Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Does a mutual fund trust cease to qualify as such if, after meeting the conditions in Regulation 4801(a), the securities regulators refuses to issue a receipt for subsequent prospectuses?
Position: No.
Reasons: Once a class of units has been issued pursuant to a prospectus which has been accepted and receipted by the securities regulators, the class of units is qualified for distribution to the public within the meaning of 4803(2).
XXXXXXXXXX 2001-007257
Annemarie Humenuk
September 11, 2001
Dear XXXXXXXXXX:
Re: Status of a Mutual Fund Trust
This is in reply to your letter of February 22, 2001, in which you ask whether a mutual fund trust's status under the Income Tax Act (the "ITA") would be adversely affected if the Ontario Securities Commission (the "Commission"), as the securities regulator of the particular mutual fund trust, refused to issue a receipt for any prospectus filed with the Commission following the filing of an earlier prospectus which had been accepted by the Commission.
For the purposes of the ITA, a trust must meet certain conditions in order to qualify as a "mutual fund trust" as defined in subsection 132(6) of the ITA. Of relevance to your question is the prescribed condition contained in paragraph 4801(a) of the Income Tax Regulations (the "Regulations") which states that a class of units of the trust must be qualified for distribution to the public. Under the definition of "qualified for distribution to the public" in subsection 4803(2) of the Regulations, a class of units of a trust which was not issued and outstanding as of January 1, 1972, will only be qualified for distribution to the public if, under paragraph (a), "a prospectus, registration statement or similar document has been filed with, and where required by law, accepted for filing by, a public authority in Canada pursuant to and in accordance with the law of Canada or of any province and there has been a lawful distribution to the public of shares or units of that class in accordance with that document."
It is our understanding that subsection 53(1) of the Ontario Securities Act (the "OSA") requires the trustee of a trust that intends to issue units to the public to file an initial prospectus with the Commission prior to any distribution of those units. Similarly, subsection 62(1) of the OSA requires the trustee of a trust that has issued units to the public to file an additional prospectus every 12 months following the Commission's acceptance of the initial prospectus in order to continue distributing units of the trust after the expiry of each 12-month period. The ability of a trust to issue units to existing or new unitholders under these provisions is also subject to the Commission's acceptance of each prospectus filed. The Commission's acceptance of a prospectus is substantiated by the issuance of a receipt for the prospectus. Subsection 61(2) of the OSA sets out the conditions under which the Commission would refuse to issue a receipt for a particular prospectus. While a trust that has issued units pursuant to an initial prospectus may continue to exist even though a receipt has not been issued for a subsequent prospectus, such a trust would be precluded from issuing any further units to existing or new unitholders following the lapse of the 12-month period covered by the previous prospectus.
In our view, a distribution of units of a class in accordance with the initial prospectus accepted by the Commission would satisfy the essential requirement of paragraph 4803(2)(a) of the Regulations such that the class of units so distributed would be qualified for distribution to the public. The fact that subsequent events preclude the trust from issuing any further units of that class to new or existing unitholders does not alter the fact that a lawful distribution of units of that class has previously been made in accordance with a properly receipted prospectus.
Please note that it is currently proposed that for trusts created after 1999, paragraph 4801(a) of the Regulations be amended to permit a trust that does not have a class of units which are qualified for distribution to the public to qualify as a mutual fund trust if there has been a lawful distribution in a province to the public of units of the trust and a prospectus, registration statement or similar document was not required under the laws of the province to be filed in respect of the distribution, and the other conditions necessary to qualify as a mutual fund trust are met.
The above comments represent our view of the law as it generally applies and should not be construed as providing the Canada Customs and Revenue Agency's (the "CCRA") views on whether a particular trust will qualify as a mutual fund trust for purposes of the ITA. While we hope that our comments are of assistance to you, please note that this is not an advance income tax ruling and, accordingly, is not binding on the CCRA.
Yours truly,
T. Murphy
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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