2005 Ruling 2005-0124151R3 - Trust Variation - Redemption Rights

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 variation of a trust to provide for redemption rights would result: (i) in a disposition by the existing unit holders of their units; (ii) in a disposition by the trust of its assets or in a resettlement of the trust; (iii) in the trust qualifying as a "unit trust" under paragraph 108(2)(a) of the Act immediately; (iv) in the trust qualifying as a "mutual fund trust" within the meaning of subsection 132(6) of the Act; and (v) in the trust continuing to qualify as a "registered investment" under paragraph 204.4(2)(c) of the Act so that the units of the trust will not constitute "foreign property" within the meaning of subsection 206(1) of the Act. We are also asked to rule that: (vi) GAAR will not apply as a result of the proposed transactions.

Position: (i) and (ii) No; and (iii) to (vi) Yes.

Reasons: Previous rulings

XXXXXXXXXX 								2005-012415

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX, in which you request an Advance Income Tax Ruling on behalf of the above named taxpayer. We also acknowledge the information provided in subsequent correspondence in connection with your request.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in this Ruling request:

(i) is in an earlier return of the taxpayers or a related person;

(ii) is being considered by a Tax Services Office or Taxation Center in connection with a previously filed tax return of the taxpayers or a related person;

(iii) is under objection by the taxpayers 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; or

(v) is the subject of a Ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), 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.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.

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

Definitions

The following definitions apply in respect of this Ruling request:

"Acquisitionco" means XXXXXXXXXX, a corporation formed under the laws of the Province XXXXXXXXXX;

"arm's length" has the meaning assigned by subsection 251(1) of the Act;

"Beneficiary Corp." means XXXXXXXXXX, a corporation formed under the laws of the Province of XXXXXXXXXX ;

"Board of Trustees" of the REIT means the group of trustees, which, in accordance with the provisions of the REIT Declaration of Trust, shall be no fewer than XXXXXXXXXX and not more than XXXXXXXXXX trustees;

"Class A LP Unit" means the interest of a limited partner in the XXXXXXXXXX LP's capital, designated as a Class A LP Unit, and issued as such pursuant to the terms of the XXXXXXXXXX LP agreement. The Class A LP Units will be entitled to all of the income and distributions of XXXXXXXXXX LP other than the income and distributions to which the Class B LP unitholders and the GP unitholder will be entitled;

"Class B LP Unit" means the interest of a limited partner in the XXXXXXXXXX LP's capital, designated as a Class B Limited Participation LP Unit, and issued as such pursuant to the terms of the XXXXXXXXXX LP agreement. The Class B LP Units are exchangeable at the option of the holder on a one-for-one basis for one REIT Unit and are entitled to cash distributions equivalent to the cash distribution paid on each REIT Unit. The Class B LP unitholders will be allocated the following amounts of income for tax purposes:

(i) XXXXXXXXXX% of the income earned by XXXXXXXXXX LP on the REIT Units held by it; and

(ii) XXXXXXXXXX% of the income earned by XXXXXXXXXX LP on the income producing real properties, less the income allocated to the GP;

"closed-ended unit trust" means a trust that qualifies as a unit trust under paragraph 108(2)(b) of the Act;

"closing market price" means an amount equal to: (i) the closing price of the REIT Units if there was a trade on the date and the exchange or market provides a closing price; (ii) the average of the highest and lowest prices of REIT Units if there was trading and the exchange or other market provides only the highest and lowest trading prices of REIT Units traded on a particular day; and (iii) the average of the last bid and last ask prices of the REIT Units if there was no trading on that date;

"deferred income plans" means any of RRSPs, RESPs, RRIFs or DPSPs;

"Distributable Cash" as currently defined in the REIT Declaration of Trust means, generally, the income of the REIT determined in accordance with the provisions of the Act, adjusted and calculated as follows:

(i) capital gains and capital losses shall be excluded;

(ii) net recapture income shall be excluded;

(iii) no deduction shall be made for capital cost allowance, terminal losses, amortization of cumulative eligible capital or amortization of costs of issuing REIT Units; and

(iv) leasing costs including leasehold improvements, tenant improvements, tenant inducements and leasing commissions will either be amortized or capitalized to the cost of the related building, as determined by the REIT Trustees; and to reflect any other adjustments determined by the REIT Trustees in their discretion and Distributable Cash may be estimated whenever the actual amount has not been finally determined, which estimate shall be adjusted at the subsequent distribution date when the amount of Distributable Cash has been finally determined;

"DPSP" means deferred profit sharing plan as defined in subsection 147(1) of the Act;

"foreign property" has the meaning assigned by subsection 206(1) of the Act and section 5000 of the Regulations;

"GAAP" means the Generally Accepted Accounting Principles;

"GP Interest" means the interest of the general partner in the XXXXXXXXXX LP's capital, designated as a XXXXXXXXXX% general partnership interest, and issued as such pursuant to the terms of the XXXXXXXXXX LP agreement. The general partner is entitled to XXXXXXXXXX % of the income of XXXXXXXXXX LP, not to exceed XXXXXXXXXX per annum;

"GP Trust" means XXXXXXXXXX, an inter-vivos personal trust formed under the laws of the Province of XXXXXXXXXX, which acts as the general partner of XXXXXXXXXX LP;

"XXXXXXXXXX LP" means XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX between GP Trust and Sub Trust for the purpose of acquiring an interest in certain income producing real properties on XXXXXXXXXX;

"Management" means XXXXXXXXXX , a corporation formed under the laws of the Province of XXXXXXXXXX;

"market price" means an amount equal to the weighted average of the trading prices of the REIT Units for each of the trading days on which there was a trade of REIT Units during the specified 10-trading day period commencing immediately prior to the Redemption Date; provided that if there was trading on the applicable exchange or market for fewer than five of the 10 trading days, the "market price" shall be the simple average of the following prices established for each of the 10 trading days: (i) for each day on which there was no trading, the average of the last bid and ask prices; and (ii) for each day that there was trading, the weighted average trading prices of the REIT Units;

"Monthly Limit" means $XXXXXXXXXX less the total of any cash payments, if any, payable by the REIT in respect of REIT Units tendered for redemption prior thereto in the same calendar month and whose redemption price is paid by way of a in specie distribution;

"mutual fund trust" has the meaning assigned by subsection 132(6) of the Act;

"open-ended unit trust" means a trust that qualifies as a unit trust under paragraph 108(2)(a) of the Act;

"Permitted Investments" means any combination of property described in subparagraph 108(2)(b)(iii), clauses (A) through (G), of the Act;

"personal trust" has the meaning assigned in subsection 248(1) of the Act;

"proceeds of disposition" has the meaning assigned by section 54 of the Act;

"Proposed Transactions" means the transactions contemplated herein in paragraphs 30 to 39;

"qualified investment" has the meaning assigned by subsection 146(1) of the Act in respect of an RRSP, by subsection 146.1(1) of the Act in respect of an RESP, by subsection 146.3(1) of the Act in respect of an RRIF, or by section 204 of the Act in respect of an DPSP, as the case may be;

"Redemption Date" means the date on which REIT Units are tendered to the REIT for redemption;

"Redemption Funding Agreement" means the agreement to be entered into between the REIT and Sub Trust providing Sub Trust with significant assets to satisfy Series 2 Notes and Series 3 Notes to be issued by Sub Trust;

"Redemption Price" means, with respect to REIT Units tendered to the REIT for redemption, an amount equal to the lesser of: (i) 90% of the "market price" of the REIT Units on the principal market on which the REIT Units are listed or quoted for trading during the 10-trading day period commencing immediately prior to the Redemption Date; and (ii) 100% of the "closing market price" on the principal market on which the REIT Units are listed or quoted for trading, on the Redemption Date;

"registered investment" has the meaning assigned by subsection 204.4(1) of the Act;

"Regulations" means the Income Tax Regulations (Canada);

"REIT" means the XXXXXXXXXX Real Estate Investment Trust, a closed-ended unit trust which qualifies as a mutual fund trust, and which was established under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX;

"REIT Declaration of Trust" means the XXXXXXXXXX dated XXXXXXXXXX by the Trustees to hold in trust all property of the REIT, real, personal or otherwise, tangible or intangible and all income, profits and gains therefrom for the benefit of REIT Unitholders;

"REIT Trustees" means the individuals that act as trustees of the REIT in accordance with and subject to the provisions of the REIT Declaration of Trust, and which as of the date hereof consist of XXXXXXXXXX Canadian resident individuals;

"REIT Unit" means a unit of the REIT, each such unit representing an equal undivided beneficial interest in the REIT;

"related persons" has the meaning assigned by subsection 251(2) of the Act;

"resident" and "non-resident" of Canada mean resident and non-resident of Canada for purposes of the Act;

"RESP" means a registered education savings plan as defined in subsection 146.1(1) of the Act;

"Right of Redemption" means the right of redemption of a Unitholder to redeem units pursuant to and subject to the provisions of the amendments to be made to the REIT Declaration of Trust, as described in paragraphs 31 to 33 herein;

"XXXXXXXXXX" means XXXXXXXXXX, a corporation formed under the laws of the Province of XXXXXXXXXX;

"RRIF" means a registered retirement income fund as defined in subsection 146.3(1) of the Act;

"RRSP" means a registered retirement savings plan as defined in subsection 146(1) of the Act;

"Series 1 Note" means the interest bearing unsecured subordinated demand note, series 1, of Sub Trust issued to the REIT;

"Series 2 Notes" means the interest bearing unsecured subordinated notes, series 2, of Sub Trust issuable pursuant to the Sub Trust Note Indenture;

"Series 3 Notes" means the interest bearing unsecured subordinated notes, series 3, of Sub Trust issuable pursuant to the Sub Trust Note Indenture;

"Series 4 Notes" means the interest bearing unsecured subordinated notes, series 4, of Sub Trust issuable pursuant to the Sub Trust Note Indenture;

"Sub Trust" means XXXXXXXXXX, an open-ended unit trust established under the laws of the Province of XXXXXXXXXX;

"Sub Trust Declaration of Trust" means the XXXXXXXXXX Declaration of Trust made by the Sub Trust Trustees to hold in trust any and all property of Sub Trust, and any income and gains therefrom, for the benefit of Sub Trust Unitholders;

"Sub Trust Note Indenture" means the trust indenture to be entered into between Sub Trust and XXXXXXXXXX providing for the issuance of the Sub Trust Notes;

"Sub Trust Notes" means the Series 1 Note, Series 2 Notes, Series 3 Notes and Series 4 Notes collectively;

"Sub Trust Trustees" mean XXXXXXXXXX Canadian resident individuals who act as trustees of the Sub Trust in accordance with and subject to the provisions of the Sub Trust Declaration of Trust;

"Sub Trust Unit" means a unit of Sub Trust, each such unit representing an equal undivided beneficial interest therein;

"Sub Trust Unitholder" means a holder of Sub Trust Units;

"taxation year" has the meaning assigned by subsection 249(1) of the Act;

"Trustee Corp." means XXXXXXXXXX, a corporation formed under the laws of the Province of XXXXXXXXXX;

"XXXXXXXXXX GP" means XXXXXXXXXX, a corporation formed under the laws of the Province of XXXXXXXXXX;

"XXXXXXXXXX LP Inc" means XXXXXXXXXX, a corporation formed under the laws of the Province of XXXXXXXXXX;

"XXXXXXXXXX Portfolio LP" means XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX between XXXXXXXXXX GP, XXXXXXXXXX LP Inc. and XXXXXXXXXX corporations dealing at arm's length for the purpose of acquiring an income-producing property located in XXXXXXXXXX, Canada;

XXXXXXXXXX;

"US Holdco" means XXXXXXXXXX , a corporation formed under the laws of the State of XXXXXXXXXX;

"US LLC" means one of the XXXXXXXXXX U.S. limited liability corporations owned by US Holdco;

"US LP" means one of the XXXXXXXXXX U.S. limited partnerships owned by US Holdco;

"unit trust" has the meaning assigned by subsection 108(2) of the Act; and

"Unitholder" means a holder of REIT Units.

Facts

1. The REIT is a closed-ended unit trust that qualifies as a mutual fund trust. REIT Units are listed for trading on the XXXXXXXXXX, are qualified investments for deferred income plans under section 4900 of the Regulations, and are not foreign property. The REIT has a single class of units and has a XXXXXXXXXX year-end.

2. REIT Units are widely held by the public, and to the knowledge of the REIT Trustees there is no direct or indirect beneficial owner of, nor any person who exercises control or direction over, REIT Units carrying more than XXXXXXXXXX% of the votes and value of outstanding REIT Units (XXXXXXXXXX REIT Units were issued and outstanding as of XXXXXXXXXX). As more fully described in paragraph 23 hereof, XXXXXXXXXX LP owns XXXXXXXXXX REIT Units.

3. The REIT is governed by a Board of Trustees consisting of XXXXXXXXXX individuals who are residents of Canada, which hold the property of the REIT and conduct and manage the affairs of the REIT in accordance with and subject to the terms of the REIT Declaration of Trust.

4. In accordance with the relevant terms of the REIT Declaration of Trust and paragraphs 108(2)(b) and 132(6)(b) and subsection 132(7) of the Act, the REIT qualifies as a mutual fund trust and, specifically, the REIT: (1) limits its undertaking to the investing of its funds in property, and to acquiring, holding, maintaining, improving, leasing and managing real property and interests in real property that is capital property; (2) invests more than XXXXXXXXXX % of its property in Permitted Investments; (3) earns more than XXXXXXXXXX% of its income - computed without regard to subsection 104(6) of the Act - from Permitted Investments; (4) does not invest any more than XXXXXXXXXX% of its property in any combination of bonds, securities or shares in the capital stock of any one corporation or debtor; and (5) is not maintained primarily for the benefit of non-resident persons, and non-residents of Canada are collectively beneficial owners of less than XXXXXXXXXX% of the REIT Units.

5. In accordance with subsection 206(2) of the Act and the relevant provisions of the REIT Declaration of Trust, the REIT invests not more than XXXXXXXXXX% of its property in foreign property.

6. The REIT qualifies and is registered as a registered investment for deferred income plans pursuant to paragraph 204.4(1)(c) of the Act.

7. Pursuant to the terms of the REIT Declaration of Trust, the REIT is required to distribute to Unitholders quarterly, or at the discretion of the REIT Trustees, monthly, and the Unitholders have the right to receive, on each distribution date, not less than XXXXXXXXXX% of the Distributable Cash of the REIT for the preceding calendar quarter or month, as the case may be, and, in the case of distributions made on XXXXXXXXXX, the calendar quarter or month then ended. The REIT Trustees have determined that the distribution will be made monthly.

8. The REIT is the XXXXXXXXXX. The REIT, directly and indirectly, owns XXXXXXXXXX income-producing properties.

9. With the exception of XXXXXXXXXX, all directly and indirectly owned properties of the REIT are managed by Management.

10. The REIT directly owns interests in XXXXXXXXXX income-producing real properties, which are all located in Canada. XXXXXXXXXX properties are co-owned properties.

11. The REIT commenced its operations on XXXXXXXXXX with the completion of its initial public offering of REIT Units. Contemporaneously with the completion of its initial public offering, the REIT acquired an interest in certain properties. Pursuant to the purchase agreement, the REIT had the right to acquire the remaining interest in these properties in exchange for REIT Units. As more fully described in paragraphs 15 to 23 hereof, the REIT indirectly exercised that right, through XXXXXXXXXX LP, to acquire the remaining interest in these properties on XXXXXXXXXX.

12. On XXXXXXXXXX, XXXXXXXXXX GP and XXXXXXXXXX LP Inc. were incorporated. All the shares of XXXXXXXXXX GP and XXXXXXXXXX LP Inc. are owned by the REIT.

13. On XXXXXXXXXX, XXXXXXXXXX Portfolio LP was created with one class of limited partnership units and one class of general partnership units. XXXXXXXXXX GP owns a XXXXXXXXXX % general partnership interest and XXXXXXXXXX LP Inc. owns a XXXXXXXXXX% limited partnership interest. The remaining interests in XXXXXXXXXX Portfolio LP are indirectly owned by a third party dealing at arm's length with the REIT.

14. On XXXXXXXXXX, XXXXXXXXXX Portfolio LP acquired an income producing real property located in XXXXXXXXXX, Canada.

15. On XXXXXXXXXX, Beneficiary Corp. and Trustee Corp. were incorporated. All the shares of Trustee Corp. are owned by the REIT and all the shares of Beneficiary Corp. are owned by Sub Trust.

16. On XXXXXXXXXX, Sub Trust was created by the Sub Trust Declaration of Trust, with the REIT subscribing for XXXXXXXXXX units at an aggregate subscription price of $XXXXXXXXXX.

17. Sub Trust is governed by a board of trustees consisting of XXXXXXXXXX individuals who are residents of Canada, which hold Sub Trust property and conduct and manage the affairs of Sub Trust in accordance with and subject to the terms of the Sub Trust Declaration of Trust.

18. On XXXXXXXXXX, GP Trust was settled by the Sub Trust Trustees for the sole benefit of Beneficiary Corp. The sole trustee of GP Trust is Trustee Corp. The initial settled capital was $XXXXXXXXXX in Canadian currency.

19. On XXXXXXXXXX, XXXXXXXXXX LP was created with two classes of limited partnership units, Class A LP Units and Class B LP Units, and a GP Interest.

20. On XXXXXXXXXX, the REIT contributed to Sub Trust $XXXXXXXXXX by way of investment in Sub Trust Units and $XXXXXXXXXX by way of investment in the Series 1 Trust Note. The Series 1 Trust Note issued to the REIT is payable on demand, will mature on the XXXXXXXXXX anniversary of the date of issuance and bears interest at the rate of XXXXXXXXXX% per annum.

21. On XXXXXXXXXX, Sub Trust used the funds received from REIT to subscribe for XXXXXXXXXX Class A LP Units for total consideration of $XXXXXXXXXX.

22. On XXXXXXXXXX, XXXXXXXXXX LP acquired an interest, from third parties, in XXXXXXXXXX income-producing properties all located in Canada. As consideration, XXXXXXXXXX LP received cash, assumed liabilities and issued XXXXXXXXXX Class B LP Units to the various vendors. The vendors and XXXXXXXXXX LP have filed an election under subsection 97(2) of the Act on or before XXXXXXXXXX in respect of these transfers.

23. On XXXXXXXXXX, XXXXXXXXXX LP used the funds received from the various vendors and from Sub Trust to subscribe for an aggregate of XXXXXXXXXX REIT Units at a price that was the current market price of a REIT Unit.

24. The REIT indirectly owns XXXXXXXXXX income-producing real properties located in the United States.

25. The properties located in the United States are indirectly owned by US Holdco, a wholly owned subsidiary of the REIT.

26. The majority of the properties located in the United States are each directly owned by a separate US LP of which US Holdco has a XXXXXXXXXX% limited partnership interest. The XXXXXXXXXX% general partnership interest of each US LP is owned by a separate US LLC incorporated under the laws of a state in the United States. Each US LLC is a wholly owned subsidiary of US Holdco.

27. The REIT provides interest-bearing debt and equity financing to US Holdco. At XXXXXXXXXX, US Holdco owed the REIT the principal amount of Cdn. $XXXXXXXXXX, bearing interest at XXXXXXXXXX% per annum.

28. The REIT is financing the development of XXXXXXXXXX income-producing real properties all located in Canada. In connection therewith, the REIT has been granted the option to acquire an equity interest in such properties upon completion of their development.

29. The REIT, through XXXXXXXXXX, a wholly owned subsidiary of Acquisitionco, which is a wholly-owned subsidiary of the REIT, owns a co-ownership interest in amounts receivable in respect of a disposition of certain real property. At XXXXXXXXXX, XXXXXXXXXX had no greater than $XXXXXXXXXX of assets, with a fair market value equal to their book value.

Proposed Transactions

30. The REIT has obtained approval for the Proposed Transactions at its annual general meeting of Unitholders, which was held on XXXXXXXXXX. The Proposed Transactions are expected to occur XXXXXXXXXX.

31. The REIT Declaration of Trust will be amended to include a Right of Redemption for the REIT Units, in order that the REIT qualifies as an open-ended unit trust under paragraph 108(2)(a) of the Act, rather than as a closed-ended unit trust under paragraph 108(2)(b). The voting rights, distribution rights, and all other rights attached to the REIT Units will not change as a result of this amendment.

32. Pursuant to the Right of Redemption, a Unitholder will be granted the right to require the REIT to redeem his or her REIT Units at any time on demand in consideration for the Redemption Price. The Redemption Price payable by the Trust in respect of any REIT Units surrendered for redemption during any calendar month shall be satisfied by way of a cash payment no later than the last day of the month following the month in which the Units were tendered for redemption, except that the entitlement of Unitholders to receive cash upon the redemption of their REIT Units is not applicable if:

(a) the total amount payable by the Trust in respect of such REIT Units and all other Units tendered for redemption prior thereto in the same calendar month exceeds the Monthly Limit; provided that the REIT Trustees may, in their sole discretion, waive such limitation in respect of all REIT Units tendered for redemption in any calendar month;

(b) at the time the REIT Units are tendered for redemption, the outstanding REIT Units are not listed for trading or quoted on any stock exchange or market which the REIT Trustees consider, in their sole discretion, provides representative fair market value prices for the REIT Units; or

(c) the normal trading of the outstanding REIT Units is suspended or halted on any stock exchange on which the REIT Units are listed for trading or, if not so listed, on any market on which the REIT Units are quoted for trading, on the Redemption Date for such REIT Units or for more than five trading days during the 10-trading day period commencing immediately prior to the Redemption Date for such REIT Units.

33. If a Unitholder is not entitled to receive cash upon the redemption of REIT Units as a result of the foregoing limitations, the Redemption Price per REIT Unit to which the Unitholder is entitled shall be the fair market value thereof as determined by the REIT Trustees and, subject to any applicable regulatory approvals, shall be paid out and satisfied by way of a distribution in specie. In such circumstances, the REIT shall exercise its right to require the Sub Trust to redeem any combination or part of the Series 1 Note and Sub Trust Units of an aggregate principal amount and value, respectively, equal to the Redemption Price, in consideration for the issuance to the REIT of Series 3 Notes and Series 2 Notes, respectively, having an aggregate principal amount equal to the Redemption Price. The Series 3 Notes and Series 2 Notes will then be distributed in satisfaction of the Redemption Price. To the extent that there is an insufficient amount under the Series 1 Note or an insufficient number of Sub Trust Units, the REIT may, in the REIT Trustees' discretion, contribute further property to Sub Trust in exchange for Series 4 Notes and Sub Trust Units. The Series 4 Notes will then be distributed in satisfaction of the Redemption Price.

34. Where the REIT makes a distribution in specie on the redemption of REIT Units of a Unitholder, the REIT currently intends to allocate to that Unitholder any capital gain or income realized by the REIT on or in connection with such distribution.

35. It is anticipated that the Right of Redemption described above would not be the primary mechanism for Unitholders to dispose of their REIT Units. However, the addition of the Redemption Right will provide Unitholders with an additional means of realizing on their investment in the REIT, as further discussed under paragraph 41 herein. Sub Trust Notes which may be distributed in specie to Unitholders on redemption of REIT Units would not be listed on any stock exchange and no market would be expected to develop in such securities, and they may be subject to resale restrictions under applicable securities laws. Sub Trust Notes would generally not be qualified investments for deferred income plans.

36. The Sub Trust Declaration of Trust will be amended to include that upon tender of Sub Trust Units for redemption, the holder of Sub Trust Units tendered for redemption will no longer have any rights with respect to such Sub Trust Units other than the right to receive the redemption price for such Sub Trust Units. The redemption price for Sub Trust Units tendered for redemption will be equal to their fair market value and will be satisfied by way of cash and/or Series 2 Notes.

37. Sub Trust and XXXXXXXXXX will enter into the Sub Trust Note Indenture so as to allow Sub Trust to issue, in addition to the existing Series 1 Note, Series 2 Notes, Series 3 Notes and Series 4 Notes:

(a) Series 2 Notes will be reserved by Sub Trust to be issued exclusively to holders of Sub Trust Units as full or partial payment of the redemption price for Sub Trust Units, as the Sub Trust Trustees may decide or, in certain circumstances, be obliged to issue. Each Series 2 Note will mature on a date which is no later than the XXXXXXXXXX anniversary of the date of issuance thereof and will bear interest at the prime lending rate, as quoted by the major lender to the REIT, plus XXXXXXXXXX%, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 2 Note is outstanding;

(b) Series 3 Notes will be reserved by Sub Trust to be issued exclusively as full or partial payment of the redemption price for the Series 1 Note or as consideration for property acquired from the REIT in the event of an in specie payment of the Redemption Price for REIT Units redeemed by a Unitholder. Each Series 3 Note will mature on a date to be set by the REIT Trustees, at the time the Series 3 Note is issued, which is not later than the XXXXXXXXXX anniversary of the date of issuance and will bear interest at the prime lending rate, as quoted by the major lender to the REIT, plus XXXXXXXXXX%, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 3 Note is outstanding;

(c) Series 4 Notes will be reserved by Sub Trust to be issued exclusively as consideration for cash and other assets to be transferred by the REIT to Sub Trust pursuant to the Redemption Funding Agreement in the event of an in specie payment of the Redemption Price for REIT Units redeemed by a Unitholder. Each Series 4 Note will mature on a date to be set by the REIT Trustees, at the time the Series 4 Note is issued, which is not later than the XXXXXXXXXX anniversary of the date of issuance and will bear interest at the prime lending rate, as quoted by the major lender to the REIT, plus XXXXXXXXXX%, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 4 Note is outstanding;

(d) The Sub Trust Notes will be redeemable at any time at the option of Sub Trust prior to maturity;

(e) Under the terms of the Sub Trust Note Indenture, principal and interest on the Sub Trust Notes will be subordinated to the prior payment in full of the principal and accrued interest on, and all other amounts owing in respect of, all senior indebtedness, which will include all indebtedness, liabilities and obligations of Sub Trust which, by the terms of the instrument creating or evidencing the same, will be expressed to rank in priority to the indebtedness evidenced by the Sub Trust Note Indenture; and

(f) The Sub Trust Notes will not be convertible into or exchangeable for, or provide a holder with, any right to acquire property that is foreign property.

38. The REIT and Sub Trust will enter into the Redemption Funding Agreement under which the REIT will provide Sub Trust with sufficient cash or other assets or a combination of cash and such other assets to support the principal amount of Series 4 Notes to be issued in connection with the in specie redemption of REIT Units.

Purposes of the Proposed Transactions

39. The purpose of the Proposed Transactions is to maximize Unitholder value and to increase the value of its income producing real properties, by providing a more flexible legal and operating structure. An open-ended unit trust is a preferable vehicle to a closed-ended unit trust as an open-ended unit trust is not subject to many of the restrictions and limitations imposed on closed-ended unit trusts. The change from closed-ended to open-ended status would allow the REIT to expand its current investment strategies by allowing it to invest more than XXXXXXXXXX% of its property in any one corporation or debtor. In addition, the REIT would no longer be required to restrict its investments to the Permitted Investments. These changes would allow the REIT to consider strategic investments in larger income producing properties that may exceed the REIT's current investment restrictions and to pursue other accretive business acquisitions.

40. The addition of the Redemption Right will also provide Unitholders with an additional means of realizing on their investment in the REIT. While it is expected that investors' primary source of liquidity for REIT Units will continue to be through their sale on the XXXXXXXXXX, under certain circumstances redemption may be a preferred alternative to public trading. For example, at times when REIT Units are thinly traded, redemption may be the preferred mechanism for Unitholders to realize on the true fair market value of their investment. As another example, Unitholders may prefer to redeem their REIT Units where the REIT Units trade consistently at a discount to the underlying net asset value of the REIT.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purposes of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our Rulings are as follows:

We confirm that

A. The variation of the REIT Declaration of Trust in order to provide for the Redemption Right will not, in and of itself, result in a disposition by the existing Unitholders of their REIT Units.

B. The variation of the REIT Declaration of Trust in order to provide for the Redemption Right will not, in and of itself, result in a disposition by the REIT of its property or in a resettlement of the REIT.

C. The REIT will qualify as an open-ended unit trust pursuant to paragraph 108(2)(a) of the Act at the time immediately after the variation of the REIT Declaration of Trust in order to provide for the Redemption Right.

D. Provided it complies with paragraphs 132(6)(b) and (c) of the Act, the REIT will qualify as a mutual fund trust within the meaning of subsection 132(6) of the Act at the time immediately after the variation of the REIT Declaration of Trust in order to provide for the Redemption Right.

E. Provided it complies with paragraphs 132(6)(b) and (c) of the Act, the REIT will continue to qualify as a registered investment for deferred income plans under paragraph 204.4(2)(c) of the Act at the time immediately after the variation of the REIT Declaration of Trust in order to provide for the Redemption Right, and, as a result, the REIT Units will not be considered to be foreign property within the meaning of subsection 206(1) of the Act.

F. Subsection 245(2) of the Act will not be applied to the Proposed Transactions, in and of themselves, to re-determine the tax consequences confirmed in Rulings A to E above.

Nothing in this Advance Income Tax Ruling should be construed as implying that we are ruling on any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the Rulings given above. More particularly, no Ruling is provided herein with respect to:

(i) Any amendment to the REIT Declaration of Trust other than those described in paragraphs 31 to 33 hereof;

(ii) The proposed transactions described in paragraphs 36 to 38 hereof; and

(iii) The application of subsections 97(2) and 245(2) of the Act to the transaction described in paragraph 22 hereof.

The Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the Canada Revenue Agency provided that the proposed transactions are completed XXXXXXXXXX.

Yours truly,

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