CRA rules that the merger of two segregated funds held by the same insurer would occur on a s. 107.4 rollover basis

CRA ruled that the s. 107.4 rollover applied to the “transfer” of all the property of one segregated fund to another segregated fund held by the same insurer. The insurer was the legal and beneficial owner of both funds’ properties both before and after, so that the transfer consisted in the insurer starting to book the securities of the first fund as being securities of the second fund, and adjusting the notional units of the policyholders accordingly. Thus, the rulings essentially turned on the proposition that these book entries were sufficient to effect a transfer of property from one fund (which was deemed by s. 138.1 to be a trust) to the second such deemed trust, notwithstanding the absence of specific language in s. 138.1 to that effect.

As it happened, the property of the two funds was essentially identical (units of a mutual fund trust), but the logic in this ruling would appear to extend to situations where the two funds had different property.

Neal Armstrong. Summary of 2017 Ruling 2016-0625301R3 under s. 107.4(1).