A closed-end mutual fund trust intends to qualify as a REIT. The beneficial interests in the trust currently consist of only one class of units (the "Units").
The trust will amend its declaration of trust to create a new class of "Preferred Units," consisting of more than one series (including the Series A and B Preferred Units described further below). The Preferred Units of each series will be entitled to priority over the (ordinary) Units with respect to the payment of distributions (other than distributions paid through the issuance of additional units) and with respect to the distribution of assets of the trust or returns of capital in the event of the liquidation or winding-up of the trust. However, neither the Units nor the Preferred Units of any series (except as otherwise provided in the terms of of a particular series of Preferred Units) shall have any term that gives any holder thereof an interest in the income of the trust as a percentage of any distribution received by the holder of those units that is greater or lesser than an interest in the income of the trust as a percentage of any distribution received by the holder of any other Units, or preferred Units of any series - and, similarly (and except as provided otherwise by the trustees in the terms of any particular series of Preferred Units), the declaration of trust will provide that "income and net taxable capital gains for the purposes of the Act will be allocated to Unitholders and Preferred Unitholders in the same proportions as the distributions received by such holders."
By virtue of the distributions preference of Preferred Units, the trust shall not pay any amount to the Unitholders (other than through the issuance of additional Units) unless and until the distribution entitlements of the Preferred Units have been paid in full. In the event of the termination of the trust, the trust net assets will be distributed to the Preferred Unitholders in accordance with the terms of the Preferred Units, with the remaining balance being distributed proportionately on the Units.
The Series A Preferred Units will be entitled to a fixed cumulative preferential cash distribution, payable quarterly, of between X% and Y% (with the rate to be reset on the 5th anniversary of issuance based on the five-year Canada bond yield), with such distributions to be paid in priority to any amounts paid to the Unitholders (other than through the issuance of additional Units). They will have the right on termination of the trust to be paid their subscription price plus any accumulated and unpaid disttributions, in preference to the Units. On such 5th anniversary (and every 5th anniversary thereafter) they can be required by the holder to be reclassifed as Series B Preferred Units (ranking on parity with the Series A and with similar attributes to the Series A except for a floating rate); and on such anniversary dates they also will be redeemable at the option of the trust for their subscription price plus accumulated unpaid distributions. They generally will be non-voting.
Ruling that s. 104(7.1) will not apply to deny the deduction by the trust of any amount it otherwise is entitled to deduct under s. 104(6)(b) in respect of amonts paid to its Unitholders or holders of its Series A Preferred Units.