2014 Ruling 2014-0547491R3 - REIT entering into new LP

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.

Principal Issues: 1) Whether proposed new LP would, if it were a trust, satisfy the conditions in paragraphs (a) to (d) of the REIT definition. 2) Whether the proposed Project GP would, if it were a trust, satisfy the conditions in paragraphs (a) to (d) of the REIT definition. 3) Whether the giving of the Guarantee would be viewed as carrying on a business.

Position: 1) It may. 2) It may. 3) No.

Reasons: 1) See provisos in the ruling given. 2) See provisos in the ruling given. 3) It meets the required level of integration discussed in ITTN # 34.

XXXXXXXXXX
2014-054749

XXXXXXXXXX, 2014

Dear XXXXXXXXXX:

Re: Request for Advance Tax Ruling
XXXXXXXXXX (the "Partnership" XXXXXXXXXX), and
XXXXXXXXXX (the "General Partner" XXXXXXXXXX)

This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-named taxpayers. We also acknowledge the additional information provided in your subsequent correspondence dated XXXXXXXXXX and in telephone conversations XXXXXXXXXX.

We understand that, to the best of your knowledge and that of the taxpayers, none of the issues involved in the ruling request is:

(i) in an earlier tax return of the taxpayers or of any related persons;
(ii) being considered by a tax services office or a tax centre in connection with a tax return already filed by the taxpayers or by any related persons;
(iii) under objection by the taxpayers or any related persons;
(iv) before the courts; or
(v) the subject of a ruling previously issued by the Directorate to the taxpayers or to any related persons.

You provided us with draft copies of the proposed Partnership Agreement for New LP, the Development Agreement, the Loan Agreement, the Shareholders Agreement, the Guarantee Agreement and the proposed form of the Guarantee. However, this ruling is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions except as specifically provided herein, and any references thereto are otherwise provided solely for the convenience of the reader.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.

Unless otherwise indicated, all references herein to monetary amounts are in Canadian dollars.

Definitions

The following terms have the meanings specified:

"ACo" means XXXXXXXXXX;

"Adjusted Project Costs" has the meaning ascribed thereto in 31 herein;

"Bare Trustee" has the meaning ascribed thereto in 28 herein;

"Call Right" has the meaning ascribed thereto in 26 herein;

"Call Right Exercise Period" has the meaning ascribed thereto in 26 herein;

"closed-end trust" means a trust that qualifies as a unit trust under paragraph 108(2)(b);

"Construction Loan" has the meaning ascribed thereto in 34 herein;

"CRA" means the Canada Revenue Agency;

"Declaration of Trust" means the declaration of trust dated XXXXXXXXXX pursuant to which Trust was formed under the laws of the Province of XXXXXXXXXX, as has been and may be further amended, supplemented and/or restated from time to time;

"Deferred Income Plans" means trusts governed by any of registered retirement savings plans, registered education savings plans, registered retirement income funds, deferred profit sharing plans, registered disability savings plans or tax-free savings accounts;

"DevCorp" means XXXXXXXXXX, a corporation continued under the Canada Business Corporations Act on XXXXXXXXXX;

"Developer Partner" means XXXXXXXXXX, a XXXXXXXXXX general partnership with XXXXXXXXXX corporate partners, none of which are public corporations;

"Development Agreement" has the meaning ascribed thereto in 30 herein;

"equity" has the meaning ascribed thereto in subsection 122.1(1);

"Exchangeable Securities" means any securities of any trust, limited partnership or corporation other than Trust that are convertible or exchangeable directly for Units without the payment of additional consideration therefor;

"excluded subsidiary entity" has the meaning ascribed thereto in subsection 122.1(1);

"General Partner" means XXXXXXXXXX, a corporation incorporated under the laws of Canada by Articles of Incorporation dated XXXXXXXXXX;

"General Partner 2" means XXXXXXXXXX which acts as the general partner of Partnership 2;

"General Partner 3" means XXXXXXXXXX, which acts as the general partner of Partnership 3;

"Guarantee" has the meaning ascribed thereto in 34 and 35 herein;

"Guarantee Agreement" has the meaning ascribed thereto in 36 herein;

"Guarantee Fee" has the meaning ascribed thereto in 36 herein;

"Initial Properties" means certain lands and premises transferred by Trust to Partnership on XXXXXXXXXX;

"Loan Agreement" has the meaning ascribed thereto in 38 herein;

XXXXXXXXXX;

"Mezzanine Loan" has the meaning ascribed thereto in 37 herein;

"mutual fund trust" has the meaning ascribed thereto in subsection 132(6);

"New LP" has the meaning ascribed thereto in 19 herein;

"New LP Property" has the meaning ascribed thereto in 43 herein;

"non-portfolio property" has the meaning ascribed thereto in subsection 122.1(1);

"Partnership" means XXXXXXXXXX, a limited partnership established under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX;

"Partnership 2" means XXXXXXXXXX;

"Partnership 3" means XXXXXXXXXX, a partnership formed to acquire, own and operate the XXXXXXXXXX to consist of XXXXXXXXXX, the general partner of which is General Partner 3 and the limited partners of which are Trust, the Partnership, and an arm's length taxable Canadian corporation;

"Partnership Agreement" has the meaning ascribed thereto in 25 herein;

"Partnership Interest" means Partnership's interest in the New LP, consisting initially of XXXXXXXXXX units in the capital of the New LP;

"Preferred Unit" means a participating, non-voting unit of Trust described in 3 herein;

"Project" has the meaning ascribed thereto in 19 herein;

"Project General Partner" has the meaning ascribed thereto in 22 herein;

"Property" means collectively, the Target Site and the XXXXXXXXXX;

"Proposed Transactions" has the meaning ascribed thereto in 19 to 45 herein;

"public corporation" has the meaning ascribed thereto in subsection 89(1);

"Put Right" has the meaning ascribed thereto in 26 herein;

"Put Right Exercise Period" has the meaning ascribed thereto in 26 herein;

"qualified REIT property" has the meaning ascribed thereto in subsection 122.1(1);

"real estate investment trust" or "REIT" has the meaning ascribed to the term "real estate investment trust" in subsection 122.1(1);

"REIT Definition" means the definition of real estate investment trust in subsection 122.1(1);

"REIT Trustees" means the individuals that act as trustees of Trust in accordance with and subject to the terms of the Declaration of Trust, and which as of the date hereof consist of XXXXXXXXXX Canadian resident individuals and one non-resident individual;

"Shareholders Agreement" has the meaning ascribed thereto in 33 herein;

"SIFT trust" has the meaning ascribed thereto in subsection 122.1(1);

"Special Voting Unit" means a non-participating, voting interest in Trust;

"Target Site" means a leasehold interest having a XXXXXXXXXX year term in the property commonly known as XXXXXXXXXX;

"taxable Canadian corporation" has the meaning ascribed thereto in subsection 89(1);

"Trust" means XXXXXXXXXX, a trust established under the laws of the Province of XXXXXXXXXX on XXXXXXXXXX;

"Trust Amendments" has the meaning ascribed thereto in 3 herein;

XXXXXXXXXX;

"Unit" means a participating, voting unit of Trust;

"unit trust" has the meaning ascribed thereto by subsection 108(2);

"USCo" means XXXXXXXXXX, a XXXXXXXXXX C-corporation described in 17 herein; and

"USCo2" means XXXXXXXXXX, a XXXXXXXXXX LLC described in 17 herein.

Facts

1. Trust is a closed-end trust and a mutual fund trust that was established pursuant to the Declaration of Trust on XXXXXXXXXX, for the principal purpose of investing in income producing real property in Canada. Trust is focused on producing a stable and growing stream of cash distributions for its unit holders, which is derived from the ownership and management of XXXXXXXXXX retail, commercial and industrial properties in primary and growing secondary markets in Canada and the United States, XXXXXXXXXX.

2. Trust's head office is located at XXXXXXXXXX. Its Tax Services Office is the XXXXXXXXXX Tax Services Office. Trust is governed by a board of trustees consisting of the REIT Trustees, which hold Trust's property and conduct and manage the affairs of Trust in accordance with and subject to the terms of the Declaration of Trust.

3. The REIT Trustees revised the Declaration of Trust (such amendments being the "Trust Amendments") effective on XXXXXXXXXX to:

i. remove the right of the holders of Units to require Trust to redeem their Units;

ii. delete the Special Voting Units;

iii. create a new class of non-voting units described as "Preferred Units" which have a right to receive cumulative distributions at a fixed rate of return paid in priority to distributions paid on the Units; and

iv. make all consequential amendments required by the creation of the Preferred Units.

4. XXXXXXXXXX. A subsequent ruling was issued to Trust (ruling 2011-0429611R3 dated XXXXXXXXXX, 2012) in connection with the issuance of Series A Preferred Units and the Trust Amendments. Trust completed an offering of Series A Preferred Units in XXXXXXXXXX, a subsequent offering of Series XXXXXXXXXX Preferred Units which are denominated in US dollars in XXXXXXXXXX, a subsequent offering of Series XXXXXXXXXX Preferred Units in XXXXXXXXXX, and a subsequent offering of Series XXXXXXXXXX Preferred Units in XXXXXXXXXX.

5. The Units are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX" and are widely held by the public. The Series A Preferred Units are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX", the Series XXXXXXXXXX Preferred Units are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX", the Series XXXXXXXXXX Preferred Units are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX", and the Series XXXXXXXXXX Preferred Units are listed on the XXXXXXXXXX under the symbol "XXXXXXXXXX".

6. To the knowledge of the REIT Trustees, no person beneficially owns, directly or indirectly, or exercises control or direction over, more than XXXXXXXXXX% of the issued and outstanding Units. The Units are qualified investments for Deferred Income Plans. As of XXXXXXXXXX, there were XXXXXXXXXX Units, XXXXXXXXXX Series A Preferred Units, XXXXXXXXXX Series XXXXXXXXXX Preferred Units, XXXXXXXXXX Series XXXXXXXXXX Preferred Units and XXXXXXXXXX Series XXXXXXXXXX Preferred Units issued and outstanding.

7. Trust currently has issued and outstanding XXXXXXXXXX series of debentures (Series XXXXXXXXXX) listed on the XXXXXXXXXX, and XXXXXXXXXX series of non-listed debentures (Series XXXXXXXXXX).

8. Trust was a SIFT trust on XXXXXXXXXX, and subsequent to that time has issued new equity in excess of the amounts permitted under the normal growth guidelines. Trust believes that it has not, during the period from XXXXXXXXXX to the date hereof, ceased to satisfy any of the requirements set out in the REIT Definition, and intends to continue to satisfy such requirements such that it has qualified as a REIT since XXXXXXXXXX.

9. Partnership was established by Trust in XXXXXXXXXX to provide Trust with a more flexible legal and operating structure for owning and managing income producing real property, and to facilitate property acquisitions by providing potential vendors with the ability to transfer property to Partnership on a tax-deferred basis. Partnership's head office is also located at XXXXXXXXXX and its Tax Services Office is the XXXXXXXXXX Tax Services Office. A ruling was issued to Trust in connection with the establishment of Partnership (ruling 2006-0177231R3 dated XXXXXXXXXX, 2006).

10. The capital of Partnership is divided into the interest of the General Partner and two classes of limited partnership units, described and designated as Class A LP units and Class B LP units. The Class A LP units are issuable solely to Trust or affiliates of Trust. The Class B LP units are intended to be issued to persons other than Trust who transfer properties to Partnership on a tax-deferred basis from time to time. The Class B LP units are Exchangeable Securities and, subject to adjustment, exchangeable into Units on a one-for-one basis.

11. On XXXXXXXXXX, Trust transferred the Initial Properties to Partnership on a tax deferred basis pursuant to subsection 97(2) in exchange for Class A LP units of Partnership. Since Partnership was established, all acquisitions of Canadian real property contemplated by Trust have been undertaken by Partnership. In each case, Partnership is the beneficial owner of the acquired property, and a bare trustee corporation owned by Partnership holds legal title to the property. Acquisitions of US real property have been made through USCo and USCo2 (described in 17 below).

12. Trust is currently the only limited partner of Partnership. General Partner acts as the general partner of Partnership.

13. XXXXXXXXXX.

14. Trust owns the following property:

XXXXXXXXXX.

16. Partnership disposed of certain of its properties to an arm's length purchaser in XXXXXXXXXX. A portion of the purchase price was payable by the purchaser to Partnership over time, which payments were secured by a mortgage of such properties back to Partnership. XXXXXXXXXX.

17. XXXXXXXXXX.

18. Each of Partnership, Partnership 2 and Partnership 3 is an excluded subsidiary entity.

Proposed Transactions

19. Partnership and Developer Partner will form a limited partnership ("New LP") under the provisions of The Partnership Act (XXXXXXXXXX), for the purpose of acquiring the Target Site and constructing a XXXXXXXXXX, and the development thereof, (the "Project"), and at all times will hold the Property as a capital property to lease to tenants and earn rental income. Developer Partner will not be a "majority interest partner", as defined in subsection 248(1), of New LP.

20. New LP will prepay all ground lease payments at the time the Target Site is acquired.

21. The partners of Developer Partner will each be a taxable Canadian corporation that is not a public corporation for purposes of the Act. None of the partners of Developer Partner will be affiliated with New LP or Partnership within the meaning of section 251.1.

22. Partnership and Developer Partner will incorporate a new corporation (the "Project General Partner") to act as the general partner of New LP. Partnership and Developer Partner will each subscribe for and own one-half of the shares of the Project General Partner, paying a nominal subscription price therefor.

23. The Project General Partner will be a taxable Canadian corporation. The only property of the Project General Partner will be its interest in New LP and cash received by it upon the issuance of shares from treasury. The Project General Partner will not earn any revenue until the XXXXXXXXXX is completed and leased, following which it will receive distributions from New LP which will be used to pay expenses with the balance, if any, being distributed to its shareholders.

24. Interests in New LP will be divided into the interest of the Project General Partner and a single class of an unlimited number of limited partnership units, of which each of Partnership and Developer Partner will subscribe for XXXXXXXXXX units at a subscription of $XXXXXXXXXX per unit.

25. Partnership, Developer Partner and the Project General Partner will enter into an agreement (the "Partnership Agreement") governing their relationship as partners and the affairs of New LP. Pursuant to Article XXXXXXXXXX of the Partnership Agreement, the business of New LP will be as follows:

Business

New LP shall carry on the business of acquiring a XXXXXXXXXX year prepaid ground lease of the Target Site and developing a XXXXXXXXXX thereon having approximately XXXXXXXXXX square feet of gross leasable area (the "XXXXXXXXXX"), and undertaking all matters incidental thereto, and/or such other business or businesses as the Partners may determine from time to time in accordance with the terms of this Agreement.

26. Pursuant to Article XXXXXXXXXX of the Partnership Agreement, Developer Partner will grant to Partnership an irrevocable right (the "Call Right"), and Partnership will grant to Developer Partner an irrevocable right (the "Put Right"), as follows:

Call Right

Developer Partner hereby grants to Partnership an irrevocable right (the "Call Right"), exercisable within XXXXXXXXXX months after the date on which the XXXXXXXXXX has reached Substantial Completion and at least XXXXXXXXXX% of the total rentable area of the XXXXXXXXXX is under lease or offer to lease with tenants open and operating and paying full rent thereunder (the "Call Right Exercise Period") by delivering a notice in writing to Developer Partner, to purchase from Developer Partner all, but not less than all, of the issued and outstanding LP Units held by Developer Partner (the "Purchased Units"), on the terms and conditions set forth in this Article XXXXXXXXXX.

Put Right

If the Call Right is not exercised by Partnership within the Call Right Exercise Period, Developer Partner shall have an irrevocable right (the "Put Right"), exercisable within XXXXXXXXXX days after the expiration of the Call Right Exercise Period (the "Put Right Exercise Period") by delivering a written notice to Partnership, to require that Partnership purchase the Purchased Units, on the terms and conditions set forth in this Article XXXXXXXXXX.

Extension of Exercise Period

Notwithstanding the provisions of the Call Right and Put Right set out above if the vacancy rate for the XXXXXXXXXX is greater than XXXXXXXXXX% at the end of the Call Right Exercise Period or the Put Right Exercise Period, as the case may be, and the Call Right or the Put Right have not yet been exercised, the Call Right Exercise Period and/or the Put Right Exercise Period shall be extended until the date on which the actual vacancy rate is less than XXXXXXXXXX%.

Effect of Exercise of Option

Upon the exercise of the Call Right or the Put Right, as the case may be, Developer Partner shall be required to sell the Purchased Units and Partnership shall be required to purchase the Purchased Units on the following terms and conditions:

Closing Date

The closing date for the sale and purchase shall be the day that is XXXXXXXXXX days after the later of:

i. the day that the Call Right or the Put Right, as the case may be, is exercised; and
ii. the day that the purchase price of the Purchased Units is determined.

Purchase Price

The purchase price for the Purchased Units shall be the fair market value thereof. The parties agree that the determination of the fair market value of the Purchased Units shall be made by New LP's accountant (hereinafter called the "Valuator"), who shall make such determination on the basis of a capitalization rate of XXXXXXXXXX% of the stabilized income of New LP (applying a XXXXXXXXXX% vacancy allowance, excluding any tenant in excess of XXXXXXXXXX square feet) and shall, within XXXXXXXXXX days of delivery of a notice exercising the Call Right or the Put Right, as the case may be, be engaged by the Project General Partner for such purpose. The date at which the fair market value of the Purchased Units is to be determined shall be the date of such notice. The valuation determined by the Valuator shall be binding upon all of the parties hereto, and the fees and disbursements of the Valuator shall be borne by New LP.

27. Other key terms of the Partnership Agreement will include:

i. a requirement that the parties will take all steps and do all things required in order to ensure that New LP would, if it were a trust, satisfy the conditions set forth in paragraphs (a) to (d) of the REIT Definition;

ii. a list of the matters requiring the approval of the limited partners, and rules relating to the holding of meetings of limited partners;

iii. a stipulation that New LP shall not sell the Property without the unanimous consent of the limited partners;

iv. a requirement that the distributable cash of New LP be allocated among the partners so that the Project General Partner receives XXXXXXXXXX% thereof with the balance being distributed among the limited partners based on their proportionate ownership of New LP units;

v. a requirement that income and losses of New LP be allocated among the partners in the same proportions as distributable cash is allocated;

vi. a prohibition on the transfer of New LP units, other than as set out in 26 herein;

vii. a mechanism for resolving disputes; and

viii. a requirement that upon dissolution, following payment of all of the debts and liabilities of New LP including the expenses of the liquidation, the remaining assets of New LP shall be distributed in the same proportions as distributable cash.

28. Partnership will incorporate a new corporation (the "Bare Trustee") to hold legal title to the Target Site for and on behalf of New LP. New LP will subscribe for shares of the Bare Trustee, paying a nominal subscription price therefor.

29. The Bare Trustee will be a taxable Canadian corporation. The only property of the Bare Trustee will be legal title to the Target Site and cash received by it upon the issuance of shares from treasury.

30. New LP, Developer Partner and DevCorp will enter into a development agreement (the "Development Agreement") pursuant to which New LP will engage Developer Partner to manage the development, construction and leasing up of the Property. The Development Agreement will provide that certain decisions in relation to the construction and leasing up of the XXXXXXXXXX will require the prior approval of New LP including:

i. approval of the initial development budget and all subsequent budgets;

ii. material decisions regarding leases; and

iii. the selection of a contractor and the date upon which construction will commence.

31. The Development Agreement will provide that Developer Partner shall be entitled to a development management fee equal to XXXXXXXXXX% of hard construction costs and related soft development costs, but not including land acquisition costs, project interest, taxes, financing costs and any fees payable to Developer Partner or an affiliate (such costs being the "Adjusted Project Costs"). The development management fee will be accrued monthly and will be paid from the Construction Loan (as defined in 34 below) and/or the Mezzanine Loan (as defined in 37 below) drawdowns from time to time over the construction period. In addition, Developer Partner will be entitled to earn market rate leasing fees, inclusive of any fees to be shared with third party brokers, for leasing up the property.

32. DevCorp agrees, pursuant to the Development Agreement, to provide development administration services to New LP in consideration for which DevCorp shall be entitled to an administration fee equal to XXXXXXXXXX% of the Adjusted Project Costs which will accrue monthly and will be paid from the Construction Loan (as defined in 34 below) and/or the Mezzanine Loan (as defined in 37 below) drawdowns from time to time over the construction period.

33. Developer Partner, Partnership and Project General Partner will enter into the shareholders agreement (the "Shareholders Agreement"), which shall provide that:

i. no shareholder may transfer or encumber their shares of Project General Partner except in accordance with the terms of the Shareholders Agreement or with the unanimous consent of the shareholders;

ii. concurrent with the sale by any shareholder of its Limited Partnership interest in New LP, such selling shareholder shall sell its shares in Project General Partner to the other shareholder for a price of $XXXXXXXXXX per share;

iii. the board of directors shall be comprised of nominees of each shareholder;

iv. the parties will take all steps and do all things required in order to ensure that Project General Partner would, if it were a trust, satisfy the conditions set forth in paragraphs (a) to (d) of the REIT Definition; and

v. certain matters require the approval of each shareholder.

34. New LP will obtain a conventional construction loan (the "Construction Loan") to finance as much of the cost of acquiring the Target Site and constructing the XXXXXXXXXX as possible. It is expected that the lender will require Partnership, by its General Partner, to provide a guarantee of the Construction Loan (the "Guarantee").

35. The Guarantee will be governed by the laws of XXXXXXXXXX and will be a continuing security for payment by New LP to the lender of all indebtedness and liabilities owing by New LP to the lender. Other key provisions of the Guarantee include:

i. the lender shall not be bound to exhaust its recourse against New LP or other parties or the securities that it may hold before being entitled to payment from Partnership under the Guarantee;

ii. if the lender should receive from Partnership a payment in full or on account of the Construction Loan or liability under the Guarantee, all rights of subrogation arising therefrom shall be postponed and Partnership shall not be entitled to claim repayment against New LP until the lender's claims against New LP have been paid in full;

iii. as security for the performance of Partnership's covenants under the Guarantee and the payment of the present and future debts and liabilities of New LP to the lender, Partnership grants to the lender a security interest in all debts and liabilities, present and future, of New LP to Partnership, all of which are assigned by Partnership to the lender and postponed to the present and future debts and liabilities of New LP to the lender.

36. Pursuant to a guarantee agreement (the "Guarantee Agreement") to be entered into between New LP and Partnership, New LP will agree to pay to Partnership, as consideration for giving the Guarantee, a payment equal to XXXXXXXXXX% of the principal amount guaranteed under the Construction Loan or if the guarantee required by the lender is unlimited, XXXXXXXXXX% of the total amount of the facility available under the Construction Loan (the "Guarantee Fee"). The Guarantee Fee will be paid in equal installments over the expected construction schedule from drawdowns from time to time under the Construction Loan and/or the Mezzanine Loan.

37. Trust will provide to New LP the balance of the financing it requires, to a maximum of $XXXXXXXXXX, by way of a revolving credit facility in favour of New LP (the "Mezzanine Loan"). The credit facility is to be used by New LP to fund the development of the Target Site and for no other purpose whatsoever.

38. The Mezzanine Loan will be evidenced by a promissory note issued from time to time and be secured by a second collateral leasehold real property mortgage in respect of the Property that will be given by the Bare Trustee in favour of Trust together with a general security agreement and an assignment of rents. The Mezzanine Loan will be governed by the loan agreement between Trust and New LP (the "Loan Agreement") and the laws of XXXXXXXXXX and will bear interest at a rate of XXXXXXXXXX% per annum compounded annually. Pursuant to Article XXXXXXXXXX of the Mezzanine Loan, the maturity date of the loan will be as follows:

"Maturity Date" means the earlier of (a) the date which is one year from the date of substantial completion of the construction of the improvements on the Secured Property; and (b) the date on which the first lien construction financing in respect of the Secured Property matures. For the purposes of this paragraph, "substantial completion" has the meaning attributed to it in the builder's lien legislation of the jurisdiction in which the Secured Property is located.

39. The XXXXXXXXXX will be a depreciable property to New LP that will be included in Class 1 of Schedule II to the Income Tax Regulations.

40. New LP will not earn any revenue until the first tenant of the XXXXXXXXXX commences paying rent (which may be before the XXXXXXXXXX is fully completed), following which it will earn rents and interest on any such amounts that may be deposited with financial institutions. Such interest shall not in any year exceed XXXXXXXXXX% of New LP's revenues in such year.

41. New LP will not have any employees and will engage a third party to provide property management services in respect of the Property.

42. The Partnership Interest and the Mezzanine Loan will both have a fair market value that exceeds XXXXXXXXXX% of the equity value of New LP.

43. At any particular time, New LP's only assets ("New LP Property") will be:

XXXXXXXXXX.

44. The acquisition of the Target Site and the construction of the XXXXXXXXXX will be conditional on:

i. confirmation of the cost of the Target Site and the cost of constructing the XXXXXXXXXX;

ii. agreement being reached by the parties on a development budget;

iii. the entering into of the Partnership Agreement, the Shareholders Agreement, the Guarantee Agreement and the Development Agreement; and

iv. confirmation of the availability of construction financing.

45. Trust will not proceed with the Project unless it obtains assurance that the Proposed Transactions will not cause it to fail to qualify as a REIT.

Purpose of Proposed Transactions

Trust has identified the Project as an attractive investment opportunity as compared with potential acquisitions of similar existing properties. The purpose of the Proposed Transactions is to attract a quality developer to undertake the Project by allowing them to partner with Partnership in the ownership of the Project while at the same time providing Developer Partner with a defined exit strategy, thereby facilitating the construction of the Project and the ownership thereof by Partnership, in an economically viable manner and in a manner which will not jeopardize the Trust's qualification as a REIT.

Rulings

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the proposed transactions, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given and provided further that:

i. Partnership is not engaged in the business of lending money or guaranteeing loans; and

ii. Partnership gives the Guarantee for the sole purpose of ensuring that New LP has access to the capital it requires to complete the Project;

our rulings are as follows:

A. Provided that in respect of a particular taxation year:

i. throughout the particular taxation year, the only property of New LP is the New LP Property;

ii. throughout the particular taxation year, the properties described in 43(vi) above are not used by any person that does not deal at arm's length with New LP, in the course of carrying on a business;

iii. at each time in the particular taxation year, the excess of the fair market value of the New LP Property less the aggregate fair market value of the properties described in 43(ii), (v) and (vi) above is not less than 75% of the equity value of New LP at that time;

iv. for the particular taxation year, either New LP does not earn any "gross REIT revenue", within the meaning of the definition of that term in subsection 122.1(1), or the only gross REIT revenue earned by New LP is from rent for the use of or the right to use the Property and interest income; and

v. for the particular taxation year, such interest income does not exceed 25% of New LP's gross REIT revenue;

the New LP would, if it were a trust, satisfy the conditions set forth in paragraphs (a) to (d) of the REIT Definition, such that the Partnership Interest and the Mezzanine Loan would each qualify in the particular taxation year as real or immovable property to Partnership or Trust, as the case may be, pursuant to subparagraph (a)(i) of the definition of "real or immovable property" in subsection 122.1(1).

B. Provided that in respect of a particular taxation year:

i. throughout the particular taxation year, the only property of the Project General Partner is that described in 23 above;

ii. for the particular taxation year, the only revenue earned by the Project General Partner will be its share of the income of New LP;

iii. for the particular taxation year, either New LP does not earn any "gross REIT revenue", within the meaning of the definition of that term in subsection 122.1(1), or the only gross REIT revenue earned by New LP is from rent for the use of or the right to use the Property and interest income; and

iv. for the particular taxation year, New LP would, if it were a trust, satisfy the conditions set forth in paragraphs (a) to (d) of the REIT Definition;

the Project General Partner would, if it were a trust, satisfy the conditions set forth in paragraphs (a) to (d) of the REIT Definition, such that the shares of the Project General Partner would be real or immovable property to Partnership, pursuant to subparagraph (a)(i) of the definition of "real or immovable property" in subsection 122.1(1).

C. The giving of the Guarantee in consideration for the Guarantee Fee will not, in and by itself, be viewed as constituting the carrying on of a business by Partnership, and the right to the Guarantee Fee would not be property of Partnership described in paragraph (c) of the definition "non-portfolio property".

D. If at any time in a particular taxation year the right to the Guarantee Fee is property of Partnership that is described in paragraph (a) of the definition "non-portfolio property", that right would be qualified REIT property of Partnership, if it were a trust, provided that the New LP would, if it were a trust, be a REIT for the particular taxation year.

E. If at any time in a particular taxation year Partnership should make a payment pursuant to the Guarantee in respect of which it has a right of subrogation as against New LP, that right would be qualified REIT property of Partnership, if it were a trust, provided that throughout the taxation year, the New LP would, if it were a trust, be a REIT for the particular taxation year.

F. Neither the Call Right nor the Put Right described in 26 above will be a "security" of Developer Partner within the meaning of the definition of that term in subsection 122.1(1).

G. Provided that throughout a particular taxation year

i. The only equity of New LP is that described in the Proposed Transactions,

ii. None of the equity of New LP is listed on a stock exchange or other public market;

iii. The only partners of New LP are Partnership, Developer Partner, and Project General Partner,

iv. The only equity of Project General Partner is that described in the Proposed Transactions and is held by Partnership and/or Developer Partner, and

v. Each of Partnership and Developer Partner is an excluded subsidiary entity,

New LP will be an excluded subsidiary entity for the particular taxation year.

Comments/Caveats

Nothing in this letter should be construed as implying that the CRA has reviewed, confirmed or otherwise considered, in the context of issuing this letter:

i. Whether Partnership is otherwise engaged in the business of lending money or guaranteeing loans;

ii. The purpose(s) for which Partnership gives the Guarantee;

iii. Whether any of Partnership, Partnership 2 or Partnership 3 is for any taxation year an excluded subsidiary entity;

iv. Whether Developer Partner is for any taxation year an excluded subsidiary entity;

v. Whether the Property is, at any time, held as capital property by the New LP;

vi. Whether Trust is, at any particular time, a closed-end trust, a mutual fund trust or a real estate investment trust, or whether at any time the Units are a qualified investment for Deferred Income Plans;

vii. Any tax implications relating to the issuance of the Series XXXXXXXXXX Preferred Units, the Series XXXXXXXXXX Preferred Units, or the Series XXXXXXXXXX Preferred Units;

viii. The deductibility of any amount paid by New LP to the Developer Partner or to DevCorp pursuant to the Development Agreement;

ix. The tax implications to Partnership in respect of any amount it may pay pursuant to the Guarantee;

x. Whether any particular amount of rent referred to in 40 above is "rent from real or immovable properties" as defined in subsection 122.1(1);

xi. The method used to determine the value of the Purchased Units referred to in 26 above;

xii. The fair market value of the Construction Loan or the Mezzanine Loan at any time; or

xiii. Any tax implications to the parties to either of the Construction Loan or the Mezzanine Loan, other than those referred to herein.

The above advance income tax rulings, which are based on the Act and Income Tax Regulations to the Act in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R6, dated August 29, 2014, and are binding on the CRA provided that the proposed transactions are completed within six months of the date of this letter.

Yours truly,

XXXXXXXXXX
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch