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.
951062
XXXXXXXXXX T. Murphy
Attention: XXXXXXXXXX
May 2, 1995
Dear Sirs:
Re: Mutual Fund Trusts
This is in reply to your letter of April 18, 1995 concerning proposed section 142.6 and subsection 132(6) of the Income Tax Act (the "Act"). All references herein are to the Act unless otherwise indicated.
In the case of a new trust established with "seed money" contributed by a manager or sponsor that is a financial institution as defined in proposed section 142.2, the trust at the outset would also be a financial institution by virtue of the fact that more than 50% of the units in the trust are held by a financial institution and the trust would not be a mutual fund trust at that time. As investors purchase units in the trust, the trust would cease to be a financial institution once the interest of the manager or sponsor was reduced below the 50% threshold.
Proposed section 142.6 provides for a deemed year-end where at any particular time a taxpayer ceases to be a financial institution. Subsection 132(6) provides that a trust which meets the conditions specified therein on or before the day on or before which it is required to file its tax return for its first taxation year can elect to be a mutual fund trust from the commencement of that year until the day on which it so became a mutual fund trust.
The deemed year-end in proposed subsection 142.6 would accelerate the date on or before which the trust would otherwise have to meet the requirements of subsection 132(6), and if the trust fails to meet those requirements within 90 days of the deemed year-end, the trust would be subject to the proposed provisions dealing with financial institutions. You have requested confirmation that the "trust's first taxation year" referred to in the postamble of subsection 132(6) will be determined without reference to the deemed year-end that might otherwise arise under proposed section 142.6 if the trust were not a mutual fund trust since its inception.
In our opinion, there is no authority to ignore the deemed year-end provided for in proposed section 142.6. Consequently, we cannot confirm the above statement. We have brought this matter to the attention of the Department of Finance for their consideration.
We trust our comments will be of assistance to you.
Yours truly,
R.S. Biscaro
Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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