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:
Will units of a Trust be “qualified for distribution to the public” within the meaning of paragraph 4801(a) of the Regulations where the units will be issued: 1) in reliance on the prospectus exemptions for “sophisticated purchasers” and “block sales of $150,000” contained in sections 43 and 51 of the Quebec Securities Act (“QSA”) and 2) in accordance with the terms of an offering memorandum filed with the Quebec Securities Commission.
Position:
Yes
Reasons:
An offering memorandum has been accepted as a “similar document” for the purposes of paragraph 4801(a) of the Regulations in cases where a “private placement” prospectus exemption was available under paragraph 72(1)(d) of the Ontario Securities Act (“OSA”) and an offering memorandum was delivered to the Ontario Securities Commission. (See 970979, 960375 & 952312.) The prospectus exemptions provided for “sophisticated purchasers” and “block sales” under the QSA are very similar to the private placement exemption under the OSA. In addition, in the circumstances outlined in the proposed transactions, section 37.2 of the Quebec Securities Regulations will require the offering memorandum to be filed with the Quebec Securities Commission.
XXXXXXXXXX 3-981035
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs\Mesdames:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayers and your subsequent correspondence of XXXXXXXXXX in respect of the income tax consequences arising out of the proposed transactions described below.
We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:
a) in an earlier return of the taxpayers or related persons;
b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;
c) under objection by the taxpayers or related persons;
d) before the courts; and
e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.
In this letter, unless otherwise indicated, all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th Supplement, c.1, as amended) (the "Act"), and the following terms have the meanings specified:
"Fund" means XXXXXXXXXX
"Fund Manager" means XXXXXXXXXX
"Bankco" means XXXXXXXXXX
Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:
FACTS AND PROPOSED TRANSACTIONS
1. The Fund will be an open-end investment trust established by Declaration of Trust under the laws of the Province of Ontario. When established the Fund will obtain a tax account number and when the return for the Fund is filed with Revenue Canada the tax services office for its return will be the XXXXXXXXXX TSO.
2. The trustee of the Fund will be the Fund Manager and Bankco will be the Custodian of the Fund.
3. The Fund Manager is a taxable Canadian corporation within the meaning of paragraph 89(1) of the Act. It is registered as a full-service securities advisor with the Commission des valeurs mobiliEres du Québec and as an advisor in the category of investment counsel and portfolio manager with the Ontario Securities Commission.
4. The Fund will be an inter vivos trust resident in Canada. The interest of each beneficiary of the Fund will be described by reference to units. The Fund will be divided into a number of units which confer to the holder the same rights and obligations and which rank equally with all other units. An unlimited number of units may be issued by the Fund and such units may be acquired or redeemed at their net asset value. The net asset value per unit of the Fund at a particular date will be equal to the net asset value of the fund divided by the number of units issued and outstanding at that date. The net asset value of the Fund will be equal to the aggregate value of the Fund’s assets less the aggregate amount of the Fund’s liabilities.
5. The Fund intends to qualify as a mutual fund trust as defined in subsection 132(6) of the Act and will not be established principally for the benefit of non-resident persons, as provided under subsection 132(7) of the Act.
6. The investment objective of the Fund will be to provide consistent and above average long term growth regardless of the general direction of the stock market by taking both long positions (anticipating an increase in the price of the stock) and short positions (anticipating a decrease in the price of the stock) in selected XXXXXXXXXX corporations trading on recognized markets.
7. It is expected that the unit holders will be high net worth individuals, institutional investors as well as trusts governed by registered retirement savings plans and registered retirement income funds.
8. The units of the Fund will be offered to investors across Canada on a private placement basis. The minimum aggregate initial acquisition cost of units of the Fund will be $150,000 for all investors except “sophisticated investors” as defined in the Quebec Securities Act ("QSA"). The units of the Fund will be promoted for distribution to the public by dealers registered in each province.
9. Units of the Fund will be distributed to the public in reliance on certain prospectus exemptions contained in the QSA. In particular, sections 43, 44 and 45 of the QSA permit the Manager to offer and sell units of the Fund without a prospectus in any amount to defined "sophisticated purchasers" purchasing as principals including the federal and provincial governments, their wholly-owned subsidiaries and agencies, registered dealers and advisors, banks, licensed trusts, savings and insurance companies, registered pension funds with assets of over $100,000,000 and registered dealers or advisors purchasing for fully managed accounts. Also, section 51 of the QSA permits the Manager to sell units of the Fund without a prospectus to investors who are not "sophisticated purchasers" provided each purchaser subscribes for units of the Fund having a total value of at least $150,000. Utilizing the prospectus exemptions provided by these sections of the QSA, the Manager will prepare an offering memorandum in respect of the Fund. Although the securities legislation in Quebec does not require the Fund to provide an offering memorandum to investors therein, the Fund will provide the offering memorandum to prospective investors resident in Quebec. Concurrent with the first distribution of units of the Fund, the Manager will file an offering memorandum for the Fund with the Commission des valeurs mobiliEres du Québec as required by section 37.2 of the Quebec Securities Regulations. Such an offering memorandum is not required by law to be accepted by the Commission des valeurs mobiliEres du Quebec. Units of the Fund distributed to the public concurrent with or after the offering memorandum in respect of the Fund being so filed will be lawful and will be made under the specific terms, conditions and requirements described in the offering memorandum.
10. The offering memorandum referred to in 9 above will include the following information:
a) name and date of formation of issuer;
b) description of securities offered;
c) minimum initial subscription;
d) manager and investment advisor of the Fund;
e) management fees and other expenses;
f) price of securities on sale or redemption;
g) method of distribution of units;
h) investment objectives;
i) investment risk;
j) responsibility for principal functions; and
k) eligibility for investment by deferred income plans.
As the units of the Fund may be distributed to the public in Ontario relying on the private placement prospectus exemption set out in paragraph 72(1)(d) of the Ontario Securities Act ("OSA"), the offering memorandum will also contain a "contractual right of action." Under the OSA, if an investor is provided with a copy of the offering memorandum and purchases securities of the issuer pursuant to the private placement exemption, the offering memorandum must contain a "contractual right of action" against an issuer for recission or damages which is available to an investor in the event that there is a material misstatement contained in, or omission from, the offering memorandum. Although the QSA does not contain an equivalent requirement, the Manager intends to grant the contractual right of action prescribed by the OSA to all investors in the Fund.
PURPOSE OF PROPOSED TRANSACTIONS
11. The Fund Manager believes that the investment focus of the Fund will be attractive to individuals wishing to invest through their RRSP. For purposes of this market, it is essential that the units of the Fund be qualified investments for RRSPs. However, in view of the proposed foreign property content of the Fund, it will not be able to qualify as a registered investment. Accordingly, it is highly advantageous for the Fund to qualify as a mutual fund trust.
RULING GIVEN
Provided that the above statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and purpose thereof and the proposed transactions are carried out as described herein, our advance income tax ruling is as follows:
A. The units of the Fund distributed after or concurrently with the offering memorandum in respect of the Fund being filed with the Commission des valeurs mobiliEres du Québec will be qualified for distribution to the public for the purpose of paragraph 4801(a) of the Income Tax Regulations.
The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R3, Advance Income Tax Rulings, and is binding on Revenue Canada provided that the offering memorandum for the Fund is filed with the Commission des valeurs mobiliEres du Québec within six months of the date of this letter.
Nothing in this letter should be construed as implying that Revenue Canada has agreed to or accepted any tax consequences arising from the facts or proposed transactions described above other than those specifically confirmed in the ruling given.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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