXXXX shares) from Amalco 1 on XXXXXXXXXX, as part of the Subject Transactions described in Paragraph 31.

Canco 3 ULC, Canco 1 ULC, Canco 6, Amalco 1 and Canco 5

13.   Canco 3 ULC is a TCC governed by Act I.  All of the issued and outstanding Canco 3 ULC Common Shares are owned by Forco 9. 

Canco 3 ULC files its tax returns at the XXXXXXXXXX Taxation Centre and its tax services office is the XXXXXXXXXX Tax Services Office.

Canco 3 ULC’s only asset is a receivable (the “Amalco 1 Receivable”) in the amount of $XXXXXXXXXX owing by Amalco 1.

Prior to XXXXXXXXXX, Canco 3 was a TCC governed by Act II.

On XXXXXXXXXX, Canco 3 continued from the XXXXXXXXXX and became an unlimited liability company.  All of Forco 9’s Canco 3 common shares became Canco 3 ULC Common Shares, as part of the Subject Transactions described in Paragraph 32.

14.   Canco 1 ULC is a TCC governed by Act I.  Canco 1 ULC is an unlimited liability company.

Canco 1 ULC files its tax returns at the XXXXXXXXXX Taxation Centre and its tax services office is the XXXXXXXXXX Tax Services Office.

Canco 1 ULC owns all of the issued and outstanding common shares of Canco 6. Canco 1 ULC acquired the Canco 6 common shares as part of the Loss Consolidation described in Paragraph 30(b)(iii).

15.   Canco 6 is a TCC governed by Act II.  Canco 6 owns all of the issued and outstanding common shares of Amalco 1.

Canco 6 acquired the Amalco 1 common shares as part of the Loss Consolidation described in Paragraph 30(b)(iii).

16.   Amalco 1 is a TCC governed by Act II.  Amalco 1 was formed as a result of Amalgamation 1 in the course of the Loss Consolidation, as described in Paragraph 30(b)(i).

Amalco 1 owns:

(a)   all of the issued and outstanding common shares of Canco 5;

(b)   XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1, and

(c)   XXXXXXXXXX FinCan ULC Common Share, which represents a XXXXXXXXXX% interest in FinCan ULC.

17.   Canco 5 is a TCC governed by Act II.

Canco 5 files its tax returns at the XXXXXXXXXX Taxation Centre and its tax services office is the XXXXXXXXXX Tax Services Office.

Canco 5 owns:

(a)   XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1, and

(b)   XXXXXXXXXX FinCan ULC Common Shares, which represent a XXXXXXXXXX% interest in FinCan ULC.

Foreign Sub 1

18.   Foreign Sub 1 is a corporation governed by the laws of XXXXXXXXXX and it is not a resident of Canada for the purposes of the Act.

All of the issued and outstanding common shares of Foreign Sub 1 are owned by Amalco 1, Canco 5 and Forco 1 as follows:

(a)   XXXXXXXXXX% by Canco 5;

(b)   XXXXXXXXXX% by Amalco 1, and

(c)   XXXXXXXXXX% by Forco 1.

Forco 1’s XXXXXXXXXX% interest in Foreign Sub 1 represents the XXXXXXXXXX common share of Foreign Sub 1 that Forco 1 acquired on the incorporation of Foreign Sub 1.

Foreign Sub 1’s sole assets are cash in the amount of XXXXXXXXXX (as of XXXXXXXXXX) and a XXXXXXXXXX receivable owing by Forco 8 (the “Forco 8 Receivable 1”).

The Forco 8 Receivable 1 is interest bearing at a rate of XXXXXXXXXX% (not to be less than XXXXXXXXXX%). Interest in the amount of XXXXXXXXXX is owing on the Forco 8 Receivable 1.  XXXXXXXXXX.

Foreign Sub 1 is a Foreign Affiliate and a Controlled Foreign Affiliate of Canco 5 and Amalco 1.

FinCan ULC

19.   FinCan ULC is a TCC governed by Act I.  FinCan ULC is an unlimited liability corporation. 

FinCan ULC was incorporated by Canco 5 and Amalco 1 pursuant to Act I on XXXXXXXXXX, as described in Paragraph 33.

The authorized share capital of FinCan ULC consists of an unlimited number of: (a) common shares having XXXXXXXXXX vote per share (the “FinCan ULC Common Shares”), and (b) preferred shares.

FinCan ULC’s issued and outstanding shares consist of XXXXXXXXXX FinCan ULC Common Shares, of which XXXXXXXXXX are owned by Canco 5 and XXXXXXXXXX is owned by Amalco 1. 

Foreign Pubco Businesses

20.   The Foreign Pubco Corporate Group has a XXXXXXXXXX (referred to as “Business 1,” “Business 2” and “Business 3,” respectively). 

(a)   XXXXXXXXXX

(b)   XXXXXXXXXX

(c)   XXXXXXXXXX

21.   Prior to the External Spin-Off, the Foreign Pubco Corporate Group also carried on a business (“Business 4”) XXXXXXXXXX. 

XXXXXXXXXX

In XXXXXXXXXX, the Foreign Pubco Corporate Group completed the External Spin-Off by distributing Business 4 to Foreign Pubco’s public shareholders, as described in Paragraph 27.

The XXXXXXXXXX Restructuring

22.   In XXXXXXXXXX, the Foreign Pubco Corporate Group implemented an internal restructuring (the “XXXXXXXXXX Restructuring”). 

The purpose of the XXXXXXXXXX Restructuring was to simplify the XXXXXXXXXX ownership structure in a manner that would minimize XXXXXXXXXX costs required to administer fractional share ownership XXXXXXXXXX.

None of the transactions in the XXXXXXXXXX Restructuring resulted in a disposition or significant increase in interest described in any of subparagraphs 55(3)(a)(i) to (v), on the assumption that Canco 1 ULC is the Dividend Payer and Canco 3 ULC is the Dividend Recipient and that the transactions in the XXXXXXXXXX Restructuring are part of the same Series Of Transactions Or Events as the Canco 3 ULC Dividend.

23.   Prior to the XXXXXXXXXX Restructuring, the corporate structure of the relevant portion of the Foreign Pubco Corporate Group was as follows:

(a)   Forco 1 owned:

(i)   all of the issued and outstanding common shares of Forco 2;

(ii)  indirectly, all of the issued and outstanding common shares of Forco 8 (through its direct and indirect wholly-owned subsidiaries);

(iii) XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 2.  The remaining XXXXXXXXXX% was owned by Foreign Sub 1, as described in Paragraph 23(g); and

(iv)  XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1.

(b)   Forco 2 owned:

(i)   all of the issued and outstanding common shares of Forco 3; and

(ii)  XXXXXXXXXX preferred share of Canco 2.

(c)   Forco 3 owned the only issued share of Canco 1 ULC.

(d)   Canco 1 ULC owned:

(i)   all of the issued and outstanding common shares of Canco 2, and

(ii)  XXXXXXXXXX preferred share of Canco 4.

(e)   Canco 2 was a TCC governed by Act II. 

Canco 2 owned:

(i)   all of the issued and outstanding common shares of Canco 3;

(ii)  all of the issued and outstanding common shares of Canco 4;

(iii) XXXXXXXXXX preferred shares of Canco 4; and

(iv)  XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1.  The remaining XXXXXXXXXX% was owned by Canco 4, as described in Paragraph 23(f).

(f)   Canco 4 was a TCC governed by Act II.

Canco 4 owned:

(i)   all of the issued and outstanding common shares of Canco 5, and

(ii)  XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1.

(g)   Foreign Sub 1 was a corporation governed by the laws of XXXXXXXXXX.  It owned XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 2.

(h)   Foreign Sub 2 was a corporation governed by the laws of XXXXXXXXXX.  XXXXXXXXXX.

The XXXXXXXXXX was used solely in Business 2 and did not relate in any manner to Business 4.

Foreign Sub 2 owned all of the issued and outstanding common shares of: (i) Foreign Sub 3; (ii) Foreign Sub 5; (iii) Foreign Sub 7, and (iv) Foreign Sub 8. 

(i)   Foreign Sub 3 was a holding company governed by the laws of XXXXXXXXXX.  The sole purpose of Foreign Sub 3 was to hold investments in XXXXXXXXXX.

Foreign Sub 3 owned XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 4.   

(j)   Foreign Sub 4 was a corporation governed by the laws of XXXXXXXXXX.

XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 4 was owned by Foreign Sub 3.  The remaining XXXXXXXXXX% was owned by Foreign Xco.

Foreign Xco was a XXXXXXXXXX corporation, which was not related to the Foreign Pubco Corporate Group. 

Foreign Sub 4 carried on and operated the Foreign Pubco Corporate Group’s XXXXXXXXXX operations XXXXXXXXXX.

(k)   Foreign Sub 5 was a corporation governed by the laws of XXXXXXXXXX.  Foreign Sub 5 was a Foreign Pubco Corporate Group financing company. 

Foreign Sub 5 owned all of the issued and outstanding common shares of Foreign Sub 6.

(l)   Foreign Sub 6 was a corporation governed by the laws of XXXXXXXXXX Foreign Sub 6 carried on and operated the Foreign Pubco Corporate Group’s XXXXXXXXXX operations, which consisted primarily of XXXXXXXXXX.

(m)   Foreign Sub 7 was a corporation governed by the laws of XXXXXXXXXX.  Foreign Sub 7 provided administrative services to various Foreign Pubco Corporate Group in XXXXXXXXXX in Businesses 1 to 4.

(n)   Foreign Sub 8 was a corporation governed by the laws of XXXXXXXXXX.  Foreign Sub 8 was the XXXXXXXXXX in XXXXXXXXXX and XXXXXXXXXX which XXXXXXXXXX in Businesses 1 to 4 throughout XXXXXXXXXX.  Foreign Sub 8 did not own XXXXXXXXXX.

24.   The specific transactions that comprised the XXXXXXXXXX Restructuring were as follows:

(a)   Foreign Sub 4 paid a XXXXXXXXXX dividend to its shareholders, Foreign Sub 3 and Foreign Xco, based on their shareholdings in Foreign Sub 4.

(b)   Foreign Sub 3 paid a XXXXXXXXXX dividend to its sole shareholder, Foreign Sub 2.

(c)   Foreign Sub 2 paid a XXXXXXXXXX dividend to its shareholders, Foreign Sub 1 and Forco 1, based on their shareholdings in Foreign Sub 2. 

(d)   Foreign Sub 1 paid a XXXXXXXXXX dividend to its shareholders, Canco 2 and Canco 4, based on their shareholdings in Foreign Sub 1. No part of the dividend was paid to Forco 1 due to its nominal interest in Foreign Sub 1.

(e)   Canco 4 paid a $XXXXXXXXXX dividend to its sole shareholder, Canco 2. 

(f)   Canco 2 paid a $XXXXXXXXXX dividend to its sole shareholder, Canco 1 ULC.

(g)   Canco 1 ULC paid a $XXXXXXXXXX dividend to its sole shareholder, Forco 3.

(h)   Canco 2 transferred its XXXXXXXXXX% interest in Foreign Sub 1 (being XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1) to Canco 4 in consideration for common shares of Canco 4.  A section 85 election was filed in respect of the transfer of the Foreign Sub 1 common shares to Canco 4.

Canco 2 retained a XXXXXXXXXX% interest in Foreign Sub 1 (being XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1) XXXXXXXXXX.

(i)   Canco 4 transferred its XXXXXXXXXX% interest in Foreign Sub 1 (being XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1) to Canco 5 in consideration for common shares of Canco 5. A section 85 election was filed in respect of the transfer of the Foreign Sub 1 common shares to Canco 5.

XXXXXXXXXX

(j)   Forco 1 transferred its XXXXXXXXXX% interest in Foreign Sub 2 (being XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 2) to Forco 2.

The transfer was effected by way of an additional contribution to capital without the issuance of additional shares of Forco 2.  XXXXXXXXXX.

(k)   Forco 2 transferred its XXXXXXXXXX% interest in Foreign Sub 2 (being XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 2) to Forco 3.

The transfer was effected by way of an additional contribution to capital without the issuance of additional shares of Forco 3.  XXXXXXXXXX.

(l)   Foreign Sub 2 sold XXXXXXXXXX to Forco 1 in consideration for cash proceeds equal to the FMV of XXXXXXXXXX.

(m)   Foreign Sub 6 paid a XXXXXXXXXX dividend to its sole shareholder, Foreign Sub 5.

(n)   Foreign Sub 5 paid a XXXXXXXXXX dividend to its sole shareholder, Foreign Sub 2.

(o)   Foreign Sub 7 paid a XXXXXXXXXX dividend to its sole shareholder, Foreign Sub 2.

(p)   Foreign Sub 2 purchased for cancellation all of its common shares owned by Foreign Sub 1 (being XXXXXXXXXX% of all of the issued and outstanding Foreign Sub 2 common shares) in consideration for a cash payment equal to approximately $XXXXXXXXXX.

Foreign Sub 1 realized a capital gain as a result of the purchase for cancellation by Foreign Sub 2 of its Foreign Sub 2 common shares in the amount of approximately $XXXXXXXXXX. 

Foreign Sub 1 was a Foreign Affiliate and a Controlled Foreign Affiliate of Canco 5 and Canco 2 at the time of the purchase for cancellation by Foreign Sub 2 of the Foreign Sub 2 common shares owned by Foreign Sub 1.

Canco 2 and Canco 5 filed elections under subsection 93(1) to ensure that a portion of the proceeds of disposition was treated as a dividend that was prescribed to be paid from Foreign Sub 1’s Exempt Surplus and Taxable Surplus balances in respect of Canco 2 and Canco 5.  Those surplus balances were adjusted accordingly.

XXXXXXXXXX

(q)   Foreign Sub 1 used the amount received from Foreign Sub 2 described in Paragraph 24(p) to loan to Forco 8 (the “Forco 8 Receivable 1”).

(r)   On XXXXXXXXXX, Forco 3 incorporated Forco 9 and contributed its XXXXXXXXXX Canco 1 ULC Share to Forco 9 in exchange for XXXXXXXXXX common shares of Forco 9.

At the time of the transfer by Forco 3 of its Canco 1 ULC Share to Forco 9, the Canco 1 ULC Share was not Taxable Canadian Property.

The External Spin-Off

25.   The External Spin-Off was announced in XXXXXXXXXX and XXXXXXXXXX. 

In XXXXXXXXXX, the Foreign Pubco Corporate Group implemented a Series Of Transactions Or Events, as described in Paragraph 27, designed to distribute Business 4 to Foreign Pubco’s public shareholders (the “External Spin-Off”).

The transactions described in Paragraph 27(l) resulted in a disposition or significant increase in interest described in subparagraph 55(3)(a)(i) or (ii), on the assumption that Canco 1 ULC is the Dividend Payer and Canco 3 ULC is the Dividend Recipient and that the transactions in the External Spin-Off are part of the same Series Of Transactions Or Events as the Canco 3 ULC Dividend.

26.   Prior to the External Spin-Off, the corporate structure of the relevant portion of the Foreign Pubco Corporate Group was as follows:

(a)   Foreign Pubco owned all of the issued and outstanding shares of Forco 11.  XXXXXXXXXX.

(b)   Forco 1 owned all of the issued and outstanding shares of Forco 10.

(c)   XXXXXXXXXX.  Forco 10 owned all of the issued and outstanding shares of Canco 7.

(d)   Canco 7 was a TCC governed by Act II.  Canco 7 owned all of the issued and outstanding shares of Canco 8.

(e)   Canco 8 was a TCC governed by Act II.

27.   The transactions comprising the External Spin-Off were as follows:

(a)   [Reserved]

(b)   XXXXXXXXXX Restructuring

(i)   [Reserved]

(ii)  Forco 1 contributed all of its shares of Forco 10 to Foreign Pubco.

(iii) [Reserved]

(iv)  [Reserved]

(v)   [Reserved] 

(vi)  Foreign Pubco incorporated Spinco.  XXXXXXXXXX.

(vii) [Reserved]

(viii)      [Reserved]

(ix)  [Reserved]

(x)   Forco 11 incorporated Forco 12 in XXXXXXXXXX.

(xi)  Forco 11 contributed all of its XXXXXXXXXX assets to Forco 12 as a capital contribution without the issuance of shares of Forco 12. 

(xii) Forco 11 transferred all of the shares of Forco 12 to Foreign Pubco. 

(xiii)      Foreign Pubco contributed all of the shares of Forco 12 to Spinco as a capital contribution without the issuance of shares of Spinco.

(c)   XXXXXXXXXX Restructuring

(i)   [Reserved]

(ii)  Spinco incorporated Foreign Sub 9.  

Foreign Sub 9 was a XXXXXXXXXX corporation.

(iii) [Reserved]

(iv)  [Reserved]

(v)   [Reserved]

(d)   [Reserved]

(e)   [Reserved]

(f)   [Reserved]

(g)   XXXXXXXXXX Restructuring

(i)   Canco 4 sold its XXXXXXXXXX assets (XXXXXXXXXX) in a taxable sale to Forco 10 for FMV consideration.

(ii)  Canco 4 sold XXXXXXXXXX in a taxable sale to Canco 7 for FMV consideration.

(iii) Canco 4 sold the XXXXXXXXXX) in a taxable sale to Forco 12 for FMV consideration.

(iv)  Canco 7 amalgamated with Canco 8 to form Amalco 3 under Act II.

(h)   [Reserved]

(i)   XXXXXXXXXX Packaging

Foreign Sub 6 was the only entity involved in the XXXXXXXXXX Restructuring that was involved in the External Spin-Off. 

Foreign Sub 6 sold some small assets XXXXXXXXXX to Foreign Sub 9 in consideration for a cash payment of XXXXXXXXXX. These assets consisted of XXXXXXXXXX. 

In addition, employees of Foreign Sub 6 engaged in sales of XXXXXXXXXX became employees of Foreign Sub 9 and Foreign Sub 6 paid Foreign Sub 9 XXXXXXXXXX in exchange for Foreign Sub 9’s assumption of employee-related liabilities. 

(j)   Spinco Packaging

Foreign Pubco transferred all of its shares of Forco 10 to Spinco. The transfer was effected by way of an additional contribution to capital without the issuance of additional shares of Spinco. 

XXXXXXXXXX.

(k)   Dividend:  Spinco borrowed money from third party lenders and made a distribution in an equivalent amount to Foreign Pubco (for use by Foreign Pubco for share repurchases). 

(l)   Spin-Off

Foreign Pubco transferred all of its shares of Spinco pro rata to its public shareholders.  In the spin-off, Foreign Pubco shareholders received XXXXXXXXXX share of Spinco common stock for every XXXXXXXXXX shares of Foreign Pubco common stock they held, along with cash in lieu of any fractional shares.

XXXXXXXXXX

In a letter dated XXXXXXXXXX, the CRA confirmed that the distribution qualified for the election provided by section 86.1.

Spinco is currently listed for trading on the Stock Exchange under the ticker “XXXXXXXXXX” and has a current market capitalization of XXXXXXXXXX.

III.  SUBJECT TRANSACTIONS

The Loss Consolidation

28.   In XXXXXXXXXX, the Canadian Group implemented a series of transactions described in Paragraph 30 (the “Loss Consolidation”) for the purpose of applying Canco 2’s non-capital losses incurred in its Canadian Businesses 1 and 2 to Canco 4’s income generated from its Canadian Businesses 1 and 2.

None of the transactions in the Loss Consolidation resulted in a disposition or significant increase in interest described in any of subparagraphs 55(3)(a)(i) to (v), on the assumption that Canco 1 ULC is the Dividend Payer and Canco 3 ULC is the Dividend Recipient and that the transactions in the Loss Consolidation are part of the same Series Of Transactions Or Events as the Canco 3 ULC Dividend.

29.   Prior to the Loss Consolidation, the corporate structure of the relevant portion of the Canadian Group was as follows:

(a)   Forco 2 owned XXXXXXXXXX preferred share of Canco 2.

(b)   Canco 1 ULC owned: (i) all of the issued and outstanding common shares of Canco 2, and (ii) XXXXXXXXXX preferred share of Canco 4. 

(c)   Canco 2 owned: (i) all of the issued and outstanding common shares of Canco 3 and Canco 4, and (ii) XXXXXXXXXX% of all of the issued and outstanding common shares of Foreign Sub 1.

(d)   Canco 4 owned all of the issued and outstanding common shares of Canco 5.

30.   The transactions comprising the Loss Consolidation were as follows:

(a)   In XXXXXXXXXX,

(i)   Canco 2 redeemed its XXXXXXXXXX preferred share owned by Forco 2 in consideration for a cash payment of $XXXXXXXXXX;

(ii)  Canco 4 redeemed its XXXXXXXXXX preferred share owned by Canco 1 ULC in consideration for a cash payment of $XXXXXXXXXX; and

(iii) Canco 4 reduced the aggregate PUC of the Canco XXXXXXXXXX common shares to XXXXXXXXXX without any payment being made in respect thereof.

The purpose for the redemptions of the Canco 2 preferred share described in Paragraph 30(a)(i) and the Canco 4 preferred share described in Paragraph 30(a)(ii) was to simplify the ownership of Canco 2 and Canco 4 before Amalgamation 1.

The purpose of reducing the aggregate PUC of the Canco XXXXXXXXXX common shares to an amount of XXXXXXXXXX described in Paragraph 30(a)(iii) was to ensure that a gain under subsection 87(11) and paragraph 88(1)(b) did not arise.

(b)   In XXXXXXXXXX,

(i)   Canco 2 and Canco 4 amalgamated (“Amalgamation 1”) to form Amalco 1 pursuant to Act II. 

On Amalgamation 1: (A) all of the property of Canco 2 and Canco 4 became property of Amalco 1; (B) all of the liabilities of Canco 2 and Canco 4 became liabilities of Amalco 1, and (C) all of the shares of Canco 2 owned by Canco 1 ULC became common shares of Amalco 1. 

For greater certainty, the $XXXXXXXXXX owing by Canco 2 to Canco 3 became the liability of Amalco 1 owing to Canco 3 on Amalgamation 1.

The aggregate PUC of the Amalco 1 common shares immediately after Amalgamation 1 was equal to the aggregate PUC of the Canco 2 common shares immediately before Amalgamation 1.

All of the Canco 4 common shares were cancelled.  

(ii)  Canco 1 ULC incorporated Canco 6 pursuant to Act II.

(iii) Canco 1 ULC transferred all of its Amalco 1 common shares to Canco 6. 

As consideration for the transfer, Canco 6 issued to Canco 1 ULC: (A) a $XXXXXXXXXX demand, interest bearing promissory note, and (B) XXXXXXXXXX Canco 6 common shares having an aggregate FMV equal to the amount by which the aggregate FMV at that time of the Amalco 1 common shares so transferred to Canco 6 exceeded the $XXXXXXXXXX promissory note described in Paragraph 30(b)(iii)(A). 

A section 85 election will be filed in respect of the transfer of the Amalco 1 common shares to Canco 6.  The Agreed Amount in respect of the section 85 election will be equal to Canco 1 ULC’s aggregate ACB of its Amalco 1 common shares so transferred to Canco 6.

The aggregate PUC of the Canco 6 common shares issued to Canco 1 ULC will be equal to the amount, if any, by which the Agreed Amount in respect of the section 85 election, as described in Paragraph 30(b)(iii), exceeds $XXXXXXXXXX (being the principal amount and FMV of the promissory note described in Paragraph 30(b)(iii)(A)).

Sale of Canco 3

31.   On XXXXXXXXXX, Amalco 1 sold all of the common shares of Canco 3 (i.e., XXXXXXXXXX shares) to Forco 9 in consideration for cash proceeds in an amount equal to the aggregate FMV at that time of the Canco 3 common shares so transferred to Forco 9.

At the time of the sale, Canco 3’s only asset was the Amalco 1 Receivable.

Continuation of Canco 3

32.   On XXXXXXXXXX, Canco 3 continued from the XXXXXXXXXX and became an unlimited liability company (“Canco 3 ULC”) governed by Act I. 

The authorized share capital of Canco 3 ULC after the continuation to the XXXXXXXXXX consists of an unlimited number of common shares (the “Canco 3 ULC Common Shares”).

The common shares of Canco 3 became Canco 3 ULC Common Shares and the aggregate PUC of the common shares of Canco 3 became the aggregate PUC of Canco 3 ULC Common Shares.

Incorporation of FinCan ULC

33.   On XXXXXXXXXX, Canco 5 and Amalco 1 incorporated FinCan ULC as an unlimited liability corporation pursuant to Act I.

On the incorporation of FinCan ULC, Canco 5 subscribed for XXXXXXXXXX FinCan ULC Common Shares, and Amalco 1 subscribed for XXXXXXXXXX FinCan ULC Common Share, for $XXXXXXXXXX per share.

IV.   PROPOSED TRANSACTIONS

The Proposed Transactions will occur in the order described below unless otherwise indicated, with the exception of the filing of any applicable election forms, which will be filed by the applicable due date following the completion of the Proposed Transactions.

The transactions described in Paragraphs 36 to 52 will occur on the same day in order to XXXXXXXXXX.

Preliminary Transactions

Amendment to Canco 3 ULC Articles

34.   The articles of incorporation of Canco 3 ULC will be amended to create and authorize the issuance of an unlimited number of preferred shares (the “Canco 3 ULC Preferred Shares”).

The Canco 3 ULC Preferred Shares will have the following attributes:

(a)   Each share will be redeemable, subject to applicable law, at any time at the option of Canco 3 ULC at a redemption amount (the “Canco 3 ULC Preferred Share Redemption Amount”) equal to the sum of:

(i)   the aggregate FMV of the FinCan ULC Common Shares transferred by Canco 1 ULC to Canco 3 ULC, as described in Paragraph 44, divided by the number of Canco 3 ULC Preferred Shares issued as consideration therefor; and

(ii) any declared and unpaid dividends on the Canco 3 ULC Preferred Share. 

(b)   Each share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Canco 3 ULC Preferred Share Redemption Amount.

(c)   The holder of each share will be entitled to preferential dividends as declared by the directors of Canco 3 ULC in their sole and absolute discretion. 

(d)   The holder of each share will be entitled, upon the liquidation, dissolution or winding-up of Canco 3 ULC, to a payment in priority to all other classes of shares of Canco 3 ULC of an amount equal to the Canco 3 ULC Preferred Share Redemption Amount to the extent of the value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, and no other amount.

(e)   The holder of each share will not be entitled to vote at meetings of shareholders of Canco 3 ULC except as provided under Act I.

Amendment to Canco 1 ULC Articles

35.   The articles of incorporation of Canco 1 ULC will be amended to create and authorize the issuance of an unlimited number of class A common shares (the “Canco 1 ULC Class A Common Shares”) and an unlimited number of preferred shares (the “Canco 1 ULC Preferred Shares”) with the following attributes:

(a)   The Canco 1 ULC Class A Common Shares will have all attributes currently attached to the Canco 1 ULC Shares and in addition, will provide any holder owning more than XXXXXXXXXX% of the issued and outstanding Canco 1 ULC Class A Common Shares with the right to requisition the directors of Canco 1 ULC to call a meeting of the holders of Canco 1 ULC Class A Common Shares for any of the purposes stated in the requisition.  Should the directors of Canco 1 ULC not call such meeting within XXXXXXXXXX days after receiving such requisition, a shareholder who made such requisition may call a meeting in the manner in which such meeting may be called under the governing legislation and the articles of Canco 1 ULC.

(b)   The Canco 1 ULC Preferred Shares will have the following attributes:

(i)   Each share will be redeemable, subject to applicable law, at any time at the option of Canco 1 ULC at a redemption amount (the “Canco 1 ULC Preferred Share Redemption Amount”) equal to the sum of:

(A)   the FMV of the XXXXXXXXXX Canco 1 ULC Share owned by Forco 9 immediately before the exchange of the Canco 1 ULC Share described in Paragraph 42, multiplied by the Proportionate Value Ratio, and

(B)   any declared and unpaid dividends on the Canco 1 ULC Preferred Share.

(ii)  Each share will be retractable, subject to applicable law, at any time at the option of the holder at a retraction amount equal to the Canco 1 ULC Preferred Share Redemption Amount.

(iii) The holder of each share will be entitled to preferential dividends as declared by the directors of Canco 1 ULC in their sole and absolute discretion.

(iv)  The holder of each share will be entitled, upon the liquidation, dissolution or winding-up of Canco 1 ULC, to a payment in priority to all other classes of shares of Canco 1 ULC of an amount equal to the Canco 1 ULC Preferred Share Redemption Amount to the extent of the value of property available under applicable law for payment to shareholders upon such liquidation, dissolution or winding-up, and no other amount.

(v)   The holder of each share will not be entitled to vote at meetings of shareholders of Canco 1 ULC except as provided under Act I.

Bank Funding

36.   The Bank will provide to Forco 8 a short term XXXXXXXXXX loan facility (the “Bank Loan”) in an amount equal to the principal amount and accrued interest outstanding on the Forco 8 Receivable 1.

Repayment of Forco 8 Receivable 1

37.   Forco 8 will use the funds advanced by the Bank, as described in Paragraph 36, to repay the Forco 8 Receivable 1 (and accrued interest thereon) held by Foreign Sub 1.  

Liquidation and dissolution of Foreign Sub 1

38.   Canco 5 and Amalco 1 will cause the liquidation and dissolution of Foreign Sub 1.  At the time of the liquidation and dissolution, the only asset held by Foreign Sub 1 will be cash (denominated in XXXXXXXXXX).

All of the cash (denominated in XXXXXXXXXX) will be distributed to Canco 5, Amalco 1 and Forco 1 based on their pro rata shareholdings in Foreign Sub 1 at the time of the liquidation.

Currency Conversion

39.   Canco 5 and Amalco 1 will convert the XXXXXXXXXX received on the liquidation of Foreign Sub 1 to XXXXXXXXXX.

FinCan ULC Share Subscription

40.   Canco 5 and Amalco 1 will use the liquidation proceeds (XXXXXXXXXX) to subscribe for FinCan ULC Common Shares. Subscriptions will be made in XXXXXXXXXX.

After the share subscription, Canco 5 will hold XXXXXXXXXX%, and Amalco 1 will hold XXXXXXXXXX%, of all of the issued and outstanding FinCan ULC Common Shares. 

Sale of FinCan ULC Common Shares

41.   Canco 5 will transfer (the “Canco 5 Transfer”) its XXXXXXXXXX% interest in FinCan ULC (being XXXXXXXXXX% of all of the issued and outstanding FinCan ULC Common Shares) to Canco 1 ULC. 

As consideration for the Canco 5 Transfer, Canco 1 ULC will issue to Canco 5 a demand Canadian dollar denominated promissory note (the “Purchase Note”) having a principal amount and FMV equal to the aggregate FMV at that time of the FinCan ULC Common Shares transferred to Canco 1 ULC and bearing interest at a commercial rate acceptable to Arm’s Length parties.   

The Internal Spin-Off of FinCan ULC

Share Exchange

42.   Forco 9 will transfer its Canco 1 ULC Share to Canco 1 ULC (the “Forco 9 Transfer 1”).  As consideration for the Forco 9 Transfer 1, Canco 1 ULC will issue to Forco 9 XXXXXXXXXX Canco 1 ULC Class A Common Share and XXXXXXXXXX Canco 1 ULC Preferred Share having an aggregate FMV equal to the FMV at that time of the Canco 1 ULC Share so transferred to Canco 1 ULC.

The PUC of the Canco 1 ULC Share, immediately before the Forco 9 Transfer 1, will be allocated to the Canco 1 ULC Class A Common Share and the Canco 1 ULC Preferred Share issued to Forco 9, pro rata, based on their proportionate FMV.

Forco 9 and Canco 1 ULC will not file a section 85 election in respect of the Forco 9 Transfer 1.

Transfer of Canco 1 ULC Preferred Share

43.   Forco 9 will transfer its Canco 1 ULC Preferred Share to Canco 3 ULC (the “Forco 9 Transfer 2”).

As consideration for the Forco 9 Transfer 2, Canco 3 ULC will issue to Forco 9 a certain number of Canco 3 ULC Common Shares having an aggregate FMV equal to the FMV at that time of the Canco 1 ULC Preferred Share so transferred to Canco 3 ULC.

For greater certainty, the total number of: (a) the Canco 3 ULC Common Shares that Forco 9 will receive on the Forco 9 Transfer 2, and (b) the Canco 3 ULC Common Shares that Forco 9 already owns, as described in Paragraph 32, will be identical to the number of the FinCan ULC Common Shares that Canco 3 ULC will own, immediately before Amalgamation 2, as described in Paragraph 48.

An amount equal to the PUC of the Canco 1 ULC Preferred Share (so transferred to Canco 3 ULC) will be added to the Stated Capital of the Canco 3 ULC Common Shares issued to Forco 9.

No section 85 election will be filed with respect to the Forco 9 Transfer 2.

The Canco 1 ULC Preferred Share will be a Term Preferred Share, Taxable Preferred Share and short-Term Preferred Share.

Transfer of FinCan ULC Common Shares

44.   Canco 1 ULC will transfer (the “Canco 1 ULC Transfer”) its XXXXXXXXXX% interest in FinCan ULC (being XXXXXXXXXX% of all of the issued and outstanding FinCan ULC Common Shares) to Canco 3 ULC. 

As consideration for the Canco 1 ULC Transfer, Canco 3 ULC will issue to Canco 1 ULC an identical number of Canco 3 ULC Preferred Shares having an aggregate FMV and redemption amount equal to the aggregate FMV at that time of the FinCan ULC Common Shares so transferred to Canco 3 ULC. 

An amount equal to the aggregate PUC of the FinCan ULC Common Shares (so transferred to Canco 3 ULC) will be added to the Stated Capital of the Canco 3 ULC Preferred Shares issued to Canco 1 ULC.

For greater certainty, the aggregate FMV of the FinCan ULC Common Shares at the time of the Canco 1 ULC Transfer, will be equal to their aggregate PUC.

No section 85 election will be filed with respect to the Canco 1 ULC Transfer.

Redemption by Canco 3 ULC

45.   Canco 3 ULC will redeem the Canco 3 ULC Preferred Shares owned by Canco 1 ULC.  As consideration for the redemption, Canco 3 ULC will issue to Canco 1 ULC a demand and interest bearing Canadian dollar denominated promissory note (the “Canco 3 ULC Note”) having a principal amount and FMV equal to the aggregate Canco 3 ULC Preferred Share Redemption Amount.

Canco 1 ULC will accept the Canco 3 ULC Note as full payment for the redemption of the Canco 3 ULC Preferred Shares with the risk that the Canco 3 ULC Note may not be honored.

The redemption of the Canco 3 ULC Preferred Shares will not give rise to a deemed dividend under subsection 84(3) because the aggregate PUC of the Canco 3 ULC Preferred Shares so redeemed will be equal to the aggregate Canco 3 ULC Preferred Share Redemption Amount.

Redemption by Canco 1 ULC

46.   Canco 1 ULC will redeem the Canco 1 ULC Preferred Share owned by Canco 3 ULC.

As consideration for the redemption, Canco 1 ULC will issue to Canco 3 ULC a demand and interest bearing Canadian dollar denominated promissory note (the “Canco 1 ULC Note”) having a principal amount and FMV equal to the Canco 1 ULC Preferred Share Redemption Amount.

Canco 3 ULC will accept the Canco 1 ULC Note as full payment for the redemption of the Canco 1 ULC Preferred Share with the risk that the Canco 1 ULC Note may not be honored.

Set-Off

47.   The principal amount and the interest rate on both the Canco 3 ULC Note and the Canco 1 ULC Note will be the same.  The Canco 3 ULC Note and the Canco 1 ULC Note will be set-off against each other in full payment of their respective principal amounts.

The Canco 3 ULC Note and the Canco 1 ULC Note will then be cancelled.

Amalgamation 2

48.   Canco 3 ULC and FinCan ULC will amalgamate (“Amalgamation 2”) to form Amalco 2 ULC. The certificate of amalgamation of Amalco 2 ULC will be time-stamped to provide that Amalgamation 2 will occur after the set-off as described in Paragraph 47.

The authorized share capital of Amalco 2 ULC will consist of: (i) an unlimited number of class A common shares (the “Amalco 2 ULC Class A Common Shares”), and (ii) an unlimited number of class B common shares (the “Amalco 2 ULC Class B Common Shares”).

The Amalco 2 ULC Class A Common Shares and the Amalco 2 ULC Class B Common Shares will have identical rights and restrictions in all respect. 

On Amalgamation 2:

(a)   all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before Amalgamation 2 will become property of Amalco 2 ULC by virtue of Amalgamation 2;

(b)   all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before Amalgamation 2 will become liabilities of Amalco 2 ULC by virtue of Amalgamation 2; and

(c)   all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before Amalgamation 2, will receive shares of the capital stock of Amalco 2 ULC because of Amalgamation 2. 

For greater certainty, on Amalgamation 2,

(d)   Forco 9 will receive a certain number of Amalco 2 ULC Class A Common Shares (that will be identical to the number of the Canco 3 ULC Common Shares owned by Forco 9 immediately before Amalgamation 2) having an aggregate FMV equal to the aggregate FMV of Forco 9’s Canco 3 ULC Common Shares immediately before Amalgamation 2.

The aggregate PUC of the Amalco 2 ULC Class A Common Shares issued to Forco 9 will be equal to the aggregate PUC of the Canco 3 ULC Common Shares owned by Forco 9 immediately before Amalgamation 2. 

(e)   Amalco 1 will receive a certain number of Amalco 2 ULC Class B Common Shares (that will be identical to the number of the FinCan ULC Common Shares owned by Amalco 1 immediately before Amalgamation 2) having an aggregate FMV equal to the aggregate FMV of Amalco 1’s FinCan ULC Common Shares immediately before Amalgamation 2.

The aggregate PUC of the Amalco 2 ULC Class B Common Shares issued to Amalco 1 will be equal to the aggregate PUC of the FinCan ULC Common Shares owned by Amalco 1 immediately before Amalgamation 2.

Immediately after Amalgamation 2, Forco 9 will own XXXXXXXXXX%, and Amalco 1 will own XXXXXXXXXX%, of all of the issued and outstanding shares of Amalco 2 ULC. 

Debt Repayment

49.   Amalco 1 will repay the Amalco 1 Receivable owing to Amalco 2 ULC.

Amalco2 ULC Functional Currency Election

50.   Amalco 2 ULC will elect under paragraph 261(3)(b) to use the XXXXXXXXXX as its functional currency.

Forco 8 Receivable 2

51.   Amalco 2 ULC will loan its entire cash balance to Forco 8 (the “Forco 8 Receivable 2”). The Forco 8 Receivable 2 will be evidenced by a XXXXXXXXXX denominated promissory note bearing interest at a commercial rate acceptable to Arm’s Length parties.

Financing Repayment

52.   Forco 8 will use the loan proceeds received from Amalco 2 ULC, as described in Paragraph 51, to repay the Bank Loan.

V.    ADDITIONAL INFORMATION

53.   The External Spin-Off did not rely on the XXXXXXXXXX Restructuring, the Loss Consolidation or the Proposed Transactions in order to produce a given result.  In addition, the Proposed Transactions, the XXXXXXXXXX Restructuring or the Loss Consolidation did not, or will not, rely on the External Spin-Off in order to produce a given result.

The External Spin-Off was not undertaken in contemplation of any of the XXXXXXXXXX Restructuring, the Loss Consolidation or the Proposed Transactions and would have been undertaken irrespective of whether the XXXXXXXXXX Restructuring, the Loss Consolidation or the Proposed Transactions was, or will be, implemented.

None of the XXXXXXXXXX Restructuring, the Loss Consolidation or the Proposed Transactions was, or will be, undertaken in contemplation of the External Spin-Off and each would have been undertaken irrespective of whether the External Spin-Off was implemented.

54.   With respect to the liquidation of Foreign Sub 1 described in Paragraph 38, Amalco 1 and Canco 5 may realize a capital gain as a result of the liquidation pursuant to subsection 88(3).  If so, Amalco 1 and Canco 5 will file elections under subsection 93(1) to ensure that a portion of the proceeds of disposition are treated as a dividend that will be prescribed to be paid from Foreign Sub 1’s Exempt Surplus balance in respect of Amalco 1 and Canco 5.

55.   In order to avoid the income inclusion in subsection 15(2), Forco 8 will repay the Forco 8 Receivable 2 to Amalco 2 ULC within the time period for repayment prescribed by subsection 15(2.6).  Amalco 2 ULC will use the loan repayment proceeds to pay dividends to Forco 9.  All reporting, withholding and remittance obligations arising under the Act will be complied with.

Depending on the cash needs of the Foreign Pubco Corporate Group, the Forco 8 Receivable 2 may be repaid by way of one lump sum payment or by way of a number of partial payments.

56.   None of the shares of Canco 1 ULC are and will be, at any time during the implementation of the Proposed Transactions:

(a)   the subject of any undertaking that is referred to in subsection 112(2.2) as a “guarantee agreement”;

(b)   the subject of a “dividend rental arrangement” referred to in subsection 112(2.3), as that term is defined in subsection 248(1);

(c)   the subject of any secured undertaking of the type described in paragraph 112(2.4)(a);

(d)   issued for consideration that is or includes:

(i)   an obligation of the type described in subparagraph 112(2.4)(b)(i), other than an obligation of a corporation that is related (otherwise than by reason of a right referred to in paragraph 251(5)(b)); or

(ii)  any right of the type described in subparagraph 112(2.4)(b)(ii); or

(e)   a share that is issued or acquired as part of a transaction, event or Series Of Transactions Or Events of the type described in subsection 112(2.5).

57.   Foreign Pubco controls a company that carries on an insurance business within the meaning assigned by subsection 138(1).  Therefore, Canco 3 ULC is related to a company that carries on the insurance business.  Accordingly, Canco 3 ULC is a Specified Financial Institution.

Canco 3 ULC holds property (being the Amalco 1 Receivable) that was held by Canco 3 before it became Canco 3 ULC, as described in Paragraph 32.

Historically, Canco 3 was a service company that provided services to other members of the Foreign Pubco Corporate Group.  At no time in its history did Canco 3 acquire any shares of any corporation as Canco 3 ULC will in the Proposed Transactions.

The acquisition by Canco 3 ULC of the XXXXXXXXXX Canco 1 ULC Preferred Share on the Forco 9 Transfer 2 will occur outside the ordinary course of Canco 3 ULC’s business.

58.   Canco 1 ULC will not have a RDTOH balance at the end of the Taxation Year in which the Canco 3 ULC Dividend is deemed to have been paid.

59.   Each of Canco 1 ULC and Canco 3 ULC will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued by it as part of the Proposed Transactions.

60.   The Canco 3 ULC Common Shares owned by Forco 9 immediately before Amalgamation 2 will be held by Forco 9 as capital property.

61.   The FinCan ULC Common Shares owned by Amalco 1 immediately before Amalgamation 2 will be held by Amalco 1 as capital property.

62.   The Canco 1 ULC Share owned by Forco 9 immediately before the share exchange described in Paragraph 42 will be held by Forco 9 as capital property.

63.   The Canco 1 ULC Preferred Share owned by Canco 3 ULC, as described in Paragraph 43, will be held by Canco 3 ULC as capital property.

64.   The Canco 1 ULC Preferred Share owned by Forco 9, at the time of the transfer to Canco 3 ULC, as described in Paragraph 43, will not be Taxable Canadian Property.

65.   The interest earned by Foreign Sub 1 on the Forco 8 Receivable 1 is FAPI and has been reported as such by Canco 5 and Canco 2 before Amalgamation 1, and by Canco 5 and Amalco 1 after Amalgamation 1.

VI.   XXXXXXXXXX

66.   XXXXXXXXXX

67.   XXXXXXXXXX

68.   XXXXXXXXXX

69.   XXXXXXXXXX

70.   XXXXXXXXXX

71.   XXXXXXXXXX

72.   XXXXXXXXXX

VII.  RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, transactions and the purposes of the Subject Transactions and the Proposed Transactions, and provided that the Proposed Transactions are completed in the manner described above, our rulings are set forth below:

A.    By virtue of paragraph 90(8)(a), subsection 90(6) will not apply to include the Specified Amount in respect of the Forco 8 Receivable 1 in the income of Canco 5 or Amalco 1.

B.    On the exchange of the Canco 1 ULC Share by Forco 9 described in Paragraph 42, the provisions of subsection 86(1) will apply, and the provisions of subsections 86(2) and (2.1) will not apply, to the disposition of the Canco 1 ULC Share by Forco 9 for XXXXXXXXXX Canco 1 ULC Class A Common Share and XXXXXXXXXX Canco 1 ULC Preferred Share.

C.    Subsection 84(3) will apply, on the redemption of the Canco 1 ULC Preferred Share owned by Canco 3 ULC, as described in Paragraph 46, to deem Canco 1 ULC to have paid, and Canco 3 ULC to have received, a dividend (the “Canco 3 ULC Dividend”) that is a Taxable Dividend on that share, equal to the amount, if any, by which the amount paid upon such redemption exceeds the PUC in respect of such share immediately before such redemption, and such dividend:

(a)   will be included, pursuant to subsection 82(1) and paragraph 12(1)(j), in computing the income of the recipient corporation;

(b)   will be deductible, pursuant to the subsection 112(1), by the recipient corporation;

(c)   will not be a dividend to which any of subsections 112(2.1), (2.2), (2.3) or (2.4) apply;

(d)   will be excluded, pursuant to paragraph (j) of the definition of Proceeds of Disposition, in determining the Proceeds of Disposition to the recipient corporation of the shares so redeemed;

(e)   will, by virtue of subsection 112(3), reduce any loss that would otherwise be determined for the recipient corporation as a result of the redemption of the Canco 1 ULC Preferred Share;

(f)   will not be subject to tax under Part IV.1 or Part VI.1; and

(g)   will not be subject to tax under Part IV.

D.    By virtue of paragraph 55(3)(a), the provisions of subsection 55(2) will not apply to the Canco 3 ULC Dividend referred to in Ruling C, provided that there is no disposition or significant increase in interest described in any of subparagraphs 55(3)(a)(i) to (v), as part of a Series Of Transactions Or Events that includes the Canco 3 ULC Dividend, that is not described in this letter.

E.    The set-off and cancellation of the Canco 1 ULC Note held by Canco 3 ULC and of the Canco 3 ULC Note held by Canco 1 ULC, as described in Paragraph 47, will not, in either case, give rise to a Forgiven Amount, and neither Canco 1 ULC nor Canco 3 ULC will realize any gain or incur any loss therefrom.

F.    On Amalgamation 2, the provisions of:

(a)   subsection 87(1) will apply; and

(b)   subsection 87(4), other than paragraphs (c), (d), and (e) thereof, will apply.

G.    The provisions of subsections 15(1), 56(2), 69(4), and 246(1) will not apply to any of the Proposed Transactions, in and by themselves.

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

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R6 issued by the CRA on August 29, 2014 and are binding on the CRA provided that the Proposed Transactions are completed on or 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.

VIII. COMMENTS

Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed, made any determination, or accepted any method for the determination in respect of:

(a)   the PUC of any share or the ACB or FMV of any property referred to herein;

(b)   any other tax account of any corporation referred to herein;

(c)   the characterization of any property described herein to the holder thereof, or

(d)   any other tax consequence relating to the facts, transactions, 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, including whether any of the Proposed Transactions would also be included in a Series Of Transactions Or Events that includes other transactions or events that are not described in this letter. 

Yours truly,

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

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