2008 Ruling 2008-0267631R3 - income trust, stapled units & elimination of corp

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. Will the exchange between the Fund and the newly created MFT qualify under 132.2?

2. Will the Finance Trust be a SIFT trust?

3. Will the Fund be a SIFT trust?

4. Will GAAR apply to the proposed transactions?

Position: 1. Yes.

2. No.

3. Provided the Fund does not exceed its normal growth, it will not be a SIFT trust until 2011.

4. No.

Reasons: 1. The facts demonstrate that the conditions of 132.2 will be met, that the consolidation of units will not result in a disposition and that nothing in the proposed transactions will adversely affect the Fund or Finance Trust's status as a MFT or Amalco's status as a MFC.

2. The Finance Trust will hold no non-portfolio property and will thus not be a SIFT trust.

3. Provided the Fund does not exceed its normal growth, it will not be a SIFT trust until 2011.

4. The stapled securities created by the Spin-off were created solely for US tax reasons; and in particular, so that the financing would be held by a trust that qualifies as a fixed investment trust in the US such that the investors, and not the trust would be considered the creditors and recipients of the interest payments. As a result there are no tax benefits as defined in 245(1) such that GAAR will not apply to the portion of the transactions relating to the stapled securities. With respect to the debt reorganization contemplated by the Spin-off, the debt cannot be converted into equity of the Fund and as such, would not be contrary to the stated public policy behind the SIFT rules as set out in the October 31, 2007 Dept of Finance Press Release. Favourable GAAR rulings have been issued in similar circumstances involving the elimination of the underlying corporation in rulings such as 2003-0053981R3, 2002-0178943, 2001-0081903, 9904643 and 9918323.

XXXXXXXXXX 								2008-026763

Attention: XXXXXXXXXX

XXXXXXXXXX , 2008

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling
Account Number XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of your client, the above-noted taxpayer. We also acknowledge your additional 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 other than ruling XXXXXXXXXX .

You provided us with a copy of the Declaration of Trust for Finance Trust and the Amended Declaration of Trust for the Fund. 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.

Except as otherwise noted, 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 all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated. The following terms have the meanings specified:

"Affiliates" of the Fund means all entities listed in Schedule I;

"Amalco Class A Share" means a class A share in the capital of Amalco and having the same terms as those of a Newco Class A Share;

"Amalco Class B Share" means a class B share in the capital of Amalco and having the same terms as those of a Newco Class B Share;

"Amalco Common Share" means a common share in the capital of Amalco and having the same terms as those of a Newco Common Share;

"Amalco" means the corporation to be formed upon the amalgamation of LP Inc. and Newco pursuant to the relevant provisions of the Corporations Act and in accordance with the provisions of subsection 87(1);

"Class A Portfolio LP Units" means units evidencing the interest of Class A limited partners in Portfolio LP, designated as Class A LP Units, and issued as such, pursuant to the terms of the Portfolio LP partnership agreement;

"Class B Portfolio LP Units" means units evidencing the interest of Class B limited partners in Portfolio LP, designated as Class B Limited Participation LP Units, and issued as such, pursuant to the terms of the Portfolio LP partnership agreement;

"Closing Market Price" on a particular Redemption Date means an amount equal to:

(i) the closing price on that date of a Stapled Unit (or, if there has been an Uncoupling Event, a Fund Unit) if there was a trade on that date and the exchange or market provides a closing price;
(ii) the average of the highest and lowest prices on that date of a Stapled Unit (or, if there has been an Uncoupling Event, a Fund Unit) if there was trading on that date and the exchange or other market provides only the highest and lowest trading prices of Stapled Units (or, if there has been an Uncoupling Event, Fund Units) traded on that date; and
(iii) the average of the last bid and last ask prices of a Stapled Unit (or, if there has been an Uncoupling Event, a Fund Unit) if there was no trading on that date;

"Code Regulations" means the U.S. Treasury regulations made under the Code;

"Code" means the Internal Revenue Code of 1986, as amended;

"Comfort Letter" means the Department of Finance letter issued February 14, 2006, indicating that it was prepared to recommend further amendments to the Minister of Finance in respect of section 132.2 to clarify that the time period in which the proceeds of disposition of units of the transferee or shares of the transferor would be determined under proposed paragraph 132.2(3)(f) or (g) includes the time that is immediately after the "transfer time" as that term is defined in the proposed amendments to subsection 132.2(1).

"Corporations Act" means the XXXXXXXXXX

"Depository" means XXXXXXXXXX ;

"Existing Loans" means the loans that have been advanced by the Fund to US Holdco from time to time and which are evidenced by promissory notes issued by US Holdco to the Fund as described in paragraph 13;

"Finance Trust Declaration of Trust" means the declaration of trust to be made by the trustees of Finance Trust to hold in trust all property of Finance Trust for the benefit of unitholders of Finance Trust;

"Finance Trust Redemption Price" means, with respect to Finance Trust Units tendered to Finance Trust for redemption on a particular Redemption Date, an amount per Finance Trust Unit equal to the Canadian dollar equivalent of the outstanding principal amount of the US Holdco Notes as of the Redemption Date, divided by the total number of Finance Trust Units issued and outstanding immediately prior to the Redemption Date;

"Finance Trust Unit" means a unit of Finance Trust, each such unit representing an equal undivided beneficial interest in Finance Trust;

"Finance Trust" means a newly-created unincorporated open-ended limited purpose unit trust to be established under the laws of the Province of XXXXXXXXXX ;

"Fund Declaration of Trust" means the amended and restated declaration of trust dated as of XXXXXXXXXX in respect of the Fund;

"Fund Redemption Price" means, with respect to Fund Units tendered to the Fund for redemption on a particular Redemption Date, an amount per unit equal to the amount by which the lesser of:

(i) 90% of the Market Price of a Stapled Unit on the principal market on which the Stapled Units are listed or quoted for trading during the 10-trading day period commencing immediately prior to the Redemption Date; and
(ii)100% of the Closing Market Price of a Stapled Unit on the Redemption Date on the principal market on which the Stapled Units are listed or quoted for trading;

exceeds the Finance Trust Redemption Price applicable on the Redemption Date, provided that if there has been an Uncoupling Event, the Fund Redemption Price shall mean an amount equal to the lesser of:

(iii) 90% of the Market Price of a Fund Unit on the principal market on which the Fund Units are listed or quoted for trading during the 10-trading day period commencing immediately prior to the Redemption Date; and
(iv) 100% of the Closing Market Price of a Fund Unit on the Redemption Date on the principal market on which the Fund Units are listed or quoted for trading;

"Fund Trustees" means the individuals who act as trustees of the Fund in accordance with and subject to the provisions of the Fund Declaration of Trust, and which as of the date hereof consist of XXXXXXXXXX individuals each of whom is a resident of Canada;

"Fund Unit" means a unit of the Fund, each such unit representing an equal undivided beneficial interest in the Fund;

"Fund" means XXXXXXXXXX , which was established under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX , the declaration of trust for which was amended and restated as of XXXXXXXXXX ;

"GP Inc." means XXXXXXXXXX ., a corporation incorporated under the laws of the Province of XXXXXXXXXX ;

"LP Inc. Notes" means the unsecured notes issued by LP Inc., payable on demand and bearing an interest rate of XXXXXXXXXX % per annum;

"LP Inc. Shares" means the issued and outstanding shares of LP Inc.;

"LP Inc." means XXXXXXXXXX ., a corporation incorporated under the laws of the Province of XXXXXXXXXX ;

"LP Units" means the units evidencing the interest of limited partners in LP, designated as LP Units, and issued as such, pursuant to the terms of the partnership agreement governing LP;

"LP" means XXXXXXXXXX , a limited partnership formed under the Partnership Act among XXXXXXXXXX resident in Canada each of which deals at arm's length with the Fund, which partnership owns an income-producing real property located in XXXXXXXXXX ;

"Market Price" in respect of a particular Redemption Date means an amount equal to the weighted average of the trading price of a Stapled Unit (or, if there has been an Uncoupling Event, a Fund Unit) for each of the trading days on which there was a trade of Stapled Units (or, if there has been an Uncoupling Event, Fund Units) during the 10-trading day period commencing immediately prior to the Redemption Date; provided that if there was trading on the applicable exchange or market for fewer than five of the 10 trading days, the Market Price will be the simple average of the following prices established for each of the 10 trading days:

(i) for each day on which there was no trading, the average of the last bid and ask prices; and
(ii) for each day that there was trading, the weighted average trading price of a Stapled Unit (or, if there has been an Uncoupling Event, a Fund Unit);

"Monthly Limit" means $XXXXXXXXXX less the total of any cash payments payable by the Fund or Finance Trust, as the case may be, in respect of Fund Units or Finance Trust Units, as the case may be, tendered for redemption prior thereto in the same calendar month and whose redemption price is paid by way of an in specie distribution;

"Newco Class A Share" means a class A share in the capital of Newco the terms of which will include the following provisions: non-voting; entitle the holder to dividends, as and when declared by the board of directors; redeemable and retractable; entitle the holder to receive the redemption price upon receipt of a Class A share by Newco; have a redemption price equal to the fair market value of the consideration for which such share was issued; the redemption price will be payable in cash, or satisfied by the transfer of Fund Units; on the dissolution of Newco, such share shall entitle the holder to the redemption price plus any declared dividends in preference to any participation on the common shares; will rank pari passu with the Newco Class B Shares;

"Newco Class B Share" means a class B share in the capital of Newco the terms of which will include the following provisions: non-voting; entitle the holder to dividends, as and when declared by the board of directors; redeemable and retractable; entitle the holder to receive the redemption price upon receipt of a Class B share by Newco; have a redemption price equal to the fair market value of the consideration for which such share was issued; the redemption price will be payable in cash, or satisfied by the transfer of Fund Units; on the dissolution of Newco, such share shall entitle the holder to the redemption price plus any declared dividends in preference to any participation on the common shares; will rank pari passu with the Newco Class A Shares;

"Newco Common Share" means a common share in the capital of Newco that is redeemable and retractable and whose terms will entitle the holder to one vote; dividends, as and when declared by the board of directors of Newco; on the dissolution of Newco, will entitle the holder to receive the remaining assets of Newco after distributions to holders of Newco Class A Shares, Newco Class B Shares and any other shares that rank ahead of the Newco Common Shares;

"Newco" means a new corporation to be incorporated under the Corporations Act;

"Normal Growth Guidelines" means the normal growth guidelines issued by the Department of Finance on December 15, 2006, as amended from time to time;

"Open-Ended Unit Trust" means a trust that qualifies as a unit trust under paragraph 108(2)(a);

"Partnership Act" means the XXXXXXXXXX ;

"Portfolio Beneficiary Corp." means XXXXXXXXXX ., a corporation incorporated under the laws of the Province of XXXXXXXXXX ;

"Portfolio GP Interest" means the interest of the general partner in Portfolio LP, designated as a XXXXXXXXXX % general partnership interest, and issued as such, pursuant to the terms of the Portfolio LP partnership agreement;

"Portfolio GP Trust" means XXXXXXXXXX , an inter-vivos personal trust, established under the laws of the Province of XXXXXXXXXX , which trust holds the Portfolio GP Interest;

"Portfolio LP" means XXXXXXXXXX , a limited partnership formed under the laws of the Province of XXXXXXXXXX between Portfolio GP Trust and Portfolio Sub Trust for the purpose of acquiring an interest in certain income producing real properties on XXXXXXXXXX ;

"Portfolio Sub Trust Declaration of Trust" means the declaration of trust dated as of XXXXXXXXXX in respect of Portfolio Sub Trust;

"Portfolio Sub Trust Note Indenture" means the trust indenture dated as of XXXXXXXXXX providing for the issuance of the Portfolio Sub Trust Notes;

"Portfolio Sub Trust Notes" means the Series 1 Notes, Series 2 Notes, Series 3 Notes and Series 4 Notes collectively;

"Portfolio Sub Trust Trustees" means the individuals who act as trustees of Portfolio Sub Trust in accordance with and subject to the provisions of the Portfolio Sub Trust Declaration of Trust, and which as of the date hereof consist of XXXXXXXXXX individuals each of whom is a resident of Canada;

"Portfolio Sub Trust Unit" means a unit of Portfolio Sub Trust, each such unit representing an equal undivided beneficial interest therein;

"Portfolio Sub Trust" means XXXXXXXXXX , an Open-Ended Unit Trust established under the laws of the Province of XXXXXXXXXX ;

"Portfolio Trustee Corp." means XXXXXXXXXX ., a corporation incorporated under the laws of the Province of XXXXXXXXXX ;

"Qualified Investment" has the meaning assigned by subsection 205(1) in respect of an registered disability savings plan, subsection 146(1) in respect of an registered retirement savings plan, by subsection 146.1(1) in respect of an registered educational savings plan, by subsection 146.3(1) in respect of an registered retirement income fund, by section 204 in respect of a deferred profit sharing plan, and by subsection 207.01(l) in respect of a tax-free savings account as defined in subsection 248(1), as the case may be;

"Redemption Date" means the date on which a Fund Unit or Finance Trust Unit is tendered to the Fund or to Finance Trust, as the case may be, for redemption;

"Series 1 Note" means the interest bearing unsecured subordinated demand note, series 1, of Portfolio Sub Trust issued to the Fund;

"Series 2 Notes" means the interest bearing unsecured subordinated notes, series 2, of Portfolio Sub Trust to be issued pursuant to the Portfolio Sub Trust Note Indenture and when issued will mature on a date which is no later than the XXXXXXXXXX anniversary of the date of issuance thereof and will bear interest at the prime lending rate, as quoted by the major lender to the Fund, plus XXXXXXXXXX %, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 2 Note is outstanding;

"Series 3 Notes" means the interest bearing unsecured subordinated notes, series 3, of Portfolio Sub Trust to be issued pursuant to the Portfolio Sub Trust Note Indenture and when issued will mature on a date to be set by the Fund Trustees, at the time the Series 3 Note is issued, which is not later than the XXXXXXXXXX anniversary of the date of issuance and will bear interest at the prime lending rate, as quoted by the major lender to the Fund, plus XXXXXXXXXX %, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 3 Note is outstanding;

"Series 4 Notes" means the interest bearing unsecured subordinated notes, series 4, of Portfolio Sub Trust to be issued pursuant to the Portfolio Sub Trust Note Indenture and when issued will mature on a date to be set by the Fund Trustees, at the time the Series 4 Note is issued, which is not later than the XXXXXXXXXX anniversary of the date of issuance and will bear interest at the prime lending rate, as quoted by the major lender to the Fund, plus XXXXXXXXXX %, determined at the time of issuance thereof, payable on the XXXXXXXXXX day of each calendar month that such Series 4 Note is outstanding;

"Spin-off" means the proposed transactions described in paragraphs 26 to 44 and 61 to 65;

"SIFT trust" means a SIFT trust as that expression is defined in subsection 122.1(1);

"Stapled Unit" means one Fund Unit and one Finance Trust Unit which will trade together on the Stock Exchange as described in paragraph 64;

"Stock Exchange" means the XXXXXXXXXX ;

"Uncoupling Event" means an event whereby the Fund Units and the Finance Trust Units do not trade together on the Stock Exchange as described in paragraph 62;

"Unitholder" means a holder of Fund Units;

"US Holdco Notes" means the notes to be issued by US Holdco under a note indenture as described in paragraph 43;

"US Holdco" means XXXXXXXXXX ., a corporation incorporated under the laws of the State of XXXXXXXXXX and a wholly-owned subsidiary of the Fund;

"US LLC" means any one of the XXXXXXXXXX U.S. limited liability companies owned by US Holdco, as of XXXXXXXXXX ;

"US LP" means any one of the XXXXXXXXXX U.S. limited partnerships owned by US Holdco, as of XXXXXXXXXX ;

"US Subco Note" means a promissory note to be issued by US Subco in consideration for the transfer of the Existing Loans, and having a principal amount equal to the principal amount of the Existing Loans at the time of such transfer;

"US Subco" means a XXXXXXXXXX limited liability company originally incorporated in XXXXXXXXXX to act as a general partner of XXXXXXXXXX ., which owned U.S. real property, which property was sold in XXXXXXXXXX ; and
"U.S." means the United States of America.

The relevant Tax Services Office for LP Inc. is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Tax Centre. The relevant Tax Services Office for the Fund is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Centre. The relevant Tax Services Office and relevant Tax Centre for Finance Trust are expected to be the same as those of the Fund.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. The Fund is an Open-Ended Unit Trust that qualifies as a mutual fund trust. Fund Units are listed for trading on the Stock Exchange under the symbol XXXXXXXXXX and have been so listed since XXXXXXXXXX . Beneficial interests in the Fund are represented by identical units of a single class.

2. Fund Units are widely held by the public, and to the knowledge of the Fund management, there is no direct or indirect beneficial owner of, nor any person who exercises control or direction over, Fund Units carrying more than XXXXXXXXXX % of the votes and value of outstanding Fund Units. XXXXXXXXXX Fund Units were issued and outstanding at XXXXXXXXXX .

3. The Fund is governed by the Fund Trustees who conduct and manage the affairs of the Fund in accordance with, and subject to, the terms of the Fund Declaration of Trust. The Fund is registered as a "registered investment" for Deferred Income Plans pursuant to subsection 204.4(1).

4. Under the Fund Declaration of Trust, the Fund is required to distribute amounts to Unitholders XXXXXXXXXX , or at the discretion of the Fund Trustees, XXXXXXXXXX , and the Unitholders have the right to receive, on each distribution date, not less than XXXXXXXXXX % of distributable cash, as defined in the Fund Declaration of Trust, for the preceding calendar quarter or month, as the case may be, and, in the case of distributions made on XXXXXXXXXX , the calendar quarter or month then ended. The Fund Trustees have determined that distributions will be made XXXXXXXXXX .

5. The Fund is the XXXXXXXXXX . However, the Fund does not qualify as a real estate investment trust as defined in subsection 122.1(1) as of the date of this income tax ruling. The Fund, directly or indirectly, owns interests in XXXXXXXXXX income-producing properties, as at XXXXXXXXXX . The Fund directly owns interests in XXXXXXXXXX income-producing real properties located in Canada as at XXXXXXXXXX , of which XXXXXXXXXX are co-owned properties.

6. Nominee corporations hold legal title to real property situated in Canada which is beneficially owned by the Fund or certain of its Affiliates resident in Canada.

7. GP Inc. and LP Inc. were incorporated on XXXXXXXXXX as wholly owned subsidiaries of the Fund. The Fund owns all of the issued shares of GP Inc. and LP Inc. The Fund owns all of the LP Inc. Notes.

8. On XXXXXXXXXX , LP was formed with one class of LP Units and one class of general partnership units. GP Inc. is entitled to XXXXXXXXXX % and LP Inc. is entitled to XXXXXXXXXX % of the income or loss of the partnership, pro rata. The remaining general partnership units of LP and other LP Units are indirectly owned by a third party dealing at arm's length with the Fund.

9. On XXXXXXXXXX , LP acquired the XXXXXXXXXX and assumed a mortgage payable to a non-resident person dealing at arm's length with the Fund. XXXXXXXXXX is leased to tenants which deal at arm's length with the Fund. Under the Partnership Act, liability of the limited partners of LP is limited.

10. As at XXXXXXXXXX , the Fund indirectly owns an interest in XXXXXXXXXX income-producing real properties located in the U.S., of which XXXXXXXXXX are co-owned properties. The properties located in the U.S. which are indirectly owned by the Fund are owned by entities that are wholly owned by US Holdco either directly or indirectly. In most cases, each property located in the U.S. is directly owned by a separate US LP in which US Holdco has a XXXXXXXXXX % limited partnership interest. The XXXXXXXXXX % general partnership interest of each US LP is owned by a separate US LLC incorporated under the laws of a state of the U.S. Each US LLC is a wholly-owned subsidiary of US Holdco.

11. US Holdco, the US LLCs and the US LPs do not employ more than five full-time employees in the active conduct of their real property rental operations. US Holdco, the US LLCs and the US LPs employ U.S. service providers that are not related to the Fund. US Holdco's sole sources of income are sources in the U.S.

12. The Fund is a resident of Canada and a "qualifying person" for purposes of Article XXIX A of the Canada-U.S. Income Tax Convention and is accordingly subject to a reduced U.S. withholding tax rate on interest received by the Fund from US Holdco.

13. The Fund provides interest-bearing debt and equity financing to US Holdco. At XXXXXXXXXX , the aggregate principal amount of the outstanding Existing Loans was approximately US$XXXXXXXXXX . The Existing Loans are evidenced by promissory notes evidencing each separate advance made by the Fund to US Holdco. Each note is payable on the earlier of demand and XXXXXXXXXX years from the date on which the advance evidenced by the note was made. Each note bears interest at a rate of XXXXXXXXXX % per annum payable XXXXXXXXXX , and is unsecured.

14. Portfolio Beneficiary Corp. and Portfolio Trustee Corp. were incorporated on XXXXXXXXXX . All the issued shares of Portfolio Trustee Corp. are owned by the Fund and all the issued shares of Portfolio Beneficiary Corp. are owned by Portfolio Sub Trust.

15. Portfolio Sub Trust was established by the Portfolio Sub Trust Declaration of Trust on XXXXXXXXXX . At that time, the Fund subscribed for XXXXXXXXXX Portfolio Sub Trust Units at an aggregate subscription price of $XXXXXXXXXX .

16. On XXXXXXXXXX , Portfolio GP Trust was settled by Portfolio Sub Trust for the sole benefit of Portfolio Beneficiary Corp. The sole trustee of Portfolio GP Trust is Portfolio Trustee Corp. The initial settled capital was $XXXXXXXXXX .

17. On XXXXXXXXXX , Portfolio LP was formed with two classes of limited partnership units, Class A Portfolio LP Units and Class B Portfolio LP Units, and a Portfolio GP Interest. The general partner is entitled to XXXXXXXXXX % of the income of Portfolio LP, not to exceed XXXXXXXXXX dollars per annum. Each Class B Portfolio LP Unit is exchangeable at the option of the holder for one Fund Unit and is entitled to cash distributions equivalent to the cash distributions paid on each Fund Unit. The unitholders of the Class A Portfolio LP Units are entitled to all of the distributions of Portfolio LP other than the distributions to which the unitholders of Class B Portfolio LP Units and Portfolio GP Trust are entitled.

18. On XXXXXXXXXX , the Fund subscribed for Portfolio Sub Trust Units at an aggregate subscription price of $XXXXXXXXXX and Series 1 Notes with an aggregate principal amount of $XXXXXXXXXX . The Series 1 Notes issued to the Fund are payable on demand, will mature on the XXXXXXXXXX anniversary of the date of issuance and on the day of issuance, bore interest at the rate of XXXXXXXXXX % per annum.

19. On XXXXXXXXXX , Portfolio Sub Trust used the funds received from the Fund to subscribe for XXXXXXXXXX Class A Portfolio LP Units for total consideration of $XXXXXXXXXX .

20. On XXXXXXXXXX , Portfolio LP received cash and acquired an interest, from third parties, in XXXXXXXXXX income-producing properties all located in Canada. As consideration, Portfolio LP, assumed liabilities and issued XXXXXXXXXX Class B Portfolio LP Units to the various vendors.

21. On XXXXXXXXXX , Portfolio LP used the funds received from the issuance of Class A Portfolio LP Units and Class B Portfolio LP Units to subscribe for an aggregate of XXXXXXXXXX Fund Units. Neither the acquisition nor the holding by Portfolio LP of Fund Units is contrary to the provisions of any applicable law governing Portfolio LP or the Fund.

22. The Fund owns all of the issued and outstanding Portfolio Sub Trust Units and Portfolio Sub Trust Notes.

23. The fair market value of the Class A Portfolio LP Units owned by Portfolio
Sub Trust is greater than XXXXXXXXXX % of the equity value of Portfolio LP as at

XXXXXXXXXX .

24. The Fund Units owned by Portfolio LP have a total fair market value that is greater than XXXXXXXXXX % of the equity value of Portfolio LP as at XXXXXXXXXX .

Proposed Transactions

25. The Fund will seek approval for the proposed transactions at a special meeting of Unitholders, that is expected to be held on or about XXXXXXXXXX . All of the proposed transactions that follow will occur under a court approved plan of arrangement and will occur sometime shortly after obtaining the approval of the Unitholders and of the court.

Spin-off

26. The Fund Declaration of Trust will be amended to make reference to the Stapled Units. As a result, the redemption provisions will be amended as follows:

Pursuant to the Fund Declaration of Trust and upon completion of the proposed transactions, a Unitholder will have the right to redeem his or her Fund Units at any time on demand in consideration for the Fund Redemption Price, subject only to the requirement that, unless an Uncoupling Event has occurred, a Unitholder who tenders a particular number of Fund Units to the Fund for redemption shall be required to tender, at the same time, the same number of Finance Trust Units to Finance Trust for redemption as described in paragraph 61. The Fund Redemption Price payable by the Fund in respect of any Fund Units surrendered for redemption during any calendar month shall be satisfied by way of a cash payment no later than the last day of the month following the month in which the Fund Units were tendered for redemption, except that the entitlement of Unitholders to receive cash upon the redemption of their Fund Units is not applicable if:

(a) the total amount payable by the Fund in respect of such Fund Units and all other Fund Units tendered for redemption prior thereto in the same calendar month exceeds the Monthly Limit; provided that the Fund Trustees may, in their sole discretion, waive such limitation in respect of all Fund Units tendered for redemption in any calendar month;
(b) at the time the Fund Units are tendered for redemption, the outstanding Stapled Units (or, if there has been an Uncoupling Event, the outstanding Fund Units) are not listed for trading or quoted on any stock exchange or market which the Fund Trustees consider, in their sole discretion, provides representative fair market value prices for the Stapled Units (or, if there has been an Uncoupling Event, the Fund Units); or
(c) the normal trading of the outstanding Stapled Units (or, if there has been an Uncoupling Event, the outstanding Fund Units) is suspended or halted on any stock exchange on which the Stapled Units (or, if there has been an Uncoupling Event, the Fund Units) are listed for trading or, if not so listed, on any market on which the Stapled Units (or, if there has been an Uncoupling Event, the Fund Units) are quoted for trading, on the Redemption Date or for more than five trading days during the 10-trading day period commencing immediately prior to the Redemption Date.

If a Unitholder is not entitled to receive cash upon the redemption of Fund Units as a result of the foregoing limitations, the Fund Redemption Price to which the Unitholder is entitled shall be the fair market value of such Fund Units as determined by the Fund Trustees and, subject to any applicable regulatory approvals, shall be paid out and satisfied by way of a distribution in specie. In such circumstances, the Fund shall exercise its right to require the Portfolio Sub Trust to redeem any combination or part of the Series 1 Note and Portfolio Sub Trust Units of an aggregate principal amount and value, respectively, up to the Fund Redemption Price, in consideration for the issuance to the Fund of Series 3 Notes and Series 2 Notes, respectively, having an aggregate principal amount equal to such amount. The Series 3 Notes and Series 2 Notes will then be delivered to the Unitholder in whole or partial satisfaction of the Fund Redemption Price. To the extent that there is an insufficient outstanding principal amount under the Series 1 Note or an insufficient number of Portfolio Sub Trust Units to wholly satisfy the Fund Redemption Price, the Fund may, in the Fund Trustees' discretion, contribute further property to Portfolio Sub Trust in exchange for Series 4 Notes and Portfolio Sub Trust Units. The Series 4 Notes will then be delivered to the Unitholder in satisfaction of any remaining balance of the Fund Redemption Price.

Where the Fund makes a distribution in specie on the redemption of Fund Units of a Unitholder, pursuant to the Fund Trustees' discretion under Section XXXXXXXXXX of the Fund Declaration of Trust, the Fund may allocate to that Unitholder any capital gain or income realized by the Fund on or in connection with such distribution.

Portfolio Sub Trust Notes which may be distributed in specie to Unitholders on redemption of Fund Units will not be listed on any stock exchange and no market is expected to develop in such securities, and they may be subject to resale restrictions under applicable securities laws. Portfolio Sub Trust Notes would generally not be Qualified Investments.

27. The Fund will borrow approximately US$XXXXXXXXXX from an arm's length financial institution on a daylight basis.

28. The Fund will establish Finance Trust, and will subscribe for that number of Finance Trust Units as is equal to the number of Fund Units then issued and outstanding at the subscription price of approximately US$XXXXXXXXXX .

29. Finance Trust will have at least two executive officers, a Chief Executive Officer and a Chief Financial Officer, and XXXXXXXXXX . Finance Trust will be governed by a board of trustees consisting of at least XXXXXXXXXX individuals a majority of whom are residents of Canada and who conduct and manage the affairs of Finance Trust in accordance with and subject to the terms of the Finance Trust Declaration of Trust. As settlor of Finance Trust, the Fund will retain the right to appoint one of the trustees. The remaining trustees will be elected by the unitholders of Finance Trust, will not be trustees of the Fund and will be independent of officers employed in the management of Finance Trust and the Fund.

30. Under the Finance Trust Declaration of Trust, the undertaking of Finance Trust will be restricted to:

• engaging in the proposed transactions described in paragraphs 40, 42, 43 and 64 and investing in the US Holdco Notes;
• temporarily holding cash in short-term interest bearing accounts, short-term government debt or short-term investment grade corporate debt, in a manner that permits Finance Trust to continue to qualify as a "fixed investment trust" under the Code and the Code Regulations, for the purposes of paying the expenses of Finance Trust, paying amounts payable by Finance Trust in connection with the redemption of any Finance Trust Units, and making distributions to Finance Trust unitholders;
• repurchasing and redeeming Finance Trust Units;
• issuing additional Finance Trust Units for cash; and
• undertaking such other usual and customary actions necessary for the conduct of the activities of Finance Trust in the ordinary course, as shall be approved by its trustees from time to time.

31. The Finance Trust Declaration of Trust will provide that Finance Trust shall not undertake any activity, take any action, omit to take any action or make any investment which would result in Finance Trust not being considered a "mutual fund trust" for purposes of the Act or not being an investment trust classified as a trust under the Code and the applicable Code Regulations (a "fixed investment trust"). In order to qualify as a "fixed investment trust" for the purpose of the Code, Finance Trust may generally not acquire assets other than the US Holdco Notes.

32. The Finance Trust Declaration of Trust will provide that at no time may non-residents be the beneficial owners of more than XXXXXXXXXX % of the Finance Trust Units and it will contain provisions to ensure that this limit is not exceeded.

33. Pursuant to the Finance Trust Declaration of Trust, a holder of Finance Trust Units will have the right to redeem his or her Finance Trust Units at any time on demand in consideration for the Finance Trust Redemption Price, subject only to the requirement that, unless an Uncoupling Event has occurred, a Finance Trust unitholder who tenders a particular number of Finance Trust Units to Finance Trust for redemption shall be required to tender, at the same time, the same number of Fund Units to the Fund for redemption as described in paragraph 61. The Finance Trust Redemption Price payable by Finance Trust in respect of any Finance Trust Units surrendered for redemption during any calendar month shall be satisfied by way of a cash payment no later than the last day of the month following the month in which the Finance Trust Units were tendered for redemption, except that the entitlement of Finance Trust unitholders to receive cash upon the redemption of their Finance Trust Units is not applicable if the total amount payable by Finance Trust in respect of such Finance Trust Units and all other Finance Trust Units tendered for redemption prior thereto in the same calendar month exceeds the Monthly Limit; provided that the Finance Trust Trustees may, in their sole discretion, waive such limitation in respect of all Finance Trust Units tendered for redemption in any calendar month.

34. If a unitholder of Finance Trust is not entitled to receive cash upon the redemption of Finance Trust Units as a result of the foregoing limitation, the Finance Trust Redemption Price, subject to any applicable regulatory approvals, shall be paid out and satisfied by way of a distribution in specie. In such circumstances, Finance Trust shall deliver such portion of the US Holdco Notes having a principal amount equal to the U.S. dollar equivalent of the Finance Trust Redemption Price directly to the redeeming unitholder. The US Holdco Notes will be issuable in denominations of US$XXXXXXXXXX and integral multiples of US$XXXXXXXXXX . No US Holdco Notes in integral multiples of less than US$XXXXXXXXXX will be distributed and, where the number of US Holdco Notes to be received by a redeeming unitholder includes a multiple of less than US$XXXXXXXXXX , that number shall be rounded to the next lowest integral multiple of US$XXXXXXXXXX , and the redeeming unitholder will be entitled to receive cash equal to the difference.

35. Where Finance Trust makes a distribution in specie on the redemption of Finance Trust Units, Finance Trust may allocate to that unitholder any capital gain or income realized by Finance Trust on or in connection with such distribution. US Holdco Notes which may be distributed in specie to unitholders of Finance Trust on redemption of Finance Trust Units will not be listed on any stock exchange and no market is expected to develop in such securities, and they may be subject to resale restrictions under applicable securities laws. US Holdco Notes would not generally be a Qualified Investment.

36. Finance Trust will reimburse the Fund for all professional fees incurred in the course of the issuance of Finance Trust Units, in the amount of approximately $XXXXXXXXXX , using funds from the issuance of Finance Trust Units in paragraph 28. The Fund will file an election under subsection 12(2.2) in respect of this reimbursement on or before the day on which the Fund must file its tax return for the taxation year in which the reimbursement is made.

37. A Unitholder who is a non-resident and who holds units through a broker that participates in the clearing services provided by XXXXXXXXXX . will be required to provide the relevant broker or the Depository with cash to fund the Unitholder's liability for tax under Part XIII.2 in respect of the in specie distribution by the Fund described in paragraph 38. Non-resident Unitholders who are registered Unitholders will have the option to provide the Depository or the Fund with the cash to fund their liability for tax under Part XIII.2. If a non-resident Unitholder who is the registered Unitholder does not provide the broker or the Depository with cash, such Unitholder will not be entitled to receive its certificates evidencing Stapled Units until the required cash is provided and furthermore, the Fund and the Depository will have the right to sell in the public market, on behalf of such Unitholder, the number of the Stapled Units necessary to fund such Unitholder's liability for tax under Part XIII.2 in respect of that distribution. The Fund, broker or Depository, as the case may be, will remit to the Receiver General, on behalf of each applicable Unitholder, the full amount so received in accordance with subsection 218.3(2).

38. The Fund will make a distribution to the Unitholders, as a return of capital, consisting of one Finance Trust Unit per Fund Unit. The number of Fund Units owned by each Unitholder will not be reduced as a result of this distribution.

39. Effective upon the distribution of the Finance Trust Units to the Unitholders, and at all times while they are outstanding and until an Uncoupling Event, such units will be listed on the Stock Exchange, although such units will not be posted for trading. Immediately after such distribution, there will be no fewer than XXXXXXXXXX unitholders of Finance Trust each of whom holds not less than one "block of units" as defined in subsection 4803(1) of the Regulations, having a fair market value of not less than $XXXXXXXXXX .

40. The Fund will transfer the Existing Loans to Finance Trust in consideration for cash of approximately US$XXXXXXXXXX , being the outstanding principal and fair market value of the Existing Loans. Prior to this transfer, all accrued interest on the Existing Loans up to the date of transfer will have been paid to the Fund.

41. The Fund will repay the daylight loan owed to the financial institution (and referred to in paragraph 27) in full with the cash received from Finance Trust in paragraphs 36 and 40.

42. Finance Trust will transfer the Existing Loans to US Subco in consideration for the issuance of the US Subco Note.

43. Finance Trust will transfer the US Subco Note to US Holdco in consideration for the issuance of the US Holdco Notes with an aggregate principal amount equal to the principal amount of the US Subco Note. The US Holdco Notes will be issued pursuant to a note indenture between US Holdco, as issuer, and the Depository. The US Holdco Notes will bear interest at a floating or fixed rate and such interest will be payable monthly. The US Holdco Notes may be prepaid at the option of US Holdco. Finance Trust will have a limited right to put US Holdco Notes to US Holdco for repayment in cash prior to the maturity date, which put right may only be exercised by Finance Trust where a holder of Finance Trust Units has surrendered such units for redemption in order to permit Finance Trust to satisfy the redemption price for such units.

44. US Subco and US Holdco will enter into a set-off agreement under which each of the US Subco Note and the Existing Loans will be satisfied and extinguished by way of set-off.

Other Transactions

45. The Fund will incorporate Newco by subscribing for one Newco Common Share for nominal consideration. Newco will be a taxable Canadian corporation. Newco's only undertaking will be the investing of its funds in property, other than real property, including without limitation holding the LP Inc. Shares, the LP Inc. Notes, the LP Units, cash and similar investments. The authorized share capital of Newco will consist of an unlimited number of Newco Common Shares, Newco Class A Shares, and Newco Class B Shares.

46. The Fund will subscribe for such number of Newco Class A Shares as is equal to the number of Fund Units then outstanding for a cash subscription price of approximately $XXXXXXXXXX per share, being approximately $XXXXXXXXXX in aggregate. At all times following the issuance of the Newco Class A Shares, the fair market value of the shares issued by Newco that are redeemable and retractable will represent at least XXXXXXXXXX % of the fair market value of all the issued shares of Newco.

47. The Fund will make a distribution to Unitholders, as a return of capital, consisting of a cash amount plus one Newco Class A Share per Unit. The number of Fund Units owned by each holder will not be reduced as a result of this distribution.

48. In respect of each non-resident Unitholder, the Fund will withhold from the distribution the full amount of the cash portion of the distribution on account of such Unitholder's liability for tax under Part XIII.2 of the Act, and the Fund will remit to the Receiver General, on behalf of each such Unitholder, the full amount so withheld in accordance with subsection 218.3(2).

49. The Newco Class A Shares will at all times while they are outstanding be listed on the Stock Exchange, although such shares will not be posted for trading.

50. The Fund will transfer to Newco all of the LP Inc. Shares and LP Inc. Notes for an aggregate purchase price equal to the respective fair market value of each property so transferred. In consideration, Newco will issue Newco Class B Shares to the Fund with an aggregate redemption price equal to the aggregate fair market value of the LP Inc. Shares and LP Inc. Notes.

51. The Fund will jointly elect with Newco, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the LP Inc. Shares and LP Inc. Notes as described in paragraph 50. The agreed amount in respect of the LP Inc. Shares and LP Inc. Notes will be an amount not less than the lesser of the cost amount and the fair market value, and will not exceed the fair market value of, each respective property.

52. Newco and LP Inc. (hereinafter referred to as "predecessor corporations") will undertake an amalgamation under the provisions of the Corporations Act to form Amalco in such a manner that:

(a) all of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations held immediately before the amalgamation will become property of Amalco by virtue of the amalgamation;
(b) all of the liabilities (except any amounts payable by any predecessor corporation to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of Amalco by virtue of the amalgamation; and
(c) all of the LP Inc. Shares and LP Inc. Notes held by Newco immediately prior to the amalgamation will be cancelled by virtue of the amalgamation.

From the time of amalgamation, Amalco will not have any activity or undertaking other than the ownership of the LP Units formerly owned by LP Inc. and the cash formerly owned by Newco.

53. At all times following the amalgamation described in paragraph 52, the fair market value of the shares issued by Amalco that are redeemable and retractable will represent at least 95% of the fair market value of all the issued shares of Amalco.

54. Amalco will transfer all of the LP Units, its cash and any other assets to the Fund in consideration for the issuance by the Fund of that number of Fund Units as have an aggregate fair market value equal to the aggregate fair market value of the LP Units, cash and any other assets acquired by the Fund. The time at which the sale of LP Units and cash for Fund Units occurs will constitute the "transfer time" in a "qualifying exchange" within the meaning of section 132.2, as it is proposed to be amended pursuant to the proposed amendments to subsection 132.2(1).

55. Amalco will redeem all of the issued and outstanding Amalco Class A Shares. As consideration for the redemption, Amalco will deliver Fund Units that it acquired from the Fund as described in paragraph 54 above to each holder of Amalco Class A Shares on a pro-rata basis based on total issued and outstanding Amalco Class A Shares and Amalco Class B Shares.

56. Amalco will redeem all of the issued and outstanding Amalco Class B Shares owned by the Fund. As consideration for the redemption, Amalco will deliver Fund Units that it previously acquired from the Fund as described in paragraph 54 above to the Fund on a pro-rata basis based on total issued Amalco Class A Shares and Amalco Class B Shares that were outstanding immediately prior to the redemption described in paragraph 55 above. The Fund Units received by the Fund will be cancelled upon receipt in accordance with the Fund Declaration of Trust.

57. Immediately following the transactions described in paragraphs 54 through 56 above, the outstanding Fund Units will be consolidated such that the total number of Fund Units outstanding immediately after the consolidation will be equal to the total number of Fund Units outstanding immediately prior to the proposed transactions. All of the Fund Units will be consolidated on the same basis and there will be no change in the total capital of the Fund or in the rights of Unitholders or their percentage interests in the Fund as a consequence of the consolidation.

58. Following the transactions described in paragraphs 54 through 56 above, but prior to the dissolution of Amalco described in paragraph 60 below, Amalco will jointly elect with the Fund, in prescribed form and within the time referred to in paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2), to have the provisions of section 132.2 apply to the transfer of the LP Units and cash, as described in paragraph 54 above.

59. The Fund may make a designation in respect of certain of its capital property to recognize certain gains pursuant to clause 132.2(1)(f)(iv)(B) or proposed paragraph 132.2(3)(a) in a notification to the Canada Revenue Agency accompanying the election in respect of the qualifying exchange.

60. By special resolution, the Fund will resolve to liquidate and dissolve Amalco under the applicable provisions of the Corporations Act and all of its remaining property, if any, of Amalco will be distributed to the Fund on the winding-up of Amalco. Following the completion of the proposed transactions (but not as part of the plan of arrangement), Amalco will be formally dissolved.

Stapling

61. The Fund Declaration of Trust and the Finance Trust Declaration of Trust will be amended to add provisions intended to result in the Fund Units and the Finance Trust Units being "stapled" on a one-for-one basis so that they may trade together on the Stock Exchange upon completion of the proposed transactions. However, apart from provisions necessary to achieve such trading objective, each Fund Unit and Finance Trust Unit will retain its own separate identity and will be separately listed, but not posted for trading, on the Stock Exchange as described above and for all purposes the Fund and Finance Trust will remain separate and independent trusts. To achieve this "stapling", the Fund Declaration of Trust will be amended to require that:

(a) a holder of Fund Units will not be entitled to transfer such units unless such holder simultaneously transfers a corresponding number of Finance Trust Units to the same transferee, and
(b) a holder of Fund Units may not exercise its right to redeem such units unless such holder simultaneously exercises its right to redeem a corresponding number of Finance Trust Units. The Finance Trust Declaration of Trust will contain corresponding provisions.

62. The provisions described in paragraph 61 will cease to apply on the occurrence of an Uncoupling Event. An Uncoupling Event shall only occur:

(a) in the event that Unitholders vote in favour of the uncoupling of Fund Units and Finance Trust Units such that the two securities will no longer trade together as a Stapled Unit on the Stock Exchange; or
(b) in the event of the bankruptcy, insolvency, winding-up or reorganization under an applicable law relating to insolvency of the Fund or US Holdco, the taking of corporate action by the Fund or US Holdco in furtherance of any such event (such as a resolution by the Fund Trustees or the directors of US Holdco authorizing such a winding-up or the filing of an application by the Fund or US Holdco for protection under an applicable law relating to insolvency) or the admission by the Fund or US Holdco, as the case may be, in writing of its inability to pay its debts generally as they become due in which case the trustees of Finance Trust will have the discretion to uncouple the Fund Units and Finance Trust Units unilaterally.

63. In the event that an Uncoupling Event occurs, the Fund Units and the Finance Trust Units will no longer be stapled, the Fund Trustees will take any steps necessary to ensure that the Fund Units are posted for trading on the Stock Exchange and it is expected that the Finance Trust Units would be delisted from the Stock Exchange. As a consequence of the "stapling" provisions described in this paragraph, the existing unit option plan, distribution reinvestment plan and unit purchase plan, unitholder rights plan of the Fund and the omnibus management agreement will be amended to contemplate the "stapling" structure. These amendments will be included in and will form part of the court approved plan of arrangement.

64. The Stapled Units will trade on the Stock Exchange under one symbol to be assigned by the Stock Exchange. As noted above, the Fund and Finance Trust will each maintain a separate listing with the Stock Exchange, but will not be posted for trading and will not be assigned individual symbols by the Stock Exchange, except that if an Uncoupling Event occurs, the Fund Units would then be posted for trading.

65. When filing its first tax return, Finance Trust will elect to be deemed to have been a mutual fund trust since inception pursuant to subsection 132(6.1).

Purpose of the Proposed Transactions

Spin-off

66. The creation of Finance Trust provides a vehicle by which US Holdco can access the capital markets by ultimately borrowing money from the Unitholders. Because Finance Trust will have a legally enforceable claim to current interest payments on the US Holdco Notes and, ultimately, to repayment of the principal amount at maturity, and because of the classification of Finance Trust as a "fixed investment trust" for U.S. tax purposes, it is expected that the combined value of the stapled securities will be enhanced (that is, the value of units of Finance Trust is expected to exceed the corresponding decline in the value of the Fund's equity). The resulting structure is also expected to be more tax-efficient because U.S. withholding taxes and certain limitations on the deductibility of interest in the U.S. are not expected to apply to the interest paid by US Holdco to Finance Trust.

67. The Spin-off of the Existing Loans to Finance Trust will address two significant U.S. tax issues that exist under the present financing arrangement. First, under the existing structure, interest paid on the Existing Loans by US Holdco to the Fund is subject to U.S. withholding tax at a XXXXXXXXXX % rate. In XXXXXXXXXX , U.S. withholding taxes in excess of $XXXXXXXXXX were paid by the Fund from interest received on the Existing Loans. Such U.S. withholding taxes reduce cash available for distribution to Fund unitholders. The pending protocol to the Canada-U.S. Income Tax Convention will gradually phase out the U.S. withholding tax on interest payments between non-arm's length parties. The Spin-off will relieve the Fund of U.S. withholding tax until the phase-out is fully effective, generating additional cash available for distribution of approximately $XXXXXXXXXX at the current levels of principal and interest on the Existing Loans. Thus, interest payments made to Finance Trust by US Holdco will no longer be subject to any U.S. withholding tax regardless of whether and when the protocol to the Canada-U.S. Income Tax Convention is finalized. Due to the fact that Finance Trust will be a fixed investment trust for U.S. tax purposes, the interest payments will be treated for U.S. tax purposes as having been made directly to the unrelated unitholders of the Finance Trust. Most of the unitholders are persons who are not resident in the U.S. and with respect to those unitholders, interest payments would qualify for an exemption from U.S. withholding tax that is available under the internal domestic law of the United States, namely, the "portfolio interest exemption" provided that the relevant U.S. forms are filed. This exemption is not available under the existing structure because the Fund, which currently holds the Existing Loans, owns more than XXXXXXXXXX % of US Holdco and is therefore not eligible for the portfolio interest exemption.

68. Second, under the existing structure, the deductibility of the interest paid on the Existing Loans is subject to a limitation under section 163(j) of the Code. Section 163(j) of the Code disallows a deduction for interest paid to a foreign related party if that interest is not subject to the maximum 30% U.S. withholding tax to the extent the interest exceeds 50% of the taxpayer's earnings before interest, depreciation, taxes and amortization. As a result of the limitation in section 163(j) of the Code, U.S. Holdco is prohibited from deducting a significant portion of the interest payments on the Existing Loans payable to the Fund. Section 163(j) of the Code only applies to interest paid to a related party, that is, to a person that owns more than 50% of the payer. Since Finance Trust will be a fixed investment trust, the interest payments it receives will be treated for U.S. tax purposes as having been received directly by the unitholders, none of whom is individually related to US Holdco. Accordingly, the interest payments on the US Holdco Notes will be fully deductible by US Holdco for U.S. federal tax purposes.

Other Transactions

69. The existing structure relies on the exemption from withholding tax on interest paid on the mortgage described in paragraph 9 provided for in subparagraph 212(1)(b)(vii) as it read prior to the enactment of Bill C-28. Prior to the amendment, this provision required that a loan from a non-resident person be made to a corporation resident in Canada (or a partnership each member of which is a corporation resident in Canada) who is dealing at arm's length with the non-resident person, among other things. Since each member of LP is currently a corporation resident in Canada, the exemption in subparagraph 212(1)(b)(vii) as it read prior to the enactment of Bill C-28 applies. But for the requirement in subparagraph 212(1)(b)(vii), the LP Units would have been held directly by the Fund. Effective January 1, 2008, arm's-length interest payments (other than payments of "participating debt interest") are not subject to Canadian withholding tax under the Act. Thus, reliance on former subparagraph 212(1)(b)(vii) is no longer necessary, and accordingly LP Inc. serves no further purpose.

70. The Fund believes that a modern trust-on-partnership structure is being demanded by the capital markets and that the proposed transactions must be implemented to be competitive in such markets. The Fund considers that it would be inefficient to administer LP's business through the current LP Inc. structure. A trust-on-partnership structure provides greater flexibility for future investment in LP.

Rulings Given

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. None of the proposed transactions will adversely affect the status of Finance Trust as a mutual fund trust within the meaning of subsection 132(6).

B. None of the proposed transactions will cause Finance Trust to be a SIFT trust.

C. None of the proposed transactions will adversely affect the status of the Fund as a mutual fund trust within the meaning of subsection 132(6).

D. None of the proposed transactions will adversely affect the qualification of Amalco as a mutual fund corporation within the meaning of subsection 131(8).

E. Provided that

(a) at the moment of the transfer described in paragraph 54, Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Fund is a mutual fund trust within the meaning assigned by subsection 132(6);
(b) the property transferred at that moment has a fair market value of at least 90% of the fair market value of all property owned by Amalco at that moment; and
(c) the joint elections are filed in prescribed form and within the time set out in paragraph (c) of the definition of qualifying exchange in subsection 132.2(2), the transactions described in paragraphs 54 to 56 above will constitute a "qualifying exchange" such that provisions of subsection 132.2(1) will apply to:

• the transfer of the LP Units and cash from Amalco to the Fund described in paragraph 54 above;

• the redemption by Amalco of the Class A shares and Class B shares described in paragraphs 55 and 56 above; and

• the transfer of the Fund Units from Amalco to holders of the Class A shares and the Class B shares described in paragraphs 55 and 56 above.

F. The provisions of subsections 15(1), 56(2), 56(4), 69(1), 69(4), 105(1) and 246(1) will not apply as a result of the proposed transactions in and by themselves.

G. The Fund would have been a SIFT trust on October 31, 2006, had the SIFT trust definition been in force and applied to the Fund as of that date. Therefore, the Fund will not be a SIFT trust for a taxation year of the Fund that ends before the earlier of

(a) 2011, and
(b) the first day after December 15, 2006 on which the Fund exceeds the growth permitted under the Normal Growth Guidelines.

H. The consolidation of the Fund Units held by Unitholders, as described in paragraph 57, will not in itself result in a disposition of Fund Units by the Unitholders.

I. GAAR will not be applied as a result of the proposed transactions to re-determine the tax consequences confirmed in these rulings.

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. These rulings are based on the law as it currently reads 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 any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. In particular, we express no opinion with respect to:

• whether the Fund or Finance Trust qualify as mutual fund trusts within the meaning of subsection 132(6) at any particular time; or
• the Fund's ability to allocate taxable capital gains to redeeming Unitholders.

We have reviewed the status of the Fund as a "real estate investment trust" as defined in subsection 122.1(1). While it is our view that "stapling" of Fund Units and Finance Trust Units together as Stapled Units would not adversely affect the status of the Fund as a "real estate investment trust", it is our view that the Fund is not a "real estate investment trust" as defined in subsection 122.1(1) for the reasons discussed on XXXXXXXXXX

Bill C-10, which received second reading in the Senate on December 4, 2007, proposes to introduce several substantive improvements to the rules in section 132.2 and to restructure the provision as a whole. Provided that paragraphs 132.2(3)(f) and (g) are further amended in the manner suggested in the Comfort Letter and the conditions set out in ruling E are met in respect of the proposed transactions, it is our view that proposed subsection 132.2(3)(g)(iv)(B)(II) will apply such that the Fund will be deemed to have disposed of Fund Units acquired by it in the manner described in paragraph 55 for proceeds of disposition equal to the cost amount to the Fund of such Fund Units such that there will be no gain or loss on the Fund's disposition of such Fund Units.

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

						XXXXXXXXXX