2017 Ruling 2016-0660321R3 - Reorg of REIT to simplify multi-tier structure -- summary under Paragraph 107.4(2)(a)

Overview

A Canadian REIT (the “Fund”) holds the units and notes of a subsidiary unit trust (“Sub-Trust”), whose principal asset is most of the partnership interests, other than exchangeable LP units, in a subsidiary LP (“Partnership”).

Steps relating to elimination of Sub-Trust

The Fund eliminates Sub-Trust by setting up a unit trust (“MFT”), transferring the Sub-Trust assets to MFT under s. 107.4, distributing just enough units of MFT to its unitholders for MFT to qualify as a mutual fund trust, and then instigating a s. 132.2 merger of MFT into the Fund. In particular:

1. After the settling of MFT, which has 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.
2. Sub-Trust will transfer all its assets including the Class A LP Units and the GP I shares of Partnership, 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.
3. 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 in 7 below).
4. The Declaration of Trust of the Fund will be amended to provide for inter alia the consolidations in 6 below.
5. 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 7 below. In due course, a joint s. 132.2 joint election will be filed.
6. Immediately thereafter the outstanding Fund Units are consolidated so as to result in the same number as before.
7. Ultimately, MFT will be wound up.

Ruling

The asset transfer in 2 will be a “qualifying disposition” within the meaning of s. 107.4(1), such that the rules in s. 107.4(3) will apply to Sub-Trust and MFT in respect of such transfer.