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On January 15, the Toronto Stock Exchange (the “Exchange”) published proposed amendments to the Toronto Stock Exchange Company Manual (the “Manual”). More specifically, a completely new section will be added to the Manual (Part XI) for determining the minimum listing requirements to be met by non-corporate issuers, i.e. exchange traded products (ETPs), closed-end funds and structured products. ENTITIES COVERED BY THIS PROPOSAL In their current version, the rules proposed by the Exchange provide definitions for the non-corporate issuers covered by these rules. However, the Exchange has given itself some level of discretion to decide that issuers not covered by this definition may still be subject to the obligations of non-corporate issuers. The three groups of issuers covered by these new rules are as follows: Exchange traded products, i.e. redeemable equity securities (“Exchange Traded Funds” or “ETFs”) and redeemable debt securities (“Exchange Traded Notes” or “ETNs”) offered on a continuous basis under a prospectus which give an investor exposure to the performance of specific index, sectors, managed portfolios or commodities through a single type of securities Closed-end funds, i.e. investment funds, mutual funds, split share corporations, capital trusts or other similar entities that are managed in accordance with specific investment goals and strategies Structured products, i.e. securities generally issued by a financial institution (or similar entity) under a base shelf prospectus and pricing supplement where an investor’s return is contingent on, or highly sensitive to, changes in the value of underlying assets, index, interest rates or cash flows. Structured products include securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates --> 1) Exchange traded products, i.e. redeemable equity securities (“Exchange Traded Funds” or “ETFs”) and redeemable debt securities (“Exchange Traded Notes” or “ETNs”) offered on a continuous basis under a prospectus which give an investor exposure to the performance of specific index, sectors, managed portfolios or commodities through a single type of securities 2) Closed-end funds, i.e. investment funds, mutual funds, split share corporations, capital trusts or other similar entities that are managed in accordance with specific investment goals and strategies 3) Structured products, i.e. securities generally issued by a financial institution (or similar entity) under a base shelf prospectus and pricing supplement where an investor’s return is contingent on, or highly sensitive to, changes in the value of underlying assets, index, interest rates or cash flows. Structured products include securities such as non-convertible notes, principal or capital protected notes, index or equity linked notes, tracker certificates and barrier certificates RATIONALE FOR THIS PROPOSAL The Manual sets out the requirements enforced by the Exchange to all issuers as part of its mission to ensure a transparent, fair and orderly market for listed securities. These requirements were designed to recognize the specific features of various classes of issuers. However, the current version of the Manual does not take into account the specific features of ETFs and closed-end funds, which have become much more common in the Canadian market over the past 10 years. Indeed, according to the data provided by the Exchange, while there were only three ETF providers offering 84 products listed on the Exchange at the end of 2008, by October 31, 2014, there were nine providers offering 335 ETFs. In addition, every year over the past five years, an average of 35 closed-end investment funds have been listed on the Exchange, representing a market value of more than $26B. In the course of the elaboration of these proposed rules, the Exchange reviewed the listing requirements used by various recognized stock markets, including the New York Stock Exchange, NASDAQ, London Stock Exchange and, closer to home, the brand new Aequitas NEO Exchange. According to the Exchange’s analysis, the products listed on NASDAQ and NYSE are the most comparable to those listed on the TSX. PROPOSED MINIMUM LISTING REQUIREMENTS In the proposed amendments, the Exchange intends to set the minimum market capitalization to be met by non-corporate issuers wishing to be listed on the TSX, as follows: Exchange traded products must have a minimum market capitalization of $1 million Closed-end funds must have a minimum market capitalization of $20 million Structured products must have a minimum market capitalization of $1 million --> 1) Exchange traded products must have a minimum market capitalization of $1 million 2) Closed-end funds must have a minimum market capitalization of $20 million 3) Structured products must have a minimum market capitalization of $1 million In addition to the minimum market capitalization requirement, closed-end funds must also have issued a minimum of one million (1,000,000) freely tradeable securities held by at least 300 board lot holders. The Exchange also provides for certain requirements for calculating net asset value, as well as for governance. The net asset value must be calculated daily for exchange traded products and weekly for closed-end funds and structured products. In all cases, the net asset value must be posted on the issuer’s website. With respect to governance, as the Exchange does for issuers of other classes, it will assess the integrity of the directors and officers of non-corporate issuers. Issuers or managers of exchange traded products, closed-end funds and structured products must have a CEO, CFO, secretary, as well as an independent review committee (for exchange traded products and closed-end funds) or two independent directors (for structured products). However, this obligation does not apply to exchange traded products and structured products issued by financial institutions. REQUIREMENTS FOR MAINTAINING A LISTING Securities of a closed-end fund may be suspended or delisted if the market value of the securities listed on the Exchange is less than $3 million ($3,000,000) for 30 consecutive trading days, the fund has less than 500,000 freely-tradeable securities, or the number of security holders is less than 150. As for the securities of exchange traded products and closed-end funds, they will be delisted if maintaining their listing affects market efficiency. To do so, the Exchange will, among other things, consider the degree of liquidity and market value of the securities. CONCLUSION The proposed amendments were subject to a period of comments extending from last January 15 to March 16. The coming into force of these rules also remains subject to approval by the Ontario Securities Commission. As usual, if you are considering applying for a listing of your products on the Exchange, it is always preferable to obtain a preliminary opinion on eligibility for listing by filing an application to this effect with the Exchange.

The Foreign Account Tax Compliance Act, or FATCA, has been an integral part of Canada’s tax system for over a year. Originally legislated under U.S. law, FATCA allowed the Internal Revenue Service (“IRS”) to obtain information from financial institutions about the financial accounts of U.S. citizens and residents. This U.S. regime was introduced into Canada through the Intergovernmental Agreement for the Enhanced Exchange of Tax Information under the Canada-U.S. Tax Convention (“IGA”) and then through the enactment of Part XVIII of the Income Tax Act. Under Canada’s FATCA regime, Canadian financial institutions, including several investment funds, are required to file their first report on their U.S. reportable accounts by May 1, 2015. STATUS Under the FATCA, only Canadian financial institutions can have obligations to register and report the U.S. reportable accounts they maintain. Investment funds are generally considered a Canadian financial institution. An investment fund, its general partner, fund manager and holding companies are usually required to report under the FATCA rules. A fund’s limited partners may also have their own FATCA obligations. Most Canadian investment funds have addressed the issue of their FATCA status and obtained a global intermediary identification number (or “GIIN”) from the IRS. However, there is still some uncertainty which can cause market players to put off analyzing their obligations or registering. There are several reasons for this, including the fact that the rules are relatively new, the lack of formal administrative positions regarding their application, qualification and exception issues, etc. For an investment fund, these issues require an in-depth analysis of all entities forming part of its structure in order to come to an adequate determination. It should be noted that an investment fund that determines that it does not qualify as a financial institution for the purpose of FATCA could be considered a passive non-financial foreign entity and be required to report such information at the request of a financial institution and disclose more information about its beneficiaries in order to determine their status. DUE DILIGENCE A reporting Canadian financial institution is required to determine whether the financial accounts it maintains for its clients contain U.S. indicia (residence and citizenship of account holder, place of birth, mailing address, telephone number, etc.). This verification includes a review of available information about the account by the financial institution and a mechanism for requesting information. Such a request may be in the form of an IRS Form W-8, an official IRS document, or an equivalent document prepared by the financial institution, to be filled out by the account holder. A financial institution is required to collect this information for existing accounts and any new account it opens for a client. The financial institution’s verification obligations may be more or less strict depending on the account, the date it was opened and its value. REPORTING Canadian financial institutions are required to file an electronic report on their U.S. reportable accounts with the Canada Revenue Agency (“CRA”). The first such report covers financial accounts held by financial institutions as of December 31, 2014 and must be filed by May 1, 2015. Financial institutions must also complete, by June 30, 2015, a review of their high-value financial accounts, i.e. those worth one million dollars ($1M) or more, held as of June 30, 2014. After that, financial institutions will be required to file annual reports. EVOLUTION The FATCA rules are the precursor of a broad, evolving trend toward the exchange of information about taxpayers’ assets among the tax authorities of different countries. The United Kingdom has set up a similar although less wide-sweeping regime than the U.S. China is also looking at the possibility of setting up its own regime but has not released any details so far. The Organisation for Economic Co-operation and Development (“OECD”) has also set up a common standard for the automatic exchange of information regarding financial accounts, which Canada has committed to implement by 2018. This standard is expected to be similar to FATCA but involve all countries that have signed agreements involving the automatic exchange of information. In future we will certainly see greater transparency and increased reporting requirements regarding information about financial accounts to be provided to the tax authorities. Since investment funds are directly affected by these rules, they should make sure they have the tools they need to meet these requirements.

SOMMAIRE US Parent corporations sending employees into Canada to subsidiaries – General tax issues and remedy Business trips to Canada: Business visitor status or work permit? US Parent corporations sending employees into Canada to subsidiaries – General tax issues and remedy Emmanuel Sala, Carolyne Corbeil and Luc Pariseau Where a corporation is a resident of the United States (the “US”) for the purposes of the Convention Between Canada and the United States of America With Respect to Taxes on Income and Capital (“Treaty”) (the “US Parent”) and sends US-based employees (the “US Employees”) in Canada to perform services for the benefit of a Canadian corporate subsidiary (the “Canadian Subsidiary”) under a service agreement, all parties involved may become subject to Canadian federal and Quebec provincial tax obligations and the US Parent and the Canadian Subsidiary may become subject to federal and Quebec sales tax obligations TAX ISSUES Consequences to US Parent When the US Parent sends US Employees to work in Canada, it may be considered as carrying on a business in Canada for Canadian federal income and sales tax purposes, triggering the application of the following income and sales tax compliance obligations: Withholding of federal income tax source deductions, remittance thereof to the Canada Revenue Agency (“CRA”) and compliance with payroll filing obligations in connection with the portion of the remuneration paid to the US Employees attributable to duties performed in Canada. Registering for federal and Quebec sales tax purposes (“GST/QST”) and fulfilling compliance obligations in this regard, including charging to and collecting from the Canadian Subsidiary GST/QST on any fees charged by the US Parent to the Canadian Subsidiary in consideration for the work performed by the US Employees for the benefit of the Canadian Subsidiary (“Chargeback Fees”). Maintaining a business number together with a payroll and corporate income tax program accounts with the CRA. Filing a Canadian federal income tax return with the CRA within 6 months after the end of its taxation year Should the US Parent be carrying on this business through a “permanent establishment” (“PE”) situated in Canada, as this term is defined under the Treaty, liability for Canadian federal income tax obligations and Canadian payroll taxes and employer contributions could arise. Essentially, the US Parent may have a PE in Canada under the Treaty should it be determined that the US Parent has a Fixed Base PE, an Agency PE, a Construction Site PE or a Service PE, as such expressions are defined below. The following provides examples of situations where the CRA may argue that the US Parent has a PE in Canada under the Treaty An office space is made available to the US Employees in the premises of the Canadian Subsidiary – Fixed Base PE. Presence in Canada of the US Employees who exercise the authority to conclude contracts in the name of the US Parent – Agency PE. The US Employees perform planning and supervising activities at a construction site which will be in place for a period of more than 12 months – Construction Site PE. Services are provided in Canada by one or more US Employees for an aggregate of 183 days or more during a 12-month period – Service PE. Particular attention must be given to Construction Site PE and Service PE which have been given a broad interpretation by the CRA. A US Parent may be deemed to have a Service PE in Canada under the Treaty if the US Employees and, in certain circumstances, US subcontractors, enter into Canada to provide services to the Canadian Subsidiary. Under the Service PE rules, the US Parent would have a PE if the services provided in Canada, by one or many US Employees, continue for an aggregate of 183 days or more in any twelve-month period. However, the determination of a Service PE remains subject to the rules applicable to the Construction Site PE. In general, it is the CRA’s view that the Construction Site PE rules override the Service PE rules and that only services rendered in Canada, but away from the Construction Site PE, can be considered when making the determination of a Service PE. In other words, if the US Parent has employees or agents (including directors of the board of directors) in Canada for a total of more than 182 days in a 365-day period in connection with a project, excluding the days during which the US Parent’s employees, agents or subcontractors render services at the Construction Site PE of the US Parent, if any, the US Parent will be deemed to have a PE in Canada, and any profits attributable to that PE will be taxable in Canada. In computing the number of days for the purposes of the Service PE 183-day threshold, where the US Parent sends individuals simultaneously in Canada to provide services to the Canadian Subsidiary, their collective presence during one calendar day will count for one day only. From a Quebec provincial income tax perspective, should the US Parent have a PE situated in the Province of Quebec which constitutes an “establishment” for Quebec income tax purposes, the US Parent will also be liable for Quebec provincial income tax, Quebec income tax source deductions and Quebec payroll taxes/employer contributions. However, since the notions of Construction Site PE and Service PE do not exist for Quebec income tax purpose, the threshold for US Parent to have an “establishment” in the Province of Quebec is higher than at the federal level. Consequences for Canadian Subsidiary From the Canadian Subsidiary’s perspective, service agreements with the US Parent should not result in any significant adverse income and sales tax consequences other than the combined federal and Quebec 24% tax withholdings that will have to be withheld and remitted to the tax authorities with respect to the Chargeback Fee. GST/QST would also likely be payable by the Canadian Subsidiary to US Parent with respect to those amounts, but a corresponding GST input tax credit and QST input tax refund should generally be available to the Canadian Subsidiary. Consequences for US Employees To the extent that the US Parent has a Fixed Base PE, an Agency PE, a Construction Site PE or a Service PE in Canada, Treaty relief for Canadian taxes on Canadian-source income should not be available to the US Employees and their portion of income that will be derived from services rendered or duties performed in Canada should be subject to tax in Canada. Consequently, the US Employees will generally also be subject to Canadian income tax compliance obligations. REMEDY: SECONDMENT ARRANGEMENT To mitigate most of the foregoing PE issues and other tax issues associated with carrying on a business in Canada, the US Parent could enter into a secondment arrangement with the Canadian Subsidiary and the US Employees. A secondment arrangement generally consists in a written agreement where the legal terms of the secondment and the factual relationship between the seconded US Employees and the Canadian subsidiary are established. CONCLUSION In conclusion, careful consideration must be given at any time a US Employee or a US-based consultant enters Canada to render services or perform duties for the benefit of a Canadian Subsidiary. Efficient tax planning such as putting in place a secondment arrangement can, subject to US transfer pricing considerations, usually minimize the US Parent’s Canadian tax liability but the key is to plan any significant presence of US Employees and/or US-based consultants prior their entry in Canada.     Business trips to Canada: Business visitor status or work permit? Nadine Landry With the globalization of commerce, the number of people travelling for business purposes is on the rise. Many will think that a business trip does not have much to do with immigration given that it may seem as simple to enter Canada for business purposes as it is to enter as a tourist. However, there are important differences and the distinction between who qualifies as a business visitor and who is considered a foreign worker is not always clear. With the globalization of commerce, the number of people travelling for business purposes is on the rise. Many will think that a business trip does not have much to do with immigration given that it may seem as simple to enter Canada for business purposes as it is to enter as a tourist. However, there are important differences and the distinction between who qualifies as a business visitor and who is considered a foreign worker is not always clear. The main exemption category is the business visitor. To benefit from this exemption, the company in question’s main places of business and sources of income and profits must be situated outside of Canada. Theses activities include, but are not limited to, the following: Purchasing Canadian goods or services on behalf of a foreign business or government Taking orders for goods or services Attending business meetings, conferences, conventions and fairs Being trained by a Canadian parent company for which the person works outside Canada Training employees of a Canadian affiliate of a foreign company Being trained by a Canadian business that sold the visitor’s foreign employer equipment or services After-sales service is also exempt from the work permit requirement, subject to certain conditions. Maintenance or repair of specialized equipment purchased or leased outside of Canada is permitted only if the service was provided for in the initial contract of sale. It is important to note that manual installation of equipment is not included and normally requires hiring local employees or obtaining work permits. The North American Free Trade Agreement has broadened the scope of permissible activities for American or Mexican nationals to include, among others, certain activities related to research, marketing and general services. This same agreement will facilitate the obtaining of work permits for certain professionals as well as for individuals who have specialized knowledge or who hold management positions and who are transferred to a Canadian subsidiary. In conclusion, entering Canada for business purposes must not be taken lightly and businesses would be well-advised to make sure that their employees have the appropriate status based on the purpose of their trip when travelling to Canada for business. Border officials are strict and there is strong political will to protect the labour market and to crack down on offenders. Moreover, the federal government has announced the enactment of certain legislative amendments which provide for more severe penalties in cases involving false statements. More specifically, the period of inadmissibility to Canada will be five years instead of two. Considering that Canadian border officials have broad powers to search, a person would be very ill-advised to attempt to enter Canada under false pretenses. The classic business meetings scheduled over the next two weeks will not be very convincing if it is not adequately supported by sufficient evidence.

Private equity fund economics play an important role in attracting investors to a given fund. Indeed, investors want to know how expenses will be shared, what fees are applicable and how profits will be allocated. The summary below provides a brief overview of the most common fund arrangements with respect to such considerations. That being said, no two funds are the same and a fund’s organizational documents can be tailored to take into account a wide array of particularities unique to a given fund. CONTRIBUTIONS, DISTRIBUTIONS AND ALLOCATIONS THE GENERAL PARTNER CONTRIBUTION Investors expect that either the private equity fund sponsor1 (the “General Partner”) or one of its affiliates will have a vested interest in the success of the fund. In most cases, investors expect that the General Partner, its affiliates or key executives will make an investment representing anywhere between 1% to 5% of the total capital contributions made by investors. This contribution is significant to investors as it ensures that the interests of the fund’s management team are aligned with their own and also reduces the incentive for the General Partner to incur excessive risk in an attempt to generate greater returns for itself. This is one reason why the Institutional Limited Partners Association recommends that the General Partner itself be required to make a financial contribution to the capital of the private equity fund2. DISTRIBUTION WATERFALLS AND PROFIT-TAKING A fund’s basic economic structure will most often be set out in the “distribution waterfall” — a mechanism which dictates how profits are to be allocated and in what priority such payouts will be made. All distributions made are net of any fund expenses, liabilities and cash reserves and are done on a pro rata share basis among the investors according to their respective capital contributions to a given investment. Each tier must be satisfied in full before proceeding to the next priority tier. The following is an example of a basic distribution waterfall that a fund may have in place: First Tier: Return of Capital Contribution to Investors The first distribution provides that investors are entitled to recuperate any capital contributed with respect to a given investment before any other distributions may be made. Second Tier: Preferred Return to Investors The next distribution also flows to investors until they have received an amount equal to the preferred return on their capital contributions. The preferred return, often referred to as the “hurdle rate” with respect to the investment in the fund, provides investors with a determined rate of return (often between 5% and 9% on any capital contributed by an investor to a given investment) before the General Partner is entitled to receive any of the proceeds of the fund’s investments. Third Tier: Catch-up Tier Once investors have seen their capital contributions repaid and their preferred return paid out, the General Partner will benefit from a “catch-up” tier. At this stage, the General Partner will be entitled to share in the profits generated by the fund until it has received an amount equal to the carried interest split (discussed below) it would have otherwise been entitled to as part of the first and second tiers. Fourth Tier: Carried Interest Split The fourth tier entitles both investors and the General Partner to receive fund profits. At this stage, the investors and the General Partner split the pool of any remaining distribution funds payable according to the carried interest split stipulated in the fund’s operating agreement (an 80/20 carried interest split whereby investors receive 80% of the distribution payable and the General Partner receives 20% is commonplace, although this range may vary significantly depending on market conditions and industry standards). CLAWBACK A fund’s operating agreement may also include a “clawback” provision relating to the General Partner’s carried interest. Such a provision, which may include a built-in escrow procedure, serves as an adjustment mechanism which requires the General Partner to hold back a certain percentage of its carried interest profit participation to guard against overpayment in the event that any given investment does not prove to be profitable. For example, a clawback may be triggered when, upon calculating the fund’s aggregate returns from any such given investment, the investors have been distributed an amount of the profits that is less than the hurdle rate. In such instances, the General Partner will have to return any excess profits to the fund for re-distribution to investors. FUND FEES AND EXPENSES MANAGEMENT FEES In connection with the establishment of a private equity fund, the General Partner will often either create an affiliated entity or appoint a third-party investment adviser or management company to provide investment advice with respect to the management of the fund. Such arrangements can be crystallized in the form of an advertisement advisory agreement or management services agreement, which will describe exactly which duties and responsibilities are delegated to the appointed entity. The General Partner, or any manager or investment adviser appointed to act on behalf of the fund, will generally receive a management fee based on the aggregate capital committed to the fund (typically about 2%). Occasionally, the management fee will contain two components: one that is based on the capital committed but not yet invested, and the other that is based on the capital that has been invested by the fund. However, it is not uncommon to see a “flat” fee applied to all aggregate committed capital. The management fee is used by the General Partner (or any appointed entity) to employ investment professionals, cover costs associated with the daily functioning of the fund and evaluate potential investment opportunities. Such fees and expenses are borne by the fund (and therefore its investors) and are most often payable on a quarterly or semi-annual basis. In addition to the fund economics, sales tax considerations and applicable dealer registration requirements in any given jurisdiction are considerations that must be taken into account when implementing any particular fee structure3. ORGANIZATIONAL OR ESTABLISHMENT COSTS Those fees associated with creating and setting up the fund are most often paid for by the fund, but are also usually capped at an amount indicated in the fund’s operating agreement. Occasionally, an operating agreement may instead provide that the General Partner will cover establishment costs up to an agreed upon amount. Such expenses include professional fees such as legal and accounting services, as well as administrative and marketing costs incurred at fund formation. Establishment costs will vary greatly depending on the complexity of the fund being created, and on whether any associated feeder funds, alternative investment vehicles or associated entities are being created simultaneously. OPERATING EXPENSES The fund will also be responsible for those fees and expenses related to the proper functioning and operation of the fund. Such fees may include ongoing professional or consultancy fees, administrative costs, any applicable taxes or regulatory fees, as well as the management fees payable to the General Partner, investment adviser or management company and any expenses incurred by such persons in carrying on their activities on behalf of the fund. 1 As a general rule, the promoter of private equity and venture capital funds is the general partner. Private equity and venture capital funds are most frequently created in the form of a limited partnership with a predetermined term. 2 See «Private Equity Principles», (version 2.0), Institutional Limited Partners Association (available at: http://ilpa.org/index.php?file=/wp-content/uploads/2011/01/ILPA-Private-Equity-Principles-version-2.pdf&ref=http://ilpa.org/principles-version-2-0/&t=1426810053). 3 For more information on this subject, please see our article entitled “Registration Requirements of Venture Capital and Private Equity Fund Managers in Canada : A Favourable Regulatory Framework” published in the May 2014 Lavery Capital newsletter.

The Income Tax Act (Canada) contains specific rules which apply to certain properties held by financial institutions known as the mark-to-market properties rules (hereinafter “MTMP”). These complex rules are often poorly understood and can result in unexpected tax consequences in various situations and, in particular, in the context of project financing involving the issuance of units in a limited partnership. Generally when the MTMP rules apply, a financial institution must declare as income any increase in value not realized at the end of the taxation year on the MTMP held by such financial institution, whether or not such property was the subject of an actual disposition. The expression “financial institution” is specifically defined for purposes of the MTMP rules and includes not only banks but insurance companies and entities controlled by insurance companies, as well as partnerships in which more than 50% of the fair market value of its interests are held by one or more financial institutions. In such a case, the partnership would automatically become subject to the MTMP rules to the extent that it holds MTMP. Such a partnership must therefore declare an income for the taxation year in question in respect of any increase in the value of the MTMP held by it, and allocate such income to all its unitholders, regardless of whether or not they are financial institutions. Corporate shares will be considered to be MTMP where a financial institution holds less than 10% of the fair market value of the corporation’s shares or of the voting rights attached to such shares. In addition, the definition of MTMP includes various other types of property the fair market value of which is attributable to MTMP. For example, mutual fund units, units in a limited partnership, insurance policies or other derivative financial instruments may be regarded as MTMP to the extent that the value of such investments is primarily attributable (more than 50%) to MTMP. However, it should be noted that the ownership of shares of an “eligible small business corporation” (defined for purposes of the MTMP rules as being a corporation whose assets have a carrying value which does not exceed $50,000,000 and which employs 500 persons or less) will not be considered to be MTMP. The MTMP rules apply to financial institutions such as banks and insurance companies or any entity controlled by such financial institutions. However, as noted above, because of the broad definition of “financial institution” in the context of the application of the MTMP rules, other entities may also inadvertently be considered to be financial institutions if the percentage of their unit or share ownership is held by one or more financial institutions. In this regard and specifically in the context of the formation of a limited partnership which may eventually make investments which could be considered MTMP, it is important to provide for a clause limiting the ownership of units by financial institutions so as to ensure that the limited partnership will not be considered to be a financial institution under the MTMP rules. In the event that such a restriction is not desirable, the limited partnership agreement and the limited parntership’s investment policies should provide that the investments to be made by the limited partnership must not consist of MTMP. Thus, even if the limited partnership itself were considered to be a financial institution, the MTMP rules would have no impact since no investment made by the limited partnership would meet the definition of MTMP. In conclusion, the MTMP rules must be taken into consideration in any major structured investment project, particularly in connection with a limited partnership in which financial institutions are likely to acquire a substantial interest.

CONTENTSInter Vivos discretionary trusts are still relevantA matter of trusts : review of the most frequent pitfallsINTER VIVOS DISCRETIONARY TRUSTS ARE STILL RELEVANTEmmanuel Sala and Luc Pariseau Although the 2014 federal Budget Plan restricted some family tax planning measures involving inter vivos trusts, such trusts remain relevant. Beyond goals such as protecting assets, minimizing the taxes payable upon death, or purification for purposes of the eligibility of shares for the $800,000 capital gains deduction, the relevance of the trust for the purpose of splitting income and capital gains with minor children may still be a critical factor in the cost-benefit analysis of the implementation of such a structure. This article discusses the income-splitting techniques to avoid, as well as those which, when correctly structured and documented, comply with federal and Quebec provincial tax legislation. In short, the purpose of an income-splitting structure is to allocate income or capital gains to a minor child and thus benefit from his progressive tax rates and personal tax credits. SPLITTING TECHNIQUES WITH MINOR CHILDREN SEVERELY SANCTIONED BY TAX LEGISLATION Business or rental income allocated to a minor child in certain circumstances The business or rental income of a trust which is allocated to a minor child is subject to a special tax calculated at the highest marginal rate (“Minor Child Special Tax”) when a person “related” to the minor child either (i) is actively involved in the income generating activity, or (ii) holds an interest in the partnership from which the trust indirectly derives such income. Taxable dividends from certain private corporations Taxable dividends from shares of Canadian and foreign corporations which are not listed on a “designated stock exchange” (except for mutual fund corporations) (“Private Corporation”) allocated by a trust to a minor child are also subject to the Minor Child Special Tax. Taxable capital gain realized on certain sales of shares of Private Corporations A minor child to whom a trust allocates a taxable capital gain from the sale of shares of a Private Corporation to a person with whom the minor child is not dealing at arm’s length is deemed to receive this amount twice as a taxable dividend other than an “eligible dividend”. The deemed taxable dividend will be subject to the Minor Child Special Tax. SPLITTING TECHNIQUES WITH MINOR CHILDREN ALLOWED BY TAX LEGISLATION Currently, dividends received by a trust from corporations listed on a “designated stock exchange” and allocated to minor children are not subject to the Minor Child Special Tax. A tax election must be made for the dividends so that their status is not changed when they are allocated to the minor beneficiaries, and a written resolution must be validly prepared and signed by the trustees in this respect. Capital gains realized by a trust on the sale of property to a person with whom the minor child is dealing at arm’s length, whether such property consists of shares in a Private Corporation, a Corporation listed on an exchange, or an immovable, may be allocated to him without triggering the Minor Child Special Tax. When the property on which the capital gain is realized consists of “qualified small business corporation shares”, the $800,000 capital gains deduction of the minor child may be available. FINANCING OF THE TRUST IN THE CONTEXT OF SPLITTING WITH MINOR CHILDREN The success of a splitting structure mainly depends on the ability of the trust to finance its investments. A loan made directly by a parent, or indirectly through a management corporation, is a solution that is both simple and efficient from a tax perspective. The measures intended to deter income splitting, particularly some allocation rules and the Minor Child Special Tax, do not apply to income derived from a loan made to the trust at an interest rate equal to or higher than the prescribed interest rate in force at the time the loan is made, if and only if the interest is paid before January 31 of each year. In addition, the allocation rule commonly referred to as “75(2)”, which re-allocates the income from property to the person from whom the said property was received, should not apply to such an arrangement. At the present time, since the prescribed rate is at an all-time low, i.e. 1%, and the terms of such loans are not limited in time, splitting income with minor children through a loan to a trust should translate into significant savings, subject to the performance level obtained on the investments made by the trust. A TRAP TO AVOID It is important to keep in mind that, when income is allocated to minor children through a trust, it is the children who must benefit from the amounts so allocated. Thus, so that the children can be considered the true beneficiaries of the income allocated by the trust, the income must be entirely available to them for their own benefit. With this in mind, the tax authorities will consider the following circumstances when reviewing these amounts: (i) the manner in which the amounts are received, (ii) the person with effective control over such amounts, (iii) the obligations and restrictions on the manner of disposition thereof, and (iv) the use made of them by the minor children, or the persons actually benefiting therefrom. The risk to taxpayers of income or capital gains splitting with minor children is that the tax authorities may take the position that the children acted as accommodating parties, whether as agents or as a front, for the parents. The success of a splitting operation therefore depends on adequate documentation proving that the amounts which are allocated to the minor child, and thereafter reimbursed to the parents, represent the repayment of expenses paid by the parents for the child’s benefit. The use of a trust for purposes of investment and income splitting with minor children poses quite a few challenges, but remains a fundamentally worthwhile tax-savings tool in the appropriate circumstances. The implementation of such a structure should be fine-tuned by your tax expert. A MATTER OF TRUSTS: REVIEW OF THE MOST FREQUENT PITFALLSCarolyne Corbeil and Emmanuel Sala For this special edition Ratio on trusts, we propose a review of the most frequent pitfalls in tax planning schemes involving discretionary family trusts. THE SETTLOR IS ALSO THE BENEFICIARY OF THE TRUST: LOSS OF TAX-DEFERRED ROLLOUT One still all too frequently sees cases in which the settlor of the trust, i.e. the person who made an irrevocable gift in favour of the trust for the purpose of constituting an autonomous and separate trust patrimony, is also designated as a beneficiary of that trust. This mistake generally occurs when several classes of persons are named as beneficiaries and the link between the settlor and the taxpayer wishing to implement the trust is not clearly identified. For instance, the trust deed may designate the father and mother of the taxpayer and the father and mother of the taxpayer’s spouse as beneficiaries while the taxpayer’s father-in-law acts as the settlor. Such circumstances result in the application of subsection 75(2) of the Income Tax Act (“ITA”), with the result that the trust property cannot be distributed without triggering tax consequences to the beneficiaries of the trust other than the settlor (hereinafter “Rollout”). TRANSFER OF PROPERTY TO A CORPORATION OF WHICH THE TRUST IS A SHAREHOLDER: DEEMED INTEREST A freeze transaction must generally be carried out when one is planning to insert a trust within an existing corporate structure. A freeze consists of exchanging all the participating shares issued by the corporation (generally, the common shares) for preferred shares redeemable at a value equal to the fair market value of the corporation immediately prior to the freeze transaction (“Preferred Shares”). The trust may then subscribe to participating shares of the corporation for a nominal consideration. From a legal point of view, a given taxpayer will then have “transferred” participating shares to the corporation for a consideration consisting of preferred shares (hereinafter, the “Transferred Shares”). When a trust is established in favour of the spouse and/or minor children of the person initiating the freeze to allow him to split his income, and no clause in the trust deed restricts the allocation of income to the spouse and the minor children, the attribution rule in subsection 74.4(2) ITA may apply, unless the corporation qualifies as a “small business corporation”1. Generally, this attribution rule results in the taxing of a specifi ed amount of interest, calculated at the prescribed rate on the value of the Transferred Shares, in the hands of the person initiating the freeze. This interest attributed to the person initiating the freeze may however be reduced by the amount of a taxable dividend which is declared and paid by the corporation in respect of the Preferred Shares. Unless one is certain that the corporation will at all times remain a “small business corporation”, we recommended that one provide for the payment of a taxable dividend on the Preferred Shares calculated at the prescribed rate in order to avoid the occurrence of this attribution rule. INTEREST-FREE LOAN TO THE TRUST: LOSS OF THE ROLLOUT AND ATTRIBUTION RULES On frequently seen situations in which a person, who is both a trustee and beneficiary of a family trust established for the benefit of his family (hereinafter “Trustee/Beneficiary”), transfers funds to the trust for the purpose of enabling it to acquire shares or other property, or pay certain expenses. However, it is important to remember that the trust possesses a patrimony which is separate and autonomous from that of the Trustee/ Beneficiary, and that there should generally be no transfer of funds between the latter and the trust. Unless such a transfer constitutes an actual loan within the meaning of the applicable law (a bona fide loan), the attribution rule in subsection 75(2) ITA will apply and all the income or capital gains derived therefrom will be re-attributed directly back to the Trustee/Beneficiary. As a result, the splitting sought with the spouse and/or minor children of the Trustee/Beneficiary will not be achieved. Furthermore, if subsection 75(2) ITA applies, the trust will lose the Rollout in favour of the minor children (i.e. the beneficiaries other than the Trustee/ Beneficiary and his spouse). In addition, where it is reasonable to consider that the income earned by the trust from the funds thus loaned is thereafter allocated and paid to the minor children and/or the spouse of the Trustee/Beneficiary, these loans should be at the prescribed interest rate, failing which certain attribution rules will generally apply, causing the income earned by the trust from the funds loaned and allocated to the minor children and/or the spouse of the Trustee/Beneficiary to be attributed to the Trustee/Beneficiary. VOTING SHARES OF A CORPORATION HELD BY THE TRUST: RISK OF ACQUISITION OF CONTROL FOR PURPOSES OF THE ITA. When the shares of a corporation with a majority of the voting rights, that is, shares providing for the election of a majority of directors of the corporation, are held by a trust, the case law has held that it is the trustees who control the shares of the corporation, and they hold de jure control thereof. In such circumstances, the position of the tax authorities is generally that there is an acquisition of control of the corporation for purposes of the ITA when one of the trustees is replaced, unless none of them is dealing at arm’s length with the others. An acquisition of control at a given time may have adverse tax consequences for the corporation, particularly in respect of the use of its losses realized prior to that time, the imposition of a year-end immediately prior to that time, and the application of certain restrictions respecting expenses and investment tax credits for scientific research and experimental development. Accordingly, it is generally preferable for trusts to only hold participating, non-voting shares. FAILURE TO DOCUMENT TRANSACTIONS INVOLVING THE TRUST: DIFFICULT AUDIT WITH TAX AUTHORITIES Similarly to corporations, it is imperative for trusts to document the transactions they conduct during the year and maintain their trust “book”. This practice allows for subsequent follow-ups to be done to substantiate the transactions and distributions of the trust (e.g., prove that a bona fide loan was entered into and repaid) and ensure their tax treatment is accurate. In the event of an audit, an up-to-date trust book will serve as an important tool for defending the tax treatment of the trust’s operations. _________________________________________1 Generally, to be considered a “small business corporation”, all or substantially all of the value of the assets of the corporation must be attributable to assets that are used principally in an active business carried on primarily in Canada: section 248(1) ITA, “small business "corporation”.

SOMMAIRE GST/QST Election: Get Ready for 2015 “Laying Yourself Bare” to Get the Best Insurance Coverage! Clear Communication Between the Client and the Insurance Broker: The Key to Success   GST/QST Election: Get Ready for 2015Carolyne Corbeil and Emmanuel Sala Generally, certain corporations or partnerships within a same group who are engaged exclusively in commercial activities, may make intra-group supplies of taxable goods or services without having to collect or remit the GST/QST otherwise applicable to such supplies. This tax relief is possible thanks to the joint election made under subsection 156(2) of the Excise Tax Act (Canada)1 (“ETA”) and the first paragraph of section 334 of the Act Respecting the Québec Sales Tax (“QSTA”)2 (hereinafter the “section 156 election”). More specifically, by making this election, the consideration for most supplies of taxable services or goods between the qualifying corpora­tions of the same group is deemed to be nil (certain types of supplies are excluded from the section 156 election, particularly a supply by way of sale of real prop­erty). Recently, following the tabling of the 2014 federal budget, several major amendments were made to the section 156 election, including the fact that cor­porations benefitting or seeking to benefit from this election will henceforth be required to file it with the tax authorities on or after January 1, 2015, failing which the election will not be valid. Similarly, Quebec’s 2014-2015 budget announced that amendments would be made to the same election under the QSTA for purposes of harmonizing the QST with the GST. According to the current provisions of the section 156 election, “specified mem­bers” of a “qualifying group”, as defined by the ETA, may file the election jointly. Generally speaking, a specified member is a corporation resident in Canada or a “Canadian partnership” which is a GST/QST registrant, and which is engaged exclusively in commercial activities. A qualifying group is a group of corpora­tions each member of which is closely related for purposes of the ETA.3 Closely related members include, in particular, two corporations one of which, either directly or indirectly, holds not less than 90% of the value and number of shares of the other corporation (i.e. parent-subsidiary), or sister corporations of which not less than 90% of the value and number of shares are held by the same person. Currently, the section 156 election is made or revoked by the members of the qualifying group on a prescribed form (i.e. Form GST25), which need not be filed with the appropriate tax authorities, but simply kept in the records of the corporations concerned in the event of an audit. The section 156 election remains in effect until it is revoked by the parties, or when one of the corporations ceases to be a member of the qualifying group. Moreover, it is important to mention that, where a new specified member joins the qualifying group, the section 156 election must be amended in order to be valid in respect of any supplies made to or by this new member. Conversely, where supplies are made to or by a corporation that has left the group (for example, following a reorganization in which the percentage of share ownership in said corporation has changed) the section 156 election automatically ceases to be effective and the GST/QST becomes applicable to the taxable supplies. According to the proposed amendments to the relevant provisions of the ETA, in order to be effective for GST/QST re­porting periods subsequent to January 1, 2015, the section 156 election, or revoca­tion thereof, must henceforth be filed with the appropriate tax authorities before the first day on which any of the parties to the election must file its GST/QST return for the period. For example, if one mem­ber of the group has a monthly reporting period, the entire group must file their section 156 election with the tax author­ities by no later than February 28, 2015, if supplies are made on January 1, 2015. However, the amendments to the ETA give some relief to corporations already having a section 156 election in effect prior to 2015 by enabling them to file the election with the appropriate tax author­ities by no later than December 31, 2015 instead. It is important to note that having a valid section 156 election in your file for 2014 has no effect on your obligation to submit the section 156 election on the prescribed form to the tax authorities at some time between January 1, 2015 and December 31, 2015. Lastly, please note that the section 156 election cannot be filed prior to January 1, 2015, since it will not be recognized by the tax authorities. Consequently, where the group of corporations makes an unofficial section 156 election (i.e. where the parties act as if an election was made, without signing the prescribed form), it will henceforth only be valid if it is presented to the tax authorities in accordance with the pre­scribed requirements. In conclusion, the new requirements for filing the section 156 election present an excellent opportunity for reviewing the relevance, and especially the eligibility, of such election that one has made to date. Since it is impossible to file the section 156 election in advance, it is strongly recommended that one set a reminder to do so in the new year. ________________________________1 ETA (R.S.C.,1985), c. E-15.2 CQLR c T-0.1.3 We will not describe the concept of “closely related” under the ETA in detail herein, or its application to partnerships, since the complexity thereof would exceed the scope of our text. Please contact the authors should you require more information. “Laying Yourself Bare” to Get the Best Insurance Coverage! Clear Communication Between the Client and the Insurance Broker: The Key to SuccessJonathan Lacoste-Jobin with the collaboration of Léa Pelletier-Marcotte, student-at-law It is before the occurrence of a loss that businesses should ensure they have adequate insurance coverage which meets their needs and their specific characteristics, and which is adapted to the market in which they operate. This can save them a lot of trouble. However, it can be difficult to find your way in the world of insurance; hence the interest in doing business with a broker whose mandate is to assess the client's needs and offer insurance coverage which best fits those needs. Brokers have a two-tiered duty of advice toward their client.1 On the one hand, they must personally gather the information that will enable them to offer their clients a product meeting their specific needs. On the other hand, they must adequately inform and advise their clients so that they can make informed and considered decisions.2 The broker must therefore be able to describe the insurance product being offered as accurately as possible, while also clearly explaining its terms, ­conditions and exclusion.3 The broker [translation] "is not a mere vendor or conduit between the insured and the insurer, but an insurance pro­fessional."4 He must be proactive in the pre-contractual period, that is, before the insurance policy is issued, for example, by informing himself of the nature of the business and its insurance needs. He must also stay abreast of the needs of his clientele after the conclusion of the contract and make adjustments as those needs change. However, this duty to advise is largely dependent on the nature of the mandate given to him by the client, the client's general conduct, and the information provided5.It is therefore important for the client to act diligently in his interactions with the broker. Since the broker recommends an insurance product based on the informa­tion provided to him, the client should ac­curately describe the nature of the activ­ities and characteristics of his business. It is not up to the broker to guess the client's needs, but rather the client to communicate his expectations to the broker. While the broker's primary duty is to advise, the client's duty is to inform his broker accurately and unambiguously of what he needs6. One should also keep in mind that the broker does not necessarily have the requisite knowledge to handle all the as­pects of a file. For example, the appraisal of the value of the property being insured is not within the purview of the broker. The client is responsible for obtaining an accurate appraisal, preferably by a certified appraiser, so that the broker can obtain sufficient insurance coverage7. We also recommend that the client pay attention to the documents provided by the broker, including the coverage sum­maries as well as the insurance policies, and properly understand their terms and conditions before signing them. In case of uncertainty, many problems can be avoided by asking questions and requiring clarifications8. It is also import­ant to properly document your file and keep records of the various exchanges with your broker for future reference, particularly since losses often occur many months or even years after your discussions with the broker. In summary, the basis of proper insurance coverage is clear communi­cation to your insurance broker of the specific needs of your business and its activities. When in doubt, do not hesitate to ask questions and require any necessary clarifications. As the saying goes: too much is always better than not enough! ________________________________1 See the Act Respecting the Distribution of Financial Products and Services, chapter D-9.2; Code of ethics of the Chambre de la sécurité financière (D-9.2, r. 3); Regulation Respecting the Issuance and Renewal of Representatives’ Certificates (D-9.2, r. 7) and the Regulation respecting the pursuit of activities as a representative (D-9.2, r. 10).2 125057 Canada inc. (Tricots LG ltée) c. Rondeau, 2011 QCCS 94 (C.S.).3 Baril c. L’Industrielle Compagnie d’assurance sur la vie, [1991] R.R.A. 191 (C.A.).4 Ibid.5 2164-6930 Québec Inc. c. Agence J.L. Payer Compagnie Ltée, [1996] R.R.A. 549 (C.A.).6 Les marbres Waterloo Ltée c. Gérard Parizeau ltée, [1987] R.R.A. 938 (C.A.).7 See, for example, Renaud c. Promutuel Dorchester, société mutuelle d’assurances générales, [2006] R.R.A. 641 (C.S.).8 For example, 2751-9636 Québec Inc. c. Cie d’assurance Jevco, [2004] R.R.A. 954 (C.S.).

As part of the June 4, 2014 Budget Speech, the Quebec Government announced an immediate 20% reduction in the rates of some business tax credits. The mining exploration tax incentives in Quebec did not escape this reduction.Flow-through share regimeThe flow-through share regime currently allows investors to deduct in the calculation of their income an amount equal to 100% of the subscription price. In addition, the Quebec legislation provides for two additional deductions of 25% each where certain conditions are met. The first deduction targets the exploration expenses incurred in Quebec (both surface and underground exploration), while the second deduction targets surface exploration expenses only that are incurred in Quebec. In certain circumstances, 150% of the cost of an investment in a junior mining exploration corporation may be claimed as a deduction in the calculation of the income of an investor.Lastly, it is generally possible for a corporation proceeding with a public offering of flow-through shares to renounce the issue expenses to the benefit of the subscribers. However, this renunciation is limited to 15% of the proceeds of the issue.In the context of the 20% reduction of some tax incentives, the 25% rate of the two additional deductions is reduced to 10% for each of them. Therefore, the maximum deduction investors may benefit from is henceforth 120% of the subscription price of flow-through shares.It must be noted that the government has calculated the 20% decrease from the maximum deduction of 150% which may apply in certain circumstances. If only the additional deductions had been reduced by 20%, the total deduction would have been 140% of the subscription price of the flow-through shares. In other words, the additional deductions are reduced not by 20% but in fact by 60%, since they decrease from 50% to 20%.The 15% applicable limit of the renunciation respecting certain expenses related to the issuance of flow-through shares is reduced to 12%, i.e. a 20% decrease.These reductions apply in respect of flow-through shares issued after June 4, 2014, except for those issued further to a placement made no later than June 4, 2014 or pursuant to an interim prospectus receipt application or a prospectus exemption application made no later than June 4, 2014.Refundable tax credit for resourcesThe refundable tax credit for resources rate was varying between 15% and 38.75% depending upon several parameters, including the type of resource to which the expenses were related, the location at which they were incurred and the type of corporation incurring the expenses.In the context of the reduction of the tax assistance applied to some measures applicable to businesses, the rates applicable to the credit for resources are decreased by 20% in respect of eligible expenses incurred after June 4, 2014. Thus, the rate of this credit varies henceforth between 12% and 31% according to the same parameters.Moreover, the government announced the indefinite postponement of the coming into force of the 10% reduction of the rates applicable to the credit for resources for corporations which operate no mineral resources and are not related to such a corporation and the 5% reduction for the other corporations. This measure had been unveiled on the occasion of the March 20, 2012 Budget Speech. The decision to apply or not this measure and the time from which it may apply will be announced later by the government, following the work of the Quebec Taxation Review Committee whose creation was announced as part of the 2014-2015 budget.

CONTENTSNominees in the context of litigationUse of a nominee by limited partnerships and trusts for holding immovablesVoluntary registration for GST and QST purposes by a nomineeImmovables held by a nominee: Issues with respect to consumption taxesNOMINEES IN THE CONTEXT OF LITIGATIONLéa Maalouf In commercial matters, it frequently happens that two persons agree to hide their true intent from third parties and express such intent in a secret contract (or counter letter), while publicizing another contract, known as a fictional or apparent contract. This process is called simulation. This practice is entirely legal unless it is used to break the law or allow a party to avoid liability, for instance, by removing an item of property from his patrimony in order to avoid the execution of a judgment. Simulation is governed by articles 1451 and 1452 of the Civil Code of Québec. A counter letter is subject to no condition as to form: it is valid whether it is in the verbal or written form. A nominee agreement is one of the forms under which simulation may be carried out: when a person uses a third party to enter into a contract with another person, the third party is called a nominee. With as many players at the table, it is interesting to review the issues related to the liability of the parties and the precedence of the contracts in the event a dispute occurs. If a dispute occurs between the parties to the nominee agreement, the law is clear: the counter letter, whether verbal or written, prevails over the apparent contract. Either party cannot refuse to give effect to the nominee agreement. It is interesting to note that proof of the existence of a counter letter may be made by any mean, including testimony. This is rather exceptional, considering that the rules of evidence do not allow the parties to a written contract to use testimony to contradict or vary its terms. The reasoning of the courts is that the nominee agreement constitutes a contract by itself, which is separate from the apparent contract. This being so, testimony is not used to contradict the apparent contract but rather to establish the existence of a new contract. However, if a third party institutes proceedings while being in good faith – meaning that the third party is unaware of the existence of the secret instrument, the Civil Code of Québec provides that the third party may, according to his interest, avail himself of the apparent contract or the counter letter. In principle, third parties do not need to prove fraudulent intent of the parties to the counter letter to rely on the secret instrument. However, according to some judgments, third parties should at least prove that they suffered some kind of harm as a result of the simulation. Once again, proof of the simulation may be made by any mean. Conversely, parties to a counter letter may decide to publish it to end the simulation: in that case, it will be more difficult for third parties to rely on the apparent contract. However, in a recent case1, the Superior Court found liable both the nominees and true owners of an immovable, concluding that the parties had deliberately created confusion tantamount to abuse of right and that the theory of alter ego had also to be applied. In closing, although it may look surprising at the outset, a fictive instrument, such as a nominee agreement, is entirely legal unless it is used for improper purposes. However, parties to that fictive instrument must remember that a third party in good faith may set such instrument aside and rely on the apparent contract as being the true agreement between the parties, even if this does not constitute the initial intent of the contracting parties. _________________________________________1 9087-7135 Québec inc. c. Centre de santé et de services sociaux Lucille-Teasdale, 2013 QCCS 3856. USE OF A NOMINEE BY LIMITED PARTNERSHIPS AND TRUSTS FOR HOLDING IMMOVABLESDominique Bélisle Several legal arguments justify the practice that has developed in Quebec and in the common law provinces of registering the ownership title to immovables or real estate, acquired by a limited partnership or a real estate investment trust (“REIT”), in the name of a nominee. One of these arguments is based on the fact that partnerships and trusts created under the Civil Code of Québec (“Civil Code”) do not benefit from legal personality and therefore are not separate «persons» distinct from their members, partners or beneficiaries. Indeed, historically, under the civil law, the patrimony was always considered to be attached to a natural or legal person. Over time, the concept developed which attributed a distinct patrimony to the partnership from the patrimonies of the partners, and which attributed a patrimony by appropriation to the trust, autonomous and distinct from the patrimonies of the settlor, trustee or beneficiary thereof. In the case of trusts constituted under the Civil Code, including REITs, nominees have not been consistently used in practice and are less common. Indeed, article 1278 of the Civil Code states that the titles relating to the property of the trust are drawn up in the trustees’ names. On this basis, it is common to see the title to property held by a REIT registered in the land registry under the names of all the trustees acting in their capacity as trustees of the trust. Other legal advisers still register the title to the property directly in the name of the REIT, despite article 1278. For the time being, nothing indicates that this practice affects the validity of the property title. In the above cases, however, a nominee is not used on the basis of the lack of legal personality of the trust because the Civil Code expressly recognizes that the parties involved have no real rights in the distinct patrimony. This recognition helps resolve the ambiguity caused by this lack of personality. The advantage of a nominee for a REIT therefore lies elsewhere, such as, for example, in the flexibility offered for transfers of title between parties related to the trust, and in relation to the transfer duties that are triggered when these transfers are registered in the land register. Indeed, the exemptions provided for in section 19 of the Act respecting duties on transfers of immovables (Quebec) with respect to a corporate restructuring do not apply in the cases of a trust or partnership. Some exemptions contained in section 20 of that statute do apply to trusts, but in very specific cases. In the case of a partnership, however, the use of a nominee is more common and warranted not only in connection with the Act respecting duties on transfers of immovables, but also due to the uncertainty caused in relation to the holding of title to property because of the partnership’s lack of legal personality. Indeed, in contrast to the situation pertaining to trusts, the Civil Code does not directly provide for the autonomous nature of the patrimony for partnerships, or that the partners hold no real right in the partnership’s property. Furthermore, in the case of Ville de Québec c. Compagnie d’immeubles Allard ltée 1, the Court of Appeal stated that since the limited partnership did not have a distinct legal personality from its members, it did not hold the partnership’s assets, and therefore found that the partners held an undivided real right in the property. In that case, the Court determined that the transfer by a partner of his interest in the partnership constituted a transfer of his undivided share, thereby triggering transfer duties (the parties having had the bad idea of registering the transfer…). This decision has created some uncertainty surrounding the identity of the property owner. Is the property title really held in undivided co-ownership by each of the partners? And what about limited partnerships? The argument relied on by the Court of Appeal to justify its conclusions applies equally to limited partnerships. In practice, however, the partners in a limited partnership would certainly not intend to trigger a transfer in undivided co-ownership of the property each time a unit is transferred. This uncertainty has led to the commercial practice of registering the property title in the land register in the name of the general partner, or a nominee corporation. _________________________________________1 [1996] RJQ 1566 (C.A.).  VOLUNTARY REGISTRATION FOR GST AND QST PURPOSES BY A NOMINEEDiana Darilus In an immovable property context, a person can act as a nominee for another person for the purpose of holding title to the property and handling the property management. This type of structure implies the existence of a mandatary-mandator relationship that is not disclosed to third parties. In the context of this type of relationship, the mandator is the person considered to be carrying on commercial activities involving the property, and is therefore generally required to register for GST and QST purposes. However, a nominee corporation holding title to immovable property on behalf of the true owner may wish to register voluntarily for several reasons, such as the following: use of the nominee’s GST and QST registration numbers in the legal and administrative documentation, such as invoices or commercial leases, in order to preserve the confidentiality of the true owner of the property; joint election by the mandator and mandatary provided for in subsection 177(1.1) of the Excise Tax Act (“ETA”) and section 41.0.1 of An Act respecting the Québec sales tax (“AQST”), which allows the mandatary to remit the GST and QST collected to the tax authorities on the mandator’s behalf; and joint venture election provided for in sections 273 ETA and 346 AQST, which enables the co-venturers to designate an “operator” responsible for remitting the GST and QST collected to the tax authorities and claiming the input tax credits and input tax refunds (ITCs/ITRs) on behalf of the co-venturers. A nominee corporation can only register voluntarily for GST and QST purposes if it carries on a commercial activity in Quebec. The definition of “commercial activity” is very broad and includes the carrying on of a business by a corporation without a reasonable expectation of profit, except to the extent to which the business involves the making of exempt supplies. As for the definition of the term “business”, this includes any undertaking of any kind whatever, whether or not engaged in for profit. In light of these definitions, it seems that a nominee corporation whose activities are limited to holding title to property on behalf of the true owner without receiving compensation for doing so, could be considered to be carrying on a commercial activity. However, Revenu Québec has raised doubts in the past few years about the voluntary registration of certain nominee corporations in the form of “shell corporations” on the basis that they did not carry on any commercial activities, and retroactively canceled their registration numbers. To avoid such a dispute with the tax authorities, one should in our view be cautious when setting up a nominee corporation as part of a structure for holding immovable property in Quebec. We recommend that the following minimum measures be taken to reduce the risk of contestation by Revenu Québec: monthly fees (plus applicable taxes) should be paid to the nominee corporation pursuant to terms of a written nominee agreement; and the nominee corporation should open a bank account to receive its compensation. We believe that if such measures are taken, it is more reasonable to consider that the nominee corporation is in fact carrying on a commercial activity, i.e., the taxable supply of services as a mandatary on behalf of a mandator or participants in a joint venture. IMMOVABLES HELD BY A NOMINEE: ISSUES WITH RESPECT TO CONSUMPTION TAXESJean-Philippe Latreille In the last few years, tax authorities have intensified their auditing efforts aimed at corporations holding immovables as nominees. In this context, the validity of some elections pertaining to joint ventures in respect of GST and QST has been questioned. These elections allow the participants in a joint venture to designate one of them as “operator”, whose role is to remit taxes and claim input tax credits and input tax refunds in the name of the other participants. Now, in some circumstances, tax authorities adopt a position whereby a corporation which is solely used as a nominee is not a participant in the joint venture and thus, cannot validly be appointed as “operator”. However, tax authorities recently announced that they gave instruction to their auditors not to assess when such a situation occurs. This administrative tolerance is conditional to all returns having been filed and all amounts due having been paid. This measure is temporary since it only applies to reporting periods ending prior to January 1, 2015. Furthermore, tax authorities expect all participants in a joint venture relying on the tolerance to make valid elections in the future. Owners of immovables relying on a nominee should therefore now review their holding structure in the light of the positions published by tax authorities.

LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. Following the recent public consultations held by the federal government on the issue of treaty shopping, the 2014 Budget proposes to implement in the Canadian domestic law a general anti-treaty shopping rule (“GATSR”) which private investment funds investing in Canada (“Funds”) may have to deal with.Treaty shopping refers to a situation where, for example, a non-resident person who is not entitled to benefits under a Canadian tax treaty uses an entity in a country with which Canada has concluded a tax treaty and, to obtain Canadian tax benefits, earns or realizes income sourced in Canada indirectly through that entity.The GATSR would probably be integrated into the Income Tax Conventions Interpretation Act. Its application would result in denying in whole or in part the benefits claimed pursuant to a tax treaty.The GATSR provisions would provide for the following items: Main purpose provision: Subject to the relieving provision, the purpose of the GATSR would be to deny the benefit of a tax treaty to a person where it is reasonable to conclude that one of the main purposes of the transaction or series of transactions is to allow that person to obtain the benefit. Conduit entity’s rebuttable presumption: It would be presumed that one of the main purposes of the transaction or series of transactions is to obtain a benefit pursuant to such a treaty if the income in question is primarily used to pay, directly or indirectly, an amount to another person (such as a limited partner of a Fund) who would not have been entitled to an equivalent or more favourable benefit had that person received directly the income in question. Safe harbour’s rebuttable presumption:Subject to the rebuttable presumption of use of a conduit entity, it would be presumed that none of the main purposes for undertaking a transaction was for someone to obtain a benefit under a tax treaty if, as the case may be: the person carries on an active business, other than managing investments, in the foreign treaty country and, where the income in question is derived from a related person in Canada, the active business is substantial compared to the activity carried on in Canada by such related person; the person is not controlled, de jure or de facto, by another person who would not have been entitled to the benefit had that person directly received the income in question; the person is a corporation or trust listed on a recognized stock exchange. Relieving provision: The Minister of National Revenue (“Minister”) would, at his discretion, allow the grant of the benefit, in whole or in part, when circumstances reasonably justify it. Some examples of application of the GATSR suggest that a Fund may be targeted by the new rule. A fund which is set up as a limited partnership generally relies on a holding corporation which may be considered by the Minister as a conduit corporation pursuant to the GATSR. Funds should not assume that the legislator will provide relieving transitional rules for current structures, but rather consider right now the implementation of mechanisms to avoid or reduce the effects of the GATSR.

LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. The U.S. House of Representatives passed a bill in December 2013 that would exempt many private equity fund advisers in the United States from the provision in the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) that requires advisers with more than $150 million in assets under management to register with the U.S. Securities and Exchange Commission (the “SEC”). The bill’s passage into law remains, however, uncertain. As a result, most private equity fund advisers in the United States remain under the oversight of the SEC.Canada, in contrast, remains one of the very few remaining jurisdictions where most private equity fund managers do not have to register with any securities regulator. When the Canadian Securities Administrators (the “CSA”) proposed the adoption of National Instrument 31-103 – Registration Requirements in 2007, many feared that this would change. A record number of comments made on the original draft in response to such changes led the regulators to clarify, in the final version of the policy adopted along with the new instrument, that the intention of the CSA was not to subject typical private equity funds to such requirements.REGISTRATION AS A PORTFOLIO MANAGERThe CSA indicates that venture capital and private equity funds (and their general partners and managers) (collectively, the “VCs”) are not required to register as a portfolio manager if the advice provided to the fund (and indirectly to the GUILLAUME LAVOIE [email protected] ANDRÉ VAUTOUR [email protected] investors of the fund) in connection with the purchase and sale of securities is incidental to their active management of the fund’s investments (notably as a result of the VC having representatives sitting on the boards of directors of the portfolio companies in which they invest) and if the VCs do not solicit clients on the basis of their securities advice. It must be also clear that the expertise of the manager of the VC is sought in connection with the management of the portfolio companies and that its remuneration is connected to such management and not to any securities advice it might be considered to be giving to the fund and its investors.REGISTRATION AS AN INVESTMENT FUND MANAGERVCs are typically not considered to be mutual funds because of the fact that their units or shares are not redeemable on demand. VCs that have redemption provisions in their organizational documents will typically have a series of important redemption restrictions that prevent them from being considered redeemable on demand. The CSA generally takes the view that where an investment fund allows its investors to redeem the securities they own in the fund less frequently than once a year, the fund does not provide an “on demand” redemption feature.Further, VCs are generally involved in the management of the companies they invest in. Such involvement can take the form of a seat on a board of directors or a direct involvement in the material management decisions or in the appointment of managers of such companies. As a result, they will not be considered to be “non-redeemable investment funds” as defined in Canadian securities legislation.A VC that is neither a mutual fund nor a non-redeemable investment fund will not be considered to be an “investment fund” for the purposes of Canadian securities legislation. Consequently, its manager will typically not have to register as an investment fund manager.REGISTRATION AS A DEALERWith regards to the dealer registration requirement, one must determine if the manager can be considered to be “in the business” of trading in securities. “Trading in securities” includes the sale of securities of the fund but also the simple act of soliciting potential investors on behalf of the VC. Determining factors in making such assessment will be (i) whether the manager is carrying on the activity of trading securities with repetition, regularity or continuity, (ii) whether it is being, or expected to be, remunerated or compensated for such activity and (iii) whether it is directly or indirectly soliciting investors. Based on these factors, most VCs will not normally be considered to be in the business of trading in securities.VCs solicit investors to invest in the fund, but this will typically be done for a limited period of time, without repetition, regularity or continuity and will normally be incidental to the involvement of the manager in the management of the portfolio companies. Further, the manager will typically not receive any compensation for its fund raising. Its compensation will rather relate to the management of the portfolio investments themselves in the form of a management fee and of a carried interest in the profits generated by these investments. These factors will normally allow the VC to be able to consider that it is not in the business of trading in securities.VCs that have a dedicated sales/marketing team or that have formed funds with open commitment and investment periods that regularly raise capital and invest such capital in portfolio companies should, however, be careful as to whether this reality may cause them to be characterized as being in the business of trading in securities. Given the ambiguity of the law in this respect and that such determination is fact-specific, some institutional investors may require that the promoter of the fund registers as an exempt-market dealer even when an argument can be made that no registration is required.In the context of the foregoing regulatory framework and in light of the growing Canadian private equity market, Canada can be an interesting market for private equity fund managers to launch a first venture capital or private equity fund without having to immediately bear those expenses mandated by the registration process with a securities regulatory authority.

LAVERY: A LEADER IN MONTREAL IN THE PRIVATE EQUITY, VENTURE CAPITAL AND INVESTMENT MANAGEMENT INDUSTRY Creating and setting up private equity and venture capital funds are complex initiatives requiring specialized legal resources. There are very few law firms offering such services in Quebec. Lavery has developed enviable expertise in this industry by working closely with promoters to set up such structures in Canada and, in some cases, the United States and Europe, in conjunction with local firms. Through Lavery’s strong record of achievements, the firm sets itself apart in the legal services market by actively supporting promoters, managers, investors, businesses and other partners involved in the various stages of the implementation and deployment of private equity and venture capital initiatives. The Integrity in Public Contracts Act, also referred to as Bill 1, has been assented to on December 7, 2012. This Act imposes new requirements on public contracts tenderers. Managers of infrastructure funds have to be familiar with the rules under this Act as they most likely will have to deal with them in the context of an investment or a project involving a public body.AMENDMENTS TO THE ACT RESPECTING CONTRACTING BY PUBLIC BODIESThe Act Respecting Contracting by Public Bodies (“ARCPB”) determines the conditions applicable to contracts between a public body and private contractors involving an expense of public funds. The ARCPB applies to supply contracts, to services contracts and construction contracts entered into with these public bodies, as well as to public private partnership agreements entered into as part of an infrastructure project.Bill 1 amended the ARCPB in order to reinforce integrity in public contracts and control access to these contracts. It further increases the number of public bodies covered by the ARCPB by adding entities such as Hydro-Québec, Loto-Québec and the SAQ.The amendments provides for the implementation of a system to verify that enterprises wishing to enter into contracts with public bodies or municipalities meet the required conditions as regards integrity. Therefore, an enterprise wishing to enter into a contract (or a related subcontract) with a public body for an amount equal to or greater than a threshold determined by the government is required to obtain an authorization from the Autorité des marchés financiers (the “AMF”).The enterprise must generally have obtained this authorization by the date it files its bid. In the case of a consortium, each member enterprise must be individually authorized by that date. An authorization must be maintained throughout the performance of the public contract or subcontract. An authorization is valid for a period of three years and must be renewed upon expiry. The AMF keeps a public register of enterprises holding an authorization to enter into a contract or a subcontract with public bodies. These rules also apply to contracts awarded by towns and municipalities.CONDITIONS FOR OBTAINING AN AUTHORIZATIONAn application for an authorization must be made to the AMF. The contractor must provide with his application an attestation from Revenu Québec, stating that the enterprise has filed the returns and the reports required under tax laws and that it has no overdue account payable to the Minister of Revenue. Lastly, the enterprise must not have been refused an authorization or have had its authorization revoked in the preceding 12 months.Upon receipt of an application for authorization from an enterprise, the AMF sends to the permanent anti collusion squad (Unité permanente anticorruption or “UPAC”) the information obtained in order for the UPAC to make the verifications it deems necessary in collaboration with the Sûreté du Québec, Revenu Québec, the Régie du bâtiment du Québec and the Commission de la construction du Québec (“CCQ”). The UPAC sends to the AMF a report analysing the enterprise compliance with the integrity requirements. The AMF renders a decision on the application for an authorization.DECISION OF THE AMFBill 1 provides for mandatory and discretionary grounds for refusal. Thus, the fact, for an enterprise or related person, of having been found guilty, within the five preceding years, of any offence under various provincial or federal laws listed in Schedule I to this Act will result in the enterprise being automatically denied its application for an authorization. The offences listed in Schedule 1 mainly relate to criminal law and tax laws.If the enterprise applying for an authorization, or if any of its shareholders holding 50% or more of the voting rights attached to the shares of the enterprise, or any of its directors or officers has, in the preceding five years, been found guilty of an offence listed in such Schedule I, the AMF will refuse to grant or to renew an authorization. The AMF may even revoke an authorization if an enterprise or any of its related persons is subsequently found guilty of such an offence.Furthermore, if an enterprise has, in the preceding five years, been found guilty by a foreign court of an offence which, if committed in Canada, could have resulted in criminal or penal proceedings for an offence listed in Schedule I, the AMF will automatically deny the issuance or renewal of an authorization. Lastly, an enterprise found guilty of certain offences described in electoral laws or who, in the preceding two years, has been ordered to suspend work pursuant to a decision of the CCQ will also be denied its application for an authorization.Furthermore, the AMF may also, at its sole discretion, refuse to grant or to renew an authorization or even revoke an authorization already granted to an enterprise if the enterprise fails to meet the high standards of integrity that the public is entitled to expect from a party to a public contract or subcontract. In this respect, the AMF, following an investigation by the UPAC, will review the integrity of the enterprise, its directors, partners, officers or shareholders as well as that of other persons or entities that have direct or indirect legal or de facto control over the enterprise (a “related person”). To that end, the AMF may consider certain elements which are described in the ARCPB, particularly the fact that the enterprise or a related person maintains connections with a criminal organization, has been prosecuted, in the preceding five years, in respect of certain offences or has repeatedly evaded or attempted to evade compliance with the law in the course of the enterprise’s business. The AMF will also consider the fact that a reasonable person would conclude that the enterprise is the extension of another enterprise that would be unable to obtain an authorization or that the enterprise is lending its name to another enterprise that would be unable to obtain an authorization.CONSEQUENCES OF FAILURE TO BE AUTHORIZEDA contractor or subcontractor whose authorization expires, is revoked or denied upon application for renewal is deemed to have defaulted on the public contract or subcontract to which it is a party. In such a case, the enterprise must cease its work, except for contracts where only the obligation to honour the contractual guarantees remains. However, the enterprise may continue to perform the contract if the public body applies to the Conseil du trésor for permission for the continued performance of the contract or subcontract for reasons of public interest and the Conseil du trésor grants such permission. The Conseil du trésor may subject the permission to certain conditions.TRESHOLDS AND APPLICATIONUpon coming into force, the Act provided that the new provisions would apply to public contracts and subcontracts that involve an expenditure equal to or greater than $40,000,000. This threshold has been lowered to $10,000,000 in December 2013. Furthermore, the Act provides that regardless of the amount of the contract, the government may, before March 31, 2016, determine that the rules requiring an authorization apply to public contracts or subcontracts even if they involve a public expenditure amount of less than this threshold or that such rules apply to a category of contracts other than those currently regulated pursuant to the ARCPB. In such a case, the government may stipulate special terms for the applications for authorization that enterprises must file with the AMF in respect of such contracts.Lastly, the Act provides that the government may still before 31 March 2016, require enterprises that are parties to public contracts currently in process to file an application for authorization within the time it specifies. This provision is not limited to the contracts currently in process at the time Bill 1 comes into force and may therefore affect any contract in process before March 31, 2016.