2005 Ruling 2005-0119891R3 - 132.2 - reorganization of a mutual fund 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.

The following document was issued prior to the September 19, 2005 announcement that the provision of advance income tax rulings on income trusts and other flow-through entities would be postponed while the Department of Finance consultations are underway and until the government announces what action it may take.

Principal Issues: Reorganization aimed at moving from a trust on corporation XXXXXXXXXX structure to a trust on partnership structure. Use of various rollover provisions in order to achieve that result. Resetting of the XXXXXXXXXX year end of the initial partnership to XXXXXXXXXX as a result of the trust becomming a partner (section 249.1). Use of a newly created partnership with a XXXXXXXXXX year end to preserve the initial XXXXXXXXXX year end for some corporate partners.

Position: In light of the July 18, 2005 proposed changes to 132.2, the use of that provision to achieve the proposed reorganization is acceptable in terms of policy. The XXXXXXXXXX year end of the new partnership will not be challenged.

Reasons: In light of the proposed amendments to 132.2 disclosed in the July 18, 2005 proposed measures, any phantom losses that might stem from the proposed transactions will be denied. The XXXXXXXXXX year end of the new partnership is only intended to preserve the income determination of the new partnership based on a XXXXXXXXXX fiscal period.

XXXXXXXXXX

XXXXXXXXXX, 2005

Dear Messrs:

Re: Advance Income Tax Ruling
XXXXXXXXXX
(XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)
XXXXXXXXXX (XXXXXXXXXX Tax Services Office)

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the taxpayer. We also acknowledge our telephone conversations 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 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, all monetary amounts are expressed in Canadian dollars unless otherwise indicated.

In this document, unless otherwise indicated, all statute references are to the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act") or to the Income Tax Regulations (the "Regulations").

DEFINITIONS

In this letter:

"Acquisition Co" means XXXXXXXXXX.;

"Amalco" means the corporation resulting from the amalgamation of Newco3 and Holdco, as described in Paragraph 31;

"Amalco Assets" means all of the assets beneficially owned by Amalco immediately following the transfer of the Holdco Partnership Interest XXXXXXXXXX to New LP described in Paragraph 34, XXXXXXXXXX;

"Asset Transfer" means the transfer of the Amalco Assets by Amalco to the Trust described in Paragraph 36;

"Asset Transfer Time" means the "transfer time" described in Paragraph 36;

"Bank Debt" means Holdco's bank debt described in Paragraph 6;

"Class A Shares" means the Class A preferred shares of Newco3 described in Paragraph 17(b) and, following the amalgamation described in Paragraph 31, the Class A preferred shares of Amalco;

"Class A Redemption Amount" means an amount equal to $XXXXXXXXXX per Class A Share plus an amount equal to all declared and unpaid dividends on the share to the date of redemption or retraction multiplied by the number of Class A Shares outstanding immediately prior to the time of redemption or retraction;

"Class A Subscription Proceeds" means the subscription proceeds of $XXXXXXXXXX per Class A Share as described in Paragraph 27;

"Class B Shares" means the Class B preferred shares of Newco3 described in Paragraph 17(c) and, following the amalgamation described in Paragraph 31, the Class B preferred shares of Amalco;

"Class B Redemption Amount" means an amount equal to the aggregate fair market value of the Holdco Shares and the Holdco Subordinated Debt at the moment when they are transferred to Newco3 as described in Paragraph 29 by the Trust in consideration for the issuance of XXXXXXXXXX Class B Shares plus all declared and unpaid dividends to the date of redemption or retraction;

"Common Shares" means the common shares of Newco3 described in Paragraph 18 (a) and, following the amalgamation described in Paragraph 31, the common shares of Amalco;

"Common Share Subscription Proceeds" means the aggregate subscription proceeds of $XXXXXXXXXX for the XXXXXXXXXX Common Shares issued to the Trust, as described in Paragraph 20;

"cost amount" has the meaning assigned by subsection 248(1);

"Court" means the XXXXXXXXXX;

"CRA" means the Canada Revenue Agency;

"Declaration of Trust" means the declaration of trust dated XXXXXXXXXX pursuant to which the Trust was formed as amended, XXXXXXXXXX;

XXXXXXXXXX

"Effective Date" means the date shown on the certificate of arrangement evidencing completion of the arrangement under section 192 of the Second Act;

"Effective Time" means the first moment in time on the Effective Date;

"Exchange XXXXXXXXXX " means the XXXXXXXXXX Stock Exchange;

XXXXXXXXXX

"fiscal period" has the meaning assigned by subsection 249.1(1);

"Holdco" means XXXXXXXXXX., a corporation subject to the Second Act. Holdco's principal office is located at XXXXXXXXXX;

"Holdco Partnership Interest" means a XXXXXXXXXX% interest in the Partnership (XXXXXXXXXX) held by Holdco as described in Paragraph 8 (a), and following the amalgamation described in Paragraph 31, the interest of Amalco in the Partnership;

"Holdco Shares" means common shares of Holdco and consists of XXXXXXXXXX common shares;

"Holdco Subordinated Debt" means the XXXXXXXXXX interest bearing subordinated promissory notes of Holdco held by the Trust, which have principal amounts of $XXXXXXXXXX, respectively. Those notes are due XXXXXXXXXX or such earlier or later date as the principal amount may become payable in accordance with the terms of the notes and the provisions of the related note indenture;

"Independent Director" means a director of Newco2 who:

XXXXXXXXXX

"Independent Trustee" means a Trustee who:

XXXXXXXXXX

"Minority Partner 1" of the Partnership means the XXXXXXXXXX Partnership as to a XXXXXXXXXX% interest (XXXXXXXXXX), a general partnership which was formed effective XXXXXXXXXX under the laws of XXXXXXXXXX. The partners of Minority Partner 1 are XXXXXXXXXX.

"Minority Partner 2" of the Partnership means XXXXXXXXXX Partnership as to a XXXXXXXXXX% interest. The partners of Minority Partner 2 are XXXXXXXXXX

"Minority Partners" means Minority Partner 1 and Minority Partner 2;

"New LP" means the XXXXXXXXXX described in Paragraph 17. New LP was formed under the XXXXXXXXXX by Holdco and Newco 2;

"New LP Interest" means the aggregate limited partnership interest of Amalco in New LP described in Paragraph 17;

"Newco1" means the company described in Paragraph 15. Newco1 is a XXXXXXXXXX;

"Newco1 Interest" means the XXXXXXXXXX interest in Newco1 described in Paragraph 15;

"Newco2" means the corporation described in Paragraph 16. Newco2 is incorporated under the XXXXXXXXXX;

"Newco2 Shares" means the issued and outstanding common shares of Newco2;

"Newco3" means the corporation described in Paragraph 18. Newco3 is incorporated under the Second Act;

XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;

"Partnership" means the XXXXXXXXXX which is a general partnership existing under the laws of XXXXXXXXXX. Minority Partner 1 is the managing partner of the Partnership. XXXXXXXXXX;

"Partnership Agreement" means the partnership agreement of the Partnership dated as of XXXXXXXXXX, as amended;

"Partnership Assets" include XXXXXXXXXX;

"Partnership Line of Credit" means the $XXXXXXXXXX line of credit which the Partnership uses from time to time:

(a) to pay for operating expenses and other obligations of the Partnership where it has insufficient cash;

(b) to make loans to its partners, as described in Paragraph 23;

(c) XXXXXXXXXX

(d) XXXXXXXXXX.

Any such debt arising from the line of credit is repaid out of cash from operations.

XXXXXXXXXX

"Plan of Arrangement" means the plan of arrangement in respect of the Reorganization which has been approved by XXXXXXXXXX% of the votes cast by Unitholders present or represented by proxy at a meeting held on XXXXXXXXXX called for this purpose, as the same may be amended in accordance with its terms. Final approval of the Plan of Arrangement must be received from the Court. The interim order of the Court received on XXXXXXXXXX provided Unitholders with a right of dissent in connection with the Reorganization. XXXXXXXXXX;

XXXXXXXXXX;

"Purchased Co" means XXXXXXXXXX.

"Reorganization" means the reorganization transactions contemplated in paragraphs 25 to 42 hereafter;

"Resident" means a person who is resident of Canada for the purposes of the Act;

"Second Act" means the XXXXXXXXXX, as amended to the date hereof;

"Special Unit" means a Unit representing a beneficial ownership interest in the Trust which Unit enjoys the benefit of the subordination of the distribution entitlement of Unitholders as described in Paragraph 36;

"Subco" means XXXXXXXXXX., a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX;

"Subsidiary Shares" means the shares of XXXXXXXXXX, which are directly owned by Holdco and, following the amalgamation described in Paragraph 31, will be directly owned by Amalco;

"taxable Canadian corporation" has the meaning assigned by subsection 89(1);

XXXXXXXXXX;
XXXXXXXXXX;

"Trust" means XXXXXXXXXX, which was formed under the laws of XXXXXXXXXX pursuant to the Declaration of Trust. The principal office of the Trust is located at XXXXXXXXXX;

"Trustees" means all of the XXXXXXXXXX trustees of the Trust. The Trustees are all individuals and Residents;

"Unit" means a unit representing a beneficial ownership interest in the Trust. Units are listed and posted for trading on Exchange XXXXXXXXXX. As of the date of this letter, there are XXXXXXXXXX Units issued and outstanding;

"Unitholder" means a holder of one or more Units;

XXXXXXXXXX

XXXXXXXXXX.

FACTS

1. The Trust has a XXXXXXXXXX taxation year-end. It qualifies as a "unit trust" pursuant to paragraph 108(2)(a). The only undertakings of the Trust are a combination of the activities described in subparagraph 132(6)(b)(i) and (ii) and the Trust qualifies as a mutual fund trust within the meaning assigned by subsection 132(6). The Trust was not established primarily for the benefit of persons who are not Residents and has not been maintained primarily for the benefit of persons who are not Residents. XXXXXXXXXX.

2. The Trust holds all of the issued and outstanding Holdco Shares and the Holdco Subordinated Debt, and does not own any other assets of material value other than surplus cash. The Holdco Shares and the Holdco Subordinated Debt are capital property to the Trust for purposes of the Act. Following completion of the Reorganization, XXXXXXXXXX the Trustees are Independent Trustees.

3. Holdco is a taxable Canadian corporation and is a Resident. It has a XXXXXXXXXX taxation year-end.

4. XXXXXXXXXX

5. The issued and outstanding Holdco Shares have an aggregate adjusted cost base of $XXXXXXXXXX and their paid-up capital is an amount not greater than $XXXXXXXXXX.

The cost amount to the Trust of the Holdco Subordinated Debt is equal to both the principal amount of the notes and the amount for which the notes were issued.

6. Except for the Holdco Subordinated Debt, the only material debt of Holdco is approximately $XXXXXXXXXX which is owed to XXXXXXXXXX banks XXXXXXXXXX

7. XXXXXXXXXX.

8. The material assets of Holdco are as follows.

(a) The Holdco Partnership Interest (the fair market value of that interest represents more than XXXXXXXXXX% of the fair market value of all of Holdco's assets, its adjusted cost base was approximately $XXXXXXXXXX as of XXXXXXXXXX and its fair market value greatly exceeds its adjusted cost base).

XXXXXXXXXX

All of the property described in (a) to (i) is held by Holdco as capital property.

9. The Minority Partners own the remaining interest in the Partnership. XXXXXXXXXX

10. The Partnership owns the Partnership Assets.

11. XXXXXXXXXX.

12. The fiscal period of the Partnership ends on XXXXXXXXXX of each year.

13. The fiscal periods of Holdco, Minority Partner 2, its partners and of the partners of Minority Partner 1 end on XXXXXXXXXX.

Proposed transactions

Prior to the Reorganization described below, the following Pre-Reorganization Transactions have been undertaken.

Pre-Reorganization Transactions

14. The Declaration of Trust will provide that a majority of the Trustees be Independent Trustees. XXXXXXXXXX the Trustees are independent and the same number will be independent following the completion of the reorganization described in paragraphs 25 to 42.

15. Holdco formed Newco1 and contributed $XXXXXXXXXX to its capital in consideration for the Newco1 Interest.

16. Newco2 was incorporated. Following the incorporation of Newco2, Newco1 subscribed for XXXXXXXXXX Common Shares of Newco2 for a cash payment of $XXXXXXXXXX and acquired XXXXXXXXXX Common Share of Newco2 from the initial subscriber for $XXXXXXXXXX. XXXXXXXXXX. Trustees cannot form a majority of the directors of Newco2 and a majority of its directors must be Independent Directors. No director of Newco2 may be an employee of the Partnership following completion of the Reorganization. XXXXXXXXXX

17. New LP has been formed. The general partner is Newco2, as to a XXXXXXXXXX% general partnership interest, and the limited partner is Holdco, which owns the New LP Interest representing a XXXXXXXXXX partnership interest. Newco2 contributed $XXXXXXXXXX of capital to New LP and Holdco contributed $XXXXXXXXXX of capital to New LP. The fiscal period of New LP will end on XXXXXXXXXX of each year. XXXXXXXXXX

18. Newco3 was incorporated. The authorized capital of Newco3 consists of three classes of shares:

(a) The Common Shares will, subject to the Second Act:

(i) entitle the holder thereof to one vote in respect of each Common Share on all matters to be voted on at all meetings of shareholders;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco3, and to the exclusion of holders of Class A Shares or Class B Shares; and

(iii) on the liquidation, dissolution or winding-up of Newco3, subject to the rights of the holders of any other class of shares of Newco3 entitled to receive assets of Newco3 upon such a distribution in priority to or rateably with the holders of the Common Shares, entitle the holder thereof to share rateably in any remaining assets of Newco3.

(b) The Class A Shares will, subject to the Second Act:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco3, and to the exclusion of holders of Common Shares or Class B Shares;

(iii) be redeemable at the option of Newco3 without notice to the holders thereof for an amount equal to the Class A Redemption Amount, which may be paid in Units;

(iv) be retractable at the option of the holder upon not less than three business days prior written notice to Newco3 for a retraction amount equal to the Class A Redemption Amount, which may be paid in Units; and

(v) on the liquidation, dissolution or winding-up of Newco3, entitle the holder thereof to receive pari passu with the holders of Class B Shares the aggregate Class A Redemption Amount before any amount will be paid or any assets of Newco3 will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

(c) The Class B Shares will, subject to the Second Act:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco3, and to the exclusion of holders of Common Shares or Class A Shares;

(iii) be redeemable at the option of Newco3 without notice to the holders thereof for an amount equal to the Class B Redemption Amount, which may be paid in Units or Special Units;

(iv) be retractable at the option of the holder upon not less than three business days prior written notice to Newco3 for an amount equal to the Class B Redemption Amount which may be paid in Units or Special Units; and

(v) on the liquidation, dissolution or winding-up of Newco3, entitle the holder thereof to receive the aggregate Class B Redemption Amount pari passu with holders of the Class A Shares and before any amount will be paid or any assets of Newco3 will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

19. The charter documents of Newco3 provide that its only undertaking will be the activities described in paragraph 131(8)(b).

20. The Trust will subscribe for XXXXXXXXXX Common Shares for a cash payment of $XXXXXXXXXX.

21. The Class A Shares will be listed on Exchange XXXXXXXXXX. At all times following their issuance, the aggregate fair market value of the issued shares of Newco3 that are retractable in accordance with the provisions described in Paragraph 18(b)(iv) or 18(c)(iv) above will be at least XXXXXXXXXX% of the fair market value of all of the issued shares of Newco3.

22. In accordance with the terms of the relevant partnership agreement, the fiscal period of Minority Partner 1 will be set to end on XXXXXXXXXX of each year.

23. XXXXXXXXXX

24. XXXXXXXXXX

The Reorganization

25. XXXXXXXXXX
The transactions described below in Paragraphs 25 to 42 will be undertaken by way of the Plan of Arrangement which is conditional on the obtaining of the requested rulings. Each step described below will, except as otherwise noted, occur in the order described below.

26. All Unitholders, effective upon the first issuance of the Special Units at Paragraph 36, will be deemed to subordinate their entitlement to receive distributions from the Trust such that they will not receive any distributions from the Trust (other than the distributions to be undertaken pursuant to Paragraph 28) in respect of their Units until the earlier of:

(a) the date on which an aggregate amount has been paid to the holder of the Special Units in respect of such Special Units equal to the Class B Redemption Amount; or

(b) the time at which there are no Special Units issued and outstanding which shall occur following Paragraph 37.

27. The Trust will subscribe for that number of Class A Shares that is equal to the number of issued and outstanding Units held by Unitholders immediately prior to the Effective Time for a cash payment of $XXXXXXXXXX per Class A Share.

28. The Trust will undertake a return of capital in respect of the Units by:

(a) distributing to each Unitholder that number of Class A Shares equal to the number of Units held by the Unitholder as of the time immediately prior to the Effective Time;

XXXXXXXXXX

29. The Trust will transfer the Holdco Shares and the Holdco Subordinated Debt to Newco3 for an aggregate purchase price equal to the aggregate fair market value of the Holdco Shares and the Holdco Subordinated Debt so transferred. Newco3 will satisfy the purchase price by issuing to the Trust XXXXXXXXXX Class B Shares.

The Trust and Newco3 will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer of the Holdco Shares and the Holdco Subordinated Debt. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(c) and (c.1). As this election will be filed after the amalgamation described in Paragraph 31, the election will be filed by the Trust and by Amalco.

30. The stated capital account maintained by Holdco for the Holdco Shares will be reduced to $XXXXXXXXXX without any payment or other distribution of property by Holdco therefor.

31. Newco3 and Holdco will amalgamate to form one corporation (referred to herein as "Amalco") in such manner that:

(a) all of the property of Holdco and of Newco3 (other than the Holdco Shares and the Holdco Subordinated Debt) immediately before the amalgamation will become property of Amalco by virtue of the amalgamation;

(b) all of the liabilities of Newco3 and Holdco (except Holdco's liabilities in respect of the Holdco Subordinated Debt) immediately before the amalgamation will become liabilities of Amalco by virtue of the amalgamation;

(c) each common share of Newco3 will be converted into a common share of Amalco with the same terms and conditions;

(d) each Class A preferred share of Newco3 will be converted into a Class A preferred share of Amalco with the same terms and conditions;

(e) each Class B preferred share of Newco3 will be converted into a Class B preferred share of Amalco with the same terms and conditions;

(f) the Holdco Shares will be cancelled; and

(g) the Holdco Subordinated Debt will be cancelled.

32. The charter documents of Amalco will state that its only undertaking will be the activities described in paragraph 131(8)(b).

33. Amalco will make a cash contribution to the capital of Newco1, which will subscribe for additional common shares in the capital of Newco2. Newco2 will use the subscription proceeds to fund the cash contribution to New LP as described below in Paragraph 35.

34. Amalco will transfer to New LP as a contribution to the capital of New LP: the Holdco Partnership Interest, XXXXXXXXXX XXXXXXXXXX New LP will increase the capital account maintained by it for Amalco by the net fair market value of the contribution made pursuant to this Paragraph 33. Amalco, in its capacity as transferor, and Amalco and Newco2, as partners in New LP, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsection 96(4) or 96(5), with respect to the transfers described in this Paragraph 34. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

35. Concurrently with the transaction described in Paragraph 34, Newco2 will make a cash contribution to the capital of New LP in order to maintain the partnership interests of Amalco and Newco2 in New LP at XXXXXXXXXX% and XXXXXXXXXX%, respectively (no additional interests as a partner in New LP will be acquired by Amalco or Newco2 as a result of the transactions described in Paragraph 34 and this paragraph). New LP will increase the capital account maintained by it for Newco2 by the amount of this cash contribution.

36. At a moment that is the transfer time for the purposes of the definition of "qualifying exchange" in subsection 132.2(2), Amalco will transfer the Amalco Assets to the Trust. The transfer documentation will separate the transfer into two parts as follows.

(a) Amalco will transfer the New LP Interest to the Trust the consideration for which will be:

(i) that number of Special Units having an aggregate fair market value equal to the fair market value of the New LP Interest less the aggregate principal amount of the debt referred to in (ii) below; and

(ii) assumption by the Trust of the Bank Debt. XXXXXXXXXX.

(b) Amalco will transfer to the Trust the remaining Amalco Assets, excluding an amount of cash or liquid assets equal to less than 10% of the fair market value of the Amalco Assets which amount of cash or liquid assets will be held back as a reserve to pay unpaid liabilities of Holdco or of Amalco, including income tax liabilities (the amount may be loaned to the Trust, to New LP or to the Partnership following the Reorganization and repaid when necessary to pay such liabilities), the consideration for which will be:

(iii) that number of Units having an aggregate fair market value equal to the aggregate redemption amount of the Class A Shares (assuming that no Special Units are outstanding); and

(iv) that number of Special Units having an aggregate fair market value equal to the fair market value of the remaining Amalco Assets less the fair market value of the Units described in (i) above.

The Trust and Amalco will jointly file an election in prescribed form and within the prescribed time in respect of the transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2). No election will be filed in respect of the transfer pursuant to clause 132.2(1)(c)(ii)(B). One of the effects of the transfer of the New LP Interest to the Trust will be that the fiscal period of the Partnership will end on XXXXXXXXXX instead of XXXXXXXXXX. This is because of the application of subparagraph 249.1(1)(b)(ii): the Trust will be the "individual" referred to in clause 249.1(1)(b)(ii)(A).

37. Within 60 days after the Asset Transfer Time, Amalco will redeem all of the outstanding Class B Shares the consideration for which will be the Special Units acquired by Amalco in Paragraph 36. The Special Units will cease to exist when the taxpayer acquires them (or for greater certainty, when the taxpayer would but for that cessation have acquired them) and the subordination by the Unitholders in connection with their Units will terminate. The fair market value of the Special Units immediately prior to the redemption of the Class B Shares will equal the Class B Redemption Amount immediately prior to the redemption. Amalco will then redeem all the outstanding Class A Shares the consideration for which will be the Units acquired by Amalco in Paragraph 36. No other consideration will be received by the Trust or the Unitholders on the redemption of the Class B Shares and Class A Shares other than Special Units and Units, respectively.

38. The outstanding Units will be consolidated on a basis such that the number of Units outstanding following such consolidation will be equal to the number of Units outstanding at the Effective Time. No units will be cancelled or redeemed as a consequence of that consolidation and the Unitholders will not receive, and shall not be entitled to receive, any proceeds of disposition in respect thereof.

39. XXXXXXXXXX, the Trust will undertake a XXXXXXXXXX Unit subdivision whereby each outstanding Unit will be subdivided XXXXXXXXXX. The subdivision will not affect the beneficial interest of a Unitholder in the Trust except that that beneficial interest will be represented by XXXXXXXXXX Units immediately after the subdivision instead of one Unit XXXXXXXXXX . The Unitholders will not receive, and shall not be entitled to receive, any proceeds of disposition in respect thereof.

40. The Trust will make contributions to the common share capital of Amalco from time to time as may be necessary to allow Amalco to discharge any liabilities that become payable after the Reorganization that exceed the amount held in reserve as described in Paragraph 36. Any such payments, together with the reserve, are expected in aggregate to be less than 10% of the fair market value of the Amalco Assets at the time of the transfer described in Paragraph 36.

41. Amalco will not be dissolved but will continue to exist, at least until the later of:

(a) the last day on which the election under subsection 85(1) referred to above in Paragraph 29 can be filed pursuant to subsection 85(7);

(b) the last day on which the election under subsection 97(2) referred to above in Paragraph 34 can be filed pursuant to subsection 96(5); and

(c) the last day on which the election under paragraph 132.2(2)(c) referred to above in Paragraph 36 can be filed pursuant to that paragraph.

42. XXXXXXXXXX

43. XXXXXXXXXX.

44. Following the Reorganization, any debt arising under the Partnership Line of Credit will be entirely guaranteed by XXXXXXXXXX and by the Trust. XXXXXXXXXX No fees will be received by the Trust for guaranteeing the Partnership Line of Credit, nor by the Partnership for guaranteeing the Bank Debt.

PURPOSE OF THE PROPOSED TRANSACTIONS

The Trust and its predecessors have been consolidators within the XXXXXXXXXX industry and the Trust continues to evaluate possible additional expansion and acquisition opportunities from time to time. The Trust anticipates that it might offer Units as consideration in connection with future expansions and acquisitions or to pay down indebtedness thereby preserving its cash flow for distributions to Unitholders.

The Partnership is expected to generate significant profits through the operation of its XXXXXXXXXX. The current organizational structure of the Trust creates the potential for taxation at the Holdco level which would result in reduced cash flow for distributions to Unitholders. By reorganizing the current organizational structure of the property of the Trust so that the Trust will own an interest in New LP which will hold the interest of the Holdco group in the Partnership, the Trust believes it can avoid being at a competitive disadvantage when offering its Units for the purposes described in the paragraph above compared to units or securities of other entities that have been organized on a flow-through basis.

The purpose of New LP is to protect the Trust from the legal risks that arise from the commercial operation of the XXXXXXXXXX business.

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. Paragraph 87(2)(e.1) will apply as a result of the amalgamation described in Paragraph 31 such that Amalco will be considered to be the same corporation as and a continuation of Holdco for purposes of computing the adjusted cost base to Amalco of the Holdco Partnership Interest.

Subsection 87(2.1) will apply to deem Amalco to be the same corporation as, and a continuation of Holdco for the proposes only of determining Amalco's non-capital loss in computing Amalco's taxable income for any of its taxation years.

B. Provided that an election under subsection 97(2) is filed within the time provided in subsection 96(4) or subsection 96(5) in respect of the transfer of the Holdco Partnership Interest XXXXXXXXXX by Amalco to New LP, in the manner and as described in Paragraph 34, the rules in subsection 97(2) will apply to that transfer.

C. Provided that subsection 132(7) is not applicable to the Trust at the Asset Transfer Time, Amalco will, at the Asset Transfer Time, qualify as a mutual fund corporation within the meaning assigned by subsection 131(8) and subsection 131(8.1) will not apply to Amalco at that time.

D. Provided that:

(a) at the Asset Transfer Time Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Trust is a mutual fund trust within the meaning assigned by subsection 132(6);

(b) the property transferred under the Asset Transfer has a fair market value of at least 90% of the fair market value of all property owned by Amalco at the Asset Transfer Time; and

(c) Amalco and the Trust jointly elect under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) by filing the prescribed form within the time set forth in that subsection;

the Asset Transfer, as described in Paragraph 36, will constitute a "qualifying exchange" within the meaning of subsection 132.2(2) such that the rules in subsection 132.2(1) will apply to such transfer and to the transactions described in Paragraph 37.

For greater certainty:

(a) Amalco's proceeds of disposition of the New LP Interest and the Trust's cost in respect of the New LP Interest will be determined under paragraph 132.2(1)(c) to be the lesser of:

(i) the fair market value of the New LP Interest; and
(ii) the greatest of

A. the cost amount to Amalco of the New LP Interest, and
B. the amount owing under the Bank Debt at that time that will be assumed by the Trust;

(b) Amalco's proceeds of disposition of the Amalco Assets, other than the New LP Interest, and the Trust's cost thereof will be determined under paragraph 132.2(1)(c) to be the lesser of:

(i) the fair market value of the particular property; and
(ii) the cost amount to Amalco of the particular property;

(c) Amalco's aggregate cost of the Units and the Special Units received by it from the Trust as consideration for the disposition of the Amalco Assets will be deemed to be nil, pursuant to paragraph 132.2(1)(h);

(d) Amalco's aggregate proceeds of disposition of the Units and the Special Units distributed to the Trust pursuant to the redemption described in Paragraph 37 will be deemed to be nil, pursuant to paragraph 132.2(1)(i).

Amalco's aggregate proceeds of disposition of the Units distributed to Unitholders pursuant to the redemption described in Paragraph 37 will be deemed to be nil, pursuant to paragraph 132.2(1)(i);

(e) paragraph 132.2(1)(j) will apply on the redemption by Amalco of the Class A Shares held by Unitholders as described in Paragraph 37 such that the proceeds of disposition to a Unitholder of Class A Shares held by that Unitholder, and the cost to the Unitholder of Units received by the Unitholder on the redemption, will be deemed, pursuant to paragraph 132.2(1)(j), to be equal to the cost amount to the Unitholder of the Class A Shares immediately before the Asset Transfer Time;

(f) paragraph 132.2(1)(j) will apply on the redemption by Amalco of the Class B Shares held by the Trust in consideration for the distribution by Amalco to the Trust of Special Units as described in Paragraph 37 such that the proceeds of disposition to the Trust of the Class B Shares will be deemed, pursuant to paragraph 132.2(1)(j), to be their cost amount to the Trust immediately before the Asset Transfer Time and the Trust will therefore not realize or incur any income, gain or loss solely as a result of the redemption of the Class B Shares;

(g) paragraph 132.2(1)(f) will apply such that each property of the Trust and of Amalco owned immediately prior to the Asset Transfer Time, other than property transferred by Amalco to the Trust at the Asset Transfer Time, will be deemed to be disposed of and reacquired by the Trust and by Amalco, as the case may be, immediately prior to the Asset Transfer Time for an amount equal to the lesser of:

(i) the fair market value of the property, at the Asset Transfer Time, and
(ii) the cost amount of the property; and

(h) pursuant to subsection 131(4) and subparagraph 132.2(1)(o)(i), section 84 will not apply to deem a dividend to be paid by Amalco to the Trust or to any Unitholder, nor to deem the Trust or any Unitholder to have received a dividend on Class B Shares held by the Trust or Class A Shares held by the Unitholder.

Any losses that may be incurred by a taxpayer as a result of the application of section 132.2, including losses that may result from the cost of a property that is set by that section, will be denied if the taxpayer is subject to the application of paragraph 132.2(3)(g)(iv) introduced by clause 130 of the draft legislation released on July 18, 2005 as it will read when enacted.

E. The consolidation of the Units held by Unitholders as described in Paragraph 38 will not result in a disposition of the Units by Unitholders.

The division of the Units by way of a subdivision XXXXXXXXXX, will not result in a disposition of the Units by Unitholders.

F. The execution and filing by the Trust and Amalco of the election under subsection 85(1) referred to in Paragraph 29 will be regarded as having been filed by the Trust and Newco3.

G. The adoption by Minority Partner 1 of a fiscal period that ends on XXXXXXXXXX of each year will be respected for purposes of the Act.

H. Provided that the Trust has a legal obligation to pay interest on the Bank Debt referred to in paragraph 36 above, the Trust will be entitled, pursuant to subparagraph 20(1)(c)(ii), to deduct the lesser of (i) the interest paid or payable in respect of the year (depending on the method regularly followed by the Trust in computing its income for purposes of the Act) on the Bank Debt or (ii) a reasonable amount in respect thereof.

I. Subsection 40(3.1) will apply to deem the Trust to realize a gain from the disposition of its partnership interest in XXXXXXXXXX LP at the end of the fiscal period of XXXXXXXXXX LP, only if the amount determined by the formula A-B in subsection 40(3.11) is, at the end of that fiscal period, a positive amount.

J. The guarantee by the Trust of the Partnership Line of Credit of the Partnership, as described in Paragraph 44, will not, in and of itself, cause the Trust to be disqualified as a mutual fund trust within the meaning assigned by subsection 132(6).

K. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine any of the tax consequences confirmed in the Rulings granted herein.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, subject to the caveat in the post amble of Ruling D and opinion B below. Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed any tax consequences relating to the facts and proposed transactions described herein other than those described in the rulings given.

Paragraph 107(1)(e) and subsection 107(1.2) as proposed by clause 95(1) and 95(2) of the July 18, 2005 Draft Amendments, if enacted, will apply to Unitholders who hold Units on account of inventory.

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 provided that the proposed transactions described in 25 to 42 above are completed before XXXXXXXXXX.

As indicated in Information Circular 70-6R5, we do not rule on matters involving the determination of the fair market value of property, including the determination of the Class B Redemption Amount.

The rulings and opinions described in this document do not affect any other matters being considered by another area of the Canada Revenue Agency.

OPINIONS

A. Subsection 96(1.01), as proposed by the July 18, 2005 Draft Amendments, will, if enacted, apply as follows.

(a) Holdco's share of the income or loss of the Partnership, determined in accordance with the rules in subsection 96(1), for the fiscal period of the Partnership that ends on XXXXXXXXXX, which share will be determined in accordance with the Partnership Agreement, will, pursuant to proposed paragraph 96(1.01)(a), be included in computing the income of Amalco for its taxation year commencing with the amalgamation described in Paragraph 31.

(b) The adjusted cost base of the Holdco Partnership Interest held by Amalco immediately prior to the transfer of that partnership interest to New LP, as described in Paragraph 34, will be

(i) increased, pursuant to subparagraph 53(1)(e)(i) and at the point in time that is immediately before the transfer of the Holdco Partnership Interest, by Holdco's share of the income of the Partnership described in (a) above that is to be included in computing the income of Amalco, or

(ii) decreased, pursuant to subparagraph 53(2)(c)(i) and at the point in time that is immediately before the transfer of the Holdco Partnership Interest, by Holdco's share of the loss of the Partnership described in (a) above that is to be included in computing the income of Amalco.

B. Provided that:

(a) at the Asset Transfer Time Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Trust is a mutual fund trust within the meaning assigned by subsection 132(6);

(b) the property transferred under the Asset Transfer has a fair market value of at least 90% of the fair market value of all property owned by Amalco at the Asset Transfer Time; and

(c) Amalco and the Trust jointly elect under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(1), as that subsection is proposed to be amended by the July 18, 2005 Draft Amendments, by filing the prescribed form within the time set forth in that subsection, the Asset Transfer, as described in Paragraph 36, will constitute a "qualifying exchange" within the meaning of subsection 132.2(1), as that subsection is proposed to be amended by the July 18, 2005 Draft Amendments, such that the rules in subsection 132.2(3) and (4), as proposed to be amended by the July 18, 2005 Draft Amendments, will apply to such transfer and to the transactions described in Paragraph 37.

For greater certainty (references below are to the Act as proposed to be amended by the July 18, 2005 Draft Amendments):

(a) Amalco's proceeds of disposition of the New LP Interest and the Trust's cost in respect of the New LP Interest will be determined under paragraph 132.2(4)(b), to be the lesser of:

(i) the fair market value of the New LP Interest; and
(ii) the greatest of

A. the cost amount to Amalco of the New LP Interest, and
B. the principal amount owing under the Bank Debt at that time that will be assumed by the Trust;

(b) Amalco's proceeds of disposition of the Amalco Assets, other than the New LP Interest, and the Trust's cost thereof will be determined under paragraph 132.2(4)(b), to be the lesser of:

(i) the fair market value of the particular property; and
(ii) the cost amount to Amalco of the particular property;

(c) Amalco's aggregate cost of the Units and the Special Units received by it from the Trust as consideration for the disposition of the Amalco Assets will be deemed to be nil, pursuant to paragraph 132.2(3)(e);

(d) Amalco's aggregate proceeds of disposition of the Units distributed to Unitholders pursuant to the redemption described in Paragraph 37 will be deemed to be equal to the cost amount of the Units immediately before their transfer to the Trust, pursuant to paragraph 132.2(3)(f);

(e) Amalco's aggregate proceeds of disposition of the Special Units distributed to the Trust pursuant to the redemption described in Paragraph 37 will be deemed to be equal to the cost amount of the Special Units immediately before their transfer to the Trust, pursuant to paragraph 132.2(3)(f);

(f) subparagraph 132.2(3)(g)(i) will apply on the redemption by Amalco of the Class A Shares held by Unitholders as described in Paragraph 37 such that the proceeds of disposition to a Unitholder of Class A Shares held by that Unitholder, and the cost to the Unitholder of Units received by the Unitholder on the redemption, will be deemed to be equal to the cost amount to the Unitholder of the Class A Shares immediately before the Asset Transfer Time;

(g) paragraph 132.2(3)(g) will apply on the redemption by Amalco of the Class B Shares held by the Trust in consideration for the distribution by Amalco to the Trust of Special Units as described in Paragraph 37, such that:

(i) the proceeds of disposition to the Trust of the Class B Shares and the cost to the Trust of the Special Units will be deemed, pursuant to subparagraph 132.2(3)(g)(i), to be equal to the cost amount of the Class B Shares to the Trust immediately before the Asset Transfer Time, and the Trust will therefore not realize or incur any income, gain or loss solely as a result of the redemption of the Class B Shares;

(ii) the Special Units are deemed not to be identical to any other units of the Trust, pursuant to clause 132.2(3)(g)(iv)(A);

(iii) the Trust is deemed, pursuant to clause 132.2(3)(g)(iv)(B), to have acquired the Special Units when the Class B Shares have been redeemed and to have disposed of the Special Units immediately after that moment for proceeds of disposition equal to the cost amount of those Special Units to the Trust at that moment and the Trust will not realize of incur any income, gain or loss in respect of the Special Units;

(h) paragraph 132.2(3)(a), as proposed to be amended by the July 18, 2005 Draft Amendments, will apply such that each property of the Trust and of Amalco, owned immediately prior to the Asset Transfer Time, other than property transferred by Amalco to the Trust at the Asset Transfer Time, will be deemed to be disposed of and reacquired by the Trust and by Amalco, as the case may be, for an amount equal to the lesser of:

(i) the fair market value of the property, at the Asset Transfer Time, and

(ii) the cost amount to Amalco of the property; and

(i) pursuant to subparagraph 132.2(3)(l)(i), as proposed to be amended by the July 18, 2005 Draft Amendments, and subsection 131(4), section 84 will not apply to deem a dividend to be paid by Amalco to the Trust or to any Unitholder, nor to deem the Trust or any Unitholder to have received a dividend on Class B Shares held by the Trust or Class A Shares held by the Unitholder.

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