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.
Principal Issues: The REIT has an indirect interest in real property located in Canada through its investment in a unit trust that is a limited partner of a limited partnership that holds the real property through holding companies as well as its investment in a corporation that is the trustee of the trust that is the general partner of the limited partnership. Will the issuance of guarantees by the REIT on the mortgages held on the properties wholly owned for the benefit of the REIT be considered an undertaking other than investing funds in property such that the REIT would not qualify as a mutual fund trust under 132(6)(b)?
Position: No, a guarantee issued in the situation described in the ruling will not, in and by itself, disqualify the REIT as a mutual fund trust as defined in 132(6)(b).
Reasons: Object and spirit of the Act and previous rulings.
XXXXXXXXXX 2003-005422
Attention: XXXXXXXXXX
XXXXXXXXXX, 2004
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the above-noted taxpayer. We also acknowledge your letters of XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the taxpayer on whose behalf this ruling is requested, none of the issues involved in this ruling request are:
(a) in an earlier return of the taxpayer or a related person;
(b) being considered by a tax services office or a tax centre in connection with a tax return previously filed by the taxpayer or a related person;
(c) under objection by the taxpayer or a related person;
(d) before the courts or, if a judgement has been issued in respect of the issues, the time limit for appeal to a higher court has expired; or
(e) the subject of a ruling previously issued by this Directorate to the taxpayer or a related person.
In this letter, unless otherwise indicated, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and the following terms have the meanings specified:
"Class A LP Units" means the interest of a limited partner in the XXXXXXXXXX LP which has been designated and issued as a Class A LP Unit under the terms of the XXXXXXXXXX LP agreement;
"Class B LP Units" means the interest of a limited partner in the XXXXXXXXXX LP which has been designated and issued as a Class B LP Unit under the terms of the XXXXXXXXXX LP agreement;
XXXXXXXXXX;
"GPBeneficiary" means XXXXXXXXXX, a taxable Canadian corporation which is the sole beneficiary of Trust2 and is wholly owned by the Trust;
"GPTrustee" means XXXXXXXXXX, a taxable Canadian corporation incorporated on XXXXXXXXXX , which is wholly-owned by the REIT and was incorporated to act as the trustee of Trust2;
"XXXXXXXXXX LP" means the XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX to carry on the business described in paragraph 4 below;
"Properties" means the portfolio of XXXXXXXXXX and projects beneficially owned and managed by the XXXXXXXXXX LP from time to time;
"REIT" means the XXXXXXXXXX, an unincorporated open-ended unit trust that qualifies as a mutual fund trust, established under the laws of the Province of XXXXXXXXXX;
"Trust" means XXXXXXXXXX, an unincorporated, limited purpose unit trust established under the laws of the Province of XXXXXXXXXX; and
"Trust2" means the XXXXXXXXXX, an inter vivos trust created under the laws of the Province of XXXXXXXXXX to act as the general partner of the XXXXXXXXXX LP.
Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:
Facts
1. The REIT was established on XXXXXXXXXX, by declaration of trust for the principal purpose of investing its funds in units and notes of the Trust and in shares of GPTrustee. As of XXXXXXXXXX, the units of REIT have been listed on the XXXXXXXXXX Stock Exchange.
2. Trust is an inter vivos trust resident in Canada that is not a mutual fund trust. Trust is a limited partner of XXXXXXXXXX LP. The trustees of Trust are not the same individuals as the trustees of REIT. The REIT owns all the units and notes issued by Trust.
3. Trust2 is an inter vivos trust resident in Canada that is not a mutual fund trust. Trust2 is the general partner of XXXXXXXXXX LP. The sole trustee of Trust2 is GPTrustee and the sole beneficiary of Trust2 is GPBeneficiary.
4. XXXXXXXXXX LP has beneficial ownership of all of the Properties and carries on the business of XXXXXXXXXX, and in connection with such business to own, operate and lease assets and property, to manage and make investments and to hold direct and indirect rights in companies or other entities involved in the same business. Legal title to the Properties is held by various Canadian resident corporations as bare trustee for XXXXXXXXXX LP. The Properties are all located in Canada and are subject to encumbrances owed to Canadian financial institutions, some of which are insured by XXXXXXXXXX.
5. Under the terms of the partnership agreement of XXXXXXXXXX LP, Trust2 is entitled, as general partner, to XXXXXXXXXX% of the distributions and allocations of the cash flow and income of the partnership, not to exceed $XXXXXXXXXX per annum. As the general partner of XXXXXXXXXX LP, Trust2 does not act as agent on behalf the REIT. XXXXXXXXXX LP has two classes of limited partnership interests, Class A LP Units and Class B LP Units. The Class A LP Units, which are all held by the Trust, are entitled to all distributions and allocations of the partnership cash flow and income that is not payable to the Class B LP Units or to Trust2 in its capacity as the general partner of XXXXXXXXXX LP. The Class B LP units are held by entities other than the Trust and were acquired as partial consideration for some of the Properties acquired by XXXXXXXXXX LP. A Class B LP Unit is entitled to distributions and allocations of the limited partners' share of the partnership cash flow and income which is, where practicable, economically equivalent to the distributions and allocations made by the REIT in respect of a unit of the REIT. Based on the Class B LP Units currently issued, Trust is entitled to approximately XXXXXXXXXX% of the income that is not otherwise allocated to Trust2 as general partner.
6. The REIT has an indirect economic interest in the Properties by virtue of its XXXXXXXXXX% ownership of the shares of GPTrustee (the sole trustee of Trust2 which is the general partner of XXXXXXXXXX LP), and its XXXXXXXXXX% interest in the units and notes of the Trust (a limited partner in XXXXXXXXXX LP and the sole owner of the shares of GPBeneficiary which, in turn, is the sole beneficiary of Trust2). The REIT will not be directly involved in the XXXXXXXXXX
7. The REIT has not previously given a guarantee of another person's indebtedness and is not in the business of providing guarantees.
Proposed Transactions
8. To facilitate the financing of the Properties by XXXXXXXXXX LP at favourable interest rates and terms, XXXXXXXXXX LP's creditors will apply for XXXXXXXXXX-insured financing and as part of conditions required by XXXXXXXXXX in respect of such insurance, XXXXXXXXXX requires the REIT to guarantee XXXXXXXXXX -insured mortgages on the Properties that are currently beneficially owned or which will be acquired in the future by the XXXXXXXXXX LP.
9. The REIT will provide guarantees on the XXXXXXXXXX-insured mortgages held on the Properties. The REIT will not receive any fees for providing such guarantees.
Purpose of Proposed Transactions
10. The purpose of the proposed transactions is to obtain XXXXXXXXXX insurance on the mortgages held on the Properties because XXXXXXXXXX-insured mortgages typically bear a lower rate of interest and qualify for a higher loan-to-value ratio compared to non-insured mortgages.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our ruling is as follows:
A. A guarantee to be provided by the REIT as described in paragraphs 8 and 9 above, will not, in and by itself, disqualify the REIT from meeting the requirements of paragraph 132(6)(b).
This ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R5, Advance Income Tax Rulings, and is binding on the Canada Revenue Agency (CRA) provided that the proposed transactions are completed within six months of the date of this letter.
Nothing in this advance income tax ruling should be construed as implying that the CRA has agreed to or reviewed:
a) whether Trust, Trust2, GPBeneficiary or the XXXXXXXXXX LP operates as principal, as opposed to agent, on behalf of the REIT, with respect to their respective business activities,
b) whether the REIT qualifies as a mutual fund trust for purposes of the Act, or
c) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
XXXXXXXXXX
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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