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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: 1. Whether the transfer by a mutual fund trust of shares and notes of a wholly owned corporation to another trust is a qualified disposition under 107.4.
Position: 1. Yes.
Reasons: Provided the value of the beneficial ownership of the mutual fund unit holders in the transferred shares and notes at the beginning of the period during which the assets are disposed of equals their value at the end of that period, the conditions of 107.4(2) are met. Accordingly, there is deemed to be no resulting change in beneficial ownership and all the other conditions of 107.4(1) are met.
XXXXXXXXXX 2003-000498
Yves Moreno
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Fund")
This is in reply to your letter of XXXXXXXXXX, in which you requested an Advance Income Tax Ruling on behalf of the Fund.
You provided us with copies of:
(a) the Supplemental and Restated Trust Indenture of the Fund dated XXXXXXXXXX;
(b) the First Supplemental Trust Indenture of the Fund dated XXXXXXXXXX;
(c) the Second Supplemental Trust Indenture of the Fund dated XXXXXXXXXX, with Schedule 2;
(d) the Third Supplemental Trust Indenture of the Fund dated XXXXXXXXXX;
(e) the Fourth Supplemental Trust Indenture of the Fund dated XXXXXXXXXX; and
(f) the trust indenture for the XXXXXXXXXX (the "Trust") dated XXXXXXXXXX.
To the best of your knowledge, and that of the taxpayers named above, none of the issues involved in this advance income tax ruling request:
(a) is in an earlier return of the taxpayers or a related person;
(b) is being considered by a tax services office or a taxation centre in connection with a previously filed income tax return of the taxpayers or a related person;
(c) is under objection by the taxpayers or a related person;
(d) is or has been before the courts; or
(e) is the subject of a ruling previously considered by the Income Tax Rulings Directorate in respect of the taxpayers or a related person.
The following terms have the meanings specified:
"Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended.
"Clientco" means XXXXXXXXXX.
"Corporation" means XXXXXXXXXX.
"Corporation Notes" means the Unsecured Subordinated Notes issued by the Corporation and owned by the Fund, having an aggregate principal amount of $XXXXXXXXXX.
"Corporation Shares" means shares of the Corporation.
"Facility 1" means XXXXXXXXXX.
"Facility 2" means XXXXXXXXXX.
"Fund" means the XXXXXXXXXX, established under the laws of XXXXXXXXXX pursuant to the Fund Indenture.
"Fund Indenture" means the trust indenture which established the Fund, dated XXXXXXXXXX, between XXXXXXXXXX (the trustee) and XXXXXXXXXX (the settlor), as amended and restated on XXXXXXXXXX, and as amended by First, Second, Third and Fourth Supplemental Trust Indenture, respectively dated XXXXXXXXXX.
"Fund Units" means units issued by the Fund.
"Partnership" means XXXXXXXXXX.
"Pubco" means XXXXXXXXXX.
"Subco" means XXXXXXXXXX, a corporation incorporated under the laws of XXXXXXXXXX pursuant to the Business Corporations Act.
"Subco Note" means the unsecured promissory note issued by Subco with a principal amount of $XXXXXXXXXX.
"Subco Shares" means the shares of XXXXXXXXXX.
"Trust" means XXXXXXXXXX, an unincorporated open-ended trust established under the laws of XXXXXXXXXX pursuant to the Trust Indenture.
"Trust Indenture" means the trust indenture which established the Trust, dated XXXXXXXXXX, between XXXXXXXXXX (the settlor) and XXXXXXXXXX (the trustee), a corporation incorporated under the laws of XXXXXXXXXX pursuant to the Business Corporations Act.
"Trust Note" means the unsecured promissory note issued by the Trust with a principal amount of $XXXXXXXXXX.
"Trust Units" means units issued by the Trust.
"Unitholders" means the persons who hold units of the Fund.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
FACTS
1. The Fund's trust account number is XXXXXXXXXX. The Trust has not yet been assigned an account number. The Fund and the Trust deal with the XXXXXXXXXX Tax Services Office and file their returns with the XXXXXXXXXX Centre. Both the Fund and the Trust are residents of Canada for purposes of the Act.
2. The Fund's address is XXXXXXXXXX.
3. The Fund is a "unit trust", a "mutual fund trust" and a "registered investment" within the meaning of subsections 108(2), 132(6) and 204.4(1), respectively, of the Act.
4. The Fund was established pursuant to the Fund Indenture. On XXXXXXXXXX replaced XXXXXXXXXX as the trustee of the Fund.
5. The Fund Units are listed on the XXXXXXXXXX Stock Exchange. Each Fund Unit represents an equal undivided beneficial interest in the Fund. The beneficiaries of the Fund are the Unitholders. The beneficial interest of a Unitholder is limited by the Fund Indenture to the right to participate pro rata in distributions by the Fund when and as declared, including the proceeds of liquidation of the Fund's property upon termination of the Fund.
6. The Fund owns directly as capital property the Corporation Notes, the Trust Note and all the issued and outstanding Corporation Shares and Trust Units. The Fund owns indirectly the Subco Note and all the issued and outstanding Subco Shares.
7. The fair market values of the Corporation Shares and the Corporation Notes are not less than their respective cost amounts to the Fund, as determined pursuant to the Act.
8. The Corporation owns and operates Facility 1 XXXXXXXXXX.
9. The Fund owns all of the issued and outstanding Trust Units and the Trust Note. The Trust owns all of the issued and outstanding shares of Subco and the Subco Note. Subco owns a XXXXXXXXXX% general partnership interest in the Partnership which was acquired on XXXXXXXXXX. Subco has no other assets.
10. The Partnership owns and operates Facility 2 XXXXXXXXXX.
PROPOSED TRANSACTIONS
11. The Fund will transfer the Corporation Shares and the Corporation Notes to the Trust for no consideration. This transfer will take place in one day.
12. The Fund will not make the election in subparagraph 107.4(3)(a)(i) of the Act and the Trust will not make the election in clause 107.4(3)(c)(ii)(B) of the Act.
13. Following the transfer described in paragraph 11, the Fund will continue to directly own XXXXXXXXXX% of the Trust Units and the Trust Note and will indirectly own XXXXXXXXXX% of the Corporation Shares, the Corporation Notes, the Subco Shares and the Subco Note.
14. The proposed transactions do not include any transfer of property to the Trust as consideration for the acquisition of a capital interest in the Trust where the particular property can reasonably be considered to have been received by the Trust in order to fund a distribution.
15. The value of each beneficiary's beneficial ownership under the Fund in the Corporation Shares and Corporation Notes at the commencement of the transfer described in paragraph 11 above is the same as the value the beneficiary's beneficial ownership under the Fund and the Trust in the Corporation Shares and Corporation Notes at the completion of the transfer.
PURPOSE
The purpose of the proposed transactions is to create a linear ownership structure, such that each of the Fund's operating investments is owned, either directly or indirectly, by the Trust. This reorganization will permit governance oversight of the Fund's operating investments to be centralized in a board of trustees of the Trust which will have the direct legal authority to approve, monitor and establish policy for all such investments.
RULINGS
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. Paragraph 107.4(2)(a) of the Act will apply to the transfer of the Corporation Shares and Corporation Notes by the Fund to the Trust, such that for purposes of paragraph 107.4(1)(a) of the Act only, the transfer will not result in any change in the beneficial ownership of those properties.
B. The transfer of the Corporation Shares and the Corporation Notes from the Fund to the Trust will be a "qualifying disposition" pursuant to subsection 107.4(1) of the Act.
C. The Fund's proceeds of disposition on the transfer of the Corporation Shares and the Corporation Notes to the Trust will be deemed, pursuant to subparagraph 107.4(3)(a)(ii) of the Act, to be the cost amount to the Fund of the Corporation Shares and the Corporation Notes immediately before the qualifying disposition.
D. Provided the fair market values of the Corporation Shares and Corporation Notes are not less than their respective cost amounts, determined pursuant to the Act, to the Fund at the time of the qualifying disposition, the cost of the Corporation Shares and the Corporation Notes to the Trust will be deemed by paragraph 107.4(3)(b) of the Act to be equal to the cost amount to the Fund of the Corporation Shares and the Corporation Notes immediately before the qualifying disposition.
E. No amount will be added to the cost of the Trust Units owned by the Fund pursuant to subsection 107.4(3) of the Act by virtue of the qualifying disposition.
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 Customs and Revenue Agency (the "CCRA") provided that the proposed transactions are completed by 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 CCRA has agreed to or reviewed:
(a) The value of each beneficiary's beneficial ownership in the Corporation Shares and Corporation Notes for the purpose of paragraph 107.4(2)(a) of the Act.
(b) The status of the Fund as a mutual fund trust for purpose of the Act.
Yours truly,
XXXXXXXXXX
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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