30 November 1997 Ruling E9730193 - FOREIGN PROPERTY, DEBT OF A TRUST

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Would GAAR be applied where a trust is used to issue debt instead of an existing partnership because the debt issued by the existing partnership may be considered foreign property?

Position:

Not in this specific case.

Reasons:

The debt would be used primarily to fund the Canadian operations of related Canadian entities.

XXXXXXXXXX							973019

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letters dated XXXXXXXXXX, wherein you requested an advance income tax ruling in respect of the above-referenced taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. XXXXXXXXXX is a Delaware limited partnership the partners of which include its sole general partner, XXXXXXXXXX, and individual profit-sharing limited partners (the “Partners”). The Partners own all of the voting shares of XXXXXXXXXX. Most but not all of the Partners are persons resident in the United States, and only one is resident in Canada.

2. XXXXXXXXXX controls, directly or indirectly, many corporations and limited partnerships that collectively carry on a XXXXXXXXXX. Some of these corporations and limited partnerships carry on business in Canada (hereinafter referred to collectively as the “Canadian Entities”). The Canadian Entities consist of the following:

XXXXXXXXXX

XXXXXXXXXX

3. The Canadian Entities currently invest and will continue to invest their funds primarily in Canada. In order to meet the financial obligations associated with their day-to-day operations, the Canadian Entities have issued and will continue to issue debt instruments in public markets (the “Canadian Entity Debt”).

4. In XXXXXXXXXX, XXXXXXXXXX launched a short-term promissory note program to provide financing for the Canadian Entities. Notes are offered pursuant to an information memorandum dated XXXXXXXXXX. The notes issued by XXXXXXXXXX may be considered foreign property, within the meaning assigned by subsection 206(1) of the Act.

Proposed Transactions

5. A trust (the “Trust”) will be established in Canada and will be governed by Canadian law. It is anticipated that the trustee (the “Trustee”) of the Trust will be a Canadian trust company. In any case, the Trustee will be a resident of Canada for purposes of the Act. The sole beneficiary of the Trust will be XXXXXXXXXX, an unrelated Canadian resident.

6. The Trust will only acquire past and future issues of Canadian Entity Debt either on initial issue or in the secondary market from other holders (hereinafter the Canadian Entity Debt acquired by the Trust will be collectively referred to as the “Trust Assets”). The Trust will fund such acquisitions by issuing its own debt obligations (collectively, the “Trust Debt”) with fixed or floating interest and with various maturity dates, depending upon market conditions and the terms of the Trust Assets required to be financed. It is anticipated that the purchasers of the Trust Debt will be residents of Canada.

7. The Canadian Entity Debt will be bona fide loans made to the Canadian Entities on normal commercial terms as to interest rate, term to maturity, security provided and in all other respects. Depending on the market and business conditions, the Canadian Entity Debt may be guaranteed by XXXXXXXXXX.

8. The activities of the Trust will be restricted to holding the Trust Assets and making payments to the holders of the Trust Debt as required under the terms of the Trust Debt.

Purpose of the Proposed Transactions

6. The purpose of the proposed transactions is to ensure that the Trust Debt, used to fund the XXXXXXXXXX Canadian operations, issued to Canadian investors will not be considered foreign property for the purposes of Part XI of the Act.

Additional Information

7. To the best of your knowledge and the knowledge of XXXXXXXXXX, none of the issues involved in this ruling request:

(a) is in an earlier return of XXXXXXXXXX or a related person,

(b) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX or a related person,

(c) is under objection by XXXXXXXXXX or a related person,

(d) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(e) is the subject of a ruling previously issued by the Directorate.

Rulings Given

Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all of the relevant facts and proposed transactions, and that the Canadian Entity Debt is used primarily to fund the Canadian operations of the Canadian Entities, as stated in paragraph 3 above, we rule as follows:

A. The Trust Debt will not constitute foreign property for the purposes of Part XI of the Act.

B. Subsection 245(2) of the Act will not be applied to redetermine the tax consequences confirmed in the ruling given.

The above rulings, which are based on the Act in its present form and does not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and are binding on Revenue Canada provided that the proposed transactions are completed within six months of the date of this letter.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch