2019-0822901E5 Mutual Fund Trusts

Principal Issues: Whether an individual and each of their registered plans count as a separate beneficiary for purposes of satisfying the 150 beneficiary requirement in paragraph 4801(b) of the Regulations.

Position: Yes.

Reasons: There is no requirement to look through the registered plan trust.

Author: Podor, Karina
Section: 132(6)(c); Reg. 4801(b)

XXXXXXXXXX                                                                 2019-082290
                                                                                         K. Podor
June 8, 2020

Dear XXXXXXXXXX:

Re:   Mutual fund trusts

This is in reply to your email dated September 9, 2019 in which you describe a hypothetical example and ask us to confirm the number of beneficiaries of a mutual fund trust (“MFT”) that may be counted for purposes of satisfying the 150 beneficiary requirement in paragraph 4801(b) (footnote 1) of the Regulations. We apologize for the delay in our reply.

Your hypothetical example is as follows:  An individual has a non-registered account and is a holder of a TFSA and an annuitant of a RRSP. The individual is also a contributor to a spousal or common-law partner RRSP. The non-registered account and each of the registered plan trusts hold units of the same class of the MFT. All other conditions in section 4801 of the Regulations are met.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

A “mutual fund trust” is defined in subsection 132(6). To qualify, certain prescribed conditions set out in section 4801 of the Regulations must be satisfied. Of note is the requirement in paragraph 4801(b) of the Regulations that the trust have at least 150 beneficiaries, each of whom holds not less than one block of units having a fair market value of at least $500 of a class that meets the conditions in paragraph 4801(a) of the Regulations.

In the hypothetical example provided, we agree with your view that there are four beneficiaries for purposes of satisfying the 150 beneficiary requirement. The individual and each registered plan trust count as a separate beneficiary.

Notwithstanding our general view described above, we note that the CRA has previously applied the general anti-avoidance rule (“GAAR”) in situations where mutual fund trust status was artificially achieved to facilitate abusive tax avoidance. The determination of whether the GAAR would apply to any particular situation would require a full consideration of all the facts and circumstances.

We trust these comments will be of assistance.

Yours truly,

Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader:  Because of our system requirements, the footnotes contained in the original document are shown below instead:

1  Unless otherwise stated, all references to a statute are to the Income Tax Act (the “Act”) and all references to a regulation are to the Income Tax Regulations.

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2020

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2020