Invesco Canada – Tax Court of Canada finds that GST was not payable on special MFT fee-reduction trust distributions to large investors

A mutual fund trust manager initially charged full management fees to the trusts and paid rebates to large unitholders equal to a portion of the fees. However, when in 1994 CRA indicated (in 9332265) that these refunds would be treated as "inducement payments," to be included in the trusts' incomes under s. 12(2.1) (thereby resulting in double taxation), the arrangements were restructured (in accordance with ATR-65 – see also 2012-0448351E5): the manager reduced the fees which it charged to the trusts; and the declarations of trust were amended to provide that trust distributions equal to those fee reductions would be paid as special distributions on the large investors’ units.

Campbell J rejected CRA's position that GST continued to be collectible on the "gross" fee amounts, i.e., she rejected the proposition that the obligation of the trusts to make the special distributions was part of the consideration received by the manager. The legal form was reasonably good (the obligation to make the special distributions was mostly in the trust deeds), and the parties’ intention was to implement an ATR-65 structure, which required that they be trust distributions.

Neal Armstrong. Summaries of Invesco Canada Ltd. v. The Queen, 2014 TCC 375 under ETA – s. 153(1) and General Concepts – Evidence.