2017-0720591R3 Re-org of a stapled commercial trust structure

Principal Issues: 1) Whether each of the two dispositions which are part of the re-organization of the structure to replace the existing Finance Trust with a new trust will be a "qualifying disposition" as described in subsection 107.4(1) of the Act? 2) Whether GAAR will apply to re-determine the tax consequences of those two dispositions?

Position: 1) Yes. 2) No.

Reasons: 1) All of the requirements in 107.4(1) are met. 2) The use of such qualifying dispositions to re-organize this structure is analogous to rulings given on many occasions and the motivation for the change is for US tax purposes.

Author: XXXXXXXXXX
Section: 107.4(1); 107.4(3) and 245(2)

XXXXXXXXXX                                                                                                         2017-072059

XXXXXXXXXX, 2017

Dear XXXXXXXXXX:

Re:   Advance Income Tax Ruling
         XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-noted taxpayers.  We also acknowledge the information provided in your subsequent submissions.

You have advised that, to the best of your knowledge and that of the taxpayers, none of the issues involved in the ruling request is:

(i)   in previously filed tax returns of the taxpayers or a related person;

(ii)  being considered by a tax services office or a tax centre in connection with previously filed tax returns of the taxpayers or a related person;

(iii) under objection by the taxpayers or a related person;

(iv)  the subject of a current or completed court process involving any of the taxpayers or a related person; or

(v)   the subject of a ruling previously considered by the Directorate.

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 except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated. Unless otherwise indicated, all references herein to monetary amounts are in Canadian dollars.

Definitions

The following terms and taxpayers referred to throughout this document will have the following meaning unless otherwise indicated:

(a)   XXXXXXXXXX;

(b)   “ACB” means adjusted cost base, as that term is defined in the Act;

(c)   “Amended US Holdco Notes” means the US Holdco Notes existing under the amended US Holdco Note Indenture following the amendment to the terms thereof as described in Step 21 of the proposed transactions;

(d)   "Certificate" means the certificate(s) or other confirmation(s) of filing to be issued by the Registrar pursuant to XXXXXXXXXX of the XXXXXXXXXX giving effect to the Plan of Arrangement;

(e)   “Class A LP Units” means units evidencing the interests of Class A limited partners in Portfolio LP, designated as Class A LP Units, and issued as such, pursuant to the terms of the Portfolio LP partnership agreement;

(f)   “Class B LP Units” means units evidencing the interest of Class B limited partners in Portfolio LP, designated as Class B Limited Participation LP Units, and issued as such, pursuant to the terms of the Portfolio LP partnership agreement; 

(g)   “Code” means the Internal Revenue Code of 1986, as amended;

(h)   “Code Regulations” means the US Treasury regulations made under the Code;

(i)   “Convertible Debentures” means certain outstanding convertible debt securities issued by the REIT that are convertible into Stapled Units at the option of the holder in accordance with the relevant Convertible Debenture trust indenture;

(j)   “Convertible Securities” means, collectively, the Convertible Debentures, Exchangeable Units, Unit Options, and Incentive Units;

(k)   “CRA” means the Canada Revenue Agency;

(l)   “Declarations of Trust” means the REIT Declaration of Trust and the Finance Trust Declaration of Trust;

(m)   “Depositary” means XXXXXXXXXX, in its capacity as depositary for the Plan of Arrangement, or such other person chosen by the REIT and Finance Trust to act as depositary;

(n)   “Dispositions” has the meaning set out in Step 23 of the proposed transactions;

(o)   “Dissenting Unitholder” means a Unitholder who validly exercises, and does not withdraw the exercise of, dissent rights with respect to the Plan of Arrangement in accordance with the Declarations of Trust, and who will, as of the Effective Date and following the offer described in Step 2, no longer have any rights as a holder of Stapled Units other than the right to be paid fair value therefor in accordance with the Declarations of Trust;

(p)   “Effective Date” means the date shown on the Certificate issued by the Registrar under the XXXXXXXXXX giving effect to the Plan of Arrangement;

(q)   “Event of Uncoupling” means an “Event of Uncoupling” as defined in the Declarations of Trust, being an event whereby the provisions of the Declarations of Trust providing that REIT Units may only be transferred together with an equivalent number of Finance Trust Units cease to apply, or, following the proposed transactions, an “Event of Uncoupling” as will then be similarly defined in the REIT Declaration of Trust and the F17 Trust Declaration of Trust with respect to the “stapling” of the REIT Units and F17 Trust Units;

(r)   “Exchange Right” has the meaning set out in Step 6 of the proposed transactions;

(s)   “Exchangeable Units” means certain outstanding exchangeable units (including the Class B LP Units) issued by subsidiary partnerships of the REIT entitling holders to cash distributions from the applicable partnership determined by reference to the cash distributions on a Stapled Unit and which are exchangeable in accordance with their terms for Stapled Units;

(t)   “Existing Loans” means loans that were advanced by the REIT to US Holdco from time to time, and are evidenced by a promissory note, denominated in US dollars and issued by US Holdco to the REIT dated XXXXXXXXXX;

(u)   “F17 Trust” means XXXXXXXXXX, an unincorporated open-ended limited purpose unit trust to be established under the laws of the Province of XXXXXXXXXX;

(v)   “F17 Trust Declaration of Trust” means the declaration of trust to be made by the trustees of F17 Trust to hold in trust all property of F17 Trust for the benefit of the F17 Trust Unitholders;

(w)   “F17 Trust Unit” means a unit of F17 Trust, each such unit representing an equal undivided beneficial interest in F17 Trust;

(x)   “F17 Trust Unitholder” means a holder of an F17 Trust Unit;

(y)   “Finance Trust” means XXXXXXXXXX, an unincorporated open-ended limited purpose unit trust established under the laws of the Province of XXXXXXXXXX;

(z)   “Finance Trust Declaration of Trust” means the declaration of trust dated XXXXXXXXXX, governed by the laws of the Province of XXXXXXXXXX, pursuant to which Finance Trust was created, as further amended, supplemented or amended and restated from time to time;

(aa) “Finance Trust Disposition” has the meaning set out in Step 16 of the proposed transactions;

(bb) “Finance Trust Trustees” means the individuals who act as trustees of Finance Trust in accordance with and subject to the provisions of the Finance Trust Declaration of Trust;

(cc) “Finance Trust Unit” means a unit of Finance Trust, each such unit representing an equal undivided beneficial interest in Finance Trust;

(dd) “Finance Trust Unitholder” means a holder of a Finance Trust Unit;

(ee) “GP Benco” means XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX;

(ff) “Holdings GP Trust” means XXXXXXXXXX, an inter vivos personal trust established under the laws of the Province of XXXXXXXXXX;

(gg) “Holdings LP” means XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX;

(hh) “Incentive Units” means incentive units granted under the XXXXXXXXXX which are to be settled, upon vesting, in cash, Stapled Units, or any combination thereof;

(ii) “mutual fund trust” has the meaning assigned by subsection 132(6);

(jj) “New Stapled Unit” means one REIT Unit and one F17 Trust Unit which will trade together on the XXXXXXXXXX;

(kk) “XXXXXXXXXX GP Trust” means XXXXXXXXXX, an inter vivos personal trust established under the laws of the Province of XXXXXXXXXX;

(ll) “Plan of Arrangement” means the plan of arrangement under XXXXXXXXXX of the XXXXXXXXXX to effect certain of the proposed transactions described herein;

(mm) “Portfolio Benco” means XXXXXXXXXX, a corporation incorporated under the laws of the Province of  XXXXXXXXXX;

(nn) “Portfolio GP Trust” means XXXXXXXXXX, an inter vivos personal trust established under the laws of the Province of XXXXXXXXXX;

(oo) “Portfolio LP” means XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX between Portfolio GP Trust and Portfolio LP Trust for the purpose of acquiring an interest in certain income-producing real properties on XXXXXXXXXX;

(pp) “Portfolio LP Trust” means XXXXXXXXXX, an open-ended unit trust established under the laws of the Province of XXXXXXXXXX;

(qq) “REIT” means XXXXXXXXXX, an open-ended unit trust which qualifies as a mutual fund trust, established under the laws of the Province of XXXXXXXXXX;

(rr) “REIT Declaration of Trust” means the declaration of trust dated XXXXXXXXXX, governed by the laws of the Province of XXXXXXXXXX, pursuant to which the REIT was created, as further amended, supplemented or amended and restated from time to time;

(ss) “REIT Disposition” has the meaning set out in Step 23 of the proposed transactions;

(tt) “REIT Trustees” means the individuals who act as trustees of the REIT in accordance with and subject to the provisions of the REIT Declaration of Trust;

(uu) “REIT Units” means units of participating interest in the REIT, each such unit representing an equal undivided beneficial interest in the REIT, but for the avoidance of doubt, does not include a Special Voting Unit;

(vv) “REIT Unitholder” means a holder of a REIT Unit;

(ww) “Special Voting Units” means non-participating special voting units of the REIT, which do not entitle the holder to any distribution from, or property of, the REIT and which were created in accordance with the provisions of the REIT Declaration of Trust and includes a fraction of a Special Voting Unit;

(xx) “Stapled Unit” means one REIT Unit and one Finance Trust Unit which trade together on the XXXXXXXXXX under the symbol XXXXXXXXXX;

(yy) “Support Agreement” means an agreement between the REIT and Finance Trust made as of XXXXXXXXXX, as amended and restated as of XXXXXXXXXX, among other things, to enable the REIT and Finance Trust to take all such actions and do all such things as are necessary or desirable to ensure that at all times each holder of a particular number of REIT Units holds an equal number of Finance Trust Units;

(zz) XXXXXXXXXX;

(aaa)       “Unitholder” means a holder of a Stapled Unit or, from and after Step 19 of the proposed transactions, a New Stapled Unit;

(bbb)       “Unit Options” means certain outstanding options issued by the REIT under a unit option plan which are exercisable for Stapled Units;

(ccc)       “US” means the United States of America;

(ddd)       “US Holdco” means XXXXXXXXXX, a corporation incorporated under the laws of the State of XXXXXXXXXX;

(eee)       “US Holdco Note Indenture” means a note indenture dated as of XXXXXXXXXX and supplemented by the first supplemental indenture made as of XXXXXXXXXX, between US Holdco, as issuer, and XXXXXXXXXX, as trustee, which provides for the issuance of unsecured subordinated notes, in one or more series, in registered form, denominated in US dollars, as amended, supplemented or amended and restated from time to time;

(fff)       “US Holdco Notes” means interest-bearing unsecured subordinated notes, denominated in US dollars and issued by US Holdco pursuant to the US Holdco Note Indenture; and

(ggg)       “US Portfolio LP” means XXXXXXXXXX, a limited partnership formed under the laws of the Province of XXXXXXXXXX.

Facts

1.    The REIT is XXXXXXXXXX with consolidated total assets of approximately $XXXXXXXXXX.  The REIT has ownership interests in a XXXXXXXXXX.

2.    The REIT is organized as an open-ended unit trust which qualifies as a “mutual fund trust” for purposes of the Act.  The REIT is operated so as to qualify as a “real estate investment trust” and is therefore not a “SIFT trust” (a specified investment flow-through trust) under the Act.

3.    The interests of beneficiaries of the REIT are represented by REIT Units. Each REIT Unit represents an equal undivided beneficial interest in the property of the REIT, all distributions made by the REIT and, in the event of winding-up of the REIT, in the net assets of the REIT remaining after satisfaction of all liabilities.  Each REIT Unit entitles the holder thereof to one vote at all meetings of REIT Unitholders for each REIT Unit held. The REIT also has issued “Special Voting Units” which are owned exclusively by holders of exchangeable partnership interests issued by subsidiary partnerships of the REIT in connection with certain completed acquisitions, and which entitle the holders thereof to vote together with the holders of REIT Units.  The Special Voting Units do not entitle the holder to any distributions from, or property of, the REIT.

4.    REIT Units are widely held by the public and, to the knowledge of the REIT management, there is no direct or indirect beneficial owner of, nor any person who exercises control or direction over, REIT Units carrying more than XXXXXXXXXX% of the votes and value of outstanding REIT Units.  As at XXXXXXXXXX there were XXXXXXXXXX REIT Units issued and outstanding.

5.    The REIT is governed by the REIT Trustees who conduct and manage the affairs of the REIT in accordance with and subject to the terms of the REIT Declaration of Trust. As of the date hereof, the REIT Trustees consist of XXXXXXXXXX individuals, each of whom is a resident of Canada.

6.    The REIT is registered as a “registered investment” for deferred income plans pursuant to subsection 204.4(1).

7.    GP Benco is a corporation incorporated under the laws of the Province of XXXXXXXXXX.  All of the issued shares of GP Benco are owned by the REIT.

8.    Holdings GP Trust is an inter vivos trust formed under the laws of the Province of XXXXXXXXXX.  The sole beneficiary of Holdings GP Trust is GP Benco.  The sole trustee of Holdings GP Trust is XXXXXXXXXX, a corporation incorporated under the XXXXXXXXXX which is a wholly-owned subsidiary of the REIT.

9.    Holdings LP is a limited partnership formed under the laws of the Province of XXXXXXXXXX.  The interests of Holdings LP are divided into general partnership interests and limited partnership interests.  The sole general partner of Holdings LP is Holdings GP Trust and the sole limited partner of Holdings LP is the REIT.

10.   XXXXXXXXXX GP Trust is an inter vivos trust formed under the laws of the Province of XXXXXXXXXX.  The sole beneficiary of XXXXXXXXXX GP Trust is Holdings LP.  The trustees of XXXXXXXXXX GP Trust are XXXXXXXXXX, each of whom is a resident of Canada.

11.   US Portfolio LP is a limited partnership formed under the laws of the Province of XXXXXXXXXX.  The interests of US Portfolio LP are divided into general partnership interests and limited partnership interests.  The sole general partner of US Portfolio LP is XXXXXXXXXX GP Trust and the sole limited partner of US Portfolio LP is Holdings LP.

12.   Portfolio LP Trust is a unit trust formed under the laws of the Province of XXXXXXXXXX.  The sole beneficiary of Portfolio LP Trust is the REIT.  The trustees of Portfolio LP Trust are XXXXXXXXXX, each of whom is a resident of Canada.

13.   Portfolio Benco is a corporation incorporated under the laws of the Province of XXXXXXXXXX.  All of the issued shares of Portfolio Benco are owned by Portfolio LP Trust.

14.   Portfolio GP Trust is an inter vivos trust formed under the laws of the Province of XXXXXXXXXX.  The sole beneficiary of Portfolio GP Trust is Portfolio Benco.  The sole trustee of Portfolio GP Trust is XXXXXXXXXX, a corporation incorporated under the laws of the Province of XXXXXXXXXX which is a wholly-owned subsidiary of the REIT.

15.   Portfolio LP is a limited partnership formed under the laws of the Province of XXXXXXXXXX.  The interests of Portfolio LP are divided into general partnership interests and two classes of limited partnership interests, Class A LP Units and Class B LP Units.  The sole general partner of Portfolio LP is Portfolio GP Trust.  All of the Class A LP Units are owned by Portfolio LP Trust.  The Class B LP Units are owned by various third party vendors who received such units as consideration for the disposition of certain income-producing properties located in Canada to Portfolio LP.  Each Class B LP Unit is exchangeable at the option of the holder for one Stapled Unit and is entitled to cash distributions equivalent to the cash distributions paid on each Stapled Unit.  The Class A LP Units are entitled to all of the distributions of Portfolio LP other than the distributions to which the holders of Class B LP Units and the general partner are entitled.

16.   US Holdco is a US-resident corporation.  All of the issued shares of US Holdco are owned by US Portfolio LP.

17.   All of the REIT’s investments in US real property are held through US Holdco.  US Holdco holds interests in US real property indirectly through a number of US limited liability companies and US limited partnerships.

18.   All of US Holdco’s income is derived from sources in the US.

19.   US Holdco’s sources of funds include: (i) equity contributed by its shareholder US Portfolio LP and (prior to the transfer of the shares of US Holdco to US Portfolio LP in XXXXXXXXXX) by its former shareholder the REIT; (ii) the Existing Loans made directly by the REIT to US Holdco, of which the aggregate principal amount outstanding at XXXXXXXXXX was US$XXXXXXXXXX;  and (iii) debt owing to Finance Trust and Portfolio LP evidenced by US Holdco Notes, of which the balance owing to Finance Trust and Portfolio LP at XXXXXXXXXX was US$XXXXXXXXXX and US$XXXXXXXXXX, respectively.

20.   Finance Trust is organized as an open-ended unit trust which qualifies as a mutual fund trust for purposes of the Act.  It was established in XXXXXXXXXX.  The primary purpose of Finance Trust is to be a flow-through vehicle to allow the REIT to indirectly access the capital markets in a tax efficient manner by indirectly borrowing from the REIT Unitholders.  Finance Trust’s primary activity is to hold debt issued by US Holdco.  The only assets of Finance Trust are US Holdco Notes and cash.  Finance Trust is a “portfolio investment entity” as it does not hold “non-portfolio property” (each as defined in the Act), and therefore is not a SIFT trust.  Finance Trust also qualifies as a “fixed investment trust” for US federal income tax purposes.

21.   The interests of beneficiaries of Finance Trust are represented by Finance Trust Units.  Each Finance Trust Unit represents an equal undivided beneficial interest in the property of Finance Trust, any distributions by Finance Trust and, in the event of winding-up of Finance Trust, in the net assets of Finance Trust remaining after satisfaction of all liabilities.  Each Finance Trust Unit entitles the holder thereof to one vote at all meetings of Finance Trust Unitholders for each Finance Trust Unit held.

22.   Finance Trust is governed by the Finance Trust Trustees who conduct and manage the affairs of Finance Trust in accordance with and subject to the terms of the Finance Trust Declaration of Trust.  As of the date hereof, the Finance Trust Trustees consist of XXXXXXXXXX individuals, each of whom is a resident of Canada.

23.   The REIT Units and Finance Trust Units trade together as “Stapled Units”.  As at XXXXXXXXXX there were XXXXXXXXXX Stapled Units issued and outstanding.

24.   This "stapling" arises from provisions of the REIT Declaration of Trust that require:

(a)   that a holder of REIT Units not transfer such units unless such holder simultaneously transfers a corresponding number of Finance Trust Units to the same transferee,

(b)   that the REIT not issue REIT Units to any person unless Finance Trust issues a corresponding number of Finance Trust Units to the same person, and

(c)   that a holder of REIT Units not exercise its right to redeem such units unless such holder simultaneously exercises its right to redeem a corresponding number of Finance Trust Units.

The Finance Trust Declaration of Trust contains corresponding provisions.

25.   The “stapling” provisions cease to apply on the occurrence of an Event of Uncoupling.

26.   As a consequence of the “stapling” provisions, each holder of REIT Units also holds an identical number of Finance Trust Units.  Accordingly, the beneficiaries of each of the REIT and Finance Trust are the same and hold the same percentage interest in each of the REIT and Finance Trust.

27.   In addition to the REIT Units and Finance Trust Units, the capital structure of the REIT and Finance Trust includes the following securities and interests that are convertible into, exchangeable for, or exercisable for Stapled Units:

a.    The REIT has issued and outstanding Convertible Debentures.  Each Convertible Debenture is convertible into Stapled Units at the option of the holder in accordance with the terms of the relevant Convertible Debenture trust indenture.  The REIT has issued to the public the following outstanding Convertible Debentures as at XXXXXXXXXX:

i. XXXXXXXXXX% convertible unsecured subordinated debentures convertible at a conversion price of $XXXXXXXXXX per Stapled Unit, maturing on XXXXXXXXXX, and having an aggregate principal amount of $XXXXXXXXXX (these were subsequently redeemed on XXXXXXXXXX); and

ii. XXXXXXXXXX% Series D convertible unsecured subordinated debentures convertible at a conversion price of $XXXXXXXXXX per Stapled Unit, maturing on XXXXXXXXXX, and having an aggregate principal amount of $XXXXXXXXXX.

b.    Certain subsidiary partnerships of the REIT have issued and outstanding Exchangeable Units of the relevant subsidiary partnership, each entitling the holders to cash distributions from the subsidiary partnership determined by reference to the cash distributions on a Stapled Unit.  Each Exchangeable Unit is exchangeable by the holder thereof for Stapled Units in accordance with the terms of the relevant partnership agreement and the associated exchange and support agreement.  As at XXXXXXXXXX, there were XXXXXXXXXX Exchangeable Units outstanding.

c.    The REIT has issued and outstanding Unit Options which are exercisable for Stapled Units.  As at XXXXXXXXXX, there were XXXXXXXXXX Unit Options outstanding of which XXXXXXXXXX were fully vested.

d.    The REIT has issued and outstanding Incentive Units.  Incentive Units will, upon vesting, be settled in cash, Stapled Units, or any combination thereof as determined by the REIT.  Vesting of Incentive Units occurs either after the attainment of certain performance conditions (in the case of performance units) or after a continuous period of employment (in the case of restricted units).  As at XXXXXXXXXX, there were XXXXXXXXXX Incentive Units outstanding.

28.   At the time that a holder of Convertible Securities converts, exchanges, or exercises such securities and acquires REIT Units, Finance Trust is required to issue to such holder the corresponding number of Finance Trust Units for an issue price equal to the fair market value of such Finance Trust Units at the time of the issuance.  The purchase price for each such Finance Trust Unit issued is to be paid by the REIT (either on its own behalf or as agent for and on behalf of the holder) or by the holder, as the case may be.

29.   Before Finance Trust was introduced into the structure in XXXXXXXXXX, loans made by the REIT directly to US Holdco were subject to adverse treatment under US federal income tax laws (specifically, deferral of interest deductions under the “earnings stripping” rules).  These adverse consequences do not apply to debt owing by US Holdco to Finance Trust.

30.   Since XXXXXXXXXX, the REIT has made significant new investments in US real estate.  The REIT has increased the number of real properties located in the US that it owns from XXXXXXXXXX (as of XXXXXXXXXX immediately before the establishment of Finance Trust) to XXXXXXXXXX (as of XXXXXXXXXX) and has acquired a XXXXXXXXXX% interest in XXXXXXXXXX additional properties located in the US through its investment in XXXXXXXXXX.  These investments were made directly or indirectly by US Holdco.  The Existing Loans, having an aggregate principal amount of US$XXXXXXXXXX (as of XXXXXXXXXX), were made by the REIT to US Holdco in order to assist in financing these investments.  These Existing Loans, like the pre-XXXXXXXXXX loans made by the REIT to US Holdco, are subject to the adverse US tax treatment described in the preceding paragraph.

31.   In addition to the increased investment in US real estate financed with the Existing Loans, Finance Trust has used the proceeds from the issuance of additional Finance Trust Units (issued as part of Stapled Units) to increase the funding provided under the US Holdco Notes from US$XXXXXXXXXX (as of XXXXXXXXXX) to US$XXXXXXXXXX (as of XXXXXXXXXX).

32.   The REIT believes that it would be beneficial to Unitholders to increase the amount of debt financing provided by Finance Trust to US Holdco, and to reduce the portion of the debt of US Holdco that is held by the REIT.  However, increasing the debt financing provided through the existing Finance Trust arrangement is not practicable due to the limitations imposed by the rules governing “fixed investment trusts” in the Code and the Code Regulations.

Proposed Transactions

The following transactions are proposed to occur on the Effective Date (other than the transactions described under the headings “Pre-Effective Date Matters” and “Post-Effective Date Matters”).  Where feasible, and except where otherwise stated below, the transactions are intended to occur under the court-approved Plan of Arrangement.

A.    Pre-Effective Date Matters

Step 1.     Pursuant to applicable corporate law, the issued and outstanding common shares of US Holdco will be consolidated to a single common share.

Step 2.     Shortly prior to the Effective Date, and in accordance with the Declarations of Trust, the REIT and Finance Trust will make an offer to Dissenting Unitholders to pay for such Dissenting Unitholders’ Stapled Units an amount determined by the REIT Trustees and the Finance Trust Trustees to represent the fair value of such Stapled Units.  As a consequence of such offer, at the Effective Time, Dissenting Unitholders will cease to have any rights as Unitholders and will only have, as of the Effective Time, a debt claim against the REIT for payment of the fair value of their REIT Units and a debt claim against Finance Trust for payment of the fair value of their Finance Trust Units, in each case pursuant to and in accordance with the dissent provisions of the applicable Declaration of Trust.

B.    Recapitalization of a Portion of the Existing Loans

Step 3.     US Holdco will pay all accrued interest owing on the Existing Loans up to the Effective Date.

Step 4.     The REIT will transfer a portion of the Existing Loans, corresponding to the amount of additional common share equity to be issued by US Holdco, to Holdings LP as an additional capital contribution.  The REIT and Holdings GP Trust, as the general partner of Holdings LP, will jointly elect under subsection 97(2), in prescribed form and within the time referred to in subsection 96(4), for the transfer of such portion of the Existing Loans to occur on a tax-deferred basis.

Step 5.     Holdings LP will transfer the above-referenced portion of the Existing Loans to US Portfolio LP as an additional capital contribution.  The partners of Holdings LP and XXXXXXXXXX GP Trust, as the general partner of US Portfolio LP, will jointly elect under subsection 97(2), in prescribed form and within the time referred to in subsection 96(4), for the transfer of such portion of the Existing Loans to occur on a tax-deferred basis.

Step 6.     US Portfolio LP and US Holdco will agree to amend the terms and conditions of the Existing Loans held by US Portfolio LP to provide that such loans may be converted at the option of the holder into common shares of US Holdco (the “Exchange Right”).

Step 7.     US Portfolio LP will exercise the Exchange Right to convert the portion of the Existing Loans held by it into additional common shares of US Holdco.

C.    Formation of F17 Trust

Step 8.     The REIT will settle F17 Trust, and will subscribe for F17 Trust Units for an aggregate subscription price of $XXXXXXXXXX.  The number of F17 Trust Units issued by F17 Trust to the REIT will be equal to the number of issued and outstanding REIT Units at the time of the subscription (for greater certainty, excluding any units held by Dissenting Unitholders).

F17 Trust will be governed by a board of trustees consisting of XXXXXXXXXX individuals all of whom will be residents of Canada and who will conduct and manage the affairs of F17 Trust in accordance with and subject to the terms of the F17 Trust Declaration of Trust.  As settlor of F17 Trust, the REIT will retain the right to appoint XXXXXXXXXX of the trustees.  The remaining XXXXXXXXXX trustees will be elected by the F17 Trust Unitholders, will not be trustees of the REIT, and will be independent of management of F17 Trust and the REIT.  No more than XXXXXXXXXX of the trustees of F17 Trust will be Finance Trust Trustees.

F17 Trust will be structured substantially identically to Finance Trust.  In particular: (a) F17 Trust will be structured to comply with the restricted undertakings, prescribed conditions, and public distribution requirements of a mutual fund trust and will elect to be a mutual fund trust from the date of its inception; (b) F17 Trust will be a “portfolio investment entity” as it will not hold “non-portfolio property” (each as defined in the Act), and therefore will not be a SIFT trust; (c) F17 Trust will be structured in order to qualify as a “fixed investment trust” under the Code and the applicable Code Regulations; and (d) the F17 Trust Unitholders will have the right to redeem their F17 Trust Units on the same terms as currently apply to the Finance Trust Units.  Under the F17 Trust Declaration of Trust, the undertaking of F17 Trust generally will be restricted to investing in the Amended US Holdco Notes and temporarily holding cash.

The F17 Trust Declaration of Trust will provide for the “stapling” of F17 Trust Units with REIT Units in the same manner as Finance Trust Units are currently “stapled” to REIT Units under the Finance Trust Declaration of Trust, including the provision that an Event of Uncoupling will occur only: (i) in the event that REIT Unitholders and holders of Special Voting Units vote in favour of the uncoupling of REIT Units and F17 Trust Units such that the two securities will trade separately; or (ii) at the sole discretion of the trustees of F17 Trust, but only in the event of the bankruptcy, insolvency, winding-up or reorganization (under an applicable law relating to insolvency) of the REIT or US Holdco or the taking of corporate action by the REIT or US Holdco in furtherance of any such action or the admitting in writing by the REIT or US Holdco of its inability to pay its debts generally as they become due.

D.    Distribution of US Holdco Notes held by Portfolio LP

Step 9.     US Holdco will pay to Finance Trust and Portfolio LP all accrued interest owing on the US Holdco Notes up to the Effective Date.  The parties will agree to such prepayment without amendment to the US Holdco Note Indenture.

Step 10.    The US Holdco Notes held by Portfolio LP will be distributed by Portfolio LP to Portfolio LP Trust as a return of capital on the issued Class A LP Units.

Step 11.    The US Holdco Notes held by Portfolio LP Trust will be distributed by Portfolio LP Trust to the REIT as a return of capital on the issued trust units of Portfolio LP Trust.

E.    Transfer of US Holdco Notes held by Finance Trust to the REIT and Wind-Up of Finance Trust

Step 12.    Finance Trust will make a cash distribution to the Finance Trust Unitholders of all undistributed income, if any, for the period from January 1st of the year in which the Effective Date occurs to the Effective Date.

Step 13.    Finance Trust will pay (or make arrangements for payment of) all outstanding accounts payable and accrued liabilities (including by arranging for assumption by the REIT of certain liabilities of Finance Trust to former holders of Finance Trust Units, if any, who have exercised dissent rights with respect to the Plan of Arrangement, and liabilities for any previously declared, but unpaid, cash distributions to Finance Trust Unitholders as of a record date preceding the Effective Date) and will invest all remaining cash, other than $XXXXXXXXXX, in additional US Holdco Notes.

Step 14.    An Event of Uncoupling will occur.

Step 15.    The Support Agreement will be terminated.

Step 16.    Finance Trust will transfer all of the US Holdco Notes held by it to the REIT for no consideration (the “Finance Trust Disposition”).  As a result of this step, the only remaining property of Finance Trust will be $XXXXXXXXXX.  At the time of transfer, the beneficiaries of the REIT will be identical to, and will hold their units in the same proportions as, the beneficiaries of Finance Trust.

Step 17.    The Declarations of Trust will be amended and restated as necessary or desirable to give effect to the Plan of Arrangement.

Step 18.    The REIT will purchase all of the issued and outstanding Finance Trust Units from the Finance Trust Unitholders (for greater certainty, excluding any Dissenting Unitholders) for an aggregate purchase price of $XXXXXXXXXX. The ACB of each Finance Trust Unit immediately before its purchase by REIT will be nominal.  Each Finance Trust Unitholder will receive its pro rata share of such aggregate purchase price based on the number of Finance Trust Units held immediately before such purchase.  The purchase price for the Finance Trust Units will be paid by the REIT to the Depositary to be held for the benefit of the former Finance Trust Unitholders.

Step 19.    The REIT will sell its F17 Trust Units to the former Finance Trust Unitholders (for greater certainty, excluding Dissenting Unitholders) for an aggregate purchase price of $XXXXXXXXXX, with each such former Finance Trust Unitholder purchasing that number of F17 Trust Units as is equal to the number of Finance Trust Units held by such former Finance Trust Unitholder immediately before Step 18.  The purchase price payable by each such former Finance Trust Unitholder will be equal to the purchase price paid to such former Finance Trust Unitholder for its Finance Trust Units in Step 18, and will be satisfied using the funds held on behalf of such former Finance Trust Unitholder by the Depositary.  At the time of this sale, the only property of F17 Trust will be cash of $XXXXXXXXXX.

Step 20.    Finance Trust will redeem all of the Finance Trust Units (all of which will then be held by the REIT) for an aggregate redemption price of $XXXXXXXXXX, and Finance Trust will be terminated.  In connection with the termination of Finance Trust, the REIT will assume any liabilities of Finance Trust not otherwise provided for (including, for greater certainty, any obligations of Finance Trust to pay Dissenting Unitholders the fair value of their former Finance Trust Units under the Finance Trust Declaration of Trust and any obligations of Finance Trust for previously declared, but unpaid, cash distributions to Finance Trust Unitholders).

F.    Amendment of the US Holdco Note Indenture and the Repayment of the Remaining Existing Loans

Step 21.    The US Holdco Note Indenture will be amended to adjust the interest rate to a rate determined by the REIT and US Holdco to be an arm’s length rate of interest for such debt and to adjust a covenant regarding the required interest coverage ratio of US Holdco.  As a result of these amendments, the fair market value of each then-outstanding note is intended to be equal to its principal amount.  Such amended notes (all of which shall at this time be held by the REIT) are referred to as “Amended US Holdco Notes”.

Step 22.    US Holdco will repay in specie the remaining Existing Loans by way of the issuance to the REIT of additional Amended US Holdco Notes with the same aggregate principal amount.

G.    Transfer of Amended US Holdco Notes to F17 Trust

Step 23.    The REIT will transfer all of the Amended US Holdco Notes to F17 Trust for no consideration (the “REIT Disposition” and, together with the Finance Trust Disposition, the “Dispositions”).

Concurrently, the terms of the Convertible Securities will be adjusted, amended or amended and restated as necessary to provide for the conversion, exchange or exercise, as applicable, of such securities for or into New Stapled Units.

Step 24.    Under the F17 Trust Declaration of Trust and the amended REIT Declaration of Trust, the F17 Trust Units and REIT Units will become “stapled” and will be subject to the same stapling provisions as currently apply to the Stapled Units.  The New Stapled Units will trade together on the XXXXXXXXXX in the same manner as the REIT Units and Finance Trust Units currently trade together as Stapled Units.  The REIT and F17 Trust will enter into a new support agreement with provisions substantially identical to the Support Agreement enabling the REIT and F17 Trust to take all such actions and do all such things as are necessary or desirable to ensure that at all times each holder of a particular number of REIT Units holds an equal number of F17 Trust Units.

H.    Simplification of US Holdco Holding Structure

Step 25.    Holdings GP Trust will distribute all of its property, including its general partner interest in Holdings LP, to its sole beneficiary, GP Benco in satisfaction of GP Benco’s interest in Holdings GP Trust.  Having no further property, Holdings GP Trust will thereupon be automatically terminated as a matter of law.

Step 26.    GP Benco will be liquidated pursuant to and in accordance with the XXXXXXXXXX, and its property, including its general partner interest in Holdings LP, will be distributed to the REIT, such that Holdings LP will no longer have two partners and will thereupon cease to exist.  As a result, the REIT will become the sole owner of all of the property of Holdings LP, being its interest as the sole beneficiary of XXXXXXXXXX GP Trust and its interest as limited partner in US Portfolio LP.  (Subsequently, on or after the Effective Date, GP Benco will be dissolved upon filing of articles of dissolution under the XXXXXXXXXX.)

I.    Post-Effective Date Matters

Step 27.    When filing its first tax return under the Act, F17 Trust will elect to be deemed to have been a mutual fund trust since its inception pursuant to subsection 132(6.1).

Step 28.    The REIT will satisfy the obligation to pay fair value to Dissenting Unitholders (including the obligation assumed from Finance Trust as described in Step 20) in accordance with the dissent provisions of the Declarations of Trust.

Purpose of the Proposed Transaction

1.    The replacement of the existing Finance Trust by F17 Trust and the transfer of the debt of US Holdco currently represented by the existing US Holdco Notes and the Existing Loans (other than the portion of the Existing Loans that will be recapitalized into equity as described in Step 3 through Step 7 of the proposed transactions) to F17 Trust will prevent the effective double-taxation that would otherwise result from the inability to deduct interest on the Existing Loans and the portion of the US Holdco Notes currently held by Portfolio LP in the US while the corresponding interest income is recognized in Canada.  The transactions would therefore restore the result that was previously achieved by the introduction of the original Finance Trust structure in XXXXXXXXXX.

2.    The specific purpose of the Finance Trust Disposition is to allow for the US Holdco Notes to be consolidated with the Existing Loans in the REIT as Amended US Holdco Notes before such Amended US Holdco Notes are transferred to F17 Trust, so as to allow F17 Trust to comply with the strict limitations under the “fixed investment trust” rules in the Code and the Code Regulations, and to allow for the orderly termination of Finance Trust.  The specific purpose of the REIT Disposition is to effect the transfer of such consolidated Amended US Holdco Notes into the new F17 Trust structure.

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.    Each of the Dispositions will constitute a “qualifying disposition” within the meaning of subsection 107.4(1), such that the rules in subsection 107.4(3) will apply to the REIT, Finance Trust, F17 Trust, and their respective unitholders in respect of the Dispositions.

B.    Subsection 245(2) will not apply to redetermine the tax consequences described in the foregoing ruling.

Comments

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, or acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions described herein. In particular:

1. we express no opinion with respect to whether any entity described herein is a mutual fund trust within the meaning of subsection 132(6) at any particular time;

2. we express no opinion with respect to whether REIT is a “real estate investment trust” within the meaning of subsection 122.1(1) at any particular time;

3. we express no opinion with respect to whether Finance Trust is a “portfolio investment entity” within the meaning of subsection 122.1(1) at any particular time;

4. we express no opinion with respect to whether subsection 97(2) will apply in respect of the proposed transactions in Step 4 and Step 5 above;

5. we express no opinion with respect to the tax status of any entity described herein;

6. we express no opinion with respect to any interest deductibility or debt forgiveness issues in respect of any of the debt instruments referred to herein, or in regard to the changes to the terms of any such debt instruments; and

7. we express no opinion with respect to whether section 18.3 may apply in respect of any of the entities described herein.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R7 Advance Income Tax Rulings and Technical Interpretations, dated April 22, 2016, and are binding on the CRA provided that the proposed transactions are completed within six months of the date of this letter.

Yours truly,

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

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