1998 Ruling 9826153 - LIMITED PARTNERSHIP ACB ADJUSTMENT

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: administrative position to adjust ACB of partnership interest at year end to avoid double taxation

Position: Give ruling that 53(1) and (2) adjustments apply at year end.

Reasons: Admin position discussed in tech news

XXXXXXXXXX
XXXXXXXXXX 982615
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

We are writing in response to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling with respect to the above noted taxpayer. We also acknowledge your letters dated XXXXXXXXXX and our several telephone conversations.

Except as otherwise noted, all statutory references in this ruling application are references to the provisions of the Income Tax Act Canada (the "Act").

To the best of your knowledge and that of XXXXXXXXXX none of the issues involved in this ruling is being considered by a Tax Service Office or Taxation Centre in connection with any tax return already filed and, further, none of the issues involved is the subject of any notice of objection or is under appeal.

Our understanding of the statements of facts and proposed transactions is as follows:

Facts

1. XXXXXXXXXX are individuals resident of the United States and not residents of Canada for purposes of the Act. Each of XXXXXXXXXX are related persons for purposes of the Act.

2. The XXXXXXXXXX (the "XXXXXXXXXX Trust") is an inter vivos trust resident of the United States and not resident of Canada for purposes of the Act. The sole trustee of the XXXXXXXXXX Trust is XXXXXXXXXX.

3. XXXXXXXXXX was amalgamated on XXXXXXXXXX with XXXXXXXXXX pursuant to the Business Corporations Act (XXXXXXXXXX) (the "XXXXXXXXXX"). The purpose of the amalgamation was to consolidate in a single Canadian subsidiary the Canadian revenues earned by the participants to the merger. It is a "private corporation" and a "taxable Canadian corporation". The fiscal period of XXXXXXXXXX ends on XXXXXXXXXX. The common shares of XXXXXXXXXX are owned as to XXXXXXXXXX.

The terms private corporation and taxable Canadian corporation have the meanings assigned by subsection 89(1).

4. XXXXXXXXXX were each incorporated in and are resident of the United States. XXXXXXXXXX was incorporated XXXXXXXXXX. Both XXXXXXXXXX were incorporated on XXXXXXXXXX. Each is a corporation resident of the United States and not resident of Canada for purposes of the Act. All of the issued and outstanding shares of XXXXXXXXXX are owned by the XXXXXXXXXX Trust. All of the issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX. All of the issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX.

5. XXXXXXXXXX unlimited liability company that is a "private corporation" and a "taxable Canadian corporation". It was incorporated on XXXXXXXXXX, pursuant to the XXXXXXXXXX. All of the issued and outstanding shares of each class of shares of XXXXXXXXXX are owned as to XXXXXXXXXX.

6. The principal business of XXXXXXXXXX and XXXXXXXXXX is the management and ownership of XXXXXXXXXX in Canada. XXXXXXXXXX also acts as the general partner of certain limited partnerships as described below.

7. XXXXXXXXXX were each incorporated in and are resident of the United States and not resident of Canada. Each was incorporated on XXXXXXXXXX. All of the issued and outstanding shares of each of XXXXXXXXXX are owned by XXXXXXXXXX.

8. XXXXXXXXXX unlimited liability companies incorporated pursuant to the XXXXXXXXXX. Each was incorporated on XXXXXXXXXX. Each is a "taxable Canadian corporation" and a "private corporation". All of the issued and outstanding shares of each of XXXXXXXXXX are owned as to XXXXXXXXXX.

9. XXXXXXXXXX unlimited liability company incorporated on XXXXXXXXXX pursuant to the XXXXXXXXXX is "taxable Canadian corporation" and a "private corporation". All the issued and outstanding shares of XXXXXXXXXX are owned by the XXXXXXXXXX Trust.

10. XXXXXXXXXX was formed as a limited partnership on XXXXXXXXXX under the XXXXXXXXXX. The fiscal period end of XXXXXXXXXX is XXXXXXXXXX.

11. XXXXXXXXXX was formed as a limited partnership on XXXXXXXXXX under the XXXXXXXXXX. The fiscal period end of XXXXXXXXXX is XXXXXXXXXX.

12. XXXXXXXXXX was formed as a limited partnership on XXXXXXXXXX under the XXXXXXXXXX. The fiscal period end of XXXXXXXXXX is XXXXXXXXXX.

13. XXXXXXXXXX was formed as a limited partnership on XXXXXXXXXX under the XXXXXXXXXX in connection with the reorganization (the "XXXXXXXXXX Reorganization") of XXXXXXXXXX (collectively, the "Predecessor Partnerships"). Pursuant to the XXXXXXXXXX Reorganization and, except as noted below, public holders of units of XXXXXXXXXX transferred their units to XXXXXXXXXX in exchange for units of XXXXXXXXXX effective XXXXXXXXXX. The Predecessor Partnerships thereby became subsidiary partnerships of XXXXXXXXXX was then also appointed the general partner of each of the Predecessor Partnerships. This transaction was the subject of an advance income tax ruling 3-912905 dated XXXXXXXXXX.

14. XXXXXXXXXX is a "private corporation" and a "taxable Canadian corporation". It was incorporated on XXXXXXXXXX pursuant to the XXXXXXXXXX. The fiscal period of XXXXXXXXXX ends on XXXXXXXXXX. All of the issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX owns one unit each of XXXXXXXXXX.

15. XXXXXXXXXX each hold a XXXXXXXXXX% direct minority interest in each of XXXXXXXXXX, and a XXXXXXXXXX % direct minority interest in XXXXXXXXXX. The interests of XXXXXXXXXX and the XXXXXXXXXX Estate may be exchanged at any time for units of XXXXXXXXXX at the same exchange ratios used in connection with the XXXXXXXXXX Reorganization (i.e. XXXXXXXXXX).

16. The capital of XXXXXXXXXX is divided into XXXXXXXXXX limited partnership units of which XXXXXXXXXX are issued and outstanding. The units of XXXXXXXXXX are XXXXXXXXXX. As at XXXXXXXXXX the units of XXXXXXXXXX were held as follows:

Holder Outstanding Units Percentage (%)

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

17. XXXXXXXXXX was formed as a limited partnership on XXXXXXXXXX under the XXXXXXXXXX. The capital of the XXXXXXXXXX is divided into XXXXXXXXXX limited partnership units of which XXXXXXXXXX are issued and outstanding. The units of XXXXXXXXXX are XXXXXXXXXX. As at XXXXXXXXXX, the units of XXXXXXXXXX were held as follows:

Holder Outstanding Units Percentage (%)

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

18.

XXXXXXXXXX

19. Each of XXXXXXXXXX carries on the business of XXXXXXXXXX.

20. The aggregate fair market value of the respective properties of each of XXXXXXXXXX that are real properties situated in Canada is more than XXXXXXXXXX % of the aggregate fair market value of all of the respective properties of each Partnership and, accordingly, the Units of XXXXXXXXXX are "taxable Canadian properties" pursuant to clause 115(1)(b)(vii).

21. Each of XXXXXXXXXX is governed by the terms of a limited partnership agreement among all of the limited partners of that particular partnership and the general partner of that partnership (each one an "Agreement"). Each Agreement provides for a variety of matters relating to the business and affairs of the particular partnership, including the fiscal period of the particular partnership, the manner in which income and losses of the particular partnership must be allocated to the partners of the particular partnership, the manner in which cash is to be distributed by the particular partnership to its partners and various related matters. The terms and conditions of each Agreement governing the respective partnerships are substantially similar. There are, however, certain material differences. The XXXXXXXXXX Agreement provides that pursuant to a management agreement entered into between XXXXXXXXXX is entitled to a monthly property management fee equal to XXXXXXXXXX% the gross operating revenues of XXXXXXXXXX for carrying out the duties set out in such agreement. In the case of the XXXXXXXXXX properties, the same XXXXXXXXXX % fee is charged by XXXXXXXXXX pursuant to management agreements entered into between XXXXXXXXXX and each Predecessor Partnership pursuant to the terms of the agreement governing such Predecessor Partnership. Furthermore, under the XXXXXXXXXX Agreement, XXXXXXXXXX is entitled to an incentive fee (the "Incentive Right") calculated as a percentage of the distributable cash of XXXXXXXXXX. The "distributable cash" of XXXXXXXXXX is defined to mean the "Cash Flow" plus net proceeds of all sales and mortgages of XXXXXXXXXX properties. Cash Flow means cash funds provided from operation of XXXXXXXXXX without deduction for depreciation or for incentive distributions payable to the general partner but after deducting cash funds used to pay or establish a reserve for all other expenses, including management fees, debt payments, capital improvements and replacements.

22. Under the terms of each Partnership Agreement, and after payment to XXXXXXXXXX on account of the Incentive Right in the case of XXXXXXXXXX income and loss (as determined for purposes of the Act) is allocated at the end of each fiscal year to the respective holders of XXXXXXXXXX units then outstanding. The allocation is made in proportion to the number of units held by each such holder at the relevant time.

23. Under the terms of each agreement governing the Predecessor Partnerships, the net income or net loss of the partnership for each financial year is allocated among those who were unitholders of the partnership during such year in the ratio that quarterly cash distributions of the partnership received by each such unitholder bears to the total cash paid out by the partnership to the unitholders during such year. In the event that the partnership does not distribute any cash to the unitholders in any year, one-quarter of the net income or net loss of the partnership for such year shall be allocated to the holders of such units at the end of each financial quarter of such year on a pro rata basis.

Proposed Transactions

24. In order to consolidate their operations and legal structure, XXXXXXXXXX will be combined to form a single entity (the "Merger") and the Predecessor Partnerships will be dissolved. The Merger transactions will take place in the order set out below. Completion of the Merger will be conditional on approval of the Extraordinary Resolutions (as defined below) and XXXXXXXXXX obtaining satisfactory advance income tax rulings.

25. A limited partnership will be formed under the laws of XXXXXXXXXX by registration of a declaration of partnership under the XXXXXXXXXX (the "New Partnership"). The New Partnership's general partner and initial limited partner will enter into an agreement governing the partnership (the "New Agreement"), the terms and conditions of which will be substantially similar to those contained in each Agreement (however, see below). Each person acquiring units of the New Partnership will become a party to the New Agreement upon such person's acceptance of such units.

The New partnership units XXXXXXXXXX on the XXXXXXXXXX at the time of the Merger transaction. XXXXXXXXXX can only take place on a business day of the XXXXXXXXXX ie: XXXXXXXXXX. The next business day would be XXXXXXXXXX which would result in a three day "stub period" should the merger take place in XXXXXXXXXX.

26. The New Agreement will differ from the Agreement made in respect of XXXXXXXXXX in that the general partner will not be entitled to an incentive fee calculated by reference to the distributable cash of the New Partnership.

27. The New Agreement will provide that each limited partner grants to the general partner both a general power of attorney and a specific power of attorney to make any elections under the Act on behalf of each individual limited partner of the New Partnership, and will confer upon the general partner the authority to make such elections on behalf of the New Partnership itself.

28. XXXXXXXXXX will be the general partner of the New Partnership. The initial limited partner will be a Canadian resident corporation (the "Nominee"). The Nominee will acquire one limited partnership unit in the New Partnership for nominal consideration, which unit will in turn be redeemed for nominal consideration following completion of the Merger (see paragraph 47 below). The fiscal period end of the New Partnership will be XXXXXXXXXX.

29. The New Agreement will further provide that persons who are not residents of Canada for purposes of the Act will not be permitted to acquire or hold units of the New Partnership. For these purposes, the general partner of the New Partnership will be required to represent, warrant, covenant and agree with each limited partner of the New Partnership that the general partner is not a non-resident of Canada for the purposes of the Act. In addition, each limited partner of the New Partnership will be required to represent, warrant, covenant and agree with each other limited partner of the New Partnership that such limited partner:

(i) or any beneficial owner of units registered in such limited partner's name is not a "non-resident" of Canada for the purposes of the Act, and, if a partnership is a "Canadian partnership" under the Act; and

(ii) shall ensure that its status shall not be modified and that such limited partner shall not transfer its units, or any beneficial interest therein, in whole or in part, to a person who is not able to make these representations warranties and covenants (collectively, the "residency restrictions").

Notwithstanding the foregoing, in the event that the Canadian Depositary for Securities Limited, or any other clearing agency (a "Clearing Agency"), is or proposes to become a holder of units on behalf of a beneficial owner of units, such Clearing Agency need not make such representations, warranties and covenants with respect to any beneficial owner of units registered in the name of the Clearing Agency, and the same shall be deemed to be made by the beneficial owner from time to time of the units held by the Clearing Agency.

30. Each limited partner, including a Clearing Agency, will also be required to covenant and agree that it will, upon request, promptly provide evidence to the general partner of the New Partnership that its status (or the status of any beneficial owner of units registered in the name of that limited partner) is in compliance with the residency restrictions. In the event of any failure of a limited partner to comply with such notice, or in the event that the general partner otherwise determines that a person has become a holder or beneficial owner of units in contravention of the residency restrictions, the general partner by written notice to the holder of such units (an "Affected Holder") will require the Affected Holder to sell such units to a person who does not contravene the residency provisions. In the event that the units are not sold in the period provided in the notice, the general partner may then sell the units on behalf of the Affected Holder. For greater certainty the New Agreement will further provide that in the event the general partner determines that a person has become an Affected Holder of units, then the Affected Holder shall be deemed to have ceased to be a limited partner of the New Partnership in respect of its ownership of such units effective immediately prior to the date of contravention, and shall not be entitled to any New Partnership distributions and its New Partnership units shall be deemed not to be outstanding until acquired by a new holder or beneficial owner; provided that the holders of other units of the New Partnership (and beneficial owners thereof) shall not be entitled to any portion of the distributions paid in respect of any such units that have been so deemed not to be outstanding.

31. XXXXXXXXXX will enter into a new management agreement with the New Partnership pursuant to which XXXXXXXXXX will provide the services referred to therein to the New Partnership for a monthly management fee equal to XXXXXXXXXX% of the aggregate gross operating revenues of the New Partnership.

32. A corporation ("Subco") will be incorporated under the XXXXXXXXXX. The New Partnership will subscribe for all of the issued and outstanding shares of Subco for a nominal amount of consideration. Subco shall remain a wholly-owned corporation of the New Partnership until it is wound-up into the New Partnership.

33. Pursuant to the Agreement, a meeting (the "Meeting") of the persons holding the units of each of XXXXXXXXXX (the "Unitholders") will be held for the purpose of voting on some "Extraordinary Resolutions" to give effect to the Merger. The following resolutions will be put forward for approval as Extraordinary Resolutions in the case of each of XXXXXXXXXX.

(a) approve the election of the New Partnership as the general partner of each of XXXXXXXXXX to replace XXXXXXXXXX;

(b) amend the Partnership Agreement to provide for the following:

(i) the issue of one additional unit of XXXXXXXXXX for nominal consideration to a person designated by the general partner (i.e., Subco);

(ii) after the close of business on XXXXXXXXXX, effective as at that time, there will be a mandatory purchase by the New Partnership of the units of any and all Unitholders who are non-residents of Canada for fair market value cash consideration;

(iii) on XXXXXXXXXX, effective following the mandatory sale of units by the non-resident Unitholders, there will occur a mandatory exchange by all Canadian resident Unitholders who submit a letter of transmittal to New Partnership not later than XXXXXXXXXX (see below) of their units of XXXXXXXXXX, as the case may be, for units of the New Partnership having a fair market value equal to the value of the units so exchanged. The Extraordinary Resolution will not specifically identify each Canadian resident Unitholder, but will apply generically to all Unitholders who will at XXXXXXXXXX and immediately thereafter be residents of Canada for purposes of the ITA. Canadian resident Unitholders who do not submit a letter of transmittal on a timely basis will not become members of New Partnership, and as of XXXXXXXXXX will only be entitled to receive fair market value cash consideration for their units; and

(iv) on XXXXXXXXXX, effectively immediately following the mandatory sale and exchange of XXXXXXXXXX units by the Unitholders, the XXXXXXXXXX units will be delisted from the XXXXXXXXXX and so become non-tradeable.

34. In the case of XXXXXXXXXX, the Extraordinary Resolution will also provide for the exchange by XXXXXXXXXX of its Incentive Right to the New Partnership for units of the New Partnership.

35. The number of limited partnership units of the New Partnership to be issued to XXXXXXXXXX and the Canadian resident Unitholders will be based upon the respective fair market values of the units in XXXXXXXXXX and upon the fair market value of the Incentive Right. An independent third party valuator will render an opinion in writing as to the exchange ratios, and also as to the fair value payable to non-resident Unitholders in respect of the purchase of their units.

36. The Meeting proxy solicitation information circular will indicate that upon the Merger transactions becoming effective on XXXXXXXXXX, the only holders of units of XXXXXXXXXX will be the New Partnership and Subco. Certificates representing XXXXXXXXXX units held by other persons will thereafter become non-tradeable, and will represent an entitlement to either certificates representing the relevant number of units in the New Partnership, or to cash proceeds in respect of the sale of such units to the New Partnership, as the case may be.

37. The Meeting materials sent to a registered holder of XXXXXXXXXX units, as the case may be, will include a form of affidavit (to be included with a form of proxy) in respect of those units requiring that the holder identify itself as falling within one of three categories:

(a) a Canadian partnership or a person that is not a non-resident of Canada that is the ultimate beneficial owner of the units;

(b) a Canadian partnership or a person that is not a non-resident of Canada that is a nominee holding the units on behalf of an ultimate beneficial owner of the units that is a Canadian partnership or a person that is not a non-resident of Canada; or

(c) other.

The Meeting materials will specify that where a registered holder holds units as nominee on behalf of more than one beneficial holder, a separate affidavit in the form provided must be completed in respect of the units held on behalf of each such beneficial owner. In the case of those units held in the circumstances described in (a) and (b) above, the registered holder will in addition be asked to provide the social insurance number or business number of the Unitholder, as well as the adjusted cost base for purposes of the Act (the "ACB") of such units to the Unitholder or such other amount (not exceeding fair market value) to be the Unitholder' s "agreed amount" in respect of the transfer of such units to the New Partnership for purposes of the subsection 97(2) election. Where a Canadian resident Unitholder does not provide a specific elected amount in its response or in its response to any other communication requesting such information, the agreed amount will be $XXXXXXXXXX. Similar information will be obtained by XXXXXXXXXX for all Canadian resident registered owners who are not nominee holders. Such information is hereinafter referred to as the "Election Information".

38. The Meeting materials will specify that in the case of the XXXXXXXXXX units held in circumstances defined in (a) and (b) above as at XXXXXXXXXX, on submission of a letter of transmission by registered holder not later than XXXXXXXXXX, there will be issued to such registered holder one or more certificates representing units of the New Partnership. In the case of XXXXXXXXXX units so held where the registered holder does not submit a transmittal form by XXXXXXXXXX, on submission of a transmittal form to New Partnership after that time there will be paid to the registered owner there of in respect of such Units the lesser of (i) an amount equal to the fair market value of such units as at XXXXXXXXXX (the "Purchase Price"); and (ii) the current fair market value of such Units determined by reference to the current trading price of units of the New Partnership and the exchange ratio applicable to Canadian resident unitholders. In the case of those XXXXXXXXXX units held as at XXXXXXXXXX, in circumstances described in (c) above, on submission of a transmittal form to the New Partnership there will be paid to the registered owners thereof in respect of such units (i) if the transmittal form is received on or before XXXXXXXXXX, the Purchase Price; or (ii) if the transmittal form is received on or after XXXXXXXXXX, the lesser of (x) the Purchase Price and (y) the current fair market value of such units determined by reference to the current trading price of units of the New Partnership and the exchange ratio applicable to the resident Canadian unitholder. The registered holder will then also be required to comply with the requirements of section 116 in respect of the sale of units to the New Partnership including payment of any tax provided for thereunder.

39. On XXXXXXXXXX each of the Predecessor Partnerships, XXXXXXXXXX will allocate their income for the XXXXXXXXXX fiscal period for purposes of the Act in accordance with the Agreements governing such partnerships.

40. On XXXXXXXXXX, Subco will subscribe for a nominal limited partner interest in each of the XXXXXXXXXX for a nominal amount of consideration.

41. On XXXXXXXXXX the XXXXXXXXXX Trust will transfer all of its units of XXXXXXXXXX IV and the Predecessor Partnerships to XXXXXXXXXX in exchange for common shares of XXXXXXXXXX. The XXXXXXXXXX Trust and XXXXXXXXXX will execute and file an election under subsection 85(1) in respect of such transfers, and for these purposes will specify an "agreed amount" equal to the ACB of the units to the XXXXXXXXXX Trust. The XXXXXXXXXX Trust will obtain clearance certificates pursuant to subsection 116(2) in respect of and prior to such transfers.

42. On XXXXXXXXXX will each purchase from the XXXXXXXXXX Estate one-third of all of the units of each of the Predecessor Partnerships and XXXXXXXXXX held by the XXXXXXXXXX Estate for fair market value cash consideration. The XXXXXXXXXX Estate and each of XXXXXXXXXX will comply with the requirements of section 116 in respect of such transfers.

43. On XXXXXXXXXX will transfer its rights as general partner of XXXXXXXXXX (including the Incentive Right) to the New Partnership in exchange for units of the New Partnership. XXXXXXXXXX in its personal capacity and its capacity as general partner of the New Partnership on behalf of the limited partners thereof will make an election under subsection 97(2) in respect of the transfer, specifying an agreed amount equal to the ACB to XXXXXXXXXX of the property transferred to the New Partnership.

44. On XXXXXXXXXX, the Merger transactions described at paragraph 33(b)(ii) will be effected.

45. On XXXXXXXXXX will exchange its Predecessor Partnership units acquired from the XXXXXXXXXX Trust and acquire at fair market value an aggregate XXXXXXXXXX units of XXXXXXXXXX and each of XXXXXXXXXX will exchange its Predecessor Partnership units acquired from the XXXXXXXXXX Estate and acquire at fair market value units of XXXXXXXXXX. XXXXXXXXXX in its capacity as general partner of XXXXXXXXXX will make an election under subsection 97(2) in respect of the transfer, specifying an "agreed amount" equal to the ACB to XXXXXXXXXX of the property transferred XXXXXXXXXX. Each of XXXXXXXXXX together with XXXXXXXXXX in its capacity as general partner of XXXXXXXXXX will make an election under subsection 97(2) in respect of their respective transfer of units, specifying an agreed amount equal to the ACB to such corporation of the property transferred to XXXXXXXXXX.

46. On XXXXXXXXXX, the Merger transactions described above at paragraph 33(b)(iii) will be effected.

47. On XXXXXXXXXX, the limited partnership unit in the New Partnership held by the Nominee will be purchased for redemption at its nominal subscription price.

48. As soon as practicable following XXXXXXXXXX as general partner of the New Partnership will file a prescribed form T2059 with Revenue Canada for purposes of effecting the election provided in subsection 97(2) in respect of the sale of general units of XXXXXXXXXX by Unitholders resident of Canada to the New Partnership. The election information provided in respect of such Unitholders will be appended to the prescribed form.

49. As soon as practicable after XXXXXXXXXX, each Predecessor Partnership will enter into an assignment, assumption and dissolution agreement with XXXXXXXXXX providing for the assignment by each Predecessor Partnership of all of its assets to each of XXXXXXXXXX such that each such person shall have an undivided interest in each Predecessor Partnership property in proportion to its interest in the Predecessor Partnership at the time of dissolution. The dissolution agreement will also provide for the assumption by XXXXXXXXXX of all of the liabilities of the Predecessor Partnership on a pro rata basis, and the dissolution of the Predecessor Partnership.

50. Immediately following the dissolution of the Predecessor Partnerships, XXXXXXXXXX will enter into an assignment, assumption and dissolution agreement providing for the assignment by XXXXXXXXXX of all of its assets and the assumption by XXXXXXXXXX of all of XXXXXXXXXX liabilities and the dissolution of XXXXXXXXXX.

51. Immediately following the dissolution of XXXXXXXXXX, each of XXXXXXXXXX will enter into assignment, assumption and dissolution agreement with the New Partnership and Subco providing for the assignment by each of XXXXXXXXXX of all of its assets to each of the New Partnership and Subco such that each such person shall have an undivided interest in each property of XXXXXXXXXX, as the case may be, in proportion to its interest in the XXXXXXXXXX at the time of dissolution. The dissolution agreement will also provide for the assumption by the New Partnership and Subco of all of the liabilities of XXXXXXXXXX on a similar pro rata basis, and the dissolution of each of XXXXXXXXXX.

52. The New Partnership and Subco will enter into an assignment, assumption and dissolution agreement providing for the assignment by Subco of all of its assets and the assumption by the New Partnership of all of Subco's liabilities and the dissolution of Subco.

Purpose Of The Proposed Transactions

The purpose of the proposed transactions is to accomplish several business-related objectives. First, there will be a reduction in the administrative costs associated with operating two separate publicly listed limited partnerships that have substantially the same attributes and carry on the same business. Second, the reorganization of the XXXXXXXXXX should enhance liquidity for all limited partners by combining two public entities into one public entity. Third, to the extent the properties of the XXXXXXXXXX require refinancing in the future, it is expected that more beneficial terms and conditions can be obtained if the properties of all XXXXXXXXXX can be covered by the same financing.

The Merger would offer additional commercial advantages to the New Partnership not presently available to XXXXXXXXXX on the basis that the New Partnership would be a Canadian partnership for the purposes of the ACT. in particular, it would then be possible for persons transferring assets to the New Partnership as part of an acquisition transaction to transfer such assets on a tax-deferred basis pursuant to subsection 97(2). This added flexibility would be of valuable assistance to the New Partnership for purposes of facilitating property acquisition.

Consistent with these objectives, the business of each of XXXXXXXXXX and of the New Partnership will be carried on for an indeterminate period of time following the Merger and reorganization as there is no intention to dispose of or discontinue any of the businesses.

The Merger transactions have been structured so that the conditions are satisfied for the application of subsection 97(2) to the exchange of units of XXXXXXXXXX for units of the New Partnership.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts and proposed transactions, the proposed transactions are carried out as described herein and in accordance with the documents and agreements submitted in respect of this request and that there are no material difference in the terms and conditions of the final signed documents and agreements from the drafts submitted with this request our rulings are as follows:

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

B. Each of XXXXXXXXXX will be a Canadian partnership, as defined in subsection 102(1) of the Act, at any particular time provided all of the members of the XXXXXXXXXX, as the case may be, are resident in Canada for purposes of the Act at that particular time. For this purpose, a member of a XXXXXXXXXX, as the case may be, which 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 XXXXXXXXXX, as the case may be.

C. Provided that New Partnership is a Canadian partnership immediately after the unit transfers referred to in 33(b)(iii) hereof, and that XXXXXXXXXX executes the prescribed form T2059 and files the form, together with the lists identifying those Canadian resident Unitholders participating in the election, within the time prescribed therefor under subsection 96(4) (or files the form within the time prescribed in subsection 96(5) and pays the requisite penalty), the provisions of subsection 97(2) will apply in respect of the unit transfers referred to in paragraph 33(b)(iii) above for those Canadian resident Unitholders identified in the lists. Such Canadian resident Unitholders will be deemed to dispose of their Partnership units to New Partnership for proceeds of disposition equal to the "agreed amount" determined in accordance with subsection 97(2) and to have acquired units in the New Partnership having a cost amount equal to the "agreed amount", subject to the provisions of paragraphs 85(1)(c) and (c. l). The New Partnership will be deemed to have acquired the units at an aggregate cost amount equal to such Canadian resident Unitholders' aggregate deemed proceeds of disposition.

D. Subject to Ruling A above, for the purpose of the application of the provisions of subsection 97(2) to a Partnership unit transfer, XXXXXXXXXX may execute and file the prescribed from T2059, together with the lists identifying those Canadian resident partners participating in the election, provided that XXXXXXXXXX has authority to act on behalf of the transferor, New Partnership and on behalf of all the members of New Partnership and, where a member of New Partnership is a partnership, that XXXXXXXXXX has authority to act on behalf of each member of such partnership.

E. The New Partnership will not be subject to any liability under subsection 116(5) in respect of Partnership units acquired from those Unitholders that provide satisfactory evidence in writing in the form of an affidavit that they are residents of Canada, or where a clearance certificate under subsection 116(4) has been issued to those Unitholders and to the New Partnership in respect of the units acquired. Otherwise, New Partnership will be liable under subsection 116(5) to pay and remit any amount to the Receiver General for Canada in respect of its acquisition of units from a Unitholder that is a non-resident person from the later of XXXXXXXXXX, and such date that such Unitholder submits a transmittal form to New Partnership as described in paragraph 38.

F. Subject to the condition that no material transactions resulting in gains or losses will be affected by XXXXXXXXXX after the close of business on XXXXXXXXXX, and before XXXXXXXXXX, for purposes of computing any gain or loss on a sale of XXXXXXXXXX units to the New Partnership or any other person on XXXXXXXXXX in contemplation of the Merger, the net income of XXXXXXXXXX for the fiscal period ended XXXXXXXXXX will be added to the ACB of the Units held by each unitholder of XXXXXXXXXX as of the time immediately prior to the transactions referred to in paragraph 41 above pursuant to subparagraph 53(1)(e)(i).

G. Subject to the condition that no material transactions resulting in gains or losses will be affected by XXXXXXXXXX after the close of business on XXXXXXXXXX, and before XXXXXXXXXX, for purposes of computing any gain or loss on a sale of XXXXXXXXXX units to the New Partnership or any other person on XXXXXXXXXX in contemplation of the Merger, the net income of XXXXXXXXXX for the fiscal period ended XXXXXXXXXX will be added to the ACB of the Units held by each Unitholder of XXXXXXXXXX immediately prior to the transactions referred to in paragraph 41 above pursuant to subparagraph 53(1 )(e)(i).

H. Provided that XXXXXXXXXX, as the case may be, is a Canadian partnership as defined in subsection 102(1 ) at the time it is wound-up and dissolved, the assets of XXXXXXXXXX, as the case may be, may be distributed to its partners as described in paragraph 51 above in accordance with and to the extent permitted by the provisions of subsection 98(3). For this purpose, one election form prescribed for purposes of subsection 98(3) must be completed on behalf of each of the New Partnership and the general partner of each of XXXXXXXXXX.

I. Provided that a Predecessor Partnership is a Canadian partnership as defined in subsection 102(1) at the time it is wound-up and dissolved, the assets of a Predecessor Partnership may be distributed to its partners as described in paragraph 49 above on a tax-deferred basis in accordance with and to the extent permitted by the provisions of subsection 98(3). For this purpose, one election form prescribed for purposes of subsection 98(3) must be completed on behalf of each of New Partnership and the general partner of the Predecessor Partnership.

J. Subject to the condition that no material transactions resulting in gains or losses will be effected by a Predecessor Partnership after the close of business on XXXXXXXXXX and before XXXXXXXXXX, for purposes of computing any gain or loss on the sale of such Predecessor Partnership units as described in paragraphs 41 and 42 above, the net income of the Predecessor Partnership for the fiscal period ended XXXXXXXXXX will be added to the ACB of the units as of the time immediately prior to the transactions referred to in paragraphs 41 and 42 above pursuant to subparagraph 53(1)(e)(i).

K. Subsection 245(2) of the Act will not be applied to redetermine the tax consequences confirmed in the rulings given.

These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada, Taxation provided that the proposed transactions described herein are completed before XXXXXXXXXX.

Opinion

Although we have not seen all the facts regarding the "Incentive Right" referred to in paragraph 43 above, we are of the view, based on the information available to us, that the "Incentive Right" is not "eligible property" as that term is defined in subsection 85(1.1).

Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.

Yours truly,

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

??

6

		.../cont'd

		.../cont'd