2021-0896671R3 Sequential Butterfly Ruling: Real estate business

Principal Issues: Will the intercorporate dividends incurred by the various corporations be exempted from subsection 55(2) in light of the exception in para. 55(3)(b)?

Position: Yes.

Reasons: The Proposed Transactions comply with the requirements of para. 55(3)(b) and do not run afoul of the butterfly denial rules in subsection 55(3.1).

Author: XXXXXXXXXX
Section: 55(2), 55(3.1), 88(2), 40(3.4), 88(1), 87(1)

XXXXXXXXXX                                                                                    2021-089667

XXXXXXXXXX

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling – Sequential butterfly reorganizations

       XXXXXXXXXX (Collectively referred to as the “Taxpayers”)

We are writing in response to your request for an advance income tax ruling (“Ruling request”) dated XXXXXXXXXX, and revised on XXXXXXXXXX, on behalf of the above-noted Taxpayers. We also acknowledge the additional information provided in various email correspondence, as well as the information provided during telephone conversations.

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

(a) in a previously filed tax return of the Taxpayers or a related person and;

(i) being considered by the CRA in connection with any such tax return;

(ii) under objection by the Taxpayers or a related person;

     (iii) the subject of a current or completed court process involving the Taxpayers or a related person; or

     (b) the subject of a ruling request previously considered by the Income Tax Ruling Directorate in relation to the Taxpayers or a related person.

The addresses, tax account numbers, Tax Services Offices and the Tax Centres of the Taxpayers involved are as follows:

                         XXXXXXXXXX

This document is based solely on the facts and Proposed Transactions described below. The documentation submitted with the Ruling request does not form part of the facts and Proposed Transactions and any references thereto are provided solely for the convenience of the reader.

DEFINITIONS

Unless otherwise stated:

i. any 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 (5th Suppl.) c.1, as amended, (the “Act”), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the “Regulations”);

ii. all terms and conditions used in this Ruling request that are defined in the Act (or in the 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 following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:

“Act1” means XXXXXXXXXX;

“ACB” means “adjusted cost base” as that expression is defined in section 54;

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

“Amalgamation” refers to the long-form amalgamation of the Predecessor Corporations as described in Paragraph 96;

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

“CRA” means the Canada Revenue Agency;

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

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

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

“capital property” has the meaning assigned by section 54;

“Childco1” means XXXXXXXXXX;

“Childco2” means XXXXXXXXXX;

“Children 1” means the children of Sibling 1 and Spouse 1;

“Children 2” means the children of Sibling 2 and Spouse 2;

“Completed Transactions” means the transactions described in Paragraphs 48 to 58 of this letter;

“connected” has the meaning assigned by subsection 186(4);

“DC” means XXXXXXXXXX, as described in Paragraph 27;

“DC Common Shares” means the issued and outstanding Class C common shares of the capital stock of DC, described in Paragraphs 28 and 29;

“DC distribution property” has the meaning assigned in Paragraph 84;

“DC Preferred Shares” means the issued and outstanding Class Y preferred shares of the capital stock of DC, described in Paragraphs 28 and 29;

“DC Redemption Note” means the non-interest bearing demand promissory note to be issued by DC to TC on the redemptions of its DC Special Share and its DC Preferred Shares owned by TC, as described in Paragraph 89;

“DC Shares” means the DC Common Shares and the DC Preferred Shares, collectively;

“DC Special Shares” means the new class of preferred shares in the share capital of DC to be authorized as part of the Proposed Transactions, as described in Paragraph 70;

“DC Transfer” refers to the transfers of property by DC to TC, as described in Paragraphs 84 to 86;

“DC2” means the corporation that will be formed on the Amalgamation of the Predecessor Corporations, as described in Paragraphs 96 to 101;

“DC2 distribution property” has the meaning assigned in Paragraph 109;

“DC2 Transfers” refers to the transfers of property by DC2 to Subco1 and Subco2, as described in Paragraphs 109 to 112;

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

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

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

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

“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);

“FMV” refers to “fair market value” and 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 subsection 80(1);

“GRIP” means “general rate income pool” and has the meaning assigned by subsection 89(1);“

“Holdco1” means XXXXXXXXXX, as described in Paragraph 7;

“Holdco1 Shares” means all the issued and outstanding shares in the capital stock of Holdco1, collectively, as described in Paragraphs 8 and 9;

“Holdco2” means XXXXXXXXXX, as described in Paragraph 12;

“Holdco2 Shares” means all the issued and outstanding shares in the capital stock of Holdco2, collectively, as described in Paragraphs 13 and 14;

“Holdco3” means XXXXXXXXXX, as described in Paragraph 17;

“Holdco3 Class A Common Shares” means the issued and outstanding Class A common shares in the capital stock of Holdco3, as described in Paragraphs 18 and 19;

“Holdco3 Class B Common Shares” means the issued and outstanding Class B common shares in the capital stock of Holdco3, as described in Paragraphs 18 and 19;

“Holdco3 Note” means the amount due from DC to Holdco3, that is unsecured, non-interest bearing, and due on demand with no fixed terms of repayment;

“Holdco3 Preferred Shares” means the issued and outstanding Class E preferred shares in the capital stock of Holdco3, as described in Paragraphs 18 and 19;

“Holdco3 Shares” means the Holdco3 Class A Common Shares, Holdco3 Class B Common Shares and the Holdco3 Preferred Shares, collectively;

“Holdco4” means XXXXXXXXXX, as described in Paragraph 38;

“Holdco4 Class A Common Shares” means the issued and outstanding Class A common shares in the capital stock of Holdco4, as described in Paragraphs 39 and 40;

“Holdco4 Class B Common Shares” means the issued and outstanding Class B common shares in the capital stock of Holdco4, as described in Paragraphs 39 and 40;

“Holdco4 Group” refers to Holdco4 Sub,SPV1, XXXXXXXXXX, as described in Paragraph 45;

“Holdco4 Note” means the amount due from Holdco3 to Holdco4, that is unsecured, non-interest bearing, and due on demand with no fixed terms of repayment;

“Holdco4 Preferred Shares” means the issued and outstanding Class F preferred shares in the capital stock of Holdco4, as described in Paragraphs 39 and 40;

“Holdco4 Shares” means the Holdco4 Class A Common Shares, Holdco4 Class B Common Shares and the Holdco4 Preferred Shares, collectively;

“Holdco4 Sub” means XXXXXXXXXX;

“Holdco4 Sub Note” means the amount due from Holdco4 to Holdco4 Sub, that is unsecured, non-interest bearing, and due on demand with no fixed terms of repayment;

“Holdco5” refers to XXXXXXXXXX, a corporation that was incorporated by DC, on XXXXXXXXXX as part of the Completed Transactions, as described in Paragraph 48;

“Holdco5 Common Shares” means the class A common shares in the capital stock of Holdco5, as described in Paragraph 49;

“Holdco6” refers to a corporation to be incorporated as a part of the Proposed Transactions, as described in Paragraph 59;

“Holdco6 Common Shares” means the class A common shares in the Holdco6, as described in Paragraph 60;

“Independent Trustee” refers to XXXXXXXXXX, a person who is not related to Sibling 1, Sibling 2, Spouse 1, Spouse 2, Children 1 or Children 2;    

“modified CDA balance” has the meaning assigned in Paragraph 77;

“Mom” refers to XXXXXXXXXX, mother of Sibling1 and Sibling2;

“Mom Loan Facility” means a loan facility agreement between Mom and Holdco3, dated XXXXXXXXXX, which will bear interest at a rate equal to the prime rate established by the XXXXXXXXXX that will accrue monthly and will be payable annually by XXXXXXXXXX. The loans made to Holdco3 under this facility will be due on demand with no fixed terms of repayment;

“New DC Common Shares” means the new class E common shares in the capital stock of DC to be authorized as part of the Proposed Transactions, as described in Paragraph 70;

“New Holdco4” refers to a corporation to be incorporated as a part of the Proposed Transactions, as described in Paragraph 92;

“New Holdco4 Common Shares” means the common shares in the capital stock of New Holdco4, as described in Paragraph 93;

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

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

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

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

“Predecessor Corporations” has the meaning assigned in Paragraph 96;

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

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

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

“Property A” means a residential, revenue-producing rental property (XXXXXXXXXX suites) located at XXXXXXXXXX;

“Property B” means a residential, revenue-producing rental property (XXXXXXXXXX suites) located at XXXXXXXXXX;

“Property C” means a residential, revenue-producing rental property (XXXXXXXXXX suites) located at XXXXXXXXXX;

“Property D” means a residential, revenue-producing rental property (XXXXXXXXXX suites) located at XXXXXXXXXX;

“Property E” means a residential, revenue-producing rental property (XXXXXXXXXX suites) located at XXXXXXXXXX;

“Property F” means a commercial property located at XXXXXXXXXX, which is used in connection with the operation of Property A, Property B, Property C, Property D and Property E;

“Proposed Transactions” means the transactions described in Paragraphs 59 to 122 of this letter;

“related” has the meaning assigned by section 251 as modified for the purposes of section 55 by paragraph 55(5)(e);

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

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

“Shareholder Loan 1” means the amount due from Holdco3 to Holdco1, that is unsecured, interest bearing, and due on demand with no fixed terms of repayment;

“Shareholder Loan 2” means the amount due from Holdco3 to Holdco2, that is unsecured, interest bearing, and due on demand with no fixed terms of repayment;

“Sibling 1” refers to XXXXXXXXXX of Sibling 2;

“Sibling 2” refers to XXXXXXXXXX of Sibling 1;

“significant influence” has the meaning assigned by section 3051.05 of the Accounting Standards for Private Enterprises;

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

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

“Spouse 1” refers to XXXXXXXXXX, spouse of Sibling 1;

“Spouse 2” refers to XXXXXXXXXX, spouse of Sibling 2;

“SPV1” means XXXXXXXXXX;

“stated capital” means the amount included in the stated capital account attributable to a share of the capital stock of a corporation;

“stated capital account” refers to an account that each corporation described in this letter is required to maintain for each class and series of its share capital, issued in accordance with Act1, and, in respect of each class and series of shares in the share capital of each such corporation, reflects the aggregate amount of the stated capital;

“Subco1” refers to a corporation to be incorporated by Holdco1 as a part of the Proposed Transactions, as described in Paragraph 106;

“Subco1 Common Shares” means the common shares in the capital stock of Subco1, as described in Paragraph 106;

“Subco1 Redemption Note” means the non-interest bearing demand promissory note to be issued by Subco1 to DC2 on the redemption of its Subco1 Special Share owned by DC2, as described in Paragraph 113;

“Subco1 Special Shares” means the preferred shares in the capital stock of Subco1, as described in Paragraph 106;

“Subco2” refers to a corporation to be incorporated by Holdco2 as a part of the Proposed Transactions, as described in Paragraph 107;

“Subco2 Common Shares” means the common shares in the capital stock of Subco2, as described in Paragraph 107;

“Subco2 Redemption Note” means the non-interest bearing demand promissory note to be issued by Subco2 to DC2 on the redemption of its Subco2 Special Share owned by DC2, as described in Paragraph 114;

“Subco2 Special Share” means the preferred shares in the capital stock of Subco2, as described in Paragraph 107;

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

“suspended loss” means a loss to which subsection 40(3.4) applies;

"TCC” means “taxable Canadian corporation” as that term is defined in subsection 89(1);    

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

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

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

“TC” refers to a corporation to be incorporated as a part of the Proposed Transactions, as described in Paragraph 78;

“TC Common Shares” means the common shares in the capital stock of TC, as described in Paragraph 79;

“TC Redemption Note” means the non-interest bearing demand promissory note to be issued by TC to DC on the redemption of its TC Special Share owned by DC, as described in Paragraph 87;

“TC Special Shares” means the preferred shares in the capital stock of TC, as described in Paragraph 79;

“Trust 1” refers to the XXXXXXXXXX;

“Trust 2” refers to the XXXXXXXXXX;

“UCC” means “undepreciated capital cost” and has the meaning assigned by subsection 13(21); and

“winding-up dividend” means the dividend arising on the winding-up of DC2 by virtue of subsection 84(2) and paragraph 88(2)(b), as described in Paragraphs 117 to 119, and Ruling F.

FACTS

A complete description of all the relevant facts is as follows:

Individuals and Trusts

1. Sibling 1, Spouse 1 and Children 1 are all residents of Canada for purposes of the Act.

2. Sibling 2, Spouse 2 and Children 2 are all residents of Canada for purposes of the Act.

3. Trust 1 is an inter vivos trust, settled on XXXXXXXXXX. The beneficiaries of Trust 1 are Sibling 1, Spouse 1 and Children 1. The trustees of Trust 1 are Sibling 1, Spouse 1 and Independent Trustee. Trust 1 is a resident of Canada. Income and capital distributions from Trust 1 are discretionary.

4. Trust 2 is an inter vivos trust, settled on XXXXXXXXXX. The beneficiaries of Trust 2 are Sibling 2, Spouse 2 and Children 2. The trustees of Trust 2 are Sibling 2, Spouse 2 and Independent Trustee. Trust 2 is a resident of Canada. Income and capital distributions from Trust 2 are discretionary.

Childco1 and Childco2

5. Childco1 is a CCPC and a TCC. Childco1 was incorporated under Act1 on XXXXXXXXXX. Childco1 is a resident of Canada under the Act, and has a XXXXXXXXXX taxation year end. Children 1, Spouse 1 and Sibling 1 are the shareholders of Childco1.

6. Childco2 is a CCPC and a TCC. Childco2 was incorporated under Act1 on XXXXXXXXXX. Childco2 is a resident of Canada under the Act, and has a XXXXXXXXXX taxation year end. Children 2, Spouse 2 and Sibling 2 are the shareholders of Childco2.

Holdco 1 and Holdco2

7. Holdco1 is a CCPC and a TCC. Holdco1 was incorporated under Act1 on XXXXXXXXXX. Holdco1 is a resident of Canada under the Act, and has a XXXXXXXXXX taxation year end. Holdco1 is a holding company, and its primary assets are its shares of Holdco3, as described in the facts below.

8. The authorized share capital of Holdco1 consists of the following classes of shares with the following attributes:

9. The issued and outstanding shares of Holdco1 are held as follows, and have the following tax attributes:

10. None of the Holdco1 Shares were acquired by any person in contemplation of the Proposed Transactions.

11. At the end of its XXXXXXXXXX taxation year, Holdco1 had a $XXXXXXXXXX balance in its GRIP, a $XXXXXXXXXX NCL, a XXXXXXXXXX amount of CDA, and XXXXXXXXXX balances in its ERDTOH and NERDTOH accounts.

12. Holdco2 is a CCPC and a TCC. Holdco2 was incorporated under Act1 on XXXXXXXXXX. Holdco2 is a resident of Canada under the Act, and has a XXXXXXXXXX taxation year end. Holdco2 is a holding company, and its primary assets are its shares of Holdco3, as described in the facts below.

13. The authorized share capital of Holdco2 consists of the following classes of shares with the following attributes:

14. The issued and outstanding shares of Holdco2 are held as follows, and have the following tax attributes:

15. None of the Holdco2 Shares were acquired by any person in contemplation of the Proposed Transactions.

16. At the end of its XXXXXXXXXX taxation year, Holdco2 had a $XXXXXXXXXX balance in its GRIP, a XXXXXXXXXX CDA balance, and XXXXXXXXXX balances in its ERDTOH and NERDTOH accounts.

Holdco3

17. Holdco3 is a CCPC and a TCC. Holdco3 was incorporated under Act1 on XXXXXXXXXX. Holdco3 is a Canadian resident under the Act, and has a XXXXXXXXXX taxation year end. Holdco3 is a holding company that acts as group treasurer for its subsidiary companies, and its primary assets and liabilities are described below.

18. The authorized share capital of Holdco3 consists of the following classes of shares with the following attributes:

19. The issued and outstanding shares of Holdco3 are held as follows, and have the following tax attributes:

20. None of the Holdco3 Shares were acquired by any person in contemplation of the Proposed Transactions.

21. The Holdco3 Shares are capital property to Holdco1 and Holdco2, and constitute eligible property.

22. At the end of its XXXXXXXXXX taxation year, Holdco3 had a $XXXXXXXXXX balance in its GRIP, and XXXXXXXXXX balances in its ERDTOH and NERDTOH accounts, NCL and CDA .

23. As at XXXXXXXXXX, pursuant to its non-consolidated, unaudited financial statements, Holdco3 had the following assets:

(a) cash;

(b) marketable securities;

(c) mortgage receivable from a third party;

(d) DC Shares (described further below);

(e) Holdco4 Shares (described further below);

(f) Holdco3 Note (approx. $XXXXXXXXXX); and

(g) Non-interest bearing, demand loan receivables, with no fixed terms of repayment from Childco1 (approx. $XXXXXXXXXX) and from one of the corporations in the Holdco4 Group (approx. $XXXXXXXXXX).

24. As at XXXXXXXXXX pursuant to its non-consolidated, unaudited financial statements, Holdco3 had the following liabilities:

(a) Accounts payable and taxes payable;

(b) Shareholder Loan 1 (approx. $XXXXXXXXXX);

(c) Shareholder Loan 2 (approx. $XXXXXXXXXX);

(d) Non-interest bearing, demand loan reflected in a promissory note payable to Holdco1 (approx. $XXXXXXXXXX);

(e) Non-interest bearing, demand loan reflected in a promissory note payable to Holdco2 (approx. $XXXXXXXXXX);

(f) Non-interest bearing, demand loan payable to Childco2 (approx. $XXXXXXXXXX);

(g) Holdco4 Note (approx. $XXXXXXXXXX); and

(h) Non-interest bearing, demand loan payables to XXXXXXXXXX of the corporations in the Holdco4 Group (approx. $XXXXXXXXXX).

25. Holdco3 exercises significant influence over DC and Holdco4.

26. Since XXXXXXXXXX (with the exception of the Completed Transactions), there has not been a material change in the composition of Holdco3’s assets and liabilities that would have an impact on the Proposed Transactions. Moreover, there will not be any significant change in the composition of Holdco3’s assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date that the Proposed Transactions are completed.

DC

27. DC is a CCPC and a TCC. DC was formed by an amalgamation under Act1 on XXXXXXXXXX. DC is a Canadian resident under the Act, and has a XXXXXXXXXX taxation year end. DC operates a residential real estate rental and management business, and its primary assets and liabilities are described below. Prior to the Completed Transactions below, DC employed more than five full-time employees in the operation of its business. However, as of the date of this letter, DC carries on a specified investment business.

28. The authorized share capital of DC consists of the following classes of shares with the following attributes:

29. The issued and outstanding shares of DC are held as follows, and have the following tax attributes:

30. None of the DC Shares were acquired in contemplation of the Proposed Transactions.

31. The DC Shares are capital property to Holdco3, and constitute eligible property.

32. At the end of its XXXXXXXXXX taxation year end, DC had the following balances in its tax accounts:

(a) GRIP         $XXXXXXXXXX

(b) NERDTOH     $XXXXXXXXXX

(c) CDA         $XXXXXXXXXX

(d) ERDTOH       XXXXXXXXXX

(e) NCL         XXXXXXXXXX

33. As at XXXXXXXXXX, pursuant to its non-consolidated, unaudited financial statements, DC had the following assets:

(a) cash (including tenant security accounts), accounts receivable, and prepaid expenses;

(b) an automobile; and

(c) Property A, Property B, Property C, Property D, Property E; and

(d) Property F.

34. Each of Property A, Property B, Property C, Property D, Property E and Property F include land, building and related furniture and fixtures, and are held by DC as capital property and eligible property. The buildings and related furniture and fixtures constitute depreciable property.

35. DC maintains separate UCC classes for each building on the properties.

36. As at XXXXXXXXXX, pursuant to its non-consolidated, unaudited financial statements, DC had the following liabilities:

(a) accounts payable, accrued liabilities and taxes payable;

(b) tenant deposits;

(c) Holdco3 Note (approx. $XXXXXXXXXX);

(d) non-interest bearing, demand loan payable to Sibling 1 (nominal balance); and

(e) mortgages on each of Property A, Property B, Property C, Property D and Property E.

37. Since XXXXXXXXXX (with the exception of the Completed Transactions), there has not been a material change in the composition of DCs assets and liabilities that would have an impact on the Proposed Transactions. Moreover, there will not be any significant change in the composition of DC’s assets or liabilities (except as contemplated in the Proposed Transactions) from the date of this letter until the date that the Proposed Transactions are completed.

Holdco 4

38. Holdco4 is a CCPC and a TCC. Holdco4 was formed by an amalgamation under Act1 on XXXXXXXXXX. Holdco4 is a Canadian resident under the Act, and has a XXXXXXXXXX taxation year end. Holdco4 is a holding company, and its primary assets and liabilities are described below.

39. The authorized share capital of Holdco4 consists of the following classes of shares with the following attributes:

40. The issued and outstanding shares of Holdco4 are held as follows, and have the following tax attributes:

41. None of the Holdco4 Shares were acquired in contemplation of the Proposed Transactions.

42. The Holdco4 Shares are capital property to Holdco3, and constitute eligible property.

43. At the end of its XXXXXXXXXX taxation year end, Holdco4 had a $XXXXXXXXXX balance in its GRIP, and XXXXXXXXXX balances in its ERDTOH and NERDTOH accounts and NCL, and a $XXXXXXXXXX balance in its CDA.

44. As at XXXXXXXXXX, pursuant to its non-consolidated, unaudited financial statements, Holdco4 had the following assets:

(a) cash and holdbacks receivable;

(b) leasehold improvements and office equipment;

(c) Holdco4 Note (approx. $XXXXXXXXXX); and

(d) shares of the capital stock of the Holdco4 Group (described below).

45. All the corporations included in the Holdco4 Group are TCCs and CCPCs and were incorporated as single-purpose entities mainly for investments in XXXXXXXXXX projects. Holdco4 owns XXXXXXXXXX% of the issued and outstanding share capital of XXXXXXXXXX of the corporations included in the Holdco4 Group and XXXXXXXXXX% of the share capital of XXXXXXXXXX of the corporations in the Holdco4 Group. The businesses once operated by the corporations included in the Holdco4 Group have largely been concluded and only a few assets and liabilities remain in those corporations. Holdco4 and the corporations included in the Holdco4 Group do not have any employees.

46. The shares of the capital stock of the Holdco4 Group owned by Holdco4 are capital property to Holdco4, and constitute eligible property.

47. As at XXXXXXXXXX, pursuant to its non-consolidated, unaudited financial statements, Holdco4 had the following liabilities:

(a) accounts payable;

(b) provision for warranties; and

(c) Holdco4 Sub Note (approx. $XXXXXXXXXX).

COMPLETED TRANSACTIONS

The following transactions have been completed with the exception of the filing of the applicable election forms, which will be filed within the applicable due dates, unless otherwise indicated.

Incorporation of Holdco5

48. DC incorporated Holdco5 under Act1. Holdco5 is a CCPC and a TCC. No shares were issued on incorporation.

49. The authorized share capital of Holdco5 includes an unlimited number of Holdco5 common shares that are voting, participating and without par value.

DC Transfers its Beneficial Interests in Property A, Property B and Property D to Holdco5

50. DC transferred the following assets to Holdco5:

(a) its beneficial interests in Property A, Property B and Property D (including the land, building and related furniture and fixtures); and

(b) certain current assets related to the managing of these properties, including certain prepaid expenses, tenant bank accounts and rent receivables.

As consideration, Holdco5:

(a) assumed the liabilities related to the managing of Property A, Property B and Property D, including the mortgages on those properties and certain current liabilities; and

(b) issued XXXXXXXXXX Holdco5 Common Shares to DC, with an aggregate FMV equal to the amount by which the aggregate FMV of the assets transferred to Holdco5 exceeded the aggregate principal amount of DC’s liabilities assumed by Holdco5, at the time of the transfer.

51. DC and Holdco5 will jointly elect, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of each eligible property so transferred by DC to Holdco5.

The agreed amount in respect of each such eligible property so transferred will be as follows:

(i) in the case of depreciable property of a prescribed class, an amount not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(ii) in the case of capital property (other than depreciable property of a prescribed class), an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property. The amount of the liabilities assumed by Holdco5, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property. The amount of liabilities assumed by Holdco5 which are allocated to a particular property that is not subject to an election under subsection 85(1), will not exceed the FMV of any such property.

Holdco5 added to the stated capital account for the Holdco5 Common Shares, an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to Holdco5, and (b) the FMV, in the case of each property transferred to Holdco5 that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC assumed by Holdco5. For greater certainty, the amount added to the stated capital account for the Holdco5 Common Shares issued by Holdco5 as partial consideration for the transferred assets will not exceed the maximum amount that could be added to the PUC of the Holdco5 Common Shares without a reduction taking place pursuant to subsection 85(2.1).

52. DC holds the XXXXXXXXXX Holdco5 Common Shares as capital property, and these shares constitute eligible property.

53. DC may make a payment to Holdco5 (by transferring property to Holdco5) in consideration for Holdco5 assuming undertakings of DC to which paragraph 12(1)(a) applies, such as tenant deposits. For purposes of paragraph 20(24)(b), Holdco5 will receive the amounts in the course of the business. If desirable, DC and Holdco5 will jointly elect, in prescribed form and within the time referred to in subsection 20(25), to have the rules in subsection 20(24) apply in respect of the amounts paid for such undertakings.

54. Employees of DC that are directly involved in managing Property A, Property B and Property D will cease their employment with DC and commence their employment with Holdco5.

55. DC and Holdco5 entered into a nominee agreement, pursuant to which DC agreed to hold the registered titles to Property A, Property B and Property D as nominee and bare trustee exclusively for the use, benefit and advantage of Holdco5. Under this agreement, all proceeds, income, profits, losses, benefits and advantages accruing from Property A, Property B and Property D shall be held in trust by DC as nominee and bare trustee for Holdco5. Furthermore, DC will agree to transfer its legal interests in Property A, Property B and Property D as Holdco5 may direct.

Mom Loan Facility and Operating Loans

56. Holdco3 entered into the Mom Loan Facility with Mom in order for Mom to advance funds to Holdco3, as needed in its business.

57. Holdco3 borrowed approximately $XXXXXXXXXX under the Mom Loan Facility for the purpose of making operating loans to DC, Holdco4, SPV1 and Holdco5, which is part of its ongoing business operations as group treasurer. An additional $XXXXXXXXXX is expected to be advanced under this facility before the Proposed Transactions are implemented.

58. Holdco3 made operating loans to DC and Holdco5 using the funds advanced to it under the Mom Loan Facility. These operating loans are non-interest bearing, unsecured, due on demand with no fixed terms of repayment. These funds were used by DC and Holdco5 to fund their ongoing business operations. The additional $XXXXXXXXXX that will be advanced to Holdco3 under the Mom Loan Facility will be used by Holdco3 to make additional operating loans to DC, Holdco5, SPV1 and Holdco4 to fund their ongoing business expenses.

PROPOSED TRANSACTIONS

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

Incorporation of Holdco6

59. DC will incorporate Holdco6 under Act1. Holdco6 will be a CCPC and a TCC at all relevant times. No shares will be issued on incorporation.

60. The authorized share capital of Holdco6 will include an unlimited number of Holdco6 class A common shares that will be voting, participating and without par value.

DC Transfers its Beneficial Interests in Property C and Property E to Holdco6

61. DC will transfer the following assets to Holdco6:

(a) its beneficial interests in Property C and Property E (including the land, building and related furniture and fixtures); and

(b) certain current assets related to the managing of these properties, including certain prepaid expenses, tenant bank accounts and rent receivables.

As consideration, Holdco6 will:

(a) assume the liabilities related to the managing of Property C and Property E, including the mortgages on those properties and certain current liabilities; and

(b) issue XXXXXXXXXX Holdco6 Common Shares to DC, which will have an aggregate FMV equal to the amount by which the aggregate FMV of the assets transferred to Holdco6 exceeds the aggregate principal amount of DC’s liabilities assumed by Holdco6, at the time of the transfer.

62. DC and Holdco6 will jointly elect, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of each eligible property that is transferred by DC to Holdco6.

The agreed amount in respect of each such eligible property so transferred will be as follows:

(i) in the case of depreciable property of a prescribed class, an amount not less than the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

(ii) in the case of capital property (other than depreciable property of a prescribed class), an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property. The amount of the liabilities assumed by Holdco6, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property. The amount of liabilities assumed by Holdco6 which are allocated to a particular property that is not subject to an election under subsection 85(1), will not exceed the FMV of any such property.

Holdco6 will add to the stated capital account for the Holdco6 Common Shares, an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to Holdco6, and (b) the FMV, in the case of each property transferred to Holdco6 that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC assumed by Holdco6. For greater certainty, the amount added to the stated capital account for the Holdco6 Common Shares to be issued by Holdco6 as partial consideration for the transferred assets will not exceed the maximum amount that could be added to the PUC of the Holdco6 Common Shares without a reduction taking place pursuant to subsection 85(2.1).

63. DC will hold the Holdco6 Common Shares as capital property, and they will constitute eligible property.

64. DC may make a payment to Holdco6 (by transferring property to Holdco6) in consideration for Holdco6 assuming undertakings of DC to which paragraph 12(1)(a) applies, such as tenant deposits. For purposes of paragraph 20(24)(b), Holdco6 will receive the amounts in the course of the business. If desirable, DC and Holdco6 will jointly elect, in prescribed form within the time referred to in subsection 20(25), to have the rules in subsection 20(24) apply in respect of the amounts paid for such undertakings.

65. Employees of DC that are directly involved in managing Property C and Property E will cease their employment with DC and commence their employment with Holdco6.

66. DC and Holdco6 will enter into a nominee agreement, pursuant to which DC will agree to hold the registered title to Property C and Property E as nominee and bare trustee exclusively for the use, benefit and advantage of Holdco6. Under this agreement, all proceeds, income, profits, losses, benefits and advantages accruing from Property C and Property E shall be held in trust by DC as nominee and bare trustee for Holdco6. Furthermore, DC will agree to transfer its legal interests in Property C and Property E as Holdco6 may direct.

67. Immediately after the transfer described in Paragraph 61, DC’s assets will consist of:

(a) all issued and outstanding Holdco5 Common Shares,

(b) all issued and outstanding Holdco6 Common Shares,

(c) automobile,

(d) Property F (legal and beneficial interest),

(e) the legal titles to Property A, Property B, Property C, Property D and Property E, and

(f) cash.

68. Immediately after the transfer described in Paragraph 61, DC’s liabilities will include:

(a) accounts payables, accrued liabilities and taxes payable, if any;

(b) Holdco3 Note; and

(c) non-interest bearing, demand loan payable to Sibling 1 (nominal balance).

69. After the transfer described in Paragraph 61, DC will not have any of its own employees.

Reorganization of the DC’s Share Capital

70. Pursuant to a reorganization of capital, DC will file Articles of Amendment to authorize the addition of an unlimited amount of two new classes of shares to its share capital:

(a) New DC Common Shares that will be described as class E common shares and will be participating, without par value, with a discretionary dividend entitlement, and each share will be entitled to XXXXXXXXXX votes; and

(b) DC Special Shares that will be described as class F preferred shares and will be non-voting, non-participating, and redeemable and retractable for the amount of consideration received by DC upon issuance of these shares less $XXXXXXXXXX (redemption amount), plus any declared and unpaid dividends thereon. These shares will have a non-cumulative dividend right of up to XXXXXXXXXX% per annum on the redemption amount of the shares.

Share-for-Share Exchange

71. Holdco3 will enter into a share exchange agreement with DC to exchange all XXXXXXXXXX of its DC Common Shares for (i) XXXXXXXXXX DC Special Share and (ii) XXXXXXXXXX New DC Common Shares, pursuant to subsection 86(1).

72. This share-for-share exchange will occur at FMV such that, at the time of the exchange, the aggregate FMV of the XXXXXXXXXX DC Special Share and the XXXXXXXXXX New DC Common Shares received by Holdco3, will be equal to the aggregate FMV of all XXXXXXXXXX DC Common Shares so exchanged immediately before the exchange. More specifically, the aggregate redemption amount and FMV of the DC Special Share received by Holdco3 will be equal to the aggregate FMV of all XXXXXXXXXX DC Common Shares so exchanged by Holdco3, less $XXXXXXXXXX, and the aggregate FMV of the XXXXXXXXXX New DC Common Shares so received by Holdco3 will equal $XXXXXXXXXX, at the time of the exchange.

73. No election under subsection 85(1) will be filed with respect to this share-for-share exchange.

74. The DC Common Shares exchanged will be cancelled by DC immediately. The stated capital account of the cancelled DC Common Shares will be reduced to nil, at that time.

75. DC will add $XXXXXXXXXX to the stated capital account maintained for the New DC Common Shares. DC will add an amount not exceeding the aggregate PUC of the DC Common Shares immediately before the exchange less $XXXXXXXXXX, to the stated capital account maintained for the DC Special Shares. For clarity, the aggregate PUC of the New DC Common Shares and the DC Special Share immediately after the exchange will equal the aggregate PUC of the DC Common Shares immediately before the exchange.

76. The DC Special Share and the New DC Common Shares will be capital property to Holdco3, and will constitute eligible property.

DC Increases the PUC and Elects to pay a Capital Dividend on its DC Special Share

77. DC will pass a resolution to increase the stated capital (and consequently the PUC) of the DC Special Share by an amount approximating (but not exceeding) its modified CDA balance at that time. DC will elect in prescribed manner and prescribed form and within the time referred to in subsection 83(2), such that the full amount of the deemed dividend arising as a result of this increase of stated capital/PUC is deemed to be paid out of DC’s CDA.

For purposes of determining its modified CDA balance at the time of this Proposed Transaction step, to the extent that there is a suspended loss resulting from the disposition of any of the properties described in Paragraph 61, the suspended loss will be deducted from DC’s CDA balance at that time.

Incorporation of TC

78. Holdco3 will incorporate TC under Act1. TC will be a CCPC and a TCC at all relevant times. No shares will be issued on incorporation.

79. The authorized share capital of TC will consist of an unlimited number of the following classes of shares:

(a) TC Common shares that will be voting, participating and without nominal or par value; and

(b) TC Special Shares that will be non-voting, non-participating, and redeemable and retractable for the amount of consideration received by TC upon issuance of the shares (redemption amount), plus any declared and unpaid dividends thereon. These shares will have a non-cumulative dividend right of up to XXXXXXXXXX% per annum on the redemption amount of the shares.

Holdco3 Transfer of DC Special Share and DC Preferred Shares to TC

80. Holdco3 will transfer all XXXXXXXXXX DC Preferred Shares and the DC Special Share to TC. As consideration for these shares, Holdco3 will receive XXXXXXXXXX TC Common Shares with an aggregate FMV equal to the aggregate FMV of the XXXXXXXXXX DC Preferred Shares and the DC Special Share, at the time of the transfer.

81. Holdco3 and TC will jointly elect, 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 this transfer. The agreed amount will equal the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amounts will not exceed the aggregate FMV of the XXXXXXXXXX DC Preferred Shares and the DC Special Share transferred to TC at the time of the transfer.

TC will add to the stated capital account for the TC Common Shares, an amount equal to the aggregate of the agreed amounts of each eligible property transferred to TC. For greater certainty, the amount added to the stated capital account for the TC Common Shares to be issued by TC to Holdco3 as consideration for the XXXXXXXXXX DC Preferred Shares and the DC Special Share will not exceed the maximum amount that could be added to the PUC of the TC Common Shares without a reduction taking place pursuant to subsection 85(2.1).

82. After the share transfer described in Paragraph 80, TC’s only assets will be the XXXXXXXXXX DC Preferred Shares and the DC Special Share, which it will own as capital property. The DC Special Share will be a taxable preferred share. The DC Preferred Shares are taxable preferred shares.

DC: Types of Property

83. Immediately prior to the DC Transfer described in Paragraphs 84 to 86 below, the gross FMV of the property of DC will be determined on a consolidated look-through basis by including the appropriate pro rata share of the assets of Holdco5 and Holdco6, as described in this Paragraph, because DC will exercise significant influence over these corporations.

First, the property of DC, Holdco5 and Holdco 6 will be classified into the following three types of property for the purposes of the definition of “distribution” as follows:

(a) cash or near-cash property, comprising all of the current assets of DC, Holdco5 and Holdco6, including cash, tenant security deposits, prepaid expenses, accounts receivable, and taxes receivable, if any;

(b) business property, comprising all of the assets of DC, Holdco5 and Holdco6, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from an active business (other than a specified investment business); and

(c) investment property, comprising all of the assets of DC, Holdco5 and Holdco6, other than cash or near-cash property, any income from which would be, for purposes of the Act, income from property or from a specified investment business.

For greater certainty, for purposes of this classification:

(d) DC will not have significant influence over any corporations, partnerships, or trusts other than Holdco5 and Holdco6;

(e) any tax accounts of DC, Holdco5 and Holdco6, such as the balances in the ERDTOH and NERDTOH accounts, GRIP and CDA, will not be considered property;

(f) advances made by DC, Holdco5 and Holdco6, that have a term of less than 12 months, that have no fixed term of repayment, or that are due on demand, if any, will be considered cash or near-cash property;

(g) The automobile will be classified as cash because it will be sold, at FMV, for cash proceeds, as part of the Proposed Transactions;

(h) Property A, Property B, Property C, Property D and Property E will be characterized as investment property because, subsequent to their transfers to Holdco5 and Holdco6, as described in Paragraphs 50 and 61 above, the income derived from these properties will constitute income from a specified investment business;

(i) Property F will be considered investment property because it will be used in the rental businesses of Holdco5 and Holdco6, which will be specified investment businesses;

(j) deferred tax assets and deferred expenses (which are capitalized and amortized for accounting purposes but deducted for income tax purposes), if any, will not be considered property; and

(k) 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, not be considered property.

It is anticipated that DC, Holdco5 and Holdco6 will not own any property classified as business property immediately before the DC Transfer, based on this methodology for classification.

For the purposes of determining the FMV of each type of property of DC on a consolidated look-through basis, the FMV of the shares of Holdco5 and Holdco6 owned by DC will be allocated among the types of property described above, by multiplying the FMV of the shares of the particular corporation by the proportion that the aggregate FMV of each type of property owned by the particular corporation (as determined in accordance with the methodologies described in this Paragraph) is of the aggregate FMV of all the property owned by such corporation (as determined in accordance with the methodologies described in this Paragraph).

DC Transfer: Spin-off

84. DC will transfer to TC, TC’s proportionate share of each type of property owned by DC at that time (collectively referred to as the “DC distribution property”), on a gross FMV basis, such that immediately following such transfer, the aggregate gross FMV of each type of property transferred to TC 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 FMV, immediately before the DC Transfer, of all property of that type owned at that time by DC;

B is the aggregate FMV, immediately before the DC Transfer, of all of the shares of the capital stock of DC owned at that time by TC; and

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

For the purposes of this Paragraph, the expression “approximate the proportion” means that the discrepancy of the proportion, if any, will not exceed one percent (1%), determined as a percentage of the FMV of each type of property which TC will receive as compared to what TC would have received had TC received its exact pro rata share of the FMV of that type of property.

For clarity, DC will transfer to TC all of its property, other than a nominal amount of cash and the legal title to each of Property A, Property B, Property C, Property D, Property E and Property F.

85. As consideration for the DC Transfer, TC will:

(a) assume such liabilities of DC, as appropriate, so that TC will receive its proportion of the aggregate amount of DC’s liabilities, determined immediately before the DC Transfer, that:

i. the aggregate FMV, immediately before the DC Transfer, of the shares of the capital stock of DC held by TC;

    is of

ii. the aggregate FMV, immediately before the DC Transfer, of all of the issued and outstanding shares of the capital stock of DC; and

(b) issue XXXXXXXXXX TC Special Share to DC, which will have a redemption amount and a FMV equal to the amount by which the aggregate FMV, at the time of the DC Transfer, of the DC distribution property received by TC exceeds the aggregate amount of the liabilities of DC assumed by TC described in this Paragraph.

DC will hold the TC Special Share as capital property. The TC Special Share will be a taxable preferred share.

86. DC and TC will jointly elect, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of each eligible property of DC that is transferred by DC to TC.

The agreed amount in respect of each such eligible property so transferred will be as follows:

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

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

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property. The amount of the liabilities assumed by TC, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property. The amount of liabilities assumed by TC which are allocated to a particular property that is not subject to an election under subsection 85(1) will not exceed the FMV of any such property.

TC will add to the stated capital account for the TC Special Share an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to TC, and (b) the FMV, in the case of each property transferred to TC that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC assumed by TC. For greater certainty, the amount added to the stated capital account for the TC Special Share to be issued by TC to DC as partial consideration for the DC distribution property will not exceed the maximum amount that could be added to the PUC of the TC Special Shares without a reduction taking place pursuant to subsection 85(2.1).

TC: Redemption of TC Special Share

87. TC will redeem the TC Special Share owned by DC for an amount equal to the redemption amount of such share. As consideration therefor, TC will issue the TC Redemption Note to DC, which will have a principal amount and FMV equal to the redemption amount of the TC Special Share so redeemed. DC will accept the TC Redemption Note as payment in full for the TC Special Share so redeemed.

88. TC will have its first taxation year-end.

DC: Redemption of DC Preferred Shares and DC Special Share

89. DC will redeem the DC Preferred Shares and the DC Special Share owned by TC for an amount equal to their aggregate redemption amounts. As consideration therefor, DC will issue to TC the DC Redemption Note, with a principal amount and FMV equal to the aggregate redemption amounts of the DC Preferred Shares and the DC Special Share so redeemed. TC will accept the DC Redemption Note as payment in full for its DC shares so redeemed.

DC will designate, pursuant to subsection 89(14), to treat a portion of the taxable dividend resulting from the redemption in this Paragraph to be an eligible dividend by notifying TC in writing, at the time of the redemption, the portion of the dividend that will be an eligible dividend. The amount designated as an eligible dividend will equal DC’s GRIP balance at the end of DC’s taxation year in which the DC Transfer occurred.

Set-Off of DC Redemption Note and TC Redemption Note

90. The DC Redemption Note will be set-off against the TC Redemption Note in full satisfaction of the respective obligations thereunder, the result of which is that all obligations under each such note will be extinguished.

91. Immediately after the notes are set-off, DC will continue to own the legal titles to Property A, Property B, Property C, Property D, Property E, and Property F, and a nominal amount of cash.

Incorporation of New Holdco4

92. Holdco4 will incorporate New Holdco4 under Act1. New Holdco4 will be a CCPC and a TCC at all relevant times. No shares will be issued on incorporation.

93. The authorized share capital of New Holdco4 will consist of an unlimited number of New Holdco4 Common Shares that will be voting, participating and without nominal or par value. Holdco4 may also authorize additional classes of shares.

Holdco4 Transfers certain property to New Holdco4

94. Holdco4 will transfer all of its property to New Holdco4, except its shares of Holdco4 Sub and the Holdco4 Note.

As consideration for the property so transferred, New Holdco4 will:

(a) assume all of Holdco4’s liabilities, except the Holdco4 Sub Note and the operating loan made to Holdco4 by Holdco3, if any, referred to in Paragraph 58; and

(b) issue to Holdco4 XXXXXXXXXX New Holdco4 Common Shares, which will have an aggregate FMV equal to the amount by which the aggregate FMV of the property transferred to New Holdco4 exceeds the aggregate principal amount of Holdco4’s liabilities assumed by New Holdco4, at the time of the transfer.

95. Holdco4 and New Holdco4 will jointly elect, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of each eligible property of Holdco4 that is transferred by Holdco4 to New Holdco4.

The agreed amount in respect of each such eligible property so transferred will be as follows:

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

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

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property. The amount of the liabilities assumed by New Holdco4, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property. The amount of liabilities assumed by New Holdco4 which are allocated to a particular property that is not subject to an election under subsection 85(1) will not exceed the FMV of any such property.

New Holdco4 will add to the stated capital account for the New Holdco4 Common Shares, an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to New Holdco4, and (b) the FMV, in the case of each property transferred to New Holdco4 that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of Holdco4 assumed by New Holdco4. For greater certainty, the amount added to the stated capital account for the New Holdco4 Common Shares to be issued by New Holdco4 as partial consideration for the property so transferred by Holdco4 will not exceed the maximum amount that could be added to the PUC of the New Holdco4 Common Shares without a reduction taking place pursuant to subsection 85(2.1).

Amalgamation

96. Holdco3, TC, Holdco4 and Holdco4 Sub (the “Predecessor Corporations”) will amalgamate under the laws of Act1 to form DC2 such that:

(a) the Amalgamation will qualify as an amalgamation within the meaning assigned by subsections 87(1) and 87(1.1);

(b) all of the property and the liabilities of the Predecessor Corporations (except amounts receivable from or payable to any Predecessor Corporation, or shares of the capital stock of any Predecessor Corporation) immediately before the Amalgamation will become property of DC2 by virtue of the Amalgamation; and

(c) all of the shareholders (except for any Predecessor Corporation), who own shares of the capital stock of any Predecessor Corporation immediately before the Amalgamation, will receive only shares of the capital stock of DC2 by virtue of the Amalgamation.

97. Furthermore, the amalgamation agreement will provide for the following:

(a) the shares of the capital stock of TC, Holdco4 and Holdco4 Sub that were issued and outstanding immediately before the Amalgamation, will be cancelled without payment, at the time of the amalgamation;

(b) the authorized shares in the capital stock of DC2 will be identical to the authorized shares in the capital stock of Holdco3 immediately prior to the Amalgamation;

(c) the issued and outstanding shares in the capital stock of DC2 will be identical to the issued and outstanding shares in the capital stock of Holdco3 immediately prior to the Amalgamation (i.e., the Holdco3 Shares); and

(d) the intercorporate receivables and payables outstanding among the Predecessor Corporations (notably the Holdco3 Note, the Holdco4 Note and the Holdco4 Sub Note) will be settled as a consequence of the Amalgamation.

98. DC2 will be a CCPC and a TCC at all relevant times.

99. The shares of the capital stock of each of DC, Holdco5, Holdco6 and New Holdco4 owned by DC2 immediately after the Amalgamation, will be capital property to DC2, and will constitute eligible property.

100. The aggregate balances in the tax accounts of the Predecessor Corporations, such as the balances in the ERDTOH, NERDTOH and NCL accounts, GRIP and CDA, will become the tax balances of DC2.

101. The tax attributes of each class of shares that Holdco1 and Holdco2 will hold in DC2 immediately after Amalgamation will be identical to the tax attributes of the corresponding class of issued and outstanding shares that Holdco1 and Holdco2 held in Holdco3 immediately prior to the amalgamation:

DC2 Transfers Property F and automobile to New Holdco4

102. DC2 will dispose of the automobile to New Holdco4 at its FMV, for all cash consideration (approximately $XXXXXXXXXX).

103. DC2 will transfer its beneficial interest in Property F to New Holdco4. As consideration for the property so transferred, New Holdco4 will issue to DC2 an amount of New Holdco4 Common Shares with an aggregate FMV equal to the FMV of its beneficial interest in Property F, at the time of the transfer.

104. DC2 and New Holdco4 will jointly elect, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of its beneficial interest in Property F, to the extent that each such property transferred constitutes an eligible property.

The agreed amount in respect of each such eligible property so transferred will be as follows:

(i) in the case of capital property (other than depreciable property of a prescribed class), an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii); and

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

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property.

New Holdco4 will add to the stated capital account for the New Holdco4 Common Shares, an amount equal to the aggregate of the agreed amounts in respect of each eligible property so transferred. For greater certainty, the amount added to the stated capital account for the New Holdco4 Common Shares to be issued by New Holdco4 to DC2 as consideration for the property so transferred by DC2 will not exceed the maximum amount that could be added to the PUC of the New Holdco4 Common Shares without a reduction taking place pursuant to subsection 85(2.1).

105. DC will transfer the legal title to Property F to New Holdco4 at its FMV, for all cash consideration (approximately $XXXXXXXXXX).

Incorporation of Subco1 and Subco2

106. Holdco1 will incorporate Subco1 under Act1. Subco1 will be a CCPC and a TCC at all relevant times.

The authorized share capital of Subco1 will consist of an unlimited number of the following classes of shares:

(a) Subco1 Common shares that will be voting, participating and without nominal or par value; and

(b) Subco1 Special Shares that will be non-voting, non-participating, and redeemable and retractable for the amount of consideration received by Subco1 upon issuance of the shares (redemption amount), plus any declared and unpaid dividends thereon. These shares will have a non-cumulative dividend right of up to XXXXXXXXXX% per annum on the redemption amount of the shares. These shares will rank ahead of all other classes of shares in terms of their dividend entitlement and rights to the remaining corporate property on a dissolution or wind-up.

Upon incorporation, Subco1 will issue XXXXXXXXXX Subco1 Common Share to Holdco1 for $XXXXXXXXXX cash consideration. The Subco1 Common Share will be held by Holdco1 as capital property.

107. Holdco2 will incorporate Subco2 under Act1. Subco2 will be a CCPC and a TCC at all relevant times.

The authorized share capital of Subco2 will consist of an unlimited number of the following classes of shares:

(a) Subco2 Common shares that will be voting, participating and without nominal or par value; and

(c) Subco2 Special Shares that will be non-voting, non-participating, and redeemable and retractable for the amount of consideration received by Subco2 upon issuance of the shares (redemption amount), plus any declared and unpaid dividends thereon. These shares will have a non-cumulative dividend right of up to XXXXXXXXXX% per annum on the redemption amount of the shares. These shares will rank ahead of all other classes of shares in terms of their dividend entitlement and rights to the remaining corporate property on a dissolution or wind-up.

Upon incorporation, Subco2 will issue one Subco2 Common Share to Holdco2 for $XXXXXXXXXX cash consideration. The Subco2 Common Share will be held by Holdco2 as capital property.

DC2: Types of Property

108. Immediately prior to the DC2 Transfers described in Paragraphs 109 to 112, the gross FMV of the property of DC2 will be determined on a consolidated look-through basis by including the appropriate pro rata share of the assets of Holdco5 and Holdco6 (as described in this Paragraph), because DC2 will exercise significant influence over these corporations.

DC2 will also exercise significant influence over DC, New Holdco4 and the corporations included in the Holdco4 Group. DC2 would normally be required to use the consolidated look-through method for determining the appropriate proportion of each of the types of property represented by the shares of DC and New Holdco4 and the debts receivables from corporations included in the Holdco4 Group. However, because DC2 will transfer (i) all of its shares of DC and New Holdco4 and (ii) all of its debts receivables from any corporation included in the Holdco4 Group, equally to Holdco1 and Holdco2 on the DC2 Transfers, such that each of Holdco1 and Holdco2 will receive its pro rata portion of each type of property reflected in those shares and debts receivables, the consolidated look-through method employed by DC2 for purposes of the Proposed Transactions will not include DC, New Holdco4 and any of the corporations included in the Holdco4 Group.

First, the property of Holdco5, Holdco6, and DC2 (excluding the shares of DC and New Holdco4, and debts receivables from any corporation in the Holdco4 Group) will be classified into the following three types of property for the purposes of the definition of “distribution” as follows:

(a) cash or near-cash property, comprising all of the current assets of Holdco5, Holdco6, and DC2, including cash, tenant security deposits, marketable securities, prepaid expenses, accounts receivable, current portion of mortgage receivable and taxes receivable, if any;

(b) business property, comprising all of the assets of Holdco5, Holdco6 and DC2 other than cash or near-cash property, any income from which would, for purposes of the Act, be income from an active business (other than a specified investment business); and

(c) investment property, comprising all of the assets of Holdco5, Holdco6, and DC2 other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or from a specified investment business.

For greater certainty, for purposes of this classification:

(d) DC2 will not have significant influence over any corporations, partnerships, or trusts other than Holdco5, Holdco6, DC, New Holdco4 and the corporations in the Holdco4 Group;

(e) any tax accounts of Holdco5, Holdco6 and DC2 such as the balances in the ERDTOH, NERDTOH accounts, GRIP and CDA, will not be considered property;

(f) advances made by Holdco5, Holdco6 and DC2 (other than those from DC2 to a corporation over which it has significant influence) that have a term of less than 12 months, that have no fixed term for repayment, or that are due on demand, if any, will be considered cash or near-cash property;

(g) deferred tax assets and deferred expenses (which are capitalized and amortized for accounting purposes but deducted for income tax purposes), if any, will not be considered property; and

(h) 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, not be considered property.

It is anticipated that Holdco5, Holdco6 and DC2 will not own any property classified as business property immediately before the DC2 Transfers, based on this methodology for classification.

For the purposes of determining the FMV of each type of property of DC2 on a consolidated look-through basis:

(a) the aggregate FMV of the Holdco5 Common Shares and any debts receivable from Holdco5 will be allocated among the types of property described above by multiplying the aggregate FMV of the Holdco5 Common Shares and debts receivable from Holdco5 by the proportion that the aggregate FMV of each type of property owned by Holdco5 (as determined in accordance with the methodologies described in this Paragraph) is of the aggregate FMV of all the property owned Holdco5 (as determined in accordance with the methodologies described in this Paragraph); and

(b) the FMV of the Holdco6 Common Shares will be allocated among the types of property described above, by multiplying the FMV of the Holdco6 Common Shares by the proportion that the aggregate FMV of each type of property owned by Holdco6 (as determined in accordance with the methodologies described in this Paragraph) is of the aggregate FMV of all the property owned Holdco6 (as determined in accordance with the methodologies described in this Paragraph).

DC2 Transfers

109. DC2 will simultaneously transfer to each of Subco1 and Subco2, a proportionate share of the gross FMV of each type of property owned by DC2 at that time (collectively referred to as the “DC2 distribution property”), such that:

(a) Subco1 will receive:

i. XXXXXXXXXX of the New Holdco4 Common Shares;

ii. XXXXXXXXXX of the New DC Common Shares;

iii. XXXXXXXXXX of any debts receivables from corporations included in the Holdco4 Group;

iv. XXXXXXXXXX of DC2’s cash or near cash property;

v. XXXXXXXXXX of DC2’s investment property; and

vi. XXXXXXXXXX of DC2’s business property, if any.

(b) Subco2 will receive:

i. XXXXXXXXXX of the New Holdco4 Common Shares;

ii. XXXXXXXXXX of the New DC Common Shares;

iii. XXXXXXXXXX of any debts receivables from corporations included in the Holdco4 Group;

iv. XXXXXXXXXX of DC2’s cash or near cash property;

v. XXXXXXXXXX of DC2’s investment property; and

vi. XXXXXXXXXX of DC2’s business property, if any.

As part of this pro rata distribution of the DC2 distribution property, Subco1 will receive XXXXXXXXXX% of the Holdco5 Common Shares owned by DC2 at that time, and Subco2 will receive XXXXXXXXXX% of the Holdco6 Common Shares owned by DC2 at that time.

110. Immediately following the DC2 Transfers, the aggregate gross FMV of each type of property transferred to each of Subco1 and Subco2, 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 FMV, immediately before the DC2 Transfers, of all property of that type of property owned at that time by DC2;

B is the aggregate FMV, immediately before the DC2 Transfers, of all of the shares of the capital stock of DC2 owned at that time by Holdco1 or Holdco2, as the case may be; and

C is the aggregate FMV, immediately before the DC2 Transfers, of all of the issued and outstanding shares of the capital stock of DC2.

The expression “approximate the proportion” means that the discrepancy from the proportion, if any, will not exceed one percent (1%), determined as a percentage of the aggregate gross FMV of each type of property that each of Subco1 and Subco2 has received, as compared to what each corporation would have received had it received its exact pro rata share of the aggregate gross FMV of that type of property of DC2.

111. As consideration for the DC2 Transfers, each of Subco1 and Subco2, as the case may be, will:

(a) assume its proportionate share of the liabilities of DC2 such that the amount of the liabilities assumed by each of Subco1 and Subco2, as the case may be, will equal the proportion of the aggregate amount of the liabilities of DC2, determined immediately before the DC2 Transfers, that:

i. the aggregate FMV, immediately before the DC2 Transfers, of the shares of the capital stock of DC2 held by Holdco1 or Holdco2, as the case may be;

is of

ii. the aggregate FMV, immediately before the DC2 Transfers, of all of the issued and outstanding shares of the capital stock of DC2; and

(b) issue to DC2, XXXXXXXXXX Subco1 Special Share, and XXXXXXXXXX Subco2 Special Share, as the case may be, with a FMV and redemption amount equal to the amount by which the aggregate FMV of the DC2 Distribution Property received by Subco1 or Subco2, as the case may be, exceeds the aggregate principal amount of the liabilities assumed by Subco1 or Subco2, as the case may be.

DC2 will hold the Subco1 Special Share and the Subco2 Special Share as capital property. The Subco1 Special Share and the Subco2 Special Share will be taxable preferred shares.

112. DC2 will file a joint election with each of Subco1 and Subco2, in prescribed form and within the time allowed by subsection 85(6), to have the provisions of subsection 85(1) apply to the transfers of each eligible property of DC2 that is transferred by DC2 to Subco1 and Subco2, as the case may be.

The agreed amount in respect of each such eligible property so transferred will be as follows:

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

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

The agreed amount in respect of each eligible property so transferred using the provisions of subsection 85(1) will not be greater than the FMV of such eligible property. The amount of the liabilities assumed by Subco1 or Subco2, as the case may be, which are allocated to a particular eligible property that is subject to an election under subsection 85(1), will not exceed the agreed amount for that particular property. The amount of liabilities assumed by Subco1 or Subco2, as the case may be, which are allocated to a particular property that is not subject to an election under subsection 85(1) will not exceed the FMV of any such property.

Subco1 will add to the stated capital account for the Subco1 Special Shares an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to Subco1, and (b) the FMV, in the case of each property transferred to Subco1 that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC2 assumed by Subco1. For greater certainty, the amount added to the stated capital account for the Subco1 Special Share to be issued by Subco1 as partial consideration for the DC2 distribution property will not exceed the maximum amount that could be added to the PUC of the Subco1 Special Share without a reduction taking place pursuant to subsection 85(2.1).

Subco2 will add to the stated capital account for the Subco2 Special Shares an amount equal to the aggregate of (a) the agreed amounts, in the case of each eligible property transferred to Subco2, and (b) the FMV, in the case of each property transferred to Subco2 that is not an eligible property, less (c) the aggregate principal amounts of the liabilities of DC2 assumed by Subco2. For greater certainty, the amount added to the stated capital account for the Subco2 Special Share to be issued by Subco2 as partial consideration for the DC2 distribution property will not exceed the maximum amount that could be added to the PUC of the Subco2 Special Share without a reduction taking place pursuant to subsection 85(2.1).

Subco1 and Subco2: Redemption of Special Shares

113. Subco1 will redeem the issued Subco1 Special Share owned by DC2 for an amount equal to the redemption amount of such share. As consideration therefor, Subco1 will issue the Subco1 Redemption Note to DC2, which will have a principal amount and FMV equal to the redemption amount of the Subco1 Special Share so redeemed. DC2 will accept the Subco1 Redemption Note as payment in full for the Subco1 Special Share so redeemed.

114. Subco2 will redeem the issued Subco2 Special Share owned by DC2 for an amount equal to the redemption amount of such share. As consideration therefor, Subco2 will issue the Subco2 Redemption Note to DC2, which will have a principal amount and FMV equal to the redemption amount of the Subco2 Special Share so redeemed. DC2 will accept the Subco2 Redemption Note as payment in full for the Subco2 Special Share so redeemed.

Wind-up of Subco1 into Holdco1 and Subco2 into Holdco2

115. Holdco1 will resolve to wind-up and dissolve Subco1 in accordance with the provisions of Act1. As a consequence of this wind-up, all of Subco1’s assets will be distributed to Holdco1, and Holdco1 will assume all of Subco1’s liabilities, including the Subco1 Redemption Note. Articles of dissolution will then be filed to formally dissolve Subco1.

116. Holdco2 will resolve to wind-up and dissolve Subco2 in accordance with the provisions of Act1. As a consequence of this wind-up, all of Subco2’s assets will be distributed to Holdco2, and Holdco2 will assume all of Subco2’s liabilities, including the Subco2 Redemption Note. Articles of dissolution will then be filed to formally dissolve Subco2.

Wind-up of DC2

117. Holdco1 and Holdco2 will resolve to wind-up and dissolve DC2 in accordance with the provisions of Act1. Under the terms of the agreement governing the winding-up of DC2, the Subco1 Redemption Note and the Subco2 Redemption Note will be assigned and distributed to Holdco1 and Holdco2, respectively. As a result of the assignment and distribution of the Subco1 Redemption Note and the Subco2 Redemption Note, the obligations of each of Holdco1 and Holdco2 to DC2 under their respective notes will be cancelled and the notes will be extinguished.

118. To the extent that DC2 has a positive balance in its CDA immediately prior to the distribution of its property on the winding-up, DC2 will elect in prescribed manner and prescribed form and within the time referred to in subsection 83(2), such that the portion of the winding-up dividend, which is deemed by subparagraph 88(2)(b)(i) to be the full amount of a separate dividend, be deemed to be a capital dividend to the extent of DC2’s CDA immediately before the distribution.

119. To the extent that DC2 has a positive balance in its GRIP immediately prior to the distribution of its property on the winding-up, DC2 will designate a portion of the winding-up dividend, which is deemed by subparagraph 88(2)(b)(iii) to be a separate taxable dividend, to be an eligible dividend, by notifying each of Holdco1 and Holdco2 in writing within the time prescribed in subsection 89(14). The amount designated as an eligible dividend will equal DC2’s GRIP balance at the end of DC2’s taxation year in which the distribution occurs.

120. Any dividend refund to which DC2 becomes entitled as a result of the Proposed Transactions described herein, or any tax refund as a result of an over payment of tax instalments, will be distributed (under the terms of the agreement governing the winding-up of DC2) to each of Holdco1 and Holdco2 on a pro rata basis.

121. After the distribution of the Subco1 Redemption Note and the Subco2 Redemption Note, and the distribution of any tax refunds, if applicable, but immediately before the formal dissolution of DC2, DC2 will not own or acquire any property or carry on any activity or undertaking.

122. Within a reasonable time following the distribution of DC2’s property and any tax refund, articles of dissolution will be filed by DC2 with the appropriate government body and, upon receipt of a certificate of dissolution, DC2 will be dissolved.

ADDITIONAL INFORMATION

123. For purposes of the DC Transfer and the DC2 Transfers, no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification.

124. The aggregate FMV of the New Holdco4 Common Shares and the New DC Common Shares and any debts receivable from any of the corporations in the Holdco4 Group received by each of Subco1 and Subco2 as DC2 distribution property on the DC2 Transfers will be less than 10% of the FMV of all the DC2 distribution property (other than money and indebtedness that is not convertible into other property) received by each of Subco1 and Subco2, as the case may be, on the DC2 Transfers, at the time of such transfers.

125. The Taxpayers will comply with the requirements imposed by the XXXXXXXXXX, in carrying out the relevant Proposed Transactions.

126. The Mom Loan Facility and operating loan transactions described in Paragraphs 56 to 58 occurred (and, in respect of any additional funding before the implementation of the Proposed Transactions, will occur) for the sole purpose of satisfying current obligations of DC, Holdco4, SPV1 and Holdco5 related to their ongoing business operations. The funds advanced to Holdco3 under the Mom Loan Facility occurred in lieu of XXXXXXXXXX. These transactions were undertaken for reasons that were independent of the Proposed Transactions and would have been undertaken regardless of whether the Proposed Transactions would be implemented. Similarly, the Proposed Transactions would have been undertaken irrespective of whether these transactions were implemented. This is also the case in respect of any additional funds advanced and operating loans made between these entities between the date of this letter and the implementation of the Proposed Transactions.

127. Except as described in this letter, no property has or will become property of a distributing corporation, a corporation controlled by it, or a predecessor corporation of any such corporation, in contemplation of and before the Proposed Transactions other than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

128. There has not been and will not be, as part of the series of transactions or events that include the Proposed Transactions, 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).

129. Other than the transfers which form part of the Proposed Transactions or transfers in the ordinary course of business, neither Holdco1 nor Holdco2 expects or intends to dispose of any property owned by them as part of the series of transactions or events that includes the Proposed Transactions to a person unrelated to Holdco1 or Holdco2, as the case may be, or to a partnership, as described in paragraph 55(3.1)(c).

130. None of DC, TC, DC2, Subco1, Subco2, Holdco1 and Holdco2, is, or will be, at any time during a 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 the paragraphs (a) to (f) of the definition of financial intermediary corporation.

131. None of the shares of DC, TC, DC2, Subco1, Subco2, Holdco1 and Holdco2 have been or will be at any time before or during the series of transactions and events that includes 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;

(c) 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);

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

(e) 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).

132. Immediately before the redemption of the TC Special Share owned by DC, DC will be connected to TC pursuant to paragraph 186(4)(a) and subsection 186(2). Furthermore, DC will have a substantial interest in TC, at that time.

133. Immediately before the redemption of the DC Preferred Shares and the DC Special Share owned by TC, TC will be connected to DC pursuant to paragraph 186(4)(a) and subsection 186(2). Furthermore, TC will have a substantial interest in DC, at that time.

134. Immediately before the redemption of the Subco1 Special Share and the Subco2 Special Share owned by DC2, as the case may be, DC2 will be connected to Subco1 and Subco2, as the case may be, pursuant to paragraph 186(4)(a) and subsection 186(2). Furthermore, DC2 will have a substantial interest in each of Subco1 and Subco2 at that time.

135. Immediately before the distributions of property by DC2 to Holdco1 and Holdco2 on the winding-up of DC2, Holdco1 and Holdco2 will be connected to DC2, pursuant to paragraph 186(4)(a) and subsection 186(2). Furthermore, Holdco1 and Holdco2 will each have a substantial interest in DC2 at that time.

136. Each of DC, TC, DC2, Subco1, Subco2, Holdco1 and Holdco2 will have the financial capacity to honour, upon presentation for payment, the amount payable under any promissory note issued as part of the Proposed Transactions.

137. The Proposed Transactions will not cause any of the Taxpayers, or a related person, to become unable to pay its tax liabilities.

138. The Proposed Transactions will be legally effective under Act1.

PURPOSES OF THE PROPOSED TRANSACTIONS

139. The purpose of the Proposed Transactions is to effect a “split-up” of the assets of Holdco3 between Sibling1 (Holdco1) and Sibling2 (Holdco2) (other than Property F and the legal titles to Property A, Property B, Property C, Property D, and Property E) to allow for independent estate planning while allowing continued joint-ownership of DC (which will act as a nominee corporation and bare trustee for all the properties, except Property F) and New Holdco4 (which will hold Property F as its primary asset).

140. The purpose of the incorporation of Holdco5 and Holdco6 and the subsequent transfer of certain properties (including the XXXXXXXXXX) thereto is to facilitate a more efficient transfer of those properties, as compared to the back-to-back transfers of the beneficial interests in the XXXXXXXXXX during the Proposed Transactions. Furthermore, it is common business practice for the Siblings to hold their various XXXXXXXXXX investments and operate the related businesses in subsidiary corporations of their respective holding corporations.

141. The purpose of the spin-off transactions, including the DC Transfer described in Paragraphs 78 to 90, and the transaction steps leading up to the spin-off, as described in Paragraphs 48 to 55 and Paragraphs 59 to 76, is to allow for the transfer of the beneficial interests, as distinct from legal titles, to Property A, Property B, Property C, Property D and Property E. This is consistent with prudent and ordinary course XXXXXXXXXX within a corporate group in XXXXXXXXX.

142. The purpose of the stated capital increase on the DC Special Share and the capital dividend election, described in Paragraph 77, is to transfer the balance of DC’s CDA to TC (and ultimately to Holdco1 and Holdco2).

143. The purpose of the Amalgamation of Holdco3 with TC, Holdco4 and Holdco4 Sub to form DC2, as described in Paragraphs 96 to 101, is to simplify the corporate structure, settle intercompany balances, and to facilitate the DC2 Transfers (i.e., the split-up).

144. The purpose of the incorporation of New Holdco4 and the transfer, by Holdco4, of most of its assets thereto, as described in Paragraphs 92 to 95, is to enable Holdco4 and Holdco4 Sub to be amalgamated with TC and Holdco3, so that intercompany balances between those corporations can be settled while New Holdco4 assumes the role of holding company of the remaining corporations in the Holdco4 Group. New Holdco4 will also become the owner of Property F, and the automobile, which will be transferred by DC2 at Paragraphs 102 to 105 so that the automobile and Property F can be used in the business of New Holdco4.

145. The purpose of the incorporation of Subco1 and Subco2 and the transfers of DC2’s property to Subco1 and Subco2 (rather than to Holdco1 and Holdco2), described in Paragraphs 106 to 107 and Paragraphs 109 to 112, is to prevent a circular calculation of Part IV tax from arising from the share redemptions described in Paragraphs 113 and 114.

146. The purpose of the wind-up of Subco1 and Subco2 as described in Paragraphs 115 and 116 is to enable Holdco1 and Holdco2 to receive an indirect transfer of property from DC2, as stipulated in the definition of “distribution” in subsection 55(1).

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, additional information, proposed transactions and purpose 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 subsection 69(11), provided the appropriate joint elections are filed in the prescribed form and manner within the time limit specified in subsection 85(6), subsection 85(1) will apply to:

(a) the transfer of each eligible property owned by DC to Holdco5, as described in Paragraphs 50 and 51;

(b) the transfer of each eligible property owned by DC to Holdco6, as described in Paragraphs 61 and 62;

(c) the transfer of all the DC Preferred Shares and the DC Special Share by Holdco3 to TC, as described in Paragraphs 80 and 81;

(d) the transfer of each eligible property owned by DC to TC, on the DC Transfer, as described in Paragraphs 84 to 86;

(e) the transfer of each eligible property owned by Holdco4 to New Holdco4, as described in Paragraphs 94 and 95;

(f) the transfer of the beneficial interest in Property F by DC2 to New Holdco4, as described in Paragraphs 103 and 104; and

(g) the transfer of each eligible property owned by DC2 to each of Subco1 and Subco2, on the DC2 Transfers, as described in Paragraphs 109 to 112

such that the agreed amount in respect of each such transfer of eligible property will be deemed to be the transferor’s proceeds of disposition and the transferee’s cost of the particular eligible property, pursuant to paragraph 85(1)(a). In respect of depreciable property, to the extent that the transferor’s capital cost exceeds the transferor’s proceeds of disposition of the property, the transferee’s capital cost of each such property will be determined in accordance with subsection 85(5).

For purposes of the joint elections referred to in this Ruling A, when determining the agreed amount of a depreciable property in any of the transfers, the reference in subparagraph 85(1)(e)(i) to “the undepreciated capital cost to the taxpayer of all property of that class immediately before the disposition” shall mean that portion of the UCC to the transferor of all the property of that class that the FMV of the property of that class so transferred to the transferee is of the aggregate FMV of all property of that class owned by the transferor immediately before the transfer.

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

B. On the exchange of the DC Common Shares for the New DC Common Shares and the DC Special Share, described in Paragraphs 71 to 75, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) will not apply, to the disposition of the DC Common Shares owned by Holdco3 in exchange for the New DC Common Shares and the DC Special Share, such that:

(a) pursuant to paragraph 86(1)(b), the cost to Holdco3 of the New DC Common Shares and the DC Special Share, as the case may be, will be deemed to be an amount equal to the proportion of the total ACB to Holdco3 of the DC Common Shares immediately before the exchange that

i. the FMV, immediately after the exchange, of the New DC Common Shares or of the DC Special Share, as the case may be, received by Holdco3

    is of

ii. the FMV, immediately after the exchange, of all the New DC Common Shares and the DC Special Share received by Holdco3 on the exchange;

(b) pursuant to paragraph 86(1)(c), Holdco3 will be deemed to have disposed of the DC Common Shares for aggregate proceeds of disposition equal to the aggregate cost to Holdco3 of the New DC Common Shares and the DC Special Share received by Holdco3 (as determined in Ruling B(a) immediately above); and

(c) the aggregate PUC of the New DC Common Shares and the DC Special Share will be equal to the PUC of the DC Common Shares which were exchanged for the New DC Common Shares and the DC Special Share, and subsection 86(2.1) will not apply to adjust such aggregate PUC.

C. Pursuant to subsection 84(1), DC will be deemed to have paid a dividend on the DC Special Share in an amount equal to the increase of the PUC of the DC Special Share resulting from the resolution to increase the stated capital account maintained in respect of such shares, as described in Paragraph 77; and Holdco3 will be deemed to have received a dividend equal to the amount of the dividend that DC is deemed to have paid on such share, at the time of the stated capital increase.

D. Provided that DC elects pursuant to subsection 83(2) in respect of the full amount of the dividend that it is deemed to have paid in Ruling C, in prescribed manner and prescribed form, at the time of the stated capital increase described in Paragraph 77, the dividend will be deemed to be a capital dividend to the extent of DC’s modified CDA balance, determined immediately before the time the dividend is deemed to be paid, and no part of the dividend will be included in computing the income of Holdco3.

E. By virtue of subsection 84(3), as a result of the redemption by:

(a) TC of the TC Special Share, as described in Paragraph 87, TC will be deemed to have paid, and DC will be deemed to have received, a dividend at that time equal to the amount, if any, by which the amount paid by TC, in respect of the redemption of the TC Special Share, exceeds the PUC of such share immediately before the redemption;

(b) DC of the DC Preferred Shares and the DC Special Share, as the case may be, as described in Paragraph 89, DC will be deemed to have paid, and TC will be deemed to have received, a dividend at that time equal to the amount, if any, by which the aggregate amount paid by DC, in respect of the redemption of the DC Preferred Shares or the DC Special Share, as the case may be, exceeds the aggregate PUC of the DC Preferred Shares or the DC Special Share, as the case may be, immediately before the redemption;

(c) Subco1 of the Subco1 Special Share, as described in Paragraph 113, Subco1 will be deemed to have paid, and DC2 will be deemed to have received, a dividend at that time equal to the amount, if any, by which the amount paid by Subco1 in respect of the redemption of the Subco1 Special Share, exceeds the PUC of such share immediately before the redemption; and

(d) Subco2 of the Subco2 Special Share, as described in Paragraph 114, Subco2 will be deemed to have paid, and DC2 will be deemed to have received, a dividend at that time equal to the amount, if any, by which the amount paid by Subco2 in respect of the redemption of the Subco2 Special Share, exceeds the PUC of such share immediately before the redemption.

F. Subsection 84(2) and paragraph 88(2)(b) will apply to the distributions by DC2, on the winding-up of its business, described in Paragraph 117, such that:

(a) Subject to Rulings F(b) to F(e) below, DC2 will be deemed to have paid a dividend, at the time of the distribution on the winding-up, on each particular class of the issued and outstanding DC2 shares (the “winding-up dividend”) equal to the amount, if any, by which:

i. the value of the property of DC2 distributed and allocated to a particular class of DC2 shares

exceeds

ii. the amount by which the PUC in respect of such class of DC2 shares is reduced on the distribution,

and, a dividend shall be deemed to have been received, at that time, by each of Holdco1 and Holdco2, as the case may be, equal to that proportion of the amount of the excess that the number of the shares of that particular class of DC2 shares held by Holdco1 or Holdco2, as the case may be, is of all the issued and outstanding shares of that particular class of DC2 outstanding immediately before that time.

(b) To the extent that DC2 has a positive balance in its CDA immediately prior to its winding-up, pursuant to subparagraph 88(2)(b)(i), the portion of the winding-up dividend that does not exceed DC2’s CDA, determined immediately before the payment of the winding-up dividend, will be deemed, for the purposes of the subsection 83(2) election referred to in Paragraph 118, to be the full amount of a separate dividend;

(c) Pursuant to subparagraph 88(2)(b)(ii), the portion of the winding-up dividend that is equal to the lesser of:

i. DC2’s pre-1972 capital surplus on hand as determined immediately before the payment of the winding-up dividend and,

ii. the amount by which the winding-up dividend exceeds the portion thereof in respect of which DC2 will elect under subsection 83(2)

    will be deemed not to be a dividend;

(d) Pursuant to subparagraph 88(2)(b)(iii), the winding-up dividend, to the extent that it exceeds the portion thereof referred to in Ruling F(b) herein that is deemed to be a separate dividend, and the portion referred to in Ruling F(c) herein that is deemed not to be a dividend, will be deemed to be a separate dividend that is a taxable dividend; and

(e) Pursuant to subparagraph 88(2)(b)(iv), each of Holdco1 and Holdco2 will be deemed to have received its proportional share of the dividends described in Rulings F(b) and F(d).

G. The taxable dividends described in Rulings E and F:

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

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

(c) will be excluded in determining the proceeds of disposition to the recipient corporation of the shares which are redeemed 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 be subject to tax under Part IV, except to the extent provided in paragraph 186(1)(b); and

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

H. 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);

(c) an acquisition of control in the circumstances described in subparagraph 55(3.1)(b)(ii);

(d) an acquisition of property in the circumstances described in subparagraph 55(3.1)(b)(iii); or

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

which has not been described in the Facts, Completed Transactions, Proposed Transactions, and Additional Information, then by virtue of paragraph 55(3)(b), subsection 55(2) will not apply to the taxable dividends referred to in Rulings E and F above, and, for greater certainty, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

I. The set-off and cancellation of the TC Redemption Note and the DC Redemption Note described in Paragraph 90 will not, in and of itself, give rise to a “forgiven amount”. In addition, no gain or loss will be realized as a result of such off-set and cancellation.

J. The cancellation of the Subco1 Redemption Note and the Subco2 Redemption Note occurring on the distribution on the winding-up of DC2, described in Paragraph 117, will not, in and of itself, give rise to a “forgiven amount”. In addition, none of DC2, Holdco1 or Holdco2, as the case may be, will realize any gain or incur any loss as a result of such cancellation.

K. Subject to subsection 69(11), the provisions of subsection 88(1) will apply to the winding-up of Subco1 and Subco2, as described in Paragraphs 115 and 116, respectively.

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

M. 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 herein.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R12, Advance Income Tax Rulings and Technical Interpretations, issued on April 1, 2022, and are binding on the CRA, provided that the Proposed Transactions are completed no later than XXXXXXXXXX months after the date of this letter. The above rulings are based on the law as it reads at the date of this letter and do not take into account any proposed amendments to the Act and the Regulations, which if enacted, could have an effect on the rulings provided herein.

COMMENTS

Unless otherwise expressly confirmed, 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 balance of the ERDTOH, NERDTOH, GRIP, NCL, CDA or any other tax account for any corporation described herein; or

(c) any other tax consequence (including provincial tax consequences) relating to the facts, proposed transactions or any transaction or event taking place either prior to the Proposed Transactions or subsequent to the Proposed Transactions, whether described in this letter or not, other than those specifically described in the rulings given above, 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 purpose 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 or 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, since such adjustment will be due to circumstances that do not constitute proposed transactions that are seriously contemplated. The general position of the CRA with respect to price adjustment clauses is stated in Income Tax Folio S4-F3-C1, Price Adjustment Clauses, updated to November 26, 2015.

Yours truly,

XXXXXXXXXX

for Division Director

Reorganizations Division

Income Tax Rulings Directorate

Legislative Policy and Regulatory Affairs Branch

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