31 December 2002 External T.I. 2002-0159245 - MUTUAL FUND TRUST ELECTION

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Does a subsection 132(6.1) election apply to make an investment in the trust during the period prior to the election a qualified investment?

Position: Yes

Reasons: Wording of the legislation and consistent with prior interpretations..

XXXXXXXXXX 2002-015924
Renée Shields
(613) 948-5273
December 31, 2002

Dear XXXXXXXXXX:

Re: Qualified Investments, Regulation 4900(1)(d)

This is in response to your letter of August 19, 2002 inquiring about whether a unit of a mutual fund trust acquired prior to the date of a subsection 132(6.1) election is a qualified investment for a registered retirement savings plan (RRSP).

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA").

Your example referred to a trust that, in its first year, meets all of the criteria in subsection 132(6) of the Income Tax Act ("the Act") except the minimum number of investors. If the trust meets this criterion by the required time in its second year and makes a valid election under subsection 132(6.1) of the Act it will be deemed to be a mutual fund trust from the beginning of its first year. Consequently, it is the CCRA's position that the units acquired in the first year by an RRSP would not be an acquisition of a non-qualified investment for the purposes of subsection 146(10) of the Act.

We trust that these comments will be of assistance.

Yours truly,

Mickey Sarazin, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate