2007 Ruling 2007-0237011R3 - XXXXXXXXXX - foreign buy-out of Canadian MFT

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. Can capital gains be paid out of the trust & then subsequently out of the fund by promissory note ("PN")? 2. Is 107(2.1) applicable to the chain of transactions; 3.Application of 40(3.3) or 40(3.4); 4.Application of GAAR--possible back door butterfly?

Position: 1. Gains can be made payable by PN; 2. 107(2.1) is applicable on transfer of PN from Trust to Fund but not on issue of PN from Fund to corp; 3. 40(3.3) & 40(3.4) have no application; 4. Gaar is not applicable.

Reasons: 1. Payment of income in specie is an acceptable method of payment. 2. 107(2.1) is applicable on transfer of PN from trust to fund because it is a transfer of property, however it is not applicable on the issue of the promissory note from the Fund to the corp as it is not a transfer of property...also there is some question as to whether this is a distribution in satisfaction of a capital interest. 3. The Fund will be wound up immediately following the redemption of the Fund Units 4. Firstly it is not the goal of these transactions to achieve a back door butterfly...however no similar provision to 88(1) exists to deals with the wind-up of trusts......a caveat was added to the ruling that there was no intention for former unitholders to acquire assets of the former partnership.

XXXXXXXXXX 								2007-023701

Attention: XXXXXXXXXX

November 22, 2007

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling - XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the taxpayers outlined below. We also acknowledge your correspondence of XXXXXXXXXX .

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) in an earlier return of the taxpayers or related persons;
b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;
c) under objection by the taxpayers or related persons;
d) before the courts; or
e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.

The names, tax account numbers and definition of the parties to this ruling letter are set out in Schedule 1.

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. 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").

I. DEFINITIONS

In this letter unless otherwise expressly stated:

(a) "A Inc." means XXXXXXXXXX ., a private company whose shareholders

(or whose affiliates) owned approximately XXXXXXXXXX % of the Fund Units;

(b) "A Inc. Subs" means XXXXXXXXXX limited purpose wholly owned subsidiaries of GCI;

(c) "adjusted cost base" has the meaning assigned by section 54 (that term is also to be referred to as "ACB" herein);

(d) "Business 1" means LP1's XXXXXXXXXX ;

(e) "Business 2" means LP1's XXXXXXXXXX ;

(f) "Business 3" means LP2's XXXXXXXXXX ;

(g) "Business 4" means LP2's XXXXXXXXXX ;

(h) "Business 5" means LP1's XXXXXXXXXX ;

(i) "Business 6" means LP2's XXXXXXXXXX ;

(j) "Business 7" means LP2's XXXXXXXXXX ;

(k) "Can SFE Corp." has the meaning assigned by paragraph 27(h);

(l) "Can SFE GP" has the meaning assigned by paragraph 27(k);

(m) "capital property" has the meaning assigned by section 54 and subsection 248(1);

(n) "CBCA" means Canada Business Corporations Act;

(o) "Class A LP1 Units" means the class A limited partnership units of LP1 and the holders of Class A LP1 Units are entitled to:

i) a preferential, non-cumulative allocation of accrued income and distributable cash over all other interests in LP1, including the Class B LP1 Units, equal to XXXXXXXXXX % per annum of the capital attributed to a Class A LP1 Unit from time to time;
ii) a preference over all other interests in LP1, including Class B LP1 Units, on distributions of capital and accrued income in the event of a liquidation, dissolution, or winding-up or other distribution of the assets of LP1 for the purpose of winding up its affairs, after payment of or other proper division of all of the liabilities of LP1, including payment to GPco 1 of an amount sufficient to discharge its liabilities to its employees, to a maximum of the capital attributed to Class A LP1 Units, together with accrued income;
iii) redeem Class A LP1 Units from time to time at the redemption price equal to the capital attributed to Class A LP1 Units plus any accrued but unpaid income to the date of redemption; and
iv) vote on amendments to the limited partnership agreement which add, change or remove the rights, privileges, restrictions or conditions attached to Class A LP1 Units or create a new class of units equal or superior to Class A LP1 Units or as required by law, but in all other circumstances, Class A LP1 Units will be non-voting;

(p) "Class B LP1 Units" means the class B limited partnership units of LP1 and the holders of Class B LP1 Units are entitled to:

i) share rateably in the residual income and distributable cash from LP1 after the allocation of income to Class A LP1 Units;
ii) share rateably in all remaining assets of LP1 in the event of the liquidation, dissolution or winding-up or any other distribution of the assets of LP1 for the purpose of winding-up its affairs and after payment of or other proper division of all of the liabilities of LP1, including payment to GPco 1 of an amount sufficient to discharge its liabilities to its employees, and the entitlement of the holders of Class A LP1 Units; and
iii) vote on all matters upon which GPco 1 requires authorization of the holders of Class B LP1 Units by extraordinary resolution, amendments to the limited partnership agreement or the rights, privileges, restrictions or conditions attached to Class B LP1 Units, the removal of GPco 1 as general partner, the appointment of a new general partner acceptable to the gaming regulatory authorities following the resignation of GPco 1 or as required by law;

(q) "Convertible Debentures" means the convertible debentures that were issued by the Fund on XXXXXXXXXX . The Convertible Debentures were to mature on XXXXXXXXXX and were interest bearing at XXXXXXXXXX % payable semi-annually in arrears on XXXXXXXXXX , in each year. The Convertible Debentures were convertible into the Fund Units at the option of the holders at a price of $XXXXXXXXXX per unit, representing XXXXXXXXXX units per $XXXXXXXXXX principal amount. The Convertible Debentures were not redeemable by the Fund prior to XXXXXXXXXX . Subsequent to such date, the Convertible Debentures could be redeemed in whole or in part at the option of the Fund;

(r) XXXXXXXXXX

(s) "cost amount" has the meaning assigned by subsection 248(1);

(t) "Crown" has the meaning assigned by paragraph 25;

(u) "fair market value" or "FMV" means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;

(v) "Fund Declaration of Trust" means the amended and restated Declaration of Trust of the Fund. The Fund was established for investment purposes, including investing in securities and notes of the Trust;

(w) "Fund Distributable Cash" means all amounts received by the Fund during any period, including amounts paid on the Trust Units and Trust Notes held by the Fund and the income, interest, dividends, return of capital or other amounts, if any, from other permitted investments held by the Fund, less amounts that may be paid by the Fund in connection with any cash redemption or repurchases of Units and amounts which the Fund Trustee may reasonably consider necessary to provide for payment of any costs and expenses required for operation of the Fund and for reasonable reserves;

(x) "Fund Note" has the meaning assigned by paragraph 79;

(y) "Fund Trustee" means at a time, an individual or a corporation that is at that time a trustee of the Fund;

(z) "Fund Unit" means a trust unit of the Fund, each such unit representing an equal undivided beneficial interest therein;

(aa) "Fund Unitholder" means a holder of Fund Units;

(bb) "GPco 1" was the general partner of LP1 before the amalgamation of GPco1, GPco2, the Target Subsidiaries and Newco as described in paragraph 68;

(cc) "GPco1 Third Party Debt" has the meaning assigned by paragraph 17;

(dd) "GPco1 LP1 Debt" has the meaning assigned by paragraph 59;

(ee) "GPco 2" was the general partner of LP2 before the amalgamation of GPco1, GPco2, the Target Subsidiaries and Newco as described in paragraph 68;

(ff) "Grid Loans" has the meaning assigned by paragraph 42;

(gg) "Holdco" has the meaning assigned by paragraph 27(a);

(hh) "Holdco Loan" has the meaning assigned by paragraph 45;

(ii) "Holdco LP1 Note" has the meaning assigned by paragraph 69;

(jj) "LP1 Distributable Cash" means all of LP1's available cash after:

i) satisfaction of its debt obligations, if any;
ii) satisfaction of its interest and other estimated expense obligations;
iii) provision for capital maintenance and other capital expenditures in respect of the LP1's businesses;
iv) payments in respect of the redemption of Class A LP1 Units and Class B LP1 Units if any; and
(v) maintenance of such reasonable working capital reserves as may be considered appropriate by the board of directors of GPco 1;

(kk) "LP1 Third Party Debt" has the meaning assigned by paragraph 17;

(ll) "LP1 GPco1 Debt " has the meaning assigned by paragraph 17;

(mm) "LP1 Newco Loan" has the meaning assigned by paragraph 56;

(nn) "LP1" means the XXXXXXXXXX ;

(oo) "LP2" means the XXXXXXXXXX ;

(pp) "LP2 Distributable Cash" means LP2's earnings before interest, income taxes, depreciation and amortization, less the aggregate estimated cash amounts required for:

i) satisfaction of its debt obligations, if any;
ii) satisfaction of its interest and other estimated expense obligations;
iii) provision for capital maintenance and other capital expenditures in respect of the LP2's businesses; and
iv) maintenance of such reasonable working capital reserves as may be considered appropriate by the board of directors of GPco 2;

(qq) "LP2 Newco Loan" has the meaning assigned by paragraph 63;

(rr) "LP2 Units" means the limited partnership units of LP2 and the holders of the LP2 Units are entitled to:

i) a portion of the income from the partnership;
ii) share rateably in all remaining assets of LP2 in the event of the liquidation, dissolution or winding-up or any other distribution of the assets of LP2 for the purpose of winding-up its affair and after payment of or other proper division of all of the liabilities of LP2, including payment to GPco 2 of an amount sufficient to discharge its liabilities to its employees, and of the capital account of GPco 2; and
iii) vote on all matters upon which GPco 2 requires authorization of the holders of LP2 Units, to undertake an amendment to the partnership agreement or the provisions attached to the LP2 Units, the removal of GPco 2 as general partner and the appointment of a new general partner acceptable to the gaming regulatory authorities;

(ss) XXXXXXXXXX

(tt) XXXXXXXXXX

(uu) XXXXXXXXXX

(vv) "mutual fund trust" has the meaning assigned by subsection 132(6);

(ww) "Newco" has the meaning assigned by paragraph 27;

(xx) "Newco Holdco Loan" has the meaning assigned by paragraph 49;

(yy) "Newco Third-Party Loan" has the meaning assigned by paragraph 49;

(zz) "Newco-Amalco LP1 Debt" has the meaning assigned by paragraph 68;

(aaa) "Newco-Amalco Note" has the meaning assigned by paragraph 71;

(bbb) "open ended unit trust" means a unit trust that qualifies as a unit trust under paragraph 108(2)(a);

(ccc) XXXXXXXXXX

(ddd) XXXXXXXXXX

(eee) "proceeds of disposition" has the meaning assigned by section 54;

(fff) "Proposed Transactions" means the transactions contemplated by paragraphs 69 to 85 below;

(ggg) "Regulations" means the Income Tax Regulations (Canada);

(hhh) "resident" and "non-resident" of Canada mean, respectively, resident and non-resident of Canada for purposes of the Act;

(iii) "Series 1 Trust Notes" means the interest bearing unsecured subordinated demand notes, series 1, of the Trust issued to the Fund pursuant to the Trust Note Indenture at closing of the initial public offering and maturing XXXXXXXXXX years after the date of issuance;

(jjj) "Series 2 Trust Notes" means the interest bearing unsecured subordinated notes, series 2, of the Trust to be issued pursuant to the Trust Note Indenture and pursuant to that Trust Note Indenture will be reserved by the Trust to be issued exclusively to holders of Trust Units as full or partial payment of the redemption price for Trust Units, as the Trustees may decide or, in certain circumstances, be obliged to issue. Each Series 2 Trust Note will mature on the later of: (a) the expiry of the term or any extension thereof of the last of the XXXXXXXXXX to expire; and (b) XXXXXXXXXX years. Each Series 2 Trust Note will bear interest at a market rate to be determined by the Trust's trustees at the time of issuance thereof;

(kkk) "Series 3 Trust Notes" means the interest bearing unsecured subordinated notes, series 3, of the Trust to be issued pursuant to the Trust Note Indenture and reserved by the Trust to be issued exclusively as full or partial payment of the redemption price for Series 1 Trust Notes in the event of an in specie payment of the redemption price for Fund Units redeemed by a Fund Unitholder. Each Series 3 Trust Note will mature XXXXXXXXXX years after the date of issuance and bear interest at a market rate to be determined by the Trust's trustees at the time of issuance thereof;

(lll) "Shareholder Loans" has the meaning assigned by paragraph 41;

(mmm)"Target Subsidiaries" has the meaning assigned by paragraph 31;

(nnn) "taxable Canadian corporation" has the meaning assigned by subsections 89(1) and 248(1);

(ooo) "taxation year" has the meaning assigned by subsection 249(1);

(ppp) "taxpayer" has the meaning assigned by subsection 248(1);

(qqq) "Third-Party Loans" has the meaning assigned by paragraph 47;

(rrr) "Topco" has the meaning assigned by paragraph 27(c);

(sss) "Trust Declaration of Trust" means the declaration of trust of the Trust. The Trust was established for investment purposes, including investing in securities issued by LP1, A Inc. Subs and GPco 1;

(ttt) "Trust Distributable Cash" means all amounts received by the Trust during any period after satisfaction of its interest obligations, if any, and less among other things, amounts that may be paid by the Trust in connection with any repurchases of Trust Units, amounts which the Trust Trustee may reasonably consider necessary to provide for payment of any costs and expenses required for operation of the Trust and amounts for any principal repayments and reserves for any principal repayments in respect of the Trust Notes;

(uuu) "Trust Note Indenture" means the trust indenture, dated XXXXXXXXXX , entered into between the Trust and the Note Trustee providing for the issuance of the Trust Notes;

(vvv) "Trust Notes" means Series 1 Trust Notes, Series 2 Trust Notes and Series 3 Trust Notes collectively, issued pursuant to the Trust Note Indenture and having the following characteristics: (A) redeemable at any time at the option of the Trust prior to maturity; (B) principal and interest is subordinated to the prior payment in full of the principal and accrued interest on, and all other amounts owing in respect of, all senior indebtedness; and (C) not convertible into or exchangeable for, or provide a holder with, any right to acquire property that is foreign property;

(www) "Trust Unit" means a trust unit of the Trust, each such unit representing an equal undivided beneficial interest therein;

(xxx) "Trust Unitholder" means a holder of Trust Units;

(yyy) "Trust Trustees" means, at a time, an individual or a corporation that is at that time a trustee of the Trust;

(zzz) XXXXXXXXXX ; and
(aaaa) "unit trust" has the meaning assigned by subsection 108(2).

Facts

Facts Relating to the Fund

1. The Fund is an unincorporated open-ended unit trust that has qualified as a mutual fund trust at all times since being formed. The Fund was formed under the laws of the Province of XXXXXXXXXX by the Fund Declaration of Trust. The Fund completed its initial public offering in XXXXXXXXXX .

2. Prior to the acquisition transactions described in paragraphs 34 through 68, the Fund Units were listed for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX . The Fund's last taxation year ended XXXXXXXXXX .

3. Under the Fund Declaration of Trust, the Fund may issue an unlimited number of Fund Units. Each Fund Unit is transferable, entitles the holder to one vote and is redeemable at the demand of the holder.

4. Prior to the acquisition transactions described in paragraphs 34 through 68,the Fund Units were widely held by the public. The Fund is not maintained primarily for the benefit of non-resident persons.

5. On XXXXXXXXXX , the Fund issued $XXXXXXXXXX of the Convertible Debentures and prior to the acquisition transactions described in paragraphs 34 through 68,the Convertible Debentures were listed for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX .

6. Pursuant to the terms of the Fund Declaration of Trust, the Fund is required to make monthly cash distributions of Fund Distributable Cash to the Fund Unitholders for each fiscal year of the Fund.

7. Pursuant to the terms of the Fund Declaration of Trust, the Fund's operations and activities shall be restricted to:

a. investing in securities including those issued by the Trust;
b. temporarily holding cash in interest bearing accounts, short-term government debt or investment grade corporate debt for the purposes of paying the expenses of the Fund, paying amounts payable by the Fund in connection with the redemption of any Fund Units and making distributions to Fund Unitholders;
c. issuing units or securities convertible into Fund Units;
d. issuing debt securities or borrowing funds and pledging securities held by the Fund or any affiliate as security for such debt securities or borrowed funds;
e. issuing rights and Fund Units under any unitholder rights plan adopted by the Fund;
f. purchasing securities under any issuer bid made by the Fund or pursuant to this Declaration of Trust;
g. lending money to the Trust; and
h. undertaking such other activities or taking such actions, including investing in securities, as contemplated under this Declaration of Trust or as shall be approved by the Fund Trustees from time to time, provided that the Fund shall not undertake any activities, take any action, or make any investment which would result in the Fund not being considered a "mutual fund trust" for purposes of the Act.

8. The Fund currently holds all of the outstanding Trust Units having an adjusted cost base at XXXXXXXXXX of approximately $XXXXXXXXXX and approximately $XXXXXXXXXX principal amount of Series 1 Trust Notes.

9. As at XXXXXXXXXX , the total market capitalization of the Fund was approximately
$XXXXXXXXXX , based on a closing trading price per Fund Unit of $XXXXXXXXXX and XXXXXXXXXX total outstanding Fund Units.

10. The Trust is an unincorporated open-ended unit trust formed under the laws of the Province of XXXXXXXXXX by the Trust Declaration of Trust.

11. Under the Trust Declaration of Trust, the Trust may issue an unlimited number of Trust Units. Each Trust Unit is transferable, entitles the holder to one vote and is redeemable at the demand of the holder.

12. Pursuant to the terms of the Trust Declaration of Trust, the Trust is required to make XXXXXXXXXX cash distributions of Trust Distributable Cash to the Trust Unitholders for each fiscal year of the Trust.

13. Pursuant to the terms of the Trust Declaration of Trust, the Trust's operations and activities shall be restricted to:

a. investing in securities including those issued by LP1, A Inc. Subs orGPco 1;
b. temporarily holding cash in interest bearing accounts, short-term government debt or investment grade corporate debt for the purposes of paying the expenses of the Trust, paying any indebtedness and making distributions to Trust Unitholders;
c. issuing Trust Units or Trust Notes or securities convertible into Trust Units or Trust Notes;
d. repurchasing Trust Units;
e. issuing debt securities or borrowing funds and pledging securities held by the Trust or any affiliate as security for such debt securities or borrowed funds;
f. guaranteeing the obligations of LP1 or any other affiliate of the Trust pursuant to any good faith debt for borrowed money incurred by LP1 or any affiliate, as the case may be, and pledging securities held by the Trust or any affiliate, as the case may be, as security for that guarantee, provided that the Trust Trustees determine that such guarantee is incidental to the Trust's direct or indirect investment in LP1 or any other affiliate of the Trust;
g. lending money to LP1, A Inc. Subs or GPco 1; and
h. undertaking such other activities or taking such actions, including investing in securities as approved by the Trust Trustees from time to time.

14. LP1 was formed under the laws of XXXXXXXXXX on XXXXXXXXXX . Prior to the amalgamation of GPco 1, GPco 2, the Target Subsidiaries and Newco, as described in paragraph 68, GPco 1 was the general partner of LP1. The purpose of LP1 is to operate Businesses 1, 2 and 5.

15. LP1 may issue an unlimited number of Class A and B LP1 Units. At the time Newco acquired all of the Fund Units (as described by paragraph 51), the Trust owned all of the Class B LP1 Units and there were no Class A LP1 Units issued.

16. Prior to the amendments described in paragraph 38, the partnership agreement governing LP1 provided that LP1 will distribute to holders of Class A and B LP1 Units their share of LP1 Distributable Cash for each calendar month and subject to the entitlement of holders of Class A LP1 Units, LP1 may, in addition, make a distribution at any other time on the Class B LP1 Units.

17. LP1 had debt owing to third-party lenders (the "LP1 Third Party Debt") and to GPco1 (the "LP1 GPco1 Debt"). GpCo1 has debt owing to third-party lenders (the "GPco1 Third Party Debt").

18. Prior to the amendments described in paragraph 38, the partnership agreement governing LP1 provides that the income for tax purposes of LP1 for each fiscal year will be allocated first to the limited partners holding Class A LP1 Units in an amount equal to the priority allocation to the Class A LP1 Units and thereafter, the income for those purposes in excess thereof will be allocated to GPco 1 and to the holders of Class B LP1 Units as to XXXXXXXXXX % and XXXXXXXXXX % respectively.

19. LP2 was formed under the laws of XXXXXXXXXX on XXXXXXXXXX . Prior to the amalgamation of GPco1, GPco2, the Target Subsidiaries and Newco, as described in paragraph 68, GPco 2, which was a wholly owned subsidiary of GPco 1, was the general partner of LP2. The purpose of LP2 is to operate Businesses 3, 4, 6 and 7.

20. LP2 may issue an unlimited number of LP2 Units. At the time Newco acquires all of the Fund Units (as described by paragraph 51), LP1 owned all of the LP2 Units.

21. Prior to the amendments described in paragraph 39, the partnership agreement governing LP2 provided that LP2 will distribute to holders of the LP2 Units XXXXXXXXXX % of LP2 Distributable Cash at any time during the fiscal year and XXXXXXXXXX % to the general partner.

22. Prior to the amendments described in paragraph 39, the partnership agreement governing LP2 provided that the income for tax purposes of LP2 for each fiscal year will be allocated to each partner in proportion to the allocation of LP2 Distributable Cash.

Facts Relating to Newco

23. XXXXXXXXXX

24. XXXXXXXXXX

25. XXXXXXXXXX

26. XXXXXXXXXX are not resident in Canada for purposes of the Act.

27. Newco was incorporated on XXXXXXXXXX under the CBCA and is a taxable Canadian corporation. Prior to the acquisition transactions described in paragraphs 34 through 68, the direct and indirect ownership structure of Newco can be described as follows:

(a) all of the common shares of Newco ("Newco Common Shares"), which were all of the issued and outstanding shares of Newco, were held by XXXXXXXXXX ("Holdco");
(b) Holdco was incorporated under the CBCA and is a taxable Canadian Corporation;
(c) all of the common shares of Holdco ("Holdco Common Shares"), which were all of the issued and outstanding shares of Holdco, were held by XXXXXXXXXX ("Topco");
(d) Topco was incorporated under the XXXXXXXXXX . Topco's authorized share capital consists of two classes of shares, (i) Class A voting shares with no dividend entitlement or liquidation entitlement beyond the amount paid in for the shares ("Topco Class A Shares") and (ii) Class B non-voting, participating common shares ("Topco Class B Shares");
(e) XXXXXXXXXX % of the issued Topco Class A Shares and Topco Class B Shares were held by XXXXXXXXXX is non-resident;
(f) XXXXXXXXXX is non-resident;
(g) XXXXXXXXXX is non-resident;
(h) XXXXXXXXXX ("Can SFE Corp") was incorporated under the CBCA. Can SFE Corp is a wholly-owned subsidiary of XXXXXXXXXX
(i) XXXXXXXXXX % of the issued Topco Class A Shares were held by Can SFE Corp;
(j) XXXXXXXXXX is non-resident;
(k) XXXXXXXXXX and Can SFE Corp entered into a partnership agreement to form XXXXXXXXXX , a general partnership ("Can SFE GP"). Pursuant to the terms of such partnership agreement, Can SFE Corp has a XXXXXXXXXX % partnership interest, with the remaining XXXXXXXXXX % held by XXXXXXXXXX ; and
(l) XXXXXXXXXX % of the issued Topco Class B Shares were held by the Can SFE GP;

28. Newco was a private corporation, and Holdco, Topco and Can SFE Corp. are private corporations.

Facts Relating to the Acquisition of the Fund

29. On XXXXXXXXXX , the Fund and Newco announced that they had entered into a support agreement under which Newco would make an offer to acquire all of the issued and outstanding Fund Units at a price of $XXXXXXXXXX per unit in cash with the support of the Fund Trustee.

30. Concurrently, Newco offered to purchase the Convertible Debentures at a price of $XXXXXXXXXX per $XXXXXXXXXX principal amount of the Convertible Debentures.

31. Newco entered into separate agreements to acquire all of the shares of

XXXXXXXXXX (collectively, the "Target Subsidiaries").

32. The Target Subsidiaries were taxable Canadian corporations.

33. At a future time, XXXXXXXXXX may transfer any loans receivable from Topco (forming part of the Shareholder Loans and Grid Loans) to XXXXXXXXXX or to another entity and XXXXXXXXXX may transfer XXXXXXXXXX to another entity. XXXXXXXXXX

Acquisition Transactions

34. The Fund amended its Declaration of Trust to facilitate the transactions described herein.

35. The Trust amended its Declaration of Trust to facilitate the transactions described herein.

36. XXXXXXXXXX arranged for appropriate amounts of funding, which has been made in part by way of loans, in XXXXXXXXXX , Can SFE Corp and CAN SFE GP to fund the share subscriptions and loans described below.

37. XXXXXXXXXX arranged for appropriate amounts of funding, which have been made in part by way of loans, in XXXXXXXXXX to fund the share subscriptions and loans described below.

38. LP1 amended its partnership agreement to facilitate the transactions described herein, in particular, such that net income for tax purposes earned by LP1, until the date on which Newco acquired the Fund Units (described in paragraph 51), will be allocated to partners based on distributions made prior to closing.

39. LP2 amended its partnership agreement to facilitate the transactions described herein, in particular, such that net income for tax purposes earned by LP2, until the date on which Newco acquired the Fund Units (described in paragraph 51), will be allocated to partners based on distributions made prior to closing.

40. Can SFE GP and XXXXXXXXXX each subscribed, in the same number and amount, for additional Topco Class B Shares for cash consideration. Can SFE Corp and XXXXXXXXXX each subscribed, in the same number and amount, for additional Topco Class A Shares for cash consideration.

41. XXXXXXXXXX lent money to Topco by way of interest bearing loans (the "Shareholder Loans").

42. Each of XXXXXXXXXX entered into grid promissory notes ("Grid Loans") with Topco pursuant to which Topco can borrow from XXXXXXXXXX from time to time.

43. The debt to equity ratio of Topco, for purposes of subsection 18(4) will be maintained at a ratio of no more than XXXXXXXXXX with respect to the borrowings described in paragraphs 41 and 42 above.

44. Topco used the cash proceeds from the issuance of the Topco Class B Shares to subscribe for additional Holdco Common Shares.

45. Topco lent the cash proceeds from the Shareholder Loans to Holdco on an interest bearing basis (the "Holdco Loan").

46. Topco and Holdco entered into a grid promissory note pursuant to which Holdco can borrow from Topco from time to time.

47. Holdco borrowed money (the "Third-Party Loans") from third-party lenders.

48. Holdco used the cash proceeds from the issuance of the Holdco Common Shares to subscribe for additional Newco Common Shares.

49. Holdco lent the cash proceeds from each of the Holdco Loan and the Third-Party Loans to Newco on an interest bearing basis (the "Newco Holdco Loan" and "Newco Third-Party Loan", respectively). The Newco Third-Party Loan was structured as a grid note to accommodate future loans.

50. Holdco and Newco entered into a grid promissory note pursuant to which Newco can borrow from Holdco from time to time.

51. Newco acquired all of the Fund Units pursuant to the offer to acquire all of the Fund Units.

52. Holdco became the trustee of each of the Fund and the Trust.

53. Newco acquired all of the Convertible Debentures pursuant to the offer. The Convertible Debentures acquired by Newco were converted in accordance with their terms into Fund Units.

54. Newco subscribed for Fund Units for cash consideration to fund certain costs of the Fund related to the acquisition of the Fund by Newco. These subscriptions will not result in the Fund exceeding the normal growth guidelines issued by the Department of Finance on December 15, 2006.

55. LP1 distributed $XXXXXXXXXX to the Trust to fund the redemption of the Trust Units described in paragraph 78 below, after which this cash will also fund the redemption of the Fund units as described in paragraph 83.

56. Newco subscribed for Class B LP1 Units for cash consideration (and/or lent money to LP1) and lent other money to LP1 (the "LP1 Newco Loan"). LP1 used the proceeds from the subscription (and/or loan) and from the LP1 Newco Loan to repay the LP1 Third Party Debt. (To the extent that Newco lent money to LP1, other than the LP1 Newco Loan, such loan will be converted into Class B LP1 Units prior to the Proposed Transactions.)

57. Newco subscribed for common shares of GPco 1 to fund the repayment of the GPco 1 Third Party Debt.

58. GPco 1 used a portion of the proceeds from the share subscription in paragraph 57 to subscribe for Class B LP1 Units.

59. LP1 lent a portion of the proceeds from the subscription in paragraph 58 to GPco 1 (the "GPco 1 LP1 Debt")

60. GPco 1 repaid the GPco 1 Third Party Debt.

61. LP1 transferred the GPco 1 LP1 Debt to Newco in consideration for the assumption by Newco of the LP1 GPco1 Debt.

62. The shares of GPco 2 were transferred from GPco 1 to Newco and the shares of GPco 1 were transferred from the Trust to Newco.

63. Newco lent money to LP2 (the "LP2 Newco Loan"), which LP2 used to pay certain obligations to third parties.

64. Newco lent money to certain of the Target Subsidiaries who used the funds to repay loans due to shareholders of such corporation.

65. Newco acquired the shares and certain debts of the Target Subsidiaries.

66. Newco lent amounts to certain of the Target Subsidiaries to repay third party indebtedness.

67. Newco subscribed for additional shares of the Target Subsidiaries in consideration for debts of such subsidiaries that were acquired in paragraph 65 above.

68. Newco amalgamated with GPco 1, GPco 2, and the Target Subsidiaries to form Newco-Amalco. As a result of the amalgamation, certain amounts owing by predecessors of Newco-Amalco to LP1 have become amounts owing by Newco-Amalco to LP1 (the "Newco-Amalco LP1 Debt").

Proposed Transactions

The Proposed Transactions will be completed in XXXXXXXXXX . The "Acquisition Transactions" described in paragraphs 34 through 68 have taken place by XXXXXXXXXX . The "Wind-up Transactions" described in paragraphs 69 through 85 will occur after the Acquisition Transactions in the order described below.

Wind-Up Transactions

69. LP1 will transfer to Holdco a nominal limited partnership interest in LP2 for a promissory note (the "Holdco LP1 Note").

70. Newco-Amalco and LP1 will set off amounts owing to each other being the LP1 Newco Loan and the Newco-Amalco LP1 Debt.

71. The Trust will transfer all of the Class B LP1 Units held by the Trust to Newco-Amalco for FMV consideration. As consideration, Newco-Amalco will issue a promissory note, payable on demand (the "Newco-Amalco Note") and the Trust will accept the Newco-Amalco Note as full and absolute payment of the purchase price.

72. To the extent that the FMV of the Class B LP1 Units exceeds their ACB, the Trust will realize a capital gain.

73. LP2 will issue units to Newco-Amalco in satisfaction of any indebtedness owing to Newco-Amalco (including the LP2 Newco Loan).

74. Holdco will transfer to Newco-Amalco its nominal interest in LP2 (acquired in paragraph 69 above) in repayment of the Holdco LP1 Note.

75. The Trust will distribute the Newco-Amalco Note to the Fund as:

(i) payment of the taxable capital gain realized;
(ii) payment of other income, if any;
(iii) repayment of Trust Notes; and
(iv) capital distribution (including non-taxable portion of capital gain realized).

No units will be redeemed by the Trust on this distribution.

76. The Trust will make a designation in its return of income for the current taxation year such that the net taxable capital gain that may reasonably be considered to be part of the amount included in computing income of the Fund by virtue of subsection 104(13) will be deemed to be a taxable capital gain of the Fund pursuant to subsection 104(21).

77. After the distribution of the Newco-Amalco Note to the Fund, the property of the Trust will consist of a nominal amount of cash.

78. The Trust will redeem all of the Trust Units for nominal proceeds and will cancel its Trust Units immediately after the redemption. The Trust will then cease to exist. The Fund will recognize a capital loss on the redemption to the extent its ACB in the Trust Units (after giving effect to reductions including the amount exceeding the non-taxable portion of capital gain described in paragraph 75(iv) above) exceeds the nominal redemption proceeds received.

79. The Fund will declare a distribution payable to Newco-Amalco with such distribution to be paid by delivery of a promissory note, payable on demand (the "Fund Note") and Newco-Amalco will accept the Fund Note as full and absolute payment of the distribution payable. The Fund will issue the Fund Note as:

(i) payment of the taxable capital gain deemed to be realized pursuant to
subsection 104(21), net of the allowable capital loss, if any from redemption of the Trust Units;
(ii) payment of other income, if any; and
(iii) capital distribution (including the non-taxable portion of net capital gains realized).

No units will be redeemed by the Fund on this distribution. The principal amount of the Fund Note will be equal to the principal amount of the Newco-Amalco Note.

80. The Fund Note and the Newco-Amalco Note will be set off against each other in full satisfaction of the respective obligations thereunder and each will be cancelled.

81. After the distribution as described in paragraph 79 and the set off and cancellation of notes as described in paragraph 80, the property of the Fund will consist of a nominal amount of cash.

82. The Fund will make a designation in its return of income for the current taxation year such that the net taxable capital gain that may reasonably be considered to be part of the amount included in computing income of Newco-Amalco by virtue of subsection 104(13) will be deemed to be a taxable capital gain of Newco-Amalco pursuant to subsection 104(21).

83. The Fund will redeem all of the Fund Units for nominal proceeds and will cancel its Fund Units immediately after the redemption. The Fund will then cease to exist.

84. Newco-Amalco and Holdco will amalgamate to form Newco-Amalco II.

Post Wind-up

85. There are no plans for former Unitholders of the Fund, either individually or collectively to acquire, directly or indirectly, any of the assets of Newco-Amalco II that were held by LP1 or LP2 prior to the implementation of the Proposed Transactions.

Purpose of the Proposed Transactions

The purpose of the Proposed Transactions is to consolidate the business operations while simplifying the structure by eliminating layers of trusts and partnerships and the related compliance and administrative costs. In addition, for external financing purposes, the assets of the business will be held by the same corporation that has the external debt.

Rulings

Provided that:

(i) the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions and purposes of the above transactions;
(ii) provided that the Proposed Transactions are completed in the manner described above; and
(iii) there are no other transactions that may be relevant to the rulings given

our rulings are as follows:

A. To the extent that any capital gain is realized by the Trust on the transfer of the Class B LP1 Units to Newco-Amalco (as described in paragraph 71), the Trust shall be entitled to deduct from its income for a taxation year, pursuant to paragraph 104(6)(b) an amount corresponding to the taxable capital gain that is payable in the taxation year to the Fund and subparagraph 104(6)(b)(iv) will not apply to limit such deduction. The Fund shall include such amount in computing its income for the taxation year pursuant to subsection 104(13).

B. To the extent that the Trust makes the designation described in paragraph 76 in its return of income for the taxation year, an amount corresponding to the taxable capital gain realized on the disposition referred to in paragraph 71, will be deemed to be a taxable capital gain of the Fund pursuant to subsection 104(21).

C. To the extent that any taxable capital gain is deemed to have been realized by the Fund, (as described in Ruling B) the Fund shall be entitled to deduct from its income for a taxation year, pursuant to paragraph 104(6)(b) an amount corresponding to the taxable capital gain that is payable in the taxation year to Newco-Amalco and subparagraph 104(6)(b)(iv) will not apply to limit such deduction. Newco-Amalco shall include such amount in computing its income for the taxation year pursuant to subsection 104(13).

D. To the extent that the Fund makes the designation described in paragraph 82 in its return of income for the taxation year, an amount corresponding to the taxable capital gain deemed to have been realized by the Fund as referred to in paragraph 76, will be deemed to be a taxable capital gain of Newco-Amalco pursuant to subsection 104(21).

E. Pursuant to paragraph (h) of the definition of "disposition" in subsection 248(1), the Fund will not be considered to have a disposition of the Trust Units as a result of the distribution by the Trust of the Newco-Amalco Note to the Fund (as described in paragraph 75).

F. Pursuant to subsection 107(2.1), on the distribution of the Newco-Amalco Note by the Trust to the Fund, the Fund will be deemed to have acquired the Newco-Amalco Note at a cost equal to the fair market value of the Newco-Amalco Note and the Fund will not be deemed to have any proceeds of disposition of the Trust Units.

G. Clause 53(2)(h)(i.1)(A) and subclause 53(2)(h)(i.1)(B)(I) will apply such that the adjusted cost base of the Trust Units to the Fund will not be reduced for the amount included in the Fund's income (as described in Ruling A) and for an amount equal to the amount designated by the Trust under subsection 104(21), respectively.

H. Pursuant to paragraph (h) of the definition of "disposition" in subsection 248(1), Newco-Amalco will not be considered to have a disposition of the Fund Units as a result of the distribution made by the Fund to Newco-Amalco (as described in paragraph 79).

I. Subsection 107(2.1) will not apply on the distribution made by the Fund by the issuance of the Fund Note (as described in paragraph 79) and on the offset of the Newco-Amalco Note with the Fund Note (as described in paragraph 80).

J. Clauses 53(2)(h)(i.1)(A) and subclause 53(2)(h)(i.1)(B)(I) will apply such that the adjusted cost base of the Fund Units to Newco-Amalco will not be reduced for the amount included in Newco-Amalco's income (as described in Ruling C) and for an amount equal to the amount designated by the Fund under subsection 104(21), respectively.

K. To the extent that the amount paid by the Fund on the redemption of the Fund Units (as described in paragraph 83) is less than the adjusted cost base of the Fund Units to Newco-Amalco, subsections 40(3.3) and (3.4) will not apply to any capital loss realized on the redemption.

L. Subsection 132(6.2) will deem the Fund to be a mutual fund trust throughout the calendar year of the Proposed Transactions.

M. The general anti-avoidance rule under subsection 245(2) will not be applied as a result of the Proposed Transactions to redetermine the tax consequences confirmed in the rulings.

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 advance income tax ruling should be construed as implying that we are ruling on, or have considered, or discussed with you any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. More particularly, you did not request, nor have we considered or given any ruling with respect to any other aspect of the Facts stated above (including the Facts Relating to the Acquisition of the Fund) or any other aspect of the taxation of the Fund.

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 proposed transactions are completed within six months of the date of this letter. As indicated in Information Circular 70-6R5, we do not rule on matters involving the determination of the fair market value of property and nothing in this ruling should be construed as implying that Canada Revenue Agency has agreed to or reviewed the determination of the fair market value, the adjusted cost base, or fair market value of any particular asset or the paid-up capital of any shares referred to herein.

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Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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