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: The tax consequences of transferring shares or units of a muitual fund corporation or trust to another class of shares or units of the same corporation or trust.
Position: Where the taxpayer exchanges shares of a mutual fund corporation for shares of another class of the same corporation, the provisions of subsection 51(1) will 51(1).apply and the exchange will not be a disposition.
Where units of a mutual fund trust are switched for units of another mutual fund trust, there would be a disposition.
Where units of one class or series of units are reclassified as another class or series, the change may be a dispositon depending on the facts of the particular situation.
Reasons: It meets the requirements of section 51.
There is no roll-over available in this situation.
If the change is done pursuant to the terms of the trust agreement, the change will generally not result in a disposition.
XXXXXXXXXX 2001-009235
F. Francis
September 25, 2001
Dear XXXXXXXXXX:
This is in reply to your letter of July 7, 2001, wherein you requested our comments with respect to the tax consequences of transferring shares or units of a mutual fund corporation or a mutual fund trust to another class of shares or units of the same mutual fund corporation or trust.
The tax consequences will differ depending on whether the mutual fund is a corporation or a trust. Where a taxpayer exchanges shares of a mutual fund corporation which represent capital property for shares of another class of the same mutual fund corporation, the provisions of subsection 51(1) will apply and the exchange will be deemed not to be a disposition of shares. Consequently, there will be no tax consequence to the holder of the shares upon the exchange. However, where a taxpayer exchanges shares of a particular mutual fund corporation for shares of another mutual fund corporation, the exchange will result in a disposition of the shares of the first mutual fund corporation.
Generally, there are two types of transactions where units of a mutual fund trust can be changed to another class of units. Firstly, it is our understanding that a "switch" or "transfer" of units is a transaction where units of a particular class or series of a mutual fund trust are redeemed and the proceeds are used to buy units of another class or series of units of another mutual fund trust within the same family of mutual fund trusts. This transaction will result in a disposition of those units as the unitholder has redeemed units, received proceeds of disposition and used these proceeds to buy units of another mutual fund trust.
On the other hand, a "change" of units is a transaction where units of one class or series of units of a particular mutual fund trust are reclassified or redesignated as another class or series of units of the same mutual fund trust. Whether this transaction results in a disposition of units will depend on the circumstances of the transaction. In cases where the trust agreement governing a particular mutual fund trust provides that more than one class or series of units may be issued by the fund and makes provision for changes between classes or series of units of that fund, a change of units generally will not result in a disposition. This position is based on our understanding that the attributes of each class or series of units of a particular fund are substantially the same, that the unitholder is not entitled to proceeds of disposition for the units and that the redesignated or reclassified units are not cancelled or redeemed.
As noted in Information Circular 70-6R4 issued on January 29, 2001, the above comments are not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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