2007 Ruling 2006-0191631R3 - XXXXXXXXXX

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: Rulings confirm tax consequences of a REIT reorganization in order to simplify the structure of the MFT ...ie. conversion of a general partnership to a limited partnership & elimination of currently existing layers of corporations through amalgamation and transfers of assets using various rollover to achieve simplification.

XXXXXXXXXX 2006-019163

Attention: XXXXXXXXXX

XXXXXXXXXX , 2007

Dear XXXXXXXXXX :

Re: Advance Income Tax Ruling

XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling in respect of the above-noted taxpayer. We also acknowledge your revised ruling request dated XXXXXXXXXX and your additional correspondence of XXXXXXXXXX.

We understand that to the best of your knowledge, and that of the taxpayers involved, none of the matters considered in this ruling request are:

a) in an earlier return of the taxpayers or related persons;

b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or related persons;

c) under objection by the taxpayers or related persons;

d) before the courts; or

e) the subject of a ruling previously issued by this Directorate to the taxpayers or related persons.

The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader. Unless otherwise indicated, all references to monetary amounts are in Canadian dollars and all statute references are to the Income Tax Act (Canada) (R.S.C. 1985, 5th Supplement, c.1, as amended)("the "Act").

I. DEFINITIONS

In this letter,

(a) XXXXXXXXXX;

(b) "Amalco" means the corporation resulting from the amalgamation of the Lease Operating Companies, Share Purchase Companies and the Holding Companies, as described in Paragraph IV.1;

(c) "Amalco #2" means the corporation resulting from the amalgamation of Newco and Amalco, as described in Paragraph IV.19;

(d) "Asset Transfer #1" means that transfer of assets by Business Trust to the Fund, as described in Paragraph IV.13;

(e) "Asset Transfer #2" means that transfer of assets by Amalco #2 to the Fund as described in Paragraph IV.20;

(f) "Asset Transfer Time" means the point in time at which the Asset Transfer #1 or #2, as the case may be, will occur (which, for greater certainty, will be the "transfer time" referred to in the definition of "qualifying exchange" in subsection 132.2(2));

(g) "Business Trust" means XXXXXXXXXX as described in Paragraphs II.9-12;

(h) "Business Trust Special Unit" means a unit representing a beneficial interest in Business Trust as described in IV.6;

(i) "Business Trust Unit" means a unit representing a beneficial interest in Business Trust other than a Business Trust Special Unit;

(j) "Canadian partnership" has the meaning assigned by subsection 102(1);

(k) "Class A Shares" means the Class A preferred shares of Newco described in Paragraph IV.3(b) and, following the amalgamation described in Paragraph IV.19, the Class A preferred shares of Amalco #2;

(l) "Class A Share Subscription Proceeds" means subscription proceeds of $XXXXXXXXXX per Class A Share as described in Paragraph IV.10;

(m) "Class B Redemption Amount" means the aggregate redemption amount of the Class B Shares as described in Paragraph IV.3(c);

(n) "Class B Shares" means the Class B preferred shares of Newco described in Paragraph IV.3(c) and, following the amalgamation described in Paragraph IV. 19, the Class B preferred shares of Amalco #2;

(o) "cost amount" has the meaning assigned by subsection 248(1);

(p) "CRA" means the Canada Revenue Agency;

(q) "designated beneficiary" has the meaning assigned by section 210;

(r) "Fund" means XXXXXXXXXX, as described in Paragraphs II.1-7;

(s) "Fund Notes" means the unsecured, subordinated and interest-bearing notes of Business Trust, the Lease Operation Companies, and the Share Purchase Companies as described in Paragraph II.14;

(t) "GP Inc." means XXXXXXXXXX;

(u) "GP1" means XXXXXXXXXX, a general partnership described in Paragraphs II.16;

(v) "Holding Companies" means XXXXXXXXXX;

(w) "Lease Operation Companies" means XXXXXXXXXX;

(x) "LP" means the limited partnership resulting from the conversion of GP1 as described in paragraph IV.7;

(y) "LP Unit" means a unit of LP as described in paragraph IV.7;

(z) "Miscellaneous Companies" means XXXXXXXXXX;

(aa) "mutual fund corporation" has the meaning assigned by subsection 131(8);

(bb) "mutual fund trust" has the meaning assigned by subsection 132(6);

(cc) "Newco Common Shares" means the common shares of Newco described in Paragraph IV.3(a) and, following the amalgamation described in Paragraph IV.19, the common shares of Amalco #2;

(dd) "Newco" means the corporation described in Paragraph IV.3;

(ee) "non-resident" means a person who is not a resident of Canada or is deemed not to be a resident for the purposes of the Act;

(ff) "LP Contribution" has the meaning ascribed thereto in Paragraph IV.8;

(gg) "Proposed Transactions" means those transactions set forth in Part IV of this letter;

(hh) "public corporation" has the meaning assigned by subsection 89(1);

(ii) "Regulations" means the Income Tax Regulations;

(jj) "Real Estate Assets" means the Fund's beneficial ownership of XXXXXXXXXX located throughout Canada that it leases to the Lease Operation Companies;

(kk) "Share Purchase Companies" means XXXXXXXXXX;

(ll) "Special Unit" means a unit of the new class of units of the Fund, as described in Paragraph IV.5;

(mm) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(nn) XXXXXXXXXX;

(oo) "Unit" means a unit representing a beneficial interest in the Fund (other than a Special Unit);

(pp) "Unitholder" means a holder of one or more Units;

(qq) "X Co" means XXXXXXXXXX ., as described in Paragraph II.13; and

(rr) "X Co Common Shares" means all of the issued and outstanding common shares of X Co;

II. FACTS

1. The Fund was formed under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX (amended and restated). The Fund's principal undertaking is the investment in XXXXXXXXXX properties in Canada and the United States. The principal office of the Fund is located at XXXXXXXXXX . The Fund has a XXXXXXXXXX taxation year-end. The tax account number for the Fund is XXXXXXXXXX.

2. The Units of the Fund are listed and posted for trading on the XXXXXXXXXX under the symbol XXXXXXXXXX. There are approximately XXXXXXXXXX Units of the Fund issued and outstanding.

3. The Fund is a mutual fund trust and qualifies as a "unit trust" pursuant to paragraph 108(2)(a).

4. The Fund's amended and restated declaration of trust provides as follows:

(a) Each Unit is transferable (subject to restrictions on certain transfers to non-residents) and represents the right to an equal interest in the portion of any distributions or other amounts payable to Unitholders;

(b) All Units are of the same class with equal rights and privileges;

(c) Each Unit entitles the holder thereof to one vote at all meetings of Unitholders;

(d) The Fund has not been created primarily for the benefit of non-residents. At no time may non-residents be the beneficial owners of a majority (or such lesser number as the administrator may stipulate) of the Units;

(e) Distributions are made on a monthly basis in cash and may, under certain circumstances, be made in additional Units; and

(f) Each Unitholder is entitled to require the Fund to redeem at any time at the demand of the Unitholder for cash all or any part of the Units registered in the name of the Unitholder at a price per Unit calculated by reference to the market price of the Units, provided that the total amount payable by the Fund in respect of the Units tendered for redemption in the same calendar month will not exceed $XXXXXXXXXX provided that if the $XXXXXXXXXX limit is exceeded, or in certain other circumstances (for example, when the Units are not listed for trading or trading in the Units is suspended), Units tendered for redemption will, subject to regulatory approval, be redeemed by way of a distribution in specie of securities of X Co held by the Fund or notes of the Fund itself.

5. Pursuant to the Fund's amended and restated declaration of trust, the trustees of the Fund are XXXXXXXXXX. Pursuant to Administration Agreements X Co as agent of GP1 acts as administrator of the Fund.

6. The material assets of the Fund are held as capital property and consist of:

(a) the Real Estate Assets;

(b) all of the issued and outstanding units of Business Trust;

(c) all the issued and outstanding shares of the Holding Companies, the Lease Operations Companies, the Miscellaneous Companies and the Share Purchase Companies; and

(d) the Fund Notes.

7. The Real Estate Assets are leased by the Fund to the Lease Operation Companies which each own the furniture and fixtures used in the operation of such properties.

8. The Share Purchase Companies each own the land and buildings on which the business of each company is conducted.

9. Business Trust is an inter vivos trust that was established under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX (amended and restated). Business Trust's only undertaking to date has been the ownership of the units of GP1. Business Trust was not established and is not maintained primarily for the benefit of non-residents.

10. The Business Trust declaration of trust as amended and restated provides as follows:

(a) the interest of the beneficiaries is described by reference to units and the trustee may make distributions to the unitholders in such amounts as it may determine in its discretion;

(b) distributions may be made in cash or Business Trust Units, or a combination of both; and

(c) the Business Trust Units will be redeemable at any time on demand by the holders thereof in accordance with the formula set out in the declaration of trust.

11. The trustees of Business Trust are XXXXXXXXXX.

12. The material asset of the Business Trust consists of XXXXXXXXXX% of the units the GP1.

13. X Co is a corporation incorporated under the XXXXXXXXXX , and is a taxable Canadian corporation. It has a XXXXXXXXXX taxation year-end and its tax account number is XXXXXXXXXX. As of the date of this letter, the issued and outstanding share capital of X Co consists of XXXXXXXXXX common shares held by XXXXXXXXXX, a corporation wholly owned by the Fund. The directors of X Co are the same persons who are trustees of the Business Trust. The trustees of the Fund do not form the majority of the directors of XXXXXXXXXX.

14. Business Trust has outstanding indebtedness owing to the Fund in the amount of $XXXXXXXXXX, which is due on demand and is interest bearing. Each of the Lease Operation Companies and Share Purchase Companies is indebted to the Fund in an aggregate amount of approximately $XXXXXXXXXX. This indebtedness is also due on demand and is interest bearing (collectively the "Fund Notes").

15. The Fund has provided guarantees in respect of the obligations of certain of the Lease Operation Companies and the Share Purchase Companies, the Miscellaneous Companies and LP under credit facilities and has pledged as collateral certain of the securities it owns, directly and indirectly.

16. GP1 is a general partnership established under the laws of the Province of XXXXXXXXXX and is a Canadian partnership. Business Trust holds XXXXXXXXXX% of the units and GP Inc. holds XXXXXXXXXX% of the units. GP Inc. is wholly owned by the Fund. The partnership is engaged in XXXXXXXXXX. The trustees of the Fund do not form the majority of the board of directors of GP Inc.

17. The taxation year of each of the Fund, Business Trust, GP1 and each of the corporations referred to above ends on XXXXXXXXXX of each year.

III. OTHER INFORMATION

1. A "Management Information Circular" has been prepared in contemplation of a meeting of Unitholders and shareholders to inter alia, approve the Proposed Transactions. XXXXXXXXXX.

IV. PROPOSED TRANSACTIONS

Following receipt of required regulatory approvals, Unitholder approval and the receipt of the rulings requested hereunder, all of which are conditions that must be met prior to implementation of the transactions described below, the following transactions will be undertaken.

Pre-Reorganization Transactions

1. Each of the Lease Operation Companies, the Share Purchase Companies and the Holding Companies will be amalgamated to form one corporation (referred to herein as "Amalco") which amalgamation will be governed by the provisions of section 87 and will include the following provisions:

(a) The authorized capital of Amalco will consist of an unlimited number of common shares.

(b) The intercorporate shareholdings will be cancelled and the Fund will become the sole shareholder of Amalco.

2. To the extent required to complete the amalgamation, the Lease Operation Companies, the Share Purchase Companies and the Holding Companies will be continued into the Province of XXXXXXXXXX. It is anticipated that the jurisdiction of Amalco will be XXXXXXXXXX and Amalco will be subject to the XXXXXXXXXX.

3. Newco will be incorporated under the XXXXXXXXXX and will be a taxable Canadian corporation. The charter documents of Newco will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of paragraph 131(8)(b). Newco will not be established nor maintained primarily for the benefit of non-residents. The issued and outstanding capital of Newco will consist of three classes of shares:

(a) The Newco Common Shares will, subject to the XXXXXXXXXX:

(i) entitle the holder thereof to one vote in respect of each Newco Common Share on all matters to be voted on at all meetings of shareholders;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of Class A Shares and Class B Shares; and

(iii) on the liquidation, dissolution or winding-up of Newco, subject to the rights of the holders of any other class of shares of Newco entitled to receive assets of Newco upon such a distribution in priority to or rateably with the holders of the Newco Common Shares, entitle the holder thereof to share rateably in any remaining assets of Newco.

(b) The Class A Shares will, subject to the XXXXXXXXXX:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of Common Shares or Class B Shares;

(iii) be redeemable at the option of Newco without notice to the holders thereof for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Units as determined by the Newco in its sole discretion;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Units; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of Newco will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

(c) The Class B Shares will, subject to the XXXXXXXXXX:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of Common Shares or Class A Shares;

(iii) be redeemable at the option of Newco without notice to the holders thereof for an aggregate redemption amount equal to the amount by the fair market value of the assets acquired on issue of the shares exceeds the amount of any liabilities assumed on the issuance of the shares (the "Class B Redemption Amount") plus all declared and unpaid dividends to the date of payment;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for an aggregate redemption amount equal to the Class B Redemption Amount plus all declared and unpaid dividends to the date of payment; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of Newco will be distributed to the holders of Common Shares, or any shares ranking junior to the Common Shares.

The Class A Shares and the Class B Shares will rank equally with one another with respect to priority in the event of liquidation, dissolution or winding-up. At all times following the issuance of the Class A Shares, the fair market value of the issued shares of Newco that are retractable in accordance with the provisions described in Paragraphs IV.3(b)(iv) and IV.3(c)(iv) above will be at least 95% of the fair market value of all of the issued shares of Newco.

4. Following the incorporation of Newco, the Fund will subscribe for XXXXXXXXXX Newco Common Shares for a cash payment of $XXXXXXXXXX .

5. The Fund's declaration of trust will be amended to permit the issuance of a second class of units to be designated as "Special Units", which will be substantially similar to the Units save that the Special Units will be redeemable within XXXXXXXXXX days of the demand for redemption and will have a redemption amount of $XXXXXXXXXX each. Other amendments will be made to the Fund's declaration of trust in order to permit the Proposed Transactions to take place. For example, the provision dealing with the consolidation of Units will be amended to permit a consolidation under the circumstances described in Paragraph IV.22; and such other amendments will be made as may be necessary or appropriate to complete the Proposed Transactions. In addition, certain other amendments may be made at the same time to the Fund's declaration of trust that are unrelated to the Proposed Transactions and that amount to general "housekeeping" or "cleanup" matters.

6. The declaration of trust of the Business Trust will be amended to restrict its undertakings to the activities described in subparagraphs (i), (ii) and (iii) of subsection 132(6) and to permit the issuance of Business Trust Special Units. These will be identical to the Business Trust Units save that they will not be entitled to vote and will be redeemable within two days of the date of demand for redemption and will have a redemption amount of $XXXXXXXXXX each.

The Reorganization

All steps below will occur in sequence and in such manner that once the first step is taken all other steps must also be completed.

7. GP Inc. and Business Trust will agree to convert GP1 into a limited partnership under the Partnership Act XXXXXXXXXX. Business Trust will be the limited partner and GP Inc. will be the general partner. The limited partnership will be called "LP" and the interest of a limited partner therein will be described as "LP Units". There will be no significant changes in the rights and obligations of the partners other than the change to the limited liability status. Specifically there will be no change to contributed capital accounts of any partners and there will be no difference in the percentage interest in partnership of any of the partners. The business of the partnership will not change. Furthermore, the percentage of interest of each partner in the profits will not change and the percentage liability for losses of each partner will not change save for the potential limit on liability of the limited partners. The limited partnership agreement will indicate that Business Trust and any eventual limited partner:

(i) have a liability in respect of the debts, liabilities and obligations of LP which is limited to the amount that it contributed to LP plus any undistributed income and should a limited partner's liability not be limited for any reason, GP Inc. is required to indemnify the limited partner for such liability unless such liability arises out of any act or omission of the limited partner;

(ii) cannot control or manage the business of LP;

(iii) cannot execute any document binding LP or GP Inc.;

(iv) cannot undertake any obligation or responsibility on behalf of LP;

(v) cannot bring any action for partition or sale of property of LP; and

(vi) cannot take any action which jeopardizes the status of LP as a limited partnership.

8. Amalco will transfer to LP all of its assets and goodwill (other than an amount of cash sufficient to satisfy liabilities that cannot be assumed) (the "LP Contribution") for the following consideration:

(a) the assumption by LP of all liabilities of Amalco (other than the liabilities of Amalco in respect of the Fund Notes and liabilities of Amalco that cannot be assumed, such as tax liabilities), including bank debt;

(b) a promissory note in an amount equal to the amount to be elected pursuant to subsection 97(2); and

(c) LP Units having a fair market value equal to the excess of the fair market value of the LP Contribution over the amount of the liabilities assumed under (a) above and the promissory note issued under (b) above.

Amalco, in its capacity as transferor, and GP Inc. and Business Trust as partners in LP, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsection 96(4) or 96(5) with respect to the LP Contribution. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

9. GP Inc. will receive a cash contribution from the Fund and will use the same to make a cash contribution to the capital of LP proportionate to the sum of the net contributions made by Amalco in exchange for additional general partnership units of LP so as to maintain a XXXXXXXXXX% partnership interest in LP.

10. The Fund will subscribe for that number of Class A Shares of Newco as is equal to the number of its issued and outstanding Units plus the number of its Units as are held by designated beneficiaries in consideration for a cash payment of $XXXXXXXXXX per Class A Share (the "Class A Share Subscription Proceeds").

11. The Fund will contribute $XXXXXXXXXX to Business Trust and will subscribe for that number of Business Trust Special Units as is equal to the number of its issued and outstanding Units (other than those held by designated beneficiaries) in consideration for a cash payment estimated at $XXXXXXXXXX per Business Trust Special Unit.

12. In accordance with the Management Information Circular, the Fund will undertake a return of capital in respect of its Units by distributing to each Unitholder other than a designated beneficiary one Business Trust Special Unit and one Class A Share for each Unit held by such Unitholders; and by distributing XXXXXXXXXX Class A Shares for each Unit held by a holder who is a designated beneficiary provided that:

(a) The Fund will remit to the Receiver General, on behalf of each Unitholder that is a non-resident, an amount equal to the amount required by the Act to be withheld on behalf of the Unitholder in respect of the return of capital, and will remit such amount to the Receiver General on behalf of the Unitholder, pursuant to subsection 215(1).

(b) The Fund will pay to each Unitholder that is not a non-resident a cash amount per Unit equal to the amount remitted to the Receiver General for each Unit held by a non-resident.

(c) The distribution of the Business Trust Special Units and Class A Shares to Unitholders will comply with provincial securities legislations and regulations. Business Trust will have at least 150 unitholders each of whom will hold at least 100 Business Trust Special Units with a fair market value of at least $500. Newco will have at least 300 holders (other than insiders) of Class A Shares, each of whom will hold at least 100 Class A Shares having an aggregate fair market value of not less than $500. Newco will elect to be a public corporation and the Class A Shares will the designated class of shares in its election and insiders of Newco will not hold more than 80% of the issued and outstanding Class A Shares.

13. Business Trust will retain $XXXXXXXXXX but otherwise will transfer to the Fund all of its assets ("Asset Transfer #1") (which will consist primarily of the LP Units) and in consideration therefore the Fund will assume all the liabilities of Business Trust and will issue Units and Special Units having an aggregate value equal to the value of the property so acquired from Business Trust less the amount of any liabilities assumed.

14. Subsequent to this transfer, Business Trust will not have any property other than $XXXXXXXXXX cash and the Special Units and Units received on the transfer. The Fund and Business Trust will jointly file an election in prescribed form and within the prescribed time in respect of the transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) and proposed subsection 132.2(1).

15. Within 60 days after the Asset Transfer Time Business Trust will redeem all the outstanding Business Trust Special Units in exchange for Special Units and all the Business Trust Units (save for one Business Trust Unit held by the Fund) in exchange for Units which Business Trust acquired pursuant to Asset Transfer #1.

16. No consideration other than Special Units and Units will be received by the Unitholders on the redemption of the Business Trust Special Units and Business Trust Units.

17. The Units received by the Fund on the redemption of the Business Trust Units will be immediately cancelled.

18. The Fund and Newco will enter into an agreement of purchase and sale under which the Fund will transfer the Amalco Common Shares and the Fund Notes to Newco for an aggregate purchase price equal to the respective fair market value of each property so transferred. Newco will satisfy the purchase price by issuing to the Fund XXXXXXXXXX Class B Shares. The Class B Redemption Amount will be established by reference to the aggregate fair market value of the Amalco Common Shares and the Fund Notes at that time, which will be determined by reference to the trading value of the Units prior to the time of the transfer to Newco and the relative value of such assets. The Fund and Newco will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer of the Amalco Common Shares and the Fund Notes. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(b), (c) and (c.1).

19. Newco and Amalco will undertake a short form vertical amalgamation under the XXXXXXXXXX to form one corporation (referred to herein as "Amalco #2"), which amalgamation will be governed by the provisions of section 87 and will include the following provisions:

(a) the authorized capital of Amalco #2 will be the same as the authorized capital of Newco;

(b) the holder of the Newco Common Shares will receive one common share of Amalco #2 for each New Common Share of Newco held;

(c) the holders of the Class A Shares of Newco will receive one Class A share of Amalco #2 for each Class A share of Newco held;

(d) the holders of the Class B Shares of Newco will receive one Class B share of Amalco #2 for each Class B share of Newco held; and

(e) the articles of Amalco #2 will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of paragraph 131(8)(b).

Amalco #2 will be a public corporation by virtue of paragraph 87(2)(ii).

20. Amalco #2 will transfer its assets (consisting primarily of the LP Units "Asset Transfer #2") to the Fund solely in exchange for:

(a) the assumption of certain liabilities of Amalco #2;

(b) that number of Units having an aggregate fair market value equal to the sum of the Class B Redemption Amount; and

(c) that number of Special Units having an aggregate fair market value equal to the aggregate redemption amount of the Class A Shares.

Subsequent to this transfer, Amalco #2 will not have any property other than cash to cover any liabilities that cannot be assumed, such as tax liabilities; and Units and Special Units received on the transfer. The Fund and Amalco #2 will jointly file an election in prescribed form and within the prescribed time in respect of the transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) and proposed subsection 132.2(1).

21. Within 60 days after the Asset Transfer Time Amalco #2 will redeem all of its outstanding Class A Shares in exchange for Special Units, and all the Class B Shares in exchange for Units acquired by Amalco #2 in the immediately preceding transaction. The Units received by the Fund on the redemption of the Class B Shares will be immediately cancelled. No consideration other than Special Units will be received by the Unitholders on the redemption of the Class A Shares and no consideration other than Units will be received by the Fund on the redemption of the Class B Shares.

22. Each outstanding Special Unit will be converted into a fraction of a Unit equal to the fraction where the numerator is the value of the Special Unit and the denominator is the fair market value of a Unit and the outstanding Units will be consolidated on a basis such that the number of Units outstanding following such consolidation will be equal to the number of Units that were outstanding immediately before the Proposed Transactions were undertaken. No Units will be cancelled or redeemed and the Unitholders will not receive, and shall not be entitled to receive, any proceeds of disposition as a consequence of the consolidation. All the Units will be consolidated on the same basis and there will be no change in the total capital of the Fund or the rights of the Unitholders or their percentage interests in the Fund as a consequence of the consolidation.

23. The Fund will transfer to LP the Real Property Assets (the "Real Property Contribution") for the following consideration:

(a) the assumption by LP of all liabilities of the Fund in respect of the Real Property Assets; and

(b) a promissory note in an amount equal to the amount to be elected pursuant to subsection 97(2); and

(c) LP Units having a fair market value equal to the excess of the fair market value of the Real Property Contribution over the amount of the liabilities assumed under (a) above.

The Fund, in its capacity as transferor, and GP Inc. and the Fund as partners in LP, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsection 96(4) or 96(5) with respect to the Real Property Contribution. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

24. GP Inc. will receive a cash contribution from the Fund and will use the same to make a cash contribution to the capital of LP proportionate to the sum of the net contributions made by the Fund in exchange for additional general partnership units of LP so as to maintain a XXXXXXXXXX% partnership interest in LP.

25. Following the transfers described above, the Fund will own XXXXXXXXXX% of the partnership interest of LP.

26. Neither Amalco #2 nor Business Trust will be dissolved but will continue to exist, at least until the last day on which the elections under the Act contemplated by the proposed transactions can be filed.

27. The Fund trustees will not comprise the majority of the board of directors of any of the partner companies or operating companies.

IV. PURPOSE OF THE PROPOSED TRANSACTIONS

The objective of the Proposed Transactions is to simplify the organizational structure of the Fund and the entities in which it holds substantial interests and to substantially reduce complexity of accounting, legal, reporting and income tax compliance required by the existing structure. The proposed structure will eliminate much of this burden. Additionally, the Proposed Transactions will result in a structure which is desirable for a number of reasons:

(a) the proposed structure will be substantially similar to many other business trusts and should therefore be more acceptable to a wider public;

(b) the proposed structure has the advantage of being familiar to the unitholders and analysts who follow the trading of the Units; and

(c) it is believed that this structure will be of assistance in maintaining the Fund's public profile.

In addition, the Business Trust Special Units will not be distributed to a Unitholder who is a designated beneficiary in order to ensure that Part XII.2 does not apply to Business Trust.

VI. RULINGS

Provided that:

(i) the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions and purposes of the above transactions;

(ii) provided that the Proposed Transactions are completed in the manner described above; and

(iii) there are no other transactions that may be relevant to the rulings given our rulings are as follows:

A. Provided there is no dissolution of GP1 pursuant to the Partnership Act (XXXXXXXXXX ), the conversion of GP1 from a general partnership to a limited partnership, LP, will not result in a disposition of the assets of GP1 and the partners of GP1 will not be deemed to have disposed of their interests in GP1.

B. The Proposed Transactions described above will not, in and by themselves, adversely affect the qualification of the Business Trust as a mutual fund trust.

C. Provided that, at the time of Asset Transfer #1 both Business Trust and the Fund are mutual fund trusts, the property transferred has a fair market value of at least 90% of the fair market value of all property owned by Business Trust at that time and provided that joint elections are filed in prescribed form and within the time set out in to paragraph (c) of the definition of qualifying exchange in subsection 132.2(2), the transactions described in Paragraph IV.13 to IV.16 above will constitute a qualifying exchange such that provisions of subsections 132.2(1) will apply to:

(a) the transfer of the LP Units from Business Trust to the Fund described in Paragraph IV.13; and
(b) the redemption of the Business Trust Special Units and Business Trust Units described in Paragraph IV.15.

D. The Proposed Transactions described above will not, in and by themselves, adversely affect the qualification of Amalco as a mutual corporation.

E. Provided that, at the time of Asset Transfer #2, Amalco #2 is a mutual fund corporation, the Fund is a mutual fund trust, the property transferred has a fair market value of at least 90% of the fair market value of all property owned by Amalco # 2 at that time and provided that joint elections are filed in prescribed form and within the time set out in to paragraph (c) of the definition of qualifying exchange in subsection 132.2(2), the transactions described in Paragraph IV.20 and IV.21 above will constitute a "qualifying exchange" such that provisions of subsections 132.2(1) will apply to:

(a) the transfer of the LP Units from Amalco #2 to the Fund described in Paragraph IV.20; and
(b) the redemption of the Class A and Class B shares by Amalco #2 described in Paragraph IV.21.

F. The conversion of Special Units to Units and the consolidation of Units described in Paragraph IV.22 will not result in a disposition, or partial disposition, by the Unitholders of the Special Units or Units.

G. Provided both the Fund and Business Trust are mutual fund trusts, neither the Fund nor Business Trust will be considered a designated beneficiary of any trust referred to herein for the purposes of Part XII.2.

H. The Proposed Transactions, in and of themselves, will not result in the application of subsections 15(1), 56(2) or 246(1).

I. Section 253.1 will apply in respect of the Proposed Transactions such that the Fund will not solely because of its acquisition and holding of the LP Units be considered to carry on any business or other activity of LP.

J. Subsection 245(2) will not be applied as a result of the Proposed Transactions, in and of themselves, to redetermine any of the tax consequences confirmed in the rulings granted herein.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the CRA provided that proposed transactions are completed within six months of the date of this letter. As indicated in Information Circular 70-6R5, we do not rule on matters involving the determination of the fair market value of property and nothing in this ruling should be construed as implying that CRA has agreed to or reviewed the determination of the fair market value, the adjusted cost base, or fair market value of any particular asset or the paid-up capital of any shares referred to herein.

On June 22, 2007, legislation pertaining to specified investment flow-through entities ("SIFTs") received Royal Assent. As you are aware the CRA is considering the issue of whether the subsidiary entities of, for example, an income trust, could be SIFTs, but has not yet reached a conclusion. Consequently, nothing in this ruling should be viewed as providing any assurance that LP is not currently a SIFT or will not become a SIFT by virtue of the proposed transactions.

XXXXXXXXXX
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch