20 April 1998 External T.I. 9809815 - MFC/MFT INVESTING IN A "QLP"

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:

Can a mutual fund trust/mutual fund corporation invest in a qualified limited partnership?

Position:

Yes, provided they are a limited partner and not a general partner and the QLP restricts its activities to those described in paragraph (f) of the definition of QLP in Regulation 5000(7).

Reasons:

Satisfies the requirement in paragraphs 131(8)(b) and 132(6)(b) that the MFC/MFT’s only undertaking is the investing of its funds in property.

							980981
XXXXXXXXXX 						A. Seidel
(613) 957-8974

Attention: XXXXXXXXXX 						

April 20, 1998

Dear Sirs:

Re: Mutual Fund Corporation
Mutual Fund Trust
Investment in Qualified Limited Partnership

This is in reply to your facsimile dated April 16, 1998 in which you requested our views with respect to a mutual fund corporation (“MFC”), within the meaning of proposed subsection 131(8) of the Income Tax Act (the “Act”), or a mutual fund trust (“MFT”), within the meaning of proposed subsection 132(6) of the Act, investing in a qualified limited partnership (“QLP”), as defined in subsection 5000(7) of the Income Tax Regulations (the “Regulations”).

Proposed amendments to subparagraphs 131(8)(b)(i) and 132(6)(b)(i) of the Act will require that a MFC’s or a MFT’s, respectively, only undertaking is “the investing of its funds in property (other than real property or an interest in real property)”.

Paragraph (f) of the definition of QLP requires that a limited partnership’s “only undertaking was the investing of its funds and its investments consisted solely of

(i) shares of the capital stock of corporations (other than shares that were issued to the partnership and that are shares described in section 66.3 of the Act or shares in respect of which amounts have been designated under subsection 192(4) of the Act),

(ii) rights, or warrants that grant the owner thereof rights, to acquire shares of the capital stock of corporations,put or call options in respect of shares of the capital stock of corporations,

(iii) debt obligations of corporations,

(iv) specified properties (within the meaning assigned by subsection 5100(1) ), or

(v) any combination of the properties described in subparagraphs (i) to (v),”

In the situation where a MFC or a MFT is a limited partner, i.e. not a general partner, of a QLP, and the QLP restricts its only undertaking to be the investing of its funds in the investments provided for in paragraph (f) of the definition of QLP as outlined above, it is our view that the limited partnership interest, when held by a MFC or a MFT, would generally qualify as the investing of its funds in property (other than real property or an interest in real property) for purposes of proposed paragraphs 131(8)(b) and 132(6)(b) of the Act.

These comments are provided in accordance with the guidelines set out in paragraph 22 of IC 70-6R3 and are therefore not binding on Revenue Canada.

Yours truly,

for Manager
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

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