2002 Ruling 2002-0170523 - PARTNERSHIP AT RISK

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: none that impact on rulings

Position: n/a

Reasons: n/a

XXXXXXXXXX 2002-017052

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
(the "Operating Partnership")
Those persons who from time to time become limited partners
in the Offering Partnership
Consolidated Advance Income Tax Ruling

This is in reply to your request of XXXXXXXXXX, and is supplemental to and consolidates the advance income tax ruling #2001-008655 dated XXXXXXXXXX, 2001 and our supplemental advance income tax rulings #2001-011631 (dated XXXXXXXXXX , 2001), #2002-013428 (dated XXXXXXXXXX, 2002), and #2002-016352 (dated XXXXXXXXXX, 2002) (collectively, the "Ruling").

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) including, but not limited to the Unit Loans described in paragraph 17 below, the Canco #2/Lender #1 Loan described in paragraph 40 below, the Liquidity Rights described in paragraph 55 below, XXXXXXXXXX, dealt with in any documents or any agreements (either verbal or written), other than the documents and agreements in respect of which the relevant terms have been provided to the Income Tax Rulings Directorate and have not been significantly amended and that will be submitted within 30 days of their execution to the Income Tax Rulings Directorate.

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) "Adjusted Fair Market Value" means XXXXXXXXXX ;

(c) "arm's length" has the meaning assigned by section 251;

(d) "Asset #1" means XXXXXXXXXX;

(e) "Assets" means the primary assets owned by Canco #3, and transferred to the Operating Partnership as described in paragraph 32 below, which are:

(i) Asset #1; and
(ii) the Operating Assets;

(f) "at-risk amount" has the meaning assigned by subsection 96(2.2);

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

(h) "Canco #1" means XXXXXXXXXX;

(i) "Canco #2" means XXXXXXXXXX;

XXXXXXXXXX;

(j) "Canco #3" means XXXXXXXXXX;

(j.1) XXXXXXXXXX;

(k) "Company A" means XXXXXXXXXX and its partners and persons related thereto;

(l) "Company A Principals" means XXXXXXXXXX;

(m) "Creditor #1" means XXXXXXXXXX;

(n) "Creditor #2" means XXXXXXXXXX;

(o) XXXXXXXXXX;

(p) XXXXXXXXXX;

(q) XXXXXXXXXX;

(r) XXXXXXXXXX;

(s) XXXXXXXXXX;

(t) XXXXXXXXXX;

(u) XXXXXXXXXX;

(v) XXXXXXXXXX;

(w) XXXXXXXXXX;

(x) XXXXXXXXXX;

(y) [intentionally deleted];

(z) XXXXXXXXXX

(aa) "Incentive Fee" means the fee described in paragraph 34;

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

(bb.1) "Initial Limited Partner of the Operating Partnership" means initially, XXXXXXXXXX;

(cc) "Lender #1" means XXXXXXXXXX. The Trustee of Lender #1 is XXXXXXXXXX corporation, which deals at arm's length with all parties referred to in this Ruling;

(dd) "Lender #2" means one or more institutional lenders which may include one or more of the creditors of Canco #2 or Canco #3;

(ee) [intentionally deleted];

(ff) "Main Activity" means the XXXXXXXXXX of Canco #3's, and subsequently the Operating Partnership's, XXXXXXXXXX;

(gg) [intentionally deleted];

(hh) XXXXXXXXXX;

(ii) "Offering Partnership" means XXXXXXXXXX, as described in paragraphs 8 to 11 below;

(jj) "Offering General Partner" means, XXXXXXXXXX the general partner of the Offering Partnership. It is described in paragraphs 9 and 10 below;

(kk) "Operating Assets" means XXXXXXXXXX;

(ll) "Operating General Partner" means initially XXXXXXXXXX, the general partner of Operating Partnership. All the issued and outstanding shares in the capital of the Operating General Partner are owned by XXXXXXXXXX, all of whom are individuals who are residents of Canada. Operating General Partner is a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX. Subsequently, shares in the capital of XXXXXXXXXX may be owned by Company A and/or certain directors, officers or affiliates thereof;

(mm) "Operating Partnership" means XXXXXXXXXX, a limited partnership formed under the Limited Partnership Act (XXXXXXXXXX). It is described in paragraphs 27 to 31 below;

(nn) "Principal" means XXXXXXXXXX;

(oo) XXXXXXXXXX;

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

(qq) "tax shelter" has the meaning assigned by subsection 237.1(1) and "tax shelter investment" has the meaning assigned by subsection 143.2(1); and

(rr) "taxable Canadian corporation" has the meaning assigned by subsection 89(1).

Any references to an amount of money are expressed in Canadian dollars, unless otherwise indicated.

FACTS

1. Canco #1 XXXXXXXXXX Canco #1 is a "taxable Canadian corporation" and a "Canadian-controlled private corporation".

2. Canco #2's principal business activity is the operation of the XXXXXXXXXX. Canco #2 is a "taxable Canadian corporation" and a "Canadian-controlled private corporation".

3. Canco #3 is a "taxable Canadian corporation" and a "Canadian-controlled private corporation".

4. Canco #3 obtained its right XXXXXXXXXX pursuant to a license agreement with Canco #2 (the "License Agreement"). Under the arrangements with Canco #2, Canco #3 XXXXXXXXXX.

Commercial Environment

5. The financial services industry has a well-established market value for the services of financial intermediaries and providers of capital. Financial intermediaries include investment bankers, brokerage houses, mortgage brokers and the financial services divisions of the large accounting firms. Providers of capital include banks, insurance companies, investment funds and private sources. Capital providers have various areas of specialty from basic lending and personal credit to asset-backed lending, cash-flow lending, mezzanine financing and equity financing. These various funding activities are further subdivided by specialties based upon credit quality.

6. In general terms, fees charged by the providers of debt capital are in the range of XXXXXXXXXX percent depending on credit quality and general market conditions. Compensation to intermediaries for debt transactions is in the range of XXXXXXXXXX percent depending on credit quality and general market conditions. Combined fees to providers of capital and intermediaries for debt transactions traditionally fall in the range of XXXXXXXXXX percent.

7. There are no general guidelines in respect of charges for the availability of the services of unique individuals. The nature of the industry, the experience of the individual, the availability of comparable skills in the marketplace and the magnitude of the economic undertaking are all factors which are germane to the appropriateness of charges for the availability of services of unique individuals.

The Offering Partnership

8. Offering Partnership is a Limited Partnership formed under the Limited Partnerships Act (XXXXXXXXXX). The business of the Offering Partnership will include the ownership of a partnership interest in the Operating Partnership, a partnership that carries on the business of operating the Assets. The Offering Partnership has applied for and received a tax shelter identification number for purposes of subsection 237.1(2) of the Act. The initial partnership interest in the Offering Partnership was issued to Initial Limited Partner of the Offering Partnership, for a price of $XXXXXXXXXX to facilitate the formation of the Offering Partnership. The Offering Partnership has a XXXXXXXXXX year-end.

9. The Offering General Partner is a taxable Canadian corporation. The issued common shares in the capital of Offering General Partner are held by Company A Principals. Company A is in the business, directly or indirectly, of XXXXXXXXXX. Company A and Company A Principals deal at arm's length with each of Canco #1, Canco #2, Canco #3, Creditor #1, and Principal.

10. The only assets of the Offering General Partner are nominal cash and its general partnership interest in the Offering Partnership. The Offering General Partner will provide consultation, management, administration and financial services to the Offering Partnership. 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 partnership agreement for the Offering Partnership.

11. The partnership interests in the Offering Partnership are divided into Class A Units and Class B Units.

PROPOSED TRANSACTIONS

Preliminary Transactions

12. XXXXXXXXXX.

13. Canco #2 will enter into an agreement with Canco #3 whereby Canco #2 will agree to pay $XXXXXXXXXX of the indebtedness of Canco #3 that is XXXXXXXXXX.

In consideration for agreeing to pay the indebtedness of Canco #3 XXXXXXXXXX, Canco #3 will issue a note (the "Canco #3 Note") to Canco #2 in the amount of $XXXXXXXXXX. The Canco #3 Note will bear interest (at a rate that is equivalent to the average rate of interest on XXXXXXXXXX).

Canco #3 will pay a fee (the "Loan Assumption Fee") to Canco #2 in the amount of $XXXXXXXXXX, as consideration for Canco #2 agreeing to assume the indebtedness described in this paragraph.

14. XXXXXXXXXX.

Offering of Class A Units by the Offering Partnership

15. The Offering Partnership shall 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 Class A Units. It is expected that the Offering of the Class A Units will be completed on XXXXXXXXXX.

The Offering Memorandum will contain the following mention:

"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".

16. The Offering Partnership will issue XXXXXXXXXX Class A Units ("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 Initial Limited Partner of the Offering Partnership and make payment therefor in the amount of $XXXXXXXXXX.

17. Lender #1 will make a loan (the "Unit Loan") in the amount of $XXXXXXXXXX per Class A Unit to each subscriber for Class A Units (the "Class A Unitholder") of the Offering Partnership who wishes to finance a portion of the purchase price in respect of such Class A Units. Class A Unitholders are not obligated to borrow the Unit Loan and are entitled to purchase Class A Units by payment of the full subscription price of $XXXXXXXXXX per Class A Unit. In order to qualify for the Unit Loan, a Class A Unitholder will be required to deliver a completed Unit Loan Application Form in the form required by Lender #1 together with a promissory note ("Class A Unitholder Note") to Lender #1 in the principal amount of $XXXXXXXXXX per Class A Unit. The Unit Loans will be full recourse loans made by Lender #1 and each Class A Unitholder who borrows will be obligated to repay the principal amount of the Unit Loan and all interest thereon in accordance with the terms of the loan. The Unit Loan will be evidenced by the Class A Unitholder Note and will be secured by a pledge and assignment of the Class A Units purchased and an assignment of distributions from the Offering Partnership to the Class A Unitholder in respect of those Class A Units. So long as the Unit Loan is not in default, distributions from the Offering Partnership in respect of income of the Operating Partnership sufficient in amount to permit Class A Unitholders to pay tax on that income, if any, will be distributable to the Class A Unitholders free of the pledge.

18. The principal amount of the Unit Loan will bear interest, both before and after maturity, from the date of advance until repayment in full. Each Unit Loan must be repaid in full no later than XXXXXXXXXX years from the date of advance. The Unit Loans will bear interest from the date of disbursement until XXXXXXXXXX, at the rate of XXXXXXXXXX percent and thereafter will be reset at a rate which is, on such date, 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 at the time the amount of such loan was advanced. Interest accruing in any year must be paid by the Class A Unitholder to Lender #1 on or before XXXXXXXXXX of the following year. All amounts owing under the Unit Loans will be due and payable in full on or before the date which is XXXXXXXXXX years from the date of the advance.

19. Lender #1 has agreed to perform the functions summarized herein, at the request of Canco #2. The Trustee of Lender #1 will deal at arm's length with all parties referred to herein. XXXXXXXXXX.

20. On closing of the proposed transactions, 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.

21. [intentionally deleted]

22. Class A Unitholders who borrow pursuant to a Unit Loan will contribute a total amount of $XXXXXXXXXX per Class A Unit. These proceeds will comprise the Unit Loan of $XXXXXXXXXX and a cash portion of $XXXXXXXXXX. The cash portion is payable as to $XXXXXXXXXX at the time of subscription and as to $XXXXXXXXXX by post-dated cheque payable XXXXXXXXXX and as to $XXXXXXXXXX by a post-dated cheque payable XXXXXXXXXX. The total proceeds of $XXXXXXXXXX per Class A Unit are applied as to $XXXXXXXXXX to the subscription price for the Class A Unit, $XXXXXXXXXX to collaterally secure the obligation to pay interest on the Unit Loan (as described below). Of the $XXXXXXXXXX cash portion of the total subscription payments payable at closing, $XXXXXXXXXX is allocable to the subscription price for the Class A Unit, and $XXXXXXXXXX to the collateralization of interest. The cash payment made XXXXXXXXXX pursuant to the post-dated cheque is allocated $XXXXXXXXXX to subscription price for the Class A Unit and $XXXXXXXXXX to collateralized interest in respect of the Unit Loan, and the cash payment made on XXXXXXXXXX pursuant to the post-dated cheque is allocated $XXXXXXXXXX to the subscription price for the Class A Unit and $XXXXXXXXXX to collateralized interest in respect of the Unit Loan.

23. The $XXXXXXXXXX per Class A Unit received by the Offering Partnership in respect of interest collateralization will be applied to collaterally secure the obligation of the Class A Unitholder to pay interest on the Unit Loan for the period ending XXXXXXXXXX following the date of subscription. These proceeds, when received will be delivered by the Offering Partnership to Lender #1, to effect such collateralization. The collateralized funds will be applied by Lender #1 to pay the interest on the Unit Loan as such interest becomes due and payable.

24. Canco #3 has agreed with the Offering Partnership to pay all costs and expenses which may be incurred in connection with the offering by the Offering Partnership of the Class A Units including, without limitation, legal fees, accounting fees, financial service fees, printing costs, travel expenses and other similar costs, but excluding sales commission and placement fees.

Allocation of Proceeds of Public Offering of Units of the Offering Partnership

25. The total amounts payable in respect of the issuance and sale of Class A Units and the loan arrangements in respect of the Unit Loans (assuming all subscribers borrow pursuant to the Unit Loan arrangements) will be $XXXXXXXXXX . These aggregate proceeds are comprised of $XXXXXXXXXX in respect of the issuance of Class A Units (XXXXXXXXXX Class A Units x $XXXXXXXXXX), $XXXXXXXXXX in respect of collateralized interest for the period ending XXXXXXXXXX of the Unit Loans.

Sources and Uses of Funds by Offering Partnership

26. The aggregate proceeds of subscriptions for the Class A Units of $XXXXXXXXXX received by the Offering Partnership will be principally applied as follows:

? [intentionally deleted];
? as to $XXXXXXXXXX, to pay sales commissions and placement fees payable to Company A and salespersons; and
? as to $XXXXXXXXXX, to enable the Offering Partnership to subscribe for units in the Operating Partnership as described below.

The Operating Partnership

27. The business of the Operating Partnership is to operate the Assets. The capital of the Operating Partnership consists of the nominal interest of the Operating General Partner and one class of units (the "OP Units") all of which initially will be owned by the Initial Limited Partner of the Operating Partnership and subsequently, when the public offering of Class A Units to the public is completed as described in paragraph 15 above, the interest of the Initial Limited Partner of the Operating Partnership will be repurchased for the amount paid on the subscription therefor and the Offering Partnership will acquire OP Units from the Operating Partnership as described in paragraph 30 below. The Operating Partnership has a XXXXXXXXXX year-end.

28. The Operating General Partner contributed $XXXXXXXXXX to the Operating Partnership for its general partnership interest in the Operating Partnership. The partnership interest of the Operating General Partner in the Operating Partnership entitles the Operating General Partner to XXXXXXXXXX percent of the profits and losses of the Operating Partnership. The only assets of the Operating General Partner are nominal cash and its general partnership interest in the Operating Partnership.

29. The Operating General Partner has negotiated and settled or is negotiating and settling, as the case may be, all of the terms of the arrangements entered or to be entered into by the Operating Partnership as summarized herein, including the terms of acquisition of Asset #1. On an ongoing basis, following completion of the transactions contemplated hereby, the Operating General Partner will provide consultation, management, administration and financial services to the Operating Partnership in consideration for an annual fee of $XXXXXXXXXX (subject to annual increases based on the increase, if any, in the Consumer Price Index) together with reimbursement for any expenditures made on behalf of the Operating Partnership. 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.

30. The Operating Partnership intends to raise $XXXXXXXXXX of total financing proceeds by the issuance to the Offering Partnership of the OP Units representing a XXXXXXXXXX percent limited partnership interest in the Operating Partnership. The Offering Partnership will contribute capital in respect of the OP Units aggregating $XXXXXXXXXX.

31. The partnership agreement for the Operating Partnership provides that all income and losses of the Operating Partnership will be allocated XXXXXXXXXX percent to the Offering Partnership and the balance to the Operating General Partner.

Purchase of the Assets and Use of Proceeds of OP Units

32. The Operating Partnership acquired from Canco #3, on or about XXXXXXXXXX, the assets and undertakings of Canco #3 which relate to the Main Activity, including the Operating Assets. XXXXXXXXXX.

The purchase price for the Assets (excluding the Operating Assets) was $XXXXXXXXXX, which purchase price was payable by the issuance of a promissory note (the "Purchase Note"). The Purchase Note bears interest at a rate of approximately XXXXXXXXXX percent per annum until XXXXXXXXXX, and approximately XXXXXXXXXX percent thereafter until maturity. The Purchase Note is secured by a first charge on the Assets. The $XXXXXXXXXX proceeds to be received by the Operating Partnership from the purchase by the Offering Partnership of the OP Units will be used to pay the principal and accrued interest under the Purchase Note, which is expected to be approximately $XXXXXXXXXX as of the date the offering of the Class A Units will be completed, and to pay the Incentive Fee of $XXXXXXXXXX. Neither the License Agreement nor the Amended License Agreement described in paragraphs 35 to 37 below are, nor will they be, assets of Canco #3 and they do not form part of the Assets. All documentation giving effect to such transactions was delivered into and is currently being held in escrow pending the receipt of certain consents, XXXXXXXXXX. It is the condition to the completion of the offering of Class A Units of the Offering Partnership that such escrow be lifted.

33. XXXXXXXXXX.

33A. The Operating Partnership also acquired from Canco #3 the Operating Assets for a purchase price of approximately $XXXXXXXXXX. The purchase price for the Operating Assets was paid by the Operating Partnership by its assumption of Debt XXXXXXXXXX. Additionally, Canco #3 issued a note payable to the Operating Partnership (the "Canco #3/OP Note") in the amount of $XXXXXXXXXX, being the amount by which Debt #XXXXXXXXXX exceeds the purchase price for the Operating Assets.

34. XXXXXXXXXX.

Canco #3 agreed to release its key senior employees from their employment contracts so that they may be hired by Operating Partnership. The services of these key senior employees of Canco #3 are essential to the successful operation of the business of the Operating Partnership. As an inducement to allow the services of these employees to be made available to the Operating Partnership, the Operating Partnership agreed to pay to Canco #3 a fee (the "Incentive Fee") in the amount of $XXXXXXXXXX.

Amendments to License Agreement between Canco #2 and Canco #3

35. Canco #3 obtains its right to XXXXXXXXXX.

36. XXXXXXXXXX, in order to encourage completion of the transactions contemplated herein, Canco #2 has entered into an agreement (the "Amended License Agreement") to amend the economic terms of the arrangements under which XXXXXXXXXX by providing for the following amendments to the License Agreement:

? XXXXXXXXXX;

? XXXXXXXXXX; and

? a new revenue sharing arrangement (the "Sharing Arrangement") has been entered into between Canco #3 (and then the Operating Partnership) and Canco #2 and others for XXXXXXXXXX. The Sharing Arrangement provides that, commencing on the earlier of the date of repayment of the Purchase Note described in paragraph 32 above or XXXXXXXXXX, during the term of the Amended License Agreement, Canco #2 will pay to Canco #3 (and then the Operating Partnership) amounts intended to increase the economic return to Canco #3 (and then the Operating Partnership) in respect of revenue generated from XXXXXXXXXX.

Canco #3 agreed to pay $XXXXXXXXXX (the "License Amendment Fee") to Canco #2 as consideration for Canco#2 agreeing to amend the License Agreement. The License Amendment Fee has been computed as the present value of the expected decrease in the amounts that will now be payable under the Amended License Agreement.

The intent of these amendments is to ensure that the amounts payable by Canco #3 and then Operating Partnership for the use of XXXXXXXXXX is not less disadvantageous XXXXXXXXXX by adjusting upwards the share of the revenue retained by Canco #3 and subsequently the Operating Partnership XXXXXXXXXX , thereby having the effect of reducing the occupancy cost payable. XXXXXXXXXX.

XXXXXXXXXX.

37. It was a condition precedent to the purchase of the Assets by the Operating Partnership, that the Amended License Agreement be entered into. The Amended License Agreement may be terminated by Canco #2 after redemption or purchase for cancellation of all of the Class A Units of the Offering Partnership.

Sources and Uses of Funds by Canco #3

38. Canco #3 will use a portion of the funds it has received to that time from the sale of the Assets ($XXXXXXXXXX plus accrued interest of approximately $XXXXXXXXXX), and the Incentive Fee ($XXXXXXXXXX), paid by Operating Partnership to Canco #3 to:

(a) repay the Canco #3 Note of $XXXXXXXXXX, described in paragraph 13 above, to Canco #2;

(b) make a loan, in the amount of $XXXXXXXXXX to Canco #2;

(c) pay the Loan Assumption Fee of $XXXXXXXXXX, described in paragraph 13 above, to Canco #2;

(d) pay the License Amendment Fee of $XXXXXXXXXX, described in paragraph 36 above, to Canco #2; and

(e) pay $XXXXXXXXXX on account of inter-company loans.

After the transaction described in this paragraph, Canco #3 will have $XXXXXXXXXX of funds remaining related to the Proposed Transactions.

Sources and Uses of Funds by Canco #2

39. Canco #2 will now have funds on hand of $XXXXXXXXXX relating to the Proposed Transactions, consisting of the funds received from Canco #3, as described in paragraph 38 above.

40. Canco #2 will use a portion of these funds to make a loan (the "Canco #2/Lender #1 Loan") in the amount of $XXXXXXXXXX to Lender #1. The Canco #2/Lender #1 Loan will have a term of XXXXXXXXXX and will bear interest, both before and after maturity, from the date of the advance until payment in full is received by Canco #2. The interest rate from the date of the advance until XXXXXXXXXX shall be approximately XXXXXXXXXX% and thereafter will be reset at a rate which is, on such date, equal to the greater of the prime bank rate plus XXXXXXXXXX% and the prescribed rate of interest for the purposes of section 143.2 of the Act at the time such loan was advanced. Interest accruing in any year must be paid by Lender #1 to Canco #2 on or before XXXXXXXXXX of the following year. The Canco #2/Lender #1 Loan will be secured by a first priority security interest on all the assets and undertaking of Lender #1.

After the transactions described above in this paragraph, Canco #2 will have $XXXXXXXXXX of funds remaining related to the Proposed Transactions. Lender #1 will prepay interest to Canco #2 on the Canco #2/Lender #1 Loan in three instalments: (i) $XXXXXXXXXX on the date of the completion of the Offering of Class A Units; (ii) $XXXXXXXXXX ; and (iii) $XXXXXXXXXX which aggregate to $XXXXXXXXXX, which will be included in the income of Canco #2.

XXXXXXXXXX.

41. XXXXXXXXXX.

42. XXXXXXXXXX.

43. XXXXXXXXXX.

44. XXXXXXXXXX.

Sources and Uses of Funds by Canco #2

45. Canco #2 will use:

(a) the $XXXXXXXXXX proceeds of the Canco #2 Loan, described in paragraph 44 above;

(b) the $XXXXXXXXXX of funds received as prepaid interest, described in paragraph 40 above;

(c) [intentionally deleted]; and

(d) cash on hand of $XXXXXXXXXX , described in paragraph 40 above

to:

(a) repay the $XXXXXXXXXX loan owing to Canco #3, described in paragraph 38 above;

(b) [intentionally deleted];

(c) [intentionally deleted];

(d) XXXXXXXXXX; and

(e) the balance of $XXXXXXXXXX will be retained for working capital purposes.

Sources and Uses of Funds by Canco #3

46. Canco #3 will use the net receipts described in paragraphs 38 and 45 to:

(a) apply $XXXXXXXXXX against its secured debts;

(b) pay certain costs and expenses in connection with the offering of Class A Units, including legal, accounting, printing and similar costs, and pay other ongoing professional advisory fees including legal, accounting and similar costs estimated to be $XXXXXXXXXX in aggregate; and

(c) repay the Canco #3/OP Note in the amount of $XXXXXXXXXX.

XXXXXXXXXX.

47. XXXXXXXXXX.

48. XXXXXXXXXX.

49. XXXXXXXXXX.

50. XXXXXXXXXX.

51. XXXXXXXXXX.

52. XXXXXXXXXX.

XXXXXXXXXX.

53. [intentionally deleted]

Allocations and Distributions within the Offering Partnership

54. The partnership agreement for the Offering Partnership will provide that allocations and distributions of income, loss, proceeds of sale and proceeds of refinancing within the Offering Partnership shall be made as follows:

? XXXXXXXXXX percent of income or loss shall be allocated to the Offering General Partner and the remaining income and 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. All proceeds of sale and refinancing of Asset #1 (after repayment of any outstanding indebtedness) shall be distributed to the Offering Partnership. Such net proceeds distributed to the Offering Partnership shall be allocated and distributed XXXXXXXXXX percent to holders of the Class A Units and XXXXXXXXXX percent to the Offering General Partner.

? XXXXXXXXXX:

(i) any losses will be allocated XXXXXXXXXX percent to the holders of the Class A Units until XXXXXXXXXX, and thereafter shall be allocated XXXXXXXXXX percent to the holders of the Class A Units and XXXXXXXXXX percent to the holders of the Class B Units; and

(ii) all income shall be allocated XXXXXXXXXX percent to the holders of the Class A Units until XXXXXXXXXX, and thereafter shall be allocated XXXXXXXXXX percent to the holders of the Class A Units and XXXXXXXXXX percent to the holders of the Class B Units.

All proceeds of sale and refinancing of the Assets (after repayment of any outstanding indebtedness) shall be distributed to the Offering Partnership. Such proceeds, together with any proceeds of refinancing the Offering Partnership and any proceeds received in connection with the issuance of Class B Units shall be allocated and distributed as follows:

(i) the first $XXXXXXXXXX of such proceeds to the holders of the Class A Units;

(ii) the next $XXXXXXXXXX of such proceeds to the holders of the Class B Units;

(iii) such proceeds in excess of $XXXXXXXXXX but less than $XXXXXXXXXX shall be allocated XXXXXXXXXX percent to the holders of the Class A Units, XXXXXXXXXX percent to the holders of the Class B Units and XXXXXXXXXX percent to the Offering General Partner; and

(iv) such proceeds in excess of $XXXXXXXXXX shall be allocated XXXXXXXXXX percent to the holders of the Class A Units, XXXXXXXXXX percent to the holders of the Class B Units and XXXXXXXXXX percent to the Offering General Partner.

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.

XXXXXXXXXX

Liquidity Rights

55. In the event that the Class B Unit Option is exercised and Principal elects to dispose of his indirect interest in the Class B Units, subject to the rights of applicable secured creditors, Principal is prohibited from completing such a disposition of his indirect interest in the Class B Units unless the person who offers to acquire Principal's indirect interest in the Class B Units agrees to make a cash offer to purchase the Class A Units at a comparable value (the "Liquidity Rights").

56. [intentionally deleted]

57. [intentionally deleted]

PURPOSE OF THE PROPOSED TRANSACTIONS

58. XXXXXXXXXX.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant warranties in paragraphs (i) to (vi) on pages 1 and 2 of this advance income tax ruling, as well as all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as set forth below:

A. 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 partnership agreement referred to in paragraph 31 above will, subject to the application of subsections 143.2(6) and (10) of the Act, 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 of the Offering Partnership in respect of its interest in the Operating Partnership at the end of that taxation year.

B. Losses for a taxation year of the Offering Partnership which are allocated by the Offering Partnership to the holders of the Class A Units (and Class B Units, if then issued), in accordance with the partnership agreement referred to in paragraph 54 above will, subject to the application of subsections 143.2(6) and (10) of the Act, be deductible in computing the income or loss of such holders of Class A Units or Class B Units at the end of such holder's taxation year in which such taxation year of the Offering Partnership ends, to the extent of the at-risk amount of such Class A Unitholder or Class B Unitholder in respect of the Offering Partnership at the end of that taxation year.

C. Subject to the application of paragraphs 96(2.2)(c) and (d) of the Act, the at-risk amount of the Offering Partnership in respect of the Operating Partnership, at the end of the 2002 taxation year of the Operating Partnership, will be equal to the amount of the Offering Partnership's investment in the OP Units, as described in paragraph 30 above plus any amounts described in paragraphs 96(2.2)(b) and (b.1) of the Act;

D. Subject to the application of paragraphs 96(2.2)(c) and (d) of the Act, the at-risk amount 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 subscription price for the Class A Unitholder's investment in Class A Units of the Offering Partnership ($XXXXXXXXXX per Class A Unit), as described in paragraph 16 above plus any amounts described in paragraphs 96(2.2)(b) and (b.1) of the Act;

E. In calculating the at-risk amount of:

(a) a Class A Unitholder in respect of the Offering Partnership; or

(b) the Offering Partnership in respect of the Operating Partnership

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 Liquidity Rights, as described in paragraph 55 above;

(ii) XXXXXXXXXX;

(iii) the entitlement of the Class A Unitholders of the Offering Partnership to receive priority distributions as described in paragraph 54 above; and

(iv) the transfer to the Operating Partnership of, and the terms of, the Amended License Agreement (and Sharing Arrangement provisions therein), as described in paragraphs 35 to 37 above.

F. [intentionally deleted]

G. Subject to the application of subsections 18(9) and (9.2) to (9.8) of the Act, interest described in paragraph 18 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 Unit Loan will be deductible by such Class A Unitholder in computing income in that taxation year in accordance with subparagraph 20(l)(c)(i) of the Act, to the extent that the amount thereof is reasonable and paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property with a reasonable expectation of profit.

H. Provided interest in respect of their particular Unit Loan (as described in paragraph 18 above) is paid by a Class A Unitholder no later than 60 days after the end of each of the Class A Unitholder's taxation years in which the Unit Loan is outstanding, and provided "bona fide" repayment arrangements are made in accordance with the provisions of 143.2(7)(a), the Unit Loan will not constitute a limited recourse amount or an at-risk adjustment, within the meaning of those terms in section 143.2 of the Act. Accordingly, the existence of a Unit Loan, where the provisos are also met, will not in and of itself, result in the application of subparagraph 143.2(6)(b)(i) to reduce the cost of a Class A Unitholder's Class A Unit, the cost of the Offering Partnership's OP Units or any expenses of the Offering Partnership or the Operating Partnership in respect of such indebtedness. However, if a Class A Unitholder funds any portion of his or her investment in the Offering Partnership with limited-recourse financing, the provisions of subsection 143.2(6) will apply.

I. The following entitlements will not, in and of themselves, constitute an at-risk adjustment under subsection 143.2(2) or result in the application of subsection 143.2(6):

(i) [intentionally deleted];

(ii) the Liquidity Rights described in paragraphs 55 above;

(iii) the entitlement of the Class A Unitholders in the Operating Partnership to priority distributions as described in paragraph 54 above;

(iv) the transfer to the Operating Partnership of, and the terms of, the Amended License Agreement (and Sharing Arrangement provisions therein), as described in paragraphs 35 to 37 above; and

(v) XXXXXXXXXX

J. Amounts, if any, owing by Operating Partnership under the Operating Facilities will constitute a limited recourse amount for purposes of section 143.2 and, therefore, subsection 143.2(6) will operate to reduce the cost or capital cost of any property of the Operating Partnership or the amount of any expenditures made by the Operating Partnership when the proceeds of the Operating Facilities are applied to acquire property or make expenditures (the "After Acquired Property or Expenditures") and subsections 143.2(10) and (12) will apply to repayments of the Operating Facilities. The amounts owing under the Operating Facilities will not result in the application of subsection 143.2(6) to reduce the cost or capital cost of any property of the Operating Partnership (other than the After Acquired Property or Expenditures) or any other expenditure of the Operating Partnership or the Offering Partnership, the cost or capital cost of the OP Units held by the Offering Partnership in the Operating Partnership or a Class A Unitholder's interest in the Offering Partnership.

K. Since the Amended License Agreement (and the Sharing Arrangement provisions therein) will not be an asset of Operating Partnership and since Operating Partnership will not make an expenditure when it acquires the rights and obligations under the Amended License Agreement, no "matchable expenditure" (within the meaning of subsection 18.1 (1) of the Act) will be made by Operating Partnership in connection with the Amended License Agreement, including the Sharing Arrangement provisions thereof, and section 18.1 of the Act will not apply to the Amended License Agreement, including the Sharing Arrangement provisions thereof.

L. [intentionally deleted]

M. [intentionally deleted]

N. The amount of the Incentive Fee referred to in paragraph 34 will be deductible by the Operating Partnership in the XXXXXXXXXX taxation year to the extent that:

(i) such reporting is not inconsistent with established case law principles or rule of law and with well-accepted business principles;

(ii) the outlays and expenses are reasonable in amount and are not on account of capital; and

(iii) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit.

O. 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 paragraph 54 above.

P. Subsection 245(2) of the Act will not apply to redetermine the tax consequences described in the rulings above.

CAVEAT

The above rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 (the "Circular") issued by the CCRA on May 17, 2002, and are binding provided the offering by the Offering Partnership of its Class A Units described in paragraphs 15 and 16 above is completed 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) the reasonableness of any expenditures referred to in this letter;

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

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

(d) the proper established case law principles or rules of law, or well-accepted business principles applicable in the determination of the timing of the deduction of the cost of any of the expenses incurred by the Operating Partnership;

(e) whether a Unit held by a Partner is a "tax shelter" or a "tax shelter investment";

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

(g) the applicability or non-applicability of paragraph 96(2.2)(d) of the Act, other than as expressly stated in this ruling;

(h) whether a Unit held by a Partner is held on income or capital account; and

(i) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein, including any income tax consequences of any future amendments to the Amended License Agreement (referred to in paragraph 36 above).

Yours truly,

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