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: Will the Fund's action of guaranteeing the notes issued by the LP constitute a separate undertaking such that the Fund will cease to qualify as a MFT?
Position: No, the issuance of the guarantee will not, in itself, cause the trust to lose its MFT status.
Reasons: As with ruling 2006-019188 & officer analysis 2006-019338, the level of integration of the Fund's investing activities in the limited partnership, albeit indirectly, is sufficiently high for considering that the issuance of a guarantee is not an undertaking by itself. Also, the Fund is not in the business of providing guarantees.
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the above-noted taxpayer. We also acknowledge your correspondence of XXXXXXXXXX.
To the best of your knowledge and that of your client, none of the issues involved in the ruling request is:
- in an earlier return of your client or a related person,
- being considered by a tax services office or taxation center in connection with a previously filed tax return of your client or a related person,
- under objection by your client or a related person,
- before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or
- the subject of a ruling previously considered by the Directorate in respect of your client or a related person.
You provided us with a copy of the trust indenture for Trust as amended as of XXXXXXXXXX and the indenture dated XXXXXXXXXX by which Trust issued XXXXXXXXXX Notes. This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and the following terms have the meanings specified:
"Arrangement" means the plan of arrangement under the Canada Business Corporations Act that was effective XXXXXXXXXX, as described more fully in paragraphs 2 and 3 below;
"Business" means XXXXXXXXXX and currently being carried on by LP#1, indirectly through certain wholly-owned subsidiaries;
"Business2" means XXXXXXXXXX carried on by LP#2;
"Business3" means XXXXXXXXXX owned and operated by LP#3;
"Class A LP Units" means the Class A limited partner units of LP#1;
"Class B LP Units" means the Class B limited partner units of LP#1;
"Fund" means XXXXXXXXXX, an open-ended, limited purpose trust governed by the laws of XXXXXXXXXX as described in paragraphs 2 to 3 below;
"Fund Unit" means a unit of the Fund but does not include the special voting units described in paragraph 3 below;
"GP Corp#1" means XXXXXXXXXX, a taxable Canadian corporation that is the general partner of LP#1;
"GP Corp#2" means XXXXXXXXXX, a taxable Canadian corporation that is the general partner of LP#2;
"GP Corp#3" means XXXXXXXXXX, a taxable Canadian corporation that is the general partner of LP#3;
"Guarantee" means the guarantee provided by the Fund to the Noteholders in respect of the debt obligations of LP#1 as described in paragraph 13 below;
"Jurisdictions" means XXXXXXXXXX;
"LP Units" means the interest of a limited partner in the LP#1's capital and includes Class A LP Units and Class B LP Units;
"LP#1" means XXXXXXXXXX a limited partnership formed under the laws of XXXXXXXXXX;
"LP#2" means XXXXXXXXXX a limited partnership formed under the laws of XXXXXXXXXX;
"LP#3" means XXXXXXXXXX a limited partnership formed under the laws of XXXXXXXXXX;
"MRRS Order" means the exemptive relief order provided to LP#1 on XXXXXXXXXX under the Mutual Reliance Review System for Exemptive Relief Applications, a procedure available under National Policy Instrument 12-201 under which an entity that is classified as a "Filer" under that National Policy Instrument can request exemptive relief under the applicable securities legislation, including relief from the continuous disclosure obligations otherwise imposed by the Jurisdiction;
"Note Agreement" means the trust indenture entered into by LP#1 and XXXXXXXXXX as of XXXXXXXXXX which authorizes LP#1 to issue XXXXXXXXXX Notes, XXXXXXXXXX as described in paragraph 11 below;
"Noteholders" means XXXXXXXXXX who have acquired and will acquire Notes on a private placement basis from LP#1 from time to time;
"Notes" means XXXXXXXXXX issued by LP#1 pursuant to the Note Agreement;
"Pubco" means XXXXXXXXXX, a taxable Canadian corporation that was a party to the Plan of Arrangement that has subsequently been amalgamated with XXXXXXXXXX to form XXXXXXXXXX;
"Stock Exchange" means the XXXXXXXXXX Stock Exchange; and
"Trust" means XXXXXXXXXX, an open-ended, limited purpose trust governed by the laws of XXXXXXXXXX as described in paragraph 5 below.
The relevant Tax Services Office for the Fund is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Centre. The Fund's head office is located at XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
1. The Fund is an open-ended, limited purpose trust governed by the laws of XXXXXXXXXX and was created pursuant to a declaration of trust dated XXXXXXXXXX The Fund currently qualifies as a "mutual fund trust" pursuant to subsection 132(6). The Fund has a XXXXXXXXXX year-end. Fund Units are listed on the Stock Exchange under the symbol "XXXXXXXXXX".
2. The Fund was established in connection with a plan of arrangement under the Canada Business Corporations Act that was approved by the former shareholders of Pubco on XXXXXXXXXX. In substance, the Arrangement provided that each shareholder of Pubco would receive either:
(i) XXXXXXXXXX Fund Units XXXXXXXXXX as consideration for the disposition of each common share of Pubco on a fully taxable basis; or
(ii) XXXXXXXXXX Class B LP Units XXXXXXXXXX for each common share of Pubco in which case the shareholder was eligible, in certain circumstances, to make an election under subsection 97(2) in respect of such exchange.
3. The Fund was established for the principal purpose of acquiring and holding securities of GP Corp#1, GP Corp#2, the Trust and other corporations, trusts, or other persons engaged, directly or indirectly, in XXXXXXXXXX. The Fund currently owns all of the issued and outstanding units and subordinated notes of the Trust, and all of the issued and outstanding shares of each of GP Corp#1 and GP Corp#2.
4. The Trust is an open-ended, limited purpose trust governed by the laws of XXXXXXXXXX and was created pursuant to a declaration of trust dated XXXXXXXXXX The Trust was established for the principal purpose of holding investments in LP#1 and such other investments as determined by the trustees of the Trust. The Trust owns all of the issued and outstanding Class A LP Units of LP#1.
5. LP#1 is a limited partnership established under the laws of XXXXXXXXXX to directly or indirectly acquire the Business and to conduct any other business as the determined by the general partner of the partnership. LP#1, indirectly through certain wholly-owned subsidiaries, owns and carries on the Business. GP Corp#1 is the general partner of LP#1. The board of directors of GP Corp#1 consists of XXXXXXXXXX persons, a majority of whom are not and will not be trustees of the Fund. The board of directors of GP Corp#1 has the power and authority to manage the business and affairs of GP Corp#1 and GP Corp#1 administers, manages, controls and operates the business of LP#1. The partnership agreement of LP#1 does not permit any limited partner to exercise any management or control over the partnership described in that partnership agreement.
6. Pursuant to the Arrangement, LP#1 acquired all of the issued and outstanding shares of Pubco. Certain former shareholders of Pubco exercised the option to acquire Class B LP Units and now own the issued and outstanding Class B LP Units of LP#1. These Class B LP Units are exchangeable on a one-for-one basis for Fund Units and are not transferable except in connection with an exchange for Fund Units or on the death of the holder thereof. Each holder of Class B LP Units also owns a corresponding number of special voting units of the Fund. The Trust holds all the Class A LP Units, which LP Units represent approximately XXXXXXXXXX% of the issued and outstanding LP Units of LP#1.
7. In addition to its indirect ownership of the Business described in paragraph 5 above, LP#1 also owns (directly or indirectly) XXXXXXXXXX of LP#2, collectively representing a majority interest in LP#2. The remaining units of LP#2, identified as XXXXXXXXXX, are owned by unrelated third parties. GP Corp#2 is the general partner of LP#2. LP#2 carries on Business2.
8. LP#1 is the sole limited partner of LP#3 and owns all of the shares of GP Corp#3, the general partner of LP#3. LP#3 carries on Business3.
9. On the closing of the Arrangement, the Fund and LP#1 each became reporting issuers for purposes of the applicable securities legislation in the Jurisdictions. Prior to the closing of the Arrangement, LP#1 obtained the MRRS Order which provided LP#1 with relief from the continuous disclosure requirements in each of the Jurisdictions provided that certain conditions were met.
10. LP#1 entered into the Note Agreement on XXXXXXXXXX under which LP#1 was authorized to issue Notes to the Noteholders. On XXXXXXXXXX , in accordance with the Note Agreement, LP#1 issued XXXXXXXXXX to the Noteholders on a private placement basis pursuant to exemptions from the prospectus and registration requirements under the securities legislation of XXXXXXXXXX. The Noteholders are XXXXXXXXXX.
12. The net proceeds of the issuance of Notes were used by LP#1, directly or indirectly through one or more of its wholly-owned subsidiaries, to XXXXXXXXXX.
13. The Fund proposes to provide the Guarantee to the Noteholders such that the Fund will be obligated to guarantee the payment by LP#1 of the aggregate principal amount due under the Notes and any interest payable in respect thereof.
Purpose of the Proposed Transactions
14. The sole purpose of the Guarantee is to permit LP#1 to continue to rely upon the MRRS Order from certain continuous disclosure requirements as described in paragraphs 9 and 11 above. The Noteholders did not require the Guarantee as a condition for subscribing for the Notes, and no fee will be received by the Fund for granting the Guarantee. The Fund has made no other guarantees.
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given, our rulings are as follows:
A. The Guarantee to be provided by the Fund, will not, in and by itself, disqualify the Fund from meeting the requirements of paragraph 132(6)(b).
Nothing in this advance income tax ruling should be construed as implying that the CRA has agreed to or reviewed:
a) whether the LP#1 operates as principal, as opposed to agent on behalf of the Fund, with respect to its respective business activities,
b) whether the Fund qualifies as a mutual fund trust for purposes of the Act, or
c) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed within six months of the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act.
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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