Mechanics for CGR wind-up (pp. 6-7)
- Where a mutual fund trust (MFT) is wound-up using the capital gains refund (CGR) method, it redeems its units at FMV for cash, which results in the unitholders realizing a capital gain or loss.
- The internal gain realized by the MFT increases its refundable capital gains tax on hand and the redemption increases the MFT’s capital gains redemptions pursuant to s. 132(4).
- The MFT then claims a CGR pursuant to s. 132(1), thereby offsetting MFT-level taxes on capital gains arising from the winding up and preventing double taxation.
Ability to push out ordinary income (p. 7)
- If the MFT also has ordinary income, such income may be concurrently allocated and paid to unitholders under s. 104(13) and deducted under s. 104(6).
S. 132(5.3) likely inapplicable to redemptions by virtue of an MFT wind-up
- S. 132(5.3) refers to a “redemption by [a] beneficiary,” which would not appear to apply to the type of redemption that occurs on a winding-up of an MFT: if s.132(5.3) had been intended to so apply, a reference to a redemption “by the trust” could have been added.
- The text of s. 132(5.3) suggests that it may only apply to ordinary-course redemptions at unitholders’ request, which was the apparent original intention on its introduction with the 2019 budget.
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