30 November 1996 Ruling 9720953 - MERGER OF PARTNERSHIPS

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:

1. Will the provisions of subsection 97(2) of the Act apply in respect of the transfer of limited partnership units to another limited partnership?

2. Will the provisions of subsection 98(3) of the Act apply to the dissolution of a limited partnership?

3. Will subsection 245(2) of the Act apply to redetermine the tax consequences of the proposed transactions?

Position:

1. Provided the transferee is a Canadian partnership after the transfer, yes.

2. Provided the limited partnership is a Canadian partnership at the time it is wound-up and dissolved, yes.

3. No.

Reasons:

1. The conditions of application of subsection 97(2) will be met.

2. The conditions of application of subsection 98(3) will be met.

3. The proposed transactions would not result directly or indirectly in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act.

XXXXXXXXXX							3-972095
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs\Madams:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in reply to your letters dated XXXXXXXXXX requesting an advance income tax ruling on behalf of XXXXXXXXXX ("Master LP"), its general partner XXXXXXXXXX ("General Partner") and the limited partnerships listed on the attached Schedule A.

You advise that, to the best of the knowledge of Master LP, General Partner and the general partners of the limited partnerships listed on Schedule A, none of the issues involved in this ruling has been considered by a Tax Services Office or Taxation Centre in connection with a tax return already filed and none of the issues is under objection.

The General Partner's tax account number is XXXXXXXXXX. The General Partner files its tax returns through the XXXXXXXXXX Taxation Centre of Revenue Canada.

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

FACTS AND PROPOSED TRANSACTIONS

1. XXXXXXXXXX is a taxable Canadian corporation XXXXXXXXXX within the meaning of subsection 89(1) of the Income Tax Act (the "Act").

XXXXXXXXXX

2. XXXXXXXXXX

XXXXXXXXXX

3. Currently, there are XXXXXXXXXX limited partnerships and

XXXXXXXXXX

each of which was formed under the laws of XXXXXXXXXX at different times by the filing under the XXXXXXXXXX of a declaration of partnership. The business of each partnership is

XXXXXXXXXX

Limited partnership units of these partnerships were offered for investment in Canada either by way of prospectus or on a private placement basis.

4. The names of each of these limited partnerships, the date on which each partnership was formed, XXXXXXXXXX, the number of limited partnership units of such partnership issued and outstanding and the amount of gross proceeds raised by each partnership on such offering are as indicated on Schedule A.

5. Each partnership is governed by the terms of a limited partnership agreement among all of the limited partners of the partnership and the general partner of the partnership (collectively, the "Partnership Agreements"). This agreement provides for a variety of matters relating to the business and affairs of the partnership, including the fiscal period of the partnership (which is December 31), the manner in which income and losses of the partnership must be allocated to the partners of the partnership, the manner in which cash is to be distributed by the partnership to its partners and various related matters.

XXXXXXXXXX

6. Each of the partnerships has expended the proceeds raised by it on the offering of limited partnership units for investment in Canada to pay:

XXXXXXXXXX

Each of these partnerships has commenced (XXXXXXXXXX) to make distributions to its partners XXXXXXXXXX in accordance with its Partnership Agreement.

7. XXXXXXXXXX

XXXXXXXXXX

8. XXXXXXXXXX

9. It is proposed that all of the partnerships, other than Master LP, be merged into Master LP. This is proposed to be accomplished by way of a number of steps of which the primary steps will be: (i) the sale by limited partners of their limited partnership units in each partnership, other than Master LP, (hereafter the "Subject partnership") to Master LP (each or hereafter "a LP Unit Transfer") for a sale price equal to the fair market value thereof at the time of the transfer, to be satisfied by Master LP issuing units of Master LP to each limited partner having an equivalent value; and, thereafter, (ii) the dissolution of the Subject partnership other than Master LP (each "a Partnership Dissolution").

10. Each LP Unit Transfer will be structured to permit each limited partner who makes a LP Unit Transfer and completes the applicable power of attorney form in favour of Master LP to complete the transfer on a tax-deferred basis in accordance with, and to the extent permitted by, the provisions of subsection 97(2) of the Act. Accordingly, prior to any LP Unit Transfer taking place, each existing partnership (including Master LP) whose partners have approved the merger as described below will exercise its existing powers under its Partnership Agreement to redeem or sell any and all limited partnership units of such partnership held by a person who is not resident in Canada within the meaning of the Act.

11. As a result of the proposed merger of the partnerships, among other things, the Master LP will directly own the assets (XXXXXXXXXX) of the Subject partnerships and each limited partner of the Subject partnerships immediately prior to the implementation of the merger will become (or in the case of Master LP, already be) a limited partner of Master LP upon implementation of the merger. The net income of Master LP will be comprised of all of the net income currently separately earned by each Subject partnership. The number of units of Master LP to be issued to or held by each partner of a Subject partnership will be determined on the basis of the "Relative Value" of the partnership units of each Subject partnership and Master LP. A valuator will be retained to determine the "Relative Value" of each Subject partnership for the purpose of establishing the number of Master LP Units to be issued to the partners of each Subject partnership. The valuator will provide an opinion that the proposed merger is fair, from a financial point of view, to the partners of each partnership.

12. All limited partners of a Subject partnership who make a LP Unit Transfer will be required to complete a power of attorney form authorizing the General Partner to execute documents on behalf of such partner and all other partners of Master LP in respect of the affairs of Master LP and each such partner, including any applicable elections under subsection 97(2) of the Act and, where the partner itself is a partnership, a power of attorney of each member of such partnership, and providing all information required by the General Partner for such purpose (including regarding the adjusted cost base to the partner of his/her limited partnership units so transferred).

13. In order to approve the merger of all of the partnerships as aforesaid, meetings of all of the partners of each partnership are proposed to be held XXXXXXXXXX during which the partners will be asked to vote on a resolution regarding the merger of their particular partnership with Master LP and the dissolution of their particular partnership (but not Master LP).

XXXXXXXXXX

Where a particular partnership approves the merger and the merger proceeds, mechanics will be put in place for the redemption or sale of partnership units of individual limited partners of such partnership who do not wish to participate in Master LP.

XXXXXXXXXX

14. XXXXXXXXXX

15. After the completion of all LP Unit Transfers in respect of a particular Subject partnership participating in the merger (other than Master LP), the sole limited partner of the Subject partnership will be Master LP and the general partner of such partnership will be the General Partner. Each Subject partnership thereafter will be wound-up and dissolved in accordance with the existing terms of its Partnership Agreement. In accordance with such Partnership Agreement, on each Partnership Dissolution, any liabilities of such partnership shall be paid first and the remaining assets of the partnership will be distributed in specie XXXXXXXXXX such that Master LP and General Partner each will have such undivided interest in each asset of the Subject partnership.

16. It is not currently expected that any significant amendments will be required to be made to any of the Partnership Agreements, other than the Partnership Agreement governing Master LP, in order to implement the proposed merger. It is proposed that the Partnership Agreement governing Master LP be amended (subject to the approval of the partners of Master LP at Master LP's partnership meeting referred to above) in accordance with the amending power contained therein principally as follows:

XXXXXXXXXX

The other provisions of the Partnership Agreement governing Master LP will remain substantially the same.

17. There will be no legal dissolution or termination of Master LP because of the admission of new partners or in light of the amendments to the partnership agreement.

18. XXXXXXXXXX

PURPOSE OF PROPOSED TRANSACTIONS

19. The purpose of the proposed transactions is to consolidate all of the assets and net income of each XXXXXXXXXX partnership in Master LP with the objective of reducing aggregate operating expenses of such partnerships, XXXXXXXXXX and simplifying and achieving greater efficiencies in the operations currently carried out separately by each of these partnerships.

RULINGS GIVEN

Provided that the above statements of facts, proposed transactions and purpose of the proposed transactions are accurate and constitute complete disclosure thereof, that the proposed transactions are carried out as set forth herein and that Master LP and the Subject partnerships are partnerships at law, the following rulings are given:

A. Provided the limited partnership units of Master LP are not redeemed or sold as contemplated in paragraphs 10 and 13 above, a limited partner of Master LP prior to the implementation of the proposed transactions will not dispose of his/her limited partnership units of Master LP by virtue only of the implementation of the proposed transactions.

B. Master LP will be a Canadian partnership, as defined in subsection 102(1) of the Act, at any particular time provided that all its members are resident in Canada at that particular time. For this purpose, a member of a partnership who is a partnership all the members of which are resident in Canada at such time will be considered to be a member resident in Canada of that partnership.

C. A Subject partnership will be a Canadian partnership, as defined in subsection 102(1) of the Act, at any particular time provided all the members of that Subject partnership are resident in Canada at that particular time. For this purpose, a member of a partnership who is a partnership all the members of which are resident in Canada at such time will be considered to be a member resident in Canada of that partnership.

D. Provided Master LP is a Canadian partnership immediately after the LP Unit Transfer, a limited partner of a Subject partnership who makes a LP Unit Transfer to Master LP and files an election in prescribed form under subsection 97(2) of the Act in respect of such units, within the time prescribed therefor under subsection 96(4) (or files the form within the prescribed time in subsection 96(5) and pays the requisite penalty), will be deemed to have disposed of the units for proceeds of disposition equal to the amount that the limited partner and the other members of Master LP have agreed upon in the election, provided that in no case shall the amount agreed upon be less than the lesser of:

(i) the fair market value of the transferred units at the time of the transfer, and

(ii) the cost amount of the transferred units to the limited partner at the time of the transfer,

pursuant to paragraph 85(1)(c.1) of the Act.

E. For the purpose of the application of the provisions of subsection 97(2) to a LP Unit Transfer, the General Partner may execute and file the prescribed form T2059, together with the lists identifying those Canadian resident partners participating in the election, provided that the General Partner has authority to act on behalf of the transferor, Master LP and on behalf of all the members of Master LP and, where a member of Master LP is a partnership, the General Partner has authority to act on behalf of each member of such partnership.

F. Provided that a Subject partnership is a Canadian partnership at the time it is wound-up and dissolved, the assets of the Subject partnership may be distributed to its partners as described in paragraph 15 above on a tax-deferred basis in accordance with and to the extent permitted by the provisions of subsection 98(3) of the Act. For this purpose, one election form prescribed for purposes of subsection 98(3) of the Act must be completed on behalf of each of Master LP and the general partner of the Subject partnership.

G. As a result of the 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 F above.

The above rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding on the Department provided the proposed transaction is completed on or before XXXXXXXXXX. These rulings do not cover proposed transactions occuring after XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effects of any proposed amendments thereto.

Yours truly,

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