2007 Ruling 2007-0226281R3 - Withholding Exemption - Use of Finco

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

Principal Issues: 1. Are the interest payments made by Finco to an arm's length Non-Resident Bondholder exempt under 212(1)(b)(vii)? 2. Are payments made by a co-trustee, depository, collateral agent on behalf of Finco or if required the Financial Guarantor exempt? 3. Does a disposition of a partnership interest of either a GP or LP affect the withholding tax exemption available to Finco? 4. Is there a new obligation if the Non-Resident bondholder assigns its obligation that would cause the withholding exemption to cease?

Position: 1. YES 2. YES 3.No 4. No

Reasons: 1, 3 and 4. Finco is responsible for the loan and the terms are acceptable for the withholding exemption.

XXXXXXXXXX 						2007-022628

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX ("LP") BN XXXXXXXXXX
XXXXXXXXXX ("Finco") BN XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX and is further to information supplied in your XXXXXXXXXX correspondence wherein you requested an advance income tax ruling on behalf of the above-named organizations. We also acknowledge information provided during numerous telephone conversations and electronic correspondences.

We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the requested ruling is:

(i) dealt with in an earlier return of LP, Finco or a related person;

(ii) being considered by any tax services office or taxation centre in connection with a tax return already filed;

(iii) under objection by LP, Finco or by a related person;

(iv) the subject of a previously issued ruling by the Income Tax Rulings Directorate of the CRA to LP, Finco or a related party; nor

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.

LP and Finco advise that the proposed transactions described herein will not cause LP or Finco to be unable to pay its existing and outstanding tax liabilities.

Other than as set out herein, LP and Finco advise that there are no significant transactions that were contemplated prior to the date of this request, or that may be undertaken after the completion of the proposed transaction, which may be a part of the series of transactions contemplated herein.

Definitions:

Except as otherwise indicated, the following terms have meanings specified below:

(a) "AA Co" means XXXXXXXXXX, the general partner of LP;

(b) "A LP" means the XXXXXXXXXX to be formed under the laws of the Province;

(c) "Act" means the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act;

(d) "Arm's Length" has the meaning assigned by section 251 of the Act;

(e) "B LP" means the XXXXXXXXXX formed under the laws of the Province;

(f) "Bondholders" means the beneficial owners of the Bonds to be issued pursuant to the Trust Indenture;

(g) "Bonds" means the Senior Bonds and the Junior Bonds;

(h) "Bond Trustee" means XXXXXXXXXX as set out in the Trust Indenture;

(i) "C LP" means the XXXXXXXXXX to be formed under the laws of the Province;

(j) "Canadian Partnership" has the meaning assigned by subsection 102(1) of the Act;

(k) "Charity Trust" means the charitable trust, the terms of which provide that all of the net income of the Charity Trust, after trustees' fees, will be distributed to qualified donees (as defined in the Act) identified in the Charity Trust, on an annual basis in such proportions as the Charity Trustee shall determine;

(l) "Charity Trustee" means a licensed Canadian trust company which is the trustee of the Charity Trust;

(m) "Construction Period" means the period from Financial Close to the final commercial operation date;

(n) "D LP" means the XXXXXXXXXX formed under the laws of the Province;

(o) "E LP" means the XXXXXXXXXX to be formed under the laws of the Province;

(p) "Electricity Purchase Agreements" means the XXXXXXXXXX;

(q) "Encumbrance" means any mortgage, lien, pledge, judgment, execution, charge, security interest, restriction, claim or encumbrance of any nature whatsoever including statutory lien claims or deemed trusts of XXXXXXXXXX;

(r) "F LP" means the XXXXXXXXXX formed under the laws of the Province;

(s) "Financial Close" means the date upon which all the conditions precedent to the Financial Close are met or waived by the Bond Trustee, the Underwriter and the Financial Guarantor and settlement of funds occurs;

(t) "Financial Guarantor" means XXXXXXXXXX;

(u) "Financial Guaranty" has the meaning set out in 20 below;

(v) "Financing Documents" means:

(a) the Senior Bonds and Junior Bonds;

(b) the Guaranty Agreement;

(c) the Trust Indenture and any Supplemental Indenture;

(d) the Security Documents;

(e) the Intercreditor Agreement;

(f) the credit documentation between Finco, the Limited Partnerships and the General Partners, including the On-Lending Credit Agreements; and

(g) the underwriting agreement;

(w) "Finco" means XXXXXXXXXX, a taxable Canadian corporation (as defined in subsection 89(1) of the Act) incorporated under the laws of the Province, all of whose shares will be wholly-owned by the Charity Trust;

(x) "Guaranty Agreement" means the agreement made between the Financial Guarantor, Finco and the XXXXXXXXXX Entities;

(y) "General Partners" means GP and AA Co;

(z) "GP" means XXXXXXXXXX;

(aa) "XXXXXXXXXX Entities" means the Limited Partnerships and the General Partners;

(bb) "XXXXXXXXXX Authority" means the XXXXXXXXXX;

(cc) "Intercreditor Agreement" means the agreement made among the Financial Guarantor, the Bond Trustee, Finco and the XXXXXXXXXX Entities;

(dd) "Junior Bonds" means the series of subordinated real return bonds in an amount to be determined by the Underwriter; ranking junior to the Senior Bonds and pari passu as among themselves;

(ee) "Junior On-lending Credit Agreement" means the junior LP credit agreement to be entered into between Finco, as lender, and LP, as borrower;

(ff) XXXXXXXXXX;

(gg) "XXXXXXXXXX Projects" means:

XXXXXXXXXX;

(hh) "LP" means the XXXXXXXXXX formed on XXXXXXXXXX , under the laws of the Province, which changed its name to XXXXXXXXXX prior to the commencement of the Proposed Transactions;

(ii) "Limited Partnerships" means the XXXXXXXXXX ("A LP"), the XXXXXXXXXX ("B LP"), the XXXXXXXXXX ("LP"), the XXXXXXXXXX ("C LP"), the XXXXXXXXXX ("D LP"), the XXXXXXXXXX ("E LP") and the XXXXXXXXXX ("F LP"), and "Limited Partnership" means any one of them;

(jj) "Major Project Parties" means the XXXXXXXXXX Entities, XXXXXXXXXX Authority, XXXXXXXXXX , and, for so long as they have material obligations outstanding under the construction contract, the contractor in respect of the Projects and the guarantors thereof, if applicable, and a "Major Project Party" means any one of them;

(kk) "Material Adverse Effect" means an event or circumstance which has a material and adverse effect on:

(i) the ability of any of Finco, or the XXXXXXXXXX Entities to perform (a) their payment obligations under the Financing Documents, (b) their non-payment obligations under the Financing Documents, or (c) their obligations under the Material Project Contracts; or

(ii) (a) the enforceability or effectiveness of the interests of the Bondholders, the Bond Trustee or the Financial Guarantor under the Financing Documents; or (b) the assets, properties, operations or condition, financial or otherwise, of Finco and any of the XXXXXXXXXX Entities taken as a whole;

(ll) "Material Project Contracts" includes, among others:

(i) XXXXXXXXXX;

(ii) the construction contract in respect of the Projects;

(iii) XXXXXXXXXX;

(iv) a participation agreement made between the XXXXXXXXXX and the Limited Partnerships;

(v) XXXXXXXXXX;

(vi) the licenses of occupation issued by XXXXXXXXXX in relation to the Projects;

(vii) XXXXXXXXXX;

(viii) XXXXXXXXXX;

(ix) insurance coverage with the Bond Trustee as named insured and first loss payee where appropriate, together with mortgage endorsement;

(x) any other contracts with respect to which, having regard to the nature of the goods or services or the identity of the contract counterparty, a default by the counterparty thereunder would have a Material Adverse Effect;

(xi) any guarantees or credit support provided by the construction guarantor or from the other Major Project Parties in respect of the other Material Project Contracts;

(xii) the subleases taken from XXXXXXXXXX; and

(xiii) in respect of the licences of occupation any leases, statutory rights of way or similar interests in land obtained in substitution therefor;

(mm) "Non-Resident Bondholder" means a Bondholder that is a non-resident of Canada for the purposes of the Act;

(nn) "On-lending Credit Agreements" means the Senior On-lending Credit Agreement and the Junior On-lending Credit Agreement;

(oo) "Partners" means the General Partners and the limited partners of each of the Limited Partnerships;

(pp) "Permitted Investment" means bonds, debentures, notes, bills of exchange, securities, structured deposit note or other evidence of indebtedness issued or guaranteed by: (i) the Government of Canada; (ii) any Province of Canada, provided that such instruments are rated at least R 1(mid) or the equivalent rating from Standard & Poor's Rating Group or Moody's Investors Service Inc.; or (iii) any of the Schedule I Canadian chartered banks having a rating of A+ or better from Standard & Poor's Rating Group or Moody's Investors Service Inc., which are, in each case, short term cash equivalent investments selected by Finco, as applicable, provided that, in the case of instruments described in (iii) above, such instruments shall not have a maturity of greater than XXXXXXXXXX years, and includes the Structured Deposit Note ;

(qq) "Project LPs" means the A LP, B LP, C LP, D LP, E LP and F LP, and "Project LP" means any one of them;

(rr) "Projects" means the XXXXXXXXXX;

(ss) "Proposed Transactions" means the transactions described in 11 to 23 below;

(tt) "Province" means the province of XXXXXXXXXX;

(uu) "Security" means each and every Encumbrance created by, or pursuant to, the Security Documents;

(vv) "Security Documents" means:

(i) a debenture executed by Finco and a debenture executed by the XXXXXXXXXX Entities, each in favour of the security agent referred to therein, with each such grantor granting a mortgage over all of its present and future real property and interests therein in connection with the Projects, a security interest in all of its present and after-acquired personal property other than certain accounts, and a floating charge over all of its other present and future assets other than certain accounts;

(ii) a security agreement executed by the Charity Trust and the Charity Trustee in its capacity as trustee in favour of the security agent for purposes of granting a security interest in all of the grantor's present and future shares and other securities in Finco; a limited recourse guarantee executed by X LP in favour of the Bond Trustee for purposes of guaranteeing all of Finco's obligations under or in respect of the Bonds, the Guaranty Agreement, the Trust Indenture and each Supplemental Indenture;

(iii) a security agreement executed by X LP and its general partner in its capacity as general partner in favour of the security agent for purposes of granting a security interest in all of the grantor's present and future units and other securities in LP;

(iv) a security agreement executed by LP and its general partner in its capacity as general partner in favour of the security agent for purposes of granting a security interest in all of the grantor's present and future units and other securities in the respective Project LPs;

(ww) "Senior Bonds" means:

(i) the approximately C$XXXXXXXXXX aggregate face amount of senior real return Series A Bonds; and

(ii) the approximately C$XXXXXXXXXX aggregate face amount of senior fixed rate Series B Bonds; ranking pari passu as among themselves;

(xx) "Senior On-lending Credit Agreement" means the senior LP credit agreement to be entered into between Finco, as lender, and LP as borrower;

(yy) "Structured Deposit Note" means a deposit product issued by the XXXXXXXXXX to LP that provides a fixed rate of return and cash flow customization during the construction period, as selected and structured by LP and which shall be held in the bond proceeds escrow account;

(zz) "Supplemental Indenture" means an indenture supplemental to the Trust Indenture entered into among Finco, the Bond Trustee and the XXXXXXXXXX Entities;

(aaa) "Trigger Event" includes:

(i) failure to meet the annual debt service cover ratio of XXXXXXXXXX and the XXXXXXXXXX account balance is zero;

(ii) the independent engineer provides written notice to the Bond Trustee and the Financial Guarantor that there will be insufficient funds to complete construction, or there will be a material delay in construction, meaning a delay of at least XXXXXXXXXX days in the construction schedule;

(iii) a material default under any terms of the construction contract in respect of the Projects has occurred and is continuing;

(iv) a failure to make a contribution to the major maintenance reserve account held by the Bond Trustee at the prescribed time; and

(v) the failure of the Limited Partnerships to pay any required performance liquidated damages under the XXXXXXXXXX;

(bbb) "Trust Indenture" means the trust indenture entered into among the Bond Trustee, Finco, and the XXXXXXXXXX Entities, pursuant to which the Bonds will be issued to the Bondholders;

(ccc) "Underwriter" means XXXXXXXXXX;

(ddd) "U LP" means the XXXXXXXXXX formed on XXXXXXXXXX under the laws of the Province, having XXXXXXXXXX. and X Co as its general partners;

(eee) XXXXXXXXXX;

(fff) "XXXXXXXXXX Projects" means:

XXXXXXXXXX;

(ggg) "X Co" means XXXXXXXXXX; and

(hhh) "X LP" means XXXXXXXXXX.

Facts:

1. X LP is the sole limited partner of LP. The general partners of LP are AA Co. and X Co.

2. XXXXXXXXXX.

3. XXXXXXXXXX.

4. X Co, as general partner of LP and U LP, is currently the holder of the licences and permits required for construction and development of the Projects and is in the process of assigning such licences and permits to LP and the Project LPs. Prior to the Proposed Transactions, AA Co will acquire all of X Co's interest as general partner of LP. Prior to the commencement of the Proposed Transactions each of the Project LPs have been created for the purpose of constructing and operating its respective Project. LP will be the sole limited partner of each of the Project LPs and GP, a XXXXXXXXXX company wholly owned by LP, is the general partner of each of the Project LPs. Each of the Limited Partnerships is a Canadian Partnership.

5. The XXXXXXXXXX has been amended such that the "Seller" thereunder is collectively defined to mean LP, A LP, B LP, E LP and F LP.

6. The XXXXXXXXXX has been amended such that the "Seller" thereunder is collectively defined to mean LP, D LP and C LP.

7. Most of the permits and licenses required for the construction and development of the Projects will be transferred to the appropriate Project LP and the rights to such permits and licenses will be held by GP, in its capacity as general partner of the Project LPs. LP will hold the permits and licenses that relate to more than one Project.

8. Prior to the commencement of the Proposed Transactions, the Limited Partnerships have entered into a construction contract with a contractor for the construction and commissioning of the Projects.

9. Finco has been incorporated pursuant to the laws of the Province. Finco's sole shareholder will be the Charity Trust. The Articles of Finco:

(a) require that all of the net income of Finco will be distributed to the sole shareholder of Finco (the Charity Trust) on an annual basis; and

(b) restrict the activities of Finco to those consistent with and necessary to implement the transactions involving Finco as described herein.

The shares of Finco held by the Charity Trust will be pledged in favour of the Bond Trustee pursuant to a share pledge agreement.

Proposed Transactions:

10. The Bond Trustee and Finco will enter into the Trust Indenture with the XXXXXXXXXX Entities.

11. On Financial Close, Finco will issue the Bonds to the Underwriter, for subsequent sale to the Bondholders or substitute purchasers. Some or all of the Bondholders will be Non-Resident Bondholders. All of the Bondholders will be at Arm's Length to Finco, the Limited Partnerships and the General Partners.

12. A summary of the material commercial terms of the Bonds is set out in 22 below.

13. Finco will lend all proceeds from the Bonds to LP at Financial Close pursuant to the terms of the On-lending Credit Agreements. LP will deposit such funds into a bond proceeds escrow account held by the Bond Trustee. The applicable interest rate payable under the On-lending Credit Agreements will be at a rate to be determined which shall be greater than the interest rate payable under the Bonds.

14. LP will be permitted to withdraw funds from the bond proceeds escrow account for the purpose of funding certain reserve accounts at Financial Close.

15. Upon meeting certain conditions, LP will transfer the funds held in the bond proceeds escrow account to a proceeds account held by the Bond Trustee.

16. LP will use the funds in the proceeds account to make capital contributions to the Project LPs as required to finance the cost of the development, construction, commissioning and operation by the Limited Partnerships of the Projects.

17. LP will make semi-annual and quarterly payments of interest and principal to Finco pursuant to the terms of the Senior On-lending Credit Agreement and the Junior On-lending Credit Agreement, respectively, from the proceeds account or from a reserve account.

18. The Trust Indenture will provide that no further Bonds may be issued by Finco after the Financial Close, but Finco may issue a further series of deeply subordinated bonds ranking junior to the Junior Bonds.

19. In order to enhance the marketability of the Senior Bonds, a bond insurance policy (the "Financial Guaranty") will be issued by the Financial Guarantor. Pursuant to the Financial Guaranty, the Financial Guarantor will make payments to the Bondholders holding Senior Bonds in the event that either Finco or the XXXXXXXXXX Entities, as guarantors of Finco's obligation fail to make payments under the Senior Bonds. Finco and the XXXXXXXXXX Entities will enter into the Guaranty Agreement with the Financial Guarantor. The key terms of the Guaranty Agreement are as follows:

(a) the Financial Guarantor will be entitled to a premium in consideration of its issuing the Financial Guaranty;

(b) Finco will be required to reimburse the Financial Guarantor for any payments the Financial Guarantor may be required to make under the Financial Guaranty;

(c) Finco and the XXXXXXXXXX Entities acknowledge that the Financial Guarantor will be fully subrogated to the rights of the Bondholders and the Bond Trustee to the extent of any payments made by the Financial Guarantor under the Financial Guaranty; Finco and each of the XXXXXXXXXX Entities agree to indemnify the Financial Guarantor and its officers, directors, shareholders and similar persons from and against all claims, costs and expenses arising out of the Guaranty Agreement, and to reimburse the Financial Guarantor for fees, costs and expenses incurred pursuant to the Guaranty Agreement.

20. Finco and the XXXXXXXXXX Entities will enter into the Intercreditor Agreement with the Financial Guarantor and the Bond Trustee, pursuant to which certain rights are granted to the Financial Gurantor to remedy any prospective failures in performance and to control decisions to be made under the Trust Indenture including enforcement decisions. The key terms of the Intercreditor Agreement are as follows:

(a) the Bond Trustee assigns to the Financial Guarantor the rights of the Bond Trustee and the Bondholders to the extent of any payments made by the Financial Guarantor under the Financial Guaranty;

(b) the parties acknowledge the subrogation rights of the Financial Guarantor;

(c) the parties agree that the Financial Guarantor is an intended third party beneficiary of the Trust Indenture and certain other Financing Documents. The Trust Indenture itself sets out certain rights of the Financial Guarantor found in the Intercreditor Agreement.

21. The following is a summary of all material commercial terms of the Bonds:

(a) Under no circumstances (except in the event of a failure or default under the terms of the Bonds or if the terms of the Bonds or any agreement relating thereto become unlawful or are changed by virtue of legislation or by a court, statutory board or commission), will Finco be obligated to repay more than XXXXXXXXXX% of the principal amount of the Bonds within XXXXXXXXXX years from the date of issue.

(b) On a monthly basis, but without duplication of 18 above, LP will pay into a senior debt service payment account held by the Bond Trustee an amount equal to XXXXXXXXXX of the amount anticipated to be required to make the required payments on the Senior On-lending Credit Agreement for the following XXXXXXXXXX months.

(c) On a monthly basis, but without duplication of 18 above, LP will pay into a junior debt service payment account held by the Bond Trustee an amount equal to XXXXXXXXXX of the amount reasonably anticipated to be required to make the required payments on the Junior On-lending Credit Agreement for the following XXXXXXXXXX months.

(d) Finco (either directly or through the Bond Trustee) will be required to make payments to the holders of the Senior Bonds every XXXXXXXXXX months and to the holders of the Junior Bonds every XXXXXXXXXX months pursuant to the terms of the Bonds. Upon the occurrence of a Trigger Event and until such event is waived or remedied, the Financial Guarantor will have step-in rights including additional rights to investigate, monitor and control the activities of Finco and the Limited Partnerships.

(e) Commencing XXXXXXXXXX years after Financial Close, Finco may, at its option, redeem the Bonds early through the payment of the principal amount, together with all unpaid interest and the applicable make-whole premium for the Bonds.

(f) If Finco has received liquidated damages from the contractor in respect of the Projects, it must apply such funds to purchase or redeem the Senior Bonds, or for a sinking fund therefor, provided that the amount applied to purchase or redeem the Senior Bonds must not exceed XXXXXXXXXX% of the principal amount of the Senior Bonds in the first XXXXXXXXXX years following Financial Close.

(g) In the event that the Financial Guarantor exercises its controlling creditor rights, it may cause Finco to redeem the Bonds as described in (f) above.

(h) The following are the events of default under the Bonds:

(a) non-payment by Finco of required payments on the Bonds on the due date of any amount owed under the Bonds, and such non-payment is not remedied within XXXXXXXXXX business days of the due date;

(b) Finco or any of the XXXXXXXXXX Entities voluntarily liquidates, dissolves, or merges or consolidates with any other person;

(c) Finco or any of the XXXXXXXXXX Entities suffers an insolvency event;

(d) cross-default of Finco's or any of the XXXXXXXXXX Entities' senior indebtedness subject to a de minimis threshold of $XXXXXXXXXX;

(e) nationalisation, expropriation, seizure or compulsory acquisition of all or a substantial part of the assets of Finco or any of the XXXXXXXXXX Entities;

(f) ceasing to hold any permit, consent or approval (without replacement) if this would have a Material Adverse Effect;

(g) specified or material unrectified breach by Finco or any XXXXXXXXXX Entities or any Major Project Party of any provision of the Financing Documents other than non-payment under the Bonds;

(h) if (a) any of the Projects is damaged and Finco or the XXXXXXXXXX Entities do not either have funds available to them within XXXXXXXXXX days sufficient to commence the reinstatement of such Project and do not diligently proceed to completion of the reinstatement of the Project in a manner that ensures there is no Material Adverse Effect; (b) any of the Projects is permanently abandoned; or (c) final commercial operation date has not occurred on or before XXXXXXXXXX;

(i) if a transaction document to which Finco or an XXXXXXXXXX Entity is a party becomes void or unenforceable and is not replaced within XXXXXXXXXX days or default by Finco or any of the XXXXXXXXXX Entities or any Major Project Party under any of the Material Project Contracts which has a Material Adverse Effect; it is or becomes unlawful for Finco or any of the XXXXXXXXXX Entities or any Major Project Party to perform or comply with any of its obligations under the Material Project Contracts or the Financing Documents and such cessation has or would reasonably be expected to have a Material Adverse Effect;

(j) any termination notice is served on Finco or any of the XXXXXXXXXX Entities in respect of any Material Project Contract;

(k) breach of a material representation made or deemed to be made by Finco or any XXXXXXXXXX Entity in any transaction document or any document delivered in connection therewith, causing a Material Adverse Effect;

(l) judgement rendered against Finco or any of the XXXXXXXXXX Entities in excess of $XXXXXXXXXX which has not been paid or for which adequate security has not been posted;

(m) the Security ceasing to be first ranking, subject to the permitted Encumbrances (as defined in the Trust Indenture);

(n) the commercial operation date for the XXXXXXXXXX Projects has not occurred by XXXXXXXXXX, or the commercial operation date for the XXXXXXXXXX Projects has not occurred by XXXXXXXXXX;

(o) the independent engineer determines that there are insufficient funds to complete construction and within XXXXXXXXXX business days of such determination no remedy or remedial plan to the satisfaction of the Financial Guarantor is in place;

(p) if any material provision of the Trust Indenture or any other transaction document does not have effect or ceased to have effect in accordance with its terms or is or becomes void, voidable, illegal or unenforceable or of limited force or Finco or an XXXXXXXXXX Entity claims such to be the case and the relevant matter has or would reasonably be expected to have a Material Adverse Effect;

(q) on a calculation date, the annual debt service cover ratio is XXXXXXXXXX or less after all funds in the XXXXXXXXXX reserve account have been depleted;

(r) Finco or any of the XXXXXXXXXX Entities fails, refuses or defaults in a material respect in the performance or observance of any of the covenants, agreements or conditions on its part contained in the Trust Indenture or any Supplemental Indenture or in the Guaranty Agreement;

(s) if Finco or an XXXXXXXXXX Entity creates or permits to exist any Encumbrance over any of its property or assets, other than a permitted Encumbrance (as defined in the Trust Indenture), and such Encumbrance is not discharged within XXXXXXXXXX days of Finco or the XXXXXXXXXX Entity becoming aware of it; and

(t) if Finco fails to deliver the financial statements as required under the Trust Indenture and such failure continues for a period of XXXXXXXXXX days after written notice thereof by the Bond Trustee or the Financial Guarantor.

23. The occurrence of an Event of Default will give the Financial Guarantor the rights of acceleration and enforcement of security through the Trustee. If there is default by any Major Project Party or other Material Project Contract counterparty other than Finco or any of the XXXXXXXXXX Entities, there will be a period for substitution by an alternative, acceptable to the Financial Guarantor.

Purpose for the Proposed Transactions:

24. The purpose of the Proposed Transactions is to provide financing for the capital cost of the development, construction, commissioning and operation of the Projects by the Limited Partnerships.

25. The Bonds are being issued for the purpose of funding the construction and operation of the Projects, and initial financing costs.

26. LP has been advised that it can borrow the necessary funds (approximately $XXXXXXXXXX) at a lower interest rate through the issuance of the Bonds, which are issued wholly or partly to Non-Resident Bondholders. The reason for this is that the size of the Canadian lending market is not sufficiently large to absorb a Bond issuance of the size and character contemplated in the Proposed Transactions at the interest rates which are available in the lending market outside of Canada.

27. Finco, an entity incorporated pursuant to the laws of the Province, will be the issuer of the Bonds for the following reasons:

(a) corporations are subject to detailed statutory provisions regarding corporate governance and control, whereas partnerships operate largely pursuant to common law principles which are not as well defined, and therefore a corporate structure will be more familiar to prospective Bondholders; and

(b) to ensure that the Bonds meet the requirements of subparagraph 212(1)(b)(vii) of the Act, since the Bonds will be issued wholly or partly to Non-Resident Bondholders.

Additional Information:

28. The Proposed Transactions described above will occur in the order presented unless otherwise indicated.

29. In the future, one or more Partners may sell or otherwise dispose of all or a portion of its interest in a Limited Partnership to a new Partner and/or one or more new Partners will be admitted to a Limited Partnership. Such a new Partner might be a non-resident corporation, trust, partnership, fund or other entity.

30. The Bondholders may assign their rights in the Bonds to other persons. The Bonds provide that no such assignment shall be nor shall be deemed to be a discharge, rescission, extinguishment, novation or substitution of any portion of the Bonds and the Bond so assigned shall continue to be the same obligation and not a new obligation.

31. There are no other transactions, other than those disclosed herein, that form part of the series of transactions and events connected therewith.

Rulings Given:

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions and purpose of the Proposed Transactions, and that the final agreements referred to herein are substantially the same as the documents provided to us, and provided further that the Proposed Transactions are completed in the manner described above, we rule as follows:

A. Interest payments made by Finco will be exempt from withholding taxes under Part XIII of the Act pursuant to subparagraph 212(1)(b)(vii) of the Act, provided that at the time of the payment the Non-Resident Bondholder deals at Arm's Length with Finco.

B. Interest payments made through the Bond Trustee, co-trustee, depository, collateral agent or paying agent and paid on behalf of Finco will be exempt from withholding taxes under Part XIII of the Act, pursuant to subparagraph 212(1)(b)(vii) of the Act, provided that at the time of the payment such entities are corporations and are dealing at Arm's Length with the Non-Resident Bondholder and further provided that the payments would have been exempt under Part XIII of the Act, had they been paid by Finco directly.

C. Interest payments made by the Financial Guarantor to a Bondholder or the Bond Trustee, or through a co-trustee, depository, collateral agent, or paying agent (provided that such entities are corporations and are dealing at arm's length with the Non-Resident Bondholder) pursuant to the Financial Guaranty in satisfaction of interest owing under the Bonds, will be exempt from withholding tax under Part XIII of the Act, pursuant to subparagraph 212(1)(b)(vii) of the Act, and further provided that at the time of the payment the Non-Resident Bondholder deals at Arm's Length with Finco.

D. Payments made by Finco to the Financial Guarantor to reimburse the Financial Guarantor for payments relating to interest made by the Financial Guarantor to a Bondholder pursuant to the Financial Guaranty as guarantors of Finco's obligations, will be exempt from tax under Part XIII of the Act pursuant to subparagraph 212(1)(b)(vii) of the Act.

E. Neither:

(a) the disposition of an interest by a Partner in a Limited Partnership or the acquisition by a person of an interest as a Partner in a Limited Partnership (regardless of whether a new Partner is a resident or non-resident of Canada for the purposes of the Act, and regardless of whether a new Partner is a corporation, trust, partnership, fund or other entity), nor the assignment or transfer by a Bondholder of an interest in the Bonds, will, in and of itself, result in the issuance of a new debt obligation under the Bonds for the purposes of subparagraph 212(1)(b)(vii) of the Act or preclude the application of subparagraph 212(1)(b)(vii) of the Act to interest payments made by Finco to a Bondholder on the Bonds.

F. Subsection 15(2.3) of the Act will apply to the loans made by Finco to LP, pursuant to the terms of the On-lending Credit Agreements between Finco and LP, such that subsection 15(2) of the Act will not apply.

G. As a result of the Proposed Transactions, in and by themselves, subsection 245(2) of the Act will not be applied to re-determine the tax consequences confirmed in the rulings above.

These rulings are given subject to the general limitations and qualifications set forth in Information circular 70-6R5 dated May 17, 2002, issued by the CRA, and are binding provided the proposed Bonds are issued on or before XXXXXXXXXX.

These rulings are based on the Act as it currently reads and does not take into account any future amendments, whether currently proposed or not, to the Act.

Nothing in this letter should be construed as implying that the CRA has agreed to or accepted:

(i) the GST implications of any of the Proposed Transactions;

(ii) any other tax consequences of the Proposed Transactions or of related transactions or events that are not described herein; nor

(iii) the nature of the legal relationship entered into or contemplated by the entities named above.

Yours truly,

XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch