2022-0957571R3 Cross-Border Butterfly

Principal Issues: Whether the Canadian butterfly transactions, as described below, in the context of a cross-border butterfly, meet legislative and administrative requirements?

Position: Transactions meet requirements.

Reasons: Consistent with law and administrative requirements.

Author: XXXXXXXXXX
Section: 55(2), 55(3)(b), 55(3.1), 55(3.2)(h), 212.1(1), 212.1(1.1), 212.1(1.2)

XXXXXXXXXX                                                                     2022-095757

XXXXXXXXXX, 2023

    Re: XXXXXXXXXX
    Advance Income Tax Ruling Request

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

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

(i) in a previously filed tax return of the taxpayers or persons related to the taxpayers;

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

(iii) under objection by the taxpayers or persons related to the taxpayers;

(iv) the subject of a current or completed court process involving the taxpayers or persons related to the taxpayers; or

(v) the subject of an advance income ruling previously issued by the Income Tax Rulings Directorate.

I. ENTITIES INVOLVED

Throughout this letter, the entities below will be referred to as follows:

“Canco 1” means XXXXXXXXXX, a corporation governed by Act 2 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Canco 2” means XXXXXXXXXX, a corporation governed by Act 2 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Canco 3” means XXXXXXXXXX, corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“CanGP 1” means XXXXXXXXXX, a general partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 1” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 2” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 3” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 4” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 5” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 6” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time that and for all purposes of the Act, a Canadian Partnership;

“CanLP 7” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“CanLP 8” means XXXXXXXXXX, a limited partnership governed by the laws of Province 1 that is and will be, at any relevant time and for all purposes of the Act, a Canadian Partnership;

“Cansub 1” means XXXXXXXXXX corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 2” means XXXXXXXXXX, a corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 3” means XXXXXXXXXX corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 4” means XXXXXXXXXX corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 5” means XXXXXXXXXX, a corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 6” means XXXXXXXXXX, a corporation governed by Act 1 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Cansub 7” means XXXXXXXXXX, a corporation governed by Act 2 that is and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“DC” means XXXXXXXXXX corporation governed by Act 1 that is, and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation;

“Forco 1” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 2” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 3” means XXXXXXXXXX governed by the laws of XXXXXXXXXX;

“Forco 4” means XXXXXXXXXX, a corporation governed by the laws of Country 6;

“Forco 5” means XXXXXXXXXX governed by the laws of XXXXXXXXXX;

“Forco 6” means XXXXXXXXXX, a corporation governed by the laws of Country 1;

“Forco 7” means XXXXXXXXXX governed by the laws of XXXXXXXXXX;  

“Forco 8” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 9” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 10” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 11” means XXXXXXXXXX governed by the laws of XXXXXXXXXX;

“Forco 12” means XXXXXXXXXX, a corporation governed by the laws of Country 7;

“Forco 13” means XXXXXXXXXX, a corporation governed by the laws of Country 8;

“Forco 14” means XXXXXXXXXXgoverned by the laws of XXXXXXXXXX;

“Forco 15” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 16” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 17” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Forco 18” means XXXXXXXXXX, governed by the laws of XXXXXXXXXX;

“Forsub 1” means XXXXXXXXXX, a corporation governed by the laws of Country 5;

“Forsub 2” means XXXXXXXXXX, a corporation governed by the laws of Country 2;

“Forsub 3” means XXXXXXXXXX, a corporation governed by the laws of Country 1;

“Forsub 4” means XXXXXXXXXX, a corporation governed by the laws of Country 3;

“Forsub 5” means XXXXXXXXXX, a corporation governed by the laws of Country 4;

“Forsub 6” means XXXXXXXXXX, a corporation governed by the laws of Country 3;

“Foreign Pubco” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX;

“Foreign Pubco Spinco” means XXXXXXXXXX, a corporation governed by the laws of XXXXXXXXXX as described in Paragraph 102;

“Foreign Spinco” means XXXXXXXXXX governed by the laws of XXXXXXXXXX as described in Paragraph 103;

“New Partnerco” means the corporation to be formed under Act 2 on the Amalgamation, as described in Paragraph 192. New Partnerco will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation. New Partnerco will request the CRA to ensure that New Partnerco retains Canco 1’s business number. New Partnerco will file its annual corporate income tax return at the XXXXXXXXXX;

“Partnerco” means XXXXXXXXXX corporation governed by the laws of Act 1 as described in Paragraph 105(c). Partnerco’s business number is XXXXXXXXXX. Partnerco will file its annual corporate income tax return at the XXXXXXXXXX;

“Spinco” means XXXXXXXXXX corporation governed by the laws of Act 1 as described in Paragraph 105(a). Spinco’s business number is XXXXXXXXXX. Spinco will file its annual corporate income tax return at the XXXXXXXXXX;

“Spinco Partnerco” means XXXXXXXXXX corporation governed by the laws of Act 1 as described in Paragraph 105(b). Spinco Partnerco’s business number is XXXXXXXXXX. Spinco Partnerco will file its annual corporate income tax return at the XXXXXXXXXX;

“Target 1” means XXXXXXXXXX, a corporation that dealt at Arm’s Length with the Foreign Pubco Group before Acquisition 2, as described in Paragraph 97;

“Target 2” means XXXXXXXXXX, a corporation that dealt at Arm’s Length with the Foreign Pubco Group before Acquisition 3, as described in Paragraph 98;

“Target 3” means XXXXXXXXXX, a corporation that deals at Arm’s Length with the Foreign Pubco Group; and

“TC” means XXXXXXXXXX corporation governed by the laws of Act 1, as described in Paragraph 104. TC will file its annual corporate income tax return at the XXXXXXXXXX.

II. DEFINITIONS

Unless otherwise expressly stated, every reference herein to the “Act” or to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and any reference to a Regulation is a reference to the relevant provision of the Income Tax Regulations (Canada), C.R.C., c.945 as amended from time to time and consolidated to the date of this letter (referred to as the “Regulations”).

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

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

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

“Act” means the Income Tax Act (Canada) R.S.C. 1985 (5th Supp.) c. 1 (as amended);

“Act 1” means the XXXXXXXXXX;

“Act 2” means the XXXXXXXXXX;

“Acquisition 1” has the meaning described in Paragraph 96;

“Acquisition 2” has the meaning described in Paragraph 97;

“Acquisition 3” has the meaning described in Paragraph 98;

“Acquisition 4” has the meaning described in Paragraph 99;

“Acquisition 5” has the meaning described in Paragraph 99.1

“Additional Cash Transfer” has the meaning described in Paragraph 163;

“Agreed Amount” means the amount agreed on by the transferor and transferee in respect of the transfer of an Eligible Property in a joint election filed pursuant to subsection 85(1);

“Amalgamation” means the amalgamation of Partnerco, Canco 1 and Canco 2 to form New Partnerco, as more particularly described in Paragraph 192;

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

“Business Segment 1” means the business segment described in Paragraph 3(a);

“Business Segment 2” means the business segment described in Paragraph 3(b);

“Business Segment 3” means the business segment described in Paragraph 3(c);

“Butterfly Percentage” means the proportion, expressed as a percentage, that the aggregate net FMV of the business property owned by the DC Group that relates to the Canadian Spin Business is of the aggregate net FMV of all the business property of the DC Group, in each case, determined: (a) immediately before the DC Transfer, and (b) using the principles set out in Paragraphs 158 and 159;

“Canadian Keep Business” has the meaning set out in Paragraph 14;

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

“Canadian Spin Business” has the meaning set out in Paragraph 14;

“Cansub 7 Loan” has the meaning set out in Paragraph 16;

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

“Capital Reorganization” has the meaning set out in Paragraph 144;

“CDA” means capital dividend account as that term is defined in subsection 89(1);

XXXXXXXXXX;

“Completed Transactions” means the transactions described in Paragraph 102 to Paragraph 137;

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

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

“Country 1” means XXXXXXXXXX;

“Country 2” means XXXXXXXXXX;

“Country 3” means XXXXXXXXXX;

“Country 4” means XXXXXXXXXX;

“Country 5” means XXXXXXXXXX;

“Country 6” means XXXXXXXXXX;

“Country 7” means XXXXXXXXXX;

“Country 8” means XXXXXXXXXX;

“Country 9” means XXXXXXXXXX;

“Country 10” means XXXXXXXXXX;

“Country 11” means XXXXXXXXXX;

“Country 12” means XXXXXXXXXX;

“Country 13” means XXXXXXXXXX;

“Country 14” means XXXXXXXXXX;

“Country 15” means XXXXXXXXXX;

“Country 16” means XXXXXXXXXX;

“Country 17” means XXXXXXXXXX;

“Country 18” means XXXXXXXXXX;

“CRA” means the Canada Revenue Agency;

“DC Common Shares” means the common shares which DC is authorized to issue;

“DC Contribution” has the meaning set out in Paragraph 139;

“DC Dividend” means the dividend, deemed by subsection 84(3), to have been paid by DC and received by TC, arising on the redemption of the DC Special Shares, as referred to in Ruling E;

“DC Group” means, collectively, DC and all corporations and partnerships over which DC exercises Significant Influence consisting of Spinco, Spinco Partnerco, Partnerco, Cansub 1, Cansub 2, Cansub 4, Cansub 5, Cansub 6, Cansub 7, CanLP 1, CanLP 2, CanLP 3, CanLP 4, CanLP 5, CanLP 6, CanLP 7, CanLP 8, CanGP 1, Forsub 1, Forsub 2, Forsub 3, Forsub 4, Forsub 5 and Forsub 6;

“DC New Common Shares” means the common shares which DC will be authorized to issue, as described in Paragraph 144;

“DC New Shares” means the DC New Common Shares and the DC Special Shares;

“DC Redemption” has the meaning set out in Paragraph 169(b);

“DC Redemption Amount” has the meaning set out in Paragraph 144(b);

“DC Redemption Note” means the demand promissory note issued by DC in favour of TC, as described in Paragraph 169(b), having a Principal Amount and FMV equal to the aggregate DC Redemption Amount;

“DC Special Shares” means the preferred shares which DC will be authorized to issue, as described in Paragraph 144;

“DC Transfer” has the meaning set out in Paragraph 161;

“Designated Stock Exchange” has the meaning assigned by subsection 248(1);

“Distribution Property” has the meaning described in Paragraph 161;

“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, within the meaning of subsection 129(4);

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

“Financial Intermediary Corporation” has the meaning assigned by subsection 191(1);

XXXXXXXXXX;

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

“Forco 3 Exchange 1” has the meaning assigned by Paragraph 146;

“Forco 3 Exchange 2” has the meaning assigned by Paragraph 152;

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

“Foreign Keep Businesses” has the meaning assigned by Paragraph 100(b);

“Foreign Pubco Group” means Foreign Pubco and the direct and indirect subsidiaries and partnerships that are directly or indirectly controlled by Foreign Pubco;

“Foreign Pubco Spinco Group” means Foreign Pubco Spinco and the direct and indirect subsidiaries and partnerships that will be directly or indirectly controlled by Foreign Pubco Spinco;

“Foreign Spin Business” has the meaning assigned by Paragraph 100(a);

“Foreign Spinco XXXXXXXXXX” has the meaning assigned by Paragraph 103;

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

XXXXXXXXXX;

“NERDTOH” means non-eligible refundable dividend tax on hand, within the meaning of subsection 129(4);

“New Partnerco Common Shares” means the common shares which New Partnerco will be authorized to issue, as described in Paragraph 192(b);

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

“Partnerco Common Shares” means the common shares which Partnerco is authorized to issue, as described in Paragraph 105(c);

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

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

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

“Proposed Transactions” means the transactions described in Paragraph 138 to Paragraph 193. The transactions described in Paragraph 138 were completed on XXXXXXXXXX. The transactions described in Paragraphs 172 to 173 were completed on XXXXXXXXXX. The transactions described in Paragraphs 139 to 170 were completed on XXXXXXXXXX. The transactions described in Paragraph 171 and Paragraphs 174 to 182 were completed on XXXXXXXXXX, and the transaction described in Paragraph 193 will be implemented on XXXXXXXXXX;

“Province 1” means XXXXXXXXXX;

“Province 2” means XXXXXXXXXX;

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

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

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

“Rulings” means the advance income tax rulings labelled “A” to “I” in this letter;

“Safe Income” in respect of a particular dividend received (as part of a transaction or event or a Series of Transactions or Events) on a particular share means the income earned or realized (as determined for purposes of section 55) by any corporation after 1971 and before the Safe-Income Determination Time for the transaction, event or series that could reasonably be considered to contribute to the capital gain that could be realized on a disposition at FMV, immediately before the dividend, of the particular share;

“Safe-Income Determination Time” has the meaning assigned by subsection 55(1);

“Securities Exchange” means XXXXXXXXXX;

“Securities Exchange 2” means XXXXXXXXXX;

“Series of Transactions or Events” has the meaning assigned by subsection 248(10);

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

“Significant Influence” has the meaning assigned by section 3051.04 of the Accounting Standards for Private Enterprises or by IAS 28 of the International Financial Reporting Standards;

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

“Specified Investment Business” has the meaning assigned by subsection 125(7);

“Spin-Out” means the distribution of the common shares of Foreign Pubco Spinco to the shareholders of Foreign Pubco as described in Paragraph 193;

“Spinco Common Shares” means the common shares which Spinco is authorized to issue, as described in Paragraph 105(a);

“Spinco Partnerco Common Shares” means the common shares which Spinco Partnerco is authorized to issue, as described in Paragraph 105(b);

XXXXXXXXXX;

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

“Substantial Interest” has the meaning assigned by subsection 191(2);

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

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

“Taxable Dividend” has the meaning assigned by subsection 89(1);

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

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

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

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

“TC Assumed Liabilities” has the meaning set out in Paragraph 164(a);

“TC Common Shares” means the common shares which TC is authorized to issue, as described in Paragraph 104;

“TC Dividend” means the dividend, deemed by subsection 84(3), to have been paid by TC and received by DC, arising on the redemption of the TC Preferred Shares, as referred to in Ruling E;

“TC Preferred Shares” means the preferred shares which TC will be authorized to issue, as described in Paragraph 142;

“TC Redemption” has the meaning set out in Paragraph 169(a);

“TC Redemption Amount” has the meaning set out in Paragraph 142(a);

“TC Redemption Note” means the demand promissory note in the Principal Amount and FMV of the aggregate TC Redemption Amount issued by TC in favour of DC, as described in Paragraph 169(a);

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

“Three-Party Share Exchange” has the meaning assigned by Paragraph 153; and

“USD” means United States Dollars.

III. FACTS

Foreign Pubco

1. Foreign Pubco is a corporation formed under the laws of XXXXXXXXXX. The outstanding common shares of Foreign Pubco are XXXXXXXXXX, the market capitalization of Foreign Pubco was approximately USD$XXXXXXXXXX. Foreign Pubco is widely held, and, to the best of Foreign Pubco’s knowledge, the only shareholders owning more than XXXXXXXXXX% of the common shares of the capital stock of Foreign Pubco are:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX; and

(c) XXXXXXXXXX.

No person, or group of persons, controls Foreign Pubco.

2. Foreign Pubco has a XXXXXXXXXX Taxation Year that ends on XXXXXXXXXX.

Business of the Foreign Pubco Group

3. Foreign Pubco has organized its businesses into the following reportable business segments:

(a) Business Segment 1— XXXXXXXXXX.

Foreign Pubco’s XXXXXXXXXX.

Foreign Pubco’s XXXXXXXXXX.

For the fiscal year ended XXXXXXXXXX, the net sales for this business segment amounted to USD$XXXXXXXXXX and represented XXXXXXXXXX% of Foreign Pubco’s consolidated annual revenues;

(b) Business Segment 2— XXXXXXXXXX.

XXXXXXXXXX.

For the fiscal year ended XXXXXXXXXX, the net sales for this business segment amounted to USD$XXXXXXXXXX and represented XXXXXXXXXX% of Foreign Pubco’s consolidated annual revenues; and

(c) Business Segment 3— XXXXXXXXXX.

For the fiscal year ended XXXXXXXXXX, the net sales for this business segment amounted to USD$XXXXXXXXXX and represented XXXXXXXXXX% of Foreign Pubco’s consolidated annual revenues.

Foreign Pubco Group

Global Structure

4. Foreign Pubco conducts its business operations globally through subsidiary corporations and partnerships.

5. The portion of the Foreign Pubco Group that does not directly or indirectly own DC shares or that is not involved in the pre-butterfly packaging of Foreign Spinco is not described in this letter.

Foreign Pubco’s Direct Ownership in Foreign Pubco Spinco and Forco 1

6. Foreign Pubco directly owns all of the issued and outstanding shares of:

(a) Foreign Pubco Spinco. XXXXXXXXXX; and

(b) Forco 1 XXXXXXXXXX.

Forco 1’s Direct Ownership in Forco 2 and Indirect Ownership in Canco 3 and Forco 4

7. Forco 1:

(a) directly owns all of the issued and outstanding XXXXXXXXXX in Forco 2. XXXXXXXXXX;

(b) indirectly owns all of the issued and outstanding shares of Canco 3.

Canco 3 owns all of the issued and outstanding common shares of Cansub 3. Canco 3 acquired all of the Cansub 3 common shares from DC on XXXXXXXXXX, for cash consideration of $XXXXXXXXXX, as described in Paragraph 106.

Cansub 3 carries on a business in Canada that is included in Business Segment 2; and

(c) indirectly owns all of the issued and outstanding shares of Forco 4.

Forco 2’s Direct Ownership in Canco 1, Canco 2 and Forco 3

8. Forco 2 directly owns:

(a) all of the issued and outstanding common shares of Canco 1. Canco 1 directly owns XXXXXXXXXX class A common shares of Cansub 4;

(b) all of the issued and outstanding common shares of Canco 2. Canco 2 directly owns XXXXXXXXXX class B common shares of Cansub 4; and

(c) all of the issued and outstanding XXXXXXXXXX in Forco 3. XXXXXXXXXX.

    Forco 3’s Direct Ownership in DC and Foreign Spinco

9. Forco 3 directly owns:

(a) all of the issued and outstanding DC Common Shares; and

(b) all of the issued and outstanding XXXXXXXXXX in Foreign Spinco.

    Foreign Spinco’s Direct Ownership in TC and Forco 5 to Forco 18

10. Foreign Spinco directly owns:

(a) all of the issued and outstanding TC Common Shares;

(b) all of the issued and outstanding XXXXXXXXXX in Forco 5. XXXXXXXXXX;

(c) all of the issued and outstanding shares of Forco 6;

(d) all of the issued and outstanding XXXXXXXXXX in Forco 7. XXXXXXXXXX;

(e) all of the issued and outstanding shares of Forco 8;

(f) all of the issued and outstanding shares of Forco 9;

(g) all of the issued and outstanding shares of Forco 10;

(h) all of the issued and outstanding XXXXXXXXXX in Forco 11. XXXXXXXXXX;

(i) all of the issued and outstanding shares of Forco 12;

(j) all of the issued and outstanding shares of Forco 13;

(k) all of the issued and outstanding XXXXXXXXXX in Forco 14. XXXXXXXXXX;

(l) all of the issued and outstanding shares of Forco 15;

(m) all of the issued and outstanding shares of Forco 16;

(n) all of the issued and outstanding shares of Forco 17; and

(o) all of the issued and outstanding XXXXXXXXXX in Forco 18. XXXXXXXXXX.

Each of Forco 5, Forco 6, Forco 7, Forco 8, Forco 9, Forco 10, Forco 11, Forco 12, Forco 13, Forco 14, Forco 15, Forco 16, Forco 17 and Forco 18 carries on business in Business Segment 1.

DC

11. DC files its annual corporate income tax return at the XXXXXXXXXX and is serviced by XXXXXXXXXX.

DC is an XXXXXXXXXX, a Taxable Canadian Corporation and a Private Corporation. XXXXXXXXXX.

12. The authorized share capital of DC consists of an unlimited number of DC Common Shares. Currently, there are XXXXXXXXXX DC Common Shares issued and outstanding, each of which is entitled to XXXXXXXXXX vote per share.

All of the issued and outstanding DC Common Shares are owned by Forco 3.

The DC Common Shares are not Taxable Canadian Property.

13. DC, through its subsidiary corporations and partnerships, carries on business activities in Canada that involve each of Business Segment 1, Business Segment 2 and Business Segment 3.

14. The portion of Business Segment 1 is carried on in Canada by CanLP 5, CanLP 8, CanGP 1, Cansub 1, Cansub 4 and Cansub 5 (having an aggregate net FMV of approximately $XXXXXXXXXX) (the Canadian Spin Business) will be indirectly transferred to TC on the DC Transfer.

The business carried on by the DC Group other than the Canadian Spin Business is referred to as the Canadian Keep Business.

15. In its XXXXXXXXXX Taxation Year the DC Group’s net income totalled approximately $XXXXXXXXXX, with approximately XXXXXXXXXX% of the net income attributable to the Canadian Spin Business.  

16. DC owes $XXXXXXXXXX to Cansub 7 pursuant to two interest-bearing promissory notes issued by DC to Cansub 7 loans dated XXXXXXXXXX, as follows:

(a) a Canadian-Dollar denominated demand loan having a Principal Amount of $XXXXXXXXXX and bearing interest at XXXXXXXXXX%; and

(b) a Canadian-Dollar denominated term loan, maturing on the earlier of XXXXXXXXXX, and the occurrence of an event of default, having a Principal Amount of $XXXXXXXXXX and bearing interest at XXXXXXXXXX%.

(collectively referred to as the Cansub 7 Loan.)

17. The proceeds from the Cansub 7 Loan were used by DC to acquire XXXXXXXXXX% of the issued and outstanding shares of Cansub 2. The acquisition by DC of the Cansub 2 shares closed on XXXXXXXXXX.

DC Group

18. DC directly maintains voting control over Spinco, Spinco Partnerco, Partnerco, Cansub 1, Cansub 2, Cansub 4 and Cansub 5, and indirectly through its interest in corporations and majority interest in partnerships as described below maintains voting control over Cansub 6, Cansub 7, Forsub 1, Forsub 2, Forsub 3 and Forsub 5.

DC Direct Ownership

19. DC directly owns:

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

(b) all of the issued and outstanding common shares of Spinco Partnerco;

(c) all of the issued and outstanding common shares of Partnerco

(d) all of the issued and outstanding common shares of Cansub 1;

(e) XXXXXXXXXX% of the issued and outstanding common shares of Cansub 2;

(f) XXXXXXXXXX% of the issued and outstanding class A common shares of Cansub 4, representing XXXXXXXXXX% of the total voting shares issued by Cansub 4;

(g) all of the issued and outstanding preferred shares of Cansub 4;

(h) all of the issued and outstanding common shares of Cansub 5;

(i) all of the issued and outstanding shares of Cansub 6;

(j) XXXXXXXXXX% of all of the issued and outstanding common shares of Cansub 7;

(k) as a limited partner, XXXXXXXXXX units in CanLP 1;

(l) as a limited partner, XXXXXXXXXX units in CanLP 3;

(m) as a limited partner, XXXXXXXXXX units in CanLP 4;

(n) as a limited partner, XXXXXXXXXX units in CanLP 5;

(o) as a limited partner, XXXXXXXXXX units in CanLP 6;

(p) as a limited partner, XXXXXXXXXX units in CanLP 7;

(q) as a limited partner, XXXXXXXXXX units in CanLP 8; and

(r) as a general partner, XXXXXXXXXX units in CanGP 1.

Direct and Indirect Entities in the DC Group

Spinco

20. The issued share capital of Spinco consists of XXXXXXXXXX Spinco Common Shares.

21. DC is the sole shareholder of Spinco owning XXXXXXXXXX Spinco Common Shares, having an aggregate ACB of $XXXXXXXXXX.

Spinco Partnerco

22. The issued share capital of Spinco Partnerco consists of XXXXXXXXXX Spinco Partnerco Common Shares.

23. DC is the sole shareholder of Spinco Partnerco owning XXXXXXXXXX Spinco Partnerco Common Shares, having an aggregate ACB of $XXXXXXXXXX.

23.1 Spinco Partnerco directly owns:

(a) as general partner, 1 unit in CanLP 5;

(b) as general partner, 1 unit in CanLP 8; and

(c) as general partner, 1 unit in CanGP 1.

Partnerco

24. The issued share capital of Partnerco consists of XXXXXXXXXX Partnerco Common Shares.

25. DC is the sole shareholder of Partnerco owning XXXXXXXXXX Partnerco Common Shares, having an aggregate ACB of $XXXXXXXXXX.

25.1 Partnerco directly owns:

(a) as general partner, XXXXXXXXXX unit in CanLP 1;

(b) as general partner, XXXXXXXXXX of a unit in CanLP 3;

(c) as general partner, XXXXXXXXXX unit in CanLP 4;

(d) as general partner, XXXXXXXXXX unit in CanLP 6; and

(e) as general partner, XXXXXXXXXX unit in CanLP 7.

Cansub 1

26. Cansub 1 carries on a business in Canada that is included in Business Segment 1.

27. The issued share capital of Cansub 1 consists of common shares.

28. DC is the sole shareholder of Cansub 1.

Cansub 2

29. Cansub 2 carries on a business in Canada that is included in Business Segment 2.

30. The issued share capital of Cansub 2 consists of common shares.

31. The shareholders of Cansub 2 common shares consist of:

(a) DC as to XXXXXXXXXX%; and

(b) an Arm’s Length person as to XXXXXXXXXX%.

32. [Reserved].

33. [Reserved].

34. [Reserved].

Cansub 4

35. Cansub 4 carries on a business in Canada that is included in Business Segment 1.

36. The issued share capital of Cansub 4 consists of:

(a) class A common shares;

(b) class B common shares; and

(c) preferred shares.

The Cansub 4 class A common shares and class B common shares carry XXXXXXXXXX vote per share and, subject to the prior rights of the holders of preferred shares, pari passu participation rights. Dividends cannot be paid on the class A common shares or the class B common shares unless the value of the net assets of Cansub 4 will not be less than the aggregate redemption amount of all Cansub 4 preferred shares.

The Cansub 4 preferred shares are redeemable and retractable at a redemption amount set by the Cansub 4 directors and rank in priority to the class A common shares and class B common shares on liquidation, dissolution or winding up. The Cansub 4 preferred shares do not have a right to vote, unless required by applicable law.

37. Cansub 4 directly owns:

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

(b) all of the issued and outstanding shares of Forsub 3;

(c) XXXXXXXXXX% of the issued and outstanding shares of Forsub 4; and

(d) XXXXXXXXXX% of the issued and outstanding shares of Forsub 5.

38. The shareholders of Cansub 4 shares consist of:

(a) DC as to XXXXXXXXXX class A common shares (representing a total voting interest in Cansub 4 of XXXXXXXXXX%);

(b) Canco 1 as to XXXXXXXXXX class A common shares (representing a total voting interest in Cansub 4 of XXXXXXXXXX%);

(c) CanGP 1 as to XXXXXXXXXX class B common shares (representing a total voting interest in Cansub 4 of XXXXXXXXXX%);

(d) Canco 2 as to XXXXXXXXXX class B common shares (representing a total voting interest in Cansub 4 of XXXXXXXXXX%); and

(e) DC as to XXXXXXXXXX non-voting preferred shares.

38.1 The Safe Income that can reasonably be attributable to:

(a) the Cansub 4 class A common shares (owned by DC and Canco 1, as described in Paragraphs 38(a) and (b)), calculated as of XXXXXXXXXX, was approximately $XXXXXXXXXX; and

(b) the Cansub 4 class B common shares (owned by CanGP 1 and Canco 2, as described in Paragraphs 38(c) and (d)), calculated as of XXXXXXXXXX, was approximately $XXXXXXXXXX.

Cansub 5

39. Cansub 5 carries on a business in Canada that is included in Business Segment 1.

40. The issued share capital of Cansub 5 consists of common shares.

41. DC is the sole shareholder of Cansub 5.

42. Cansub 5 directly owns all of the issued and outstanding shares of Forsub 1.

Cansub 6

43. Cansub 6 carries on a business in Canada that is included in Business Segment 2.

44. The issued share capital of Cansub 6 consists of common shares.

45. DC is the sole shareholder of Cansub 6.

46. Cansub 6 directly owns, as the general partner, XXXXXXXXXX of a unit in CanLP 2.

Cansub 7

47. Cansub 7 carries on a financing business in Canada which provides in-group debt financing to members of the DC Group. Cansub 7’s only source of funding has been equity subscriptions made by its shareholders.

48. Cansub 7’s assets include the Cansub 7 Loan owing from DC, as described in Paragraph 16, in the aggregate Principal Amount of $XXXXXXXXXX.

49. The issued share capital of Cansub 7 consists of common shares.

50. The shareholders of Cansub 7 common shares consist of:

(a) CanLP 3 as to XXXXXXXXXX%;

(b) CanLP 4 as to XXXXXXXXXX%; and

(c) DC as to XXXXXXXXXX%.

CanLP 1

51. CanLP 1 is in the business of XXXXXXXXXX, including, as a limited partner, XXXXXXXXXX units in CanLP 2.

52. The partners of CanLP 1 consist of:

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

CanLP 2

53. CanLP 2 carries on a business in Canada that is included in Business Segment 2.

54. The partners of CanLP 2 consist of:

(a) Cansub 6, a general partner, as to XXXXXXXXXX of a unit (approximately XXXXXXXXXX%);

(b) CanLP 1, the limited partner, as to XXXXXXXXXX units (approximately XXXXXXXXXX%).

CanLP 3

55. CanLP 3 carries on a business in Canada that is included in Business Segment 2.

56. The partners of CanLP 3 consist of

(a) DC, the limited partner, as to XXXXXXXXXX units (approximately XXXXXXXXXX%); and

(b) Partnerco, the general partner, as to XXXXXXXXXX of a unit (approximately XXXXXXXXXX%).

56.1 CanLP 3 directly owns XXXXXXXXXX% of all of the issued and outstanding shares of Cansub 7.

CanLP 4

57. CanLP 4 carries on a business in Canada that is included in Business Segment 2 and Business Segment 3.

58. The partners of CanLP 4 consist of

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

58.1 CanLP 4 directly owns XXXXXXXXXX% of all of the issued and outstanding shares of Cansub 7.

CanLP 5

59. CanLP 5 carries on a business in Canada that is included in Business Segment 1.

60. The partners of CanLP 5 consist of:

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Spinco Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

CanLP 6

61. CanLP 6 carries on a business in Canada that is included in Business Segment 3.

62. The partners of CanLP 6 consist of:

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

CanLP 7

63. CanLP 7 carries on a business in Canada that is included in Business Segment 3.

64. The partners of CanLP 7 consist of:

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

CanLP 8

65. CanLP 8 carries on a business in Canada that is included in Business Segment 1.

66. The partners of CanLP 8 consist of:

(a) DC, the limited partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Spinco Partnerco, the general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

CanGP 1

67. CanGP 1 is in the business of XXXXXXXXXX.

68. The partners of CanGP 1 consist of:

(a) DC, a general partner, as to XXXXXXXXXX units (XXXXXXXXXX%); and

(b) Spinco Partnerco, a general partner, as to XXXXXXXXXX unit (XXXXXXXXXX%).

69. The managing partner of CanGP 1 is Spinco Partnerco.

70. CanGP 1 directly owns XXXXXXXXXX% of the issued and outstanding class B common shares of Cansub 4 (representing a total voting interest in Cansub 4 of XXXXXXXXXX%).

Forsub 1

71. Forsub 1 carries on a business in Country 5 that is included in Business Segment 1.

72. The issued share capital of Forsub 1 consists of common shares.

73. Cansub 5 is the sole shareholder of Forsub 1.

74. Forsub 1 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 5.

Forsub 2

75. Forsub 2 carries on a business in Country 2 that is included in Business Segment 1.

76. The issued share capital of Forsub 2 consists of common shares.

77. Cansub 4 is the sole shareholder of Forsub 2.

78. Forsub 2 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 4.

79. XXXXXXXXXX.

Forsub 3

80. Forsub 3 carries on a business in Country 1 that is included in Business Segment 1.

81. The issued share capital of Forsub 3 consists of common shares.

82. Cansub 4 is the sole shareholder of Forsub 3.

83. Forsub 3 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 4.

Forsub 4

84. Forsub 4 carries on a business in Country 3 that is included in Business Segment 1.

85. The issued share capital of Forsub 4 consists of common shares.

86. Cansub 4 owns XXXXXXXXXX% of the issued and outstanding Forsub 4 shares. All other Forsub 4 shares are owned by members of the Foreign Pubco Group that are not directly or indirectly owned by DC.

87. Forsub 4 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 4.

87.1 Forsub 4 directly owns:

(a) XXXXXXXXXX% of all of the issued and outstanding shares of Forsub 5; and

(b) XXXXXXXXXX% of all of the issued and outstanding shares of Forsub 6.

Forsub 5

88. Forsub 5 carries on a business in Country 4 that is included in Business Segment 1.

89. The issued share capital of Forsub 5 consists of common shares.

90. The shareholders of Forsub 5 common shares consist of:

(a) Cansub 4 as to XXXXXXXXXX%; and

(b) Forsub 4 as to XXXXXXXXXX%.

91. Forsub 5 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 4.

Forsub 6

92. Forsub 6 carries on a business in Country 3 that is included in Business Segment 1.

93. The issued share capital of Forsub 6 consists of common shares.

94. Forsub 4 owns XXXXXXXXXX% of all of the issued and outstanding Forsub 6 shares. All other Forsub 6 shares are owned by members of the Foreign Pubco Group that are not directly or indirectly owned by DC.

95. Forsub 6 is a Foreign Affiliate and a Controlled Foreign Affiliate of Cansub 4.

Other Transactions of Note

96. On XXXXXXXXXX, DC acquired XXXXXXXXXX% of the issued and outstanding shares of Cansub 2 (the Acquisition 1) from a vendor that dealt at Arm’s Length with the Foreign Pubco Group for consideration of approximately $XXXXXXXXXX.

XXXXXXXXXX.

Acquisition 1 was not undertaken in contemplation of the Completed Transactions or Proposed Transactions, and would have been undertaken irrespective of whether the Completed Transactions or Proposed Transactions were, or will be, implemented. Moreover, the Completed Transactions were not, and Proposed Transactions will not be, undertaken in contemplation of Acquisition 1 and would have been undertaken irrespective of whether Acquisition 1 was completed.  

97. On XXXXXXXXXX, Foreign Pubco acquired Target 1 (the Acquisition 2) from a vendor that dealt at Arm’s Length with the Foreign Pubco Group for consideration of approximately USD$XXXXXXXXXX.

XXXXXXXXXX.

None of the property acquired by the Foreign Pubco Group on Acquisition 2 is, or will be owned, directly or indirectly, by the DC Group during the course of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E.

Acquisition 2 was not undertaken in contemplation of the Completed Transactions or Proposed Transactions, and would have been undertaken irrespective of whether the Completed Transactions or Proposed Transactions were, or will be, implemented. Moreover, the Completed Transactions were not, and Proposed Transactions will not be, undertaken in contemplation of Acquisition 2 and would have been undertaken irrespective of whether Acquisition 2 was completed.

98. On XXXXXXXXXX, Foreign Pubco acquired Target 2 (the Acquisition 3) from a vendor that dealt at Arm’s Length with the Foreign Pubco Group for consideration of approximately USD$XXXXXXXXXX.

XXXXXXXXXX.

None of the property acquired by the Foreign Pubco Group on Acquisition 3 is owned, or will be owned, directly or indirectly by the DC Group during the course of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E.

Acquisition 3 was not undertaken in contemplation of the Completed Transactions or Proposed Transactions, and would have been undertaken irrespective of whether the Completed Transactions or Proposed Transactions were, or will be, implemented. Moreover, the Completed Transactions were not, and Proposed Transactions will not be, undertaken in contemplation of Acquisition 3 and would have been undertaken irrespective of whether Acquisition 3 was completed.

99. On XXXXXXXXXX, DC acquired all of the issued and outstanding shares of Cansub 5 from a vendor that dealt at Arm’s Length with the Foreign Pubco Group for consideration of approximately USD$XXXXXXXXXX (the Acquisition 4).

XXXXXXXXXX.

Acquisition 4 was not undertaken in contemplation of the Completed Transactions or Proposed Transactions and was undertaken irrespective of whether the Completed Transactions or Proposed Transactions were, or will be, implemented. Moreover, the Completed Transactions were not, and Proposed Transactions will not be, undertaken in contemplation of Acquisition 4 and would have been undertaken irrespective of whether Acquisition 4 was completed.

99.1 On XXXXXXXXXX, Foreign Pubco announced that it had entered into a definitive agreement to acquire Target 3 XXXXXXXXXX for consideration of approximately USD $XXXXXXXXXX (the Acquisition 5). XXXXXXXXXX.

Acquisition 5 will not be undertaken in contemplation of the Completed Transactions or Proposed Transactions and would be undertaken irrespective of whether the Completed Transactions or Proposed Transactions were, or will be, implemented. Moreover, the Completed Transactions and Proposed Transactions will not be undertaken in contemplation of Acquisition 5 and would have been undertaken irrespective of whether Acquisition 5 is completed.

None of the property acquired by the Foreign Pubco Group on Acquisition 5 will be owned directly or indirectly by the DC Group during the course of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E.

Overview of Proposed Transactions

100. On XXXXXXXXXX, Foreign Pubco announced its intention to spin off Business Segment 1 into an independent, publicly-traded company as follows:

(a) Business Segment 1 (the Foreign Spin Business) will be transferred to Foreign Pubco Spinco; and

(b) Business Segment 2 and Business Segment 3 will be retained by Foreign Pubco (the Foreign Keep Businesses).

101. The aggregate FMV of all of the issued and outstanding shares of Foreign Pubco Spinco at the time of the Spin-Out is estimated to be approximately USD$XXXXXXXXXX and the aggregate FMV of all of the issued and outstanding Foreign Spinco XXXXXXXXXX at that time is estimated to be approximately USD$XXXXXXXXXX.

IV. COMPLETED TRANSACTIONS

The following transactions were completed prior to the Proposed Transactions (the Completed Transactions):

Incorporation of Foreign Pubco Spinco

102. On XXXXXXXXXX, Foreign Pubco incorporated Foreign Pubco Spinco under the laws of XXXXXXXXXX having a capital consisting of common shares. On incorporation, Foreign Pubco subscribed for XXXXXXXXXX Foreign Pubco Spinco common shares for an aggregate consideration of USD$XXXXXXXXXX.

XXXXXXXXXX.

Incorporation of Foreign Spinco

103. On XXXXXXXXXX, Forco 3 incorporated Foreign Spinco under the laws of XXXXXXXXXX having a capital consisting of XXXXXXXXXX (each XXXXXXXXXX referred to as a Foreign Spinco XXXXXXXXXX). The initial Foreign Spinco XXXXXXXXXX was issued to Forco 3 for consideration of USD$XXXXXXXXXX.

XXXXXXXXXX.

Incorporation of TC

104. On XXXXXXXXXX, Foreign Spinco incorporated TC pursuant to Act 1. TC is, and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation, XXXXXXXXXX.

The authorized share capital of TC consists of an unlimited number of common shares having XXXXXXXXXX vote per share (the TC Common Shares).

On incorporation, Foreign Spinco subscribed for XXXXXXXXXX TC Common Shares for an aggregate consideration of $XXXXXXXXXX.

Incorporation of DC Holding Structure

105. On XXXXXXXXXX, DC incorporated:

(a) Spinco pursuant to Act 1. Spinco is, and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation, XXXXXXXXXX.

The authorized capital of Spinco consists of an unlimited number of common shares having XXXXXXXXXX vote per share (the Spinco Common Shares).

After the incorporation DC subscribed for XXXXXXXXXX Spinco Common Shares for an aggregate consideration of $XXXXXXXXXX;

(b) Spinco Partnerco pursuant to Act 1. Spinco Partnerco is, and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation, XXXXXXXXXX.

The authorized capital of Spinco Partnerco consists of an unlimited number of common shares having XXXXXXXXXX vote per share (the Spinco Partnerco Common Shares).

After the incorporation DC subscribed for XXXXXXXXXX Spinco Partnerco Common Shares for an aggregate consideration of $XXXXXXXXXX; and

(c) Partnerco pursuant to Act 1. Partnerco is, and will be, at any relevant time and for all purposes of the Act, a Taxable Canadian Corporation and a Private Corporation XXXXXXXXXX.

The authorized capital of Partnerco consists of an unlimited number of common shares having XXXXXXXXXX vote per share (the Partnerco Common Shares).

After the incorporation DC subscribed for XXXXXXXXXX Partnerco Common Shares for an aggregate consideration of $XXXXXXXXXX.

Sale of Cansub 3 to Canco 3

106. Prior to XXXXXXXXXX, DC owned all of the issued and outstanding shares of Cansub 3. Cansub 3 carries on a business in Canada that is included in Business Segment 2.

On XXXXXXXXXX, DC sold all of its issued and outstanding shares of Cansub 3 to Canco 3 for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV of the Cansub 3 shares immediately before the sale.

XXXXXXXXXX.

107. On XXXXXXXXXX, Canco 3 transferred all of its Business Segment 2 assets to Cansub 3 (including goodwill and other intangibles which constituted Capital Property (other than depreciable property), inventory, and depreciable property) for consideration of Cansub 3 common shares, having an aggregate FMV at that time equal to the aggregate FMV at that time of Canco 3’s Business Segment 2 assets so transferred to Cansub 3.

108. Canco 3 and Cansub 3 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, by Canco 3, of each Eligible Property of its Business Segment 2 assets to Cansub 3.

The Agreed Amount in respect of each such Eligible Property will not be greater than the FMV of such property nor will it be less than the amount permitted under paragraph 85(1)(b). For greater certainty, the Agreed Amount in respect of each such Eligible Property will be within the limits prescribed as follows:

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

(b) 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).

For greater certainty, all of the Business Segment 2 assets transferred by Canco 3 to Cansub 3 constituted Eligible Property.

The amount that will be added to the Stated Capital of the Cansub 3 common shares issued by Cansub 3 to Canco 3 as consideration for Canco 3’s Business Segment 2 assets, will not exceed the aggregate cost, determined pursuant to subsection 85(1), to Cansub 3 of such Business Segment 2 assets acquired from Canco 3.

For greater certainty, the increase to the aggregate PUC of the Cansub 3 common shares issued to Canco 3, will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

Packaging Canadian General Partner Interests in Spinco Partnerco

109. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 5 to Spinco Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 5 agreed that Spinco Partnerco became an additional general partner of CanLP 5.

110. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 5 as the general partner of CanLP 5. On XXXXXXXXXX, CanLP 5 repurchased the XXXXXXXXXX unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 5 was Spinco Partnerco.  

111. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 8 to Spinco Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 8 agreed that Spinco Partnerco became an additional general partner of CanLP 8.

112. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 8 as the general partner of CanLP 8. On XXXXXXXXXX, CanLP 8 repurchased the XXXXXXXXXX unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 8 was Spinco Partnerco.  

113. On XXXXXXXXXX, DC, as a general partner, sold XXXXXXXXXX unit in CanGP 1 to Spinco Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanGP 1 agreed that Spinco Partnerco became an additional general partner of CanGP 1.

114. Prior to XXXXXXXXXX, Canco 2 owned XXXXXXXXXX unit in CanGP 1 as a general partner and the managing partner of CanGP 1. On XXXXXXXXXX, CanGP 1 repurchased the XXXXXXXXXX unit owned by Canco 2 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partners in CanGP 1 were Spinco Partnerco and DC. The managing partner of CanGP 1 was Spinco Partnerco.

Packaging Canadian General Partner Interests in Partnerco and Cansub 6

115. On XXXXXXXXXX, DC subscribed for Partnerco Common Shares for an aggregate consideration of $XXXXXXXXXX.

116. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 1 to Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 1 agreed that Partnerco became an additional general partner of CanLP 1.

117. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 1 as the general partner of CanLP 1. On XXXXXXXXXX, CanLP 1 repurchased the XXXXXXXXXX unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 1 was Partnerco.  

118. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX of a unit in CanLP 2 as one of the general partners of CanLP 2. On XXXXXXXXXX, CanLP 2 repurchased the XXXXXXXXXX of a unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 2 was Cansub 6.  

119. On XXXXXXXXXX, DC, as a limited partner of CanLP 3, sold XXXXXXXXXX of a unit in CanLP 3 to Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the XXXXXXXXXX unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 3 agreed that Partnerco became an additional general partner of CanLP 3.

120. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX of a unit in CanLP 3 as the general partner of CanLP 3. On XXXXXXXXXX, CanLP 3 repurchased the XXXXXXXXXX of a unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the XXXXXXXXXX unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 3 was Partnerco.  

121. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 4 to Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 4 agreed that Partnerco became an additional general partner of CanLP 4.

122. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 4 as the general partner of CanLP 4. On XXXXXXXXXX, CanLP 4 repurchased the XXXXXXXXXX unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 4 was Partnerco.

123. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 6 to Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 6 agreed that Partnerco became an additional general partner of CanLP 6.

124. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 6 as the general partner of CanLP 6. On XXXXXXXXXX, CanLP 6 repurchased the XXXXXXXXXX unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase XXXXXXXXXX.

After the repurchase, the sole remaining general partner in CanLP 6 was Partnerco.  

125. On XXXXXXXXXX, DC, as a limited partner, sold XXXXXXXXXX unit in CanLP 7 to Partnerco for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the sale. XXXXXXXXXX.

The partners of CanLP 7 agreed that Partnerco became an additional general partner of CanLP 7.

126. Prior to XXXXXXXXXX, Canco 1 owned XXXXXXXXXX unit in CanLP 7 as the general partner of CanLP 7. On XXXXXXXXXX, CanLP 7 repurchased the 1 unit owned by Canco 1 for consideration of $XXXXXXXXXX, such amount being equal to the FMV of the unit immediately before the repurchase. XXXXXXXXXX. After the repurchase, the sole remaining general partner in CanLP 7 was Partnerco.

Cansub 7 Loan Interest Payment

127. On XXXXXXXXXX, DC paid to Cansub 7 all accrued interest owing on the Cansub 7 Loan in the amount of $XXXXXXXXXX. This was the first payment of interest on the Cansub 7 Loan. Additional interest will accrue on the Cansub 7 Loan between the time of payment and the time of the DC Transfer.

128. On XXXXXXXXXX, Cansub 7 declared and paid a dividend pro rata on its common shares that were owned by its shareholders, Cansub 4, CanLP 3 and CanLP 4, in an amount equal to the amount by which: (a) the amount of interest received from DC, as described in Paragraph 127, exceeded (b) taxes payable under the Act by Cansub 7 on the interest received from DC. The amount of such dividend was $XXXXXXXXXX.

Prior to the payment of such dividend by Cansub 7 on its common shares, Cansub 7 did not have earned income from any source other than interest income on the Cansub 7 Loan.

The amount of the dividend paid by Cansub 7 on its common shares did not exceed the Safe Income that can reasonably be attributable to the Cansub 7 common shares owned by Cansub 4, CanLP 3 and CanLP 4, determined immediately before the payment of that dividend.

Separation of Spin and Stay Entities  

129. Prior to XXXXXXXXXX, Cansub 4 owned XXXXXXXXXX% of all of the issued and outstanding Cansub 7 shares. On XXXXXXXXXX, Cansub 4 sold all of its Cansub 7 shares to DC for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV of its Cansub 7 shares immediately before the sale.

XXXXXXXXXX.

130. Prior to XXXXXXXXXX, Cansub 4 owned all of the issued and outstanding shares of Cansub 6. On XXXXXXXXXX, Cansub 4 sold all of its Cansub 6 shares to DC for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV of its Cansub 6 shares immediately before the sale.

XXXXXXXXXX.

Packaging Foreign Spinco

131. Prior to XXXXXXXXXX, Forco 1 owned all of its shares of Forco 6, Forco 8, Forco 9, Forco 10, Forco 12, Forco 13 and Forco 15, and all of its XXXXXXXXXX in Forco 5, Forco 7, Forco 11 and Forco 14. On XXXXXXXXXX, Forco 1 transferred all of its shares of Forco 6, Forco 8, Forco 9, Forco 10, Forco 12, Forco 13 and Forco 15, and all of its XXXXXXXXXX in Forco 5, Forco 7, Forco 11 and Forco 14 to Foreign Spinco pursuant a four-party agreement whereby:

(a) Foreign Spinco paid the purchase price for such shares and XXXXXXXXXX transferred to it by issuing Foreign Spinco XXXXXXXXXX to Forco 3, having an aggregate FMV at that time equal to the aggregate FMV at that time of such shares and XXXXXXXXXX so transferred to it;

(b) Forco 3 paid the purchase price for the Foreign Spinco XXXXXXXXXX, as described in Paragraph 131(a), by issuing Forco 3 XXXXXXXXXX to Forco 2, having an aggregate FMV at that time equal to the aggregate FMV at that time of the Foreign Spinco XXXXXXXXXX so issued by Foreign Spinco to it;

(c) Forco 2 paid the purchase price for the Forco 3 XXXXXXXXXX, as described in Paragraph 131(b), by issuing Forco 2 XXXXXXXXXX to Forco 1, having an aggregate FMV at that time equal to the aggregate FMV at that time of the Forco 3 XXXXXXXXXX so issued by Forco 3 to it; and

(d) Forco 1 paid the purchase price for the Forco 2 XXXXXXXXXX, as described in Paragraph 131(c), by transferring all of its shares of Forco 6, Forco 8, Forco 9, Forco 10, Forco 12, Forco 13 and Forco 15, and all of its XXXXXXXXXX in Forco 5, Forco 7,Forco 11 and Forco 14 to Foreign Spinco.

The four party share exchange mechanism described in Paragraph 131 was recommended by XXXXXXXXXX without regard to Canadian tax considerations under the Act.

132. Prior to XXXXXXXXXX, Forco 2 owned all of the shares of Forco 16 and Forco 17 and all of the XXXXXXXXXX in Forco 18. On XXXXXXXXXX, Forco 2 transferred all of its shares of Forco 16 and Forco 17, and all of its XXXXXXXXXX in Forco 18 to Foreign Spinco pursuant a three-party agreement whereby:

(a) Foreign Spinco paid the purchase price for such shares and XXXXXXXXXX transferred by Forco 2 to it, by issuing Foreign Spinco XXXXXXXXXX to Forco 3, having an aggregate FMV at that time equal to the aggregate FMV at that time of such shares and XXXXXXXXXX so transferred to it;

(b) Forco 3 paid the purchase price for the Foreign Spinco XXXXXXXXXX, as described in Paragraph 132(a), by issuing Forco 3 XXXXXXXXXX to Forco 2, having an aggregate FMV at that time equal to the aggregate FMV at that time of the Foreign Spinco XXXXXXXXXX so issued by Foreign Spinco to it; and

(c) Forco 2 paid the purchase price for the Forco 3 XXXXXXXXXXissued by Forco 3 to it, as described in Paragraph 132(b), by transferring all of its shares of Forco 16 and Forco 17, and all of its XXXXXXXXXX in Forco 18 to Foreign Spinco.

The three party share exchange mechanism described in Paragraph 132 was recommended by XXXXXXXXXX without regard to Canadian tax considerations under the Act.

133. [Reserved].

134. [Reserved].

135. [Reserved].

136. [Reserved].

137. The contribution by:

(a) Forco 1, of all of its shares of Forco 6, Forco 8, Forco 9, Forco 10, Forco 12, Forco 13 and Forco 15, and all of its XXXXXXXXXX in Forco 5, Forco 7, Forco 11 and Forco 14 to Foreign Spinco, as described in Paragraph 131; and

(b) Forco 2, of all of its shares of Forco 16 and Forco 17, and all of its XXXXXXXXXX in Forco 18 to Foreign Spinco, as described in Paragraph 132,

occurred before the Capital Reorganization.

V. PROPOSED TRANSACTIONS

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

Reduction of TC Share Capital

138. TC will reduce the aggregate PUC of the TC Common Shares (all of which are owned by Foreign Spinco) in an amount equal to $XXXXXXXXXX. TC will pay the amount of the capital reduction in full by transferring $XXXXXXXXXX to Foreign Spinco. The amount of the capital reduction will not exceed the aggregate ACB, determined immediately before the capital reduction, to Foreign Spinco of the TC Common Shares owned by it.

Contribution of Property to Spinco

139. DC will contribute all of its partnership interests in CanLP 5, CanLP 8 and CanGP 1, and all of its shares of Cansub 1, Cansub 4 and Cansub 5 to Spinco for consideration of Spinco Common Shares, having an aggregate FMV at that time equal to the aggregate FMV at that time of the property transferred by DC to Spinco (the DC Contribution).

DC will jointly elect with Spinco, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each Eligible Property to Spinco.

140. Since the partnership interests in CanLP 5, CanLP 8, CanGP 1 and shares in Cansub 1, Cansub 4 and Cansub 5 owned by DC will be Capital Property (other than depreciable property), the Agreed Amount in each election will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

141. The amount that will be added to the Stated Capital of the Spinco Common Shares issued by Spinco as consideration for the partnership interests in CanLP 5, CanLP 8 and CanGP 1, and shares in Cansub 1, Cansub 4 and Cansub 5, will not exceed the aggregate cost, determined pursuant to subsection 85(1), to Spinco of such partnership interests and shares acquired from DC.

For greater certainty, the increase to the aggregate PUC of the Spinco Common Shares issued to DC, will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

Reorganization of TC Share Capital

142. TC will amend its authorized capital to create an unlimited number of preferred shares (the TC Preferred Shares) having the following attributes:

(a) each TC Preferred Share will be redeemable, subject to applicable law, at any time at the option to TC at an amount (such amount being the TC Redemption Amount) equal to the amount by which the aggregate FMV of the Distribution Property transferred by DC to TC on the DC Transfer exceeds the aggregate FMV of the TC Assumed Liabilities and then dividing such amount by the number of TC Preferred Shares issued for consideration of the DC Transfer, plus the amount of all declared but unpaid dividends thereon;

(b) each TC Preferred Share is retractable, subject to applicable law, at any time at the option of the holder thereof for an amount equal to the TC Redemption Amount, plus the amount of all declared but unpaid dividends thereon;

(c) the holder of each TC Preferred Share will be entitled to a non-cumulative cash dividend as and when declared by the directors of TC from time to time, which dividend need not also be declared on any other class of shares of TC;

(d) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of TC if the resulting realizable value of the net assets of TC after payment of the dividends would be less than the aggregate TC Redemption Amount of all of the TC Preferred Shares then outstanding plus the amount of all declared but unpaid dividends thereon;

(e) the holder of each TC Preferred Share will be entitled, upon the liquidation, dissolution or winding-up of TC, to a payment in priority to all other classes of shares of TC of an amount equal to the TC Redemption Amount plus any declared but unpaid dividends thereon to the extent of the amount of value of property available under applicable law for the payments to the shareholders of TC upon liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(f) the holder of each TC Preferred Share will not be entitled to vote at any meeting of the shareholders of TC, other than as provided under the statute by which TC is governed.

143. The TC Preferred Shares will be Term Preferred Shares, Taxable Preferred Shares and Short-Term Preferred Shares. The TC Preferred Shares will not be Taxable RFI Shares.

Reorganization of DC Share Capital

144. DC will reorganize its capital (the Capital Reorganization) by amending its articles of incorporation to create a new class of an unlimited number of common shares having XXXXXXXXXX vote per share (the DC New Common Shares) and a new class of an unlimited number of preference shares (the DC Special Shares) (the DC New Common Shares and the DC Special Shares are collectively referred to as the DC New Shares). The DC New Shares will have the rights and conditions as described below:

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

(b) the DC Special Shares will have the following attributes:

(i) each DC Special Share will be redeemable, subject to applicable law, at any time at the option to DC at an amount equal to the amount (such amount being the DC Redemption Amount) obtained by multiplying the aggregate FMV of the issued and outstanding DC Common Shares immediately prior to the Capital Reorganization by the Butterfly Percentage and then dividing such product by the number of DC Special Shares issued on the Capital Reorganization, plus the amount of all declared but unpaid dividends thereon;

(ii) each DC Special Share will be retractable, subject to applicable law, at any time at the option of the holder thereof for an amount equal to the DC Redemption Amount, plus the amount of all declared but unpaid dividends thereon;

(iii) the holder of each DC Special Share will be entitled to a non-cumulative cash dividend as and when declared by the directors of DC from time to time, which dividend need not also be declared on any other class of shares of DC;

(iv) there will be a provision restricting the payment of dividends on other classes of shares so that no such dividends may be paid on any other class of shares of DC if the resulting realizable value of the net assets of DC after payment of the dividends would be less than the aggregate DC Redemption Amount of all of the DC Special Shares then outstanding, plus the amount of all declared but unpaid dividends thereon;

(v) the holder of each DC Special Share will be entitled, upon the liquidation, dissolution or winding-up of DC, to a payment in priority to all other classes of shares of DC of an amount equal to the DC Redemption Amount plus any declared but unpaid dividends thereon, to the extent of the amount of value of property available under applicable law for the payments to the shareholders of DC upon liquidation, dissolution or winding-up, but will be entitled to no more than the amount of that payment; and

(vi) the holder of each DC Special Share will not be entitled to vote at any meeting of the shareholders of DC, other than as provided under the statute by which DC is governed.

145. The DC Special Shares will be Term Preferred Shares, Taxable Preferred Shares and Short-Term Preferred Shares. The DC Special Shares will not be Taxable RFI Shares.

146. Forco 3 will exchange each issued and outstanding DC Common Share for XXXXXXXXXX DC New Common Share and XXXXXXXXXX DC Special Share (the Forco 3 Exchange 1). All of the issued and outstanding DC Common Shares will be cancelled.

Immediately before Forco 3 Exchange 1, Forco 3 will hold the DC Common Shares as Capital Property.

147. The aggregate FMV of the DC New Shares immediately following the Forco 3 Exchange 1 will be equal to the aggregate FMV of the DC Common Shares immediately before the Forco 3 Exchange 1.

148. The aggregate addition to the Stated Capital in respect of the DC New Shares issued by DC on the Forco 3 Exchange 1 will not exceed the aggregate PUC of the DC Common Shares at the time of the Forco 3 Exchange 1. Such aggregate Stated Capital will be apportioned between the DC New Common Shares and the DC Special Shares in proportion to the relative aggregate FMV of such shares.

149. No election under subsection 85(1) will be filed in respect of the Forco 3 Exchange 1.

150. Forco 3 will hold the DC New Shares as Capital Property.

151. The DC Common Shares will not constitute Taxable Canadian Property. Therefore, in respect of the Forco 3 Exchange 1, Forco 3 will:

(a) not apply for a clearance certificate under section 116; and

(b) not file a Canadian corporate income tax return to report the disposition of those shares.

Three-Party Share Exchange

152. Forco 3 will transfer all of the issued and outstanding DC Special Shares to TC (the Forco 3 Exchange 2) pursuant to the Three-Party Share Exchange.

153. As part of the Forco 3 Exchange 2, Forco 3, TC, and Foreign Spinco will enter into a three-party agreement (the Three-Party Share Exchange), whereby:

(a) TC will agree to pay the purchase price for the DC Special Shares transferred to it by Forco 3 on the Forco 3 Exchange 2, by issuing TC Common Shares to Foreign Spinco having an aggregate FMV at that time equal to the aggregate FMV at that time of the DC Special Shares so transferred to it by Forco 3, as described in Paragraph 153(c).

The purchase price paid by TC for the DC Special Shares, as described in this Paragraph 153(a), will be an amount equal to their aggregate FMV at the time of the Three-Party Share Exchange. For greater certainty, that purchase price will be an amount that an Arm’s Length purchaser would pay for the DC Special Shares.

An amount equal to the aggregate PUC of the DC Special Shares (so transferred to TC) will be added to the Stated Capital of the TC Common Shares issued to Foreign Spinco, as described in this Paragraph 153(a).

TC, Forco 3 and Foreign Spinco will agree that TC Common Shares will be issued to Foreign Spinco and Foreign Spinco XXXXXXXXXX will be issued to Forco 3, all in respect of, and by virtue of, the disposition by Forco 3 of its DC Special Shares to TC, as described in Paragraph 153(c);

(b) Foreign Spinco will agree to pay the purchase price for the TC Common Shares issued to it by TC, as described in Paragraph 153(a), by issuing Foreign Spinco XXXXXXXXXX to Forco 3 having an aggregate FMV at that time equal to the aggregate FMV at that time of the TC Common Shares so issued by TC to Foreign Spinco, which aggregate FMV will, in turn, be equal to the aggregate FMV at that time of the DC Special Shares so transferred by Forco 3 to TC, as described in Paragraph 153(c); and

(c) Forco 3 will agree to pay the purchase price for the Foreign Spinco XXXXXXXXXX issued to it by Foreign Spinco, as described in Paragraph 153(b), by transferring all of its DC Special Shares to TC.

154. TC will hold the DC Special Shares as Capital Property.

155. Immediately following the Three-Party Share Exchange:

(a) Forco 3 will own all of the issued and outstanding Foreign Spinco XXXXXXXXXX;

(b) Foreign Spinco will own all of the issued and outstanding TC Common Shares; and

(c) TC will own all of the issued and outstanding DC Special Shares.

No person other than Foreign Spinco will acquire shares in the capital of TC as part of the Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E (except for the TC Preferred Shares that will be issued to DC, as described in Paragraph 164(b), and will be redeemed by TC, as described in Paragraph 169(a)).

156. The DC Special Shares will not constitute Taxable Canadian Property. Therefore, in respect of the Forco 3 Exchange 2, Forco 3 will: (a) not apply for a clearance certificate under section 116; and (b) not file a Canadian corporate income tax return to report the disposition of those shares.

157. The aggregate FMV, immediately before the DC Transfer, of the Foreign Spinco XXXXXXXXXX owned by Forco 3 will be equal to or approximate the amount determined by the formula, on the assumption that Forco 3 is the participant, DC is the distributing corporation and Foreign Spinco is the acquiror,

    (A × B/C) + D

as found in subparagraph (b)(iii) of the definition of “permitted exchange” in subsection 55(1). In particular, Forco 3 will own all of the Foreign Spinco XXXXXXXXXX at that time.

For greater certainty, immediately before the DC Transfer:

(a) Forco 3 will own all of the issued and outstanding Foreign Spinco XXXXXXXXXX;

(b) Foreign Spinco will own all of the issued and outstanding TC Common Shares; and

(c) TC will own all of the issued and outstanding DC Special Shares.

Classification of DC Property

158. Immediately before the DC Transfer, the property of DC will be determined on a consolidated look-through basis by including the appropriate pro-rata share of the assets of any corporation and partnership over which DC has the ability to exercise Significant Influence (being each member of the DC Group other than DC). This look-through approach will be applied to every tier of corporation and partnership in the DC Group. The assets of DC, determined on a consolidated basis as described herein, will be classified into the following three types of property for the purposes of the definition of “distribution” in subsection 55(1), as follows:

(a) cash or near-cash property, comprising all of the current assets of the DC Group, including cash, marketable securities (except for portfolio investments), accounts receivable, trade receivables, inventory (including work in progress) and prepaid expenses;

(b) business property, comprising all of the assets of the DC Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from an active business (other than a Specified Investment Business) including goodwill; and

(c) investment property, comprising all of the assets of the DC Group, other than cash or near-cash property, any income from which would, for purposes of the Act, be income from property or from a Specified Investment Business.

For greater certainty, for purposes of the determination described in this Paragraph 158 and Paragraph 159:

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

(e) advances or receivables that are due within the next 12 months or those with no fixed terms of repayment that the creditor can require the debtor to pay at any time (other than as described in Paragraph 158(g)) will be considered cash or near-cash property;

(f) DC will be considered to have Significant Influence over a corporation or a partnership if it has Significant Influence over that corporation or that partnership or over any other corporation that has Significant Influence over that corporation or that partnership, or if DC in combination with corporations over which it has Significant Influence have Significant Influence over that corporation or that partnership, and for greater certainty DC will be considered to have Significant Influence over each member of the DC Group (other than DC);

(g) for the purposes of determining the FMV of each type of property of DC, the FMV of the shares of any corporation, or the partnership interest of any partnership over which any of the above mentioned corporations or partnerships has the ability to exercise Significant Influence, and the FMV of any indebtedness receivable by any such corporation or such partnership from a corporation or a partnership over which it has Significant Influence will be allocated among the three types of property described in Paragraph 158(a), (b) and (c), by multiplying the aggregate FMV of the shares of the particular corporation or the partnership interest of the particular partnership or account receivable from the particular corporation or the particular partnership, as the case may be, by the proportion that the net FMV of each type of property owned by the particular corporation or by the particular partnership (as determined in accordance with the principles described in this Paragraph 158 and Paragraph 159) is of the aggregate net FMV of all the property owned by such corporation or partnership (as determined in accordance with the principles described in this Paragraphs 158 and 159);

(h) for the purposes of determining the FMV of the three types of property of DC at the time immediately before the DC Transfer, on a consolidated look-through basis:

(I) DC’s sale of its Cansub 3 shares to Canco 3 and the cash sale proceeds received by DC, as described in Paragraph 106; and

(II) Cansub 3’s acquisition of Canco 3’s Business Segment 2 assets and the Cansub 3 shares issued to Canco 3, as described in Paragraph 107,

would be considered as if they did not occur, and for greater certainty, DC’s Cansub 3 shares that were sold would be considered being owned by DC at that time.

Applying the principles described in Paragraphs 158 and 159, DC would be considered to have a Significant Influence over Cansub 3, and on a consolidated look-through basis, approximately XXXXXXXXXX% of Cansub 3’s property will constitute business property and the remaining XXXXXXXXXX% will constitute cash or near cash property; and

(i) for the purposes of determining the FMV of each type of property of DC, on a consolidated look-through basis, the aggregate amount of Cansub 7’s loans receivable from DC and the aggregate equivalent amount of DC’s loans payable to Cansub 7 under the Cansub 7 Loan, including any accrued interest owing on the Cansub 7 Loan, as described in Paragraphs 16 and 127, will be eliminated.

159. In determining, on a consolidated basis, the net FMV of each of the three types of property of the DC Group immediately before the DC Transfer, the liabilities of DC and any corporation or any partnership over which DC exercises Significant Influence will be allocated to, and will be deducted in the calculation of the net FMV of, each type of property of DC or such corporation or such partnership, as the case may be, in the following manner:

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

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

(ii) following the allocation of current liabilities to cash or near-cash property as described in Paragraph 159(a)(i) provided that the net FMV of the cash or near-cash property of such corporation or such partnership is positive, any remaining net FMV of any accounts receivable, trade receivables, inventories and prepaid expenses of such corporation or such partnership will be reclassified as business property of such corporation or such partnership and excluded from the net FMV of the cash or near-cash property, to the extent that such property will be collected, sold, used or consumed in the ordinary course of business to which such property relates;

(iii) liabilities, other than current liabilities, of such corporation or of such partnership that relate to a particular property will be allocated to that particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. Any excess of such liabilities over the FMV of a particular property and liabilities that pertain to a particular type of property, but not to a particular property, will then be allocated to that particular type of property. To the extent that the total amount of liabilities that are to be allocated to a particular type of property as described in Paragraph 159(a)(iii), exceeds the total FMV of that type of property, that corporation or that partnership will be considered to have a negative amount of that type of property; and

(iv) if any liabilities remain after the allocations described in Paragraphs 159(a)(i) and (iii) are made, such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property of such corporation or of such partnership, based on the relative net FMV of each type of property prior to the allocation of such excess unallocated liabilities. However, where a corporation or a partnership is considered to have a negative amount of a type of property because of Paragraph 159(a)(i) or (iii), for the purposes of allocating those remaining liabilities, the net FMV of that type of property will be deemed to be nil resulting in none of those remaining liabilities being allocated to that type of property;

(b) in determining, on a consolidated look-through basis, the net FMV of each type of property of DC immediately before the DC Transfer, DC will include the appropriate pro rata share of the net FMV of each type of property of any corporation or partnership over which DC exercises Significant Influence and, for greater certainty, the appropriate negative amount of such type of property of any such entity, as determined in accordance with Paragraph 159(a), and any liabilities of DC will be allocated to, and be deducted in the calculation of, the net FMV of each type of property of DC in the following manner:

(i) current liabilities of DC will be allocated to the cash or near-cash property of DC in the proportion that the FMV of each such property is of the aggregate FMV of all cash or near-cash property of DC. The allocation of current liabilities as described in Paragraph 159(b)(i), will not exceed the aggregate FMV of all the cash or near-cash property of DC;

(ii) following the allocation of current liabilities to each cash or near-cash property in Paragraph 159(b)(i), any remaining net FMV of any accounts receivable, trade receivables, inventories and prepaid expenses of DC will be reclassified as business property and excluded from the cash or near-cash property, to the extent that such property will be collected, sold or used in the ordinary course of the business to which such property relates;

(iii) liabilities of DC, other than current liabilities, that relate to a particular property will be allocated to the particular property (and effectively to the type of property to which the particular property belongs) to the extent of its FMV. The liabilities that pertain to a type of property but not to a particular property (and any excess liability that pertains to a particular property but that exceeds the FMV of the particular property) will be allocated to that type of property, but not in excess of the net FMV of such type of property after the allocation of liabilities to a particular property as described in Paragraph 159(b)(iii); and

(iv) if any liabilities remain after the allocations described in Paragraphs 159(b)(i) and (iii) are made, such excess unallocated liabilities will then be allocated to the cash or near-cash property, investment property and business property of DC, on the basis of the relative net FMV of each type of property prior to the allocation of such excess, but after the allocation of the liabilities described in Paragraphs 159(b)(i) and (iii).

(c) For greater certainty, for purposes of the determination described in Paragraphs 158 and 159:

(i) the amount of any deferred income tax will not be considered a liability because such amount does not represent a legal obligation;

(ii) income taxes and other taxes due and payable within a year will be classified as current liabilities;

(iii) current liabilities will include amounts normally classified as current liabilities, including accounts payable, bonuses payable, and the current portion of any long term debt;

(iv) any current pension plan liability (as determined by the method prescribed by the applicable pension legislation), current post retirement benefit liability, and current liability insurance liabilities will be allocated to cash or near-cash property, and any non-current pension plan liability (as determined by the method prescribed by the applicable pension legislation), non-current post retirement benefit liability, and non-current liability insurance liabilities will be allocated to business property on the basis that all such liabilities relate to business operations;

(v) any amounts collected from customers and set up as deferred revenue will be considered a liability if there is a legal obligation to repay the amount or provide further services;

(vi) no amount will be considered to be a liability unless it represents a true legal liability which is capable of quantification; and

(vii) a contingent obligation will not be considered a liability.

160. Based on the principles described in Paragraphs 158 and 159, it is anticipated that DC XXXXXXXXXX, at the time of the DC Transfer.

Distribution of Property to TC

161. Immediately after the determination of the types of property and the aggregate net FMV of each type of property described in Paragraphs 158 and 159, DC will transfer (the DC Transfer), and will be legally obligated to transfer the Additional Cash Transfer, if any, as described in Paragraph 163, a proportionate share of each type of its property to TC (the Distribution Property) such that, immediately following such transfer, the Additional Cash Transfer and the liability assumption described in Paragraph 164(a), the aggregate net FMV of each type of property so transferred to TC (determined in each case on the basis of the principles described in Paragraphs 158 and 159) will be equal to or approximate that proportion of the aggregate net FMV of all property of DC of that type, determined immediately before the DC Transfer that:

(a) the aggregate FMV, immediately before the DC Transfer, of all the DC Special Shares owned by TC at that time

is of

(b) the aggregate FMV, immediately before the DC Transfer, of all the issued and outstanding DC New Shares at that time.

The Distribution Property will consist of all of the Spinco Common Shares and the Spinco Partnerco Common Shares owned by DC immediately before the DC Transfer. The aggregate net FMV of the Distribution Property at the time of the DC Transfer will be approximately $XXXXXXXXXX.

162. The expression “approximate that proportion” described in Paragraphs 161, XXXXXXXXXX means that the discrepancy from that proportion, if any, would not exceed XXXXXXXXXX%, determined as a percentage of the aggregate net FMV of each type of property of DC which TC has received (or DC has retained) as compared to what TC would have received (or DC would have retained) had it received (or retained) its appropriate pro rata share of the aggregate net FMV of that type of property of DC.

163. No later than XXXXXXXXXX days after the date of the DC Transfer, DC will transfer to TC any required additional cash (the Additional Cash Transfer) necessary to ensure that the aggregate net FMV of that Additional Cash Transfer and of any cash or near-cash property of DC transferred to TC, as described in Paragraph 161, will be equal to or approximate that proportion, as described in Paragraphs 161(a) and (b), of the aggregate net FMV of all cash or near-cash property of DC, determined immediately before the DC Transfer and applying the principles described in Paragraphs 158 and 159.

164. As consideration for the Distribution Property, TC will:

(a) assume certain liabilities (the TC Assumed Liabilities) of DC. It is anticipated that the TC Assumed Liabilities will be approximately $XXXXXXXXXX.

For greater certainty:

(i) no portion of the Cansub 7 Loan will be assumed by TC, and

(ii) the aggregate amount of the TC Assumed Liabilities will not exceed the aggregate FMV at that time of the Distribution Property transferred to TC, nor will it result in DC realizing a capital gain on the disposition of the Distribution Property (which includes the Spinco Common Shares) to TC on the DC Transfer; and

(b) issue TC Preferred Shares to DC having an aggregate FMV at that time equal to the amount by which the aggregate FMV of the Distribution Property transferred to TC at that time (for greater certainty, including any Additional Cash Transfer) exceeds the amount of the liabilities assumed by TC, as described in Paragraph 164(a).

165. DC will hold the TC Preferred Shares as Capital Property.

166. TC will jointly elect with DC, in prescribed form and within the time limits referred to in subsection 85(6), to have the rules in subsection 85(1) apply to the transfer of each Eligible Property to TC as part of the DC Transfer.

Since all properties transferred by DC will be Capital Property (other than depreciable property) the Agreed Amount in each election will be an amount equal to the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

167. The amount that will be added to the Stated Capital of the TC Preferred Shares issued by TC as consideration for the Distribution Property, will not exceed the aggregate cost, determined pursuant to subsection 85(1), to TC of the Distribution Property acquired from DC, less the amount of the liabilities assumed by TC, as described in Paragraph 164(a).

For greater certainty, the increase to the aggregate PUC of the TC Preferred Shares issued to DC, will not exceed the maximum amount that could be added to the aggregate PUC of such shares, having regard to subsection 85(2.1).

168. Immediately following the DC Transfer, the Additional Cash Transfer described in Paragraph 163, and the liability assumption described in Paragraph 164(a), the aggregate net FMV of each type of property retained by DC (determined in each case on the basis of the principles described in Paragraphs 158 and 159), will be equal to or approximate that proportion of the aggregate net FMV of all property of DC of that type, determined immediately before such transfer that:

(a) the aggregate FMV, immediately before the DC Transfer, of all the DC New Common Shares owned by Forco 3 at that time

is of

(b) the aggregate FMV, immediately before the DC Transfer, of all the issued and outstanding DC New Shares at that time.

Share Redemptions

169. Immediately following the DC Transfer, the following transactions will occur:

(a) TC will redeem all of the TC Preferred Shares owned by DC (the TC Redemption) for an amount equal to their aggregate TC Redemption Amount.

In satisfaction of the aggregate TC Redemption Amount for such shares, TC will issue a promissory note, payable to DC on demand without interest, having a Principal Amount and FMV equal to the aggregate TC Redemption Amount of the TC Preferred Shares so redeemed (the TC Redemption Note).

DC will accept the TC Redemption Note in full payment of the redemption price of the TC Preferred Shares.

TC will not designate the TC Dividend to be an Eligible Dividend under subsection 89(14).

(b) DC will redeem all of the DC Special Shares owned by TC (the DC Redemption) for an amount equal to their aggregate DC Redemption Amount.

In satisfaction of the aggregate DC Redemption Amount for such shares, DC will issue a promissory note, payable to TC on demand without interest, having a Principal Amount and FMV equal to the aggregate DC Redemption Amount of the DC Special Shares so redeemed (the DC Redemption Note).

TC will accept the DC Redemption Note in full payment of the redemption price of the DC Special Shares.

DC will not designate the DC Dividend to be an Eligible Dividend under subsection 89(14).

Promissory Note Set-Off

170. Immediately following the TC Redemption and the DC Redemption, the Principal Amount owing by TC under the TC Redemption Note and the Principal Amount owing by DC under the DC Redemption Note will be set-off in full against each other and each such note will be marked paid in full and extinguished.

Sale of Canco 3 Business Segment 1 Assets to Cansub 4

171. Cansub 4 will purchase all of the Business Segment 1 assets owned by Canco 3 for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV at that time of the assets purchased. XXXXXXXXXX.

Separation of Spin and Stay Entities  

172. Cansub 4 will cancel XXXXXXXXXX of its class A common shares owned by Canco 1, for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV of such shares immediately before the cancellation.

Subsection 84(3) will apply to deem Cansub 4 to have paid, and Canco 1 to have received, a dividend equal to an amount, if any, by which the amount paid by Cansub 4 on the cancellation of its class A common shares owned by Canco 1 exceeds the aggregate PUC in respect of those shares immediately before the cancellation.

The amount of the deemed dividend paid by Cansub 4 to Canco 1, as described in this Paragraph 172, will not exceed the Safe Income that can reasonably be attributable to the Cansub 4 class A common shares owned by Canco 1 immediately before the cancellation.

173. Cansub 4 will cancel XXXXXXXXXX of its class B common shares owned by Canco 2, for consideration of $XXXXXXXXXX, such amount being equal to the aggregate FMV of the shares immediately before the cancellation.

Subsection 84(3) will apply to deem Cansub 4 to have paid, and Canco 2 to have received, a dividend equal to an amount, if any, by which the amount paid by Cansub 4 on the cancellation its class B common shares owned by Canco 2 exceeds the aggregate PUC in respect of those shares immediately before the cancellation.

The amount of the deemed dividend paid by Cansub 4 to Canco 2, as described in this Paragraph 173, will not exceed the Safe Income that can reasonably be attributable to the Cansub 4 class B common shares owned by Canco 2 immediately before the cancellation.

Repayment of TC Assumed Liabilities

174. CanLP 5 will distribute approximately $XXXXXXXXXX pro rata between its partners, Spinco Partnerco and Spinco, as a partnership distribution. The aggregate ACB of the CanLP 5 units owned by each of Spinco Partnerco and Spinco will be reduced by an amount equal to the amount so distributed to each of them.

The amount of the distribution received by each partner will not exceed that partner’s aggregate ACB, determined immediately before the distribution, of its CanLP 5 partnership interests.

175. [Reserved]

176. [Reserved]

177. Cansub 4 will reduce the aggregate PUC of its class A common shares, all of which are owned by Spinco, in an amount equal to approximately $XXXXXXXXXX.

Cansub 4 will pay the amount of the capital reduction in full by transferring $XXXXXXXXXX to Spinco. The amount of the capital reduction will not exceed Spinco’s aggregate ACB, determined immediately before the capital reduction, of its Cansub 4 class A common shares.

178. Cansub 4 will reduce the aggregate PUC of its class B common shares, all of which are owned by CanGP 1, in an amount equal to approximately $XXXXXXXXXX.

Cansub 4 will pay the amount of the capital reduction in full by transferring $XXXXXXXXXX to CanGP 1. The amount of the capital reduction will not exceed CanGP1’s aggregate ACB, determined immediately before the capital reduction, of its Cansub 4 class B common shares.

179. CanGP 1 will distribute approximately $XXXXXXXXXX pro rata between its partners, Spinco Partnerco and Spinco, as a partnership distribution. Each partner’s aggregate ACB of its CanGP 1 units will be reduced by an amount equal to the amount distributed by CanGP 1 to that partner. The amount of the distribution received by each partner will not exceed that partner’s aggregate ACB, determined immediately before the distribution, of its CanGP 1 units.

180. Cansub 4 will pay a $XXXXXXXXXX dividend on its class A common shares, all of which are owned by Spinco. The dividend will not exceed the Safe Income that can reasonably be attributable to Spinco’s Cansub 4 class A common shares.

181. Spinco will reduce the aggregate PUC of the Spinco Common Shares, all of which are owned by TC, in an amount equal to approximately $XXXXXXXXXX.  

Spinco will pay the amount of the capital reduction in full by transferring $XXXXXXXXXX to TC. The amount of the capital reduction will not exceed the aggregate PUC, or TC’s aggregate ACB, determined immediately before such capital reduction, of the issued and outstanding Spinco Common Shares.

181.1 Forco 3 will subscribe for Foreign Spinco XXXXXXXXXX and deliver approximately $XXXXXXXXXX to Foreign Spinco in satisfaction of the subscription amount.

181.2 Foreign Spinco will subscribe for TC Common Shares and deliver approximately $XXXXXXXXXX to TC in satisfaction of the subscription amount. TC will add the $XXXXXXXXXX to the Stated Capital of the TC Common Shares.

182. TC will repay the TC Assumed Liabilities to third parties.

183. [Reserved]

184. [Reserved]

Amalgamation of Partnerco, Canco 1 and Canco 2

185. Forco 2 will contribute all of the issued and outstanding common shares of Canco 1 and Canco 2 to Forco 3 for consideration of Forco 3 XXXXXXXXXX, having an aggregate FMV at that time equal to the aggregate FMV at that time of the property so transferred to Forco 3.

186. The common shares of Canco 1 and Canco 2 will not constitute Taxable Canadian Property. Therefore, Forco 2 will: (a) not apply for a clearance certificate under section 116; and (b) not file a Canadian corporate income tax return to report the disposition of those shares.

187. Forco 3 will contribute all of the issued and outstanding common shares of Canco 1 and Canco 2 to DC for consideration of DC New Common Shares, having an aggregate FMV at that time equal to the aggregate FMV at that time of the property so transferred to DC.

188. The common shares of Canco 1 and Canco 2 will not constitute Taxable Canadian Property. Therefore, Forco 3 will: (a) not apply for a clearance certificate under section 116; and (b) not file a Canadian corporate income tax return to report the disposition of those shares.

189. The amount that will be added to the Stated Capital of the DC New Common Shares issued by DC to Forco 3 as consideration for all of the issued and outstanding common shares of Canco 1 and Canco 2, as described in Paragraph 187, will not exceed the aggregate PUC of the Canco 1 and Canco 2 shares so transferred to DC.

190. XXXXXXXXXX.

191. Partnerco will continue its jurisdiction of incorporation from Province 2 to Province 1 and will, as a result, cease to be governed by Act 1 and become governed by Act 2.

192. Partnerco, Canco 1 and Canco 2 will amalgamate (the Amalgamation) under Act 2 to form New Partnerco. The Amalgamation will be governed by subsection 87(1).

(a) XXXXXXXXXX.

(b) The authorized share capital of New Partnerco will consist of an unlimited number of common shares (the New Partnerco Common Shares);

(c) On the Amalgamation:

(i) all of the property (except amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations immediately before the merger will become property of New Partnerco by virtue of the merger;

(ii) all of the liabilities (except amounts payable to any predecessor corporation) of the predecessor corporations immediately before the merger will become liabilities of New Partnerco by virtue of the merger; and

(iii) all of the shareholders (except any predecessor corporation), who owned shares of the capital stock of any predecessor corporation immediately before the merger, will receive shares of the capital stock of New Partnerco because of the merger.

In particular, each share of Canco 1, Canco 2 and Partnerco will be exchanged for XXXXXXXXXX New Partnerco Common Share on the Amalgamation.

The aggregate FMV of the New Partnerco Common Shares immediately after the Amalgamation will be equal to the aggregate FMV of the Canco 1 common shares, Canco 2 common shares and Partnerco Common Shares immediately before the Amalgamation;

(d) On the Amalgamation Partnerco, Canco 1 and Canco 2 will continue as one company to form New Partnerco pursuant to the provisions of Act 2; and

(e) Pursuant to Act 2, the aggregate Stated Capital, and therefore the aggregate PUC, of all of the New Partnerco Common Shares issued on the Amalgamation will be equal to the aggregate Stated Capital, and therefore the aggregate PUC, of all of the issued and outstanding Partnerco Common Shares, Canco 1 common shares and Canco 2 common shares, immediately before the Amalgamation.

Spin-Out to Foreign Pubco Shareholders

193. After the transactions described in Paragraphs 131 to 192 are completed, the following transactions will be effected to complete the distribution of all of Foreign Pubco’s Foreign Pubco Spinco common shares to the Foreign Pubco shareholders:

(a) Forco 3 will distribute all of its Foreign Spinco XXXXXXXXXX to Forco 2 by way of dividend-in-kind;

(b) Forco 2 will distribute all of its Foreign Spinco XXXXXXXXXX to Forco 1 by way of dividend-in-kind;

(c) XXXXXXXXXX;

(d) Forco 1 will distribute all of its Foreign Spinco XXXXXXXXXX to Foreign Pubco by way of dividend-in-kind;

(e) Foreign Pubco will contribute all of its Foreign Spinco XXXXXXXXXX and any other relevant companies resulting from the packaging of the Foreign Spin Business to Foreign Pubco Spinco for consideration of common shares of Foreign Pubco Spinco, having an aggregate FMV at that time equal to the aggregate FMV at that time of the contribution made by Foreign Pubco to Foreign Pubco Spinco, as described in this Paragraph 193(e); and

(f) Foreign Pubco will distribute all of its Foreign Pubco Spinco common shares to its shareholders, on a pro rata basis, by way of dividend-in-kind under the corporate laws of XXXXXXXXXX.

ADDITIONAL INFORMATION

194. [Reserved].

195. No property of any kind whatever has or will become property of DC or of a corporation controlled by DC, and no liabilities have been or will be incurred by DC or a corporation controlled by DC, in contemplation of and before the DC Transfer, otherwise than in a transaction described in subparagraphs 55(3.1)(a)(i) to (iv).

196. As part of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E, there has not been and will not be:

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

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

(c) an acquisition of shares in the capital stock of DC in the circumstances described in subparagraph 55(3.1)(b)(iii),

that has not been described herein.

197. None of the shares of the capital stock of DC or TC has been or will be, at any time prior to the Proposed Transactions described herein:

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

(b) the subject of any secured undertaking referred to in paragraph 112(2.4)(a), or issued for consideration that is or includes any obligation of the type referred to in subparagraph 112(2.4)(b)(i) or any right of the type described in subparagraph 112(2.4)(b)(ii);

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

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

198. Each of DC and TC is, and will be, a Specified Financial Institution. Neither of these corporations is a Financial Intermediary Corporation nor a Restricted Financial Institution.

199. The acquisition by DC of the TC Preferred Shares will occur outside the ordinary course of DC’s businesses.

200. The acquisition by TC of the DC Special Shares will occur outside the ordinary course of TC’s business.

201. [Reserved].

202. Each of DC and TC will have the financial capacity to honour, upon presentation for payment, the amount payable under the promissory note issued or assumed by it as part of the Proposed Transactions.

203. At no time, during the course of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E, and determined without taking into account the transactions described in Paragraphs 181.1 and 181.2, will:

(a) XXXXXXXXXX% or more of the FMV of any XXXXXXXXXX of the Foreign Spinco XXXXXXXXXX be derived, directly or indirectly, from XXXXXXXXXX or more of the DC Special Shares owned by TC, or the TC Common Shares issued to Foreign Spinco; or

(b) XXXXXXXXXX% or more of the FMV of any XXXXXXXXXX of the Foreign Pubco Spinco common shares be derived, directly or indirectly, from XXXXXXXXXX or more of the TC Common Shares issued to Foreign Spinco.

For greater certainty, the Completed Transactions and Proposed Transactions constitute a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E.

204. Foreign Pubco, Forco 1, Forco 2 , Forco 3 and DC are, and will continue to be, Related Persons during the course of any Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E.

205. At the time of the DC Redemption, TC will have a Substantial Interest in DC.

206. At the time of the TC Redemption, DC will have a Substantial Interest in TC.

207. The Proposed Transactions will not result in DC or a person who is a Related Person to DC described herein, being unable to pay its existing tax liabilities.

208. No disposition of shares or XXXXXXXXXX described in the Proposed Transactions constitutes a disposition of Taxable Canadian Property.

209. TC will not have an ERDTOH or NERDTOH balance at the end of the Taxation Year in which the TC Dividend is deemed to have been paid.

210. DC will not have an ERDTOH or NERDTOH balance at the end of the Taxation Year in which the DC Dividend is deemed to have been paid.

211. Foreign Pubco management is not aware of an anticipated or expected acquisition of control or takeover of Foreign Pubco, Foreign Pubco Spinco, Foreign Spinco, Forco 1, Forco 2, Forco 3, DC, Spinco or TC.

The distribution, by Foreign Pubco, of all of its Foreign Pubco Spinco common shares to its shareholders, on a pro rata basis, by way of dividend-in-kind, as described in Paragraph 193(f), will not result in an acquisition of control of Foreign Spinco or TC by a person or group of persons.

212. Pursuant to the governing partnership agreements, the general partner of each limited partnership in which DC has a direct or indirect membership interest has the right (subject to limited restrictions relating to disposition of assets and using partnership property outside the course of the partnership business) to manage all activities of the limited partnership and to deal with all limited partnership assets. This right includes the right to exercise voting rights attached to shares of corporations owned by the limited partnership.

213. Pursuant to the governing partnership agreement, the partners of CanGP 1 appointed a managing partner. The managing partner cannot be removed except for cause (i.e., a breach of obligations) by a special resolution (i.e., XXXXXXXXXX% of the total votes). The managing partner of CanGP 1 has the right (subject to limited restrictions relating to disposition of assets and using partnership property outside the course of the partnership business) to manage all activities of the general partnership and to deal with all general partnership assets. This right includes the right to exercise voting rights attached to shares of corporations owned by the general partnership.

The reason for providing the facts described in this Paragraph 213 and Paragraph 212 is to ascertain which corporations that DC controls by applying the look-through approach in looking through the partnership, for the purposes of paragraphs 55(3.1)(a) and (b).

VI. PURPOSE OF COMPLETED TRANSACTIONS AND PROPOSED TRANSACTIONS

214. Management of Foreign Pubco has made the strategic decision to separate its Business Segment 1 from its other business segments. The Foreign Pubco Group concluded that creating two independent, public companies will provide, among other things, financial, operational and managerial benefits to each of the companies and its shareholders, including but not limited to the following expected benefits:

(a) The new standalone companies will have greater flexibility to pursue their own focused strategies for growth, both organic and through acquisitions, than they would under the Foreign Pubco Group’s current corporate structure. Each business also will be able to further sharpen its focus on serving its own distinctive customer base. This flexibility and focus is expected to increase investor understanding of each company and its respective position in the industry it serves.

(b) The separation will enable management of each company to devote its time and attention to the development and implementation of corporate strategies and policies that are based solely on the specific business characteristics of such company, and to design more tailored performance measures that better reflect these strategies, policies, and business characteristics.

(c) The separation will enable each company to adopt an appropriate capital structure based on the company’s profile and cash flow generation.

215. The purpose of the transaction described in Paragraph 102 (“Incorporation of Foreign Pubco Spinco”) was to incorporate the new parent company of the Foreign Pubco Spinco Group.

216. The purpose of the transaction described in Paragraph 103 (“Incorporation of Foreign Spinco”) was to incorporate a holding company that will be used to hold the North American assets that will be included in the Foreign Spin Business.

Foreign Pubco formed a number of entities that are holding companies for particular local jurisdictions (e.g., Forco 5, Forco 7 and Forco 14). Each of those entities will be contributed directly or indirectly to Foreign Pubco Spinco prior to the distribution of Foreign Pubco Spinco common shares to the Foreign Pubco shareholders.

217. The purpose of the transaction described in Paragraph 104 (“Incorporation of TC”) was to incorporate the transferee corporation in order to facilitate the Proposed Transactions.

218. The purpose of the transactions described in Paragraph 105 (“Incorporation of DC Holding Structure”) was to incorporate the DC holding structure in order to facilitate the Proposed Transactions.

219. The purpose of the transactions described in Paragraphs 106 to 108 (“Sale of Cansub 3 to Canco 3”) was to create a more efficient organizational structure for Business Segment 2.

220. The purpose of the transactions described in Paragraphs 109 to 114 (“Packaging Canadian General Partner Interests in Spinco Partnerco”) was to ensure the complete separation of the Foreign Pubco Group and the Foreign Pubco Spinco Group.

XXXXXXXXXX.

221. The purpose of the transactions described in Paragraphs 115 to 126 (“Packaging Canadian General Partner Interests in Partnerco”) was to create a more efficient organizational structure for Business Segment 2 and Business Segment 3.

XXXXXXXXXX.

222. The purpose of the transactions described in Paragraph 127 and 128 (“Cansub 7 Loan Interest Payment”) was to ensure the payment of the accrued interest owing on the Cansub 7 Loan and return the after tax amount to the Cansub 7 shareholders by way of a pro rata dividend paid from Cansub 7’s Safe Income.

223. The purpose of the transactions described in Paragraphs 129 and 130 (“Separation of Spin and Stay Entities”) was to ensure the complete separation of the Foreign Pubco Group and the Foreign Pubco Spinco Group.

224. The purpose of the transactions described in Paragraphs 131, 132 and 137 (“Packaging Foreign Spinco”) is to package the North American assets that will be included in the Foreign Spin Business.

As stated above, Foreign Pubco formed a number of entities that are holding companies for particular local jurisdictions (e.g., Forco 5, Forco 7 and Forco 14). Each of those entities will be contributed to Foreign Pubco Spinco prior to the distribution of Foreign Pubco Spinco common shares to the Foreign Pubco shareholders.

The purpose of completing the contribution by:

(a) Forco 1, of all of its shares of Forco 6, Forco 8, Forco 9, Forco 10, Forco 12, Forco 13 and Forco 15, and all of its XXXXXXXXXX in Forco 5, Forco 7, Forco 11 and Forco 14, as described in Paragraph 131; and

(b) Forco 2, of all of its shares of Forco 16 and Forco 17, and all of its XXXXXXXXXX in Forco 18, as described in Paragraph 132,

to Foreign Spinco before the Capital Reorganization, is to ensure that, as part of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E, any one of the Foreign Spinco XXXXXXXXXX does not ever derive XXXXXXXXXX% or more of its FMV, directly or indirectly, from XXXXXXXXXX or more of the TC Common Shares owned by Foreign Spinco or the DC Special Shares owned by TC.

225. The purpose of the transactions described in Paragraph 138 (“Reduction of TC Share Capital”) is to return the initial share subscription proceeds paid by Foreign Spinco for the issuance of TC Common Shares to Foreign Spinco.

226. The purpose of the transactions described in Paragraphs 139 to 141 (“Contribution of Property to Spinco”) is to package the Canadian Spin Business into one holding company and is intended to simplify the TC corporate group.

227. The purpose of the transactions described in Paragraphs 142 and 143 (“Reorganization of TC Share Capital”) is to amend the share capital of TC in order to facilitate the Proposed Transactions.

228. The purpose of the transactions described in Paragraphs 144 to 151 (“Reorganization of DC Share Capital”) is to amend the share capital of DC in order to facilitate the Proposed Transactions.

XXXXXXXXXX.

229. The purpose of the transactions described in Paragraphs 152 to 157 (“Three-Party Share Exchange”) is to:

(a) allow the DC Special Shares to be transferred by Forco 3 to TC and the Foreign Spinco XXXXXXXXXX to be received by Forco 3, and the DC Special shares to be acquired by TC from Forco 3, on a “permitted exchange” as defined in subsection 55(1); and

(b) ensure that Foreign Spinco will not be deemed by paragraph 55(3.2)(h) to be a transferee corporation (as defined in subsection 55(1)) in relation to DC, for the purposes of paragraph 55(3.1)(b).

XXXXXXXXXX.

230. The purpose of the transactions described in Paragraphs 158 to 160 (“Classification of DC Property”) is to facilitate the Proposed Transactions in a manner that complies with the rules in section 55.

231. The purpose of the transactions described in Paragraphs 161 to 168 (“Distribution of Property to TC”) is to facilitate the Proposed Transactions in a manner that complies with the rules in section 55.

232. The purpose of the transactions described in Paragraph 169 (“Share Redemptions”) is to facilitate the Proposed Transactions in a manner that complies with the rules in section 55.

233. The purpose of the transactions described in Paragraph 170 (“Promissory Note Set-Off”) is to facilitate the Proposed Transactions in a manner that complies with the rules in section 55.

234. The purpose of the transactions described in Paragraph 171 (“Sale of Canco 3 Business Segment 1 Assets to Cansub 4”) is to ensure the complete separation of the Foreign Pubco Group and the Foreign Pubco Spinco Group.

XXXXXXXXXX.

235. The purpose of the transactions described in Paragraphs 172 and 173 (“Separation of Spin and Stay Entities”) is to ensure the complete separation of the Foreign Pubco Group and the Foreign Pubco Spinco Group.

XXXXXXXXXX.

236. The purpose of the transactions described in Paragraphs 174 and 177 to 182 (“Repayment of TC Assumed Liabilities”) is to ensure repayment of the TC Assumed Liabilities and ensure the complete separation of the Foreign Pubco Group and the Foreign Pubco Spinco Group.

237. The purpose of the transactions described in Paragraphs 185 to 192 (“Amalgamation of Partnerco, Canco 1 and Canco 2”) is to consolidate all general partners into one entity, New Partnerco.

238. The purpose of the transactions described in Paragraph 193 (“Spin Out to Foreign Pubco Shareholders”) is to ultimately distribute the Foreign Pubco Spinco common shares owned by Foreign Pubco to the Foreign Pubco shareholders.

VII. RULINGS

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

A. Subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to:

(a) the DC Contribution, as described in Paragraph 139; and

(b) the DC Transfer, as described in Paragraph 161,

such that the Agreed Amount in respect of each transfer of each Eligible Property will be deemed to be the transferor’s Proceeds of Disposition and the transferee’s cost thereof by virtue of paragraph 85(1)(a).

For greater certainty, the provisions of paragraph 85(1)(e.2) will not apply to the DC Contribution and the DC Transfer.

B. The Safe Income:

(a) attributable to the shares of Cansub 1, Cansub 4 and Cansub 5 owned by Spinco immediately following the DC Contribution, as described in Paragraph 139, will be equal to the Safe Income attributable to the shares of Cansub 1, Cansub 4 and Cansub 5, respectively, owned by DC immediately before the DC Contribution;

(b) attributable to the Spinco Common Shares owned by DC immediately following the DC Contribution, as described in Paragraph 139, will be equal to the Safe Income attributable to the shares of Cansub 1, Cansub 4 and Cansub 5 owned by DC immediately before the transfer of those shares by DC to Spinco on the DC Contribution; and

(c) attributable to the Spinco Common Shares owned by TC immediately following the DC Transfer, as described in Paragraph 161, will be equal to the Safe Income attributable to the Spinco Common Shares owned by DC immediately before the DC Transfer.

C. On the exchange of DC Common Shares by Forco 3 on the Forco 3 Exchange 1, as described in Paragraph 146, the provisions of subsection 86(1) will apply, and the provisions of subsection 86(2) and (2.1) will not apply, to the disposition, by Forco 3, of the DC Common Shares for the DC New Shares.

D. As a result of the Three-Party Share Exchange:

(a) the provisions of subparagraph 212.1(1.1)(a)(ii) will not apply to deem a dividend to have been paid by TC and received by Forco 3, on the Three-Party Share Exchange;

(b) the provisions of paragraph 212.1(1.1)(b) will not apply to reduce the aggregate PUC of the TC Common Shares that TC issues to Foreign Spinco, as described in Paragraph 153(a); and

(c) the aggregate cost to TC of the DC Special Shares that TC acquires from Forco 3 on the Three-Party Share Exchange will be equal to the aggregate FMV of those shares at the time of their acquisition.

E. Subsection 84(3) will apply to the:

(a) TC Redemption, to deem TC to have paid, and DC to have received; and

(b) DC Redemption, to deem DC to have paid, and TC to have received,

a dividend that is a Taxable Dividend on the TC Preferred Shares (the TC Dividend) and the DC Special Shares (the DC Dividend), respectively, equal to the amount, if any, by which the aggregate amount paid upon redemption exceeds the aggregate PUC in respect of such shares immediately before such redemption, and such dividend:

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

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

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

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

(g) will not be subject to tax under Part IV, except as provided in paragraph 186(1)(b);

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

(i) will, by virtue of subsection 112(3), reduce any loss that would otherwise be determined for the particular recipient corporation as a result of the TC Redemption or the DC Redemption, as the case may be.

F. By virtue of the provisions of paragraph 55(3)(b), subsection 55(2) will not apply to the Taxable Dividends referred to in Ruling E, provided that:

(a) at any time during the course of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E, and determined without taking into account the transactions described in Paragraphs 181.1 and 181.2:

(i) 10% or more of the FMV of any one of the Foreign Spinco XXXXXXXXXX is not derived, directly or indirectly, from one or more of the shares of TC or DC; and

(ii) 10% or more of the FMV of any one of the Foreign Pubco Spinco common shares is not derived, directly or indirectly, from one or more of the shares of TC; and

(b) as part of a Series of Transactions or Events that includes the Taxable Dividends referred to in Ruling E, there is not:

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

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

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

(iv) an acquisition of shares in the capital stock of DC in the circumstances described in subparagraph 55(3.1)(b)(iii),

which has not been described herein.

For greater certainty, provided the conditions in (a) and (b) above are satisfied, subsection 55(3.1) will not apply to deny the exemption under paragraph 55(3)(b).

G. The set-off and cancellation of the TC Redemption Note owned by DC and the DC Redemption Note owned by TC, as described in Paragraph 170, will not give rise to a Forgiven Amount and neither TC nor DC will realize any gain or incur any loss therefrom.

H. The provisions of subsections 15(1), 56(2), 69(4) and 246(1) will not, in and of themselves, be applied, as a result of any of the Completed Transactions or Proposed Transactions.

I. The provisions of subsection 245(2) will not be applied, as a result of any of the Completed Transactions or Proposed Transactions, in and of themselves, to redetermine the tax consequences confirmed in the Rulings.

The Rulings are given subject to the limitations and qualifications set out in Income Tax Information Circular IC70-6R12 “Advance Income Tax Rulings and Technical Interpretations”, issued by the CRA on April 1, 2022, and are binding on the CRA provided that the Proposed Transactions are completed on or before six months from the date of this letter.

The Rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the Rulings provided herein.

COMMENTS

Unless otherwise confirmed, nothing in the Rulings 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 Stated Capital or PUC of any share, or the ACB or FMV of any property, referred to herein;

(b) the Safe Income attributable to any shares of any corporation referred to herein;

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

(d) the characterization of any property described herein to the holder thereof;

(e) any provincial tax consequences relating to the facts, transactions, or any of the Completed Transactions or Proposed Transactions described in this letter; or

(f) any other tax consequences relating to the facts, transactions, additional information, any of the Completed Transactions or 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, 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.

In particular, we make no comment in respect of any tax consequences as to whether:

(i) any of the properties described in this letter, including the DC Common Shares, the DC Special Shares and the common shares of Canco 1 and Canco 2, would or would not constitute Taxable Canadian Property; or

(ii) any dividends paid on any class of shares of a corporation described in this letter, would or would not exceed the Safe Income that could reasonably be attributable to those shares.

Yours truly,

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

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