2005 Ruling 2005-0124081R3 - Withholding Tax Exemption

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: Are the events of default which contain events that involve parties not subject to the Loan Agreement acceptable?

Position: YES

Reasons: All the events are linked to The Project and are material.

XXXXXXXXXX 						2005-012408

XXXXXXXXXX, 2005

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX, various e-mails and numerous telephone conversations wherein you requested an advance income tax ruling in respect of the above named corporations and partnership.

To the best of your knowledge and that of the taxpayers involved, none of the issues contained in this ruling request are:

(i) dealt with in an earlier return of the taxpayers or related persons;

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

(iii) under objection by the taxpayers or related persons;

(iv) subject to a ruling previously issued by the Income Tax Rulings Directorate; or

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.

DEFINITIONS

In this letter, the following terms have the meanings specified below:

(a) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended to the date hereof. All statutory references in this letter are to the Act, unless stated otherwise;

(b) "Activity" means the XXXXXXXXXX;

(c) "Agent" means the administrative agent under the Loan Agreement;

(d) "Borrower" means the XXXXXXXXXX, a limited partnership established under the laws of Province #1, whose only limited partner is LP and whose general partner is GP;

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

(f) "Document" means the Project Documents and the Project Finance Documents;

(g) "Entity" means Her Majesty in right of XXXXXXXXXX;

(h) "Equity Contribution Agreement" means the agreement between the Borrower, LP, the GP and GP Grandparent pursuant to which GP Grandparent, LP and GP agree to commit $XXXXXXXXXX of equity or subordinated debt to the Borrower for investment in the Project;

(i) "Finance Documents" mean:

(i) the Loan Agreement;

(ii) the Intercreditor Agreement;

(iii) the Blocked Accounts Agreement;

(iv) documents granting security pursuant to the Loan Agreement;

(v) each notice of assignment and undertaking pursuant to the security documents;

(vi) the Fees Letters;

(vii) each Hedging Agreement;

(viii) the Equity Contribution Agreement;

(ix) the Syndication Letter; and

(x) any other document designated as such by the Agent and the Borrower;

(j) "GP" means XXXXXXXXXX, a Canadian resident corporation incorporated under the laws of Province #1, whose sole shareholder is GP Parent, and who is the sole general partner in the Borrower;

(k) "GP Parent" means XXXXXXXXXX, a Canadian resident corporation incorporated under the laws of Province #2 and whose sole shareholder is GP Grandparent;

(l) "GP Grandparent" means a limited partnership established under the laws of Province #2, all of the partners of which are Canadian resident corporations or pension funds;

(m) "Lenders" mean XXXXXXXXXX and any other lenders that subsequently acquire and/or make a Loan;

(n) "LP" means XXXXXXXXXX, a Canadian resident corporation incorporated under the laws of Province #1. LP is the sole limited partner in the Borrower and the sole shareholder of LP is GP Grandparent;

(o) "LP Parent" means XXXXXXXXXX, a Canadian resident corporation incorporated under the laws of Province #2. LP Parent is the sole shareholder of LP. GP Grandparent is the sole shareholder of LP Parent.

(p) "Loan" means an advance made pursuant to the terms of the Loan Agreement;

(q) "Loan Agreement" means the credit agreement to be entered into between the Borrower, the Lenders and others;

(r) "Main Agreement" means the agreement referred to in Paragraph 3;

(s) "Main Agreement Variables" mean timely completion of the Project, the availability of the Property for use, the actual usage of the Property, XXXXXXXXXX and employment and training of XXXXXXXXXX;

(t) "Major Project Party" means the Obligors and, for so long as they have material obligations outstanding under the Documents, Subcontractor A, Subcontractor B, the Subcontract A Guarantor, each Subcontractor B Guarantor and, for so long as they have obligations under the Equity Contribution Agreement, the GP Grandparent and the GP Grandparent's general partner and any other future project party designated by the Agent in consultation with the Borrower;

(u) "Material Adverse Effect" means an effect or likely effect which is or which would reasonably be expected to be material and adverse on:

(i) any of the operations, business, assets, properties, condition (financial or otherwise) or prospects of an Obligor; or

(ii) the ability of any Major Project Party or the Entity to perform, observe or comply with any of their respective payment or other obligations under the Finance Documents or their respective payment or other material obligations under the Documents (other than the Finance Documents); or

(iii) the legality or enforceability of any of the Finance Documents or the Main Agreement (or any rights or obligations thereunder) or any material rights or obligations under any other Document or the rights and remedies of the Security Trustee thereunder or any Security Document not providing perfected enforceable security over the rights or assets purported to be covered by the Security Documents or the priority of the security created or expressed to be created thereby; or

(iv) the validity, perfection or priority of any encumbrance in favour of the Security Trustee over any of the rights or assets of the Borrower;

(v) "Obligors" means the Borrower, the GP, the LP, and the GP Parent;

(w) "Paragraph" means a numbered paragraph in this advance income tax ruling;

(x) "Perform Main Agreement Work" means to design, modify, improve, upgrade, XXXXXXXXXX the Property;

(y) "Project" means the design, modification, improvement, upgrade, construction, XXXXXXXXXX of the Property pursuant to the Main Agreement, Subcontract A and Subcontract B;

(z) "Project Documents" mean the:

(i) Main Agreement;

(ii) Subcontract A;

(iii) Subcontract B;

(iv) Sub-Subcontract;

(v) Equity Contribution Agreement;

(vi) Subcontractor B Direct Agreement;

(vii) Subcontractor A Direct Agreement;

(viii) Interface Agreement;

(ix) Subcontractor A Contract Guarantee;

(x) Performance Securities (Performance Bonds);

(xi) Subcontractor B Contract Guarantee;

(xii) Limited Partnership Agreement and the Certificate of Limited Partnership which form the Borrower; and

(xiii) Certificate of Incorporation, Notice of Articles and the Articles of GP;

(aa) "Project Finance Document" means the Finance Documents, the Equity Funding Documents and the Subordinated Finance Documents;

(bb) "Property" means the XXXXXXXXXX, which is the subject of the Project;

(cc) "Proposed Transactions" means the transactions described in Paragraphs 9 to 31;

(dd) "Province #1" means the Province of XXXXXXXXXX;

(ee) "Province #2" means the Province of XXXXXXXXXX;

(ff) "Security Trustee" means XXXXXXXXXX as security trustee under the Finance Documents or any successor appointed under the Finance Documents;

(gg) "Subcontract A" means the agreement referred to in Paragraph 5;

(hh) "Subcontract A Work" means to design, modify, upgrade and construct the Property;

(ii) "Subcontract B" means the agreement referred to in Paragraph 5;

(jj) "Subcontract B Work" means to XXXXXXXXXX the Property;

(kk) "Subcontract A Guarantee" means the guarantee entered into by amongst others, the Subcontract A Guarantor, the Entity and the Borrower and referred to in Paragraph 10;

(ll) "Subcontract B Guarantee" means the guarantee entered into by amongst others, the Subcontract B Guarantor, the Entity and the Borrower and referred to in Paragraph 13;

(mm) "Subcontract A Guarantor" means XXXXXXXXXX;

(nn) "Subcontract B Guarantor" means XXXXXXXXXX;

(oo) "Subcontractor A" means XXXXXXXXXX;

(pp) "Subcontractor B" means XXXXXXXXXX;

(qq) "Subordinated Finance Documents" means the Equity Funding Documents and any other document under which indebtedness for borrowed money is made available to the Borrower, the GP, the GP Parent, or LP by the GP, the LP or the GP Grandparent;

(rr) "Sub-Subcontract" means that contract between the Sub-subcontractor and the Subcontractor wherein the Sub-subcontractor agrees to carry out Sub-subcontract Work for the Project for a fee to be paid to it by the Subcontractor;

(ss) "Sub-subcontract Work" means to carry out the design work for the Project; and

(tt) "Sub-subcontractor" means XXXXXXXXXX.

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

FACTS

1. The Entity desires to carry out a significant upgrade to the Property in time for the Activity.

2. The Borrower has been formed solely for the purposes of carrying out the Project and has no assets except those related to the Project.

3. The Entity entered into the Main Agreement with the Borrower wherein the Borrower agreed to Perform Main Agreement Work on the Property, all at the Borrower's cost, XXXXXXXXXX.

4. Pursuant to the Main Agreement, the Borrower must ensure that each of Subcontractor A and Subcontractor B (the "Subcontractors") perform their respective obligations under and observes all the terms of the Project Documents.

5. Pursuant to the Main Agreement, the Borrower is directly responsible, as the concessionaire, for all the obligations that are taken on by the Subcontractors pursuant to Subcontract A and Subcontract B. To the extent the Subcontractors cannot complete their obligations under Subcontract A and Subcontract B, the Borrower is responsible. Any failure by the Subcontractors to complete their obligations may result in direct increased costs to the Borrower. Under these contracts, the Entity has no responsibility for cost overruns. This responsibility lies with the Borrower and the Subcontractors by agreement between the Borrower and the Subcontractors. Since the Borrower is directly responsible under the Main Agreement for all obligations taken on by the Subcontractors, any failure or financial difficulty of the Subcontractors could result in a direct obligation of the Borrower which could affect the Borrower's ability to make the required payments under the Loan Agreement.

6. Pursuant to the Main Agreement, the Borrower is to receive periodic payments from the Entity, which payments are directly dependent upon the performance of its obligations under the Main Agreement, and thus the performance of the Subcontractors. The payments are generally linked to Main Agreement Variables.

7. The "annual affordability ceiling" or maximum annual payments are as follows:

Year ending XXXXXXXXXX 			Ceiling (nominal SM)

XXXXXXXXXX

8. Because the Borrower has entered into Subcontract A and Subcontract B to carry out its obligations pursuant to the Main Agreement, the occurrence of many of the events of default by the Borrower under the Main Agreement is within the control of the Subcontractors.

Upon the occurrence of an event of default under the Main Agreement, amongst other remedies, the Entity can, in certain cases, terminate the Main Agreement in full and can also claim against the Borrower for damages;

If the Entity terminates the Main Agreement in full, pursuant to an event of default, the Entity is required to pay compensation to the Borrower equal to an Adjusted Estimated Fair Value of the Project, or, if the Project is rebid, in accordance with the terms of the Main Agreement the Adjusted Highest Qualifying Bid Price, and the Borrower must, without further compensation, transfer all of its Assets to or at the direction of the Entity;

The Adjusted Highest Qualifying Bid Price is the price a "bidder" bids to take over the Project. If it is negative, the Borrower must pay the negative amount to the Entity at the date the Entity enters into a new Agreement with the Entity;

As many of the events of default are in control of the Subcontractors and other Major Project Parties, those parties being financially solvent and in full compliance with their obligations under the Project Documents is critical to:

(i) the financial success of the Project; and

(ii) the ability of the Borrower to pay the principal, interest and fees under the Loan Agreement;

PROPOSED TRANSACTIONS

Subcontracts

9. In order to carry out its obligations under the Main Agreement, the Borrower will enter into Subcontract A with Subcontractor A pursuant to which Subcontractor A will agree to perform Subcontract A Work for a fixed fee payable to it by the Borrower pursuant to Subcontract A.

10. In order to ensure that Subcontractor A fulfills its obligations under Subcontract A, a guarantee of Subcontractor A's obligations will be provided by the Subcontract A Guarantor in favour of the Borrower.

11. Subcontractor A will enter into the Sub-Subcontract with the Sub-Subcontractor pursuant to which Sub-Subcontractor will agree to perform Sub-Subcontract A Work.

12. In order to carry out its obligations under the Main Agreement in relation to operation and maintenance of the Property, the Borrower will enter into Subcontract B with Subcontractor B pursuant to which Subcontractor B will agree to perform Subcontract B Work for a fee payable to it by the Borrower under Subcontract B.

13. In order to ensure that Subcontractor B fulfills its obligations under Subcontract B, a guarantee of Subcontractor B's obligations will be provided by the Subcontract B Guarantors in favour of Borrower.

14. As there is some overlap in the obligations under Subcontract A and Subcontract B, the Borrower, Subcontractor A and Subcontractor B will enter into an Interface Agreement to clarify who is responsible for certain obligations.

Project Financing

15. Borrower does not have any of its own funds available to commit to the Project. In order to fund the Borrower's equity commitment to the Project of $XXXXXXXXXX, GP Grandparent, the Borrower, LP, LP Parent, and the GP will enter into the Equity Contribution Agreement wherein GP Grandparent will agree to make this equity available to Borrower, LP, LP Parent, and GP. Under the Equity Contribution Agreement, the GP Grandparent is permitted to make certain of the equity commitment by subordinated debt rather than equity.

16. In order to fund the balance of the Project needs, Borrower will borrow approximately $XXXXXXXXXX from the Lenders pursuant to the Loan Agreement and the Financing Documents.

17. The amount of revenue generated by the Borrower from the Project, the compliance by the Borrower with its obligations under the Main Agreement and Project Documents and the ability of the Borrower to repay the principal amount and interest are directly attributable to compliance by the Borrower, GP Grandparent and all Major Project Parties with the terms of their obligations under the respective Project Documents.

18. Beyond the equity contribution, the Borrower has no means to pay the Principal Amount or interest owing pursuant to the Loan Agreement except from revenue generated under the Main Agreement which is in large part dependent on the Entity, Subcontractor A, the Subcontract A Guarantor, Subcontractor B, and the Subcontract B Guarantor performing their obligations under the Project Documents.

19. Because financial stability is important to the Project, pursuant to the Main Agreement, numerous representations and warranties must be made by the Borrower including that there has been no material adverse change in the financial condition of XXXXXXXXXX, Subcontractor A or its subsidiaries, the Subcontractor B Guarantors, or the Borrower since certain specified dates. The Loan Agreement provides for a Canadian dollar term loan that will be advanced monthly over the course of the period of construction of the Project, expected to be completed by the end of XXXXXXXXXX. The Loan Agreement also requires that all of the equity funds referred to in Paragraph 15 will be committed to the Project before the Borrower draws funds under the Loan Agreement. Funding will be monthly during that availability period. Repayments will not commence until the availability period ends which is expected to be at the end of XXXXXXXXXX.

20. The obligations arising under the Loan Agreement will be secured by the security documents that create a security interest on the Main Agreement itself and other associated assets. There will be trust deeds granted by the Borrower as well as entities owning or controlling the Borrower, agreements with the Entity and similar agreements with each of Subcontractor A and Subcontractor B. There will also be security interests on the ownership interests of the LP and the GP and specific security interests on Project bank accounts and the like. Given the limited recourse nature of the financing (such that the Lender's ability to recover their loans will be limited to the Project assets themselves) the security is a fundamental aspect of the Loan Agreement.

21. In addition to the Loan Agreement the parties will enter into an Intercreditor Agreement which will deal with matters of payments from bank accounts, hedging strategy, distribution and proceeds on enforcement and the various reserve accounts which the Borrower will be required to maintain for debt service purposes and maintenance purposes.

Events of Default

22. The Main Agreement contains numerous events of default among them:

(a) the occurrence of an act of insolvency in respect of the Borrower;

(b) any change in control of the Borrower without the prior consent of the Entity;

(c) any sale, transfer or lease of the whole or part of the Borrower's undertaking, property or assets if the disposal might reasonably be expected to have a material adverse effect on the financial position of the Borrower or the performance of the Borrower's obligations under the Main Agreement;

(d) if the Borrower commits a breach of its obligations under the Main Agreement, fails to pursue completion of the Project diligently, abandons the Project, or ceases to maintain, operate and rehabilitate the Project in accordance with the terms of the Main Agreement;

(e) if the Borrower receives a total of XXXXXXXXXX or more Warning Notices in any rolling XXXXXXXXXX-year period. Warning Notice means either Availability Performance Deductions Warning Notice or a Default Warning Notice. An Availability Performance Deductions Warning Notice is a notice given by the Entity that states that in a XXXXXXXXXX -month rolling period, the Availability Performance Deductions under the Main Agreement have exceeded XXXXXXXXXX% of the Maximum Total Performance Payments for the period.

A Default Warning Notice may be given if at any time:

(A) Borrower has committed a material breach of its obligations under the Main Agreement which is not capable of remedy; or

(B) more than XXXXXXXXXX Default Notices have been given in the same XXXXXXXXXX-month period for the same or similar failures to perform; or

(C) the period set out in the Main Agreement to remedy a default has passed without the failure having been remedied.

(f) any representations or warranties being materially untrue or incorrect if such untruth or incorrectness will have or could reasonably be expected to have a material adverse effect on the performance by the Borrower of its obligations under the Main Agreement;

(g) any Project Document or the Main Agreement cease to constitute valid, binding and enforceable obligations of any of the parties thereto or is materially amended;

(h) failure to achieve the building of the works for the Project by the dates set out in the Main Agreement;

23. The following includes a summary of events of default in the Loan Agreement which involve persons who are parties to the Loan Agreement and which are in addition to the events of default involving Major Project Parties (described in paragraph 24 below):

(a) the Borrower fails to pay an amount due, unless the failure is due to an administrative error and is corrected within XXXXXXXXXX business days of its due date;

(b) the Borrower fails to (i) ensure that security in property granted to the Lenders ranks in priority to security granted to other persons, (ii) maintain proper insurance, (iii) comply with the terms of the hedging strategy, or (iv) deliver to the Lenders a quarterly report describing all litigation involving any Obligor;

(c) the Borrower permits (i) any encumbrance on any of its assets, rights or revenues unless such encumbrance arises by operation of law or is granted to suppliers and arises in the ordinary course of business, or unless such encumbrance is approved by the Lenders, or (ii) any indebtedness that is not permitted by the Finance Documents or Main Agreement or approved by the Lenders;

(d) the Borrower (i) makes any unauthorized loan or assignment or grants any unauthorized guarantee, or (ii) acquires another business unless it is authorized to do so;

(e) the Borrower engages in any unauthorized (i) redemption of partnership capital, (ii) debt repayment or (iii) partnership distributions, or alters any rights related to the partnership interests unless authorized to do so;

(f) the Borrower agrees to (i) a change in the timing or amount of any sum payable to the Borrower under the Main Agreement or the Project Documents, or (ii) a change in the specifications of the Project with the Entity, unless the change is approved by the Lenders;

(g) the Borrower holds a bank account not approved by the Agent which could affect the lockbox requirements under the Loan Agreement or Blocked Accounts Agreement;

(h) the Borrower fails to exercise its rights or discretions in the manner contemplated in the Main Agreement and set out in the Loan Agreement;

(i) a material default occurs under the Intercreditor Agreement, the Blocked Accounts Agreement or the Security Documents;

(j) the Borrower or the GP breaches any other warranty, representation, or covenant or fails to comply with any term relating to project budgets, forecasts, financial information and fails to remedy this breach or failure;

(k) the Borrower, Obligor, GP Grandparent, or LP Parent merges or consolidates with any person unless the Lenders approve of the merger or consolidation;

(l) any direct or indirect interest in the Borrower is sold to certain restricted persons as defined in Loan Agreement without the prior approval of the Agent.

24. The following includes a summary of events of default in the Loan Agreement where the events of default could occur as the result of actions of Major Project Parties that are not parties to the Loan Agreement:

(a) a Major Project Party does not comply with any provision of the Project Finance Documents and such failure to comply would have a Material Adverse Effect;

(b) a Major Project Party or LP Parent commits a breach of any of the obligations or undertakings expressed to be assumed by it under the Intercreditor Agreement or any trust deed and such breach is not remedied;

(c) any representation made or deemed to be made by a Major Project Party proves to be incorrect or misleading in any material respect, unless the circumstance giving rise to the misrepresentation is remedied within a specific timeframe;

(d) certain indebtedness of a Major Project Party is not paid when due, becomes due and payable or is cancelled or suspended as the result of an event of default;

(e) there is a suspension or threatened suspension of all or a substantial part of the operations or business of any Major Project Party and such event or circumstance has a Material Adverse Effect;

(f) there is a merger and consolidation of the GP Grandparent or acquisition by the GP Grandparent which is not approved by the Agent;

(g) there is an insolvency, expropriation or any other similar type of event in respect of a Major Project Party ;

(h) a Major Project Party or the Entity repudiates a Document or evidences an intention to repudiate a Document and the event has a Material Adverse Effect;

(i) any person seeks to determine its liability under a guarantee securing any Document;

(j) the terms of the Main Agreement or Loan Agreement are changed by virtue of any law, regulation or governmental authority;

(k) any Major Project Party, any of their respective assets is or becomes immune from any legal process in respect of obligations under the Project Documents or the Finance Documents, or if certain remedies against the Entity become unavailable;

(l) there is an expropriation applicable to a Major Project Party or the authority or control of any Major Project Party is wholly or partially displaced or curtailed and such event or circumstance has a Material Adverse Effect;

(m) any of the Documents is terminated, cancelled, rescinded or suspended, notice of the foregoing is served; or a party is in default of their obligations under a Document;

(n) any consent required in relation to the Project or any Document is suspended, cancelled, revoked, forfeited, surrendered or terminated or otherwise ceases to be in full force and effect to an extent or in a manner which has a Material Adverse Effect;

(o) there is litigation or similar proceedings in relation to the Documents or the transactions or against a Major Project Party or the Entity which would have a Material Adverse Effect;

(p) any Major Project Party (i) fails to pay indebtedness over a certain amount when it comes due, or (ii) permits indebtedness over a certain amount to become due and payable prior to maturity;

(q) the operations of any Major Project Party are suspended or threatened with a suspension;

(r) the GP Grandparent fails to make a payment contemplated by the Equity Contribution Agreement and such failure is not remedied by drawing on the letter of credit; and

(s) an issuer of a letter of credit fails to make a payment within XXXXXXXXXX business days of demand in respect of a letter of credit required to be provided by the GP Grandparent, or if such letter of credit ceases to be in full force and effect and is not remedied within XXXXXXXXXX business days.

Events of Default - Illegality

25. The Loan Agreement will also provide that an event of default will occur if at any time after the date of this Agreement an Unlawful Event occurs in any applicable jurisdiction or if the terms of' this Agreement or any agreement relating to it are changed by virtue of any Law or Governmental Authority.

26. An Unlawful Event means:

The occurrence after the date of the Loan Agreement of an event which:

(a) Resulting from the passing of any law or regulation and which prevents or could prevent a Lender from funding or maintaining its participation in any Loan or prevents a Lender from performing any of its obligations as contemplated by this Agreement, other than by reason of the Lender having changed the jurisdiction of its residence; or

(b) prevents or could prevent an Obligor or other Major Project Party from performing any of its obligations under the Main Agreement or the Finance Documents or any material obligation under the Documents; or

(c) renders or could render any Document or a material provision of any Document illegal or unenforceable against any person (other than the Lenders).

27. The terms of the Loan Agreement will provide that at all times it shall be lawful for a Lender to make or maintain any Loan or for a Lender to perform any of its obligations as contemplated by this Agreement, including the funding of its participation in any Loan and the sole remedy in respect of such breach or failure of this term shall be as set out in the Loan Agreement.

Offers to Repay

28. In the circumstances described in this Paragraph, the Borrower will be required to offer to repay the Loan. Failure of the Borrower to make an offer to repay the Loan in circumstances described in this Paragraph will be an event of default. The Borrower will be required to offer to repay the Loan if the Borrower receives:

(a) (i) any amount or compensation payable by the Entity to the Borrower

(a) on termination in whole or in part of the Main Agreement or

(b) in consideration for a reduction in the Availability Payment or Performance Incentive Payment or Vehicle Usage Payment or End of Term Payment under the Main Agreement or

(c) by way of End of Term Payment under the Main Agreement; or

(ii) the proceeds of any claim for damages or other compensation for loss of assets of the Borrower (including without limitation the Main Agreement and rights or interests under it) or arising in respect of a permanent diminution in the value of such assets, other than proceeds which are solely attributable to the temporary loss of revenue or income or required to repair or replace such assets; or

(iii) any amount payable to the Borrower for any variation, release or waiver of any its rights in respect of the Project which has the effect of diminishing the value of the Project or assets of the Borrower, other than such proceeds that are required to replace an asset or satisfy a liability to a third party in relation to which the claim arose; or

(iv) insurance proceeds derived from construction all risk insurance or material damage all risks insurance, except to the extent that the Borrower is obliged to use the same in reinstatement;

(v) compensation for any partial or total nationalization, expropriation, compulsory acquisition of any asset or right of the Borrower or the revocation of any approval, authorization, exemption, filing, license, order, permission, recording or registration in connection with the Project; or

(b) a notice of illegality from the Agent (in which case the offer to prepay is only applicable to a particular Lender that is directly affected by the illegality).

Assignments

29. The Loan Agreement includes provisions that allow a Lender to assign its Loans to a new Lender and for the assignee to assume the transferring Lenders obligations under the Loan Agreement. In this regard, the Loan Agreement will contain the following, or similar, wording:

"An Existing Lender may assign any participation it holds in any Loan hereunder ("Assignment") and transfer all its rights in respect thereto arising under this Agreement or otherwise to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the "New Lender"), provided that during the availability period the New Lender shall also contemporaneously assume all of the Existing Lender's obligations under this Agreement, including without limitation the obligation to fund any Available Commitments of the Existing Lender. No Assignment shall be or shall be deemed to be a discharge, rescission, extinguishment, novation or substitution of any Loan and any Loan so assumed shall continue to be the same obligation and not a new obligation."

Other Information

30. At all times, the partners of the Borrower will be corporations resident in Canada or partnerships, all the partners of which will be corporations resident in Canada.

31. At all times, the Borrower will deal at arm's length with the Lenders.

PURPOSE OF PROPOSED TRANSACTIONS

The purpose of the Proposed Transaction is to allow the Borrower to fund the construction of improvements to the Property and to operate the Project.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant warranties on page 1 of this advance income tax ruling, as well as all of the relevant facts, Proposed Transactions and purpose of the Proposed Transactions, and that the final agreements referred to in this letter are substantially the same as the documents provided to us, and provided further that the Proposed Transactions are completed in the manner described above, our rulings are as set forth below:

A. The requirements of the Borrower, pursuant to the Loan Agreement, to make an offer to repay the loans as described in paragraph 28 will not, in and by themselves, preclude the application of subparagraph 212(1)(b)(vii) of the Act to the interest paid by the Borrower to the Lenders, who for the purposes of the Act are non residents of Canada and deal at arm's length with the Borrower.

B. The Events of Default described in paragraphs 22, 23 and 24 and the Illegality provisions described in paragraphs 25, 26 and 27 will not, in and by themselves, preclude the application of subparagraph 212(1)(b)(vii) of the Act, to interest paid by the Borrower to the Lenders who for the purpose of the Act are non-residents of Canada and deal at arm's length with the Borrower.

C. The assignment or assumption of the Loan Agreement as described in paragraph 29 will not, in and by itself, cause a Loan which is assigned from one Lender to another Lender to be considered a new obligation for the purposes of subparagraph 212(1)(b)(vii) of the Act.

CAVEAT

The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 (the "Circular") issued by the CRA on May 17, 2002, and are binding provided that the Loan Agreement is entered into on or before XXXXXXXXXX.

This ruling is based on the Act in its present form and do not take into account the effect of any proposed amendments to the Act.

Nothing in this letter should be construed as implying that the CRA has agreed to or accepted:

(i) the GST implications of any of the proposed transactions;

(ii) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch