2002 Ruling 2002-0156163 - PARTNERSHIP AT-RISK AMOUNT

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. Whether the principal amount of the promissory notes issued by limited partners to a partnership as part of purchase price of their partnership interests (in circumstances where the notes are immediately assigned to a third party in payment of an obligation of the partnership to the third party), will reduce the partners' at-risk amount under 96(2.2)(c).

2. Whether call option will reduce the at-risk amount of the limited partners under 96(2.2)(d).

3. Whether a right of the limited partners to a partnership to liquidate its assets so as to realize on the value of their underlying investment will reduce the at-risk amount of limited partners under 96(2.2)(d).

4. Whether limited partnership interests will be tax shelters.

Position:

1. On issuance of notes by partners to the partnership, at risk-amount will be reduced by the principal amount of the notes per 96(2.2)(c) but upon assignment to third party, at-risk amount will be restored by the amount of the notes.

2. No.

3. No.

4. No.

Reasons:

1. Limited partners, and the partnership, deal at arm's length with the third party (which is a public company) so that upon assignment to third party, there is no amount owing by the partners to the partnership or to a person/partnership not dealing at arm's length with the partnership.

2. Call option is solely at the discretion of the third party so that the limited partners have no entitlement to an amount or benefit as described in 96(2.2)(d). Even though the option price is the greater of a fixed amount and fair market value, ruling stipulates that call option would not be exercised if price is greater than fair market value.

3. Rights provide for liquidation of assets at fair market value.

4. Limited partners can only be allocated, on cumulative basis, losses that are less than their capital contribution (in this case XXXXXXXXXX % of XXXXXXXXXX %). On the basis that there are no prescribed benefits applicable to any partnership interest or property acquired by any of the partnerships, the interests in the partnership will not be a tax shelter as defined in 237.1.

XXXXXXXXXX 								2002-015616

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX ("Canco"), XXXXXXXXXX (the "Offering Partnership"), XXXXXXXXXX ("Opco"), XXXXXXXXXX (the "Operating Partnership")

We are writing in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of the above taxpayers.

You advise that 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;

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

(vi) with respect to: (a) the Purchase Note as described in 16, 22 and 23 below, (b) the Class A Unitholder Notes as described in 32 below, (c) the exercise of the Call Option as described in 41 to 44 below, or (d) the payment of the subscription price by instalments as described in 32 below, dealt with in any documents or any agreements (either verbal or written), other than the documents and agreements that have been submitted to the Income Tax Rulings Directorate in draft form in connection with this advance ruling and that further, both you and the taxpayers involved have made enquiries with respect to whether any such additional documents or agreements exist or will exist.

The following terms used in this letter have the meanings assigned below.

(a) "Act" means the Income Tax Act, R.S.C 1985 (5th Supp.) c.1, as amended to the date hereof;

(b) "Activity" means the operating business of the Division, and subsequently of the Operating Partnership, as described in 7 to 12 below;

(c) "Call Option" means the right, but not the obligation, of Opco under the Call Option Agreement, as described in 41, and as confirmed under the Offering Limited Partnership Agreement described in 34, to purchase all, but not less than all, of the issued and outstanding Class A Units held by the Offering Partnership in the Operating Partnership;

(d) "Call Period" means the period from XXXXXXXXXX to XXXXXXXXXX;

(e) "Canadian-controlled private corporation" has the meaning assigned by subsection 125(7) of the Act;

(f) "Division" means the assets and related liabilities attributable to the System owned by Opco to be acquired by the Operating Partnership as described in 16 below;

(g) "Initial Limited Partner" of the Offering Partnership means XXXXXXXXXX;

(h) "Offering General Partner" means Canco, the general partner of the Offering Partnership;

(i) "OP Unit" means an interest of a limited partner in the Operating Partnership as provided in the Operating Limited Partnership Agreement referred to in 17 below;

(j) "Operating General Partner" means Opco, the general partner of the Operating Partnership;

(k) "public corporation" has the meaning assigned by subsection 89(1) of the Act;

(l) "System" means the XXXXXXXXXX as described in 7 below;

(m) "tax shelter" has the meaning assigned by subsection 237.1(1) of the Act;

(n) "tax shelter investment" has the meaning assigned by subsection 143.2(1) of the Act;

(o) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act; and

(p) "Trustee" means XXXXXXXXXX.

In this letter, unless otherwise indicated, all references to dollar amounts are to Canadian dollars.

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

FACTS

1. Canco is a taxable Canadian corporation and a Canadian-controlled private corporation. Canco's registered and principal office is XXXXXXXXXX. Canco was incorporated under the laws of Canada on XXXXXXXXXX under the name of XXXXXXXXXX, a Canadian resident, owns all of the issued and outstanding shares of Canco.

2. Canco's principal activity is to act as the general partner of the Offering Partnership.

3. Opco is a taxable Canadian corporation and a public corporation. Opco's common shares are listed and posted for trading on the XXXXXXXXXX Stock Exchange. As well, the shares are listed XXXXXXXXXX Stock Exchange. All the issued and outstanding shares in the capital stock of Opco are owned by the public. Opco is not controlled by any person or by any group of persons that do not deal with each other at arm's length.

4. Opco's registered and principal office is located in XXXXXXXXXX. Its fiscal year ends on XXXXXXXXXX of each year and its tax account number is XXXXXXXXXX. Opco was incorporated under the laws of XXXXXXXXXX. On XXXXXXXXXX amalgamated with XXXXXXXXXX. and continued under the name XXXXXXXXXX. On XXXXXXXXXX, Opco's articles were amended to change its name to XXXXXXXXXX.

5. XXXXXXXXXX is not currently an officer, director or shareholder of Opco. However, it is anticipated that he will be elected to the Board of Opco after the completion of the proposed transactions described below.

6. XXXXXXXXXX and Opco currently deal with each other at arm's length and will continue to deal with each other at arm's length.

7. XXXXXXXXXX.

8. XXXXXXXXXX.

9. XXXXXXXXXX.

10. XXXXXXXXXX.

11. XXXXXXXXXX.

12. Opco believes that XXXXXXXXXX will adopt XXXXXXXXXX the System as a logical next step in bringing operational costs down.

13. The Operating Partnership is a limited partnership formed under the Limited Partnership Act XXXXXXXXXX.

14. The Operating General Partner contributed $XXXXXXXXXX to the Operating Partnership for its initial general partnership interest in the Operating Partnership. The limited partnership interests in the Operating Partnership are divided into OP Units. The Operating Partnership will have a XXXXXXXXXX year-end.

15. The Offering Partnership is a limited partnership formed under the Limited Partnerships Act XXXXXXXXXX. The limited partnership interests in the Offering Partnership are divided into Class A Units. The initial partnership interest in the Offering Partnership was issued to the Initial Limited Partner of the Offering Partnership for a price of $XXXXXXXXXX to facilitate the formation of the Offering Partnership. The Offering Partnership will have a XXXXXXXXXX year-end.

While you are of the view that an interest in the Offering Partnership will not be a tax shelter as defined in subsection 237.1(1) of the Act, the Offering Partnership has nevertheless applied for and obtained a tax shelter identification number (XXXXXXXXXX).

PROPOSED TRANSACTIONS

16. The Operating Partnership will acquire from Opco, on or before XXXXXXXXXX, all of the assets and related liabilities relating to the System owned and operated by Opco outside the United States, which comprise the Division. The purchase price for the Division will be the fair market value thereof which is estimated to be $XXXXXXXXXX. The Operating Partnership will pay the purchase price by the issuance and delivery of a promissory note for an amount determined as the amount equal to the gross subscription proceeds received from the sale of the Class A Units of the Offering Partnership as described below less the expenses of that offering (the "Purchase Note") and the balance by the issuance to the Operating General Partner of a partnership interest in the Operating Partnership. A joint election under subsection 97(2) of the Act will be completed and filed by Opco and the Operating Partnership within the time prescribed by subsection 85(6).

The Operating Partnership will immediately begin to carry on the business of the Division with a view to profit.

17. Following completion of the transactions contemplated hereby, the Operating General Partner will provide consultation, management, administration and financial services to the Operating Partnership and in respect thereof, will be entitled to receive an annual management fee of $XXXXXXXXXX. In addition, the Operating General Partner will be entitled to the reimbursement of reasonable costs incurred on behalf of the Operating Partnership and will be responsible for the management of the Operating Partnership within the terms of the limited partnership agreement for the Operating Partnership (the "Operating Limited Partnership Agreement").

18. The Operating Limited Partnership Agreement will provide, subject to 19 below, that where the offering is fully subscribed as described in 31 below, cash distributions will be allocated as to XXXXXXXXXX% to its limited partners and the remaining XXXXXXXXXX% to the Operating General Partner. Income and losses of the Operating Partnership will be allocated based on the same formula. Where the offering is not fully subscribed, relative interests of the limited partners and the Operating General Partner and the formula for cash distributions and income and loss allocation will reflect a proportionate decrease in entitlement in the case of the limited partners and a proportionate increase in the entitlement of the Operating General Partner.

19. Notwithstanding 18 above, total losses equal to no more than XXXXXXXXXX% on a cumulative basis of the subscription price of $XXXXXXXXXX per OP Unit will be allocated to each limited partner at the end of each fiscal year of the Operating Partnership and total losses equal to no more than XXXXXXXXXX% on a cumulative basis of the aggregate subscription price of all OP Units will be allocated to all limited partners at the end of each fiscal year. Any losses in excess of XXXXXXXXXX% will be allocated to the Operating General Partner.

20. There will not be, at any time, any prescribed benefits, as described in subparagraph (b)(ii) of the definition of "tax shelter" in subsection 237.1(1) of the Act, in respect of any OP Unit or any property acquired by the Operating Partnership.

21. None of the purposes of the allocation of income or losses in the manner described in 18 and 19 above include the reduction or postponement of any tax that might otherwise be payable under the Act.

22. If the offering with respect to the Offering Partnership as described in 31 below is fully subscribed at $XXXXXXXXXX, issue expenses are expected to be $XXXXXXXXXX, and the purchase price will be paid by the issuance of the Purchase Note in the amount of $XXXXXXXXXX and the balance of $XXXXXXXXXX by the issuance to the Operating General Partner of a partnership interest in the Operating Partnership.

23. The principal amount of the Purchase Note will bear interest at a rate equal to the greater of the prime bank rate plus XXXXXXXXXX percent and the prescribed rate of interest for the purposes of section 143.2 of the Act. The Purchase Note must be repaid in full no later than XXXXXXXXXX. The Purchase Note will bear compound interest from the date of advance until XXXXXXXXXX.

24. Interest accruing in any year on the principal amount of the Purchase Note must be paid no later than XXXXXXXXXX days after the end of each calendar year.

25. The Operating General Partner will manage the Activity and the day-to-day operations of the Division.

26. Pursuant to a marketing agreement between the Operating General Partner and the Offering Partnership, the Operating General Partner agrees to commit a minimum of $XXXXXXXXXX in connection with providing marketing and promotion support to the Operating Partnership by XXXXXXXXXX (the "Marketing Agreement"). Such commitment may be in the form of a loan to the Operating Partnership, a direct expenditure by the Operating General Partner, or a combination of both. To the extent such commitment takes the form of a direct expenditure by the Operating General Partner, such amount will represent an obligation of the Operating Partnership that must be paid in priority to any partnership distributions by the Operating Partnership, and for greater certainty, will not constitute a contribution of capital to the Operating Partnership.

27. The Offering Partnership will acquire the ownership of a limited partnership interest in the Operating Partnership on or before XXXXXXXXXX.

28. The Offering General Partner will provide consultation, management, administration and financial services to the Offering Partnership for an annual fee of $XXXXXXXXXX. In addition, the Offering General Partner will be entitled to reimbursement of reasonable costs incurred on behalf of the Offering Partnership and will be responsible for the management of the Offering Partnership within the terms of the Offering Limited Partnership Agreement as defined in 34 below.

29. The Offering Partnership will offer its Class A Units for sale to persons (individuals, corporations, partnerships or other entities) resident in Canada (other than the Territories of Canada) pursuant to registration and prospectus exemptions under applicable securities legislation of each province of Canada, by way of a confidential offering memorandum (the "Offering Memorandum"). No person in whom there is an interest that is a tax shelter investment may subscribe for Units. It is expected that the offering of the Class A Units will be completed on or before XXXXXXXXXX.

30. The Offering Memorandum will contain the following statement:

"THE RULING OBTAINED FROM THE CANADA CUSTOMS AND REVENUE AGENCY CONTAINS CAVEATS. THE RULING MAY BE VIEWED ON REQUEST PROVIDED THAT THE REQUESTING PARTY EXECUTES A CONFIDENTIALITY AGREEMENT".

31. The Offering Partnership intends to issue XXXXXXXXXX Class A Units, with a unit subscription price of $XXXXXXXXXX per Class A Unit. Upon acceptance of the subscription for the XXXXXXXXXX Class A Units, the Offering Partnership will redeem the initial partnership interest subscribed for by the Initial Limited Partner of the Offering Partnership and make payment therefor in the amount of $XXXXXXXXXX.

32. The minimum subscription will be XXXXXXXXXX Class A Units with an aggregate subscription price of $XXXXXXXXXX. The subscription price will be payable by cash of $XXXXXXXXXX and the issuance of a promissory note in the amount of $XXXXXXXXXX (the "Class A Unitholder Note"). No portion of the purchase price will be funded by an amount which is a "limited recourse amount" as that term is defined in subsection 143.2(1) of the Act. The principal amount of the Class A Unitholder Note will bear interest at a rate equal to the greater of the prime rate plus XXXXXXXXXX percent and the prescribed rate of interest for the purposes of section 143.2 of the Act. Such interest on a Class A Unitholder Note will be payable pursuant to a legal obligation to pay interest on an amount payable for property acquired for the purpose of earning income from a business or property.

The cash portion is payable as to $XXXXXXXXXX by post-dated cheque payable no later than XXXXXXXXXX, and as to $XXXXXXXXXX by post-dated cheque payable XXXXXXXXXX.

The Class A Unitholder Note will be a full recourse debt of the Class A Unitholder. The Class A Unitholder Note will be required to be repaid in full no later than XXXXXXXXXX and will bear interest as described above from the date of advance until XXXXXXXXXX. Interest accruing in any year on the principal amount of the Class A Unitholder Note must be paid no later than XXXXXXXXXX days after the end of each calendar year.

33. On closing, accepted subscription payments will be released to the Offering Partnership, which will issue Class A Units to the Class A Unitholders whose subscription payments were accepted.

34. The limited partnership agreement of the Offering Partnership (the "Offering Limited Partnership Agreement") will provide that allocations and distributions of income and loss shall be made as follows.

(i) XXXXXXXXXX% of income or loss shall be allocated to the Offering General Partner and the remaining XXXXXXXXXX% of income or loss shall be allocated to the holders of the Class A Units. The distribution of such income is at the discretion of the Offering General Partner but if distributed, shall be distributed in the same manner as such income is allocated.

(ii) Notwithstanding (i) above, total losses equal to no more than XXXXXXXXXX% on a cumulative basis of the subscription price of $XXXXXXXXXX per Class A Unit will be allocated to each limited partner at the end of each fiscal year of the Offering Partnership and total losses equal to no more than XXXXXXXXXX% on a cumulative basis of the aggregate subscription price of all Class A Units will be allocated to all limited partners at the end of each fiscal year. Any losses in excess of XXXXXXXXXX% will be allocated to the Offering General Partner.

35. The distribution of such income is at the discretion of the Offering General Partner but if distributed, will be distributed in the same manner as such income is allocated.

There will not be, at any time, any prescribed benefits, as described in subparagraph (b)(ii) of the definition of "tax shelter" in subsection 237.1(1) of the Act, in respect of any Class A Unit or any property acquired by the Offering Partnership.

36. None of the purposes of the allocation of income or losses in the manner described in 34 above include the reduction or postponement of any tax that might otherwise be payable under the Act.

37. The Offering Limited Partnership Agreement will further provide that any proceeds that the Operating Partnership distributes to the Offering Partnership pursuant to the Liquidity Rights Agreement (described below) or any proceeds from the sale of an interest in the Operating Partnership shall be used to repay any outstanding indebtedness of the Offering Partnership and the balance to be distributed as follows:

(i) the first $XXXXXXXXXX per Class A Unit of such amounts to the holders of the Class A Units;

(ii) any such amounts in excess of $XXXXXXXXXX per Class A Unit to be allocated and distributed as to XXXXXXXXXX% to holders of the Class A Units and XXXXXXXXXX% to the Offering General Partner.

38. The Offering Partnership will subscribe for OP Units in the Operating Partnership in an amount equal to the gross subscription proceeds received by the Offering Partnership from the sale of the Class A Units less the expenses of such offering. (The amount of the Offering Partnership's subscription for OP Units will thus coincide with the amount of the Purchase Note so that if the Class A Units are fully subscribed, the subscription price for the OP Units will be $XXXXXXXXXx.) The subscription price of the OP Units will be satisfied by the assumption by the Offering Partnership of the Purchase Note owing to Opco. Such payment will occur prior to XXXXXXXXXX.

39. The Offering Partnership will repay the Purchase Note owing to Opco by the assignment to Opco of the Class A Unitholder Notes and the balance with cash. (If the Class A Units are fully subscribed, the Offering Partnership will repay the Purchase Note by the assignment to Opco of the Class A Unitholder Notes aggregating $XXXXXXXXXX and with cash of approximately $XXXXXXXXXX.) Such payment will occur prior to XXXXXXXXXX. No amounts will be owing by any Class A Unitholder to the Offering Partnership, or to any person or partnership not dealing at arm's length with the Offering Partnership, on XXXXXXXXXX.

Each of the Class A Unitholder Notes as so assigned to Opco will remain as a full recourse debt of the Class A Unitholder providing Opco with full recourse to all assets of the Class A Unitholder. There is no agreement whatsoever, nor

will there be, between Opco and the Class A Unitholders or any other parties which would limit the ability of Opco to enforce payment of the obligations of the Class A Unitholders under the Class A Unitholder Notes or Opco's recourse against the property or assets of the Class A Unitholders.

40. Each of the Class A Unitholders will deal at arm's length with Opco at all times before the payment in full of the Class A Unitholder Notes.

41. Opco will, under the terms of the Call Option, have the right, but not the obligation, to purchase all, but not less than all, of the issued and outstanding OP Units held by the Offering Partnership.

42. Opco may exercise the Call Option during the Call Period.

43. The purchase price per OP Unit during the Call Period will be equal to the greater of:

(i) $XXXXXXXXXX; and

(ii) the fair market value of such OP Unit at the time when the Call Option is exercised, as determined by an independent valuator.

Opco will not exercise the Call Option in circumstances under which it would be required to pay an amount per OP Unit which is in excess of the fair market value such OP Unit.

44. The completion of the purchase of the OP Units under the Call Option will occur on such date that is determined by Opco, which date shall not be more than XXXXXXXXXX days following the date of the notice by Opco of the exercise of the Call Option.

45. No representations have been made nor will be made in connection with the Class A Units or the OP Units that the amount of losses (if any) incurred by the Offering Partnership or the Operating Partnership, as the case may be, would equal or exceed the amount by which the cost to persons acquiring a Class A Unit or an OP Unit or a General Partner of their respective interest in the Offering Partnership or the Operating Partnership exceeds any benefits described in subparagraph (b)(ii) of the definition of tax shelter in subsection 237.1(1) of the Act.

46. The Offering Partnership and the Operating Partnership will enter into an agreement that will provide a mechanism to allow the Class A Unitholders to realize on their indirect investment in the assets of the Division of the Operating Partnership by procedures that, if implemented, would be completed no later than XXXXXXXXXX (the "Liquidity Rights Agreement").

47. The Liquidity Rights Agreement will provide the Offering Partnership with the following options:

(i) to cause the assets of the Division to be sold at fair market value in order to liquidate the investment; or

(ii) to allow the Offering General Partner to propose a refinancing transaction which will provide the Class A Unitholders with the same economic result as a sale of the assets of the Division at fair market value.

To accomplish these objectives, the Operating General Partner will be authorized and directed to institute a process to offer the assets of the Division for sale at such time, prior to XXXXXXXXXX, as in the reasonable opinion of the Offering General Partner, is necessary in order to maximize the likelihood of a sale of those assets at fair market value by XXXXXXXXXX.

48. The Operating Limited Partnership Agreement will provide that in the event the rights under the Liquidity Rights Agreement are triggered, the Operating Partnership is required to distribute the proceeds realized pursuant to the Liquidity Rights Agreement to the Offering Partnership in the manner described in 18 above. The Offering Limited Partnership Agreement will require that the amount so distributed to it, be distributed by the Offering Partnership in accordance with 37 above.

49. None of the purposes for the payment of the fees to the Operating General Partner or the Offering General Partner as described in 17 and 28 above respectively is to obtain a "tax benefit" as defined in subsection 18.1(1) of the Act.

50. There is no basis to reasonably expect that there will be a return of capital by the Operating Partnership to a holder of OP Units or by the Offering Partnership to a Class A Unitholder other than as a result of the implementation of the Liquidity Rights Agreement.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to provide a source of financing to Opco whose current financial position has been negatively affected by the recent downturn in the public markets and in the high-tech industry.

RULINGS GIVEN

Provided that: (a) the facts, proposed transactions and their purposes have been fully disclosed and, as described above, are accurate, (b) each of the Operating Partnership and the Offering Partnership is a valid and subsisting partnership at law on or before XXXXXXXXXX and thereafter for any period of time covered by these rulings, and (c) the proposed transactions are carried out as described above, we confirm the following.

A. Provided there are no prescribed benefits, as referred to in subparagraph (b)(ii) of the definition of "tax shelter" in subsection 237.1(1) of the Act, in respect of any OP Unit or Class A Unit or any property acquired by the Operating Partnership or the Offering Partnership, none of the OP Units or the Class A Units will be a tax shelter, within the meaning assigned by subsections 18.1(1) and 237.1(1) of the Act, nor a tax shelter investment, within the meaning assigned by subsection 143.2(1) of the Act.

B. Losses for a particular taxation year of the Operating Partnership which are allocated to the Offering Partnership by the Operating Partnership, in accordance with the terms of the Operating Limited Partnership Agreement as described in 18 and 19 above, will be deductible in computing the income or loss of the Offering Partnership at the end of the taxation year of the Offering Partnership in which such taxation year of the Operating Partnership ends, to the extent of the "at-risk amount" (within the meaning of subsection 96(2.2) of the Act) of the Offering Partnership in respect of its interest in the Operating Partnership at the end of that taxation year.

C. Losses for a taxation year of the Offering Partnership which are allocated by the Offering Partnership to a holder of Class A Units, in accordance with the terms of the Offering Limited Partnership Agreement as described in 34 above will be deductible in computing the income or loss of such holder of Class A Units for such holder's taxation year in which such taxation year of the Offering Partnership ends, to the extent of the "at-risk amount" (within the meaning of subsection 96(2.2) of the Act) of such holder of Class A Units in respect of the Offering Partnership at the end of that taxation year.

D. Subject to the application of paragraphs 96(2.2)(b), (b.1) and (c) of the Act, the at-risk amount, within the meaning of subsection 96(2.2), of the Offering Partnership in respect of the Operating Partnership at the end of the XXXXXXXXXX taxation year of the Operating Partnership will be equal to the amount of the Offering Partnership's cost of the OP Units, as described in 38 above, to the extent that the Offering Partnership or a person with whom the Offering Partnership does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d), other than an amount or benefit excluded by one of subparagraphs 96(2.2)(d)(i), (iii), (vi) or (vii) of the Act.

E. Subject to ruling F below and further subject to the application of paragraphs 96(2.2)(b), (b.l) and (c) of the Act, the at-risk amount, within the meaning of subsection 96(2.2), of a Class A Unitholder in respect of the Offering Partnership, at the end of the XXXXXXXXXX taxation year of the Offering Partnership, will be equal to the amount of the subscription price paid by that Class A Unitholder for his or her Class A Units, as described in 32 above, to the extent that there is no amount owing by such Class A Unitholder to the Offering Partnership in respect of such Class A Units, and further to the extent such Class A Unitholder or a person with whom such Class A Unitholder does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act, other than an amount or benefit excluded by one of subparagraphs (i), (iii), (vi) or (vii) thereof.

F. Paragraph 96(2.2)(c) of the Act will apply to reduce the at-risk amount of a Class A Unitholder by any amount owing by such Class A Unitholder to the Offering Partnership at any particular time in respect of the unpaid portion of the subscription price of Class A Units as described in 32 above.

G. None of the following will constitute an amount or benefit for the purposes of paragraph 96(2.2)(d) of the Act and, therefore, will not result in a reduction of the at-risk amount of a Class A Unitholder in respect of the Offering Partnership or of the Offering Partnership in respect of the Operating Partnership:

(i) the granting of the Call Option, as described in 41 to 44 above, in and of itself;

(ii) the granting of the right under the Liquidity Rights Agreement to cause the assets of the Division to be sold at fair market value, as described in 46 and 47 above, in and of itself;

(iii) the assignment of the Class A Unitholder Notes by the Offering Partnership to Opco as described in 39 above

(iv) the entitlement of the Class A Unitholders of the Offering Partnership to receive priority distributions as described in 37 above; and

(v) the transfer to the Operating Partnership of the Division as described in 16 above.

H. Subject to the application of subsections 18(9) and (9.2) to (9.8) of the Act, interest described in 32 above or a reasonable amount in respect thereof, paid in a taxation year or payable in respect of a taxation year by a Class A Unitholder (depending upon the method regularly followed by such Class A Unitholder in computing income) in connection with the related Class A Unitholder Note will be deductible by such Class A Unitholder in computing income in that taxation year in accordance with subparagraph 20(l)(c)(ii) of the Act.

I. To the extent that a Class A Unit or an OP Unit, as the case may be, represents capital property of a particular limited partner, the existence of the Call Option as described in 41 to 44 above will not, in and by itself, affect the status of such Class A Unit or OP Unit as "capital property' as defined in section 54 of the Act.

J. Subsection 103(1) of the Act will not apply to redetermine the allocation of any income or loss of the Operating Partnership as described in 18 and 19 above.

K. Subsection 103(1) of the Act will not apply to redetermine the allocation of any income or loss of the Offering Partnership as described in 34 above.

L. Subsection 96(2.7) of the Act will not apply with respect to the assignment of the Class A Unitholder Notes by the Offering Partnership to Opco as described in 39 above.

M. Pursuant to subparagraph 18.1(15)(a)(i) of the Act, subject to subsections 18.1(1) and (14) of the Act, section 18.1 of the Act will not apply with respect to fees paid to the Operating General Partner or the Offering General Partner as described in 17 and 28 above respectively.

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

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5 dated May 17, 2002 and are binding on the Canada Customs and Revenue Agency provided the proposed transactions are implemented 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 thereto. Except as expressly stated, these rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.

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

(a) the reasonableness of any expenditures referred to in this letter;

(b) the fair market value of any property referred to in this letter;

(c) whether or not any persons referred to in this ruling deal at arm's length;

(d) whether any property acquired by the Operating Partnership constitutes a tax shelter;

(e) the income tax implications with respect to the option under the Liquidity Rights Agreement allowing for a refinancing transaction;

(f) whether a Unit held by a partner is held on income or capital account and whether an outlay or expense is on account of capital;

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

(h) 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