On July 14, 2008 the Minister of Finance (Canada) released draft legislation which includes new income tax rules to facilitate the conversion of SIFT trusts (generally known as income trusts) and SIFT partnerships into corporations.
The rules contain an exchange provision which allows unitholders of a public trust to exchange their units for shares of a new corporation on a rollover basis. The paid up capital of the shares issued by the corporation is adjusted to equal the capital of the trust outstanding at the time of the exchange. The structure underneath the corporation (often a trust on trust on partnership) may then be cleaned up using new wind-up provisions. The draft legislation also contains provisions applicable to the conversion of SIFT partnerships.
The draft legislation also contains amendments to the existing SIFT rules in connection with the Department of Finance Backgrounder released on December 20, 2007, which announced proposed technical amendments to further clarify the SIFT rules.
The Borden Ladner Gervais LLP tax department will be considering these proposed rules in detail over the coming days and expects to release a more detailed tax bulletin in the near future.
For a copy of the draft legislation for SIFT Conversions please go to http://www.fin.gc.ca/drleg/bia2008_e.html