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:
Is a "plan of operation" similar to a "prospectus" or "registration statement" for the purposes of paragraph 4803(2)(a) of the Regulations.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
Paragraph 4803(2)(a) provides that a class of units of a trust is qualified for distribution to the public only if a prospectus, registration statement or similar document is filed with a public authority in Canada, such document be accepted for filing where required by law, and there be a lawful distribution in accordance with that document. A prospectus or registration statement can be described as a document prepared for prospective investors to provide them with information about a proposed issue of securities and the business of the issuer so that the investor may make an informed decision as to the merit of such an investment. A plan of operation is not a document similar to a prospectus or registration statement within the ordinary meaning of those words, it is a document prepared for a regulatory institution (not a prospective purchaser) to set out the operating framework of a particular common trust fund. The information it must contain parallels the information one would expect to find in a trust indenture for a mutual fund and not the information that would be contained in a prospectus. Therefore, a plan of operation is not considered to be a document similar to a prospectus or registration statement for the purposes of paragraph 4803(2)(a) of the Regulations and the units of a common trust fund which files such a document would not be "qualified for distribution to the public" under paragraph 4801(a) of the Regulations.
5-952746
XXXXXXXXXX G.W. Keable
(613) 957-2046
Attention: XXXXXXXXXX
February 11, 1997
Dear Sirs:
Re: Common Trust Funds
This in reply to your letter of October 16, 1995, concerning "common trust funds" established under section 173 of the Loan and Trust Corporations Act (Ontario) (the "L&T Act"). Specifically, you have requested confirmation that the units of a common trust fund which submits a written "plan of operation" to the Superintendent of Deposit Institutions as required by section 92 of the L&T Act Regulations are "qualified for distribution to the public" pursuant to paragraph 4801(a) of the Income Tax Regulations. We apologize for the delay in responding.
As you have indicated, to qualify as a "mutual fund trust" as defined in subsection 132(6) of the Income Tax Act (the "Act") a trust must meet certain prescribed conditions. These include the conditions contained in paragraphs 4801(a) and 4803(2)(a) of the Regulations that a class of units of a trust will be "qualified for distribution to the public" only if a prospectus, registration statement or similar document has been filed with, and where required by law, accepted for filing by, a public authority in Canada pursuant to and in accordance with the law of Canada or of any province and there has been a lawful distribution to the public of shares or units of that class in accordance with that document. Since a "plan of operation" is neither a prospectus nor a registration statement, it must fall within the meaning of "similar document" to satisfy the above conditions.
Although the Act does not define a "prospectus" or "registration statement", these terms have been defined as follows:
The Dictionary of Canadian Law, Second Edition, Carswell 1995.
PROSPECTUS. n, Any prospectus, notice, circular, or advertisement of any kind whatsoever, whether of the kind hereinbefore enumerated or not, whether in writing or otherwise offering to the public for purchase or subscription any shares or debentures of any company. See OFFERING MEMORANDUM.
OFFERING MEMORANDUM. A document that: (i) sets forth information concerning the business and affairs of an issuer; and (ii) has been prepared primarily for prospective purchasers to assist those purchasers to make an investment decision with respect to securities being sold pursuant to a trade that is made in reliance on an exemption.
West's Legal Thesaurus/Dictionary, William Statsky, 1985.
Prospectus, n. A document published by a company or by its agent, setting forth the nature and objects of an issue of shares, debentures, or other securities created by the company, and inviting the public to subscribe to the issue; a document containing all material facts concerning a company and its operations so that a prospective investor may make an informed decision as to the merits of an investment (misrepresentations in the prospectus). Announcement, statement, résumé, outline syllabus, bulletin, digest, circular, abstract, scheme, plan, catalogue, précis, brief. See also report (1), communication.
Registration statement A statement disclosing financial data and other items of interest to potential investors, which must be filed by companies wishing to issue securities to the public or to trade in public markets. See securities, disclosure.
Blacks Law Dictionary, Sixth Edition, West 1990.
Prospectus. A document published by a corporation, or by persons acting as its agents or assignees, setting forth the nature and objects of an issue of shares, debentures, or other securities created by the company or corporation, the investment or risk characteristics of the security and inviting the public to subscribe to the issue. The principal document of a registration statement required by law to be furnished an investor prior to any purchase. It is the document which is to contain all material facts concerning a company and its operations so that a prospective investor may make an informed decision as to the merit of an investment.
The term "prospectus" means any prospectus, notice, circular advertisement, letter or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security.
Registration statement. Document required by the Securities Act of 1933 of most companies wishing to issue securities to the public or by the Securities Exchange Act of 1934 of a company wishing to have its securities traded in the public markets. The statement discloses financial data, purpose of securities offering and other items of interest to potential investors. Such statements must be submitted and approved by the SEC.
Therefore, a prospectus, offering memorandum or registration statement can be described as a document prepared for prospective investors to provide them with information about a proposed issue of securities and the business of the issuer so that the prospective investor may make an informed decision as to the merit of such an investment.
The term "plan of operation" is also not a defined term. However, Part IV (sections 91 to 106) of the L&T Act Regulations contains the rules governing the establishment of a common trust fund and the contents of a plan of operation. In particular, subsection 92(3) provides that a plan of operation must set out the manner in which a fund is to be operated. In addition, this subsection provides that a plan of operation must contain certain provisions including provisions describing the investment powers and restrictions of the fund, the allocation of the profits and losses of the fund, and the basis and method of valuing the assets of the fund. Based on the above, it would appear that a plan of operation is a document that provides an operating framework for a common trust fund (i.e., it can be viewed as a document similar to a trust indenture prepared for a mutual fund trust) rather than a document prepared for prospective investors to allow those investors to make an investment decision in respect of an issue of securities.
Your letter also referenced Document #9409416 which included the following comments:
We have provided favourable rulings that a trust, that has not filed a prospectus, will meet the requirements in paragraph 4803(2)(a) of the Regulations if: a) an offering memorandum, which is similar to but contains less information than a prospectus, is filed with the applicable securities regulators or b) a document similar to that of an offering memorandum, such as an information folder or information memorandum is filed with a provincial authority in accordance with the Loan and Trust Corporations Act of that province. These are the only two "similar documents" we have accepted in our written correspondence. Should you wish us to consider other fact situations, please refer them to us.
With respect to the comments in b) above, the documents in question related to "pooled fund trusts" and were filed in accordance with section 86 of the L&T Act, R.S.O. 1970 which read in part as follows:
86(4) The Registrar may, when in his opinion such action is in the public interest, require a trust company to file with him an information folder in the form prescribed by the regulations with respect to a pooled trust fund and no application or moneys for participation in the pooled trust fund shall be received by the trust company from a prospective purchaser until the trust company has delivered to the prospective purchaser a copy of the information folder that has been filed and the trust company shall obtain from each prospective purchaser with his application a statement in writing acknowledging that he has received a copy of the information folder.
86(5) The information folder shall provide brief and plain disclosure of all material facts relating to the pooled fund trust....
(emphasis added)
We would also note that the information folder reviewed at that time contained information similar to the information that would be found in a prospectus.
Based on the above, it is our view that a "plan of operation" is not a "prospectus, registration statement or similar document" as contemplated by paragraph 4803(2)(a) of the Regulations. Therefore, the units of a common trust fund which submits a written "plan of operation" to the Superintendent of Deposit Institutions as required by section 92 of the L&T Act Regulations would not be "qualified for distribution to the public" pursuant to paragraph 4801(a) of the Income Tax Regulations.
We trust that our comments will be of assistance to you.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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