2006 Ruling 2006-0182271R3 - Reorganization of a mutual fund trust - s. 132.2

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: A. Whether a corporation qualifies as a "mutual fund corporation" within the meaning of subsection 89(1) of the Act; B. Whether the transfer of the assets of a mutual fund corporation to a mutual fund trust would qualify as a "qualifying exchange" within the meaning of subsection 132.2(2) of the Act so that the rules in subsection 132.2(1) of the Act would apply to such transfer; and C. Whether subsection 245(2) of the Act would apply to redetermine the tax consequences confirmed in rulings A and B.

Position: A. Yes; B. Yes; and C. No.

Reasons: See statement of principal issues

XXXXXXXXXX 								2006-018227

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

Re : XXXXXXXXXX
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 taxpayers. 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; or

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

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:

"Act" means the Income Tax Act R.S.C. 1985 (5th Supp.), c. 1, as amended from time to time;

"Amalco-MFC" means the corporation resulting from the amalgamation of MFC and XXXXXXXXXX, as described in paragraph 42 hereof;

"Amalco-MFC Class A Share" means a Class A Share in the capital stock of Amalco-MFC having the same terms as the MFC Class A Shares;

"Amalco-MFC Class B Share" means a Class B Share in the capital stock of Amalco-MFC having the same terms as the MFC Class B Shares;

"Amalco-MFC Common Share" means a common share in the capital stock of Amalco-MFC having the same terms as the MFC Common Shares;

"Amalco-XXXXXXXXXX" means the corporation resulting from the amalgamation of Amalco-MFC and XXXXXXXXXX, as described in paragraph 49 hereof;

"Asset Transfer" means the transfer of the Transferred Assets by Amalco-MFC to the Fund as described in paragraph 43 hereof;

"Asset Transfer Time" means the time of the Asset Transfer as described in paragraph 43 hereof;

"CBCA" means the Canada Business Corporations Act R.S.C., 1985, c. C-44, s.1; 1994, c. 44, s.1(F), as amended from time to time;

XXXXXXXXXX;

"XXXXXXXXXX Holdco" means XXXXXXXXXX, a corporation governed by the CBCA;

"XXXXXXXXXX Holdco" means XXXXXXXXXX

"Exchangeable Security" means a unit, share or other security which is convertible into or exchangeable for a Fund Unit;

"Fund" means XXXXXXXXXX, which was formed under the laws of XXXXXXXXXX pursuant to the Fund DOT;

"Fund Assets" means the assets transferred by the Fund to MFC as described in paragraph 40 hereof;

"Fund DOT" means the Declaration of Trust of the Fund dated XXXXXXXXXX , as amended and restated on XXXXXXXXXX;

"Fund Right" means the special voting right of the Fund entitling the holder thereof to vote at meetings of Fund Unitholders. Each Fund Right is not entitled to any interest or share in the distributions or net assets of the Fund, and may only be issued in connection to or in relation to an Exchangeable Security;

"Fund Unit" means a trust unit of the Fund;

"Information Circular" means the information circular to be sent to each Unitholder in accordance with applicable securities laws as described in paragraph 37 hereof;

"LP Units" means limited partnership units of XXXXXXXXXX;

"MFC" means the corporation to be formed as described in paragraph 32 hereof;

"MFC Class A Share" means a Class A Share in the capital stock of MFC, the terms of which are described in paragraph 32 hereof;

"MFC Class B Share" means a Class B Share in the capital stock of MFC, the terms of which are described in paragraph 32 hereof;

"MFC Class A Redemption Amount" means an amount of $XXXXXXXXXX per MFC Class A Share plus all declared and unpaid dividends to the date of payment;

"MFC Class B Redemption Amount" means an amount equal to the aggregate fair market value of the Fund Assets transferred to MFC as described in paragraph 40 hereof by the Fund in consideration for the issuance of MFC Class B Shares, plus all deemed unpaid dividends to the date of redemption or retraction;

"MFC Common Share" means a common share in the capital stock of MFC, the terms of which are described in paragraph 32 hereof;

"public corporation" has the meaning assigned by subsection 89(1) of the Act;

"XXXXXXXXXX Holdco" means XXXXXXXXXX, a corporation governed by the Business Corporations Act (XXXXXXXXXX);

"XXXXXXXXXX" means the corporation to be formed as described in paragraph 30 hereof;

"XXXXXXXXXX Common Share" means a common share in the capital stock of XXXXXXXXXX;

"Special Units" means a Fund Unit representing a beneficial ownership interest in the Fund, which Fund Unit enjoys the benefit of subordination of the distribution entitlement of other Unitholders as described in paragraph 36 hereof;

XXXXXXXXXX;

"XXXXXXXXXX Assets" means all of the assets of XXXXXXXXXX, including, XXXXXXXXXX and all the shares of each of XXXXXXXXXX held by XXXXXXXXXX;

"XXXXXXXXXX Class A Common Share" means a Class A Common Share in the capital stock of XXXXXXXXXX;

"XXXXXXXXXX Class B Common Share" means a Class B Common Share in the capital stock of XXXXXXXXXX;

"XXXXXXXXXX Notes" means notes issued by XXXXXXXXXX to the Fund in the aggregate principal amount of $XXXXXXXXXX;

"XXXXXXXXXX Preferred Share" means a preferred share in the capital stock of XXXXXXXXXX;

"XXXXXXXXXX" means the limited partnership to be formed by XXXXXXXXXX and XXXXXXXXXX as described in paragraph 31 hereof;

"Taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act;

"Transferred Assets" means the assets transferred by Amalco-MFC to the Fund as described in paragraph 43 hereof;

"U.S. Holdings" means XXXXXXXXXX, a corporation governed by the laws of the State of XXXXXXXXXX, USA;

"U.S. Holdings Notes" means notes issued by U.S. Holdings to XXXXXXXXXX in the aggregate principal amount of US $XXXXXXXXXX; and

"Unitholders" means holders of Fund Units.

Facts

1. The Fund is a limited purpose trust formed under the laws of XXXXXXXXXX pursuant to the Fund DOT, a copy of which was attached to the Ruling request.

2. The Fund is a mutual fund trust, as defined in subsection 132(6) of the Act, which was established to, among other things, invest in securities, including shares and debt, of XXXXXXXXXX and related companies. The Fund was not established and is not maintained primarily for the benefit of non-residents of Canada.

3. The trustee of the Fund is resident in Canada for the purposes of the Act.

4. The Fund is not a registered investment as defined in section 204.4 of the Act.

5. The Fund Units are traded on the XXXXXXXXXX Stock Exchange under the symbol XXXXXXXXXX and the Fund has a XXXXXXXXXX year-end for purposes of the Act.

6. The head office of the Fund is located at XXXXXXXXXX, and it deals with the XXXXXXXXXX Tax Services Office and files

its returns with the XXXXXXXXXX Centre. The Fund's account number is XXXXXXXXXX.

7. Under the Fund DOT, the Fund may issue an unlimited number of Fund Units. Each Fund Unit represents an equal and undivided beneficial interest in the distributions made by the Fund, as well as the net assets of the Fund in the event of termination or winding-up of the Fund. Each Fund Unit is transferable, entitles the holder to one vote and is redeemable at the demand of the holder at a redemption price determined by formula. The Fund DOT precludes non-residents of Canada from collectively owning a majority of the Fund Units.

8. As of XXXXXXXXXX, approximately XXXXXXXXXX Fund Units were issued and outstanding.

9. Under the Fund DOT, the Fund is authorized to issue an unlimited number of Fund Rights in connection with or in relation to an issuance of securities that carry a right to convert or exchange into Fund Units for no additional consideration. The Fund Rights shall not be entitled to any interest or share in the distributions or net assets of the Fund.

10. The Fund has issued and outstanding unsecured, subordinate convertible debentures in the aggregate principal amount of $XXXXXXXXXX, the particulars of which are as follows:

(a) $XXXXXXXXXX principal amount of debentures were issued pursuant to a trust indenture between the Fund, XXXXXXXXXX and XXXXXXXXXX as trustee, dated XXXXXXXXXX, which was amended by a supplemental indenture dated XXXXXXXXXX (collectively, the "XXXXXXXXXX Indenture"), which mature on XXXXXXXXXX and bear interest at the rate of XXXXXXXXXX% per annum;

(b) $XXXXXXXXXX principal amount of debentures were issued pursuant to the XXXXXXXXXX Indenture, which mature on XXXXXXXXXX and bear interest at the rate of XXXXXXXXXX% per annum;

(c) $XXXXXXXXXX principal amount of debentures have been issued pursuant to a trust indenture between the Fund and XXXXXXXXXX, as trustee, dated XXXXXXXXXX, which was amended by a supplemental indenture dated XXXXXXXXXX (collectively, the "XXXXXXXXXX Indenture"), which mature on XXXXXXXXXX and bear interest at the rate of XXXXXXXXXX% per annum; and

(d) $XXXXXXXXXX principal amount of XXXXXXXXXX Debentures have been issued pursuant to the XXXXXXXXXX Indenture, which mature on XXXXXXXXXX and bear interest at the rate of XXXXXXXXXX% per annum.

11. The Fund has also entered into a $XXXXXXXXXX standby loan facility.

12. XXXXXXXXXX is a taxable corporation and a resident of Canada for purposes of the Act.

13. All of the issued and outstanding shares of XXXXXXXXXX are held by the Fund. XXXXXXXXXX is authorized to issue an unlimited number of XXXXXXXXXX Class A Common shares, XXXXXXXXXX Class B Common Shares and XXXXXXXXXX Preferred Shares. Currently there are XXXXXXXXXX Class A Common Shares, XXXXXXXXXX Class B Common Shares and no XXXXXXXXXX Preferred Shares issued and outstanding.

14. XXXXXXXXXX head office is the same as the Fund and it deals with the XXXXXXXXXX Tax Services Office and files its returns with XXXXXXXXXX Tax Centre. XXXXXXXXXX business number is XXXXXXXXXX has a XXXXXXXXXX year-end for purposes of the Act.

15. The XXXXXXXXXX Class A Common Shares and XXXXXXXXXX Class B Common Shares are capital property to the Fund for purposes of the Act.

16. The Fund holds XXXXXXXXXX Notes with a principal amount of $XXXXXXXXXX. The XXXXXXXXXX Notes have been issued in various series and pay a weighted average interest rate of XXXXXXXXXX%. The XXXXXXXXXX Notes mature on XXXXXXXXXX. The XXXXXXXXXX Notes are capital property to the Fund for the purposes of the Act.

17. In addition to the XXXXXXXXXX Notes, XXXXXXXXXX has the following issued and outstanding debts:

(a) US$XXXXXXXXXX principal amount senior secured debt issued in two series. The first series has a principal amount of US$XXXXXXXXXX maturing in XXXXXXXXXX and bearing interest at XXXXXXXXXX% per annum. The second series has a principal amount of US$XXXXXXXXXX maturing in XXXXXXXXXX and bearing interest at XXXXXXXXXX% per annum;

(b) $XXXXXXXXXX principal amount, XXXXXXXXXX-year revolving credit facility;

(c) secured revolving debt from bank credit facilities under which approximately $XXXXXXXXXX was drawn as at XXXXXXXXXX and $XXXXXXXXXX will be drawn before the implementation of the proposed transactions described herein; and

(d) notes payable and deferred consideration obligations of $XXXXXXXXXX outstanding as at XXXXXXXXXX.

18. XXXXXXXXXX owns all of the issued and outstanding shares of U.S. Holdings and is the sole holder of the U.S. Holding Notes.

19. XXXXXXXXXX Holdco is a taxable Canadian corporation and a resident of Canada for the purposes of the Act.

20. XXXXXXXXXX owns all of the issued and outstanding shares of XXXXXXXXXX Holdco.

21. XXXXXXXXXX Holdco is a taxable Canadian corporation and a resident of Canada for the purposes of the Act.

22. XXXXXXXXXX owns all of the issued and outstanding shares of XXXXXXXXXX Holdco.

23. XXXXXXXXXX is a non-resident of Canada for the purposes of the Act.

24. XXXXXXXXXX owns XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX Holdco and XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX.

25. U.S. Holdings owns XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX Holdco.

26. XXXXXXXXXX Holdco owns XXXXXXXXXX % of the issued and outstanding shares of XXXXXXXXXX.

27. U.S. Holdings owns all of the issued and outstanding shares of XXXXXXXXXX which are operating entities which carry on business in the United States.

28. Prior to the proposed transactions described herein, the share ownership of XXXXXXXXXX will be reorganized. This reorganization will involve the sale by XXXXXXXXXX of its XXXXXXXXXX% shareholding in XXXXXXXXXX to XXXXXXXXXX Holdco, the sale by U.S. Holdings of its XXXXXXXXXX% shareholding in XXXXXXXXXX Holdco to XXXXXXXXXX, and the liquidation of XXXXXXXXXX Holdco.

29. The Fund may, in the future, refinance or dispose of one or more of its businesses, or reorganize the same by way of business combination, joint venture or otherwise.

Proposed Transactions

30. XXXXXXXXXX will be incorporated under the CBCA. The Fund will subscribe for one XXXXXXXXXX Common Share, the consideration for which will be $XXXXXXXXXX cash.

31. XXXXXXXXXX and XXXXXXXXXX will enter into an agreement to form a limited partnership, XXXXXXXXXX. The latest draft of this agreement, dated XXXXXXXXXX, was provided. XXXXXXXXXX will act as the general partner of XXXXXXXXXX. The first fiscal period of the partnership will end on XXXXXXXXXX. XXXXXXXXXX and XXXXXXXXXX will make a cash contribution to XXXXXXXXXX in such amount that following the transaction described in paragraph 35 hereof, the relative interests of XXXXXXXXXX and XXXXXXXXXX in XXXXXXXXXX will be XXXXXXXXXX% and XXXXXXXXXX%, respectively.

32. MFC will be incorporated under the CBCA. The issued and outstanding capital of MFC will consist of three classes of shares:

(a) The MFC Common Shares will, subject to the CBCA:

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

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

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

(b) The MFC Class A Shares will, subject to the CBCA:

(i) be non-voting preferred shares;

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

(iii) be redeemable at the option of MFC without notice to the holders thereof for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Fund Units;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to MFC for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment; and

(v) on the liquidation, dissolution or winding-up of MFC, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of MFC will be distributed to the holders of MFC Common Shares, or any shares ranking junior to the MFC Common Shares. The MFC Class A Shares will rank equally with the MFC Class B Shares in the event of liquidation, dissolution or winding-up.

(c) The MFC Class B Shares will, subject to the CBCA:

(i) be non-voting preferred shares;

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

(iii) be redeemable at the option of MFC without notice to the holders thereof for an aggregate redemption amount equal to the fair market value of the assets transferred to MFC by the Fund in consideration for the issuance of MFC Class B Shares (the "MFC Class B Redemption Amount") plus all declared and unpaid dividends to the date of payment, which aggregate redemption amount may be paid in Fund Units;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to MFC for an aggregate redemption amount equal to the MFC Class B Redemption Amount plus all declared and unpaid dividends to the date of payment; and

(v) on the liquidation, dissolution or winding-up of MFC, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of MFC will be distributed to the holders of MFC Common Shares, or any shares ranking junior to the MFC Common Shares. The MFC Class B Shares will rank equally with the MFC Class A Shares in the event of liquidation, dissolution or winding-up.

33. MFC's undertaking will be restricted, pursuant to its constituting documents, to the investing of its funds in property other than real property.

34. The Fund will subscribe for one MFC Common Share, the consideration for which will be a cash payment of $XXXXXXXXXX.

35. XXXXXXXXXX and XXXXXXXXXX will enter into an agreement of purchase and sale under which:

(a) XXXXXXXXXX will transfer the XXXXXXXXXX Assets to XXXXXXXXXX at a purchase price equal to their fair market value;

(b) in consideration XXXXXXXXXX will:

(i) assume all of XXXXXXXXXX liabilities and obligations other than the XXXXXXXXXX Notes;

(ii) issue such number of LP Units having an aggregate fair market value equal to the amount by which the fair market value of the XXXXXXXXXX Assets exceeds the aggregate of the fair market value of XXXXXXXXXX liabilities and obligations assumed by XXXXXXXXXX in paragraph 35(b)(i) hereof; and

(c) XXXXXXXXXX will file a joint election in prescribed form and within the time referred to in subsection 96(4) of the Act, to have the provisions of subsection 97(2) of the Act apply to the transfer. The agreed amount in respect of the XXXXXXXXXX Assets will be an amount not less than the lesser of (i) the cost amount and (ii) the fair market value of the XXXXXXXXXX Assets (and in the case of depreciable property of a prescribed class, the undepreciated capital cost of that class immediately before the transfer) and will not exceed the fair market value of the XXXXXXXXXX Assets.

36. By way of an amendment to the Fund DOT, all Unitholders, effective upon the first issuance of the Special Units described in paragraph 44 hereof, will be deemed to subordinate their entitlement to receive distributions from the Fund such that they will not receive any distributions from the Fund (other than the distributions to be undertaken in accordance with paragraph 38 hereof) in respect of their Fund Units until the earlier of:

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

(b) the time at which there are no Special Units issued and outstanding, which shall occur following the transactions described in paragraph 46 hereof.

37. The Fund will make a cash subscription for such number of MFC Class A Shares as would equal the number of Fund Units then outstanding. The issuance of the MFC Class A Shares and subsequent transactions will be completed in accordance with the Information Circular containing prospectus level disclosure filed with a securities regulator in a Province of Canada.

38. The Fund will distribute the MFC Class A Shares to the Unitholders as a return of capital. Each Unitholder will receive such number of MFC Class A Shares equal to the number of Fund Units owned by such holder immediately before the distribution. The number of Fund Units owned by each Unitholder will not be reduced as a result of this distribution. The distribution of the MFC Class A Shares to the Unitholders of the Fund will allow MFC to meet the conditions in paragraphs 4800(1)(b) and (c) of the Income Tax Regulations relating to the dispersal of share ownership for the purposes of qualifying as a public corporation.

39. Following the distribution of the MFC Class A Shares described in paragraph 38 hereof but prior to the amalgamation described in paragraph 42 hereof, MFC will have the MFC Class A Shares listed on a prescribed stock exchange in Canada. If such listing is not obtained, MFC will elect to be a public corporation in accordance with subsection 89(1) of the Act.

40. The Fund and MFC will enter into an agreement of purchase and sale under which:

(a) the Fund will transfer all of the XXXXXXXXXX Class A Common Shares and XXXXXXXXXX Class B Common Shares and the XXXXXXXXXX Notes held by it (collectively the "Fund Assets") to MFC;

(b) MFC will issue to the Fund such number of MFC Class B Shares having an aggregate MFC Class B Redemption Amount equal to the fair market value of the XXXXXXXXXX Assets so transferred; and

(c) the Fund and MFC will file a joint election in prescribed form and within the prescribed time referred to in subsection 85(6) of the Act to have the provisions of subsection 85(1) of the Act apply to the transfer. The agreed amount in respect of XXXXXXXXXX Class A Common Shares, XXXXXXXXXX Class B Common Shares and XXXXXXXXXX Notes so transferred will be an amount not less than the lesser of (i) the cost amount and (ii) the fair market value of each respective property and will not exceed the fair market value of each respective property.

41. Prior to the amalgamation of MFC and XXXXXXXXXX described in paragraph 42 hereof, the stated capital amount maintained by XXXXXXXXXX for its issued and outstanding shares will be reduced to $XXXXXXXXXX without payment of any amount in respect of those shares.

42. Either following the listing of the MFC Class A Shares referred to in paragraph 39 hereof or on the day following the day on which the election described in paragraph 39 hereof is filed, as the case maybe, and following the completion of the transactions described in paragraphs 40 and 41 hereof, XXXXXXXXXX and MFC (each of which is referred to as a "predecessor corporation" in the present paragraph) will undertake a vertical amalgamation under the provisions of the CBCA to form Amalco-MFC in such a manner that:

(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations held immediately before the amalgamation will become property of Amalco-MFC by virtue of the amalgamation;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of Amalco-MFC by virtue of the amalgamation;

(c) all of the shares of XXXXXXXXXX held by MFC immediately prior to the amalgamation will be cancelled by virtue of the amalgamation;

(d) in accordance with the provisions of the CBCA, the articles of amalgamation of Amalco-MFC will be the same as the articles of MFC, and Amalco-MFC will not issue any securities in connection with the amalgamation; and

(e) the debt owing by XXXXXXXXXX to MFC as evidenced by the XXXXXXXXXX Notes will be deemed to be settled immediately prior to the amalgamation by a payment made by XXXXXXXXXX and received by MFC of an amount equal to MFC's cost amount of the XXXXXXXXXX Notes pursuant to subsection 80.01(3) of the Act.

43. Immediately following the amalgamation described in paragraph 42 hereof (the "Asset Transfer Time"), Amalco-MFC and the Fund will enter into an agreement of purchase and sale under which:

(a) Amalco-MFC will transfer all of the LP Units held by it (the "Transferred Assets") to the Fund for a purchase price equal to their fair market value (the "Asset Transfer"); and

(b) the Fund will satisfy the purchase price by issuing to Amalco-MFC that number of Special Units having an aggregate fair market value equal to the fair market value of the Transferred Assets.

44. At some time after the Asset Transfer Time, Amalco-MFC will use the cash proceeds from the MFC Class A Share subscription by the Fund described in paragraph 37 hereof to subscribe for Fund Units (being the Special Units).

45. Within 60 days of the Asset Transfer Time, Amalco-MFC will redeem all of its outstanding Amalco-MFC Class A Shares owned by the Unitholders and all of its Amalco-MFC Class B Shares held by the Fund. The redemptions will be satisfied by the delivery by Amalco-MFC of such number of Fund Units (being the Special Units) as having a fair market value equal to the respective redemption amounts.

46. The Fund Units (being the Special Units) to be received by the Fund upon the redemption of the Amalco-MFC Class B Shares described in paragraph 45 hereof will be cancelled upon receipt.

47. The number of Fund Units outstanding after the foregoing transactions will be consolidated on such a basis that the number of Fund Units will be equal to the number of Fund Units outstanding immediately before the proposed transactions described herein.

48. Following the transactions described above, but prior to the amalgamation of Amalco-MFC and XXXXXXXXXX described in paragraph 49 hereof, Amalco-MFC and the Fund will file a joint election in prescribed form and within the prescribed time in respect of the Asset Transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) of the Act. No amount will be agreed upon pursuant to clause 132.2(1)(c)(ii)(B) of the Act in the election filed in respect of the transfer.

49. Amalco-MFC and XXXXXXXXXX (each of which is referred to as a "predecessor corporation" in the present paragraph) will undertake an amalgamation under the provisions of the CBCA to form Amalco-XXXXXXXXXX in such a manner that:

(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations held immediately before the amalgamation will become property of Amalco-XXXXXXXXXX by virtue of the amalgamation;

(b) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of Amalco-XXXXXXXXXX by virtue of the amalgamation;

(c) all of the shares of XXXXXXXXXX held by Amalco-MFC immediately prior to the amalgamation will be cancelled by virtue of the amalgamation; and

(d) in accordance with the provisions of the CBCA, the articles of amalgamation of Amalco-XXXXXXXXXX will be the same as the articles of Amalco-MFC, and Amalco-XXXXXXXXXX will not issue any securities in connection with the amalgamation.

Purposes of the Proposed Transactions

50. The Fund and XXXXXXXXXX have pursued and continue to pursue expansion opportunities for the business. The foregoing would require additional capital investment by the Fund. The Fund has determined that a trust-on-partnership structure would better accommodate the future expansion objectives and would be well perceived by the capital markets. Maintaining both XXXXXXXXXX and a separate trust-on-partnership structure would, however, result in significant costs and effort. Therefore, the Fund has decided to undergo a re-organization of its current organizational structure into a trust-on-partnership, which it views as an effective investment vehicle for the purposes of pursuing expansion opportunities.

51. The purpose of the proposed transactions is also to maximize value to Unitholders and to increase the value of the business by providing for a single structure to fund future expansion opportunities, by anticipating the future requirements to refinance and invest in the business, and by providing a more flexible legal and operating structure in the form of an income trust model that the public markets currently demand.

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. Subject to subsection 131(8.1) of the Act, Amalco-MFC will, immediately prior to the Asset Transfer Time, qualify as a "mutual fund corporation" within the meaning of subsection 131(8) of the Act.

B. Provided that, at the Asset Transfer Time, Amalco-MFC is a mutual fund corporation and the Fund is a mutual fund trust for the purposes of the Act, that the fair market value of the Transferred Assets at the Asset Transfer Time is at least 90% of the fair market value of all property owned by Amalco-MFC at the Asset Transfer Time, and provided that the joint election referred to in paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) of the Act is filed in prescribed form within the time set forth in that paragraph, the Asset Transfer, as described in paragraph 43 hereof, will constitute a "qualifying exchange" within the meaning of subsection 132.2(2) of the Act, such that the rules in subsection 132.2(1) of the Act will apply to such transfer and to the transactions described in paragraphs 45 and 48 hereof. As a result of the application of subsection 132.2(1) of the Act to the Asset Transfer and to the transactions described in paragraphs 45 and 48 hereof:

(a) Amalco-MFC's proceeds of disposition of each particular property that is included in the Transferred Assets and the Fund's cost in respect of each such property will be determined under paragraph 132.2(1)(c) of the Act to be the lesser of (i) the fair market value of the particular property at the Asset Transfer Time and (ii) the greatest of the cost amount to Amalco-MFC of the particular property at the Asset Transfer Time and the fair market value at the Asset Transfer Time of the consideration (other than Units of the Fund) received by Amalco-MFC for the particular property;

(b) except as provided in paragraph 132.2(1)(p) of the Act, Amalco-MFC's aggregate cost of the Fund Units received by it from the Fund as consideration for the Transferred Assets will be deemed under
paragraph 132.2(1)(h) of the Act to be nil;

(c) Amalco-MFC's aggregate proceeds of disposition of the Fund Units distributed to the Fund pursuant to the redemptions described in
paragraph 45 hereof will be deemed under paragraph 132.2(1)(i) of the Act to be nil;

(d) the proceeds of disposition to each Unitholder of the Amalco-MFC Class A Shares redeemed by Amalco-MFC in accordance with paragraph 45 hereof will be deemed under paragraph 132.2(1)(j) of the Act to be equal to the cost amount to each Unitholder of the Amalco-MFC Class A Shares held by each respective Unitholder immediately before the Asset Transfer Time;

(e) with respect to any Amalco-MFC Class A Share disposed of by a Unitholder in accordance with paragraph 45 hereof, pursuant to subsection 131(4) and subparagraph 132.2(1)(o)(i) of the Act section 84 of the Act will not apply to deem a dividend to be paid by Amalco-MFC to such Unitholder, nor to deem such Unitholder to have received a dividend on the Amalco-MFC Class A Shares held by such Unitholder;

(f) the proceeds of disposition to the Fund of the Amalco-MFC Class B Shares redeemed by Amalco-MFC in accordance with paragraph 45 hereof will be deemed under paragraph 132.2(1)(j) of the Act to be equal to the cost amount to the Fund of the Amalco-MFC Class B Shares held by it immediately before the Asset Transfer Time; and

(g) with respect to any Amalco-MFC Class B Share disposed of by the Fund in accordance with paragraph 45 hereof, pursuant to subsection 131(4) and subparagraph 132.2(1)(o)(i) of the Act section 84 of the Act will not apply to deem a dividend to be paid by Amalco-MFC to the Fund, nor to deem the Fund to have received a dividend on the Amalco-MFC Class B Shares held by it.

C. Subsection 245(2) of the Act will not be applied as a result of the proposed transactions described herein, in and of themselves, to redetermine the tax consequences confirmed in the Rulings given 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:

(a) the qualification of the Fund as a "mutual fund trust" within the meaning of subsection 132(6) of the Act;

(b) the transactions and proposed transactions described in paragraphs 15, 16, 28, 29, 35, 38, 40, 41 and 42 hereof; and

(c) the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares referred to herein.

The Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the CRA provided that the proposed transactions are completed within six (6) months of the date of issuance of the present letter.

Opinion

Provided that, at the Asset Transfer Time, Amalco-MFC is a mutual fund corporation and the Fund is a mutual fund trust for the purposes of the Act, that the fair market value of the Transferred Assets at the Asset Transfer Time is at least 90% of the fair market value of all property owned by Amalco-MFC at the Asset Transfer Time, and provided that the joint election referred to in paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(1) of the July 18, 2005 Draft Amendments is filed in prescribed form within the time set forth in that paragraph, the Asset Transfer, as described in paragraph 43 hereof, will constitute a "qualifying exchange" within the meaning of subsection 132.2(1) of the July 18, 2005 Draft Amendments, such that the rules in subsection 132.2(3) of the July 18, 2005 Draft Amendments will apply to such transfer and to the transactions described in paragraphs 45 and 48 hereof. As a result of the application of subsection 132.2(3) of the July 18, 2005 Draft Amendments to the Asset Transfer and to the transactions described in paragraphs 45 and 48 hereof:

(a) Amalco-MFC's proceeds of disposition of each particular property that is included in the Transferred Assets and the Fund's cost in respect of each such property will be determined under paragraph 132.2(4)(b) of the July 18, 2005 Draft Amendments to be the lesser of (i) the fair market value of the particular property at the Asset Transfer Time and (ii) the greatest of the cost amount to Amalco-MFC of the particular property at the Asset Transfer Time and the fair market value at the Asset Transfer Time of the consideration (other than Units of the Fund) received by Amalco-MFC for the particular property;

(b) except as provided in paragraph 132.2(3)(m) of the July 18, 2005 Draft Amendments, Amalco-MFC's aggregate cost of the Fund Units received by it from the Fund as consideration for the Transferred Assets will be deemed under paragraph 132.2(3)(e) of the July 18, 2005 Draft Amendments to be nil;

(c) Amalco-MFC's aggregate proceeds of disposition of the Fund Units distributed to the Fund pursuant to the redemptions described in
paragraph 45 hereof will be deemed under paragraph 132.2(3)(f) of the July 18, 2005 Draft Amendments to be equal to the cost amount of the Fund Units to Amalco-MFC immediately before the distribution of the Fund Units to the Fund;

(d) the proceeds of disposition to each Unitholder of the Amalco-MFC Class A Shares redeemed by Amalco-MFC in accordance with paragraph 45 hereof will be deemed under subparagraph 132.2(3)(g)(i) of the July 18, 2005 Draft Amendments to be equal to the cost amount to each Unitholder of the Amalco-MFC Class A Shares held by each respective Unitholder immediately before such redemption;

(e) with respect to any Amalco-MFC Class A Share disposed of by a Unitholder in accordance with paragraph 45 hereof, pursuant to subsection 131(4) of the Act and subparagraph 132.2(3)(l)(i) of the July 18, 2005 Draft Amendments section 84 of the Act will not apply to deem a dividend to be paid by Amalco-MFC to such Unitholder, nor to deem such Unitholder to have received a dividend on the Amalco-MFC Class A Shares held by such Unitholder;

(f) the proceeds of disposition to the Fund of the Amalco-MFC Class B Shares redeemed by Amalco-MFC in accordance with paragraph 45 hereof will be deemed under subparagraph 132.2(3)(g)(i) of the July 18, 2005 Draft Amendments to be equal to the cost amount to the Fund of the Amalco-MFC Class B Shares held by it immediately before such redemption; and

(g) with respect to any Amalco-MFC Class B Share disposed of by the Fund in accordance with paragraph 45 hereof, pursuant to subsection 131(4) of the Act and subparagraph 132.2(3)(l)(i) of the July 18, 2005 Draft Amendments section 84 of the Act will not apply to deem a dividend to be paid by Amalco-MFC to the Fund, nor to deem the Fund to have received a dividend on the Amalco-MFC Class B Shares held by it.

Yours truly,

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