2015-0572761R3 Qualifying Environmental Trusts for Pipelines

Principal Issues: 1. Whether the proposed Trust meets the definition of a “qualifying environmental trust” in subsection 211.6(1) of the Act. 2. Whether contributions made by the taxpayers to the Trust will be deductible in computing taxpayers' income pursuant to paragraph 20(1)(ss) of the Act. 3. Whether ETFs (Exchange Traded Funds) organized as trusts and traded on a designated stock exchange will be a “prohibited investment” of the QET as that term is defined in subsection 211.6(1). 4. Whether Government of Canada bonds and Treasury Bills will be a “prohibited investment” of the Trust as that term is defined in subsection 211.6(1).

Position: 1. Yes; 2. Yes, provided that the Trust is a QET at the time of the contribution; 3. No.

Reasons: Legislative text.

Author: XXXXXXXXXX
Section: 211.6, 20(1)(ss)

XXXXXXXXXX                                                                                                                    2015-057276

XXXXXXXXXX, 2015

Dear XXXXXXXXXX,

Re.: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to the letter dated XXXXXXXXXX requesting an advance income tax ruling on behalf of XXXXXXXXXX. We have also received XXXXXXXXXX letter requesting that XXXXXXXXXX, in its capacity as a trustee as described above, be part of this advance income tax ruling.

To the best of your knowledge and that of the taxpayers involved, none of the issues contained in this ruling is:

(a)   in a previously filed income tax return of any of the taxpayers or a related person;

(b)   being considered by a Tax Services Office or a tax centre in connection with a previously filed income tax return of any of the taxpayers or a related person;

(c)   under objection by any of the taxpayers or a related person;

(d)   before the courts; or

(e)   the subject of a ruling previously issued by the Income Tax Rulings Directorate involving any of the taxpayers or a related person.

Unless otherwise stated, all statutory references are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended to the date of this letter (the “Act”), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition.

DEFINITIONS

In this letter, the following terms or expressions have the meanings specified:

“ACo” means XXXXXXXXXX, carrying on business as XXXXXXXXXX;

“ACo XXXXXXXXXX Trust Agreement” means the trust agreement entered into by the Trustee and ACo on XXXXXXXXXX and approved by the NEB on XXXXXXXXXX, the relevant terms of which are summarized in paragraph 13 below;

“ACo Pipeline 1” means “Pipeline” as defined in the ACo XXXXXXXXXX Trust Agreement and means the ACo XXXXXXXXXX;

“ACo Pipeline 2” means “Pipeline” as defined in the ACo XXXXXXXXXX Trust Agreement and means the ACo XXXXXXXXXX; 

“ACo Pipeline 1 Site” means “Site” as defined in the ACo XXXXXXXXXX Trust Agreement and means the location or locations in Canada used by ACo for the operation of the ACo Pipeline 1;

“ACo Pipeline 2 Site” means “Site” as defined in the ACo XXXXXXXXXX Trust Agreement and means the location or locations in Canada used by ACo for the operation of the ACo Pipeline 2;

“ACo Reclamation Trust 1” means the discretionary trust settled under the ACo XXXXXXXXXX Trust Agreement;

“ACo Reclamation Trust 2” means the discretionary trust settled under the ACo XXXXXXXXXX Trust Agreement;

“ACo XXXXXXXXXX Trust Agreement” means the trust agreement entered into by the Trustee and ACo on XXXXXXXXXX and approved by the NEB on XXXXXXXXXX, the relevant terms of which are summarized in paragraph 15 below;

“Annual Contribution Amount” in respect of the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 and the BCo Reclamation Trust means “Annual Contribution Amount” as defined in each trust agreement and means separate and identifiable charges for transportation services with respect to the ACo Pipeline 1, the ACo Pipeline 2 or the BCo Pipeline (respectively) that the NEB will require shippers or ACo or BCo (as the case may be) to pay and that the NEB will require to be contributed by ACo or BCo to the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 or the BCo Reclamation Trust (as the case may be);

“affiliated persons” or “persons affiliated with each other” has the meaning assigned to that phrase in section 251.1; 

“BCo” means XXXXXXXXXX;

“BCo Pipeline” means “Pipeline” as defined in the BCo Trust Agreement and means XXXXXXXXXX;

“BCo Pipeline Site” means “Site” as defined in the BCo Trust agreement and means the location or locations in Canada used by BCo for the operation of the BCo Pipeline;

“BCo Reclamation Trust” means the discretionary trust settled under the BCo Trust Agreement;

“BCo Trust Agreement” means the trust agreement entered into by the Trustee and BCo on XXXXXXXXXX and approved by the NEB on XXXXXXXXXX, the relevant terms of which are summarized in paragraph 17 below;

“Beneficiaries of the ACo Reclamation Trust 1” means “Beneficiary” as defined in the ACo XXXXXXXXXX Trust Agreement and means the person or persons, including ACo, having Reclamation Obligations in respect of the ACo Pipeline 1 Site;

“Beneficiaries of the ACo Reclamation Trust 2” means “Beneficiary” as defined in the ACo XXXXXXXXXX Trust Agreement and means the person or persons, including ACo, having Reclamation Obligations in respect of the ACo Pipeline 2 Site;

“Beneficiaries of the BCo Reclamation Trust” means “Beneficiary” as defined in the BCo Trust Agreement and means the person or persons, including BCo, having Reclamation Obligations in respect of the BCo Pipeline Site;

“Company” means “Company” as defined in the ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement (as the case may be) and means the person holding the regulatory authorization(s) to operate the applicable Pipeline at the relevant time, whether on its own behalf or on behalf of one or more persons, and for greater certainty, the initial Company for the purposes of this ruling is ACo or BCo (as the case may be);

“designated stock exchange” has the meaning assigned to that phrase in subsection 248(1);

“ETF” means a trust the securities of which are listed on a designated stock exchange and that holds assets that are intended to track the performance of an index or provide exposure to a certain class of assets, and may include securities issued by a person or partnership that is related to or affiliated with a contributor to, or is related to or affiliated with: Beneficiaries of the ACo Reclamation Trust 1, Beneficiaries of the ACo Reclamation Trust 2 and Beneficiaries of the BCo Reclamation Trust;

“Fund” or “Funds” means “Fund” as defined in the ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement (as the case may be) and means collectively (i) all property (including money) held from time to time by the Trustee, in accordance with the applicable ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement or the BCo Trust Agreement, including without limitation, all property originally conveyed to the Trustee pursuant to such agreements and all subsequent contributions paid to the Trustee under any section of such agreements, and (ii) any interest or other return generated by the investment of such property and excluding all amounts properly paid or disbursed therefrom pursuant to such agreements;

“NEB” means the National Energy Board, a board established under the National Energy Board Act, R.S.C. 1985, c. N-7, as amended, or any successor administrative body having authority to regulate ACo and BCo in respect of the operation and abandonment of the Pipelines;

“NEB MH-001-2013 Decision” means the NEB Reasons for Decision MH-001-2013 Set-aside and Collection Mechanisms, dated May 2014;

“Orphan Pipeline Fund” means a not-for-profit corporation that will be established pursuant to a statute of the Parliament of Canada and will maintain funds for the purpose of funding the reclamation of abandoned pipelines in Canada consistent with the NEB MH-001-2013 Decision;

“Pipeline” or “Pipelines” means each or all of ACo Pipeline 1, ACo Pipeline 2 and BCo Pipeline as described herein;

“qualifying environmental trust” or “QET” has the meaning assigned to that term in subsection 211.6(1);

“Qualified Investments” means all or any of those investments that from time to time are qualified investments for a qualifying environmental trust (being, as of the date hereof, only those types of property described in each of paragraphs (a), (b), (c), (c.1), (d) and (f) of the definition of “qualified investment” in section 204) and that are not a “prohibited investment” as this term is defined in subsection 211.6(1);

“Reclamation Obligations” means “Reclamation Obligations” as defined in the ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement (as the case may be) and means with respect to a particular Pipeline, the duty to:

      (a) carry out the physical abandonment, decommissioning or deactivation of the Pipeline, within the meanings ascribed to these terms by the National Energy Board Onshore Pipeline Regulations (SOR/99-294) or National Energy Board Processing Plant Regulations (SOR/2003-39) as applicable and as amended from time to time, including costs incurred to satisfy any conditions imposed by the NEB in any order or direction approving such decommissioning or deactivation of the Pipeline or granting leave to abandon the Pipeline;

      (b) develop an abandonment plan with respect to the Pipeline, and to prepare an application for leave to abandon or for approval of the deactivation or decommissioning of the Pipeline; and

      (c) carry out post-abandonment monitoring and remediation of the Pipeline site, where post-abandonment refers to the period of time after the conditions of an order or direction issued by the NEB granting leave to abandon have been satisfied;

and all costs incurred and consequent thereon;

“related persons” or “persons related to each other” has the meaning assigned to that phrase in subsection 251(2);

“significant interest” has the meaning ascribed in subparagraph (b)(iii) of the definition of “prohibited investment” in subsection 211.6(1) and the meaning assigned by subsection 207.01(4) with the modifications that the circumstances require;

“Statement of Investment Policy and Procedures” means the written statement of investment policies and procedures approved by the Company in respect of the Fund’s portfolio of investments and loans that sets out broad policies and procedures for investment of the Fund;

“TSO” means the Tax Service Office;

“taxable Canadian corporation” has the meaning assigned by subsection 89(1); and

“Trustee” means “Trustee” as defined in the applicable ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement and means XXXXXXXXXX, and any other trust company that accepts the appointment as a trustee of the Fund, provided that throughout the time a Trustee is appointed under the ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement or the BCo Trust Agreement (as the case may be), it is a trust company that is: (i) licensed under the Trust and Loan Companies Act (Canada) (S.C. 1991, c. 45); (ii) a corporation resident in Canada for the purposes of the Act, and (iii) authorized under the laws of Canada or a province to carry on in Canada the business of offering other public services as a trustee. 

Our understanding of the statement of facts, proposed transactions and additional information is as follows:

STATEMENT OF FACTS

Background

1.    In May 2009, the NEB issued the Reasons for Decision RH-2-2008 Land Matters Consultation Initiative Stream 3 in which it set out principles, a framework and a five-year action plan, with the goal of having all NEB-regulated pipeline companies begin to set aside funds to cover the costs of pipeline abandonment.

2.    In May 2014, the NEB issued the NEB MH-001-2013 Decision. Among other things, the NEB supported pipeline companies to pursue and maintain a tax-efficient approach, including the use of a trust that complies with the QET provisions of the Act.

3.    Each of ACo and BCo is a subsidiary indirectly owned by XXXXXXXXXX, a corporation XXXXXXXXXX resident in XXXXXXXXXX and whose stock is traded on the XXXXXXXXXX.

4.    ACo is a taxable Canadian corporation. The address of its head office is XXXXXXXXXX. Its business number is XXXXXXXXXX, its TSO is XXXXXXXXXX and it files its T2 Corporation Income Tax Return with the XXXXXXXXXX Tax Centre.

5.    BCo is a taxable Canadian corporation. The address of its head office is XXXXXXXXXX. Its business number is XXXXXXXXXX, its TSO is XXXXXXXXXX and it files its T2 Corporation Income Tax Return with the XXXXXXXXXX Tax Centre.

6.    ACo and BCo include all revenues and expenses related to their respective Pipelines in their financial statements and tax returns.

7.    Each of ACo and BCo includes in its income under section 9 the amounts charged to the shippers in respect of its Pipeline as collected pursuant to an NEB order. 

8.    The Trustee is a trust company that is:

a.    licensed under the Trust and Loan Companies Act (Canada) (S.C. 1991, c. 45);

b.    a corporation resident in Canada for the purposes of the Act; and

c.    authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as a trustee.

9.    The NEB approved the appointment of the Trustee in its NEB Letter Decision, dated XXXXXXXXXX.

10.   ACo owns and holds the regulatory authorization to operate: (i) the ACo Pipeline 1, and (ii) the ACo Pipeline 2. ACo has the Reclamation Obligations in respect of the ACo Pipeline 1 Site and the ACo Pipeline 2 Site.

11.   BCo owns and holds the regulatory authorization to operate the BCo Pipeline. BCo has the Reclamation Obligations in respect of the BCo Pipeline Site.

The Trust Agreements

12.   The ACo Reclamation Trust 1, settled pursuant to the ACo XXXXXXXXXX Trust Agreement, is required to be maintained under an order made by the NEB.

13.   For the purpose of this letter, a summary of the relevant terms of the ACo XXXXXXXXXX Trust Agreement includes the following:

a.    Pursuant to XXXXXXXXXX, the ACo Reclamation Trust 1 is settled as a discretionary trust pursuant to the laws of the Province of XXXXXXXXXX. 

b.    Pursuant to XXXXXXXXXX, it is the express intention of the parties that the ACo Reclamation Trust 1 be a QET resident in XXXXXXXXXX for the duration of the trust term. The ACo XXXXXXXXXX Trust Agreement shall be read and interpreted in light of, and consistently with the definition and attributes of a QET. The Company and the Trustee shall ensure that no actions are taken which would jeopardize the status of the ACo Reclamation Trust 1 as a QET resident in XXXXXXXXXX.

c.    Under the provision of XXXXXXXXXX, the ACo Reclamation Trust 1 is maintained for the sole purpose of funding the Reclamation Obligations.

d.    The ACo Reclamation Trust 1 is to be administered so that the Funds shall be used solely to: (i) discharge the Reclamation Obligations of the Beneficiaries of the ACo Reclamation Trust 1; (ii) compensate the Trustee or its agents for services rendered or expenses incurred in accordance with the ACo XXXXXXXXXX Trust Agreement; and (iii) discharge the tax obligations of the ACo Reclamation Trust 1, all as provided in XXXXXXXXXX.

e.    In accordance with XXXXXXXXXX, the funds to the ACo Reclamation Trust 1 shall be contributed by ACo at a minimum on an annual basis. The Annual Contribution Amount is made pursuant to the National Energy Board Act, R.S.C. 1985, c. N-7, or an order or direction made by the NEB. Contributions made by ACo to the ACo Reclamation Trust 1 are irrevocable and cannot revert to ACo except as otherwise provided by the ACo XXXXXXXXXX Trust Agreement.

f.    If property remains in the Fund after all the Reclamation Obligations are discharged, then the Trustee, with the prior approval of the NEB, may distribute the Fund or any part thereof among any of the Beneficiaries of the ACo Reclamation Trust 1 and the Orphan Pipeline Fund as the Trustee in its sole discretion sees fit, all in accordance with XXXXXXXXXX.

g.    Pursuant to XXXXXXXXXX and in accordance with the applicable laws and the Statement of Investment Policies and Procedures, the Trustee shall only acquire Qualified Investments and will not hold a “prohibited investment” as this term is defined in subsection 211.6(1).

h.    Pursuant to XXXXXXXXXX the Trustee shall not, at any time, borrow money for, or on behalf of, the ACo Reclamation Trust 1.

i.    In accordance with XXXXXXXXXX, distributions from the ACo Reclamation Trust 1 to a Beneficiary of the ACo Reclamation Trust 1 or a third party will be made for the sole purpose of discharging the beneficiary’s Reclamation Obligations and with the prior written direction or order of the NEB. Pursuant to XXXXXXXXXX, the Trustee is not allowed to make a distribution to a Beneficiary of the ACo Reclamation Trust 1 unless the beneficiary certifies that it is not in default within the meaning of XXXXXXXXXX.

j.    In the case of a sale of the ACo Pipeline 1 or a portion thereof, the Trustee may transfer or release the Fund, or a portion thereof, to another QET for the purpose of funding Reclamation Obligations in accordance with the ACo XXXXXXXXXX Trust Agreement and upon any order or direction from the NEB, including any such direction or order that is made pursuant to paragraphs 74(1)(a), (b) or (c) of the National Energy Board Act, R.S.C. 1985, c. N-7, as provided in XXXXXXXXXX. 

k.    Pursuant to XXXXXXXXXX, the terms of the ACo Reclamation Trust 1 may be modified by ACo and the Trustee by an agreement in writing approved by the NEB.

l.    As provided in XXXXXXXXXX, the ACo Reclamation Trust 1 may not be revoked by its beneficiaries or ACo, acting as a whole, or the Trustee, but the NEB has the discretion to direct the termination of the ACo Reclamation Trust 1, and order such successive arrangements as are appropriate.

14.   The ACo Reclamation Trust 2, settled pursuant to the ACo XXXXXXXXXX Trust Agreement, is required to be maintained under an order made by the NEB.

15.   For the purposes of this letter, a summary of the relevant terms of the ACo XXXXXXXXXX Trust Agreement includes the following:

a.    Pursuant to XXXXXXXXXX, the ACo Reclamation Trust 2 is settled as a discretionary trust pursuant to the laws of the Province of XXXXXXXXXX. 

b.    Pursuant to XXXXXXXXXX, it is the express intention of the parties that the ACo Reclamation Trust 2 be a QET resident in XXXXXXXXXX for the duration of the trust term. The ACo XXXXXXXXXX Trust Agreement shall be read and interpreted in light of, and consistently with, the definition and attributes of a QET. The Company and the Trustee shall ensure that no actions are taken which would jeopardize the status of the ACo Reclamation Trust 2 as a QET resident in XXXXXXXXXX.

c.    Under the provision of XXXXXXXXXX, the ACo Reclamation Trust 2 is maintained for the sole purpose of funding the Reclamation Obligations.

d.    The ACo Reclamation Trust 2 is to be administered so the Funds shall be used solely to: (i) discharge the Reclamation Obligations of the Beneficiaries of the ACo Reclamation Trust 2; (ii) compensate the Trustee or its agents for services rendered or expenses incurred in accordance with the ACo XXXXXXXXXX Trust Agreement; and (iii) discharge the tax obligations of the ACo Reclamation Trust 2, all as provided in XXXXXXXXXX.

e.    In accordance with XXXXXXXXXX, the funds to the ACo Reclamation Trust 2 shall be contributed by ACo at the same frequency as they are collected. The Annual Contribution Amount is made pursuant to the National Energy Board Act, R.S.C. 1985, c. N-7, or an order or direction made by the NEB. Contributions made by ACo to the ACo Reclamation Trust 2 are irrevocable and cannot revert to ACo except as otherwise provided by the ACo XXXXXXXXXX Trust Agreement.

f.    If property remains in the Fund after all the Reclamation Obligations are discharged, then the Trustee, with the prior approval of the NEB, may distribute the Fund or any part thereof among any of the Beneficiaries of the ACo Reclamation Trust 2 and the Orphan Pipeline Fund as the Trustee in its sole discretion sees fit, all in accordance with XXXXXXXXXX.

g.    Pursuant to XXXXXXXXXX and in accordance with the applicable laws and the Statement of Investment Policies and Procedures, the Trustee shall only acquire Qualified Investments and will not hold a “prohibited investment” as this term is defined in subsection 211.6(1).

h.    Pursuant to XXXXXXXXXX, the Trustees shall not, at any time, borrow money for, or on behalf of, the ACo Reclamation Trust 2.

i.    In accordance with XXXXXXXXXX, distributions from the ACo Reclamation Trust 2 to a Beneficiary of the ACo Reclamation Trust 2 or a third party will be made for the sole purpose of discharging the beneficiary’s Reclamation Obligations and with the prior written direction or order of the NEB. Pursuant to XXXXXXXXXX, the Trustee is not allowed to make a distribution to a Beneficiary of the ACo Reclamation Trust 2 unless the beneficiary certifies that it is not in default within the meaning of XXXXXXXXXX.

j.    In the case of a sale of the ACo Pipeline 2 or a portion thereof, the Trustee may transfer or release the Fund, or a portion thereof, to another QET for the purpose of funding Reclamation Obligations in accordance with the ACo XXXXXXXXXX Trust Agreement and upon any order or direction from the NEB, including any such direction or order that is made pursuant to paragraphs 74(1)(a), (b) or (c) of the National Energy Board Act, R.S.C. 1985, c. N-7, as provided in XXXXXXXXXX. 

k.    Pursuant to XXXXXXXXXX, the terms of the ACo Reclamation Trust 2 may be modified by ACo and the Trustee by an agreement in writing approved by the NEB.

l.    As provided in XXXXXXXXXX, the ACo Reclamation Trust 2 may not be revoked by its beneficiaries or ACo, acting as a whole, or the Trustee, but the NEB has the discretion to direct the termination of the ACo Reclamation Trust 2, and order such successive arrangements as are appropriate.

16.   The BCo Reclamation Trust, settled pursuant to the BCo Trust Agreement, is required to be maintained under an order made by the NEB.

17.   For the purposes of this letter, a summary of the relevant terms of the BCo Trust Agreement includes the following:

a.    Pursuant to XXXXXXXXXX, the BCo Reclamation Trust is settled as a discretionary trust pursuant to the laws of the Province of XXXXXXXXXX.

b.    Pursuant to XXXXXXXXXX, it is the express intention of the parties that the BCo Reclamation Trust be a QET resident in XXXXXXXXXX for the duration of the trust term. The BCo Trust Agreement shall be read and interpreted in light of, and consistently with, the definition and attributes of a QET. The Company and the Trustee shall ensure that no actions are taken which would jeopardize the status of the BCo Reclamation Trust as a QET resident in XXXXXXXXXX.

c.    Under the provision of XXXXXXXXXX, the BCo Reclamation Trust is maintained for the sole purpose of funding the Reclamation Obligations.

d.    The BCo Reclamation Trust is to be administered so that the Funds shall be used solely to: (i) discharge the Reclamation Obligations of the Beneficiaries of the BCo Reclamation Trust; (ii) compensate the Trustee or its agents for services rendered or expenses incurred in accordance with the BCo Trust Agreement; and (iii) discharge the tax obligations of the BCo Reclamation Trust, all as provided in XXXXXXXXXX.

e.    In accordance with XXXXXXXXXX, $XXXXXXXXXX shall be contributed to the BCo Reclamation Trust in XXXXXXXXXX. Additional Funds may also be contributed from time to time, as directed by the NEB. The Annual Contribution Amount is made pursuant to the National Energy Board Act, R.S.C. 1985, c. N-7, or an order or direction made by the NEB. Contributions made by BCo to the BCo Reclamation Trust are irrevocable and cannot revert to BCo except as otherwise provided by the BCo Trust Agreement.

f.    If property remains in the Fund after all the Reclamation Obligations are discharged, then the Trustee, with the prior approval of the NEB, may distribute the Fund or any part thereof among any of the Beneficiaries of the BCo Reclamation Trust and the Orphan Pipeline Fund as the Trustee in its sole discretion sees fit, all in accordance with XXXXXXXXXX.

g.    Pursuant to XXXXXXXXXX and in accordance with the applicable laws and the Statement of Investment Policies and Procedures, the Trustee shall only acquire Qualified Investments and will not hold a “prohibited investment” as this term is defined in subsection 211.6(1).

h.    Pursuant to XXXXXXXXXX, the Trustees shall not, at any time, borrow money for, or on behalf of, the BCo Reclamation Trust.

i.    In accordance with XXXXXXXXXX, distributions from the BCo Reclamation Trust to a Beneficiary of the BCo Reclamation Trust or a third party will be made for the sole purpose of discharging the beneficiary’s Reclamation Obligations and with the prior written direction or order of the NEB. Pursuant to XXXXXXXXXX, the Trustee is not allowed to make a distribution to a Beneficiary of the BCo Reclamation Trust unless the beneficiary certifies that it is not in default within the meaning of XXXXXXXXXX.

j.    In the case of a sale of the BCo Pipeline or a portion thereof, the Trustee may transfer or release the Fund, or a portion thereof, to another QET for the purpose of funding Reclamation Obligations in accordance with the BCo Trust Agreement and upon any order or direction from the NEB, including any such direction or order that is made pursuant to paragraphs 74(1)(a), (b) or (c) of the National Energy Board Act, R.S.C. 1985, c. N-7, as provided in XXXXXXXXXX. 

k.    Pursuant to XXXXXXXXXX, the terms of the BCo Reclamation Trust may be modified by BCo and the Trustee by an agreement in writing approved by the NEB.

l.    As provided in XXXXXXXXXX, the BCo Reclamation Trust may not be revoked by its beneficiaries or BCo, acting as a whole, or the Trustee, but the NEB has the discretion to direct the termination of the BCo Reclamation Trust, and order such successive arrangements as are appropriate.

ADDITIONAL INFORMATION

18.   ACo will not be related to and will not be affiliated with an ETF in which Funds of the ACo Reclamation Trust 1 or the ACo Reclamation Trust 2 may be invested from time to time.

19.   ACo will not have a significant interest in an ETF in which Funds of the ACo Reclamation Trust 1 or the ACo Reclamation Trust 2 may be invested from time to time.

20.   BCo will not be related to and will not be affiliated with an ETF in which Funds of the BCo Reclamation Trust may be invested from time to time.

21.   BCo will not have a significant interest in an ETF in which Funds of the BCo Reclamation Trust may be invested from time to time.

22.   The ACo Pipeline 1 Site, the ACo Pipeline 2 Site and the BCo Pipeline Site are all situated in Canada.

23.   On XXXXXXXXXX, BCo made a lump sum contribution in the amount of $XXXXXXXXXX to the BCo Reclamation Trust.

PROPOSED TRANSACTIONS

24.   The following transactions will be undertaken in accordance with the terms of the applicable ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement, and in compliance with the relevant decisions, order and direction of the NEB:

a.    Commencing in the XXXXXXXXXX taxation year, ACo will make contributions to the ACo Reclamation Trust 1 for the purpose of funding Reclamation Obligations in respect of the ACo Pipeline 1 Site.

b.    Commencing in the XXXXXXXXXX taxation year, ACo will make contributions to the ACo Reclamation Trust 2 for the purpose of funding Reclamation Obligations in respect of the ACo Pipeline 2 Site.

c.    Additional Funds may be contributed from time to time by BCo to the BCo Reclamation Trust, as directed by the NEB.

d.    At all times, the Fund will be invested in accordance with the applicable Statement of Investment Policy and Procedures. The Trust will not borrow money at any time and will only invest in property that is a Qualified Investment, which may include equity securities of an ETF. 

PURPOSE OF PROPOSED TRANSACTIONS

The purpose of the proposed transactions is to set aside funds for the sole purpose of funding the reclamation of a “qualifying site,” as that term is defined in subsection 211.6(1), through a mechanism that qualifies as a QET under the Act and that is in compliance with the decisions, orders and directions of the NEB applicable to any of ACo and BCo.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, purpose of the proposed transactions and additional information, and provided that the proposed transactions are carried out as described above, we rule as follows:

A.    Provided that the ACo Reclamation Trust 1 is operated in accordance with the terms of the ACo XXXXXXXXXX Trust Agreement, the ACo Reclamation Trust 1 will constitute a “qualifying environmental trust” as that term is defined in subsection 211.6(1).

B.    Amounts contributed by ACo to the ACo Reclamation Trust 1 will be deductible in computing the income of ACo pursuant to paragraph 20(1)(ss), provided that the ACo Reclamation Trust 1 continues to qualify as a qualifying environmental trust at the time of the contribution.

C.    In computing the income, non-capital loss and net capital loss of ACo for the purposes of applying subsection 107.3(1), the entire amount of any income or loss of the ACo Reclamation Trust 1 for any taxation year of the trust that ends in a particular taxation year of ACo can reasonably be considered to be ACo’s share of such income or loss.

D.    Provided that the ACo Reclamation Trust 2 is operated in accordance with the terms of the ACo XXXXXXXXXX Trust Agreement, the ACo Reclamation Trust 2 will constitute a “qualifying environmental trust” as that term is defined in subsection 211.6(1).

E.    Amounts contributed by ACo to the ACo Reclamation Trust 2 will be deductible in computing the income of ACo pursuant to paragraph 20(1)(ss), provided that the ACo Reclamation Trust 2 continues to qualify as a qualifying environmental trust at the time of the contribution.

F.    In computing the income, non-capital loss and net capital loss of ACo for the purposes of applying subsection 107.3(1), the entire amount of any income or loss of the ACo Reclamation Trust 2 for any taxation year of the trust that ends in a particular taxation year of ACo can reasonably be considered to be ACo’s share of such income or loss.

G.    Provided that the BCo Reclamation Trust is operated in accordance with the terms of the BCo Trust Agreement, the BCo Reclamation Trust will constitute a “qualifying environmental trust” as that term is defined in subsection 211.6(1).

H.    Amounts contributed by BCo to the BCo Reclamation Trust will be deductible in computing the income of BCo pursuant to paragraph 20(1)(ss), provided that the BCo Reclamation Trust continues to qualify as a qualifying environmental trust at the time of the contribution.

I.    In computing the income, non-capital loss and net capital loss of BCo for the purposes of applying subsection 107.3(1), the entire amount of any income or loss of the BCo Reclamation Trust for any taxation year of the trust that ends in a particular taxation year of BCo can reasonably be considered to be BCo’s share of such income or loss.

J.    Provided that:

i.    The equity securities issued by an ETF are described in paragraph (d) of the definition of “qualified investment” in section 204, and

provided that at any time:

ii.   the ETF is not related to ACo or BCo; and

iii.  each of ACo and BCo does not have a significant interest in the particular ETF,

the equity securities issued by the ETF will not be a “prohibited investment” of the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 or the BCo Reclamation Trust, as the case may be, as this term is defined in subsection 211.6(1).

K.    A debt obligation that meets the definition of “qualified investment” in paragraph (b) of section 204 will not be a “prohibited investment” of the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 or the BCo Reclamation Trust, as the case may be, for the purpose of the definition of that term in subsection 211.6(1).

Comments

Except as expressly stated, the rulings provided do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming either expressly or implicitly:

a.    the reasonableness of any expenditure referred to in this letter;

b.    the person or persons subject to tax on funds distributed by the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 or the BCo Reclamation Trust;

c.    whether the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 or the BCo Reclamation Trust is a valid trust at law; and

d.    the application of any perpetuity legislation to the ACo Reclamation Trust 1, the ACo Reclamation Trust 2 and the BCo Reclamation Trust.

The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R6 dated August 29, 2014, and are binding on the Canada Revenue Agency provided that the proposed transactions are implemented as described above. For greater certainty, these advance income tax rulings are based on the ACo XXXXXXXXXX Trust Agreement, the ACo XXXXXXXXXX Trust Agreement and the BCo Trust Agreement as amended on XXXXXXXXXX and approved by the NEB on XXXXXXXXXX. If amendments to the aforementioned trust agreements are made after that time, the rulings provided may not apply unless the amendment is approved by the NEB and a subsequent ruling is issued.

These rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Yours truly,

XXXXXXXXXX
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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