2005 Ruling 2005-0115771R3 - Consolidation

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: Whether the consolidation of limited partnership units that are traded on the XXXXXXXXXX Stock Exchange will result in a gain or loss?

Position: No

Reasons: No changes in the attributes of the units will be made other than to reduce the number issued. All of the limited partnership unit holders are dealing at arm's length with the partnership. Any transaction considered a disposition would occur where the POD for the consolidated units is equal to their cost resulting in no gain or loss.

XXXXXXXXXX 						2005-011577

XXXXXXXXXX , 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above noted partnership.

We understand that, to the best of your knowledge, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayer or a related person,

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,

(iii) is under objection or appeal by the taxpayer or a related person,

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

(v) is the subject of a ruling previously issued by the Canada Revenue Agency.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

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

FACTS

1. The Partnership is a taxable Canadian partnership.

2. The Partnership was created to hold units of mutual fund limited partnerships. It was formed to provide flow through of cash distributions to holders of the Partnership's limited partners' units (the "Units").

3. The Units of the Partnership are publicly traded on the XXXXXXXXXX Stock Exchange (XXXXXXXXXX).

4. The Partnership's Filer Identification Number is XXXXXXXXXX.

5. The Partnership files its annual information return at the XXXXXXXXXX Tax Center and it deals with the XXXXXXXXXX tax services office.

6. The Partnership has a XXXXXXXXXX fiscal year-end. The Partnership's most recent fiscal year ended on XXXXXXXXXX.

7. As of the close of business on XXXXXXXXXX, there were XXXXXXXXXX Units issued and outstanding.

8. To the knowledge of the Partnership, no person owns more than XXXXXXXXXX% of the issued Units with the exception of one Unit holder that owns XXXXXXXXXX% of the issued Units. All Unit holders deal at arm's length with the Partnership.

9. The Partnership agreement provides that the general partnership may subdivide the outstanding number of Units into a greater number of Units or consolidate the number of Units into a lesser number of Units.

10. The General Partner is XXXXXXXXXX. Its business number is XXXXXXXXXX and its most recent taxation year ended on XXXXXXXXXX.

PROPOSED TRANSACTIONS

11. It is intended that there will be a consolidation of the Units on the basis of one post-consolidation Unit for every XXXXXXXXXX pre-consolidation Units, or such lesser consolidation XXXXXXXXXX.

12. The exercise price and the number of Units of the Partnership under any outstanding options will be proportionately adjusted upon the implementation of the Consolidation.

13. No fractional Units will be issued as a result of the Consolidation. If as a result of the proposed Consolidation a Unit holder becomes entitled to a fractional Unit, such fraction will be rounded up to the nearest whole number.

14. No changes in the attributes of the Units will be made other than to reduce the number issued.

15. The consolidation will be implemented on or before XXXXXXXXXX.

PURPOSE OF THE PROPOSED TRANSACTIONS

16. It is expected that the trading value of the Units will increase as a result of the Consolidation. In anticipation of the price increase the General Partner has determined that the Consolidation would be in the best interest of the Partnership and its Unit holders.

RULINGS

Provided that:

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions;

(b) the proposed transactions are completed in the manner described above; and

(c) there are no other transactions which may be relevant to the rulings requested;

our rulings are as follows:

A. The Consolidation will not give rise to a gain or loss under the Act for any Unit holder.

B. The cost amount to a Unit holder of the post-consolidation Units immediately after the Consolidation is effected will be equal to the aggregate cost amount to the Unit holder of the pre-consolidation Units immediately before the Consolidation is effected.

COMMENTS

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by the CRA on May 17, 2002, and are binding on the CRA provided that the proposed transactions are implemented on or before XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.

Yours truly,

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