2001 Ruling 2000-0061353 - 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

XXXXXXXXXX The proposed transactions in this ruling are very similar to those we ruled favourably on in file #2000-002238, dated XXXXXXXXXX , 2000. The main issues were the same as previous and included the application of sections 18.1 and 143.2, and subsection 96(2.2) of the Act. XXXXXXXXXX

Position: Similar rulings as issued previously.

Reasons: Based on our reading of the legislation and prior rulings given for files

2000-002238 and 992719.

XXXXXXXXXX 2000-006135

Attention: XXXXXXXXXX

XXXXXXXXXX, 2001

Dear Sirs:

Re: XXXXXXXXXX
Advance Income Tax Rulings

This is in reply to your letter dated XXXXXXXXXX, and our numerous telephone conversations (XXXXXXXXXX), wherein you requested advance income tax rulings on behalf of XXXXXXXXXX in connection with the proposed transactions described below.

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

(i) is in an earlier return of the taxpayer(s) or a related person,

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer(s) or a related person,

(iii) is under objection by the taxpayer(s) or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(v) is the subject of a ruling previously issued by Revenue Canada or the Canada Customs and Revenue Agency.

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

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

DEFINITIONS

"Aco" means XXXXXXXXXX.

"Bco" means XXXXXXXXXX.

XXXXXXXXXX

"Cco" means XXXXXXXXXX.

"CCRA" means the Canada Customs and Revenue Agency.

"Dco" means XXXXXXXXXX.

"Eco" means XXXXXXXXXX.

"Fco" means XXXXXXXXXX.

"Gco" means XXXXXXXXXX.

"General Partner" means XXXXXXXXXX.

"Hco" means XXXXXXXXXX.

"Initial Limited Partner" means XXXXXXXXXX.

"Manager" means XXXXXXXXXX.

"Manager Services Fee" means the fees that the Manager will be entitled to receive, as described below in paragraph 35.

"Mr. V" means XXXXXXXXXX.

"Ms. V" means XXXXXXXXXX.

"Mr. W" means XXXXXXXXXX.

"Ms. W" means XXXXXXXXXX.

"Mr. X" means XXXXXXXXXX.

"Mr. Y" means XXXXXXXXXX.

"Mr. Z" means XXXXXXXXXX.

"Partnership" means XXXXXXXXXX.

"XXXXXXXXXX Facilitator" means XXXXXXXXXX.

XXXXXXXXXX

"XXXXXXXXXX Partnership" means XXXXXXXXXX.

"Property" means an episodic television series entitled "XXXXXXXXXX", referred to below in paragraph 7.

"Regulations" means the regulations to the Act.

"Replacement Initial Limited Partner" means XXXXXXXXXX.

XXXXXXXXXX

"Tax Credit" means the film or video production services tax credit, as provided in section 125.5 of the Act.

FACTS

1. The Partnership is a limited partnership formed on XXXXXXXXXX, pursuant to the laws of the Province of XXXXXXXXXX. The fiscal period of the Partnership ends on XXXXXXXXXX of each year.

2. The Partnership's business is to provide, directly or indirectly, through other limited partnerships, XXXXXXXXXX services in respect of XXXXXXXXXX produced in Canada.

3. The General Partner is the general partner of the Partnership. The General Partner was incorporated pursuant to the laws of the Province of XXXXXXXXXX, and is a wholly-owned subsidiary corporation of Eco, a corporation incorporated under the federal laws of Canada. The General Partner's obligations with respect to the Partnership are set out in the partnership agreement (the "Partnership Agreement") and include the preparation of financial statements and maintaining of the books and records for the Partnership. All of the issued and outstanding shares of Eco are owned by Mr. X, a resident of Canada. Mr. X who is the president of the General Partner, is a XXXXXXXXXX and is the initial limited partner of the Partnership. Mr. X has been involved in limited partnership management since XXXXXXXXXX and has served, directly or indirectly, as general partner in XXXXXXXXXX.

4. Manager is a corporation incorporated under the federal laws of Canada on XXXXXXXXXX. Aco is a corporation incorporated under the federal laws of Canada on XXXXXXXXXX. Both corporations are owned equally by Mr. V, Mr. W and Mr. Y. Mr. V, Mr. W and Mr. Y are each residents of XXXXXXXXXX).

5. Bco is a company incorporated under the laws of the State of XXXXXXXXXX. Bco is owned by Mr. Z, a Canadian citizen who is resident in XXXXXXXXXX.

6. Cco is a corporation incorporated under the laws of the Province of XXXXXXXXXX. All of the issued and outstanding shares of Cco are owned by Ms. V, a resident of the Province of XXXXXXXXXX. Dco is a corporation incorporated under the laws of the Province of XXXXXXXXXX. All of the issued and outstanding shares of Dco are owned by Ms. W, a resident of the Province of XXXXXXXXXX. Cco and Dco are referred to herein collectively as the "Agent".

7. The XXXXXXXXXX Partnership was formed under the laws of the Province of XXXXXXXXXX for the exclusive purpose of producing the Property in Canada. XXXXXXXXXX The XXXXXXXXXX Partnership will be authorized to issue XXXXXXXXXX units and XXXXXXXXXX units. However, presently there are no intentions to have the XXXXXXXXXX Partnership issue any XXXXXXXXXX units.

8. XXXXXXXXXX.

9. The general partner of the XXXXXXXXXX Partnership is XXXXXXXXXX. It is a company that was formed under the laws of the Province of XXXXXXXXXX The XXXXXXXXXX is a subsidiary of Manager. XXXXXXXXXX.

10. XXXXXXXXXX Fco is owned by Hco, which is a taxable Canadian controlled private corporation which is owned by a number of individuals and corporations, all of which deal at arm's length to each of the other parties noted in this letter.

11. XXXXXXXXXX.

12. Other than those identified in this letter, there will be no agreements between the parties to the proposed transactions described herein that could reasonably be expected to impact on the rulings given in this letter.

13. The General Partner and the Partnership deal at arm's length with each of the XXXXXXXXXX, the XXXXXXXXXX Facilitator, Manager and the XXXXXXXXXX.

PROPOSED TRANSACTIONS

14. The Agent will offer (the "Offering") limited partnership units (the "Units") of the Partnership for sale by way of offering memorandum (the "Offering Memorandum") to residents of Canada at a price of $XXXXXXXXXX per Unit (the "Unit Price"). Investors whose purchase agreements are accepted will become limited partners of the Partnership ("Limited Partners"). XXXXXXXXXX. The interest of the initial limited partner of the Partnership will be repurchased by the Partnership on the date that the Limited Partners acquire their Units. The repurchase price will be equal in amount to the initial limited partner's $XXXXXXXXXX cost of the initial Partnership unit. The entire Unit Price will be payable on or before XXXXXXXXXX. The Offering Memorandum will contain the following mention:

"THE RULING OBTAINED FROM CANADA CUSTOMS AND REVENUE AGENCY CONTAINS CAVEATS. THE RULING MAY BE VIEWED ON REQUEST PROVIDED THAT THE REQUESTING PARTY EXECUTES A CONFIDENTIALITY AGREEMENT".

15. The Offering of the Units will be made in tranches and on a continuous basis, the closing of which shall, in no event, be later than XXXXXXXXXX. The mechanics of the Offering will require the Agent to subscribe for the Units from the Partnership and then immediately resell such Units to the Limited Partners. This procedure is followed in order to comply with securities legislation which requires each Unit to be issued at the same price. Subsequently, the Agent can offer price discounts to volume buyers of Units, if they so choose. For administrative expediency, the Investor Loans (described below in paragraphs 16 and 17) will be advanced by a financial institution (the "Lender") to the Limited Partners on XXXXXXXXXX. In the meantime, the Partnership will establish a borrowing facility with the Lender (the "Interim Loan Facility") in order to meet its commitments after the date of this letter and prior to the date that the Investor Loans are advanced. The Interim Loan Facility will be full recourse to the Partnership and will bear interest at an annual rate which shall not be less than the prescribed rate (the "Prescribed Rate") within the meaning of paragraph 4301(c) of the Regulations on the date such loan is advanced. These facilities will be used by the Partnership to invest in the XXXXXXXXXX Partnership which, in turn, will use the proceeds to repay a portion of the amount outstanding under the XXXXXXXXXX Financing Loan, referred to below in paragraph 27. When the Lender advances the Investor Loans to the Limited Partners, such amounts will be used by the Limited Partners to pay the Unit Price. The Partnership will use these funds to repay amounts owing under the Interim Loan Facility by XXXXXXXXXX.

16. Limited Partners who choose not to pay for the acquisition of their Units in cash by XXXXXXXXXX, will finance approximately $XXXXXXXXXX per Unit through a loan (the "Investor Loan", described below in paragraph 17) with the Lender. In addition, the Limited Partners may borrow an additional $XXXXXXXXXX per Unit from the Lender on XXXXXXXXXX, to satisfy the Unit Price (the "Short-term Loans"). The Short-term Loans will be full recourse to the Limited Partners and will bear interest equal to the Prescribed Rate on XXXXXXXXXX. Principal and interest owing under the Short-term Loans will be repayable no later than XXXXXXXXXX. Each Limited Partner will be responsible to provide his or her own funding for the balance of the Unit Price and for repayment of the Short-term Loan.

17. The Investor Loans will be advanced by the Lender to the Limited Partners on XXXXXXXXXX. The Lender will deal at arm's length with all the other parties mentioned in this letter. Principal and interest owing under the Investor Loans will be repayable annually commencing on XXXXXXXXXX. Principal will also be repayable as and when Limited Partners receive distributions from the Partnership. The Investor Loans, (i) will be secured by a pledge of the Limited Partners' Units, (ii) will be full recourse debt to the Limited Partners, and (iii) will bear interest at an annual interest rate which, in no event, will be less than the Prescribed Rate on XXXXXXXXXX.

18. The Investor Loans will be arranged by Aco on behalf of the Limited Partners. In consideration for arranging the Investor Loans, Aco will be entitled to receive a fee (the "Loan Arrangement Fee") from each Limited Partner, the amount of which will be equal to the fair market value of such services, estimated to be approximately $XXXXXXXXXX per Unit purchased by such Limited Partner. Aco will also be entitled to receive from the Partnership an amount equal to XXXXXXXXXX% of the total amount advanced under the Interim Loan Facility (the "Interim Loan Arranging Fees").

19. Each Limited Partner will be entitled to a pro rata portion of XXXXXXXXXX% interest in the profits and losses of the Partnership, as well as the capital of the Partnership in the event of dissolution. The Partnership Agreement permits the Partnership to make capital distributions to Limited Partners without concurrent capital distributions to the General Partner. This will not in any way impair the capital of the General Partner, but will potentially provide the Limited Partners with funds to repay indebtedness incurred by them to acquire their interests in the Partnership.

20. The General Partner will file all income tax returns with the XXXXXXXXXX Tax Services Office and is in the process of applying for a business identification number. The registered office of the General Partner is located at XXXXXXXXXX. The General Partner is entitled to XXXXXXXXXX % of the profits and losses of the Partnership, as well as the capital of the Partnership in the event of dissolution.

21. On or before XXXXXXXXXX (the "Closing Date"), the amount of net proceeds from the Offering will be used by the Partnership to subscribe for all the XXXXXXXXXX limited partnership units of the XXXXXXXXXX Partnership (hereinafter referred to as "XXXXXXXXXX Partnership Units") under a subscription agreement. The Partnership will also acquire XXXXXXXXXX limited partnership units of various other XXXXXXXXXX partnerships during the XXXXXXXXXX calendar year. Net proceeds represent proceeds of the Offering less expenses related to the Offering including legal and accounting fees, trustee and bank fees, commissions, loan arrangement fees and management services fees. The interest of the Replacement Initial Limited Partner will be repurchased by such XXXXXXXXXX Partnership on the date of the subscription by the Partnership. The repurchase price will be equal in amount to the Replacement Initial Limited Partner's $XXXXXXXXXX cost of the initial XXXXXXXXXX Partnership Unit. The subscription price of $XXXXXXXXXX per XXXXXXXXXX Partnership Unit will be paid in full on or before December 31, 2001. At the end of such period, neither the Partnership nor any person or partnership not dealing at arm's length with the Partnership will owe any amount to the XXXXXXXXXX Partnership or to a person or partnership not dealing at arm's length with the XXXXXXXXXX Partnership.

22. Pursuant to the partnership agreement of the XXXXXXXXXX Partnership, XXXXXXXXXX% of the profits and losses of the XXXXXXXXXX Partnership, and XXXXXXXXXX% of the capital of the XXXXXXXXXX Partnership in the event of dissolution, will be allocated to its limited partners on a pro rata basis. The XXXXXXXXXX will have a XXXXXXXXXX% interest in the profits and losses of the XXXXXXXXXX Partnership, as well as in the capital of the XXXXXXXXXX Partnership in the event of dissolution. Other than in the event of dissolution, the partnership agreement for the XXXXXXXXXX Partnership will permit the XXXXXXXXXX Partnership to make capital distributions to its limited partners without concurrent capital distributions to the XXXXXXXXXX or any other general partner. This will not in any way impair the capital of the XXXXXXXXXX or other general partner, as the case may be, but as noted above in paragraph 19, will potentially provide the limited partners with funds to repay indebtedness incurred to acquire their interests in the Partnership.

23. The XXXXXXXXXX Facilitator was incorporated under the laws of XXXXXXXXXX and is a wholly-owned subsidiary of Bco. The XXXXXXXXXX will enter into an agreement with the XXXXXXXXXX Facilitator (the "XXXXXXXXXX Arrangement Agreement") pursuant to which the XXXXXXXXXX Facilitator will agree to arrange for the provision of XXXXXXXXXX services for the Property. The XXXXXXXXXX Facilitator will agree to be solely responsible for the payment of the XXXXXXXXXX expenses pertaining to the Property. In consideration for its services, XXXXXXXXXX will agree to pay the XXXXXXXXXX Facilitator a fee (the "XXXXXXXXXX Arrangement Fee"). The XXXXXXXXXX Arrangement Fee will include a fee (the "Fixed Fee") equal to approximately XXXXXXXXXX% of the XXXXXXXXXX Expenses (as defined below in paragraph 24) incurred by it, plus the following amounts:

XXXXXXXXXX.

The Fixed Fee is payable to the XXXXXXXXXX Facilitator on or before XXXXXXXXXX. Until any portion of the Fixed Fee is needed by the XXXXXXXXXX Facilitator to pay the XXXXXXXXXX Fee (see paragraph 28 below), the XXXXXXXXXX XXXXXXXXXX Facilitator will invest the available portion of the Fixed Fee in a financial institution at fair market value interest rates.

The XXXXXXXXXX will also agree to lend (the "XXXXXXXXXX Loan") the XXXXXXXXXX Facilitator an amount equal to approximately XXXXXXXXXX% of the estimated XXXXXXXXXX Expenses. The XXXXXXXXXX Facilitator is obliged to repay at least XXXXXXXXXX% of the XXXXXXXXXX Loan on or before XXXXXXXXXX. The XXXXXXXXXX Loan will be non-interest bearing until XXXXXXXXXX, at which time it will become interest bearing at a commercial rate of interest.

24. The XXXXXXXXXX Facilitator will enter into an agreement (the "XXXXXXXXXX Services Agreement") with the XXXXXXXXXX Partnership to provide the services and facilities (the "XXXXXXXXXX Services") necessary to produce the Property in consideration for the XXXXXXXXXX Fee (as defined below in paragraph 28). The XXXXXXXXXX will also be a party to the XXXXXXXXXX Services Agreement. XXXXXXXXXX. The XXXXXXXXXX Partnership will be responsible for expenses related to the XXXXXXXXXX Services that form part of the XXXXXXXXXX Services budget (the "XXXXXXXXXX Expenses"), including any reimbursements (the "XXXXXXXXXX") of amounts expended by the XXXXXXXXXX on account of XXXXXXXXXX Fee (as described in paragraph 32). The XXXXXXXXXX Expenses may also include amounts payable to the XXXXXXXXXX on account of actual overhead costs incurred by the XXXXXXXXXX. Such overhead costs will not exceed XXXXXXXXXX% of the total XXXXXXXXXX Expenses. Such an amount will be for and include services of XXXXXXXXXX staff and use of equipment and facilities provided by the XXXXXXXXXX.

For liability reasons, XXXXXXXXXX prefers not to directly enter into XXXXXXXXXX services agreements with XXXXXXXXXX services partnerships. To reduce this risk, XXXXXXXXXX will enter into XXXXXXXXXX Arrangement Agreement with the Facilitator (see paragraph 23 above) before entering into the XXXXXXXXXX Services Agreement.

25. XXXXXXXXXX.

26. XXXXXXXXXX.

27. In order to assist the XXXXXXXXXX Partnership in paying the XXXXXXXXXX Expenses (XXXXXXXXXX) and as part of the overall arrangements, the XXXXXXXXXX Facilitator will loan an amount equal to the XXXXXXXXXX Expenses to the XXXXXXXXXX Partnership on a non-interest bearing basis (the "XXXXXXXXXX Financing Loan"). The XXXXXXXXXX Facilitator will loan these funds in the year XXXXXXXXXX, by making a number of advances to the XXXXXXXXXX Partnership as needed. The XXXXXXXXXX Facilitator will finance this loan with funds received from XXXXXXXXXX, as described above in paragraph 23 (i.e., the XXXXXXXXXX Loan). On or before XXXXXXXXXX, the XXXXXXXXXX Partnership will use funds received from the proceeds of the offering of XXXXXXXXXX Partnership Units to the Partnership (as described above in paragraphs 15 and 21) and amounts received pursuant to the XXXXXXXXXX Fee (as described below in paragraph 28) to repay the full amount owing to the XXXXXXXXXX Facilitator.

28. In consideration for providing the XXXXXXXXXX Services, the XXXXXXXXXX Facilitator will agree to pay to the XXXXXXXXXX Partnership a fee (the "XXXXXXXXXX Fee"). The XXXXXXXXXX Partnership's entitlement to the XXXXXXXXXX Fee will be dependent upon satisfactory performance of the XXXXXXXXXX Services, and there is no guarantee or assurance that the XXXXXXXXXX Fee will be paid if the XXXXXXXXXX Services are not rendered. The XXXXXXXXXX Fee will be approximately, but not less than, XXXXXXXXXX% of the cost of the XXXXXXXXXX Expenses (the "First Fee") plus a contingent amount (the "Contingent Amount") computed by reference to the exploitable success of the Property. The final audited amount of the XXXXXXXXXX Expense will be unknown until after XXXXXXXXXX. Therefore, no amount of the XXXXXXXXXX Fee will be ascertainable, whether contingent or otherwise, at the time that a Limited Partner acquires a Unit of the Partnership or at the time the Partnership acquires units in the XXXXXXXXXX Partnership.

The Contingent Amount can be broken down into three components as follows:

XXXXXXXXXX.

All amounts earned on account of the XXXXXXXXXX Fee will be reported by the XXXXXXXXXX Partnership on an accrual basis. XXXXXXXXXX Reports will be due on XXXXXXXXXX following the reporting period. Subject to the foregoing, any portion of the XXXXXXXXXX Fee owing by the XXXXXXXXXX Facilitator to the XXXXXXXXXX Partnership in respect of any reporting period will be due on the same date that the reports with respect to such period will be due. The XXXXXXXXXX Partnership will report its revenue and expenditures in accordance with established case-law principles or rules of law, and well-accepted business principles.

The amount of interest income to be earned by the XXXXXXXXXX Facilitator from the investment of the available portion of the Fixed Fee (as described above in paragraph 23), plus the XXXXXXXXXX Arrangement Fees that XXXXXXXXXX Facilitator will be entitled to receive from XXXXXXXXXX, will exceed the amount of XXXXXXXXXX Fees that the XXXXXXXXXX Facilitator will have to pay the XXXXXXXXXX Partnership. Therefore, the XXXXXXXXXX Facilitator will have a reasonable expectation of profit from its proposed transactions as described in this letter.

29. Amounts received by the XXXXXXXXXX Partnership on account of the XXXXXXXXXX Fee will first be applied on account of any indebtedness under the XXXXXXXXXX Financing Loan. The balance will be distributed to the Partnership and then on to the Limited Partners, who will have directed such amounts to be applied against their respective Investor Loans to the extent that indebtedness under such loans remains outstanding. Additional amounts received by the XXXXXXXXXX Partnership on account of the XXXXXXXXXX Fee will be distributed to the Partnership and on to the members of the Partnership (in accordance with the partnership agreement) to be retained by them.

30. As security for its obligation to pay the XXXXXXXXXX Fee when due, the XXXXXXXXXX Facilitator will provide security to the XXXXXXXXXX Partnership by way of cash deposits with the Lender. The deposit will be evidenced by a promissory note (the "Lender's Deposit Note") and will bear interest at a rate of 10% per annum. XXXXXXXXXX .

31. The XXXXXXXXXX will establish a credit facility (the "GST Facility") with the XXXXXXXXXX Partnership. This credit facility will enable the XXXXXXXXXX Partnership to finance its GST obligations incurred in providing the XXXXXXXXXX Services. Advances under the GST Facility are repayable by the XXXXXXXXXX Partnership when it receives net tax refunds or reductions in net tax payable in respect of input tax credits which are accepted by the CCRA. Such advances are non-interest-bearing until XXXXXXXXXX after the XXXXXXXXXX Partnership has received such net tax refund or reduction in net tax payable in respect of the payment of GST to which the advance relates. After such time, the advances will bear interest at an annual rate which shall not be less than the Prescribed Rate.

32. XXXXXXXXXX.

33. XXXXXXXXXX.

34. Manager will enter into a management services agreement (the "Management Services Agreement") with the Partnership, whereby it will agree to provide consulting and management services (the "Management Services") to the Partnership XXXXXXXXXX.

35. In consideration of rendering the Management Services, Manager will be entitled to receive a fee (the "Management Services Fee") from the Partnership equal to XXXXXXXXXX% of the cost of the XXXXXXXXXX Services XXXXXXXXXX, plus applicable GST. As security for its due and timely performance of its obligations under the Management Services Agreement, Manager will grant the Partnership a floating charge or other security interest over all of its assets (the "Charge").

36. To the extent that management services provided by Manager to the Partnership also benefit the XXXXXXXXXX Partnership, the Partnership will charge the XXXXXXXXXX Partnership a fee equal to a portion of the Management Services Fee payable to Manager. XXXXXXXXXX.

37. As part of the series of proposed transactions, Manager will enter into a put/call agreement (the "Put/Call Agreement") with Lender whereby Lender will have a put option that will entitle the Lender to cause Manager to acquire the indebtedness owing by the Limited Partners under the Investor Loans. In addition, the agreement will provide Manager with a call option so that Manager will have the right to cause Lender to sell such indebtedness to Manager. In either case, the price to be paid by Manager to Lender will be equal to the face value of the transferred indebtedness, plus any accrued and unpaid interest thereon. The put option and the call option will only be exercisable during XXXXXXXXXX. In the event that Manager acquires such indebtedness, (i) the terms of the Investor Loans will not be altered from those entered into between the Lender and the Limited Partners, (ii) Manager will have full recourse against the Limited Partners for repayment of the debt, and (iii) there would be no agreements or arrangements that would preclude Manager from pursuing collection of amounts owing by the Limited Partners.

38. The XXXXXXXXXX Facilitator will agree to provide Manager with financing (the "Funding Loan") sufficient to meet any obligations it may incur under the Put/Call Agreement. XXXXXXXXXX.

39. The XXXXXXXXXX Facilitator will agree to secure its obligations to lend Manager the necessary amount for Manager to meet its obligation under the Put/Call Agreement by placing sufficient funds in an account to be agreed upon by the parties no later than XXXXXXXXXX .

40. In consideration for a fair market value fee, the XXXXXXXXXX Facilitator will enter into an agreement with Manager (the "Indemnification Agreement"). Under this agreement, and to the extent that the claim relates to the Property, the XXXXXXXXXX Facilitator will indemnify Manager from any losses experienced by Manager, in the event Manager breaches its obligations under the Management Services Agreement with the Partnership (described above in paragraph 34). The XXXXXXXXXX Facilitator's liability under the Indemnification Agreement will be limited to the amount Manager owes to the XXXXXXXXXX Facilitator under the Funding Loan at the particular time. Other than the indemnities provided for in the Indemnification Agreement and the right to compensation in respect of the Manager Services Fee, Manager will not be entitled to any compensation or reimbursement from the XXXXXXXXXX Facilitator, the XXXXXXXXXX or from any other party in respect of the transactions contemplated in this letter.

41. In consideration for a fair market value fee, XXXXXXXXXX will agree to indemnify the XXXXXXXXXX Facilitator in the event that the XXXXXXXXXX Facilitator is required to indemnify Manager under the Indemnification Agreement. The XXXXXXXXXX liability to indemnify Manager will be limited to the amount that the XXXXXXXXXX Facilitator owes the XXXXXXXXXX under the XXXXXXXXXX Loan (described in paragraph 23) at the particular time.

42. The Partnership will enter into an option agreement with XXXXXXXXXX Facilitator (the "PPU Option Agreement") pursuant to which the Partnership will be entitled to cause the XXXXXXXXXX Facilitator to acquire the XXXXXXXXXX Partnership Units of the XXXXXXXXXX Partnership (the "PPU Put Option"). The amount payable by XXXXXXXXXX Facilitator under the PPU Put Option (the "PPU Put Option Price") will be equal to XXXXXXXXXX. Under the PPU Option Agreement, the XXXXXXXXXX Facilitator will also be entitled to require the Partnership to sell the XXXXXXXXXX Partnership Units to the XXXXXXXXXX Facilitator (the "PPU Call Option"). The amount payable by the XXXXXXXXXX Facilitator for the XXXXXXXXXX Partnership Units under the PPU Call Option (the "PPU Call Option Price") is XXXXXXXXXX.

43. The Partnership and the XXXXXXXXXX Partnership will be tax shelters within the meaning assigned by subsection 237.1 (1). The General Partner and the XXXXXXXXXX will each apply for a tax shelter identification number for the Partnership and for the XXXXXXXXXX Partnership, respectively, and upon receipt of the number, will file annual tax shelter information returns, pursuant to and in accordance with subsections 237.1(2) and (7).

PURPOSE OF THE PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to XXXXXXXXXX.

RULINGS

Provided that the statement of facts, proposed transactions and the purposes thereof, all as described above, is accurate and constitutes complete disclosure of all of the representations, relevant facts, proposed transactions and the purposes thereof, and provided further that all of the proposed transactions are carried out as described above, and that the offering documents or executive summary contain a reference, such as described in paragraph 14 above in respect of the existence of caveats in the rulings given and provided that the final documents described above are materially as submitted in draft, and provided that the Partnership and the XXXXXXXXXX Partnership are partnerships at law, we provide the following rulings:

A. Pursuant to subsection 18.1(15), section 18.1 will not apply to restrict the deductibility of the XXXXXXXXXX Expenses (including the XXXXXXXXXX Reimbursements payable to the XXXXXXXXXX by the XXXXXXXXXX Partnership, as described in paragraphs 24 and 32 above) incurred by the XXXXXXXXXX Partnership pursuant to the proposed transactions, provided that before the end of the taxation year in which the particular XXXXXXXXXX expenditures are made, amounts included in computing the XXXXXXXXXX Partnership's income for that year (other than any portion of such an amount that is the subject of a reserve claimed by the XXXXXXXXXX Partnership for the year under the Act) in respect of the Property, exceed XXXXXXXXXX% of such XXXXXXXXXX Expenses.

B. The XXXXXXXXXX Expenses of the XXXXXXXXXX Partnership (including the XXXXXXXXXX Reimbursements payable to the XXXXXXXXXX by the XXXXXXXXXX Partnership as described in paragraphs 24 and 32 above) incurred after the date of this letter, will, subject to the application of subsections 143.2(6) and (10) and subject to the provisions of section 18.1 of the Act, be deductible in the computation of the XXXXXXXXXX Partnership's income or loss for the relevant fiscal period in which the expenses are incurred, pursuant to subsection 9(l), to the extent that:

(i) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit;

(ii) the amount of the outlays or expenses are reasonable in the circumstances and are not on account of capital; and

(iii) such reporting is not inconsistent with established case law principles, or rules of law and well-accepted business principles.

C. Subject to the application of paragraphs (b), (b. 1) and (c) of subsection 96(2.2), the at-risk amount, within the meaning of subsection 96(2.2), of the Partnership in the XXXXXXXXXX Partnership, at the end of the XXXXXXXXXX fiscal year of such XXXXXXXXXX Partnership, will be equal to the amount of the Partnership's investment in XXXXXXXXXX Partnership Units of the XXXXXXXXXX Partnership (as described in paragraph 21 above), to the extent that the Partnership or a person with whom the Partnership does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d), other than an amount or benefit excluded by one of subparagraphs (i), (iii), (vi) or (vii) of that paragraph and, without limiting the generality of the foregoing, the Management Services Agreement, the Charge, the PPU Call Option and the PPU Put Option, or any one of them (provided that in the case of such options, the particular option is not issued for the purpose reducing the impact, in whole or in part, of any loss that the Partnership may sustain in respect of its interest in the Production Partnership), will not reduce such at-risk amount.

D. Subject to the application of paragraphs (b), (b.1) and (c) of subsection 96(2.2), the at risk amount, within the meaning of subsection 96(2.2), of a Limited Partner in the Partnership, at the end of the XXXXXXXXXX taxation year of the Partnership, will be equal to the amount of the Limited Partner's investment in Units as described above in paragraphs 14 and 15, to the extent that the Limited Partner, or a person with whom the Limited Partner does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d), other than an amount or benefit excluded by virtue of one of subparagraphs (i), (iii), (vi), or (vii) of that paragraph.

E. The outlays or expenses on account of the Management Services Fee incurred after the date of this letter and payable by the Partnership to Manager, as described in paragraph 35 above, will, subject to the application of subsections 143.2(6) and (10) and subject to the provision of section 18.1, be deductible in computing the income of the Partnership pursuant to subsection 9(l), to the extent that:

(i) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit;

(ii) the amount of the outlays or expenses are reasonable in the circumstances and are not on account of capital; and

(iii) such reporting is not inconsistent with established case law principles, or rules of law and well-accepted business principles.

F. The outlays or expenses on account of the Management Services Fee incurred by the Production Partnership after the date of this letter and payable to the Partnership, as described in paragraph 36 above, will, subject to the application of subsections 143.2(6) and (10) and subject to the provision of section 18.1, be deductible in computing the income of the Production Partnership pursuant to subsection 9(l), to the extent that:

(i) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit;

(ii) the amount of the outlays or expenses are reasonable in the circumstances and are not on account of capital; and

(iii) such reporting is not inconsistent with established case law principles, or rules of law and well-accepted business principles.

G. Provided interest in respect of their particular Investor Loan (as described above in paragraph 17) is paid on the indebtedness by the particular Limited Partner no later than 60 days after the end of each of the Limited Partner's taxation years in which the Investor Loan is outstanding, and provided bona fide repayment arrangements are made in accordance with the provisions of 143.2(7)(a), XXXXXXXXXX Accordingly, the existence of an Investor Loan, where the provisos are also met, will not in an of itself, result in the application of subparagraph 143.2(6)(b)(i) to reduce the cost of a Limited Partner's Unit or the cost of the XXXXXXXXXX Services in respect of such indebtedness. However, if a Limited Partner funds any portion of their investment in the Partnership with limited-recourse financing, the provisions of subsection 143.2(6) will apply.

H. Neither the Management Services provided to the Partnership by Manager as described under paragraph 34 above, nor the Charge (defined above in paragraph 35) in respect thereof, will constitute an "at-risk adjustment" (as the term is defined in subsection 143.2(2)) to the Limited Partners or the Partnership and, accordingly, subparagraph 143.2(6)(b)(ii) will not apply to reduce the cost of a Limited Partner's Unit, the Partnership's cost of a XXXXXXXXXX Partnership Unit or the amount of any expenditure of the Partnership or of the XXXXXXXXXX Partnership in respect of such services.

I. Provided the PPU Option Agreement, as defined above in paragraph 42, is not entered into for the purpose of reducing the impact, in whole or in part, of any loss that the Partnership may sustain in respect of its interest in the Production Partnership, neither the PPU Call Option nor the PPU Put Option will constitute an "at-risk adjustment" (as defined in subsection 143.2(2)) to the Limited Partners or the Partnership and, accordingly, subparagraph 143.2(6)(b)(ii) will not apply to reduce the cost of a Limited Partner's Unit, the Partnership's cost of a Production Partnership Unit or the amount of any expenditure of the Partnership or of the Production Partnership as a result of such options.

J. The XXXXXXXXXX Partnership's entitlement to the XXXXXXXXXX Fee and the Additional Annual Fee will not, in and of itself, result in the application of paragraph 96(2.2)(d) to reduce either the at-risk amount of the Partnership in the XXXXXXXXXX Partnership or the at-risk amount of the Limited Partners in the Partnership.

K. Neither the XXXXXXXXXX Fee nor the Additional Annual Fee will constitute an "at-risk adjustment" within the meaning of subsection 143.2(2). Accordingly, neither the XXXXXXXXXX Fee nor the Additional Annual Fee will reduce, pursuant to subparagraph 143.2(6)(b)(ii), the cost of a Limited Partner's Unit, the Partnership's cost of a XXXXXXXXXX Partnership Unit or the amount of any expenditure of the Partnership or of the XXXXXXXXXX Partnership.

L. Subject to the application of subsections 18(9) and (9.2) to (9.8), interest paid in a taxation year or payable in respect of a taxation year by a Limited Partner (depending on the method regularly followed by a Limited Partner in computing income) in connection with the Limited Partner's Investor Loan will be deductible in computing income in that taxation year in accordance with paragraph 20(1)(c), to the extent that the amount thereof is reasonable and paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property with a reasonable expectation of profit.

COMMENTS

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 (the "Circular") issued by the CCRA on December 30, 1996, and are binding provided the proposed transactions are entered into on or before XXXXXXXXXX. These rulings are based on the draft documents provided to us and are based on the Act in its present form and do not take into account the effect of any proposed amendments. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:

a) the reasonableness or fair market value of any expenditures referred to in this letter;

b) the proper reporting, based on established case-law principles or rules of law, or well-accepted business principles, applicable in the determination of the timing of the deduction of the cost of any of the XXXXXXXXXX Expenses incurred by the XXXXXXXXXX Partnership (see Ruling B, above), the Manager Services Fee incurred by the Partnership (see Ruling E, above), or the management fee incurred by the XXXXXXXXXX Partnership (see Ruling F, above);

c) whether the XXXXXXXXXX will be an eligible XXXXXXXXXX corporation in respect of the Property for the purposes of section 125.5;

d) whether the Property will qualify as an accredited XXXXXXXXXX, within the meaning of draft section 9300 of the Regulations;

e) the existence of a reasonable expectation of profit of any of the parties mentioned in this letter;

f) whether the XXXXXXXXXX Facilitator, the XXXXXXXXXX Partnership, or the XXXXXXXXXX will be acting as legal agents for XXXXXXXXXX in respect of the making of the Property;

g) the applicability or non-applicability of section 247 or subsection 245(2);

h) the GST implications of any of the proposed transactions;

i) except as expressly stated above in the Rulings, the applicability or non-applicability of paragraph 96(2.2)(d) or subsection 143.2(2). In this regard, it is our view that if any amount of gross revenue related to the Property is ascertainable, whether contingent or otherwise, at the time that a Limited Partner acquires an interest in the Partnership, or at the time the Partnership acquires a unit of the XXXXXXXXXX Partnership, this would affect the at-risk amount or the at-risk adjustment of the Limited Partner and the Partnership, to the extent that the amount or benefit in respect of such ascertainable revenue was granted for any of the purposes stipulated in paragraph 96(2.2)(d) or subsection 143.2(2); and

j) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.

As stated in paragraph 7 of the Circular, rulings are not provided for transactions that are not seriously contemplated and are hypothetical in nature. Therefore, notwithstanding that the Partnership will be subscribing for limited partnership interests in a number of XXXXXXXXXX limited partnerships (refer to paragraph 21 above), we are not ruling on the Partnership's investment in any limited partnerships other than their investment in the XXXXXXXXXX Partnership Units, nor are we ruling in respect of any XXXXXXXXXX or other XXXXXXXXXX except for the Property, all as described herein.

OPINION

XXXXXXXXXX.

As indicated in paragraph 22 of the Circular, an expression of opinion is not an advance income tax ruling and, accordingly, is not binding on the CCRA.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch