Section 131

Subsection 131(1) - Election re capital gains dividend

Administrative Policy

1 June 1999 T.I. 9830585

Because a capital gains dividend received by a shareholder of a mutual fund corporation is deemed to be a capital gain from the disposition of capital property, a private corporation receiving the dividend may add the non-taxable portion to its capital dividend account.

22 January 1997 Internal T.I. 7-970023 -

"For an investment corporation to qualify to make the election under subsection 131(1) to treat dividends as capital gains dividends, the dividends must be payable in a taxation year throughout which the corporation was an investment corporation. Accordingly, even though the corporation is an investment corporation throughout the year with respect to which a capital gains refund is being sought, dividends paid during the first 60 days of the corporation's following taxation year would qualify as capital gains dividends only if the corporation was an investment corporation throughout that subsequent taxation year."

Articles

Hugh Chasmar, "Mutual Fund 'Switch Funds'", Taxation of Corporate Reorganizations, Canadian Tax Journal, Vol. 46, No. 1, 1998, p. 172.

Discussion as to whether an exchange by an investor of shares of one class for shares of another could be treated as a redemption enabling utilization of a mutual fund corporation's capital gains dividend account.

Subsection 131(4.1)

Articles

Hugh Chasmar, "Corporate Class Funds", Canadian Tax Highlights, Vol. 25, No. 8, August 2017, p. 6

Effective requirement to reorganize to ensure matching portfolios before s. 86 merger of classes (p. 7)

Before subsection 131(4.1) was enacted, two funds in a multi-class mfc could undergo a tax-deferred merger: generally, section 86 was relied on to give a rollover to the terminating fund’s shareholders. Because the mfc did not dispose of any assets to a third party except as required by securities law, it might not recognize a gain on the merger. …

Subsection 131(4.1) requires…[i]n effect [that] portfolios underlying the terminating and surviving funds must be identical before the shareholders qualify for a tax-deferred rollover. Before the merger, the portfolio of each fund may be reorganized to ensure this identical nature.

S. 86 merger of classes following an amalgamation (p. 7)

[T]he three conditions in subsection 131(4.1) referred to above in respect of fund mergers must also be satisfied if two MFCs are to amalgamate on a tax-deferred basis under section 87. It should be possible to satisfy the second requirement—namely, that the old shares of each class of a predecessor MFC have the same value and portfolio composition as the new shares of a class issued by Amalco. For example, one MFC may have 20 classes, and the other MFC may have 30 classes. Immediately following the amalgamation, Amalco may have 50 classes. However, when two MFCs amalgamate, it is fairly common to combine funds that are duplicated within Amalco (for example, when each predecessor MFC has a Canadian equity fund). Those class-to-class mergers should be undertaken, in accordance with the rules discussed above, after the amalgamation of the two MFCs.

Subsection 131(6) - Definitions

Capital Gains Dividend Account

Articles

H. Chasmar, "Mutual Funds 'Switch Funds'", the Taxation of Corporate Reorganizations, Canadian Tax Journal, Vol. 46, No. 1, 1998, p. 172.

Capital Gains Redemption

Administrative Policy

29 March 2001 External T.I. 2000-005026 -

Where a shareholder of a mutual fund corporation redeems shares of a class, in accordance with the terms and conditions attaching to those shares, and exchange for shares of another class of the same corporation, s. 51(1) usually will apply to the exchange and there will not be an "amount paid by the corporation in the year on the redemption of shares as capital stock" for the purposes of A in the definition of "capital gains redemptions" in s. 131(6).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 51 - Subsection 51(1) redemption of MFC switch shares for shares of another class 88

Subsection 131(8)

Administrative Policy

8 March 1991 T.I. (Tax Window, No. 2, p. 25, ¶1189)

The disposition by a mutual fund corporation of all its investments, the distribution of all its assets and its winding-up will not disqualify the corporation as a mutual fund corporation for the year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) 33

Articles

J. Scott Wilkie, "Mutual Funds go for Derivatives", Corporate Finance, Vol. VII, No.2, 1999, p.611.