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.
XXXXXXXXXX 2003-003834
September 18, 2003
Dear XXXXXXXXXX:
Re: Characterization of Amount Received by a Mutual Fund Trust
This is further to our telephone conversation of September 4, 2003, regarding the above-noted subject.
More specifically, you query the tax treatment of amounts received by a mutual fund trust pursuant to a contract entered into by the trust to provide capital protection to itself and its unitholders. The trust would only receive amounts under the contract to the extent that the value of "eligible units" of the trust at the "maturity date" is less than the value of those units at the "commencement date." Such amounts would in turn be distributed to "eligible unitholders" whose units have declined in value by way of a distribution of additional units of the trust.
It would seem that if the trust receives such amounts, there are unrealized (or realized) capital losses in respect of the assets held by the trust. These losses would then be offset by the amounts received pursuant to the contract. In our opinion an amount received under the contract would be a capital receipt and the trust would realize a taxable capital gain on the settlement of the contract.
This opinion is provided in accordance with the comments in Interpretation Circular 70-6R5.
Yours truly,
T. Murphy
Manager
Trusts Section
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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