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.
Principal Issues: Where the units of a unit trust fund are to be issued to four mutual fund trusts, will this be a lawful distribution to the public of shares or units, for the purposes of paragraph 4803(2)(a) of the Income Tax Regulations?
Position: Yes.
Reasons: The distribution of the units of the unit trust fund to the four mutual fund trusts will be made in accordance with a prospectus that will be filed with, and where required, accepted by the appropriate securities commision. As well, we have previously taken the position that the public can mean one member of the public.
XXXXXXXXXX 2004-009484
G. Allen
XXXXXXXXXX , 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation")(XXXXXXXXXX )
This letter is a reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer and further to your e-mails dated XXXXXXXXXX.
We understand that, to the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the Corporation or a related person;
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person;
(iii) under objection by the Corporation or a related person;
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired; and
(v) the subject of a ruling previously issued by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Facts
1. The Corporation is a corporation incorporated under the laws of Canada on XXXXXXXXXX. Accordingly, the Corporation is a corporation resident in Canada for the purposes of the Act.
2. The Corporation's business number with the Canada Revenue Agency ("CRA") is XXXXXXXXXX.
3. The Corporation's mailing address is:
XXXXXXXXXX.
4. The Corporation is in the business of providing discretionary investment management services and managing and administering investment products, including mutual funds and pooled funds.
Proposed Transactions
5. The Corporation will cause a trust (the "Fund") to be created under, and governed by, the laws of XXXXXXXXXX.
6. The Corporation will serve as the manager, investment manager and trustee of the Fund. The Fund will be a resident of Canada for purposes of the Act.
7. XXXXXXXXXX ("Aco"), a corporation created under the laws of the XXXXXXXXXX will act as the investment sub-advisor to the Fund.
8. The Fund will be a "trust" and an "inter vivos trust" within the meaning of subsection 108(1).
9. The Fund will be a "unit trust" within the meaning of paragraph 108(2)(a).
10. The Fund's only undertaking will be to invest its funds in property, other than real property.
11. The Fund will not be a "mutual fund trust" within the meaning of subsection 132(6) as it will not meet the conditions relating to the number of its unitholders and the dispersal of the ownership of its units as prescribed in paragraph 4801(b) of the Income Tax Regulations (the "Regulations").
12. The Fund will not be a "registered investment" within the meaning of section 204.4.
13. The Fund's investments will consist of futures, swaps, options, other derivative instruments and cash or short term fixed income securities.
14. The "cost amount" (as defined in subsection 248(1)) of all "foreign property" (as defined in subsection 206(1)) that will be held by the Fund will, during the relevant period for a particular month, be less than 30% of the cost amount of all property held by the Fund.
15. The Fund will file a prospectus ("Prospectus") with the XXXXXXXXXX and the other Canadian securities administrators ("Commission"). Initially, the units of the Fund will be issued only to XXXXXXXXXX publicly offered mutual fund trusts managed by XXXXXXXXXX ("FundCo") XXXXXXXXXX ("Investor Funds"). Each Investor Fund will be a "mutual fund trust" and a "registered investment" within the meaning of subsection 132(6) and section 204.4, respectively.
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. Neither the Corporation nor Aco are related (within the meaning of the Act) to FundCo.
19. XXXXXXXXXX.
20. XXXXXXXXXX.
21. Provided that the Prospectus is accepted by the Commission, the units of the Fund will be offered on a continuous distribution basis and the Fund will issue units of the Fund to the Investor Funds in accordance with the terms of the Prospectus as well as with XXXXXXXXXX securities laws and with the securities laws of each of the other Canadian jurisdictions.
Purpose of the Proposed Transactions
22. The purpose of the proposed transactions described in 5 to 21 above is to create a financially efficient "fund-on-fund" structure through which the Investor Funds (and indirectly, the beneficiaries of the Investor Funds) can obtain exposure to the financial return generated by investment activities undertaken by the Fund. However, it is desirable that the units of the Fund not be foreign property for the purposes of Part XI of the Act.
Ruling
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are as described above, we rule as follows:
A. Provided that the cost amount of foreign property held by the Fund does not exceed the limit referred to in paragraph 5000(1)(e) of the Regulations at any time during the relevant period for a particular month, pursuant to paragraph 5000(1)(c) of the Regulations, the units of the Fund will not be foreign property within the meaning of the Act for the purposes of subsection 206(2) of the Act in respect of that particular month.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the CRA provided that the proposed transactions are completed by XXXXXXXXXX.
Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed:
(a) XXXXXXXXXX; or
(b) any tax consequences relating to the facts and proposed transactions described herein other than those described in the rulings given above.
Yours truly,
XXXXXXXXXX
Manager
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Planning Branch
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