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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether units of a mutual fund trust constitute mark-to-market property or a specified debt obligation.
Position: No.
Reasons:
Units of a mutual fund trust do not fall within the definitions of mark-to-market property and specified debt obligations.
XXXXXXXXXX 2003-000300
September 2, 2003
Dear XXXXXXXXXX:
Re: Mutual Fund Trusts and Mark-to-Market Rules
This is in reply to your letter of February 7, 2003 wherein you requested our views as to whether units of a mutual fund trust constitute mark-to-market property or specified debt obligations for purposes of the mark-to market rules.
Your request relates to a completed transaction involving specific taxpayers. As indicated in paragraph 22 of IC 70-6R5, confirmation of the income tax consequences of a completed transaction should be referred to the local tax services office. However, we can offer some general comments.
The terms "mark-to-market property" and "specified debt obligation" are defined in subsection 142.2(1) of the Income Tax Act (the "Act") for the purposes of sections 142.2 to 142.7 of the Act. A mark-to-market property for a taxation year of a taxpayer other than an investment dealer generally includes shares (subject to certain exclusions) and certain specified debt obligations. A specified debt obligation of a taxpayer is generally defined to include an interest in a loan, bond, debenture, mortgage, note, agreement of sale or any other similar indebtedness, or in a debt obligation purchased by the taxpayer (other than certain defined or prescribed exclusions).
The term "mutual fund trust" is defined in subsection 132(6) of the Act. One of the requirements for qualifying as a mutual fund trust is that the trust be a "unit trust" as defined in subsection 108(2) for the purposes of the Act. A trust is a unit trust if, at that particular time, it was an inter vivos trust, the interest of each beneficiary was described by reference to units of the trust, and the trust met the conditions described in any of paragraph 108(2)(a), (b) or (c) of the Act.
It is our view that a unit of a mutual fund trust does not meet the definition of a "share" in subsection 248(1) of the Act as a unit is not a share of the capital stock of a corporation. Further, since a unit of a mutual fund trust represents a beneficiary's interest in the assets of the trust, it would not generally be considered to be a type of indebtedness as described in the definition of specified debt obligation. Accordingly, it is our view that units of a mutual fund trust would not constitute mark-to-market property or specified debt obligations for the purposes of the mark-to-market rules.
While we hope our comments will be of assistance, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R5 and are not binding on the Agency in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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