2007 Ruling 2006-0212481R3 - Reorganization of a mutual fund 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: Reorganization aimed at moving from a trust on corporation structure to a trust on partnership structure using various rollover provisions. Whether that reorganization meets the requirement of the Act and is within policy.

Position: The proposed transactions are within policy and rulings on the 132.2 rollover and on section 245 are granted.

Reasons: Previous rulings granted.

XXXXXXXXXX 							2006-021248

XXXXXXXXXX, 2007

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX - Tax Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)
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 letters of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers. We also acknowledge additional correspondence concerning your request.

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

a) 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.

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) XXXXXXXXXX;

(b) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c. 1, as amended to the date hereof, and, unless otherwise stated, statutory references herein are references to the provisions of the Act;

(c) "Amalco" means the corporation resulting from the amalgamation of Newco and Opco, as described in Paragraph 33;

(d) "Asset Transfer #1" means that transfer of assets by TRUST to Opco, as described in Paragraph 21;

(e) "Asset Transfer #2" means that transfer of assets by Opco to LP, as described in Paragraph 26;

(f) "Asset Transfer #3" means that transfer of Opco Common Shares and Opco Notes by TRUST to Newco as described in Paragraph 31;

(g) "Asset Transfer #4" means that transfer of assets by Amalco to TRUST as described in Paragraph 34;

(h) "Asset Transfer Time" means the point in time at which the Asset Transfer #4 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);

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

(j) XXXXXXXXXX;

(k) "Class A Redemption Amount" means the aggregate redemption amount of the Class A Shares as described in Paragraph 17(b);

(l) "Class A Shares" means the Class A preferred shares of Newco described in Paragraph 17(b) and, following the amalgamation described in Paragraph 33, the Class A preferred shares of Amalco;

(m) "Class B Redemption Amount" means the aggregate redemption amount of the Class B Shares as described in Paragraph 17(c);

(n) "Class B Shares" means the Class B preferred shares of Newco described in Paragraph 17(c) and, following the amalgamation described in Paragraph 33, the Class B preferred shares of Amalco;

(o) "Common Shares" means the common shares of Newco described in Paragraph 17(a) and, following the amalgamation described in Paragraph 33, the common shares of Amalco;

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

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

(r) "designated beneficiary" has the meaning assigned by section 210 of the Act;

(s) "eligible properties" has the meaning assigned by subsection 85(1.1) of the Act;

(t) "Fund" means XXXXXXXXXX, as described in Paragraphs 1 through 5;

(u) "Fund Special Units" means the Units of the Fund described in Paragraph 19;

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

(w) "Fund Unitholder" means a holder of one or more Fund Units;

(x) "Holdco" means XXXXXXXXXX, a corporation described in Paragraph 13;

(y) "LP" means XXXXXXXXXX as described in Paragraph 25;

(z) "LP Interest" means a partnership interest in LP;

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

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

(cc) "Newco" means the corporation described in Paragraph 17;

(dd) "non-resident" means a person who is not a resident of Canada or is deemed not to be a resident for the purposes of the Act;

(ee) "Opco" means XXXXXXXXXX as described in Paragraph 7;

(ff) "Opco Common Shares" means all of the issued and outstanding common shares of Opco;

(gg) "Opco Notes" means the indebtedness of Opco to TRUST;

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

(ii) "Proposed Transactions" means those transactions set forth in Paragraphs 17 through 39;

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

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

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

(mm) "TRUST Ordinary Unit" means a unit representing a beneficial interest in TRUST as described in Paragraph 23(a);

(nn) "TRUST Special Units" means those special units of TRUST as described in Paragraph 23(a);

(oo) "TRUST" means XXXXXXXXXX as described in Paragraph 6;

(pp) "TRUST Notes" means the indebtedness of TRUST to the Fund;

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. The tax account number for the Fund is XXXXXXXXXX.

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

3. The Fund qualifies as a "unit trust" pursuant to paragraph 108(2)(a) and as 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.

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

a) all of the issued and outstanding units of TRUST; and

b) the TRUST Notes.

6. TRUST is a unit trust (as described in paragraph 108(2)(c)) that was established under the laws of the Province of XXXXXXXXXX pursuant to a trust indenture dated XXXXXXXXXX. The trustee of TRUST is XXXXXXXXXX and its tax number is XXXXXXXXXX.

7. Opco is a corporation amalgamated under the XXXXXXXXXX , is resident in Canada, is a taxable Canadian corporation and a public corporation. Opco's principal office is located at XXXXXXXXXX. Its tax account number is XXXXXXXXXX. As a predecessor of Opco was a public corporation listed on the XXXXXXXXXX, Opco is deemed to be a public corporation.

8. All of the issued and outstanding common shares of Opco are held by TRUST.

9. Opco has outstanding indebtedness owing to TRUST (the "Opco Notes") and in addition, Opco has trade debt and obligations under credit facilities with financial institutions. The Fund has provided guarantees in respect of the obligations of Opco under the credit facility.

10. The material assets of Opco are XXXXXXXXXX properties in XXXXXXXXXX.

11. XXXXXXXXXX.

12. Pursuant to Administration Agreements, Opco acts as an administrator of the Fund and TRUST.

13. Holdco is a corporation incorporated under the XXXXXXXXXX and is a taxable Canadian corporation. Holdco has nominal assets. All of the issued shares of Holdco are held by the Fund.

14. The taxation year of each of the Fund, TRUST, Opco and Holdco ends on XXXXXXXXXX of each year. All of such parties are serviced by the XXXXXXXXXX Taxation Services Office.

OTHER INFORMATION

15. A "Management Information Circular" will be prepared in contemplation of a meeting of Fund Unitholders to, inter alia, approve the Proposed Transactions. As described below, the Fund Unitholders who will be entitled to receive the Management Information Circular will receive Class A Shares of Newco, TRUST Special Units and Fund Special Units under the Proposed Transactions.

16. The Management Information Circular will be filed with the Securities Regulatory authorities and the XXXXXXXXXX. There is currently no legal requirement for this document to be "accepted" by the Canadian Regulatory authorities, the XXXXXXXXXX or any other public authority in Canada.

PROPOSED TRANSACTIONS

Following receipt of required regulatory approvals, Fund 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

17. 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;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment; 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 Opco Common Shares and the Opco Notes on the date that they are transferred to Newco by TRUST 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;

(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; 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 retractable in accordance with the provisions described above will be at least 95% of the fair market value of all of the issued shares of Newco.

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

19. The Fund's declaration of trust will be amended to permit the issuance of a second class of units to be designated as "Fund Special Units". These Fund Special Units will be redeemed within XXXXXXXXXX days of the demand for redemption and will have a fixed redemption amount of $XXXXXXXXXX per Fund Special Unit. The percentage interest in income of the Fund and the percentage interest in the property of the Fund will be the same for a Fund Unitholder.

20. 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 Fund Units will be amended to a permit a consolidation under the circumstances described in Paragraph 38 and such other amendments will be made as may be necessary or appropriate to complete the Proposed Transactions. Application will be sent to the CRA to change the taxation year of Opco to a time immediately preceding the Proposed Transactions.

21. TRUST will transfer ("Asset Transfer #1") to Opco all of its assets (other than its shares of Opco and the Opco Notes) including the XXXXXXXXXX for an aggregate purchase price equal to the respective fair market value of each property so transferred. Opco will satisfy the purchase price by assuming certain liabilities of TRUST (other than the TRUST Notes) and by issuing to TRUST XXXXXXXXXX common shares. The XXXXXXXXXX will merge and become extinguished as a result of this transfer.

22. TRUST and Opco 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 Act, with respect to any eligible properties that are the subject of Asset Transfer #1 and the elected amount for each eligible property transferred will be within the limits prescribed by paragraphs 85(1)(b), (c) and (c.1) of the Act.

23. TRUST's declaration of trust will be amended:

a) to redesignate the units of the trust as "TRUST Ordinary Units" and to permit the issuance of a second class of units to be designated as "TRUST Special Units", which will be redeemed within XXXXXXXXXX days of the demand for redemption and will have a fixed redemption amount of $XXXXXXXXXX. The percentage interest in the income of TRUST and the percentage interest in the property of TRUST will be the same for a unitholder of TRUST; and

b) to restrict the undertaking of TRUST as set out in subsection 132(6) of the Tax Act.

24. The Fund will subscribe for XXXXXXXXXX common shares of Holdco for the sum of $XXXXXXXXXX.

25. Holdco and Opco will agree to form a limited partnership under the Partnership Act (XXXXXXXXXX) to be known as LP. Opco will be the limited partner and Holdco will be the general partner. Holdco will agree to contribute $XXXXXXXXXX to LP and will receive XXXXXXXXXX units of LP. The board of directors of Holdco will consist of XXXXXXXXXX or more persons, the majority of which will not also serve as trustees of the Fund. The board of directors of Holdco will have the powers and authority to manage the business and affairs of Holdco, and Holdco will administer, manage, control and operate the business of the LP. The trustees of the Fund, in their capacity as trustees of the Fund, will not have or limit such powers and authority. The limited partnership agreement will indicate that Opco and any eventual limited partner:

a) have a liability in respect of the debts, liabilities and obligations of LP which is limited to the amount that it contributed to LP plus any undistributed income and should a limited partner's liability not be limited for any reason, Holdco 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 LP;

c) cannot execute any document binding LP or Holdco;

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

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

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

26. Opco will enter into an agreement with Holdco as general partner of LP to transfer ("Asset Transfer #2") all of its assets (save for $XXXXXXXXXX) to LP for an aggregate purchase price equal to the respective fair market value of each property so transferred. LP will satisfy the purchase price by assuming all of the indebtedness of Opco (other than the Opco Notes) and issuing one LP Unit for every dollar of estimated purchase price net of assumed liabilities. The purchase price will be subject to adjustment such that the number of LP units thereof will be increased or decreased and amounts previously paid or allocated on such LP units will be adjusted as required if it is determined by bona fide agreement between Opco and Holdco, by agreement between Opco, Holdco and the CRA or by a court of competent jurisdiction, that the purchase price net of debt assumed was greater or less than the estimated fair market value of the assets transferred.

27. Opco and Holdco will jointly elect under subsection 97(2) of the Act, in prescribed form and within the time determined under subsection 96(4) of the Act, with respect to any eligible property that is subject to Asset Transfer #2 and the elected amount for each eligible property transferred will be within the limits prescribed by paragraphs 85(1)(b), (c) and (c.1) of the Act.

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.

28. The Fund will subscribe for that number of Class A Shares of Newco as is equal to the number of its issued and outstanding Fund Units (other than those held by designated beneficiaries) in consideration for a cash payment of $XXXXXXXXXX per Class A Share (the "Class A Share Subscription Proceeds").

29. The Fund will subscribe for that number of TRUST Special Units as is equal to the number of its issued and outstanding Fund Units (other than those held by designated beneficiaries) plus $XXXXXXXXXX in consideration for a cash payment of $XXXXXXXXXX per TRUST Special Unit.

30. The Fund will undertake a return of capital in respect of its Fund Units by distributing to each Fund Unitholder who is not a designated beneficiary, one Class A Share of Newco and one TRUST Special Unit for each Fund Unit held and by distributing to each Fund Unitholder who is a designated beneficiary, an amount of $XXXXXXXXXX per Unit which is payable by the issuance of XXXXXXXXXX Fund Special Units per unit. The distribution of the Class A Shares and TRUST Special Units to Fund Unitholders will comply with provincial securities legislation and regulations. Determined in accordance with the provisions of Regulation 4803(4), TRUST will have at least XXXXXXXXXX unitholders, each of whom will hold at least XXXXXXXXXX TRUST Special Units and TRUST Special Units having a fair market value of at least $XXXXXXXXXX after the return of capital. Determined in accordance with the provisions of Regulation 4803(4), Newco will have at least XXXXXXXXXX shareholders each of whom will hold at least XXXXXXXXXX Class A Shares and Class A Shares having a fair market value of at least $XXXXXXXXXX after the return of capital. In respect of such distributions:

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

b) the Fund will pay to each Fund 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.

31. TRUST will retain $XXXXXXXXXX and will transfer ("Asset Transfer #3") to Newco the Opco Common Shares and the Opco Notes for the fair market value thereof. Newco will satisfy the purchase price by issuing to TRUST XXXXXXXXXX Class B shares. The Class B Redemption Amount will be established by reference to the trading value of the Fund Units prior to the time of the transfer and the relative value of Opco Common Shares and the Opco Notes.

32. TRUST 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 Act, with respect to any eligible properties that are the subject of Asset Transfer #3 and the elected amount for each eligible property transferred will be within the limits prescribed by paragraphs 85(1)(b), (c) and (c.1) of the Act.

33. Newco and Opco will undertake an amalgamation under the laws of XXXXXXXXXX to form one corporation (referred to herein as "Amalco"), which amalgamation will be governed by the provisions of section 87 of the Act 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 Opco 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;

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; and

g) as a result of the amalgamation the Opco Notes will be cancelled.

Amalco will be a public corporation pursuant to the provisions of paragraph 87(2)(ii) of the Act.

34. Amalco will transfer all or substantially all of its property, namely the LP Units and the Class A Share Subscription Proceeds to TRUST ("Asset Transfer #4") solely in exchange for:

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

b) that number of TRUST Ordinary 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 Opco to cover any liabilities that could not be assumed on the rollover, such as tax liabilities; and (iii) TRUST Special Units and TRUST Ordinary Units received on the transfer. TRUST 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) of the Act and proposed subsection 132.2(1).

35. Within XXXXXXXXXX days after the Asset Transfer Time in respect of Asset Transfer #4, Amalco will redeem all the outstanding Class A Shares in exchange for TRUST Special Units (one TRUST Special Unit will be received for each Class A Share) and all the Class B Shares in exchange for TRUST Ordinary Units, as acquired by Amalco in the immediately preceding transaction.

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

37. The TRUST Ordinary Units received by TRUST on the redemption of the Class B Shares will be immediately cancelled.

38. Each TRUST Special Unit will be exchanged for a fraction of a Fund Unit the numerator of which is XXXXXXXXXX and the denominator of which is the fair market value of a Fund Unit. Each Fund Special Unit will be converted into a fraction of a Fund Unit the numerator of which is XXXXXXXXXX and the denominator of which is the fair market value of a Fund Unit. The number of outstanding Fund Units will be consolidated on a basis such that the number of Fund Units outstanding following such consolidation will be equal to the number of Fund Units that were 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 Fund Unitholders or their percentage interests in the Fund as a consequence of the consolidation.

39. Amalco will not be dissolved but will continue to exist, at least until the last day on which the election under subsection 85(1) and 132.2 of the Act can be filed.

PURPOSE OF THE PROPOSED TRANSACTIONS

40. 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 Fund Units;

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

d) it is believed that this structure will assist the Fund in maintaining its limited liability vis a vis its XXXXXXXXXX businesses by virtue of the fact that the Fund will not be a partner of LP.

RULINGS

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

A. Provided that TRUST is a unit trust within the meaning assigned by subsection 108(2) and subject to subsection 132(7), TRUST will, immediately prior to Asset Transfer Time in respect of Asset Transfer #4, qualify as a mutual fund trust within the meaning assigned by subsection 132(6);

B. Subject to subsection 131(8.1), Amalco will, immediately prior to the Asset Transfer Time in respect of Asset Transfer #4, qualify as a mutual fund corporation within the meaning assigned by subsection 131(8).

C. Provided that:

(a) at the moment of the transfer described in paragraph 34, Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and TRUST is a mutual fund trust within the meaning assigned by subsection 132(6);

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

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

the transfer described in paragraph 34 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), such that the rules in subsection 132.2(1) will apply to:

• the transfer of the property from Amalco to TRUST described in paragraph 34;
• the purchase for cancellation by Amalco of the Amalco Class A shares and Amalco Class B shares described in paragraph 35; and
• the transfer of the TRUST Special Units and TRUST Ordinary Units from Amalco to holders of Amalco Class A shares and the Amalco Class B shares described in paragraph 35.

For greater certainty:

(i) in respect of each of the properties transferred in Asset Transfer #4, Amalco's proceeds of disposition of the particular property and TRUST'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 and if the fair market value of the consideration received by Amalco other than TRUST Ordinary Units and TRUST Special Units is not greater than the cost amount));

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

(iii) Amalco's aggregate proceeds of disposition of the TRUST Special Units distributed to Class A Shareholders and the TRUST Ordinary Units distributed to TRUST as the Class B Shareholder pursuant to the redemptions described in paragraph 35 will be deemed to be nil, pursuant to paragraph 132.2(1)(i);

(iv) the proceeds of disposition to a Fund Unitholder of a Class A Share redeemed by Amalco as described in paragraph 35, and the cost to the Fund Unitholder of the TRUST Special 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 Fund Unitholder of the Class A Share immediately before the Asset Transfer Time in respect of Asset Transfer #4;

(v) paragraph 132.2(1)(j) will apply on the redemption by Amalco of the Class B Shares held by TRUST in consideration for TRUST Ordinary Units as described in paragraph 35, such that the proceeds of disposition to TRUST of the Class B Shares will be deemed, pursuant to paragraph 132.2(1)(j), to be equal to the cost amount to TRUST of the Class B Shares immediately before Asset Transfer Time in respect of Asset Transfer #4, and TRUST will therefore not recognize any income, gain or loss solely as a result of the redemption of the Class B Shares;

D. The conversion of the Fund Special Units in fractions of Fund Units as described in paragraph 38 will not result in any gain or loss;

E. Existing Fund 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 38;

F. For the purposes of determining whether a Part XIII.2 tax is payable pursuant to paragraph 218.3(2)(c) and more particularly whether a Fund Unit is a Canadian property mutual fund investment, the fair market of the unit of the Fund will be considered attributable to properties owned by the Fund and to properties owned by TRUST, Opco, LP and Amalco.

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

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

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. 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. In particular, we express no opinion with respect to whether the Fund qualifies as a mutual fund trust within the meaning of subsection 132(6) or whether TRUST qualifies as a unit trust within the meaning of subsection 108(2).

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 Shares.

OPINION

A. Provided that:

(a) at the moment of the transfer described in paragraph 34, Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and TRUST is a mutual fund trust within the meaning assigned by subsection 132(6);

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

(c) Amalco and TRUST jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(1), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments, the transfer described in paragraph 34 will constitute a "qualifying exchange" within the meaning of subsection 132.2(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 TRUST described in paragraph 34;
• the purchase for cancellation by Amalco of the Amalco Class A shares and Amalco Class B shares described in paragraph 35; and
• the transfer of the TRUST Ordinary Units and TRUST Special Units from Amalco to holders of Amalco Class A shares and the Amalco Class B shares described in paragraph 35.

For greater certainty:

(i) in respect of each of the properties transferred in Asset Transfer #4, Amalco's proceeds of disposition of the particular property and TRUST'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 and if the fair market value of the consideration received by Amalco other than TRUST Ordinary Units and TRUST Special Units is not greater than the cost amount));

(ii) Amalco's aggregate cost of the TRUST Ordinary Units and TRUST Special Units received by it from TRUST as consideration for the disposition of its 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 TRUST Special Units distributed to Class A Shareholders and the TRUST Ordinary Units distributed to TRUST as the Class B Shareholder pursuant to the redemptions described in paragraph 35 will be deemed to be the cost amount of the TRUST Special Units and the TRUST Ordinary Units, as the case may be, pursuant to proposed paragraph 132.2(3)(f);

(iv) the proceeds of disposition to a Fund Unitholder of a Class A Share redeemed by Amalco as described in paragraph 35, and the cost to the Fund Unitholder of the TRUST Special 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 Fund 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 TRUST in consideration for TRUST Ordinary Units as described in paragraph 35, such that the proceeds of disposition to TRUST of the Class B Shares will be deemed, pursuant to proposed subparagraph 132.2(3)(g)(i), to be equal to the cost amount to TRUST of the Class B Shares immediately before the date of redemption, and TRUST will therefore not recognize any income, gain or loss solely as a result of the redemption of the Class B Shares;

Yours truly,

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