2007 Ruling 2006-0192561R3 - 132.2 reorganization

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: Along the lines of other issued rulings.

XXXXXXXXXX 										2006-019256

XXXXXXXXXX, 2007

Dear XXXXXXXXXX

RE: Advance Income Tax Ruling
XXXXXXXXXX - Trust Account Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Centre)
XXXXXXXXXX - Business Number XXXXXXXXXX
(XXXXXXXXXX Tax Services Office, XXXXXXXXXX Centre)
XXXXXXXXXX - Business Number XXXXXXXXXX
(XXXXXXXXXX Tax Services Office, XXXXXXXXXX Centre)
Collectively, the "Taxpayers".

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the Taxpayers. We also acknowledge our telephone conversations and correspondence concerning your request. The documents submitted with your request are part of this document only to the extent described herein.

We understand that to the best of your knowledge, and that of the Taxpayers, none of the issues considered in this advance income tax ruling request are:

in an earlier return of the Taxpayers or related persons;

(i) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Taxpayers or persons related to them;

(ii) under objection by the Taxpayers or related persons;

(iii) before the courts; or

(iv) the subject of a ruling previously issued by the Directorate to the Taxpayers or related persons.

In this document, unless otherwise indicated, all statute references are to the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act") or to the Income Tax Regulations (the "Regulations") and all monetary amounts are expressed in Canadian dollars.

Definitions

In this letter unless otherwise expressly stated:

"adjusted cost base" has the meaning assigned by section 54;

"Administrator of the Trust" means the entity that is responsible by agreement with the Trustee to manage the operations and administrative requirements of the Trust;

"agreed amount" in respect of an asset means the amount that the transferor and the transferee of the asset agree upon in their election under subsection 85(1) or 97(2) or the amount deemed by those provisions to have been agreed on by them, as the case may be, in respect of that asset;

"Amalco MFC" means the corporation to be formed on the amalgamation under the First Act of MFC, Holdco 1 and Holdco 2;

"Amalco MFC Class A Share" means a Class A share in the capital of Amalco MFC with the same terms as those of an MFC Class A share;

"Amalco MFC Class B Share" means a Class B share in the capital of Amalco MFC with the same terms as those of an MFC Class B Share;

"Amalco MFC Common Shares" means a common share in the capital of Amalco MFC with the same terms as those of an MFC Common Share;

"Business" means the business of XXXXXXXXXX in Canada;

"cost amount" has the meaning assigned by subsection 248(1);

"Declaration of Trust" means the declaration of trust dated XXXXXXXXXX establishing and governing the Trust;

"Exchange" means the XXXXXXXXXX Stock Exchange;

"First Act" means the Business Corporations Act (XXXXXXXXXX);

"GPCo" means a company incorporated under the provisions of the First Act. The authorized capital of GPCo will consist of an unlimited number of common shares;

"GP Unit" means an outstanding general partnership unit in the capital of LP;

"Holdco 1" means XXXXXXXXXX, a taxable Canadian corporation and a private corporation formed under the First Act;

"Holdco 1 Common Share" means an outstanding Class A or Class C share in the capital of Holdco 1;

"Holdco 2" means XXXXXXXXXX, a taxable Canadian corporation incorporated under the laws of XXXXXXXXXX;

"LP" means a limited partnership governed by the laws of XXXXXXXXXX and established pursuant to the terms of the LP Agreement;

"LP Agreement" means an agreement governed by the laws of the province of XXXXXXXXXX to be entered into by GPCo and the Partnership to create LP;

"LP Note" means a demand, non-interest-bearing promissory note to be issued by LP;

"LP Unit" means an outstanding limited partnership interest in the capital of LP;

"MFC" means a taxable Canadian corporation to be formed under the First Act;

"MFC Amalgamation" means a vertical short-form amalgamation of MFC, Holdco 1 and Holdco 2 under the provisions of the First Act;

"MFC Class A Share" means a Class A share in the capital of MFC. An MFC Class A Share: (i) is non-voting; (ii) entitles the holder to dividends as and when declared by the board of directors; (iii) is redeemable and retractable (under no circumstances may MFC suspend its redemption); (iv) has a redemption price payable upon receipt of the share by MFC equal to the fair market value of any consideration paid for its issuance plus any declared and unpaid dividends on such shares at the date of redemption or retraction (the redemption price is payable in cash or by the transfer of Trust units); (vi) entitles the holder to the redemption price in preference to any participation on the MFC Common Shares on the dissolution of MFC; and (vii) participates and ranks equally with an MFC Class B Share;

"MFC Class B Share" means a Class B share in the capital of MFC. An MFC Class B Share: (i) is non-voting; (ii) entitles the holder to dividends as and when declared by the board of directors; (iii) is redeemable and retractable (under no circumstances may MFC suspend its redemption); (iv) has a redemption price payable upon receipt of the share by MFC equal to the fair market value of any consideration paid for its issuance plus any declared and unpaid dividends on such shares at the date of redemption or retraction (the redemption price is payable in cash or by the transfer of Special Trust units); (vi) entitles the holder to the redemption price in preference to any participation on the MFC Common Shares on the dissolution of MFC; and (vii) participates and ranks equally with an MFC Class A Share;

"MFC Common Share" means a common share in the capital of MFC. An MFC Common Share: (i) provides one vote; (ii) entitles the holder to dividends if, as and when declared by the board of directors of MFC; (iii) entitles the holder to share pro rata in any remaining assets of MFC on the dissolution of MFC, subject to the rights of the holders of any other class of shares of MFC to receive assets in priority to or ratably with the holders of the MFC common shares;

"Notes" means the unsecured subordinated debt obligations of Holdco 1 totaling approximately $XXXXXXXXXX, bearing interest at XXXXXXXXXX% per annum and maturing in XXXXXXXXXX;

"Paragraph" means a reference to a paragraph or subparagraph of this letter;

"Partnership" means the XXXXXXXXXX, a general partnership formed under the laws of XXXXXXXXXX;

"Partnership Agreement" means the XXXXXXXXXX partnership agreement between Holdco 1 and Holdco 2's predecessor companies governing the operation of the Partnership;

"private corporation" has the meaning assigned by subsection 89(1);

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

"Proposed Amendments" means the legislative proposals in Bill C-33, which received first reading in the House of Commons on November 22, 2006;

"Proposed Transactions" means the transactions contemplated in the Proposed Transactions section of this letter;

"Right of Renunciation" means the right exercisable by written notice of a Subsidiary to renounce, release and surrender all rights and benefits in and to Special Trust Units and interests in the Trust (income, capital or otherwise) in a written notice of renunciation;

"Special Trust Unit" means a trust unit in the Trust that has the same terms and provisions as a Trust Unit, except that (i) it entitles its holder to have them redeemed for an amount equal to the aggregate redemption price of an MFC Class B Share; and (ii) it ranks in priority to a Trust Unit with respect to distributions payable by the Trust until the holder of the Special Trust Unit has received an aggregate amount equal to the redemption price of all issued and outstanding MFC Class B Shares or there is no Special Trust Unit issued and outstanding;

"Subsidiary" means a corporation, trust or partnership in which the Trust holds 95% or more of all the beneficial interests directly or through one or more Subsidiaries, including a corporation where the Trust owns 95% or more of the shares of each class of the corporation, a trust where the Trust owns 95% or more of the beneficial interest in the trust and a partnership where the Trust owns 95% or more of the partnership units or interests in the partnership;

"taxable Canadian corporation" has the meaning assigned by subsection 89(1);

"Transfer Time" means the moment that is the transfer time for purposes of the definition of "qualifying exchange" in subsection 132.2(2), which is the moment when the transfer described in Paragraph 21 occurs;

"Trust" means XXXXXXXXXX, an open-ended trust formed pursuant to the Declaration of Trust under the laws of the Province of XXXXXXXXXX;

"Trust Unitholder" means the holder of a Trust Unit;

"Trust Unit" means a unit of the Trust other than a Special Trust Unit. Each Trust Unit represents an equal undivided beneficial interest in the Trust. Each Trust Unit is transferable, entitles the holder to one vote with respect to the election or removal of the Trustee and is redeemable at the option of the Trust Unitholder. The Trust may issue an unlimited number of Trust Units. As at XXXXXXXXXX, less than XXXXXXXXXX% of the issued and outstanding Trust Units were held by the directors and officers of Holdco 1 and Holdco 2. The remaining Trust Units are traded on the Exchange and are widely held by the public; and

"Trustee" means XXXXXXXXXX, a Canadian corporation acting as the sole trustee of the Trust, and any person acting as trustee of the Trust in the future.

Facts

1. The following representations are made in respect of the Trust:

a) The Trust qualifies as a unit trust under paragraph 108(2)(a) and as a mutual fund trust within the meaning assigned by subsection 132(6).

b) The Trust is not established and has never been maintained primarily for the benefit of non-residents.

2. The Trust owns all of the issued and outstanding Holdco 1 Common Shares, which have a fair market value in excess of their adjusted cost base. On their acquisition by the Trust, the sellers included in income the total income, capital gain or capital loss accrued on the Holdco 1 Common Shares at that moment. The Trust also owns the Notes. The Holdco 1 Common Shares and Notes are capital property to the Trust for the purposes of the Act.

3. Holdco 1 holds all of the issued and outstanding shares of Holdco 2. It also owns an XXXXXXXXXX% interest in the Partnership with Holdco 2 owning the remaining XXXXXXXXXX%. Holdco 1 is the Administrator of the Trust. Both Holdco 1 and Holdco 2 reside in Canada.

4. The Partnership carries on the Business and owns the majority of the assets used in the Business with some minor capital assets held by Holdco 1. The income or loss of the Partnership for each fiscal year is allocated to Holdco 1 and Holdco 2 as to XXXXXXXXXX% and XXXXXXXXXX%, respectively. The Partnership employs the majority of the employees of the Business with the exception of the management team, which is employed by Holdco 1.

Proposed Transactions

5. A meeting of Trust Unitholders will be held to approve the Proposed Transactions by way of special resolution.

6. The Trust will incorporate GPCo and acquire common shares. The directors of GPCo will be nominated by the Trust in accordance with the instructions of the Unitholders. The Trustee will not form the majority of the directors of Holdco 1. GPCo will employ the senior management employees. GPCo will become the Administrator of the Trust. All other employees of Holdco 1 will become employees of the Partnership before the completion of any other transactions contemplated herein.

7. Holdco 1 will transfer to the Partnership all of its assets, other than the Holdco 2 shares and its interest in the Partnership, in exchange for additional units in the Partnership. Holdco 1, in its capacity as transferor and Holdco 1 and Holdco 2, as partners of the transferee, will jointly elect under subsection 97(2), in prescribed form and within the prescribed time pursuant to subsection 96(4) or 96(5), to have the rules in that subsection apply to this transfer. Since the filing due date for this election is after the MFC Amalgamation, Amalco MFC will file it on behalf of Holdco 1 and Holdco 2.

In each case, the agreed amount will not exceed the fair market value of the particular eligible property, nor will it be less than the amount permitted under paragraph 85(1)(b). For greater certainty, the agreed amount for the purposes of each election will be equal to:

a) in the case of capital property (other than depreciable property of a prescribed class), an amount equal to the least of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

b) in the case of a depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

c) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

8. GPCo and the Partnership will enter into the LP Agreement. The LP Agreement will indicate that by operation of the law governing the arrangement in respect of LP, the Partnership and any other eventual limited partner:

a) will have a liability in respect of the debts, liabilities and obligations of LP which is limited to the amount that it contributed to LP plus any undistributed income;

b) cannot carry on, control or manage the business of LP;

c) cannot execute any document binding LP or GPCo;

d) cannot undertake any obligation or responsibility on behalf of LP; and

e) cannot bring any action for partition or sale of property of LP.

9. GPCo will acquire a XXXXXXXXXX% general interest in LP for cash. The LP Agreement will provide that GPCo will receive XXXXXXXXXX% of LP's taxable income plus an amount to cover its expenses of acting as general partner of LP (mainly the salaries of the senior management employees of GPCo plus overhead).

10. The Partnership will transfer all the assets of the Business to LP in consideration for the assumption of the liabilities of the Partnership, the LP Note and LP Units having a fair market value equal to the excess of the fair market value of the assets so transferred over the aggregate of the assumed liabilities and of the fair market value of the LP Note. The Partnership will hold the LP Note and the LP Units on account of capital. Holdco 1 and Holdco 2, as partners of the transferor and GPCo, as general partner of LP, will jointly elect under subsection 97(2), in prescribed form and within the prescribed time pursuant to subsection 96(4) or 96(5), to have the rules in that subsection apply to this transfer. Since the filing due date for this election is after the MFC Amalgamation, Amalco MFC will file it on behalf of Holdco 1 and Holdco 2.

In each case, the agreed amount in respect of a particular transferred eligible property will not exceed the fair market value of the particular eligible property, nor will it be less than the amount permitted under paragraph 85(1)(b). For greater certainty, the agreed amount for the purposes of each election will be equal to:

a) in the case of capital property (other than depreciable property of a prescribed class), an amount equal to the least of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii);

b) in the case of a depreciable property of a prescribed class, an amount equal to the least of the amounts described in subparagraphs 85(1)(e)(i), (ii) and (iii); and

c) in the case of eligible capital property, an amount equal to the least of the amounts described in subparagraphs 85(1)(d)(i), (ii) and (iii).

11. The Partnership will cease and will distribute all its property to Holdco 1 and Holdco 2. Holdco 1 will receive an XXXXXXXXXX% undivided interest in each LP Unit previously held by the Partnership and in the LP Note. Holdco 2 will receive a XXXXXXXXXX% undivided interest in each LP Unit previously held by the Partnership and in the LP Note. Holdco 1 and Holdco 2 will jointly elect pursuant to subsection 98(3) in respect of the distribution. Since the filing due date for this election is after the MFC Amalgamation, Amalco MFC will file it on behalf of Holdco 1 and Holdco 2.

LP will conduct the Business. The undivided interest in the LP Note owned by Holdco 2 will be transferred to Holdco 1 as a return of capital to the extent of paid-up capital and as a dividend for any excess. Holdco 1 will repay a portion of the Notes by transferring the LP Note to the Trust.

12. Holdco 2 will obtain a corporate continuance in order to be governed by the First Act.

13. The Trust will incorporate MFC by subscribing for 1 common share for $XXXXXXXXXX of cash. The articles of MFC will provide that all its undertakings, which will include holding the Holdco 1 Common Shares, the Notes and the LP Units, will meet the requirements of paragraph 131(8)(b). The authorized share capital of MFC will consist of an unlimited number of MFC Common Shares, MFC Class A Shares and MFC Class B Shares.

14. The MFC Class A Shares will be listed on the Exchange.

15. Following the listing of the MFC Class A Shares, the Trust will subscribe for nominal cash consideration for a number of MFC Class A Shares equal to the number of Trust Units issued and outstanding immediately before the distribution of MFC Class A Shares described in Paragraph 17.

16. The aggregate fair market value of the MFC Class A Shares and MFC Class B Shares will always be at least equal to 95% of the fair market value of all the issued shares of MFC.

17. The Trust will distribute to the Trust Unitholders all of its MFC Class A shares as a return of capital. Each Trust Unitholder will receive a number of MFC Class A shares equal to the number of Trust Units owned by such holder immediately before the distribution. The securities register of MFC will reflect the ownership by the Trust Unitholders of such MFC Class A Shares. The number of Trust Units owned by each Unitholder will not be reduced as a result of this distribution.

18. 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 Holdco 1 Common Shares and the Notes for a purchase price equal to the aggregate fair market value of each property so transferred.

b) MFC will satisfy the purchase price by issuing MFC Class B Shares to the Trust with an aggregate redemption price equal to that aggregate fair market value.

c) The Trust will jointly elect with MFC, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer described in a) above. The agreed amount in respect of the Holdco 1 Shares and Notes will be an amount not less than the lesser of their cost amount and their fair market value, and not greater than the fair market value of each respective property.

19. MFC, Holdco 1 and Holdco 2 (each referred to as a "predecessor corporation" for the purposes of this paragraph) will undertake the MFC Amalgamation to form Amalco MFC in such a manner that:

a) in accordance with the provisions of the First Act, the articles of amalgamation of Amalco MFC will be the same as the articles of incorporation of MFC, and Amalco MFC will not issue any securities in connection with the MFC Amalgamation.

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

c) all of the Notes and Common shares of Holdco 1 held by MFC immediately prior to the MFC Amalgamation will be cancelled by virtue of the MFC Amalgamation without any payment;

d) 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 MFC Amalgamation;

e) all of the shares of Holdco 2 held by Holdco 1 immediately prior to the MFC Amalgamation will be cancelled by virtue of the MFC Amalgamation without any payment; and

f) from the time of the MFC Amalgamation, Amalco MFC will not have any activity or undertaking other than the ownership of LP Units formerly owned by Holdco 1 and Holdco 2 and the cash formerly owned by MFC.

20. The Declaration of Trust will be amended. Unitholders will not be entitled to any proceeds of disposition as a result of these changes and the Trust Units will not be acquired, redeemed or cancelled in connection with the changes. The following changes will be incorporated into the Declaration of Trust:

a) the provisions in respect of the consolidation of Trust Units will be amended to provide that the consolidation of Trust Units described in Paragraph 26 below will be automatic and not require the consent of the Trust Unitholders;

b) the provisions regarding in specie redemption of Trust Units will be amended to provide that the redemption proceeds may be paid and satisfied by way of a distribution in specie of securities of a Subsidiary of the Trust to the Trust Unitholders; and

c) the Right of Renunciation will be added for the Special Trust Units held by a Subsidiary of the Trust;

d) a class of Special Trust Units will be created and authorized for issuance;

e) the investment restriction regarding the acquisition of "foreign property" as formerly defined in subsection 206(1) will be removed; and

f) provisions will be added to provide for a possible distribution reinvestment plan pursuant to which Trust Units may be purchased on the market and/or issued by the Trust.

21. At the Transfer Time, Amalco MFC will transfer to the Trust all or substantially all of its property, namely the LP Units and the cash received on the subscription of MFC Class A Shares as described in paragraph 15. As consideration for this transfer, the Trust will

(i) assume any outstanding liabilities of Amalco MFC to the extent of an amount equal to or less than the cost amount of the LP Units;

(ii) issue Trust Units having a fair market value equal to the fair market value of the MFC Class A Shares; and

(iii) issue a number of Special Trust Units equal to the number of MFC Class B Shares issued and outstanding immediately before the Transfer Time. The aggregate fair market value of the Trust Units and Special Trust Units so issued will be equal to the aggregate fair market value of the assets transferred to the Trust less any liabilities assumed by the Trust as described in (i).

22. The Trust and LP will enter into an agreement of purchase and sale under which:

a) The Trust will transfer all of its Amalco MFC Class B Shares to LP for a purchase price equal to the FMV of these shares;

b) LP will satisfy the purchase price by increasing the capital account maintained for the Trust in respect of LP Units issued by an amount equal to the FMV of the Amalco MFC Class B Shares; and

c) The Trust, in its capacity as transferor, and GPCo and the Trust, as partners of the transferee, will jointly elect under subsection 97(2), in prescribed form and within the prescribed time pursuant to subsection 96(4) or 96(5), to have the rules in that subsection apply to the transfer of the Amalco MFC Class B Shares. The agreed amount in respect of the Amalco MFC Class B Shares will be an amount not less than the lesser of their cost amount and their fair market value, and will not exceed their fair market value.

23. Within 60 days after the Transfer Time, Amalco MFC will redeem all of the issued and outstanding Amalco MFC Class B Shares held by LP and all of the issued and outstanding Amalco MFC Class A Shares held by Trust Unitholders. Amalco MFC will satisfy the redemption price by transferring its Special Trust Units to LP and by transferring its Trust Units to the Trust Unitholders.

24. LP will exercise the Right of Renunciation upon receipt of the Special Trust Units for no consideration. The Right of Renunciation will not be in favour of any particular person. The Special Trust Units held by LP will be cancelled and the distribution priority will be cancelled.

25. The outstanding Trust Units will be consolidated such that the number of Trust Units outstanding immediately following such consolidation will be equal to the number of Trust Units outstanding immediately before the implementation of the first Proposed Transaction. No Trust Units will be cancelled or redeemed and the Trust Unitholders will not be entitled to receive and will not receive, any property or right as a consequence of this consolidation. Each of the Trust Unitholders will have the same rights and beneficial ownership after the consolidation as they did prior to it and the beneficiaries of the Fund will be the same before and after the consolidation.

26. Amalco MFC will jointly elect with the Trust, in prescribed form and within the prescribed time in paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2), to have the rules in section 132.2 apply to the transactions in Paragraphs 21 and 23. No election will be filed in respect of the transfer of assets of Amalco MFC to the Trust pursuant to clause 132.2(1)(c)(ii)(B).

27. The Trust will resolve to liquidate and dissolve Amalco MFC by special resolution under the applicable provisions of the First Act. The one common share of Amalco MFC owned by the Fund will be cancelled and any remaining properties of Amalco MFC will be distributed to the Fund on the wind-up.

28. The LP Agreement will provide that LP may distribute cash or loan funds to the Trust to fund distributions by the Trust. To the extent that LP loans funds to the Trust, the amount of the distributions payable by LP to the Trust will be offset against the amounts loaned by LP to the Trust.

Purpose of the Proposed Transactions

The Trust believes that it will be able to maximize cash distributions to Trust Unitholders by eliminating the potential for taxation at the Holdco 1 and Holdco 2 levels. The Trust also believes that the Proposed Transactions are necessary to attract investors and compete with other trusts that are organized on a flow-through basis.

Rulings

Provided that the above statements of facts, Proposed Transactions and purposes thereof are accurate and constitute complete disclosure of all relevant facts and proposed transactions, our rulings are as follows:

A. Immediately after the transfer described in Paragraph 22 above, the ACB of the LP Units owned by the Trust will be equal to the aggregate of the following amounts: (i) the amount deemed to be the cost of the LP Units acquired by the Trust in Paragraph 21 above as determined under paragraph 132.2(1)(c), and (ii) the elected amount described in Paragraph 22 which will be added to the ACB of LP Units owned by the Trust in accordance with subparagraph 97(2)(b)(i) as a result of the transfer described in Paragraph 22.

B. The Trust will not be considered to have disposed of its property and resettled a new trust solely by virtue of the amendments to the Declaration of Trust described in Paragraph 20.

C. The amendment of the Declaration of the Trust described in Paragraph 20 will not in itself result in a disposition of the Trust Units held by Trust Unitholders.

D. The consolidation of the Trust Units held by Trust Unitholders, as described in Paragraph 25, will not in itself result in a disposition of Trust Units by the Trust Unitholders.

E. Provided that the Partnership is a Canadian partnership as defined in subsection 102(1) immediately after the transfer described in paragraph 7 and provided further that Holdco 1, the Partnership and its partners jointly elect under subsection 97(2), in prescribed form and within the time referred to in subsection 96(4) or 96(5), the provisions of subsection 97(2) will apply to the transfer by Holdco 1 of its miscellaneous assets to the Partnership as described in Paragraph 7.

F. Provided that LP is a Canadian partnership as defined in subsection 102(1) immediately after the transfers described in Paragraphs 10 and 22 and provided further that LP and the Partnership and its partners or the Trust, respectively, jointly elect under subsection 97(2), in prescribed form and within the time referred to in subsection 96(4) or 96(5), the provisions of subsection 97(2) will apply to the transfer:

(i) by the Partnership of the assets of the Business as described in Paragraph 10; and

(ii) by the Trust of its Amalco MFC Class B Shares as described in Paragraph 22.

G. Provided that a joint election under subsection 98(3) is filed in prescribed form within the time prescribed in subsection 96(4) or 96(5), subsection 98(3) will apply to the distribution of the undivided interests in LP Units to the former partners on the dissolution of the Partnership as described in Paragraph 11.

H. Provided that the property transferred is an eligible property within the meaning assigned by subsection 85(1.1), the provisions of subsection 85(1) will apply to the transfer by the Trust of its Holdco 1 Common Shares and Notes to MFC as described in Paragraph 18(a).

I. The Proposed Transactions will not, in and by themselves, adversely affect the qualification of Amalco MFC as a mutual fund corporation within the meaning of subsection 131(8).

J. Provided that:

a) at the Transfer Time, Amalco MFC is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Trust is a mutual fund trust within the meaning assigned by subsection 132(6);

b) the property transferred at that moment has a fair market value of at least 90% of the fair market value of all property owned by Amalco MFC at that moment; and

c) Amalco MFC and the Trust jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2),

the transfer described in paragraph 21 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), such that the rules in subsection 132.2(1) will apply to:

a) the transfer of the property from Amalco MFC to the Trust described in paragraph 21;

b) the purchase for cancellation by Amalco MFC of the Amalco MFC Class A shares and Amalco MFC Class B shares described in paragraph 23; and

c) the transfer of the Trust Units and Special Trust Units from Amalco MFC to holders of the Amalco MFC Class A shares and the Amalco MFC Class B shares as described in paragraph 23.

K. Paragraph 87(2)(e.1) will apply as a result of the amalgamation described in paragraph 19 such that Amalco MFC will be considered to be the same corporation as and a continuation of Holdco 1 and Holdco 2 for the purposes of computing the adjusted cost base to Amalco MFC of LP Units.

L. The provisions of subsections 15(1), 56(2), 56(4), 69(4), 105(1) or 246(1) will not apply in respect of the renunciation described in paragraph 24. For greater certainty, GPCo and LP will not be considered or deemed to have received proceeds of disposition and the Fund will not be considered to have received an amount or benefit in respect of that renunciation.

M. Section 253.1 will apply to the ownership of LP Units by the Trust and the Trust will not be considered to carry on any business or other activity of LP for the purposes of paragraph 132(6)(b) solely because of the acquisition and holding of the Units.

N. Subsection 245(2) will not be applied as a result of the Proposed Transactions in and by themselves to redetermine the tax consequences confirmed in the rulings provided above.

These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada Revenue Agency provided that the Proposed Transactions are completed within 6 months of the date of this letter.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act. Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed any tax consequences relating to the facts and Proposed Transactions described herein other than those described in the rulings given. More specifically, no ruling is provided herein with respect to:

a) the GST implications of any of the Proposed Transactions;

b) whether the Trust qualifies as a mutual fund trust within the meaning of subsection 132(6) or whether MFC or Amalco MFC qualifies as a mutual fund corporation within the meaning of subsection 131(8);

c) the determination of the fair market value of LP Units, the MFC Class B Shares or the Amalco MFC Class B Shares redemption amount; and

d) the adjusted cost base of any property referred to herein, or the paid-up capital of any shares referred to herein.

Any losses that may be incurred by a taxpayer as a result of the application of section 132.2, including losses that may result from the cost of a property that is set by that section, will be denied if the taxpayer is subject to the application of subparagraph 132.2(3)(g)(iv) as proposed to be amended by subsection 72(1) of the Proposed Amendments and consequently will not result in an adjustment to the adjusted cost base of LP Units under subparagraph 53(2)(c)(i).

Opinion

In addition to the substantive changes in the rules in section 132.2 proposed by the Proposed Amendments, we understand that the Department of Finance issued a letter dated February 14, 2006 (the "Comfort Letter"), indicating that it was prepared to recommend further amendments to the Minister of Finance in respect of section 132.2 to clarify that the time period in which the proceeds of disposition of units of the transferee or shares of the transferor would be determined under proposed paragraph 132.2(3)(f) or (g) includes the time that is immediately after the "transfer time" as that term is defined in the proposed amendments to subsection 132.2(1). Provided that paragraphs 132.2(3)(f) and (g) are amended in the manner suggested in the Comfort Letter and the conditions set out in ruling J are met in respect of the Proposed Transactions, it is our view that the proposed transactions described in paragraph 21 would qualify as a qualifying exchange within the meaning of subsection 132.2(1) as proposed to be amended by the Proposed Amendments.

Paragraph 107(1)(e) and subsection 107(1.2) as proposed by subsections 95(1) and 95(2) of the Proposed Amendments, if enacted, will apply to Trust Unitholders who hold Trust Units on account of inventory.

As indicated in paragraph 22 of Information Circular 70-6R5, any expression of opinion concerning the application of the Proposed Amendments to the Proposed Transactions is not an advance income tax ruling and, accordingly, any statement concerning a change announced by a Proposed Amendment is not binding on the Canada Revenue Agency.

Yours truly,

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