2017 Ruling 2016-0660321R3 - Reorg of REIT to simplify multi-tier structure -- summary under Qualifying Exchange

Background

Fund, which is a REIT under s. 122.1, holds notes and all the units of a unit trust (“Sub-Trust”). Sub-Trust owns the Class A LP Units of the Partnership (as well as the shares of the general partner - GP I) and the Partnership’s Class B (exchangeable) LP units are held by a taxable Canadian corporation (“Investor”), who also holds special voting units of Fund. Partnership directly and indirectly holds real-estate related assets, and also holds Opco. See also Crombie REIT Circular.

Proposed transactions

1. Opco and a newly-incorporated subsidiary of Opco (GP II) will form Opco Partnership as a general partnership, with Opco transferring real estate to Opco Partnership on a s. 97(2) rollover basis.
2. Opco Partnership will then be converted to a limited partnership, with no significant changes to the rights and obligations of the partners other than Opco becoming a limited partner.
3. All intercompany amounts among the Fund, Sub-Trust and the Partnership including the notes owing by Sub-Trust to the Fund and by Partnership will be satisfied in cash or by issuing units.
4. After the settling of a new unit trust (“MFT”), having redeemable retractable units, by a Canadian-resident third party, the Fund subscribes for MFT units for nominal cash consideration and the unit of the settlor is redeemed.
5. Sub-Trust will transfer all its assets including the Class A LP Units and the GP I shares, to MFT for no consideration, with no s. 107.4(3)(a)(i) election being made and with MFT electing under (f)(v) of “disposition” in s. 248(1) that para. (f) thereof not apply.
6. Fund will distribute a certain number of its MFT Units to the Fund Unitholders in accordance with applicable securities’ laws (with s. 218.3(2) withholding being made) such that MFT will qualify as a mutual fund trust (and with a s. 132(6.1) election made before the winding-up of MFT below).
7. The Declaration of Trust of the Fund will be amended to provide for the consolidations in 9 and 18 below, for the in specie redemption of Fund units through distribution of securities of a Fund subsidiary including MFT Units and adding the Right of Renunciation utilized in 17 below.
8. Pursuant to a transfer agreement between the Fund, MFT and an agent for the MFT Unitholders, MFT will transfer its assets to the Fund at the “MFT Transfer Time” in consideration for Fund Units being issued to the MFT Unitholders in payment of the redemption proceeds for their Units; and immediately after the MFT Transfer Time, MFT will redeem all of the MFT Units held by the Fund and the MFT Unitholders except for one MFT Unit which the Fund will continue to hold until the winding-up of MFT in 10 below. In due course, a joint s. 132.2 joint election will be filed.
9. Immediately thereafter the outstanding Fund Units are consolidated so as to result in the same number as before.
10. Ultimately, MFT will be wound up.
11. Fund will incorporate MFC, subscribe for MFC Common Shares and (non-voting redeemable retractable) MFC Class A Shares for nominal cash consideration, list the MFC Class A Shares on the Exchange and subscribe for further MFC Class A Shares such that the total outstanding number of shares will now equal the number of outstanding Fund Units.
12. The Fund will distribute to Fund Unitholders, as a return of capital, all of its MFC Class A Shares and, in due course, remit any applicable s. 218.3(2) withholding tax and elect to be a public corporation from the beginning of its taxation year.
13. Partnership will transfer all of its Opco Shares and Note to MFC in consideration for MFC Class B Shares (having similar attributes to the MFC Class A Shares), with the s. 85(2) election to be filed by Amalco MFC and Partnership.
14. MFC and Opco will amalgamate, with the Opco Shares and Notes being cancelled on the amalgamation and the outstanding shares of MFC being converted on the amalgamation into the equivalent number of Amalco MFC Class A, Class B and Common Shares.
15. Amalco MFC will transfer all of its assets to the Fund in consideration for the assumption of its liabilities and the Fund’s agreement to issue Fund Units to the holders of the Amalco MFC Class A and B Shares in satisfaction of the redemption price for their shares (see 16 below), with a joint s. 132.2 election being made in due course.
16. Immediately after the transfer in 15, Amalco MFC will redeem the Amalco MFC Class A and B Shares.
17. Partnership will renounce all of its interest in the Fund, so that rather than receiving Fund Units, they will be cancelled.
18. The outstanding Fund Units will be consolidated.
19. Fund will contribute its Opco Partnership Units and its shares of GP II to Partnership, with a joint s. 97(2) election being filed.
20. Opco Partnership will be wound-up under s. 98(3).
21. GP II will sell its undivided interest in each property to Partnership for fair market value consideration and then will be wound up.

Purposes

The proposed transactions eliminate Sub Trust so that the Fund will hold its investment in the Partnership directly. In addition the proposed structure will eliminate corporate taxation on Opco’s income.

Rulings

The transfer in 5 will be a qualifying disposition under s. 107.4(1).

The transactions referenced in 8 and 15 will be qualifying exchanges as defined in s. 132.2(1).

Partnership will not realize any gain or loss on the disposition of its Fund Units as a result of the renunciation in 17 because the proceeds of disposition of such units should be equal to their ACB pursuant to s. 132.2(3)(g)(vi)(C)(I), and ss. 15(1), 56(2), 56(4), 69(1), 69(4), 105(1) or 246(1) will not apply in respect of the renunciation.