2006 Ruling 2006-0173211R3 - Income Trust Reorganization

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 business of the income trust's corporate subsidiary to a partnership on a rollover basis using section 85, 97(2) and 132.2 meets the requirements of the Act and is within policy. Before the proposed transactions, the trust owns shares of the corporate subsidiary that carries on a business. At the end of the proposed transactions, it owns a limited partnership interest and shares of the general partner of a partnership that carries on that business.

Position: The proposed transactions meet 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 							2006-017321

XXXXXXXXXX, 2006

Dear Sir:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letters of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayers. We also acknowledge our telephone conversations and correspondence concerning your request. The documents submitted with your request are part of this document only to the extent described herein.

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 statute references are to the Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended, the "Act")

DEFINITIONS

In this letter, unless otherwise expressly stated, the following terms have the meanings specified:

(a) "agreed amount" in respect of a property means the amount that the transferor and the transferee of the property have agreed upon in their election under either subsection 85(1) or subsection 97(2) in respect of the property;

(b) "Amalco" means the corporation to be formed on the amalgamation of Newco and Holdco as described in paragraph 28 below;

(c) "Business" means the XXXXXXXXXX business carried on by Holdco;

(d) "capital property" has the meaning assigned by section 54 and subsection 248(1);

(e) "CRA" means Canada Revenue Agency;

(f) "Fund" means XXXXXXXXXX;

(g) "Fund Declaration of Trust" means the declaration of trust of the Fund dated XXXXXXXXXX, which was amended and restated on XXXXXXXXXX;

(h) "Fund Unit" means a trust unit of the Fund;

(i) "GPco" means the corporation to be incorporated, as described in paragraph 16 below;

(j) "Holdco" means XXXXXXXXXX;

(k) "Newco" means the corporation to be incorporated, as described in paragraph 18 below;

(l) XXXXXXXXXX;

(m) "Partnership" means the partnership to be formed, as described in paragraph 17 below;

(n) "Partnership Unit" means the interest of a limited partner in the Partnership's capital;

(o) "Regulations" means the Income Tax Regulations (Canada); and

(p) XXXXXXXXXX.

FACTS

1. The Fund is an unincorporated open-ended limited purpose trust established under the laws of the Province of XXXXXXXXXX pursuant to the Fund Declaration of Trust. The Fund is a mutual fund trust as defined in subsection 132(6) that was established to, among other things, invest in securities, including shares and indebtedness of Holdco. The Fund has been accepted for registration as a registered investment under section 204.4 of the Act, with effect from

XXXXXXXXXX.

2. Fund Units are posted and listed for trading on the XXXXXXXXXX. The closing price of the Units on the XXXXXXXXXX on XXXXXXXXXX was $XXXXXXXXXX. The Fund Units trade on the XXXXXXXXXX under the stock symbol XXXXXXXXXX.

3. The head office and registered office of the Fund is located at XXXXXXXXXX. The Fund has a XXXXXXXXXX year-end for purposes of the Act.

4. 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, entitles the holder thereof to one vote on a ballot vote at any meeting of unitholders and is redeemable at the demand of the holder for a redemption price determined by formula based on the trading price of Fund Units on the XXXXXXXXXX. The Fund Declaration of Trust prohibits non-residents of Canada from collectively owning more than XXXXXXXXXX% of the Fund Units.

5. There were XXXXXXXXXX Fund Units issued and outstanding as of XXXXXXXXXX. As of XXXXXXXXXX, Fund Units representing less than XXXXXXXXXX% of the outstanding Fund Units were owned or controlled by the Fund trustees and directors and officers of Holdco. Less than XXXXXXXXXX% of the Fund Units are owned by non-residents of Canada.

6. Holdco, formed on XXXXXXXXXX as a result of the amalgamation of XXXXXXXXXX and XXXXXXXXXX, is a corporation governed by the XXXXXXXXXX and is a taxable Canadian corporation and a private corporation for purposes of the Act. The head office and registered office of Holdco is located at XXXXXXXXXX. Holdco has a XXXXXXXXXX year-end for purposes of the Act. Holdco has written to the CRA on XXXXXXXXXX requesting a change of its year end from XXXXXXXXXX to XXXXXXXXXX effective for the XXXXXXXXXX year end.

7. Holdco duly filed an election pursuant to subsection 89(1) to cease to be a public corporation effective XXXXXXXXXX.

8. The authorized capital of Holdco consists of an unlimited number of common shares ("Holdco Common Shares"). The Holdco Common Shares are capital property to the Fund for purposes of the Act.

9. In addition to the Fund's investment in Holdco Common Shares, the Fund also holds unsecured subordinated notes in the principal amount of $XXXXXXXXXX issued by Holdco (the "Holdco Notes") in connection with the transactions described in paragraph 11 below. The Holdco Notes bear interest at a rate of XXXXXXXXXX% per annum, with interest payable monthly. The Holdco Notes mature on XXXXXXXXXX (subject to XXXXXXXXXX extension options exercisable by Holdco). The Holdco Notes are capital property to the Fund for purposes of the Act.

10. Holdco's working capital requirements are supported by a secured, revolving demand facility provided by a Schedule 2 Canadian chartered bank. In addition, various non-bank lenders provide secured wholesale financing on equipment inventory ("equipment notes payable"), some of which is interest free for periods up to XXXXXXXXXX months from the date of financing. Interest rates float with the prime rate under most of Holdco's credit facilities. As at XXXXXXXXXX , Holdco had bank indebtedness of approximately $XXXXXXXXXX, non-interest equipment notes payable of approximately $XXXXXXXXXX and interest-bearing equipment notes payable of approximately $XXXXXXXXXX.

11. The Fund acquired the Holdco Common Shares and Holdco Notes pursuant to a Plan of Arrangement which was approved by shareholders of Holdco on XXXXXXXXXX. The Plan of Arrangement was approved by the Board of Directors of Holdco's predecessor, XXXXXXXXXX, on XXXXXXXXXX and after receiving the necessary court and regulatory approvals became effective on XXXXXXXXXX. The transactions involved in the Plan of Arrangement as well as a description of the business carried on by Holdco (the "Business") are described in detail in the Notice of Annual and Special Meeting of Shareholders and Management Information Circular of Holdco dated XXXXXXXXXX.

12. On XXXXXXXXXX, the number of trustees of the Fund was increased from XXXXXXXXXX to XXXXXXXXXX. The Fund Declaration of Trust requires at least XXXXXXXXXX of the trustees to be residents of Canada for purposes of the Act. Under the Fund Declaration of Trust, holders of Fund Units are entitled to vote with respect to the election or removal of the trustees of the Fund. Resolutions passed by holders of Fund Units will bind the Fund or the trustees with respect to, among other things, the appointment or removal of nominees of the Fund to serve as directors of Holdco.

13. On XXXXXXXXXX, the Fund issued a press release wherein it announced that it is considering a restructuring in which all of its operations would be transferred to a new limited partnership. The press release stated that the restructuring would be subject to receiving various approvals, including a satisfactory tax ruling and unitholder approval.

14. On XXXXXXXXXX, the Fund filed with the securities regulators in each of the provinces of Canada on SEDAR a Notice of Special Meeting of Unitholders and Management Information Circular which, inter alia, described the internal reorganization of the Fund and its subsidiaries that is the subject matter of this advance income tax ruling request.

15. On XXXXXXXXXX, the annual and special meeting of the Unitholders of the Fund was held in XXXXXXXXXX. At that meeting, the Unitholders of the Fund approved the special resolution approving the proposed internal reorganization of the Fund and its subsidiaries and certain consequential amendments to the Fund's amended and restated declaration of trust to be dated XXXXXXXXXX. Unitholder approval of the internal reorganization was provided subject to the issuance by the CRA of the advance income tax ruling requested herein.

PROPOSED TRANSACTIONS

Unless otherwise specified, the proposed transactions (the "Proposed Transactions") will take place in the order described below:

16. The Fund will incorporate a subsidiary corporation ("GPco") under the provisions of the XXXXXXXXXX. The authorized capital of GPco will consist of an unlimited number of common shares. Upon incorporation, the Fund will subscribe for one common share of GPco for nominal consideration. The board of directors of GPco will consist of one or more persons, the majority of which will not also serve as trustees of the Fund. The board of directors of GPco will have the powers and authority to manage the business and affairs of GPco, and GPco will administer, manage, control and operate the business of the Partnership (as defined in paragraph 17 below). The trustees of the Fund, in their capacity as trustees of the Fund, will not have or limit such powers and authority.

17. GPco and Holdco will form a limited partnership (the "Partnership") under the laws of the Province of XXXXXXXXXX. Upon formation, GPco will subscribe with nominal consideration for a general partner interest in the Partnership and Holdco will subscribe with nominal consideration for one Partnership Unit. GPco will have a XXXXXXXXXX% interest in the Partnership. Pursuant to the limited partnership agreement that will govern the relationship of the parties:

(a) GPco will be the only general partner and will be vested with the exclusive conduct and management of the partnership business and will be entitled to vote in its capacity as general partner;

(b) Holdco will be the only initial limited partner. The limited partnership agreement will indicate that Holdco and any eventual limited partner:

• will have a liability in respect of the debts, liabilities and obligations of the Partnership which will be limited to the amount that it will contribute to the Partnership plus any undistributed income. Should the limited partner's liability not be limited in such way, GPco is required to indemnify the limited partner unless such liability arises out of any act or omission of the limited partner;
• cannot control or manage the Business;
• cannot execute any document binding the Partnership or GPco;
• cannot undertake any obligation or responsibility on behalf of the Partnership;
• cannot take any action for partition or sale of property of the Partnership; and
• cannot take any action which jeopardizes the status of the Partnership as a limited partnership.

18. The Fund will incorporate a new corporation ("Newco") under the provisions of the XXXXXXXXXX and will acquire one common share of Newco on incorporation for a nominal amount. The only undertaking of Newco will be the investing of its funds in property, other than real property, including the Holdco Common Shares, Holdco Notes and Partnership Units.

19. The authorized capital of Newco will consist of an unlimited number of common shares, class A shares ("Newco Class A Shares") and class B shares ("Newco Class B Shares"). Each common share of Newco (and each common share of Amalco following the amalgamation described in paragraph 28 below) will:

(a) entitle the holder to receive notice of, to attend and to one vote per common share held at all meetings of the corporation's shareholders;

(b) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of the corporation;

(c) permit redemption at the demand of the holder for a redemption price of $XXXXXXXXXX per share; and

(d) on the liquidation, dissolution or winding-up of the corporation, entitle the holder to share rateably in any remaining assets of the corporation.

20. Each Newco Class A Share and Class B Share (and each Amalco Class A Share and Amalco B Share following the amalgamation described in paragraph 28 below) will:

(a) be non-voting preferred shares in the capital of the corporation;

(b) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of the corporation;

(c) be redeemable, at the option of the corporation, without notice to the holders thereof for a redemption price per share equal to the fair market value of any consideration paid to acquire such share on issuance (the "Redemption Price");

(d) be retractable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to the corporation for a retraction amount per share equal to the Redemption Price plus all declared and unpaid dividends to the date of retraction; and

(e) on the liquidation, dissolution or winding-up of the corporation, entitle the holder thereof to receive the aggregate Redemption Price, together with any declared and unpaid dividends to the date of payment, before any amount will be paid or any assets of the corporation will be distributed to the holders of the common shares of the corporation.

21. Holdco will transfer substantially all of its operating assets to the Partnership in exchange for (a) the assumption by the Partnership of certain existing liabilities of Holdco including its indebtedness under the existing credit facilities described above, but excluding the liabilities of Holdco under the Holdco Notes, and (b) additional Partnership Units. Each employee of Holdco will become an employee of GPco or the Partnership. GPco and Holdco will jointly elect, 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 assets to the Partnership by Holdco so that no gain or loss will be realized by Holdco on the transfer of assets to the Partnership.

The elected amount will be equal to the cost amount to Holdco of the particular transferred property immediately before such transfer such that the agreed amount in each joint election will not be less than:

(a) the least of the amounts specified in subparagraphs 85(1)(d)(i), (ii) and (iii), in the case of eligible capital property;

(b) the least of the amounts specified in subparagraphs 85(1)(e)(i), (ii) and (iii), in the case of depreciable property of a prescribed class; and

(c) the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii), in the case of inventory and capital property (other than depreciable property of a prescribed class).

For the purposes of each election, the agreed amount will not exceed the fair market value of the transferred property, nor will it be less than the fair market value, at the time of disposition, of any consideration other than an interest in the partnership.

22. Concurrently with the transfer of assets by Holdco to the Partnership, the existing credit facilities described in paragraph 10 above will be restructured.

23. The Fund will subscribe for a number of Newco Class A Shares equal to the number of Fund Units then outstanding for a subscription price per Newco Class A Share of $XXXXXXXXXX, or such greater amount as is determined on the date of the reorganization.

24. The Fund will distribute, as a return of capital, each Newco Class A Share acquired, as described in paragraph 23 above, to the holders of Fund Units. Each holder of Fund Units will receive a number of Newco Class A Shares equal to the number of Fund Units owned by such holder immediately before the distribution of the Newco Class A Shares. The number of Fund Units owned by each holder will not be reduced as a result of this distribution. Following an application made on behalf of Newco, the XXXXXXXXXX has provided a letter to Newco and its advisors confirming that notwithstanding that Newco will not appear on the listed companies directory, the Newco Class A Shares will be listed on the XXXXXXXXXX for the period of time that they are outstanding. Consequently, the Newco Class A Shares will be listed on the XXXXXXXXXX immediately following the distribution of such shares to the holders of the Fund Units.

25. Following the distribution of the Newco Class A Shares and the listing of such shares on the XXXXXXXXXX described in paragraph 24 above, and prior to the amalgamation described in paragraph 28 below, Newco will be a public corporation pursuant to paragraph (a) of the definition of "public corporation" in subsection 89(1).

26. The Fund and Newco will enter into an agreement of purchase and sale under which the Fund will transfer the Holdco Common Shares and Holdco Notes then outstanding to Newco for an aggregate purchase price equal to the respective fair market value of each property so transferred. Newco will satisfy the purchase price by issuing to the Fund Newco Class B Shares with an aggregate fair market value equal to the fair market value of the Holdco Common Shares and Holdco Notes.

27. The Fund will jointly elect with Newco, in prescribed form and within the time referred to in subsection 85(6), to have the provisions of subsection 85(1) apply to the transfer of the Holdco Common Shares and Holdco Notes as described in paragraph 26 above. The agreed amount in respect of the Holdco Common Shares and Holdco Notes will be an amount not less than the lesser of the amounts described in subparagraphs 85(1)(c.1)(i) and (ii). In each case, the agreed amount will not exceed the fair market value of the respective property, nor will it be less than the amount permitted under paragraph 85(1)(b).

28. Newco and Holdco (collectively in this paragraph referred to as the "predecessor corporations") will amalgamate pursuant to an amalgamation agreement under the provisions of the XXXXXXXXXX to form Amalco in such a 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 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 Amalco by virtue of the amalgamation; and

(c) all of the Holdco Common Shares and Holdco Notes held by Newco immediately prior to the amalgamation will be cancelled by virtue of the amalgamation.

Pursuant to the amalgamation agreement, the articles of amalgamation of Amalco will be the same as the articles of Newco, and each shareholder of Newco will receive shares of Amalco that are identical to the shares of Newco held by such shareholder immediately prior to the amalgamation. The amalgamation agreement will specify that the amalgamation is effective at a time after the distribution of Newco Class A Shares described in paragraph 24 above has been completed and the Newco Class A Shares are listed on the XXXXXXXXXX.

29. Amalco and the Fund will enter into an agreement of purchase and sale under which Amalco will transfer all of its assets, including the Partnership Units and the cash proceeds received on the subscription by the Fund for the Newco Class A Shares as described in paragraph 23 above, to the Fund for a purchase price equal to their fair market value. The Fund will satisfy the purchase price by issuing to Amalco a number of Fund Units with an aggregate fair market value equal to the fair market value of the assets so acquired.

30. On the same day as, but following, the transfer described in paragraph 29 above, Amalco will redeem all of the issued and outstanding Amalco Class A Shares as well as all of the Amalco Class B Shares owned by the Fund. As consideration for such redemptions, Amalco will distribute the Fund Units that it acquires from the Fund, as described in paragraph 29 above, to the holders of the Amalco Class A Shares and the Fund (as the holder of Amalco Class B Shares) in proportion to the respective values of their shareholdings in Amalco. Because the Fund cannot, at law, hold an interest in itself, the Fund Units distributed to it by Amalco on the redemption of the Amalco Class B Shares will be cancelled upon receipt.

31. Following the transactions described in paragraphs 29 and 30 above, but prior to the dissolution of Amalco described in paragraph 32 below, Amalco will jointly elect with the Fund, in prescribed form and within the time referred to in paragraph (c) of the definition of qualifying exchange in subsection 132.2(2), to have the provisions of section 132.2 apply to the transfer by Amalco of its assets, including the Partnership Units as described in paragraph 29 above to the Fund.

32. Following the exchange described in paragraph 30 above, Amalco will have no substantial assets or liabilities. Amalco may also hold certain contracts as nominee on behalf of the Partnership pending receipt of third party consents to the assignment. At such time as Amalco no longer holds registered title to such assets, it may be liquidated and dissolved under the applicable provisions of the XXXXXXXXXX.

33. The outstanding Fund Units (including the Fund Units distributed to the holders of Amalco Class A Shares in paragraph 30 above) will automatically be consolidated such that the total number of Fund Units outstanding upon completion of the Proposed Transactions will be equal to the total number of Fund Units outstanding immediately prior to the commencement of such transactions.

34. The Fund Declaration of Trust will be amended to remove current references to Holdco, including, inter alia, to provide that, if a unitholder of the Fund is not entitled to receive cash upon a redemption of Fund Units as a result of the limitations set out in the Fund Declaration of Trust, then the Fund Units tendered for redemption will, subject to any applicable regulatory approvals, be redeemed in part by cash and in part by way of a distribution in specie of notes issued by an affiliate (as defined in the Fund Declaration of Trust) of the Fund, and not notes of Holdco as currently provided in the Fund Declaration of Trust. The notes issued by the affiliate in these circumstances will be issued under a note indenture and may include provisions whereby such notes will be specifically subordinated to any indebtedness under the credit facilities described in paragraph 22 above.

PURPOSE OF THE PROPOSED TRANSACTIONS

35. The Fund and Holdco have considered and continue to consider expansion opportunities for the Business. The purpose of the Proposed Transactions is to reorganize the Fund and its subsidiaries so that the Fund will be better positioned to pursue such expansion opportunities including public merger transactions with other mutual fund trusts. The Fund has determined that the new trust on partnership structure would better accommodate its future expansion objectives and would be well perceived by the capital markets making the Fund Units more attractive as consideration in any merger or acquisition transaction.

36. The Business carried on by Holdco is generating profits. As a consequence, under its current organizational structure, Holdco has become taxable. The tax imposed at the Holdco level has reduced the cash flow available for distribution to Unitholders. The transfer of Holdco's Business to the Partnership will facilitate increases in Unitholder distributions based on existing income levels and would enable higher distribution increases as the Fund's income grows. Without reorganizing the current organization of the Fund in the manner proposed under paragraphs 16 to 34 above, the Fund believes it will be at a competitive disadvantage when offering its Fund Units for the purposes described in the paragraph 35 above in comparison to similar funds that have been organized on a more efficient flow-through basis.

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. The Proposed Transactions will not, in and by themselves, adversely affect the qualification of Amalco as a mutual fund corporation within the meaning of subsection 131(8) or the qualification of the Fund as a mutual fund trust within the meaning of subsection 132(6).

B. The Fund will not be considered to have disposed of its property and resettled a new trust by virtue of the amendments to the Fund Declaration of Trust described in paragraph 34 above.

C. The amendment of the Fund Declaration of Trust to change the terms of the redemption feature as described in paragraph 34 above will satisfy the requirements of subparagraph 108(2)(a)(i) for purposes of determining whether the Fund qualifies as a unit trust.

D. Existing Unitholders will not be considered to have disposed of any portion of their Fund Units by virtue of the amendment to the Right of Redemption of the Fund Units described in paragraph 34.

E. Provided the Partnership is a Canadian partnership as defined in subsection 102(1) immediately after the transfers described in paragraph 21, 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 Holdco of its Operating Assets that are capital property, Canadian resource property, foreign resource property, eligible capital property or inventory to the Partnership as described in paragraph 21 above. For greater certainty, the provisions of paragraph 85(1)(b), as read in the manner set out in paragraph 97(2)(a), will not apply to deem the agreed amounts in the election described in paragraph 21 above to be amounts other than the amounts actually agreed on by GPco and Holdco in such election.

F. Provided that:

(a) at the moment of the transfer described in paragraph 29, 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 29 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 29;
? the purchase for cancellation by Amalco of the Amalco Class A shares and Amalco Class B shares described in paragraph 30; 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 30.

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

H. The general anti-avoidance rule under subsection 245(2) of the Act will not be applied as a result of the Proposed Transactions in and by themselves to redetermine 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 Opinion A 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 in ruling A or the other rulings with respect to whether the Fund qualifies as a mutual fund trust within the meaning of subsection 132(6) or whether Amalco qualifies as a mutual fund corporation within the meaning of subsection 131(8).

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 Partnership Units, the Amalco Class A Shares or the Amalco Class B Shares redemption amount.

OPINIONS

A. Provided that:

(a) at the moment of the transfer described in paragraph 29, 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 29 will constitute a "qualifying exchange" within the meaning of subsection 132.2(1), as that subsection is proposed to be amended by subsection 130(1) of the Proposed Amendments, such that the rules in subsections 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 29; and
• the purchase for cancellation by Amalco of the Amalco Class A Shares and Amalco Class B Shares 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 30.

Yours truly,

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

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