CRA finds that a s. 132.2 exchange of MFC shares for MFT units precluded a s. 88(1)(d) bump of the MFT units

Parent acquired all the shares of another taxable Canadian corporation (the Subsidiary), whose only property was a share of a mutual fund corporation (MFC) with a low ACB.

One month later, the Subsidiary exchanged its MFC share on a rollover basis pursuant to a s. 132(2) qualifying exchange for two units of a mutual fund trust (MFT) to which all the MFC assets were transferred. One month later, there was a short-form amalgamation of Subsidiary with Parent described in s. 87(11).

In finding that the s. 88(1)(d) bump was not available respecting the MFT units because the Subsidiary did not satisfy the requirement in the s. 88(1)(c) midamble that it have held, without interruption, those units between the acquisition of control of the Subsidiary and the distribution of the units on the amalgamation, CRA noted that there was no continuity rule deeming the MFT to be a continuation of the MFC after the qualifying exchange, nor was there any rule deeming the MFT units to be the same property as the MFC share held prior to the qualifying exchange.

Neal Armstrong. Summary of 4 March 2025 External T.I. 2024-1009691E5 F under s. 88(1)(c).