2015-0595041E5 Mutual Fund Trusts & 108(2)(a)(i)

Principal Issues: Does CRA still consider a redemption schedule more than once annually satisfying 108(2)(a)(i)?

Position: Yes.

Reasons: Position unchanged from 1991 CTF Roundtable

Author: Holloway, Lena
Section: 108(2)(a); 132(6)

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                                                                                  L. Holloway, CPA, CA

November 16, 2015

Dear XXXXXXXXXX:

Re: Mutual Fund Trusts - Subparagraph 108(2)(a)(i)

We are writing in response to your correspondence dated June 23, 2015.  Your enquiry correctly stated that in order for a trust to qualify as a unit trust pursuant to subparagraph 108(2)(a)(i) and further as a mutual fund trust for purposes of subsection 132(6) of the Income Tax Act, the issued units of the trust must have conditions attached “requiring the trust to accept, at the demand of the holder thereof… the surrender of the units…”.  This condition is commonly referred to as the units being redeemable on demand.

We have previously opined that generally where a provincial securities commission has a policy concerning what it considers to be “redeemable on demand” for provincial securities purposes that the Canada Revenue Agency will generally accept such policy in determining whether a particular trust would satisfy the redeemable on demand requirement in subparagraph 108(2)(a)(i).  This position was first made public in the 1991 Canadian Tax Foundation Round Table discussion and has been affirmed as our position in further documents in several years that followed.

As requested, we would like to confirm that this position still applies as previously stated.  In addition, where the relevant securities legislation accepted as redeemable at the “demand of the holder” a redemption schedule that provided for no less than two redemptions annually, such a fund could generally qualify as a unit trust under subparagraph 108(2)(a)(i).

We trust our comments will be of assistance.

Yours truly,

Phil Kohnen
Manager, Trusts Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

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