CRA rules that a foreign collective investment vehicle is fiscally transparent rather than a unit trust

Investors subscribe for units of a “Fund”, both situated in and governed by the laws of a redacted non-resident jurisdiction. The units are described as representing proportionate interests in the property of a particular Subfund (holding a particular managed portfolio) but with an entitlement to exchange their co-ownership interest in that Subfund’s property for that in another Subfund.

Investors with different tax profiles are required to invest in separate Classes of units so that there is no pooling of withholding tax rates applicable to the securities in a Subfund’s portfolio.

The non-resident Depositary deals at arm’s length with the non-resident manager, and the Canadian securities are held by a Canadian-resident custodial subsidiary of the Depositary.

CRA ruled that the funds were fiscally transparent, so that non-resident investors holding units in a Subfund that, in turn, held Canadian equities, would be treated for Canadian withholding tax purposes and s. 116 purposes in the same manner as if they received a pro rata distribution on or proceeds of the Canadian securities.

This arrangement is somewhat similar to that in a 2014 ruling on an Irish contractual fund (2013-0496831R3 – see also 2015-0606141R3, 2009-0345011R3 and 2006-0199741R3), whose descriptions also looked somewhat similar to a unit trust, and was ruled upon to be a co-ownership arrangement. It is also is more dissimilar with (but still broadly similar to) that in a recent ruling on a Luxembourg investment mutual fund (2015-0605161R3).

Neal Armstrong. Summary of 2018 Ruling 2017-0738041R3 under s. 104(1).