30 November 1996 Ruling 9711283 - DEDUCTIBILITY OF 94.1 INCOME TO A MUTUAL FUND TRUST

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 section 94.1 income to a Cdn resident trust deductible for purposes of 104(6)?

Position:

Yes

Reasons:

Provided Trust indenture makes the amount in question payable, deduction may be taken.

XXXXXXXXXX							971128
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sirs/Mesdames:

Re: XXXXXXXXXX - Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the additional information provided in your letters of XXXXXXXXXX.

We understand that none of the issues involved in the ruling request, to the best of your knowledge and that of the taxpayers involved:

i) is in an earlier return of the taxpayers or a related person,

ii)is being considered by an office of Revenue Canada in connection with a previously filed tax return of the taxpayers or a related person,

iii) is under objection by the taxpayers or a related person,

iv)is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired, and

v)is the subject of a ruling previously to the taxpayers or a related person issued by the Directorate.

In this letter, the following references and terms have the meanings specified:

i)"Act" means the Canadian Income Tax Act (R.S.C. 1985, 5th Supplement, c.1, as amended),

ii)"A Co. " means XXXXXXXXXX,

iii)"Holdings" means XXXXXXXXXX,

iv)"Manager" means XXXXXXXXXX, and

v)"Trust" means XXXXXXXXXX.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows.

Facts and Proposed Transactions

1.A. Co. is a wholly-owned subsidiary of Holdings. A. Co. provides management, administrative and portfolio advisory services to mutual funds, segregated funds and pooled investment funds. Each of A. Co., and Holdings is a taxable Canadian corporation, as defined in subsection 89(1) of the Act.

2. On XXXXXXXXXX, Holdings established a new subsidiary corporation, the Manager, which is a taxable Canadian corporation, as defined in subsection 89(1) of the Act. The Manager will establish the Trust,

XXXXXXXXXX

3.The capital of the Trust will be represented by redeemable transferable units (the "Units") of beneficial interest in the Trust, the terms and conditions of each of which are identical.

XXXXXXXXXX

4.The Trust will issue Units at a price of $XXXXXXXXXX per Unit. Each Unit will represent an undivided interest in the net assets of the Trust. The Trust will have a term of approximately XXXXXXXXXX years and will terminate on or about XXXXXXXXXX. Upon termination, the net assets will be distributed pro rata to the unitholders ("Unitholders"), unless an alternative later termination date is approved by the Unitholders.

5. The Trust will be managed by the Manager and A. Co. will act as investment advisor to the Trust.

XXXXXXXXXX

XXXXXXXXXX

6.Certain XXXXXXXXXX in which the Trust will invest, will constitute offshore investment fund properties, in respect of which the Trust may be required to include in its income certain amounts computed under section 94.1 of the Act. XXXXXXXXXX are three of these such XXXXXXXXXX which will be acquired by the Trust.

7.The Trust will make XXXXXXXXXX distributions to Unitholders

XXXXXXXXXX

the net XXXXXXXXXX capital gains and net income of the Trust XXXXXXXXXX (including any income computed under section 94.1 of the Act XXXXXXXXXX)

XXXXXXXXXX

8. XXXXXXXXXX

9.The Trust Agreement will provide that sufficient net income and net XXXXXXXXXX capital gains of the Trust, if any, including income of the Trust arising under section 94.1 of the Act shall be distributed to Unitholders each year so that the Trust will not be liable to pay income tax under Part I of the Act. Unitholders will have the legal right to enforce payment at the end of each calendar quarter and calendar year end of any amount due to them at the end of such calendar quarter and calendar year end.

10. XXXXXXXXXX

Purpose of Proposed Transactions

11.The purpose of the proposed transactions is to permit the Trust to invest in properties that will allow it to achieve its investment objectives.

Rulings Requested and Given

Provided that the preceding statements are accurate and constitute complete disclosure of all the relevant facts, proposed transactions and the purpose thereof, and the proposed transactions are carried out as described above we confirm the following:

For the purposes of paragraph 104(6)(b) of the Act, the Trust is not prohibited from including in the computation of the amount that would be its income for a taxation year, as became payable in that year to Unitholders, the amount of income computed under section 94.1 of the Act in respect of XXXXXXXXXX. The Unitholders shall be required to include such amount in computing their income for that year pursuant to paragraph 104(13)(a) of the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996 and are binding on Revenue Canada provided investments in XXXXXXXXXX are acquired by the Trust within six months from the date of this letter.

Yours truly,

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch