2023 Ruling 2022-0957491R3 F - Butterfly Reorganization -- translation

Principal Issues: Butterfly transactions of an investment corporation between a sister and a brother.

Position: Favourable rulings provided.

Reasons: Meets the requirements of the law.

XXXXXXXXXX 2022-095749

XXXXXXXXXX 2023

XXXXXXXXXX,

Subject: Request for advance income tax rulings -

XXXXXXXXXX

This is in response to your letter of XXXXXXXXXX requesting income tax rulings for the taxpayers identified above. We have also taken into account additional information submitted in your letters and emails, as well as information submitted during our telephone conversations (XXXXXXXXXX).

To the best of your knowledge and that of the parties involved in the Proposed Transactions, none of the issues raised herein are:

(i) addressed in any prior return of the taxpayers or any related person;

(ii) being considered by a Tax Services Office or Tax Centre in connection with a return previously filed by the taxpayers or a related person;

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

(iv) before the courts or, if a judgment has been rendered, the time limit for appeal thereof to a higher court has expired;

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

Unless otherwise indicated, all statutory references below are to the provisions of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (Canada) (the “Act”).

DESIGNATION OF PARTIES AND ABBREVIATIONS

In this letter, unless otherwise indicated, the names and corporate names of taxpayers are replaced by the following names and corporate names:

“A” means XXXXXXXXXX;

“Child 1 Holdco” means XXXXXXXXXX;

“Child 1 Testamentary Trust” means XXXXXXXXXX Testamentary Trust;

“Child 1” means XXXXXXXXXX, daughter of the late XXXXXXXXXX and sister of XXXXXXXXXX;

“Child 2 Holdco” means XXXXXXXXXX;

“Child 2 Testamentary Trust” means XXXXXXXXXX Testamentary Trust;

“Child 2” means XXXXXXXXXX, son of the late XXXXXXXXXX and brother of XXXXXXXXXX;

“Corporation” means XXXXXXXXXX;

“Estate” means the estate of Parent;

“Group” means XXXXXXXXXX;

“Holdco” means XXXXXXXXXX Holdco;

“Newco” means XXXXXXXXXX;

“Opco” means XXXXXXXXXX;

“Parent” means XXXXXXXXXX;

“Transferor” means the corporation formed by the amalgamation of Newco and Holdco;

“Trust” means XXXXXXXXXX Trust;

Unless otherwise indicated, the following abbreviations, terms and expressions have the meanings set out below:

“ACB” has the same meaning as in section 54;

“Agreed Amount” has the meaning set out in subsection 85(1);

“ARQ” means the Agence du revenu du Québec;

“Capital Property” has the same meaning as in section 54;

“CCPC” means a Canadian-controlled private corporation as defined in subsection 125(7).

“CDA” has the same meaning as in subsection 89(1);

“CRA” means the Canada Revenue Agency;

“Distribution ” has the same meaning as in subsection 55(1);

“DR” means dividend refund as defined in subsection 129(1);

“Eligible Dividend” has the meaning set out in subsection 89(1);

“Eligible Property” has the same meaning as in subsection 85(1.1);

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

“Fair Market Value” or ‘FMV’ means the highest price, in dollars, that would be agreed upon in the open market between two arm's length parties who are knowledgeable, informed and prudent, neither party being under any compulsion to act;

“GRIP” means General Rate Income Pool as defined in subsection 89(1);

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

“Personal Trust” has the same meaning as in subsection 248(1);

“Proposed Transactions” means the transactions referred to in paragraphs 72 to 98;

“PUC” means paid-up capital as defined in subsection 89(1);

“QBCA” means the Quebec Business Corporations Act, R.S. 2009, c. S-31.1;

“Taxable Dividend” has the same meaning as in subsection 89(1);

“TCC” has the same meaning as in the definition of taxable Canadian corporation in subsection 89(1);

“Winding-up Dividend” means the dividend resulting from the winding-up of Transferor pursuant to subsection 84(2) and paragraph 88(2)(b) as described in paragraphs 93 to 96 and Ruling C;

FACTS

Facts about Transferor

1. Transferor is and will be at all relevant times and for all purposes of the Act, a TCC and a CCPC. The fiscal period end of Transferor is XXXXXXXXXX of each year. The directors of Transferor are: A, Child 1 and Child 2.

2. Transferor is a corporation that owns XXXXXXXXXX.

3. Transferor is the result of the short-form amalgamation of Holdco and Newco on XXXXXXXXXX, as described in the Pipeline Reorganization section below.

4. The authorized share capital of Transferor consists of an unlimited number of Class A, B, C, D, E, F, G, H, I, J, K and L shares, all without par value. The authorized share capital of Transferor is identical to the authorized share capital of Newco prior to the amalgamation of Holdco and Newco. The principal rights, privileges, restrictions and conditions of the shares comprising the share capital of Transferor are as follows:

• The A shares are voting (XXXXXXXXXX vote per share), participating, pari passu with the Class B and C shares.
• The Class B shares are voting (XXXXXXXXXX vote per share), participating, pari passu with Class A and C shares.
• The Class C shares are non-voting, participating, pari passu with Class A and B shares.
• The Class D shares are voting (XXXXXXXXXX vote per share), non-participating.
• The Class E shares are non-voting non-participating shares, with a preferential non-cumulative monthly dividend of XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class F shares are non-voting non-participating shares, with a preferential non-cumulative monthly dividend of XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class G shares are non-voting, non-participating, with a preferential non-cumulative monthly dividend of XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class H shares are non-voting, non-participating, annual preferential non-cumulative dividends at a rate of XXXXXXXXXX% calculated on the PUC, redeemable at the option of the holder at the amount paid plus declared and unpaid dividends.
• The Class I shares are non-voting, non-participating, annual preferential non-cumulative dividends at a rate of XXXXXXXXXX% calculated on the PUC, redeemable at the option of the holder at the amount paid plus declared and unpaid dividends.
• The Class J shares are non-voting and non-participating, with a dividend determined at the sole discretion of the directors, non-cumulative, redeemable by the corporation at the amount of the PUC plus declared and unpaid dividends.
• The Class K shares are non-voting and non-participating, with the dividend determined at the sole discretion of the directors, non-cumulative, redeemable by the corporation at the amount of the PUC plus declared and unpaid dividends.
• The Class L shares are non-voting and non-participating, with the dividend determined at the sole discretion of the directors, non-cumulative, redeemable by the corporation at the amount of the PUC plus declared and unpaid dividends.

5. The issued and outstanding shares of the capital stock of Transferor consist of the following shares:

• XXXXXXXXXX Class A shares, with a PUC and ACB of $XXXXXXXXXXX, and a FMV of $XXXXXXXXXXX. The Class A shares are held by Trust.
• XXXXXXXXXX Class D shares, with a PUC of $XXXXXXXXXX, an ACB and a FMV of $XXXXXXXXXX. The Class D shares are held by the Estate.
• XXXXXXXXXX Class E shares, with a PUC of $XXXXXXXXXX, an ACB of $XXXXXXXXXX and a FMV of $XXXXXXXXXX. The Class E shares are held by the Estate.

6. All of the issued and outstanding shares of the capital stock of Transferor constitute Capital Property to the holder thereof.

7. As of XXXXXXXXXX, the assets of Transferor consisted of:

XXXXXXXXXX

At the time of the Proposed Transactions, the FMV of the investments will be reviewed so that the value of the stock market investments corresponds to the market value on a given date.

8. As at XXXXXXXXXX, Transferor's liabilities consisted of:

XXXXXXXXXX

9. Based on the market value as at XXXXXXXXXX, the FMV of all issued shares of Transferor is $XXXXXXXXXX. This value will be adjusted based on the market value of the investments on the date of the Proposed Transactions.

10. The FMV of Transferor does not take into account the ERDTOH or NERDTOH balance, the GRIP balance, the CDA balance or the amount of unutilized losses.

11. As at XXXXXXXXXX, Transferor's tax balances were as follows:

CDA $XXXXXXXXX

GRIP $XXXXXXXXXX

NERDTOH $XXXXXXXXXX

ERDTOH $XXXXXXXXXX

Facts about Estate

12. Estate was created following the death of Parent on XXXXXXXXXX. Parent's spouse died on XXXXXXXXXX.

13. The taxation year of Estate was XXXXXXXXXX until XXXXXXXXXX and became XXXXXXXXXX from XXXXXXXXXX.

14. The beneficiaries of Estate are a testamentary trust for the benefit of Child 1, and a testamentary trust for the benefit of Child 2.

15. The trustees of Child 1 Testamentary Trust are Child 1 and a third party named by Child 1.

16. The trustees of Child 2 Testamentary Trust are Child 2 and a third party named by Child 2.

17. Parent's will granted the trustees (when they deem it to be for the benefit of the beneficiary) the power to distribute the capital of each trust to its beneficiary.

18. The executors of the Estate are Child 1 and Child 2. A third executor resigned in XXXXXXXXXX. Child 1 and Child 2 have been the sole executors of the Estate since that time.

Facts about the Trust

19. Trust is a Canadian resident personal trust created on XXXXXXXXXX.

20. The Trust's taxation year is XXXXXXXXXX.

21. The beneficiaries of the Trust are Child 1, the children of Child 1, Child 2, the children of Child 2, or a Holdco Corporation controlled by any of the beneficiaries of the Trust.

22. The trustees of the Trust are A, Child 1 and Child 2.

23. The Trust Indenture grants the trustees, at their discretion, the power to terminate the Trust and return capital to the beneficiaries.

Facts about Child 1 Holdco

24. Child 1 Holdco is a corporation incorporated under the XXXXXXXXXX for the purposes of these Proposed Transactions.

25. Child 1 Holdco 1 is a holding corporation created to hold the investments it will receive from Transferor.

26. Child 1 Holdco is and will be, at all relevant times and for all purposes of the Act, a TCC and a CCPC.

27. The sole director and shareholder of Child 1 Holdco is Child 1.

28. Child 1 has subscribed for XXXXXXXXXX Class A shares (voting and participating) of the capital stock of Child 1 Holdco for $XXXXXXXXXXX. These XXXXXXXXXX shares of the capital stock of Child 1 Holdco were the only shares issued by Child 1 Holdco prior to the Proposed Transactions.

29. All of the issued and outstanding shares of the capital stock of Child 1 Holdco will constitute Capital Property to Child 1.

30. The capital stock of Child 1 Holdco consists of an unlimited number of shares of Classes A, B, C, D, E, F, G, H, I, J, K, L and M. The principal rights, privileges, restrictions and conditions of the shares comprising the capital stock of Child 1 Holdco are as follows:

• The Class A shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class B and C shares.
• The Class B shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class A and C shares.
• The Class C shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class A and B shares.
• The Class D shares are without par value, voting (XXXXXXXXXX vote per share), non-participating.
• The Class E shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class F shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class G shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class H shares have a par value of $XXXXXXXXXX per share, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at a price of $XXXXXXXXXX per share, plus declared and unpaid dividends.
• The Class I shares are without par value, non-voting, non-participating, with a preferential non-cumulative annual dividend of XXXXXXXXXX% per annum, calculated on the PUC, redeemable at the holder's option at the amount of the PUC plus declared and unpaid dividends.
• The Class J shares are without par value, non-voting, non-participating, with a preferential non-cumulative annual dividend of XXXXXXXXXX% per annum, calculated on the PUC, redeemable by the Corporation at the amount of the PUC plus declared and unpaid dividends.
• The Class K shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits from the date of subscription, redeemable by the corporation.
• The Class L shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits as of the date of subscription, and are redeemable by the corporation.
• The Class M shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits from the date of subscription, redeemable by the corporation.

Facts about Child 2 Holdco

31. Child 2 Holdco is incorporated under the XXXXXXXXXX for the purposes of these Proposed Transactions.

32. Child 2 Holdco is a holding Corporation created for the purpose of holding the assets it will receive from Transferor.

33. Child 2 Holdco is and will be, at all relevant times and for the purposes of the Act, a TCC and a CCPC.

34. The sole director and shareholder of Child 2 Holdco is Child 2.

35. Child 2 has subscribed for XXXXXXXXXX Class A shares (voting and participating) of the capital stock of Child 2 Holdco for $XXXXXXXXXXX. These XXXXXXXXXX shares of the capital stock of Child 2 Holdco were the only shares issued by Child 2 Holdco prior to the Proposed Transactions.

36. All of the issued and outstanding shares of the capital stock of Child 2 Holdco held by Child 2 are Capital Property of Child 2.

37. The capital stock of Child 2 Holdco consists of an unlimited number of shares of Classes A, B, C, D, E, F, G, H, I, J, K, L and M. The principal rights, privileges, restrictions and conditions of the shares comprising the capital stock of Child 2 Holdco are as follows:

• The Class A shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class B and C shares.
• The Class B shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class A and C shares.
• The Class C shares are without par value, voting (XXXXXXXXXX vote per share), participating pari passu with Class A and B shares.
• The Class D shares are without par value, voting (XXXXXXXXXX vote per share), non-participating.
• The Class E shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class F shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class G shares are without par value, non-voting, non-participating, with a preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at the amount of the PUC plus a premium equal to the consideration received on issue less the PUC, plus declared and unpaid dividends, with a price adjustment clause.
• The Class H shares have a par value of $XXXXXXXXXX per share, are non-voting, with a non-participating, preferential non-cumulative monthly dividend varying between XXXXXXXXXX% per month, calculated on the redemption value, redeemable at the option of the holder at a price of $XXXXXXXXXX per share, plus declared and unpaid dividends.
• The Class I shares are without par value, non-voting, non-participating, with a preferential non-cumulative annual dividend of XXXXXXXXXX% per annum, calculated on the PUC, redeemable at the holder's option at the amount of the PUC plus declared and unpaid dividends.
• The Class J shares are without par value, non-voting, non-participating, with a preferential non-cumulative annual dividend XXXXXXXXXX% per annum, calculated on the PUC, redeemable by the Corporation at the amount of the PUC plus declared and unpaid dividends.
• The Class K shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the Corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits from the date of subscription, redeemable by the corporation.
• The Class L shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the Corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits as of the date of subscription, and are redeemable by the corporation.
• The Class M shares are without par value, non-voting, non-participating, entitled to receive any dividend declared by the corporation, to the exclusion of the other classes of shares, irrespective of the order of distribution. Dividends are non-cumulative and may not exceed the corporation's net accounting profits from the date of subscription, redeemable by the corporation.

Facts about the Group

38. Group was created on XXXXXXXXXX.

39. Group was created in the course of the practice of its profession by Child 2, who is its sole shareholder.

Other Relevant Facts

40 Child 1 and Child 2 are sister and brother and were Parent's children.

41. For a number of years, Parent carried on a XXXXXXXXXX through Opco. XXXXXXXXXX. As Opco continued to operate, it acquired a significant number of shares of the capital stock of Corporation. In addition, on the sale of its XXXXXXXXXX, the cash received by Opco was invested on the stock exchange almost exclusively in shares of the capital stock of Corporation.

42. On XXXXXXXXXX, Opco was amalgamated with Holdco.

43. Holdco has therefore held shares of the capital stock of Corporation and other stock market investments for a long time.

44. Following Parent's death, the management of the investments held by Transferor remained the same. The same external broker continues to manage Transferor's investments.

Transferor purchases and disposes of securities from time to time, on the advice of Transferor’s broker.

Following Parent's death, the most liquid investments and a portion of the shares held in Corporation were sold in order to have cash available to pay Transferor's debts and a portion of the note Transferor owes to Estate.

45. A is not related to Child 1, Child 2, Holdco Child 1, Holdco Child 2 or Transferor.

46. A is a Canadian resident.

47. Child 1 and Child 2 are Canadian residents.

Pipeline reorganization

48. A pipeline reorganization has taken place following the death of Parent.

49. At the time of his death, Parent held XXXXXXXXXX Class D shares, XXXXXXXXXX Class E shares, XXXXXXXXXX Class F shares and XXXXXXXXXX Class H shares of the capital stock of Holdco. The four classes of shares held by Parent of the capital stock of Holdco were voting classes of shares, i.e. one vote per share. The FMV of all the preferred shares of the capital stock of Holdco held by Parent was then $XXXXXXXXXX.

50. At the time of Parent's death, the XXXXXXXXXX Class A common shares of the capital stock of Holdco were held by Trust. The Class A shares of the capital stock of Holdco were voting shares, i.e. one vote per share.

51. Estate incorporated Newco on XXXXXXXXXX.

52. Estate subscribed for XXXXXXXXXX Class A common shares of the capital stock of Newco for $XXXXXXXXXXX.

53. In order to recover Holdco's ERDTOH and NERDTOH, the Class D, F, H preferred shares and a portion of the Class E shares (i.e. XXXXXXXXXX Class E shares) held by Estate of the capital stock of Holdco were redeemed for a value of $XXXXXXXXXX. Estate was taxable on this dividend in its income tax return for the fiscal period ended XXXXXXXXXX.

54. The capital loss realized on the redemption of the Class D, F, H and E shares of Holdco was carried back for application against the capital gain realized at the time of Parent's death, pursuant to subsection 164(6).

55. On XXXXXXXXXX, Estate transferred, pursuant to subsection 85(1), the balance of the Class E shares, i.e., XXXXXXXXXX shares held of the capital stock of Holdco, to Newco.

56. The FMV of the Class E shares of the capital stock of Holdco transferred to Newco was then $XXXXXXXXXX.

57. In consideration for the transfer, Newco issued to Estate a $XXXXXXXXXX note (“Estate Note”) and XXXXXXXXXX Class E shares of its capital stock having a PUC of $XXXXXXXXXX, an ACB of $XXXXXXXXXX and a FMV of $XXXXXXXXXX.

58. Newco's issued share capital then consisted of XXXXXXXXXX Class A shares and XXXXXXXXXX Class E shares.

59. In XXXXXXXXXX, Estate paid the taxes of Holdco XXXXXXXXXX in the amount of $XXXXXXXXXX. The advance receivable by Estate from Holdco then became $XXXXXXXXXX (Estate Note).

60. On XXXXXXXXXX, Estate exchanged, pursuant to subsection 51(1), XXXXXXXXXX Class A shares and XXXXXXXXXX Class E shares of the capital stock of Newco for XXXXXXXXXX Class D shares of the capital stock of Newco. The XXXXXXXXXX Class D shares issued by Newco had a PUC of $XXXXXXXXXX, an ACB and a FMV of $XXXXXXXXXX.

61. On XXXXXXXXXX, the Trust transferred, pursuant to subsection 85(1), the XXXXXXXXXX Class A shares of the capital stock of Holdco that it held to Newco. In return, Newco issued XXXXXXXXXX Class A shares (common) of its capital stock to Trust. These Class A shares had a PUC and an ACB of $XXXXXXXXXX.

62. On XXXXXXXXXX, a short-form amalgamation took place between Holdco and Newco to form Transferor.

63. Following the amalgamation, the issued shares of the capital stock of Transferor were as follows:

• XXXXXXXXXX Class D shares, with a PUC of $XXXXXXXXXX, an ACB of $XXXXXXXXXX and an FMV of $XXXXXXXXXX Class E shares, with a PUC of $XXXXXXXXXX, an ACB of $XXXXXXXXXX and an FMV of $XXXXXXXXXX, held by Estate.
• XXXXXXXXXX Class A shares, with a PUC and ACB of $XXXXXXXXXX, held by Trust.

64. A bump to the ACB of the shares of the capital stock of the Corporation held by Holdco was effected pursuant to subsection 87(11).

65. The subsection 87(11) election was filed with Transferor's income tax return for its fiscal period ended XXXXXXXXXX.

66. As a result of the amalgamation, Transferor was obligated for the following amounts:

• XXXXXXXXXX to Estate (Estate Note). In XXXXXXXXXX, Newco repaid $XXXXXXXXXX to Estate. At XXXXXXXXXX, the principal amount of this note was then $XXXXXXXXXX;
• XXXXXXXXXX to Trust (Trust Note). At XXXXXXXXXX, the principal amount of this note was $XXXXXXXXXX.
• Partial payment of note due to Estate

67. On XXXXXXXXXX, the most liquid investments were sold by Transferor to repay a portion of the Estate Note. The amount repaid was $XXXXXXXXXX.

68. The disposition of those investments generated a tax liability of approximately $XXXXXXXXXX for Transferor and increased its tax balances by the following estimated amounts:

NERDTOH $XXXXXXXXX

CDA $XXXXXXXXX

69. On XXXXXXXXXX, Estate distributed the $XXXXXXXXXX in cash obtained from Transferor to Child 1 Testamentary Trust and Child 2 Testamentary Trust (i.e., $XXXXXXXXXX each).

70. On XXXXXXXXXX, Child 1 Testamentary Trust and Child 2 Testamentary Trust distributed to their respective beneficiaries the amount of $XXXXXXXXXX received from Estate.

71. On XXXXXXXXXX, Child 1 and Child 2 each transferred the amount of $XXXXXXXXXXX to their respective corporations, Child 1 Holdco and Child 2 Holdco. In return, each received a note from their respective corporation in the amount of $XXXXXXXXXXX.

PROPOSED TRANSACTIONS

72. Prior to the final distribution, Estate (with the exception of Parent's personal property) will hold the following assets:

• XXXXXXXXXX Class D shares of the capital stock of Transferor, FMV and ACB of $XXXXXXXXXXX, PUC of $XXXXXXXXXXX;
• XXXXXXXXXX Class E shares of the capital stock of Transferor, FMV of $XXXXXXXXXX, ACB of $XXXXXXXXXX and PUC of $XXXXXXXXXX;
• Estate Note receivable from Transferor of $XXXXXXXXXX.

73. Estate will distribute, pursuant to subsection 107(2), in equal shares to Child 1 Testamentary Trust and Child 2 Testamentary Trust the XXXXXXXXXX Class E shares and the XXXXXXXXXX Class D shares of the capital stock of Transferor as well as the Estate Note receivable from Transferor that it holds in settlement of all or part of the capital interest of the beneficiaries in Estate.

74. Child 1 Testamentary Trust and Child 2 Testamentary Trust will distribute under subsection 107(2) the assets received from Estate to their respective beneficiaries, namely Child 1 and Child 2, in satisfaction of all or part of the beneficiary's capital interest in Child 1 Testamentary Trust and Child 2 Testamentary Trust.

75. Child 1 will transfer the assets received from Child 1 Testamentary Trust to Child 1 Holdco. Child 1 and Child 1 Holdco will make the election provided for in subsection 85(1) in the prescribed form and within the time provided for in subsection 85(6) in respect of the shares of the capital stock of Transferor to be transferred to Child 1 Holdco. The Agreed Amount for each class of shares will be the lesser of the ACB, to Child 1, or the FMV of the shares transferred.

76. As a result of the transfers referred to in the preceding paragraph, Child 1 will respectively receive a note in the amount of $XXXXXXXXXX for the transfer of her share of the Estate Note receivable from Transferor and XXXXXXXXXX Class E shares of the capital stock of Child 1 Holdco having a value of $XXXXXXXXXX for the transfer of the Class D and E shares of the capital stock of Transferor. The PUC of the Class E shares of the capital stock of Child 1 Holdco will be determined pursuant to the provisions of paragraph 84.1(1)(a). The terms of the agreement relating to the transfer of shares of the capital stock of Transferor to Child 1 Holdco will not include a price adjustment clause.

77. At the same time as the transaction provided for in paragraph 75, Child 2 will transfer the assets received from Child 2 Testamentary Trust to Child 2 Holdco. Child 2 and Child 2 Holdco will make the election provided for in subsection 85(1) in the prescribed form and within the time provided for in subsection 85(6) in respect of the shares of the capital stock of Transferor to be transferred to Child 2 Holdco. The Agreed Amount for each class of shares will be the lesser of the ACB, to Child 2, and the FMV of the shares transferred.

78. As a result of the transfers referred to in the preceding paragraph, Child 2 will respectively receive a note of $XXXXXXXXXX for the transfer of his share of the Estate Note receivable from Transferor and XXXXXXXXXX Class E shares of Child 2 Holdco's capital stock having a value of $XXXXXXXXXX, for the transfer of the Class D and E shares of the capital stock of Transferor. The PUC of the Class E shares of the capital stock of Child 2 Holdco will be determined pursuant to the provisions of paragraph 84.1(1)(a). The terms of the agreement relating to the transfer of shares of the capital stock of Transferor to Holdco Child 2 will not include a price adjustment clause.

79. Following the transfers described in paragraphs 72 to 78, Child 1 Holdco and Child 2 Holdco will each hold the following assets:

• XXXXXXXXXX Class D shares of the capital stock of Transferor;
• XXXXXXXXXX Class E shares of the capital stock of Transferor;
• Estate Note receivable from Transferor: $XXXXXXXXXX;
• Cash on hand of $XXXXXXXXXX.

Winding-up of Trust

80. Trust will distribute pursuant to subsection 107(2) in equal shares to Child 1 and Child 2, the XXXXXXXXXX Class A shares of the capital stock of Transferor with a total estimated FMV of $XXXXXXXXXX and the Trust Note receivable with a value of $XXXXXXXXXX in satisfaction of all or a portion of the Trust Beneficiaries' capital interest.

81. Child 1 will transfer to Child 1 Holdco the XXXXXXXXXX Class A shares of the capital stock of Transferor and an amount receivable from Transferor (XXXXXXXXXX% of the Trust Note) of $XXXXXXXXXX. Child 1 and Child 1 Holdco will make the election provided for in subsection 85(1) in the prescribed form and within the period provided for in subsection 85(6) in respect of the shares of the capital stock of Transferor to be transferred to Child 1 Holdco. The Agreed Amount for the Class A shares will be the lesser of the ACB, to Child 1, and the FMV of the shares transferred.

82. Following the transfers described in the preceding paragraph, Child 1 will respectively receive a note for $XXXXXXXXXX for the transfer of her share of the Trust Note and Class E shares of the capital stock of Child 1 Holdco, the FMV of which will be equal to the FMV of the Class A shares of the capital stock of Transferor then transferred. The PUC of the Class E shares of the capital stock of Child 1 Holdco will be determined pursuant to the provisions of paragraph 84.1(1)(a). The terms of the agreement relating to the transfer of the shares of the capital stock of Transferor will not include a price adjustment clause.

83. At the same time as the transaction provided for in paragraph 81, Child 2 will transfer to Child 2 Holdco the XXXXXXXXXX Class A shares of the capital stock of Transferor and an amount receivable from Transferor (XXXXXXXXXX% of the Trust Note) of $XXXXXXXXXXX. Child 2 and Child 2 Holdco will make the election provided for in subsection 85(1) in the prescribed form and within the period provided for in subsection 85(6) in respect of the shares of the capital stock of Transferor to be transferred to Child 2 Holdco. The Agreed Amount for the Class A shares will be the lesser of the ACB, to Child 2, and the FMV of the shares transferred.

84. Following the transfers described in the preceding paragraph, Child 2 will respectively receive a $XXXXXXXXXX note for the transfer of his share of the Trust Note and Class E shares of the capital stock of Child 2 Holdco, the FMV of which will be equal to the FMV of the Class A shares of the capital stock of Transferor then transferred. The PUC of the Class E shares of the capital stock of Child 2 Holdco will be determined pursuant to the provisions of paragraph 84.1(1)(a). The terms of the agreement relating to the transfer of the shares of the capital stock of Transferor will not include a price adjustment clause.

Distribution of Transferor's property to Holdco Child 1 and Holdco Child 2

85. Immediately prior to the transfers of assets described in paragraphs 87 and 88 below, the property held by Transferor will be classified for the purposes of the Distribution according to the following two types of property: (1) “cash and cash equivalents” and (2) “investments”. Cash and cash equivalents of Transferor will consist of, among other things, cash on hand (including cash, if any, in investment accounts managed by investment advisors), accounts receivable (including income taxes receivable), prepaid expenses, certificates of deposit and similar short-term investments, marketable securities (other than those held as portfolio investments). Investments are the second type of property. Investments will include all property of Transferor, other than cash and cash equivalents, the income from which constitutes income from property or income from a “specified investment business” within the meaning of subsection 125(7). Transferor will not own any “business property”. For greater certainty, Transferor's various tax accounts, including but not limited to CDA, GRIP, ERDTOH and NERDTOH, will not be considered property for the purposes hereof.

86. For the purposes of calculating the net FMV of each type of property of Transferor, Transferor's current liabilities will be allocated and applied against the FMV of the property forming part of the cash and cash equivalents. Upon the Distribution, the total amount of Transferor's short-term debt will not exceed the total amount of the FMV of the cash and cash equivalents. Short-term debt will consist of short-term borrowings (payable on demand or within a period of XXXXXXXXXX), accounts payable and accrued expenses, and taxes payable. The Estate Note and Trust Note will be allocated and applied against the FMV of the property forming part of the investments. Transferor will have no indebtedness other than short-term indebtedness, the Estate Note and the Trust Note at the time of the Distribution.

87. Transferor will transfer to Child 1 Holdco a portion of its property so that Child 1 Holdco will receive its proportionate share of the FMV of the cash and investments held by Transferor immediately prior to the transfer. This proportionate share of the net FMV of the property thus distributed to Child 1 Holdco will be established on the basis of the FMV of the shares of Transferor held by Child 1 Holdco immediately prior to the Distribution over the FMV of all the issued and outstanding shares of Transferor immediately prior to the Distribution. In consideration, Child 1 Holdco will assume one-half of the short-term debts, one-half of the Estate Note and one-half of the Trust Note to be paid by Transferor and will issue to Transferor Class F shares of the capital stock of Child 1 Holdco. The FMV and the redemption value of the Class F shares of the capital stock of Holdco Child 1 will be equal to an amount corresponding to the excess of the total FMV of the property received by Child 1 Holdco at the time of the Distribution over the total amount of Transferor's debts assumed by Child 1 Holdco. The Estate Note and the Trust Note held by Holdco Child 1 will be extinguished by confusion [operation of law].

The total amount of indebtedness to be assumed by Holdco Child 1 as consideration for the acquisition of each property of Transferor will not exceed the lesser of the “cost amount” (as defined in subsection 248(1)) and the FMV of each property.

Transferor and Holdco Child 1 will make the election provided for in subsection 85(1) in the prescribed form and within the time provided for in subsection 85(6) in respect of the Transferred Property that will be “Eligible Property” pursuant to subsection 85(1). The Agreed Amount for each Transferred Property that will be Capital Property other than Depreciable Property will be the lesser of the ACB, to Transferor, and the FMV of the Transferred Capital Property, being the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The PUC of the Class F shares of the capital stock of Child 1 Holdco will be determined pursuant to the provisions of subsection 85(2.1).

88. At the same time as the transaction contemplated in paragraph 87, Transferor will transfer to Child 2 Holdco a portion of its property such that Child 2 Holdco will receive its proportionate share of the FMV of the cash and investments held by Transferor immediately prior to the transfer. This proportionate share of the net FMV of the property thus distributed to Child 2 Holdco will be established on the basis of the FMV of the shares of Transferor held by Child 2 Holdco immediately before to the Distribution over the FMV of all the issued and outstanding shares of Transferor immediately prior to the Distribution. In consideration, Child 2 Holdco will assume half of the short-term debts, half of the Estate Note and half of the Trust Note to be paid by Transferor and will issue to Transferor Class F shares of the capital stock of Child 2 Holdco. The FMV and the redemption value of the Class F shares of the capital stock of Child 2 Holdco will be equal to an amount corresponding to the excess of the total FMV of the property received by Child 2 Holdco at the time of the Distribution over the total amount of Transferor's debts assumed by Child 2 Holdco. The Estate Note and Trust Note held by Child 2 Holdco will be extinguished by confusion [operation of law].

The total amount of indebtedness to be assumed by Child 2 Holdco as consideration for the acquisition of each property of Transferor will not exceed the lesser of the “cost amount” (as defined in subsection 248(1)) and the FMV of each property.

Transferor and Child 2 Holdco will make the election provided for in subsection 85(1) in the prescribed form and within the time provided for in subsection 85(6) in respect of the Transferred Property that will be “Eligible Property” under subsection 85(1). The Agreed Amount for each Transferred Property that will be a XXXXXXXXXX other than Depreciable Property will be the lesser of the ACB, to Transferor, and the FMV of the XXXXXXXXXX transferred, being the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii).

The PUC of the Class F shares of the capital stock of Child 2 Holdco will be determined pursuant to the provisions of subsection 85(2.1).

Authorized redemptions

89. Child 1 Holdco will redeem the Class F Shares of its capital stock held by Transferor. A non-interest bearing note with a principal amount equal to the FMV of the Class F Shares of the capital stock of Child 1 Holdco (“Note 1”) will be issued to Transferor by Child 1 Holdco in payment of the redemption. Transferor will accept Note 1 as full or absolute payment for the redemption of such Class F Shares of the capital stock of Child 1 Holdco.

For Transferor, the redemption will result in a deemed dividend received pursuant to subsection 84(3). Transferor and Child 1 Holdco will be connected corporations under subsection 186(4). This dividend will be subject to Part IV tax to the extent provided in paragraph 186(1)(b).

No Part VI.1 tax will be payable by Child 1 Holdco, as Transferor holds a significant interest in Child 1 Holdco by virtue of paragraph 191(2)(a).

90. The first fiscal period-end of Child 1 Holdco will occur at the end of the day on which the redemption described in the preceding paragraph is completed.

91. At the same time as the transaction described in paragraph 89, Child 2 Holdco will redeem the Class F shares of its capital stock held by Transferor. A non-interest bearing note with a principal amount equal to the FMV of the Class F shares of the capital stock of Child 2 Holdco (“Note 2”) will be issued to Transferor by Child 2 Holdco in payment of the redemption. Transferor will accept Note 2 as full or absolute payment for the redemption of such Class F shares of the capital stock of Child 2 Holdco.

For Transferor, the redemption will result in a deemed dividend received pursuant to subsection 84(3). Transferor and Child 2 Holdco will be connected corporations under subsection 186(4). This dividend will be subject to Part IV tax to the extent provided in paragraph 186(1)(b).

No Part VI.1 tax will be payable by Child 2 Holdco, as Transferor holds a significant interest in Child 2 Holdco by virtue of paragraph 191(2)(a).

92. The first fiscal period-end of Child 2 Holdco will occur at the end of the day on which the redemption described in the preceding paragraph is completed.

Winding-up of Transferor

93. On the day following the day determined in paragraphs 90 and 92 above, the authorized officers of Transferor will pass a special resolution authorizing the winding-up and dissolution of Transferor, whereby its assets, namely Note 1 and Note 2, will be distributed to Child 1 Holdco and Child 2 Holdco, respectively. Note 1 and Note 2 will be extinguished by confusion [operation of law] pursuant to XXXXXXXXXX.

94. To the extent that Transferor has a positive balance in its CDA immediately prior to the distribution of its property on winding-up, Transferor will make the subsection 83(2) election so that the portion of the Winding-up Dividend deemed under subparagraph 88(2)(b)(i) to be a separate dividend will be deemed to be a capital dividend to the extent of Transferor's CDA balance immediately prior to the distribution of its property on winding-up. The subsection 83(2) election will be made in the prescribed manner.

95. To the extent that Transferor has a positive GRIP balance immediately prior to the distribution of its property on winding-up, Transferor will designate a portion of the Winding-up Dividend, which is deemed under subparagraph 88(2)(b)(iii) to be a separate dividend, to be an Eligible Dividend and will notify Child 1 Holdco and Child 2 Holdco in writing pursuant to subsection 89(14). The amount designated as an Eligible Dividend will be equal to Transferor's GRIP balance at the end of Transferor's taxation year in which the distribution is made.

96. Once Transferor has received the DR resulting from the Winding-Up Dividend and its notices of assessment for the XXXXXXXXXX taxation year from CRA and XXXXXXXXXX, Transferor will apply for dissolution. Transferor will file the required tax returns up to the date of dissolution.

According to the agreement reached for the winding-up of Transferor, the DR will be distributed in equal shares to Child 1 Holdco and Child 2 Holdco.

Since Transferor will receive a DR arising from the Winding-up Dividend, Child 1 Holdco and Child 2 Holdco will have Part IV tax payable to the extent provided for in paragraph 186(1)(b).

97. Immediately following the winding-up of Transferor and prior to its dissolution, Transferor will not own or acquire any property, other than the receipt of the DR, and will not carry on any business.

Other transactions

98. On XXXXXXXXXX, Child 2 Holdco and Group will amalgamate.

PURPOSE OF PROPOSED TRANSACTIONS

99. The purpose of the Proposed Transactions is to allow Child 1 and Child 2 to separate their respective interests in Transferor into two separate corporations, Child 1 Holdco and Child 2 Holdco, so that Child 1 and Child 2 can manage their investments independently in the future.

ADDITIONAL INFORMATION

100. The main contact details for the taxpayers concerned by the advance rulings are as follows:

XXXXXXXXXX

101. All material transactions that have been undertaken prior to the submission of the advance ruling request or that may be undertaken after the conclusion of the Proposed Transactions are described herein.

102. Except for the Proposed Transactions described herein, Transferor has not acquired and will not acquire any property (other than stock market investments that may have been acquired in the ordinary course of its investment business), and has not incurred and will not incur any indebtedness (other than current accounts payable incurred in the course of its investment business), in contemplation of and before the distribution made in connection with the butterfly reorganization that is the subject of the Proposed Transactions.

103. Except as described herein, Transferor, Child 1 Holdco and Child 2 Holdco will not dispose of any property to any person unrelated to the Vendor or any partnership in connection with the butterfly reorganization that is the subject of the Proposed Transactions.

104. Other than the Proposed Transactions described herein, there will be no acquisition of control of Transferor, Child 1 Holdco or Child 2 Holdco in connection with the series of transactions or events comprising the Proposed Transactions described herein, taking into account subsection 256(7) and paragraphs 55(3.2)(d) and 55(5)(e).

105. Transferor's principal business is the management of investments and securities for members of the same family. More specifically, Transferor purchases and disposes of investments and securities from time to time, sometimes on the advice of securities brokers or investment advisors. The investments and securities held by Transferor constitute capital property. Upon completion of the proposed transactions described below, Child 1 Holdco and Child 2 Holdco will receive the property of Transferor, including its investments and securities. Child 1 Holdco and Child 2 Holdco will hold and dispose of the investments and securities received from Transferor in the ordinary course of their investment activities in the same manner as Transferor would do if the Proposed Transactions described herein were not completed.

106. It is possible that Child 1 Holdco and Child 2 Holdco will repay the amount due to their respective shareholders, pay a capital dividend from the CDA received following the winding-up of Transferor or pay taxable dividends to their respective shareholders. Those repayments or dividend payments will be made from the investment income earned by Child 1 Holdco and Child 2 Holdco on the investments received from Transferor. Child 1 and Child 2 do not intend to dispose of the investments held by their respective corporations to pay such repayments or dividends.

107. The method to be used to allocate the property of Transferor among the shareholders is intended to ensure that each shareholder receives a proportionate share of each type of property of Transferor.

108. Transferor, Child 1 Holdco and Child 2 Holdco are not, and none of them will be at the time of the Proposed Transactions, a specified financial institution within the meaning of subsection 248(1).

109. None of the shares of Transferor, Child 1 Holdco or Child 2 Holdco has been or will be at any time during the term of the series of Proposed Transactions:

• Subject to a covenant, as referred to in paragraph 112(2.2);
• Subject to a dividend transfer mechanism within the meaning of subsection 248(1), as referred to in subsection 112(3.2); or
• Issued or acquired in connection with a transaction, event or series of transactions or events of the type referred to in subsection 112(2.5).

ADVANCE RULINGS ISSUED

Provided that the statement of Facts, the Proposed Transactions, Other Relevant Facts and Additional Information constitutes full disclosure of all relevant facts and of all proposed transactions, and that the Proposed Transactions are carried out as previously described, our rulings are as follows:

A. Provided that there is no transaction, other than a Proposed Transaction described herein, that is part of a series of transactions or events (within the meaning of subsection 248(10)) that includes the Proposed Transactions, and that is:

(a) an acquisition of property in the circumstances described in paragraph 55(3.1)(a) other than as a result of one of the events described in subparagraphs 55(3.1)(a)(i) to (iv);

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

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

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

(e) an acquisition of property in the circumstances described in paragraphs 55(3.1)(c) and 55(3.1)(d);

taxable dividends resulting from the transactions described in paragraphs 89, 91 and 95 above will not give rise to the application of subsection 55(2), because of the application of paragraph 55(3)(b).

B. Pursuant to subsection 84(3), following redemptions by:

(a) Child 1 Holdco of its Class F shares of its capital stock held by Transferor, as described in paragraph 89, Child 1 Holdco will be deemed to have paid, and Transferor deemed to have received, a dividend at such time equal to the amount paid by Child 1 Holdco for the redemption of such Class F shares of its capital stock which exceeds the PUC of such shares immediately prior to the redemption;

(b) Child 2 Holdco of its Class F shares of its capital stock held by Transferor, as described in paragraph 91, Child 2 Holdco shall be deemed to have paid, and Transferor shall be deemed to have received, a dividend at such time equal to the amount paid by Child 2 Holdco for the redemption of such Class F shares of its capital stock in excess of the PUC of such shares immediately prior to such redemption.

C. The winding-up of Transferor described in paragraphs 94 et seq. of the Proposed Transactions will result in the following:

(i) subject to C(iii) and C(iv) below, pursuant to paragraph 88(2)(b) and subsection 84(2), Transferor will be deemed to have paid to each of Child 1 Holdco and Child 2 Holdco a dividend equal to the excess of the principal amount of Note 1 and Note 2 (and any other amounts paid by Transferor in this context, including amounts related to the distribution of Transferor's DR) over the PUC of all shares of Transferor's capital stock held by Child 1 Holdco and Child 2 Holdco respectively;

(ii) the deemed dividend paid by Transferor to each of Child 1 Holdco and Child 2 Holdco described in paragraph (i) above will be deemed to have been received under subsection 84(2) by Child 1 Holdco and Child 2 Holdco respectively;

(iii) to the extent that Transferor has a positive balance in its CDA account, immediately prior to its winding-up, pursuant to subparagraph 88(2)(b)(i), the portion of the Winding-up Dividend that does not exceed the balance in Transferor's CDA account, determined immediately before the payment of the Winding-up Dividend, will be deemed for the purposes of the subsection 83(2) election referred to in paragraph 95, to be for the full amount a separate dividend;

(iv) under subparagraph 88(2)(b)(iii), the Winding-up Dividend, to the extent that it exceeds the portion determined in C(iii) that is deemed to be a separate dividend, will be deemed to be a separate dividend that is a taxable dividend;

(v) pursuant to subparagraph 88(2)(b)(iv), Child 1 Holdco and Child 2 Holdco will be deemed to have received their proportionate share of the dividends determined in rulings C(iii) and C(iv).

D. The Taxable Dividends described in rulings B and C:

(a) will be included in computing the income of the Beneficiary under subsection 82(1) and paragraph 12(1)(j);

(b) will be deductible by the beneficiary, under subsection 112(1), in computing taxable income for the year in which the dividend is deemed to have been received;

(c) will not be included in the Beneficiary's proceeds of disposition of shares that are redeemed or cancelled, because of paragraph (j) of the definition “proceeds of disposition” in section 54;

(d) reduce, under subsection 112(3), the loss, if any, on the disposition of the shares on which the deemed dividend is received.

E. Settlement of the Notes as described in paragraph 93 will not result in a “forgiven amount” as defined in subsection 80(1).

F. Subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the Proposed Transactions described in paragraphs 75, 77, 81, 83, 87 and 88. For greater certainty, paragraph 85(1)(e.2) will not apply to the above property transfers.

G. To the extent that the PUC of the Class E shares of the capital stock of Child 1 Holdco issued to Child 1 pursuant to the transaction described in paragraph 76 above does not exceed the maximum amount that may be added to the PUC of such shares pursuant to paragraph 84.1(1)(a), the provisions of section 84.1 will not apply so as to reduce the PUC of such shares.

H. To the extent that the PUC of the Class E shares of the capital stock of Child 2 Holdco issued to Child 2 pursuant to the transaction described in paragraph 78 above does not exceed the maximum amount that may be added to the PUC of such shares pursuant to paragraph 84.1(1)(a), the provisions of section 84.1 will not apply to reduce the PUC of such shares.

I. To the extent that the PUC of the Class E Shares of the capital stock of Child 1 Holdco issued to Child 1 pursuant to the transaction described in paragraph 82 above does not exceed the maximum amount that may be added to the PUC of such shares pursuant to paragraph 84.1(1)(a), the provisions of section 84.1 will not apply to reduce the PUC of such shares.

J. To the extent that the PUC of the Class E Shares of the capital stock of Holdco Child 2 issued to Child 2 in connection with the transaction described in paragraph 84 above does not exceed the maximum amount that may be added to the PUC of such shares pursuant to paragraph 84.1(1)(a), the provisions of section 84.1 will not apply so as to reduce the PUC of such shares.

K. Subsections 15(1), 56(2) and 246(1) will not apply to the Proposed Transactions described above.

L. The provisions of subsection 245(2) will not apply as a result and by reason of the Proposed Transactions described above to redetermine the tax consequences confirmed in the rulings above.

These rulings are subject to the restrictions and general conditions set out in Information Circular 70-6R12 dated April 1, 2022, issued by the CRA and are binding on the CRA, provided that the Proposed Transactions are completed prior to the XXXXXXXXXX period ending after the date hereof or as specifically provided herein. These rulings are based on the current Act and do not take into account any proposed amendments thereto.

OTHER COMMENTS

These rulings should in no way be construed as an acquiescence on the part of CRA that:

(a) we have examined the other tax consequences that could result from the Proposed Transactions described herein;

we have examined the tax consequences that could result from the transactions relating to the pipeline reorganization;

(b) we have reviewed the rules restricting the gross-up of the tax cost of a subsidiary's assets in the event of an amalgamation;

(c) we have reviewed the application of subsections 75(2) and 107(2) to the transactions described in the Facts and Proposed Transactions sections herein;

(d) the amount attributed to a property in the statement of Facts and Proposed Transactions truly represents the FMV or ACB of a property, or the PUC amount of a share; and that

(e) the amount attributed to the CDA, GRIP, ERDTOH or NERDTOH of a corporation truly represents the CDA, GRIP, ERDTOH or NERDTOH of such corporation.

A statement of our fees for the time spent studying your file will be sent to you under separate cover.

Best regards,

for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch