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:
Will amending a mutual fund’s declaration of trust to make the units of the trust redeemable on demand result in a disposition of the units to the unitholders.
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
The addition of a redemption right, by itself, is not a significant enough change to result in a disposition of the units. Consistent with positions in Doc’s 941673, 930540, 3-1562, & 3-2043.
973200
XXXXXXXXXX G.W. Keable
(613) 957-2046
Attention: XXXXXXXXXX
February 16, 1999
Dear Sirs:
Re: Mutual Fund Trust - Addition of Redemption Right
This is in reply to your letter of December 3, 1997 requesting our views on whether the addition of a redemption right to the declaration of trust of a mutual fund trust would result in a disposition of the units by the unitholders. We apologize for the delay in responding.
In your letter you described a hypothetical situation for our consideration which has been restated as follows.
An existing mutual fund trust currently qualifies as a “unit trust” under paragraph 108(2)(b) of the Income Tax Act (the “Act”). Its units are widely distributed and are listed on a prescribed stock exchange in Canada but the units are not redeemable on demand. To have the mutual fund qualify as a unit trust under paragraph 108(2)(a) of the Act, the declaration of trust will be amended to allow the units to be redeemed on demand. The unitholders will approve this amendment, and when approved, the units will be delisted. However, the existing unit certificates will not be cancelled, redeemed or surrendered when the proposed amendments to the declaration of trust are made.
It is your view that the addition of the redemption right and the delisting of the units would not result in a disposition of the units by the unitholders.
Although you have asked for a technical interpretation, it appears that the hypothetical situation described above may relate to an actual fact situation. You should be aware that we do not provide binding interpretations of the Act except by way of an advance income tax ruling, as discussed in Information Circular 70-6R3. However, we are prepared to provide the following general comments.
Generally, any transaction or event that involves the redemption, surrender or cancellation of the units of a mutual fund trust will result in a disposition of the units. However, where a change to the rights attaching to such units is effected by an amendment to a mutual fund’s declaration of trust, the significance of the change must be considered when determining whether or not there has been a disposition of the units. With respect to the hypothetical situation described above, we would agree that the amendment to the declaration of trust to allow the unitholders to redeem their units on demand will not, in and by itself, result in a disposition of the units of the mutual fund trust. The fact that the units will no longer be listed on a prescribed stock exchange will not alter our view in this regard.
The above comments represent our view of the law as it generally applies. While we hope that it is of assistance to you, please note that it is not an advance income tax ruling and, accordingly, it is not binding on Revenue Canada.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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