CRA rules on the creation of an aggregator fund on a rollover basis

CRA ruled on the creation, on a rollover basis, of a master, or “aggregator,” mutual fund trust, so that those unitholders of five existing mutual fund trusts (the “reorganizing funds” - each with somewhat different equity investment objectives) who wished to participate could hold their units in the reorganizing funds “through” such aggregator fund. The purpose was to simplify the administration associated with rebalancing of investments in the reorganizing funds, as this would no longer entail the participating unitholders redeeming units in one reorganizing fund and subscribing for units in another reorganizing fund.

In overview, the reorganization involved using three successive circular s. 107.4 transfers to create a holding fund through which the participating unitholders could hold their interests in the respective reorganizing funds, and then merging the five holding funds into a newly settled aggregator fund on an s. 132.2 rollover basis.

More particularly, the steps involved, first, each of the reorganizing funds transferring, to a corresponding newly formed Holdco fund, an undivided interest in its assets commensurate with the unitholdings in it of the participating unitholders, in exchange for the issuance of units of the Holdco funds to the participating unitholders. Thus, a portion of the assets of each reorganizing fund would be held for the Holdco fund (and, indirectly, for the participating unitholders), and the balance would be held for the non-participating unitholders.

The next two steps involved effectively converting the co-ownership interests of the Holdco funds in the assets of the reorganizing funds into units of the reorganizing funds. First, various Holdco funds transfer their assets to corresponding newly formed trusts (“NewFund Bs”) in consideration for additional units of the NewFund Bs, with the participating unitholders remaining unitholders of the applicable Holdco funds.

Then, all the assets of the NewFund Bs (being undivided interests in the assets of the reorganizing funds), are then transferred back to the applicable reorganizing funds for no consideration, but with the reorganizing funds issuing additional units to the applicable Holdco funds having an equivalent value (and with the NewFund Bs being terminated). Thus, the undivided interests in the assets of the reorganizing funds are joined together again as whole ownership interests.

The Holdco funds then transfer their units of the reorganizing funds to a newly formed aggregator fund under s. 132.2 in consideration for units of the aggregator fund, and then redeemed their units in consideration for the distribution of such aggregator fund units to the Holdco fund unitholders (being the participating unitholders).

Thus, the closing structure is that the participating unitholders now hold units of the reorganizing funds through a single aggregator fund, and the balance of the units in the reorganizing funds are held by the non-participating unitholders.

The ruling letter contained a representation that the NAV of each of the reorganizing funds immediately before the first s. 104.7 transfer will be the same as the NAV of each respective reorganizing fund following the third s. 104.7 transfer (with one exception). Messrs. Fedun, Tobin and Mann suggest that this signifies that the reorganization needed to be implemented while the stock exchanges were closed.

Summary of 2024 Ruling 2023-0962031R3 under s. 107.4(1); h/t Stan Fedun, John J. Tobin and Benjamin Mann, “Canada Revenue Agency rules on novel mutual fund trust reorganization” 30 June 2026 article on Torys website.