2001 Ruling 2001-0091393 - ASSUMPTION OF DEBT

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: Whether the assumption of debt under a supplementary trust indenture governing the debt would represent proceeds of disposition on the transfer of assets if the transfer agreement between the transferor and the transferee explicitly provides that as between the transferor and the transferee, the transferor remains the primary obligor.

Position: No

Reasons: The assumption of the debt under the supplementary trust indenture makes the transferee jointly and severally liable for the debt with the transferor. As the transfer agreement provides that the tranferor remains the primary obligor and indemnifies the transferee from obligations under the debt, the debt remains that of the transferor. Even if the assumption could be viewed as proceeds, such proceeds would be offset by the value of the indemnity given by the transferor under the transfer agreement.

XXXXXXXXXX 		2001-009139

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

XXXXXXXXXX.

We are writing in response to your facsimile correspondence of XXXXXXXXXX in which you advise us of certain revisions to the proposed transactions set out in our advance income tax ruling letter dated XXXXXXXXXX, 2001 our file number 2000-005954 (the "Ruling Letter"). You request additional rulings as a result of these of revisions.

Our Ruling Letter is hereby amended as follows:

The following paragraphs are inserted as paragraphs 45(a) and 45(b) after existing paragraph 45 and before existing paragraph 46:

45(a). Pursuant to the asset transfer agreement between PARENT and GP1, PARENT's liability under the PARENT Debt will explicitly be excluded from the liabilities to be assumed by GP1 as consideration for the transfer. PARENT and GP1 will agree that, as amongst themselves, PARENT will remain the primary obligor under the PARENT Debt, and that GP1 will simply be a guarantor of PARENT's obligations thereunder. Furthermore, PARENT will indemnify and hold GP1 harmless from and against any claims, demands, actions, causes of action, judgements, damages, losses, liabilities, costs or expenses which GP1 may suffer or incur relating to the PARENT Debt.

45(b). Pursuant to the XXXXXXXXXX Indenture and the XXXXXXXXXX Indenture, supplemental indentures (the "First Supplemental Indentures") to both the XXXXXXXXXX Indenture and the XXXXXXXXXX Indenture will be executed by PARENT, GP1 and the relevant trustees. Pursuant to the First Supplemental Indentures, GP1 will expressly assume the PARENT Debt as against the holders thereof and GP1 will be added as a debtor but PARENT will remain as a debtor. PARENT and GP1 will be jointly and severally liable as against the holders of the PARENT Debt for the entirety of the PARENT Debt. However as described in paragraph 45(a) above, pursuant to the asset transfer agreement, as between PARENT and GP1, PARENT will be the primary obligor, GP1 acting only as guarantor of the PARENT Debt.

Under the laws of the State of XXXXXXXXXX, the execution of the First Supplemental Indentures and the addition of GP1 as a debtor under the PARENT Debt will not result in:

i) a novation in respect of any portion of the PARENT Debt;

ii) a subsititution of all or any portion of the PARENT Debt by a new debt; or

iii) a discharge, recission or extinguishment of all or any portion of the PARENT Debt.

Existing paragraph 54 is deleted and replaced with the following text:

Supplemental Indentures (the "Second Supplemental Indentures") to both the XXXXXXXXXX Indenture and the XXXXXXXXXX Indenture will be executed by PARENT, OPCO, GP1 and relevant trustees. The Second Supplemental Indentures will add OPCO as debtor without removing either of PARENT or GP1 as a debtor. PARENT, OPCO and GP1 will be jointly and severally liable for the entirety of the PARENT Debt. GP1 and GP2 will intervene to the transfer agreement between PARENT and OPCO with respect to the transfer by PARENT to OPCO of its units in GP1 and GP2. That transfer agreement will provide that, as amongst PARENT, OPCO and GP1, OPCO will henceforth be the primary obligor under the PARENT Debt and PARENT and GP1 will be guarantors of the PARENT Debt.

Under the laws of the State of XXXXXXXXXX, the execution of the Second Supplemental Indentures and the addition of OPCO as a debtor under the PARENT Debt will not result in:

i) a novation in respect of any portion of the PARENT Debt;

ii) a subsititution of all or any portion of the PARENT Debt by a new debt; or

iii) a discharge, recission or extinguishment of all or any portion of the PARENT Debt.

The following paragraph is added as paragraph D(a) of our rulings given after existing paragraph D and before existing paragraph E:

D(a) The execution by GP1 of the First Supplemental Indentures as described in paragraph 45(b) above, will not constitute additional non-partnership interest consideration for the transfer by PARENT of its assets to GP1 as described in paragraph 45(a) above.

D(b) The execution of the First Supplemental Indentures by GP1 as described in paragraph 45(b) above, will not, in and by itself, result in the disposition of the PARENT Debt by the holders thereof for the purposes of section 54, the issuance of new indebtedness for the purposes of subparagraph 212(1)(b)(vii) or the realization by PARENT of any gain or sustaining by PARENT of any loss for the purposes of subsection 39(2).

We confirm that the other rulings given in the Ruling Letter are not affected by the amendments to the proposed transactions set out above.

We trust this is satisfactory for your purposes.

For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch