2006 Ruling 2006-0199751R3 - 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 partnership held by a corporate subsidiary to an income trust on a rollover basis using section 85 and 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions the trust owns directly and indirectly the shares of the corporations that are the partners of the partnership. At the end of the proposed transactions, it owns a limited partnership interest and shares of the general partner of that partnership.

Position: The proposed transactions meet the requirements 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 								2006-019975

XXXXXXXXXX, 2006

Dear XXXXXXXXXX:

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

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

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

a) dealt with 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 one or any of 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, the following terms have the meanings specified:

(a) XXXXXXXXXX;

(b) "Amalco" means the corporation resulting from the amalgamation of Newco, Holdco and Exchangeco, as described in paragraph 26;

(c) "Amalco Properties" means all of the assets listed in paragraph 27 that are to be transferred by Amalco to the Fund in the Asset Transfer #1;

(d) "Asset Transfer #1" means that transfer of assets by Amalco to the Fund, as described in paragraph 27;

(e) "Asset Transfer Time" means the point in time at which the Asset Transfer #1 will occur (which, for greater certainty, will be the "transfer time" referred to in the definition of "qualifying exchange" in subsection 132.2(2) of the Act);

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

(g) "Class A Shares" means the Class A preferred shares of Newco described in paragraph 15b) and, following the amalgamation described in paragraph 26, the Class A preferred shares of Amalco;

(h) "Class A Share Subscription Proceeds" means subscription proceeds of $XXXXXXXXXX per Class A Share as described in paragraph 23;

(i) "Class B Redemption Amount" means the aggregate redemption amount of the Class B Shares as described in paragraph 15c)(iii);

(j) "Class B Shares" means the Class B preferred shares of Newco described in paragraph 15c) and, following the amalgamation described in paragraph 26, the Class B preferred shares of Amalco;

(k) "Common Shares" means the common shares of Newco described in paragraph 15a) and, following the amalgamation described in paragraph 26, the common shares of Amalco;

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

(m) "CRA" means the Canada Revenue Agency;

(n) "Exchangeco" means XXXXXXXXXX, as described in paragraph 10;

(o) "Fund" means XXXXXXXXXX, as described in paragraphs 1 through 5;

(p) "General Partnership" means XXXXXXXXXX, a general partnership described in paragraph 11;

(q) "GP Inc." means that corporation described in paragraph 17;

(r) "GP Interest" means a partnership interest in General Partnership;

(s) "Holdco" means XXXXXXXXXX, as described in paragraph 6;

(t) "Holdco Common Shares" means all of the issued and outstanding common shares of Holdco;

(u) "Holdco Notes" means the unsecured, subordinated and interest-bearing notes of Holdco owing to the Fund;

(v) "Limited Partnership" means XXXXXXXXXX as described in paragraph 21;

(w) "LP Units" means a unit of Limited Partnership;

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

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

(z) "Newco" means the corporation described in paragraph 15;

(aa) "Opco1" means XXXXXXXXXX, as described in paragraph 9;

(bb) "Opco2" means XXXXXXXXXX;

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

(dd) "Regulations" means the Income Tax Regulations;

(ee) "Proposed Transactions" means the transactions contemplated in paragraphs 15 to 32 below;

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

(gg) "Unit" means a unit representing a beneficial interest in the Fund; and

(hh) "Unitholder" means a holder of one or more Units.

FACTS

1. The Fund was formed under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX. The principal office of the Fund is located at XXXXXXXXXX. The Fund has a XXXXXXXXXX taxation year-end.

2. The Units are listed and posted for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX. As of XXXXXXXXXX, there were approximately XXXXXXXXXX Units of the Fund issued and outstanding. The Fund believes that it has more than XXXXXXXXXX Unitholders.

3. The Fund qualifies as a "unit trust" pursuant to paragraph 108(2)(a) and a "mutual fund trust" within the meaning of paragraph 132(6).

4. Pursuant to the Fund's declaration of trust, the trustee of the Fund is XXXXXXXXXX . Pursuant to an Administration Agreement with Holdco, Holdco acts as administrator of the Fund.

5. The material assets of the Fund are held as capital property and consist of:

a) all of the issued and outstanding shares of Holdco and of Exchangeco; and

b) the Holdco Notes and the Exchangeco Notes.

6. Holdco is a corporation amalgamated under the XXXXXXXXXX, is resident in Canada and is a taxable Canadian corporation. Holdco is deemed to be a public corporation pursuant to paragraph 87(2)(ii). Holdco's principal office is located at XXXXXXXXXX. It has a XXXXXXXXXX taxation year-end.

7. Holdco has outstanding indebtedness owing to the Fund represented by the Holdco Notes. In addition to the Holdco Notes, Holdco has trade debt and obligations under credit facilities with financial institutions. The Fund has provided guarantees in respect of the obligations of Holdco under the credit facility.

8. The material assets of Holdco are as follows:

a) XXXXXXXXXX% of the units of General Partnership;

b) all of the issued and outstanding shares of Opco1 and Opco2.

9. Opco1 is a corporation incorporated under the XXXXXXXXXX and is a taxable Canadian corporation. Opco2 is a corporation formed under the laws of the United States and is currently inactive.

10. Exchangeco owns exchangeable shares of Holdco and has outstanding indebtedness owing to the Fund represented by the Exchangeco Notes.

11. General Partnership is a general partnership established under the laws of the Province of XXXXXXXXXX and is a Canadian partnership. Holdco holds XXXXXXXXXX% of the units, Opco1 holds XXXXXXXXXX% of the units. The partnership is engaged in the XXXXXXXXXX business.

12. The taxation year of each of the Fund, Holdco, Opco1 ends on XXXXXXXXXX of each year. The year-end of General Partnership ends on XXXXXXXXXX of each year.

13. A "Management Information Circular" will be prepared in contemplation of a meeting of Unitholders and shareholders to inter alia, approve the Proposed Transactions. As described below, the Unitholders who will be entitled to receive the Management Information Circular will receive Class A Shares of Newco under the proposed transactions.

14. This document also will be 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.

Unless otherwise specified, the proposed transactions (the "Proposed Transactions") will take place in the order described below and:

15. Newco will be incorporated under the XXXXXXXXXX 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 issued and outstanding capital of Newco will consist of three classes of shares:

a) The Common Shares will, subject to the XXXXXXXXXX:

(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 XXXXXXXXXX:

(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 a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Units as determined by the Corporation in its sole discretion;

(iv) be redeemable at the option of the holder upon not less than three business days prior written notice to Newco for a redemption amount of $XXXXXXXXXX per hare plus all declared and unpaid dividends to the date of payment, which redemption amount may 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 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 XXXXXXXXXX:

(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 assets transferred to Newco by the Fund in consideration for the issuance of Class B Shares (the "Class B Redemption Amount"), as described in paragraph 25, plus all declared and unpaid dividends to the date of payment, which aggregate redemption amount may be paid in Units;

(iv) be redeemable at the option of the holder upon not less than three 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 be paid in Units as determined by Newco in its sole discretion; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount 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.

The Class A Shares and the Class B Shares 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 redeemable in accordance with the provisions described in Paragraphs 15(b)(iii) and 15(c)(iii) above will be at least 95% of the fair market value of all of the issued shares of Newco.

16. Following the incorporation of Newco, the Fund will subscribe for XXXXXXXXXX Common Shares for a cash payment of $XXXXXXXXXX.

17. The Fund will also incorporate a new corporation under the XXXXXXXXXX ("GP Inc."). The board of directors of GP Inc. 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 GP Inc. will have the powers and authority to manage the business and affairs of GP Inc. and GP Inc. will administer, manage, control and operate the business of Limited Partnership.

18. The Fund's declaration of trust will be amended in respect of in specie redemption rights. Under certain circumstances the Unit redemption price may be paid in Holdco Notes. 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 may be redeemed by way of a distribution in specie of FUND Notes.

19. Other amendments will be made to the Fund's declaration of trust in order to permit the proposed transactions to take place. For example, the provision dealing with the consolidation of Units will be amended to permit a consolidation under the circumstances described in paragraph 31 and such other amendments will be made as may be necessary or appropriate to complete the proposed transactions.

20. The Fund will subscribe for XXXXXXXXXX shares of GP Inc. for a price estimated to be equal to XXXXXXXXXX% of the value of the General Partnership and GP Inc. will apply such funds to acquire approximately XXXXXXXXXX% of the Units of General Partnership.

21. Holdco, Opco1 and GP Inc. will agree to convert General Partnership into a limited partnership. Holdco and Opco1 will be limited partners and GP Inc. will be the general partner. The limited partnership will be called Limited Partnership and the interests therein will be described as LP Units.

There will be no significant changes in the rights and obligations of the partners other than the change to the limited liability status. Specifically there will be no change to contributed capital accounts of any partners and there will be no difference in the percentage of interests in partnership of any of the partners. The business of the partnership will not change. Furthermore, the percentage of interest of each partner in the profits will not change and the percentage liability for losses of each partner will not change save for the potential limit on liability of the limited partners.

The limited partnership agreement will indicate that Holdco, Opco 1 and any other eventual limited partner:

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

c) cannot execute any document binding Limited Partnership or GP Inc.;

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

e) cannot bring any action for partition or sale of property of Limited Partnership;

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

22. Opco1 will be wound up into Holdco.

23. 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 estimated at $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 approximately $XXXXXXXXXX.

24. The Fund will undertake a return of capital in respect of its Units by distributing one Class A Share to each Unitholder. The distribution of the Class A Shares to the Unitholders will comply with provincial securities legislation and regulation.

25. The Fund and Newco will enter into an agreement of purchase and sale under which the Fund will transfer the Holdco Common Shares, the Holdco Notes, the shares of Exchangeco and the Exchangeco Notes to Newco for an aggregate purchase price equal to the respective 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 Holdco Common Shares, the Holdco Notes, the shares of Exchangeco and the Exchangeco Notes at that time, which will be determined by reference to the trading value of the Units prior to the time of the transfer to Newco and the relative value of such assets. The Fund and Newco will jointly elect under subsection 85(1) of the Act, in prescribed form and within the time determined under subsection 85(6) or 85(7) of the Tax Act, with respect to the transfer of the Holdco Common Shares, the Holdco Notes, the shares of Exchangeco and the Exchangeco Notes. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(b), (c) and (c.1).

26. Newco, Holdco and Exchangeco will undertake an amalgamation to form one corporation (referred to herein as "Amalco"), which amalgamation will be governed by the provisions of section 87 and will include the following provisions:

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

b) the shares of Holdco, the Holdco Notes, the shares of Exchangeco and the Exchangeco Notes will be cancelled without payment;

c) the holder of the common shares of Newco will receive one common share of Amalco for each common share of Newco held;

d) 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;

e) 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; and

f) the articles of Amalco will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of paragraph 131(8)(b) of the Act.

27. Amalco will transfer all or substantially all of its property, namely the LP Units, the shares of Opco2 and the Class A Share Subscription Proceeds (the "Amalco Properties") to the Fund ("Asset Transfer #1") solely in exchange for:

a) that number of Units having an aggregate fair market value equal to the Class A Redemption Amount; and

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

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; (ii) the cash that had remained in Holdco (a predecessor of Amalco) to cover any liabilities that cannot be assumed, such as tax liabilities; and (iii) Units received on the transfer. 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(1) and proposed subsection 132.2(4)(b)(ii)(B).

28. Immediately after the day that includes Asset Transfer#1, Amalco will redeem all the outstanding Class A Shares in exchange for Units and all the Class B Shares in exchange for Units, as acquired by Amalco in the immediately preceding transaction.

29. No consideration other than Units will be received by the Unitholders on the redemption of the Class A Shares and no consideration other than Units will be received by the Fund on the redemption of the Class B Shares.

30. The Units received by the Fund on the redemption of the Class B Shares will be immediately cancelled.

31. 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 would have been outstanding immediately before the proposed transactions were undertaken. 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 the rights of Unitholders or their percentage interests in the Fund as a consequence of the consolidation.

32. Amalco will not be dissolved but will continue to exist, at least until the last day on which the election under subsection 85(1) of the Tax Act can be filed pursuant to subsection 85(6).

PURPOSE OF THE PROPOSED TRANSACTIONS

33. The objective of the Proposed Transactions is to simplify the organizational structure of the Fund and the entities in which it holds substantial interests and to reduce complexity of accounting, legal, reporting and income tax compliance required by the existing structure. The proposed structure will eliminate much of this burden. Additionally, the Proposed Transactions will result in a structure which is desirable for a number of reasons:

a) the proposed structure will be substantially similar to many other business trusts and should therefore be more acceptable to a wider public;

b) the proposed structure has the advantage of being familiar to the unitholders and analysts who follow the trading of the Units; and

c) it is believed that this structure will be of assistance in maintaining the Fund's public profile.

RULINGS REQUESTED

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. Provided there is no dissolution of General Partnership pursuant to the Partnership Act (XXXXXXXXXX), the conversion of General Partnership from a general partnership to a limited partnership, as described in paragraph 21, will not result in a disposition of the assets of General Partnership and the partners of General Partnership will not be deemed to have disposed of their GP Interest.

B. Provided that the required election is made in the prescribed form and within the prescribed time period, the provisions of subsection 85(1) will apply to the transfer by the Fund of its Holdco Shares, its Holdco Notes, the shares of Exchangeco and the Exchangeco Notes to Newco as described in paragraph 25 such that the agreed amounts in respect of each transfer will be deemed to be the proceeds of disposition for the particular transferred property to the Fund, the cost to Newco for the particular property and the adjusted cost base of the Newco shares received in exchange. For greater certainty, paragraph 85(1)e.2) will not apply to the transfer.

C. Amalco will qualify as a mutual fund corporation within the meaning assigned by subsection 131(8) immediately prior to the Asset Transfer Time.

D. Provided that:

(a) at the moment of the transfer described in paragraph 27, 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 at that moment; and

(c) Amalco 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 27 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 to the Fund described in paragraph 27;
• the purchase for cancellation by Amalco of the Amalco Class A shares and Amalco Class B shares described in paragraph 28; and
• the transfer of the Fund Units from Amalco to holders of Amalco Class A shares and the Amalco Class B shares described in paragraph 28.

For greater certainty:

(i) in respect of each of the Amalco Properties, Amalco's proceeds of disposition of the particular property and the Fund's cost in respect of the property will be determined under paragraph 132.2(1)(c) to be the lesser of the fair market value of the property and the cost amount to Amalco of the property (if the amount agreed upon in respect of the property in the election is not greater than the cost amount);

(ii) Amalco's aggregate cost of the Units received by it from the Fund as consideration for the disposition of the Amalco properties will be deemed to be nil, pursuant to subparagraph 132.2(1)(h)(i);

(iii) Amalco's aggregate proceeds of disposition of the Units distributed to Unitholders and to the Fund pursuant to the redemptions described in paragraph 28 will be deemed to be nil, pursuant to paragraph 132.2(1)(l)(i);

(iv) the proceeds of disposition to a Unitholder of a Class A Share redeemed by Amalco as described in paragraph 28, and the cost to the Unitholder of Units received as consideration for the redemption, will be deemed, pursuant to paragraph 132.2(1)(j), to be equal to the cost amount to the Unitholder of the Class A Share immediately before the Asset Transfer Time;

(v) paragraph 132.2(1)(j) will apply on the redemption by Amalco of the Class B Shares held by the Fund in consideration for Units as described in paragraph 28, such that the proceeds of disposition to the Fund of the Class B Shares will be deemed, pursuant to paragraph 132.2(1)(j), to be equal to the cost amount to the Fund of the Class B Shares immediately before Asset Transfer Time, and the Fund will therefore not recognize any income, gain or loss solely as a result of the redemption of the Class B Shares;

(vi) pursuant to subsection 131(4) and subparagraph 132.2(1)(o)(i), section 84 will not apply to deem a dividend to be paid by Amalco nor to deem a dividend to be received by any shareholders of Amalco.

E. Existing Unitholders will not be considered to have disposed of any portion of their Fund Units by virtue of the consolidation of Fund Units described in paragraph 31.

F. Section 253.1 will apply in respect of the Proposed Transactions such that the Fund will not, solely because of its acquisition and holding of the LP Units, be considered to carry on any business or other activity of the Partnership.

G. The provisions of subsections 15(1), 56(2) or 246(1) will not apply as a result of the Proposed Transactions in and by themselves.

H. The general anti-avoidance rule under subsection 245(2) of the Act 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 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 D or any other ruling with respect to whether the Fund qualifies as a mutual fund trust within the meaning of subsection 132(6).

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 Amalco Class A Shares or the Amalco Class B Redemption Amount.

OPINION

Provided that:

(a) at the moment of the transfer described in paragraph 27, 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 at that moment; and

(c) Amalco 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 27 will constitute a "qualifying exchange" within the meaning of subsection 132.2(1), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments, such that the rules in subsections 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 to the Fund described in paragraph 27; and
• the purchase for cancellation by Amalco of the Amalco Class A Shares and Amalco Class B Shares and the transfer of the Fund Units from Amalco to holders of the Amalco Class A Shares and the Amalco Class B Shares as described in paragraph 28.

For greater certainty:

(i) in respect of each of the Amalco Properties, Amalco's proceeds of disposition of the particular property and the Fund's cost in respect of the property will be determined under proposed paragraph 132.2(4)(b) to be the lesser of the fair market value of the property and the cost amount to Amalco of the property (if the amount agreed upon in respect of the property in the election is not greater than the cost amount);

(ii) Amalco's aggregate cost of the Units received by it from the Fund as consideration for the disposition of the Amalco properties will be deemed to be nil, pursuant to proposed subparagraph 132.2(3)(e)(i);

(iii) Amalco's aggregate proceeds of disposition of the Units distributed to Unitholders and to the Fund pursuant to the redemptions described in paragraph 28 will be deemed to be the cost amount of the Units, pursuant to proposed paragraph 132.2(3)(f);

(iv) the proceeds of disposition to a Unitholder of a Class A Share redeemed by Amalco as described in paragraph 28, and the cost to the Unitholder of Units received as consideration for the redemption, will be deemed, pursuant to proposed subparagraph 132.2(3)(g)(i), to be equal to the cost amount to the Unitholder of the Class A Share immediately before the date of the redemption;

(v) proposed subparagraph 132.2(3)(g)(i) will apply on the redemption by Amalco of the Class B Shares held by the Fund in consideration for Units as described in paragraph 28, such that the proceeds of disposition to the Fund of the Class B Shares will be deemed, pursuant to proposed 132.2(3)(g)(i), to be equal to the cost amount to the Fund of the Class B Shares immediately before the date of redemption, and the Fund will therefore not recognize any income, gain or loss solely as a result of the redemption of the Class B Shares

(vi) pursuant to subsection 131(4) and proposed 132.2(3)(l), section 84 will not apply to deem a dividend to be paid by Amalco nor to deem a dividend to be received by any shareholders of Amalco.

Yours truly,

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