2006 Ruling 2006-0195411R3 - Income Trust 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: Whether transferring the business of the income trust's corporate subsidiary to partnerships on a rollover basis using section 85, 97(2) and 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions, the trust owns notes and shares of the corporate subsidiary that holds the shares of the corporations carrying on a business. At the end of the proposed transactions, it owns a limited partnership and shares of the general partners of partnerships that carry on the business.

Position: The proposed transactions meet the requirement of the Act and rulings on the various rollover provisions and section 245 are granted.

Reasons: The provisions of the Act; the trustees of the trust do not form the majority of the directors of the corporate general partner.

XXXXXXXXXX 									2006-019541

XXXXXXXXXX, 2006

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX - Trust Account Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)
XXXXXXXXXX - Business Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office/XXXXXXXXXX Taxation Centre)

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

We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:

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

b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or a related person;

c) under objection by the taxpayers or a related person;

d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; and

e) the subject of a ruling previously issued by this Directorate.

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")

Definitions

In this letter unless otherwise expressly stated:

(a) "acquisition time" has the meaning assigned in paragraph 132.2(1)(a) and means the time that is immediately after the time that is immediately after the transfer time. It also means the time at which AMALCO MFC redeems the AMALCO MFC Class A Shares as described in paragraph 35 below;

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

(c) "agreed amount" in respect of an asset means the amount that the transferor and all the other members of the partnership agree upon in their election under subsection 97(2), in respect of that asset;

(d) "A GP" means XXXXXXXXXX, the general partner of A LP;

(e) "A GP share" means a common share in the capital of A GP;

(f) "A LP" means XXXXXXXXXX;

(g) "A LP Unit" means the interest of a limited partner in A LP's capital, designated as an A LP Unit, and issued as such, pursuant to the terms of the A LP agreement;

(h) "AMALCOA" means XXXXXXXXXX formed by way of amalgamation of OPCOA and OPCOA Acquisition;

(i) "AMALCOB" means XXXXXXXXXX formed by way of amalgamation of OPCOB and OPCOB Acquisition pursuant to the relevant provisions of the XXXXXXXXXX and in accordance with the provisions of subsection 87(1);

(j) "AMALCOC" means XXXXXXXXXX formed by way of amalgamation of OPCOC and OPCOC Acquisition;

(k) "AMALCO MFC" means a newly created corporation to be formed by amalgamating MFC, HOLDCO, AMALCOA and AMALCOC pursuant to the relevant provisions of the XXXXXXXXXX and in accordance with the provisions of subsection 87(1) as described in paragraph 32 below;

(l) "AMALCO MFC Class A Share" means a class A share in the capital of AMALCO MFC and having the same terms as those of a MFC Class A Share;

(m) "AMALCO MFC Class B Share" means a class B share in the capital of AMALCO MFC and having the same terms as those of a MFC Class B Share;

(n) "AMALCO MFC Common Share" means a common share in the capital of AMALCO MFC and having the same terms as those of a MFC Common Share;

(o) "B GP" means XXXXXXXXXX;

(p) "B LP" means XXXXXXXXXX;

(q) "Board of Directors" means the board of directors of HOLDCO which consists of XXXXXXXXXX individuals all of whom are residents of Canada for income tax purposes;

(r) "capital property" has the meaning assigned by section 54 and subsection 248(1);

(s) "cash subscription proceeds" means the cash subscription proceeds received by MFC from the issuance of MFC Class A Shares, as described in paragraph 27 below;

(t) "C GP" means XXXXXXXXXX, the general partner of C LP;

(u) "C GP share" means a common share in the capital of C GP;

(v) "C LP" means XXXXXXXXXX;

(w) "C LP Unit" means the interest of a limited partner in C LP's capital, designated as a C LP Unit, and issued as such, pursuant to the terms of the C LP agreement;

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

(y) "Distributable Cash" means, generally, the cash available to the FUND for distribution to Unitholders. The amount of cash distributed per FUND Unit is equal to a pro rata share of interest and principal repayments on the HOLDCO Notes and distributions on or in respect of the HOLDCO Common Shares owned by the FUND less expenses of the FUND, including amounts which may be paid in connection with any cash redemption of FUND Units. The distribution policy of HOLDCO is that HOLDCO will distribute all of its available cash annually, subject to applicable law, by way of monthly return of capital or dividends on the HOLDCO Common Shares after satisfaction of its bank financing and other debt service obligations, if any, satisfaction of its interest, including interest on the HOLDCO Notes, and other expense obligations and any principal repayments in respect of the HOLDCO Notes considered advisable by the board of directors of HOLDCO and subject to HOLDCO retaining such reasonable working capital reserves as may be considered appropriate by the board of directors;

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

(aa) "FMV" means the fair market value, that is, the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;

(bb) "FUND" means the XXXXXXXXXX;

(cc) "FUND Indenture" means the declaration of the trust of the FUND dated XXXXXXXXXX;

(dd) "FUND Unit" means a trust unit of the FUND, each such unit representing an equal undivided beneficial interest therein;

(ee) "H GP" means XXXXXXXXXX, the general partner of HLP;

(ff) "H GP Share" means a common share in the capital of H GP;

(gg) "HLP" means XXXXXXXXXX;

(hh) "HOLDCO" means XXXXXXXXXX;

(ii) "HOLDCO Common Shares" means the issued and outstanding common shares of HOLDCO;

(jj) "HOLDCO Notes" means the notes issued by HOLDCO and held by the FUND under the HOLDCO Notes Indenture in an amount of approximately $XXXXXXXXXX;

(kk) "HOLDCO Notes Indenture" means the Note Indenture made on XXXXXXXXXX, due XXXXXXXXXX;

(ll) "HOLDCO Special Shares" means the shares issued by HOLDCO as consideration for the transfer described in paragraph 29 below. The HOLDCO Special Shares have the following attributes: non-voting; will be entitled to a preferential and non-cumulative annual dividend, at the discretion of the directors of the corporation; redeemable and retractable, subject to applicable law, at any time for an amount equal to the amount determined by dividing the aggregate FMV of the property received by the corporation on the issuance of the HOLDCO Special Shares less the aggregate FMV of any non-share consideration issued or liabilities assumed by the corporation, by the number of HOLDCO Special Shares issued.

(mm) "insider" has the meaning assigned to "insider of a corporation" by Regulation 4803(1);

(nn) "Lenders" means XXXXXXXXXX;

(oo) "LP Units" means the units held in any of the LPs;

(pp) "LPs" means any of A LP, B LP, C LP and HLP;

(qq) "MFC" means a corporation newly incorporated under the laws of the XXXXXXXXXX;

(rr) "MFC Class A Share" means a Class A Share in the capital of MFC the terms of which will include the following characteristics: non-voting; entitle the holder to dividends, as and when declared by the board of directors; redeemable and retractable; entitle the holder to receive the redemption price upon receipt of a Class A Share by MFC; have a redemption price equal to the FMV of any consideration paid to acquire such share on issuance; the redemption price will be payable in cash, or satisfied by the transfer of FUND Units; under no circumstances may MFC suspend their redemption; and on the dissolution of MFC, entitle the holder to the redemption price in preference to any participation on the MFC Common Shares and will rank equally with the MFC Class B Shares;

(ss) "MFC Class B Share" means a Class B Share in the capital of MFC the terms of which will include the following characteristics: non-voting; entitle the holder to dividends, as and when declared by the board of directors; redeemable and retractable; entitle the holder to receive the redemption price upon receipt of a Class B Share by MFC; have a redemption price equal to the fair market value of any consideration paid to acquire such share on issuance; the redemption price will be payable in cash, or satisfied by the transfer of FUND Units; under no circumstances may MFC suspend their redemption; and on the dissolution of MFC, entitle the holder to the redemption price in preference to any participation on the common shares and will rank equally with the MFC Class A Shares;

(tt) "MFC Common Share" means a common share in the capital of MFC and whose terms will entitle the holder to one vote; dividends, as and when declared by the board of directors of MFC; and which will be redeemable at the demand of the holder for a redemption price of $XXXXXXXXXX; and, on the dissolution of MFC, will entitle the holder to share ratably in any remaining assets of MFC;

(uu) "mutual fund corporation" has the meaning assigned by subsection 131(8);

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

(ww) XXXXXXXXXX;

(xx) "OPCOA" means XXXXXXXXXX;

(yy) "OPCOA Acquisition" means XXXXXXXXXX;

(zz) "OPCOB" means XXXXXXXXXX;

(aaa) "OPCOB Acquisition" means XXXXXXXXXX;

(bbb) "OPCOC" means XXXXXXXXXX;

(ccc) "OPCOC Acquisition" means XXXXXXXXXX;

(ddd) "open-end unit trust" means a unit trust that qualifies as a unit trust under paragraph 108(2)(a);

(eee) "Operating Assets" means the net assets of the operating entity;

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

(ggg) "Proposed Amendments" means the Notice of Ways and Means Motion released by the Department of Finance on November 9, 2006, that includes proposed amendments to section 132.2 of the Act;

(hhh) "Proposed Transactions" means the transactions contemplated by paragraphs 19 to 44 below;

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

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

(kkk) "qualifying exchange" has the meaning assigned by subsection 132.2(2);

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

(mmm) "related entities", or persons related to each other, has the meaning assigned by subsection 251(2);

(nnn) "Reorganization" means the reorganization of HOLDCO and the FUND as contemplated by the Proposed Transactions;

(ooo) "resident" and "non-resident" of Canada mean, respectively, resident and non-resident of Canada for purposes of the Act;

(ppp) "RESP" means registered education savings plan as defined in subsection 146.1(1);

(qqq) "Right of Redemption" means the right of redemption of a Unitholder to redeem units pursuant to and subject to the provisions of the amendments to be made to the FUND Declaration of Trust;

(rrr) "RRIF" means registered retirement income fund as defined in subsection 146.3(1);

(sss) "RRSP" means registered retirement savings plan as defined in subsection 146(1);

(ttt) "Securities Document" means a prospectus, registration statement or similar document to be filed with one or more securities commissions or other securities regulators in one or more of the provinces of Canada, and in accordance with which the MFC Class A Shares will be issued, and where a prospectus exemption is available, the Securities Document will be the Management Information Circular;

(uuu) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) and 248(1);

(vvv) "taxable Canadian property" has the meaning assigned by subsection 248(1);

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

(xxx) "taxpayer" has the meaning assigned by subsection 248(1);

(yyy) "transfer time" has the meaning assigned in the definition of "qualifying exchange" in subsection 132.2(2) and means the time at which AMALCO MFC transfers all of its property to the FUND as described in paragraph 34 as a part of the qualifying exchange;

(zzz) XXXXXXXXXX;

(aaaa) "unit trust" has the meaning assigned by subsection 108(2);

(bbbb) "Unitholder" means a holder of FUND Units.

FACTS

1. The FUND is an unincorporated, open-ended limited purpose trust established under the laws of the Province of XXXXXXXXXX. The FUND is a mutual fund trust as defined in subsection 132(6) that was established to invest in entities that carry on XXXXXXXXXX, or other businesses as may be approved from time to time by the trustees of the FUND. The FUND is not a registered investment as defined in section 204.4. The FUND was settled on XXXXXXXXXX and its units have been listed and traded on the XXXXXXXXXX since XXXXXXXXXX. On XXXXXXXXXX, the FUND completed a public offering of XXXXXXXXXX FUND Units for aggregate proceeds of $XXXXXXXXXX. The FUND has a XXXXXXXXXX year-end for purposes of the Act.

2. The FUND was established for a term ending XXXXXXXXXX. On a date selected by the trustees of the FUND, which is not more than XXXXXXXXXX years prior to the expiry of the term of the FUND, the trustees of the FUND are obligated to commence to wind-up the affairs of the FUND so that it will terminate on the expiration of the term.

3. Under the FUND Indenture, 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 Indenture precludes non-residents of Canada from collectively owning the majority of the FUND Units.

4. The FUND's Trust Indenture requires monthly distributions of the FUND's distributable cash less any reserves considered appropriate to satisfy the FUND's current or future obligations, or to normalize monthly distributions of cash to Unitholders.

5. As at XXXXXXXXXX, there were XXXXXXXXXX FUND Units issued and outstanding. As at XXXXXXXXXX, the trustees of the FUND and the directors and executive officers of the FUND's wholly-owned subsidiary corporations, as a group, beneficially owned, directly or indirectly, or exercised control or direction over an aggregate of XXXXXXXXXX FUND Units, or XXXXXXXXXX% of the issued and outstanding FUND Units. The FUND is not maintained primarily for the benefit of non-resident persons, and to the knowledge of the trustees of the FUND, non-residents of Canada are collectively beneficial owners of less than XXXXXXXXXX% of the FUND Units.

6. As at XXXXXXXXXX, the FUND Units were widely held by the public and, to the knowledge of the trustees of the FUND, there were only XXXXXXXXXX direct or indirect beneficial owners of, or persons who exercised control or direction over FUND Units carrying more than 10% of the votes and value of outstanding FUND Units, with such Unitholders owning less than XXXXXXXXXX% and XXXXXXXXXX%, respectively of outstanding FUND Units. Both of these Unitholders are institutional investors who purchased the units for investment purposes only and not for purposes of control or direction over the FUND.

7. As at XXXXXXXXXX, the total market capitalization of the FUND was approximately $XXXXXXXXXX, based on a closing trading price of $XXXXXXXXXX per FUND Unit and XXXXXXXXXX total outstanding FUND Units.

8. The XXXXXXXXXX trustees of the FUND are individuals resident in Canada. Under the FUND Indenture, holders of FUND Units are entitled to vote with respect to the election or removal of the trustees of the FUND, as well as the election or removal of the nominees of the FUND to serve as directors of HOLDCO, a wholly-owned subsidiary corporation.

9. HOLDCO was incorporated on XXXXXXXXXX with authorized capital consisting of an unlimited number of common shares. No shares were issued on incorporation. One HOLDCO Common share was issued to the FUND on XXXXXXXXXX for $XXXXXXXXXX. On XXXXXXXXXX HOLDCO Common shares were issued to the FUND for $XXXXXXXXXX of cash, one Class A preference share of AMALCOA and one Class A preference share of AMALCOC. Since

XXXXXXXXXX the FUND's investment in HOLDCO Common Shares has been reduced to finance the FUND's monthly cash distributions. At XXXXXXXXXX, the FUND owned XXXXXXXXXX% of the issued and outstanding HOLDCO Common Shares, as follows:

Shareholder		Number of  Common Shares	ACB		Paid-Up Capital
The FUND		XXXXXXXXXX 				XXXXXXXXXX 		XXXXXXXXXX 

The HOLDCO Common Shares are capital property to the FUND for purposes of the Act. HOLDCO has a XXXXXXXXXX year-end for purposes of the Act. HOLDCO is a Canadian corporation, as defined in subsection 89(1).

10. On XXXXXXXXXX, the FUND acquired shares of corporations that carry on a XXXXXXXXXX business, known as XXXXXXXXXX, that commenced operations in XXXXXXXXXX in XXXXXXXXXX.

More specifically, on XXXXXXXXXX the FUND acquired at FMV, the shares of OPCOA and the shares of OPCOC from an unrelated vendor. The FUND sold the shares of OPCOA at FMV to OPCOA Acquisition, a wholly-owned subsidiary corporation of HOLDCO, and the shares of OPCOC at FMV to OPCOC Acquisition, another wholly-owned subsidiary corporation of HOLDCO. Immediately thereafter, OPCOA Acquisition was amalgamated with OPCOA to form AMALCOA and OPCOC Acquisition was amalgamated with OPCOC to form AMALCOC. Both amalgamations were amalgamations governed by the provisions of section 87.

11. The core of AMALCOA's business is XXXXXXXXXX.

At XXXXXXXXXX, HOLDCO owned XXXXXXXXXX% of the issued and outstanding AMALCOA Common Shares and AMALCOA Preference Shares, as follows:

Shareholder	  Number and Class of Shares		ACB		Paid-Up Capital
HOLDCO 		XXXXXXXX common			$XXXXXXXX 		$XXXXXXXX
HOLDCO		XXXXXXX Class A Preference	$XXXXXXXX 		$XXXXXXXX 

The AMALCOA Common Shares and AMALCOA Preference Shares are capital property to HOLDCO for purposes of the Act. AMALCOA has a XXXXXXXXXX year-end for purposes of the Act. AMALCOA is a Canadian corporation, as defined in subsection 89(1).

12. XXXXXXXXXX.

At XXXXXXXXXX, HOLDCO owned XXXXXXXXXX% of the issued and outstanding AMALCOC Common Shares and AMALCOC Preference Shares, as follows:

Shareholder		Number and Class of Shares	ACB		Paid-Up Capital
HOLDCO 		XXXXXXXX  common 			$XXXXXXXX 		$XXXXXXXX
HOLDCO		XXXXXXX  Class A Preference	$XXXXXXXX 		$XXXXXXXX 

The AMALCOC Common Shares and AMALCOC Preference Shares are capital property to HOLDCO for purposes of the Act. AMALCOC has a XXXXXXXXXX year-end for purposes of the Act. AMALCOC is a Canadian corporation, as defined by subsection 89(1).

13. On XXXXXXXXXX, the FUND acquired OPCOB, a corporation carrying on a business that commenced operations in XXXXXXXXXX in XXXXXXXXXX. OPCOB is XXXXXXXXXX.

More specifically, on XXXXXXXXXX the FUND and H GP, a wholly-owned subsidiary of HOLDCO, formed HLP for the purpose of owning B LP. H GP is the general partner and the FUND is the sole limited partner of HLP. On XXXXXXXXXX a wholly-owned subsidiary corporation of HLP, OPCOB Acquisition, acquired at FMV the shares of OPCOB, a corporation that owned XXXXXXXXXX Class A limited partnership units in B LP. Simultaneously, OPCOB Acquisition acquired at FMV, the shares of B GP, a corporation that owned one general partnership unit in B LP.

Immediately after acquisition, OPCOB Acquisition was amalgamated with OPCOB to form AMALCOB. The amalgamation was an amalgamation governed by the provisions of section 87. Immediately thereafter, AMALCOB sold the XXXXXXXXXX Class A limited partnership units in B LP to HLP at FMV and the shares of B GP to HOLDCO at FMV.

14. H GP was incorporated on XXXXXXXXXX to act as the general partner of HLP. H GP's authorized capital stock includes an unlimited number of common shares, which are entitled to one vote per share. HOLDCO owns XXXXXXXXXX common shares in H GP which represents XXXXXXXXXX% of the issued and outstanding share capital. The ACB and Paid-up capital of these shares is $XXXXXXXXXX. The fair market value of the common shares in H GP is greater than $XXXXXXXXXX. The only asset of H GP is one HLP general partnership unit. There are no liabilities.

15. On XXXXXXXXXX, HOLDCO entered into a credit agreement with the Lenders to refinance its secured credit facility. The new credit facility totals $XXXXXXXXXX and provides HOLDCO and its related entities with (i) a maximum $XXXXXXXXXX revolving credit facility for operating purposes; (ii) a $XXXXXXXXXX term credit facility; and (iii) a $XXXXXXXXXX revolving facility for acquisitions. The revolving credit facility and acquisition facility each have a term of one year and are subject to annual review and renewal by the Lenders. The term credit facility carries a term of XXXXXXXXXX years with no principal repayments until maturity. The maturity date for the term credit facility is XXXXXXXXXX. The revolving credit facility and term credit facility may be drawn at a floating interest rate of between XXXXXXXXXX% and XXXXXXXXXX% above Canadian prime rate, depending on the amount drawn. The entire credit facility is supported by a guarantee from the FUND, AMALCOA and AMALCOC and is secured by security interests over all or substantially all of the assets of the FUND and its subsidiaries. The credit facility is subject to customary terms and conditions including limits on additional indebtedness and security without the consent of the Lenders, and a standby fee on the undrawn portion for each facility.

16. On XXXXXXXXXX, HLP and HOLDCO closed a debt private placement with a third party for $XXXXXXXXXX in senior secured long term debt at a fixed rate of interest of XXXXXXXXXX %. The agreement provides for monthly payments of interest only while the principal portion is a XXXXXXXXXX year placement repayable in full on XXXXXXXXXX. Proceeds from this debt private placement were used to reduce amounts outstanding under HOLDCO's acquisition credit facilities with the Lenders described in paragraph 15 above.

17. As at XXXXXXXXXX HOLDCO had $XXXXXXXXXX drawn under its revolving credit facility with the Lenders and $XXXXXXXXXX drawn under its term credit facilities with the Lenders. HLP had $XXXXXXXXXX drawn under HOLDCO's acquisition credit facilities with the Lenders and $XXXXXXXXXX owing to a third party.

18. Other than the transactions described in paragraphs 10 through 16, there have not been any acquisitions or dispositions of significance. While no other significant acquisitions or dispositions of property by the FUND or its related entities are currently under negotiation, it is conceivable that, in the ordinary course of business of the FUND, such may occur at any time as circumstances change or as opportunities may arise. However, no such acquisition or disposition will occur in contemplation of the Proposed Transactions described herein.

PROPOSED TRANSACTIONS

The FUND will seek approval for the Proposed Transactions at a special meeting of Unitholders. All of the Proposed Transactions that follow will occur sometime shortly after obtaining Unitholder approval, subject to having obtained a satisfactory Advance Income Tax Ruling from the Canada Revenue Agency. The Proposed Transactions are expected to close on or around XXXXXXXXXX.

Unless otherwise specified, the proposed transactions will take place in the order described below:

19. HOLDCO will settle all inter-company accounts and will dispose of its net current assets and liabilities, with the exception of the HOLDCO notes, to AMALCOA for fair market value consideration.

HOLDCO will file Articles of Amendment under the XXXXXXXXXX to create and authorize the issuance of an unlimited number of HOLDCO Special Shares.

20. Prior to XXXXXXXXXX, C GP and A GP will be incorporated under the laws of XXXXXXXXXX and pursuant to the relevant provisions of the XXXXXXXXXX. On incorporation HOLDCO will subscribe for XXXXXXXXXX common shares in C GP for $XXXXXXXXXX and HOLDCO will subscribe for XXXXXXXXXX common shares in A GP for $XXXXXXXXXX .

21. Prior to XXXXXXXXXX, AMALCOC and C GP will form a limited partnership under the laws of XXXXXXXXXX ("C LP") pursuant to which C GP will be the general partner and AMALCOC will be a limited partner by subscription for one C LP Unit in consideration for a nominal capital contribution. Pursuant to the terms of the C LP partnership agreement, the income and loss of the C LP partnership for each fiscal period will be allocated XXXXXXXXXX% to the limited partner and XXXXXXXXXX% to the general partner. The general partner will be vested with the conduct and management of the partnership business and will be entitled to vote in its capacity as general partner.

22. Prior to XXXXXXXXXX, AMALCOA and A GP will form a limited partnership under the laws of XXXXXXXXXX ("A LP") pursuant to which A GP will be the general partner and AMALCOA will be a limited partner by subscription for one A LP Unit in consideration for a nominal capital contribution. Pursuant to the terms of the A LP partnership agreement, the income and loss of the A LP partnership for each fiscal period will be allocated XXXXXXXXXX% to the limited partner and XXXXXXXXXX% to the general partner. The general partner will be vested with the conduct and management of the partnership business and will be entitled to vote in its capacity as general partner.

23. On XXXXXXXXXX, AMALCOC will transfer its Operating Assets to C LP. The transfer of the Operating Assets will be completed on a tax-deferred basis under subsection 97(2) in prescribed form and within the time limits set out in subsection 96(4).

AMALCOC and C LP will enter into an agreement of purchase and sale pursuant to which the Operating Assets of AMALCOC are sold and transferred to C LP at a purchase price equal to the fair market value of the AMALCOC Operating Assets in consideration for the assumption of liabilities and obligations and XXXXXXXXXX Class A C LP Units.

AMALCOC will hold only limited partnership units of C LP. AMALCOC's liability as a member of C LP will be limited under the legislation governing the partnership.

24. On XXXXXXXXXX, AMALCOA will transfer its Operating Assets to A LP. The transfer of the operating assets will be completed on a tax-deferred basis under subsection 97(2) in prescribed form and within the time limits set out in subsection 96(4).

AMALCOA and A LP will enter into an agreement of purchase and sale pursuant to which the Operating Assets of AMALCOA are sold and transferred to A LP at a purchase price equal to the fair market value of the AMALCOA Operating Assets in consideration for the assumption of liabilities and obligations and XXXXXXXXXX Class A A LP Units.

AMALCOA will hold only limited partnership units of A LP. AMALCOA's liability as a member of A LP will be limited under the legislation governing the partnership.

25. The initial C LP Unit received by AMALCOC in paragraph 21 above and the initial A LP Unit received by AMALCOA in paragraph 22 above, will be redeemed by C LP and A LP respectively.

26. The FUND will incorporate MFC by subscribing for one MFC Common Share for nominal consideration. MFC's only undertaking will be restricted, pursuant to its constating documents, to the investing of its funds in property, other than real property, including the A LP Units, the C LP Units, the LP Units in HLP, the shares in A GP, B GP, C GP, and H GP, cash and similar investments. 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.

27. The FUND will prepare the Securities Document for distribution to Unitholders and will file it with one or more provincial securities commissions. In accordance with the Securities Document, the FUND will subscribe for a number of MFC Class A Shares equal to the number of FUND Units then outstanding for nominal cash consideration to be determined at a future date.

A prospectus exemption will be available under applicable provincial securities laws in respect of the issuance of MFC Class A Shares and subsequent transactions. Pursuant to the exemption, a Management Information Circular issued by the FUND containing prospectus level disclosure will be filed with the provincial securities commission and the XXXXXXXXXX and provided to Unitholders so that they are able to make informed decisions as to the merits of the Reorganization. The issuance of the MFC Class A Shares and subsequent transactions will be completed in accordance with the Management Information Circular. The Management Information Circular is required by law to be filed with provincial securities commissions and the XXXXXXXXXX in order for the offering of the MFC Class A Shares to be exempt from prospectus filing requirements, but the Management Information Circular is not required by law to be accepted for filing by the provincial securities commissions.

28. The FUND will distribute to Unitholders, as a return of capital, the MFC Class A Shares previously acquired as described in paragraph 27 above. Each Unitholder will be entitled to a number of MFC Class A Shares equal to the number of FUND Units owned by such holder immediately before this distribution. The number of FUND Units owned by each holder will not be reduced as a result of this distribution.

The MFC Class A shares will be listed on the XXXXXXXXXX immediately upon their issuance, although such shares will not appear on the XXXXXXXXXX publicly disseminated trading list.

29. The Fund and HOLDCO will enter into an agreement of purchase and sale under which the Fund will transfer to HOLDCO all of its properties, other than the shares of MFC and HOLDCO and the HOLDCO Notes, for an aggregate purchase price equal to the respective fair market value of each property so transferred. HOLDCO will satisfy the purchase price by issuing to the Fund HOLDCO Special Shares with an aggregate redemption amount equal to the FMV of the properties transferred less the aggregate FMV of any non-share consideration issued or liabilities assumed by HOLDCO.

The Fund and HOLDCO will jointly elect, 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 of the properties described above. The agreed amount in respect of the properties transferred will be an amount not less than the lesser of the cost amount and the FMV, and will not exceed the FMV of each such respective property.

30. The FUND and MFC will enter into an agreement of purchase and sale under which the FUND will transfer to MFC all of the HOLDCO Common Shares, HOLDCO Special Shares and HOLDCO Notes for a purchase price equal to the respective fair market value of each property so transferred. MFC will satisfy the purchase price by issuing MFC Class B Shares to the FUND with an aggregate redemption price equal to the aggregate fair market value of the HOLDCO Common Shares, HOLDCO Special Shares and HOLDCO Notes, which aggregate redemption price will not be less than the aggregate principal amount of the HOLDCO Notes.

The number of MFC Class B Shares to be issued by MFC will be determined by way of a formula such that the payment on redemption on a pro-rata basis based on the number of shares, as described in paragraph 35 below, will be equivalent to a payment on a pro-rata basis based on the FMV of the shares.

31. The FUND 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 of the HOLDCO Common Shares, HOLDCO Special Shares and HOLDCO Notes as described in paragraph 30 above. The agreed amount in respect of the HOLDCO Common Shares, HOLDCO Special Shares and HOLDCO Notes will be an amount not less than the lesser of the cost amount and the fair market value, and will not exceed the fair market value of each respective property.

32. MFC, HOLDCO, AMALCOA and AMALCOC (hereinafter referred to as "predecessor corporations") will undertake a vertical short-form 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; and

c) all of the inter-company shares and debt will be cancelled by virtue of the amalgamation.

In accordance with the provisions of the XXXXXXXXXX, the articles of amalgamation of AMALCO MFC will be the same as the articles of the predecessor corporation MFC, and AMALCO MFC will not issue any securities in connection with the amalgamation.

From the time of amalgamation, AMALCO MFC will not have any activity or undertaking other than the ownership of the properties described in paragraph 33 below and the completion of the ensuing Proposed Transactions.

33. Immediately after the amalgamation described in paragraph 32 above, AMALCO MFC's assets will consist only of LP Units in HLP, XXXXXXXXXX Class A A LP Units, XXXXXXXXXX Class A C LP Units, XXXXXXXXXX A GP shares, XXXXXXXXXX B GP shares, XXXXXXXXXX C GP shares, and XXXXXXXXXX H GP shares.

34. AMALCO MFC and the FUND will enter into an agreement of purchase and sale under which AMALCO MFC will transfer all or substantially all of its property, namely the A LP Units, C LP Units, the LP Units in HLP, the shares in A GP, B GP, C GP, and H GP, and the cash or near-cash property to the FUND in consideration for the issuance by the FUND of such number of FUND Units equal to the number of FUND Units outstanding immediately prior to this transfer, plus the amount obtained when the cash subscription proceeds is divided by the trading price of the FUND Units immediately prior to this transfer. The FUND Units so issued shall have an aggregate fair market value equal to the fair market value of the property so transferred. Such transfer would constitute the "transfer time" in a qualifying exchange within the meaning of section 132.2. For greater certainty, the transfer time will happen immediately before the end of the day of the transfer.

35. At the beginning of the day following the transfer time described in paragraph 34 above, i.e. at the acquisition time, AMALCO MFC will redeem all of the issued and outstanding AMALCO MFC Class A Shares. As consideration for the redemption, AMALCO MFC will distribute FUND Units (previously acquired from the FUND as described in paragraph 34 above) to each holder of AMALCO MFC Class A Shares on a pro-rata basis based on total issued and outstanding AMALCO MFC Class A Shares and AMALCO MFC Class B Shares.

36. At or about the same time and within XXXXXXXXXX days of the transfer described in paragraph 34 above, AMALCO MFC will redeem all of the issued and outstanding AMALCO MFC Class B Shares owned by the FUND. As consideration for the redemption, AMALCO MFC will distribute FUND Units (previously acquired from the FUND as described in paragraph 34 above) to the FUND on a pro-rata basis based on the total issued AMALCO MFC Class A Shares and AMALCO MFC Class B Shares that were outstanding immediately prior to the redemption described in paragraph 35 above. The FUND Units received by the FUND will be cancelled upon receipt.

37. Immediately following the transactions described in paragraphs 30 through 36 above, the outstanding FUND Units will be consolidated such that the total number of FUND Units outstanding after the consolidation will be equal to the total number of FUND Units outstanding immediately prior to the Proposed Transactions. All of the FUND Units will be consolidated on the same basis and there will be no change in the total capital of the FUND or to the rights of Unitholders or their percentage interests in the FUND as a consequence of the consolidation.

38. Following the transactions described in paragraphs 34 through 37 above, but prior to the dissolution of AMALCO MFC described in paragraph 39 below, AMALCO MFC will jointly elect with the FUND, in prescribed form and within the time referred to in paragraph (c) of the definition of qualifying exchange in subsection 132.2(2), to have the provisions of section 132.2 apply to the transfer of the A LP Units and C LP Units, the LP Units in HLP and the shares in A GP, B GP, C GP, and H GP, as described in paragraph 34 above.

39. In due course, the FUND will, by special resolution, resolve to liquidate and dissolve AMALCO MFC under the applicable provisions of the XXXXXXXXXX. The one common share of AMALCO MFC owned by the FUND will at such future time be cancelled and any remaining properties of AMALCO MFC will be distributed to the FUND on the wind-up.

40. In connection with the above steps, the FUND Declaration of Trust will be amended prior to the commencement of the Proposed Transactions to:

a) Provide for a consolidation mechanism for the FUND Units; and

b) Amend the provisions of the Right of Redemption relating to payment of in specie proceeds upon a redemption to provide that such in specie proceeds of redemption may be paid by delivery of HLP Notes in replacement of the current right to receive in specie proceeds of redemption by way of delivery of HOLDCO Notes.

Unitholders will not be entitled to any proceeds of dispositions as a result of those changes and their FUND Units will not be redeemed or cancelled.

41. The FUND and HLP will enter into an agreement of purchase and sale under which the FUND will transfer all of the A LP Units, C LP units and the cash or near cash property formerly owned by AMALCO MFC to HLP in consideration for the issuance by HLP of XXXXXXXXXX LP Units. This transfer of A LP Units and C LP Units will be completed on a tax-deferred basis under subsection 97(2).

42. The approval of the holders of the FUND Units, by way of special resolution, will be sought prior to the implementation of the Proposed Transactions.

43. In connection with the above steps, the limited partnership agreement of any of the LPs will indicate that any limited partner and any eventual limited partner:

a) will have a liability in respect of the debts, liabilities and obligations of that particular limited partnership which will be limited to the amount that it will contribute to the particular limited partnership plus any undistributed income. Should the limited partner's liability not be limited in such way, the general partner of that particular limited partnership is required to indemnify the limited partner unless such liability arises out of any act or omission of the limited partner;

b) cannot control or manage the business of that particular limited partnership;

c) cannot execute any document binding that particular limited partnership or the general partner of that particular limited partnership;

d) cannot undertake any obligation or responsibility on behalf of that particular limited partnership;

e) cannot take any action for partition or sale of property of that particular limited partnership; and

f) cannot take any action which jeopardizes the status of that particular limited partnership as a limited partnership.

44. In connection with the above steps, the board of directors of each of A GP, B GP, C GP and H GP will consist of one or more persons, the majority of which will not also serve as trustees of the Fund. The board of directors of any of those corporations (A GP, B GP, C GP or H GP) will have the powers and authority to manage the business and affairs of that corporation, and each of those corporations (A GP, B GP, C GP or H GP) will administer, manage, control and operate the business of the particular limited partnership in which it holds an interest as a general partner. The trustees of the Fund, in their capacity as trustees of the Fund, will not have or take action to limit the powers and authority of A GP, B GP, C GP or H GP in respect of the particular limited partnership in which it held an interest as a general partner.

PURPOSE OF THE PROPOSED TRANSACTIONS

The FUND believes that a modern trust-on-partnership structure is being demanded by the capital markets and that the Proposed Transactions must be implemented to be competitive in such markets.

The revised structure would also better accommodate any future expansion opportunities, and provide more flexibility in financing the operating businesses. The FUND considers that it would be inefficient to administer HOLDCO's business through the current HOLDCO structure while administering any future expansion investments through an alternative more flexible vehicle, such as HLP which was used in the acquisition of OPCOB.

The purpose of the Proposed Transactions is thus to maximize Unitholder value and to respond to the demands of the capital markets. Without reorganizing the existing structure of the FUND, it would be difficult to integrate efficiently the operations of a future acquired business within a single operating entity in a manner that maximizes returns to unitholders. The Proposed Transactions would provide for a single structure to fund any future expansion opportunities and would provide a more flexible legal and operating structure in the form of a modern income trust model that the public markets currently demand.

Rulings

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

A. Subject to subsection 131(8.1), AMALCO MFC will, immediately prior to the transfer time, qualify as a mutual fund corporation within the meaning of subsection 131(8).

B. The Proposed Transactions will not, in and by themselves, adversely affect the qualification of the FUND as mutual fund trust within the meaning of subsection 132(6). For greater certainty, section 253.1 will apply such that the holding of the LP Units by AMALCO MFC or the FUND will not, in and of itself, cause us to consider that AMALCO MFC or the FUND is carrying on the business or activity of the LPs for the purposes of subsection 131(8) or 132(6).

C. Provided that:

(a) at the moment of the transfer described in paragraph 34, AMALCO MFC is a mutual fund corporation within the meaning assigned by subsection 131(8) and the FUND 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 FUND jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2,

the transfer described in paragraph 34 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:

• the transfer of the property from AMALCO MFC to the FUND described in paragraph 34;
• the purchase for cancellation by AMALCO MFC of the AMALCO MFC Class A shares and AMALCO MFC Class B shares described in paragraphs 35 and 36; and
• the transfer of the FUND Units from AMALCO MFC to holders of AMALCO MFC Class A shares and the AMALCO MFC Class B shares described in paragraphs 35 and 36.

D. Existing Unitholders will not be considered to have disposed of any portion of their FUND Units by virtue of the distribution of MFC Class A Shares as a return of capital described in paragraph 28, the amendment to the Right of Redemption of the FUND Units, the consolidation of FUND Units described in paragraph 37 and the other related changes to the FUND Declaration of Trust described in paragraph 40.

E. The FUND will not be considered to have disposed of its property and resettled a new trust solely by virtue of the amendments to the FUND Declaration of Trust mentioned in paragraph 40 above.

F. At the time of the redemption described in paragraph 35, the AMALCO MFC Class A shares will not be taxable Canadian property of a taxpayer and, therefore, would not be subject to the requirements of section 116 provided that at any time during the 60-month period that ends at the time of the redemption, the taxpayer, persons with whom the taxpayer did not deal at arm's length, or the taxpayer together with all such persons owned less than 25% of the issued shares of any class of capital stock of the corporation.

G. The provisions of subsection 15(1), 56(2), 56(4), 69(1), 69(4), 105(1) or 246(1) will not apply as a result of the Proposed Transaction in and by themselves.

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

The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions described above. Facts and proposed transactions in the documents submitted with your request not described above do not form part of the facts and proposed transactions on which these rulings are based and any reference to these documents is provided solely for the convenience of the reader.

The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, subject to the Opinion A below. 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. In particular, we express no opinion in ruling A or the other rulings with respect to:

• whether the FUND qualifies as a mutual fund trust within the meaning of subsection 132(6); and
• the transactions and proposed transactions described in paragraphs 10, 13, 23, 24, 30, 32 and 41 hereof.

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 before XXXXXXXXXX.

As indicated in Information Circular 70-6R5, we do not rule on matters involving the determination of the fair market value of property, including the determination of the fair market value of the LP Units, the MFC Class A Shares or the AMALCO MFC Class B Shares redemption amount.

OPINIONS

A. Provided that:

(a) at the moment of the transfer described in paragraph 34, AMALCO MFC is a mutual fund corporation within the meaning assigned by
subsection 131(8) and the FUND 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 FUND jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(1), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments,

the transfer described in paragraph 34 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments, such that the rules in subsection 132.2(3) and (4), as proposed to be amended by subsection 130(1) of the Proposed Amendments will apply to:

• the transfer of the property from AMALCO MFC to the FUND described in paragraph 34;
• the purchase for cancellation by AMALCO MFC of the AMALCO MFC Class A Shares and AMALCO MFC Class B Shares as described in paragraphs 35 and 36; and
• the transfer of the FUND Units from AMALCO MFC to holders of the AMALCO MFC Class A Shares and the AMALCO MFC Class B Shares as described in paragraphs 35 and 36.

Yours truly,

XXXXXXXXXX
for the Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch