Calloway OSC order -- summary under Subtrust Elimination.

Summary Under
Tax Topics - Public Transactions - Other - Internal S. 132.2/107.4 Mergers - Subtrust Elimination.
Calloway REIT elimination of subtrust through s. 107.4 transfer and s. 132.2 merger
Current structure

Calloway is an open-end REIT, with a market cap of $2.8B, whose units trade on the TSX. It owns all the units of Calloway Holdings Trust ("Sub Trust") which, in turn, holds Class A units of three subsidiary LPs. Third parties also hold units of the three LPs including exchangeable units.

Transaction overview

In order to effectively wind-up Sub Trust on a rollover basis:

  • its assets will be transferred to a newly-formed subsidiary unit trust of Calloway ("MFT") under s. 107.4
  • Calloway will distribute MFT units to Calloway unitholders in barely sufficient numbers for MFT to qualify as a mutual fund trust
  • MFT will be merged into Calloway under s. 132.2

The transactions do not require approval of unitholders and will be described to them in a press release.

Proposed transactions
  1. All amounts owed by Sub Trust to the three LPs or Calloway or amounts owed by them to Sub Trust will be repaid in cash or by the issuance of additional securities of the debtor.
  2. Calloway will subscribe for units of MFT.
  3. Immediately before the transfer of assets in 5 below, Sub Trust will transfer its assets (namely Class A units of the three LPs, shares of the related GPs and cash) to MFT for no consideration, and Sub Trust will be wound up.
  4. Calloway will distribute a certain number of its MFT Units (approximately 3% of the total) to its unitholders on a pro-rata basis as a distribution of capital so that MFT can qualify as a mutual fund trust.
  5. MFT will transfer its assets (the same as in 3) to Calloway in consideration for Calloway units having a fair market value equal to the transferred assets.
  6. Immediately thereafter, MFT will redeem all of the issued and outstanding MFT Units held by Calloway and the MFT unitholders of the Filer (except for one MFT Unit which Calloway will continue to hold until 8), with the redemption price satisfied by the transfer of Calloway REIT units.
  7. The number of outstanding Calloway units will be consolidated back to the previous number.
  8. Subsequent to the filing of the necessary tax elections, MFT will be wound up.
Canadian tax consequences

To unitholders. "There will not be any Canadian tax payable by unitholders of the Filer [i.e., Calloway] in respect to the Proposed Transaction other than the immaterial amount of withholding tax that will be payable by non-resident unitholders of the Filer on the distribution of MFT Units. The Filer will pay and remit to the Receiver General, on behalf of each unitholder of the Filer that is non-resident, an amount equal to the amount required by the Tax Act to be withheld on behalf of non- resident unitholders of the Filer."

Objective

"The Proposed Transaction is being undertaken in order to ensure that the Filer continues to qualify as a ‘real estate investment trust' under the Tax Act."

Similar ruling.