Principal Issues:
1. Is an interest in the Partnership a tax shelter?
2. Is the Partnership's interest in XXXXXXXXXX a tax shelter?
3. (a) Are the XXXXXXXXXX contracts/XXXXXXXXXX agreements revenue guarantees for the purposes
of the prescribed benefit provisions in ITR 231(6)(b)(ii)?
(b) Are the letters of credit, provided by XXXXXXXXXX, revenue guarantees for the purposes of the prescribed benefit provisions in ITR 231(6)(b)(ii)?
4. Would the letters of credit be caught by 96(2.2)(d)?
5. Would draft Regulation 231(6.1) apply to treat the Full Recourse Debt of the Partnership as a prescribed benefit for the purposes of the definition of tax shelter in subsection 237.1?
6. Are the XXXXXXXXXX contracts/XXXXXXXXXX agreements revenue guarantees as contemplated in the at-risk provisions in 96(2.2)(d) or the at-risk adjustments in 143.2(2)?
7. Would the Full Recourse Debt be a prescribed benefit pursuant to ITR 231(6)(a)(iii), because the creditors rank equally (as opposed to having first priority) with the lenders under the Limited Recourse Debt in terms of priority against specified security (i.e. would this be a limitation by agreement for the purposes of the ITR)?
Position:
1 & 2. Not as of the date of the ruling, based on certain provisos.
3 to 7. No for all of them.
Reasons:
1 & 2. The statements and representations provided in Schedules "A" & "B" do not indicate that the interest in the Partnership would be a tax shelter and the statements and representations in Schedule "B" replace those in Schedule "A" and do not indicate that the Partnership's interest in XXXXXXXXXX would be a tax shelter. However, there may be other statements and representations made that we are not aware of, which could result in there being a tax shelter. This matter involves a question of fact.
3. XXXXXXXXXX
4. Purpose test not met. Letters of credit are to be given as part of package to get the commercial deal up and running. XXXXXXXXXX. Also, 96(2.2)(d)(v) would exclude this gross revenue guarantees since the "reasonably considered to ensure test" (similar to the test noted in issue 3. above) will not be met (i.e. revenue will not be generated unless XXXXXXXXXX is first completed. Also there is no guarantee that any funds will be available for distribution to the partners, as a result of the letter(s) of credit - see Rev. Canada comments page 53:12 of 88 Conference Report).
5. The most recent version of the draft regulation was contained in the June 20, 1997 Explanatory Notes. Therein it provides that a prescribed benefit (for the purposes of the definition of tax shelter in 237.1(1)(b)) includes an amount that is a limited- recourse amount because of 143.2(1), (7) or (13). It does not include amounts deemed to be limited-recourse amounts by virtue of 143.2(8). XXXXXXXXXX
6. The purpose test is not met (XXXXXXXXXX).
7. The creditors of the Full Recourse Debt still have full recourse against all the assets of the Partnership and of the General Partner. There was no limitation by agreement. XXXXXXXXXX