CRA finds that trailer commissions which are temporarily paid by an MFT to an OEO dealer for it to fund rebates to client MFT unitholders are s. 12(1)(x) inclusions to the MFT

S. 12(2.1) deems an amount received by a beneficiary of a trust as an inducement in respect of activities of the trust, or as a reimbursement or other assistance in respect of an expense of the trust, to have been received in that regard by the trust (so as to potentially engage the application of s. 12(1)(x) at the trust level).

A ban was imposed, effective June 1, 2022, on order execution only service dealers (“OEO Dealers”), i.e., dealers not making a suitability determination before arranging for a client to invest in a mutual fund, from being paid trailer fees by a mutual fund or its manager. However, there is a temporary exemption (e.g., until May 31, 2025) from this prohibition in order to facilitate the OEO Dealers in paying a rebate of such amounts to their clients who held their investment in the mutual fund prior to June 1, 2022, or who transferred their mutual fund units into OEO Dealer accounts on or after June 1, 2022 (an “OEO Rebate”). The Directorate stated:

[W]here an OEO Rebate is paid by an OEO Dealer to a unitholder in a trust, in the [above] circumstances … it is likely that the OEO Rebate would be considered to be in respect of the activities of the trust or in respect of an expense of the trust. In the result, subsection 12(2.1) would likely be considered to apply and the amount of the OEO Rebate included in the income of the trust pursuant to paragraph 12(1)(x).

Neal Armstrong. Summary of 8 September 2023 Internal T.I. 2023-0987091I7 under s. 12(2.1).