2007 Ruling 2005-0123381R3 - internal reorg of an income trust structure

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: 1. Will subsection 132.2 apply to the transfer of assets from Amalco, a corporation that is stated to be a mutual fund corporation to the Fund?

2. Will Gaar apply given that the existing structure still has outstanding exchangeable shares of Opco?

Position: 1. Yes.

2. No, since the exchangeable shares will not form part of the reorganization.

Reasons: 1. The conditions of 132.2 will be met.

2. Since the exchangeable shares represent less than 10% of the equity of Opco, the conditions set out in 132.2 can be met even if though the exchangeable shares will not be converted to units as part of the reorganization. It is our view that GAAR would apply if the exchangeable shares had been converted to units of the Fund as part of the exchange.

XXXXXXXXXX 								2005-012338

Attention: XXXXXXXXXX

XXXXXXXXXX, 2007

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling
Account Number XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX as most recently revised by 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 following documents:

• Declaration of Trust for the Fund and the draft amendments to that Declaration of Trust;
• Management Information Circular dated XXXXXXXXXX ;
• Amended and restated Shareholders' Agreement of Opco; and
• Amended and restated Credit Agreement between LP#1 and US Holdco and various lenders.

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 Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and the following terms have the meanings specified:

"1933 US Act" means the Securities Act of 1933 enacted by the United States;

"Amalco" means the corporation to be formed from the amalgamation of Newco and OpcoII under the provisions of the Business Corporations Act of XXXXXXXXXX , as described more fully in paragraph 36;

"Asset Transfer Time" means the point in time at which the transfer of assets of Amalco to the Fund as described more fully in paragraph 37 will occur and, for greater certainty, will be the "transfer time" referred to in the definition of "qualifying exchange" in subsection 132.2(2);

"Business" means XXXXXXXXXX;

"Can Holdco" means XXXXXXXXXX, a corporation incorporated under the Business Corporations Act of XXXXXXXXXX on XXXXXXXXXX, the property of which is described in paragraph 17;

"CT" means XXXXXXXXXX, a trust that was established under the laws of XXXXXXXXXX pursuant to a trust indenture dated XXXXXXXXXX as described more fully in paragraph 12;

"Exchangeco Notes" means the unsecured, subordinated, interest-bearing notes of Exchangeco issued by Exchangeco to the Fund in the amount of $XXXXXXXXXX, in order to enable Exchangeco to fulfill its obligations under the Opco Shareholders' Agreement as described in paragraph 10;

"Exchangeco Shares" means the common shares of Exchangeco, all XXXXXXXXXX of which are held by the Fund;

"Exchangeco" means XXXXXXXXXX, a taxable Canadian corporation resident in Canada that was incorporated under the Business Corporations Act of XXXXXXXXXX on XXXXXXXXXX;

"Fund" means XXXXXXXXXX, a trust formed under the laws of the Province of XXXXXXXXXX pursuant to a declaration of trust dated XXXXXXXXXX and was amended XXXXXXXXXX as described more fully in paragraphs 1 to 5;

"GP Corp" means XXXXXXXXXX, a taxable Canadian corporation that was incorporated under the Business Corporations Act of XXXXXXXXXX on XXXXXXXXXX as described more fully in paragraph 16;

"Inactive Corporations" means XXXXXXXXXX;

"LP#1" means XXXXXXXXXX, a limited partnership established under the laws of XXXXXXXXXX and is described further in paragraph 13;

"LP#2" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX;

"LP#3" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX;

"LP#4" means XXXXXXXXXX, a limited partnership to be created under XXXXXXXXXX law as described more fully in paragraph 26 below;

"LP#5 Contribution" means all of OpcoII's assets (other than the preferred units of CT, the Class A and Class B units of LP#1, the Class A and Class B units of LP#5, the limited partnership units of LP#4 and an amount of cash sufficient to satisfy liabilities of OpcoII that cannot be assumed and XXXXXXXXXX held by OpcoII that cannot be transferred to LP#5) as described in paragraph 31;

"LP#5" means XXXXXXXXXX, a limited partnership established under the laws of XXXXXXXXXX and is further described in paragraph 14;

"LP#6" means XXXXXXXXXX, a limited partnership formed under the laws of XXXXXXXXXX;

"Management Information Circular" means the Management Information Circular dated XXXXXXXXXX and approved by Unitholders on the same date as described more fully in paragraph 19 below;

"Management Shareholder" means any holder of Class A preference shares of Opco and after the amalgamation of Subco and Opco, means the holder of Class A preference shares of OpcoII, and after the amalgamation of OpcoII and Newco, means the holder of Class A preference shares of Amalco, and after the amalgamation of Amalco and GP Corp, means the holder of Class A preference shares of Amalco GP;

"Newco" means a corporation to be created under the Business Corporations Act of XXXXXXXXXX, as described in paragraph 21;

"Opco Notes" means the unsecured, subordinated and interest-bearing notes of Opco described in paragraph 9, which will become the indebtedness of OpcoII following the amalgamation described in paragraph 30;

"Opco Shareholders' Agreement" means the Opco shareholders' agreement dated XXXXXXXXXX, as amended, between Opco, Exchangeco and the Management Shareholders;

"Opco" means XXXXXXXXXX, a taxable Canadian corporation that was created as a result of an amalgamation of predecessor corporations under the Business Corporations Act of XXXXXXXXXX, as described in paragraphs 6 to 9;

"OpcoII" means the corporation that will be created as a result of the amalgamation of Subco and Opco as described in paragraph 30;

"SEC" means the United States Securities and Exchange Commission;

"Series 1 Trust Notes" means the interest bearing promissory notes that may be issued by CT, as described in paragraph 41;

"Shareholder Exchange Rights" means the rights of the holders of Class A preference shares to require Exchangeco to acquire their Class A preference shares of Opco in exchange for Units;

"Special Unit" means a unit of the new class of units of the Fund, as described more fully in paragraph 23;

"Stock Exchange" means the XXXXXXXXXX Stock Exchange;

"Subco" means XXXXXXXXXX, a taxable Canadian corporation incorporated under the Business Corporations Act of XXXXXXXXXX for the purpose of carrying on the Business in XXXXXXXXXX as described more fully in paragraph 11;

"Unit" means a unit representing a beneficial interest in the Fund (other than a Special Unit);

"Unitholder" means a holder of one or more Units; and

"US Holdco" means XXXXXXXXXX, a corporation that was incorporated under the laws of XXXXXXXXXX and is described more fully in paragraph 18.

The relevant Tax Services Office for Opco is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Taxation Centre. Opco's principal office is located at XXXXXXXXXX. Its tax account number is XXXXXXXXXX.

The relevant Tax Services Office for the Fund is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Centre. The principal office of the Fund is located at XXXXXXXXXX. The tax account number for the Fund is XXXXXXXXXX.

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

Facts

1. The Fund is a "mutual fund trust" as defined in subsection 132(6) and qualifies as a "unit trust" pursuant to paragraph 108(2)(a) and was formed to acquire and hold investments in various entities that carry on the Business. The Fund has a XXXXXXXXXX taxation year-end and a XXXXXXXXXX year-end for accounting purposes.

2. The Units are listed and posted for trading on the Stock Exchange under the symbol XXXXXXXXXX. As of XXXXXXXXXX, there were XXXXXXXXXX Units of the Fund issued and outstanding. Of this, approximately XXXXXXXXXX were held by residents of Canada.

3. Pursuant to the Fund's declaration of trust, the trustee of the Fund is XXXXXXXXXX. Pursuant to an Administration Agreement with Opco dated XXXXXXXXXX, Opco acts as the administrator of the Fund.

4. The Fund's amended and restated declaration of trust provides as follows:

(a) Each Unit is transferable (subject to restrictions on certain transfers to non-residents) and represents the right to an equal interest in the portion of any distributions or other amounts payable to Unitholders;

(b) All Units are of the same class with equal rights and privileges;

(c) Each Unit entitles the holder thereof to one vote at all meetings of Unitholders;

(d) At no time may non-residents be the beneficial owners of a majority of the Units;

(e) Distributions are made on a monthly basis. Distributions are made in cash and may, under certain circumstances, be made in additional Units; and

(f) Each Unitholder is entitled to require the Fund to redeem at any time at the demand of the Unitholder for cash all or any part of the Units registered in the name of the Unitholder at a price per Unit calculated by reference to the market price of the Units, provided that the total amount payable by the Fund in respect of the Units tendered for redemption in the same calendar month will not exceed $XXXXXXXXXX. If the $XXXXXXXXXX limit is exceeded, or in certain other circumstances (for example, when the Units are not listed for trading or trading in the Units is suspended), Units tendered for redemption will, subject to regulatory approval, be redeemed by way of a distribution in specie of securities of Opco or Exchangeco held by the Fund.

5. The material assets of the Fund are:

(a) all of the issued and outstanding common shares of Opco, which shares have a paid-up capital and adjusted cost base of $XXXXXXXXXX per share, and all of the issued and outstanding Opco Notes;

(b) all of the issued and outstanding common units of CT;

(c) all of the issued and outstanding Exchangeco Shares, which shares have a paid-up capital and adjusted cost base of $XXXXXXXXXX per share;

(d) all of the issued and outstanding shares of GP Corp; and

(e) all of the issued Exchangeco Notes.

All of the property described in (a) to (e) is held by the Fund as capital property.

6. Opco is a corporation created as a result of a previous amalgamation under the Business Corporations Act of XXXXXXXXXX. It is a taxable Canadian corporation. It has a XXXXXXXXXX taxation year-end. As of XXXXXXXXXX, the issued and outstanding share capital of Opco was as follows:

(a) XXXXXXXXXX common shares held by the Fund; and

(b) XXXXXXXXXX Class A preference shares which have a paid-up capital of $XXXXXXXXXX per share and are held by the Management Shareholders as capital property. The Class A preference shares of Opco are non-voting, redeemable and entitle the holders thereof to receive non-preferential dividends, which may be declared to the exclusion of the common shares.

7. Pursuant to the Opco Shareholders' Agreement, the holders of Class A preference shares of Opco hold Shareholder Exchange Rights. The Shareholder Exchange Rights entitle a holder of Class A preference shares of Opco to receive from Exchangeco one Unit in exchange for each Class A preference share of Opco in respect of which the Shareholder Exchange Rights are exercised. The Class A preference shares of Opco represent approximately an XXXXXXXXXX% equity interest in Opco on a fully exchanged basis. Accordingly, if the Management Shareholders were to exchange all of their Class A preference shares of Opco into Units, such Management Shareholders would indirectly own XXXXXXXXXX% of the total equity of Opco.

8. The material assets of Opco are as follows:

(a) all of the issued and outstanding common shares of Subco, which shares have a paid-up capital and adjusted cost base of $XXXXXXXXXX per share;

(b) all of the XXXXXXXXXX issued and outstanding preferred units of CT;

(c) XXXXXXXXXX issued and outstanding Class A units of LP#1 and XXXXXXXXXX issued and outstanding Class B units of LP#1;

(d) XXXXXXXXXX issued and outstanding Class A units of LP#5 and XXXXXXXXXX issued and outstanding Class B units of LP#5;

(e) XXXXXXXXXX issued and outstanding common shares of Can Holdco, which shares have a paid-up capital and adjusted cost base of $XXXXXXXXXX per share; and

(f) all of the issued and outstanding shares of the Inactive Corporations.

All of the property described in (a) to (f) is held by Opco as capital property.

9. Opco has outstanding indebtedness owing to the Fund represented by the Opco Notes. The Opco Notes are interest-bearing and are due XXXXXXXXXX or such earlier or later date as the principal amount may become payable in accordance with their terms and the provisions of the related note indentures. The cost amount to the Fund of the Opco Notes is equal to their principal amount. The Opco Notes are capital property to the Fund for purposes of the Act. Opco also has outstanding indebtedness owing to Exchangeco. These notes are interest bearing and are due on XXXXXXXXXX or such earlier or later date as the principal amount may become payable in accordance with their terms and the provisions of the related note indentures. Opco does not have any material debt other than the Opco Notes, the notes payable to Exchangeco and trade debt and other accounts payable.

10. When a holder of Class A preference shares of Opco exercises his or her right under the Opco Shareholders' Agreement to exchange Class A preference shares of Opco for Units of the Fund, Exchangeco is obligated to transfer a number of Units equivalent to the number of Class A preference shares of Opco in respect of which the Shareholder Exchange Rights are exercised to that shareholder. In order to enable Exchangeco to satisfy its obligations to the holders of the Shareholder Exchange Rights, Exchangeco has a right to acquire Units from the Fund in exchange for Exchangeco Notes. The Fund's declaration of trust provides that, for Unitholder voting right purposes, each holder of Class A preference shares is treated as if such holder held the Units it would be entitled to receive upon exercise of its Shareholder Exchange Rights.

11. Subco is a taxable Canadian corporation incorporated under the Corporations Act of XXXXXXXXXX for the purpose of carrying on the Business in XXXXXXXXXX . All of the issued and outstanding shares of Subco are held by Opco. The material assets of Subco include working capital, fixed assets and customer contracts.

12. CT is an unincorporated open-ended unit trust established under the laws of XXXXXXXXXX pursuant to a trust indenture dated XXXXXXXXXX, which has subsequently been amended. Under its trust indenture, CT was created for the following purposes, among other things:

(a) investing in securities of LP#1;

(b) acquiring or investing in the securities of any other entity, including without limitation bodies corporate, partnerships or trusts, through an acquisition of assets or an acquisition of shares or other form of ownership interest and borrowing funds or otherwise obtaining credit, including the granting of guarantees, for that purpose;

(c) making loans to the Fund, GP Corp and LP#1;

(d) temporarily holding cash and investments for the purposes of paying the expenses and the liabilities of CT, making other investments as contemplated by its trust indenture and making distributions to the Fund;

(e) issuing units and rights, warrants, special warrants or other securities to purchase, to convert into or exchange into CT trust units;

(f) creating and issuing debentures, notes and other evidences of indebtedness, whether secured or unsecured, and repaying such indebtedness;

(g) borrowing funds, incurring indebtedness or otherwise obtaining credit for the purposes, directly or indirectly set forth in paragraphs (a) through (f) above and repaying such borrowings;

(h) paying costs, fees and expenses associated with the foregoing purposes or incidental thereto; and

(i) engaging in activities ancillary or incidental to those activities set forth in paragraphs (a) through (h) above.

All the issued and outstanding common units of CT are held by the Fund and all of the preferred units of CT are held by Opco. The only material assets of CT are XXXXXXXXXX Class A units of LP#1 and XXXXXXXXXX Class A units of LP#5, which are held as capital property.

13. LP#1 is a Canadian partnership as defined in subsection 102(1). Opco, as a limited partner of LP#1, holds XXXXXXXXXX Class A units and XXXXXXXXXX Class B units. CT, the other limited partner of LP#1, holds XXXXXXXXXX Class A units. GP Corp, the general partner of LP#1, holds one Class A unit. A holder of Class B units is entitled to a preferred rate of return. Class A unitholders are entitled to distributions once the Class B preferred return has been paid. LP#1 holds a XXXXXXXXXX % limited partnership interest in each of LP#3, LP#2 and LP#6. Each such limited partnership is engaged in the Business in its respective geographical area.

14. LP#5 is a Canadian partnership as defined in subsection 102(1). Opco, as a limited partner of LP#5, holds XXXXXXXXXX Class A units and XXXXXXXXXX Class B units. CT, the other limited partner of LP#5, holds XXXXXXXXXX Class A units. GP Corp, the general partner of LP#5, holds 1 Class A unit. A holder of Class B units is entitled to a preferred rate of return. Class A unitholders are entitled to distributions once the Class B preferred return has been paid. LP#5 holds all of the contracts associated with the XXXXXXXXXX business and certain other related fixed assets and working capital. LP#5 also owns XXXXXXXXXX issued and outstanding common shares of Can Holdco which shares have a paid-up capital and adjusted cost base of $XXXXXXXXXX per share.

15. The taxation year of each of CT and the partnerships referred to above ends on XXXXXXXXXX of each year. The taxation year of each corporation mentioned above is XXXXXXXXXX except Opco and Exchangeco which have a XXXXXXXXXX taxation year.

16. GP Corp is a corporation that was incorporated under the Business Corporations Act of XXXXXXXXXX on XXXXXXXXXX and is a taxable Canadian corporation all the issued and outstanding shares of which are held by the Fund. GP Corp is the general partner of LP#1, LP#2, LP#3, LP#5 and LP#6. GP Corp holds one Class A unit of LP#1, one Class A unit of LP#5 and a XXXXXXXXXX % partnership interest in each of LP#2, LP#3 and LP#6. The board of directors of GP Corp consists of XXXXXXXXXX persons, none of whom is a trustee of the Fund. The board of directors of GP Corp has the powers and authority to manage the business and affairs of GP Corp and GP Corp administers, manages, controls and operates the business of LP#1, LP#2, LP#3, LP#5 and LP#6. The partnership agreements of each of LP#1, LP#2, LP#3, LP#5 and LP#6 do not permit any limited partner to exercise any management or control over the partnership described in that partnership agreement. GP Corp is also the trustee of CT.

17. Can Holdco is a taxable Canadian corporation incorporated under the Business Corporations Act of XXXXXXXXXX on XXXXXXXXXX. Opco owns XXXXXXXXXX shares of Can Holdco, which have an adjusted cost base to the holder and paid-up capital of $XXXXXXXXXX per share, are held by Opco. The remaining XXXXXXXXXX issued and outstanding shares of Can Holdco are owned by LP#5. Can Holdco currently holds XXXXXXXXXX% of the shares of US Holdco and is otherwise inactive.

18. US Holdco is not resident in Canada for purposes of the Act. US Holdco holds all of the issued and outstanding shares of XXXXXXXXXX corporations, none of which are resident in Canada for purposes of the Act. Each such corporation was established for the purpose of carrying on the Business in a specific region of the United States. Currently, approximately XXXXXXXXXX% of the consolidated revenue of the group of entities that are owned directly or indirectly by the Fund is derived from the United States. Management intends to expand the Business in both the United States and Canada such that the proportion of consolidated revenues that arise in the United States may differ in the future.

19. A Management Information Circular was prepared in contemplation of a meeting of Unitholders to, among other things, approve the proposed transactions. Such approval was obtained on XXXXXXXXXX at the Fund's annual general meeting. As described below in paragraph 34, the Unitholders who are resident in Canada will receive Class B shares of Newco under the proposed transactions. Although there is no legal requirement for this document to be accepted by the XXXXXXXXXX, the Stock Exchange or any other public authority in Canada, the Management Information Circular was filed with the XXXXXXXXXX and the Stock Exchange.

Proposed Transactions

20. In anticipation of the rulings herein being granted, Subco will be continued under the Business Corporations Act of XXXXXXXXXX.

21. Newco will be incorporated under the Business Corporations Act of XXXXXXXXXX and will be a taxable Canadian corporation. The charter documents of Newco will state that its only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of subsection 131(8). The issued and outstanding capital of Newco will consist of three classes of shares:

(a) The common shares will, subject to the Business Corporations Act of XXXXXXXXXX:

(i) entitle the holder thereof to one vote in respect of each common share on all matters to be voted on at all meetings of shareholders;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of Class B shares of Newco or Class C Shares of Newco; and

(iii) on the liquidation, dissolution or winding-up of Newco, subject to the rights of the holders of any other class of shares of Newco entitled to receive assets of Newco upon such a distribution in priority to or rateably with the holders of the common shares of Newco, entitle the holder thereof to share rateably in any remaining assets of Newco;

(b) The Class B shares of Newco will, subject to the Business Corporations Act of XXXXXXXXXX:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of common shares or Class C shares of Newco;

(iii) be redeemable at the option of Newco without notice to the holders thereof for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Units;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for a redemption amount of $XXXXXXXXXX per share plus all declared and unpaid dividends to the date of payment, which redemption amount may be paid in Units; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of Newco will be distributed to the holders of common shares of Newco, or any shares ranking junior to the common shares of Newco;

(c) The Class C shares of Newco will, subject to the Business Corporations Act of XXXXXXXXXX:

(i) be non-voting;

(ii) entitle the holder thereof to receive dividends if, as and when declared by the board of directors of Newco, and to the exclusion of holders of common shares or Class B shares;

(iii) be redeemable at the option of Newco without notice to the shareholders thereof for an aggregate redemption amount equal to the fair market value of any consideration paid by the holder to Newco to acquire the Class C shares plus all declared and unpaid dividends to the date of payment, which aggregate redemption amount may be paid in Special Units;

(iv) be redeemable at the option of the holder upon not less than XXXXXXXXXX business days prior written notice to Newco for an aggregate redemption amount equal to fair market value of any consideration paid by the holder to Newco to acquire the Class C shares plus all declared and unpaid dividends to the date of payment, which aggregate redemption amount may be paid in Special Units; and

(v) on the liquidation, dissolution or winding-up of Newco, entitle the holder thereof to receive the aggregate redemption amount before any amount will be paid or any assets of Newco will be distributed to the holders of common shares, or any shares ranking junior to the common shares.

The Class B shares and Class C shares of Newco will rank equally with one another with respect to priority in the event of liquidation, dissolution or winding-up. As stated in paragraph 35, the Fund will transfer all of its OpcoII common shares and Opco Notes to Newco such that the redemption amount of the Class C shares will be equal to the total fair market value of the OpcoII common shares and Opco Notes on the date that they are transferred to Newco by the Fund. At all times following the issuance of the Class B shares of Newco, the fair market value of the issued shares of Newco that are retractable in accordance with the provisions described in this paragraph will be at least 95% of the fair market value of all of the issued shares of Newco.

22. Following the incorporation of Newco, the Fund will subscribe for XXXXXXXXXX common shares of Newco for a cash payment of $XXXXXXXXXX.

23. The Fund's declaration of trust will be amended to permit the issuance of a second class of units to be designated as "Special Units", which will be identical to the Units in all but one respect. The declaration of trust currently provides that a Unitholder who tenders Units for redemption in one month is entitled to be paid the redemption price on the last day of the following month if the redemption price is paid in specie or on or before the last day of the month following the quarter in which the tender occurred if the redemption price is paid in cash. The Special Units instead will be redeemed within two days of the demand for redemption.

24. The Fund's declaration of trust will also be amended in respect of redemptions that are to be satisfied by a payment other than cash. As described in paragraph 4, under certain circumstances the Unit redemption price may be paid in certain shares or notes of Opco. Since it is desired to gradually shift the value of the business to CT over time, the Fund's declaration of trust will be amended to provide that where the redemption of Units is not paid in cash, each Unit tendered for redemption will be redeemed by way of a distribution in specie of Series 1 Trust Notes issued by CT.

25. Other amendments will be made to the Fund's declaration of trust in order to permit the proposed transactions to take place. Notwithstanding that all Units have equal rights and privileges as stated in paragraph 4, an amendment will be made to permit the distribution to Unitholders resident in Canada where non-resident Unitholders are not prejudiced by such distribution. The provision dealing with the consolidation of Units will also be amended to a permit a consolidation under the circumstances described in paragraph 40; and such other amendments will be made as may be necessary or appropriate to complete the proposed transactions. In addition, certain other amendments will be made at the same time to the Fund's declaration of trust that are unrelated to the proposed transactions which relate to general housekeeping matters.

26. GP Corp and Subco will form LP#4, a new limited partnership. GP Corp will be the general partner and will hold a nominal amount of general partner units in LP#4. Subco will be the sole limited partner of LP#4.

27. Subco will transfer to LP#4 all of its assets in exchange for:

(a) the assumption by LP#4 of all liabilities of Subco (other than liabilities of Subco in respect of liabilities that cannot be assumed, such as tax liabilities), including bank debt, if any; and

(b) limited partnership units of LP#4 having a fair market value equal to the excess of the fair market value of the Subco assets contributed over the amount of liabilities assumed under (a) above.

28. Subco, in its capacity as transferor, and GP Corp and Subco, as partners in LP#4, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsection 96(4) or 96(5) with respect to the transfer of the LP#4 contribution. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

29. All of the following steps will occur in sequence listed below and in such manner that once the first step is taken all other steps must also be completed.

30. Subco and Opco will undertake a vertical short-form amalgamation to form OpcoII, which amalgamation will be governed by the provisions of section 87 including subsection 87(1.1). OpcoII will be obliged to honour the Opco Notes.

31. OpcoII will transfer the LP#5 Contribution to LP#5 for the following consideration:

(a) the assumption by LP#5 of all liabilities of OpcoII (other than the liabilities of OpcoII in respect of the Opco Notes and liabilities of OpcoII that cannot be assumed, such as tax liabilities), including bank debt; and

(b) Class B units of LP#5 having a fair market value equal to the excess of the fair market value of the LP#5 Contribution over the amount of the liabilities assumed under (a) above.

32. OpcoII, in its capacity as transferor, and OpcoII, CT and GP Corp, as partners in LP#5, will jointly elect under subsection 97(2), in prescribed form and within the time determined under subsection 96(4) or 96(5) with respect to the transfer of the LP#5 Contribution. The elected amount for purposes of the election will be within the limits prescribed by paragraph 97(2)(a), which cross-refers to the provisions of paragraphs 85(1)(a) to (f).

33. The Fund will subscribe for that number of Newco Class B shares as is equal to the number of its issued and outstanding Units held by residents of Canada in consideration for a cash payment of $XXXXXXXXXX per Newco Class B share. Based on the number of Units currently issued and outstanding, the total subscription price payable by the Fund would be approximately $XXXXXXXXXX.

34. The Fund will undertake a return of capital in respect of some of its Units by distributing one Class B share of Newco for each Unit to each Unitholder resident in Canada. The distribution of the Class B shares of Newco to the Unitholders will comply with provincial securities legislation and regulations. Newco will apply for and obtain a listing on the Stock Exchange in respect of its Class B shares such that Newco will be a public corporation as defined in paragraph (a) of the definition of "public corporation" in subsection 89(1), although such shares will not appear on the Stock Exchange's publicly disseminated trading list because the shares will be redeemed before the next trading list is published.

35. All accrued interest on the Opco Notes will be paid. The Fund and Newco will then enter into an agreement of purchase and sale under which the Fund will transfer the OpcoII common shares and the Opco Notes 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 XXXXXXXXXX Class C shares of Newco to the Fund. The aggregate redemption amount of the Newco Class C shares will equal the total fair market value of the OpcoII common shares and Opco Notes on the date that they were transferred to Newco by the Fund, as determined based on the trading value of the Units at that time. The Fund and Newco will jointly elect under subsection 85(1), in prescribed form and within the time determined under subsection 85(6) or 85(7), with respect to the transfer of the OpcoII common shares and the Opco Notes. The elected amount for purposes of the election for each property transferred will be within the limits prescribed by paragraphs 85(1)(c) and (c.1).

36. Newco and OpcoII will undertake a long-form amalgamation to form Amalco, which amalgamation will be governed by the provisions of section 87, including paragraph 87(2)(ii). The amalgamation agreement in relation to the amalgamation will provide that:

- the authorized share capital of Amalco shall be the same as the authorized share capital of Newco except that the authorized share capital of Amalco will also include Class A preference shares, with terms and conditions identical to the Class A preference shares of OpcoII;

- the aggregate stated capital of the issued shares of Amalco shall be the aggregate of the stated capital of Newco and OpcoII immediately prior to the amalgamation;

- the property of each of Newco and OpcoII shall continue to be the property of Amalco;

- Amalco shall continue to be liable for the obligations of Newco and OpcoII;

- the articles of amalgamation shall be the same as the articles of incorporation of Newco and the certificate of amalgamation shall be deemed to be the certificate of incorporation of Amalco; and

- the by-laws of Newco shall be the by-laws of Amalco until repealed, altered or amended and will state that Amalco's only undertaking will be the activities described in subparagraphs (i), (ii) and (iii) of paragraph 131(8)(b).

Each Management Shareholder will receive one Class A preference share of Amalco on the amalgamation of Newco and OpcoII for each Class A preference share of OpcoII that the Management Shareholder surrenders upon amalgamation.

37. Amalco will transfer approximately XXXXXXXXXX% of its Class A and Class B units of LP#5, approximately XXXXXXXXXX% of its issued and outstanding preferred units of CT, approximately XXXXXXXXXX% of its Class A and Class B units of LP#1, approximately XXXXXXXXXX % of its limited partnership units in LP#4 and the cash received for the subscription of the Class B shares of Newco to the Fund solely in exchange for:

(a) that number of Units having an aggregate fair market value equal to the redemption amount of the Class B shares of Amalco, and

(b) that number of Special Units having an aggregate fair market value equal to the total fair market value of the OpcoII common shares and Opco Notes on the date that they were transferred to Newco by the Fund, as determined based on the trading value of the Units at that time.

The actual percentages transferred will be determined based on the actual number of Class A preference shares of Amalco outstanding and Units outstanding at the Asset Transfer Time but in no case will less than XXXXXXXXXX% of Amalco's assets be transferred to the Fund.

38. Subsequent to this transfer, Amalco will have the following assets:

(i) the $XXXXXXXXXX of cash subscription proceeds received by Newco (a predecessor of Amalco) on the issuance of the common shares of Newco,

(ii) the cash that remained in OpcoII (a predecessor of Amalco) to cover any liabilities that cannot be assumed, such as tax liabilities,

(iii) XXXXXXXXXX Class A units and XXXXXXXXXX Class B units of LP#5 plus XXXXXXXXXX% of the Class B units of LP#5 issued in paragraph 31,

(iv) XXXXXXXXXX preferred units of CT,

(v) XXXXXXXXXX Class A units and XXXXXXXXXX Class B units of LP#1, and

(vi) XXXXXXXXXX% of the limited partnership units issued by LP#4 in paragraph 27. The Fund and Amalco will jointly file an election in prescribed form and within the prescribed time in respect of the transfer pursuant to paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2). No election will be filed in respect of the transfer pursuant to clause 132.2(1)(c)(ii)(B).

39. Amalco will redeem all its outstanding Class B shares in exchange for Units and all of its Class C shares in exchange for Special Units, acquired by Amalco in the immediately preceding transaction. The Special Units received by the Fund on the redemption of the Class C shares of Amalco will be immediately cancelled and, consequently, no Special Units will remain outstanding. No consideration other than Units will be received by the Unitholders on the redemption of the Class B Shares of Amalco. No consideration other than Special Units will be received by the Fund on the redemption of Class C shares of Amalco.

40. The outstanding Units held by residents of Canada will be consolidated on a basis such that the number of Units outstanding following such consolidation will be equal to the number of Units that were outstanding immediately before the proposed transactions were undertaken.

41. Series 1 Trust Notes will be reserved by CT to be issued exclusively as full or partial payment of the redemption price of the CT units. The Series 1 Trust Notes issued by CT to the Fund would, in turn, be distributed by the Fund in satisfaction of the redemption price of Units in the event in which a Unitholder is entitled to in specie redemption, as described in paragraph 4.

42. Amalco and GP Corp will undertake a vertical short-form amalgamation to form Amalco GP, which amalgamation will be governed by the provisions of section 87. Amalco GP will become the general partner of all of the partnerships in the group. The Management Shareholders will hold Class A preferred shares of Amalco GP, while the Fund will hold all the common shares of Amalco GP. The board of directors of Amalco GP consists of XXXXXXXXXX persons, none of whom will be a trustee of the Fund. The board of directors of Amalco GP will have the power and authority to manage the business and affairs of Amalco GP and Amalco GP will administer, manage, control and operate the business of LP#1, LP#2, LP#3, LP#4, LP#5 and LP#6. The partnership agreements of each of LP#1, LP#2, LP#3, LP#4, LP#5 and LP#6 do not permit any limited partner to exercise any management or control over the partnership described in that partnership agreement. Amalco GP will also be the trustee of CT.

Purpose of the Proposed Transactions

General Purpose

43. The objective of the proposed transactions as a whole is to reorganize the current organizational structure of the Fund and its subsidiaries into a structure that is suited to the profitable, expansionary stage that has been reached by the Business carried on by Opco and other entities in which the Fund holds investments, and protects Unitholder expectations regarding returns on their investment in the Fund. Due to the success of the Business, the Fund expects in the near future to have excess funds available to fund additional strategic investments. In order to maximize cash distributions to Unitholders, the Fund anticipates making such investments through CT. Maintaining both CT and the existing holding corporation would, however, result in unnecessary administrative cost and effort. Consequently, the business purposes would be best met by replacing the current holding company structure with a trust-and-partnership structure.

Distribution of Newco Class B shares by the Fund to Unitholders resident in Canada only

44. Any offering of securities in the United States or to United States residents requires registration of the securities with the SEC pursuant to the 1933 US Act unless an exemption from registration is available. As such an exemption is not available in the context of the proposed reorganization of the Fund, this would in general terms require, among other things, that Newco file with the SEC a registration statement or equivalent document in respect of the Class B shares containing detailed disclosure with respect to Newco including audited financial statements prepared in accordance with, or reconciled to, United States generally accepted accounting principles. The disclosure required and regulatory review process is similar to that involved in the preparation and filing of a prospectus in Canada but must comply with the 1933 US Act and the rules and procedures of the SEC. This registration statement or similar document must be reviewed and approved by the SEC, a process that can take several months. A similar process would have to be undertaken by the Fund to register the Units to be issued on the redemption of the Class B shares. In addition to SEC filing fees, the Fund and Newco would be required to retain various United States legal and accounting advisors and incur associated expenses which could easily equal or exceed the total value of the Class B Shares to be issued to the Unitholders.

45. While it is possible, in some cases, to use a Canadian resident trustee to take title to the shares to avoid the onerous SEC requirements, the SEC will generally not permit the use of a nominee in circumstances where the level of ownership by residents of the United States of the trust is as significant as it is for the Fund. Based on discussions with SEC officials, your United States securities counsel has advised you that the SEC will not permit such a technique to be utilized where more than 11% of the relevant class of securities are held by security holders resident in the United States. At present, residents of the United States hold in excess of XXXXXXXXXX% of the outstanding units of the Fund.

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, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given, 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. Provided that

(a) 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) at the Asset Transfer Time;

(b) the property transferred by Amalco to Fund as described in paragraph 37 has a fair market value of at least 90% of the fair market value of all property owned by Amalco at the Asset Transfer Time; and

(c) Amalco and the Fund jointly elect under paragraph (c) of the definition of "qualifying exchange" in subsection 132.2(2) by filing the prescribed form within the time set forth in that subsection;

the transfer of assets by Amalco to Fund as described in paragraph 37 will constitute a "qualifying exchange" within the meaning of subsection 132.2(2) such that provisions of subsection 132.2(1) will apply to:

(d) the transfer of the property described in paragraph 37 from Amalco to the Fund;

(e) the redemption of the Amalco Class B shares and Amalco Class C shares by Amalco as described in paragraph 39 above.

C. Section 253.1 will apply such that the Fund will not, solely because of its acquisition and holding of the Class A and Class B units of LP#5 or the Class A and Class B units of LP#1, be considered to carry on any business or other activity of LP#5 or LP#1.

D. Subsection 245(2) will not apply to re-determine the tax consequences described above, solely as a result of the proposed transactions described herein.

Nothing in this advance income tax ruling should be construed as implying that we are ruling on any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above. More particularly, no ruling is provided herein with respect to:

(a) the GST implications of any of the proposed transactions;

(b) the qualification of the Fund as a "mutual fund trust" within the meaning of subsection 132(6);

(c) the qualification of Newco or Amalco as a "mutual fund corporation" within the meaning of subsection 131(8);

(d) the tax consequences related to the consolidation of units as described in paragraph 40 above;

(e) the fair market value or adjusted cost base of any property referred to herein, or the paid-up capital of any shares referred to herein.

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 proposed transactions 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.

Opinion

Bill C-33, which received first reading in the House of Commons on November 22, 2006, proposes to introduce several substantive improvements to the rules in section 132.2 and to restructure the provision as a whole. In addition, we understand that the Department of Finance issued a letter dated February 14, 2006 (the "Comfort Letter"), indicating that it was prepared to recommend further amendments to the Minister of Finance in respect of section 132.2 to clarify that the time period in which the proceeds of disposition of units of the transferee or shares of the transferor would be determined under proposed paragraph 132.2(3)(f) or (g) includes the time that is immediately after the "transfer time" as that term is defined in the proposed amendments to subsection 132.2(1). Provided that paragraphs 132.2(3)(f) and (g) are amended in the manner suggested in the Comfort Letter and the conditions set out in ruling B are met in respect of the proposed transactions, it is our view that the proposed transactions described in paragraphs 37 to 39 above would qualify as a qualifying exchange within the meaning of proposed subsection 132.2(1).

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Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch