30 November 1996 Ruling 9635813 - DEDUCTIBILITY OF SELLING COMMISSIONS OVER 3 YEARS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

BACKGROUND

In respect of a XXXXXXXXXX rear-end-loaded mutual fund, the investors are not required to pay sales commission and other selling expenses ("selling expenses") and redemption charges (for converting from a XXXXXXXXXX mutual fund to a XXXXXXXXXX mutual fund - both XXXXXXXXXX funds are managed by the same manager) until the XXXXXXXXXX mutual fund units are subsequently redeemed (in form of a lump-sum redemption fee). XXXXXXXXXX The XXXXXXXXXX partnership was formed to fund these selling expenses and redemption charges which are paid to the brokers in respect of the distribution of the XXXXXXXXXX mutual fund units. In return, the partnership will receive an income stream of the redemption fee and distribution fee.

Principal Issues:

1.Whether the selling expenses and redemption charges paid by the partnership XXXXXXXXXX in return for a right for future income stream in respect of distributing XXXXXXXXXX mutual fund units on a rear-end loading basis, would be deductible by the partnership over three years on a straight line basis.

2.Whether the proposed transactions would meet the requirements of the grandfather provisions as stated in the Department of Finance Press Release #96-099 dated December 19, 1996 (if such requirements are not met, the 3-year write-off would not be available to the partnership).

PositionS:

1.The selling expenses and redemption charges are deductible by the partnership over three years on a straight line basis.

2.The proposed transactions will meet the requirements of the grandfather provisions except the XXXXXXXXXX which will be distributed by the same partnership.

Reasons:

1.Similar rulings were provided in the past on XXXXXXXXXX.

2.The XXXXXXXXXX was not specifically identified in an advance income tax ruling request before November 18, 1996 as required by the grandfather provisions. As a result, the selling expenses and redemption charges paid by the partnership in respect of the distribution of the XXXXXXXXXX will be treated as "matchable expenditure" for the purposes of draft 18.1 of the Act (i.e., no 3-year write-off will be allowed).

XXXXXXXXXX							3-963581
XXXXXXXXXX

Attention: XXXXXXXXXX

January 20, 1997

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX, as amended by your letters of XXXXXXXXXX and our telephone conversations XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted partnership and corporations in respect of the proposed transactions described herein.

You have provided drafts of the Partnership Agreement, Distribution Agreement and Offering Documents each as defined below.

You advised that to the best of your knowledge and that of the above-noted partnership and corporations:

(a)none of the issues involved in the requested rulings is being considered by an office of Revenue Canada in connection with a tax return already filed; and

(b)none of the issues involved in the requested rulings is the subject of any notice of objection or is under appeal.

Unless otherwise stated, all references to statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended to the date of this letter (the "Act").

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

Facts

1.Each of the following XXXXXXXXXX mutual funds (individually a "Fund" and collectively the "Funds") were formed under declarations of trust governed by the laws of the Province of

XXXXXXXXXX

XXXXXXXXXX

2. XXXXXXXXXX

3. XXXXXXXXXX

4.The net asset value ("Net Asset Value") of XXXXXXXXXX each Fund is equal to its XXXXXXXXXX the assets of the Fund, less its XXXXXXXXXX liabilities of the Fund XXXXXXXXXX. The Net Asset Value XXXXXXXXXX each Fund is calculated on each day that the XXXXXXXXXX Stock Exchange is open for trading. A day on which the Net Asset Value per security of each Fund is calculated is herein called a "Valuation Date". The Net Asset Value per security XXXXXXXXXX of each Fund is calculated by dividing the Net Asset Value XXXXXXXXXX at the close of business on the Valuation Date by the total number of securities XXXXXXXXXX outstanding at that time. The Net Asset Value per security will be the basis for all sales of Deferred Charge Securities (as defined in 6 below) as well as for the automatic reinvestment of distributions and for redemptions.

5. XXXXXXXXXX

The Manager is the manager and administrator of the Funds and has been retained to provide all the necessary management and administrative services required to operate the business of each of the Funds, including services in connection with the distribution of units or shares of the Funds. The management fees paid by the Funds vary in amount.

XXXXXXXXXX

6.The XXXXXXXXXX securities issued to an investor who purchases on a deferred charge basis are as follows:

XXXXXXXXXX

"Deferred Charge Securities".

XXXXXXXXXX

7.An investment in Distributed Securities (as defined in 12 below) may be redeemed and the proceeds reinvested in Deferred Charge Securities of another Fund XXXXXXXXXX at equivalent Net Asset Values without the imposition of a Redemption Fee (as defined in 8 below).

XXXXXXXXXX

8.A redemption fee (the "Redemption Fee") will apply to all Distributed Securities which are redeemed within XXXXXXXXXX years of their date of issue, or deemed date of issue, except:

XXXXXXXXXX

(the "Free Redemption Amount").

XXXXXXXXXX

The Redemption Fee, XXXXXXXXXX, declines over time from the date of issue, or deemed date of issue, of the Deferred Charge Security of the Fund as follows:

If Redeemed During the Following Redemption
Periods After the Date of Fee
Issue or Deemed Date of Issue Percentage

XXXXXXXXXX

9. XXXXXXXXXX

10.The Partnership was formed XXXXXXXXXX. The fiscal period of the Partnership ends on XXXXXXXXXX. The expression "fiscal period" used herein has the meaning assigned by section 249.1 of the Act. The initial limited partner (the "Initial Partner") XXXXXXXXXX purchased one unit of the Partnership for a consideration of $XXXXXXXXXX. The Partnership was formed for the purpose of arranging for the distribution of the Deferred Charge Securities. The principal place of business of the Partnership is in XXXXXXXXXX.

11. XXXXXXXXXX

The General Partner is responsible for the management of the Partnership on a day-to-day basis in accordance with the terms of the Partnership Agreement (as defined in 26 below), and may engage agents to assist it in carrying out its management obligations to the Partnership.

Proposed Transactions

12.The Partnership will enter into a distribution agreement (the "Distribution Agreement") with each of the Funds XXXXXXXXXX and the Manager, pursuant to which the Partnership will be granted the rights to arrange for the distribution of the Deferred Charge Securities of the Funds XXXXXXXXXX in return for certain compensation as described in 14 and 15 below. The Partnership will be granted these rights for the period commencing XXXXXXXXXX subject to other conditions described hereunder. The Partnership's distribution rights will be exclusive, subject to them becoming non-exclusive in the event that the Partnership is unable to carry out its obligations under the Distribution Agreement (as further described in 24 and 25 below). Furthermore, the Partnership's distribution right in respect of the Deferred Charge Securities of the Funds will be extinguished after the total amount of the Selling Expenses (as defined in 16 below) and the Redemption Charges (as defined in 17 below) to be paid by the Partnership in respect of the distribution of such securities during the period from XXXXXXXXXX inclusive, reaches $XXXXXXXXXX. The period during which the Partnership will distribute the Deferred Charge Securities of the Funds in accordance with the terms and conditions of the Distribution Agreement is referred to herein as the "Distribution Period". During the period commencing XXXXXXXXXX, no taxpayer or partnership other than the Manager and the Partnership will (i) be assigned or granted the right to arrange for the distribution of Deferred Charge Securities of the Funds; or (ii) pay the Selling Expenses and the Redemption Charges in respect of Deferred Charge Securities of the Funds distributed during the XXXXXXXXXX period. The Deferred Charge Securities of the Funds in respect of which the Partnership will pay the Selling Commission or a Redemption Charge pursuant to the Distribution Agreement and Deferred Charge Securities attributable to such securities are referred to herein as the "Distributed Securities". The Partnership's distribution rights do not extend to the distribution of securities of the Funds which are not Distributed Securities, and the Partnership will not receive any remuneration of any kind in respect of such securities of the Funds.

13.Pursuant to the Distribution Agreement and in consideration for its services, the Partnership will be entitled to receive from each Fund and each Fund agrees to pay to the Partnership an amount equal to the amount of any Redemption Fee paid by security holders on the redemption of their Distributed Securities.

XXXXXXXXXX

Such amount will continue to be payable to the Partnership on redemptions of Distributed Securities notwithstanding the expiry or earlier termination of the Partnership's appointment as exclusive distributor.

14.The Redemption Fee payable to the Partnership will be calculated as follows:

XXXXXXXXXX

XXXXXXXXXX

In the event of the termination of a Fund, the Partnership will receive from that Fund any applicable Redemption Fee on the redemption of any outstanding Distributed Securities of that Fund. In the event of the termination of all of the Funds, the General Partner will thereafter take all necessary steps to wind up the Partnership and distribute the assets of the Partnership to the limited partners of the Partnership (the "Limited Partners").

15.For its services in arranging for the distribution of Distributed Securities, the Partnership will receive from the Manager XXXXXXXXXX (the "Distribution Fee") for a period of not more than XXXXXXXXXX years from the date of issue, or deemed date of issue, or for so long as such Distributed Security remains outstanding, whichever is earlier.

XXXXXXXXXX

The Distribution Fee will continue to be payable to the Partnership on each Distributed Security for the period described above, notwithstanding that the Partnership's appointment as exclusive distributor or its right to act as a non-exclusive distributor has expired or has been terminated.

16.The primary purpose of the Distribution Agreement is to ensure that satisfactory arrangements exist to arrange for the distribution of the Distributed Securities and to provide a mechanism for the payment of Selling Expenses and Redemption Charges. The Partnership will provide the following services to the Manager and the Funds, together with such other services as may from time to time be requested by the Manager in connection with the arrangements necessary to distribute Distributed Securities:

(a) making all necessary arrangements for the distribution of the Distributed Securities through registered dealers approved by the Manager, including

XXXXXXXXXX

(b) paying:

XXXXXXXXXX

(c) paying the applicable Redemption Charges upon receipt of notice from the Manager of the redemption of securities of:

XXXXXXXXXX

if such securities are redeemed for the purpose of immediate reinvestment in Distributed Securities of one or more of the Funds;

XXXXXXXXXX

(d) maintaining proper and adequate business records of its operations, including payments to registered dealers;

(e) providing confirmation to the Manager and the Funds when requested as to the due and timely payment of Selling Expenses and Redemption Charges;

(f) providing a financial report to the Manager at least monthly indicating the funding available to the Partnership to pay Selling Expenses and Redemption Charges; and

(g) advising the Manager promptly of any dispute arising between the Partnership and any registered dealer as to the payment of Selling Expenses or otherwise.

17.The Manager will advise the Partnership from time to time of its estimate of the amount required by the Partnership to pay Selling Expenses during the distribution period. The Manager will also advise the Partnership of its estimate of the amount required by the Partnership to pay the redemption charges

XXXXXXXXXX

(collectively the "Redemption Charges"). The Funds and the Manager jointly and severally will agree to use their best efforts to maximize the sale of Distributed Securities, provided that during any period or periods when the state of the financial markets becomes such that it would be impracticable or unprofitable to offer or to continue to offer the Distributed Securities for sale to the public or any event has occurred or situation developed which renders it inexpedient or unprofitable to offer or to continue to offer the Distributed Securities for sale to the public, the Funds and the Manager will be under no obligation to offer or to continue to offer the Distributed Securities for sale to the public.

18.The Partnership will arrange for the sale of Distributed Securities only through registered dealers approved by the Manager and the Partnership will not itself directly or indirectly sell any securities of the Funds. All Distributed Securities will be sold at a price equal to the Net Asset Value per security at the time of purchase, without a sales charge to purchasers.

19.The General Partner will make arrangements with a banking institution (the "Bank") under which the Partnership will be granted a line of credit in an amount which will not exceed $XXXXXXXXXX, which funds are to be used to fund the payment of the Selling Expenses and Redemption Charges to be paid by the Partnership pursuant to the Distribution Agreement, as well as to fund its ongoing operating expenses.

XXXXXXXXXX

In addition to this line of credit, the General Partner, the Manager or one of its affiliates may advance or loan to the Partnership funds necessary for the payment of the same type of expenses (the "Internal Loan"). Interest and other related expenses charged by the General Partner, the Manager or one of its affiliates on amounts lent to the Partnership will never surpass that which the Partnership could obtain from an independent third party lender dealing at arm's length. However, interest charged to the Partnership will exceed the cost of the related borrowing by the General Partner, the Manager or its affiliates by at least XXXXXXXXXX%. The Internal Loan will be fully repaid by XXXXXXXXXX.

20.The Partnership will offer limited partnership units ("Units") to investors pursuant to XXXXXXXXXX (the "Offering Documents"). The closing or series of closings of the offering or offerings of the Units (the "Offerings") will occur before

XXXXXXXXXX

A subscriber for Units will become a Limited Partner upon acceptance of his or her subscription by the General Partner and upon his or her execution of the Partnership Agreement.

XXXXXXXXXX

XXXXXXXXXX

21. XXXXXXXXXX

XXXXXXXXXX

22. XXXXXXXXXX

23.The aggregate gross proceeds from the sale of Units will be applied first to the payment of the Selling Expenses and the Redemption Charges and, if the monthly Distribution Fees, investment income and Redemption Fee earned are not sufficient to pay operating expenses, to the payment of operating expenses and to the repayment of amounts borrowed by the Partnership (as described in 19 above) to make such payments. The proceeds of the Offerings will be sufficient to repay all amounts borrowed by the Partnership, including the First Loan and the Internal Loan, with the result that the Partnership will not have any borrowing outstanding on or after

XXXXXXXXXX

24. XXXXXXXXXX

25. XXXXXXXXXX

26.The General Partner, the Initial Partner, the Manager and the General Partner on behalf of the Limited Partners will enter into a limited partnership agreement (the "Partnership Agreement"). The expenses to be incurred by the Partnership during its XXXXXXXXXX fiscal period, principally consisting of the deductible portion of the Selling Expenses and the Redemption Charges, the Partnership's operating expenses, interest on amounts borrowed to make such payments and the deductible portion of the issue expenses and any agency commissions, are expected to exceed the income of the Partnership to be earned during that year.

XXXXXXXXXX

The Partnership is to carry out each of its activities with a view to making a profit.

27.Profits of the Partnership for each fiscal year are to be allocated such that the General Partner is entitled to XXXXXXXXXX% of the profits and the balance (XXXXXXXXXX%) is divided among the Limited Partners inscribed in the register of the Partnership at the end of the fiscal year of the Partnership in proportion to the number of Units held by each of them. Losses of the Partnership for each fiscal year are to be allocated among the General Partner and the Limited Partners on the same basis.

28. XXXXXXXXXX

XXXXXXXXXX fiscal period of the Partnership, the General Partner will XXXXXXXXXX distribute XXXXXXXXXX to each Limited Partner who was a registered holder of the Units on the last day of each

XXXXXXXXXX

The General Partner may in its sole discretion make more frequent distributions.

29. XXXXXXXXXX

30.XXXXXXXXXX will enter into an agency agreement (the "Agency Agreement") with the Partnership and the General Partner, which provides that the Offerings will close only if all the conditions in the Agency Agreement, including the receipt of the advance income tax rulings, are met.

XXXXXXXXXX

XXXXXXXXXX

31.The Partnership will be dissolved upon the occurrence of any of the following events:

(a) a date which will not be later than XXXXXXXXXX;

(b) the termination of all of the Funds;

(c) Limited Partners holding XXXXXXXXXX% of the Units vote to dissolve the Partnership;

(d) the Manager acquires all of the assets of the Partnership; or

(e) the General Partner is deemed to resign pursuant to the Partnership Agreement, without appointment of a new general partner.

The Partnership will not come to an end by reason of the death, bankruptcy, insolvency, mental incompetency or other disability of any Limited Partner or upon the transfer of any Units.

32.Upon the dissolution of the Partnership, the General Partner (or in the event that dissolution is caused by the dissolution or bankruptcy of the General Partner, such other person as may be appointed by ordinary resolution of the Limited Partners) will act as a receiver and liquidator of the assets of the Partnership and shall:

(a) sell or otherwise dispose of such part of the Partnership's assets as the General Partner shall consider appropriate for the purpose of making the payments contemplated in (b) below and the distributions contemplated in (c) and (d) below;

(b) pay or provide for the payment of the debts and liabilities of the Partnership and liquidation expenses; and thereafter;

(c) distribute to the Limited Partners of record on the date of dissolution, proportionate to the number of Units held by them, the amount in cash or kind of the capital contribution paid in respect of each Unit held, less any amount of capital previously distributed to Limited Partners pursuant to the General Partner's discretionary power to do so;

(d) distribute the remaining assets of the Partnership, if any, as to XXXXXXXXXX% to the General Partner and as to XXXXXXXXXX%, among the Limited Partners of record on the date of dissolution, proportionate to the number of Units held by them; and

(e) file the notice of dissolution prescribed by the Partnership Act and satisfy all applicable formalities in such circumstances as may be prescribed by the laws of other jurisdictions where the Partnership is registered. In addition, the General Partner shall give prior notices to the various parties as required.

33.For financial reporting purposes, the Selling Expenses and Redemption Charges, respectively, will be accounted for in accordance with the treatment required under the Canadian Institute of Chartered Accountants Emerging Issues Committee EIC 33 Abstract dated November 20, 1991 which states that sales commissions and other distribution costs should be accounted for as deferred charges and amortized over the periods in which revenue is expected to be recognized.

34.As a Unit may be a tax shelter within the meaning assigned by subsection 237.1(1) of the Act, the General Partner will obtain an identification number in respect of the Units pursuant to subsection 237.1(2) of the Act. The General Partner will file annual tax shelter information returns and provide copies to Limited Partners pursuant to subsection 237.1(7) of the Act.

Other Information

35.XXXXXXXXXX was formed on XXXXXXXXXX was not specifically identified in the advance income tax ruling request dated XXXXXXXXXX, 1996. XXXXXXXXXX is a "unit trust" within the meaning of the expression under paragraph 108(2)(a) of the Act. You have advised that XXXXXXXXXX is expected to become a "mutual fund trust" within the meaning of the expression under subsection 132(6) of the Act in the future. The Manager will manage XXXXXXXXXX, and the Partnership will distribute the Deferred Charge Securities of XXXXXXXXXX pursuant to the Distribution Agreement as described in 12 above.

Purpose of Proposed Transactions

36.The purpose of the proposed transactions described herein is to permit the distribution of the Deferred Charge Securities of the Funds and XXXXXXXXXX without the investors having to pay a sales commission. In addition, in order to provide for the exchange of an investor's investment in XXXXXXXXXX Fund for securities in one of the Funds on a deferred charge basis, the Partnership will pay the applicable Redemption Charges payable to XXXXXXXXXX. This is a business and marketing consideration which is based upon the attractiveness of offering such securities of mutual funds without the investor having to pay a sales commission at the time of acquisition. It is also necessary, from a business perspective, to offer securities to investors without an acquisition charge because it has become prevalent in the industry and is therefore necessary to remain competitive.

Rulings Given

Provided that the preceding statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and the purpose thereof, and that the proposed transactions are carried out as set forth herein and the Partnership is a partnership at law, the following rulings are given:

A.The Selling Expenses and the Redemption Charges described in 16 and 17 above, incurred by the Partnership on or after the date of this advance income tax ruling and during the Distribution Period, with respect to the Deferred Charge Securities of the Funds (the XXXXXXXXXX funds referred to in 1 above) for which it arranges distribution, will be amortized and deductible over three fiscal year periods by the Partnership in computing its income or loss under the Act in the following manner:

-33 1/3% for the fiscal period in which the Selling Expenses and the Redemption Charges are incurred; and

-33 1/3% for each of the subsequent two fiscal periods after the fiscal period in which the Selling Expenses and the Redemption Charges are incurred.

B.Each Limited Partner who owns Units at the end of a fiscal period of the Partnership will be required to include the amount of the income of the Partnership for the fiscal period allocated to the Limited Partner in accordance with the terms of the Partnership Agreement and, subject to the provisions of subsections 96(2.1) and 237.1(6) of the Act, be entitled to deduct the amount of the losses of the Partnership for the fiscal period allocated to the Limited Partner in accordance with the Partnership Agreement, in computing the Limited Partner's income or loss for income tax purposes for the taxation year in which that fiscal period ends. The expression "taxation year" used herein has the meaning assigned by section 249 of the Act.

C.The provisions of paragraphs 96(2.2)(d) and (f) of the Act will not be applied to reduce a Limited Partner's "at-risk amount" by reason of:

(i) the Second Loan of the Limited Partner;

(ii) the security granted to the Bank by the Limited Partner on the Second Loan;

(iii)the General Partner's (or its affiliated company's) involvement in collecting the Second Loan on behalf of the Bank;

(iv) the General Partner's (or its affiliated company's) involvement in realizing on the security on the Second Loan on behalf of the Bank in the event the Limited Partner defaults on the Second Loan; or

(v) the General Partner's (or its affiliated company's) obligation to purchase the Second Loan from the Bank as described in 21 above.

D.The Partnership will be entitled to deduct in computing its income or loss for income tax purposes for the relevant fiscal period, interest of a reasonable amount paid or payable (depending on the method regularly followed by the Partnership) pursuant to a legal obligation to pay interest in the period on money borrowed to fund the payment of Selling Expenses and Redemption Charges and the Partnership's operating expenses (as described in 19 above), pursuant to subparagraph 20(1)(c)(i) of the Act.

E.Reasonable expenses that are not otherwise deductible by the Partnership and were incurred in a particular fiscal period or a preceding fiscal period by the Partnership in the course of issuing or selling its Units pursuant to the Offerings as described in 20 above, will, to the extent of the lesser of:

(i) that proportion of 20% of the expenses that the number of days in the fiscal period is of 365; and

(ii) the amount, if any, by which the expenses exceed the aggregate of all amounts each of which is an amount deductible by the Partnership in respect of these expenses in computing its income for a preceding fiscal period,

be deductible in computing the income or loss for income tax purposes of the Partnership pursuant to paragraph 20(1)(e) of the Act.

F.As a result of the above proposed transactions, in and by themselves, subsection 245(2) of the Act will not be applied to redetermine the tax consequences in the rulings given in A to E above.

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada provided that the last closing of the Offerings is made by XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto. Furthermore, these rulings are also based on our understanding the documents and agreements with respect to these facts and proposals will, when finalized, be in accordance with the facts and proposals set out above. A material difference between the final wording of one of these documents and facts and proposals as set out above will affect the rulings given. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts, proposed transactions or additional information. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly: (a) the reasonableness of any of the expenses of the Partnership; and (b) the existence of a reasonable expectation of profit of the Partnership or any partner of the Partnership.

Opinions

I.If the provisions of draft section 18.1 of the Act are enacted as proposed in the Notice of Ways and Means Motion tabled on November 18, 1996 by the Secretary of State (Finance) and the Department of Finance Press Release 96-099 dated December 19, 1996, it is our opinion that:

(a)the Selling Expenses and the Redemption Charges deductible by the Partnership in accordance with ruling A above will, notwithstanding draft section 18.1 of the Act, continue to be amortized and deductible by the Partnership in computing its income or loss for its fiscal period as set out in ruling A above provided the total amount of such Selling Expenses and Redemption Charges (as well as any incurred after XXXXXXXXXX and prior to the date of this advance ruling) and other expenditures described in 16 above in respect of the Deferred Charge Securities of the Funds incurred after XXXXXXXXXX and before XXXXXXXXXX that are "matchable expenditures" do not exceed $30 million. Should the aggregate exceed $30 million such aggregate amount will be deductible by the Partnership only as and to the extent provided in draft subsection 18.1(4) of the Act; and

(b)except as provided in (a) above and excluding the matchable expenditures paid or payable by XXXXXXXXXX, no transitional relief from the application of draft section 18.1 of the Act will be available with respect to a matchable expenditure incurred after November 17, 1996 in respect of the distribution of shares of a mutual fund corporation or units of a mutual fund trust administered by the Manager or any person related thereto.

The term "matchable expenditure" as used above has the meaning assigned thereto by draft subsection 18.1(1) of the Act.

II.Notwithstanding the rulings given in this letter, if the provisions of draft section 143.2 of the Act and the draft amendments to paragraphs 96(2.2)(d) and (f) of the Act are enacted as proposed in Bill C-69 in the form which received first reading by the House of Commons on December 2, 1996, it is our opinion that:

(a)the amount of any "expenditures" made by the Partnership, including, but not limited to, the Selling Expenses and the Redemption Charges and the issuance expenditures referred to in rulings A and E above, will be reduced by the total of

(i) the "limited-recourse amounts" of

(A) the Partnership, and

(B) all taxpayers not dealing at arm's length with the Partnership,

that can reasonably be considered to relate to the particular expenditures,

(ii) the Partnership's "at-risk adjustment" in respect of the particular expenditures, and

(iii) the limited-recourse amounts and at-risk adjustments of each taxpayer who deals at arm's length with and holds an interest in the Partnership that can reasonably be considered to relate to the particular expenditures;

(b) if any Limited Partner has limited-recourse amounts that can reasonably be considered to relate to the acquisition of his Units:

(i) draft subsection 143.2(6) (not subparagraph 53(2)(c)(i.3)) of the Act will apply to reduce that Limited Partner's cost of the Units, and

(ii) the expenditures made by the Partnership will also be considered to relate to those limited-recourse amounts and will be reduced by the total of such limited-recourse amounts;

(c) indebtedness of the Partnership, referred to in 19 above, will, pursuant to draft subsection 143.2(8) of the Act but subject to draft subsection 143.2(11) of the Act, be considered to be a limited-recourse amount so as to reduce the amount of any expenditure of the Partnership that would otherwise be deductible in computing its income; if a repayment of such indebtedness is not part of a series of loans or other indebtedness and repayments by the Partnership, the repayment at any time by the Partnership of such indebtedness will, pursuant to draft subsection 143.2(10) of the Act, result in the said expenditure being deemed to have been made or incurred at that time, for purposes of the Act including draft section 18.1 of the Act, to the extent of the amount of the repayment;

(d) draft subsection 143.2(6) of the Act will not be applied to reduce the amount of a Limited Partner's expenditure to acquire Units by reason of:

(i) the Partnership Agreement providing for the distribution of capital by the Partnership to Limited Partners in certain cases such as described in 28 above, or

(ii) the Partnership's entitlement to the Distribution Fees and Redemption Charges payable under the Distribution Agreement, as described in 13, 14 and 15 above;

(e) the provisions of draft paragraphs 96(2.2)(d) and (f) of the Act will not be applied to reduce a Limited Partner's "at-risk amount" by reason of:

(i) the Second Loan of the Limited Partner,

(ii) the security granted to the Bank by the Limited Partner on the Second Loan,

(iii) the General Partner's (or its affiliated company's) involvement in collecting the Second Loan on behalf of the Bank,

(iv) the General Partner's (or its affiliated company's) involvement in realizing on the security on the Second Loan on behalf of the Bank in the event the Limited Partner defaults on the Second Loan, or

(v) the General Partner's (or its affiliated company's) obligation to purchase the Second Loan from the Bank as described in 21 above;

(f) provided that interest that accrues on the Second Loan during a calendar year is paid on or before XXXXXXXXXX of the following year, the Second Loan of a Limited Partner who is an individual will not be a limited-recourse amount; and

(g) A Limited Partner's at-risk adjustment in respect of the cost of the Units will not be adjusted by reason of:

(i) the Second Loan of the Limited Partner,

(ii) the security granted to the Bank by the Limited Partner on the Second Loan,

(iii) the General Partner's (or its affiliated company's) involvement in collecting the Second Loan on behalf of the Bank,

(iv) the General Partner's (or its affiliated company's) involvement in realizing on the security on the Second Loan on behalf of the Bank in the event the Limited Partner defaults on the Second Loan, or

(v) the General Partner's (or its affiliated company's) obligation to purchase the Second Loan from the Bank as described in 21 above.

The terms "expenditure", "limited-recourse amount" and "at-risk adjustment" as used above have the meanings assigned thereto by draft section 143.2 of the Act.

The opinions expressed above are provided in accordance with paragraphs 20 and 22 of Information Circular 70-6R3. Such opinions do not constitute advance income tax rulings and are not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships, and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch