Sprott Physical Gold Trust offer for Central Goldtrust units provides choice between a taxable exchange and a s. 132.2 rollover

Sprott Physical Gold Trust (through a special bid LP owned by Sprott) is offering to acquire all the units of Central Goldtrust (GTU), another listed gold bullion fund in exchange for units ("PHYS Units") of Sprott Physical Gold Trust. GTU Unitholders are given the choice of exchanging their units directly in a taxable exchange, or participating in a s. 132.2 merger transaction, which would occur on a rollover basis. The transaction has been structured so that those GTU unitholders who will elect to participate in the rollover are counted towards satisfying the minimum (66 2/3%) required transaction approval.

For U.S. purposes, the exchange and merger would likely be viewed as a single transaction, so that it would likely qualify as a Code s. 368(a) reorganization. The PHYS Units are likely shares of a PFIC, so that there also likely would be a rollover under the PFIC rules.

The GTU trustees have recommended rejection of the offer for various reasons, including that "Sprott PHYS' redemption feature would expose certain non-redeeming U.S. Unitholders to potentially increased ongoing future tax liabilities if Sprott PHYS delivers gold to satisfy a physical redemption request from a unitholder and the price of gold exceeds Sprott PHYS' undisclosed Canadian dollar cost base for its gold holdings."

Neal Armstrong. Summary of Sprott Physical Gold Trust offer for Central Goldtrust units under Mergers & Acquisitions – REIT/Income Fund/LP Acquisitions – Section 132.2 Mergers – Bullion Fund Mergers.