4 July 1994 External T.I. 9414425 - ACB OF A SHARE OF MUTUAL FUND CORP.

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:

How is computed the ACB of a share in a mutual fund?

Position TAKEN:

The ACB of a share in a mutial fund corporation is generally the amount paid for the share (including any costs of acquisition). Rule for identical properties applies.

Reasons FOR POSITION TAKEN:

Section 47

			5-941442
XXXXXXXXXX	Robert Gagnon

July 4, 1994

Dear Sir:

Re: Mutual Funds

This is in reply to your letter of May 28, 1994 wherein you requested a technical interpretation concerning the adjusted cost base of shares of mutual fund corporations.

Unless as otherwise stated all references to statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended consolidated to June 10, 1993 ("the Act")

It is unclear from your letter whether you own shares of a mutual fund corporation (within the meaning of subsection 131(8) of the Act) or units of a mutual fund trust (within the meaning of subsection 132(6) of the Act). You should determine whether you own shares or units of a mutual fund.

As mentioned in our letter of May 16, 1994, the adjusted cost base ("ACB") of a share in a mutual fund corporation is generally the amount paid for the share (including any costs of acquisition).

Distribution of income by a mutual fund corporations are called dividends. A mutual fund corporation can elect to treat a dividend payable to its shareholders as a capital gains dividend. Such an election permits the shareholder to whom the dividend is paid to treat the dividend as a capital gain. The ACB of a share of a mutual fund corporation is not reduced by the amount of the dividends paid on the share. Where a distribution of dividend is reinvested in additional shares, the amount of the dividend (with any cost of acquisition) constitutes the amount paid for the shares and the initial ACB of the shares. Following the reinvestment, the ACB of each individual share must be averaged by dividing the total ACB of all shares owned by the taxpayer by the number of shares.

According to the facts set out in your letter, the ACB of a share following the reinvestment of dividends would be $XXXXXXXXXX.

Paragraph 53(1)(d.2) and subsection 132.1(2) of the Act apply for mutual fund trust, not for mutual fund corporation.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate