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: Will the suspension of the right to redeem units during the notice period required by the terms of the trust in order to vote on the termination of the trust cause the trust to lose its status as a unit trust within the meaning of 108(2)(a)?
Position: In these particular circumstances, no.
Reasons: In the case of a suspension to permit the orderly wind-up of the trust, the short duration suspension of the right to redeem can be seen as a reasonable delay in the payment to the unitholder of the proceeds payable on redemption, rather than as an outright suspension of the right to redeem. This is supported by the fact that if the unitholders vote to terminate the trust, all the units will be redeemed in due course and if they vote to keep the trust going, the right to redeem the units will be reinstated.
XXXXXXXXXX 2005-015249
Attention: XXXXXXXXXX
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
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 correspondence of XXXXXXXXXX.
To the best of your knowledge and that of your client, none of the issues involved in the ruling request is:
in an earlier return of your client or a related person, being considered by a tax services office or taxation center in connection with a previously filed tax return of your client or a related person, under objection by your client or a related person, before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or the subject of a ruling previously considered by the Directorate in respect of your client or a related person.
You provided us with a copy of the declaration of trust and a copy of the proposed purchase and sale agreement. This document 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 and any references thereto are provided solely for the convenience of the reader.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and the following terms have the meanings specified:
"Bank" means XXXXXXXXXX;
"Corporation" means XXXXXXXXXX;
"Class A Units" means Class A partnership units of the Partnership;
"Class B Units" means Class B partnership units of the Partnership;
"General Partner" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX. Corporation owns all the non-voting shares of the General Partner. XXXXXXXXXX., a corporation incorporated under the laws of XXXXXXXXXX and beneficially owned by the directors of the General Partner, owns the voting shares of the General Partner.
"Partnership" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX, which is in the business of XXXXXXXXXX and which has issued Class A Units and Class B Units to the limited partners of the Partnership;
"Purchase and Sale Agreement" means the contract to be entered into between the Trust and Bank under which the Trust will agree to sell all of its interest in the Class A Units of the Partnership to Bank in consideration for debentures of Bank that are subject to the terms and conditions set out in the Purchase and Sale Agreement;
"Trust" means XXXXXXXXXX, an inter vivos trust formed on XXXXXXXXXX , pursuant to a declaration of trust that has an office located at XXXXXXXXXX;
"Unitholders" means the beneficiaries of the Trust; and
"Units" means units of the Trust.
The tax account number of the Trust is XXXXXXXXXX. The relevant Taxation Services Office for the Trust is the XXXXXXXXXX Tax Services Office and the relevant Taxation Centre is the XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Trust is an open-ended trust offering its Units to the public XXXXXXXXXX
2. The Corporation and the Trust were formed to provide funding for a portion of the capital requirements of the Partnership. Common shares of the Corporation and Units of the Trust were offered for sale by prospectus. Net proceeds from the sale of common shares of the Corporation were used to acquire non-voting shares of the General Partner, which used those proceeds to acquire all the Class B Units of the Partnership. Net proceeds from the sale of Units of the Trust were used to acquire the Class A Units of the Partnership.
3. At all relevant times the Trust has qualified as a unit trust, as defined by subsection 248(1) and subsection 108(2) and has qualified as a mutual fund trust as defined by subsection 248(1) and subsection 132(6).
4. The Trust has been a resident of Canada for purposes of the Act at all relevant times.
5. The Trust owns a significant number of the Class A Units of the Partnership. An affiliate of the Corporation owns the remaining Class A Units.
6. Bank is not related to the Trust and deals at arm's length with the Trust for purposes of the Act at all relevant times.
Proposed Transactions
7. In anticipation of the proposed termination of the Trust XXXXXXXXXX, the trustee of the Trust will notify the Unitholders of a meeting to deal with the proposed termination within 30 days of the proposed meeting.
8. XXXXXXXXXX, on the date that notice is provided to the Unitholders for a meeting to decide about the termination of the Trust, the rights of Unitholders to cause the redemption of the Units will be suspended, subject to a reinstatement in the event that the Unitholders fail to pass the special resolution to terminate the Trust.
9. Provided that the proposal to terminate the Trust is approved by the special resolution of the Unitholders, the Trust and Bank will enter into the Purchase and
Sale Agreement under which the Trust will sell all of its interest in the Class A Units of the Partnership to Bank with the result that Bank will become a limited partner of the Partnership and the Trust will cease to be a limited partner of the Partnership.
10. Immediately following the transaction contemplated by the Purchase and Sale Agreement, the trustee of the Trust will terminate the Trust by redeeming the Units and distributing all of the Trust's property to the Unitholders in satisfaction of their respective capital interest in the Trust.
Purpose of the Proposed Transactions
11. The purpose of the proposed transactions is to enable the Trust to dispose of its interest in the Class A Units to Bank and to allow the Trust to liquidate or wind-up in an orderly fashion. As a practical matter, it is necessary for the rights of the Unitholders to cause a redemption of the Units to be suspended to provide the trustee of the Trust with greater certainty in the distribution of the property of the Trust to the Unitholders at the time of any termination of the Trust.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A. Provided the Trust otherwise qualifies as a "unit trust" within the meaning of subsection 108(2), it will not cease to so qualify solely as a consequence of a temporary suspension of the right to redeem the Units during the notice period set out in section 13.3 of the declaration of trust in respect of the Trust as described in paragraph 8 above.
B. Subsection 107(2.1) of the Act will apply to determine the tax consequences applicable to the distribution of the assets of the Trust to the Unitholders for both the Trust and the Unitholders.
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 Canada Revenue Agency provided that the transactions as described in paragraphs 7 to 10 above are completed within six months of the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act. Nothing in this advance income tax ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed whether the Trust qualifies as a mutual fund trust for purposes of the Act, or any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
XXXXXXXXXX
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
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