1999 Ruling 9910463 - SALE OF ALL UNITS HELD BY MEMBER OF PARTNER

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.

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Attention: xxxxxxxxxx

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling
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This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX (the “Partnership") and the partners thereof, in connection with the proposed transactions described below. We also acknowledge your letter dated XXXXXXXXXX and our several telephone conversations.

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

Facts

1. XXXXXXXXXX is a "public corporation" as defined in subsection 89(1) of the Income Tax Act (the "Act") and its shares are listed on the XXXXXXXXXX.

2. XXXXXXXXXX is a Canadian resident corporation controlled by XXXXXXXXXX is a "public corporation" as defined in subsection 89(1) of the Act and its shares are listed on the

XXXXXXXXXX.

3. XXXXXXXXXX is the sole shareholder of XXXXXXXXXX are Canadian resident corporations and are engaged primarily in the XXXXXXXXXX.

4. The Partnership was formed as a limited partnership under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX. The Partnership's fiscal period ends on XXXXXXXXXX of each year.

5. XXXXXXXXXX is the general partner (the "General Partner") of the Partnership. The General Partner is a corporation incorporated under the laws of XXXXXXXXXX, is a "taxable Canadian corporation" as defined in subsection 89(1) of the Act and is a wholly-owned subsidiary corporation of XXXXXXXXXX. The sole undertaking of the General Partner is to act as general partner of the Partnership.

6. The XXXXXXXXXX transferred their assets relating to the XXXXXXXXXX to the Partnership on XXXXXXXXXX. In addition to the XXXXXXXXXX, a wholly-owned subsidiary of XXXXXXXXXX also transferred assets to the Partnership. As consideration for this transfer, the XXXXXXXXXX received promissory notes of the Partnership, limited partnership units of the Partnership (the "Units") or a combination thereof. The aggregate principal of the promissory notes issued by the Partnership as part consideration for the XXXXXXXXXX Assets was $XXXXXXXXXX. The fair market value of the promissory note received by a particular XXXXXXXXXX does not exceed the "cost amount" (as defined under subsection 248(1) of the Act) of the XXXXXXXXXX Assets transferred to the Partnership. The Units received by a particular XXXXXXXXXX have a fair market value equal to the difference between the fair market value of the XXXXXXXXXX Assets transferred to the Partnership and the fair market value of promissory note, if any, received by the XXXXXXXXXX from the Partnership. Subsequent to the above transfer the XXXXXXXXXX retained and continue to operate the XXXXXXXXXX assets relating to the XXXXXXXXXX.

7. The Partnership and the XXXXXXXXXX Will file elections under subsection 97(2) of the Act and the equivalent election under the XXXXXXXXXX Tax Act, if necessary, in connection with the transfer of the XXXXXXXXXX Assets.

8. After acquiring the XXXXXXXXXX Assets, the Partnership is now carrying on the business of XXXXXXXXXX to which the

XXXXXXXXXX Assets relate.

9.

XXXXXXXXXX

Proposed Transactions

10. Pursuant to a prospectus, the Partnership will make an offering of Units to the public (the "Offering"). The aggregate amount to be raised by the Offering is anticipated to be approximately $XXXXXXXXXX. Following the Offering, it is expected that the XXXXXXXXXX and public will hold XXXXXXXXXX% and XXXXXXXXXX% of all the Units, respectively. It is proposed that the Units will be listed on the XXXXXXXXXX. The members of the public whose subscriptions for Units are accepted by the General Partner will become limited partners ("Limited Partners") of the Partnership.

11. The net proceeds from the Offering will be used by the Partnership to repay the balance of the promissory notes owing to the XXXXXXXXXX in connection with the acquisition of the XXXXXXXXXX Assets.

12. Each Unit held by a Limited Partner will entitle the Limited Partner to the same rights as a holder of any other Unit and no Limited Partner will be entitled to any privilege, priority or preference in relation to any other Limited Partner.

13. The Partnership will make monthly distributions of "Distributable Cash" (as defined below) to the General Partner and to each Limited Partner listed on the register of Limited Partners maintained by the General Partner on the last day of the applicable month (the "Record Date"). The distribution to be made to any particular Limited Partner will be in proportion to the number of Units held by the Limited Partner on the Record Date. The payment date for each monthly distribution of Distributable Cash (the "Payment Date") will be within 30 days following the Record Date (except for a Record Date that is XXXXXXXXXX, in which case the Payment Date will be within 60 days after the Record Date). A Limited Partner who holds Units on a particular Record Date and who sells his Units prior to the Payment Date will still be entitled to receive from the Partnership the cash distribution in respect of that Record Date. Distributable Cash for a particular month will be the amount by which the net earnings of the Partnership for that month (before interest, depreciation and amortization expense) exceeds the aggregate of the amounts retained as reserves for that month by the Partnership and borrowing costs paid by the Partnership during that month.

14. Income or loss of the Partnership for accounting purposes will be allocated to the General Partner and the Limited Partners in the same proportion and in the same manner as income or loss is allocated for tax purposes, as described below.

15. The income or loss of the Partnership for tax purposes for each fiscal year of the Partnership will be allocated to the General Partner and to the Limited Partners as to XXXXXXXXXX% and XXXXXXXXXX%, respectively.

16. The income for tax purposes of the Partnership for a fiscal year will be allocated to each Limited Partner in an amount calculated by multiplying the aggregate income allocated to Limited Partners by a fraction. The numerator of the fraction is the aggregate amount of the cash distributions received by such Limited Partner with respect to such fiscal year. The denominator of the fraction is the aggregate amount of the cash distributions made to all Limited Partners by the Partnership with respect to such fiscal year. This method of allocation will result in an allocation of income for a fiscal year of the Partnership to all Limited Partners who have received a cash distribution with respect to the fiscal year whether the Limited Partner still holds Units at the end of the fiscal year or whether the Limited Partner has disposed of all of his Units prior to the end of the fiscal Year.

17. If, with respect to a fiscal year, no cash distribution is made by the Partnership to the General Partner and Limited Partners, or the Partnership has a loss, XXXXXXXXXX of the income or loss for tax purposes, as the case may be, of the Partnership for such fiscal year will be allocated to the General Partner and to the Limited Partners of record on the last day of each month ending in such fiscal year, as to XXXXXXXXXX% to the General Partner and XXXXXXXXXX% to the Limited Partners. The amount allocated to each Limited Partner will be in the proportion that the number of Units held on each such date by such Limited Partner is of the total number of Units issued and outstanding on each such date.

18. On dissolution of the Partnership, the remaining assets would be distributed as to XXXXXXXXXX% to the General Partner and as to XXXXXXXXXX% to the Limited Partners in proportion to the number of Units held.

Purpose of the Proposed Transactions

The purpose of the proposed transactions is to provide a publicly-traded investment vehicle for investors to acquire an interest in XXXXXXXXXX portfolio of XXXXXXXXXX assets in Canada. The method of allocating partnership income based on cash distributions received by a particular Limited Partner, as described in paragraphs 13 and 16 above, is regarded as providing for the most equitable allocation of such income among Limited Partners.

Other Information

To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling is:

i) in an earlier return of the taxpayer(s) or a related person,

ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer(s) or a related person,

iii) under objection by the taxpayer(s) or a related person,

iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

v) the subject of a ruling previously issued by the Directorate.

Ruling Given

Provided that the statement of facts, the proposed transactions and the purpose thereof, all as described herein, are accurate and constitute complete disclosure of all of the representations, relevant facts, proposed transactions and the purpose thereof, all of the proposed transactions are carried out as described above and that the Partnership is a partnership at law, we provide the following ruling:

A, For the purpose of avoiding double taxation where a Limited Partner,

(i) held Units as capital property,

(ii) ceased to be a member of the Partnership because all of the Limited Partner's remaining Units were redeemed during a particular fiscal year of the Partnership (the Redemption Year) and,

(iii) received, before the end of the Redemption Year, full payment of all of the Limited Partner's rights to receive any property of or from the Partnership in satisfaction of the Limited Partner's interest in the Partnership held immediately before the time of cessation as a member of the Partnership, pursuant to paragraph 98.1(1)(b) of the Act,

subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act will be applied, as the case may be, so that any portion of the Partnership's income or loss for tax purposes (computed at the end of the Redemption Year) that is allocated to that Limited Partner, in accordance with paragraphs 15 to 17 above, and that is attributable to that limited Partner's Units redeemed during the Redemption Year, will, in the Redemption Year, be included in calculating the Limited Partner's adjusted cost base of those Units, and as a consequence, will, in the same year, be included in the calculation of the Limited Partner's gain or loss on the disposition of such redeemed Units.

For greater certainty, this ruling does not apply where some of the Units owned by a Limited Partner are redeemed in a particular year, and at the end of that year the limited Partner still owns other Units. In that situation, subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act would apply so that in computing the Limited Partner's adjusted cost base of the Limited Partner's redeemed Units at a particular time, only the Partnership's income or loss for fiscal periods ending before the time the particular Units were redeemed would be taken into account.

Also, this ruling does not apply where a Limited Partner ceases to be a member of the Partnership during the Redemption Year, but it is not until the following year that the Limited Partner receives full payment of all of the Limited Partner's rights to receive any property of or from the Partnership in satisfaction of the Limited Partner's interest in the partnership held immediately before the time that the Limited Partner ceased to be a member thereof. Where, for example, all of the Limited Partner Units are redeemed in the Redemption Year, but only receives payment for these redeemed Units in the subsequent year (and assuming all other rights, referred to above are satisfied by that time), paragraph 98.1(1)(a) of the Act would deem the Limited Partner to have a residual interest until final payment is received. Subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act would apply such that the retired Limited Partner's share of the Partnership's income or loss, as the case may be, for the Redemption Year would be included in computing the adjusted cost base of the retired Limited Partner's Units in the year subsequent to the Redemption Year.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 issued by Revenue Canada December 30, 1996 and is binding provided the Offering described in paragraph 10 above is completed on or before XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, we are not commenting on whether the Units will be capital property to a Limited Partner or be treated on income account. If the Units are acquired or held in the course of carrying on a business of trading or dealing in securities or as part of an adventure in the nature of trade, any disposition of Units will be afforded income treatment.

Yours truly,

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