30 November 1996 Ruling 9638043 - MUTUAL FUND LIMITED PARTNERSHIP, GRANDFATHERING

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: mutual fund limited partnership and proposed s.18.1

Position: grandfathering applies

Reasons: XXXXXXXXXX press release/ see briefing note

XXXXXXXXXX							963804
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Rulings

This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above-referenced taxpayers in connection with the proposed transactions described below and is further to your letters dated XXXXXXXXXX, and our telephone conversations on this matter.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

FACTS AND PROPOSED TRANSACTIONS

In this letter:

"Act" means Income Tax Act (Canada);

(b) "Additional Funds" means mutual funds, other than the XXXXXXXXXX, managed by the Manager, in respect of which services will not be performed by the Partnership;

(c)"Agents" means the agents of the Partnership who will sell units of the Partnership;

(d)"Distributed Units" means Redemption Fee Units and units attributable to such Redemption Fee Units including the reinvested units and transferred units described in paragraph 27;

(e) "Distribution Fee" means the monthly fee paid by the Manager to the Partnership as part payment for its services in arranging for the distribution of Redemption Fee Units;

(f)"Distribution Period" means the period during which the Partnership will be the exclusive distribution agent of the Manager for the distribution of units of the Funds, which period will begin on or after XXXXXXXXXX, and on or after the date of the filing of a simplified prospectus (which is anticipated to occur in XXXXXXXXXX) for the

XXXXXXXXXX;

(g)"Fiscal period" of the Partnership for income tax and financial reporting purposes is XXXXXXXXXX;

(h)"Funds" means the XXXXXXXXXX;

(i)"General Partner" means XXXXXXXXXX;

(j) XXXXXXXXXX;

(k)"Limited Partners" means persons who have subscribed for units of the Partnership and whose subscriptions have been accepted;

(l)"Manager" means XXXXXXXXXX;

(m) "Net Asset Value" of a Fund means the difference between the value of the Fund's assets and the Fund's liabilities;

(n) "Offering" means offering of units of the Partnership for sale to the public, as more fully described below in paragraph 13;

(o)"Partnership" means XXXXXXXXXX;

(p)"Redemption Fee Units" means units of the Funds distributed by the Partnership on a deferred sales charge basis and in respect of which the Partnership will pay the Sales Commission;

(q)"Sales Commission" means the selling commission of up to XXXXXXXXXX% paid by the Partnership to registered dealers and brokers who distribute Redemption Fee Units;

The Manager is a taxable Canadian corporation, as defined in subsection 89(1) of the Act and was incorporated under the laws of Canada on XXXXXXXXXX. Its principal office is in XXXXXXXXXX, within the jurisdiction of the XXXXXXXXXX Tax Services Office. Its corporate account number is XXXXXXXXXX. The Manager has been actively engaged in operating a mutual fund business for several years.

The Manager is the promoter of certain funds (including those described in paragraph 1(h) above) and is the manager and trustee thereof. The Manager provides professional, investment management, administrative and advisory services to these funds. The Manager is the manager and distributor of the Funds. In addition, the Manager manages the XXXXXXXXXX.

4.The Manager has filed a simplified prospectus dated XXXXXXXXXX in the case of each of the

XXXXXXXXXX.

In addition, the Manager has filed a preliminary simplified prospectus dated XXXXXXXXXX in the case of the

XXXXXXXXXX.

The Manager intends to file shortly a preliminary simplified prospectus in respect of the foregoing Funds in XXXXXXXXXX.

5.The Manager's responsibilities as manager of a Fund may be terminated (i) at any time by a Fund upon the approval of the unitholders of the Fund, such approval to be expressed by the affirmative vote of at least two-thirds of the votes cast at a meeting duly called for that purpose or (ii) at any time by the Manager or upon the mutual agreement of the Manager and a Fund, upon the approval of the unitholders of the Fund, such approval to be expressed by the affirmative vote of at least a majority of the votes cast at a meeting duly called for that purpose. Any change of manager requires the prior approval of Canadian securities authorities.

6.For the management and administrative services provided to the Funds, the Manager is entitled to receive from each Fund a management fee calculated and accrued daily and paid monthly expressed as a percentage of the average daily Net Asset Value of units of the Funds:

	Fund							Annual Management Fee

XXXXXXXXXX

7. XXXXXXXXXX,

8.Each of the Funds is a unit trust within the meaning of paragraph 108(2)(a) of the Act. XXXXXXXXXX are each mutual fund trusts within the meaning of subsection 132(6) of the Act.

XXXXXXXXXX,

It is anticipated that the XXXXXXXXXX will each qualify as a mutual fund trust within the meaning of subsection 132(6) of the Act XXXXXXXXXX.

9. XXXXXXXXXX,

a purchaser of units of the Funds has XXXXXXXXXX options for making a purchase of units of certain of the Funds. These options are:

XXXXXXXXXX,

10.There are two types of compensation available to dealers as a result of the sale of units of the Funds, namely a selling commission and a service fee:

XXXXXXXXXX,

11.The General Partner was incorporated on XXXXXXXXXX. The General Partner is a taxable Canadian corporation, as defined in subsection 89(1) of the Act, all of the shares of which are owned by the Manager. Its head office is in XXXXXXXXXX within the jurisdiction of the XXXXXXXXXX Tax Services Office. The General Partner's corporate account number is XXXXXXXXXX. The General Partner is the general partner of the Partnership. It is responsible for the management of the Partnership on a day-to-day basis and may engage agents, including the Manager, to assist it in carrying out its management obligations to the Partnership.

12.The Partnership was formed under laws of XXXXXXXXXX by registration under the Limited Partnerships Act (XXXXXXXXXX) of a declaration of partnership on XXXXXXXXXX.

13.The Partnership will offer for sale to the public, pursuant to the terms of a prospectus (referred to herein as the "Offering Document"), units of the Partnership ("Units") to enable it to distribute units of the Funds on a deferred sales charge basis during the Distribution Period. The proceeds of the Offering will range from a minimum of $XXXXXXXXXX to a maximum of $XXXXXXXXXX. The subscription price will be $XXXXXXXXXX per unit. The minimum subscription will be XXXXXXXXXX. Subscriptions in excess of the minimum subscription must be in multiples of XXXXXXXXXX.

The closing of the Offering, or all of a series of closings, will occur no later than XXXXXXXXXX. The subscription price will be payable in two instalments: XXXXXXXXXX. If there are a series of closings of the Offering before XXXXXXXXXX:

(i)they will be under the same terms and conditions as described above in this paragraph, other than as set out in subparagraph (iv) below,

(ii)the Partnership will continue to carry on its business as described in the facts,

(iii)the total amounts raised pursuant to the Offering Document will not exceed $XXXXXXXXXX, and

(iv)the subscription price on such subsequent closings on or after XXXXXXXXXX will be payable in a single instalment of $XXXXXXXXXX.

(c)Expenses related to the Offering will be paid by the Partnership and are not expected to be greater than $XXXXXXXXXX plus the Agent's commission (described in paragraph 16 below). Such expenses will include fees and expenses payable in connection with the qualification of the Units for distribution to the public and all costs incurred in connection with the preparation, printing and delivery of the Offering Document, i.e., the offering document and certificates for the Units, advertising costs and reasonable travel expenses in conducting marketing meetings to promote the sale of the Units.

14.The initial Limited Partner is the Manager, who purchased one unit of the Partnership for $XXXXXXXXXX, which Unit will be redeemed following the first closing of the Offering. The General Partner and the initial Limited Partner have entered into, and each person admitted to the Partnership as a Limited Partner will enter into, a limited partnership agreement dated as of XXXXXXXXXX (the "Partnership Agreement"). Each subscriber for Units will become a party to the Partnership Agreement upon acceptance of such subscriber's subscription for Units and execution of the Partnership Agreement by the General Partner on the subscriber's behalf and the entering of the subscriber's name on the record of Limited Partners.

15.As a condition of subscription, Limited Partners may not finance any portion of the subscription price for Units with borrowings, unless such borrowings contain at least the following terms:

(a)recourse for borrowings against the Limited Partner or any person with whom the Limited Partner does not deal at "arm's length" within the meaning of the Act is not limited, either immediately or in the future, or either absolutely or contingently;

(b)bona fide arrangements, evidenced in writing, are made at the time the borrowing arises for repayment by the Limited Partner of the principal and interest on the borrowing within a reasonable period of time, not greater than XXXXXXXXXX. For these purposes, the borrowing may not be a part of a series of loans and repayments that ends more than XXXXXXXXXX after it begins; and

(c)interest on the borrowing is payable at least annually, and is paid no later than XXXXXXXXXX after the end of the Limited Partner's taxation year, at a rate equal to or greater than the lesser of (i) the prescribed interest rate for tax purposes in effect the time the borrowing arose; and (ii) the prescribed interest rate for tax purposes applicable from time to time during the term of the borrowing.

16.Pursuant to an agency agreement to be entered into by the Partnership, the Manager, the General Partner, and the Agents, the Agents will form and manage a selling group consisting of registered dealers and brokers to offer the Units for sale on a best efforts basis in accordance with the terms of the agency agreement. In consideration of the services to be provided by the Agents, the Partnership will pay the Agents a commission of approximately $XXXXXXXXXX for each Unit purchased.

17.Pursuant to an amended and restated agreement (the "Distribution Agreement") among the Funds, the Manager and the Partnership, the Partnership was granted exclusive rights to arrange for the distribution of Redemption Fee Units during the Distribution Period. For its services, the Partnership will receive from the Manager the Distribution Fee and the redemption charge, as described in paragraphs 23 and 24, respectively. The Partnership will carry on its business with a view to profit.

18.The Partnership will provide the following services to the Manager and the Funds:

(a) make all necessary arrangements for the distribution of the Redemption Fee Units;

(b) pay the Sales Commission to registered dealers which distribute Redemption Fee Units;

(c) maintain proper and adequate business records of its operations, including payments made to registered dealers;

(d) provide confirmation to the Manager when requested as to the due and timely payment of Sales Commissions;

(e) provide a financial report to the Manager at least monthly indicating the funding available to the Partnership to pay Sales Commissions;

(f) advise the Manager promptly of any dispute arising between the Partnership and any registered dealer as to the payment of the Sales Commissions or otherwise; and

(g)such other services as may from time to time be requested by the Manager in connection with the arrangements necessary to distribute Redemption Fee Units.

19.Other than arranging for the distribution of Redemption Fee Units, the Partnership will not directly or indirectly sell any units of the Funds.

20.The Partnership's exclusive distribution rights will begin on or after XXXXXXXXXX and will end on the earlier of:

(a)XXXXXXXXXX or

(b)such time as the Partnership is unable to pay Sales Commissions on Redemption Fee Units.

21.If the Partnership's distribution right terminates for the reason noted in part (b) of paragraph 20 above, it will not recommence.

22.The Funds and the Manager will use their best efforts to maximize the sale of Redemption Fee Units except where the continued sale of the Redemption Fee Units would be impracticable, inexpedient or unprofitable. All Redemption Fee Units will be sold at a price equal to their Net Asset Value at the time of purchase.

23.(a)For its services in arranging for the distribution of Redemption Fee Units, the Partnership will, beginning in XXXXXXXXXX, receive a monthly Distribution Fee from the Manager calculated at an annual rate of XXXXXXXXXX% of the Net Asset Value of Distributed Units. The Distribution Fee will be calculated and accrued on a daily basis. All amounts earned on account of the Distribution Fee will be reported by the Partnership for income tax purposes on an accrual basis commencing in XXXXXXXXXX.

(b)The Partnership will receive the Distribution Fee from the Manager until the earlier of:

(i)the date on which no Distributed Units remain outstanding and

(ii)a date which will not be later than XXXXXXXXXX.

The Distribution Fee will be paid to the Partnership within XXXXXXXXXX after the end of the month.

24.(a)In addition to the monthly Distribution Fee payable to the Partnership and in consideration for its services hereunder, the Partnership shall be entitled to receive from each Fund any redemption charge paid by unitholders on the redemption of their Distributed Units during each month (the "Redemption Fee").

(b)The Redemption Fee to be paid by unitholders on the redemption of their Distributed Units will be calculated as a percentage of the original cost to the unitholder of the redeemed Distributed Units. The percentage will decline over time from the date of issue, or deemed date of issue, of the Distributed Unit from

XXXXXXXXXX.

25.Redemption Fees paid by unitholders on the redemption of their Distributed Units will be calculated by the Manager and will be payable on a monthly basis to the Partnership by the Funds within XXXXXXXXXX of the end of each month until no Distributed Units remain outstanding or until the redemption charge rate declines to zero, whichever is earlier. All amounts earned on account of these redemption charges will be reported by the Partnership for income tax purposes on an accrual basis commencing in XXXXXXXXXX.

26.The Manager, in its capacity as trustee of each Fund, will not consent to or agree to a reduction in the Redemption Fee for Distributed Units or any alteration in the manner or time of calculation of the Redemption Fee if the effect of such reduction or alteration would be to reduce the amounts payable to the Partnership.

27.For purposes of calculating the redemption charges payable by holders of Redemption Fee Units, the following rules apply:

(a) no Redemption Fee is payable if Redemption Fee Units are redeemed in accordance with the annual free redemption right or in accordance with National Policy No. 39 of the Canadian Securities Administrator due to failure of an investor to make timely payment for securities of a Fund;

(b) in the event of a winding-up of a Fund, other than for the purposes of merging the portfolio securities of such Fund with another Fund, the Redemption Fee that would otherwise be applicable if Redemption Fee Units were redeemed at such time will be charged on any amount distributed to holders of Redemption Fee Units on the winding up;

(c) Redemption Fee Units issued first (based on the date of issue) will be considered to have been redeemed first, including redemptions pursuant to the annual free redemption right, and Redemption Fee Units redeemed pursuant to the free redemption right will be deemed to be redeemed before any Redemption Fee Unit to which a redemption charge applies;

(d)units of Funds issued on the transfer of Redemption Fee Units from one Fund to another Fund will be deemed to be Redemption Fee Units and will be deemed to have been issued on the date of issue of the Redemption Fee Units to which they are attributable with a purchase price equal to the purchase price of the Redemption Fee Units exchanged;

(e) units of Funds issued upon the automatic reinvestment of distributions in respect of Redemption Fee Units will, for the purposes of determining Redemption Fees, be Redemption Fee Units and will be deemed to have been issued on the date of issue of the Redemption Fee Units on which such distributions were made; and

(f) no Redemption Fee is payable with respect to units of the XXXXXXXXXX held by persons prior to the date of the filing of an amended prospectus for each of such Funds pursuant to which Redemption Fees were introduced (the amendments were approved at unitholder meetings held on XXXXXXXXXX). No Redemption Fee is payable with respect to units of the XXXXXXXXXX held by persons prior to the date of the filing of a final prospectus for each of such Funds pursuant to which Redemption Fee Units will be introduced (the amendments were approved at the unitholders meetings held on XXXXXXXXXX).

Accordingly, Fund Units issued on the exchange of Distributed Units or on the reinvestment of distributions on Distributed Units will be treated as Distributed Units in accordance with the foregoing rules.

28.(a)The Partnership will obtain financing to pay its expenses (including Sales Commissions) from a Canadian chartered bank, the General Partner, the Manager, or an affiliate or an associate of the Manager or the General Partner. The borrowings of the Partnership will not exceed $XXXXXXXXXX;

(b)The Partnership has arranged a credit facility with a Canadian chartered bank (the "Bank") which allows the Partnership to borrow up to a maximum of $XXXXXXXXXX. Interest will be payable monthly at the prime rate plus XXXXXXXXXX%. In addition, an arrangement fee in the amount of $XXXXXXXXXX will be paid to the Bank by the General Partner on behalf of the Partnership. The obligations of the Partnership will be secured. A monitoring fee of $XXXXXXXXXX and a standby fee of XXXXXXXXXX (calculated on the unused portion) are payable monthly under this arrangement.

(c)Interest on borrowings and related expenses charged to the Partnership by the General Partner, the Manager, or an affiliate or an associate of the Manager or the General Partner will not exceed the interest rate and related charges that would be charged to the Partnership by a Canadian chartered bank with respect to similar borrowings. However, interest charged to the Partnership will exceed the cost of any related borrowing by the General Partner or Manager or their respective affiliates or associates by at least XXXXXXXXXX%.

(d)All borrowings will be repaid in full on or before XXXXXXXXXX.

29.The proceeds from the Offering will be used to pay the Partnership's expenses as follows:

(i) Agents' commissions and the expenses of the Offering;

(ii) Sales Commissions;

(iii) Interest on Partnership debt;

(iv) Partnership debt; and

(v) if the Partnership's gross income is not sufficient to pay the Partnership's operating expenses, operating expenses.

30.Proceeds of the Offering and the Partnership's revenues not immediately required to pay the Partnership's expenses will be invested for the Partnership by the Manager as investment adviser.

31.Pursuant to an investment management agreement (the "Investment Management Agreement") between the Manager and the Partnership, the Manager will act as investment manager of such assets of the Partnership as are not immediately required for the payment of Sales Commissions, other operating expenses or repayment of amounts borrowed to make such payments. Such assets will be invested by the Manager in the XXXXXXXXXX or other money market funds which the Manager manages or in other short-term investments, provided that no acquisition charges or Redemption Fees are levied with respect to the investment of the Partnership's assets in such funds. Except as manager of such funds, the Manager shall not receive an investment management fee upon the investment of such assets.

The Investment Management Agreement will be for a term ending on XXXXXXXXXX. The Investment Management Agreement will also terminate in the event of the resignation or insolvency of the Manager and may terminate in the event of the failure of the Manager to perform its obligations under the Investment Management Agreement or upon the dissolution of the Partnership. Any change of investment manager (other than to an affiliate of the Manager) or material change of the Investment Management Agreement will require the prior approval of the Limited Partners by an "Ordinary Resolution" as defined in the Partnership Agreement.

32.The Partnership will apply an amount substantially equal to the proceeds from the Offering (after the payment of Agents' commissions and expenses of the Offering) and the Partnership's revenues for the duration of the Offering to the payment of Sales Commissions and operating expenses until XXXXXXXXXX. The Partnership will not prepay any Sales Commissions.

33.Any proceeds of the Offering remaining in the Partnership as at XXXXXXXXXX and not required to meet the Partnership's expenses will be distributed on a pro rata basis to the Limited Partners listed on the record as of that date on or before XXXXXXXXXX.

34.The Partnership may resign as distribution agent. The Partnership's resignation will not affect its right to receive the monthly Distribution Fee and Redemption Fees payable in respect of Distributed Units.

35.During the period XXXXXXXXXX, no taxpayer or partnership other than the Manager and the Partnership will:

(i) be assigned or granted the right to arrange for the distribution of Redemption Fee Units; or

(ii)pay any Sales Commissions in respect of Redemption Fee Units distributed during the XXXXXXXXXX period.

36.The Partnership will reimburse the General Partner for expenses incurred on its behalf. These expenses may include legal charges, audit costs, unitholder registry and transfer agency costs, report printing and mailing costs, other reasonable costs relating directly to the operations of the Partnership, together with a reasonable allocation of indirect, general office and administrative costs.

37.For financial reporting purposes, Sales Commissions will be accounted for by the Partnership under the cost deferral method whereby such costs incurred during any period commencing on or after the date of issuance of this ruling will be deductible as follows: one-third in the fiscal period of the Partnership in which the obligation to pay Sales Commissions is incurred by the Partnership and one-third in each of the next two fiscal periods of the Partnership.

38.The Partnership's deductible expenses for the fiscal periods ending XXXXXXXXXX are expected to exceed the Partnership's gross income for each of those periods.

39.The Partnership's profits and losses for each fiscal year will be allocated as follows: XXXXXXXXXX% to the General partner; and XXXXXXXXXX% to the Limited Partners of record at the end of the fiscal year on a pro rata basis.

40.Beginning in XXXXXXXXXX, the Partnership will distribute in cash to each Limited Partner of record on the last day of the fiscal year, within XXXXXXXXXX after the end of each fiscal quarter, the Limited Partner's pro rata share of XXXXXXXXXX% of the amount by which the Partnership's gross income for the year and the amount of any reserves, if any, retained at the end of the previous year, exceeds the Partnership's expenses for the year and a reasonable reserve for operating expenses established for the current year. The remaining XXXXXXXXXX% of such amount shall be for the account of the General Partner. Notwithstanding the foregoing, the General Partner has the discretion to make such distributions annually within the first XXXXXXXXXX of the following calendar year (rather than quarterly during the Fiscal Year to which the distributions relate), to each Limited Partner of record on the last day of the previous fiscal year where such distribution is necessary in order to minimize the likelihood of a negative adjusted cost base arising at the end of any fiscal year. The Partnership may, in addition, make a distribution at any other time.

41.The Partnership will continue, subject to earlier termination on the occurrence of certain events, until XXXXXXXXXX at which time it will be dissolved. The Partnership will be dissolved earlier upon the first to occur of the following events:

(a) the date on which there are no outstanding Distributed Units;

(b)the removal or deemed removal of the General Partner pursuant to the terms of the Partnership Agreement unless the General Partner is replaced in accordance with the Partnership Agreement; or

(c)if the Limited Partners require such action by means of an extraordinary resolution.

The Partnership will not terminate by reason of the death, bankruptcy, insolvency, mental incompetency or other disability of any Limited Partner or upon the transfer of any Units.

42.Pursuant to an agreement between the Partnership, the General Partner and the Manager dated as of XXXXXXXXXX (the "Administrative Services Agreement") the Manager will provide administrative services to the Partnership including arranging for registrar and transfer agency services with respect to the Units. The Manager will be reimbursed by the General Partner on behalf of the Partnership for all expenses incurred by the Manager on behalf of the Partnership, including professional fees and general office and administrative expenses which are fairly allocable to the services rendered by it on behalf of the Partnership. The Manager will receive a fee equal to XXXXXXXXXX% of the on-going expenses of the Partnership other than the following expenses: interest or any other expenses related to borrowings by the Partnership, the Sales Commissions payable by the Partnership, the costs of any offerings of Units, any investment management fees or the cost of any third party providing any such services.

43.The Units are a "tax shelter" as defined by subsection 237.1(1) of the Act. The General Partner has obtained identification number XXXXXXXXXX in respect of the Partnership pursuant to subsection 237.1(2) of the Act. The General Partner will file annual tax shelter information returns and provide copies to the Limited Partners pursuant to subsection 237.1(7) of the Act.

Other Information

44.To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling are being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and none of the issues are under appeal or objection.

Purpose of Proposed Transactions

45.The Partnership will be formed to permit the distribution of units of the Funds on a deferred sales charge basis and to provide a mechanism for the payment of sales commissions to registered dealers and brokers who sell units of the Funds on a deferred sales charge basis.

RULINGS

46.Provided that the preceding statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and the purpose thereof, and that the proposed transactions are carried out as set forth herein and the Partnership is a partnership at law, the following rulings are given:

A.The Sales Commissions described in paragraphs 1(q) and 18 above, incurred by the Partnership on or after the date of this advance income tax ruling and during the Distribution Period and while a Fund in respect of which a Sales Commission is incurred is a mutual fund trust within the meaning of subsection 132(6) of the Act, with respect to the Redemption Fee Units of the Funds for which it arranges distribution, will be amortized and deductible over three fiscal periods by the Partnership in computing its income or loss under the Act in the following manner:

-33 1/3 for the fiscal period in which the Sales Commissions are incurred; and

-33 1/3 for each of the subsequent two fiscal periods after the fiscal period in which the Sales Commissions are incurred.

B.Each Limited Partner who owns Units at the end of a fiscal period of the Partnership will be required to include the amount of the income of the Partnership for the fiscal period allocated to the Limited Partner in accordance with the terms of the Partnership Agreement and, subject to the provisions of subsections 96(2.1) and 237.1(6) of the Act, entitled to deduct the amount of the losses of the Partnership for the fiscal period allocated to the Limited Partner in accordance with the Partnership Agreement, in computing the Limited Partner's income or loss for income tax purposes for the taxation year in which that fiscal period ends. The expression "taxation year" used herein has the meaning assigned by section 249 of the Act.

C.The Partnership will be entitled to deduct in computing its income or loss for income tax purposes for the relevant fiscal period, interest of a reasonable amount paid or payable (depending on the method to be regularly followed by the Partnership) pursuant to a legal obligation to pay interest in that period on money borrowed to fund the payment of Sales Commissions and the Partnership's operating expenses (as described in paragraph 28 above) pursuant to subparagraph 20(l)(c)(i) of the Act.

D.Reasonable expenses that are not otherwise deductible by the Partnership and were incurred in a particular fiscal period or a preceding fiscal period by the Partnership in the course of issuing or selling its Units pursuant to the Offering as described in paragraph 13 above, will, to the extent of the lesser of:

(a)that proportion of 20% of the expenses that the number of days in the Year is of 365, and

(b)the amount, if any, by which the expenses exceed the aggregate of all amounts each of which is an amount deductible by the Partnership in respect of these expenses in computing its income for a preceding fiscal period,

be deductible in computing the income or loss for income tax purposes of the Partnership pursuant to paragraph 20(l)(e) of the Act.

E.The provisions of paragraph 96(2.2)(d) of the Act will not be applied to reduce a Limited Partner's "at-risk" amount in respect of the Partnership at the end of any fiscal period thereof:

(a)by reason of the Partnership's entitlement to the Distribution Fees and Redemption Fees payable under the Distribution Agreement (as described in paragraphs 23 and 24 above)

(b)by reason of the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases as described in paragraph 33 above.

F.Where only a portion of the number of Units acquired by a Limited Partner is disposed of, for the purposes of subsection 100(2) of the Act, the adjusted cost base in respect of all the Units held by that Limited Partner will be proportionately allocated between the Units retained by the Limited Partner and the Units disposed of.

G.For the purpose of determining the adjusted cost base of a Unit owned by a Limited Partner at any time, any income or loss of the Partnership allocated to the Limited Partner (other than a share of income or loss under an agreement referred to under subsection 96(1.1) or such portion of a loss that may reasonably be considered to have been included in the Limited Partner's limited partnership loss in respect of the Partnership for the Limited Partner's taxation year in which that fiscal period ended) for each fiscal period ending before that time will increase or reduce the adjusted cost base of the Unit at that time, pursuant to subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, respectively.

H.For greater certainty, for the purposes of subsection 40(3.1) of the Act, the adjusted cost base of a Limited Partner's Units must be calculated in a manner consistent with Ruling G above.

I.For the purpose of computing the adjusted cost base, at any time, of a Unit owned by a Limited Partner, the amount in respect of each fiscal period of the Partnership ending before that time that is a limited partnership loss in respect of the Partnership, and that was deducted in computing the Limited Partner's taxable income for any taxation year that commenced before that time, will reduce the adjusted cost base of the Unit at that time, pursuant to subparagraph 53(2)(c)(i.1) of the Act.

J.As a result of the proposed transactions, in and by themselves, subsection 245(2) of the Act will not be applied to redetermine the tax consequences in the above rulings given.

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding on Revenue Canada provided the last closing of the Offering(s) of Units is made by XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly: (a) the reasonableness of any of the expenses of the Partnership; and (b) the existence of a reasonable expectation of profit of the Partnership or any partner of the Partnership. Furthermore, these rulings are also based on our understanding the documents and agreements with respect to these facts and proposals will, when finalized, be in accordance with the facts and proposals set out above. A material difference between the final wording of one of these documents and facts and proposals as set out above will affect the rulings given.

OPINIONS

I.If the provisions of draft section 18.1 are enacted as proposed in the Notice of Ways and Means Motion tabled on November 18, 1996 by the Secretary of State (Finance) and the Department of Finance Press Release 96-099 dated December 19, 1996, it is our opinion that

(a)the Sales Commissions deductible by the Partnership in accordance with ruling A above will, notwithstanding draft section 18.1 of the Act, continue to be amortized and deductible by the Partnership in computing its income or loss for its fiscal period as set out in ruling A above provided the total amount of such Sales Commissions (as well as any incurred after XXXXXXXXXX and prior to the date of this advance ruling, including Sales Commissions incurred in connection with a Fund that was not a mutual fund trust at that time) and other expenditures described in paragraph 18 above incurred during the Distribution Period that are "matchable expenditures", but not including expenditures made at any time in connection with the distribution of units of a trust that was not a mutual fund trust at that time, does not exceed $XXXXXXXXXX. Should the aggregate exceed $XXXXXXXXXX they will be deductible by the Partnership only as and to the extent provided in proposed subsection 18.1(4); and

(b)except as provided in (a) above, no transitional relief from the application of proposed section 18.1 will be available with respect to an expenditure described in proposed section 18.1 incurred after November 17, 1996 in respect of the distribution of shares of a mutual fund corporation or units of a mutual fund trust administered by XXXXXXXXXX or any person related thereto.

The term "matchable expenditure" as used above has the meaning assigned thereto by draft subsection 18.1(1) of the Act.

II.Notwithstanding the rulings given in this letter, if the provisions of draft section 143.2 of the Act are enacted as proposed in Bill C-69 in the form which received first reading by the House of Commons on December 2, 1996, it is our opinion that

(a)the amount of any "expenditures" made by the Partnership, including, but not limited to, Sales Commissions and the issuance expenditures referred to in rulings A and D above, will be reduced by the total of

(i)the "limited-recourse amounts" of

(A) the Partnership, and

(B)all taxpayers not dealing at arm's length with the Partnership

that can reasonably be considered to relate to the particular expenditures,

(ii)the Partnership's "at-risk adjustment" in respect of the particular expenditures, and

(iii)the limited-recourse amounts and at-risk adjustments of each taxpayer who deals at arm's length with and holds an interest in the Partnership that can reasonably be considered to relate to the particular expenditures;

(b)if any Limited Partner has limited-recourse amounts that can reasonably be considered to relate to the acquisition of Units:

(i)proposed subsection 143.2(6) (not subparagraph 53(2)(c)(i.3)) of the Act will apply to reduce that Limited Partner's cost of the Units, and

(ii)the expenditures made by the Partnership will also be considered to relate to those limited-recourse amounts and will be reduced by the total of such limited-recourse amounts;

(c)indebtedness of the Partnership, referred to in paragraph 28 above, will, pursuant to proposed subsection 143.2(8) of the Act but subject to draft subsection 143.2(11), be considered to be a limited-recourse amount so as to reduce the amount of any expenditure of the Partnership that would otherwise be deductible in computing its income; if a repayment of such indebtedness is not part of a series of loans or other indebtedness and repayments by the Partnership, the repayment at any time by the Partnership of such indebtedness will, pursuant to proposed subsection 143.2(10) of the Act, result in the said expenditure being deemed to have been made or incurred at that time, for purposes of the Act including proposed section 18.1, to the extent of the amount of the repayment; and

(d)draft subsection 143.2(6) of the Act will not be applied to reduce the amount of a Limited Partner's expenditure to acquire Units by reason of

(i)the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases such as described in paragraph 33 above, or

(ii)the Partnership's entitlement to the Distribution Fees and redemption charges payable under the Distribution Agreement, as described in paragraphs 23 and 24 above.

The terms "expenditure", "limited-recourse amount" and "at-risk adjustment" as used above have the meanings assigned thereto by proposed section 143.2 of the Act.

III.Where a trust that is at any time in the year a "mutual fund trust" (within the meaning of subsection 132(6) of the Act) is not a "mutual fund trust" throughout the year, the following income tax consequences, inter alia, may occur during the year in which it was not a "mutual fund trust" throughout the year:

(a)the trust will not be entitled to a capital gains refund (described in subsection 132(1) of the Act) for the year and subsection 132(2) of the Act will not apply for the year;

(b)the trust may not make a designation described in section 132.1 of the Act in respect of the year; and

(c)Part XI.1 and Part XII.2 taxes may apply.

The opinions expressed above are provided in accordance with paragraph 22 of Information Circular 70-6R3. Such opinions do not constitute advance income tax rulings and are not binding on the Department.

Yours truly,

Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch