CRA ruling describes a structure for MFT trailer fees to be funded out of increased management fees charged to an indirect real estate subsidiary LP of the MFT
CRA ruled respecting the creation of an additional class of “Class A” units of a mutual fund trust (the “Trust”) - which would essentially have identical attributes to those of the existing units except that they would indirectly bear all of the trailer fees paid to securities dealers, who would only sell the Class A units to further subscribers and not the existing units. CRA ruled that this amendment (which would be made by the trustee without unitholder approval on the grounds that there was no effect on the value of the existing units) would not result in a disposition at the trust or unitholder level, or in the application of s. 104(7.1).
The trailer fees respecting the Class A were to be funded out of additional management fees charged by the general partner of an indirect real estate subsidiary LP of the Trust to that LP, with the resulting reduction in distributions paid by that LP up the chain to the Trust being tracked so as to result in a pro tanto reduction in the distributions paid on the Class A units relative to the existing units. This general partner was controlled by the Trust corporate trustee. CRA did not comment on the trailer fees effectively being expensed at the operating LP level.
Neal Armstrong. Summary of 2016 Ruling 2015-0612931R3 under s. 248(1) – disposition.