2024 Ruling 2023-0962031R3 - mutual fund reorganization

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.

Principal Issues: 1) Will subsection 107.4(1) apply to several trust to trust transfers? 2) Will certain transfers of all of the property of several transferors to a transferee be qualifying exchanges as described in section 132.2? Will GAAR apply?

Position: 1) Yes. 2) Yes. 3) No.

Reasons: 1) Meets the requirements. 2) Meets the requirements. 3) There is no misuse or abuse.

XXXXXXXXXX 2023-096203

Dear XXXXXXXXXX:

Re: 	XXXXXXXXXX
	Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling (Ruling) on behalf of the above-named taxpayers. We also acknowledge the information provided in subsequent correspondence and during our various conversations in connection with your request.

We understand that, to the best of your knowledge and that of the taxpayers involved, none of the Proposed Transactions, or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:

(a) in a previously filed tax return of the taxpayers or a related person and:

i. being considered by the CRA in connection with such return;

ii. under objection by the taxpayers or a related person; or

iii. the subject of a current or completed court process involving the taxpayers or a related person; or

(b) the subject of a ruling request previously considered by the Income Tax Rulings Directorate.

Further, the above-referenced taxpayers represent that the Proposed Transactions will not result in them or any related person being unable to pay its outstanding tax liabilities.

This document is based solely on the facts and Proposed Transactions described below. The documentation submitted with your request does not form part of the facts and Proposed Transactions except as expressly referred to herein, and any references thereto are provided solely for the convenience of the reader.

Unless otherwise stated all references to a statute are to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the Regulations). Unless otherwise indicated, all references herein to monetary amounts are in Canadian dollars.

DEFINITIONS

Unless otherwise specified, the following terms have the meanings specified:

“CBCA” means the Canada Business Corporations Act, as amended to the date of this letter;

“Class A Unit” means a Unit of Fund3 designated as a class A Unit;

“Class I Unit” means a Unit of Fund3 designated as a class I Unit;

“cost amount” has the meaning described in subsection 248(1);

“CRA” means the Canada Revenue Agency;

“Custom Client” means a Unitholder of one or more of the Reorganizing Funds to which the Manager has assigned a target Investment Allocation (as the Manager determines from time to time) that differs from the Investment Allocation of Model Clients;

“depreciable property” has the meaning assigned by subsection 13(21);

“Effective Date” means the date on which the Proposed Transactions described in Paragraphs 19 to 23 occur, except for the election described in Paragraph 21. For greater certainty, if the Effective Date is a date on which the XXXXXXXXXX is open for trading, the Proposed Transactions described in Paragraphs 19 to 23 will not occur until after the XXXXXXXXXX has closed for trading for the day;

“Equity Aggregator Fund” is a newly created Unit Trust as described in Paragraph 14;

“Exchanging Unitholder” means a Model Client who will participate in the Proposed Transactions and a Custom Client that owns units in each of the Reorganizing Funds and whose target Investment Allocation with respect to each Reorganizing Fund is within five percentage points of the target Investment Allocation of a Model Client with respect to the same Reorganizing Fund who will participate in the Proposed Transactions. For greater certainty, Exchanging Unitholder does not include a Class I Unitholder of Fund3;

“Fair market value” means the highest price available in an open and unrestricted market between informed and prudent parties acting at arm’s length and under no compulsion to act, expressed in terms of cash;

“Fund” means a Canadian resident Unit Trust established to hold assets for its Unitholders, and includes any one of Fund1, Fund2, Fund3, Fund4, Fund5, NewFundA1, NewFundA2, NewFundA3, NewFundA4, NewFundA5, NewFundB1, NewFundB2, NewFundB3, NewFundB4, and Equity Aggregator Fund;

“Fund1” means XXXXXXXXXX;

“Fund2” means XXXXXXXXXX;

“Fund3” means XXXXXXXXXX;

“Fund4” means XXXXXXXXXX;

“Fund5” means XXXXXXXXXX;

“Fund Investment Assets” means, in respect of a Fund, the diversified portfolio of various equity and equity-like securities of Canadian or foreign companies and other short-term investments held by the particular Fund;

“Initial UnitA” has the meaning described in Paragraph 12;

“Initial UnitB” has the meaning described in Paragraph 13;

“Initial Unit” has the meaning described in Paragraph 14;

“Investment Allocation” means for an investor in the Reorganizing Funds, the proportion that each investment in a Reorganizing Fund comprises of that investor’s total aggregate investment in the Reorganizing Funds.

“Liabilities” means, in respect of a particular Fund at a particular time, all of its current and accrued liabilities at that time;

“Liquid Assets” means in respect of a particular Fund, its assets other than Fund Investment Assets, generally cash or assets used for working capital and for subscriptions and redemptions;

“Manager” means XXXXXXXXXX. (i) as the manager of the Reorganizing Funds pursuant to a management agreement between the Manager, each Reorganizing Fund, as the case may be, and Trustee granting, amongst other powers, discretionary investment management authority over the Fund Investment Assets, and (ii) as the manager of each of the NewFundAs, each of the NewFundBs, and the Equity Aggregator Fund;

“Merger Date” means the date in which the NewFundA’s transfer their property to the Equity Aggregator Fund under section 132.2 as described in Paragraph 25;

“Model Client” means a Unitholder of each of the Reorganizing Funds that the Manager has grouped with other Unitholders of each Reorganizing Fund and to each member of the respective group the Manager has assigned the same target Investment Allocation (as the Manager determines from time to time);

“mutual fund trust” has the meaning described in subsection 132(6);

“Net Asset Value” of a Fund, at a particular time, is equal to the sum of the fair market value of such Fund’s Fund Investment Assets and its Liquid Assets less its Liabilities at that time and the Net Asset Value per Unit is the Net Asset Value of a Fund divided by its issued and outstanding Units;

“NewFundAs” means collectively NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, and “NewFundA” means each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, individually;

“NewFundA1” is a new Unit Trust to be established as described in Paragraph 12 and that will correspond with Fund1;

“NewFundA2” is a new Unit Trust to be established as described in Paragraph 12 and that will correspond with Fund2;

“NewFundA3” is a new Unit Trust to be established as described in Paragraph 12 and that will correspond with Fund3;

“NewFundA4” is a new Unit Trust to be established as described in Paragraph 12 and that will correspond with Fund4;

“NewFundA5” is a new Unit Trust to be established as described in Paragraph 12 and that will correspond with Fund5;

“NewFundBs” means collectively NewFundB1, NewFundB2, NewFundB3, and NewFundB4, and “NewFundB” means each of NewFundB1, NewFundB2, NewFundB3, and NewFundB4, individually;

“NewFundB1” means a new Unit Trust to be established as described in Paragraph 13 and that will correspond to Fund1;

“NewFundB2” means a new Unit Trust to be established as described in Paragraph 13 and that will correspond to Fund2;

“NewFundB3” means a new Unit Trust to be established as described in Paragraph 13 and that will correspond to Fund3;

“NewFundB4” means a new Unit Trust to be established as described in Paragraph 13 and that will correspond to Fund4;

“Paragraph” means a numbered paragraph in this advance income tax ruling;

“Proposed Transactions” mean the transactions described in Paragraphs 12 to 29;

“Reorganizing Funds” means collectively Fund1, Fund2, Fund3, Fund4, and Fund5, and “Reorganizing Fund” means each of Fund1, Fund2, Fund3, Fund4, and Fund5, individually;

“taxable Canadian corporation” has the meaning described in subsection 89(1);

“Total Fund Assets” in respect of a Fund, means the sum of the fair market value of the particular Fund’s Fund Investment Assets and its Liquid Assets;

“Transferred Equivalent NAV Assets” means, in respect of a Reorganizing Fund, a NewFundA, or a NewFundB, the Transfer Percentage of each of the individual investments that comprise the Fund Investment Assets and in each component of Working Capital, having a combined value equivalent to the Net Asset Value of the Fund on the Effective Date multiplied by the Transfer Percentage;

“Transfer Percentage” for a Reorganizing Fund, a NewFundA or a NewFundB, as the case may be, means, for a Reorganizing Fund, the percentage that the aggregate Net Asset Value of the Units of the Reorganizing Fund held by Exchanging Unitholders represents of the aggregate Net Asset Value of all of the Reorganizing Fund’s issued and outstanding Units and, in the case of a NewFundA or NewFundB, means 100%;

“transfer time” has the meaning described in the definition of “qualifying exchange” in subsection 132.2(1);

“Transferee” has the meaning described in subsection 132.2(1), and for the purposes of Paragraph 25, means the Equity Aggregator Fund;

“Transferor” has the meaning described in subsection 132.2(1) and for the purposes of Paragraph 25 includes each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be;

“Trust Agreement” for Fund1, Fund2, and Fund4 means the Trust Indenture dated XXXXXXXXXX, respectively, as amended and assigned to the Manager, and for Fund3 and Fund5 means the Master Trust Agreement dated XXXXXXXXXX, as amended together with the Supplemental Trust Agreement for Fund3 dated XXXXXXXXXX, as amended, and for Fund5 dated XXXXXXXXXX, as amended and assigned to the Manager, and for each NewFundA, each NewFundB and the Equity Aggregator Fund means the Master Trust Agreement dated XXXXXXXXXX, as amended, together with the draft Supplemental Trust Agreement for each NewFundA, NewFundB and the Equity Aggregator Fund;

“Trustee” means XXXXXXXXXX;

“Unit” means a unit of beneficial interest in a Fund that is a Unit Trust;

“Unit Trust” means a trust described in subsection 108(2);

“Unitholder” means a person who holds Units of a Unit Trust;

“Valuation Time” means, with respect to the Proposed Transactions, the time when the XXXXXXXXXX has closed for trading on the Effective Date, and if the Effective Date is not the date on which the XXXXXXXXXX is open for trading, then the time when the XXXXXXXXXX closed for trading on the immediately preceding day on which the XXXXXXXXXX was open for trading; and

“Working Capital” means in respect of a Fund, its Liquid Assets less Liabilities.

FACTS

1. The mailing address for each Reorganizing Fund is XXXXXXXXXX. The Reorganizing Funds are located within the area served by the XXXXXXXXXX.

2. Trustee is a resident of Canada, is a trust company continued under the laws of Canada, and is the trustee of the Reorganizing Funds.

3. The beneficial interest in each Reorganizing Fund is divided into Units. Except for Fund3, each Unit represents an equal undivided interest in the Total Fund Assets held by the applicable Reorganizing Fund. For Fund3, each Class A Unit and each Class I Unit represents an equal undivided interest in the Total Fund Assets proportionate to the share of the Total Fund Assets that is represented by each class of Units.

4. Each Reorganizing Fund is a Unit Trust and a mutual fund trust. Each Reorganizing Fund has a XXXXXXXXXX year end and is resident in Canada at all relevant times. At no time has any Reorganizing Fund been established or maintained primarily for the benefit of Unitholders who are not residents of Canada.

5. Each Reorganizing Fund’s specific investment objectives and investment strategy are in its offering documents and Trust Agreement. The Reorganizing Funds’ sole operating activity is holding their Total Fund Assets for the benefit of their Unitholders. Such benefit is derived through capital appreciation and receipt of income from their respective Total Fund Assets.

6. Fund1, Fund2, and Fund5 are registered investments pursuant to subsection 204.4(1). Fund3 and Fund4 are not registered investments pursuant to subsection 204.4(1).

7. Reserved.

8. All of the income and realized capital gains of the Reorganizing Funds are distributed to Unitholders each taxation year. The applicable Trust Agreements permit distributions to be paid in kind by issuing additional Units of the respective Fund.

9. Fund1, Fund2, Fund4, and Fund5 each has one specified, redeemable class of Units and has not issued any other class of Units.

10. Fund3 has two classes of units: Class A and Class I. The Class A units are subject to a management fee paid to the Manager. The Class I units are not subject to a management fee.

11. The Units of each Reorganizing Fund are widely held by the public and there is no direct or indirect beneficial owner of Units carrying more than XXXXXXXXXX% of the votes and value of each Reorganizing Fund’s outstanding Units. In addition, no person who exercises control or direction over Units of a Reorganizing Fund owns Units carrying more than XXXXXXXXXX% of the votes and value of each Reorganizing Funds outstanding Units. The Units of each Fund are distributed to Unitholders pursuant to statutory exemptions from the Canadian securities law prospectus requirements.

PROPOSED TRANSACTIONS

The Proposed Transactions described in Paragraphs 12 to 18, will take place prior to the Effective Date:

12. The Manager will settle five new trusts, NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5 with nominal cash consideration as the subscription price for one unit (the “Initial UnitA”). Each NewFundA will correspond to a Reorganizing Fund, being Fund1, Fund2, Fund3, Fund4, and Fund5, respectively. Each NewFundA will be settled under the laws of the province of XXXXXXXXXX. Each NewFundA will be a Unit Trust and resident in Canada. Trustee will be the trustee of each NewFundA.

But for the subscription proceeds, each NewFundA will not hold any other property at that time.

The Trust Agreement governing each NewFundA will have substantially the same terms as the Trust Agreement of the corresponding Reorganizing Fund. The investment objectives and strategies of each NewFundA will have substantially the same terms as the investment objectives and strategies of its corresponding Reorganizing Fund.

13. Each of NewFundA1, NewFundA2, NewFundA3, and NewFundA4 will settle a new trust, NewFundB1, NewFundB2, NewFundB3, and NewFundB4, respectively, with nominal cash consideration as the subscription price for one unit (the “Initial UnitB”). Each NewFundB will correspond to a Reorganizing Fund, being, Fund1, Fund2, Fund3, and Fund4, respectively. Each NewFundB will be settled under the laws of the province of XXXXXXXXXX and will be resident in Canada. Each NewFundB will be a Unit Trust but will not be a mutual fund trust. Trustee will be the trustee of each NewFundB.

But for the subscription proceeds, each NewFundB will not hold any other property at that time.

The Trust Agreement governing each NewFundB will have substantially the same terms as the Trust Agreement of the corresponding Reorganizing Fund. The investment objectives and strategies of each NewFundB will have substantially the same terms as the investment objectives and strategies of the corresponding Reorganizing Fund.

14. The Manager will settle the Equity Aggregator Fund with nominal cash consideration as the subscription price for one unit (the “Initial Unit”) under the laws of the province of XXXXXXXXXX. The Equity Aggregator Fund will be a Unit Trust and will be resident in Canada. Trustee will be the trustee of the Equity Aggregator Fund.

But for the subscription proceeds, the Equity Aggregator Fund will not hold any other property at that time.

The Trust Agreement governing the Equity Aggregator Fund will have substantially the same terms as the Trust Agreements of the Reorganizing Funds.

15. The Reorganizing Funds will suspend subscriptions and redemptions of Units for the period of up to ten business days before the Effective Date until the Merger Date, inclusive. During this suspension, no Units may be purchased, exchanged or redeemed. Any pending purchases, exchanges or redemptions will be completed prior to the Proposed Transaction described in Paragraph 19.

16. After closing their Units for subscriptions and redemptions, the Reorganizing Funds will settle all their outstanding liabilities prior to the Proposed Transaction described in Paragraph 19. As a result, immediately before the Proposed Transaction described in Paragraph 19, the Unitholders in the Reorganizing Funds will have no indirect undivided interest or obligation in connection with the liabilities of their respective Reorganizing Fund.

17. Depending on the net income and realized capital gains of each Reorganizing Fund, each Reorganizing Fund may elect to pay a special distribution (in kind though reinvestment in additional Units) to its Unitholders, prior to the Valuation Time, in an amount equal to its net income and realized capital gains earned from the beginning of the taxation year in accordance with its applicable Trust Agreement.

18. Trustee shall determine the Net Asset Value and the Net Asset Value per Unit of each Reorganizing Fund at the Valuation Time, and the Net Asset Value and Net Asset Value per Unit shall be used consistently to determine the valuation of the Exchanging Unitholders’ Units on the both the Effective Date and the Merger Date.

19. On the Effective Date, each of Fund1, Fund2, Fund3, Fund4, and Fund5 will transfer its Transferred Equivalent NAV Assets to NewFundA1, NewFundA2, NewFundA3, NewFundA4 and NewFundA5, respectively. No Reorganizing Fund will receive any consideration on the transfer.

The property transferred from each Fund1, Fund2, Fund3, Fund4, and Fund5, as the case may be, to NewFundA1, NewFundA2, NewFundA3, NewFundA4 and NewFundA5, respectively will be a pro rata transfer of each of the individual investments that comprise the Fund Investment Assets and each component of Working Capital held by Fund1, Fund2, Fund3, Fund4, and Fund5, as the case may be.

At the same moment in time as the transfer of the Transferred Equivalent NAV assets from each Reorganizing Fund to its respective NewFundA, and after having been either reduced to the appropriate fraction of a Unit or subdivided in more than one Unit so as to have the same Net Asset Value as the Units issued by the NewFundA, the Initial UnitA, as reduced or subdivided as the case may be, issued by each of the NewFundA’s will be redeemed for an amount equal to its subscription price.

Each NewFundA will issue Units to the Exchanging Unitholders having an aggregate Net Asset Value equal to the amount obtained when the Transfer Percentage of the corresponding Reorganizing Fund is multiplied by the Net Asset Value of the corresponding Reorganizing Fund. As a result, the aggregate of the Net Asset Value of the NewFundA Units issued to each Exchanging Unitholder will be equal to the Net Asset Value of the corresponding NewFundA at the Valuation Time. In addition, the aggregate Net Asset Value of the Units of each NewFundA issued to each Exchanging Unitholder will be equal to the amount of the aggregate Net Asset Value of the Units of the Reorganizing Fund held by the Exchanging Unitholder immediately before the transfer.

The Units in each Reorganizing Fund held by the Exchanging Unitholders will be cancelled for no consideration. No action will be required on the part of the Exchanging Unitholders in connection with the cancellation of these Units.

The terms and conditions of the Units of a NewFundA issued to an Exchanging Unitholder will be substantially the same as the terms and conditions as the Units of the corresponding Fund held by an Exchanging Unitholder.

No election will be made by any Reorganizing Fund under subparagraph 107.4(3)(a)(i).

With respect to Fund1, Fund2, Fund3, and Fund4, as the case may be, a disproportionate amount of money or interest in a share will not be transferred in lieu of a transfer of a fractional interest in a share by any Reorganizing Fund to any NewFundA, as described in subsection 107.4(2.1). If necessary, Fund5 will utilize subsection 107.4(2.1) to avoid the transfer of fractional interest in shares forming part of the Fund Investment Assets.

20. On the Effective Date, and immediately following the transactions described in Paragraph 19 or as soon as practical thereafter, each of NewFundA1, NewFundA2, NewFundA3, and NewFundA4 will transfer its Transferred Equivalent NAV Assets to NewFundB1, NewFundB2, NewFundB3, and NewFundB4, respectively.

At the same moment in time as the transfer of the Transferred Equivalent NAV Assets from each NewFundA, as the case may be, to its respective NewFundB, and after having been either reduced to the appropriate fraction of a Unit or subdivided into more than one Unit so as to have the same Net Asset Value as the Units issued by the NewFundB, the Initial UnitB, as reduced or subdivided as the case may be, issued by each of the NewFundB’s will be redeemed for an amount equal to its subscription price.

In exchange for the Transferred Equivalent NAV Assets, each of NewFundB1, NewFundB2, NewFundB3, and NewFundB4 will issue additional Units to NewFundA1, NewFundA2, NewFundA3, and NewFundA4, respectively. The number of Units issued by each NewFundB will be equal to the number of issued and outstanding Units of the corresponding NewFundA. No additional units will be issued by each NewFundB to any other taxpayer.

The terms and conditions of the Units of each NewFundB issued to each NewFundA will be substantially the same as the terms and conditions as the Units of the corresponding NewFundA held by an Exchanging Unitholder.

No election will be made by any NewFundA under subparagraph 107.4(3)(a)(i).

21. NewFundB1, NewFundB2, NewFundB3, and NewFundB4 will each elect under subparagraph (f)(v) of the definition of disposition in subsection 248(1) that paragraph (f) not apply in the manner of and within the time required as a result of the transfer described in Paragraph 20.

22. On the Effective Date, and immediately following the transactions described in Paragraph 20 or as soon as practical thereafter, each of NewFundB1, NewFundB2, NewFundB3, and NewFundB4 will transfer its Transferred Equivalent NAV Assets to Fund1, Fund2, Fund3, and Fund4, respectively.

No NewFundB will receive any consideration for the transfer of the Transferred Equivalent NAV Assets.

Fund1, Fund2, Fund3, and Fund4, as the case may be, will issue such number of Units to each NewFundA, as the case may be, such that the Net Asset Value of each Unit of the corresponding Reorganizing Fund, as the case may be, issued to each NewFundA will be equal to the Net Asset Value of each Unit of the corresponding Reorganizing Fund at the Valuation Time, as determined in Paragraph 18. For greater certainty, the aggregate Net Asset Value of the Units issued to each NewFundA, as the case may be, will be equal to the aggregate Net Asset Value of the Units of the Exchanging Unitholders in Fund1, Fund2, Fund3, and Fund4, as the case may be, as determined in Paragraph 18.

The outstanding Units of each NewFundB held by the corresponding NewFundA will be cancelled for no consideration. No action will be required on the part of any NewFundA in connection with the cancellation of such Units.

No election will be made by any NewFundB under subparagraph 107.4(3)(a)(i).

23. Each NewFundB will be terminated as it will not have any Unitholders nor have any property.

24. Immediately following the transactions described in Paragraph 22, each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5 will have no fewer than 150 Unitholders and will satisfy the conditions in section 4801 of the Regulations such that they will each qualify as a mutual fund trust. Each of the NewFundAs will elect under subsection 132(6.1), in the manner of and within the time required, to be deemed to be a mutual fund trust from the start of its first taxation year.

25. On the Merger Date and immediately following the transactions described in Paragraph 22, or as soon as practical thereafter, each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5 (each referred to as the “Transferor”) will, pursuant to section 132.2, simultaneously transfer all of its assets to the Equity Aggregator Fund (the “Transferee”) and in exchange will receive units of the Transferee as the sole consideration for such property at the transfer time.

Within 60 days following the transfer of the assets from the Transferors to the Transferee, each Transferor, one after the other in ten minute increments, will redeem all of its issued and outstanding Units in exchange for transferring to its Unitholders consideration consisting only of Units of the Transferee.

No election will be made by the Transferor and the Transferee under paragraph 132.2(4)(b).

26. Pursuant to paragraph 132.2(3)(b), each of the Transferors and the Transferee will be deemed to have a taxation year-end at the acquisition time as referenced in 132.2(2).

27. Immediately following the transaction described in Paragraph 25, the Equity Aggregator Fund will have no fewer than 150 Unitholders and will satisfy the conditions in section 4801 of the Regulations such that it will qualify as a mutual fund trust. The Equity Aggregator Fund will make the election under subsection 132(6.1), in the manner of and within the time required, to be a mutual fund trust from the beginning of its first taxation year.

28. Each Transferor and the Transferee will jointly elect as required by paragraph (e) of the definition of “qualifying exchange” in subsection 132.2(1) by filing with the Minister of National Revenue form T1169 Election on Disposition of Property by a Mutual Fund Corporation (or a Mutual Fund Trust) to a Mutual Fund Trust before the due date for such election, in compliance with subsection 132.2(6).

29. Each Transferor will be terminated after completion of the foregoing transactions and the filing of the election described in Paragraph 28.

PURPOSE OF THE PROPOSED TRANSACTIONS

30. The purpose of the Proposed Transactions is to simplify the administration associated with the rebalancing of investments in the Reorganizing Funds for certain Unitholders (i.e. the Exchanging Unitholders) to their target Investment Allocation. Under the current structure, to balance the holdings of the Exchanging Unitholders on an on-going basis, the Manager regularly subscribes to and redeems Units of the Reorganizing Funds on behalf of the Exchanging Unitholders (in accordance with its fully discretionary asset management authority). A significant administrative burden is created by the processing of large volumes of subscriptions and redemptions for these Unitholders. By creating the Equity Aggregator Fund, the Exchanging Unitholders will hold Units in a single mutual fund trust, being the Equity Aggregator Fund, rather than Units of each Reorganizing Fund and the Equity Aggregator Fund will hold the respective Units in the Reorganizing Funds. Consequently, the rebalancing of the holdings of the Exchanging Unitholders is completed within the Equity Aggregator Fund on a consolidated basis significantly reducing the administrative burden with the resulting capital gains and capital losses, as the case may be, occurring within the Equity Aggregator Fund. In addition, each Reorganizing Fund will continue to exist so that existing custodial, brokerage, audit and back office relationships can be maintained and Model clients and Custom Clients that do not participate in the Proposed Transactions will continue to hold their Units directly in the Reorganizing Funds.

ADDITIONAL INFORMATION

31. It is expected that the Proposed Transactions will begin and be completed XXXXXXXXXX.

32. For the purposes of subsection 107.4(1), the Proposed Transactions do not include any transfer of property to any Reorganizing Fund, NewFundA, or NewFundB as consideration for the acquisition of a capital interest in any Reorganizing Fund, NewFundA, or NewFundB, respectively, where the particular property can reasonably be considered to have been received by a Reorganizing Fund, NewFundA, or NewFundB, respectively, in order to fund a distribution.

33. The Net Asset Value of each of the Reorganizing Funds immediately before undertaking the Proposed Transaction in Paragraph 19 shall be the same as the Net Asset Value of each respective Reorganizing Fund following the completion of the transfers contemplated in Paragraph 22, with the exception of Fund5.

34. Neither the Transferee nor the Transferor, as defined in Paragraph 25, will hold any depreciable property at the time of the transfer described in Paragraph 25.

RULINGS

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the Proposed Transactions are carried out as described above, our rulings are as follows:

A. Each transfer of the respective Transferred Equivalent NAV Assets by:

(a) Fund1, Fund2, Fund3, Fund4, and Fund5, as the case may be, to NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, respectively, as described in Paragraph 19;

(b) NewFundA1, NewFundA2, NewFundA3, and NewFundA4, as the case may be, to NewFundB1, NewFundB2, NewFundB3, and NewFundB4, respectively, as described in Paragraph 20; and

(c) NewFundB1, NewFundB2, NewFundB3, and NewFundB4, as the case may be, to Fund1, Fund2, Fund3, and Fund4, respectively, as described in Paragraph 22;

will be a “qualifying disposition” within the meaning of subsection 107.4(1).

B. Paragraph 107.4(3)(a) will apply to determine the proceeds of disposition on the transfer of the respective Transferred Equivalent NAV Assets by

(a) Each of Fund1, Fund2, Fund3, Fund4, and Fund5, as the case may be, to NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, respectively, as described in Paragraph 19;

(b) Each of NewFundA1, NewFundA2, NewFundA3, and NewFundA4, as the case may be, to NewFundB1, NewFundB2, NewFundB3, and NewFundB4, respectively, as described in Paragraph 20; and

(c) Each of NewFundB1, NewFundB2, NewFundB3, and NewFundB4, as the case may be, to Fund1, Fund2, Fund3, and Fund4, respectively, as described in Paragraph 22.

C. Paragraph 107.4(3)(b) will apply to determine the cost of the Transferred Equivalent NAV Assets acquired by

(a) Each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as described in Paragraph 19;

(b) Each of NewFundB1, NewFundB2, NewFundB3, and NewFundB4, as described in Paragraph 20; and

(c) Each of Fund1, Fund2, Fund3, and Fund4, as described in Paragraph 22.

D. Paragraph 107.4(3)(j) will apply to determine the proceeds of disposition received by

(a) an Exchanging Unitholder on the disposition of the Units of each of Fund1, Fund2, Fund3, Fund4, and Fund5, as a result of the Proposed Transaction described in Paragraph 19; and

(b) each of NewFundA1, NewFundA2, NewFundA3 and NewFundA4, as the case may be, on the disposition of the Units of NewFundB1, NewFundB2, NewFundB3, and NewFundB4, respectively, as a result of the Proposed Transaction described in Paragraph 22.

E. Paragraph 107.4(3)(j) will apply to determine the cost

(a) to an Exchanging Unitholder of the Units of each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be, received as a result of the Proposed Transaction described in Paragraph 19; and

(b) to each of NewFundA1, NewFundA2, NewFundA3 and NewFundA4, as the case may be, of the Units of Fund1, Fund2, Fund3, and Fund4, respectively, received as a result of the Proposed Transaction described in Paragraph 22.

F. Subparagraph 107.4(3)(m)(ii) will apply to determine the cost of the Units of NewFundB1, NewFundB2, NewFundB3, and NewFundB4, as the case may be, acquired by NewFundA1, NewFundA2, NewFundA3, and NewFundA4, respectively, as a result of the Proposed Transaction described in Paragraph 20.

G. Provided that at the time of the transfer described in Paragraph 25 above, each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be, and the Equity Aggregator Fund is a mutual fund trust within the meaning assigned by subsection 132(6) and provided that joint elections are filed in prescribed form and within the time set out in paragraph (e) of the definition of qualifying exchange in subsection 132.2(1), as described in Paragraph 28, the transactions described in Paragraph 25 between each of the NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be, and the Equity Aggregator Fund will be a qualifying exchange pursuant to subsection 132.2(1).

H. Each of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be, will realize no capital gain or income as a result of the transfer of its properties to the Equity Aggregator Fund as described in Paragraph 25, in and of itself.

I. The Unitholders of NewFundA1, NewFundA2, NewFundA3, NewFundA4, and NewFundA5, as the case may be, will realize no capital gain or income as a result of the qualifying exchange described in Paragraph 25, in and of itself.

J. The provisions of subsection 245(2) will not apply as a result of the Proposed Transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given above.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R12 Advance Income Tax Rulings and Technical Interpretations, dated April 1, 2022, and are binding on the CRA provided that the Proposed Transactions (other than filing of the elections described in Paragraphs 27 and 28 and the termination of the Transferors as described in Paragraph 29) are completed within one year of the date of this letter.

COMMENTS

Nothing in this advance income tax ruling should be construed as implying that we are ruling on any tax consequences relating to the facts or Proposed Transactions described herein other than those specifically described in the rulings given above, or acceptance, approval or confirmation of any other income tax implications of the facts, Proposed Transactions, or the additional information described herein. In particular, but without affecting the generality of the foregoing,

1. we express no opinion with respect to whether any entity described herein is a mutual fund trust within the meaning of subsection 132(6) or a unit trust within the meaning of subsection 108(2) at any particular time; and

2. we provide no opinion on the fair market value or cost amount of any of the property described herein.

An invoice for our fees in connection with this Ruling will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
For Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch