CRA (reluctantly?) confirms that a subsidiary LP is transparent for purposes of the closed-end fund rules

A listed open-end mutual fund trust is converting to a closed-end (s. 108(2)(b)) fund in order that it can issue non-retractable preferred units to the public.

Notes owing to the fund by a subsidiary trust holding an office tower would exceed the 10% debt limit in s. 108(2)(b)(v). Accordingly, the office tower will be acquired, and the notes assumed, by a subsidiary LP, with the notes then being converted to partnership equity.

CRA gave opinions (rather than rulings – perhaps suggesting queasiness) that the subsidiary LP (whose units would be problematic if treated as securities or non-marketable securities in their own right) would be viewed as a look-through for purposes of the closed-end numerical tests – so that the fix described above "works."

Neal Armstrong.  Summaries of 2012 Ruling 2011-0410181R3 under ss. 108(2)(b), 104(7.1) and 248(1) - disposition.  See also 17 March 2003 T.I. 2001-009567.