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: What happens to the balance of RCGTOH when MFT fails to meet prescribed conditions in 132(6)(c)
Position: Grace for 1 year and then frozen in time
Reasons: 132(6.2) provides a 1 year grace and the definition of RCGTOH in 132(4)
August 7, 2013
Chantal Roy, Senior Programs Officer HEADQUARTERS
Taxpayer Services Directorate Dominic Tiu
395 Terminal Ave, 3rd Fr., Room 3017A ( 416) 973-8002
Ottawa, ON K1A 0L5
Refundable Capital Gains Tax On Hand
We are writing in response to your July 17th, 2013 email request for our comments as to what happens to the balance of the "Refundable Capital Gains Tax On Hand" ("RCGTOH") of a mutual fund trust ("MFT") when the MFT failed in the taxation year to meet the prescribed conditions referred to in paragraph 132(6)(c) of the Income Tax Act (the "Act").
The preamble to the amount "A" in the definition of the "RCGTOH" in subsection 132(4) of the Act states that (emphasis added):
"A" is the total of all amounts each of which is an amount in respect of that or any previous taxation year throughout which the trust was a mutual fund trust, equal to the least of...
The amount "B" in the definition of "RCGTOH" in subsection 132(4) of the Act is described as follows (emphasis added):
"B" is the total of all amounts each of which is an amount in respect of any previous taxation year throughout which the trust was a mutual fund trust, equal to its capital gains refund for the year.
To the extent the amounts "A" and "B" in the definition of the "RCGTOH" in subsection 132(4) of the Act both refer to amounts in respect of any previous taxation year throughout which the trust was a mutual fund trust, it is our view that (emphasis added):
- When an MFT fails during a taxation year to meet the prescribed conditions referred to in paragraph 132(6)(c) of the Act but meets all of the conditions set out in subsection 132(6.2) of the Act, the subject MFT would remain an MFT for purposes of section 132 of the Act during that calendar year.
- When the subject MFT failed at the beginning of the subsequent taxation year to meet the prescribed conditions referred to in paragraph 132(6)(c) of the Act, the balance of its "RCGTOH" of that subsequent year would be frozen in time.
If the subject MFT succeeded at the beginning of and during all of a later taxation year to meet once again the prescribed conditions referred to in paragraph 132(6)(c) of the Act, and by doing so met all the requirements in subsection 132(6), the frozen balance of the "RCGTOH" would be reinstated for that later taxation year, by virtue of its inclusion in the calculation of factors "A" and "B" of the RCGTOH for that year.
We will recommend to the Forms and Publications Section to consider modifying section 1 of Form T184 to account for the foregoing.
Trusts Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2013
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2013