Section 132.1

The TSO indicated that the taxpayer had increased that ACB of the taxpayer’s units by the non-taxable portion of capital gains realized on share investments that had not been distributed. The Directorate concluded that what likely had instead happened was that the capital gains had been payable by the MFT and reinvested in additional units (perhaps with a consolidation of the units. Before so concluding, it stated:

An increase in the ACB of a unit in an MFT is provided for in paragraph 53(1)(d.2). This paragraph requires a taxpayer to add to the cost of a unit in an MFT any amount required by subsection 132.1(2) to be added in computing the ACB of the unit. Subsection 132.1(2) does not increase the ACB of a unit by an amount equal to the taxable capital gain designated to the taxpayer by the MFT. In our view, subsection 132.1(2) allows the ACB of a unit to be increased by an amount by which the ACB has already been reduced by subparagraph 53(2)(h)(i.1). The ACB of a taxpayer's unit in an MFT is not reduced by the capital gain designated to it. The exceptions in clause 53(2)(h)(i.1)(A) and subclause 53(2)(h)(i.1)(B)(I) provide, respectively, that the ACB of a unit is not reduced by the taxable and non-taxable portions of a capital gain allocated to a taxpayer. Taking into account the foregoing comments, it is our view that the designation by an MFT to a taxpayer of a capital gain that has become payable does not increase or decrease the ACB of the taxpayer's unit in the MFT.