2008 Ruling 2006-0217321R3 - Variation of a trust indenture

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 the variation of a trust to modify administrative powers and powers affecting the unitholders'voting rights, to cancel the transferability of the units, to give to the Manager a right to redeem, any time, the units, would result: (1) in a disposition by the trust of its assets or in a resettlement of the trust; (2) in a disposition by the existing unit holders of their units;(3) in the application of 245(2)?

Position: (1) No; (2) No; (3) No

Reasons: Modifications are administrative and not substantial. Previous rulings on similar issue.

XXXXXXXXXX 									2006-021732

XXXXXXXXXX , 2008

Dear Sir

Re: Advance Income Tax Ruling
XXXXXXXXXX : Tax Number XXXXXXXXXX
(XXXXXXXXXX Centre and XXXXXXXXXX Tax Services Office)

XXXXXXXXXX .: Tax Number is XXXXXXXXXX (XXXXXXXXXX Tax Services Office and the 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 the additional information provided in subsequent correspondence and during our various telephone conversations and emails in connection with your request.

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

a) 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.

The documentation submitted with your request does not form part of the facts and proposed transaction and any references thereto are provided solely for the convenience of the reader. Unless otherwise indicated, all references to monetary amounts are in Canadian dollars and all statute references are to the Income Tax Act (Canada)

(R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act") or to the Income Tax Regulations (the "Regulations").

DEFINITIONS

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

"Amendments" means the proposed modifications to the Existing Trust Declaration;

"Custodian" means the Trustee of the Trust or any successor thereof in its capacity as custodian in respect of the Trust;

"CRA" means the Canada Revenue Agency;

"Declaration of Trust" means the declaration of trust dated XXXXXXXXXX establishing and governing the Trust;

"Existing Trust Declaration" means the Declaration of Trust amended and restated as of XXXXXXXXXX for the purposes of effecting a replacement of the former trustees and making other amendments to the terms of the Trust;

"Proposed Trust Declaration" means the Existing Trust Declaration as amended and restated to take into account the Amendments;

"Manager" means XXXXXXXXXX ., a corporation governed by the Canada Business Corporations Act (Canada) or any successor in its capacity as manager of the Trust;

"Participant" means a registered holder of Units and, except for the purposes of Article XXXXXXXXXX of the Proposed Trust Declaration, includes, where Units are registered in the name of a custodian, nominee or other person acting in a similar capacity, the person on whose behalf the Units are so registered;

"Settlor" means XXXXXXXXXX ;

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

"Trust" means XXXXXXXXXX ; a closed-end unit trust formed under the laws of the Province of XXXXXXXXXX pursuant to the Declaration of Trust;

"Trustee" means XXXXXXXXXX and any successor thereof in its capacity as Trustee of the Trust. The headquarters of XXXXXXXXXX ; and

"Unitholder" means under the Existing Trust Declaration a registered holder of one or more Trust Units.

FACTS

1. The Trust is a "unit trust" as defined in paragraph 108(2)(b) but is not a "mutual fund trust" for purposes of the Act. Its principal office is at the office of the Manager.

2. The Trustee has an office at XXXXXXXXXX . Its tax business number is XXXXXXXXXX and its income tax returns are dealt with by the XXXXXXXXXX Taxation Centre. Pursuant to section XXXXXXXXXX of the Existing Trust Declaration, the Trustee as trustee has, subject to the limitations stated in the Existing Trust Declaration and subject to its fiduciary duties, power, control, supervision and authority over the Trust property and the affairs of the Trust. However, in accordance with section XXXXXXXXXX of the Existing Trust Declaration, and as described below, the authority to administer the Trust is vested in the Manager
3. The Manager is a taxable Canadian corporation. It has an office at XXXXXXXXXX . Its tax account number is XXXXXXXXXX and its income tax returns are dealt with by the XXXXXXXXXX Tax Services Office and the XXXXXXXXXX Tax Centre. The Manager carries on the business of providing international investment management services to Canadian clients, both institutional and retail, and managing and investing money and other property, including property held in unit trusts.

4. Pursuant to sections XXXXXXXXXX of the Existing Trust Declaration, the Manager has the authority to administer the Trust, including the authority to administer the safekeeping, management and investment of the Trust property. The Trust property is invested by the Manager in accordance with the investment policy from time to time in effect.

5. Pursuant to section XXXXXXXXXX of the Existing Trust Declaration, the Custodian is retained by the Trustee to handle the safekeeping of the Trust property.

6. The Trust property is any and all tangible or intangible property held in the Trust from time to time, including the consideration paid by Unitholders in respect of their Units, any cash deposits, and any securities acquired by the Trust. Pursuant to sections XXXXXXXXXX of the Existing Trust Declaration, the net asset value, net income and net capital gains per Unit are a proportionate share of the net asset value, net income and net capital gains of the Trust, respectively.

7. The Unitholders are the beneficiaries of the Trust that is, those persons who from time to time own any issued units (the "Units") of the Trust. Pursuant to sections XXXXXXXXXX of the Existing Trust Declaration, the Units have no nominal or par value, the number of Units authorized to be issued is unlimited, and all Units have equal rights with respect to voting, distribution of income or capital, liquidation and other events. Each Unitholder is entitled to one vote for each Unit held.

8. The purpose of the Trust, as stated in section XXXXXXXXXX of the Existing Trust Declaration, is to permit Unitholders to diversify internationally and to obtain the benefits of a portfolio which will reflect the growth prospects and investment opportunities in countries outside of North America by investing the Trust property in assets located outside North America, primarily equity securities.

9. Section XXXXXXXXXX (the "Amendment Section") of the Existing Trust Declaration provides that the Existing Trust Declaration may be amended from time to time by an instrument in writing executed by the Trustee, such amendment to become effective upon confirmation by the Unitholders in accordance with sections XXXXXXXXXX .

Certain amendments to the Existing Trust Declaration may be made without the confirmation or consent of the Unitholders. Such amendments are for the purposes of: continuing compliance with applicable law and requirements of any governmental authorities having jurisdiction over the Trust; maintaining the status of the Trust under the Act as a unit trust; making changes or corrections necessary or desirable for the correction of typographical mistakes or omissions or manifest errors; and providing additional protection to Unitholders.

PROPOSED TRANSACTION

10. The Existing Trust Declaration does not conform to the standard form of trust deed preferred by the Trustee and there have been many changes in the investment environment and the circumstances of the Trust over the past XXXXXXXXXX years during which the Trust has been in existence. Therefore, the Trustee and the Manager wish to amend and restate the Existing Trust Declaration for the Trust in a form substantially similar to the Proposed Trust Declaration. Hereinafter are described some of the proposed Amendments:

(a) Instrument Creating Trust

The Trust was constituted by means of a Declaration of Trust. There will be no new settlement under the Proposed Trust Declaration, there is no intention to create a new trust, and no such intention will be expressed in the Proposed Trust Declaration.

(b) Trust Features

(i) Purpose: The purpose of the Trust is to permit Unitholders to diversify investments internationally. There will be no change in the purpose of the Trust.

(ii) Governing law: The Existing Trust Declaration provides that it shall be governed and construed in accordance with the laws of XXXXXXXXXX . Because the Manager is based in XXXXXXXXXX , the Proposed Trust Declaration will be governed by the laws of XXXXXXXXXX
(iii) Situs of administration: The Trust has been administered from offices in XXXXXXXXXX since it was created, and the Trust will continue to be administered from offices in XXXXXXXXXX .

(iv) Nature of trust and liability: The Trust is not a partnership, joint venture, agency or company, etc. ("partnership, etc.") and its Unitholders are indemnified and excluded from liability. Similarly, section XXXXXXXXXX of the Proposed Trust Declaration states that it is an open-ended unincorporated trust which is not a partnership, etc. and none of its Trustee, Settlor, Manager, or Participants or any of them, shall be deemed to be liable as partners or joint venturers.

(v) Duration: The Trust is expressly limited in duration to XXXXXXXXXX years and XXXXXXXXXX days after the death of the last survivor of the original parties to the Existing Trust Declaration and their children and grandchildren alive on that date, with potential for extension if permitted by law. No change in the duration of the Trust is intended by virtue of the Amendments in and of themselves.

(c) Trustee

(i) Investment Powers: No material change is intended in the investment powers. Under section XXXXXXXXXX of the Existing Trust Declaration, the Trust property is to be invested by the Manager. Under section XXXXXXXXXX of the Proposed Trust Declaration, the Trustee is required to invest Trust property as instructed by the Manager (or by an Investment Advisor appointed by the Manager).

(ii) Trust property: The Trustee has, subject to the limitations stated in the Existing Trust Declaration and subject to its fiduciary duties, has full, exclusive and absolute power, control, supervision and authority over the Trust property and the affairs of the Trust to the same extent as if the Trustee were the sole and absolute owner of the Trust property in its own right. Under section XXXXXXXXXX of the Proposed Trust Declaration, the Trustee acknowledges and agrees that it holds any and all Trust property in trust for the use and benefit of the Participants.

(iii) Conflict of interest: Under section XXXXXXXXXX of the Existing Trust Declaration, a material conflict of interest must either be remedied by the Trustee or the Trustee must resign. To reflect commercial reality, section XXXXXXXXXX of the Proposed Trust Declaration specifically excludes certain actions of the Trustee from being a conflict
(e.g. investing the assets of the fund in the property of any person in which the Trustee may be directly or indirectly affiliated or interested).

(iv) Resignation and removal: Under section XXXXXXXXXX of the Existing Trust Declaration, the Trustee may resign by giving XXXXXXXXXX months written notice. The Unitholders are entitled to receive notice of the Trustee's resignation. The Unitholders may remove the Trustee and appoint a new Trustee. Under section XXXXXXXXXX of the Proposed Trust Declaration, the Trustee may resign by giving XXXXXXXXXX days notice. As well, the Manager has the power to remove and appoint the Trustee and to receive notice of the Trustee's resignation.

(d) Manager

(i) Obligations: Under the Existing Trust Declaration, the Manager recommends investments and the Trustee has no liability when acting on the Manager's instructions. Under the Proposed Trust Declaration, the Manager and Trustee are jointly and severally responsible for ensuring that investments are made in accordance with investment objectives.

(ii) Resignation and removal: As per section XXXXXXXXXX of the Existing Trust Declaration, the Unitholders of the Trust have the right to remove the Manager. There is no provision made for a removal of the Manager in the Proposed Trust Declaration. Instead, as per section XXXXXXXXXX of the Proposed Trust Declaration, the resignation of the Manager terminates the Trust.

(e) Advisory Committee and Audit Committee

The Existing Trust Declaration provides for an "advisory committee", whose purpose is to advise the Trustee and Manager with respect to the views of the Unitholders. The Existing Trust Declaration also contemplates the appointment of an "audit committee". However, the advisory committee has not met since the nomination of the Trustee and, although the audit committee has continued to meet, Unitholders have been unwilling to participate actively in the audit committee. As a result, under the Proposed Trust Declaration neither an advisory nor an audit committee are contemplated.

(f) Units and Unitholders / Participants

(i) Subscription: The specific restrictions on the subscription for Units in section XXXXXXXXXX of the Existing Trust Declaration ($XXXXXXXXXX floor value, no Unitholder alone or with related Unitholders may own more than XXXXXXXXXX % of the outstanding Units) will not be included in the Proposed Trust Declaration. Instead, in order to provide commercial flexibility, the Manager will have discretion to accept or reject new subscriptions and will be responsible for ensuring that applicable securities legislation is complied with pursuant to section XXXXXXXXXX of the Proposed Trust Declaration.

(ii) Transfer: The Existing Trust Declaration permits a transfer of Units with the Manager's prior consent. Section XXXXXXXXXX of the Proposed Trust Declaration renders the Units non-transferable except as provided therein.

(iii) Redemption: In addition to the right of the Unitholders to request a redemption of their Units, section XXXXXXXXXX of the Proposed Trust Declaration adds the right of the Manager to call for the redemption of a Participant's Units.

(iv) Unitholder Meeting: Under the Existing Trust Declaration, XXXXXXXXXX or more Unitholders representing at least XXXXXXXXXX % of the units may request the Trustee to call a meeting of the Unitholders. Under section XXXXXXXXXX of the Proposed Trust Declaration, Participants representing at least XXXXXXXXXX % of the Units may request the Manager to call a meeting of the Participants. The quorum under the Existing Trust Declaration is XXXXXXXXXX Unitholders present in person or by proxy holding at least XXXXXXXXXX % of outstanding Units while the quorum under the Proposed Trust Declaration is XXXXXXXXXX Participants present in person or by proxy holding at least XXXXXXXXXX % of Units.

(g) Distribution of Income and Capital Gains

(i) Distribution date and calculation: The income distribution is changed under Article XXXXXXXXXX of the Proposed Trust Declaration from a XXXXXXXXXX distribution to XXXXXXXXXX distribution, and the income is calculated using the rules in the Act rather than generally accepted accounting principles.

(ii) Encroachment: Under section XXXXXXXXXX of the Proposed Trust Declaration, the Manager may encroach on the capital of the Trust fund to make distributions.

(iii) Re-invest: The Existing Trust Declaration provides Unitholders with a right to elect not to have the net income of the Trust re-invested, whereas section XXXXXXXXXX of the Proposed Trust Declaration no longer provides for that option.

(h) Termination and Amendment

(i) Amendment: From time to time, under section XXXXXXXXXX , the Trustee may amend the Existing Trust Declaration, subject in most circumstances to confirmation by the Unitholders. Section XXXXXXXXXX of the Proposed Trust Declaration eliminates the requirement for confirmation of any trust amendments by the Participants; however, they still need to be notified of the amendments.

(ii) Termination: The Proposed Trust Declaration no longer requires confirmation by the Unitholders of the termination of the Trust; instead the Manager terminates the Trust by giving notice to the Trustee and the Participants.

(iii) Distribution: Under the Existing Trust Declaration, holders of at least XXXXXXXXXX % of Units may authorize the Trustee to distribute Trust property in specie (in whole or in part). The Proposed Trust Declaration does not provide for the right of the Participants to authorize by resolution a distribution of the Trust property in kind.

11. Despite the Amendments, the fundamental aspects of the Trust will not change. For example, the following features of the Trust will not change under the Proposed Trust Declaration:

(a) Trustee / Manager / Custodian: The Trustee, the Manager and the Custodian will remain respectively trustee, manager and custodian under the Proposed Trust Declaration as they are under the Existing Trust Declaration.

(b) Unitholders / Participants: Pursuant to both the Existing Trust Declaration and the Proposed Trust Declaration, the beneficiaries of the Trust are the Unitholders / Participants.

(c) Units: Both the Existing Trust Declaration and the Proposed Trust Declaration authorize the issuance of an unlimited number of Units, each of which carries one right to vote, and the redemption rights of the Participants remain substantially unchanged.

(d) Beneficiaries: The identity of the beneficiaries and entitlement to income and capital by the beneficiaries of the Trust will not change by virtue of the Amendments.

(e) Trust Property: The Trust property will not change in any way by virtue of the Amendments in and of themselves. The Trust property is and will remain any and all tangible or intangible property held in the Trust from time to time, including the consideration paid by Participants in respect of their Units, any cash deposits, and any securities acquired by the Trust.

(f) Beneficial Interests: Both the Existing Trust Declaration and the Proposed Trust Declaration provide that the net asset value, net income and net capital gains per Unit are a proportionate share of the net asset value, net income and net capital gains of the Trust, respectively.

(g) Signatories: The Existing Trust Declaration was signed by the Trustee and the Manager. The Proposed Trust Declaration will be signed by the Settlor, the Trustee and the Manager.

12. The Amendments will be made pursuant to section XXXXXXXXXX of the Existing Trust Declaration. In accordance with section XXXXXXXXXX of the Existing Trust Declaration, XXXXXXXXXX , the confirmation of the Amendments by the Unitholders is expected to be by way of a resolution consented to in writing by Unitholders.

PURPOSE OF THE PROPOSED TRANSACTION

13. The basic purpose of the Amendments is to achieve conformity and administrative convenience. The Manager and the Trustee wish to amend the Existing Trust Declaration to: (a) conform to the trust deeds governing other trusts managed by the Manager with the Trustee as trustee; and (b) address changes in the investment environment and the circumstances of the Trust.

RULINGS REQUESTED

Provided the above statements of Facts, Proposed Transaction and purpose thereof are accurate and constitute complete disclosure of all relevant Facts and Proposed Transaction, our rulings are as follows:

A. The Amendments described in paragraph 10 above will not, in and by themselves, result in a disposition by the Trust of its property or in a resettlement of the Trust.

B. Neither the Amendments nor the Unitholders' consent to the Amendments will result in a disposition by any Unitholder of his, her or its beneficial interest in the Trust.

C. Subsection 245(2) of the Act will not apply to the Amendments, in and by themselves, to re-determine the tax consequences confirmed in the rulings given above.

The rulings given herein are based solely on the Facts, Proposed Transaction and Purposes of the Proposed Transaction described above. Facts and Proposed Transaction in the documents submitted with your request not described above do not form part of the Facts and Proposed Transaction on which these rulings are based.

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 Transaction described herein other than those described in the rulings given. 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 Transaction are completed before XXXXXXXXXX

Yours truly,

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