2007 Ruling 2006-0196451R3 - Reorganization of an income trust

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: (1) the reorganization is a qualifying exchange within the meaning of 132.2; (2) the requirements of 253.1 are met where the income trust holds units of a limited partnership and shares of the general partner; and (3) GAAR applies.

Position: (1) Yes; (2) Yes; and (3) No.

Reasons: (1) As set out in the ruling, the requirements of 132.2 will be met; (2) the requirements of 253.1 will be met as the trustees of the income trust will not form the majority of the board of directors of the general partner; and (3) the GAAR Committee has considered the issue in similar restructurings and determined that GAAR does not apply.

XXXXXXXXXX 								2006-019645

Attention: XXXXXXXXXX

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the Proposed Transactions involving the above-noted taxpayer. We also acknowledge your correspondence (by e-mail) of XXXXXXXXXX.

You have confirmed that to the best of your knowledge and that of the taxpayer, none of the issues involved in this request is (i) dealt with in an earlier return of the taxpayer or a related person, (ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person, (iii) under objection by the taxpayer or a related person, (iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or (v) the subject of a ruling previously issued by the CRA in respect of the taxpayer or a related person.

The rulings given in this letter are based solely on the facts and proposed transactions described below. Any documents submitted with your request do not form part of the facts and proposed transactions described below. References in this letter to any documents are provided solely for the convenience of the reader.

Meaning of terms

Unless otherwise stated in this letter, all references in this letter to a statute are to the Act, and the following definitions apply in this letter:

"Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, as enacted to the date of this letter;

"Amalco" means the taxable Canadian corporation resulting from the vertical short-form amalgamation of Newco, OriginalCo, Can Subco-2 and Can Subco-1 as described in paragraph 39;

"Asset Transfer" means the transfer of assets by Amalco to the Fund as described in paragraph 42;

"Asset Transfer Time" means the point in time at which the Asset Transfer will occur (which, for greater certainty, will be the "transfer time" referred to in the definition of "qualifying exchange" in subsection 132.2(2));

"Business" means the business of XXXXXXXXXX;

"Canadian partnership" has the meaning assigned by subsection 102(1);

"Can Subco-1" means XXXXXXXXXX as described in paragraph 13;

"Can Subco-2" means XXXXXXXXXX as described in paragraph 12;

"Can Subco-3" means XXXXXXXXXX;

"CBCA" means the Canada Business Corporations Act, R.S.C. 1985 (5th Supp.), c.

C-44, as amended;

"Class A Shares" means:

(a) in respect of Newco, the Class A preferred shares described in
paragraph 23(b) ; and

(b) in respect of Amalco, the shares of its capital stock converted (on Amalco's formation) from Newco Class A Shares and having conditions identical to those described in paragraph 23(b) (reading a reference to "Newco" as a reference to "Amalco");

"Class A Share Subscription Proceeds" means the subscription proceeds of $XXXXXXXXXX per Newco Class A Share as described in paragraph 35;

"Class A Units" means the Class A units of Operating LP as described in paragraph 18;

"Class B Shares" means:

(a) in respect of Newco, the Class B preferred shares of Newco described in paragraph 23(c); and

(b) in respect of Amalco, the shares of its capital stock converted (on Amalco's formation) from Newco Class B Shares and having conditions identical to those described in paragraph 23(c) (reading a reference to "Newco" as a reference to "Amalco");

"Class B Redemption Amount" means the aggregate redemption amount of the Class B Shares as described in paragraph 23(c)(iii);

"Class B Units" means the Class B units of Operating LP as described in paragraph 18;

"Class C Units" means the Class C units of Operating LP as described in paragraph 18;

"Common Shares" means:

(a) in respect of Newco, the common shares described in paragraph 23(a); and

(b) in respect of Amalco, the shares of its capital stock converted (on Amalco's formation) from Newco Common Shares and having conditions identical to those described in paragraph 23(a) (reading a reference to "Newco" as a reference to "Amalco");

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

"CRA" means the Canada Revenue Agency;

"Exchange" means the XXXXXXXXXX Stock Exchange;

"Finco" means the taxable Canadian corporation that will be incorporated under the CBCA as described in paragraph 29;

"Finco Amalco" means the corporation resulting from the amalgamation of Finco and Amalco as described in paragraph 47;

"Finco Common Shares" means the common shares of Finco;

"Forward Transfer Agreement" means the agreement entered into on XXXXXXXXXX between OriginalCo and US Holdco under which US Holdco agreed to purchase, on or before XXXXXXXXXX, OriginalCo's XXXXXXXXXX preferred shares of the capital stock of US Subco-2 for an acquisition price per share calculated as follows: (i) $XXXXXXXXXX, plus (ii) any cumulative unpaid dividends, plus (iii) any accrued interest on cumulated unpaid dividends, plus (iv) an amount calculated to represent the amount of dividends accrued from the last dividend payment date to the date of the sale, less (v) any amounts paid to OriginalCo pursuant to a guaranty issued on XXXXXXXXXX by US Holdco in favour of OriginalCo in respect of various payments due to OriginalCo in respect of those XXXXXXXXXX preferred shares;

"Fund" means the XXXXXXXXXX as described in paragraphs 1 to 6;

"GP" means the taxable Canadian corporation that is XXXXXXXXXX, as described in paragraph 16;

"Holdco" means the taxable Canadian corporation that will be incorporated as described in paragraph 30;

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

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

"Newco" means the taxable Canadian corporation that will be incorporated as described in paragraph 23;

"Notes Receivable" means the notes issued by OriginalCo to Operating LP as described in paragraph 9;

"Operating LP" means the XXXXXXXXXX, a limited partnership as described in paragraph 18;

"OriginalCo" means XXXXXXXXXX as described in paragraphs 7 to 11;

"Proposed Transactions" means those transactions described in paragraphs 23 to 49;

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

"Regulations" means the Income Tax Regulations, C.R.C. 1978, c. 945, as promulgated to the date of this letter;

"Senior Notes" means the secured notes issued by OriginalCo to arm's length non-resident persons as described in paragraph 9;

"Service Agreement" means:

(a) in respect of OriginalCo, its agreement with Operating LP to provide certain services to Operating LP for the sole purpose of enabling Operating LP to conduct the Business in Canada; and

(b) in respect of Can Subco-2, its agreement with Operating LP to provide certain services to Operating LP for the sole purpose of enabling Operating LP to conduct the Business in Canada;

"Special Unit" means a unit representing all or part of a beneficial interest in the Fund as described in paragraph 26;

"Sub-Trust" means XXXXXXXXXX as described in paragraph 17;

"Sub-Trust Units" means a unit representing a beneficial interest in Sub-Trust;

"Sub-Trust Note" means the $XXXXXXXXXX promissory note due by Sub-Trust to the Fund at all time relevant to the transactions described in this letter;

"Sub-Trust Series 1 Notes" means the interest bearing promissory notes that may be issued by Sub-Trust as described in paragraph 48;

"Subordinated Notes" means the unsecured, subordinated promissory notes originally issued by OriginalCo to the Fund as described in paragraph 9;

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

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

"Unit" means unit representing a beneficial interest in the a Fund (other than a Special Unit);

"Unitholder" means a holder of one or more Units;

"US Holdco" means XXXXXXXXXX;

"US Subco-1" means the XXXXXXXXXX; and

"US Subco-2" means XXXXXXXXXX.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. The Fund was formed under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX (amended XXXXXXXXXX). The principal office of the Fund is located at XXXXXXXXXX. The Fund has a XXXXXXXXXX taxation year and a XXXXXXXXXX year-end for accounting purposes. The tax account number for the Fund is XXXXXXXXXX.

2. The Units are listed and posted for trading on the Exchange under the symbol XXXXXXXXXX. There are approximately XXXXXXXXXX Units of the Fund issued and outstanding.

3. The Fund is a mutual fund trust and qualifies as a "unit trust" pursuant to paragraph 108(2)(a). The Fund was formed to acquire and hold investments in various entities that carry on the Business.

4. The Fund's declaration of trust, as amended, provides as follows:

(a) Each Unit is transferable (subject to restrictions on certain transfers to non-residents) and represents the right to an equal interest in the portion of any distributions or other amounts payable to Unitholders.

(b) All Units are of the same class with equal rights and privileges.

(c) Each Unit entitles the holder thereof to one vote at all meetings of Unitholders.

(d) At no time may non-residents be the beneficial owners of a majority of the Units.

(e) Distributions are made on a quarterly basis. Distributions are made in cash and may, under certain circumstances, be made in additional Units.

(f) Each Unitholder is entitled to require the Fund to redeem at any time at the demand of the Unitholder for cash, subject to the exception below, all or any part of the Units registered in the name of the Unitholder at a price per Unit calculated by reference to the market price of the Units, provided that the total amount payable by the Fund in respect of the Units tendered for redemption in the same calendar month will not exceed $XXXXXXXXXX. If the $XXXXXXXXXX limit is exceeded, or in certain other circumstances (for example, when the Units are not listed for trading or trading in the Units is suspended), Units tendered for redemption will, subject to regulatory approval, be redeemed by way of a distribution in specie of securities of OriginalCo held by the Fund.

5. Pursuant to the Fund's declaration of trust, as amended, the trust is managed by a board of trustees consisting of a minimum of XXXXXXXXXX trustees and a maximum of XXXXXXXXXX trustees. Currently the Fund has XXXXXXXXXX unrelated individuals elected as trustees.

6. The material assets of the Fund are all of the issued and outstanding common shares of OriginalCo, all of the issued and outstanding Subordinated Notes, all of the issued and outstanding common shares of GP, all of the units of Sub-Trust and the Sub-Trust Note. These investments are held as capital property to the Fund for purposes of the Act.

7. OriginalCo is a taxable Canadian corporation amalgamated under the CBCA. OriginalCo's principal office is located at XXXXXXXXXX. It has a XXXXXXXXXX taxation year and its business number is XXXXXXXXXX.

8. As of the date of this letter, the issued and outstanding share capital of OriginalCo is as follows:

(a) XXXXXXXXXX common shares held by the Fund, the adjusted cost base to the holder and paid-up capital of which are $XXXXXXXXXX per share.

9. OriginalCo has outstanding indebtedness owing to the Fund represented by the Subordinated Notes and owing to Operating LP represented by the Notes Receivable. The Subordinated Notes are interest-bearing and are due XXXXXXXXXX or such earlier or later date as the principal amount may become payable in accordance with their terms and the provisions of the related note indentures. The cost amount to the Fund of the Subordinated Notes is equal to their principal amount. The Notes Receivable are interest-bearing and are due XXXXXXXXXX or such earlier or later date as the principal amount may become payable in accordance with their terms and the provisions of the related note indentures. OriginalCo also has US $XXXXXXXXXX in Senior Notes outstanding. The Senior Notes mature on XXXXXXXXXX and bear an interest rate of XXXXXXXXXX% payable semi-annually. Repayment of XXXXXXXXXX% of the principal is required on XXXXXXXXXX and XXXXXXXXXX. The Senior Notes are secured by a security interest in all of the present and after-acquired personal property of OriginalCo (including, without limitation, its units in Operating LP). These obligations are guaranteed by Operating LP, GP, Sub-Trust and the Fund. Interest on the Senior Notes currently qualifies for the exemption from withholding tax under Part XIII of the Act by virtue of subparagraph 212(1)(b)(vii). OriginalCo has entered into various cross-currency and interest rate swaps on the majority of its Senior Notes.

10. Other than the Subordinated Notes, Notes Receivable, Senior Notes and trade debt and other accounts payable, other material debt of OriginalCo includes amounts that may be borrowed or drawn in the form of letters of credit by OriginalCo, Operating LP, GP and/or US Subco-1, a wholly-owned subsidiary of US Holdco, under an operating credit facility agreement with a group of financial institutions. The Fund has provided guarantees in respect of the obligations of OriginalCo, Operating LP, GP and US Subco-1 under the credit facility and has pledged as collateral all of the securities it owns, directly and indirectly, in a number of entities, including OriginalCo and US Holdco.

11. The material assets of OriginalCo are as follows:

(a) all of the issued and outstanding common shares of CanSubco-2, which have an adjusted cost base to the holder and paid-up capital of $XXXXXXXXXX per share;

(b) all of the issued and outstanding common shares of CanSubco-1, which have an adjusted cost base to the holder in paid up capital of $XXXXXXXXXX per share;

(c) all of the issued and outstanding common shares of US Holdco;

(d) all of the issued and outstanding preferred shares of US Subco-2;

(e) XXXXXXXXXX % of the issued and outstanding common shares of Can Subco-3;

(f) XXXXXXXXXX % of the Class A Units of Operating LP, XXXXXXXXXX % of the Class B Units of Operating LP and XXXXXXXXXX % of the Class C Units of Operating LP;

(g) working capital, unit purchase loan plan receivable and intangible assets in connection with the Business; and

(h) the Forward Transfer Agreement.

12. CanSubco-2 is a taxable Canadian corporation amalgamated under the CBCA. All of CanSubco-2's issued and outstanding shares, which have an adjusted cost base to the holder and paid-up capital of $XXXXXXXXXX per share, are held by OriginalCo. The material assets of CanSubco-2 include working capital, XXXXXXXXXX% of the Class A Units of Operating LP and XXXXXXXXXX% of the Class B Units of Operating LP. CanSubco-2 has a XXXXXXXXXX taxation year and its business number is XXXXXXXXXX.

13. CanSubco-1 is a taxable Canadian corporation incorporated under the CBCA. All of CanSubco-1's issued and outstanding shares, which have an adjusted cost base to the holder and paid-up capital of $XXXXXXXXXX per share, are held by OriginalCo. The material assets of CanSubco-1 include working capital and fixed assets. CanSubco-1 has a XXXXXXXXXX taxation year and its business number is XXXXXXXXXX.

14. US Holdco is a corporation that was incorporated under the laws of the State of XXXXXXXXXX and is not resident in Canada for purposes of the Act. US Holdco holds all of the issued and outstanding common shares of one XXXXXXXXXX corporation (US Subco-2) and one XXXXXXXXXX corporation (US Subco-1) neither of which is resident in Canada for purposes of the Act. Each such corporation was established for the purpose of carrying on the Business in a specific region of the United States. Currently, approximately XXXXXXXXXX% of consolidated revenues of the OriginalCo group of corporations is derived from the United States. Management intends to expand the Business in both the United States and Canada, and thus the proportion of consolidated revenues that arise in the United States may differ in the future.

15. US Subco-2 has loaned $XXXXXXXXXX to US Subco-1 at an annual interest rate of XXXXXXXXXX %. OriginalCo holds XXXXXXXXXX% of the issued and outstanding preferred shares of US Subco-2 and has an adjusted cost base in these preferred shares of US $XXXXXXXXXX which equals their fair market value.

16. GP is a corporation incorporated under the CBCA. GP is the general partner of Operating LP. GP has one Class A Unit of Operating LP. GP has a XXXXXXXXXX taxation year and its business number is XXXXXXXXXX.

17. Sub-Trust is a unit trust formed under the laws of the Province of XXXXXXXXXX and its equity is wholly owned by the Fund. Sub-Trust has a XXXXXXXXXX taxation year and has not yet been assigned a business number by the CRA. Sub-Trust holds XXXXXXXXXX% of the Class A Units of Operating LP. Sub-Trust was formed for the following purposes, among other things,

(a) investing in securities of Operating LP and entities subsidiary to the Fund;

(b) acquiring or investing in the securities of any other entity, including without limitation bodies corporate, partnerships or trusts, through an acquisition of assets or an acquisition of shares or other form of ownership interest and borrowing funds or otherwise obtaining credit, including the granting of guarantees, for that purpose;

(c) holding cash and investments for the purposes of paying the expenses of Sub-Trust, paying amounts payable in connection with the redemption of Sub-Trust Units or other securities and making distribution to unitholders;

(d) issuing Sub-Trust Units and rights, warrants or other securities to convert into or exchange into Sub-Trust Units;

(e) issuing debt securities, borrowing and mortgaging, pledging, charging, granting a security interest in or otherwise encumbering any Sub-Trust assets as security for any of its obligations, liabilities or indebtedness;

(f) guaranteeing the repayment of any indebtedness, liability or obligation of any of the Fund or entities subsidiary to the Fund or the performance of any obligation of the Fund or any entity subsidiary to the Fund;

(g) paying costs, fees and expenses associated with the foregoing purposes or incidental thereto; and

(h) engaging in activities ancillary or incidental to those activities set forth above.

18. Operating LP is a limited partnership formed under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX. Operating LP is a "Canadian partnership" as defined in subsection 102(1). Operating LP has three classes of partnership units, Class A Units, Class B Units and Class C Units. The Class C Units carry a preferred return and rank in priority to the Class A and B Units and have a fair market value of US $XXXXXXXXXX. The Class B Units also carry a preferred return and rank in priority to the Class A Units. The Class A Units are the residual equity units of the partnership.

19. Operating LP holds all of the Canadian Business assets of the group other than those held by CanSubco-1 and OriginalCo. Operating LP also holds the Notes Receivable from OriginalCo.

20. OriginalCo has entered into a Services Agreement with Operating LP to provide certain services to Operating LP to enable Operating LP to conduct the Canadian Business.

21. CanSubco-2 and Operating LP are parties to a Service Agreement pursuant to which CanSubco-2 provides services of its employees to Operating LP in connection with the operation of the Canadian Business.

22. A "Management Information Circular" dated XXXXXXXXXX was prepared in contemplation of a meeting of Unitholders to, inter alia, approve the Proposed Transactions. This document was filed with the XXXXXXXXXX. There is no legal requirement for this document to be "accepted" by the XXXXXXXXXX or any other public authority in Canada.

Proposed Transactions

Following receipt of required regulatory approvals, Unitholder approval and the receipt of the rulings requested hereunder, all of which are conditions that must be met prior to implementation of the transactions described below, the following transactions will be undertaken.

Pre-Reorganization Transactions

23. Newco will be incorporated under the CBCA and will be a taxable Canadian corporation. The charter documents of Newco will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of subsection 131(8). The authorized capital of Newco will consist of three classes of shares:

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

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

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

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

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

(i) be non-voting;

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

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

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for an aggregate redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may, at the discretion of Newco, be paid in Units; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount plus declared and unpaid dividends before any amount will be paid or any assets of Newco will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

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

(i) be non-voting;

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

(iii) be redeemable at the option of Newco without notice to the holders thereof for an aggregate redemption amount equal to the fair market value of the OriginalCo common shares and the Subordinated Notes on the date that they are transferred to Newco by the Fund in consideration for the issuance of Class B Shares (the "Class B Redemption Amount") plus all declared and unpaid dividends to the date of payment, which aggregate redemption amount may, at the discretion of Newco, be paid in Special Units;

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

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount equal to the Class B Redemption Amount plus declared and unpaid dividends before any amount will be paid or any assets of Newco will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

24. The Class A Shares and the Class B Shares on a per share basis will rank equally with one another with respect to priority in the event of liquidation, dissolution or winding-up. At all times following the issuance of the Class A Shares, the fair market value of the issued shares of Newco that are retractable in accordance with the provisions described in paragraphs 23(b)(iv) and 23(c)(iv) above will be at least 95% of the fair market value of all of the issued shares of Newco.

25. Following the incorporation of Newco, the Fund will subscribe for XXXXXXXXXX Common Shares for an aggregate cash payment of $XXXXXXXXXX.

26. The Fund's declaration of trust will be amended to permit the issuance of a second class of units to be designated as "Special Units", which will be identical to the Units in all but one respect. The declaration of trust currently provides that a Unitholder who tenders Units for redemption in XXXXXXXXXX month is entitled to be paid the redemption price (i) on the XXXXXXXXXX if the redemption price is paid in specie, and (ii) on or XXXXXXXXXX if the redemption price is paid in cash. The Special Units instead will be redeemed and the redemption price paid within XXXXXXXXXX days of the demand for redemption.

27. The Fund's declaration of trust will also be amended in respect of in specie redemption rights. As described in paragraph 4(f), under certain circumstances the Unit redemption price may be paid in certain shares or notes of OriginalCo. Since those securities will cease to exist as a result of the Proposed Transactions, the in specie redemption provision of the Fund's declaration of trust will need to be amended to provide that in the event that the redemption price is to be paid in specie, then each Unit tendered for redemption shall be redeemed by way of a distribution in specie of Sub-Trust Series 1 Notes.

28. Other amendments will be made to the Fund's declaration of trust in order to permit the Proposed Transactions to take place: the provision dealing with the consolidation of Units will be amended to permit a consolidation under the circumstances described in paragraph 45, and such other amendments will be made as may be necessary or appropriate to complete the Proposed Transactions. In addition, certain other amendments may be made at the same time to the Fund's declaration of trust that are unrelated to the Proposed Transactions and that amount to general "housekeeping" or "cleanup" matters. Additionally, OriginalCo will be replaced by GP as the Fund's Administrator.

29. Finco, a taxable Canadian corporation, will be incorporated under the CBCA as a wholly-owned subsidiary of the Fund. Finco will be capitalized with nominal consideration in exchange for Finco Common Shares.

The Reorganization

All steps below will occur in sequence and in such manner that once the first step is taken all other steps must also be completed.

30. OriginalCo will form a new wholly-owned corporate subsidiary under the CBCA, Holdco, capitalized with nominal consideration. OriginalCo will transfer its common shares of US Holdco and Can Subco-3, and its preferred shares of US Subco-2 to Holdco in exchange for Holdco common shares. OriginalCo will assign its rights under the Forward Transfer Agreement and the guaranty to Holdco and Holdco will assume OriginalCo's obligations thereunder. US Holdco will consent to the assignment of the guaranty in favour of Holdco. In consideration for the assignment by OriginalCo of its rights under the Forward Transfer Agreement and the guaranty, Holdco will issue common shares having a fair market value equal to the value of the rights assigned under the Forward Transfer Agreement and the guaranty. OriginalCo, in its capacity as transferor, and Holdco, in its capacity as transferee, will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to such transfers. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(c) and (c.1).

31. CanSubco-1 will transfer to Operating LP all of its assets and goodwill (other than an amount of cash sufficient to satisfy liabilities of CanSubco-1 that cannot be assumed, such as tax liabilities) (the "CanSubco-1 Contribution") for the following consideration:

(a) the assumption by Operating LP of all liabilities of CanSubco-1 (other than the liabilities of CanSubco-1 that cannot be assumed, such as tax liabilities), and

(b) Class A Units of Operating LP having a fair market value equal to the excess of the fair market value of the CanSubco-1 Contribution over the amount of the liabilities assumed under (a) above.

32. CanSubco-1, in its capacity as transferor, and OriginalCo, CanSubco-2, GP, and Sub-Trust, as partners in Operating LP, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsections 96(4) or 96(5) with respect to the transfer of the CanSubco-1 Contribution. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

33. OriginalCo will transfer its intangibles, excess working capital and unit purchase loan plan receivable to Operating LP in exchange for additional Class A Units of Operating LP having a fair market value equal to such assets. OriginalCo, in its capacity as transferor, and OriginalCo, CanSubco-2, GP, Sub-Trust and CanSubco-1, as partners in Operating LP, will jointly elect under subsection 97(2) in prescribed form and within the time determined under subsections 96(4) or 96(5) with respect to the transfer of such intangibles. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a) which cross refers to the provisions of paragraphs 85(1)(a) to (f). OriginalCo will also terminate the Service Agreement and transfer its employees to Operating LP.

34. CanSubco-2 will terminate its Service Agreement and transfer its employees to Operating LP.

35. The Fund will subscribe for that number of Class A Shares of Newco as is equal to the number of its issued and outstanding Units in consideration for a cash payment of $XXXXXXXXXX per Class A Share (the "Class A Share Subscription Proceeds"). Based on the number of Units currently issued and outstanding, the total subscription price payable by the Fund would be $XXXXXXXXXX.

36. The Fund will undertake a return of capital in respect of its Units by distributing one Class A Share to each Unitholder, provided that

(a) the Fund will remit to the Receiver General, on behalf of each Unitholder that is a non-resident, an amount equal to the amount required by the Act to be withheld on behalf of the Unitholder in respect of the return of capital, and will remit such amount to the Receiver General on behalf of the Unitholder, pursuant to subsection 218.3(2), if applicable; and

(b) the Fund will pay to each Unitholder that is not a non-resident a cash amount per Unit equal to the amount remitted to the Receiver General for every Unit held by a non-resident.

37. The distribution of the Class A Shares to the Unitholders will comply with provincial securities legislation and regulation. Newco will apply for and obtain a listing on the Exchange in respect of its Class A Shares such that Newco will be a public corporation.

38. The Fund and Newco will enter into an agreement of purchase and sale under which the Fund will transfer the OriginalCo common shares and the Subordinated Notes to Newco for an aggregate purchase price equal to the aggregate fair market value of each property so transferred. Newco will satisfy the purchase price by issuing to the Fund XXXXXXXXXX Class B Shares. The Class B Redemption Amount will be established by reference to the aggregate fair market value of the OriginalCo common shares and the Subordinated Notes at that time, which will be based on the trading value of the Units prior to the time of the transfer to Newco. The Fund and Newco will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer of the OriginalCo common shares and the Subordinated Notes. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(c) and (c.1).

39. Newco, OriginalCo, CanSubco-2 and CanSubco-1 will undertake a vertical short-form amalgamation to form Amalco, which amalgamation will be governed by the provisions of section 87, including subsection 87(1.1), and will include, by virtue of the provisions of the CBCA or otherwise, the following provisions:

(a) the authorized share capital of Amalco will be the same as the authorized share capital of Newco;

(b) the property of each precedessor corporation shall continue to be the property of Amalco;

(c) Amalco shall continue to be liable for the obligations of any precedessor corporation;

(d) the shares of OriginalCo, CanSubco-1 and CanSubco-2 and the Subordinated Notes will be cancelled without payment;

(e) the articles of amalgamation of Amalco shall be the same as the articles of incorporation of Newco and the certificate of amalgamation shall be deemed to be the certificate of incorporation of Amalco;

(f) the holders of the Common Shares of Newco will receive one Common Share of Amalco for each Common Share of Newco held;

(g) the holders of the Class A Shares of Newco will receive one Class A Share of Amalco for each Class A Share of Newco held; and

(h) the holders of the Class B Shares of Newco will receive one Class B Share of Amalco for each Class B Share of Newco held.

40. Amalco will be a public corporation by virtue of paragraph 87(2)(ii) and will thus comply with the conditions specified in paragraph 131(8)(a). The charter documents of Amalco will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of paragraph 131(8)(b). The issued shares of Amalco will comply with the conditions specified paragraph 131(8)(c).

41. Amalco will transfer the Class C Units of Operating LP to Finco in exchange for Finco Common Shares. Amalco, in its capacity as transferor, and Finco, in its capacity as transferee, will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer. The elected amount for purposes of the election will be within the limits prescribed by paragraphs 85(1)(c) and (c.1).

42. Amalco will transfer the Class A Units and Class B Units of Operating LP, all of the issued and outstanding Shares of Holdco, the Finco Common Shares received in paragraph 41 and the Class A Share Subscription Proceeds to the Fund solely in exchange for:

(a) assumption of the Notes Receivable;

(b) that number of Units having an aggregate fair market value equal to the aggregate redemption amount of the Class A Shares; and

(c) that number of Special Units having an aggregate fair market value equal to the Class B Redemption Amount.

43. Subsequent to this transfer, Amalco will not have any property other than (i) the $XXXXXXXXXX of cash subscription proceeds received by Newco (a predecessor of Amalco) on the issuance of the Common Shares to the Fund, (ii) the cash that had remained in OriginalCo, CanSubco-2 and CanSubco-1 (predecessors of Amalco) to cover any liabilities that cannot be assumed, such as tax liabilities, and (iii) the Units and Special Units received in paragraph 42. Amalco will also still be liable for the indebtedness under the Senior Notes. The Fund and Amalco will jointly file an election in prescribed form and within the prescribed time in respect of the transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2). No amount will be agreed upon in respect of the transfer pursuant to clause 132.2(1)(c)(ii)(B).

44. Amalco will redeem all the outstanding Class A Shares in exchange for Units, and all the Class B Shares in exchange for Special Units. The Special Units received by the Fund on the redemption of the Class B Shares will be immediately cancelled and, consequently, no Special Units will remain outstanding. No consideration other than Units will be received by the Unitholders on the redemption of the Class A Shares. No consideration other than Special Units will be received by the Fund on the redemption of the Class B Shares.

45. The outstanding Units will be consolidated on a basis such that the number of Units outstanding following such consolidation will be equal to the number of Units that were outstanding immediately before the Proposed Transactions.

46. The Fund will then transfer to Finco, solely in exchange for Finco Common Shares, all of the common shares of Amalco. The Fund, in its capacity as transferor, and Finco, in its capacity as transferee, will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer. The elected amount for purposes of the election will be within the limits prescribed by paragraphs 85(1)(c) and (c.1).

47. Finco and Amalco will undertake a vertical short-form amalgamation to form Finco Amalco, which amalgamation will be governed by the provisions of section 87, including subsection 87(1.1). Finco Amalco may, in the future, make loans to Operating LP or other affiliates of the Fund. It is intended that Finco Amalco will be a financing entity for the group. That is, Finco Amalco's primary and ordinary business will consist of providing debt and equity financing for affiliates of the Fund.

48. The Sub-Trust Series 1 Notes will be reserved by Sub-Trust to be issued exclusively as full or partial payment of the redemption price of Sub-Trust Units. The Sub-Trust Series 1 Notes issued to the Fund would, in turn, be distributed by the Fund in satisfaction of the redemption price of Units in the event in which a Unitholder is entitled to in specie redemption, as described in paragraph 4(f).

49. The majority of the board of directors of GP will not be trustees of the Fund. The board of directors of GP will have the power and authority to manage the business and affairs of GP and GP will administer, manage, control and operate the business of Operating LP. The trustees of the Fund, in their capacity as trustees of the Fund, will not have or limit such powers and authority.

Purpose of the Proposed Transactions

The objective of the Proposed Transactions is to reorganize the current organizational structure of the Fund and its subsidiaries into a structure that (a) is suited to the profitable, expansionary stage that has been reached by the Business carried on by OriginalCo and other entities in which the Fund holds investments, and (b) protects Unitholder expectations regarding returns on their investment in the Fund. Due to the success of the Business, the Fund expects in the near future to have excess funds available to fund additional strategic investments. In order to maximize cash distributions to Unitholders, the Fund anticipates making such investments through Sub-Trust. Maintaining both Sub-Trust and the existing holding corporation (OriginalCo) would, however, result in unnecessary administrative cost and effort. Consequently, the business purposes would best be met by replacing the current holding company structure with a partnership structure.

Rulings Given

Provided that (i) the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, (ii) the proposed transactions are completed in the manner described above, and (iii) there are no other transactions that may be relevant to the rulings given, our rulings are as follows:

A. The proposed transactions will not, in and by themselves, adversely affect the qualification of Amalco as a mutual fund corporation or the qualification of the Fund as a mutual fund trust.

B. Provided that:

(a) at the Asset Transfer Time, Amalco is a mutual fund corporation and the Fund is a mutual fund trust;

(b) the property transferred by Amalco to the Fund as described in paragraph 42 has a fair market value of at least 90% of the fair market value of all property owned by Amalco at the Asset Transfer Time;

(c) all or substantially all of the issued shares of the capital stock of Amalco that are outstanding immediately before the Asset Transfer Time are within 60 days after the Asset Transfer Time disposed of to Amalco for the receipt of consideration only in the form of Units or Special Units; and

(d) Amalco and the Fund jointly elect under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) by filing the prescribed form within the time set out in that subsection the Asset Transfer described in paragraph 42 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), such that provisions of subsection 132.2(1) will apply to:

(d) the transfer of the property described in paragraph 42 from Amalco to the Fund;

(e) the redemption of the Class A Shares and Class B Bhares by Amalco as described in paragraph 44.

B. Section 253.1 will apply such that the Fund will not, solely because of its acquisition (as part of the Proposed Transactions) and holding of the Operating LP Class A Units and Operating LP Class B Units, be considered to carry on any business or other activity of Operating LP.

C. Subsection 245(2) will not apply to re-determine the tax consequences under Ruling A or Ruling B solely as a consequence of the Proposed Transactions.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that the Proposed Transactions are completed within six months after the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act. Nothing in this ruling should be construed as implying that the CRA 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) the qualification of the Fund as a mutual fund trust;

(c) the qualification of Newco or Amalco as a mutual fund corporation;

(d) 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.

Opinion

Bill C-33, which received first reading in the House of Commons on November 22, 2006, proposes to introduce several substantive improvements to the rules in section 132.2 and to restructure the provision as a whole. In addition, 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 B are met in respect of the proposed transactions, it is our view that the proposed transactions described in paragraphs 42 to 44 would qualify as a qualifying exchange within the meaning of proposed subsection 132.2(1).

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