2014-0518511R3 Supp ruling to 2013-049273

Principal Issues: mutual fund reorganization - changes to original ruling to deal with circularity of holdings when performing qualifying exchange

Position: changes to original ruling avoid circularity

Reasons: agency agreement put in place so that cross-ownership is avoided

Author: XXXXXXXXXX
Section: 132.2; 122.1

XXXXXXXXXX
                                                                                                                                                         2014-051851

XXXXXXXXXX, 2014

Dear XXXXXXXXXX

Re:   Supplementary Advance Income Tax Ruling
         XXXXXXXXXX

We are writing in response to your submission of XXXXXXXXXX which requested that changes be made to the advance income tax ruling 2013-049273 dated XXXXXXXXXX, 2013 (the "Ruling").

Further to your request, the Ruling is amended as follows:

1.    The definition of "GP II Inc.” is amended as follows:
“GP II Inc.” means XXXXXXXXXX, a corporation incorporated under the BCA, and the general partner of LP II, owning a nominal general partner interest in LPII.

2.    The definition of “MFT Unitholder” is included as follows:
“MFT Unitholder” means a holder of a MFT Unit.

3.    The definition of “Sub Trust” is amended as follows:
“Sub Trust” means XXXXXXXXXX, an unincorporated open-ended trust established under the laws of the Province of XXXXXXXXXX.

4.    Paragraph 7 is amended to revise the reference to XXXXXXXXXX% to XXXXXXXXXX%.

5.    Paragraph 14 is replaced with the following:
      Sub Trust has XXXXXXXXXX trustees who are resident in Canada.
6.    Paragraph 15 is replaced with the following:
Sub Trust currently owns cash, all of the issued and outstanding shares of GP Inc., GP II Inc. and GP III Inc. and, with the exception of one unit of each that is owned by the Fund, all of the issued and outstanding LP Class A Units, LP II Class A Units and LP III Class A Units.

7.    Paragraph 24 is amended to insert the words “prior to the distribution of MFT Units described in paragraphs 27 to 29 below and” after the word “immediately” in the second line, so that paragraph 24 will read as follows:
      Pursuant to an agreement to be entered into between Sub Trust and MFT, immediately prior to the distribution of MFT Units described in paragraphs 27 to 29 below and prior to Transfer Time (the point in time at which the transfer of the assets described in paragraph 32 will occur and for greater certainty, will be the transfer time referred to in the definition of “qualifying exchange” in subsection 132.2(1)), Sub Trust will transfer all of the cash, LP Class A Units, LP II Class A Units, LP III Class A Units and the shares of GP Inc., GP II Inc. and GP III Inc. it owns to MFT for no consideration. MFT will file a written election with the Minister of National Revenue within the time period specified in subparagraph (f)(v) of the definition of “disposition” in subsection 248(1) that paragraph (f) will not apply to the transfer.

8.    Paragraph 30 is amended to replace the words “paragraphs 28 and 29” in the first line with “paragraphs 27 to 29”.

9.    Paragraph 32 is deleted and replaced with the following:
Pursuant to the terms and conditions of a transfer agreement entered into between the Fund, MFT and an agent acting on behalf of the holders of the MFT Units:
(a)   MFT will transfer all of the cash, LP Class A Units, LP II Class A Units, LP III Class A Units and the shares of GP Inc., GP II Inc. and GP III Inc. it acquired in paragraph 24 above to the Fund at the Transfer Time; and
(b) as consideration for the transfer, the Fund will agree to issue Fund Units having an aggregate FMV equal to the aggregate FMV of the assets transferred to the Fund to MFT Unitholders in satisfaction of their entitlement to the redemption price in respect of the redemption of their MFT Units.  Specifically,
i.    at the Transfer Time, the Fund will issue Fund Units having an aggregate FMV equal to the aggregate FMV of the assets transferred to the Fund to the agent;
ii.   upon the redemption of the MFT Units, the agent will transfer the Fund Units it holds to the MFT Unitholders in satisfaction of their entitlement to the redemption price for the MFT Units that are redeemed; and
iii.  immediately after the Transfer Time, MFT will redeem all of the issued and outstanding MFT Units held by the Fund and the other MFT Unitholders except for one MFT Unit which the Fund will continue to hold until the winding-up of MFT described in paragraph 39 below. No consideration other than the Fund Units will be received by the Fund and the other MFT Unitholders on the redemption of the MFT Units.

10.   Paragraph 35 is deleted and replaced with the phrase "[Intentionally deleted]”.

11.   Paragraph 36 is amended to replace the reference to “paragraph 35” with “paragraph 32”.

12.   Paragraph 37 is amended to replace the reference to “paragraph 35” with “paragraph 32”.

We confirm that the changes described above will not affect the Ruling, which will continue to be binding on the CRA within the limitations set out therein and provided that the Proposed Transactions as amended herein are completed within six months from the date of this letter.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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