Proposed transactions
The trustees of a listed REIT will implement a distribution reinvestment plan (the "Plan") under which Canadian-resident unitholders may enroll. Because of foreign securities legislation non-residents will not be eligible. The Plan provides that the REIT shall pay to the Agent (a trust company) all cash distributions paid on Units owned by Unitholders who participate in the Plan and the Agent will use such funds to purchase additional Units directly from the REIT. Additional Units purchased under the Plan will be registered in the name of the Agent, as agent for a Unitholder who participates in the Plan. The price at which Units of the REIT will be purchased by the Agent with cash distributions will be the "Average Market Price," namely XX% of the weighted average price of Units of the REIT on the applicable exchange for the five trading days immediately preceding the relevant Distribution Date. The right to participate in the Plan may not be transferred by a Unitholder without the approval of the REIT and the applicable securities regulatory authorities.
Rulings
A. By virtue of the provisions of subsection 105(1) of the Act, the amount by which the fair market value on the date of purchase of any Units of the REIT exceeds the purchase price paid for such Units pursuant to the provisions of the Plan… shall be included in computing the income of the Unitholder on whose behalf the Units are purchased.
B. By virtue of subsection 52(1)… the amount added to a Unitholder's income pursuant to ruling A shall be added in computing the cost to the Unitholder of such Units of the REIT except to the extent that such amount is otherwise added to the cost or included in computing the adjusted cost base to the Unitholder of such Units.
Comment in Summary
: "The issue was considered by the Policy Review Committee and it was decided that it would not be appropriate to extend our long-standing favourable administrative position concerning dividend reinvestment plans of corporations to income distribution reinvestment plans of trusts. This is consistent with E9321283 in which we concluded that the proposed discounts of 10% to 15% would result in a benefit under 105(1)."