2021-0910431R3 Loss consolidation arrangement

Principal Issues: Whether the LCA is acceptable.

Position: Yes.

Reasons: The proposed transactions fall within CRA's policy position.

Author: XXXXXXXXXX
Section: 20(1)(c), 55(2)

XXXXXXXXXX                                                                      2021-091043

XXXXXXXXXX, 2022

Dear XXXXXXXXXX:

Subject:   Advance Income Tax Ruling
                XXXXXXXXXX

We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayers. We also acknowledge the information provided in correspondence with your company concerning your request.

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

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

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

B. under objection by the taxpayers or a related person; or

C. the subject of a current or completed court process involving the taxpayers or a related person; or

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

Unless otherwise stated all statutory references are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.) as amended (the “Act”).

This document is based solely on the facts described below. Any documentation submitted with your request does not form part of the facts except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.

DEFINITIONS

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

“affiliated person” has the meaning assigned by subsection 251.1, read without reference to the definition of “controlled” in subsection 251.1(3);

“agreeing province” means a province that has entered into an agreement with the Government of Canada under which the Government of Canada will collect taxes payable under the income tax statute of that province and will make payments to that province in respect of the taxes so collected;

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

XXXXXXXXXX;

“CFA” means a “controlled foreign affiliate” and has the meaning assigned by subsection 95(1);

“CRA” means Canada Revenue Agency;

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

“Canadian Partnership” has the meaning assigned by subsections 248(1) and 102(1);

“Daylight Loan” means the loan described in Paragraph 22;

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

XXXXXXXXXX;

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

“financial institution” has the meaning assigned by subsection 190(1);

“General Anti-avoidance Provision of an Agreeing Province” means:

XXXXXXXXXX.

“GPCo” means a corporation to be established under the CBCA as described in Paragraph 18;

“guarantee agreement” has the meaning assigned by subsection 112(2.2);

XXXXXXXXXX;

“New LP” means a Canadian limited partnership to be established pursuant to the laws of the province of XXXXXXXXXX under the Partnerships Act, as described in Paragraph 19;

“New LP Loan” has the meaning set out in Paragraph 23;

“New LP Partners” means GPCo and XXXXXXXXXX;

“Newco” has the meaning set out in Paragraph 15;

"Newco Note" has the meaning set out in Paragraph 34(d);

“Newco Preferred Shares” means the preferred shares described in Paragraphs 15 and 17;

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

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

“Paragraph” means a numbered paragraph in this letter;

“Parent” means XXXXXXXXXX, a corporation governed by the CBCA, described in Paragraph 1;

“Parent Group” means Parent and all the Canadian resident and non-resident subsidiaries that are directly or indirectly controlled by Parent;

“Parent Loan” means the non-interest bearing loan made to Parent and has the meaning set out in Paragraph 25;

“Parent Tax Attributes” has the meaning set out in Paragraph 3;

“Partnership Act” means the XXXXXXXXXX;

“Partnership Allocation” means each New LP Partners’ share, expressed as a percentage, of the income of New LP as determined by the New LP agreement. The expected allocation percentages are described in Paragraph 21;

“permanent establishment” has the meaning assigned by Regulation 400(2);

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

“Profitco 1” means XXXXXXXXXX and an indirect wholly owned subsidiary of Parent, described in Paragraph 6;

“Profitco 2” means XXXXXXXXXX and an indirect wholly owned subsidiary of Parent, described in Paragraph 9;

“Profitco 3” means XXXXXXXXXX and an indirect wholly owned subsidiary of Parent, described in Paragraph 12;

“Proposed Transactions” means the transactions described in Paragraphs 15 to 39;

“related persons” has the meaning assigned by subsection 251(2);

XXXXXXXXXX;

“SIFT Partnership” means “specified investment flow-through partnership” as defined under subsection 197(1);

XXXXXXXXXX;

“Subsidiary Wholly-Owned Corporation” has the meaning assigned by subsection 248(1); and

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

FACTS

1. Parent is a resident of Canada for purposes of the Act and a taxable Canadian corporation. Parent is the parent of the Parent Group XXXXXXXXXX. The issued and outstanding share capital of Parent XXXXXXXXXX. Parent’s head office is located at XXXXXXXXXX. Parent's Taxation Centre is XXXXXXXXXX.

2. Parent has a XXXXXXXXXX taxation year-end and has a non-capital loss carryforward balance as at XXXXXXXXXX. This non-capital loss was generated in the XXXXXXXXXX taxation year.

3. Parent's non-capital losses are mainly attributable to the following factors:

XXXXXXXXXX.

Collectively, the tax deductions and credits described above are referred to as the "Parent Tax Attributes”.

4. Parent anticipates continuing to generate the Parent Tax Attributes in the foreseeable future. Absent the Proposed Transactions, it is estimated that Parent will generate additional non-capital losses of approximately $XXXXXXXXXX per year.

5. Parent has permanent establishments in XXXXXXXXXX. Parent’s income for the XXXXXXXXXX taxation year was XXXXXXXXXX.

6. Profitco 1 is a resident of Canada for purposes of the Act and a taxable Canadian corporation. Profitco 1 is a wholly owned indirect subsidiary of Parent and its primary business is XXXXXXXXXX. The authorized capital of Profitco 1 consists of XXXXXXXXXX. Profitco 1 has a XXXXXXXXXX taxation year-end. Profitco 1’s head office is located at XXXXXXXXXX. Profitco 1's Taxation Centre is XXXXXXXXXX.

7. Profitco 1 has a permanent establishment in XXXXXXXXXX. The provincial allocation of Profitco 1 for the XXXXXXXXXX taxation year is as follows:

XXXXXXXXXX

8. Profitco 1's taxable income was $XXXXXXXXXX in its XXXXXXXXXX taxation year. In the absence of the Proposed Transactions, it is expected that Profitco 1's taxable income will be $XXXXXXXXXX in its XXXXXXXXXX taxation year. The estimated taxable income for Profitco 1 is anticipated to be $XXXXXXXXXX for the XXXXXXXXXX taxation year and XXXXXXXXXX taxation year, respectively.

9. Profitco 2 is a resident of Canada for purposes of the Act and a taxable Canadian corporation. Profitco 2 is a wholly owned indirect subsidiary of Parent and its primary business is XXXXXXXXXX. The authorized capital of Profitco 2 consists of XXXXXXXXXX. Profitco 2 has a XXXXXXXXXX taxation year-end. Profitco 2's head office is located at XXXXXXXXXX. Profitco 2’s Taxation Centre is XXXXXXXXXX.

10. Profitco 2 has a permanent establishment in XXXXXXXXXX. The provincial allocation of Profitco 2 for the XXXXXXXXXX taxation year is estimated to be as follows:

XXXXXXXXXX

11. Profitco 2's taxable income was $XXXXXXXXXX in its XXXXXXXXXX taxation year. In the absence of the Proposed Transactions, it is expected that Profitco 2's taxable income will be $XXXXXXXXXX in its XXXXXXXXXX taxation year. The estimated taxable income for Profitco 2 is anticipated to be $XXXXXXXXXX for the XXXXXXXXXX taxation year and XXXXXXXXXX taxation year, respectively.

12. Profitco 3 is a resident of Canada for purposes of the Act and a taxable Canadian corporation. Profitco 3 is a wholly owned indirect subsidiary of Parent and its primary business is XXXXXXXXXX. The authorized capital of Profitco 3 consists of XXXXXXXXXX. Profitco 3 has a XXXXXXXXXX taxation year-end. Profitco 3's head office is located at XXXXXXXXXX. Profitco 3’s Taxation Centre is XXXXXXXXXX.

13. Profitco 3 has a permanent establishment in XXXXXXXXXX. The provincial allocation of Profitco 3 for the XXXXXXXXXX taxation year is estimated to be as follows:

XXXXXXXXXX

14. Profitco 3's taxable income was $XXXXXXXXXX in its XXXXXXXXXX taxation year. In the absence of the Proposed Transactions, it is expected that Profitco 3's taxable income will be $XXXXXXXXXX in its XXXXXXXXXX taxation year. The estimated taxable income for Profitco 2 is anticipated to be $XXXXXXXXXX for the XXXXXXXXXX taxation year and XXXXXXXXXX taxation year, respectively.

PROPOSED TRANSACTIONS

15. Newco will be incorporated under the CBCA. Newco will be a XXXXXXXXXX a taxable Canadian corporation. Newco’s fiscal and taxation year-end will be XXXXXXXXXX. The authorized capital of Newco will consist of two classes of shares, common shares and preferred shares (the “Newco Preferred Shares”). The Newco Preferred Shares will be non-voting and redeemable and retractable for the amount for which they are issued.

16. Upon incorporation of Newco, Parent will subscribe for XXXXXXXXXX common shares of Newco for $XXXXXXXXXX. Newco will not carry on any business and its activities will be limited to the issuance of the Newco Preferred Shares to New LP, described in Paragraph 24, and making a non-interest-bearing loan to Parent, as described in Paragraph 25. Newco will XXXXXXXXXX.

17. Dividends on the Newco Preferred Shares will accrue on a daily basis calculated on the amount for which the shares were issued and will be payable annually in arrears on XXXXXXXXXX. The dividend rate expressed as a percentage of the amount for which the Newco Preferred Shares were issued, will be equal to the sum of XXXXXXXXXX% plus the interest on the Parent Loan, presently estimated to be XXXXXXXXXX% per annum.

18. GPCo will be incorporated under the CBCA with authorized capital consisting of common shares. GPCo will be a taxable Canadian corporation. GPCo's fiscal and taxation year-end will be XXXXXXXXXX. Upon incorporation of GPCo, Parent will subscribe for XXXXXXXXXX common share of GPCo for $XXXXXXXXXX. GPCo will not carry on any business and its activities will be limited to acting as the general partner of New LP.

19. New LP will be formed under the laws of the province of XXXXXXXXXX and will be a Canadian Partnership. GPCo will be the general partner of New LP. Through its general partner interest, GPCo will control New LP. Each of XXXXXXXXXX will be the limited partners of New LP. New LP's activities will be limited to investing the loan proceeds received from Parent in the Newco Preferred Shares, as described in Paragraph 24. The fiscal and taxation year-end of New LP will be XXXXXXXXXX.

20. New LP, once formed, will XXXXXXXXXX, and will at all relevant times, be a Canadian Partnership and not be a SIFT partnership.

21. On the formation of New LP, GPCo will acquire a general partnership interest for $XXXXXXXXXX and XXXXXXXXXX will acquire limited partnership interests in New LP for, in aggregate, $XXXXXXXXXX. The entitlement to distributions and the allocation of income from New LP will be apportioned to the New LP Partners in proportion to each partner's ownership percentage at the end if its fiscal period (the "Partnership Allocation"). Based on the contributions to New LP described in this paragraph, each of the New LP Partners' percentage ownership interest in New LP will be as follows:

(a) GPCo: XXXXXXXXXX%
(b) Profitco 1: XXXXXXXXXX%
(c) Profitco 2: XXXXXXXXXX%
(d) Profitco 3: XXXXXXXXXX%

22. Parent will borrow on a "daylight loan" basis (the "Daylight Loan") from an unrelated arm's length financial institution. The principal amount of the Daylight Loan is estimated to be $XXXXXXXXXX. The exact principal amount of the Daylight Loan will be finalized when the Proposed Transactions are implemented. The principal amount of the Daylight Loan will not exceed the amount that Parent could borrow from an arm's length financial institution and will not cause Parent to contravene any debt covenants. Parent will fund the fees or costs associated with the Daylight Loan with existing cash or by borrowing externally and will not be borrowing from any of its affiliates in the Parent Group.

23. Parent will use the Daylight Loan proceeds to make an interest-bearing demand loan to New Partnership (the "New LP Loan"). The interest rate on the New LP Loan will be determined based on market conditions at the time the loan is made, which will not exceed what would be a reasonable commercial arm's length rate in these circumstances, presently estimated to be XXXXXXXXXX% per annum. The aggregate principal amount of the New LP Loan will not cause Parent or New LP to contravene any debt covenants in existence. Interest on the New LP Loan will be payable annually on XXXXXXXXXX.

24. New LP will use the proceeds of the New LP Loan to subscribe for Newco Preferred Shares having an aggregate redemption amount and fair market value equal to the total amount of the subscription proceeds. The full amount of the subscription proceeds will be added to the stated capital of the Newco Preferred Shares and will form part of the permanent capital of Newco. The paid up capital of the Newco Preferred Shares will be equal to their redemption amount.

25. Newco will use the proceeds received from the Newco Preferred Shares subscription, described in Paragraph 24 to make a non-interest-bearing loan to Parent (the "Parent Loan"). The Parent Loan will be payable on demand.

26. Parent will use the proceeds received from the Parent Loan to repay the Daylight Loan.

27. Parent and Newco will enter into a capital support agreement. The agreement will provide for the contribution of capital by Parent to Newco in a manner that allows Newco to satisfy its dividend obligations on the Newco Preferred Shares.

28. All of the transactions described in Paragraphs 15 to 27 will take place on the same day and in the order described.

29. Subsequent to the transactions described in Paragraphs 15 to 27, on or about XXXXXXXXXX of each fiscal year other than the year in which the loss consolidation arrangement is wound-up described in Paragraph 34, Parent will make a contribution of capital to Newco in an amount equal to the accrued dividends payable, as at that time, by Newco on the Newco Preferred Shares. No shares will be issued by Newco to Parent with respect to the contribution of capital and no amount will be added to Newco's stated capital of any class of shares, and for greater certainty, the paid up capital of any class of shares of Newco.

30. Immediately upon receipt of the contributions of capital for a particular fiscal year, described in Paragraph 29, Newco will pay all dividends on the Newco Preferred Shares that are accrued and unpaid at that time.

31. Immediately upon receipt of the dividends for a particular fiscal year, described in Paragraph 30, New LP will pay all interest that is accrued and unpaid as at that time, pursuant to the terms of the New LP Loan.

32. New LP will have nominal or no operating expenses other than interest on the New LP Loan. Consequently, except as noted immediately following, no further reference to these other nominal expenses need to be made. For greater certainty, each year the amount of dividend income earned on the Newco Preferred Shares will exceed the aggregate, in that particular year, of the amount of interest accrued on the New LP Loan, plus the nominal amount of any other expenses incurred by New LP. Therefore, each year during which this loss consolidation arrangement is in place, New LP will have net income computed in accordance with subsection 96(1).

33. Any amount of the Newco Preferred Share dividend received by New LP in excess of the interest expense incurred on the New LP Loan will be distributed to each of the New LP Partners no sooner than XXXXXXXXXX of the following year in accordance with the New LP Partners' Allocation percentages.

34. The loss consolidation arrangement outlined in the Proposed Transactions will be unwound on or before XXXXXXXXXX. The following transaction steps will be undertaken to unwind the structure:

(a) Parent will make a contribution of capital to Newco in an amount equal to the accrued dividends payable, as at that time, on the Newco Preferred Shares. No shares will be issued by Newco with respect to the contribution of capital and no amount will be added to the stated capital of any class of shares of Newco, and, for greater certainty, the paid-up capital of any class of shares of Newco.

(b) Immediately upon receipt of the contribution of capital, described in Paragraph 34(a), Newco will pay all dividends on the Newco Preferred Shares that are accrued and unpaid as at that time.

(c) Immediately, upon receipt of the payment of the dividends, described in Paragraph 34(b), New LP will pay all interest on the New LP Loan that is accrued and unpaid as at that time, pursuant to the terms of the New LP Loan.

(d) Immediately after the Proposed Transaction in Paragraph 34(c), Newco will redeem the Newco Preferred Shares held by New LP for their redemption amount in consideration for a non-interest-bearing promissory note issued by Newco (the "Newco Note"). The Newco Note will have a principal amount and fair market value equal to the redemption amount and fair market value of the Newco Preferred Shares redeemed.

(e) Immediately after the Proposed Transaction in Paragraph 34(d), New LP will repay the New LP Loan by assigning the Newco Note to Parent in full satisfaction of the amount due under the New LP Loan. The New LP Loan will be cancelled.

(f) Upon repayment of the New Partnership Loan, New Partnership will no longer have any liabilities.

(g) Parent and Newco will agree to set off an amount due under the Parent Loan against the amount due on the Newco Note as payment. The obligation under the Parent Loan and the Newco Note will be cancelled.

35. All of the transactions described in Paragraph 34 will take place on the same day and in the order described.

36. Subsequent to the completion of the transactions described in Paragraph 34, Newco will commence winding-up into Parent in accordance with the CBCA.

37. Parent, as sole shareholder of Newco, will pass resolutions authorizing and requiring Newco to be wound-up into Parent. Parent will file articles of dissolution with the appropriate corporate registry within a reasonable time after the wind-up resolutions are passed.

38. Any amount of the Newco Preferred Share dividend received by New LP in excess of the interest expense incurred on the New LP Loan as described in Paragraphs 34(b) and (c), will be distributed to each of the New LP Partners on or before January 1, 2026 in accordance with the New LP Partners’ Allocation percentages.

38.1 On or before XXXXXXXXXX, GPCo will cause New LP to dissolve in accordance with the Partnership Act, such that it will cease to exist. On the dissolution, New LP will distribute a proportionate interest in all of the property, if any, it owns to GPCo as the general partner, and XXXXXXXXXX as the limited partners, in proportion to their respective ownership percentages as described in Paragraph 21. For greater certainty, New LP should not have any property (or any liabilities) at the time of its dissolution and there should be no gain or loss on the wind-up of the partnership .

39. Parent, as sole shareholder of GPCo, will pass resolutions authorizing and requiring GPCo to be wound-up into Parent. Parent will file articles of dissolution with the appropriate corporate registry within a reasonable time after the wind-up resolutions are passed.

ADDITIONAL INFORMATION

40. At the time of the Proposed Transactions:

(a) Parent, New LP and Newco will have the financial capacity to satisfy the applicable solvency test and liquidity test under their respective governing statutes to service any debt issued as part of the Proposed Transactions;

(b) Parent will have the financial capacity, including accessing its leverage capacity, to make the capital contributions to Newco as described in Paragraphs 34 above; and

(c) Newco will have the financial capacity to satisfy the applicable solvency test and liquidity test under the CBCA required to pay the dividends on the Newco Preferred Shares as described in Paragraphs 30 and 34(b).

41. Control of GPCo, Parent and XXXXXXXXXX has not been acquired by any person or group of persons during any preceding taxation year that is relevant for the purpose of applying subsection 111(5) of the Act to the Proposed Transactions.

42. Parent and XXXXXXXXXX are affiliated persons and related persons and have been since their respective formation. GPCo and Newco will be affiliated persons and a related persons with respect to Parent and each of XXXXXXXXXX. The structure will be wound-up before XXXXXXXXXX in a manner described in Paragraph 34 if any entity previously mentioned in this paragraph ceases to be affiliated following an acquisition of control by a non-affiliated third-party.

43. The sole purpose for New LP to subscribe to the Newco Preferred Shares is to execute the Proposed Transactions. Thus, neither New LP, GPCo nor XXXXXXXXXX will acquire or be considered to acquire the Newco Preferred Shares in the ordinary course of their business.

44. The Newco Preferred Shares will not, at any time during the implementation of the Proposed Transactions described herein, be:

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

(b) the subject of a "dividend rental arrangement" as contemplated in subsection 112(2.3) and as defined in subsection 248(1);

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

(d) issued for consideration that is or includes:

(h) an obligation of the type described in subparagraph 112(2.4)(b)(i) or

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

45. The Newco Preferred Shares will be term preferred shares.

46. XXXXXXXXXX.

47. Newco and New LP will not be used for any other purposes than those described in the Proposed Transactions. Parent will not claim, at any time, a capital loss in respect of its capital contribution in Newco. Parent does not have the intention to extend or manipulate the expiry dates of its existing non-capital loss carryforward balance), and the Taxpayers will seek to unwind the arrangements at a time that is intended to prevent any significant loss carry-forward balance. Further, Newco and each of XXXXXXXXXX will never be insolvent.

48. XXXXXXXXXX.

49. Parent has an independent source of income from XXXXXXXXXX and the New LP that exceeds the amount of dividends payable on the Newco Preferred Shares over the course of the loss consolidation arrangement. If needed, Parent can obtain funds to finance the capital contribution by virtue of a daylight loan or intercompany loans with an entity other than XXXXXXXXXX or the New LP.

50. The dividends paid on the Newco Preferred Shares to New LP, as described in Paragraphs 30 and 34(b) have no purpose other than the purpose described under the heading "Purpose of the Proposed Transactions".

51. The Proposed Transactions will be legally effective.

PURPOSE OF THE PROPOSED TRANSACTIONS

52. Absent the Proposed Transactions, it is expected that Parent will annually generate non-capital losses, which would accumulate and remain unused without implementation of the Proposed Transactions. The anticipated non-capital losses will approximate $XXXXXXXXXX per taxation year. Accordingly, the purpose of the Proposed Transactions is to allow for the consolidation of the Parent non-capital losses that would have otherwise been created if it was not for the Proposed Transactions, with the taxable income of XXXXXXXXXX.

53. The tax attributes of Parent and XXXXXXXXXX will remain the same except for the transfer of the non-capital losses. There is no advantage or benefit conferred on any shareholder of the companies. The Proposed Transactions will not be undertaken to refresh non-capital losses or facilitate the use of such losses in a taxation year subsequent to the taxation year in which the losses would have otherwise expired.

54. The purpose of the Proposed Transactions is to effect a tax consolidation of the Parent and XXXXXXXXXX by causing Parent to earn interest income on the New LP Loan, thus permitting it to utilize its non-capital loss carry forwards, and to have XXXXXXXXXX being attributed interest expense thereby allowing XXXXXXXXXX to reduce their income for the taxation years while this Ruling letter remains in effect. The purpose of the tax consolidation is not to shift income to a lower rate province. Any shift of income between provinces will be incidental to the Proposed Transactions.

55. The purpose of both the payment and the receipt of the dividends on the Newco Preferred Shares, described in Paragraphs 30 and 34(b), is to provide a reasonable return on the Newco Preferred Shares issued by Newco to New LP. Furthermore, the purpose of the dividends is not to reduce the fair market value or capital gain of any shares, nor to increase the total cost amounts of properties of New LP, GPco, Profitco 1, Profitco 2 or Profitco 3.

56. The New LP Loan is being made to New LP, instead of having Parent make the New LP Loan directly to XXXXXXXXXX, to ensure that Profitco 1, Profitco 2 and Profitco 3, which are regulated entities, do not incur debt in order to implement the loss utilization arrangement.

57. The purpose of incorporating Newco is to have Newco issue the Newco Preferred Shares to New LP, rather than having Parent issue preferred shares directly to New LP, which would give rise to corporate law and regulatory constraints.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the Purpose of the Proposed Transactions, and further provided that the Proposed Transactions are completed in the manner described above and there are no other transactions which may be relevant to the rulings requested, we rule as follows:

A. Provided that New LP has a legal obligation to pay interest on the New LP Loan and New LP continues to hold the Newco Preferred Shares it acquires in the manner described in Paragraph 24 for the purpose of gaining or producing income from property, New LP will, pursuant to paragraph 20(1)(c), be entitled to deduct, in computing its income for a taxation year (depending on the method regularly followed by New LP in computing its income for the purposes of the Act), the lesser of: (i) the interest paid or payable on the New LP Loan in respect of that taxation year; and (ii) a reasonable amount in respect thereof.

B. No amount will be included in the income of Newco pursuant to section 9, paragraphs 12(1)(c) or 12(1)(x) in respect of the contributions of capital to be made by Parent as described in Paragraphs 29 and 34(a).

C. The dividends received by New LP in respect of the Newco Preferred Shares in a particular year as described in Paragraphs 30 and 34(b) will be taxable dividends and, pursuant to subsection 112(1), an amount equal to the amount of those dividends that is allocated to a New LP Partner will be deductible in computing the taxable income of the New LP Partner for the year in which the dividends are received and allocated by New LP to the New LP Partner in accordance with subsection 96(1). For greater certainty, such deductions will not be precluded by any of subsections 112(2.1), 112(2.2), 112(2.3) or 112(2.4).

D. To the extent that New Partnership has net income in a particular year, computed in accordance with subsection 96(1), in that particular year each New LP Partner will be required to report its share of that income in accordance with their respective ownership interest in New LP and in accordance with paragraph 96(1)(f). For greater certainty, in that case, none of the New LP Partners will have a share of any loss from New Partnership for that year and consequently subsection 96(2.1) would not apply to them for that particular year.

E. Part IV of the Act will not apply to the dividends described in Ruling C.

F. Subsections 103(1) and 103(1.1) will not apply to re-determine the allocation of any income or loss of New LP from the manner described in Paragraph 21.

G. The provisions of subsections 15(1), 56(2), 69(1), 69(11) and 246(1) will not apply to the Proposed Transactions, in and by themselves.

H. Provided that the only purpose of the dividends in Paragraphs 30 and 34(b) is what is described in the "Purposes of the Proposed Transactions" above, and the Proposed Transactions are undertaken in the manner described above, subsection 55(2) will not apply in respect of the dividends received by New LP in respect of the Newco Preferred Shares as described in Paragraphs 30 and 34(b) above.

I. The General Anti-avoidance Provision of an Agreeing Province 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 above, in respect of a taxation year for which such Province was an Agreeing Province.

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

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions, as described in Paragraphs 15 to 28, are entered into on or before XXXXXXXXXX; the Proposed Transactions related to the payment of interest and dividends and to the wind-up, as described in Paragraphs 29 to 37, are entered into on or before XXXXXXXXXX; and the Proposed Transactions related to the distribution of dividends and to the wind-up and dissolution of New LP and GPCo, as described in Paragraphs 38 to 39, are entered into on or before XXXXXXXXXX.

COMMENTS

Nothing in this letter should be construed as implying that the CRA has agreed to, reviewed or has made any determination in respect of:

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

(b) the reasonableness or fair market value of any fees or expenditures referred to herein;

(c) the amount of any non-capital loss, net capital loss or any other amount of any corporation referred to herein;

(e) the provincial income tax implications relating to the allocation of income and expenses under the Proposed Transactions;

(f) subject to Ruling I, the application or non-application of a general anti-avoidance provision of any province;

(g) the application of the proposed Excessive Interest and Financing Expenses Limitation rules contained in draft legislation released on February 4, 2022 to the Proposed Transactions; and

(h) any tax consequences relating to the Facts and Proposed Transactions described herein, other than those specifically described in the rulings given above.

Yours sincerely,

XXXXXXXXXX
for Director
Partnerships and Corporate Financing Section
Reorganizations Division
Income Tax Rulings Directorate

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