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 the units of the Funds be "qualified for distribution to the public" within the meaning of paragraph 4801(a) of the Regulations where an Offering Memorandum has been prepared and delivered to the Ontario Securities Commission (OSC) and the units of the Funds are offered to a variety of different types of investors on a private placement basis in reliance on one or more exemptions from the requirement to prepare a prospectus under the Ontario Securities Act (OSA).
Position: Yes
Reasons: An Offering Memorandum has been accepted as a "similar document" for the purposes of paragraph 4801(a) of the Regulations in various rulings and opinions in cases where a prospectus exemption was available under the OSA, an Offering Memorandum was delivered to the OSC, and units were issued on a private placement basis. (See 950743, 960375, 970979, 981035.)
XXXXXXXXXX
XXXXXXXXXX 3-982511
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; or
(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:
“ACo” means XXXXXXXXXX.
“BCo” means XXXXXXXXXX.
“Fund A” means XXXXXXXXXX.
“Fund B” means XXXXXXXXXX.
“Fund C” means XXXXXXXXXX.
“Fund D” means XXXXXXXXXX.
“Fund E” means XXXXXXXXXX.
“Fund F” means XXXXXXXXXX.
“Fund G” means XXXXXXXXXX.
“Fund H” means XXXXXXXXXX.
“Fund I” means XXXXXXXXXX.
“Fund J” means XXXXXXXXXX.
“Fund K” means XXXXXXXXXX.
“Funds” means Funds A to K collectively.
“New Funds” means Funds E and J collectively.
“OSA” means the Ontario Securities Act.
The Funds deal with the XXXXXXXXXX Tax Services Office and file, or will file, their returns at the XXXXXXXXXX Tax Centre.
Our understanding of the relevant facts, proposed transactions and purpose thereof is as follows:
FACTS
1. Each Fund is an inter vivos trust that was established by a supplement to a trust indenture dated as of XXXXXXXXXX under the laws of the Province of Ontario and is a “unit trust” within the meaning of paragraph 108(2)(a) of the Act.
2. For each Fund the address, business number (if assigned) and the date the Fund was created is listed in Schedule A.
3. ACo is the manager and trustee of each Fund, and it is a “taxable Canadian corporation” as defined in subsection 89(1) of the Act. ACo has retained BCo, a related company, as the investment advisor to the Funds.
4. The interest of each beneficiary of each Fund is described by reference to units. The capital of each Fund is represented by one class of units, and each unitholder’s proportionate interest in a Fund is based on the number of units of the Fund held by the unitholder. Each unit of a Fund represents an equal undivided interest in the Fund and is entitled to participate in all distributions made by the Fund, and in its net assets on any liquidation of the Fund, on a proportionate basis.
5. Units in a Fund may be redeemed on any day by an investor at a price calculated by reference to the net asset value thereof on the day, if it is a “Valuation Day,” or on the next day that is a Valuation Day. The net asset value per unit is computed by dividing the value of the net assets of the Fund (assets less liabilities) by the total number of units outstanding at the time including units to be redeemed as of the day of computation but excluding units to be issued on such day. Each of the Funds has a daily Valuation Day (i.e., each business day) other than Fund K whose Valuation Day is weekly.
6. The only undertaking of each Fund is the investment of its funds in property in accordance with its investment objectives.
7. Each Fund, other than the New Funds, has no fewer than 150 unitholders each of whom holds at least one “block of units” as defined in subsection 4803(1) of the Income Tax Regulations having an aggregate fair market value of at least $500. The New Funds, which were established in 1998, do not yet have 150 unitholders, but each expects to have the requisite number of unitholders each of whom will hold at least one block of units having an aggregate fair market value of at least $500.
8. Units of the Funds are offered to a variety of different types of investors such as high net worth individuals and deferred income plans (e.g., trusts governed by registered retirement savings plans, registered retirement income funds, or deferred profit sharing plans) on a private placement basis in reliance on one or more exemptions from the requirement to prepare a prospectus under the OSA. The accounts of these investors are fully managed by ACo or by BCo.
PROPOSED TRANSACTIONS
9. Each of the Funds propose to begin offering their units to investors by way of an offering memorandum. Therefore, the Funds propose to prepare, on a consolidated basis, an offering memorandum within the meaning of the OSA which, as required under that Act, will describe each Fund, its business and affairs and the terms of the units offered by each Fund. Although the Funds are not required under applicable securities laws to provide the offering memorandum to investors therein, each of the Funds will provide the offering memorandum to at least one investor therein. Under the OSA, if an investor is provided with a copy of the offering memorandum and purchases securities of the issuer pursuant to certain private placement exemptions from the prospectus requirements of the OSA, the offering memorandum must contain a “contractual right of action” against an issuer for rescission 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. As required under the OSA, ACo will deliver an offering memorandum for each Fund to the Ontario Securities Commission containing a contractual right of action. Such an offering memorandum is not required by law to be accepted by the Ontario Securities Commission. Units of the Funds will be distributed to the public both before and after the offering memorandum in respect of the Funds is so delivered and such distributions will be lawful and those made after the delivery will be made under the specific terms, conditions and requirements described in the offering memorandum.
PURPOSE OF PROPOSED TRANSACTIONS
10. The purpose of the proposed transactions is to enable the units of each Fund to satisfy the prescribed condition, “qualified for distribution to the public,” contained in paragraph 4801(a) of the Income Tax Regulations.
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 each Fund distributed after the offering memorandum in respect of that Fund has been delivered to the Ontario Securities Commission 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 an offering memorandum, as described in 9 above, is delivered to the Ontario Securities Commission within six months of the date of this letter.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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