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: reimbursement of Crown royalties paid by XXXXXXXXXX by Mutual fund trust and 132(6)(b)
Position: where reimbursement is required in order to acquire royalty, the trust is not offside the mutual fund trust rule in 132(6)(b)
Reasons: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX 982143
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Rulings
This is in reply to your advance income tax ruling request on behalf of the above-referenced taxpayers in connection with the proposed transactions described below and is further to your letters, our meeting, your facsimile transmissions, and our telephone conversations on this matter.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
I. FACTS
1. In this letter:
"Act" means the Income Tax Act;
"Facility" means each of the properties described in paragraph 7 below;
"Facilities" means, collectively, the properties described in paragraph 7 below;
"Facility Lease" means the operating lease agreement described in paragraph 39 below that the Trust will enter into with XXXXXXXXXX in respect of the Facilities and Miscellaneous Interests;
"Facility Agreement of Purchase and Sale" means the sale by XXXXXXXXXX as described in 38 below;
"Management" means XXXXXXXXXX;
"Miscellaneous Interests" means XXXXXXXXXX interests in all property, assets, interests and rights (other than the Facilities) pertaining to the Facilities, to the extent such property, assets, interests and rights are directly related to the Facilities, that are title documents and XXXXXXXXXX;
"Other Revenue," for the purpose of computing Royalty Income, means XXXXXXXXXX sources of income of XXXXXXXXXX, including XXXXXXXXXX revenue, revenue from the sale of tangible assets, insurance proceeds, incentives, rebates and credits in respect of XXXXXXXXXX costs, royalty income and overhead recoveries;
"Permitted Investments" means any property which may be held from time to time by a "mutual fund trust" under paragraph 132(6)(b) of the Act, including cash, royalty units, shares, debt, real property and including the proceeds of disposition of any of the foregoing and income from such property;
"Regulations" means the Income Tax Regulations;
"Reserve" means the reserve established by XXXXXXXXXX to pay operating, XXXXXXXXXX and general and administrative costs, management fees and debt service charges of XXXXXXXXXX;
XXXXXXXXXX
XXXXXXXXXX
"XXXXXXXXXX Properties" means the "XXXXXXXXXX" within the meaning of XXXXXXXXXX of the Act held by XXXXXXXXXX that are subject to the Royalty;
"Royalty" means the royalty granted by XXXXXXXXXX to the royalty unitholders pursuant to the Royalty Indenture and described in paragraphs 11 to 23 below;
"Royalty Income" means the amounts described in paragraphs 13 to 17 below that are paid to royalty unitholders;
"Royalty Indenture" means the royalty indenture between XXXXXXXXXX and the Trustee dated XXXXXXXXXX, as amended;
"Royalty Units" means royalty units issued by XXXXXXXXXX that represent fractional undivided interests in the XXXXXXXXXX royalty described in paragraphs 11 to 23 below. A holder of such Royalty Units is entitled to exchange a Royalty Unit for a number of Trust Units having a value on the date of exchange equal to the value of such Royalty Units as conclusively determined by the Corporation;
"Royalty Unitholders" means holders of Royalty Units;
"Tax Credits" means XXXXXXXXXX;
"Trust" means XXXXXXXXXX;
"Trust Indenture" means the trust indenture dated XXXXXXXXXX, as amended, whereby XXXXXXXXXX created the Trust;
"Trust Units" means units in the Trust, including units represented by installment receipts;
"Trust Unitholders" means persons who own Trust Units and have a right to receive, on a monthly basis, a percentage of the revenues of the Trust;
"Trustee" of the Trust means XXXXXXXXXX; and
XXXXXXXXXX.
2. Management is a "private corporation" and a "taxable Canadian corporation," within the meaning of subsection 89(1) of the Act, whose principal business is presently the provision of advisory services to XXXXXXXXXX. Management owns all of the issued and outstanding shares in the capital stock of XXXXXXXXXX.
3. Management is responsible for the day-to-day management of XXXXXXXXXX and the Trust. Management provides management services to XXXXXXXXXX in consideration of a management fee equal to a percentage of the aggregate of the net XXXXXXXXXX revenue and tax credits and income from certain Permitted Investments, other than the royalty. The percentage ranges from XXXXXXXXXX% on income up to $XXXXXXXXXX to XXXXXXXXXX% on income over $XXXXXXXXXX. In addition, for the period prior to XXXXXXXXXX, Management is entitled to receive an acquisition fee equal to XXXXXXXXXX% of the purchase price of any new XXXXXXXXXX Properties purchased on behalf of XXXXXXXXXX. After XXXXXXXXXX, the acquisition fee was reduced to XXXXXXXXXX% of the purchase price of any XXXXXXXXXX Properties.
In the event that assets are sold by XXXXXXXXXX and replaced by additional assets, Management is entitled to receive an additional acquisition fee of XXXXXXXXXX% of the purchase price of the additional assets.
4. XXXXXXXXXX is a "private corporation" and a "taxable Canadian corporation," within the meaning of subsection 89(1) of the Act. XXXXXXXXXX was organized in XXXXXXXXXX under the laws of the Province of XXXXXXXXXX and is a "subsidiary wholly-owned corporation," within the meaning of subsection 248(1) of the Act, of Management.
5. The sole purpose of XXXXXXXXXX is to undertake the activities described herein. In particular, XXXXXXXXXX was incorporated for the purpose of, and its business is restricted to: evaluating, acquiring, owning, managing and disposing of XXXXXXXXXX royalties and XXXXXXXXXX in XXXXXXXXXX properties; granting a royalty relating to such XXXXXXXXXX properties; issuing and selling Royalty Units; organizing the Trust; and causing the Trust to issue and sell Trust Units.
6. XXXXXXXXXX has acquired XXXXXXXXXX Properties, consisting primarily of XXXXXXXXXX royalty interests in respect of XXXXXXXXXX Properties. The acquisition of such XXXXXXXXXX interests has entitled XXXXXXXXXX to an interest in the XXXXXXXXXX leases which collectively comprise the XXXXXXXXXX Properties and thereby the right to drill for and take XXXXXXXXXX or related substances.
7. In addition to the above XXXXXXXXXX has an undivided interest in tangible "depreciable property," as that term is defined in subsection 13(21) of the Act, that are used for XXXXXXXXXX. The tangible depreciable property includes an undivided interest in properties used to XXXXXXXXXX. This property includes several assets located on the XXXXXXXXXX properties which are permanently affixed to the land and are and will continue to be used as an integral part of XXXXXXXXXX. These Facilities are described as follows:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) XXXXXXXXXX
(e) XXXXXXXXXX
(f) XXXXXXXXXX
(g) XXXXXXXXXX
(h) XXXXXXXXXX
(i) XXXXXXXXXX
(j) XXXXXXXXXX
8. Each Facility is, and the XXXXXXXXXX are, real property or an interest in real property.
9. The Facilities described in paragraph 7 above are depreciable assets of XXXXXXXXXX and have been included in the following capital cost allowance classes: 7(a) to (i), class XXXXXXXXXX; 7(b), class XXXXXXXXXX; and 7(j), class XXXXXXXXXX.
10. The Facilities described in subparagraph 7(j) are buildings.
11. XXXXXXXXXX has offered Royalty Units for sale to the Trust by way of private placement. In each case, the aggregate purchase price of the Royalty Units is approximately equal to the amount paid by XXXXXXXXXX for XXXXXXXXXX and costs of acquisition.
12. Pursuant to the Royalty Indenture, the Royalty was granted to the Royalty Unitholders in respect of 99% of Royalty Income. The Royalty Indenture provides for the acquisition of additional XXXXXXXXXX Properties similar to the XXXXXXXXXX. Pursuant to the Royalty Indenture, upon the acquisition of the XXXXXXXXXX immediately became subject to the Royalty.
13. Royalty Unitholders are entitled, on a monthly basis, to a pro-rata share of Royalty Income. Royalty Income equals 99% of the amount received by XXXXXXXXXX from the XXXXXXXXXX (other than Other Revenue) less the following amounts (without duplication):
(a) amounts which are incurred by XXXXXXXXXX as a cost of operation XXXXXXXXXX;
(b) costs incurred beyond XXXXXXXXXX, amounts which are incurred by XXXXXXXXXX in respect of the transportation and marketing of XXXXXXXXXX;
(c) amounts paid or incurred by XXXXXXXXXX in satisfaction of all rentals and royalties in existence since the date when the royalty was created, other than amounts described in XXXXXXXXXX;
(d) general and administrative expenses incurred by XXXXXXXXXX or paid to third parties in respect of the XXXXXXXXXX and the payment of the Royalty, including the management fee payable to management as described in paragraph 3 above;
(e) Debt Service Charges (within the meaning of paragraph 14(b)) on any borrowing of XXXXXXXXXX in respect of the XXXXXXXXXX and any taxes or other similar charges or levies payable by XXXXXXXXXX; and
(f) any amounts paid into the Reserve. The Reserve consists of all Other Revenues as well as any additional amounts which XXXXXXXXXX, in its reasonable discretion, determines it is prudent to contribute to provide for the payment of operating and XXXXXXXXXX costs. The Reserve is to be used to pay operating, XXXXXXXXXX and general and administrative costs, management fees and debt service charges of XXXXXXXXXX. When there are no Facilities subject to the Royalty, the Reserve is used to pay the costs referred to in (a) to (e) above.
14. For the purposes of computing Royalty Income, the following matters are relevant:
(a) the costs of operation of XXXXXXXXXX are determined by such operating procedures as are in effect in respect of the various XXXXXXXXXX;
(b) insofar as XXXXXXXXXX has agreed to incur capital expenditures in respect of enhancing or maintaining the productivity of XXXXXXXXXX for its own account and XXXXXXXXXX may borrow funds relating to the purchase of assets, it will be permitted to borrow amounts for its own account and thereafter cause a reduction in the amount of Royalty Income to permit XXXXXXXXXX to repay such borrowing from its XXXXXXXXXX interest in XXXXXXXXXX. The reduction in Royalty Income (the "Debt Service Charge") will be the aggregate of all interest payments relating to the borrowing of funds by XXXXXXXXXX and all principal repayments relating to such borrowing; and
(c) pursuant to a request by XXXXXXXXXX primary corporate lender, the limitations on borrowing which previously existed (for example, not to exceed XXXXXXXXXX% of asset value or XXXXXXXXXX % of projected royalty income) were removed.
15. Royalty Unitholders have no right to receive interest which accrues on any amount received by XXXXXXXXXX nor do they have the right to receive any portion of the Other Revenue. For the purposes of computing Royalty Income, Other Revenue is excluded.
16. For greater certainty, it is noted that:
(a) Other Revenue, including revenue from XXXXXXXXXX and any other income of XXXXXXXXXX, other than amounts from XXXXXXXXXX income for the purposes of calculating the amount of the Royalty Income; and
(b) any excess of Other Revenue over the amounts referred to in paragraph 13(f) above is not included in the amount of Royalty income.
17. The amount of Other Revenue of XXXXXXXXXX, expressed as a percentage of total revenue, for XXXXXXXXXX and subsequent years:
% of Total Revenue
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
18. In the event that XXXXXXXXXX are sold as a result of default occurring in XXXXXXXXXX obligation to make payments under the Royalty, the proceeds therefrom will be paid, firstly to a receiver on account of its fees, secondly in payment of permitted encumbrances ranking in priority to the royalty, thirdly in payment of amounts owing under the Royalty and lastly, to XXXXXXXXXX.
19. Royalty Unitholders have the right to XXXXXXXXXX. The exercise of such rights by Royalty Unitholders would be in lieu of receiving their share of Royalty Income. XXXXXXXXXX, after taking into account their share of production costs, would approximate the holder's pro rata share of Royalty Income otherwise receivable.
20. In addition, Royalty Unitholders have a right to convert their Royalty Units into an equivalent percentage of XXXXXXXXXX. This conversion feature was added solely for the purpose of complying with the provisions of Schedule III of the Pension Benefits Standards Act, Canada and similar provincial legislation.
21. A holder of a Royalty Unit is entitled to exchange Royalty Units for a number of Trust Units having a value equal to the value of the Royalty Units to be exchanged.
22. Royalty Unitholders have no interest in any tangible depreciable property which is attached to XXXXXXXXXX.
23. It is a condition of the issuance of Royalty Units that they be held by persons resident in Canada. The head office of the Trust is in XXXXXXXXXX. As at XXXXXXXXXX, the number of Royalty Units issued and outstanding was XXXXXXXXXX.
24. Trustee is a company incorporated under the laws of Canada, resident in Canada for purposes of the Act, and licensed to carry on the business of offering to the public its services as a trustee. The office of the Trustee from which the affairs of the Trust are managed is in XXXXXXXXXX.
25. The Trust is an "inter vivos trust" within the meaning assigned to that phrase in subsection 108(1) of the Act for the purposes of subdivision k of Division B of the Act. The Trust finances its activities through the sale of Trust Units to the public in Canada and abroad. The sole activity of the Trust is to acquire Royalty Units and other Permitted Investments. The existence of the Trust and XXXXXXXXXX is dependent on the investment by the Trust Unitholders.
26. To finance the purchase of Royalty Units, the Trust sells Trust Units to members of the public. The price of each Royalty Unit issued is set by the Board of Directors of XXXXXXXXXX. Royalty Units have historically been issued for the same amount of consideration as for the Trust Units. Consequently, the issue price of Royalty Units and Trust Units is equivalent. Where the Trust has issued Trust Units on an installment basis, the Trust acquires Royalty Units on a fully paid basis.
27. The Trust Units are listed for trading on the XXXXXXXXXX Stock Exchanges. As at XXXXXXXXXX, there were XXXXXXXXXX Trust Units issued and outstanding, of whichXXXXXXXXXX represented partly paid installment receipts.
28. The Trust Indenture will be amended to provide that at no time may non-residents of Canada be the beneficial owners of a majority of Trust Units. If the Trustee becomes aware, as a result of requiring declarations as to beneficial ownership, that the beneficial owners of 49% or more of the trust units then outstanding are or may be non-residents or that such a situation is imminent, the trustee will not accept a subscription for Trust Units from or issue or register a transfer of Trust Units to a person unless the person provides a declaration that the person is a resident of Canada. If the trustee determines that a majority of the Trust Units are held by non-residents, the trustee may send a notice to non-resident holders of Trust Units requiring them to sell all or a portion of their Trust Units within a specified period. Failure by such Trust Unitholders to comply or provide satisfactory evidence that they are not non-residents will result in the Trustee selling their Trust Units on their behalf whereupon they will cease to be holders of Trust Units. At present, non-residents of Canada own less than 1% of the issued and outstanding Trust Units.
29. The Trust holds approximately XXXXXXXXXX % of the Royalty Units granted by XXXXXXXXXX.
30. The entitlement of Trust Unitholders to receive a percentage of the revenues of the Trust at any particular time is based on the number of Trust Units held by the particular holder in proportion to the total number of Trust Units outstanding at that time. Trust Unitholders also have a right to redeem the Trust Units for an amount equal to the sale proceeds from the sale of an equivalent number of Royalty Units less any costs of disposing of such Royalty Units and less any additional amount as determined by the Trustee to compensate other holders of Trust Units for the income tax consequences of a disposition of any Royalty Units which are sold to fund such redemption. Trust Unitholders have the right to appoint a successor Trustee upon the approval of at least 66 2/3% of the votes cast of all Trust Unitholders provided that the appointment of a successor Trustee does not cause the Trust to cease to be resident in Canada for the purposes of the Act. Any successor trustee will be a trust company incorporated under the laws of Canada or any of the Provinces of Canada and licensed thereunder to carry on the functions of a trustee.
31. Pursuant to a unanimous shareholder agreement made as of XXXXXXXXXX between XXXXXXXXXX Management and the Trustee, who acts for the Royalty Unitholders and the Trust Unitholders, the Royalty Unitholders and the Trust Unitholders effectively exercise voting rights as if they held all common shares of XXXXXXXXXX. Management is entitled to XXXXXXXXXX nominees to the board of directors of XXXXXXXXXX with such board consisting of XXXXXXXXXX directors.
32. The Trust and XXXXXXXXXX do not deal at arm's length with each other for purposes of the Act.
33. The current authorized maximum number of Trust Units and Royalty Units is XXXXXXXXXX.
34. Royalty Unitholders are under an obligation to reimburse XXXXXXXXXX on a pro rata basis for 99% of XXXXXXXXXX. In order to permit XXXXXXXXXX to pay the requisite XXXXXXXXXX, Royalty Unitholders (except the Trust) appointed the Trustee as receiver and agent and attorney for the receipt of payments under the Royalty . From the amount due in a particular period in respect of the Royalty, the Trustee, as trustee for the Royalty Unitholders, reimburses XXXXXXXXXX, by way of set-off, for an amount (the "Royalty Amount") which is equal to 99% of the XXXXXXXXXX to the extent not reimbursed by the Trust. The Trustee, as trustee for the Royalty Unitholders, disburses all amounts on hand, following the application of a portion of the amounts due to it in respect of the reimbursement of XXXXXXXXXX, to public holders of Royalty Units.
35. Concurrently, the Trustee, as trustee of the Trust, agrees to similarly reimburse XXXXXXXXXX which are attributable to Royalty Units held by the Trust for that particular period. Thereafter, the Trustee distributes the portion of the Royalty Amount that is properly due to the Trust, in accordance with the agreements governing the Trust.
36. In circumstances where XXXXXXXXXX determines that a sale of any XXXXXXXXXX, or a portion thereof, and the release of the Royalty in respect thereof would be in the best interests of the Royalty Unitholders and the Trust Unitholders
(a) XXXXXXXXXX
(b) in any other case, XXXXXXXXXX may complete the sale of the property upon approval by an extraordinary resolution of Unitholders.
The proceeds from such sale shall be allocated as to 1% of such proceeds to the disposition of such interests and as to 99% to the release of such Royalty. The amount which is attributable to the release of the Royalty will either be used to acquire other XXXXXXXXXX Properties within the same year as the disposition or will otherwise be distributed to the Royalty Unitholders.
37. XXXXXXXXXX.
II. PROPOSED TRANSACTIONS
38. XXXXXXXXXX and the Trust will execute a Facility Agreement of Purchase and Sale whereby XXXXXXXXXX will sell beneficial ownership of the Facilities and the Miscellaneous Interests to the Trust for aggregate consideration of approximately $XXXXXXXXXX. The Trust will use the net proceeds from the XXXXXXXXXX to pay a refundable deposit of $XXXXXXXXXX to XXXXXXXXXX and to purchase approximately $XXXXXXXXXX of Royalty Units. Up to $XXXXXXXXXX of the proceeds may be used to subscribe for additional Royalty Units to offset indebtedness of XXXXXXXXXX and therefore lower the cost of borrowing. A portion of such Royalty Units subscribed for may be repurchased prior to XXXXXXXXXX by XXXXXXXXXX in order to provide sufficient proceeds for the Trust to acquire the Facilities and the Miscellaneous Interests upon satisfaction of all terms of closing. The balance of the net proceeds (if any) will be held by the Trust in Permitted Investments and will be used to purchase Royalty Units in respect of subsequent acquisitions of XXXXXXXXXX Properties by XXXXXXXXXX.
39. The Trust and XXXXXXXXXX will execute a Facility Lease whereby the Trust will lease the Facilities and Miscellaneous Interests to XXXXXXXXXX on terms and conditions which are consistent with those that would be negotiated between parties that are dealing at arm's length for purposes of the Act. The material terms of the Lease are as follows:
(a) "Rent" to be paid by XXXXXXXXXX to the Trust includes XXXXXXXXXX which are defined in the Facility Lease;
(b) XXXXXXXXXX
(c) XXXXXXXXXX
(d) The initial term of the lease is XXXXXXXXXX years;
(e) The maximum number of renewals for an additional XXXXXXXXXX; and
(f) XXXXXXXXXX does not have a purchase option.
40. Where XXXXXXXXXX disposes of properties in respect of which it uses a Facility, the terms of the applicable Lease will provide that the Trust will be required to enter into a concurrent disposition of the Trust's interest as lessor.
41. The Facilities will be capital property and depreciable property of the Trust.
42. To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this request are being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed, and none of the issues are under appeal or objection.
IV. PURPOSE OF THE PROPOSED TRANSACTIONS
43. The purpose of the Proposed Transactions is to enable the Trust to equity finance its capital real property on a tax effective basis and to permit the Trust and XXXXXXXXXX to make more efficient use of XXXXXXXXXX. Under the current arrangement, taxable assets that are capital real property are financed with debt.
RULINGS ISSUED
Provided that the above statements of facts, other information, proposed transactions and purpose of proposed transactions are accurate and constitute complete disclosure thereof, and that the proposed transactions are carried out as set forth herein, the following rulings are given:
A. The Trust will be considered as a "unit trust" at a particular time, within the meaning of that expression under paragraph 108(2)(a) of the Act, provided that at that time the Trust is an "inter vivos trust" (within the meaning of that expression under subsection 108(1) of the Act), the interest of each beneficiary under which was described by reference to Trust Units which are redeemable at the option of the Trust Unitholders.
B. Subject to the provisions of subsection 132(7) of the Act, the Trust will be considered a "mutual fund trust" at a particular time within the meaning of that term under 132(6) of the Act, provided that at the particular time:
(a) the Trust is a "unit trust," within the meaning of that expression under subsection 108(2) of the Act as described above,
(b) the Trust is resident in Canada for purposes of the Act,
(c) the Trust's only undertaking remains the investing of its funds in the types of properties described in paragraph 132(6)(b) of the Act,
(d) the Trust complies with the prescribed conditions under section 4801 of the Regulations, and
(e) the Trust has neither elected to XXXXXXXXXX, as described in paragraph 19 above, nor converted its Royalty Units into a percentage of XXXXXXXXXX, as described in paragraph 20 above.
C. Amounts paid by the Trust to acquire the Facilities will be considered the cost of "depreciable property" of the Trust within the meaning assigned that term under subsection 13(21) of the Act to the extent of the portion that is allocable to the property described in Schedule II of the Regulations, provided that the other requirements and provisions of subsection 13(26) and paragraph 20(1)(a) of the Act are met.
D. The Facilities described in subparagraphs 7(a) to (i) above that are not buildings, and the Miscellaneous Interests will not be considered "rental property" of the Trust within the meaning of Regulation 1100(14) in respect of a taxation year.
E. The Facilities described in subparagraph 7(j) above and the Facilities described in subparagraphs 7(a) to (i) that are buildings will be considered rental property of the Trust and, subject to Regulations 1100(2) and (3), the aggregate of deductions allowed under Regulation 1100(1)(a) shall not exceed the amount determined under Regulation 1100(11).
F. The Facilities acquired by the Trust will not constitute "specified leasing property" of the Trust within the meaning of subsection 1100(1.11) of the Regulations and subsection 1100(1.1) of the Regulations will not be applicable thereto, provided that the Trust and XXXXXXXXXX continue not to deal at arm's length for purposes of the Act and provided the Facilities and the Miscellaneous Interests are used by the Trust for the purpose of gaining or producing gross revenue that is rent or leasing revenue.
G. The Facilities described in 7(a) to (i) above that are depreciable properties other than "rental properties" will constitute "leasing property" of the Trust within the meaning of subsection 1100(17) of the Regulations.
H. No amount will be included under paragraph 1100 (2)(a) of the Regulations in respect of a Facility of the Trust, provided that the provisions of subparagraph 1100(2.2)(f)(i) apply in respect of a particular Facility and provided that the Trust and XXXXXXXXXX continue not to deal at arm's length for the purposes of the Act.
I. Pursuant to paragraph 4900(1)(d) of the Regulations, a Trust Unit will be considered as a "qualified investment" at a particular time for the purposes of subsections 146(1) and 146.3(1) and section 204 of the Act, provided that at that time the Trust is a "mutual fund trust" within the meaning of that term under subsection 132(6) of the Act.
J. The Facilities and the Miscellaneous Interests will not be considered as "foreign property" within the meaning of that term under subsection 206(1) of the Act.
K. By virtue of subsection 5000(1) of the Regulations, the Trust Units will not be considered "foreign property" for the purposes of computing the tax payable, by a holder of Trust Units, under Part XI of the Act in respect of any particular month, provided that the only assets held by the Trust are cash, the Royalty Units and the Facilities and that the Trust is a "mutual fund trust" in the particular month within the meaning of that term under subsection 132(6) of the Act and provided that the Trust has not acquired any foreign property.
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 Revenue Canada provided the Facility Agreement of Purchase and Sale and the Facility Lease are executed by the Trust and XXXXXXXXXX before XXXXXXXXXX and the proposed transactions described in paragraphs 38 and 39 take place 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. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. Furthermore, nothing in this ruling should be construed as implying that Revenue Canada has agreed to the cost or fair market value at any particular time of any property or rent referred to herein as such a determination is a valuation matter which is beyond the scope of this ruling.
Yours truly,
Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
??
13
.../cont'd
.../cont'd
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