2002 Ruling 2002-0139163 - PARTNERSHIP; MUTUAL FUND

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 CCRA.

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

Principal Issues:

1. acb bump/grind before winding-up
2. 4 1/2 months before shares redeemed
3. whether New mutual Fund shares are a continuation of (old) mutual fund shares for Reg 4800(1)
4. whether conversion of mutual fund shares for other mutual fund shares in the same corporation is an issue

Position:

1. within admin position
2. does not offend 131(8)(c)(i)
3. cannot rule
4. no ruling was requested

Reasons:

1. admin position
2. on several occasions we have ruled that 6 months was permissible (to permit liquidation of XXXXXXXXXX in an orderly manner to obtain funds to satisfy initial requests for redemptions
3. issue is not related to a proposed transaction
4. unlike where units in a mutual fund trust are converted/exchanged for units in the same trust, section 51 may apply where shares are converted

XXXXXXXXXX 2002-013916

XXXXXXXXXX, 2002

Re: XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX wherein you requested advance income tax rulings on behalf of the above taxpayers as well as our subsequent telephone conversations on this matter.

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is:

(i) dealt with in an earlier return of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of one or any of the taxpayers or a related person;

(iii) under objection by one or any of the taxpayers or a related person;

(iv) subject to a ruling previously issued by the Income Tax Rulings Directorate; or

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C 1985 (5th Supp.) c.1, as amended to the date hereof, and, unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) XXXXXXXXXX;

(c) "Class A shares" means Class 1 Fund Shares to be issued by Main Mutual Fund. The first three series of shares of the Class A shares to initially be authorized, are "New Main Mutual Fund Shares", "Series 2 shares" and "Series 3 shares";

(d) "Company A" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX;

(e) "Company Act" means the Canada Business Corporations Act, R.S.C. 1985, c. C-44, as amended;

(f) "Company B" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX;

(g) "Company C" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX;

(h) "Cost amount" has the meaning assigned by subsection 248(1) of the Act;

(i) "Eligible property" has the meaning assigned by subsection 85(1.1) of the Act;

(j) XXXXXXXXXX;

(k) "LP A" means XXXXXXXXXX, a limited partnership formed on XXXXXXXXXX under the laws of XXXXXXXXXX. A declaration of limited partnership was filed and recorded under the Partnership Act on XXXXXXXXXX;

(l) "LP B" means XXXXXXXXXX, a limited partnership formed on XXXXXXXXXX under the laws of XXXXXXXXXX;

(m) "LP C" means XXXXXXXXXX, a limited partnership formed on XXXXXXXXXX under the laws of XXXXXXXXXX;

(n) "LP Z" means XXXXXXXXXX, a limited partnership formed on XXXXXXXXXX under the laws of XXXXXXXXXX;

(o) "Main Mutual Fund" means XXXXXXXXXX, a corporation incorporated under the Company Act on XXXXXXXXXX;

(p) "ManageCo" means XXXXXXXXXX, a corporation incorporated under the Company Act on XXXXXXXXXX;

(q) Mutual Fund A" means XXXXXXXXXX, a corporation incorporated under the Company Act;

(r) "Mutual Fund B" means XXXXXXXXXX, a corporation incorporated under the Company Act;

(s) "Mutual fund corporation" has the meaning assigned by subsection 131(8) of the Act;

(t) "Mutual Fund Reorganization" means the proposed transactions described in paragraphs 16 to 24 below;

(u) "New Main Mutual Fund shares" means shares to be issued as Class A shares of Main Mutual Fund and designated as "Mutual Fund" shares;

(v) "Partnership Act" means the Limited Partnerships Act of XXXXXXXXXX;

(w) XXXXXXXXXX;

(x) "Regulations" means the regulations to the Act;

(y) "Series 2 shares" means shares to be issued as Class A shares of Main Mutual Fund and designated as "Series XXXXXXXXXX" shares; and

(z) "Series 3 shares" means shares to be issued as Class A shares of Main Mutual Fund and designated as "Series XXXXXXXXXX" shares.

FACTS

LP A

1. LP A is governed by an amended and restated limited partnership agreement dated as of XXXXXXXXXX. In XXXXXXXXXX, LP A completed an offering to the public pursuant to a prospectus of XXXXXXXXXX limited partnership units at $XXXXXXXXXX per limited partnership unit. LP A obtained a tax shelter registration number under subsection 237.1(3) of the Act, which is XXXXXXXXXX. Company A is the general partner of LP A.

2. LP A was formed to invest in common shares of corporations that are XXXXXXXXXX corporations and that are XXXXXXXXXX. LP A entered into agreements with corporations under which it subscribed for XXXXXXXXXX with an aggregate subscription price of $XXXXXXXXXX. The issuers of such XXXXXXXXXX renounced to LP A, XXXXXXXXXX. Such XXXXXXXXXX has been allocated, pursuant to the partnership agreement of LP A, to those persons who were limited partners of LP A at XXXXXXXXXX in proportion to the number of such limited partnership units held at such date.

3. Mutual Fund A is a corporation incorporated under the Company Act. Its authorized capital consists of one common share, currently owned by ManageCo, and an unlimited number of mutual fund shares, none of which is outstanding.

4. In order to afford liquidity to limited partners of LP A, LP A entered into a transfer agreement with Mutual Fund A under which LP A, subject to satisfaction of certain conditions precedent (including that, immediately after the transfer of property and the dissolution of LP A as described in this paragraph, Mutual Fund A is eligible to become a mutual fund corporation) agreed to transfer all of its property that is eligible property to Mutual Fund A in exchange for mutual fund shares on or about XXXXXXXXXX. LP A and Mutual Fund A agreed to file elections under subsection 85(2) of the Act in respect of each of the transferred properties at an elected amount equal to the cost amount thereof, subject to the limitations set forth in subsections 85(1) and (2) of the Act. If a property does not have a cost amount (such as a XXXXXXXXXX), the elected amount will be $XXXXXXXXXX (in the case of all XXXXXXXXXX of a single issuer, the elected amount would be $XXXXXXXXXX). Any property of LP A that would not be eligible property will be distributed to the partners thereof prior to such transfer. Immediately following the transfer of the transferred assets to Mutual Fund A and the payment of a performance bonus, if any, owed to Company A, LP A will be dissolved. At such time, the only property of the partnership will be the remaining shares of Mutual Fund A and Company A will receive XXXXXXXXXX% of the remaining shares of Mutual Fund A and the limited partners of LP A will receive XXXXXXXXXX% of the remaining shares of Mutual Fund A, in proportion to the number of such limited partnership units held. It is intended that subsection 85(3) of the Act apply to the dissolution of LP A. An offering memorandum will be prepared in respect of the issuance of shares of Mutual Fund A to LP A and the transfer thereof to the partners of LP A. Such offering memorandum will be delivered to the XXXXXXXXXX. Mutual Fund A will elect to be a public corporation as contemplated by paragraph (b) of the definition of "public corporation" in subsection 89(1) of the Act.

5. The articles of Mutual Fund A provide that the shares of Mutual Fund A may be surrendered for redemption at any time but the first redemption for redemption requests delivered before XXXXXXXXXX will not occur until XXXXXXXXXX based on the XXXXXXXXXX net asset value of Mutual Fund A. For redemption requests delivered after XXXXXXXXXX and before XXXXXXXXXX, redemptions will be implemented on XXXXXXXXXX based on the XXXXXXXXXX net asset value of Mutual Fund A. Thereafter, redemption requests will be processed weekly.

LP B

6. A declaration of limited partnership in respect of LP B was filed and recorded under the Partnership Act on XXXXXXXXXX. LP B is governed by an amended and restated limited partnership agreement dated as of XXXXXXXXXX. In XXXXXXXXXX, LP B completed an offering to the public pursuant to a prospectus of XXXXXXXXXX limited partnership units at $XXXXXXXXXX per limited partnership unit. LP B obtained a tax shelter registration number under subsection 237.1(3) of the Act, which is XXXXXXXXXX. Company B is the general partner of LP B.

7. LP B was formed to invest in common shares of corporations that are XXXXXXXXXX corporations and that are XXXXXXXXXX. LP B entered into agreements with corporations under which it subscribed for XXXXXXXXXX with an aggregate subscription price of $XXXXXXXXXX. The issuers of such XXXXXXXXXX renounced to LP B, XXXXXXXXXX. Such XXXXXXXXXX has been allocated, pursuant to the partnership agreement of LP B, to those persons who were limited partners of LP B at XXXXXXXXXX in proportion to the number of such limited partnership units held at such date.

8. Mutual Fund B is a corporation incorporated under the Company Act. The authorized capital of Mutual Fund B consists of one common share, currently owned by ManageCo, and an unlimited number of mutual fund shares, none of which is outstanding.

9. In order to afford liquidity to limited partners of LP B, LP B entered into a transfer agreement with Mutual Fund B under which LP B, subject to satisfaction of certain conditions precedent (including that, immediately after the transfer of property and the dissolution of LP B as described in this paragraph, Mutual Fund B is eligible to become a mutual fund corporation) agreed to transfer all of its property that is eligible property to Mutual Fund B in exchange for shares of Mutual Fund B on or about XXXXXXXXXX. LP B and Mutual Fund B agreed to file elections under subsection 85(2) of the Act in respect of each of the transferred properties at an elected amount equal to the cost amount thereof, subject to the limitations set forth in subsections 85(1) and (2) of the Act. If a property does not have a cost amount (such as a XXXXXXXXXX), the elected amount will be $XXXXXXXXXX (in the case of all XXXXXXXXXX of a single issuer, the elected amount would be $XXXXXXXXXX). Any property of LP B that would not be eligible property will be distributed to the partners of LP B thereof prior to such transfer. Immediately following the transfer of the transferred assets to Mutual Fund B and the payment of a performance bonus, if any, owed to Company B, LP B will be dissolved. At such time, the only property of LP B will be the remaining shares of Mutual Fund B and Company B will receive XXXXXXXXXX% of the remaining shares of Mutual Fund B and the limited partners of LP B will receive XXXXXXXXXX% of the remaining shares of Mutual Fund B, in proportion to the number of such limited partnership units held. It is intended that subsection 85(3) of the Act apply to the dissolution of LP B. An offering memorandum will be prepared in respect of the issuance of the shares of Mutual Fund B to LP B and the transfer thereof to the partners of LP B. Such offering memorandum will be delivered to the XXXXXXXXXX. Mutual Fund B will elect to be a public corporation as contemplated by paragraph (b) of the definition of "public corporation" in subsection 89(1) of the Act.

10. The articles of Mutual Fund B provide that the shares of Mutual Fund B may be surrendered for redemption at any time but the first redemption for redemption requests delivered before XXXXXXXXXX will not occur until XXXXXXXXXX based on the XXXXXXXXXX net asset value of Mutual Fund B. For redemption requests delivered after XXXXXXXXXX and before XXXXXXXXXX, redemptions will be implemented on XXXXXXXXXX based on the XXXXXXXXXX net asset value of Mutual Fund B. Thereafter, redemption requests will be processed weekly.

LP C

11. A declaration of limited partnership in respect of LP C was filed under the Partnership Act on XXXXXXXXXX. LP C intends to offer limited partnership units to the public at a subscription price of $XXXXXXXXXX per unit pursuant to a prospectus filed in all of the provinces and territories of Canada. A preliminary prospectus was filed on XXXXXXXXXX. LP C's tax shelter registration number under subsection 237.1(3) of the Act is XXXXXXXXXX. Company C is the general partner of LP C.

12. LP C was formed to invest primarily in common shares of corporations that are XXXXXXXXXX corporations and that are XXXXXXXXXX.

Main Mutual Fund

13. The authorized capital of Main Mutual Fund consists of two classes of shares, one common share and an unlimited number of mutual fund shares ("Main Mutual Fund shares"). The Main Mutual Fund shares are redeemable at the option of the holder for an amount equal to the net asset value per share. The articles of Main Mutual Fund (as amended) provide that the Main Mutual Fund shares may be surrendered for redemption at any time but the first redemption for redemption requests delivered before XXXXXXXXXX will not occur until XXXXXXXXXX based on the XXXXXXXXXX net asset value of Main Mutual Fund. For redemption requests delivered after XXXXXXXXXX and on or before XXXXXXXXXX, redemptions will be implemented on XXXXXXXXXX based on the XXXXXXXXXX net asset value of Main Mutual Fund. Thereafter, redemption requests will be processed weekly.

14. On XXXXXXXXXX, Main Mutual Fund acquired all of the property of LP Z pursuant to a transfer agreement made between LP Z and Main Mutual Fund in exchange for XXXXXXXXXX Main Mutual Fund shares. Elections were made under subsection 85(1) of the Act in respect of each property transferred by LP Z to Main Mutual Fund. LP Z was dissolved on XXXXXXXXXX and the Main Mutual Fund shares issued to LP Z were distributed to the partners of LP Z on XXXXXXXXXX. An offering memorandum in respect of the issuance of the Main Mutual Fund shares to LP Z, and the subsequent transfer of the Main Mutual Fund shares to the partners of LP Z on the dissolution of LP Z, was delivered to the XXXXXXXXXX. On XXXXXXXXXX, Main Mutual Fund elected to be a public corporation pursuant to paragraph (b) of the definition of "public corporation" in subsection 89(1) of the Act. The Main Mutual Fund shares were the class of shares designated under paragraph 4800(1)(a) of the Regulations in such election. There are currently XXXXXXXXXX Main Mutual Fund shares outstanding.

PROPOSED TRANSACTIONS

15. Subject to the receipt of this advance income tax ruling, each of LP A, LP B and LP C may sell XXXXXXXXXX and other property in its fiscal period ending on dissolution (i.e., for LP A and LP B for the period after XXXXXXXXXX and expected to end on or about XXXXXXXXXX and for LP C for the period after XXXXXXXXXX and expected to end on or about XXXXXXXXXX). The fiscal period of each of LP A, LP B, and LP C ending on dissolution is referred to herein as its "Termination Year".

16. Subject to the receipt of shareholder approvals and any necessary regulatory approvals, Main Mutual Fund will amend its articles by filing Articles of Amendment ("Articles of Amendment") to provide that Main Mutual Fund is authorized to issue one common share and XXXXXXXXXX classes of fund shares, issuable in series. The first class of fund shares to be issued will be Class A shares. Three series of shares of the Class A shares will initially be authorized, New Main Mutual Fund shares, Series 2 shares and Series 3 shares. Each Main Mutual Fund share outstanding at the effective date of the Articles of Amendment (i.e., those held by former partners of LP Z that have not been redeemed at the date the Articles of Amendment are effective) will be changed into New Main Mutual Fund Shares on a XXXXXXXXXX basis. Main Mutual Fund has no current intention to issue any of the other XXXXXXXXXX classes of mutual fund shares authorized; such shares have been authorized in order to permit Main Mutual Fund to adopt a "switch fund structure" in the future, without the need for further shareholder approval, if it is determined to do so.

17. The rights, privileges and conditions of the Class A shares as a class will include:

(i) non-voting, except as required by the Company Act or applicable securities law;

(ii) entitled to dividends as may be declared thereon by the directors;

(iii) may be redeemed at the option of the holder by delivering a redemption notice to Main Mutual Fund at a price equal to the "Class Net Asset Value per Share" of the Class A shares. The Class Net Asset Value per Share of the Class A shares as of any date will be determined by valuing the net assets attributable to the Class A shares in the manner provided by the Articles of Amendment. As long as the only fund shares outstanding are of the Class A shares, the Class Net Asset Value per Share of the Class A shares will essentially be equal to the net asset value of Main Mutual Fund divided by the number of Class A shares outstanding. Since there will only be one Class Net Asset Value per Share for the Class A shares, the redemption amount for New Main Mutual Fund shares, Series 2 shares, Series 3 shares and shares of any other series of Class A shares will be the same. Redemption rights may be suspended (a) for the whole or any part of a period during which normal trading is suspended on the stock exchange, options exchange or futures exchange within or outside Canada on which securities are listed and traded, or on which specified derivatives trade, if those securities or specified derivatives represent more than 50% by value, or underlying market exposure, of the assets of Main Mutual Fund referable to the Class A shares, without allowance for liabilities, and if those securities or specified derivatives are not traded on any other exchange that represents a reasonably practical alternative, or (b) with the approval of the relevant securities regulatory authorities or otherwise as required or permitted under applicable law. Subject to the series provisions noted below, Class A shares may be tendered for redemption at any time but redemptions will be implemented on a weekly basis.

18. The Articles of Amendment will establish the conditions of the New Main Mutual Fund shares, Series 2 shares and Series 3 shares as follows:

(i) New Main Mutual Fund shares may be issued after XXXXXXXXXX. Payment for New Main Mutual Fund shares tendered for redemption on or before the Friday in each week will be redeemed on such date.

(ii) Series 2 shares may first be issued in XXXXXXXXXX. Payment for Series 2 shares tendered for redemption on or before XXXXXXXXXX will be made on XXXXXXXXXX based on the Class Net Asset Value per share on XXXXXXXXXX. Thereafter, shares tendered for redemption on or before the Friday in each week will be redeemed on such date.

(iii) Series 3 shares may first be issued in XXXXXXXXXX. Payment for Series 3 shares tendered for redemption on or before XXXXXXXXXX will be made on XXXXXXXXXX based on the Class Net Asset Value per share on XXXXXXXXXX. Thereafter, shares tendered for redemption on or before the Friday in each week will be redeemed on such date.

(iv) The Series 2 and Series 3 shares will automatically be converted on a XXXXXXXXXX basis for New Mutual Fund Shares on XXXXXXXXXX of the year in which such shares are first issued.

19. The rights, privileges and conditions of the common share will be that the holder thereof will be entitled to vote, entitled to receive any dividend declared thereon and may, at any time, make a redemption request requiring Main Mutual Fund to redeem the common share for a redemption price equal to $XXXXXXXXXX if any other share is outstanding or, if no other share is outstanding, the net asset value of Main Mutual Fund.

20. It is expected that additional series of Class A Shares will be created if and when additional partnerships promoted by ManageCo transfer XXXXXXXXXX to Main Mutual Fund. The series provisions will in each case provide that the first redemption of shares of the series will not take place until a specified date approximately XXXXXXXXXX months after the first issuance of such shares and that the shares will be automatically converted into New Main Mutual Fund shares on XXXXXXXXXX of the year in which such shares are first issued.

21. Provided that the Mutual Fund Reorganization is completed, and subject to the approval of partners of LP A, the transfer agreement between LP A and Mutual Fund A will be terminated. LP A and Main Mutual Fund will enter into a transfer agreement under which LP A will, on or about XXXXXXXXXX, transfer all of its property that is eligible property to Main Mutual Fund in exchange for Series 2 shares. LP A and Main Mutual Fund will file elections under subsection 85(2) of the Act in respect of each of the transferred properties at an elected amount equal to the cost amount thereof, subject to the limitations set forth in subsections 85(1) and (2) of the Act. If a property does not have a cost amount (such as a XXXXXXXXXX), the elected amount will be $XXXXXXXXXX (in the case of all XXXXXXXXXX of a single issuer, the elected amount would be $XXXXXXXXXX). Any properties of LP A that would not be eligible property will be distributed to the partners of LP A thereof prior to such transfer. Immediately following the transfer of the transferred assets to Main Mutual Fund and the payment of a performance bonus, if any, owed to Company A, LP A will be dissolved. The only remaining property will be Series 2 shares and Company A will receive XXXXXXXXXX % of the remaining Series 2 shares and the limited partners of LP A will receive XXXXXXXXXX% of the remaining Series 2 shares, in proportion to the number of such limited partnership units held. An offering memorandum will be prepared in respect of the issuance of the Series 2 shares to LP A and the transfer thereof to the partners of LP A. Such offering memorandum will be delivered to the XXXXXXXXXX.

22. Provided that the Mutual Fund Reorganization is completed, and subject to the approval of partners of LP B, the transfer agreement between LP B and Mutual Fund B will be terminated. LP B and Main Mutual Fund will enter into a transfer agreement under which LP B will, on or about XXXXXXXXXX 003 transfer all of its property that is eligible property to Main Mutual Fund in exchange for Series 2 shares. LP B and Main Mutual Fund will file elections under subsection 85(2) of the Act in respect of each of the transferred properties at an elected amount equal to the cost amount thereof, subject to the limitations set forth in subsections 85(1) and (2) of the Act. If a property does not have a cost amount (such as a XXXXXXXXXX), the elected amount will be $XXXXXXXXXX (in the case of all XXXXXXXXXX of a single issuer, the elected amount would be $XXXXXXXXXX). Any properties of LP B that would not be eligible property will be distributed to the partners thereof prior to such transfer. Immediately following the transfer of the transferred assets to Main Mutual Fund and the payment of a performance bonus, if any, owed to Company B, LP B will be dissolved. The only remaining property will be Series 2 shares and Company B will receive XXXXXXXXXX% of the remaining Series 2 shares and the limited partners of LP B will receive XXXXXXXXXX% of the remaining Series 2 shares, in proportion to the number of such limited partnership units held. An offering memorandum will be prepared in respect of the issuance of the Series 2 shares to LP B and the transfer thereof to the partners of LP B. Such offering memorandum will be delivered to the XXXXXXXXXX.

23. LP C intends to enter into agreements with corporations under which it will subscribe for XXXXXXXXXX. LP C may also invest in the securities of other issuers, such as limited partnerships, that entitle it to an allocation of XXXXXXXXXX. The XXXXXXXXXX of LP C will be allocated, pursuant to the partnership agreement of LP C, to those persons who are limited partners at XXXXXXXXXX in proportion to the number of such limited partnership units held at such date.

24. In order to afford liquidity to limited partners of LP C, LP C will enter into a transfer agreement with Main Mutual Fund under which LP C, subject to satisfaction of certain conditions precedent (including that the Mutual Fund Reorganization described in paragraphs 16 to 23 above and in this paragraph is completed), will agree to transfer all of its property which is eligible property to Main Mutual Fund in exchange for Series 3 shares on or about XXXXXXXXXX. LP C and Main Mutual Fund will agree to file elections under subsection 85(2) of the Act in respect of each of the transferred properties at an elected amount equal to the cost amount thereof, subject to the limitations set forth in subsections 85(1) and (2) of the Act. If a property does not have a cost amount (such as a XXXXXXXXXX), the elected amount will be $XXXXXXXXXX (in the case of all XXXXXXXXXX of a single issuer, the elected amount would be $XXXXXXXXXX). Any properties of LP C that would not be eligible property will be distributed to the partners thereof prior to such transfer. Immediately following the transfer of the transferred assets to Main Mutual Fund and the payment of a performance bonus, if any, owed to Company C, LP C will be dissolved. At such time, the only property of LP C will be the remaining Series 3 shares and Company C will receive XXXXXXXXXX% of the remaining Series 3 shares owned by LP C and the limited partners of LP C will receive XXXXXXXXXX% of the remaining Series 3 shares owned by LP C, in proportion to the number of such limited partnership units held. It is intended that subsection 85(3) of the Act apply to the dissolution of LP C. An offering memorandum will be prepared in respect of the issuance of the Series 3 shares to LP C and the transfer thereof to the partners of LP C. Such offering memorandum will be delivered to the XXXXXXXXXX. If the Mutual Fund Reorganization is not completed, LP C will sell all of its property and wind-up in XXXXXXXXXX unless an alternative transaction is proposed to LP C and approved by its partners.

PURPOSES OF THE PROPOSED TRANSACTIONS

25. Each of LP A, LP B and LP C wishes to be able to dispose of XXXXXXXXXX in its Termination Year in order to allow the orderly liquidation of its portfolio to begin earlier. None of LP A, LP B, or LP C currently intends to dispose of XXXXXXXXXX in its Termination Year because, while the capital gain realized would be allocated to its partners pursuant to subsection 96(1) of the Act, there would be no corresponding increase to the adjusted cost base of its partners' partnership interests that would be taken into account in determining, pursuant to paragraph 85(3)(f) of the Act, the cost to the partners of the shares of Mutual Fund A, Mutual Fund B or Main Mutual Fund, as the case may be, acquired on dissolution of the partnership.

26. The purpose of the Mutual Fund Reorganization is to permit Main Mutual Fund to acquire properties of other partnerships that have acquired XXXXXXXXXX ("XXXXXXXXXX Partnerships") thereby increasing the size of Main Mutual Fund and permitting investors to benefit therefrom, including through increased portfolio diversification and reduced operating costs (on a per share basis). The purpose of including in the provisions of each series of Class A shares (other than the New Mutual Fund Shares) a restriction that the first redemption of shares of the series not take place until approximately XXXXXXXXXX months after the first issuance of such shares on the acquisition of XXXXXXXXXX from a XXXXXXXXXX Partnership is so that the Main Mutual Fund is not required to liquidate immediately a substantial portion of the portfolio so acquired because of redemption requests received from former limited partners of the XXXXXXXXXX Partnership. If the first redemption date is deferred, Main Mutual Fund may complete an orderly liquidation of the portfolio in order to fund redemption requests.

RULINGS GIVEN

Provided that the statement of facts, the proposed transactions and the purposes thereof, all as described herein, are accurate and constitute complete disclosure of all of the representations, relevant facts, proposed transactions and the purposes thereof, and all of the proposed transactions are carried out as described above, and further provided that LP A, LP B and LP C are partnerships at law, our rulings are as set forth below:

A. Subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, as the case may be, will be applied to a partner of LP A who holds his or her interest in LP A as capital property so that, for the purposes of determining the ACB of a partner's interest in LP A immediately before the winding up of LP A within the meaning of paragraph 85(3)(f) of the Act, any portion of LP A's income or loss for tax purposes for the fiscal period of LP A ending immediately before its winding-up that is allocated to that partner in respect of the Termination Year will be included in calculating that partner's ACB of his or her interest in LP A immediately before the winding up of LP A (other than for the purposes of calculating a partner's ACB of his or her interest in LP A for the purposes of paragraph 96(2.2)(a) of the Act).

B. Subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, as the case may be, will be applied to a partner of LP B who holds his or her interest in LP B as capital property so that, for the purposes of determining the ACB of a partner's interest in LP B immediately before the winding up of LP B within the meaning of paragraph 85(3)(f) of the Act, any portion of LP B's income or loss for tax purposes for the fiscal period of LP B ending immediately before its winding-up that is allocated to that partner in respect of the Termination Year will be included in calculating that partner's ACB of his or her interest in LP B immediately before the winding up of LP B (other than for the purposes of calculating a partner's ACB of his or her interest in LP B for the purposes of paragraph 96(2.2)(a) of the Act).

C. Subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, as the case may be, will be applied to a partner of LP C who holds his or her interest in LP C as capital property so that, for the purposes of determining the ACB of a partner's interest in LP C immediately before the winding up of LP C within the meaning of paragraph 85(3)(f) of the Act, any portion of LP C's income or loss for tax purposes for the fiscal period of LP C ending immediately before its winding-up that is allocated to that partner in respect of the Termination Year will be included in calculating that partner's ACB of his or her interest in LP C immediately before the winding up of LP C (other than for the purposes of calculating a partner's ACB of his or her interest in LP C for the purposes of paragraph 96(2.2)(a) of the Act).

D. The deferral of the redemption date for the Series 2 shares and Series 3 shares as described in paragraph 18 above will not, in and of itself, preclude Main Mutual Fund from satisfying the requirements of subparagraph 131(8)(c)(i) of the Act.

CAVEAT

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 issued by the CCRA on May 17, 2002, and are binding provided that LP A and LP B are wound-up as described in paragraphs 21 and 22 above on or before XXXXXXXXXX and LP C is wound-up on or before XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act.

Nothing in this letter should be construed as implying that the CCRA has agreed to or accepted:

(a) whether or not subsections 85(1), (2) or (3) of the Act will apply to any transaction described above;

(b) the GST implications of any of the proposed transactions;

(c) whether a Unit held by a partner of LP A, LP B or LP C is held on income or capital account; and

(d) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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