2003 Income Tax Severed Letter 2002-0179411 - Creation of a REIT

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: minor changes

Position: no impact on ruling

Reasons: minor changes

XXXXXXXXXX 2002-017941

Attention: XXXXXXXXXX

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

Re: Supplementary Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX, and is supplemental to our advance income tax ruling number 2002-016846 dated XXXXXXXXXX, 2002 (the "Ruling").

The following changes are made to the existing definitions in the Ruling and additional definitions are added as described below.

The definition of "Amalco" is modified to exclude XXXXXXXXXX as these corporations will not be involved in the amalgamation which will result in the creation of Amalco.

The definitions of Single Purpose Trust and Sub Trust are modified to reflect the following additional information. The initial trustee of the Single Purpose Trust will be XXXXXXXXXX, a resident of Canada and the Single Purpose Trust will be governed by the laws of XXXXXXXXXX. In the event of the death or resignation of XXXXXXXXXX or any replacement trustee of the Single Purpose Trust, the trustees of the Trust will have the power to appoint one or more replacement trustees. Similarly, the trustees of the Trust will have the power to appoint one or more replacement trustees for the Sub Trust in the event of the death or resignation of any of its current trustees.

"Property 2" means the real estate bearing the civic address of XXXXXXXXXX.

"Single Purpose Company" means XXXXXXXXXX, a corporation incorporated under the Canada Business Corporations Act, all the issued share capital of which is owned by the Trust.

Otherwise, all capitalized terms have the same meaning as in the Ruling and all statutory references have the meaning given under the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

The Single Purpose Company deals with the XXXXXXXXXX Tax Services Office and will file its tax returns at the XXXXXXXXXX Tax Centre.

In addition, the following changes are made to the facts and proposed transactions set out in the Ruling:

Paragraph 7 is modified to reflect the fact that the gross proceeds of the Offering are expected to be $XXXXXXXXXX and not $XXXXXXXXXX.

Paragraph 8 is modified to clarify that Property 2 will not be acquired directly by the Trust. Instead, the Trust will indirectly acquire Property 2 through the Single Purpose Company. The Trust will lend the Single Purpose Company approximately $XXXXXXXXXX in order to enable the Single Purpose Company to acquire Property 2 and pay all related expenses such as the municipal transfer taxes. The interest-bearing loan to the Single Purpose Company will be fully repayable by XXXXXXXXXX, and will bear interest at XXXXXXXXXX%. The Single Purpose Company will acquire Property 2 for a purchase price of approximately $XXXXXXXXXX which will be equal to its fair market value. The purchase price will be satisfied by the assumption of a $XXXXXXXXXX mortgage and the balance will be paid in cash.

Paragraph 13 is modified to clarify that, in addition to the transfer of borrowed funds received as a result of the Sub Trust Loan, the Sub Trust will contribute $XXXXXXXXXX to Single Purpose Trust as part of the initial settlement of the Single Purpose Trust. The Sub Trust will effect the transfer of the borrowed funds to the Single Purpose Trust by endorsing the cheque received from the Trust on account of the Sub Trust Loan in favour of the Single Purpose Trust.

Paragraph 17 is modified to clarify that some of the individuals who were originally intended to be employed solely by MCo and seconded to the Trust will be employed directly by both Mco and the Trust on a non-exclusive basis. Their employment with MCO will relate to the management and operation of the XXXXXXXXXX as described in paragraph 22.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, and provided that the proposed transactions are carried out as described above, our additional rulings are as follows:

N. The loan from the Trust to Single Purpose Company as described in paragraph 8 above will constitute an undertaking described in paragraph 132(6)(b) and subparagraph 108(2)(b)(ii).

O. The loan from the Trust to Single Purpose Company as described in paragraph 8 above will constitute property described in clause 108(2)(b)(iii)(D).

Comments

In addition, we wish to clarify the comment made in the Ruling with respect to the application of subsection 108(2). The conditions in paragraph 108(2)(b) are dependant on the nature of all the property held by the Trust and the income from such property at a particular point in time and not just on the nature of Property 1 and the income therefrom. Thus, as stated in the Ruling, no assurance can be given that a trust which meets the conditions in paragraph 108(2)(b) at a particular point in time will continue to do so.

Notwithstanding the above changes, we confirm that the Ruling will continue to be binding on the Canada Customs and Revenue Agency subject to the same limitations and qualifications set out in the Ruling.

If we can be of any further assistance, please contact the writer.

XXXXXXXXXX
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch