30 November 1996 Ruling 9642093 - MUTUAL FUND RULING

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.

Principal Issues:

Supplementary ruling to increase partnership's revenue and compensate for disproportionate high costs of offering as a result of an unexpected small size of subscription for units in the partnership.

Position:

Supplementary ruling given.

Reasons:

Previous supplementary rulings have been given allowing an increase in the distribution fee to the partnership.

XXXXXXXXXX							964209
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs:

Re: Supplemental Advance Ruling
XXXXXXXXXX

This is in reply to your letters dated XXXXXXXXXX and is supplemental to our advance income tax ruling, number 961849 dated XXXXXXXXXX, 1996, as amended by our letter, reference number 962850, dated XXXXXXXXXX, 1996 (the "Amended Ruling"). We understand that to the best of your knowledge and that of the taxpayers involved, none of the issues described herein is:

(a)being considered by a Tax Services Office or a Taxation Centre in connection with any tax returns already filed, or

(b)the subject of any notice of objection or is under appeal.

Unless otherwise used as proper names or defined herein, the capitalized terms used in this letter have the meanings assigned in the Amended Ruling.

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

FACTS

1.The first closing of the offering of the Partnership Units described in the Amended Ruling occurred on XXXXXXXXXX and at that time the Partnership issued Partnership Units for an aggregate subscription amount of $XXXXXXXXXX. (The maximum offering was for $XXXXXXXXXX). There will be no further sale of Partnership Units.

2.The amount of offering expenses estimated to be incurred by the Partnership under the Amended Ruling was $XXXXXXXXXX. However, such expenses were capped at $XXXXXXXXXX. The balance thereof has been absorbed by XXXXXXXXXX, as promoter of the offering.

3.Pursuant to paragraph 30 of the Amended Ruling, the portion of the Limited Partners' capital contributions that would not be required to meet expenses of the Partnership prior to XXXXXXXXXX would be returned to the Limited Partners. Accordingly, the Partnership will return to the Limited Partners capital contributions amounting to $XXXXXXXXXX that are not so required.

4.The reason for the relatively low offering of Partnership Units and the return of capital to the Limited Partners is that the sale of Deferred Sales Charge Units of the Funds fell below the original projections.

PROPOSED TRANSACTIONS

5.Consequential to paragraph 4 above:

(a)XXXXXXXXXX, as Manager of the Funds, the Partnership and the Funds will agree to amend the Distribution Agreement to increase the annual distribution fee rate from XXXXXXXXXX% to XXXXXXXXXX% to the Partnership and to extend the payment of such distribution fee to the Partnership from XXXXXXXXXX to XXXXXXXXXX; concurrently, the life of the Partnership will also be extended to XXXXXXXXXX; and

(b)XXXXXXXXXX has agreed to waive its entitlement to be reimbursed by the Partnership for all expenses it incurred on behalf of the Partnership. All such expenses will be absorbed by XXXXXXXXXX. Accordingly, the Administrative Services Agreement between XXXXXXXXXX and the Partnership will be amended to this effect.

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to provide a rate of return to the Limited Partners commensurate with what was contemplated in the original offering documents.

OTHER INFORMATION

Other than as described above, the Partnership submits that:

(i)the basis upon which the Amended Ruling was granted has not changed and that the proposed transactions described above will be entered into for non-tax reasons, and

(ii)the proposed transactions are intended simply to increase the revenue of the Partnership in an effort to compensate for the fixed costs of the offering being disproportionately high due to the small size of the offering.

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and that the proposed transactions are carried out as set forth herein, we confirm that the amendment to the proposed transactions described in the Amended Ruling, as a result of the proposed transactions described in paragraph 5 above, will not invalidate rulings A to F given, or the other comments made, in the Amended Ruling.

Opinion

Where any amount that is owed by the Partnership for services provided by XXXXXXXXXX under the Administrative Services Agreement described in the Ruling and that is forgiven in accordance with subparagraph 5(b) above, it is our opinion that section 80 of the Act will apply in respect of such forgiven amount.

The opinion expressed above is provided in accordance with paragraph 22 of Information Circular 70-6R3. Such an opinion does not constitute an advance income tax ruling and is not binding on the Department.

Yours truly,

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