2006 Ruling 2005-0147681R3 - Transfer of CRP

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: 1. Whether the transfer of Canadian resource properties (CRP) to a recently acquired partnership prior to sale of the interests in that partnership may be considered abusive? 2. Will a partnership continue to exist after it sells its CRP and holds an interest-bearing promissory note for up to XXXXXXXXXX years then acquires new CRP?

Position: 1. GAAR will not apply to re-determine the tax consequences that would otherwise arise from the proposed transactions. 2. Yes

Reasons: 1. There is no identifiable scheme of the Act or jurisprudence that would clearly indicate that the proposed avoidance transactions are abusive. 2. Based on jurisprudence on partnerships indicated below, the low threshold of activity that is necessary in order for a partnership to be considered to be carrying on a business and the active business (i.e., income from oil and gas producing properties) that will be owned by the partnership before and after the holding the promissory note.

XXXXXXXXXX 							2005-014768

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above partnerships and taxpayers. We also acknowledge receipt of the information obtained from numerous electronic messages and telephone conversations (XXXXXXXXXX). We apologize for the delay in responding to your request.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues contained herein:

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

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

(iii) is under objection by the taxpayers or a related person;

(iv) is before the courts; and

(v) is the subject of a previous ruling issued by the Income Tax Rulings Directorate.

Definitions

Unless otherwise stated, in this letter the following terms and expressions have the meanings specified below.

• "ACB" means adjusted cost base and has the meaning assigned by section 54 of the Act;
• "Act" means the Income Tax Act (Canada), R.S.C. 1985, c. 1 (5th Supp.), as amended to the date of this letter;
• "Assumed Liabilities" means the liabilities of New Partnership that relate to the ownership and operation of the Transferred Properties and Miscellaneous Interests as described in paragraph 10 below;
• "Capital Property" has the meaning assigned by section 54 of the Act;
• "CCOGPE" means cumulative Canadian oil and gas property expense and has the meaning assigned by subsection 66.4(5) of the Act;
• "COGPE" means Canadian oil and gas property expense and has the meaning assigned by subsection 66.4(5) of the Act;
• "Collateral Agreements" means the contracts that relate to the ownership and operation of the Transferred Properties as described in paragraph 11 below;
• "Corporation A" means XXXXXXXXXX.;
• "Corporation B" means XXXXXXXXXX.;
• "CRA" means the Canada Revenue Agency;
• *"CRP" means Canadian resource property (within the meaning assigned by subsection 66(15) of the Act), the cost of which to a purchaser that is a person resident in Canada would be a COGPE of that person;
• "Depreciable Property" has the meaning assigned by subsection 13(21) of the Act;
• "Fiscal Period" has the meaning assigned by subsection 249.1(1) of the Act;
• "FMV" means fair market value, which is the highest price available in an open and unrestricted market between informed prudent parties acting at arm's length and under no compulsion to act, expressed in terms of cash;
• "Miscellaneous Interests" means the miscellaneous rights and properties relating to the Transferred Properties as described in paragraph 9 below;
• "New Partnership" means XXXXXXXXXX, a general partnership formed under the PA pursuant to a written partnership agreement having, at the commencement of the Proposed Transactions described below, Pubco, Subco A and Subco B as its partners. The original name of the partnership was XXXXXXXXXX. This name was changed after the acquisition of the partnership interests in the New Partnership by Pubco and Subco A;
• *"New Partnership Interest" means a partnership interest in New Partnership;
• "Note" means a promissory note evidencing a debt obligation which will be issued by Operating Partnership to New Partnership as described in paragraph 18 below;
• "Operating Partnership" means XXXXXXXXXX, a general partnership formed under the PA pursuant to a written partnership agreement having Pubco and Subco A as its partners;
• "Operating Partnership Interest" means a partnership interest in Operating Partnership;
• *"PA" means the Partnership Act XXXXXXXXXX;
• "PBC" means principal-business corporation and has the meaning assigned by subsection 66(15) of the Act;
• "proceeds of disposition" has the meaning assigned by subsection 66.4(5) of the Act;
• "Proposed Transactions" means those transactions and events described in paragraphs 17 to 24 below;
• "Pubco" means XXXXXXXXXX.;
• "Public Corporation" has the meaning assigned by subsection 89(1) of the Act;
• "PUC" means paid-up capital and has the meaning assigned by subsection 89(1) of the Act;
• "Replacement Collateral Agreements" means the contracts that relate to the ownership and operation of the Replacement Properties as described in paragraph 15 below;
• "Replacement Liabilities" means the liabilities of Operating Partnership that relate to the ownership and operation of the Replacement Properties and Replacement Miscellaneous Interests as described in paragraph 14 below;
• "Replacement Miscellaneous Interests" means the miscellaneous rights and properties relating to the Replacement Properties as described in paragraph 12 below;
• "Replacement Properties" means the CRP and related Depreciable Property of Operating Partnership described in paragraph 12 below which will be transferred by Operating Partnership to New Partnership as described in paragraph 20 below;
• "Regulations" means the Income Tax Regulations (Consolidated Regulations of Canada, c. 945) as amended to the date of this letter;
• "Subco A" means XXXXXXXXXX;
• "Subco B" means XXXXXXXXXX. The original name of the corporation was XXXXXXXXXX. This name was changed after the acquisition of its shares by Subco A from XXXXXXXXXX.;
• "Taxable Canadian Corporation" has the meaning assigned by subsection 89(1) of the Act;
• "Taxation Year" has the meaning assigned by subsection 249(1) of the Act;
• "Transferred Properties" means the CRP and related Depreciable Property of New Partnership described in paragraph 9 below which will be transferred by New Partnership to Operating Partnership as described in paragraph 18 below; and
• "UCC" means undepreciated capital cost and has the meaning assigned by subsection 13(21) of the Act.

Information concerning the applicants (the "Applicants") for the advance income tax rulings is as follows:

Applicant		Business Number
XXXXXXXXXX 		XXXXXXXXXX
XXXXXXXXXX 		XXXXXXXXXX
XXXXXXXXXX 		XXXXXXXXXX
XXXXXXXXXX 		XXXXXXXXXX 

Each of the Applicants is serviced by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Taxation Centre. Their head office address is XXXXXXXXXX

Our understanding of the facts, Proposed Transactions and purpose of the Proposed Transactions is as follows:

Facts

Pubco and Subco A

1. Pubco is a Taxable Canadian Corporation and a Public Corporation. Pubco has a Taxation Year ending on XXXXXXXXXX. Pubco is the parent corporation of a group of entities that carry on diverse businesses relating to the energy industry in Canada and elsewhere.

2. Subco A is a Taxable Canadian Corporation, which is an indirect wholly-owned subsidiary of Pubco. Subco A has a Taxation Year ending on XXXXXXXXXX.

3. Each of Pubco and Subco A is a PBC and will continue to be a PBC throughout the Taxation Years in which the Proposed Transactions are carried out.

Operating Partnership

4. Operating Partnership was formed on XXXXXXXXXX in order to consolidate the property and operations that previously were owned and operated directly by Pubco and Subco A. The partners of Operating Partnership are Pubco (with a XXXXXXXXXX% Operating Partnership Interest) and Subco A (with a XXXXXXXXXX% Operating Partnership Interest). Operating Partnership carries on a petroleum and natural gas development and production business and has a Fiscal Period ending on XXXXXXXXXX. Each of Pubco and Subco A is of the opinion that its respective Operating Partnership Interest is Capital Property to it.

5. The partnership agreement of Operating Partnership allocates income and losses, as well as COGPE and proceeds of disposition of CRP, to the Operating Partnership partners in proportion to their Operating Partnership Interests at the end of each Fiscal Period of Operating Partnership.

New Partnership and Subco B

6. New Partnership was formed on XXXXXXXXXX by a partnership of which Corporation A (XXXXXXXXXX% interest) and Corporation B (XXXXXXXXXX% interest) were partners and selected a Fiscal Period ending on XXXXXXXXXX. The Transferred Properties were contributed to New Partnership on XXXXXXXXXX and an election under subsection 97(2) of the Act was filed by the transferors. Neither Pubco nor Subco A had any involvement in the formation of New Partnership or the contribution of the Transferred Properties thereto.

7. Subject to any unanimous agreement of the partners to the contrary, the partnership agreement of New Partnership allocates income and losses, as well as COGPE and proceeds of disposition of CRP, to the New Partnership partners in proportion to their New Partnership Interests at the end of each Fiscal Period of New Partnership.

8. On XXXXXXXXXX, the partners of New Partnership were Corporation A (XXXXXXXXXX% interest) and Subco B (XXXXXXXXXX% interest). On XXXXXXXXXX, Pubco acquired a XXXXXXXXXX% New Partnership Interest from Corporation A, a person that deals at arm's length with Pubco, for FMV consideration. Concurrently, Subco A acquired all of the outstanding shares of Subco B from Corporation B, a person that deals at arm's length with Subco A, for FMV consideration. At that time, Subco B owned a XXXXXXXXXX% New Partnership Interest. Subco B is a Taxable Canadian Corporation and a PBC. Subco A also concurrently acquired the remaining XXXXXXXXXX% New Partnership Interest from a person that deals at arm's length with Subco A for FMV consideration. The aggregate acquisition cost of the New Partnership Interests and the Subco B shares was approximately $XXXXXXXXXX. Subco A paid XXXXXXXXXX% of the total acquisition cost to acquire all of the shares of Subco B. Pubco paid XXXXXXXXXX% of the total acquisition cost to acquire its New Partnership Interest and Subco A paid XXXXXXXXXX% of the total acquisition cost to acquire its New Partnership Interest. Therefore, XXXXXXXXXX% of the total acquisition cost was paid by Pubco and Subco A for New Partnership Interests. Each of Pubco and Subco A is of the opinion that its respective New Partnership Interest is Capital Property to it.

Transferred Properties

9. New Partnership carries on a petroleum and natural gas development and production business. It currently owns certain CRP and related Depreciable Property that is located in Canada and that collectively comprise the Transferred Properties. The estimated UCC and FMV of the Transferred Properties that are Depreciable Property is $XXXXXXXXXX. The remaining Transferred Properties are essentially CRP having a FMV of approximately $XXXXXXXXXX. The COGPE associated with these CRP was allocated to the partners of New Partnership at the end of its first Fiscal Period which occurred before the interests in New Partnership were acquired by Pubco and Subco A. New Partnership also currently owns miscellaneous rights and property relating to the Transferred Properties (such as surface rights) that collectively comprise the Miscellaneous Interests. Legal title to the Transferred Properties and Miscellaneous Interests is held by a person as bare trustee and nominee for New Partnership.

10. New Partnership owes various amounts (essentially relating to operating expenses), estimated to be $XXXXXXXXXX, relating to the ownership and operation of the Transferred Properties and Miscellaneous Interests that collectively comprise the Assumed Liabilities.

11. New Partnership (or its bare trustee and nominee) has entered into various contracts relating to the ownership and operation of the Transferred Properties (e.g., delivery and marketing contracts) that collectively comprise the Collateral Agreements.

Replacement Properties

12. Among other property, Operating Partnership currently owns (or, at the time that is relevant for the Proposed Transactions, will own) certain CRP and related Depreciable Property that are located in Canada and that collectively comprise the Replacement Properties. Operating Partnership also currently owns (or, at the time that is relevant for the Proposed Transactions, will own) miscellaneous rights and property relating to the Replacement Properties (such as surface rights) that collectively comprise the Replacement Miscellaneous Interests.

13. Legal title to the Replacement Properties and Replacement Miscellaneous Interests is (or, will, immediately before the disposition described in paragraph 20 below, be) held by Pubco as bare trustee and nominee for Operating Partnership.

14. Immediately before the transfer described in paragraph 20 below, Operating Partnership will owe various amounts relating to the ownership and operation of the Replacement Properties and Replacement Miscellaneous Interests that collectively comprise the Replacement Liabilities. It is anticipated that the amount of any Replacement Liabilities will be similar in amount to the Assumed Liabilities.

15. Prior to the transfer described in paragraph 20 below, Operating Partnership (or Pubco as bare trustee and nominee for Operating Partnership) will have entered into various contracts relating to the ownership and operation of the Replacement Properties (e.g., delivery and marketing contracts) that collectively comprise the Replacement Collateral Agreements.

16. Immediately before the transfer described in paragraph 20 below, it is expected that the aggregate FMV of the Replacement Properties may exceed $XXXXXXXXXX.

Proposed Transactions

The following transactions or events will be implemented or undertaken in the manner described below.

17. Shortly after the date that this letter is issued, Subco A, the sole shareholder of Subco B, will pass a special resolution authorizing the directors of Subco B to cause Subco B to distribute all of its property and discharge all of its liabilities. Immediately following the passing of this special resolution, Subco B will distribute all of its property to Subco A and all of its liabilities will be assumed by Subco A.

As soon as practicable after the distribution of its property, Subco B will send articles of dissolution in prescribed form to the required authority under applicable corporate law and, in due course, that authority will issue a certificate of dissolution indicating the date on which Subco B ceases to exist.

18. Shortly after the distribution of Subco B's property to Subco A, New Partnership will dispose of the Transferred Properties and the Miscellaneous Interests to Operating Partnership and, as consideration therefor, Operating Partnership will assume the Assumed Liabilities and issue the Note to New Partnership. The Note will be a demand promissory note with a principal amount and FMV equal to the aggregate FMV of the Transferred Properties and Miscellaneous Interests less the amount of the Assumed Liabilities. The balance owing on the Note at any time will bear interest at a reasonable commercial rate from the time it is issued until the date it is fully repaid. At all times, Operating Partnership will have the financial capacity to fulfill its obligations under the Note.

19. As soon as practicable, legal title to the Transferred Properties and Miscellaneous Interests will be conveyed and transferred to Pubco as bare trustee and nominee for Operating Partnership. As soon as practicable, Operating Partnership (or Pubco as bare trustee and nominee for Operating Partnership) will be novated into the Collateral Agreements.

20. Within XXXXXXXXXX years from the date of this letter, Operating Partnership will dispose of the Replacement Properties and the Replacement Miscellaneous Interests to New Partnership for consideration consisting of the assumption by New Partnership of the Replacement Liabilities and repayment of all or a portion of the Note. In addition, if the FMV of the Replacement Properties and Replacement Miscellaneous Interests, less the Replacement Liabilities, exceeds the principal amount of the Note, the excess will be paid to Operating Partnership by New Partnership using cash that will be proportionally contributed by the partners of New Partnership. In the event that the FMV of the Replacement Properties and Replacement Miscellaneous Interests, less the Replacement Liabilities, is less than the principal amount of the Note, the shortfall will be paid by Operating Partnership to New Partnership in cash.

21. As soon as practicable, legal title to the Replacement Properties and Replacement Miscellaneous Interests will be conveyed and transferred to Pubco as bare trustee and nominee for New Partnership.

22. As soon as practicable, New Partnership (or Pubco as bare trustee and nominee for New Partnership) will be novated into the Replacement Collateral Agreements.

23. It is anticipated that, within XXXXXXXXXX years from the date of this letter, and at a time that is after the end of the Fiscal Period of New Partnership in which the transactions described in paragraph 20 above occur, each of Pubco and Subco A will dispose of all of its New Partnership Interest to one or more persons or partnerships with which it will deal at arm's length for FMV consideration. Before the closing of any disposition of New Partnership Interests (but, for greater certainty, after the transactions described in paragraph 20 above occur), New Partnership may request the CRA's concurrence with a change to its Fiscal Period end in accordance with subsection 249.1(7) of the Act.

24. The percentile partnership interest of each of Pubco and Subco A in Operating Partnership as determined immediately before, at and immediately after the end of the Fiscal Period of Operating Partnership in which the transactions described in paragraph 18 above occur will be the same as the percentile partnership interest of that party in New Partnership as determined immediately before, at and immediately after the end of the Fiscal Period of New Partnership in which those transactions occur. Similarly, the percentile partnership interest of each of Pubco and Subco A in Operating Partnership as determined immediately before, at and immediately after the end of the Fiscal Period of Operating Partnership in which the transactions described in paragraph 20 above occur will be the same as the percentile partnership interests of that partner in New Partnership as determined immediately before, at and immediately after the end of the Fiscal Period of New Partnership in which those transactions occur. Except as a result of temporary differences which will be eliminated before the end of the Fiscal Period of the particular partnership, throughout that portion of each Fiscal Period of New Partnership and of Operating Partnership during which any of the transactions described in either paragraph 18 or 20 above occur and before the time that the transactions described in paragraph 23 above occur, Pubco and Subco A will be the only partners of each of Operating Partnership and New Partnership and each such partner will have the same percentile partnership interest in Operating Partnership as that partner has in New Partnership.

Purpose

25. Pubco and Subco A acquired their New Partnership Interests and outstanding Subco B shares in an arm's length transaction for FMV consideration and obtained a cost and ACB in such properties equal to the consideration paid. It will be administratively and operationally convenient for the Transferred Properties owned by New Partnership to be consolidated with those in Operating Partnership. While this consolidation could be achieved through a variety of transactions, the Applicants desire to preserve the cost and ACB of their New Partnership Interests for use on a future disposition of the Replacement Properties and Replacement Miscellaneous Interests as described herein.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, Proposed Transactions and purpose of the Proposed Transactions, and provided further that the Proposed Transactions are carried out as described above, our rulings are as follows:

A. Subject to subsection 69(1) of the Act, the cost to Operating Partnership of any CRP that forms part of the Transferred Properties acquired from New Partnership as described in paragraph 18 above will be included in the COGPE of Operating Partnership in the Fiscal Period in which it is acquired pursuant to paragraph (a) of that definition. Consequently, subject to sections 66.8 and 103 of the Act, the share of such amount, determined in accordance with the income and loss allocations set out in the partnership agreement for Operating Partnership as described in paragraph 5 above, will be included in the COGPE of Pubco and Subco A at the end of the Fiscal Period of Operating Partnership in which the COGPE was incurred pursuant to paragraph (b) of the definition of COGPE. Pubco and Subco A's respective share of such COGPE will be included in itsCOGPE, pursuant to the description of A in the definition of CCOGPE and subsection 66(18) of the Act, as at the end of the particular Fiscal Period of Operating Partnership.

B. Pursuant to subsection 66.4(6) of the Act and paragraph (a) of the description of F in the definition of CCOGPE and subject to subsection 69(1) and section 103 of the Act, when the Transferred Properties are disposed of by New Partnership in a particular Fiscal Period as described in paragraph 18 above, the CCOGPE of Pubco and Subco A will, in the Taxation Year of the particular partner in which that Fiscal Period of New Partnership ends, be reduced by that partner's share, determined in accordance with the income and loss allocations set out in the partnership agreement for New Partnership as described in paragraph 7 above, of the proceeds of disposition (net of reasonable disposition costs) that are received by New Partnership in respect of CRP that forms part of the Transferred Properties disposed of by New Partnership.

C. Pursuant to F of the definition of UCC and subject to subsection 69(1) of the Act, the UCC to New Partnership of each prescribed class of Depreciable Property that is included in the Transferred Properties disposed of by New Partnership to Operating Partnership will, in the Fiscal Period of New Partnership in which such disposition is made be reduced by the lesser of:

(i) the proceeds of disposition (net any outlays and expenses made or incurred for the purpose of making the disposition) received by New Partnership for the Depreciable Property of that prescribed class; and

(ii) the capital cost to New Partnership of the Depreciable Property of that prescribed class.

Pursuant to paragraph 40(1)(a) of the Act, any capital gain of New Partnership that arises as a result of the proceeds of disposition (net of any reasonable outlays and expenses incurred by New Partnership for the purpose of making such disposition) of any Depreciable Property referred to above exceeding the ACB of that property to New Partnership immediately before the disposition will be included in the income of New Partnership for the Fiscal Period in which such disposition is made.

D. Subject to subsection 69(1) of the Act, the UCC of a particular prescribed class of Depreciable Property of Operating Partnership will, at any time after the acquisition of such property and pursuant to A of the definition of UCC, include the capital cost (as determined pursuant to subparagraph 13(7)(e)(ii) of the Act) to Operating Partnership of any Depreciable Property of that prescribed class that forms part of the Transferred Property.

E. Pursuant to subparagraph 53(1)(e)(viii) of the Act, immediately after the end of the Fiscal Period of New Partnership in which the disposition of Transferred Properties occurs, an amount equal to the amount of the decrease to Pubco and Subco A's CCOGPE as determined in Ruling B will be added to the ACB of Pubco and Subco A's New Partnership Interest, respectively.

F. Pursuant to clause 53(2)(c)(ii)(E) of the Act, immediately after the end of the Fiscal Period of Operating Partnership in which the acquisition of the Transferred Properties occurs, an amount equal to the increase in Pubco and Subco A's COGPE as determined in Ruling A will be deducted in computing the ACB of Pubco and Subco A's Operating Partnership Interest, respectively.

G. New Partnership will not cease to be a partnership for purposes of the Act solely because, for a period of approximately XXXXXXXXXX years as referred to in paragraph 20 above, its business activities will be limited to earning interest income from the Note issued by Operating Partnership (as described in paragraph 18 above).

H. Pursuant to subsection 66.4(6) of the Act and paragraph (a) of the description of F in the definition of CCOGPE and subject to subsection 69(1) and section 103 of the Act, when the Replacement Properties are disposed of by Operating Partnership in a particular Fiscal Period as described in paragraph 20 above, the CCOGPE of Pubco and Subco A will, in the Taxation Year of the particular partner in which that Fiscal Period of Operating Partnership ends, be reduced by that partner's share, determined in accordance with the income and loss allocations set out in the partnership agreement for Operating Partnership as described in paragraph 5 above, of the proceeds of disposition (net of reasonable disposition costs) that are received by Operating Partnership in respect of CRP that forms part of the Replacement Properties disposed of by Operating Partnership to New Partnership.

I. Subject to subsection 69(1) of the Act, the cost to the New Partnership of any CRP that forms part of the Replacement Properties acquired from Operating Partnership as described in paragraph 20 above will be included in COGPE of New Partnership in the Fiscal Period in which it is acquired pursuant to paragraph (a) of that definition. Consequently, subject to sections 66.8 and 103 of the Act, the share of such amount, determined in accordance with the income and loss allocations set out in the partnership agreement for New Partnership as described in paragraph 7 above, will be included in the COGPE of Pubco and Subco A at the end of the Fiscal Period of New Partnership in which the COGPE was incurred pursuant to paragraph (b) of the definition of COGPE. Pubco and Subco A's respective share of such COGPE will be included in its CCOGPE, pursuant to the description of A in the definition of CCOGPE and subsection 66(18) of the Act, as at the end of the particular Fiscal Period of New Partnership.

J. Pursuant to F of the definition of UCC and subject to subsection 69(1) of the Act, the UCC to Operating Partnership of each prescribed class of Depreciable Property that is included in the Replacement Properties disposed of by Operating Partnership to New Partnership will, in the Fiscal Period of Operating Partnership in which such disposition is made be reduced by the lesser of:

(i) the proceeds of disposition (net any outlays and expenses made or incurred for the purpose of making the disposition) received by Operating Partnership for the Depreciable Property of that prescribed class; and

(ii) the capital cost to Operating Partnership of the Depreciable Property of that prescribed class.

Pursuant to paragraph 40(1)(a) of the Act, any capital gain of Operating Partnership that arises as a result of the proceeds of disposition (net of any reasonable outlays and expenses incurred by Operating Partnership for the purpose of making such disposition) of any Depreciable Property referred to above exceeding the ACB of that property to Operating Partnership immediately before the disposition will be included in the income of Operating Partnership for the Fiscal Period in which such disposition is made.

K. Subject to subsection 69(1) of the Act, the UCC of a particular prescribed class of Depreciable Property of New Partnership will, at any time after the acquisition of such property and pursuant to A of the definition of UCC, include the capital cost (as determined pursuant to subparagraph 13(7)(e)(ii) of the Act) to New Partnership of any Depreciable Property of that prescribed class that forms part of the Replacement Properties.

L. Pursuant to subparagraph 53(1)(e)(viii) of the Act, immediately after the end of the Fiscal Period of Operating Partnership in which the disposition of the Replacement Properties occurs, an amount equal to the amount of the decrease to Pubco and Subco A's CCOGPE as determined in Ruling H will be added to the ACB of Pubco and Subco A's Operating Partnership Interest, respectively.

M. Pursuant to clause 53(2)(c)(ii)(E) of the Act, immediately after the end of the Fiscal Period of New Partnership in which the acquisition of the Replacement Properties occurs, an amount equal to the increase in Pubco and Subco A's COGPE as determined in Ruling I will be deducted in computing the ACB of Pubco and Subco A's New Partnership Interest, respectively.

N. Provided that each of Pubco and Subco A is a PBC throughout the period covered by these rulings, subsection 66(5) of the Act will not apply to the Proposed Transactions in and of themselves.

O. The provisions of subsection 245(2) of the Act will not be applied as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued by the CRA on May 17, 2002 and are binding on the CRA provided that the proposed sale of the New Partnership Interests as described in paragraph 23 above is completed by XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto.

Our Comments

Nothing in these rulings should be construed as implying that the CRA has agreed to or reviewed:

(a) the determination of the FMV, ACB or UCC of any property referred to herein;

(b) any other tax consequences relating to the Proposed Transactions, other than those specifically described in the rulings given above, including whether the sale of the New Partnership Interests will be on capital account; or

(c) the request that may be made by New Partnership to change its Fiscal Period end as described in paragraph 23 above.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch