2004 Ruling 2004-0074311R3 - Income Trust

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: See below

Position: See below

Reasons: See below

XXXXXXXXXX 2004-007431

XXXXXXXXXX, 2004

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - XXXXXXXXXX

This is in response to your letter dated XXXXXXXXXX, wherein you request an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the additional information provided in your submissions of XXXXXXXXXX, your emails of XXXXXXXXXX, and the information provided during our telephone conversations (XXXXXXXXXX).

We understand that to the best of your knowledge and that of the taxpayers involved none of the issues involved in this ruling is:

(i) in an earlier return of a taxpayer identified in this document or of a related person,

(ii) being considered by any Tax Services Office or Taxation Center of the CRA in connection with a tax return already filed,

(iii) under objection by a taxpayer identified in this document or by a related person,

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

(v) the subject of a ruling previously issued by the Income Tax Rulings Directorate to the taxpayer or a related person.

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th supp.) c.1 as amended from time to time and consolidated to the date of this letter (herein referred to as the "Act") and unless otherwise expressly stated, every reference to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Act;

(b) "CRA" means the Canada Revenue Agency;

(c) "Fund" means the XXXXXXXXXX;

(d) "Group" means the corporate structure of M-A and formed by Holdco1, Holdco2, Opco1, Opco2, Subco1, SubcoA, and SubcoB;

(e) "Holdco1" means XXXXXXXXXX;

(f) "Holdco2" means XXXXXXXXXX;

(g) "M-A" means XXXXXXXXXX;

(h) "Newco1" means the XXXXXXXXXX;

(i) "Newco2" means XXXXXXXXXX;

(j) "Opco1" means XXXXXXXXXX;

(k) "Opco2" means XXXXXXXXXX ;

(l) "Redemption Date" means the date on which the Fund Units were surrendered for redemption;

(m) "Redemption Price" means the lesser of:

(i) XXXXXXXXXX% of the market price of a Fund Unit calculated as of the Redemption Date, and

(ii) XXXXXXXXXX% of the closing market price on the Redemption Date;

(n) "Stated Earnings" means Earnings Before Interest, Taxes, Depreciation and Amortization earned by LP1 that are derived from audited financial statements of the Fund;

(o) "Subco1" means XXXXXXXXXX;

(p) "SubcoA" means XXXXXXXXXX;

(q) "SubcoB" means XXXXXXXXXX.

Our understanding of the facts and proposed transactions is as follows:

FACTS

1. Opco1 is a Canadian resident corporation formed under the laws of Canada. Opco1 carries on a XXXXXXXXXX business in XXXXXXXXXX

2. Holdco2, a Canadian resident corporation formed under the laws of XXXXXXXXXX , holds XXXXXXXXXX % of the issued and outstanding shares of Opco1. Holdco1, a Canadian resident corporation formed under the laws of XXXXXXXXXX , holds the remaining XXXXXXXXXX % of the issued and outstanding shares of Opco1.

3. Holdco2 is a wholly owned subsidiary of Holdco1. Holdco1 is indirectly owned and controlled by M-A, a resident of Canada.

4. Opco2 is a Canadian resident corporation formed under the laws of Canada. Opco2 carries on a XXXXXXXXXX business in XXXXXXXXXX .

5. Holdco2 holds all of the issued and outstanding shares of Opco2.

6. Subco1 is a Canadian resident corporation continued under the laws of Canada. Opco1 holds all of the issued and outstanding shares of Subco1. XXXXXXXXXX

7. Subco1 owns all of the issued and outstanding shares of two XXXXXXXXXX companies formed under the laws of XXXXXXXXXX , SubcoA and SubcoB. SubcoA and SubcoB are Canadian resident corporations. XXXXXXXXXX

8. The Fund is an open-ended limited purpose trust established under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX (the "Fund Deed"). The initial trustees of the Fund are residents of Canada. Pursuant to the Fund Deed, a majority of the trustees of the Fund must be residents of Canada. The Fund is resident in Canada. The Fund is located at XXXXXXXXXX . The Fund files its returns with the XXXXXXXXXX Taxation Centre and is located within the area serviced by the XXXXXXXXXX Tax Services Office.

9. The beneficial interests in the Fund are divided into interests of two classes, described and designated in article XXXXXXXXXX of the Fund Deed as "Trust Units" and "Special Trust Units". In this letter, any unit of the Fund is referred to as a "Fund Unit", and collectively the "Fund Units".

10. Unlike Special Trust Units, Trust Units, inter alia:

(a) represent an undivided beneficial interest in any distributions from the Fund (whether of net income or net realized capital gains, other than net realized capital gains distributed to redeeming unit holders) and in the net assets of the Fund in the event of the termination or winding-up of the Fund;
(b) entitle the holders thereof to one vote for each whole Trust Unit held at all meetings of unit holders; and
(c) pursuant to the Fund Deed, are redeemable by the holders in accordance with the terms thereof.

11. The Fund will be the sole beneficiary of a trust (the "Trust") to be established under the laws of the Province of XXXXXXXXXX . The Trust will qualify as a personal trust for purposes of the Act, considering paragraph 108(7)(b) of the Act. A majority of the trustees of the Trust will be residents of Canada. The Trust will be resident in Canada.

12. Pursuant to the Fund Deed, the Trust Units will be redeemable at any time on demand by the holders thereof upon delivery of written notice to the Fund. Upon receipt of the redemption notice by the Fund, all rights to and under the Trust Units tendered for redemption shall be surrendered and the holder thereof shall be entitled to receive a price per Unit equal to the Redemption Price.

13. The Trust Units will be redeemable at any time at the demand of the holders thereof for cash equal to the Redemption Price provided that the total amount payable by the Fund in respect of the Trust Units tendered for redemption in the same calendar month shall not exceed $XXXXXXXXXX , although the trustees of the Fund may, in their sole discretion, waive this limitation in respect of any month. Payment of the Redemption Price will be made no later than the last day of the month following the month in which the Trust Units are tendered for redemption.

14. If the prescribed monthly cash redemption limit is exceeded, and in certain other circumstances described in the Fund Deed (i.e. when the Trust Units are not listed or suspended for trading), each Trust Unit tendered for redemption will, subject to any applicable regulatory approvals, be redeemed by way of a distribution in specie of Series 2 Trust Notes of the Trust with a principal amount equal to the Redemption Price. In these circumstances, the Fund will exercise its right to require the Trust to redeem Series 1 Trust Notes of the Trust in consideration for the issuance to the Fund of Series 2 Trust Notes having an aggregate principal amount equal to the amount of the in specie redemption. Series 2 Trust Notes will then be distributed to the appropriate holder(s) in satisfaction of the in specie redemption. The maturity of the Series 2 Trust Notes is as indicated in paragraph 33 below. The fair market value of the consideration received by a unit holder (ignoring any reduction in accrued interest payable in respect of the Class B Redemption Notes pursuant to paragraph 29(d) below), including Series 2 Trust Notes, is intended to equal the Redemption Price of the Trust Units so redeemed by the Fund.

15. A limited partnership formed under the laws of XXXXXXXXXX ("LP1") acquired and carries on the business previously carried on by Opco1 on a tax-deferred basis pursuant to subsection 97(2) of the Act.

16. LP1 acquired certain real properties owned by Holdco1 on a tax-deferred basis pursuant to subsection 97(2) of the Act.

17. A limited partnership formed under the laws of XXXXXXXXXX ("LP2") acquired and carries on the business previously carried on by Opco2 on a tax-deferred basis pursuant to subsection 97(2) of the Act.

18. LP1 acquired from Opco2 its limited partnership interest in LP2 and all of the issued and outstanding shares of Newco2, a Canadian resident corporation formed under the laws of Canada, on a tax-deferred basis pursuant to subsection 97(2) of the Act.

PROPOSED TRANSACTIONS

19. Each of Holdco1, Opco1 and Opco2 will transfer their limited partnership interests in LP1 to a company incorporated under the laws of XXXXXXXXXX ("NewHoldco"). XXXXXXXXXX .

20. Opco1 will transfer all of the issued and outstanding shares of Subco1 and Newco1, a Canadian resident corporation formed under the laws of Canada, to NewHoldco. XXXXXXXXXX .

21. Following this transaction:

(a) Holdco1, Opco1 and Opco2 will hold the issued and outstanding shares of NewHoldco;
(b) NewHoldco will own all of the issued and outstanding shares of Newco1 and all of the issued and outstanding shares of Subco1;
(c) NewHoldco and Newco1 will be the sole members of LP1. Newco1 will be the general partner of LP1. NewHoldco will be the sole limited partner of LP1;
(d) LP1 will own all of the issued and outstanding shares of Newco2; and
(e) LP1 and Newco2 will be the sole members of LP2. Newco2 will be the general partner of LP2. LP1 will be the sole limited partner of LP2.

22. The Fund Deed will be amended (the "New Fund Deed") to create two classes of units, "Class A Fund Units" and "Class B Fund Units", which will replace the classes described in paragraph 9 above. The Class A Fund Units will have the same rights and obligations as Trust Units, as described in paragraph 10 above. The Class B Fund Units will:

(a) represent an undivided beneficial interest in certain distributions from the Fund (whether of net income or net realized capital gains, other than net realized capital gains distributed to redeeming unit holders) and in a certain percentage of the net assets of the Fund in the event of the termination or winding-up of the Fund, as more particularly described below;
(b) entitle the holders thereof to one vote for each whole Class B Fund Unit held at all meetings of unit holders; and
(c) pursuant to the New Fund Deed, be redeemable by the holders thereof.

Except as set out below, the Class B Fund Units will be identical to the Class A Fund Units.

23. In general, until the subordination arrangements terminate pursuant to paragraph 26 or 28 below, distributions to holders of Class B Fund Units will be subordinate to distributions to holders of Class A Fund Units such that holders of Class A Fund Units will be entitled to receive monthly cash distributions equal to a specified amount (the "Monthly Target") per Class A Fund Unit, which is expected to be $ XXXXXXXXXX , in priority to any distribution being paid to holders of Class B Fund Units (subject to a XXXXXXXXXX limitation on any accrued distribution deficiencies, as described in paragraph 24 below).

24. Cash distributions on the Fund Units will be made in the following priority:

(a) holders of Class A Fund Units will be entitled to receive monthly distributions equal to the Monthly Target or, if there is insufficient cash to make distributions in such amount, such lesser amount as is available;

(b) at the end of each fiscal quarter of the Fund, including the fiscal quarter ending on the fiscal year end, distributions will be made in the following order of priority:

(i) in payment of the monthly distribution to the holders of Class A Fund Units as described above, for the month then ended;
(ii) to the holders of Class A Fund Units, to the extent that monthly per unit distributions in respect of the XXXXXXXXXX period then ended were not made or were made in amounts less than the Monthly Target per Class A Fund Unit, the amount of any deficiency;
(iii) to holders of Class B Fund Units in a per unit amount of $ XXXXXXXXXX or, if there is insufficient cash to make distributions in such amount, such lesser amount as is distributable;
(iv) to the holders of Class B Fund Units, to the extent that per unit distributions in respect of any fiscal quarter(s) during the XXXXXXXXXX period then ended were not made or were made in amounts less than $ XXXXXXXXXX per Class B Fund Unit, the amount of such deficiency; and
(v) to the extent of any excess, proportionately to the holders of Class A Fund Units and Class B Fund Units.

After the subordination arrangements in respect of Class B Fund Units have terminated, cash distributions shall be paid to the holders of Class A Fund Units and holders of Class B Fund Units pro rata, subject to any adjustments in the exchange ratio of such Class B Fund Units on the termination of the subordination arrangements.

25. As described above, distributions on the Class A Fund Units and Class B Fund Units will be cumulative, such that the amount of any deficiency in such distributions to holders of Class A Fund Units and Class B Fund Units will accumulate for a period of XXXXXXXXXX . Payments of deficiencies in distributions on the Class A Fund Units will be made in priority to distributions on the Class B Fund Units. Unitholders will not be entitled to receive any distribution pursuant to paragraph 24 above in respect of any deficiency not satisfied within XXXXXXXXXX of the date it arose.

26. The subordination arrangements will terminate on the earlier of:

(a) XXXXXXXXXX if, for the fiscal year of the Fund ending on such date, LP1 has earned Stated Earnings of at least $ XXXXXXXXXX (the "Stated Target") for such fiscal year and LP1 has paid average monthly distributions at least equal to the Monthly Target per Fund Unit for such fiscal year, and

(b) at the end of any fiscal year of the Fund following XXXXXXXXXX in respect of which LP1 has earned Stated Earnings of at least the Stated Target and LP1 has paid average monthly distributions per Fund Unit for such fiscal year at least equal to the Monthly Target.

27. The Class B Fund Units that are no longer subject to subordination will be exchangeable at the option of the holder for Class A Fund Units (for greater certainty, Class B Fund Units that are subject to subordination shall, during the period of such subordination, be prohibited from being exchanged into Fund Units). Subject to a reduction in the exchange ratio as a result of the circumstances in paragraph 28 below being applicable, Class B Fund Units will be exchangeable for Class A Fund Units on a one-for-one basis.

28. If, at the end of the XXXXXXXXXX full fiscal year following the closing of the initial public offering of the Fund and each fiscal year thereafter, the subordination arrangements have not terminated in accordance with the provisions set out in paragraph 26 above, NewHoldco or certain persons related to NewHoldco and the Fund ("Permitted Transferees") will have the option to terminate the subordination of any or all of the Class B Fund Units and the exchange ratio for the Class B Fund Units will be reduced proportionately to reflect any shortfall from the Stated Target. Specifically, the exchange ratio will be adjusted (such adjusted exchange ratio being referred to herein as the "Adjusted Exchange Ratio") such that the aggregate number of Class A Fund Units into which the Class B Fund Units are exchangeable will be reduced by a number, which is calculated by dividing XXXXXXXXXX % of the amount by which the Stated Target exceeds the Stated Earnings earned by LP1 for such fiscal year by the annualized Monthly Target defined in paragraph 23 above per Class A Fund Unit. The annualized Monthly Target is the Monthly Target multiplied by XXXXXXXXXX . Upon termination of the subordination of the Class B Fund Units in circumstances where there is a shortfall, all future distributions on the Class B Fund Units will be adjusted to reflect the new exchange ratio.

29. On or prior to XXXXXXXXXX , the Class B Fund Units will be redeemable as follows:

(a) any Class B Fund Unit redeemed on or prior to XXXXXXXXXX will be redeemable for an amount that will reflect any shortfall from the Stated Target for the relevant fiscal year, although the exact Redemption Price will not be known until the Stated Earnings are determined. The Redemption Price of a Class B Fund Unit that is redeemed

(i) on or prior to XXXXXXXXXX will be determined as of XXXXXXXXXX if the Stated Target has been achieved prior to that date and LP1 has paid average monthly distributions at least equal to the Monthly Target per Fund Unit for such fiscal period, and otherwise will be determined as at XXXXXXXXXX , and
(ii) after XXXXXXXXXX , will be determined as of XXXXXXXXXX ;
(the relevant date being referred to herein as the "Determination Date");
(b) if the Determination Date is XXXXXXXXXX or XXXXXXXXXX (in circumstances where the Stated Target was achieved by LP1 for the fiscal year then ended and LP1 has paid average monthly distributions at least equal to the Monthly Target per Fund Unit for such fiscal year), the Redemption Price of a Class B Fund Unit will be equal to the Redemption Price for a Class A Fund Unit as determined as of the date the Class B Fund Unit was redeemed (determined in accordance with the provisions attached to the Class A Fund Units);
(c) if the Determination Date is XXXXXXXXXX (in circumstances where subparagraph 29(b) above does not apply), the Redemption Price per Class B Fund Unit will be calculated in the manner described above in subparagraph (b), except that the Redemption Price per Class B Fund Unit will be equal to the amount otherwise determined multiplied by the Adjusted Exchange Ratio, as described in paragraph 28 above determined as if NewHoldco or a Permitted Transferee had elected to terminate the subordination arrangements in respect of such Fund Units as of such date;
(d) if the subordination arrangements have terminated or ceased to apply in respect of the Class B Fund Units being redeemed, payment of the Redemption Price will be made in accordance with the provisions attached to the Class A Fund Units; otherwise payment of the Redemption Price will be evidenced by a note issued by the Fund (the "Class B Redemption Note") which will be an unsecured obligation of the Fund, the principal amount of which will be unknown until the relevant Determination Date. The Class B Redemption Note will bear interest at the same rate as the Series 2 Trust Notes issued by the Trust, provided that the amount of interest, if any, that will accrue in respect of the Class B Redemption Note will not exceed the amount of cash that would have been distributed on the Class B Fund Units so redeemed (determined in accordance with the paragraphs 23 to 25 above) during the period the Class B Redemption Note was outstanding. Payment of principal and interest on the Class B Redemption Notes will be subordinate to the prior payment of all other indebtedness of the Fund; and
(e) immediately after the principal amount of the particular Class B Redemption Note is determined, the redeeming unit holder will, at the option of the Trustees of the Fund, receive cash and/or be issued Series 2 Trust Notes in full payment of the Class B Redemption Note plus accrued interest thereon.

30. Subsequent to XXXXXXXXXX , the redemption terms will differ depending on whether the subordination provisions continue to apply on the relevant redemption date.

(a) If NewHoldco or a Permitted Transferee has not terminated the subordination provisions (and such subordination has not automatically terminated as described above in paragraph 26) then the Redemption Price for a Class B Fund Unit redeemed in any particular fiscal year will be determined in the same manner as described in subparagraph 29(c) in respect of the most recently completed fiscal year. Payment of the Redemption Price and the subsequent payment in cash and/or by the issuance of Series 2 Trust Notes will be similar to that described above in subparagraphs 29(d) and 29(e).

(b) If NewHoldco or a Permitted Transferee has terminated the subordination provisions in accordance with paragraph 28 above, the Redemption Price per Class B Fund Unit redeemed in any particular fiscal year will be the Redemption Price per Class A Fund Unit, as determined in accordance with the provisions attached thereto as of the date the Class B Fund Unit was redeemed, adjusted downward to reflect the decrease in value determined in paragraph 28 above. Payment of the Redemption Price will be made in accordance with the provisions attached to the Class A Fund Units.

(c) If the subordination provisions have automatically terminated, the Redemption Price per Class B Fund Unit will be determined and payment will be made in the same manner as described in subparagraph 29(b).

31. In the event of a termination or wind-up of the Fund,
(a) the holders of Class B Fund Units which remain subject to subordination at such time will only be entitled to receive the same share of the net assets of the Fund as would have been received had NewHoldco or a Permitted Transferee elected to terminate such subordination following the end of the most recently completed fiscal year of the Fund and

(b) a holder of a Class B Redemption Note issued upon a redemption of Class B Fund Units will only be entitled to receive pari passu with holders of Class A Fund Units and holders of Class B Fund Units, the same share of the net assets of the Fund (before paying, retiring or discharging or making provision for the payment, retirement or discharge of any amount owing in respect of any Class B Redemption Notes outstanding) as would have been received had NewHoldco or a Permitted Transferee continued to hold the Class B Fund Units so redeemed and elected to terminate the subordination provisions thereof following the end of the most recently completed fiscal year of the Fund.

Holders of Class B Fund Units not subject to subordination will share rateably with the holders of Class A Fund Units.

32. The New Fund Deed will restrict transfers of the Class B Fund Units except to a Permitted Transferee. XXXXXXXXXX .

33. The Trust will issue notes (the "Trust Notes") pursuant to a note indenture (the "Note Indenture"). Pursuant to the terms of the Trust Notes and the Note Indenture, the Trust Notes will have the following terms and conditions:

(a) Series 1 Trust Notes to be issued to the Fund at closing of the offering described below in paragraph 35 will be payable on demand, will mature on the XXXXXXXXXX anniversary of the date of issuance and will bear interest at a rate of XXXXXXXXXX % per annum payable monthly in arrears on the XXXXXXXXXX day of each calendar month;

(b) Series 2 Trust Notes will be reserved by the Trust to be issued exclusively as full or partial payment of the redemption price for Series 1 Trust Notes in the event of an in specie payment of the Redemption Price for Fund Units. Each Series 2 Trust Note will mature on the same date as the Series 1 Trust Notes and bear interest at a market rate to be determined by the trustees of the Trust at the time of issuance thereof, payable monthly in arrears on the XXXXXXXXXX day of each calendar month;

(c) The Trust Notes will be redeemable at any time at the option of the Trust prior to maturity.

34. Series 2 Trust Notes which would be distributed in certain circumstances to holders of Fund Units in connection with an in specie redemption of such units will not be listed on any stock exchange and no market is expected to develop in such securities, and they may be subject to resale restrictions under applicable securities laws. Series 2 Trust Notes would generally not be qualified investments for deferred income plans.

35. The Fund will raise money through an initial public offering of its Class A Fund Units at a price of $XXXXXXXXXX per Fund Unit pursuant to the terms of a prospectus to be filed with the securities regulatory authority of each province and territory of Canada (the "Offering"). The Class A Fund Units will be listed on the XXXXXXXXXX Stock Exchange (the Class B Fund Units will not be listed on the XXXXXXXXXX Stock Exchange).

36. Following the closing of the Offering, there will be at least XXXXXXXXXX holders of Class A Fund Units, each of whom holds XXXXXXXXXX Class A Fund Units having an aggregate fair market value of not less than $ XXXXXXXXXX in accordance with the requirements of section 4801 of the Income Tax Regulations. It is anticipated that the Class A Fund Units issued in connection with the Offering will be widely held by the public.

37. The proceeds from the Offering (net of the costs and expenses incurred by the Fund) will be used to capitalize the Trust as to approximately XXXXXXXXXX % debt (in the form of Series 1 Trust Notes) and approximately XXXXXXXXXX % equity (in the form of a beneficial interest in the Trust).

38. In addition to the net Offering proceeds, the Fund will further capitalize the Trust with Class A Fund Units and Class B Fund Units, in the same debt-equity ratio as described above in paragraph 37. To effect this capitalization, the Fund will acquire Series 1 Trust Notes and make an additional contribution in respect of its beneficial interest.

39. The Trust will contribute a portion of the proceeds received from the Fund to LP1 in consideration for units of LP1. XXXXXXXXXX .

40. The Trust will use the remaining proceeds received from the Fund (net of costs and expenses incurred by the Trust) to purchase from NewHoldco:

(i) all of the issued and outstanding shares of Newco1 (in consideration for cash), and

(ii) all of the units of LP1 held by NewHoldco (in consideration for cash, Class A Fund Units and Class B Fund Units).

41. XXXXXXXXXX

42. XXXXXXXXXX

43. XXXXXXXXXX

44. XXXXXXXXXX

45. XXXXXXXXXX

46. XXXXXXXXXX

PURPOSE OF PROPOSED TRANSACTIONS

47. The purpose of the proposed transactions is for the Fund to acquire the business interests held by the Group and to protect public investors in the Fund. Pursuant to the proposed transaction, NewHoldco will sell, and members of the public (by investing in the Fund) will acquire, a majority indirect interest in the Group businesses. As in all income fund transactions, the fair market value of the acquired business to public investors will be equal to a multiple of the distributable cash estimated to be generated by such business. With respect to the proposed transaction, the estimate of the distributable cash will include certain new or recently acquired operations of the corporate Group. The proposed subordination of the Class B Fund Units to be held by NewHoldco is intended to protect the public holders of Class A Fund Units from the risk that the distributable cash realized by the Fund is less than the amount estimated for the purposes of determining the value of the Group Business. Distributions of cash (whether on account of income or capital) on the Class B Fund Units held by NewHoldco will be proportionally reduced and subordinated to the distributions on the Class A Fund Units until such projected value has been demonstrated.

RULINGS GIVEN

We have not been provided with a copy of the prospectus. Accordingly, the rulings given herein are given on the condition that the prospectus contains no information that either has not been disclosed or that would be relevant to our assessment of the tax consequences of the proposed transactions. Provided that the preceding statements constitute a complete and accurate disclosure of 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 follows:

A. Subsection 104(7.1) of the Act will not apply to the Fund; and

B. At the time immediately following the completion of the proposed transactions, the Fund will qualify as a "unit trust" for the purposes of subparagraph 108(2)(a)(i) of the Act.

These advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CRA provided that the proposed transactions described above are completed on or before XXXXXXXXXX .

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, no issue has been raised, no discussions have been held and we express no opinion with respect to the tax consequences of:

A. The determination of the adjusted cost base, paid-up capital or fair market value of any shares or other property referred to herein;
B. Any transaction or potential transaction referred to in paragraph 32 or paragraphs 43 to 46 above;
C. Any interest deductibility issues; or
D. The termination of the subordination of any or all of the Class B Fund Units described in paragraph 28 above. The question of whether the termination will give rise to a disposition of the class B Units was not raised as an issue and we have not been asked to provide any rulings in respect thereof.

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