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: Whether transferring the partnership held partly by a corporate subsidiary to an income trust on a rollover basis using section 85, 97 and 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions the trust owns indirectly the shares of the corporation that is a partner of the partnership. At the end of the proposed transactions, it owns a limited partnership interest.
Position: The proposed transactions meets the requirements of the Act and rulings on the various rollover provisions and section 245 are granted.
Reasons: The provisions of the Act; the trustees of the trust do not form the majority of the directors of the corporate general partner.
XXXXXXXXXX 2006-021202
XXXXXXXXXX , 2007
Dear Sir:
Re: Advance Income Tax Ruling
XXXXXXXXXX - Tax Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)
XXXXXXXXXX - Tax Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Taxation Centre)
XXXXXXXXXX . - Business Number XXXXXXXXXX (XXXXXXXXXX Tax Services Office, XXXXXXXXXX Tax Centre)
This is in reply to your letter of XXXXXXXXXX. We also acknowledge additional correspondence concerning your request.
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) dealt with in an earlier return of the taxpayers or a related person;
b) being considered by a tax services office or tax centre in connection with a previously filed tax return of the taxpayers or a related person;
c) under objection by one or any of the taxpayers or a related person;
d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; and
e) the subject of a ruling previously issued by this Directorate.
In this document, unless otherwise indicated, all monetary amounts are expressed in Canadian dollars and all statute references are to the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act").
DEFINITIONS
In this letter, the following terms have the meanings specified:
"adjusted cost base" has the meaning assigned in section 54;
"agreed amount" in respect of an asset means the amount that the transferor and the transferee of the asset agree upon in their election under subsection 85(1) or 97(2), as the case may be, in respect of that asset;
"Amalco" means the corporation formed as a result of the amalgamation of MFC and Opco;
"Amalco Class A Share" means a redeemable and retractable class A share in the capital stock of Amalco having identical attributes to a MFC Class A Share;
"Amalco Class B Share" means a redeemable and retractable class B share in the capital stock of Amalco having identical attributes to a MFC Class B Share;
"Amalco Common Share" means a common share in the capital stock of Amalco having identical attributes to a MFC Common Share;
"cost amount" has the meaning assigned by subsection 248(1);
"CRA" means the Canada Revenue Agency;
"CT" means XXXXXXXXXX;
"CT Notes" means the XXXXXXXXXX;
"CT Unit" means a unit of CT, each such unit representing an equal undivided beneficial interest therein;
"Exchanged Property" means the property transferred by Amalco to the Fund pursuant to the "qualifying exchange" described in paragraph 26;
"Fair market value" or "FMV" means the highest price available in an open and unrestricted market, between informed, prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash;
"Fund" means XXXXXXXXXX;
"Fund Declaration of Trust" means the Fund's declaration of trust made as of
XXXXXXXXXX under the laws of the Province of XXXXXXXXXX as amended from time to time. The last amendment to the Fund Declaration of Trust is dated XXXXXXXXXX;
"Fund Trustee" means XXXXXXXXXX, or its successor as trustee of the Fund;
"Fund Unit" means a unit of the Fund, each such unit representing an equal undivided beneficial interest therein. Each Fund Unit is transferable, entitles the holder to one vote and is redeemable at the demand of a Unitholder. The Fund Units trade on the XXXXXXXXXX Stock Exchange;
"GP Co" means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX. Its tax affairs are administered by the XXXXXXXXXX District Office, registration number
XXXXXXXXXX;
"GP interest" means a XXXXXXXXXX% interest in LP, including the right to receive allocations or distributions of XXXXXXXXXX% of the net income or net loss (determined in accordance with GAAP) or of the income or loss (determined in accordance with the Act) in respect of any fiscal period of LP;
"Holdings LP" means XXXXXXXXXX, a limited partnership organized under the laws of the Province of XXXXXXXXXX;
"Holdings LP GP Unit" means a general partner unit in Holdings LP;
"Holdings LP Unit" means a limited partner unit in Holdings LP;
XXXXXXXXXX;
"Information Circular" means the management information circular to be circulated to Unitholders in connection with the proposed transactions described herein;
"Insider" has the meaning assigned to such term at subsection 4803(1) of the Regulations;
XXXXXXXXXX;
XXXXXXXXXX;
"LP" means XXXXXXXXXX, a limited partnership governed by the laws of the Province of XXXXXXXXXX;
"LP Unit" means a unit representing a limited partner interest in LP;
"Manager" means XXXXXXXXXX. which provides management services to XXXXXXXXXX, Opco, XXXXXXXXXX, and XXXXXXXXXX, subject to oversight and control by the board of trustees of CT.
"MFC" means a corporation to be incorporated by CT under the XXXXXXXXXX as described in paragraph 19;
"MFC Class A Share" means a class A share in the capital stock of MFC, the key terms of which include the following: no par value; non-voting; holder entitled to dividends as and when declared by the board of directors; redeemable and retractable; holder entitled to redemption price upon receipt of share by MFC; redemption price equal to the fair market value of any consideration paid to acquire such share on issuance; redemption price payable by cash or by the transfer of Fund Units; on the dissolution of MFC, entitle the holder to the redemption price in preference to any participation on the MFC Common Shares and rank equally with the MFC Class B Shares;
"MFC Class B Share" means a class B share in the capital stock of MFC, the key terms of which include the following: no par value; non-voting; holder entitled to dividends as and when declared by the board of directors; redeemable and retractable; holder entitled to redemption price upon receipt of share by MFC; redemption price equal to the fair market value of any consideration paid to acquire such share on issuance; redemption price payable by cash or by the transfer of Fund Units; on the dissolution of MFC, entitle the holder to the redemption price in preference to any participation on the MFC Common Shares and rank equally with the MFC Class A Shares;
"MFC Common Share" means a common share in the capital stock of MFC, the key terms of which include the following: one vote per share; holder entitled to dividends as and when declared by the board of directors; redeemable at the demand of the holder for a redemption price equal to the fair market value of the share, and on the dissolution of MFC, entitles the holder to share rateably in any remaining assets of MFC;
XXXXXXXXXX;
"New Amalco" means the corporation formed as a result of the amalgamation of Amalco and Newco;
"Newco" means a corporation to be incorporated by Opco under the XXXXXXXXXX and which will act as the general partner of LP;
XXXXXXXXXX;
XXXXXXXXXX;
"Opco" means XXXXXXXXXX, formed as a result of an amalgamation under the laws of the Province of XXXXXXXXXX and is a taxable Canadian corporation and a private corporation for the purposes of the Act. Its tax affairs are administered by the XXXXXXXXXX District Office at XXXXXXXXXX, registration number XXXXXXXXXX;
"Opco Note" means the demand promissory note of Opco (originally issued by a predecessor of Opco, XXXXXXXXXX) dated XXXXXXXXXX and issued to CT in the principal amount of $XXXXXXXXXX bearing interest at a rate of XXXXXXXXXX% per annum;
"Opco Shares" means the issued and outstanding shares of Opco;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"Proposed Amendments" means the Notice of Ways and Means Motion released by the Department of Finance on November 9, 2006, that includes proposed amendments to section 132.2 of the Act;
"Resident" and "Non-Resident" respectively means a person who is a resident or a non-resident of Canada, respectively, for purposes of the Act;
"Right of Renunciation" means the right of a Unitholder that is a Subsidiary of the Fund to renounce, release, surrender and cancel, for no consideration, all rights and benefits in and to Fund Units specified in a delivered written notice of renunciation;
"Subsidiary" of the Fund means any entity, corporation, trust or partnership in which the Fund holds, either directly or indirectly (through one or more Subsidiaries), 95% or more of the beneficial interest therein, including, without limitation: in respect of a corporation, 95% or more of the shares of each class of the corporation; in respect of a trust, 95% or more of the beneficial interest in the trust; and, in respect of a partnership, 95% or more of the partnership units or interest in the partnership;
"Transfer Time" means the "Transfer Time" within the meaning of section 132.2 as described in paragraph 26; and
"Unitholder" means a holder of Fund Units.
FACTS
1. The Fund is an unincorporated open-ended trust established under the laws of the Province of XXXXXXXXXX which indirectly owns interests in XXXXXXXXXX. The Fund Trustee is a Resident. The Fund Trustee has contracted with the Manager to provide administration and management services to the Fund and CT. The principal office of the Fund is located at XXXXXXXXXX.
2. The Fund is a unit trust within the meaning assigned at paragraph 108(2)(a) and is a mutual fund trust within the meaning assigned at subsection 132(6). The Fund qualifies and is registered as a registered investment for deferred income plans pursuant to section 204.4. Under the Fund Declaration of Trust, the Fund may issue an unlimited number of Fund Units. There were XXXXXXXXXX Fund Units issued and outstanding at XXXXXXXXXX. Fund Units are widely held by the public and, to the knowledge of the Fund Trustee, there is no direct or indirect beneficial owner of, nor any person who exercises control or direction over, Fund Units carrying more than 10% of the votes and value of outstanding Fund Units. The Fund is not established or maintained primarily for the benefit of Non-Residents and to the knowledge of the Fund Trustee, Non-Residents are collectively beneficial owners of less than XXXXXXXXXX% of the Fund Units. The Fund's taxation year within the meaning assigned by subsection 249(1) ends on XXXXXXXXXX. The value of the Fund Units is not primarily attributable to real property in Canada, Canadian resource properties or timber resource properties. The Fund's investment objective is to produce stable and sustainable levels of cash available for distribution to Unitholders from assets, businesses, acquisitions and investments related to the XXXXXXXXXX. The Fund intends to achieve this investment objective by, in part, making acquisitions in accordance with its "Acquisition and Investment Guidelines", which provides in part that:
"An acquisition or investment must reasonably be expected to result in an increase in distributable cash flow per Trust Unit or to otherwise provide value to Unitholders".
3. CT is an unincorporated open-ended trust established under the laws of the Province of XXXXXXXXXX. Each of the XXXXXXXXXX trustees of CT are Residents and do not act as an officer or director of any of its subsidiaries. The Fund holds all of the issued and outstanding CT Units and CT Notes.
4. XXXXXXXXXX. Holdings LP holds a XXXXXXXXXX% general partner interest in LP and Opco (XXXXXXXXXX% owned by CT) holds a XXXXXXXXXX% general partner interest and a XXXXXXXXXX% limited partner interest in LP.
5. GP Co is a corporation incorporated under the laws of the Province of XXXXXXXXXX. CT holds all of the issued and outstanding GP Co shares.
6. Holdings LP is a limited partnership governed by the laws of the Province of XXXXXXXXXX. CT is the limited partner of Holdings LP. GP Co is the general partner of Holdings LP owning a XXXXXXXXXX% interest in Holdings LP. The limited partnership agreement ensures the limited partners are not actively engaged in the partnership business and prohibits a limited partner on transacting any business on behalf of the partnership.
7. Opco is a corporation amalgamated under the laws of the Province of XXXXXXXXXX. CT holds all of the issued and outstanding shares in the capital stock of Opco. Opco is the managing general partner of LP. Opco manages and controls LP's affairs and business.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
10. XXXXXXXXXX.
11. Under the Fund Declaration of Trust, the Fund may issue an unlimited number of Fund Units. Each Fund Unit represents an equal and undivided beneficial interest in the distributions made by the Fund, as well as the net assets of the Fund in the event of termination or winding up of the Fund. Each Fund Unit is transferable and entitles the holder thereof to one vote on all matters to be voted on at all meetings of unitholders. The Fund Units are redeemable at any time on demand by the holders at their fair value, determined as the lesser of: (a) 95% of the market price of the Fund Units on the principal market on which the Fund Units are quoted for trading during the XXXXXXXXXX day trading period commencing immediately after the date on which the Fund Units are surrendered for redemption; or (b) the closing market price on the principal market on which the Fund Units are quoted for trading on the date that the Trust Units are surrendered for redemption. The Fund Declaration of Trust prohibits Non-Residents from collectively owning more than XXXXXXXXXX% of the Fund Units.
12. The Fund is required to distribute all of its available cash to Unitholders subject to providing reasonable reserves for working capital, capital expenditures, and future acquisitions.
13. XXXXXXXXXX.
14. The board of directors of each of XXXXXXXXXX, GP Co, and Opco are comprised of XXXXXXXXXX or more officers of the Manager. None of those officers are trustees of the Fund or CT.
PROPOSED TRANSACTIONS
Unless otherwise specified, the Proposed Transactions will take place in the order set out below:
15. On or about XXXXXXXXXX, the Fund will seek approval for the proposed transactions at a special meeting of Unitholders. In accordance with provincial securities legislation, the Fund will prepare the Information Circular for distribution to the Unitholders, and will file it with the securities regulatory authorities in each of the Provinces of Canada as required under applicable securities legislation. In the case of a restructuring transaction under which securities are to be changed, exchanged, issued or distributed, such legislation requires that the Information Circular include information sufficient to enable a reasonable unitholder to form a reasoned judgment concerning the nature and effect of the proposed transactions and the resulting entities in the organizational structure of the Fund. This Information Circular must include the disclosure for each entity, in this case MFC, prescribed by the form of prospectus that MFC would be eligible to use for a distribution of securities. All of the proposed transactions will occur shortly after obtaining Unitholder approval, and not later than XXXXXXXXXX, subject to obtaining a satisfactory advance income tax ruling from the CRA.
16. The Fund Declaration of Trust will be amended to change the definition of Distributable Cash to provide more discretion in determining the amount of distributions. The Declaration of Trust will also be amended to add a Right of Renunciation and a consolidation mechanism for the Fund Units to give effect to the reorganization steps. The Fund Declaration of Trust will be amended to allow for the issuance of fractional Units. Unitholders will not be entitled to any proceeds of disposition as a result of these changes and their Units will not be redeemed or cancelled.
17. As a preliminary step to ensure limited liability for the Fund, which will become the owner of the partnership interest in LP and to ensure that the Fund continues to qualify as a "mutual fund trust", all but one of LP's existing GP units will be converted into an equivalent number of LP units. Immediately after such conversion, Holdings LP will hold XXXXXXXXXX% of the issued and outstanding LP Units and Opco will hold XXXXXXXXXX% of the issued and outstanding LP Units and all of the issued and outstanding general partner interest of LP. Immediately after such conversion, Opco will be the sole general partner of LP. The conversion will not give rise to any significant change in the rights and obligations of any of the partners of LP other than potential liability related to the operations of LP. The conversion will not give rise to any change in the contributed capital accounts of the partners, the percentage interest in the partnership of any of the partners, the business of the partnership, the percentage interest of each partner in the profits or the percentage liability for losses of each partner except for the limitation on liability of the limited partners.
18. Newco will be incorporated under the XXXXXXXXXX. Opco will subscribe for XXXXXXXXXX common share in the capital stock of Newco for a nominal subscription price. None of the members of the board of directors of Newco will be a trustee of the Fund or CT. Opco will contribute its XXXXXXXXXX% GP interest in LP to Newco as payment of the subscription price and file an election under subsection 85(1) in respect of such transfer. Opco will assign the management services agreement and operations and management agreement to Newco and Newco will assume the responsibilities of Opco under these agreements as general partner of LP. The Manager will, in turn, provide certain administrative and employee support services to Newco.
In connection with the above steps, any limited partner and any eventual limited partner of LP:
a) will have a liability in respect of the debts, liabilities and obligations of that particular limited partnership which will be limited to the amount that it will contribute to the particular limited partnership plus any undistributed income. Should the 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;
b) cannot take part in the management or control of the activities of that particular limited partnership;
c) cannot execute any document or instruments for or on behalf of that particular limited partnership or the general partner of that particular limited partnership;
d) cannot undertake any obligation or responsibility on behalf of that particular limited partnership;
e) cannot take any action for partition or sale of property of that particular limited partnership; and
f) cannot take any action which jeopardizes the status of that particular limited partnership as a limited partnership.
19. MFC will be incorporated under the XXXXXXXXXX. CT will subscribe for XXXXXXXXXX MFC Common Share for a subscription price equal to the fair market value of Opco's interest in Newco. The subscription price will be paid with cash. MFC will add the amount that is equal to such subscription price to its stated capital account in respect of the MFC Common Shares. The authorized capital of MFC will consist of an unlimited number of MFC Common Shares, MFC Class A Shares, and MFC Class B Shares. A detailed description of the rights and restrictions of the MFC Common Shares, MFC Class A Shares, and MFC Class B Shares is found in the definitions section of this ruling. The articles of incorporation of MFC will restrict its activities to the investing of its funds in property, other than real property.
20. The Fund will subscribe for a number of MFC Class A Shares that is equal to the number of the then issued and outstanding Fund Units for a cash subscription price of $XXXXXXXXXX per Unit in the aggregate amount of approximately $XXXXXXXXXX. The aggregate redemption price for the MFC Class A Shares will be equal to the aggregate subscription price.
21. The Fund will distribute the MFC Class A Shares to the Unitholders as a return of capital. Each Unitholder will receive one MFC Class A Share for each Fund Unit held by such Unitholder immediately before the distribution. The securities register of MFC will reflect the ownership by the Unitholders of such MFC Class A Shares. The number of Fund Units held by each Unitholder will not change as a result of this distribution. Immediately after the distribution, at least XXXXXXXXXX Unitholders (other than Insiders) will each own not less than XXXXXXXXXX MFC Class A Shares and each such Unitholder will own a number of MFC Class A Shares having an aggregate fair market value of not less than $XXXXXXXXXX. The MFC Class A Shares will be listed on the XXXXXXXXXX Stock Exchange immediately upon their issuance, although such shares will not appear on the XXXXXXXXXX Stock Exchange's publicly disseminated trading list. The distribution of MFC Class A Shares to Unitholders will be exempt from the registration and prospectus requirements of applicable provincial securities legislation.
22. Following the distribution of MFC Class A Shares described in paragraph 21, and the listing of such shares on the XXXXXXXXXX Stock Exchange, and prior to the amalgamation described in paragraph 24, MFC will be a public corporation pursuant to paragraph (a) of the definition of "public corporation" in subsection 89(1).
23. CT and MFC will enter into an agreement of purchase and sale under which:
a) CT will transfer to MFC all of the Opco Shares and the Opco Note for a purchase price equal to the aggregate fair market value of each property so transferred.
b) MFC will satisfy the purchase price by issuing MFC Class B Shares to CT with an aggregate redemption price equal to the aggregate fair market value of property as determined in paragraph a).
c) CT and MFC will jointly elect, in prescribed form and within the time referred in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer described in paragraph 23a) above. The agreed amount in respect of the Opco Shares and the Opco Note will be an amount not less than the lesser of the cost amount and the fair market value of each respective property, and not greater than the fair market value of each respective property.
24. MFC and Opco (in this paragraph referred to as the "XXXXXXXXXX predecessor corporations") will undertake a vertical short-form amalgamation under the provisions of the XXXXXXXXXX to form Amalco in such manner that:
a) All of the property (except any amounts receivable from any XXXXXXXXXX predecessor corporation or shares of the capital stock of any XXXXXXXXXX predecessor corporation) of the XXXXXXXXXX predecessor corporations held immediately before the amalgamation will become property of Amalco by virtue of the amalgamation;
b) All of the liabilities (except any amounts payable to any XXXXXXXXXX predecessor corporation) of the XXXXXXXXXX predecessor corporations immediately before the amalgamation will become liabilities of Amalco by virtue of the amalgamation;
c) All of the Opco Shares and the Opco Note held by MFC immediately prior to the amalgamation will be cancelled by virtue of the amalgamation;
d) In accordance with the provisions of the XXXXXXXXXX, the articles of amalgamation of Amalco will be the same as the articles of MFC, and Amalco will not issue any securities in connection with the amalgamation. Rather, the MFC Common Shares will become Amalco Common Shares, the MFC Class A Shares will become Amalco Class A Shares, and the MFC Class B Shares will become Amalco Class B Shares.
Amalco Class A Shares will continue to be listed on the XXXXXXXXXX Stock Exchange until they are redeemed.
25. Amalco and Holdings LP will enter into an agreement of purchase and sale under which:
a) Amalco will transfer to Holdings LP all of the LP Units held by it at that time.
b) The purchase price will be equal to the fair market value of such LP Units and will be paid by the delivery of Holdings LP Units.
c) Amalco and Holdings LP will jointly elect under subsection 97(2), in prescribed form and within the time referred to in subsection 96(4), to have the provisions of subsection 97(2) apply to the transfer of the LP Units. The agreed amount in respect of the LP Units will be an amount not less than the lesser of the cost amount and the fair market value, and not greater than the fair market value of the LP Units to Amalco.
Amalco will retain the common shares in the capital of Newco.
26. Amalco and the Fund will enter into an agreement of purchase and sale under which Amalco will transfer substantially all of its property, namely the cash received on the subscription of MFC Class A Shares as described in paragraph 20 and, the Holdings LP Units acquired in the transaction described in paragraph 25 and the cash received on the initial subscription of MFC common shares as described in paragraph 19, to the Fund (the "Exchanged Property"). The Exchanged Property will not include the shares of Newco. The fair market value of the Exchanged Property will be greater than 90% of the aggregate fair market value of all of Amalco's property at the Transfer Time. The Fund will issue, as the sole consideration, Fund Units to Amalco to satisfy the purchase price for the Exchanged Property. Such Fund Units will have an aggregate fair market value equal to the fair market value of the Exchanged Property. Amalco and the Fund will jointly elect 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).
27. Within 60 days after the Transfer Time, Amalco will redeem all of the outstanding Amalco Class B Shares held by CT. The consideration paid to CT will be such number of Fund Units acquired by Amalco in paragraph 26 having a fair market value equal to the aggregate redemption price of the outstanding Amalco Class B Shares. Amalco will then redeem all of the outstanding Amalco Class A Shares held by the Unitholders. The consideration paid to the Unitholders will be the balance of Fund Units acquired by Amalco in paragraph 26 with such Fund Units having an aggregate fair market value equal to the aggregate redemption price of such Amalco Class A Shares. No other consideration will be received by CT or the Unitholders on the redemption of the Amalco Class B Shares and the Amalco Class A Shares other than Fund Units.
28. Upon receipt of the Fund Units, CT will, pursuant to the Right of Renunciation, immediately renounce, release and surrender all of its interest in the Fund (income, capital and otherwise). As a consequence, the Fund Units held by CT will be cancelled. CT will not renounce, release or surrender its interest in favour of any particular person, and shall not receive any consideration from the Fund or any other person in respect of this renunciation and surrender.
29. Immediately following the renunciation described in paragraph 28, the outstanding Fund Units will be consolidated such that the total number of Fund Units outstanding after the consolidation will be equal to the total number of Fund Units outstanding immediately prior to the Proposed Transactions.
30. Amalco will amend its articles to remove the investment undertaking restriction described at paragraph 19. Amalco and Newco will undertake a vertical short-form amalgamation under the provisions of the XXXXXXXXXX to form New Amalco in such manner that:
a) All of the property (except any amounts receivable from any predecessor corporation or shares of the capital stock of any predecessor corporation) of the predecessor corporations held immediately before the amalgamation will become property of New Amalco by virtue of the amalgamation;
b) All of the liabilities (except any amounts payable to any predecessor corporation) of the predecessor corporations immediately before the amalgamation will become liabilities of New Amalco by virtue of the amalgamation;
c) All of the shares of Newco held by Amalco immediately prior to the amalgamation will be cancelled by virtue of the amalgamation;
d) In accordance with the provisions of the XXXXXXXXXX, the articles of amalgamation of New Amalco will be the same as the articles of Amalco, and New Amalco will not issue any securities in connection with the amalgamation. Rather, the Amalco Common Shares will become the common shares of New Amalco.
New Amalco will continue to hold the GP interest in LP and will continue to act as the general partner of LP.
31. CT will acquire additional common shares in the capital stock of New Amalco, or its successor, from time to time as may be necessary to allow New Amalco to discharge any liabilities that become payable after the Reorganization.
PURPOSE OF THE PROPOSED TRANSACTIONS
32. The purpose of the proposed transactions is to reorganize the Fund so that its investment in the XXXXXXXXXX is held indirectly through the existing partnership structure. This represents a first step in bringing the Fund into line with the ownership structures of other Canadian income trusts in the XXXXXXXXXX sectors. The Fund believes that a simplified ownership structure will make the financing process more efficient, reduce the costs and expenses associated with the financing process, and will allow the Fund to pursue additional acquisitions or developments and financings of XXXXXXXXXX on a cost efficient basis.
33. The elimination of the corporate entity through which the Fund currently holds a XXXXXXXXXX% interest in LP will correct the financial accounting and reporting anomalies that arise when a conduit structure uses a corporate entity to complete an acquisition and a purchase price premium is required to be allocated to contracts and other goodwill assets. Such an arrangement gives rise to a "phantom" income statement expense. The expectation is that the elimination of the corporate entity will provide more accurate financial reporting.
34. The elimination of the corporate entity through which the Fund currently holds a XXXXXXXXXX% interest in LP, will eliminate the potential for taxation at the corporate level which would reduce the cash flow available for distribution to Unitholders, thereby allowing the Fund to offer its Fund Units at a price which is competitive to other funds in the XXXXXXXXXX business sector.
RULINGS REQUESTED
Provided the above statements of facts, proposed transactions and purpose thereof are accurate and constitute complete disclosure of all relevant facts and proposed transactions, our rulings are as follows:
A. Subject to subsection 131(8.1), Amalco will, at the Transfer Time, qualify as a mutual fund corporation within the meaning of subsection 131(8).
B. The Proposed Transactions will not, in and by themselves, adversely affect the qualification of the Fund as mutual fund trust within the meaning of subsection 132(6). For greater certainty, section 253.1 will apply such that the holding of the LP Units or the Holdings LP Units by Amalco or the Fund will not, in and of itself, cause us to consider that Amalco or the Fund is carrying on the business or activity of the Holdings LP or LP for the purposes of subsection 131(8) or 132(6).
C. The Fund will not be considered to have disposed of its property and resettled a new trust solely by virtue of the amendments to the Fund Declaration of Trust mentioned in paragraph 16 above.
D. Existing Unitholders will not be considered to have disposed of any portion of their Fund Units by virtue of the amendment to the Fund Declaration of Trust described in paragraph 16 and of the consolidation of Fund Units described in paragraph 29.
E. Opco and Holdings LP will not be considered to have disposed of their partnership interest in LP as a result of the conversion of their general partner units to limited partner units.
F. Provided that the required election is made in the prescribed form and within the prescribed time period, provided that each property transferred to MFC by CT is an eligible property within the meaning assigned by subsection 85(1.1) and subject to the application of subsection 69(11), the provisions of subsection 85(1) will apply to the transfer by CT of its Opco Shares and its Opco Note to MFC as described in paragraph 23 such that the agreed amounts in respect of each transfer will be deemed to be the proceeds of disposition for the particular transferred property to CT, the cost to MFC for the particular property.
G. Provided that each of MFC and Opco is a taxable Canadian corporation within the meaning assigned in subsection 89(1), the rules in section 87 will apply to the amalgamation described in paragraph 24. Paragraph 87(2)(e.1) will apply as a result of the amalgamation described in paragraph 24 such that Amalco will be considered to be the same corporation as and a continuation of MFC for purposes of computing the adjusted cost base to Amalco of the LP Units.
H. Provided Holdings LP is a Canadian partnership within the meaning assigned in subsection 102(1) immediately after the transfer described in paragraph 25, the provisions of subsection 97(2) and consequently, paragraphs 85(1)(a) to (f), other than paragraph 85(1)(e.2), read in the manner set out in paragraph 97(2)(a), will apply to the transfer by Amalco of the LP Units to Holding LP as described in paragraph 25 such that the elected agreed amounts in respect of such transfer, or the deemed agreed amount, will be deemed to be the proceeds of disposition for the transferred LP Units to Amalco and the cost to Holdings LP for such transferred property.
I. Provided that:
(a) at the moment of the transfer described in paragraph 26, Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Fund is a mutual fund trust within the meaning assigned by subsection 132(6);
(b) the property transferred at that moment has a fair market value of at least 90% of the fair market value of all property owned by Amalco at that moment; and
(c) Amalco and the Fund jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2,
the transfer described in paragraph 26 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), such that the rules in subsection 132.2(1) will apply to:
- the transfer of the property from Amalco to the Fund described in paragraph 26;
- the purchase for cancellation by Amalco of the Amalco Class A shares and Amalco Class B shares described in paragraph 27; and
- the transfer of the Fund Units from Amalco to holders of Amalco Class A shares and the Amalco Class B shares described in paragraph 27.
J. The provisions of subsection 56(2), 56(4), 69(1), 105(1) or 246(1) will not apply as a result of the renunciation and surrender by CT of its interest in the Fund described in paragraph 28. For greater certainty, CT will not be considered or deemed to have received proceeds of disposition and neither the Fund nor the Unitholders will be considered to have received an amount or benefit in respect of that renunciation.
K. At the time of the redemption described in paragraph 27, the Amalco Class A shares will not be taxable Canadian property of a taxpayer and, therefore, would not be subject to the requirements of section 116 provided that at any time during the 60-month period that ends at the time of the redemption, the taxpayer, persons with whom the taxpayer did not deal at arm's length, or the taxpayer together with all such persons owned less than 25% of the issued shares of any class of capital stock of the corporation.
L. The Fund's registration as a "registered investment" under section 204.4 will not be revoked pursuant to subsection 204.4(3) solely as a result of the Proposed Transactions.
M. Provided that each of Amalco and Newco is a taxable Canadian corporation within the meaning assigned in subsection 89(1), the rules in section 87 will apply to the amalgamation described in paragraph 30. Paragraph 87(2)(e.1) will apply as a result of the amalgamation described in paragraph 30 such that New Amalco will be considered to be the same corporation as and a continuation of Newco for purposes of computing the adjusted cost base to New Amalco of the GP interest in LP.
N. Subsection 245(2) will not be applied as a result of the Proposed Transactions in and by themselves to re-determine the tax consequences confirmed in the rulings provided above.
The rulings given herein are based solely on the facts, proposed transactions and purposes of the proposed transactions described above. Facts and proposed transactions in the documents submitted with your request not described above do not form part of the facts and proposed transactions on which these rulings are based and any reference to these documents is provided solely for the convenience of the reader.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act, subject to the Opinion below. Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed any tax consequences relating to the facts and Proposed Transactions described herein other than those described in the rulings given. In particular, we express no opinion with respect to whether the Fund qualifies as a mutual fund trust within the meaning of subsection 132(6).
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002, and are binding on the Canada Revenue Agency provided that the Proposed Transactions are completed before XXXXXXXXXX.
As indicated in Information Circular 70-6R5, we do not rule on matters involving the determination of the fair market value of property, including the determination of the fair market value of the LP Units, the Amalco Class A Shares or the Amalco Class B Shares.
OPINION
A. Provided that:
(a) at the moment of the transfer described in paragraph 26, Amalco is a mutual fund corporation within the meaning assigned by subsection 131(8) and the Fund is a mutual fund trust within the meaning assigned by subsection 132(6);
(b) the property transferred at that moment has a fair market value of at least 90% of the fair market value of all property owned by Amalco at that moment; and
(c) Amalco and the Fund jointly elect by timely filing a prescribed form under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(1), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments,
- the transfer described in paragraph 26 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments, such that the rules in subsection 132.2(3) and (4), as proposed to be amended by subsection 130(1) of the Proposed Amendments will apply to: ? the transfer of the property from Amalco to the Fund described in paragraph 26;
- the purchase for cancellation by Amalco of the Amalco Class A Shares and Amalco Class B Shares as described in paragraph 27; and
- the transfer of the Fund Units from Amalco to holders of the Amalco Class A Shares and the Amalco Class B Shares as described in paragraph 27.
Yours truly,
XXXXXXXXXX
for the Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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