2020-0873371R3 Multi-wing split-up net asset butterfly

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

Principal Issues: Whether the Proposed Transactions meet the requirements of paragraph 55(3)(b).

Position: Yes.

Reasons: Based on the Act and CRA publications and taxpayer representations.

Author: XXXXXXXXXX
Section: 55(2); 55(2.1); 55(3)(b)

XXXXXXXXXX 2020-087337

XXXXXXXXXX, 2022

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - Paragraph 55(3)(b) Butterfly
XXXXXXXXXX.

We are writing in response to your request, dated XXXXXXXXXX, for an advance income tax ruling (Ruling) on behalf of the above-noted taxpayers. We acknowledge your revised Ruling requests dated XXXXXXXXXX, as well as the additional information provided in your correspondence and during our various telephone conversations in respect of this matter. The additional information provided forms part of this letter only to the extent that it is described herein.

CONFIRMATION

To the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this Ruling request are the same as, or substantially similar to, transactions or issues that are:

i. in a previously filed tax return of the taxpayers or a related person and:

(A) being considered by the CRA in connection with such return;

(B) under objection by the taxpayers or a related person; or

ii. the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.

The tax account numbers, Tax Services Offices and the Tax Centres and head office address of the taxpayers involved are as follows:

XXXXXXXXXX

The above-referenced taxpayers have confirmed that the Proposed Transactions described herein will not affect their ability to pay any of their outstanding tax liabilities.

DEFINITIONS

Unless otherwise stated:

i. a reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985, c.1 (5th Supp.), as amended (the Act);

ii. all terms and conditions used in this letter that are defined in the Act (or in the Income Tax Regulations) have the meaning given in such definition;

iii. all references to monetary amounts are in Canadian dollars; and

iv. the singular should be read as plural and vice versa where the circumstances so require.

The relevant parties to the Proposed Transactions (as defined below) are referred to as follows:

“Amalgamated Holdco 1” refers to the corporation to be formed by way of a short-form vertical amalgamation of Holdco 1 and TC1, as described in Paragraph 65;

“Amalgamated Holdco 2” refers to the corporation to be formed by way of a short-form vertical amalgamation of Holdco 2 and TC2, as described in Paragraph 66;

“Canco 1” means XXXXXXXXXX;

“Canco 2” means XXXXXXXXXX;

“Canco 3” means XXXXXXXXXX;

“Canco 4” means XXXXXXXXXX;

“Canco 5” means XXXXXXXXXX;

“Canco 6” means XXXXXXXXXX;

“Canco 7” means XXXXXXXXXX;

“Canco 8” means XXXXXXXXXX;

“Canco 9” means XXXXXXXXXX;

“Canco 10” means XXXXXXXXXX;

“Canco” refers to any of Canco 1, Canco 2, Canco 3, Canco 4, Canco 5, Canco 6, Canco 7, Canco 8, Canco 9 and Canco 10, as the context may require, and “Cancos” refers collectively to Canco 1, Canco 2, Canco 3, Canco 4, Canco 5, Canco 6, Canco 7, Canco 8, Canco 9 and Canco 10;

“Consolidated Group 1” refers to collectively to Indirect Holdco 3, Indirect Holdco 4 and Indirect Holdco 6, each of which will transfer its share ownership in the Cancos to a newly-created corporation, Newco 1, as described in Paragraph 30;

“Consolidated Group 2” refers to collectively to Indirect Holdco 5 and LP4, each of which will transfer its share ownership in the Cancos to a newly-created corporation, Newco 2, as described in Paragraph 32;

“DC” means XXXXXXXXXX, a corporation that was formed on XXXXXXXXXX under the BCA as a result of an amalgamation of the Predecessor Corporations, as described in Paragraph 2;

“DC Group” means DC, including DC’s joint venture and co-tenancy interests, and the corporations and partnerships over which DC has the ability to exercise significant influence, namely Subco 1, Subco 2, Subco 3, Subco 4, LP1, LP2, LP3 and LP4;

“Freezeco” means the new corporation to be incorporated by TC1 under the BCA, as described in Paragraph 42;

“General Partner” mean XXXXXXXXXX, the general partner of the Predecessor Limited Partnership, as described in Paragraph 2;

“Holdco 1” means XXXXXXXXXX, a corporation incorporated under the BCA as described in Paragraph 11;

“Holdco 2” means XXXXXXXXXX, a corporation incorporated under the BCA as described in Paragraph 15;

“Holdco 3” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and XXXXXXXXXX% of its voting shares common shares controlled by a corporation that is controlled by the trustees of the Sibling 3 XXXXXXXXXX Trust, and the remaining XXXXXXXXXX% of its voting common shares controlled by a corporation that is controlled by the trustees of Sibling 2 XXXXXXXXXX Trust, and XXXXXXXXXX% of its preferred shares owned by Indirect Holdco 3;

“Holdco 4” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and XXXXXXXXXX% of its voting common shares controlled indirectly by Sibling 1 through Holdco 1, and XXXXXXXXXX% of its preferred shares held directly by Indirect Holdco 4;

“Holdco 5” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and XXXXXXXXXX% of its common and preferred shares held directly by Indirect Holdco 5;

“Holdco 6” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and XXXXXXXXXX% of its common and preferred shares held directly by Indirect Holdco 6;

“Holdco” refers to any one of Holdco 1, Holdco 2, Holdco 3, Holdco 4, Holdco 5 or Holdco 6, as the context may require, and “Holdcos” refers collectively to Holdco 1, Holdco 2, Holdco 3, Holdco 4, Holdco 5 and Holdco 6;

“Indirect Holdco 3” means XXXXXXXXXX, a taxable Canadian corporation with XXXXXXXXXX% of its voting common shares controlled indirectly by the trustees of each of the Sibling 1 XXXXXXXXXX Trust, Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust;

“Indirect Holdco 4” means XXXXXXXXXX, a taxable Canadian corporation with XXXXXXXXXX% of its voting common shares controlled indirectly by the trustees of each of the Sibling 1 XXXXXXXXXX Trust, Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust;

“Indirect Holdco 5” means XXXXXXXXXX, a taxable Canadian corporation with XXXXXXXXXX% of its voting common shares controlled indirectly by the trustees of each of Sibling 1 XXXXXXXXXX Trust, Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust;

“Indirect Holdco 6” means XXXXXXXXXX, a taxable Canadian corporation with XXXXXXXXXX% of its voting common shares controlled indirectly by Sibling 1, Sibling 2 and the trustees of Sibling 3 XXXXXXXXXX Trust;

“Indirect Holdco 6 Sub” means XXXXXXXXXX, a taxable Canadian corporation with XXXXXXXXXX% of its shares owned by Indirect Holdco 6;

“JV1” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and with a XXXXXXXXXX fiscal year-end;

“JV2” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and an XXXXXXXXXX fiscal year-end;

“JV3” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and with an XXXXXXXXXX fiscal year-end;

“JV4” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV5” means XXXXXXXXXX JV, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV6” means XXXXXXXXXX, a co-tenancy XXXXXXXXXX% of its interest owned by DC and with a XXXXXXXXXX fiscal year-end;

“JV7” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and an XXXXXXXXXX fiscal year-end;

“JV8” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV9” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV10” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV11” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and an XXXXXXXXXX fiscal year-end;

“JV12” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV13” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by DC and an XXXXXXXXXX fiscal year-end;

“JV14” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV15” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by DC and a XXXXXXXXXX fiscal year-end;

“JV16” means XXXXXXXXXX, a joint venture with XXXXXXXXXX% of its interest owned by LP2 and an XXXXXXXXXX fiscal year-end;

“JV17” means XXXXXXXXXX, a co-tenancy with XXXXXXXXXX% of its interest owned by LP3 and a XXXXXXXXXX fiscal year-end;

“Joint Venture” refers to any one of JV1, JV2, JV3, JV4, JV5, JV6, JV7, JV8, JV9, JV10, JV11, JV12, JV13, JV14, JV15, JV16 and JV17 as the context may require, and

“Joint Ventures” refers collectively to all of JV1 through JV17;

“LP1” means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its Class A units and XXXXXXXXXX% of its Class B units, respectively, owned by DC;

“LP2” means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its beneficial interest owned by DC;

“LP3” means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its beneficial interest owned by DC;

“LP4” means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its beneficial interest owned by DC. LP4 owns an interest in joint ventures, mortgages receivable and land inventory which include the following:

• XXXXXXXXXX.

“Limited Partnership” refers to any of LP1, LP2, LP3 and LP4 as the context may require, and “Limited Partnerships” refers collectively to LP1, LP2, LP3 and LP4;

“Newco 1” means the new corporation to be incorporated by Indirect Holdco 3 under the BCA, as described in Paragraph 29;

“Newco 2” means the new corporation to be incorporated by Indirect Holdco 5 under the BCA, as described in Paragraph 31;

“Nominee Corporation” refers to any one of XXXXXXXXXX corporations, each of which holds, in a bare trust arrangement, legal title to one or more properties that will form the Distribution Property on the DC Transfers, and “Nominee Corporations” refers collectively to all XXXXXXXXXX corporations;

“Predecessor Corporations” means the following XXXXXXXXXX corporations that formed DC on the amalgamation as described in Paragraph 2: XXXXXXXXXX.;

“Predecessor Limited Partnership” means XXXXXXXXXX, as described in Paragraph 2;

“Sibling 1” means XXXXXXXXXX, a sibling of Sibling 2 and of Sibling 3, prior to the date of Sibling 3’s death, and an individual who is resident in Canada for purposes of the Act;

“Sibling 1 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 19;

“Sibling 1 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 20;

“Sibling 1 Joint Partner Trust” mean the joint partner trust, the beneficiaries of which are Sibling 1 and Sibling 1 Spouse;

“Sibling 1 Spouse” means XXXXXXXXXX, the spouse of Sibling 1 and an individual who is resident in Canada for the purposes of the Act;

“Sibling 2” means XXXXXXXXXX, a sibling of Sibling 1 and of Sibling 3, prior to the date of Sibling 3’s death, and an individual who is resident in Canada for purposes of the Act;

“Sibling 2 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 19;

“Sibling 2 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 20;

“Sibling 2 Spouse” means XXXXXXXXXX, an individual who is resident in Canada for purposes of the Act;

“Sibling 3” means the XXXXXXXXXX, a deceased individual, who was a sibling of Sibling 1 and Sibling 2, married to Sibling 3 Spouse and a resident of Canada, until XXXXXXXXXX, the date of Sibling 3’s death;

“Sibling 3 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 19;

“Sibling 3 XXXXXXXXXX Trust” means the XXXXXXXXXX family trust as described in Paragraph 20;

“Sibling 3 Spouse” means XXXXXXXXXX, an individual who is resident in Canada for purposes of the Act and the spouse of Sibling 3 prior to the date of Sibling 3’s death;

“Sibling 3 Spousal Trust” means the trust that was created for the benefit of Sibling 3 Spouse and is governed by the terms of the last will and testament of Sibling 3;

“Sibling” refers to any one of Sibling 1, Sibling 2 or Sibling 3, as the context may require, and “Siblings” refers collectively to Sibling 1, Sibling 2 and Sibling 3;

“Siblingco 1” means XXXXXXXXXX, a corporation incorporated under the BCA with a XXXXXXXXXX taxation year-end and share ownership as described in Paragraph 13;

“Siblingco 2” means XXXXXXXXXX, a corporation incorporated under the BCA with a XXXXXXXXXX taxation year-end and share ownership as described in Paragraph 17;

“Siblingco 3” means XXXXXXXXXX, a corporation incorporated under the BCA with a XXXXXXXXXX taxation year-end and share ownership as described in Paragraph 17;

“Subco 1” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by DC;

“Subco 2” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by DC;

“Subco 2 Sub” means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by Subco 2;

“Subco 3” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with an XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by DC;

“Subco 4” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by DC;

“Subco 5” means XXXXXXXXXX, a corporation existing under the laws of XXXXXXXXXX on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by Subco 1 and XXXXXXXXXX% of its voting shares owned by Subco 4;

“Subco 6” means XXXXXXXXXX, a corporation incorporated under the BCA on XXXXXXXXXX, with a XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by Subco 5;

“Subco 7” means XXXXXXXXXX, a corporation incorporated under the laws of the XXXXXXXXXX on XXXXXXXXXX, with an XXXXXXXXXX taxation year-end and with XXXXXXXXXX% of its voting shares owned by Subco 3. Subco7 holds XXXXXXXXXX;

“Subco” refers to any one of Subco 1 through Subco 7, as the context may require, and “Subcos” refers collectively to Subco 1, Subco 2, Subco 3, Subco 4, Subco 5, Subco 6 and Subco 7;

“TC1” means the new corporation to be incorporated by Holdco 1 under the BCA, as described in Paragraph 33;

“TC2” means the new corporation to be incorporated by Holdco 2 under the BCA, as described in Paragraph 34; and

“TC” refers to either TC1 or TC2, as the context may require, and “TCs” refers

collectively to TC1 and TC2.

The following abbreviations, terms and expressions have the meanings specified for the purposes of this letter:

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

“adjusted cost base” or “ACB” has the meaning assigned by section 54;

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

“arm’s length” has the meaning assigned by subsection 251(1);

“BCA” means the Business Corporation Act XXXXXXXXXX, as amended;

“BN” means “business number” as that term is defined in subsection 248(1);

“Business Receivable” refers to the non-interest bearing loan, due on demand with no specific terms of repayment, that is owed to DC by LP2 (which funds were used by LP2 to contribute capital to JV16 in order to fund its active operations), as described in Paragraph 7;

“Canadian-controlled private corporation”, or “CCPC”, has he meaning assigned by subsection 125(7);

“capital dividend” has the meaning assigned by subsection 83(2);

“capital dividend account”, or “CDA”, has the meaning assigned by subsection 89(1);

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

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

“CRA” means the Canada Revenue Agency;

“DC Butterfly Shares” means the preference shares of the capital stock of DC that will be issued to each of Holdco 1 and Holdco 2, as described in Paragraph 36, the terms of which are described in Paragraph 35(b);

“DC Butterfly Share Redemption Amount” refers to the amount for which a DC Butterfly Share is redeemable and retractable and is equal to the quotient obtained by dividing the aggregate FMV of the Distribution Property transferred by the DC, net of the aggregate liabilities assumed by TC1 and TC2 as described in Paragraph 52(a), by the number of DC Butterfly Shares issued in connection with the DC share capital reorganization described in Paragraph 36;

“DC Class A Common Shares” means the issued and outstanding Class A common share of the capital stock of DC (before the reorganization of DC’s share capital), as described in Paragraph 2;

“DC Class B Common Shares” means the issued and outstanding Class B common share of the capital stock of DC (before the reorganization of DC’s share capital), as described in Paragraph 2;

“DC Class C Common Shares” means the issued and outstanding Class C common share of the capital stock of DC (before the reorganization of DC’s share capital), as described in Paragraph 2;

“DC Class D Common Shares” means the issued and outstanding Class D common share of the capital stock of DC (before the reorganization of DC’s share capital), as described in Paragraph 2;

“DC Common Shares” refers to any of the existing common shares of the capital stock of DC, consisting of the DC Class A Common Shares, the DC Class B Common Shares the DC Class C Common Shares the DC Class D Common Shares;

“DC Fixed Value Shares” means the preference shares of the capital stock of DC that will be issued to each of Holdco 3, Holdco 4, Holdco 5 and Holdco 6, as described in Paragraph 36, the terms of which are described in Paragraph 35(d);

“DC Freeze Shares” refers to any of the Class A, Class B, Class C and Class D preference shares of the capital stock of DC that will be issued to each of Holdco 3, Holdco 4, Holdco 5 and Holdco 6, respectively, as described in Paragraph 36, the terms of which are described in Paragraph 35(c);

“DC New Common Shares” means the common share of the capital stock of DC that will be issued to Indirect Holdco 6 as described in Paragraph 63, the terms of which are described in Paragraph 35(a);

“DC Redemption Note 1” means the non-interest bearing demand promissory note issued by DC to TC1 on the redemption of the DC Butterfly Shares held by TC1, as described in Paragraph 59;

“DC Redemption Note 2” means the non-interest bearing demand promissory note issued by DC to TC2 on the redemption of the DC Butterfly Shares held by TC2, as described in Paragraph 59;

“DC Transfers” refers to the transfers of property by DC to each of TC1 and TC2 on the distribution, as described in Paragraph 50;

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

“distribution” has the meaning assigned by subsection 55(1);

“Distribution Property” means the property of DC transferred on the distribution as described in Paragraph 50;

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

“dividend refund” has the meaning assigned by paragraph 129(1)(a);

“dividend rental arrangement” has the meaning assigned by subsection 248(1);

“eligible dividend” has the meaning assigned by subsection 89(1);

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

“ERDTOH” means “eligible refundable dividend tax on hand” as that term is defined in subsection 129(4);

“Effective Date” means a date chosen by the relevant parties to implement certain Proposed Transactions, in sequential order, beginning with the reorganization of the share capital of DC, as described in Paragraph 36;

“Effective Period” means the period of time that begins on the Effective Date, at a time chosen by the relevant parties, and that ends on or before 24 hours have elapsed, with the completion of the subscription for DC New Common Shares by Indirect Holdco 6, as described in Paragraph 63;

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

“financial intermediary corporation” has the meaning assigned by subsection 191(1);

“forgiven amount” has the meaning assigned by subsections 80(1) and 80.01(1);

“Freezeco Common Shares” means the common shares of the capital stock of Freezeco, described in Paragraph 42(a);

“Freezeco Class B Preferred Shares” means the Class B preference shares of the capital stock of Freezeco, described in Paragraph 42(b);

“Freezeco Class C Preferred Shares” means the Class C preference shares of the capital stock of Freezeco, described in Paragraph 42(c);

“GRIP” means “general rate income pool” as that term is defined in subsection 89(1);

“Investment Receivable” refers to an interest-bearing loan that is owed to DC by XXXXXXXXXX (who is a related party that is not within the DC Group), that has no specific terms of repayment and is held as a passive investment, the income from which is treated as income from a specified investment business;

“Land Inventory” refers to land, situated in XXXXXXXXXX, that is beneficially owned by DC on an indirect basis through the Limited Partnerships, and is held for the purposes of the development of the land for sale to third party purchasers, which sales are reflected as income account transactions generating income gains;

“Loans Receivable” refers to non-interest bearing loans owed to DC by related parties (who are not entities within the DC Group), that are due on demand and have no specific terms of repayment, other than the Business Receivable;

“Mortgages Receivable” refers to certain mortgage financing arrangements between members of the DC Group and various third-party XXXXXXXXXX who are unrelated to the DC Group, which are issued in the context of a XXXXXXXXXX purchase from DC of land for development (Land Inventory), and generally carries the following terms and obligations: is non-interest bearing during the agreed upon development time period for the purchased Land Inventory (ranging generally from 12-48 months); is interest bearing at a market rate if the mortgage is not repaid within the development timeline; and is secured by the particular Land Inventory;

“NERDTOH” means “non-eligible refundable dividend tax on hand” as that term is defined in subsection 129(4);

“non-capital loss” has the meaning assigned by subsection 111(8);

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

“Paragraph” means a numbered paragraph in this letter;

“Prior Reorganization” refers to the transactions described in Paragraph 2;

“private corporation” has the meaning assigned by subsection 89(1);

“prescribed rate of interest” means the rate of interest prescribed by Regulation 4301 of the Income Tax Regulations, C.R.C. 1979, c. 945, as amended;

“proceeds of disposition” has the meaning assigned by section 54;

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

“Proposed Transactions” means the transactions described in Paragraphs 29 to 66 in the Proposed Transactions section of this letter;

“Rental Property” means the real estate portfolio comprising XXXXXXXXXX and are beneficially owned by DC immediately before the Proposed Transactions, through the Subcos, Joint Ventures and Limited Partnerships;

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

“series of transactions or events” includes the transactions or events referred to in subsection 248(10);

“significant influence” has the meaning assigned XXXXXXXXXX, as the situation requires;

“SIN” means social insurance number;

“specified financial institution” has the meaning assigned by subsection 248(1);

“specified investment business” has the meaning assigned by subsection 125(7);

“stated capital” in respect of a class of shares of a corporation, means the amount added to the capital of the corporation in respect of that class under the BCA;

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

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

“taxable preferred share” has the meaning assigned by subsection 248(1);

“taxation year” has the meaning assigned by subsection 249(1);

“TC1 Butterfly Shares” means the preference shares of the capital stock of TC1 which will be created on the incorporation of TC1, as described in Paragraph 33(b);

“TC1 Common Shares” means the common shares of the capital stock of TC1 which will be created on the incorporation of TC1, as described in Paragraph 33(a);

“TC1 Redemption Note” means the non-interest-bearing demand promissory note issued by TC1 to DC on the redemption of the TC1 Butterfly Shares held by DC, as described in Paragraph 57;

“TC2 Butterfly Shares” means the preference shares of the capital stock of TC2 which will be created on the incorporation of TC2, as described in Paragraph 34(b);

“TC2 Common Shares” means the common shares of the capital stock of TC2 which will be created on the incorporation of TC2, as described in Paragraph 34(a);

“TC2 Redemption Note” means the non-interest-bearing demand promissory note issued by TC2 to DC on the redemption of the TC2 Butterfly Shares held by DC, as described in Paragraph 57; and

“type of property” means one of the XXXXXXXXXX types of property into which DC’s property may be classified (referred to collectively as types of property), as described in Paragraph 47.

FACTS

The relevant facts are as follows:

1. DC is and will be, at all relevant times and for all purposes of the Act, a CCPC and a taxable Canadian corporation. DC was formed by amalgamation under the BCA on XXXXXXXXXX. DC has a XXXXXXXXXX taxation year-end.

2. The history of the share ownership of DC is as follows:

(a) On incorporation, the authorized share capital of DC consisted of an unlimited number of the following classes of shares:

i. Class A common shares (DC Class A Common Shares), which are voting, entitle the holder to receive discretionary dividends and in the event of the winding-up, dissolution or liquidation of the corporation, entitle the holder to share equally with the other holders of DC Common Shares in the remaining assets of the corporation;

ii. Class B common shares (DC Class B Common Shares), which are voting, entitle the holder to receive discretionary dividends and in the event of the winding-up, dissolution or liquidation of the corporation, entitle the holder to share equally with the other holders of DC Common Shares in the remaining assets of the corporation;

iii. Class C common shares (DC Class C Common Shares), which are voting, entitle the holder to receive discretionary dividends and in the event of the winding-up, dissolution or liquidation of the corporation, entitle the holder to share equally with the other holders of DC Common Shares in the remaining assets of the corporation;

iv. Class D common shares (DC Class D Common Shares), which are voting, entitle the holder to receive discretionary dividends and in the event of the winding-up, dissolution or liquidation of the corporation, entitle the holder to share equally with the other holders of DC Common Shares in the remaining assets of the corporation;

v. Class A preference shares, which are voting, redeemable and retractable for a redemption amount determined by the directors at the time of issuance, entitle the holder to a discretionary, non-cumulative dividend that shall not exceed XXXXXXXXXX of the prescribed rate of interest in effect in the month the shares were issued multiplied by the redemption amount, and in the event of a winding-up, dissolution or liquidation of the corporation, rank first in priority and entitle the holder to an amount up to the redemption amount of the shares plus any declared and unpaid dividends; and

vi. Class B preference shares, which are voting, redeemable and retractable for a redemption amount determined by the directors at the time of issuance, entitle the holder to a discretionary, non-cumulative dividend that shall not exceed XXXXXXXXXX of the prescribed rate of interest in effect in the month the shares were issued multiplied by the redemption amount, and in the event of a winding-up, dissolution or liquidation of the corporation, rank first in priority and entitle the holder to an amount up to the redemption amount of the shares plus any declared and unpaid dividends.

(b) The Siblings’ XXXXXXXXXX, which they began over XXXXXXXXXX, has expanded to include various entities including DC, each of which provides a number of services, including XXXXXXXXXX. An overview of the formation of DC is as follows:

i. In XXXXXXXXXX, prior to the amalgamation to form DC (the Amalgamation), the Siblings initiated a reorganization of the existing entities (the Prior Reorganization), which began with each Sibling transferring their shares of the capital stock of one of the Predecessor Corporations to Holdco 1, Holdco 2 and Holdco 3, respectively, in order to consolidate the shareholdings of the Predecessor Corporations in the Holdcos. At that time, the Predecessor Corporations each held an ownership interest in a limited partnership (Predecessor Limited Partnership), which in turn held substantially all of the property that is currently held by DC;

ii. The transactions that followed in the Prior Reorganization, included estate freezes and certain consolidation transactions, on a tax-deferred basis, involving the Holdcos and Predecessor Limited Partnership;

iii. In addition, debt obligations of each Predecessor Corporation were assumed by its respective Holdco parent corporation, in exchange for the issuance of additional common shares by the particular Predecessor Corporation;

iv. Subsequently, the Amalgamation occurred, after which DC held a XXXXXXXXXX% interest in Predecessor Limited Partnership, while the remaining XXXXXXXXXX% interest was held by another entity within the corporate group (General Partner);

v. Following the Amalgamation, Predecessor Limited Partnership and another subsidiary partnership were wound-up into DC on a primarily tax-deferred basis, with the result that LP1, LP2, LP3 and LP4 (and indirectly LP5) were the only partnerships in which DC continued to hold an interest;

vi. As the final step in the Prior Reorganization, General Partner sold its DC Common Shares to Holdco 6 in consideration for a non-interest-bearing promissory note;

vii. As a result of the foregoing transactions, and as is reflected in the current ownership structure, each of the Holdcos has a direct ownership interest in DC (through the DC Common Shares), and DC holds substantially the same subsidiary entities that were held by the Predecessor Corporations.

There have been no further changes to the share capital of DC since XXXXXXXXXX.

3. The issued and outstanding share capital of DC, consisting of the DC Common Shares, is held as follows:

Shareholder	Number and Class of Shares
Holdco 1	XXXXXXXXXX DC Class A Common Shares
Holdco 2	XXXXXXXXXX DC Class B Common Shares
Holdco 3	XXXXXXXXXX DC Class D Common Shares
Holdco 4	XXXXXXXXXX DC Class C Common Shares
Holdco 5	XXXXXXXXXX DC Class C Common Shares
Holdco 6	XXXXXXXXXX DC Class B Common Shares

None of the Class A or Class B preference shares have ever been issued by DC.

All of the issued and outstanding shares of DC are held by each of the Holdcos as capital property. For greater certainty, the DC Common Shares were not acquired by the Holdcos in contemplation of the Proposed Transactions.

4. The aggregate PUC of the DC Common Shares, which is approximately $XXXXXXXXXX, is equal to the aggregate ACB. The aggregate FMV of the DC Common Shares is conservatively estimated to be approximately $XXXXXXXXXX.

5. DC is controlled by Sibling 1, Sibling 2, and the families of each of Sibling 1, Sibling 2 and Sibling 3, including certain family trusts, who collectively own on an indirect basis all of the issued and outstanding shares of DC, through the entities described in this letter.

6. DC operates as XXXXXXXXXX, through the Subcos, Joint Ventures and Limited Partnerships. For income tax purposes, DC consistently reports the income it earns each year from its XXXXXXXXXX investment business as income from an active business, on the basis that it has carried on an active business during the relevant period of time.

7. As of XXXXXXXXXX, the net FMV of the assets of the DC Group on a consolidated basis is estimated to be approximately $XXXXXXXXXX, and consists of the following assets:

(a) cash, accounts receivable, prepaids and taxes receivable with an estimated FMV of approximately $XXXXXXXXXX;

(b) loans with an estimated FMV of approximately $XXXXXXXXXX, which are generally comprised of the following receivables:

i. the Investment Receivable of approximately $XXXXXXXXXX;

ii. the Business Receivable of approximately $XXXXXXXXXX;

iii. the Mortgages Receivable of approximately $XXXXXXXXXX; and

iv. the Loans Receivable, representing the balance of the loans;

(c) land held as inventory with an estimated FMV of approximately $XXXXXXXXXX (the Land Inventory), the sales from which are reflected on income account; and

(d) real estate property with an estimated FMV of approximately $XXXXXXXXXX (the Rental Property), which generates rental property income.

8. For greater certainty, the gains, profits, and losses of each Joint Venture are reported by the participants based on their proportionate ownership in the Joint Venture.

9. All dividends previously declared by DC have been paid. DC has not paid dividends within the last four years.

10. As at XXXXXXXXXX, DC has the following tax account balances:

(a) ERDTOH $XXXXXXXXX
(b) NERDTOH $XXXXXXXXX
(c) CDA $XXXXXXXXXX
(d) GRIP $XXXXXXXXXX

Holdco 1

11. Holdco 1 is and will be, at all relevant times and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Holdco 1 was incorporated on XXXXXXXXXX under the BCA and has a XXXXXXXXXX tax year-end.

12. As its sole shareholder, Siblingco 1 holds all of the issued and outstanding shares of the capital stock of Holdco 1, being XXXXXXXXXX common shares. The common shares are voting and have a PUC and ACB equal to $XXXXXXXXXX.

13. Siblingco 1 is a holding corporation which is controlled by Sibling 1 and has the following issued and outstanding share capital:

Shareholder	Class of Shares	Number of Shares Owned	Voting Rights
Sibling 1	Class A preference	XXXXX	Non-voting
	Class B preference	XXXXX	Voting
	Class C preference	XXXXX	Voting
Sibling 1 Spouse	Class B preference	XXXXX	Voting
Sibling 1 Joint Partner Trust	Class D preference	XXXXX	Non-voting
Sibling 1 Joint Partner Trust	Class E preference	XXXXX	Voting
Sibling 1 XXXXXXXXXX Trust	Class T preference	XXXXX	Non-voting
Sibling 1 XXXXXXXXXX Trust	Class T-1 preference	XXXXX	Non-voting
Sibling 1 XXXXXXXXXX Trust	Class A common	XXXXX	Voting

14. Holdco 1 operates a portfolio of XXXXXXXXXX through direct ownership and investments in subsidiaries, co-tenancies and partnerships. Holdco 1 also provides XXXXXXXXXX, as well XXXXXXXXXX. As of XXXXXXXXXX, the value of Holdco 1 (after adjusting to FMV, and net of liabilities) is approximately $XXXXXXXXXX. Holdco 1’s and its liabilities consist of the following:

XXXXXXXXXX

Holdco 2

15. Holdco 2 is and will be, at all relevant times and for all purposes of the Act, a CCPC and a taxable Canadian corporation. Holdco 2 was incorporated on XXXXXXXXXX under the BCA and has a XXXXXXXXXX tax year-end.

16. The issued and outstanding share capital of Holdco 2 is held as follows:

Shareholder	Class of Shares	Number of Shares Owned	PUC=ACB
Siblingco 2	Class A common	XXXXX	XXXXX
	Class A preference	XXXXX	XXXXX
	Class C preference	XXXXX	XXXXX
	Class D preference	XXXXX	XXXXX
	Class F-1 preference	XXXXX	XXXXX
	Class G preference	XXXXX	XXXXX
Siblingco 3	Class A common	XXXXX	XXXXX
	Class A preference	XXXXX	XXXXX
	Class C preference	XXXXX	XXXXX
	Class D preference	XXXXX	XXXXX
	Class F-2 preference	XXXXX	XXXXX
	Class G preference	XXXXX	XXXXX
Indirect Holdco 6 Sub	Class E preference	XXXXX	XXXXX

The Class A common shares of Holdco 2 are voting (XXXXXXXXXX vote per share), while all of the preference shares are non-voting and non-convertible.

17. Holdco 2 is controlled by Siblingco 2 and Siblingco 3, which are each controlled by Sibling 2 and the Sibling 3 XXXXXXXXXX Trust, respectively. The issued and outstanding share capital of each corporation is held as follows:

Siblingco 2

Shareholder	Class of Shares	Number of Shares Owned	Voting Rights
Sibling 2	Class A preference	XXXXX	Non-voting
	Class B preference	XXXXX	Voting
	Class C preference	XXXXX	Voting
	Class D preference	XXXXX	Non-voting
	Class E preference	XXXXX	Voting
	Class F preference	XXXXX	Non-voting
Sibling 2 Spouse	Class B preference	XXXXX	Voting
Sibling 2 Joint Partner Trust	Class D preference	XXXXX	Non-voting
Sibling 2 Joint Partner Trust	Class E preference	XXXXX	Voting
Sibling 2 XXXXXXXXXX Trust	Class T preference	XXXXX	Non-voting
Sibling 2 XXXXXXXXXX Trust	Class T-1 preference	XXXXX	Non-voting
Sibling 2 XXXXXXXXXX Trust	Class A common	XXXXX	Voting

Siblingco 3

Shareholder	Class of Shares	Number of Shares Owned	Voting Rights
Sibling 3 Spousal Trust	Class A preference	XXXXX	Non-voting
	Class D preference	XXXXX	Non-voting
	Class E preference	XXXXX	Voting
Sibling 3 XXXXXXXXXX Trust	Class T preference	XXXXX	Non-voting
Sibling 3 XXXXXXXXXX Trust	Class T-1 preference	XXXXX	Non-voting
Sibling 3 XXXXXXXXXX Trust	Class A common	XXXXX	Voting

18. Holdco 2 operates a portfolio of XXXXXXXXXX through direct ownership and investments in subsidiaries, co-tenancies and partnerships. Holdco 2 also provides XXXXXXXXXX. As of XXXXXXXXXX, the value of Holdco 1 (after adjusting to FMV, and net of liabilities) is approximately $XXXXXXXXXX. Holdco 1’s assets and its liabilities consist of the following:

XXXXXXXXXX

The Family Trusts

19. Each of the Sibling 1 XXXXXXXXXX Trust, Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust were settled under the laws of XXXXXXXXXX on XXXXXXXXXX with the following terms:

(a) Each Sibling settled their respective trust;

(b) The trustees of Sibling 1 XXXXXXXXXX Trust are Sibling 1 and all but one of Sibling 1’s children and for Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust, the trustees are all of the particular Sibling’s children;

(c) The beneficiaries of each trust are the issue of the respective Sibling (except for one of Sibling 1’s children); and

(d) Each trust is a discretionary trust and is not a reversionary trust under subsection 75(2) of the Act.

20. Each of Sibling 1 XXXXXXXXXX Trust, Sibling 2 XXXXXXXXXX Trust and Sibling 3 XXXXXXXXXX Trust (collectively the XXXXXXXXXX Trusts) were settled under the laws of XXXXXXXXXX on XXXXXXXXXX with the following terms:

(a) Each of Sibling 1 and Sibling 2 settled their respective trust and the Sibling 3 XXXXXXXXXX Trust was settled by Sibling 1;

(c) The beneficiaries of each trust are the issue of the respective Sibling (except for one of Sibling 1’s children); and

(d) Each trust is a discretionary trust and is not a reversionary trust under subsection 75(2) of the Act.

21. The XXXXXXXXXX Trusts were created as part of certain estate freeze planning that took place in XXXXXXXXXX, as described in Paragraph 27.

Nominee Corporations

22. Each Nominee Corporation is a CCPC and a taxable Canadian corporation, with the majority of the corporations being incorporated under the BCA between the dates XXXXXXXXXX.

23. XXXXXXXXXX Nominee Corporations are active, while the remaining Nominee Corporations have no activity, nil or nominal assets and earn no revenue.

24. Pursuant to a nominee agreement between DC and the Nominee Corporations, each Nominee Corporation holds the legal title to one or more properties for which DC has beneficial ownership, as the nominee, agent and bare trustee for the sole benefit of DC. The Nominee Corporations are prohibited from dealing with such property that each holds, without receiving the prior written instruction, consent or direction of DC. In the circumstance where DC is not the sole beneficial owner of a particular property, the Nominee Corporation may hold legal title for one or more other beneficial owners of the property, in the same manner as it does for the DC.

25. Each Nominee Corporation will continue to hold legal title to the property it currently holds, throughout and subsequent to the completion of the Proposed Transactions, as bare trustee for the beneficial owners of such property, including DC, TC1 or TC2, as the case may be.

26. DC will continue to pay any service fees or management fees to the Holdcos as part of its ongoing operations.

Completed Transactions

27. In XXXXXXXXXX, certain transactions were undertaken to exchange the common shares of the capital stock of certain corporate shareholders of the Holdcos for freeze preferred shares, all of which was done on a tax-deferred basis. New common shares of the capital stock of each Holdco, as the case may be, were issued to the newly-settled XXXXXXXXXX Trusts. These transactions were completed as part of general estate planning transactions and the transactions would have occurred regardless of the Proposed Transactions.

28. On XXXXXXXXXX, a vertical short-form amalgamation of Subco 2 and its wholly-owned subsidiary, Subco 2 Sub, was completed. The articles of Subco 2 were adopted, unchanged, and the existing issued and outstanding shares of Subco 2 remained outstanding. These transactions were completed as part of general corporate simplification in order to align with the taxation year-ends of the corporation and would have occurred regardless of the Proposed Transactions.

PROPOSED TRANSACTIONS

Pre-butterfly transactions

29. Indirect Holdco 3 will incorporate a new corporation, Newco 1, under the BCA. The share capital of Newco 1 will consist of an unlimited number of common shares.

30. Each member of Consolidated Group 1 will transfer their shares in the capital stock of each of Canco 1, Canco 2, Canco 3, Canco 4, Canco 5, Canco 6, Canco 7, Canco 8, Canco 9 and Canco 10 to Newco 1 in exchange for the issuance of common shares of the capital stock of Newco 1. A subsection 85(1) election will be filed in respect of each transfer. As a result of the transfers, the ownership of the common shares of Newco 1 will be held as follows: Indirect Holdco 3 will hold approximately XXXXXXXXXX%; Indirect Holdco 4 will hold approximately XXXXXXXXXX%; Indirect Holdco 6 will hold approximately XXXXXXXXXX%. Furthermore, Newco 1 will hold approximately XXXXXXXXXX% of the shares of the capital stock of each of the Cancos.

31. Indirect Holdco 5 will incorporate a new corporation, Newco 2, under the BCA. The share capital of Newco 2 will consist of an unlimited number of common shares.

32. The members of Consolidated Group 2 will transfer their shares in the capital stock of each of Canco 1, Canco 2, Canco 3, Canco 4, Canco 5, Canco 6, Canco 7, Canco 8, Canco 9 and Canco 10 to Newco 2 in exchange for the issuance of the common shares of the capital stock of Newco 2. A subsection 85(1) election will be filed in respect of each transfer. As a result of the transfers, the ownership of the common shares of Newco 2 will be held as follows: Indirect Holdco 5 will hold approximately XXXXXXXXXX% and LP4 will hold approximately XXXXXXXXXX%. Furthermore, Newco 2 will own approximately XXXXXXXXXX% of the shares of the capital stock of each of Cancos.

Incorporation of TC1 and TC2

33. Holdco 1 will incorporate a new corporation, TC1, pursuant to the BCA. TC1 will be, at all relevant times, a taxable Canadian corporation and a CCPC. TC1 will have a XXXXXXXXXX taxation year-end. The authorized share capital of TC1 will consist of an unlimited number of the following shares:

(a) common shares (TC1 Common Shares) which are voting (one vote per share), fully participating and without par value; and

(b) Class A preference shares (TC1 Butterfly Shares) which are voting (one vote per share), entitle the holder to discretionary non-cumulative dividends, will be redeemable and retractable at any time (subject to applicable law) for an amount equal to the aggregate FMV of the consideration received by TC1 on the issuance thereof (excluding the amount of any liabilities assumed) plus any declared but unpaid dividends, and in the event of the dissolution, liquidation or winding-up of TC1, will have priority over any other share of the capital stock of TC1.

For the purposes of subsection 191(4), the terms and conditions of each of the TC1 Butterfly Shares will, pursuant to a resolution of the board of directors that is effective on the issuance of such shares, specify an amount for which each such share is to be redeemed, acquired or cancelled. The amount to be specified will be expressed as a dollar amount (and not determined by a formula), will not exceed the FMV of the consideration for which each TC1 Butterfly Share is issued and will not be subject to change thereafter.

34. Holdco 2 will incorporate a new corporation, TC2, pursuant to the BCA. TC2 will be at all relevant times, a taxable Canadian corporation and a CCPC. TC2 will have a XXXXXXXXXX taxation year-end. The authorized share capital of TC2 will consist of an unlimited number of the following shares:

(a) common shares (TC2 Common Shares) which are voting (one vote per share), fully participating and without par value; and

(b) Class A preference shares (TC2 Butterfly Shares) which are voting (one vote per share), entitle the holder to discretionary non-cumulative dividends, will be redeemable and retractable at any time (subject to applicable law) for an amount equal to the aggregate FMV of the consideration received by TC2 on the issuance thereof (excluding the amount of any liabilities assumed) plus any declared but unpaid dividends, and in the event of the dissolution, liquidation or winding-up of TC1, will have priority over any other share of the capital stock

For the purposes of subsection 191(4), the terms and conditions of each of the TC2 Butterfly Shares will, pursuant to a resolution of the board of directors that is effective on the issuance of such shares, specify an amount for which each such share is to be redeemed, acquired or cancelled. The amount to be specified will be expressed as a dollar amount (and not determined by a formula), will not exceed the FMV of the consideration for which each TC2 Butterfly Share is issued and will not be subject to change thereafter.

DC Share Capital Reorganization

35. DC will file articles of amendment in order to reorganize its share capital to create and authorize the issuance of an unlimited number of the following classes of shares:

(a) common shares (DC New Common Shares) which are voting (one vote per share), entitle the holder to receive discretionary dividends and, in the event of the dissolution, liquidation or winding-up of DC, entitle the holder to participate in its remaining assets;

(b) preference shares (DC Butterfly Shares) which are:

i. voting (one vote per share), non-participating, entitle the holder to non-cumulative dividends if and when declared by the board of directors of DC, redeemable and retractable for an amount equal to the DC Butterfly Share Redemption Amount plus any declared and unpaid dividends, and in the event of the dissolution, liquidation or winding-up of DC entitle the holder to receive, in priority to the participation by the holders of any other class of shares of the capital stock of DC, an amount equal to the DC Butterfly Share Redemption Amount.

For greater certainty, no dividends will be declared on the DC Butterfly Shares.

For the purposes of subsection 191(4), the terms and conditions of each of the DC Butterfly Shares will, pursuant to a resolution of the board of directors that is effective on the issuance of such shares, specify an amount for which each such share is to be redeemed, acquired or cancelled. The amount to be specified will be expressed as a dollar amount (and not determined by a formula), will not exceed the FMV of the consideration for which each DC Butterfly Share is issued and will not be subject to change thereafter;

i. non-voting, non-participating, entitle the holder to a discretionary non-cumulative monthly dividend, if and when declared by the board of directors of DC, of up to the amount that is the product of the prescribed rate multiplied by the aggregate redemption amount, divided by XXXXXXXXXX;

ii. redeemable and retractable for a redemption amount equal to $XXXXXXXXXX per share plus any declared and unpaid dividends, and, in the event of the dissolution, liquidation or winding-up of DC, entitle the holder to receive, in priority to the participation by the holders of the DC Common Shares and the DC Fixed Value Shares, an amount equal to the redemption amount.

Each Holdco will be issued a separate class of DC Freeze Shares on the DC share capital reorganization described in Paragraph 36; and

(d) preference shares (DC Fixed Value Shares) which are voting (one vote per share) and have a fixed value of $XXXXXXXXXX per share.

36. On the Effective Date following the filing of the articles of amendment as described in Paragraph 35, and pursuant to subsection 86(1) and the governing corporate law, DC will reorganize its share capital such that each Holdco will exchange all of its issued and outstanding DC Common Shares in exchange for the following shares of the capital stock of DC:

(a) Holdco 1 will receive DC Butterfly Shares;

(b) Holdco 2 will receive DC Butterfly Shares;

(d) Holdco 4 will receive Class B DC Freeze Shares and DC Fixed Value Shares;

(e) Holdco 5 will receive Class C DC Freeze Shares and DC Fixed Value Shares; and

(f) Holdco 6 will receive Class D DC Freeze Shares and DC Fixed Value Shares.

Each of Holdco 3, Holdco 4, Holdco 5 and Holdco 6 will be issued a sufficient number of DC Fixed Value Shares to ensure that the particular Holdco’s voting interest in DC immediately after the share capital reorganization, will be in the same proportion and percentage as it held in DC through its DC Common Shares immediately before such reorganization.

Furthermore, each Holdco will be issued a sufficient number of DC Butterfly Shares or DC Freeze Shares, as the case may be, such that the aggregate redemption amounts and FMV of the issued shares, will equal the aggregate FMV of the DC Common Shares so exchanged.

37. The amount to be added to the stated capital of the DC Butterfly Shares, DC Freeze Shares and DC Fixed Value Shares, as the case may be, will not exceed in total, the aggregate paid-up capital of the DC Common Shares immediately before the exchange, and such paid-up capital will be allocated between the three classes of shares in proportion to their relative FMV. For greater certainty, it is expected that the stated capital of the DC Freeze Shares will be nominal.

At the completion of the share capital reorganization, the DC Common Shares will be cancelled and cease to exist.

Transfer of DC Butterfly Shares by Holdco 1 to TC1 and by Holdco 2 to TC2

38. Holdco 1 will transfer all of its DC Butterfly Shares to TC1 for consideration consisting solely of XXXXXXXXXX TC1 Common Shares, with an aggregate FMV equal to the aggregate FMV of the DC Butterfly Shares transferred to TC1 by Holdco 1 at that time.

39. On a contemporaneous basis with the share transfer described in Paragraph 38, Holdco 2 will transfer all of the DC Butterfly Shares that it holds to TC2 for consideration consisting solely of XXXXXXXXXX TC2 Common Shares with an aggregate FMV equal to the aggregate FMV of the DC Butterfly Shares transferred to TC2 by Holdco 2 at that time.

40. Holdco 1 and Holdco 2, as the case may be, will jointly elect with its respective TC, in the prescribed form and within the time limit referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer by each Holdco of its DC Butterfly Shares, for an agreed amount equal to the ACB of the shares so transferred. For greater certainty, the agreed amount in respect of the election will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) and will not exceed the FMV of the shares transferred to each TC.

41. TC1 and TC2, as the case may be, will add to its stated capital account maintained in respect of the shares of its capital stock issued to each respective Holdco, an amount equal to the agreed amount. For greater certainty, the increase to the PUC of the Common Shares issued by each TC will not exceed the maximum amount that could be added to the PUC of such shares, having regard to subsection 85(2.1).

Incorporation of Freezeco by TC1

42. TC1 will incorporate a new corporation, Freezeco, pursuant to the BCA. Freezeco will be at all relevant times a taxable Canadian corporation and a CCPC. Freezeco will have a XXXXXXXXXX taxation year-end. The authorized share capital of Freezeco will consist of an unlimited number of the following shares:

(a) common shares (Freezeco Common Shares) which are voting (one vote per share), fully participating and without par value;

(b) Class B preferred shares (Freezeco Class B Preferred Shares) which are:

i. voting (one vote per share), non-participating, entitle the holder to a discretionary non-cumulative monthly dividend, if and when declared by the board of directors of DC, of up to the amount that is the product of the prescribed rate multiplied by the redemption amount on a per share basis, divided by XXXXXXXXXX; and

ii. redeemable and retractable, subject to the applicable law, for a redemption amount equal to the aggregate FMV of the consideration received by Freezeco on the issuance thereof (excluding the amount of any liabilities assumed) plus any declared and unpaid dividends, and in the event of the dissolution, liquidation or winding-up of Freezeco, entitle the holder to receive an amount equal to the redemption amount in priority to the participation by the holders of any other class of Freezeco shares, except for the Freezeco Class C Shares which will rank equally to the Freezeco Class B Shares.

Except with the consent in writing of the holders of the Freezeco Class B Preferred Shares, no dividend shall at any time be declared and paid on, or declared and set apart for payment on any other class of Freezeco shares unless, after the payment of such dividend, the realizable value of the assets of Freezeco would not be less than the aggregate Freezeco Class B Preferred Shares Redemption Amount; and

(c) Class C preferred shares (Freezeco Class C Preferred Shares) which are non-voting, and in every other respect will have the same terms which as the Freezeco Class B Preferred Shares.

43. On incorporation, TC1 will subscribe for XXXXXXXXXX Freezeco Class B Preferred Shares for $XXXXXXXXXX and Indirect Holdco 6 will subscribe for XXXXXXXXXX Freezeco Common Shares for $XXXXXXXXXX. For greater certainty, TC1 will control Freezeco with its Freezeco Class B Preferred Shares.

Types of Property Classification

44. DC will be considered to have significant influence over a corporation or a partnership if it has significant influence over that corporation or that partnership, or over any other corporation or partnership that has significant influence over that corporation or that partnership, or if DC in combination with corporations or partnerships over which it has significant influence has significant influence over that corporation or that partnership.

45. For the purposes of determining the types of property of DC as described in Paragraph 47, DC will be considered to have significant influence over Subco 1, Subco 2, Subco 3, Subco 4, LP1, LP2, LP3 and LP4. Accordingly, the consolidated look-through method will apply in order to determine the appropriate pro rata share of each of the three types of property attributable to DC’s interest in each entity for which it exercises significant influence (which entities, together with DC, are referred to as the DC Group).

46. For greater certainty, the Joint Ventures are not considered to be entities over which DC has significant influence. Accordingly, the assets and liabilities of each Joint Venture will be taken into account by DC, based on DC’s relative ownership under the terms of the particular Joint Venture arrangement.

47. Immediately prior to the DC Transfers described in Paragraph 50, the property of the DC Group, determined on a consolidated look‑through basis, will be classified into the following three types of property for the purposes of the definition of “distribution” in subsection 55(1):

(a) cash or near-cash property, consisting of all of the current assets of the DC Group, including cash, short-term deposits, marketable securities, accounts receivable, inventory and prepaid expenses;

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

(c) business property, consisting of all of the assets of the DC Group, other than property described in Paragraphs 47(a) and (b), any income from which would for purposes of the Act be income from an active business carried on by DC (other than a specified investment business) including goodwill.

For greater certainty, and for purposes of the DC Transfers:

(d) tax accounts or other tax related amounts of the DC Group, such as the balance of any non-capital losses, net capital losses, CDA, ERDTOH, NERDTOH and GRIP, will not be considered property;

(e) deferred expenses, if any, which are expenditures deferred and amortized for accounting purposes but fully deducted for tax purposes, will not be considered property;

(f) advances to, or receivables from, related persons that are due within the next 12 months or that have no fixed terms of repayment will be considered to be cash or near-cash property, except any amount receivable by DC from any entity over which DC has the ability to exercise significant influence as described in Paragraph 47(m), or an amount described in Paragraph 47(h) or (i);

(g) any amount in respect of refunds of taxes, and interest thereon, actually receivable will be treated as cash or near-cash property and any potential refunds of taxes and interest thereon will, due to their contingent nature, be ignored;

(h) the Investment Receivable will be considered to be investment property;

(i) the Business Receivable will be considered to be business property;

(j) the Mortgages Receivable will be considered to be business property;

(k) the Land Inventory will be considered to be business property;

(l) the Rental Property will be considered to be business property; and

(m) for the purposes of determining the aggregate FMV of each type of property of DC, the aggregate FMV of the shares of the capital stock of any corporation, or the FMV of any partnership interest, over which any corporation or partnership described in Paragraph 44 has the ability to exercise significant influence, and of any indebtedness receivable by any such corporation or partnership from a corporation or partnership over which it has significant influence, will be allocated among the types of property described in Paragraphs 47(a), (b) and (c) by multiplying the aggregate FMV of the shares of the capital stock, the partnership interest, or the indebtedness receivable from the particular corporation or partnership, as the case may be, by the proportion that the aggregate net FMV of each type of property owned by the corporation or partnership (as determined in accordance with the methodologies described herein) is of the aggregate net FMV of all property owned by such corporation or partnership (as determined in accordance with the methodologies described herein).

48. As a result of the classification of DC’s property as described in Paragraph 47, it is expected that DC will have cash or near-cash property, investment property and business property.

49. In determining on a consolidated look-through basis the net FMV of each type of property of the DC Group immediately before the DC Transfers described in Paragraph 50, the liabilities of the DC Group will be allocated to, and will be deducted in the calculation of, the net FMV of each type of property of DC and such corporation or partnership over which DC exercises significant influence, in the following manner:

(a) in determining the net FMV of each type of property of a corporation or partnership over which DC exercises significant influence immediately before the DC Transfers, the liabilities of that corporation or partnership (other than an amount owing by such corporation or partnership to another corporation or partnership that has the ability to exercise significant influence over the debtor corporation) will be allocated to, and deducted in the calculation of, the net FMV of each type of property of that particular corporation or partnership as follows:

(i) current liabilities of such corporation or partnership will be allocated to each cash or near-cash property of the corporation or partnership in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of the corporation or partnership. To the extent that the total amount of current liabilities to be allocated to the cash or near-cash property exceeds the total FMV of all the cash or near-cash property, such corporation or partnership will be considered to have a negative amount of cash or near-cash property;

(ii) liabilities, other than current liabilities, of such corporation or partnership that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property and liabilities that pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property. To the extent that the total amount of liabilities that are to be allocated to a particular type of property as described herein exceeds the total FMV of that type of property, such corporation or partnership will be considered to have a negative amount of that type of property; and

(iii) if any liabilities remain after the allocations described in Paragraphs 49(a)(i) and (a)(ii) are made, such excess unallocated liabilities will then be allocated to each type of property of such corporation or partnership, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities. However, where a corporation or partnership is considered to have a negative amount of a type of property because of Paragraph 49(a)(i) or (a)(ii) above, for purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property.

(b) In determining on a consolidated look-through basis, the net FMV of each type of property of DC immediately before the DC Transfers, DC will include the appropriate pro rata share of the net FMV of each type of property of any corporation or partnership over which DC exercises significant influence and, for greater certainty, the appropriate negative amount of such type of property of any such corporation or partnership, as determined in accordance with (a) above, and any liabilities of DC will be allocated to, and be deducted in the calculation of, the net FMV of each type of property of DC in the following manner:

(i) current liabilities of DC will be allocated to the cash or near-cash property of DC in the proportion that the FMV of each such property is of the FMV of all cash or near-cash property of DC. To the extent that current liabilities exceed the FMV of cash or near cash property, the cash or near cash property will be deemed to be nil;

(ii) liabilities of DC, other than those described in Paragraph 49(b)(i), that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property that are liabilities and pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property, but not in excess of the net FMV of that type of property after the allocation of liabilities to a particular property as described in this Paragraph; and

(iii) if any liabilities remain after the allocations described in Paragraphs 49(b)(i) and (b)(ii) are made, such excess unallocated liabilities will then be allocated to each type of property of DC, on the basis of the relative net FMV of each type of property prior to the allocation of such excess, but after the allocation of the liabilities described in Paragraphs 49(b)(i) and (b)(ii) above.

For greater certainty, for the purposes of the determinations in this Paragraph:

(c) no amount will be considered to be a liability unless it represents a legal liability which is capable of quantification. For greater certainty, an obligation that is contingent at the time of the DC Transfers will not be considered to be a liability as the amount does not represent a legal liability that is capable of quantification at that time;

(d) the amount of any deferred or future income tax liability will not be considered a liability because such amount does not represent a legal liability; and

(e) current liabilities will include amounts with no fixed term of repayment and amounts normally classified as current liabilities, including the portion of any long-term debt or advance due within one year, owing to both arm’s length and non-arm’s length parties.

DC Transfers

50. Immediately following the determination of the net FMV of each type of property of DC on a consolidated look-through basis, DC will contemporaneously transfer to each of TC1 and TC2 (the DC Transfers) a pro rata portion of the net FMV of each type of property owned by DC (collectively referred to as the Distribution Property), such that immediately following the DC Transfers and the assumption by TC1 and TC2 of DC’s liabilities as described in Paragraph 52, the net FMV of each type of property transferred by DC to TC1 and TC2, as the case may be, will be equal to or approximate the proportion of each type of property determined by the formula:

A x B/C

where:

A is the net FMV, immediately before the DC Transfers, of all property of that type owned at that time by DC;

B is the aggregate FMV, immediately before the DC Transfers, of all of the shares of the capital stock of DC owned at that time by TC1 and TC2, as the case may be;

and

C is the aggregate FMV, immediately before the DC Transfers, of all of the issued and outstanding shares of the capital stock of DC.

The expression “approximate the proportion” above means that the discrepancy from the proportion, if any, will not exceed one percent (1%), determined as a percentage of the net fair market value of each type of property that TC1 and TC2 will receive as compared to what it would have received had it received its exact pro rata share of the net FMV of that type of property of DC.

51. No later than XXXXXXXXXX days after the date of the DC Transfers, DC will transfer to TC1 and TC2 any required additional cash (the additional cash transfer) necessary to ensure that the aggregate net FMV of the additional cash transfer, and the cash or near cash property of DC previously transferred to TC1 and TC2 on the DC Transfers, will be equal to or approximate the proportion, as described in Paragraph 50, of the aggregate net FMV of all cash or near-cash property of DC determined immediately before the DC Transfers using the principles described in Paragraphs 47 and 49.

For greater certainty, the additional cash transfer may be necessary to ensure that DC transfers the appropriate pro rata percentage of its cash or near-cash property to each TC, in the circumstance where DC is not able to have up to date daily information on precise cash balances and other near cash property described in Paragraph 47(a). The additional cash transferred to each TC will be considered to be Distribution Property for purposes of the definition of “distribution” in subsection 55(1).

52. As consideration for the DC Transfers, each of TC1 and TC2, as the case may be, will:

(a) assume additional liabilities of DC, as appropriate, so that each of TC1 and TC2 will receive a proportionate share of the net FMV of each type of property owned by DC; and

(b) issue to DC, XXXXXXXXXX TC1 Butterfly Shares and XXXXXXXXXX TC2 Butterfly Shares, respectively, which shares will have an aggregate FMV and redemption amount equal to the amount by which the aggregate FMV of the Distribution Property received by each TC at the time of the DC Transfers, exceeds the aggregate amount of the liabilities of DC assumed by each such TC in connection with the DC Transfers.

The TC1 Butterfly Shares and the TC2 Butterfly shares will be taxable preferred shares. DC will hold such shares as capital property.

53. For greater certainty, the TC1 Butterfly Shares and the TC2 Butterfly Shares issued to DC will represent more than XXXXXXXXXX% of the issued share capital of TC1 or TC2, as applicable, having full voting rights in all circumstances. Furthermore, the shares will represent more than XXXXXXXXXX% of the FMV of all of the issued and outstanding shares of the capital stock of each of TC1 and TC2, as the case may be.

54. As part of the DC Transfers, each of TC1 and TC2 will receive beneficial ownership of, and not legal title to the XXXXXXXXXX. The Nominee Corporations will continuously hold legal title to such property following the transfer of beneficial ownership to each of TC1 and TC2 on the DC Transfers. Concurrent with the transfer of beneficial ownership, TC1 and TC2 will, to the extent that the existing nominee agreement does not contemplate a change to the beneficial owner, amend the relevant nominee agreement or enter into a new nominee agreement with each Nominee Corporation, pursuant to which the Nominee Corporation will acknowledge that it will hold the legal title to such property as the nominee, agent and bare trustee for the sole benefit of TC1 or TC2, as the case may be. The Nominee Corporation will further represent that it will not deal with such property without receiving the prior written instructions, consent or direction of TC1 or TC2, as applicable.

55. DC will jointly elect with each of TC1 and TC2 in prescribed form and within the time limits referred to in subsection 85(6), to have the provisions of subsection 85(1) apply, unless otherwise specified, to the transfer of each eligible property to each TC. The agreed amount in respect of each eligible property transferred will not be greater than the FMV of such property nor will it be less than the amount permitted under paragraph 85(1)(b). For great certainty, the agreed amount in respect of each such eligible property transferred will not be less than:

(a) in the case of capital property (other than depreciable property of a prescribed class) described in paragraph 85(1)(c.1), the least of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii); and

(b) in the case of a depreciable property of a prescribed class, the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii), and (iii).

The amount of liabilities assumed by TC1 and TC2, as the case may be, which are allocated by DC to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount elected for that particular property.

56. TC1 and TC2, as the case may be, will add to the stated capital account maintained for the TC1 Butterfly Shares and TC2 Butterfly Shares, respectively, an amount equal to the amount by which the aggregate of (a) the agreed amount of each eligible property transferred to each such TC, and (b) the aggregate FMV, in the case of each property transferred to each TC that is not eligible property, less (c) the aggregate of the principal amounts of the liabilities assumed by each TC. For great certainty, the amount added to the stated capital account for the shares issued by each TC will not exceed the maximum amount that could be added to the PUC of the shares without a reduction taking place pursuant to subsection 85(2.1).

Redemption of the TC1 Butterfly Shares and the TC2 Butterfly Shares

57. On the Effective Date, immediately following the DC Transfers described in Paragraph 50, TC1 and TC2 will contemporaneously redeem all of the TC1 Butterfly Shares and TC2 Butterfly Shares, respectively, that are owned by DC, for an amount equal to the aggregate redemption amount and FMV of such shares. In satisfaction of the redemption amount for such shares, TC1 will issue TC1 Redemption Note and TC2 will issue TC2 Redemption Note, each of which will have a principal amount and FMV equal to the aggregate redemption amount and FMV of the shares so redeemed. DC will accept TC1 Redemption Note and TC2 Redemption Note as payment in full of the aggregate redemption amount in respect of the shares so redeemed.

58. Immediately after the redemption of the TC1 Butterfly Shares and the TC2 Butterfly Shares, the first taxation year of TC1 and TC2, as the case may be, will end. TC1 and TC2 will each adopt a corresponding fiscal period. For greater certainty, each TC will not have previously filed any tax returns following their incorporation.

Redemption of the DC Butterfly Shares

59. On the day that follows the Effective Date, and after the first taxation year-ends of each of TC1 and TC2, DC will redeem on a concurrent basis all of the DC Butterfly Shares held by each of TC1 and TC2 for an amount equal to the FMV of such shares, and issue as consideration DC Redemption Note 1 and DC Redemption Note 2 to TC1 and TC2, respectively. Each such note issued by DC will have a principal amount and FMV equal to the FMV of the DC Butterfly Shares so redeemed. TC1 and TC2 will accept DC Redemption Note 1 and DC Redemption Note 2, as the case may be, as payment in full for the shares so repurchased.

60. To the extent that DC has a positive GRIP balance, DC will designate, pursuant to subsection 89(14), to treat a portion of the taxable dividend resulting from the share redemption described in Paragraph 59 to be an eligible dividend by notifying TC1 and TC2, as the case may be, in writing, within the time limit prescribed in subsection 89(14).

Set-off of promissory notes

61. TC1 Redemption Note will be set-off in full against DC Redemption Note 1 and TC2 Redemption Note will be set-off in full against DC Redemption Note 2, and all such notes will be canceled without payment.

62. Immediately following the above Proposed Transactions, the net FMV of each type of property retained by DC, determined in the manner described in Paragraphs 47 and 49, will be equal to or approximate that portion of the aggregate net FMV of that type of property of DC, determined immediately before the DC Transfers that:

(a) the aggregate FMV, immediately before the DC Transfers, of all the shares of the capital stock of DC owned at that time by Holdco 3, Holdco 4, Holdco 5 and Holdco 6,

is of

(b) the aggregate FMV, immediately before the DC Transfers, of all the issued and outstanding shares of the capital stock of DC.

63. During the Effective Period, and immediately after the transactions described in Paragraph 61 are completed, Indirect Holdco 6 will subscribe for XXXXXXXXXX DC New Common Shares for $XXXXXXXXXX.

64. TC1 will transfer a portion of the Distribution Property that it received on the DC Transfers, to Freezeco in exchange for the issuance of Freezeco Class C Preferred Shares. TC1 will jointly elect with Freezco in prescribed form and within the time limits referred to in subsection 85(6), to have the provision of subsection 85(1) apply.

65. Holdco 1 and TC1 will amalgamate by way of a short-form vertical amalgamation pursuant to the BCA and section 87, to form Amalgamated Holdco 1. The shares of the capital stock of Holdco1 will continue with the same terms as before the amalgamation. The shares of TC1 that are held by Holdco1 will be cancelled, the obligations of TC1 will become the obligations of Amalgamated Holdco 1, and Amalgamated Holdco 1 will, to the extent that the existing nominee agreement does not contemplate a change to the beneficial owner, amend the relevant nominee agreement or enter into a new nominee agreement with each Nominee Corporation as described in Paragraph 54. Amalgamated Holdco 1 will adopt XXXXXXXXXX as its taxation year-end.

66. Holdco 2 and TC2 will amalgamate by way of a short-form vertical amalgamation pursuant to the BCA and section 87, to form Amalgamated Holdco 2. The shares of the capital stock of Holdco 2 will continue with the same terms as before the amalgamation. The shares of TC2 that are held by Holdco 2 will be cancelled, the obligations of TC2 will become the obligations of Amalgamated Holdco 2, and Amalgamated Holdco 2 will, to the extent that the existing nominee agreement does not contemplate a change to the beneficial owner, amend the relevant nominee agreement or enter into a new nominee agreement with each Nominee Corporation as described in Paragraph 54. Amalgamated Holdco 2 will adopt XXXXXXXXXX as its taxation year-end.

ADDITIONAL INFORMATION

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

68. There will not be any material change in the composition of the assets or liabilities of the DC Group, from the date of this letter until the date the Proposed Transactions described herein are completed.

69. Except as described in this letter, no property has been or will be acquired, and no liabilities have been or will be incurred or paid, by the DC Group, in contemplation of and before the DC Transfers in the circumstances described in paragraph 55(3.1)(a).

70. As part of a series of transactions or events that includes the taxable dividends described in Ruling C, there has not been and will not be any disposition or acquisition of property in circumstances described in subparagraphs 55(3.1)(b)(i) or (iii), or an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii), that has not been described herein.

71. Property received by each of TC1 and TC2 on the DC Transfers will not be acquired as part of the series of transactions or events that includes the Proposed Transactions by a person who was not related to TC1 or TC2, as the case may be, or by a partnership, in the circumstances described in paragraph 55(3.1)(c).

72. Property retained by DC after the DC Transfers will not be acquired as part of the series of transactions or events that includes the Proposed Transactions by a person who was not related to DC or by a partnership, in circumstances described in paragraph 55(3.1)(d).

73. None of the shares of the capital stock of DC, TC1 or TC2 will be, at any time prior to the completion of the Proposed Transactions:

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

(b) the subject of a dividend rental arrangement within the meaning of subsection 112(2.3);

(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 or event or series of transactions or events of the type described in subsection 112(2.5).

74. For the purposes of subsection 191(4), the DC Butterfly Shares, TC1 Butterfly Shares and TC2 Butterfly Shares will not be issued for consideration that includes a taxable preferred share.

75. Immediately before the redemption of the TC1 Butterfly Shares and the TC2 Butterfly Shares held by DC as described in Paragraph 57, DC will be connected with each of TC1 and TC2, as the case may be, pursuant to paragraph 186(4)(a) and subsection 186(2). The dividends resulting from the redemption of the TC1 Butterfly Shares and the TC2 Butterfly Shares held by DC, as the case may be, will be deemed to be excluded dividends and excepted dividends pursuant to subsection 191(4).

76. Immediately before the redemption of the DC Butterfly Shares held by each of TC1 and TC2, as described in Paragraph 59, TC1 and TC2 will be connected with DC pursuant to paragraph 186(4)(b). The dividends resulting from the redemption of the DC Butterfly Shares held by each of TC1 and TC2, as the case may be, will be deemed to be excluded dividends and excepted dividends pursuant to subsection 191(4).

77. None of DC, TC1 and TC2 are, or will be at any time during the series of transactions or events that includes the Proposed Transactions, a specified financial institution, a restricted financial institution or a corporation described in any of paragraphs (a) to (f) of the definition of financial intermediary corporation in subsection 191(1).

78. Each of DC, TC1 and TC2 will have the financial capacity to honour, upon presentation for payment, the amounts payable under TC1 Redemption Note, TC2 Redemption Note, DC Redemption Note 1 and DC Redemption Note 2, respectively, issued as part of the Proposed Transactions.

PURPOSES OF THE PROPOSED TRANSACTIONS

79. The purpose of the Proposed Transactions is to implement a freeze in respect of DC’s property and divide the property to allow certain shareholders of DC to have direct and separate control of their portion of the Distribution Property in order to manage these assets and the associated businesses, independent from the other DC shareholders.

80. The purpose of the transactions described in Paragraphs 29 to 32 is to consolidate the share ownership interests in the Cancos, of each of Consolidated Group 1 and Consolidated Group 2, as the case may be, into two newly incorporated corporations, Newco 1 and Newco 2, respectively, to ensure that the relevant corporations are connected within the meaning of subsection 186(1) for purposes of the application of Part IV tax.

81. The purpose of transactions described in Paragraphs 35 and 36 is to reorganize the share capital of DC for purposes of the butterfly and the implementation of an estate freeze in respect of DC. The purpose for having Indirect Holdco 6 subscribe for the DC New Common Shares (as part of the reorganization of DC), as described in Paragraph 63, is for creditor proofing purposes. Furthermore, the purpose for stipulating that the time frame for completing the subscription for the DC New Common Shares must occur within the Effective Period, is to establish the FMV of the DC New Common Shares relative to the remaining shares issued as part of the DC share capital reorganization.

82. The purpose for each of TC1 and TC2 to choose to end its respective first taxation year in the manner described in Paragraph 58, and before the redemption of the DC Butterfly Shares as described in Paragraph 59, is to cause the taxable dividends resulting from the cross-redemption to be paid and received in separate taxation year-ends to avoid a possible Part IV tax “circularity” issue.

83. The purpose for the transfer of Distribution Property by TC1 to Freezeco as described in Paragraph 64, is to ensure that the future growth associated with the underlying assets will accumulate in respect of the shareholders with the primary responsibility for developing and/or operating such assets going forward.

RULINGS

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

A. Subject to the application of 69(11), and provided the appropriate joint elections are filed in the prescribed form and manner within the time limit specified in subsection 85(6), and that each particular property so transferred is an eligible property, subsection 85(1) will apply to:

(a) the transfers by each of the Holdco 1 and Holdco 2 of all of their DC Common Shares to TC1 and TC2, respectively, as described in Paragraphs 38 and 39; and

(b) the transfer of each eligible property owned by DC to each of TC1 and TC2 on the DC Transfers, as described in Paragraph 50;

such that the agreed amount in respect of each such transfer will be deemed to be the transferor’s proceeds of disposition and the transferee’s cost thereof pursuant to paragraph 85(1)(a).

For the purposes of the joint elections, when determining the agreed amount of depreciable property in the course of the DC Transfers, the reference in subparagraph 85(1)(e)(i) to “the undepreciated capital cost to the taxpayer of all of the property of that class immediately before the disposition” shall be interpreted to mean that proportion of the UCC to DC of all the property of that class immediately before the disposition that the FMV of the property at that time that is transferred, is of the aggregate FMV at that time of all the property of that class. For greater certainty, paragraph 85(1)(e.2) will not apply to the transfers referred to herein.

B. On the exchange of all of the DC Common Shares by each Holdco for the shares of the capital stock of DC, as described in Paragraph 36, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the disposition of DC Common Shares by each Holdco provided that

(a) each Holdco holds its DC Common Shares as capital property; and

(b) each Holdco and DC do not file an election under subsection 85(1) or (2);

such that

(c) the cost of the DC Butterfly Shares, DC Freeze Shares and DC Fixed Value Shares, as the case may be, received by each Holdco on the exchange, will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate ACB of the DC Common Shares owned by the Holdco, as the case may be, immediately before the exchange, that:

(i) the FMV, immediately after the exchange, of the DC Butterfly Shares, DC Freeze Shares or DC Fixed Value Shares, as the case may be, owned by the particular Holdco;

is of

(ii) the FMV, immediately after the exchange, of all of the DC Butterfly Shares, DC Freeze Shares and DC Fixed Value Shares received by the particular Holdco on the exchange;

(d) pursuant to paragraph 86(1)(c), each Holdco will be deemed to have disposed of its DC Common Shares for proceeds of disposition equal to the cost of the shares of the capital stock of DC received by the particular Holdco, as determined in (c) above; and

(e) pursuant to subsection 86(2.1), the amount added to the PUC of the DC Butterfly Shares, the DC Freeze Shares and the DC Fixed Value Shares will not exceed the PUC of the DC Common Shares so exchanged.

C. Subsection 84(3) will apply on the redemption of:

(a) the TC1 Butterfly Shares held by DC, as described in Paragraph 57, to deem TC1 to have paid, and DC to have received, a dividend on such shares equal to the amount, if any, by which the amount paid by TC1 on the redemption of all the TC1 Butterfly Shares exceeds the aggregate PUC in respect of such shares immediately before the redemption;

(b) TC2 Butterfly Shares held by DC, as described in Paragraph 57, to deem TC2 to have paid, and DC to have received, a dividend on such shares equal to the amount, if any, by which the amount paid by TC2 on the redemption of all the TC2 Butterfly Shares exceeds the aggregate PUC in respect of such shares immediately before the redemption; and

(c) the DC Butterfly Shares held by each of TC1 and TC2, as described in Paragraph 59, to deem DC to have paid, and each of TC1 and TC2 to have received, a dividend on such shares equal to the amount, if any, by which the amount paid by DC on the redemption of the DC Butterfly Shares held by each TC exceeds the aggregate PUC in respect of such shares immediately before the redemption.

D. The taxable dividends received by each of TC1, TC2 and DC described in Ruling C above:

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

(b) will be deductible by the recipient corporation pursuant to subsection 112(1) in computing its taxable income for the taxation year in which such a dividend is deemed to have been received, and, for greater certainty, such deduction will not be prohibited by subsections 112(2.1), (2.2), (2.3) or (2.4);

(c) will be excluded in determining the recipient corporation’s proceeds of disposition of the shares so redeemed, purchased or cancelled pursuant to paragraph (j) of the definition of “proceeds of disposition” in section 54;

(d) will, by virtue of subsection 112(3), reduce the loss, if any, in respect of the disposition of the shares on which the dividend is deemed to be received;

(e) will not give rise to tax under Part IV, except as provided in paragraph 186(1)(b); and

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

E. Provided that as part of the series of transactions or events that includes the Proposed Transactions, there is not:

(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a);

(b) a disposition of property in the circumstances described in subparagraph 55(3.1)(b)(i);

(d) an acquisition of shares of DC as described in subparagraph 55(3.1)(b)(iii);

(e) an acquisition of property in the circumstances described in paragraph 55(3.1)(c); or

(f) an acquisition of property in the circumstances described in paragraph 55(3.1)(d),

which has not been described herein, by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Ruling C, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

F. The set-off and cancellation of each of TC1 Redemption Note and TC2 Redemption Note against DC Redemption Note 1 and DC Redemption Note 2, respectively, as described in Paragraph 61, will not, in and of itself, give rise to a “forgiven amount” within the meaning of subsections 80(1) or 80.01(1). In addition, none of DC, TC1 or TC2 will realize a gain or incur a loss as a result of such set-off and cancellation.

G. On the short-form vertical amalgamation Holdco 1 with TC1 and Holdco 2 with TC2, as described in Paragraphs 65 and 66, respectively:

(a) the provisions of subsections 87(1) and 87(11) will apply, by virtue of subsection 87(1.1);

(b) provided the shares of the capital stock of each of Holdco 1 and Holdco 2, as the case may be, were capital property to the shareholders immediately before the amalgamation, the provisions of paragraphs 87(4)(a) and 87(4)(b) will apply; and

(c) provided that the FMV of the shares of the capital stock of each of Amalgamated Holdco 1 and Amalgamated Holdco 2, as the case may be, immediately after the amalgamation, is not less than the FMV of the shares of Holdco 1 and Holdco 2, respectively, held by the shareholders immediately before the amalgamation, paragraphs 87(4)(c), 87(4)(d) and 87(4)(e) will not apply.

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

I. The provisions of subsection 245(2) will not be applied as a result of the Proposed Transactions, in and by themselves, to re-determine the tax consequences confirmed in the Rulings given.

The Rulings are given subject to the general limitations and qualifications set out in Information Circular, IC 70-6R12, dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions are completed no later than six months from the date of this letter, and in accordance with the time frame specified herein.

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

COMMENTS

Unless otherwise expressly confirmed in the above Rulings, 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 FMV or ACB of any property referred to herein or the PUC in respect of any share referred to herein;

(b) the outstanding balance of various tax accounts such as NERDTOH, ERDTOH, GRIP, non-capital losses or CDA, if any, for any of the corporate entities described herein;

(d) any other income tax consequence relating to the facts, additional information or Proposed Transactions, or any transaction or event taking place either prior 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.

Nothing in this letter should be construed as confirmation, express or implied, that, for the purposes of any of the Rulings given above, any adjustment to the FMV of the properties transferred or the redemption amount of the shares issued as consideration, whether pursuant to a price adjustment clause or otherwise, will be effective retroactively to the time of the transfer and issuance of shares. Furthermore, none of the Rulings given in this letter are intended to apply to or in the event of the operation of a price adjustment clause. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, dated November 26, 2015.

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

Yours truly,

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

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2020-0873371R3 Multi-wing split-up net asset butterfly

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