2007 Ruling 2006-0196401R3 - Reorganization of a mutual fund trust - s. 132.2

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: (1) Whether the settlement of some debts will result in a "forgiven amount" as defined in s. 80 of the Act; (2) Whether s. 87(2)(e.1) of the Act will apply in respect of an amalgamation between two corporations; (3) Whether two separate transfers of property will constitute "qualifying exchanges" within the meaning of s. 132.2(2) of the Act and whether at the time of such transfers the transferors and transferees will qualify as "mutual fund corporations" within the meaning of s. 131(8) of the Act or as "mutual fund trusts" within the meaning of s. 132(6) of the Act, as the case may be; (4) Whether s. 253.1 of the Act will apply; (5) Whether the amendment of the declaration of trust of two different trusts will result in such trusts being considered to have disposed of their properties and resettled new trusts; (6) Whether s. 245(2) of the Act will apply so as to redetermine the tax consequences of the rulings given; and (7) Whether the consolidation of the units of a trust will result in a disposition of such units by the unit holders.

Position: (1) No; (2) Yes; (3) Yes; (4) Yes; (5) No; (6) No; and (7) No.

Reasons: See statement of principal issues.

XXXXXXXXXX 									2006-019640

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

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

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in this Ruling request:

(i) is in an earlier return of the 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;

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

"adjusted cost base" has the meaning assigned by section 54 and subsection 248(1) of the Act;

"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) of the Act in respect of the asset;

"Amalco-MFC" means the corporation formed as a result of the amalgamation of XXXXXXXXXX and MFC as described in paragraph 29 hereof;

XXXXXXXXXX;

"XXXXXXXXXX Notes" means the promissory notes issued by XXXXXXXXXX to the Trust in the approximate principal amount of $XXXXXXXXXX;

"Business" means the XXXXXXXXXX business carried on by the Partnership;

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

"Declaration of Trust" means the declaration of trust of the Trust dated

XXXXXXXXXX, a copy of which was provided;

"Fund" means the XXXXXXXXXX;

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

"Fund Indenture" means the declaration of trust of the Fund dated XXXXXXXXXX, as amended, supplemented, restated or replaced from time to time, a copy of which was provided;

"LP Unit" means the interest of a limited partner in the Partnership's capital;

"MFC" means the corporation to be incorporated as described in paragraph 19 hereof;

"mutual fund corporation" has the meaning assigned by subsections 131(8) and 248(1) of the Act;

"mutual fund trust" has the meaning assigned by subsections 132(6) and 248(1) of the Act;

"New GP" means the corporation described in paragraph 25 hereof;

"Partnership" means the XXXXXXXXXX;

"Partnership Agreement" means the Partnership's limited partnership agreement dated XXXXXXXXXX;

"public corporation" has the meaning assigned by subsections 89(1) and 248(1) of the Act;

"Regulations" means the Income Tax Regulations, as amended from time to time;

"Trust" means the XXXXXXXXXX;

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

"Trust Unit" means a trust unit of the Trust; and

"unit trust" has the meaning assigned by subsections 108(2) and 248(1) of the Act.

Facts

1. The Fund is a limited purpose unincorporated open-ended mutual fund trust governed by the laws of the Province of XXXXXXXXXX. The Fund was established to, among other things, invest in securities, including but not limited to Trust Units and Trust Notes. The Fund Units are traded on the XXXXXXXXXX Stock Exchange and the Fund has a XXXXXXXXXX year-end for purposes of the Act.

2. The head office of the Fund is located at XXXXXXXXXX, and it deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX. The Fund's account number is XXXXXXXXXX.

3. Under the Fund Indenture, the Fund may issue an unlimited number of Fund Units. Each Fund Unit represents an equal undivided beneficial interest in any distributions made by the Fund, as well as any net assets of the Fund in the event of termination or winding-up of the Fund. All Fund Units are of the same class with equal rights and privileges. Each Fund Unit is transferable, entitles the holder to one vote, participates equally in distributions 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 more than XXXXXXXXXX% of the Fund Units.

4. There were XXXXXXXXXX Fund Units issued and outstanding as of XXXXXXXXXX. As of XXXXXXXXXX, no person or company beneficially owned, directly or indirectly, or exercised control or direction over, voting securities of the Fund carrying more than 10% of the voting rights attached to any class of voting securities of the Fund except XXXXXXXXXX which owned XXXXXXXXXX% as of that date.

5. The XXXXXXXXXX trustees of the Fund are individuals resident in Canada. Under the Fund Indenture, holders of the 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 XXXXXXXXXX.

6. The Trust is an unincorporated open-ended unit trust governed by the laws of the Province of XXXXXXXXXX. Pursuant to the Declaration of Trust, the Trust was established to, among other things, invest in securities, including but not limited to shares and/or obligations of XXXXXXXXXX, and non-residents of Canada are disqualified from acting as trustee of the Trust. The Trust has a XXXXXXXXXX year-end for purposes of the Act. All of the Trust Units are owned by the Fund. 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. The Trust's account number is XXXXXXXXXX.

7. In addition to the Fund's investment in the Trust Units of the Trust, the Fund, as of XXXXXXXXXX, also holds $XXXXXXXXXX principal amount of Trust Notes issued by the Trust in connection with the transactions described in paragraph 13 hereof. The Trust Notes bear interest at a rate of XXXXXXXXXX % per annum, with interest payable the last business day of each month, and they mature on XXXXXXXXXX. The Trust Notes are capital property to the Fund for purposes of the Act.

8. XXXXXXXXXX was incorporated under the XXXXXXXXXX is a taxable Canadian corporation. The Trust owns XXXXXXXXXX% of the issued and outstanding common shares of XXXXXXXXXX. The head office of XXXXXXXXXX is located at XXXXXXXXXX and it deals with the XXXXXXXXXX Tax Services Office and files its returns with the XXXXXXXXXX Taxation Centre. XXXXXXXXXX's business number is XXXXXXXXXX has a XXXXXXXXXX year-end for purposes of the Act. The common shares of XXXXXXXXXX are capital property to the Trust for purposes of the Act. There are no issued and outstanding preferred shares in the capital of XXXXXXXXXX.

9. XXXXXXXXXX owns XXXXXXXXXX% of the issued and outstanding shares of XXXXXXXXXX The value of the shares of all of these subsidiaries of XXXXXXXXXX is estimated to represent less than XXXXXXXXXX % of the value of XXXXXXXXXX.

10. In addition to the Trust's investment in XXXXXXXXXX, the Trust, as of XXXXXXXXXX, also holds $XXXXXXXXXX principal amount of XXXXXXXXXX Notes issued in connection with the transactions described in paragraph 13 hereof. The XXXXXXXXXX Notes bear interest at a rate of XXXXXXXXXX% per annum, with interest payable the last business day of each month, and they mature on XXXXXXXXXX. The XXXXXXXXXX Notes are capital property to the Trust for purposes of the Act.

11. The Partnership is a limited partnership, formed under the laws of the Province of XXXXXXXXXX and is governed by the Partnership Agreement. XXXXXXXXXX is the general partner of the Partnership and has exclusive authority to manage the Business and affairs of the Partnership. The head office of the Partnership is located at XXXXXXXXXX. The Business Number of the Partnership is XXXXXXXXXX.

12. Under the Partnership Agreement, the Partnership may issue an unlimited number of LP Units. Each LP Unit is transferable. XXXXXXXXXX is both the general partner of the Partnership and a limited partner of the Partnership. The net income of the Partnership for each fiscal year is allocated XXXXXXXXXX% to the general partner qua general partner and the balance to the partners in proportion to the number of LP Units held. The Trust is a limited partner of the Partnership and owns approximately XXXXXXXXXX % as of XXXXXXXXXX, of the issued and outstanding LP Units. The balance of the issued and outstanding LP Units is owned by XXXXXXXXXX. As of XXXXXXXXXX, the adjusted cost base of the LP Units owned by the Trust and XXXXXXXXXX was $XXXXXXXXXX and $XXXXXXXXXX respectively. The LP Units are capital property to the Trust and XXXXXXXXXX for purposes of the Act.

13. The Fund was established pursuant to a plan of arrangement under the XXXXXXXXXX that was approved by the shareholders of the former corporation, XXXXXXXXXX. ("Former XXXXXXXXXX"), on XXXXXXXXXX and by the XXXXXXXXXX on XXXXXXXXXX. In substance, the plan of arrangement provided that each shareholder received one Fund Unit as consideration for the disposition of every XXXXXXXXXX Former XXXXXXXXXX common shares held on a fully taxable basis. This receipt of Fund Units by the shareholders was accomplished through a series of transactions whereby the shareholders sold their common shares in Former XXXXXXXXXX for notes in a newly formed corporation and immediately thereafter exchanged their notes for Fund Units. The shares of Former XXXXXXXXXX were acquired by a new corporation, all of the issued shares of which were owned by the Trust. Former XXXXXXXXXX and the new corporation amalgamated with XXXXXXXXXX being the successor corporation to this amalgamation. The Trust and XXXXXXXXXX formed the Partnership, XXXXXXXXXX contributed its business to the Partnership, and an election was made pursuant to subsection 97(2) of the Act with regard to such contribution.

Proposed Transactions

14. The transactions described in paragraphs 15 to 39 hereof will most likely be undertaken pursuant to a plan of arrangement under the XXXXXXXXXX, which is conditional on the obtaining of the requested rulings. Unless otherwise specified, the proposed transactions described herein will take place in the order described below.

15. XXXXXXXXXX will issue new common shares of XXXXXXXXXX to the Trust in satisfaction of the XXXXXXXXXX Notes, which will be settled and extinguished.

16. The Trust will issue Trust Units to the Fund in satisfaction of a portion of the Trust Notes, which Trust Notes will be settled and extinguished. Such amount of Trust Notes as are settled on the issuance of Class A Trust Units as described in paragraph 34 herein will remain outstanding after the issuance of the Trust Units.

17. The Fund will amend its Fund Indenture to allow for the creation of two new classes of units, the "Class A Fund Units" and the "Class B Fund Units". The terms of each Class A Fund Unit and Class B Fund Unit will generally be as follows:

(a) Each Class A Fund Unit and Class B Fund Unit, together with currently issued Fund Units, will represent an equal undivided interest in the Fund;

(b) Each Class A Fund Unit and Class B Fund Unit, together with currently issued Fund Units, will participate pro-rata in any distributions;

(c) Each Class A Fund Unit and Class B Fund Unit, together with currently issued Fund Units, will participate pro-rata in the net assets of the Fund in the event of a termination or winding-up; and

(d) Each Class A Fund Unit and Class B Fund Unit will be redeemable at the demand of the holder and retractable for its issue amount.

The Class A Fund Units and the Class B Fund Units will be issued with a nominal redemption amount per unit.

18. The Trust will amend its Declaration of Trust to allow for the creation of a second class of Trust Units, the "Class A Trust Units". The terms of each Class A Trust Unit will generally be as follows:

(a) Each Class A Trust Unit, together with currently issued Trust Units, will represent an equal undivided interest in the Trust;

(b) Each Class A Trust Unit, together with currently issued Trust Units, will participate pro-rata in any distributions;

(c) Each Class A Trust Unit, together with currently issued Trust Units, will participate pro-rata in the net assets of the Trust in the event of a termination or winding-up; and

(d) Each Class A Trust Unit, together with currently issued Trust Units, will be redeemable at the demand of the holder and retractable for its issue amount.

The Class A Trust Units will be issued with a nominal redemption amount per unit.

19. The Fund will incorporate MFC under the XXXXXXXXXX with share conditions and articles of incorporation that will enable MFC to qualify as a mutual fund corporation.

20. The only undertaking of MFC will be the investing of funds in property, other than real property, including the common shares of XXXXXXXXXX.

21. The authorized share capital of MFC will consist of an unlimited number of common shares, Class A Shares, and Class B Shares. Each common share will entitle the holder to one vote, dividends as and when declared by the board of directors, 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. The terms of each Class A Share and Class B Share will generally be as follows:

(a) Each Class A Share and Class B Share will be non-voting;

(b) Each Class A Share and Class B Share will entitle the holder to dividends as and when declared by the board of directors;

(c) Each Class A Share and Class B Share will be redeemable at the demand of the holder and retractable at a redemption price equal to the fair market value of any consideration paid to acquire such share on issuance, which redemption price will be payable in cash, or satisfied by the transfer of Class A Fund Units;

(d) Each Class A Share and Class B Share will entitle the holder to receive the Class A Share redemption price or the Class B Share redemption price, as the case may be, upon the receipt of a Class A Share or Class B Share by MFC;

(e) Under no circumstances may MFC suspend the redemption of the Class A Shares or Class B Shares; and

(f) On dissolution of MFC, each Class A Share and Class B Share will entitle the holder to the redemption price in preference to any participation on the common shares.

22. The Fund will subscribe for XXXXXXXXXX common shares of MFC for $XXXXXXXXXX. MFC will file an information circular, containing prospectus level disclosure, with the securities regulators in each of the Provinces in Canada as required under the applicable securities legislation. In accordance with the information circular, the Fund will subscribe for a number of Class A Shares of MFC equal in number to the number of Fund Units then outstanding for a nominal amount

23. The Fund will then distribute, as a distribution of capital on its Fund Units, the Class A Shares of MFC acquired by the Fund as described in paragraph 22 hereof to the holders of the Fund Units. Each holder will receive such number of Class A Shares of MFC as equals 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.

24. Following the distribution of the Class A Shares of MFC described in paragraph 23 hereof, and prior to the amalgamation described in paragraph 29 hereof, MFC will either list its Class A Shares on a prescribed stock exchange in Canada or will elect to be a public corporation pursuant to paragraph (b) of the definition of "public corporation" in subsection 89(1) of the Act. If such an election is made, the Class A Shares will be the class of shares designated under paragraph 4800(1)(a) of the Regulations in respect of such election and MFC will also satisfy the conditions in paragraphs 4800(1)(b) and (c) thereof.

25. XXXXXXXXXX will incorporate New GP under the XXXXXXXXXX. The authorized share capital of New GP will consist of an unlimited number of common shares. Each common share will entitle the holder to one vote, to dividends as and when declared by the board of directors and, on the dissolution of New GP, to share ratably in any remaining assets of New GP. New GP will have XXXXXXXXXX issued and outstanding common shares, all of which will be owned by XXXXXXXXXX, for which the subscription price will be $XXXXXXXXXX.

26. XXXXXXXXXX and New GP will enter into a purchase and sale agreement whereby XXXXXXXXXX will transfer its XXXXXXXXXX% general partnership interest in the Partnership to New GP in exchange for XXXXXXXXXX common share of New GP. XXXXXXXXXX and New GP will jointly elect, in prescribed form and within the time referred to in subsection 85(6) of the Act, to have the provisions of subsection 85(1) of the Act apply to this transfer. Such amendments will be made to the Partnership Agreement as are necessary to admit New GP as the general partner of the Partnership and to provide that thereafter XXXXXXXXXX will be only a limited partner of the Partnership. The board of directors of New 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 New GP will have the powers and authority to manage the business and affairs of New GP and New GP will administer, manage, control and operate the business of the Partnership. The Partnership Agreement will indicate that any limited partner of the Partnership:

(a) will have a liability in respect of the debts, liabilities and obligations of the Partnership which is limited to the amount that it contributed to the Partnership plus any undistributed income. Should the limited partner's liability not be limited for any reason, New GP 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 the Partnership;

(c) cannot execute any document binding the Partnership or New GP;

(d) cannot undertake any obligation or responsibility on behalf of the Partnership;

(e) cannot bring any action for partition or sale of property of the Partnership; and

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

27. The Trust and MFC will enter into a purchase and sale agreement whereby the Trust will sell to MFC all of the issued and outstanding common shares of XXXXXXXXXX in exchange for such number of Class B Shares of MFC as have an aggregate fair market value and redemption price equal to the fair market value of the issued and outstanding common shares of XXXXXXXXXX.

28. The Trust will jointly elect with MFC, in prescribed form and within the 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 of the common shares of XXXXXXXXXX described in paragraph 27 hereof.

29. Immediately after the election described in paragraph 28 hereof is made, MFC and XXXXXXXXXX (each of which is referred to in this paragraph as a "predecessor corporation") 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;

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

(d) 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 Amalco-MFC pursuant to the amalgamation.

The articles of amalgamation of Amalco-MFC will be the same as the articles of MFC, and Amalco-MFC will not issue any securities in connection with the amalgamation.

30. Amalco-MFC and the Fund will enter into an agreement of purchase and sale under which Amalco-MFC will transfer all of its property (being primarily LP Units and the shares of its wholly-owned subsidiaries) to the Fund. The Fund will satisfy the purchase price by issuing to Amalco-MFC such number of Class A Fund Units as equals the number of Amalco-MFC Class A Shares and Class B Shares issued and outstanding immediately before the issuance and by assuming all liabilities of Amalco-MFC.

31. Immediately following the transfer described in paragraph 30 hereof, Amalco-MFC will redeem all of its issued and outstanding Class A Shares held by the holders of Fund Units and all of its issued and outstanding Class B Shares held by the Trust. As consideration for the redemption, Amalco-MFC will distribute the Class A Fund Units acquired from the Fund pursuant to the transactions described in paragraph 30 hereof to the holders of Fund Units and to the Trust.

32. Following the transactions described in paragraphs 30 and 31 hereof, but prior to the dissolution of Amalco-MFC described in paragraph 33 hereof, 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) of the Act, to have the provisions of section 132.2 of the Act apply to the transfer of Amalco-MFC's property to the Fund described in paragraph 30 hereof.

33. Following the transactions described in paragraphs 30 through 32 hereof, the Fund will, by special resolution, resolve to liquidate and dissolve Amalco-MFC under the applicable provisions of the XXXXXXXXXX. The XXXXXXXXXX common shares 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. In due course, Amalco-MFC will file a tax return for its final taxation year and articles of dissolution will be filed and Amalco-MFC will be dissolved.

34. As repayment of the remaining outstanding Trust Notes held by the Fund, the Trust will issue Class A Trust Units to the Fund equal in number to the number of issued and outstanding Fund Units immediately before the issuance. The Fund will then distribute the Class A Trust Units to the holders of Fund Units as a distribution of capital. Immediately after this distribution, the Trust will satisfy the conditions to be a mutual fund trust pursuant to subsection 132(6) of the Act and section 4801 of the Regulations.

35. The Trust and the Fund will enter into an agreement of purchase and sale under which the Trust will transfer to the Fund all of its property (being the Class A Fund Units and LP Units). The Fund will satisfy the purchase price by issuing Class B Fund Units to the Trust equal in number to the total number of issued and outstanding Fund Units immediately before the issuance and the number of Trust Units held by the Fund immediately before the issuance less one Trust Unit, and by assuming any liabilities of the Trust.

36. Immediately following the transfer described in paragraph 35 hereof, the Trust will redeem all of its outstanding Class A Trust Units and all but one of its outstanding Trust Units. As consideration for the redemption, the Trust will distribute the Class B Fund Units acquired from the Fund pursuant to the transaction described in paragraph 35 hereof.

37. The Fund Units, the Class A Fund Units distributed as described in paragraph 31 hereof and the Class B Fund Units distributed as described in paragraph 36 hereof, will be consolidated into Fund Units in such number of Fund Units as were issued and outstanding immediately prior to the proposed transactions described herein. Each of the Fund unit holders 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.

38. Following the transactions described in paragraph 37 hereof, but prior to the dissolution of the Trust described in paragraph 39 hereof, the Trust 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) of the Act, to have the provisions of section 132.2 of the Act apply to the transfer of the Class A Fund Units and LP Units described in paragraph 35 hereof.

39. After making the election described in paragraph 38 hereof, the trustees of the Trust will, by special resolution, resolve to terminate and wind up the Trust. The Trust Unit owned by the Fund will be cancelled and any remaining property of the Trust will be distributed to the Fund on wind-up.

Purposes of the Proposed Transactions

40. The Fund anticipates that it will, from time to time, have to raise capital through the issuance of Fund Units in order to fund the expansion of its business and the possible acquisition of other XXXXXXXXXX businesses. In order to remain competitive with other income trusts in the XXXXXXXXXX sector, the Fund must have an organizational structure that is well-received by the capital markets. The Partnership is expected to generate significant operating profits and the current organizational structure creates the potential for taxation in XXXXXXXXXX, which would result in reduced cash flow for distribution to holders of Fund Units. The Fund-on-partnership structure, whereby the Fund owns a substantial majority of a partnership, resulting in increased cash flow to holders of Fund Units, would be better received by the capital markets.

41. The proposed transactions described herein in paragraphs 14 through 33 are intended to transfer all of the LP Units currently held by the Trust and XXXXXXXXXX to the Fund in a tax-effective manner. The proposed transactions described herein in paragraphs 34 through 39 are intended to eliminate the reciprocal holdings of Trust Units and Fund Units by the Trust and the Fund arising as a result of the proposed transactions described herein in paragraphs 14 through 39.

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. With respect to the settlement of the XXXXXXXXXX Notes described in paragraph 15 hereof, by virtue of paragraphs 80(2)(g) and (g.1) of the Act, the XXXXXXXXXX Notes will be deemed to be settled for an amount equal to the aggregate of the fair market value of the XXXXXXXXXX common shares issued in settlement of the XXXXXXXXXX Notes and the amount of the increase, as a result of the settlement of the XXXXXXXXXX Notes, in the fair market value of the XXXXXXXXXX common shares held by the Trust.

B. The settlement of the Trust Notes as described in paragraph 16 hereof will not result in the Trust having any "forgiven amount", as defined in section 80 of the Act, provided that the fair market value of the Trust Units issued by the Trust to the Fund in settlement of the Trust Notes is not less than the principal amount of the Trust Notes so settled.

C. The settlement of the Trust Notes as described in paragraph 34 hereof will not result in the Trust having any "forgiven amount", as defined in section 80 of the Act, provided that the fair market value of the Class A Trust Units issued by the Trust to the Fund in settlement of the Trust Notes is not less than the principal amount of the Trust Notes so settled.

D. Paragraph 87(2)(e.1) of the Act will apply as a result of the amalgamation of XXXXXXXXXX and MFC to form Amalco-MFC, as described in paragraph 29 hereof. As a result, Amalco-MFC will be considered to be the same corporation as and a continuation of XXXXXXXXXX for purposes of computing its adjusted cost base of the LP Units owned by XXXXXXXXXX at the time of the amalgamation.

E. Provided that, at the time Amalco-MFC transfers its assets to the Fund in accordance with the transaction described in paragraph 30 hereof, Amalco-MFC is a mutual fund corporation and the Fund is a mutual fund trust, 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 and within the time set out in that paragraph, the transaction described in paragraph 30 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 the transactions described in paragraphs 30 and 31 hereof.

F. Provided that, at the time the Trust transfers its assets to the Fund in accordance with the transaction described in paragraph 35 hereof, the Trust is a mutual fund trust and the Fund is a mutual fund trust, 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 and within the time set out in that paragraph, the transaction described in paragraph 35 hereof will constitute a "qualifying exchange", such that the rules in subsection 132.2(1) of the Act will apply to the transactions described in paragraphs 35 and 36 hereof.

G. In accordance with section 253.1 of the Act, the Fund will not, solely because of its ownership of the LP Units, be considered to carry on any business of the Partnership for the purposes of paragraph 132(6)(b) of the Act.

H. The Fund will not be considered to have disposed of its property and resettled a new trust by virtue of the amendments to the Fund Indenture described in paragraph 17 hereof.

I. The Trust will not be considered to have disposed of its property and resettled a new trust by virtue of the amendments to the Declaration of Trust described in paragraph 18 hereof.

J. Subsection 245(2) of the Act will not, solely as a result of the proposed transactions described herein, apply to redetermine the tax consequences described in the rulings given herein.

K. The consolidation of the Fund Units, Class A Fund Units and Class B Fund Units, as described in paragraph 37 hereof, will not result in a disposition of such units by the Fund's unit holders.

L. Immediately prior to the time of the transfer of the assets described in paragraph 30 hereof, Amalco-MFC will, subject to subsection 131(8.1) of the Act, qualify as a "mutual fund corporation" within the meaning assigned by subsection 131(8) of the Act, and the Fund will, subject to subsection 132(7) of the Act, qualify as a "mutual fund trust" within the meaning assigned by subsection 132(6) of the Act.

M. Immediately prior to the time of the transfer of the assets described in paragraph 35 hereof, the Trust and the Fund will, subject to subsection 132(7) of the Act, qualify as "mutual fund trusts" within the meaning assigned by subsection 132(6) of the Act.

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 transactions and proposed transactions described in paragraphs 13, 23, 26 through 28, 33, 34 and 39 hereof;

(b) whether any property referred to herein is capital property to its owner for purposes of the Act; 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.

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.

Opinions

A. Provided that, at the time Amalco-MFC transfers its assets to the Fund in accordance with the transaction described in paragraph 30 hereof, Amalco-MFC is a mutual fund corporation and the Fund is a mutual fund trust, and provided that the joint election referred to in paragraph (c) of the definition of "qualifying exchange" in proposed subsection 132.2(1) of the November 9, 2006 Draft Amendments is filed in prescribed form and within the time set out in proposed subsection 132.2(6) of the November 9, 2006 Draft Amendments, the transaction described in paragraph 30 hereof will constitute a "qualifying exchange" within the meaning of proposed subsection 132.2 (1) of the November 9, 2006 Draft Amendments, such that the rules in proposed subsection 132.2(3) of the November 9, 2006 Draft Amendments will apply to the transactions described in paragraphs 30 and 31 hereof. The proceeds of disposition of all property (other than depreciable property) of Amalco-MFC transferred to the Fund in accordance with the transactions described in paragraph 30 hereof will be determined under proposed paragraph 132.2(4)(b) of the November 9, 2006 Draft Amendments.

B. Provided that, at the time the Trust transfers its assets to the Fund in accordance with the transaction described in paragraph 35 hereof, the Trust is a mutual fund trust and the Fund is a mutual fund trust, and provided that the joint election referred to in paragraph (c) of the definition of "qualifying exchange" in proposed subsection 132.2(1) of the November 9, 2006 Draft Amendments is filed in prescribed form and within the time set out in proposed subsection 132.2(6) of the November 9, 2006 Draft Amendments, the transaction described in paragraph 35 hereof will constitute a "qualifying exchange" within the meaning of proposed subsection 132.2 (1) of the November 9, 2006 Draft Amendments, such that the rules in proposed subsection 132.2(3) of the November 9, 2006 Draft Amendments will apply to the transactions described in paragraphs 35 and 36 hereof. The proceeds of disposition of all property (other than depreciable property) of the Trust transferred to the Fund in accordance with the transactions described in paragraph 35 hereof will be determined under proposed paragraph 132.2(4)(b) of the November 9, 2006 Draft Amendments.

As provided in paragraph 22 of the Information Circular 70-6R5, the opinions provided therein are not binding on the Canada Revenue Agency.

Yours truly,

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