7 March 1995 External T.I. 9504095 - MUTUAL FUND TRUSTS - CAPITAL GAINS REFUND FOR QUEBEC

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:

Interplay of subsections 120(2) and 132(4) of the Act.

Position TAKEN:

Subsection 132(1) of the Act does not affect the calculation of subsection 120(2) and conversely.

Reasons FOR POSITION TAKEN:

Position taken before CCM file #7-943014.

XXXXXXXXXX					5-950409

Attention: XXXXXXXXXX

March 7, 1995

Dear Sirs:

Re: Mutual Fund Trusts - Capital Gains Refund for Quebec Residents

We are replying to your letter dated February 8, 1995 wherein you requested an interpretation concerning the interplay of subsections 120(2) and 132(1) of the Income Tax Act (the "Act").

As explained in Information Circular 70-6R2, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate taxation district office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

Subsection 120(2) of the Act stipulates that an individual is deemed to have paid on account of his tax under Part I, 16.5% (3% under subsection 120(2) of the Act and 13.5% under section 27 of the Federal-Provincial fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act), of his tax otherwise payable. Subsection 120(4) of the Act defines the expression "tax otherwise payable" for the purpose of section 120 of the Act and does not refer to section 132 of the Act for any adjustment of the tax payable.

Subsection 132(1) of the Act provides for a refund to a mutual fund trust in respect of the tax which it has paid on its capital gains. A mutual fund trust is not entitled to the refund until it redeems units it has issued. Under section 132 of the Act, the Minister may refund the amount calculated under subsection 132(1) of the Act or may apply the refund to other liability, owed by the mutual fund trust, under the Act. The wording of section 132 does not sustain that the refund is a deduction of the tax payable. In our opinion, the refund constitutes an amount paid on account of tax which does not form part of the calculation of the tax payable. Therefore, we confirm your view that the capital gains refund to mutual fund trust provided by subsection 132(1) of the Act does not reduce the Quebec refundable abatement provided under subsection 120(2) of the Act.

The above comments are an expression of opinion only and, as explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

We trust that these comments will be of assistance to you.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Policy and Legislation Branch