2004 Ruling 2004-0073171R3 - Creation and reclassification of classes of units

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: Does the creation of new classes of units having substantially the same rights and the redesignation of existing units into units of one of the newly created classes result resettlement of the trust or in a disposition of units of the trust? The new classes of units will have substantially the same rights as the initial units but one of the classes will be designed to be held by residents and the other to be held by non-residents.

Position: The proposed amendments to the trust indenture will not result in a resettlement of the trust; the redesignation of the units into a new class will not result in a disposition; 104(7.1) will not apply; given the terms and conditions of the units, as long as the number of units of the class held by residents is higher than the number of units of the class held by non-residents and/or residents, the trust will not be considered to be maintained primarily for the benefit of non-residents; as long as the trust is a mutual fund trust, its units will be excluded units for the purposes of section 116.

Reasons: The trust indenture permits amendments to be made to ensure compliance with the Act and the amendments made not so significant so as to result in a resettlement of the trust. The redesignation of units into units of a new class will not result in a significant change to the bundle of rights held by unitholders.

XXXXXXXXXX 2004-007317

XXXXXXXXXX , 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX - Trust Account Number XXXXXXXXXX (XXXXXXXXXX TSO)
XXXXXXXXXX - Business Number XXXXXXXXXX (XXXXXXXXXX TSO)

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers. We also acknowledge our subsequent meeting, telephone conversations and correspondence concerning your request. The documents submitted with your request are part of this document only to the extent described herein.

We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:

a) in an earlier return of the taxpayers or related persons;

b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;

c) under objection by the taxpayers or related persons;

d) before the courts; or

e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.

In this document, unless otherwise indicated, all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act"), and the following terms have the meanings specified:

a) "ADP" means ADP Investor Communications, a business unit of Automatic Data Processing Inc. which handles shareholder communications activities such as delivering proxy materials and financial statements;

b) "ADP Report" means a report prepared by ADP to show geographical locations of beneficial owners of Units based on their respective mailing addresses. ADP has commercial arrangements with substantially all of the investment dealers in Canada and approximately 96% of the investment dealers in the US. ADP responds to a request from the Trust to obtain residency information by sending a notice to all of the participants in the ADP system (numbering approximately 1,000 intermediaries) in Canada and the US. Each participant has three days to respond to the request with the best available information from a review of their records. This is largely an honor-based system which is considered to be reasonably accurate but it is unclear whether information is being provided as of a consistent date. The information from all reporting intermediaries is compiled and assumptions are made in respect of non-reporting entities or those intermediaries that do not subscribe to the ADP system;

c) XXXXXXXXXX;

d) "BCA" means the Business Corporations Act (XXXXXXXXXX);

e) "Brokers Declaration" means a declaration required to be provided by the CDS participants of the number of Units, Class 1 Units and Class 2 Units held in aggregate by them on behalf of Non-Residents;

f) "Canadian Brokerage Account Units" means Units registered by Canadian brokerage firms with CDS;

g) "CDS" means the Canadian Depository for Securities Limited, a corporation which provides depository, clearing and settlement services for Canadian capital markets;

h) "Class 1 Unit" means a Class A Unit after the Effective Time;

i) "Class 2 Unit" means a Class B Unit after the Effective Time;

j) "Corporation" means XXXXXXXXXX, a taxable Canadian corporation and a private corporation as both terms are defined in subsection 89(1), formed under the BCA on XXXXXXXXXX. In general terms, the business strategy of the Trust and the Corporation is for the Corporation to acquire, own and operate XXXXXXXXXX properties in Canada on terms and in a manner that adds value to Unitholders by increasing the amount of the Royalty (and thus Distributable Cash as defined in the Trust Indenture) paid to the Trust (and thus Unitholders) after taking into account various outlays or expenses. On XXXXXXXXXX, the Trust announced the acquisition of XXXXXXXXXX properties from a subsidiary of XXXXXXXXXX for $XXXXXXXXXX.

Following such acquisition, the Corporation will have an enterprise value in excess of $XXXXXXXXXX. The Unitholders and the holders of Royalty Units (other than the Trust) are entitled to notice of, and to attend and vote at, most meetings of shareholders of the Corporation. Unitholders are entitled to vote on any proposed amendment to the USA;

k) "Determination of Residency" means a determination made by resolution duly adopted by the Trust in respect of one or more holders or beneficial owners of Units of the Trust. The Determination of Residency shall be made in light of the information contained in the Residency Declarations which have been received by the Trust. However, the directors of the Corporation may make a Determination of Residency irrespective of the information contained in the Residency Declarations where they believe and have reasonable grounds for believing that they have sufficient information to make the determination, that the consequences of such determination would not be inequitable to those affected by it and that it would be impractical, under all the circumstances, to request or to await the receipt of any Residency Declaration. The directors may rely upon their knowledge, the knowledge of an officer or employee of the Trust or of any counsel of the Trust in making that determination. The directors will not be liable to the Trust or the Corporation where they make that determination honestly and in good faith;

l) "DTC" means the Depository Trust Company, a corporation which provides depository, clearing and settlement services for US capital markets;

m) "Effective Date" means the date determined by the Trust for the reclassification of Units to become effective;

n) "Effective Time" means XXXXXXXXXX on the Effective Date;

o) "Excess Determination" means a Determination of Residency indicating that the number of issued and outstanding Class 1 Units is likely to exceed the Ownership Threshold. The Excess Determination may be publicly announced;

p) "Manager" means XXXXXXXXXX, a taxable Canadian corporation and a private corporation as both terms are defined in subsection 89(1) and formed under the BCA on XXXXXXXXXX. The Manager manages the Trust and the Corporation, providing them with advisory, management and administrative services. One of its roles is to manage the acquisition, development, operation, and disposition of XXXXXXXXXX properties and other related assets owned by the Corporation. All the issued and outstanding voting securities issued by the Manager are owned directly and indirectly by XXXXXXXXXX;

q) XXXXXXXXXX;

r) "Non-Resident" means not resident in Canada;

s) XXXXXXXXXX;

t) "Ownership Rights" means with respect to a Class 1 Unit or a Class 2 Unit, all rights attaching thereto, including the right to vote at meetings of unitholders (or otherwise in respect of the Trust or the Corporation), to receive distributions declared thereon and to receive the remaining property of the Trust upon the liquidation, dissolution or wind-up of the Trust;

u) "Ownership Threshold" means that number of Class 1 Units issued and outstanding at any time equal to XXXXXXXXXX% of the number of Class 2 Units issued and outstanding at such time;

v) "Residency Declaration" means a declaration made by any registered holder, beneficial owner or other person of whom it is, in the circumstances, reasonable to make such request in respect of Units, Class 1 Units or Class 2 Units. The Trust determines the form of the Residency Declaration, which may be a simple declaration in writing or a statutory declaration under the Canada Evidence Act. The Residency Declaration may ask for the names of the beneficial owners of the Class 1 Units or Class 2 Units and whether the holder or any beneficial owner is a Non-Resident;

w) "Royalty" means the royalty granted to holders of Royalty Units pursuant to the Royalty Indenture, which represents XXXXXXXXXX% of the Royalty Income (as defined in the Royalty Indenture) of the Corporation. An amount not exceeding XXXXXXXXXX% of the Corporation's Gross Revenue (as defined in the Royalty Indenture) may, at the discretion of the Corporation, be put into a reserve to fund Capital Expenditures (as defined in the Royalty Indenture) and is thus, at the discretion of the Corporation, not paid on the Royalty Units;

x) "Royalty Indenture" means the Amended and Restated Royalty Indenture dated XXXXXXXXXX between the Corporation and the Trust;

y) "Royalty Unit" means a unit created by the Corporation pursuant to the Royalty Indenture representing a fractional undivided interest in the Royalty;

z) "Trust" means XXXXXXXXXX. It is an inter vivos trust formed under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX to purchase and hold Royalty Units and other investments. As of XXXXXXXXXX, the Trust had a market capitalization of approximately $XXXXXXXXXX. The head office of the Trust is located at XXXXXXXXXX. In this document, a reference to the Trust includes a reference to the person who has authority to act on behalf of the Trust;

aa) "Trust Indenture" means the amended and restated trust indenture which governs the Trust, dated XXXXXXXXXX;

bb) "Trustee" means the sole trustee of the Trust, XXXXXXXXXX, a corporation incorporated in Canada and licensed under the laws of XXXXXXXXXX to carry on in Canada the business of offering to the public its services as trustee;

cc) XXXXXXXXXX;

dd) "Unit" means a unit of the Trust representing a fractional undivided beneficial interest in the Trust prior to the Effective Time and Units described in points 23(a) and (b) below which remain outstanding after the Effective Time and unchanged, subject to the limitation in respect of distributions described in point 23(d) below. A maximum of XXXXXXXXXX Units may be created and issued pursuant to the Trust Indenture, of which XXXXXXXXXX Units were outstanding on XXXXXXXXXX. Since XXXXXXXXXX and up to the date of this letter, the Trust has not issued any significant number of Units;

ee) "Unitholders" means holders of Units;

ff) "US" means the United States of America;

gg) "US Brokerage Account Units" means Units registered by US brokerage firms with DTC; and

hh) "USA" means the amended and restated unanimous shareholders' agreement relating to the Corporation among the Corporation, the Manager, the Trust and the Trustee dated XXXXXXXXXX.

FACTS

1. The Trust currently has a single class of Units that have conditions attached thereto which, at the option of the holder, allow for the redemption of such Units at prices determined in accordance with the conditions of the Units. Article XXXXXXXXXX of the Trust Indenture provides for the redemption of Units in the manner described in subparagraph 108(2)(a)(i). It is intended that the Trust will at all times qualify as a unit trust and a mutual fund trust within the meaning of sections 108 and 132, respectively. The provision of the Trust Indenture addressing Non-resident ownership of the Units is reproduced in Schedule A.

2. Units are widely held by the public and, to the knowledge of the Trust and the board of directors of the Corporation, there is no direct or indirect beneficial owner of, nor any person who exercises control of or direction over, 10% or more of the issued and outstanding Units.

3. The Trust owns substantially all the issued and outstanding shares of the Corporation (XXXXXXXXXX of the XXXXXXXXXX issued and outstanding common shares, the remaining XXXXXXXXXX common shares being owned by the Manager), XXXXXXXXXX% of the Royalty Units (the remaining Royalty Units are owned by Canadian residents), other permitted investments including XXXXXXXXXX facilities (which are real property situated in Canada), loans payable to the Trust by the Corporation, short-term investments and cash.

4. The XXXXXXXXXX facilities held by the Trust are leased to the Corporation. During XXXXXXXXXX, leasing income from the XXXXXXXXXX facilities represented less than XXXXXXXXXX% of the Distributable Cash (as defined in the Trust Indenture).

5. Each month, the Trust distributes all of its distributable income to its Unitholders as provided for in the Trust Indenture.

6. The Trustee acts as a transfer agent and the Units are issued to members of the public and are listed and posted for trading on the XXXXXXXXXX.

7. The Units were listed on the XXXXXXXXXX in XXXXXXXXXX.

8. US Brokerage Account Units are sub-registered by DTC as owner of the Units with CDS and in some instances, are registered directly by DTC with the Trustee in order to provide a mechanism to regulate the payment of Canadian withholding taxes on distributions from the Trust.

9. Commencing in XXXXXXXXXX, the Trust took action to attempt to manage Non-Resident ownership of Units that included:

a) XXXXXXXXXX - Completion of a Canadian only bought deal equity issue to raise gross proceeds of approximately $XXXXXXXXXX.

b) XXXXXXXXXX - Completion of a Canadian only bought deal equity issue to raise gross proceeds of approximately $XXXXXXXXXX. The underwriters participating in this equity offering had committed to buying the Units and reselling them to residents of Canada.

10. In a meeting held XXXXXXXXXX, the board of directors of the Corporation adopted the following set of priorities:

a) Complying with the provisions of the Act to maintain the status of the Trust as a mutual fund trust;

b) Maintaining the integrity of the public financial markets for Units in Canada and the US for the benefit of Unitholders; and

c) Continuing access by the Trust to equity capital markets in both Canada and the US to permit the continued growth in the business of the Trust.

11. The XXXXXXXXXX Short Form Prospectus announced that Unitholder approval would be sought at the XXXXXXXXXX Annual General Meeting for amendments to the Trust Indenture that will enable the Trust to manage foreign ownership levels at below XXXXXXXXXX% while encouraging orderly markets for its units in Canada and the US. A news release dated XXXXXXXXXX indicates that the Unitholders approved the reclassification of the units into Class 1 Units and Class 2 Units as described in the Proposed Transactions.

PURPOSE OF THE PROPOSED TRANSACTIONS

12. Pursuant to subsection 132(7), the Trust could permanently lose its status as a mutual fund trust for the purposes of the Act if at any time it can reasonably be considered that the Trust was established or is maintained primarily for the benefit of Non-Residents.

13. The proposed transactions are intended to result in a better system to regulate Non-Resident ownership of the equity of the Trust. Based on experience with Canadian banks, telecommunication and transport companies, it is expected that the creation of two classes of units as described hereafter will allow CDS, through its participants, to ensure that Non-Residents do not acquire Class 2 Units and that the number of Class 2 Units always exceeds the number of Class 1 Units. In addition, a Canadian resident holder of Class 2 Units will not be entitled to convert into Class 1 Units unless, immediately after such conversion, the number of Class 1 Units is less than the Ownership Threshold.

PROPOSED TRANSACTIONS

14. The Trust Indenture will be amended to allow for the reclassification of the Trust's existing Units into Class 2 Units and to create a new class of trust units to be called Class 1 Units.

15. The Class 1 Units will have the following attributes:

a) They will be listed on the XXXXXXXXXX and the XXXXXXXXXX and can be benefically owned by both residents of Canada and Non-Residents. They can be held through DTC, CDS and in registered form through the Trustee. The Class 1 Units will trade from and after the Effective Date under a new CUSIP number through the book-based system on both the XXXXXXXXXX and the XXXXXXXXXX;

b) If a person who is not a Non-Resident makes an offer to purchase Class 2 Units to all or substantially all the holders of Class 2 Units and does not make a similar offer to purchase Class 1 Units, each outstanding Class 1 Unit shall be convertible into one Class 2 Unit at the option of the holder and the procedures described in point 24(f) of this document temporarily cease to be applicable. Finally, if the offer is withdrawn or expires, no conversion occurs;

c) A holder has the right to convert a Class 1 Unit into a Class 2 Unit on a one-for-one basis provided that the holder is not a Non-Resident and that a Residency Declaration has been received on behalf of the registered holder, beneficial owner or any other person of whom it is reasonable to require to provide a Residency Declaration;

d) The number of Class 1 Units issued and outstanding at any time may not exceed the Ownership Threshold (subject to a transition period, described in point 21 below) and the Trust will not accept any subscription for Class 1 Units or effect any conversion or transaction resulting from a conversion or other event or transaction which would lead to such result; and

e) They will have substantially the same redemption feature as the Units and therefore will comply with subparagraph 108(2)(a)(i). The formula to track the redemption price is based on the market price and closing market price of the Class 2 Units.

16. The Class 2 Units will have the following attributes:

a) They will be listed on the XXXXXXXXXX or any other stock exchange in Canada and can be benefically owned only by residents of Canada. They will trade from and after the Effective Date under a new CUSIP number through the book-based system. They can be held only through CDS and in registered form through the Trustee. As they cannot be held through DTC, US brokerage firms will not be able to transact in that class. The Trust will not accept the registration of Class 2 Units by Non-Residents. A Residency Declaration will be required to transfer Class 2 Units that are registered with the Trustee.

b) If a person who is not a Non-Resident makes an offer to purchase Class 1 Units to all or substantially all the holders of Class 1 Units and does not make a similar offer to purchase Class 2 Units, each outstanding Class 2 Unit shall be convertible into one Class 1 Unit at the option of the holder and the procedures described in points 24(c), (d) and (e) of this document temporarily cease to be applicable. Once the converted unit is taken-up pursuant to the offer, it is converted back into a Class 2 Unit. However, if the offeror is a Non-Resident, the offeror will not be entitled to vote any of his Class 1 Units, nor to receive distributions of income or to have them counted in connection with a written resolution of Unitholders if he holds or acquires directly or indirectly 10% or more of the issued and outstanding Class 1 Units. Finally, if the offer is withdrawn or expires, no conversion occurs;

c) Subject to point 24(e) of this document, a holder has the right to convert a Class 2 Unit into a Class 1 Unit on a one-for-one basis; and

d) They will have substantially the same redemption feature as the Units and therefore will comply with subparagraph 108(2)(a)(i). The formula to track the redemption price is based on the market price and closing market price of the Class 2 Units.

17. The Class 1 Units and Class 2 Units will have identical rights to vote, to distributions and to the assets of the Trust upon liquidation, dissolution or
wind-up of the Trust.

18. As part of the proposed transactions, on XXXXXXXXXX, the Trust:

a) Sent a letter of transmittal to the registered Unitholders asking them to provide a Residency Declaration before the Effective Time. On the evening prior to the Effective Date, all participants will be invited to tender revisions to their records and CDS will make the appropriate entries in it's systems;

b) Instructed CDS to send notices providing information to its participants (other than DTC) about the ownership restriction of the Class 2 Units and Class 1 Units and the proposed transactions. That notice will also require a Brokers Declaration before the Effective Date; and

c) Instructed DTC to send a notice to its participants indicating that they will receive Class 1 Units. The notice also mentioned that a person who is not a Non-Resident and on whose behalf a US Brokerage Account Unit is held can only receive a Class 2 Unit by deregistering that unit from DTC and by providing a Residency Declaration.

19. As at the Effective Time, issued and outstanding Units in respect of which a letter of transmittal and Residency Declaration described in point 18(a) above was provided on a timely basis or in respect of which a Brokers Declaration described in point 18(b) above was provided on a timely basis will be reclassified as Class 2 Units. Each such Unitholder immediately prior to that time will cease to be such a holder and will be deemed to be a holder of a number of Class 2 Units equal to the number of Units held immediately before that time. Where the holder is registered on the register of holders of the Trust, he will be required to have his name removed and his name will be added to the register of holders of Class 2 Units. Unitholders will not be entitled to any proceeds of disposition upon the reclassification of their Units to Class 2 Units and their reclassified Units will not be redeemed or cancelled upon such reclassification.

20. Immediately after the Effective Time, all US Brokerage Account Units and Class 2 Units held by Non-Residents shall be deemed to be converted into Class 1 Units on the basis of one Class 1 Unit for each Class 2 Unit held without any further act or formality.

21. If the number of issued and outstanding Class 1 Units immediately following the Effective Time exceeds the Ownership Threshold, the Trust will, as soon as possible but in any event before XXXXXXXXXX, take some or all of the following steps to reduce the number of issued and outstanding Class 1 Units below the Ownership Threshold:

a) public offering or private placement of additional Class 2 Units;

b) arrange for certain Non-Residents to transfer their Class 1 Units to one or more taxable Canadian corporations and for such taxable Canadian corporations to convert their Class 1 Units to Class 2 Units;

c) a business combination, merger, acquisition or similar transaction which results in additional Class 2 Units being issued;

d) an issuer bid solely for Class 1 Units;

e) operation and enhancement of the distribution reinvestment program solely for the benefit of Canadian residents which should result in the issuance of additional Class 2 Units; and

f) should the Trust conclude that some or all of the foregoing actions are insufficient or are not timely enough to preserve the Trust's status as a mutual fund trust, the Trust will elect to pursue remedies under the Draft Trust Indenture which will require the compulsory sale of Class 1 Units acquired by Non-Residents above the Ownership Threshold and the registration of trades by Non-Residents. Actions to be taken by the Trust may also include de-listing the Class 1 Units from the NYSE.

22. Units will trade on an "if, as and when issued" market for up to several weeks before the Effective Date (where an extended period of time is permitted for the settlement of trades) in order to facilitate and orderly market and the orderly conversion of all records throughout the book-based system.

23. The enforcement mechanisms or default procedures in place to track the absence of Non-Resident holders or beneficial owners of Class 2 Units at the Effective Time can be summarized as follows:

a) If a holder omits to provide the Residency Declaration and a letter of transmittal described in point 18(a) above before that time, the Unit will, unless the Trust exercises its discretion, not be reclassified into a Class 2 Unit nor converted into a Class 1 Unit;

b) A Canadian Brokerage Account Unit held by a CDS participant which failed to file the Brokers Declaration described in point 18(b) above will not, unless the Trust exercises its discretion, be reclassified as a Class 2 Unit nor converted into a Class 1 Unit until such declaration is provided. Such Units will be withdrawn from CDS and certificated in accordance with the registration instructions received by the Trustee;

c) The Units described in (a) and (b) above will be counted as Class 1 Units in determining the Ownership Threshold; and

d) An amount equal to the amount of distributions made on Class 1 Units or Class 2 Units after the Effective Time will be held in a non-interest bearing account for the benefit of the holder of Units. That amount will become payable on the earlier of the date the holder provides a letter of transmittal and a Residency Declaration or the end of the calendar year. In the later case, withholding taxes will be remitted as if the holder of the Units were a Non-Resident not entitled to the benefit of any treaty reduction.

24. The enforcement mechanisms or default procedures in place to ensure that no Class 2 Units are held or beneficially owned by Non-residents are the following:

a) The Trust always has the discretion to convert Units, Class 1 Units or Class 2 Units into Class 2 Units or Class 1 Units in any circumstances including on the receipt of a Residency Declaration or on the expiration of a deadline to provide such a declaration;

b) The Trust may at any time require that Residency Declarations be made by any registered holder, beneficial owner or any other person of whom it is reasonable to make such a request. CDS, at the request of the Trust, will require a Residency Declaration from participants approximately one month after the Effective Date. The Trust will require Residency Declarations from all CDS participants at least quarterly during the first two years. Where a CDS participant fails to provide such a declaration on a timely basis in respect of a Canadian Brokerage Account Unit or where the participant declares holding a Class 2 Unit on behalf of Non-Residents, the Trust will cause those units to be removed from CDS and to be certificated as registered Class 2 Units to which point 24(f) below applies;

c) Where a proposed conversion of Class 2 Units into Class 1 Units would result in the number of Class 1 Units issued and outstanding exceeding the Ownership Threshold, the Trust may make a public announcement to inform the markets of that situation.

d) Where a proposed conversion (other than the conversion immediately after the Effective Time described in point 20 above), subscription or other event or transaction would result in the number of Class 1 Units issued and outstanding exceeding the Ownership Threshold, the Trust will not accept any subscription or give effect to such a conversion or event or transaction. Where the register or holders of Class 1 Units indicates that the number of Class 1 Units outstanding and in circulation exceed the Ownership Threshold or where an Excess Determination is made, the Trustee will not accept any subscription for Class 1 Units or conversion of a Class 2 Unit into a Class 1 Unit;

e) Where after the transition period described in point 21 above the register or holders of Class 1 Units indicates that the number of Class 1 Units outstanding and in circulation exceeds the Ownership Threshold or where an Excess Determination is made, the Trust shall send a notice to selected registered holders of Class 1 Units indicating that by a specific date that cannot be less than 60 days after the date of the notice:

i) All the Ownership Rights attaching to their Class 1 Units are suspended and their only remaining right is the right to receive the proceeds of disposition of their Class 1 Units, unless (ii) applies;

ii) Their Units be converted into Class 2 Units if they provide a Residency Declaration indicating that they are not Non-Residents and that they do not hold the Class 1 Units on behalf of Non-Residents;

iii) Where no such declaration is provided, that they dispose of their Class 1 Units to a person who is not a Non-Resident and who agrees to convert them for Class 2 Units; and

iv) In any other case, that the Class 1 Units will be repurchased, redeemed or sold by the Trust;

f) Where the register of holders of Class 2 Units or a Determination of Residency indicates that a Non-Resident holds or beneficially owns a Class 2 Unit, the Trust shall send a notice to the registered holder of those units. The notice shall indicate that by a specific date that cannot be before 60 days after the date of the notice:

i) All the Ownership Rights attaching to the Class 2 Units are suspended, except the right to receive the proceeds of disposition of his Class 2 Units, unless (ii) applies;
ii) He must provide a Residency Declaration indicating that he is not a Non-Resident;

iii) Where no Residency Declaration is provided, he shall dispose of his Class 2 Units to a person who is not a Non-Resident; and

iv) In any other case, the Class 2 Units will be sold, repurchased or redeemed by the Trust.

RULINGS

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 rulings are as follows:

A. The proposed amendments to the Trust Indenture described in this document will not, in and by themselves, result in a resettlement of the Trust.

B. The redesignation of Units as Class 2 Units will not result in a disposition of the Units for the purposes of the Act.

C. The proposed transactions described herein will not, in and by themselves, cause the provisions of subsection 104(7.1) to apply so as to deny the Trust a deduction in computing its income under paragraph 104(6)(b).

A. For purposes of subsection 132(7), at the time immediately after the time at which the Ownership Threshold is respected and the restrictions on Non-Resident ownership as set out in the terms of the Class 1 Units (and in particular the definition of Ownership Threshold) and the Class 2 Units (and in particular the required declaration of Canadian residency) are met, the Trust will not be considered to be maintained primarily for the benefit of Non-Residents provided that all the benefits derived by Non-Residents from the Trust are limited to the benefits described in this document.

B. Provided the Trust qualifies as a mutual fund trust within the meaning of section 132, the Units, Class 2 Units and Class 1 Units will be "excluded property" for the purposes of section 116.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada Revenue Agency ("CRA") provided that the proposed transactions are completed before XXXXXXXXXX. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act which if enacted into law, could have an effect on the rulings provided herein.

COMMENT

Nothing in this ruling should be construed as implying that the CRA has agreed to or reviewed any other tax consequences relating to any facts or proposed transactions referred to herein other than those specifically described in the rulings given above. In particular, we express no opinion with respect to the whether the Trust qualifies as a mutual fund trust or whether it is maintained primarily for the benefit of Non-Residents prior to the time at which Ruling D has application.

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

XXXXXXXXXX