CRA rules on addition of preferred units to a listed MFT’s capital

CRA ruled that the amendment of the trust deed for a listed mutual fund trust to add preferred units (also to be listed) would not result in the application of s. 104(7.1) or any disposition of trust property or existing units.

Similarly to other published rulings along this line, the amended Declaration of Trust was to provide that ITA income of the trust would be allocated among the different classes in proportion to their respective distributions. Assuming that the yield of a preferred unit as a percentage of its liquidation (or redemption) entitlement was different than that for a common unit, it would have a different percentage entitlement to trust property than its percentage entitlement to income – so that effectively the ruling (similarly to the others) affirmed that this result was not one of the main purposes of the trust terms.

Neal Armstrong. Summary of 2015 Ruling 2015-0578051R3 under s. 104(7.1).