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: Does the creation of new classes of Units having substantially the same rights and the reclassification of existing units into units of one of the newly created classes or the reclassification of units of one class into units of another class result in a disposition? The various classes differ as far as (i) management fees and other costs (ii) votes on special issues concerning a specific class (iii) NAV is determined by class (iv) the expenses are allocated by class (v) the various classes have different minimum investment requirements.
Position: The changes to the indenture does not result in a resettlement of the trust, the reclassification of units into units of a class and the subsequent reclassification of units of a class into units of a different class does not result in a disposition, 104(7.1) does not apply, nor does 245.
Reasons: Consistent with numerous previous statements.
XXXXXXXXXX 2004-008151
Attention: XXXXXXXXXX
XXXXXXXXXX, 2004
Dear Sir:
Re: Advance Income Tax Ruling
XXXXXXXXXX
as Trustee of the Funds listed in Appendix A
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the taxpayer. The documents submitted with your request are part of this letter only to the extent described herein.
To the best of your knowledge, and that of the taxpayer named above, none of the issues involved in this advance income tax ruling request:
(a) is considered in an earlier return of the taxpayer or a person related to the taxpayer;
(b) is being considered by a tax services office or a taxation centre in connection with a previously filed income tax return of the taxpayer or a person related to the taxpayer;
(c) is under objection by the taxpayer or a person related to the taxpayer;
(d) is or has been before the courts; or
(e) is the subject of a ruling previously considered by the Income Tax Rulings Directorate in respect of the taxpayer or a person related to the taxpayer.
The following definitions are applicable to this letter:
"Act" means the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended.
"Class 1 Unit" means a Class F unit of a Fund.
"Class 2 Unit" means a Class I Unit of a Fund.
"Class NAV" of each class of units of a Fund means its proportionate share of the NAV of the Fund, less the aggregate of the expenses attributable only to such class and its proportionate share of common expenses of the Fund.
"Declaration of Trust" means the Declaration of Trust or Trust Indenture by which each Fund is formed.
"Fund" means the one of the funds listed in Appendix A, collectively referred to as the "Funds".
"NAV" of a Fund means the value of all of the investments and other assets of the Fund less its expenses and liabilities due or accrued and accruing and other amounts payable to unitholders and not yet paid.
"NAV per Unit" means the NAV of a Fund calculated at the close of business on a Valuation Date divided by the total number of units of that Fund which are issued and outstanding.
"XXXXXXXXXX Funds" means the XXXXXXXXXX.
"Re-designated Unit" means a Class A unit of a Fund into which a Unit that is issued and outstanding is re-designated as described in subparagraph 7(e), below and, where appropriate, includes a fraction of a Re-designated Unit.
"Trustee" means XXXXXXXXXX, which was incorporated under the laws of the province of XXXXXXXXXX and is a taxable Canadian corporation as defined in subsection 89(1) of the Act. The business address of the Trustee is XXXXXXXXXX . Its taxation year-end is XXXXXXXXXX and its tax services office is the XXXXXXXXXX Tax Services Office. The trustee is also the manager and distributor for the Funds.
"Unit" means a unit of a Fund before it is re-designated into a Re-designated Unit, and, where appropriate, includes a fraction of such a unit.
"Unitholder" means a holder of a unit of a Fund.
"Valuation Date" means a day during the week on which the XXXXXXXXXX Stock Exchange is open for trading and such additional day or days as the Trustee may from time to time determine and, in any event, XXXXXXXXXX of each year.
Our understanding of the facts, proposed transactions and purpose thereof is as follows:
Facts
1. Each Fund was formed under a Declaration of Trust (as amended from time to time), governed by the laws of the province of XXXXXXXXXX.
2. Each of the Funds currently qualifies as a unit trust as defined in paragraph 108(2)(a) of the Act and each of the Funds except the XXXXXXXXXX is a mutual fund trust as defined in subsection 132(6) of the Act. Each of the Funds except the XXXXXXXXXX is a "registered investment" under paragraph 204.4(2)(d) the Act. Each of the Funds has a XXXXXXXXXX taxation year-end.
3. Each of the Funds is divided into an unlimited number of identical Units of one class, representing an equal and undivided beneficial interest in the net assets and net income of the Fund.
4. The attributes of the Units of each of the Funds are as follows:
(a) They are transferable.
(b) They have equal rights to share in distributions of a Fund and to share in the net assets of a Fund on the termination of the Fund.
(c) They are issued as fully paid.
(d) They are not subject to future calls or assessments.
(e) They entitle the holder thereof to one vote for each whole Unit held at all meetings of Unitholders.
(f) They are redeemable at the option of Unitholders at a redemption price per unit equal to the NAV per Unit on such date, subject to the terms of the Declaration of Trust of the applicable Fund. The Units are redeemable on any Valuation Day.
5. As compensation for its services, the Trustee is paid a daily management fee calculated as a percentage of the NAV of each Fund. The Trustee may effectively reduce its management fee in respect of certain large or institutional Unitholders by paying to such Unitholders a management fee rebate out of net income, net realized capital gains or, if necessary, capital of the Fund.
Proposed Transactions
6. Unitholders of each Fund will receive a written notice of the Trustee's intention to amend the Declaration of Trust of each Fund. The notice explains that the amendments will enable the Funds to conform with current practices for leading Canadian mutual fund trusts, including permitting the Trustee to create new classes of units of the Funds and providing for the re-designation of units of one class to another in specific circumstances.
7. On a date that is not before the expiry of a thirty days after the issuance of the notice described above and prior to the filing of the final Simplified Prospectus and Annual Information Form for the Funds, the Trustee will sign a document (the "Global Amendment"), the terms of which come into force on that date, and which can be summarized as follows:
(a) The Declaration of Trust of each of the Funds will be amended to provide the Trustee with the authority to create, from time to time, an unlimited number of classes of units.
(b) The Trustee of each Fund, will create a class of units designated as Re-designated Units.
(c) The Trustee of each Fund, except XXXXXXXXXX, will create a class of units designated as Class 1 Units.
(d) The Trustee of each Fund, except XXXXXXXXXX, will create a class of units designated as Class 2 Units.
(e) All Units of each Fund will be re-designated as Re-designated Units of that Fund on a one-for-one basis. On this re-designation, the Unitholders will not be entitled to proceeds of disposition and the Units will not cancelled or redeemed.
(f) Irrespective of their class, all units will have the attributes described in paragraph 4 above in respect of Units, subject to the distinctions set out below.
8. Re-designated Units will be available to retail investors investing a minimum of $XXXXXXXXXX in a Fund. Class 1 Units will only be available to investors investing a minimum of $XXXXXXXXXX in a Fund, who are enrolled in dealer-sponsored fee-for-service or wrap program and who are subject to a periodic asset-based fee rather than commissions on each transaction, or any other investors for whom the Trustee does not incur distribution costs. Class 2 Units will only be available to high net-worth and institutional investors investing a minimum of $XXXXXXXXXX in a Fund (which may be waived at the discretion of the Trustee) and who have entered into an investment management agreement with the Trustee.
9. Class 1 Units will have lower management fees than the Re-designated Units and Class 2 Units will have no management fees payable out of a Fund. In addition, no direct sales charges will apply nor will dealer commissions be paid in respect of Class 1 Units or, in most circumstances, in respect of Class 2 Units.
10. Each class will pay the operating costs, expenses, liabilities and other amounts payable or incurred by a Fund (including management fees) which are attributable to that class. However, the Trustee may, in its sole discretion, pay the totality or a portion of the expenses attributable to a class. Each class also pays its share, as determined by the Trustee, of the costs, expenses, liabilities and other amounts payable or incurred by a Fund which are attributable to all the classes of units.
11. Each class of units of a Fund will have a separate Class NAV calculated for that class. The units of each class of a Fund will be redeemable at the option of the holder at the Class NAV per unit. All unitholders of a Fund will rank equally with each other with respect to property received on the termination or winding up of the Fund, based on the relative Class NAV of each class of units.
12. Class 1 Units and Class 2 Units of a Fund will have a redesignation feature which will permit outstanding units of that class to be redesignated at the discretion of the Trustee as Re-designated Units of the same Fund if the holder ceases to satisify the investment requirements of either class. Holders of Re-designated Units who subsequently satisfy the investment requirements of the Class 1 Units or Class 2 Units may request the Trustee to re-designate their Re-designated Units as Class 1 Units or Class 2 Units (as applicable) of the same Fund. At the time of any re-designation, the aggregate net asset value of the units of the Fund to be re-designated and the aggregate net asset value of the units into which they will be re-designated will be equal. On any re-designation, the unitholder will not be entitled to proceeds of disposition for the units and the re-designated units will not be cancelled or redeemed.
13. Where the general nature of the business to be transacted at a unitholder meeting concerns an issue relevant to all unitholders of a Fund, units of all classes of that Fund will be voted together. Where an issue may affect the unitholders of a particular class in a manner that is materially different from another class, only unitholders of those classes to which such business is relevant will be entitled to vote and such units will be voted separately as a class.
Purpose of Proposed Transactions
Currently each Fund charges the same management fee with respect to all units, subject to management fee rebates which may be paid to a small number of qualifying Unitholders. Each Fund also divides other administration and operating expenses equally among all issued and outstanding Units.
By enabling the Trustee to create various classes of units, the proposed transactions are designed to attract new investors which will increase the Funds' asset base. This would stem from the flexibility to charge differing management fees and to allocate other administrative and operating expenses to different types of investors, as well as from the ability to provide enhanced services to all Fund investors on a more cost effective basis resulting from reduced per unit costs and management expense ratios.
Rulings
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, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
(A) The execution by the Trustee of the Global Amendment will not, in and by itself, result in the resettlement of any of the Funds, a disposition of the property of any of the Funds or a disposition of the issued and outstanding Units of any of the Funds, for purposes of the Act.
(B) The re-designation of the Units of each of the Funds into Re-designated Units of the same Fund as described in paragraph 7 above will not result in a disposition of those Units for purposes of the Act.
(C) A re-designation by the Trustee of Class 1 Units or Class 2 Units into Re-designated Units of the same Fund as described in paragraph 12, or a re-designation of Re-designated Units into Class 1 Units or Class 2 Units of the same Fund, as described in paragraph 12 above, will not result in a disposition of those units for purposes of the Act.
(D) The implementation of the proposed transactions described herein will not, in and of itself, cause subsection 104(7.1) of the Act to apply so as to deny the Funds a deduction in computing their income under paragraph 104(6)(b) of the Act.
(E) Subsection 245(2) of the Act will not be applied to re-determine the tax consequences of the above rulings as a result of the implementation of the proposed transactions described herein.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R5 and are binding on Canada Revenue Agency (the "CRA") provided that the 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, which if enacted into law, could have an effect on the rulings provided herein.
The above rulings should not be construed as providing the CRA's views on whether a Fund qualifies as a unit trust, a mutual fund trust, or a "registered investment" for purposes of the Act.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch
APPENDIX A
XXXXXXXXXX
The Funds file, or will file their returns with the XXXXXXXXXX Centre.
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© Her Majesty the Queen in Right of Canada, 2004
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© Sa Majesté la Reine du Chef du Canada, 2004
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