(a) Whether the MFT would be considered as an open-ended trust pursuant to paragraph 108(2)(a) of the Act, given that a 25-year promissory note instead of cash will be provided to the MFT unitholders upon their demand for redemption of the MFT units?
(b) Whether the MFT's only undertaking would be investing funds in the commercial trust units and the 25-year promissory notes and not in operating the XXXXXXXXXX business of the commercial trust for the purpose of subsection 132(6) of the Act?
(c) Whether the MFT units would be considered as foreign property within the meaning of the term under subsection 206(1) of the Act?
(d) Whether subsection 245(2) of the Act would apply in respect of the 25-year promissory notes?
(e) Whether the disposal of XXXXXXXXXX assets would be considered as a part of the series of transactions in the XXXXXXXXXX corporate reorganization?
(a) XXXXXXXXXX, it is our view that the MFT would be an open-ended trust under paragraph 108(2)(a) of the Act because the requirements of the provision has been met notwithstanding illiquid assets would be received by the MFT unitholders upon the redemption of the MFT units.
(b) XXXXXXXXXX, it is our view that the only undertaking of the MFT is investing funds in the commercial trust units and the 25-year promissory notes. The MFT could not be considered as operating the XXXXXXXXXX business of the commercial trust.
(c) By virtue of paragraph 5000(1)(e) of the Regulations, the MFT units would not be considered as foreign property. The commercial trust units would be considered as foreign property, but, the 25-year promissory notes would not be considered as foreign property. The MFT would hold less than 20% of the cost of all of its property in the commercial trust units (and more than 80% of such cost in the 25-year promissory notes), notwithstanding the fact that the MFT still owns 100% of the commercial trust. However, that is enough to meet the requirements under paragraph 5000(1)(e) of the Regulations to have the MFT units to qualify as non foreign property.
(d) The GAAR Committee concluded that subsection 245(2) of the Act should not be applied. Even though it was concluded that there would be tax avoidance transactions in respect of the 25-year promissory notes, there would be no misuse of the "foreign property" definition nor abuse of the provisions of the Act read as a whole, given that the business of the commercial trust will be carried on in Canada. The GAAR Committee was advised by Finance that interests in trusts are treated as foreign property as it was not intended to encourage flow-through investments, such as trusts or partnerships, where there is no corporate level of tax. However, it was also noted that the foreign property definition does not include debt issued by a trust resident in Canada.
(e) The XXXXXXXXXX corporate reorganization was carried out with different corporate purpose and therefore the subsequent sale of the XXXXXXXXXX assets of XXXXXXXXXX would not be considered as a part of series of the reorganization transactions.