Structure
Each of Aco and Bco (who are unrelated Canadian residents) each holds 50% of the shares of Canco, which wholly owns the Canadian-resident Manager. A non-resident wholly-owned subsidiary of Aco (the Taxpayer) will, along with other non-residents subscribe for LP units of a newly-formed LP (New Fund LP) with a newly-incorporated subsidiary of Canco (New Canada GP) as the general partner. Taxpayer and the other non-resident investors also are unrelated to the Manager and any sub-advisor, or to any person or partnership, other than New Fund LP or Project LPs, described in s. 115.2(2)(c)(ii)(A) or 115.2(2)(c)(ii)(B) in respect of the Manager or such sub-advisor). Interests in New Fund LP will only be marketed to non-resident investors.
Project Investments by New Fund LP or Project LP
New Fund LP may invest in Project Investments (i.e., private credit investments in Canadians or non-residents, including specialty mezzanine and other debt instruments) directly, but will usually form a subsidiary “Project LP” (of which New Canada GP is the general partner) to make the investment. Each Project Investments will be “indebtedness” and a “qualified investment.”
NPP Subsidiary
An unlimited liability company subsidiary (“NPP Subsidiary”) of New Fund LP or of a Project LP will acquire “Net Profit Participations” from entities that are financed with a Project Investment, and will pay corporate income tax on any income generated from Net Profit Participations.
Manager functions
New Canada GP, New Fund LP and any Project LP will enter into one or more Management Agreements with the Manager whereby New Canada GP, on behalf of the Partnerships, will appoint the Manager to act as its investment advisor and debt financing underwriter and servicer, and New Canada GP will delegate all of its functions with respect to New Fund LP, Project LPs, and other Subsidiary Entities, including approving Project Investments and approving dispositions. In addition to making investment decisions, the Manager will manage the day-to-day operations of the Partnerships and arrange for the provision of marketing services.
Ruling
S. 115.2(2) will apply to the Taxpayer such that the provision by the Manager of the above services, and the acquisition, holding, and disposition through the services of the Manager of (i) Project Investments by Project LPs, and (ii) shares of NPP Subsidiary by New Fund LP or Project LPs will not cause the Taxpayer to be carrying on a business in Canada for the purposes of ss. 115(1) and 150(1) and Part XIV.