1999 Ruling 9927193 - FILM RULING

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:

1. This file is a XXXXXXXXXX deal which is almost identical to the one XXXXXXXXXX . There was the question of whether for the purposes of section 18.1 of the Act, the XXXXXXXXXX expenditure XXXXXXXXXX would meet the requirements of the provision. XXXXXXXXXX .

2. The issues concern (a) the applicability of section 18.1 to restrict the deductibility of the XXXXXXXXXX expenses incurred by the XXXXXXXXXX Partnership (b) the applicability of the at-risk amount and the at-risk adjustment under subsections 96(2.2) and 143.2(2) (c) the deductibility of management expenses (d) the applicability of the limited-recourse provisions under section 143.2 regarding loans granted to Limited Partners for acquisition of their partnership interests and (e) put/call options in respect of the master limited partnership's interest in the XXXXXXXXXX partnership.

Position:

1. Similar rulings are provided to those given in Rulings 983109, 963096 and 983239.

2. Section 18.1 would not apply, if before the end of the taxation year in which the XXXXXXXXXX expenditures are made, income in respect of the XXXXXXXXXX exceeding XXXXXXXXXX % of such XXXXXXXXXX expenses is included in computing the XXXXXXXXXX Partnership's income for that year.

3. The Secondary Loans made by the bank to the Limited Partners are provided with full recourse to the Limited Partners and are interest bearing. For the purpose of subsection 143.2(7), a proviso has been added to the ruling in respect of the Secondary Loans to provide that the interest on such loans must be paid at least 60 days after the end of the year of the Limited Partners.

4. Similarly, a proviso was added to the ruling with regard to Put/Call Option available to the Partnership to dispose of its interest in the XXXXXXXXXX partnership.

Reasons:

1. The concern regarding a charge on the assets of the provider of the management services as well as the put/call option under which the XXXXXXXXXX would acquire the top partnership's interest in the XXXXXXXXXX partnership would be considered an at-risk adjustment was considered in the previous ruling.

2. With regard to the charge in respect of the performance of management expenses, it was generally accepted that such a transaction could be considered as a normal business transaction in a deal of this type, rather than a "benefit" for the purposes of subsection 143.2(2).

3. Because of the broad nature of the provision under 143.2(2) and the purpose test described under that provision, a proviso was added to the ruling in respect of the Put/Call Option. This proviso is similar to the one added to the rulings given in respect of the at-risk amount under paragraph 96(2.2(d)

4. The XXXXXXXXXX Partnership is responsible, under the XXXXXXXXXX Services Agreement for the XXXXXXXXXX services budget and for the XXXXXXXXXX services required to complete the Property. The XXXXXXXXXX Services Agreement and the XXXXXXXXXX Agreement, as revised, will take into account the XXXXXXXXXX expenditure and the reimbursements of fees paid in respect thereof in determining the XXXXXXXXXX Expenses for the purposes of 18.1 of the Act. With regard to the application of paragraph 18.1(15)(b) of the Act noted above, this matter was previously referred to the GAAR Committee in file #980551 which recommended that GAAR not be applied. XXXXXXXXXX

5.No amount of the XXXXXXXXXX Fee receivable by the XXXXXXXXXX Partnership will be ascertainable prior to the time an interest is acquired in, or an expenditure is incurred by, the Partnership or the XXXXXXXXXX Partnership. Accordingly, such fee would not be viewed as protecting the adjusted cost base of the particular partnership interest or the amount of the expenditure by virtue of subparagraph 96(2.2)(d)(vi) or 143.2(3)(b)iii) of the Act. Also, the amount of the XXXXXXXXXX Fee would not appear to meet the "purpose" tests required by these provisions.

XXXXXXXXXX
XXXXXXXXXX 							992719

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Rulings Request
XXXXXXXXXX (the "General Partner")
XXXXXXXXXX (the "Partnership")

This is in reply to your letters dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above named Partnership and the General Partner in respect of the proposed transactions described herein. We also acknowledge your facsimile transmission dated XXXXXXXXXX consisting of revised changes to the ruling request, the XXXXXXXXXX Services Agreement and the XXXXXXXXXX Agreement, as these terms are described in paragraphs 23 and 31 below, respectively.

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

FACTS

1. XXXXXXXXXX.

2. XXXXXXXXXX.

3. The Partnership is a limited partnership formed on XXXXXXXXXX pursuant to the laws of the province of XXXXXXXXXX. The fiscal period of the Partnership ends on XXXXXXXXXX of each year.

4. The Partnership's business is to provide, directly or indirectly, XXXXXXXXXX.

5. The General Partner is the general partner of the Partnership. The General Partner was incorporated pursuant to the laws of XXXXXXXXXX on XXXXXXXXXX and is a wholly-owned subsidiary corporation of XXXXXXXXXX, a corporation incorporated under the federal laws of Canada. The General Partner will deal at arm's length with XXXXXXXXXX and all other members of the XXXXXXXXXX group of companies. The General Partner's obligations with respect to the Partnership are set out in the partnership agreement (the "Partnership Agreement") and include the preparation of financial statements and maintaining of the books and records for the Partnership.

6. All of the issued and outstanding shares of XXXXXXXXXX are owned by XXXXXXXXXX, a resident of Canada. XXXXXXXXXX has been involved in limited partnership management since XXXXXXXXXX and has served, directly or indirectly, as general partner in XXXXXXXXXX.

7. XXXXXXXXXX.

8. XXXXXXXXXX.

9. XXXXXXXXXX.

10. The general partner of the XXXXXXXXXX Partnership (the "XXXXXXXXXX") is XXXXXXXXXX The initial limited partner of the XXXXXXXXXX Partnership is XXXXXXXXXX. The fiscal period of the XXXXXXXXXX Partnership will end on XXXXXXXXXX of each year.

11. Other than those identified in this letter, there will be no agreements between the parties to the proposed transactions described herein that could reasonably be considered to impact on the rulings given in this letter.

PROPOSED TRANSACTIONS

12. XXXXXXXXXX will offer (the "Offering") limited partnership units, (the "Units") of the Partnership for sale by way of offering memorandum (the "Offering Memorandum") to residents of Canada at a price of $XXXXXXXXXX per Unit (the "Unit Price"). Investors whose subscriptions are accepted will become limited partners of the Partnership ("Limited Partners"). XXXXXXXXXX. The interest of the initial limited partner of the Partnership will be repurchased by the Partnership on the date that the Limited Partners acquire their Units. The entire Unit Price will be payable on or before XXXXXXXXXX. The Offering Memorandum will contain the following mention:

"THE RULING OBTAINED FROM THE CANADA CUSTOMS AND REVENUE AGENCY CONTAINS CAVEATS. THE RULING MAY BE VIEWED ON REQUEST".

13. The Offering of the Units will be made in tranches and on a continuous basis the closing of which shall, in no event, be later than XXXXXXXXXX. For administrative expediency, the Primary Loans (as defined below in paragraph 15) will be advanced by XXXXXXXXXX (the "Bank") and the Secondary Loans (as defined below in paragraph 16) will be advanced by the Bank or another financial institution or finance company ("FinanceCo") to the Limited Partners on a particular day which may be on or before XXXXXXXXXX. In the meantime, the Partnership will establish a borrowing facility with the Bank (the "Primary Interim Loan Facility") and a borrowing facility with FinanceCo (the "Secondary Interim Loan Facility") in order to meet its commitments after the date of this letter and prior to the date that the Primary and Secondary Loans are advanced. These facilities will be provided with full recourse to the Partnership and will bear interest at an annual rate which shall not be less than the prescribed rate (the "Prescribed Rate") within the meaning of paragraph 4301(c) of the Income Tax Regulations (the "Regulations") on the date such loan is advanced. These facilities will be used by the Partnership to invest in the XXXXXXXXXX Partnership which, in turn, will use the proceeds to fund XXXXXXXXXX expenses (as described below in paragraphs 23 and 24). When the Bank and FinanceCo, respectively, advance the Primary and Secondary Loans to the Limited Partners, such amounts will be used by the Limited Partners to pay the Unit Price. The Partnership will use these funds to repay amounts owing under the Primary Interim Loan Facility and the Secondary Interim Loan Facility XXXXXXXXXX.

14. Limited Partners who choose not to pay for the acquisition of their Units in cash by XXXXXXXXXX, will finance approximately $XXXXXXXXXX per Unit through two loan facilities (described below in paragraphs 15 and 16) with the Bank and FinanceCo. (Both the Bank and FinanceCo will deal at arm's length with all the other parties mentioned in this letter). In addition, the Limited Partners may borrow an additional $XXXXXXXXXX per Unit from the Bank on XXXXXXXXXX to satisfy the Unit Price (the "Short-term Loans"). The Short-term Loans will be provided with full recourse to the Limited Partners and will bear interest equal to the Prescribed Rate on XXXXXXXXXX. Principal and interest owing under the Short-term Loans will be repayable no later than XXXXXXXXXX. Each Limited Partner will be responsible to provide their own funding for the balance of the Unit Price and for repayment of the Short-term Loan.

15. The first loan facility (the "Primary Loans") will be in an amount equal to approximately $XXXXXXXXXX per Unit and will be advanced by the Bank to the Limited Partners on XXXXXXXXXX. Principal and interest owing under the Primary Loans will be repayable on XXXXXXXXXX. The Primary Loans, (i) will be secured by a pledge of the Limited Partners' Units, (ii) will be a full recourse debt to the Limited Partners and (iii) will bear interest on an annual interest rate which, in no event, will be less than the Prescribed Rate on XXXXXXXXXX.

16. The second loan facility to be provided by FinanceCo to the Limited Partners (the "Secondary Loans") will be in an amount equal to approximately $XXXXXXXXXX per Unit. The Secondary Loans will be advanced by FinanceCo to the Limited Partners on XXXXXXXXXX and will mature onXXXXXXXXXX. The Secondary Loans (i) will be secured by a pledge of the Limited Partners' Units, (ii) will be a full recourse debt to the Limited Partners and (iii) will bear interest on an annual interest rate which, in no event, will be less than the Prescribed Rate on XXXXXXXXXX. Interest accruing on the Secondary Loans will be payable by the Limited Partners each year, commencing on XXXXXXXXXX.

17. As security for repayment of the Primary and Secondary Loans, the Limited Partners will pledge their Units to the Bank and FinanceCo, including all future entitlements from the Partnership. The pledge in favour of FinanceCo will be subordinate to the pledge in favour of the Bank. The Primary and Secondary Loans will be arranged by XXXXXXXXXX on behalf of the Limited Partners.

18. In consideration for arranging the Primary Loans and the Secondary Loans, XXXXXXXXXX will be entitled to receive a fee (the "Loan Arrangement Fee") from each Limited Partner, the amount of which will be equal to the fair market value of such services estimated to be approximately $XXXXXXXXXX per Unit purchased by such Limited Partner.

19. Each Limited Partner will be entitled to a pro rata portion of XXXXXXXXXX% interest in the profits and losses of the Partnership, as well as in the capital of the Partnership in the event of dissolution. The Partnership Agreement permits the Partnership to make capital distributions to Limited Partners without concurrent capital distributions to the General Partner. This will not in any way impair the capital of the General Partner, but will potentially provide the Limited Partners with funds to repay indebtedness incurred by them to acquire their interests in the Partnership.

20. The General Partner will file all income tax returns with the XXXXXXXXXX Tax Services Office and is in the process of applying for a business identification number. The registered office of the General Partner is located at XXXXXXXXXX. The General Partner is entitled to XXXXXXXXXX% of the profits and losses of the Partnership, as well as the capital of the Partnership in the event of dissolution.

21. The amount of net proceeds from the Offering will be used by the Partnership to subscribe for all limited partnership units of various limited partnerships, including the XXXXXXXXXX Partnership (hereinafter referred to as "XXXXXXXXXX Partnership Units") under a subscription agreement. Net proceeds represent proceeds of the Offering less expenses related to the Offering, including legal and accounting fees, trustee and bank fees, commissions, loan arrangement fees and management services fees. The interest of the initial limited partner of the XXXXXXXXXX Partnership will be repurchased by such XXXXXXXXXX Partnership on the date of the subscription by the Partnership. The subscription price of $XXXXXXXXXX per XXXXXXXXXX Partnership Unit will be paid in full on or before XXXXXXXXXX. At the end of such period, neither the Partnership nor any person or partnership not dealing at arm's length with the Partnership will owe any amount to the XXXXXXXXXX Partnership or to a person or partnership not dealing at arm's length with the XXXXXXXXXX Partnership.

22. Pursuant to the partnership agreement of the XXXXXXXXXX Partnership, XXXXXXXXXX% of the profits and losses of the XXXXXXXXXX Partnership, and XXXXXXXXXX% of the capital of the XXXXXXXXXX Partnership in the event of dissolution, will be allocated to its limited partners on a pro rata basis. The XXXXXXXXXX will have a XXXXXXXXXX% interest in the profits and losses of the XXXXXXXXXX Partnership, as well as in the capital of the XXXXXXXXXX Partnership in the event of dissolution. Other than in the event of dissolution, the partnership agreement for the XXXXXXXXXX Partnership will permit the XXXXXXXXXX Partnership to make capital distributions to its limited partners without concurrent capital distributions to the XXXXXXXXXX or any other general partner. This will not in any way impair the capital of the XXXXXXXXXX or other general partner, as the case may be, but will potentially provide the limited partners with funds to repay indebtedness incurred to acquire their interests in the XXXXXXXXXX Partnership.

23. The XXXXXXXXXX Partnership will enter into an agreement (the "XXXXXXXXXX Services Agreement") with the XXXXXXXXXX to provide the services and facilities necessary XXXXXXXXXX (the "XXXXXXXXXX Services") in consideration for the XXXXXXXXXX Fee (as defined below in paragraph 26). The terms of the XXXXXXXXXX Services Agreement will provide that the XXXXXXXXXX will retain all XXXXXXXXXX rights in the Property. The XXXXXXXXXX Partnership will be responsible for expenses related to the XXXXXXXXXX Services XXXXXXXXXX (the "XXXXXXXXXX Expenses"), including any reimbursements (the "XXXXXXXXXX Reimbursements") of amounts expected to be expended by the XXXXXXXXXX on account of the XXXXXXXXXX Fee (as defined in paragraph in paragraph 31). The XXXXXXXXXX Expenses may also include amounts payable to the XXXXXXXXXX on account of actual overhead costs incurred by the XXXXXXXXXX. Such overhead costs will not exceed XXXXXXXXXX% of the total XXXXXXXXXX Expenses. Such an amount will be for and include services of XXXXXXXXXX staff and use of equipment and facilities provided by the XXXXXXXXXX. In order to assist the XXXXXXXXXX Partnership in paying the XXXXXXXXXX Expenses (including the XXXXXXXXXX Reimbursements) and as part of the overall arrangements, the XXXXXXXXXX may loan funds to the XXXXXXXXXX Partnership prior to closing XXXXXXXXXX (the "XXXXXXXXXX Loan"). These amounts will be repaid in full prior to XXXXXXXXXX. The XXXXXXXXXX Partnership will use funds received from the proceeds of the Offering of XXXXXXXXXX Partnership Units to the Partnership (as described above in paragraph 21) and amounts received pursuant to the XXXXXXXXXX Fee to repay the amount owing to XXXXXXXXXX.

24. The XXXXXXXXXX Services will include: (i) all things and services in respect of the XXXXXXXXXX including the XXXXXXXXXX.

25. The XXXXXXXXXX Partnership will agree to: (i) promptly prepare such customary XXXXXXXXXX reports as the XXXXXXXXXX may reasonably request and supply copies thereof to the XXXXXXXXXX by telefax or by personal delivery; (ii) comply with all applicable laws, statutes, rules, regulations and requirements of all governmental agencies and regulatory bodies and duly and promptly apply for and provide all necessary consents, licenses and permits which may be required by any governmental agency or authority of competent jurisdiction in connection with XXXXXXXXXX.

26. In consideration for providing the XXXXXXXXXX Services, the XXXXXXXXXX Partnership will be entitled to receive a fee (the "XXXXXXXXXX Fee") from the XXXXXXXXXX. No amount of the XXXXXXXXXX Fee will be XXXXXXXXXX acquires a Unit of the Partnership or at the time the Partnership acquires units in the XXXXXXXXXX Partnership. The XXXXXXXXXX Fee will be approximately, but not less than, XXXXXXXXXX% of the cost of the XXXXXXXXXX Services (the "XXXXXXXXXX Fee") plus a contingent amount (the "Contingent Amount") computed by XXXXXXXXXX The Contingent Amount can be broken down into three components as follows:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX;

XXXXXXXXXX

27. All amounts earned on account of the XXXXXXXXXX Fee will be reported by the XXXXXXXXXX Partnership on an accrual basis. However, the XXXXXXXXXX will be entitled to pay the XXXXXXXXXX Fee in installments XXXXXXXXXX. Any additional XXXXXXXXXX Fees earned by the XXXXXXXXXX Partnership in XXXXXXXXXX will not be payable by the XXXXXXXXXX until XXXXXXXXXX. Thereafter, the XXXXXXXXXX will be required to report XXXXXXXXXX to the XXXXXXXXXX Partnership for periods ending on XXXXXXXXXX. Reports will be due on the XXXXXXXXXX following the reporting period. Any portion of the XXXXXXXXXX Fee owing by the XXXXXXXXXX to the XXXXXXXXXX Partnership in respect of any reporting period will be due on the same date that the reports with respect to such period will be due.

28. Amounts received by the XXXXXXXXXX Partnership on account of the XXXXXXXXXX Fee will first be applied on account of any indebtedness under the XXXXXXXXXX Loan. The balance will be distributed to the Partnership and then on to the Limited Partners, who will have directed such amounts to be applied against their respective Primary Loans to the extent that indebtedness under such loans remains outstanding. Amounts received by the XXXXXXXXXX Partnership on account of the XXXXXXXXXX Fee will be distributed to the Partnership and then on to the Limited Partners, who will have directed such amounts to be applied against their respective Secondary Loans to the extent that indebtedness under such loans remains outstanding. Additional amounts received by the XXXXXXXXXX Partnership on account of the XXXXXXXXXX Fee will be distributed to the Partnership and on to the members of the Partnership in accordance with the partnership agreement to be retained by them.

29. As security for its obligation to pay the XXXXXXXXXX Fee when due, the XXXXXXXXXX will provide security to the XXXXXXXXXX Partnership by way of a cash deposit or deposits with the Bank.

XXXXXXXXXX.

30. XXXXXXXXXX.

31. XXXXXXXXXX.

32. XXXXXXXXXX.

33. XXXXXXXXXX.

34. XXXXXXXXXX.

35. XXXXXXXXXX.

36. XXXXXXXXXX.

37. XXXXXXXXXX.

38. XXXXXXXXXX.

39. The Partnership and the XXXXXXXXXX Partnership will be tax shelters within the meaning assigned by subsection 237.1(1) of the Act. The General Partner and the XXXXXXXXXX will each apply for a tax shelter identification number for the Partnership and for the XXXXXXXXXX Partnership, and upon receipt of the number, will file annual tax shelter information returns, pursuant to and in accordance with subsections 237.1(2) and (7) of the Act.

OTHER INFORMATION

40. To the best of your knowledge and that of the taxpayers involved, none of the issues involved in this ruling request are:

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

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

(iv) the subject of a ruling previously issued by this Directorate; or

(v) before the courts, or if a judgment has been issued, the time for appeal to a higher court has not expired.

41. Under cover of your letter of XXXXXXXXXX, you provided us with copies of the following draft documents in support of your ruling request:

* XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to XXXXXXXXXX.

RULINGS

Provided that the statement of facts, proposed transactions and the purposes thereof, all as described above, is accurate and constitutes complete disclosure of all of the representations, relevant facts, proposed transactions and the purposes thereof, and provided further that all of the proposed transactions are carried out as described above, and that the offering documents or executive summary contain a reference, such as described in paragraph 12 above in respect of the existence of caveats in the rulings given and provided that the final documents listed above in paragraph 41 are materially as submitted in draft, and provided that the Partnership and the XXXXXXXXXX Partnership are partnerships at law, we provide the following rulings:

A. Section 18.1 of the Act will not apply to restrict the deductibility of the XXXXXXXXXX Expenses (including the XXXXXXXXXX Reimbursements payable to the XXXXXXXXXX by the XXXXXXXXXX Partnership as described in paragraphs 23 and 31 above) incurred by the XXXXXXXXXX Partnership pursuant to the proposed transactions (described in paragraph 23 above), provided that before the end of the taxation year in which the particular XXXXXXXXXX expenditures are made, amounts included in computing the XXXXXXXXXX Partnership's income for that year (other than any portion of such an amount that is the subject of a reserve claimed by the XXXXXXXXXX Partnership for the year under the Act) in respect of the Property, exceed XXXXXXXXXX% of such XXXXXXXXXX Expenses, pursuant to subsection 18.1(15) of the Act.

B. The XXXXXXXXXX Expenses of the XXXXXXXXXX Partnership (including the XXXXXXXXXX Reimbursements payable to the XXXXXXXXXX by the XXXXXXXXXX Partnership as described in paragraphs 23 and 31 above) incurred after the date of this letter, will, subject to the application of subsections 143.2(6) and (10) of the Act and subject to the provision of section 18.1 of the Act, be deductible in computing the income of the XXXXXXXXXX Partnership pursuant to subsection 9(1) of the Act, to the extent that:

(i) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(iii) XXXXXXXXXX.

C. Subject to the application of paragraphs (b), (b.1) and (c) of subsection 96(2.2) of the Act, the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of the Partnership in the XXXXXXXXXX Partnership, at the end of the XXXXXXXXXX fiscal year of such XXXXXXXXXX Partnership, will be equal to the amount of the Partnership's investment in XXXXXXXXXX Partnership Units of the XXXXXXXXXX Partnership (as described in paragraph 21 above), to the extent that the Partnership or a person with whom the Partnership does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act, other than an amount or benefit excluded by one of subparagraphs (i), (iii), (vi) or (vii) of that paragraph,

XXXXXXXXXX.

D. Subject to the application of paragraphs (b), (b.1) and (c) of subsection 96(2.2) of the Act, the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of a Limited Partner in the Partnership, at the end of the XXXXXXXXXX taxation year of the Partnership, will be equal to the amount of the Limited Partner's investment in Units of the Partnership as described above in paragraphs 12 and 13, to the extent that the Limited Partner, or a person with whom the Limited Partner does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act other than an amount or benefit excluded by virtue of one of subparagraphs (i), (iii), (vi), or (vii) of that paragraph.

E. XXXXXXXXXX:

(i) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(iii) XXXXXXXXXX.

F. XXXXXXXXXX:

(i) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(iii) XXXXXXXXXX.

G. Provided that interest is paid on the indebtedness by the Limited Partners no later than 60 days after the end of each taxation year of the Limited Partner pursuant to subsection 143.2(7) of the Act, XXXXXXXXXX Accordingly, subparagraph 143.2(6)(b)(i) of the Act will not apply to reduce the cost of a Limited Partner's Unit or the cost of the XXXXXXXXXX Services in respect of such indebtedness.

H. Neither the XXXXXXXXXX Services provided to the Partnership by XXXXXXXXXX , as defined in paragraph 32 above, nor the XXXXXXXXXX in respect thereof, will constitute an "at-risk adjustment" (as the term is defined in subsection 143.2(2) of the Act) to the Limited Partners or the Partnership and, accordingly, subparagraph 143.2(6)(b)(ii) will not apply to reduce the cost of a Limited Partner's Unit, the Partnership's cost of a XXXXXXXXXX Partnership Unit or the amount of any expenditure of the Partnership or of the XXXXXXXXXX Partnership in respect of such services.

I.

XXXXXXXXXX

J. Paragraph 96(2.2)(d) of the Act will not apply in respect of the XXXXXXXXXX Fee to reduce either the at-risk amount of the Partnership in the XXXXXXXXXX Partnership or the at-risk amount of the Limited Partners in the Partnership.

K. The XXXXXXXXXX Fee will not constitute an "at-risk adjustment" within the meaning of subsection 143.2(2) of the Act. Accordingly, the XXXXXXXXXX Fee will not reduce, pursuant to subparagraph 143.2(6)(b)(ii) of the Act, the cost of a Limited Partner's Unit, the Partnership's cost of a XXXXXXXXXX Partnership Unit or the amount of any expenditure of the Partnership or of the XXXXXXXXXX Partnership.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 (the "Circular") issued by the CCRA December 30, 1996, and are binding provided that the proposed transactions are entered into on or before XXXXXXXXXX. These rulings are based on the draft documents referred to above in paragraph 41, and are based on the Act in its present form and do not take into account the effect of any proposed amendments. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:

a) the reasonableness or fair market value of any expenditures referred to in this letter;

b) the proper reporting, based on established case law principles or rules of law and well-accepted business principles, applicable in the determination of the timing of the deduction of the cost of any of the XXXXXXXXXX expenses incurred by the XXXXXXXXXX Partnership;

c) whether the XXXXXXXXXX will be an eligible XXXXXXXXXX corporation in respect of the Property for the purposes of section 125.5 of the Act;

d) the existence of reasonable expectation of profit of any of the Partnership, XXXXXXXXXX Partnership, the XXXXXXXXXX or the Limited Partners;

e) whether the XXXXXXXXXX Partnership or the XXXXXXXXXX will be acting as legal agents for the XXXXXXXXXX in respect of the XXXXXXXXXX of the Property;

f) the applicability or non-applicability of section 247 and subsection 245(2) of the Act;

g) the GST implications of any of the proposed transactions;

h) except as expressly stated, the applicability or non-applicability of paragraph 96(2.2)(d) or subsection 143.2(2) of the Act. In this regard, it is our opinion that if any amount of gross revenue related to the Property is ascertainable, whether contingent or otherwise, at the time that the Limited Partners acquire interests in the Partnership or at the time the Partnership acquires a unit of the XXXXXXXXXX Partnership, this would affect the at-risk amount or the at-risk adjustment of the Limited Partner and the Partnership; and

i) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

As stated in paragraph 7 of the Circular, rulings are not provided for transactions that are not seriously contemplated and are hypothetical in nature. Therefore, notwithstanding that the Partnership may be subscribing for limited partnership interests in a number of other XXXXXXXXXX limited partnerships (refer to paragraphs 4 and 21 above), we are not ruling on the Partnership's investment in any limited partnerships other than its investment in the XXXXXXXXXX Partnership, as described herein. In addition, notwithstanding that XXXXXXXXXX Partnership or the Partnership, through other XXXXXXXXXX partnerships, may invest in XXXXXXXXXX (refer to paragraphs 33 and 34 above), we are not ruling on the Partnership's or the XXXXXXXXXX Partnership's investments in XXXXXXXXXX other than the "Property" as defined herein.

OPINION

XXXXXXXXXX

As indicated in paragraph 22 of the Circular, an expression of opinion is not an advance income tax ruling and, accordingly, is not binding on the CCRA.

Yours truly,

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