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.
XXXXXXXXXX
XXXXXXXXXX 990263
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: Advance Income Tax Ruling for
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested on behalf of the Funds an advance income tax ruling under the Income Tax Act (Canada) (the "Act"). We acknowledge your subsequent correspondence of XXXXXXXXXX and our related telephone conversations.
To the best of your knowledge and that of XXXXXXXXXX none of the issues described herein is:
A. in an earlier return of XXXXXXXXXX or a related person;
B. being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX or a related person;
C. is under objection by XXXXXXXXXX or a related person;
D. is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
E. the subject of a ruling previously issued by the Directorate.
As Fund 1 and Fund XXXXXXXXXX were recently established and the remaining Funds are not yet established, the Funds do not yet have a business number and, except for Fund 1, have not yet filed income tax returns. The Funds will file their tax returns at the XXXXXXXXXX Taxation Centre of Revenue Canada.
Definitions
"Act" = Income Tax Act (Canada)
"Draft Trust Agreement" = the draft trust agreement which was enclosed with your request for an advance income tax ruling
"Established Funds" = Fund 1 and Fund XXXXXXXXXX
"Manager" = XXXXXXXXXX, the manager of Fund 1
"Proposed Funds" = Fund XXXXXXXXXX through Fund XXXXXXXXXX, inclusive, Fund XXXXXXXXXX and Fund XXXXXXXXXX
"Trustee" = XXXXXXXXXX, the trustee of Fund 1
Facts
1. The Trustee is a taxable Canadian corporation within the meaning of the Act and is a trust company licensed to carry on the business of providing trust services in Canada. XXXXXXXXXX.
2. The Manager is a taxable Canadian corporation within the meaning of the Act XXXXXXXXXX.
3. Fund 1 was established under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX. The Manager is primarily responsible for the investment of Fund 1's assets. The Trustee and the Manager agreed to enter into a trust agreement substantially in the form of the Draft Trust Agreement. Fund XXXXXXXXXX was recently established under the laws of the Province of XXXXXXXXXX pursuant to a trust agreement substantially in the form of the Draft Trust Agreement.
4. The Established Funds are XXXXXXXXXX trusts and "unit trusts" within the meaning of paragraph 108(2)(a) of the Act. The sole undertaking of the Established Funds is to invest their assets for the benefit of their unitholders in accordance with their investment objectives set out in their respective trust agreements.
5. The investment objective of Fund 1 is XXXXXXXXXX. Accordingly, units of the Established Funds are expected to be foreign property within the meaning of Part XI of the Act.
6. The capital of each of the Established Funds is represented by one class of units. The trust agreements for the Established Funds stipulate that the Established Funds are each authorized to issue an unlimited number of one class of units. Each unit of the Established Funds represents an equal, proportionate, undivided interest in the assets of the respective Established Fund and all such units outstanding will participate pro rata in any distributions made by the respective Established Funds. In the event of the termination of the Established Funds, the unitholders of each Established Fund will participate pro rata in the proceeds of the net assets of their respective Established Fund. No unit in the Established Funds shall have any rights, preferences or priorities over any other unit in their respective Established Fund.
7. The units of the Established Funds may be purchased by the investors at a price per unit equal to the net asset value thereof as determined under the Established Funds' respective trust agreements on the valuation date on which the relevant application for units is accepted by the Manager. The units of the Established Funds may be redeemed at a price equal to the net asset value thereof as determined under the Established Funds' respective trust agreements on the valuation date on which the redemption notice is effective, provided that the unitholder delivered a notice to the Manager requesting such redemption in the manner and form prescribed by the Manager. A valuation date for this purpose means XXXXXXXXXX and such other additional periodic dates that the Trustee may determine.
8. Under the trust agreement for each Established Fund, the net asset value per unit of each Established Fund will be equal to the net asset value of such Established Fund divided by the number of units outstanding. The net asset value of the units for each Established Fund is computed by subtracting the particular Established Fund's liabilities from the value of such Established Fund's property.
9. The trust agreements for the Established Funds presently require each Established Fund to distribute to their respective unitholders on or before the last day of each taxation year the amount, if any, by which its net income and net realized capital gains exceeds the aggregate of any other distributions made to unitholders during the year, any non-capital losses of the Established Funds and XXXXXXXXXX.
10. The trust agreements for the Established Funds state that all unitholders of the Established Funds have the legal right to enforce payment of any distributions which are due and payable by the Established Funds to them in respect of units held by them.
11. The trust agreements for the Established Funds provide that distributions payable by the Established Funds to their respective unitholders will be reinvested in additional units of the particular Established Fund on the date of the distribution. XXXXXXXXXX.
Proposed Transactions
12. It is proposed that XXXXXXXXXX ("the Proposed Funds") will be established under the laws of the Province of XXXXXXXXXX pursuant to trust agreements in XXXXXXXXXX. It is proposed that the terms of the trust agreements for the Proposed Funds will be substantially similar to that of Fund 1, except as noted below in paragraph 13. Accordingly, refer to the description above for the Established Funds, with the appropriate modifications, for a description of the Proposed Funds.
13. The investment objective of Fund XXXXXXXXXX is
XXXXXXXXXX.
Accordingly, units of the Proposed Funds are expected to be foreign property within the meaning of Part XI of the Act.
14. It is proposed that the Established Funds' trust agreements be amended and the Proposed Funds' trust agreements be established to permit the Funds to "capitalize" their respective liabilities to pay any distributions to their respective unitholders without issuing additional units to such unitholders, as set out in section XXXXXXXXXX of the Draft Trust Agreement. Accordingly, it is proposed that the trust agreements for the Funds provide that the amount of distributions required to be made by the Funds to their respective unitholders be added in computing the net asset value of the units of such Funds, without issuing any additional units, promptly after the relevant date on which such distributions are required to be made by the Funds, thereby effecting payment to the unitholders of such distributions and discharging the Funds' liabilities to pay the amount of such distributions. It is proposed that each unitholder of the Funds will have the right under each Funds' trust agreement to direct that distributions payable to such unitholder be paid in cash by the respective Fund. In this case, distributions payable to all unitholders of the particular Fund will be paid in cash (rather than be "capitalized" as described above).
15. The units of the Funds will be offered for investment in Canada. The units of the Funds will be so offered in accordance with applicable securities law exemptions from the requirement to prepare a prospectus. There will be no offering memorandum or similar document. Investors in the Funds are expected to be XXXXXXXXXX each investor shall be deemed to have appointed the Manager as his attorney with full discretion to take action whenever the Agreement requires action by a Unitholder. There will be no other agreement, contractual or otherwise, between any investor and the Manager concerning action that the Manager will do or refrain from doing.
Purpose of Proposed Transactions
16. The purpose of the proposed transactions is to enable the Trustee and the Manager to offer international XXXXXXXXXX funds to Canadian XXXXXXXXXX investors and to offer a method of fund distributions to unitholders of the Funds in a manner that is consistent with industry practices in Canada.
Rulings
Provided that the above statements of facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, and provided that the proposed transactions are carried out as described above, our rulings in respect of the proposed transactions are as follows:
A. Each Fund will be entitled, under paragraph 104(6)(b) of the Act, to deduct in computing its income for a taxation year amounts of income of the Fund (including taxable capital gains of the Fund) that are paid or payable by the Fund to its unitholders in such taxation year pursuant to the Fund's trust agreement;
B. The amounts of net income and net realized capital gains required to be paid by each Fund to its unitholders under its trust agreement as described in paragraph 9 above will be considered to be "payable" within the meaning of subsection 104(24) of the Act notwithstanding that the Fund will be permitted to "capitalize" such amounts without issuing additional units as described in paragraph 14 above;
C. The provisions of section 80 of the Act will not apply to any Fund by virtue of the capitalization of distributions of net income and net realized capital gains required to be made by the Fund to its unitholders without the issuance of additional units as described in paragraph 14 above;
D. For a unitholder who holds units of any of the Funds as capital property within the meaning of the Act, the amount of income of a Fund (including taxable capital gains of the Fund) that is paid or payable in a taxation year to the unitholder and is "capitalized" without the issuance of additional units, as described in paragraph 14 above, will not affect the amount of the unitholder's adjusted cost base of its units of the Fund;
E. The amount of income of any Fund (including taxable capital gains of the Fund) that is paid or payable in a taxation year to its unitholders must be included in computing the income of such unitholders pursuant to paragraph 104(13)(a) of the Act; and
F. The provisions of subsection 245(2) of the Act will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in Rulings A to E.
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 provided that the proposed transactions described in paragraph 14 above are completed by XXXXXXXXXX.
On December 23, 1998, the Minister of Finance issued legislative proposals which, if enacted as proposed, would affect Ruling D above such that the capitalization of income would be reflected in a unitholder's adjusted cost base of its units of such Fund under proposed subsection 107(2.11) of the Act. Generally, these proposed amendments will apply to issues of units and increases of interests that occur after 1999.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
??
6
.../cont'd
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1999
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1999
Email this Content