2022-0941241R3 Internal reorganization: subs and partnerships

Principal Issues: The principal issue in this ruling is CRA's interpretation of the term "wound-up" in the context of meeting the statutory conditions of subsection 88(1). The other issue is whether the conditions of subsection 98(5) have been met.

Position: The conditions of subsections 88(1) and 98(5) have been met.

Reasons: Our positions are consistent with the tax legislation and the tax policy underlying these provisions.

Author: XXXXXXXXXX
Section: 88(1), 98(5), 245

XXXXXXXXXX                                                             2022-094124

XXXXXXXXXX, 2023

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling – Internal Re-organization
       XXXXXXXXXX

We are writing in response to your request for an advance income tax ruling (“Ruling request”) dated 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, Preliminary Transactions 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 used in this Ruling request that are defined in the Act (or in the Regulations) have the meanings given to them in such definitions;

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 the 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;

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

“Canadian partnership” has the meaning assigned by subsection 102(1);

“CRA” means the Canada Revenue Agency;

“CRP” refers to “Canadian resource property” and has the meaning assigned by subsection 66(15);

“capital gain” has the meaning assigned by paragraph 39(1)(a);

“capital loss” has the meaning assigned by paragraph 39(1)(b);

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

“Corporate Group” means ParentCo, Subco, Partnership A, Partnership B, Partnership C, and Partnership D, collectively;

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

“CCDE” refers to “cumulative Canadian development expense” and has the meaning assigned by subsection 66.2(5);

“CCEE” refers to “cumulative Canadian exploration expense” and has the meaning assigned by subsection 66.1(6);

“CCOGPE” refers to “cumulative Canadian oil and gas property expense” and has the meaning assigned by subsection 66.4(5);

“Declaration of Dissolution” XXXXXXXXXX, whereby one of the partners of a dissolving partnership file a declaration with the XXXXXXXXXX under the XXXXXXXXXX stating that the partnership has dissolved and the specific date of dissolution;

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

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

“elected amount” means the amount that a transferor and a transferee have agreed on in a joint election under subsection 97(2) in respect of the transfer of a qualifying property;

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

“Excess ParentCo Payable_1” has the meaning assigned in Paragraph 52;

“Excess ParentCo Payable_2” has the meaning assigned in Paragraph 65;

“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;

“Land” means land, as defined XXXXXXXXXX, without any improvement whatsoever, and for clarity, excepting therefrom all CRP and any depreciable property attached thereto that is owned by and used in the business of Partnership C and Partnership D, as the case may be;

XXXXXXXXXX;

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

“NewCo1” means a corporation to be incorporated as part of the Preliminary Transactions, as described in Paragraph 37;

“NewCo2” means a corporation to be incorporated as part of the Preliminary Transactions, as described in Paragraph 43;

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

“Other Related Entities” refers to other corporations and partnerships that are related to the entities in the Corporate Group, but are not specifically described herein;

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

“ParentCo” means XXXXXXXXXX;

“ParentCo Group” refers to the Corporate Group and Other Related Entities, collectively;

“ParentCo Note” refers to the intercompany payable that Partnership B owes to ParentCo, that is non-interest bearing with no fixed terms of repayment and due on demand and that will be partially settled as part of the Preliminary Transactions, as described in Paragraph 33;

“ParentCo Note Receivable” refers to the unsecured, subordinated promissory note owed by ParentCo to Partnership A of $XXXXXXXXXX, which bears interest at the prime rate plus XXXXXXXXXX% per annum, with no specified terms of repayment;

“Partnership A” means XXXXXXXXXX;

“Partnership B” means XXXXXXXXXX;

“Partnership C” means XXXXXXXXXX;

“Partnership D” means XXXXXXXXXX;

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

“Preliminary Transactions” means the transactions described in Paragraphs 29 to 47;

“prepaid expenses” refers to rights arising from the prepayment of expenses;

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

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

“Proposed Transactions” means the transactions described in Paragraphs 48 to 73;

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

“Pubco” means XXXXXXXXXX, a public corporation that exists under Act1, the common shares of which are listed on the XXXXXXXXXX;

“qualifying property” means any property (other than an eligible derivative, as defined in subsection 10.1(5), if subsection 10.1(6) applies) that is a capital property, CRP, foreign resource property or inventory;

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

“Set-Off Loan_1” is referred to in Paragraph 52 and is a non-interest bearing demand loan with no specific terms of repayment other than that all or a portion of it can be legally settled by offsetting amounts owing by ParentCo to Partnership C;

“Set-Off Loan_2” is referred to in Paragraph 65 and is a non-interest bearing demand loan with no specific terms of repayment other than that all or a portion of it can be legally settled by offsetting amounts owing by ParentCo to Partnership D;

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

“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 herein 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;

“SubCo” means XXXXXXXXXX;

“Successor CCEE” refers to a pool of CCEE that is deductible in accordance with the rules in subsection 66.7(3) of the Act;

“Successor CCDE” refers to a pool of CCDE that is deductible in accordance with the rules in subsection 66.7(4) of the Act;

“Successor CCOGPE” refers to a pool of CCOGPE that is deductible in accordance with the rules in subsection 66.7(5) of the Act;

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

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

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

FACTS

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

Corporations

1. ParentCo is a TCC incorporated on XXXXXXXXXX. ParentCo was continued under Act1 on XXXXXXXXXX. ParentCo is a public corporation, the shares of which are listed on the XXXXXXXXXX.

2. ParentCo’s business is the XXXXXXXXXX. ParentCo has a XXXXXXXXXX taxation year- end.

3. SubCo is a TCC incorporated on XXXXXXXXXX under Act1. SubCo has been a wholly-owned subsidiary of ParentCo continuously since XXXXXXXXXX. The date of the last acquisition of control of SubCo was XXXXXXXXXX. SubCo amalgamated with predecessor corporations, under Act1, on XXXXXXXXXX.

4. SubCo’s business is the XXXXXXXXXX. SubCo has a XXXXXXXXXX taxation year-end.

5. SubCo is authorized to issue an unlimited number of Class A, Class B, and Class C common shares, without nominal or par value, as well as an unlimited number of Class A preferred shares, issuable in series.

6. As of XXXXXXXXXX, SubCo had the following issued and outstanding shares, with the following tax attributes:

Shareholder	Number	Class	ACB	PUC
ParentCo	XXXXX	Class A Common	XXXXX	XXXXX
	XXXXX	Class C Common	XXXXX	XXXXX

7. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX taxation year-end, SubCo’s primary assets are as follows:

(a) Investments in Partnerships (described further below):

    Partnership interest in Partnership A (XXXXXXXXXX%),
    Partnership interest in Partnership B (XXXXXXXXXX%),
    Partnership interest in Partnership C (XXXXXXXXXX%),
    Partnership interest in Partnership D (XXXXXXXXXX%),

(b) Receivable from ParentCo (non-interest bearing with no fixed terms of repayment);

(c) CRP;

(d) Depreciable Property; and

(e) Deferred income taxes.

8. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX year-end, SubCo’s primary liabilities are as follows:

(a) Income taxes payable,

(b) Loan from ParentCo (non-interest bearing with no fixed terms of repayment), and

(c) Due to Other Related Entities (non-interest bearing with no fixed terms of repayment).

9. Pursuant to its tax returns for its XXXXXXXXXX taxation year, SubCo has the following balances in the tax accounts listed below:

(a) Net capital loss    $XXXXXXXXXX
(b) NCL                     $XXXXXXXXXX
(c) UCC                     $XXXXXXXXXX
(d) CCDE                   $XXXXXXXXXX
(e) CCOGPE              $XXXXXXXXXX
(f) Successor CCEE   $XXXXXXXXXX
(g) Successor CCDE  $XXXXXXXXXX

10. At all relevant times, ParentCo and SubCo are Canadian residents for purposes of the Act.

11. All employees of the Corporate Group are employed by ParentCo, thus, SubCo does not have any employees.

Partnerships

12. Partnership A is a general partnership that was formed under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. It is a Canadian partnership. Its members are ParentCo (XXXXXXXXXX%) and SubCo (XXXXXXXXXX%). Its fiscal year-end is XXXXXXXXXX.

13. Partnership A’s business is the XXXXXXXXXX. Partnership A has no employees. Its primary asset is the ParentCo Note Receivable ($XXXXXXXXXX), based on its XXXXXXXXXX unaudited non-consolidated balance sheet. Partnership A’s primary source of income is interest from the ParentCo Note Receivable.

14. Partnership B is a general partnership that was formed under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. It is a Canadian partnership. Its members are ParentCo (XXXXXXXXXX%) and SubCo (XXXXXXXXXX%). Its fiscal year-end is XXXXXXXXXX.

15. Partnership B carries on an XXXXXXXXXX. Partnership B has no employees. Its primary assets are its partnership interests in Partnership C (XXXXXXXXXX%) and Partnership D (XXXXXXXXXX%), based on its XXXXXXXXXX unaudited balance sheet.

16. As of XXXXXXXXXX, Partnership B owed approximately $XXXXXXXXXX to ParentCo pursuant to the ParentCo Note.

17. Partnership C is a general partnership that was formed under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. It is a Canadian partnership. Its members are ParentCo (XXXXXXXXXX%), SubCo (XXXXXXXXXX%) and Partnership B (XXXXXXXXXX%). Its fiscal year-end is XXXXXXXXXX.

18. Partnership C’s business is the XXXXXXXXXX.

19. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX fiscal year-end, Partnership C’s primary assets are as follows:

(a) Current assets including accounts receivable, prepaid expenses and inventory;

(b) Common shares of Pubco;

(c) Depreciable property;

(d) CRP;

(e) Due from ParentCo (non-interest bearing with no fixed terms of repayment);

(f) Note receivable from ParentCo (non-interest bearing with no fixed terms of repayment);

(g) Due from Partnership A (non-interest bearing with no fixed terms of repayment);

(h) Due from Partnership D (non-interest bearing with no fixed terms of repayment);

(i) Due from Other Related Entities (non-interest bearing with no fixed terms of repayment);

(j) Long-term prepaid expenses and marketing inventory; and

(k) Investment in Partnership D (XXXXXXXXXX%) (described further below).

20. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX fiscal year-end, Partnership C’s primary liabilities are as follows:

(a) Current liabilities including accounts payable and accrued liabilities,

(b) Amounts due to Other Related Entities (non-interest bearing with no fixed terms of repayment),

(c) Accrual for long-term lease obligations (includes contingent liabilities), and

(d) Accrual for asset retirement obligations (includes contingent liabilities).

21. Partnership D is a general partnership that was formed under the laws of the province of XXXXXXXXXX on XXXXXXXXXX. It is a Canadian partnership. Its members are ParentCo (XXXXXXXXXX%), SubCo (XXXXXXXXXX%), Partnership B (XXXXXXXXXX%), and Partnership C (XXXXXXXXXX%). Its fiscal year-end is XXXXXXXXXX.

22. Partnership D owns XXXXXXXXXX.

23. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX fiscal year-end, Partnership D’s primary assets are as follows:

(a) Current assets including accounts receivable, prepaid expenses and inventory;

(b) Common shares of Pubco;

(c) CRP;

(d) Depreciable property; and

(e) Due from ParentCo (non-interest bearing with no fixed terms of repayment).

24. Pursuant to its unaudited, non-consolidated balance sheet for its XXXXXXXXXX fiscal year-end, Partnership D’s primary liabilities are as follows:

(a) Current liabilities including accounts payable,

(b) Due to Partnership C (non-interest bearing with no fixed terms of repayment),

(c) Amounts due to Other Related Entities (non-interest bearing with no fixed terms of repayment), and

(d) Accrual for asset retirement obligations (includes contingent liabilities).

25. The following table presents the ACB of each member’s interest in each of the partnerships as of XXXXXXXXXX, and the FMV of each member’s interest in each of the partnerships as of XXXXXXXXXX:

	ParentCo	PARTNERS	Partnership B	Partnership C
		SubCo
Partnership A	FMV= $XXXXX	FMV=$XXXXX
	ACB= $XXXXX	ACB= $XXXXX
Partnership B	FMV= $XXXXX	FMV= $XXXXX
	ACB=$XXXXX	ACB= XXXXX
Partnership C	FMV= $XXXXX	FMV=$ XXXXX	FMV= $ XXXXX
	ACB= $XXXXX	ACB=$ XXXXX	ACB= $ XXXXX
Partnership D	FMV= $XXXXX	FMV= $ XXXXX	FMV= $ XXXXX	FMV= $ XXXXX
	ACB= $XXXXX	ACB= $ XXXXX	ACB= $ XXXXX	ACB= $ XXXXX

26. Each member of Partnership A, Partnership B, Partnership C and Partnership D own and hold their respective interests in the above partnerships as capital property.

27. It is anticipated that the FMV and the ACB of each member’s interests in the above-noted partnerships will differ from the above on the dates of the implementation of the Preliminary Transactions and the Proposed Transactions; however, such changes will not change the Preliminary Transactions and the Proposed Transactions described herein.

28. SubCo is currently in dispute with the CRA regarding the results of multiple CRA audits, dating back to its XXXXXXXXXX taxation year. These disputes are in various stages of resolution, and although it is intended that SubCo will resolve all outstanding issues as soon as possible, it is not expected that these disputes will be resolved prior to the implementation of the Proposed Transactions.

PRELIMINARY TRANSACTIONS

The following transactions will be completed before the Proposed Transactions, and for clarity, are part of the same series of transactions and events as the Proposed Transactions that follow.

Disposition of properties at FMV

29. Partnership C and Partnership D will sell CRP with an aggregate FMV estimated to be between approximately $XXXXXXXXXX and $XXXXXXXXXX, to ParentCo, for cash consideration.

Transfer of Partnership B’s interest in Partnership D to Partnership C

30. Partnership B will transfer all of its XXXXXXXXXX% partnership interest in Partnership D to Partnership C. As consideration for its interest in Partnership D, Partnership B will receive additional Partnership C interests with an aggregate FMV equal to the aggregate FMV of its XXXXXXXXXX% partnership interest in Partnership D, at the time of the transfer.

31. Partnership B and all the members of Partnership C will jointly-elect, in accordance with subsection 96(3), in prescribed form and within the time limit referred to in subsection 96(4), to have the provisions of subsection 97(2) apply to this transfer. The elected amount in respect of this transfer will equal the ACB to Partnership B of the XXXXXXXXXX% partnership interest in Partnership D, which will be the lesser of the two amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The elected amount will not exceed the FMV of Partnership B’s XXXXXXXXXX% partnership interest in Partnership D at the time of the transfer.

32. After this transfer, the members of Partnership D will be:

	Partnership D
ParentCo	XXXXX%
SubCo	XXXXX%
Partnership C	XXXXX%

Transfer of Partnership B’s interest in Partnership C to ParentCo as a debt repayment

33. Immediately after the transaction described in Paragraph 30, Partnership B will dispose of all of its partnership interests in Partnership C to ParentCo as a partial repayment of the ParentCo Note. This transaction will occur at FMV, and is expected to result in a capital gain for Partnership B in the fiscal year-end in which this disposition occurs to the extent that the FMV of its interest in Partnership C exceeds its ACB, at the time of the disposition to ParentCo.

34. Partnership B will allocate this capital gain to its partners in accordance with the terms of the Partnership Agreement for Partnership B.

35. The ParentCo Note will be reduced by an amount equal to the FMV of Partnership B’s partnership interest in Partnership C, at the time of the disposition. ParentCo will accept Partnership B’s interest in Partnership C as partial consideration for the balance owing to it by Partnership B under the ParentCo Note. The remaining balance of the ParentCo Note will remain outstanding and payable by Partnership B to ParentCo.

36. After this transfer, the members of Partnership C will be:

	Partnership C
ParentCo	XXXXX%
SubCo	XXXXX%

Incorporation of NewCo1 and SubCo’s transfer of its interests in Partnerships A and B

37. At some point during the implementation of the Preliminary Transactions, ParentCo will incorporate NewCo1 under Act1. NewCo1 will be a TCC at all relevant times. NewCo1 will have a XXXXXXXXXX taxation year-end.

38. The authorized share capital of NewCo1 will include an unlimited number of common shares that will be voting, participating and without par value.

39. At the time of incorporation, ParentCo will subscribe for common shares of NewCo1 with cash equal to the aggregate FMV of SubCo’s interests in Partnership A and Partnership B, at that time.

40. SubCo will dispose of its partnership interests in Partnership A and Partnership B to NewCo1, at FMV, in exchange for cash consideration. It is expected that the dispositions will result in capital losses to SubCo to the extent that the ACB of Partnership A exceeds its FMV, and the ACB of Partnership B exceeds its FMV, at the time of the transfers to Newco1. Both of these anticipated capital losses will be deemed nil pursuant to subsections 40(3.3) and 40(3.4).

41. After this disposition, the members of Partnership A and Partnership B will be:

	Partnership A	Partnership B
ParentCo	XXXXX%	XXXXX%
NewCo1	XXXXX%	XXXXX%

42. NewCo1 will remain a member of Partnership A and Partnership B for the foreseeable future, and these partnerships will remain in existence following the Proposed Transactions. As of the date of this letter, there are no current and immediate approved plans to further restructure the organization of Partnership A or Partnership B.

Incorporation of NewCo2 and SubCo’s transfer of its interest in Partnership D

43. SubCo will incorporate NewCo2 under Act1. NewCo2 will be a TCC at all relevant times. NewCo2 will have a XXXXXXXXXX taxation year-end.

44. The authorized share capital of NewCo2 will include an unlimited number of common shares that will be voting, participating and without par value.

45. SubCo will transfer all of its XXXXXXXXXX% partnership interest in Partnership D to NewCo2. As consideration therefor, SubCo will receive common shares of NewCo2 with an aggregate FMV equal to the aggregate FMV of SubCo’s interest in Partnership D, at the time of the transfer.

46. SubCo and NewCo2 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, to the extent that such property transferred constitutes an eligible property. The agreed amount in respect of this election will equal the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). The agreed amount will not exceed the FMV of SubCo’s XXXXXXXXXX% partnership interest in Partnership D at the time of the transfer.

NewCo2 will add to the stated capital account for its common shares, an amount equal to the agreed amount in respect of the eligible property so transferred. For greater certainty, the amount added to the stated capital account for the common shares of NewCo2 to be issued by NewCo2 to SubCo as consideration for the property so transferred by SubCo will not exceed the maximum amount that could be added to the PUC of such shares without a reduction taking place pursuant to subsection 85(2.1).

47. After this transfer, the members of Partnership D will be:

	Partnership D
ParentCo	XXXXX%
NewCo2	XXXXX%
Partnership C	XXXXX%

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.

Settlement of Intercompany balances

48. Partnership D will repay its balance owing to Partnership C, in cash, on or before the Proposed Transaction described in Paragraph 55, in accordance with the annual cash management policies of the ParentCo Group.

49. ParentCo will repay its balances owing to SubCo, Partnership C and Partnership D, in cash, on or before the Proposed Transaction described in Paragraph 55, in accordance with the annual cash management policies of the ParentCo Group. For clarity, this includes the Note Receivable that ParentCo owes to Partnership C.

50. SubCo will repay its balance owing to ParentCo, in cash, on or before the Proposed Transaction described in Paragraph 55, in accordance with the annual cash management policies of the ParentCo Group.

51. Partnership C will use its cash to repay its liabilities on or before the Proposed Transaction described in Paragraph 55.

52. To the extent that there is a remaining amount owing by ParentCo to Partnership C prior to the Proposed Transaction described in Paragraph 55 (the “Excess ParentCo Payable_1”), ParentCo will make a loan to Partnership C (“Set-Off Loan_1”) with a principal amount at least equal to the Excess ParentCo Payable_1.

53. The Excess ParentCo Payable_1, if any, will be legally set-off against a portion of Set-Off Loan_1 in the amount that is equal to the Excess ParentCo Payable_1.

54. To the extent that Partnership C has unpaid liabilities prior to the Proposed Transaction described in Paragraph 55 (including the remaining balance of Set-Off Loan_1, if any), ParentCo will assume those unpaid liabilities, and this will constitute a contribution of capital by ParentCo to Partnership C.

Wind-up of SubCo

55. No later than XXXXXXXXXX, SubCo will, by written resolution of the directors (and pursuant to the terms of a winding-up agreement), expressly stated to be effective on the date of that resolution, commence proceedings to wind-up and distribute all of its property (which includes its shares of NewCo2 and its partnership interest in Partnership C) to ParentCo. As part of the winding-up, and in accordance with the winding-up agreement, ParentCo will assume all of SubCo’s liabilities (including its contingent liabilities, but excluding liabilities owing by SubCo to ParentCo, if any, which will be extinguished without any payment). Additionally, SubCo will file a statement of intent to dissolve pursuant to XXXXXXXXXX.

56. As soon as practicable following the distribution of its properties to ParentCo and the resolution of the outstanding litigation matters with the CRA, ParentCo will pass a special resolution to formally dissolve SubCo in accordance with the provisions XXXXXXXXXX.

During the intervening time between the distribution of property and the formal corporate dissolution, SubCo will not own or acquire any property, or carry on any activity or undertaking, other than such activity as may be required to pursue the outstanding litigation matters.

57. SubCo will cease to be a partner in Partnership C upon the transfer of its partnership interest in Partnership C to ParentCo on the distribution described above.

As a result of the transfer by SubCo to ParentCo of its partnership interest in Partnership C, and the filing of the Declaration of Dissolution indicating that Partnership C is dissolved on the same date as the written resolution described in Paragraph 55 above, Partnership C will cease to exist as a matter of law and ParentCo will become the sole owner of all of the property of Partnership C (which will include its interest in Partnership D). In addition, as a result of the transfer, ParentCo will become solely responsible for all of the remaining liabilities (including contingent liabilities) of Partnership C, if any. Formal notice that Partnership C has ceased to exist will be sent out to its contractual partners informing them that ParentCo will be assigned all of Partnership C’s contractual responsibilities.

For greater certainty, there will not be any time interval between the time of the cessation of Partnership C’s existence and the time that all property of Partnership C is distributed to ParentCo.

58. Immediately after the particular time when Partnership C will cease to exist, ParentCo will carry on alone the business that was the business of Partnership C for the purpose of earning income, and will continue to use, in the course of carrying on that business, all the property that was, immediately before the particular time, property of Partnership C that will be received by ParentCo, upon the cessation of Partnership C in accordance with its legal entitlement to that property.

  For greater certainty, ParentCo will:

(a) receive income from former Partnership C property that became property of ParentCo on the cessation of Partnership C, including income from Partnership D; and

(b) receive its share of partnership distributions from Partnership D, as a result of receiving Partnership C’s interest therein on the cessation of Partnership C.

59. Where the amount determined under subparagraph 98(5)(a)(i) exceeds the amount determined under paragraph 98(5)(a)(ii), ParentCo will make designations under paragraph 98(5)(c) in respect of the common shares of Pubco and/or the Land that is transferred to it in connection with the cessation of Partnership C by filing a statement that contains all relevant information with ParentCo’s income tax return for the taxation year in which it received the partnership property. For clarity, ParentCo will not make a designation under paragraph 98(5)(c) in respect of the interest in Partnership D or any other property of Partnership C.

60. To the extent that there is a balance owing between SubCo and ParentCo at the time of the winding-up and distribution of SubCo’s property, ParentCo will elect under paragraph 80.01(4)(c) in prescribed form on or before the day on or before which ParentCo is required to file a return of income pursuant to section 150 for the taxation year that includes the time that liabilities owing between ParentCo and SubCo are settled on the winding-up of SubCo.

61. After the dissolution of Partnership C, the members of Partnership D will be:

	Partnership D
ParentCo	XXXXX%
NewCo2	XXXXX%

Settlement of Intercompany balances

62. NewCo2 will repay its balance owing to ParentCo, if any, in cash, on or before the Proposed Transaction described in Paragraph 68, in accordance with the annual cash management policies of the ParentCo Group.

63. ParentCo will repay its balances owing to Partnership D and NewCo2, if any, in cash, on or before the Proposed Transaction described in Paragraph 68, in accordance with the annual cash management policies of the ParentCo Group.

64. Partnership D will use its cash to repay its liabilities, if any, on or before the Proposed Transaction described in Paragraph 68.

65. To the extent that there is a remaining amount owing by ParentCo to Partnership D prior to the Proposed Transaction described in Paragraph 68 (the “Excess ParentCo Payable_2”), ParentCo will make a loan to Partnership D (“Set-Off Loan_2”) with a principal amount at least equal to the Excess ParentCo Payable_2.

66. The Excess ParentCo Payable_2, if any, will be legally set-off against a portion of Set-Off Loan_2 in the amount that is equal to the Excess ParentCo Payable_2.

67. To the extent that Partnership D has unpaid liabilities prior to the Proposed Transaction described in Paragraph 68 (including the remaining balance of Set-Off Loan_2, if any), ParentCo will assume those unpaid liabilities, and this will constitute a contribution of capital by ParentCo to Partnership D.

Wind-up of NewCo2

68. No earlier than one week after the Proposed Transaction described in Paragraph 55 and no later than XXXXXXXXXX, NewCo2 will, by written resolution of the directors (and pursuant to the terms of a winding-up agreement) expressly stated to be effective on the date of that resolution, commence proceedings to wind-up and distribute all of its property (which includes its partnership interest in Partnership D) to ParentCo. As part of the winding-up, and in accordance with the winding-up agreement, ParentCo will assume all of NewCo2’s liabilities (including its contingent liabilities, but excluding liabilities owing by NewCo2 to ParentCo, if any, which will be extinguished without any payment). Additionally, NewCo2 will file a statement of intent to dissolve pursuant to XXXXXXXXXX.

69. As soon as practicable following the distribution of its properties to ParentCo and the resolution of the outstanding litigation matters with the CRA, ParentCo will pass a special resolution to formally dissolve NewCo2 in accordance with the provisions of XXXXXXXXXX.

During the intervening time between the distribution of property and the formal corporate dissolution, NewCo2 will not own or acquire any property, or carry on any activity or undertaking, other than such activity as may be required to pursue the outstanding litigation matters.

70. NewCo2 will cease to be a partner in Partnership D upon the transfer of its partnership interest in Partnership D to ParentCo.

As a result of the transfer by NewCo2 to ParentCo of its partnership interest in Partnership D, and the filing of the Declaration of Dissolution indicating that Partnership D is dissolved on the same date as the written resolution described in Paragraph 68 above, Partnership D will cease to exist as a matter of law and ParentCo will become the sole owner of all of the property of Partnership D. In addition, as a result of the transfer, ParentCo will become solely responsible for all of the remaining liabilities (including contingent liabilities) of Partnership D, if any. Formal notice that Partnership D has ceased to exist will be sent out to contractual partners informing them that ParentCo will be assigned all of Partnership D’s contractual responsibilities.

For greater certainty, there will not be any time interval between the time of the cessation of Partnership D’s existence and the time that all property of Partnership D is distributed to ParentCo.

71. Immediately after the particular time when Partnership D will cease to exist, ParentCo will carry on alone the business that was the business of Partnership D for the purpose of earning income, and will continue to use, in the course of carrying on that business, all the property that was, immediately before the particular time, property of Partnership D that will be received by ParentCo, upon the cessation of Partnership D, in accordance with its legal entitlement to that property.

For greater certainty, ParentCo will receive income from former Partnership D property that became property of ParentCo on the cessation of Partnership D.

72. Where the amount determined under subparagraph 98(5)(a)(i) exceeds the amount determined under paragraph 98(5)(a)(ii), ParentCo will make designations under paragraph 98(5)(c) in respect of the common shares of Pubco and/or the Land that is transferred to it in connection with the cessation of Partnership D by filing a statement that contains all relevant information with ParentCo’s income tax return for the taxation year in which it received the partnership property. ParentCo will not make a designation under paragraph 98(5)(c) in respect of any other property of Partnership D.

73. To the extent that there is a balance owing between NewCo2 and ParentCo at the time of the winding-up and distribution of NewCo2’s property, ParentCo will elect under paragraph 80.01(4)(c) in prescribed form on or before the day on or before which ParentCo is required to file a return of income pursuant to section 150 for the taxation year that includes the time that liabilities owing between ParentCo and NewCo2 are settled on the winding-up of NewCo2.

ADDITIONAL INFORMATION

74. The intercompany balances between SubCo and ParentCo are all denominated in Canadian currency, and this will be the case immediately before they are settled before the Proposed Transaction described in Paragraph 55.

75. The intercompany balances between NewCo2 and ParentCo, if any, will be denominated in Canadian currency, and this will be the case immediately before they are settled before the Proposed Transaction described in Paragraph 68.

76. The sole reason for the delay of the formal dissolutions of SubCo and NewCo2 under Act1 is due to the existence of the outstanding litigation matters described in Paragraph 28.

77. The common shares of Pubco are owned and held by Partnership C and Partnership D as capital property.

78. For greater certainty, ParentCo has no intentions or plans to dispose of any assets held by Partnership C or Partnership D, or to discontinue any of their respective businesses. However, the management and rationalization of assets is part of the ongoing and regular business activities of Partnership C and Partnership D, therefore certain assets may be exchanged or disposed of in the future, in accordance with these ongoing business activities.

79. There will be no amount designated by ParentCo under paragraph 88(1)(d) in respect of the capital property that it will receive from SubCo and NewCo2 on their respective wind-ups, described in Paragraphs 55 – 56 and Paragraphs 68 – 69, respectively.

80. None of the transactions described herein will result in an acquisition of control of a corporation included in the Corporate Group.

81. ParentCo expects to earn income from the CRP transferred to it by Partnership C and Partnership D, as described in Paragraph 29, that is at least equal to the amount of the Successor CCDE and Successor CCOGPE related to that CRP that may have otherwise been stranded pursuant to the application of subsection 66.7(16) as a result of the dissolution of the partnerships.

82. All Proposed Transactions will be legally effective under Act1 and undertaken in accordance with the applicable partnership legislation in the XXXXXXXXXX.

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

PURPOSES OF THE PROPOSED TRANSACTIONS

84. ParentCo, Partnership C and Partnership D all engage in significant and complex business activities. It is the intent and purpose of the Proposed Transactions to simplify the structure of the Corporate Group and to consolidate all these significant business activities and processes into a single corporate entity (ParentCo). The simplification of the structure of the Corporate Group will significantly reduce the complexity of business processes and administrative costs. The Taxpayers want to ensure that they can achieve this purpose on a tax-efficient basis.

85. The purpose of the Proposed Transactions described in Paragraphs 52 - 53, Paragraph 60, Paragraphs 65 - 66 and Paragraph 73 is to mitigate the tax implications associated with the potential application of the debt forgiveness rules in section 80 of the Act.

86. The Preliminary Transaction described in Paragraph 29 will be undertaken to reduce the balance of the Successor CCDE and Successor CCOGPE before the dissolution of Partnership C and Partnership D, to minimize the risk that subsection 66.7(16) would apply as a consequence of the transfers of certain CRP to ParentCo by Partnership C and Partnership D on the dissolution of each such partnership.

87. The Preliminary Transactions described in Paragraphs 30 to 47, will be undertaken to simplify and facilitate the dissolutions of Partnership C and Partnership D. Furthermore, the purpose of incorporating NewCo2 and the transfer by SubCo of its partnership interest in Partnership D thereto (as described in Paragraphs 43 to 47) is to prevent the cessation of Partnership D that may otherwise occur as a consequence of the winding-up of SubCo. For administrative and operational reasons, the Taxpayers do not want to dissolve both Partnership C and Partnership D at the same time.

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, and there are no other transactions which may be relevant to the rulings below, we confirm the following:

A. Subject to subsection 69(11), the provisions of subsection 88(1) will apply on the winding-up of SubCo into ParentCo, as described in Paragraphs 55 – 56, and on the winding-up of Newco2 into ParentCo, as described in Paragraphs 68 – 69, such that:

(a) each property of Subco and Newco2 (except their respective interests in a partnership), as the case may be, distributed to ParentCo on each respective winding-up will be deemed by paragraph 88(1)(a) to have been disposed of by SubCo or Newco2, as the case may be, for proceeds of disposition determined under that paragraph;

(b) pursuant to paragraph 88(1)(a.2),

(i) on the winding-up of Subco into ParentCo, Subco will be deemed not to have disposed of its interest in Partnership C, except for the purposes of paragraph 98(5)(g); and

(ii) on the winding-up of NewCo2 into ParentCo, NewCo2 will be deemed not to have disposed of its interest in Partnership D, except for the purposes of paragraph 98(5)(g);

(c) the shares in the capital stock of SubCo and Newco2, held by ParentCo, immediately before the winding-up of each entity, will be deemed by paragraph 88(1)(b) to have been disposed of by ParentCo for proceeds of disposition determined under that paragraph; and

(d) each property of SubCo and NewCo2, as the case may be, distributed to ParentCo, on the respective winding-up, will be deemed to have been acquired by ParentCo at a cost determined in accordance with paragraph 88(1)(c).

B. To the extent that each of Partnership C and Partnership D is a Canadian partnership that will cease to exist by operation of law, in the case of

(a) Partnership C, upon the wind-up of SubCo into ParentCo, as described in Paragraphs 57 – 59; and

(b) Partnership D, upon the wind-up of NewCo2 into ParentCo, as described in Paragraphs 70 – 72,

and provided that, within 3 months of each partnership ceasing to exist, ParentCo carries on alone the business of each such partnership using all the property of each such partnership that it received as proceeds of disposition for its interest in each such partnership, in the course of carrying on those businesses (as described in Paragraphs 58 and 71), the provisions of subsection 98(5) will apply, such that:

(c) pursuant to paragraph 98(5)(a), ParentCo’s proceeds of disposition of its interest in each such partnership will be deemed to be an amount equal to the greater of:

(i) The total of:

1. the ACB to ParentCo of its interest in the respective partnership immediately before the cessation of that partnership, and

2. the ACB to ParentCo of the interest in the respective partnership deemed by paragraph 98(5)(g) to have been acquired by ParentCo at the time the relevant partnership ceased to exist, and

(ii) The total of :

1. the cost amount to the respective partnership, immediately before its cessation, of each of its properties received by ParentCo as proceeds of disposition for its interest in the respective partnership, and

2. the amount of any other proceeds of the disposition of ParentCo’s interest in the respective partnership received by ParentCo.

(d) pursuant to paragraph 98(5)(b), the cost to ParentCo of each property received by it upon the cessation of each such partnership will be deemed to be an amount equal to the total of:

(i) the cost amount to the respective partnership of the property immediately before the cessation of that partnership; and

(ii) where the amount determined under subparagraph 98(5)(a)(i), in respect of a particular partnership, exceeds the amount determined under subparagraph 98(5)(a)(ii), in respect of that same partnership, the amount determined under paragraph 98(5)(c) in respect of the property.

(e) pursuant to paragraph 98(5)(f), the respective partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to that partnership of the property immediately before that partnership ceased to exist; and

for greater certainty, the CRP and XXXXXXXXXX (if any) will have a cost amount of nil.

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

OTHER 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) whether a particular property referred to herein is held on account of income or capital;

(c) the balance of the CCOGPE, CCDE, CCEE, NCL, net capital loss, or any other tax account for any corporation described herein;

(d) the existence of one or more separate businesses of the Taxpayers or partnerships described herein;

(e) whether or not the debt forgiveness provisions in section 80 or 80.01 will apply as a result of one or more of the Preliminary Transactions or the Proposed Transactions; or

(f) 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
Manager
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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