Principal Issues: 1.Can the capital gains realized by Fund on the disposition of assets to sole unitholder be allocated to unitholder and deductible under subsection 104(6)?
2. Will the sole unitholder realize a capital loss on the redemption of its units in the Fund after receiving the distributions of income and capital described under the first issue?
3. Will the Trustee be able to file the final return and make the necessary designations following the wind up of the Fund?
4. Will the various amendments to partnership agreement and trust deed to allow for transactions cause a windup or resettlement?
5. If the Fund was a SIFT trust in 2007, would the grandfathering rules in subsection 122.1(2) apply such that the Fund would not be subject to the SIFT rules in 2007
6. Where a note is distributed as payment, do the provisions of section 80 apply?
7. Where new debt is borrowed to invest in shares of a subsidiary that will acquire business and property, is the interest deductible?
8. Where the debt in the business is assumed, is the interest deductible?
9. Would the amendment to the Partnership Agreement in respect of the revised method of allocating Partnership income/loss result in a disposition of the interests held in the Partnership by the Fund and the general partner?
10. Would the same amendment to the Partnership agreement trigger the application of subsection 103 to redetermine the allocation of the income/loss of the Partnership?
11. Would subsection 98(3) apply on the winding-up of the Partnership, with the result that each partner would be entitled to make a paragraph 98(3)(c) designation?
12. Would the Partnership be a SIFT partnership in 2007 and if so, would the grandfathering rules in subsection 197(8) of the Act applied to the Partnership?
13. Will GAAR apply?
Position: 1. Yes, provided the amount is less than the trust's net taxable capital gains for the year.
2.The stop loss rules in 40(3.3), (3.4) and 107(1)(c) will not apply to reduce the amount of any capital loss otherwise realized on the redemption of the sole unitholder's units of the Fund.
3.Yes. 4. No.
5. The grandfathering rules will apply such that the Fund will not be subject to the SIFT rules in 2007. 6.No 7. Yes 8. Yes
9. Not in and of itself.
10. Not in and of itself.
11. Yes.
12. We did not conclude on this point, but did state that, to the extent that the Partnership is a SIFT Partnership, the subscription of certain additional units in the Fund would not, in and of itself, cause subsection 197(1) to apply to the Partnership for its XXXXXXXXXX taxation year.
13. No.
Reasons: 1. The net taxable capital gains will be made payable to the unitholder and all other amounts of income and other taxable capital gains will be made payable to former unitholders (in respect of distributions made before the sale of units to sole unitholder) or to the sole unitholder.
2. Following the redemption of the sole unitholder's units, the Fund will be wound up immediately and no further units will be issued such that the conditions in subsection 40(3.3) will not be met.
3. Filing the final tax return is one of the duties and obligations of the trustee.
4. Consistent with prior rulings.
5. The issue of new equity to the sole unitholder in exchange for the debt that was existing on October 31, 2006 does not qualify as growth for the purpose of the Normal Growth Guidelines.
6. Principal amount is the same.
7. Subject to the usual provisos.
8. Reading of 20(1)(c).
9-12. Our reading of the legislation.
13. Transactions are consistent with object and spirit of the provisions relied on.
