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 and file 2006-018227.
XXXXXXXXXX 2006-019031
XXXXXXXXXX, 2006
Dear XXXXXXXXXX:
Re : XXXXXXXXXX (Account Number XXXXXXXXXX )
Advance Income Tax Ruling Request
This is in reply to your letter of XXXXXXXXXX, as amended by your subsequent electronic correspondences, in which you request an Advance Income Tax Ruling on behalf of the above named taxpayer.
We understand that, to the best of your knowledge and that of the taxpayer involved, none of the issues involved in this Ruling request:
(i) is in an earlier return of the taxpayer 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 taxpayer or a related person;
(iii) is under objection by the taxpayer 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:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
"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, New XXXXXXXXXX and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, New MCo, as described in paragraph 39 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;
"Acquireco" means the corporation described in paragraph 23(a) hereof;
"Acquireco Note" means the promissory note to be issued by Acquireco to the Trust as described in paragraph 23(b) hereof;
"Adminco" means the corporation to be formed under the XXXXXXXXXX prior to the effective date of the proposed transactions described herein, which will be a wholly-owned subsidiary of the Trust and which will act as the administrator of the Trust pursuant to an administration agreement to be entered into between Adminco and the trustees of the Trust;
"Arrangement" means the plan of arrangement described in paragraph 22 hereof;
"Asset Transfer" means the transfer of the Transferred Assets by Amalco-MFC to the Trust as described in paragraph 40 hereof;
"Asset Transfer Time" means the time of the Asset Transfer as described in paragraph 40 hereof;
XXXXXXXXXX
"XXXXXXXXXX Notes" means notes issued by XXXXXXXXXX to the Trust in various tranches and paying interest at varying rates and on varying terms, which as of XXXXXXXXXX had an aggregate principal value of $XXXXXXXXXX;
XXXXXXXXXX
XXXXXXXXXX
"XXXXXXXXXX Common Share" means a common share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Notes" means the notes issued by XXXXXXXXXX to XXXXXXXXXX, which as of XXXXXXXXXX had an aggregate principal amount of $XXXXXXXXXX;
"XXXXXXXXXX-Trust Debt" means the debt owing by XXXXXXXXXX to the Trust, which as of XXXXXXXXXX had an aggregate principal amount of $XXXXXXXXXX;
XXXXXXXXXX
"XXXXXXXXXX Class A Preferred Share" means a Class A Preferred Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Class B Common Non-Voting Share" means a Class B Common Non-Voting Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Class B Preferred Share" means a Class B Preferred Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Class C Preferred Share" means a Class C Preferred Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Class D Preferred Share" means a Class D Preferred Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Exchangeable Share" means an Exchangeable Share in the capital stock of XXXXXXXXXX having conditions attached thereto which entitles a holder to cause XXXXXXXXXX to redeem such share at the demand of the holder for consideration determinable and payable in accordance with the conditions;
"XXXXXXXXXX Non-Voting Common Share" means a Non-Voting Common Share in the capital stock of XXXXXXXXXX;
"XXXXXXXXXX Notes" means notes issued by XXXXXXXXXX to the Trust, which as of XXXXXXXXXX had an aggregate principal amount of $XXXXXXXXXX;
XXXXXXXXXX
"XXXXXXXXXX Voting Common Share" means a voting common share in the capital stock of XXXXXXXXXX;
"LP Unit" means a limited partnership unit of XXXXXXXXXX;
"MCo" means XXXXXXXXXX, a corporation governed by the XXXXXXXXXX and a taxable Canadian corporation, the common shares of which are traded on the XXXXXXXXXX Stock Exchange under the symbol XXXXXXXXXX;
"MCo Common Share" means a common share in the capital stock of MCo;
"MCo Transactions" means the transactions described in paragraph 23 hereof;
"XXXXXXXXXX" means XXXXXXXXXX, a corporation governed by the XXXXXXXXXX, a taxable Canadian corporation and a wholly-owned subsidiary of MCo;
"XXXXXXXXXX Common Share" means a common share in the capital stock of XXXXXXXXXX;
"MFC" means the corporation to be formed as described in paragraph 27 hereof;
"MFC Class A Share" means a Class A Share in the capital stock of MFC, the terms of which are described in paragraph 27(b) hereof;
"MFC Class B Redemption Amount" means an amount equal to the aggregate fair market value of the Trust Assets transferred to MFC as described in paragraph 37 hereof by the Trust in consideration for the issuance of MFC Class B Shares, plus all declared and unpaid dividends to the date of redemption or retraction;
"MFC Class B Share" means a Class B Share in the capital stock of MFC, the terms of which are described in paragraph 27(c) hereof;
"MFC Common Share" means a common share in the capital stock of MFC, the terms of which are described in paragraph 27(a) hereof;
"MLP" means the limited partnership to be formed under the laws of the Province of XXXXXXXXXX of which XXXXXXXXXX will be the general partner and MCo will be the limited partner;
"MLP Units" means the limited partnership units of MLP;
"New XXXXXXXXXX" means the corporation resulting from the amalgamation of XXXXXXXXXX and XXXXXXXXXX as described in paragraph 24 hereof;
"New XXXXXXXXXX Common Share" means a common share in the capital stock of New XXXXXXXXXX issued pursuant to the amalgamation by which New XXXXXXXXXX is created;
"New GPCo" means the corporation resulting from the amalgamation of Amalco-MFC, XXXXXXXXXX and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, XXXXXXXXXX, as described in paragraph 46 hereof;
"New MCo" means the corporation to be formed on the amalgamation of MCo and Acquireco as described in paragraph 23(d) hereof;
"New MCo Common Share" means a common share in the capital stock of New MCo issued pursuant to the amalgamation by which New MCo is created;
"public corporation" has the meaning assigned by subsection 89(1) of the Act;
"Special Unit" means a Trust Unit representing a beneficial ownership interest in the Trust, which Trust Unit enjoys the benefit of subordination of the distribution entitlement of other Unitholders as described in paragraph 32 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 Trust as described in paragraph 40 hereof;
"Trust" means XXXXXXXXXX;
"Trust Assets" means the assets transferred by the Trust to MFC as described in paragraph 37 hereof;
"Trust DOT" means the Declaration of Trust of the Trust dated as of XXXXXXXXXX, as amended and restated on XXXXXXXXXX and XXXXXXXXXX, and as amended pursuant to the Supplemental Trust Indenture dated XXXXXXXXXX;
"Trust Unit" means a trust unit of the Trust; and
"Unitholders" means holders of Trust Units.
Facts
1. The Trust is a limited purpose trust formed under the laws of XXXXXXXXXX pursuant to the Trust DOT, a copy of which was provided.
2. The Trust 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, units and debt of XXXXXXXXXX, and securities of related companies. The Trust was not established and is not maintained primarily for the benefit of non-residents of Canada.
3. The trustee of the Trust is resident in Canada for the purposes of the Act.
4. The Trust is a "registered investment" as defined in section 204.4 of the Act.
5. The Trust Units are traded on the XXXXXXXXXX Stock Exchange under the symbol XXXXXXXXXX and the Trust has a XXXXXXXXXX year-end for purposes of the Act.
6. The head office of the Trust is located at XXXXXXXXXX, and it deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Centre. The Trust's account number is XXXXXXXXXX.
7. Under the Trust DOT, the Trust may issue an unlimited number of Trust Units. Each Trust Unit represents an equal and undivided beneficial interest in the distributions made by the Trust, as well as the net assets of the Trust in the event of termination or winding-up of the Trust. Each Trust 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 Trust DOT precludes non-residents of Canada from collectively owning a majority of the Trust Units.
8. As of XXXXXXXXXX Trust Units were issued and outstanding.
9. XXXXXXXXXX is a trust governed by the laws of the Province of XXXXXXXXXX The Trust holds XXXXXXXXXX% of the issued and outstanding units of XXXXXXXXXX.
10. XXXXXXXXXX is a corporation governed by the XXXXXXXXXX, a taxable corporation and a resident of Canada for purposes of the Act.
(a) The authorized capital of XXXXXXXXXX consists of an unlimited number of XXXXXXXXXX Voting Common Shares, an unlimited number of XXXXXXXXXX Non-Voting Common Shares, an unlimited number of XXXXXXXXXX Exchangeable Shares, an unlimited number of XXXXXXXXXX Class A Preferred Shares, an unlimited number of XXXXXXXXXX Class B Preferred Shares, an unlimited number of XXXXXXXXXX Class B Common Non-Voting Shares, an unlimited number of XXXXXXXXXX Class C Preferred Shares and an unlimited number of XXXXXXXXXX Class D Preferred Shares.
(b) Currently, there are XXXXXXXXXX Class B Common Non-Voting Shares issued and outstanding held by the Trust, XXXXXXXXXX Class A Preferred Share issued and outstanding held by the Trust, XXXXXXXXXX Voting Common Share issued and outstanding held by the Trust, XXXXXXXXXX Class C Preferred Share issued and outstanding held by XXXXXXXXXX, XXXXXXXXXX Class D Preferred Share issued and outstanding held by XXXXXXXXXX and XXXXXXXXXX Exchangeable Shares issued and outstanding.
(c) Prior to the proposed transactions described herein, the XXXXXXXXXX Exchangeable Shares held by the public will be exchanged, pursuant to their terms, for Trust Units.
11. XXXXXXXXXX head office is the same as the Trust and it deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Tax Centre. XXXXXXXXXX business number is XXXXXXXXXX. XXXXXXXXXX has a XXXXXXXXXX year-end for purposes of the Act.
12. XXXXXXXXXX is a corporation governed by the XXXXXXXXXX , a taxable corporation and a resident of Canada for purposes of the Act. The authorized capital of XXXXXXXXXX consists of an unlimited number of Common Shares and an unlimited number of First Preferred Shares. Currently, there is XXXXXXXXXX Common Share issued and outstanding held by the Trust.
13. XXXXXXXXXX is a corporation governed by the XXXXXXXXXX, a taxable corporation and a resident of Canada for purposes of the Act. The authorized capital of XXXXXXXXXX consists of an unlimited number of XXXXXXXXXX Common Shares and an unlimited number of First Preferred Shares. Currently, there is XXXXXXXXXX Common Share issued and outstanding held by the Trust.
14. XXXXXXXXXX head office is the same as the Trust and it deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Tax Centre. XXXXXXXXXX business number is XXXXXXXXXX. XXXXXXXXXX has a XXXXXXXXXX year-end for purposes of the Act.
15. XXXXXXXXXX is a corporation governed by the XXXXXXXXXX, a taxable corporation and a resident of Canada for purposes of the Act. The authorized capital of XXXXXXXXXX consists of an unlimited number of XXXXXXXXXX Common Shares and an unlimited number of First Preferred Shares. Currently there are XXXXXXXXXX Common Shares issued and outstanding held by XXXXXXXXXX.
16. XXXXXXXXXX is a limited partnership formed under the laws of the Province of XXXXXXXXXX. The general partner of XXXXXXXXXX is XXXXXXXXXX. XXXXXXXXXX hold LP Units in XXXXXXXXXX.
17. The Trust holds the XXXXXXXXXX Notes, XXXXXXXXXX Notes and the XXXXXXXXXX-Trust Debt.
18. The XXXXXXXXXX Common Share, XXXXXXXXXX Voting Common Share, XXXXXXXXXX Class B Common Non-Voting Shares, XXXXXXXXXX Class A Preferred Share, XXXXXXXXXX Notes, XXXXXXXXXX-Trust Debt, XXXXXXXXXX units, XXXXXXXXXX Notes and XXXXXXXXXX Common Share are capital property to the Trust for purposes of the Act.
19. XXXXXXXXXX holds the XXXXXXXXXX Notes.
20. XXXXXXXXXX has entered into certain XXXXXXXXXX contracts relating to its business. XXXXXXXXXX will transfer the rights and obligations under these contracts to XXXXXXXXXX prior to undertaking the proposed transactions outlined herein.
21. The principal undertakings of the Trust are to issue Trust Units and to acquire and hold debt and other interests. The direct or indirect wholly owned subsidiaries carry on the business of XXXXXXXXXX and assets related thereof through XXXXXXXXXX.
22. Conditional on the approval of a plan of arrangement (the "Arrangement") pursuant to XXXXXXXXXX by the shareholders of MCo, the Trust has entered into an agreement pursuant to which an affiliate of the Trust, Acquireco, will acquire pursuant to the Arrangement all of the issued and outstanding shares of MCo owned by the public in consideration for Trust Units.
23. In the event that the shareholders of MCo approve the Arrangement, the following transactions (the "MCo Transactions") will be undertaken prior to the proposed transactions outlined herein:
(a) Acquireco will be incorporated under the XXXXXXXXXX. The issued and outstanding capital of Acquireco will consist of one class of commons shares. The Trust will subscribe for one or more common shares in the capital of Acquireco for a nominal amount.
(b) The Trust will issue to Acquireco such number of Trust Units required by Acquireco to meet its obligations described in paragraph 23(c) hereof to deliver Trust Units to the holders of the issued and outstanding MCo Common Shares, and in consideration thereof Acquireco will issue a promissory note to the Trust with a principal amount equal to the fair market value of the Trust Units so acquired (the "Acquireco Note").
(c) Acquireco will acquire all the issued and outstanding MCo Common Shares in consideration for the Trust Units acquired in accordance with paragraph 23(b) hereof.
(d) MCo and Acquireco (each of which is referred to in this paragraph as a "predecessor corporation") will undertake an amalgamation under the provisions of the XXXXXXXXXX to form New MCo in such a manner that:
(i) 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, in particular the XXXXXXXXXX Common Shares and the MLP Units, will become property of New MCo by virtue of the amalgamation;
(ii) all of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of New MCo by virtue of the amalgamation; and
(iii) all the shareholders (except any predecessor corporation) who owned shares in the capital stock of any predecessor corporation immediately before the amalgamation will receive shares of the capital stock of New MCo pursuant to the amalgamation.
(e) With respect to certain hedging contracts that have been entered into by MCo relating to its business, New MCo will transfer the rights and obligations under these contracts to XXXXXXXXXX.
Proposed Transactions
24. XXXXXXXXXX and XXXXXXXXXX (each of which is referred to in this paragraph as a "predecessor corporation") will, prior to the proposed transactions outlined hereinafter and the change to XXXXXXXXXX fiscal year-end described in paragraph 25 hereof, undertake an amalgamation under the provisions of XXXXXXXXXX to form New 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 New 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 New XXXXXXXXXX by virtue of the amalgamation; and
(c) all the shareholders (except any predecessor corporation) who owned shares in the capital stock of any predecessor corporation immediately before the amalgamation will receive New XXXXXXXXXX Common Shares pursuant to the amalgamation.
25. On XXXXXXXXXX, the XXXXXXXXXX Tax Services Office approved XXXXXXXXXX request to change the end of its current fiscal period to the day that is immediately before the day on which the Asset Transfer described in paragraph 40 hereof occurs.
26. Prior to the proposed transactions outlined hereinafter, the partnership agreement for XXXXXXXXXX, a copy of which was provided, will be amended such that XXXXXXXXXX is replaced by XXXXXXXXXX as general partner. In addition, all of the employees of New XXXXXXXXXX will be transferred to XXXXXXXXXX. The board of directors of XXXXXXXXXX will consist of XXXXXXXXXX persons, the majority of which will not also serve as trustees of the Trust. The board of directors of XXXXXXXXXX will have the powers and authority to manage the business and affairs of XXXXXXXXXX and XXXXXXXXXX will administer, manage, control and operate the business of XXXXXXXXXX. The partnership agreement for XXXXXXXXXX will indicate that any limited partner of XXXXXXXXXX:
(a) will have a liability in respect of the debts, liabilities and obligations of XXXXXXXXXX which is limited to the amount that it contributed to XXXXXXXXXX plus any undistributed income. Should the limited partner's liability not be limited for any reason, XXXXXXXXXX is required to indemnify the limited partner for such liability unless such liability arises out of any act or omission of the limited partner;
(b) cannot control or manage the business of XXXXXXXXXX;
(c) cannot execute any document binding XXXXXXXXXX or XXXXXXXXXX;
(d) cannot undertake any obligation or responsibility on behalf of XXXXXXXXXX;
(e) cannot bring any action for partition or sale of property of XXXXXXXXXX; and
(f) cannot take any action which jeopardizes the status of XXXXXXXXXX as a limited partnership.
27. Prior to the proposed transactions outlined herein, MFC will be incorporated under the XXXXXXXXXX. The issued and outstanding capital of MFC will consist of three classes of shares:
(a) The MFC Common Shares will, subject to the XXXXXXXXXX:
(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 XXXXXXXXXX:
(i) be non-voting preferred shares;
(ii) entitle the holder thereof to 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 equal to the fair market value of any consideration paid to subscribe for the share on issuance plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Trust Units;
(iv) be redeemable at the option of the holder upon not less than three business days prior written notice to MFC for such redemption amount per share as declared by the board of directors of MFC at the time of the issuance of the MFC Class A Shares 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 with respect to priority in the event of liquidation, dissolution or winding-up).
(c) The MFC Class B Shares will, subject to the XXXXXXXXXX:
(i) be non-voting preferred shares;
(ii) entitle the holder thereof to 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 MFC Class B Redemption Amount, which aggregate redemption amount may be paid in Trust Units;
(iv) be redeemable at the option of the holder upon not less than three business days prior written notice to MFC for an aggregate redemption amount equal to the MFC Class B Redemption Amount; 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 with respect to priority in the event of liquidation, dissolution or winding-up).
28. MFC's undertaking will be restricted, pursuant to its constituting documents, to the investing of its funds in property, other than real property.
29. The Trust will subscribe for one MFC Common Share, the consideration for which will be a cash payment of $XXXXXXXXXX.
30. Prior to the proposed transactions described hereinafter, XXXXXXXXXX will grant to XXXXXXXXXX a net profits interest in respect of certain of its assets in consideration for which XXXXXXXXXX will issue to XXXXXXXXXX a promissory note with a principal amount equal to the fair market value of the net profits interest so granted.
31. XXXXXXXXXX will assign to the Trust the XXXXXXXXXX Notes in partial repayment of the XXXXXXXXXX Notes. The principal amount of the XXXXXXXXXX Notes will be reduced by the fair market value of the XXXXXXXXXX Notes.
32. All Unitholders, effective upon the issuance of the Special Units described in paragraph 41 hereof, will be deemed to subordinate their entitlement to receive distributions from the Trust such that they will not receive any distributions from the Trust (other than the distributions to be undertaken in accordance with paragraph 34 hereof) in respect of their Trust 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 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 43 hereof.
33. The Trust will make a cash subscription for such number of MFC Class A Shares as would equal the number of Trust Units then outstanding. The issuance of the MFC Class A Shares and subsequent transactions will be completed in accordance with an Information Circular containing prospectus level disclosure filed with a securities regulator in a Province of Canada.
34. The Trust will undertake a return of capital in respect of the Trust Units as follows:
the Trust will distribute to each Unitholder such number of MFC Class A Shares equal to the number of Trust Units owned by such holder immediately before the distribution. The number of Trust Units owned by each Unitholder will not be reduced as a result of this distribution. As part of the distribution of the MFC Class A Shares, the Trust will remit to the Receiver General, on behalf of each Unitholder that is a non-resident person for the purposes of the Act, an amount equal to the amount required by the Act to be withheld on behalf of the non-resident Unitholder (taking into account the amount so remitted on behalf of that Unitholder) in respect of the return of capital, including amounts required to be withheld under Part XIII.2 of the Act.
35. The distribution of the MFC Class A Shares to the Unitholders described in paragraph 34 hereof 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".
36. Prior to the amalgamation described in paragraph 39 hereof, MFC will either list its MFC Class A Shares on a prescribed stock exchange in Canada or elect to be a "public corporation" in accordance with paragraph (b) of the definition of "public corporation" in subsection 89(1) of the Act.
37. The Trust and MFC will enter into an agreement of purchase and sale under which:
(a) the Trust will transfer to MFC all of the New XXXXXXXXXX Common Shares, XXXXXXXXXX Notes, XXXXXXXXXX Notes, XXXXXXXXXX - Trust Debt and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, all of the New MCo Common Shares and the Acquireco Note held by the Trust (collectively the "Trust Assets");
(b) MFC will issue to the Trust such number of MFC Class B Shares having an aggregate MFC Class B Redemption Amount equal to the fair market value of the Trust Assets so transferred; and
(c) the Trust 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 each Trust Asset so transferred will be an amount not less than the lesser of (i) the cost amount and (ii) the fair market value of such Trust Asset and will not exceed the fair market value of such Trust Asset.
38. Prior to the amalgamation described in paragraph 39 hereof of MFC, New XXXXXXXXXX and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, New MCo, the stated capital amount maintained by New XXXXXXXXXX for its issued and outstanding shares will be reduced to $XXXXXXXXXX without payment of any amount in respect of those shares and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, the stated capital amount maintained by New MCo for its issued and outstanding shares will be reduced to $XXXXXXXXXX without payment of any amount in respect of those shares.
39. Either following the listing of the MFC Class A Shares referred to in paragraph 36 hereof or on the day following the day on which the election described in paragraph 36 hereof is filed, as the case maybe, and following the completion of the transactions described in paragraphs 37 and 38 hereof, New XXXXXXXXXX, MFC and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, New MCo (each of which is hereinafter referred to in this paragraph as a "predecessor corporation") will undertake an amalgamation under the provisions of the XXXXXXXXXX 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 New XXXXXXXXXX and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, all of the shares of New MCo held by MFC immediately prior to the amalgamation will be cancelled by virtue of the amalgamation; and
(d) the debt owing by New XXXXXXXXXX to MFC as evidenced by the XXXXXXXXXX Notes, XXXXXXXXXX-Trust Debt and XXXXXXXXXX Notes will be deemed to be settled immediately prior to the amalgamation by a payment made by New XXXXXXXXXX and received by MFC of an amount equal to MFC's cost amount of the XXXXXXXXXX Notes, XXXXXXXXXX-Trust Debt and XXXXXXXXXX Notes pursuant to subsection 80.01(3) of the Act and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, the debt owing by New MCo to MFC as evidenced by the Acquireco Note, will be deemed to be settled immediately prior to the amalgamation by a payment made by New MCo and received by MFC of an amount equal to the MFC's cost amount of the Acquireco Note pursuant to subsection 80.01(3) of the Act.
40. Immediately following the amalgamation described in paragraph 39 hereof (the "Asset Transfer Time"), Amalco-MFC and the Trust will enter into an agreement of purchase and sale under which:
(a) Amalco-MFC will transfer all of the LP Units, XXXXXXXXXX Common Shares and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, all of the MLP Units and XXXXXXXXXX Common Shares held by it (collectively the "Transferred Assets") to the Trust for a purchase price equal to their fair market value (the "Asset Transfer"); and
(b) the Trust 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.
41. At some time after the Asset Transfer Time, Amalco-MFC will use the cash proceeds from the MFC Class A Share subscription by the Trust described in paragraph 33 hereof to subscribe for Trust Units (being the Special Units).
42. 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 outstanding Amalco-MFC Class B Shares held by the Trust. The redemptions will be satisfied by the delivery by Amalco-MFC to the Unitholders and the Trust, as applicable, of such number of Trust Units (being the Special Units) as having a fair market value equal to the respective redemption amounts. The Amalco-MFC Class A Shares and Amalco-MFC Class B Shares that will be so redeemed by Amalco-MFC will represent all or substantially all of the shares issued by Amalco-MFC and outstanding immediately prior to the Asset Transfer Time.
43. The Trust Units (being the Special Units) to be received by the Trust upon the redemption of the Amalco-MFC Class B Shares described in paragraph 42 hereof will be cancelled upon receipt.
44. The number of Trust Units outstanding after the foregoing transactions will be consolidated on such a basis that it will be equal to the number of Trust Units outstanding immediately before the proposed transactions described herein.
45. Following the transactions described above, but prior to the amalgamation described in paragraph 46 hereof, Amalco-MFC and the Trust 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 Asset Transfer.
46. Amalco-MFC, XXXXXXXXXX and, in the event the MCo Transactions are effected prior to the implementation of the proposed transactions described herein, XXXXXXXXXX (each of which is hereinafter referred to in this paragraph as a "predecessor corporation") will undertake an amalgamation under the provisions of the XXXXXXXXXX to form New GPCo 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 New GPCo 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 New GPCo by virtue of the amalgamation; and
(c) all the shareholders (except any predecessor corporation) who owned shares in the capital stock of any predecessor corporation immediately before the amalgamation will receive shares of the capital stock of New GPCo pursuant to the amalgamation.
47. The Trust and Adminco will enter into an agreement of purchase and sale under which:
(a) the Trust will transfer all of the New GPCo Common Shares held by it to Adminco;
(b) Adminco will issue to the Trust such number of Adminco Common Shares having an aggregate fair market value equal to the fair market value of the New GPCo Common Shares so transferred; and
(c) the Trust and Adminco will file a joint election in prescribed form and within the prescribed time set forth 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 the New GPCo Common Shares so transferred will be an amount not less than the lesser of (i) the cost amount and (ii) the fair market value of such property and will not exceed the fair market value of such property.
Purposes of the Proposed Transactions
48. The Trust and XXXXXXXXXX have pursued and continue to pursue expansion opportunities for the business. The foregoing would require additional capital investment by the Trust. The Trust 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 administrative costs and effort. Therefore, the Trust has decided to undergo a re-organization of its current organizational structure into a trust-on-partnership structure, which it views as an effective investment vehicle for the purposes of pursuing expansion opportunities.
49. 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) and section 253.1 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 Trust 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 40 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 42 and 45 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 42 and 45 hereof:
(a) Amalco-MFC's proceeds of disposition of each particular property that is included in the Transferred Assets and the Trust'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 Trust Units) 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 Trust Units received by it from the Trust 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 Trust Units distributed to the Trust pursuant to the redemptions described in paragraph 42 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 42 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 42 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 Trust of the Amalco-MFC Class B Shares redeemed by Amalco-MFC in accordance with paragraph 42 hereof will be deemed under paragraph 132.2(1)(j) of the Act to be equal to the cost amount to the Trust 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 Trust in accordance with paragraph 42 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 Trust, nor to deem the Trust 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 or the Opinion expressed below.
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 Trust as a "mutual fund trust" within the meaning of subsection 132(6) of the Act;
(b) the transactions and proposed transactions described in paragraphs 18, 20, 23, 25, 26, 30, 31, 34, 37, 38, 39(d), 44 and 47 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.
In addition, the measures of the Government's Tax Fairness Plan announced on October 31 2006 have not been considered for the purposes of the Rulings given herein and nothing in this Advance Income Tax Ruling should be construed as implying that the MCo Transactions described at paragraph 23 above have been examined for the purposes of determining whether they will be considered "normal growth" by the Government. Consequently we can make no statement as to the effective date of the proposed distribution tax on the Trust.
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 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 Trust 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 40 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 subsections 132.2(3) and (4) of the July 18, 2005 Draft Amendments will apply to such transfer and to the transactions described in paragraphs 42 and 45 hereof. As a result of the application of subsections 132.2(3) and (4) of the July 18, 2005 Draft Amendments to the Asset Transfer and to the transactions described in paragraphs 42 and 45 hereof:
(a) Amalco-MFC's proceeds of disposition of each particular property that is included in the Transferred Assets and the Trust'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 Trust Units) 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 Trust Units received by it from the Trust 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 Trust Units distributed to the Trust pursuant to the redemptions described in paragraph 42 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 Trust Units to Amalco-MFC immediately before the distribution of the Trust Units to the Trust;
(d) the proceeds of disposition to each Unitholder of the Amalco-MFC Class A Shares redeemed by Amalco-MFC in accordance with paragraph 42 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 42 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 Trust of the Amalco-MFC Class B Shares redeemed by Amalco-MFC in accordance with paragraph 42 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 Trust 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 Trust in accordance with paragraph 42 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 Trust, nor to deem the Trust 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
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