2000 Ruling 9810483 - MERGER OF LIMITED PARTNERSHIPS

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97(2) 98(3) 40(3.15)

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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.

FACTS

PROPOSED TRANSACTIONS

PURPOSE OF PROPOSED TRANSACTIONS

RULINGS GIVEN

OPINION GIVEN

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: Merger of limited partnerships

1. Whether 97(2) will apply to the transfer of limited partnership units to another limited partnership.

2. Whether 98(3) will apply to the dissolution of a limited partnership.

3. Whether 245(2) will apply with respect to the merger.

4. Whether any excluded interests under 40(3.15) will continue to be excluded interests after the merger.

Position:

1. Yes, provided transferee is a Canadian partnership as defined in 102(1)
2. Yes, provided it is a Canadian partnership at the time of dissolution.

3. No.

4. Probably not (given as an opinion - no ruling was requested on this point).

Reasons:

1. 97(2) will be satisfied.

2. 98(3) will be satisfied.

3. No misuse or abuse of the Act.

4. The merger appears to result in a substantial contribution of capital to the remaining partnership.

XXXXXXXXXX
XXXXXXXXXX 981048
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

We are writing in reply to your letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of XXXXXXXXXX ("Master LP"), its general partner, XXXXXXXXXX and the following limited partnerships:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

The Master LP and the above named limited partnerships are collectively referred to herein as the "Partnerships" or individually as a "Partnership", unless the context otherwise indicates.

You advise that to the best of the knowledge of the general partners of each of the Partnerships, none of the issues involved in this ruling is being 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.

FACTS

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

XXXXXXXXXX

The tax account number of XXXXXXXXXX files its tax return through the XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre.

The tax account number of the general partner of Master LP is XXXXXXXXXX. The general partner of Master LP files its tax return through the XXXXXXXXXX Tax Services Office and XXXXXXXXXX Taxation Centre.

XXXXXXXXXX

The XXXXXXXXXX limited partnerships, the date established, XXXXXXXXXX for each Partnership are as follows:

1 Each Partnership will terminate on the Specified Termination Date or earlier, as set out in theapplicable Partnership Agreement (as defined below).

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

Each Partnership offered limited partnership units ("Units") for sale to the public only in Canada either by way of prospectus or on a private placement basis.

XXXXXXXXXX

The following sets out the number of outstanding limited partnership units (the "Partnership Units"), gross proceeds from offerings of Units, net proceeds raised and amounts expended on XXXXXXXXXX for each Partnership

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

The partners of each Partnership entered into a limited partnership agreement (the "Partnership Agreements") which include provisions relating to allocation of income and loss, method, calculation and frequency of distributions, establishing the fiscal year end and termination of the Partnership. The limited partners and each general partner of a Partnership are entitled to receive XXXXXXXXXX% and XXXXXXXXXX%, respectively, of income and loss and distributions.

XXXXXXXXXX

PROPOSED TRANSACTIONS

It is proposed that all of the Partnerships 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 each Partnership, other than Master LP, of their Units (each a "LP Unit Transfer") to Master LP for a purchase 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 each Partnership other than Master LP (each "a Partnership Dissolution").

It is intended that 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 combination as described below will exercise the powers under its Partnership Agreement to repurchase or sell any and all Units of such Partnership held by a person who is not resident in Canada within the meaning of the Act.

As a result of the proposed merger of the Partnerships, among other things, the Master LP will directly own the assets (including the XXXXXXXXXX) of the merging Partnerships and each limited partner of the merging Partnerships immediately prior to the implementation of the combination will become (or in the case of Master LP, will 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 merging Partnership. The number of units of Master LP to be issued to or held by each partner of a merging Partnership will be determined on the basis of the "Relative Value" of the Units of each merging Partnership and Master LP. A valuator will be retained to determine the "Relative Value" of each merging Partnership for the purpose of establishing the number of Master LP Units to be issued to the partners of each such Partnership. The valuator will provide an opinion that the proposed combination is fair, from a financial point of view, to the partners of each Partnership.

All limited partners of a 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, authorization from each member of such partnership, and providing all information required by the general partner for such purpose (including information regarding the adjusted cost base to the partner of his Units so transferred).

XXXXXXXXXX

After the completion of all LP Unit Transfers in respect of a particular Partnership participating in the combination (other than Master LP), the sole limited partner of the Partnership will be Master LP and the general partner of such Partnership will be the general partner. Each such 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's dissolution, any liabilities of such Partnership shall be paid first and the remaining assets of the Partnership will be distributed in specie as XXXXXXXXXX such that Master LP and the general partner each will have such undivided interest in each asset of the Partnership.

No 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 combination. It is proposed that the Partnership Agreement governing Master LP be amended XXXXXXXXXX.

a) XXXXXXXXXX

b) XXXXXXXXXX

c) XXXXXXXXXX

d) XXXXXXXXXX

e) XXXXXXXXXX

24. Income of Master LP will continue to be allocated in accordance with the existing Partnership Agreement for Master LP XXXXXXXXXX.

PURPOSE OF PROPOSED TRANSACTIONS

The purpose of the proposed transactions is

XXXXXXXXXX

RULINGS GIVEN

Provided all relevant facts, proposed transactions and their purposes have been fully disclosed and, as summarized above, are accurate, and further provided that the proposed transactions are carried out as set forth herein and that Master LP and the Partnerships are partnerships at law, we confirm the following:

A. Provided the Units of Master LP are not redeemed, repurchased or sold as contemplated in 17 and 20 above, with respect to a limited partner of Master LP immediately before the implementation of the proposed transactions, such implementation will not, in and of itself, give rise to a disposition, as defined in section 54 of the Act, of his or her Units of Master LP.

B. In the case of any particular Partnership or Master LP, it will be a "Canadian partnership", as defined in subsection 102(1) of the Act, at any particular time provided all members thereof are, at that time, resident in Canada and for this purpose, a member which is a partnership, all members of which are resident in Canada at that time, will be considered to be a member of the Partnership or Master LP, as the case may be, resident in Canada at that time.

C. Provided Master LP is a Canadian partnership immediately after the LP Unit Transfer, a limited partner of the particular Partnership who makes a LP Unit Transfer to Master LP and files an election in prescribed form pursuant to subsection 97(2) of the Act in respect of the related Units within the time period set out in subsection 96(4) of the Act (or files such form within the time period set out in subsection 96(5) of the Act and pays the requisite penalty), will be deemed to have disposed of such Units for proceeds equal to the amount that the limited partner and all 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 related Units at the time of the LP Unit Transfer, and

(ii) the cost amount of the related Units to the limited partner at the time of the LP Unit Transfer

pursuant to paragraph 85(1)(c.1) of the Act and for purposes of such election, the amount so agreed upon shall not be less than nil.

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

E. Provided that a particular Partnership is a Canadian Partnership at the time it is wound-up and dissolved as described in 22 above, the assets of such Partnership may be distributed to its partners as described in 22 above in accordance with, and to the extent permitted by, the provisions of subsection 98(3) of the Act and 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 such Partnership.

F. As a result of the proposed transactions, in and of themselves, subsection 245(2) of the Act will not be applied to redetermine the tax consequences in the rulings given 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 transactions are completed on or before XXXXXXXXXX. These rulings do not cover proposed transactions occurring 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.

OPINION GIVEN

It is our opinion, for purposes of subsection 40(3.1) of the Act, that where any member's interest in a particular Partnership or in Master LP is an "excluded interest", as defined in subsection 40(3.15) of the Act, immediately before the implementation of the proposed transactions, such interest may cease to be an excluded interest upon the implementation of the proposed transactions.

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

Yours truly

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Technical Interpretations Directorate

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.../cont'd

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2000 Ruling 9810483 - MERGER OF LIMITED PARTNERSHIPS

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FACTS

PROPOSED TRANSACTIONS

PURPOSE OF PROPOSED TRANSACTIONS

RULINGS GIVEN

OPINION GIVEN