Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Mutual Fund Trusts

Marginal note:Capital gains refund to mutual fund trust

• 132 (1) Where a trust was, throughout a taxation year, a mutual fund trust and a return of its income for the year has been made within 3 years from the end of the year, the Minister

  • (a) may, on sending the notice of assessment for the year, refund an amount (in this subsection referred to as its “capital gains refund” for the year) equal to the lesser of

    • (i) the total of

      • (A) 16.5% of the total of the trust’s capital gains redemptions for the year, and

      • (B) the positive or negative amount, if any, that the Minister determines to be reasonable in the circumstances, after giving consideration to the percentages applicable in determining the trust’s capital gains refunds for the year or any previous taxation year and the percentages applicable in determining the trust’s refundable capital gains tax on hand at the end of the year, and

    • (ii) the trust’s refundable capital gains tax on hand at the end of the year; and

  • (b) shall, with all due dispatch, make that capital gains refund after sending the notice of assessment if an application for it has been made in writing by the trust within the period within which the Minister would be allowed under subsection 152(4) to assess tax payable under this Part by the trust for the year if that subsection were read without reference to paragraph 152(4)(a).

• Marginal note:Application to other liability

  (2) Instead of making a refund that might otherwise be made under subsection 132(1) the Minister may, where the trust is liable or about to become liable to make any payment under this Act, apply the amount that would otherwise be refunded to that other liability and notify the trust of that action.

• Marginal note:Interest on capital gains refund

  (2.1) If a capital gains refund for a taxation year is paid to, or applied to a liability of, a mutual fund trust, the Minister shall pay or apply interest on the refund at the prescribed rate for the period beginning on the day that is 30 days after the later of

  • (a) the day that is 90 days after the end of the year, and

  • (b) the day on which the trust’s return of income under this Part for the year was filed under section 150

  and ending on the day on which the refund is paid or applied.

• Marginal note:Excess interest on capital gains refund

  (2.2) Where at any particular time interest has been paid to, or applied to a liability of, a trust under subsection 132(2.1) in respect of a capital gains refund and it is determined at a subsequent time that the capital gains refund was less than that in respect of which interest was so paid or applied,

  • (a) the amount by which the interest that was so paid or applied exceeds the interest, if any, computed in respect of the amount that is determined at the subsequent time to be the capital gains refund shall be deemed to be an amount (in this subsection referred to as the “amount payable”) that became payable under this Part by the trust at the particular time;

  • (b) the trust shall pay to the Receiver General interest at the prescribed rate on the amount payable, computed from the particular time to the day of payment; and

  • (c) the Minister may at any time assess the trust in respect of the amount payable and, where the Minister makes such an assessment, the provisions of Divisions I and J apply, with such modifications as the circumstances require, in respect of the assessment as though it had been made under section 152.

• Marginal note:Application of s. 104(20)

  (3) In its application in respect of a mutual fund trust, subsection 104(20) shall be read as if the reference therein to “a dividend (other than a taxable dividend)” were read as a reference to “a capital dividend”.

• Marginal note:Definitions

  (4) In this section,

  capital gains redemptions

  capital gains redemptions of a mutual fund trust for a taxation year means the amount determined by the formula

  (A/B × (C + D)) - E

  where

  A

  is the total of all amounts each of which is the portion of an amount paid by the trust in the year on the redemption of a unit in the trust that is included in the proceeds of disposition in respect of that redemption,

  B

  is the total of the fair market value at the end of the year of all the issued units of the trust and the amount determined for A in respect of the trust for the year,

  C

  is 100/16.5 of the trust’s refundable capital gains tax on hand at the end of the year,

  D

  is the amount determined by the formula

  (K + L) - (M + N)

  where

  K

  is the amount of the fair market value at the end of the year of all the issued units of the trust,

  L

  is the total of all amounts each of which is the amount of any debt owing by the trust, or of any other obligation of the trust to pay an amount, that was outstanding at that time,

  M

  is the total of the cost amounts to the trust at that time of all its properties, and

  N

  is the amount of any money of the trust on hand at that time, and

  E

  is twice the total of all amounts each of which is an amount designated under subsection 104(21) for the year by the trust in respect of a unit of the trust redeemed by the trust at any time in the year and after December 21, 2000; (rachats au titre des gains en capital)

  net asset value

  net asset value has the same meaning as in National Instrument 81-102 Investment Funds, as amended from time to time, of the Canadian Securities Administrators; (valeur liquidative)

  pro rata portion

  pro rata portion, of a beneficiary, of a mutual fund trust’s TCP gains balance for a taxation year, in respect of an amount designated under subsection 104(21) by the mutual fund trust for the taxation year, means the amount determined by the formula

  A x B/C

  where

  A

  is the mutual fund trust’s TCP gains balance for the taxation year,

  B

  is the amount the mutual fund trust has designated under that subsection in respect of the beneficiary for the taxation year, and

  C

  is the total of all amounts designated under that subsection by the mutual fund trust for the taxation year; (partie proportionnelle)

  refundable capital gains tax on hand

  refundable capital gains tax on hand of a mutual fund trust at the end of a taxation year means the amount determined by the formula

  (A - B)

  where

  A

  is the total of all amounts each of which is an amount in respect of that or any previous taxation year throughout which the trust was a mutual fund trust, equal to the least of

  • (a) the highest individual percentage for the year multiplied by its taxable income for the year,

  • (b) the highest individual percentage for the year multiplied by its taxed capital gains for the year, and

  • (c) where the taxation year ended after May 6, 1974, the tax payable under this Part by it for the year, and

  B

  is the total of all amounts each of which is an amount in respect of any previous taxation year throughout which the trust was a mutual fund trust, equal to its capital gains refund for the year; (impôt en main remboursable au titre des gains en capital)

  TCP gains balance

  TCP gains balance, of a mutual fund trust for a particular taxation year, means the amount, if any, by which

  • (a) the total of

    • (i) the mutual fund trust’s capital gains from dispositions, after March 22, 2004 and at or before the end of the particular taxation year, of taxable Canadian properties, and

    • (ii) the TCP gains distributions (including those defined in section 131) received by the mutual fund trust at or before the end of the particular taxation year

  exceeds

  • (b) the total of

    • (i) the mutual fund trust’s capital losses from dispositions, after March 22, 2004 and at or before the end of the particular taxation year, of taxable Canadian properties, and

    • (ii) the total of all amounts deemed, in respect of amounts designated by the mutual fund trust under subsection 104(21) for taxation years that preceded the particular taxation year, to be TCP gains distributions received by beneficiaries under the mutual fund trust; (solde des gains provenant de BCI)

  TCP gains distribution

  TCP gains distribution means a TCP gains distribution described in subsection (5.1). (distribution de gains provenant de BCI)

• Marginal note:Definition of taxed capital gains

  (5) In subsection 132(4), taxed capital gains of a taxpayer for a taxation year has the meaning assigned by subsection 130(3).

• Marginal note:TCP gains distribution

  (5.1) If a mutual fund trust designates an amount under subsection 104(21) for a taxation year of the trust in respect of a beneficiary under the trust, for the purposes of this Part and Part XIII,

  • (a) the beneficiary is deemed to have received from the mutual fund trust a TCP gains distribution equal to the lesser of

    • (i) twice the amount designated, and

    • (ii) the beneficiary’s pro rata portion of the mutual fund trust’s TCP gains balance for the taxation year; and

  • (b) where the beneficiary is a non-resident person or a partnership that is not a Canadian partnership,

    • (i) the amount designated is deemed by subsection 104(21) to be a taxable capital gain of the beneficiary only to the extent that it exceeds one half of the TCP gains distribution, and

    • (ii) one half of the TCP gains distribution is to be added to the amount otherwise included under subsection 104(13) in computing the income of the beneficiary, and is deemed to be an amount to which paragraph 212(1)(c) applies.

• Marginal note:Application of subsection (5.1)

  (5.2) Subsection (5.1) applies to an amount designated under subsection 104(21) by a mutual fund trust for a taxation year only if more than 5% of the total of all amounts each of which is an amount designated under that subsection by the mutual fund trust for the taxation year was designated in respect of beneficiaries under the mutual fund trust each of whom is a non-resident person or is a partnership that is not a Canadian partnership.

• Marginal note:Allocation to redeemers

  (5.3) If a trust that is a mutual fund trust throughout a taxation year paid or made payable, at any time in the taxation year, to a beneficiary an amount on a redemption by that beneficiary of a unit of the trust (in this subsection and subsection (5.31) referred to as the “allocated amount”) and the beneficiary’s proceeds from the disposition of that unit do not include the allocated amount, in computing its income for the taxation year no deduction may be made by the trust in respect of

  • (a) the portion of the allocated amount that would be, without reference to subsection 104(6), an amount paid out of the income (other than taxable capital gains) of the trust; and

  • (b) the portion of the allocated amount determined by the formula

    A − ½(B + C − D)

    where

    A

    is the portion of the allocated amount that would be, without reference to subsection 104(6), an amount paid out of the taxable capital gains of the trust,

    B

    is the beneficiary’s proceeds from the disposition of the unit on the redemption,

    C

    is the allocated amount, and

    D

    is the amount determined by the trustee to be the beneficiary’s cost amount of that unit, using reasonable efforts to obtain the information required to determine the cost amount.

• Marginal note:Allocations by ETFs

  (5.31) If in a taxation year referred to in subsection (5.3)

  • (a) all of the units offered in the taxation year by a mutual fund trust are listed on a designated stock exchange in Canada and are in continuous distribution (in this subsection referred to as “ETF units”), then paragraph 132(5.3)(b) does not apply and, in computing its income for the taxation year, no deduction may be made by the trust in respect of the amount determined by the formula

    A − (B ÷ (C + B) × D)

    where

    A

    is the portion of the total of all allocated amounts for the taxation year in respect of redemptions of ETF units by beneficiaries of the trust during that year that would be, without reference to subsection 104(6), amounts paid out of the taxable capital gains of the trust,

    B

    is the lesser of

    • (i) the total amount paid for redemptions of the ETF units in the taxation year, and

    • (ii) the greater of

      • (A) the amount determined for C, and

      • (B) the net asset value of the trust at the end of the previous taxation year,

    C

    is the net asset value of the trust at the end of the taxation year, and

    D

    is the amount that would be, without reference to subsection 104(6), the trust’s net taxable capital gains (as determined under subsection 104(21.3)) for the taxation year; or

  • (b) units offered by a mutual fund trust include units that are not ETF units (in this paragraph referred to as “non-ETF units”) and units that are ETF units, then

    • (i) in respect of redemptions of ETF units, paragraph (5.3)(b) does not apply and paragraph (a) applies, except that

      • (A) the description of C is to be read as “is the portion of the net asset value of the trust at the end of the taxation year that is referable to the ETF units,”,

      • (B) clause (ii)(B) of the description of B shall be read as “the portion of the net asset value of the trust at the end of the previous taxation year that is referable to the ETF units,”, and

      • (C) the amount determined for D shall be the amount determined by the formula

        E ÷ F × G

        where

        E

        is the portion of the net asset value of the trust at the end of the taxation year that is referable to the ETF units,

        F

        is the net asset value of the trust at the end of the taxation year, and

        G

        is the amount that would be, without reference to subsection 104(6), the trust’s net taxable capital gains (as determined under subsection 104(21.3)) for the taxation year; and

    • (ii) in respect of redemptions of non-ETF units, in addition to the limitation applicable under paragraph (5.3)(b), the total amount of the deductions that may be claimed by the trust for the taxation year for the portion of the allocated amounts described in the description of A in paragraph (5.3)(b) in respect of non-ETF units shall not exceed the amount determined by the formula

      H ÷ I × J

      where

      H

      is the portion of the net asset value of the trust at the end of the taxation year that is referable to the non-ETF units,

      I

      is the net asset value of the trust at the end of the taxation year, and

      J

      is the amount that would be, without reference to subsection 104(6), the trust’s net taxable capital gains (as determined under subsection 104(21.3)) for the taxation year.

• Marginal note:Meaning of mutual fund trust

  (6) Subject to subsection 132(7), for the purposes of this section, a trust is a mutual fund trust at any time if at that time

  • (a) it was a unit trust resident in Canada,

  • (b) its only undertaking was

    • (i) the investing of its funds in property (other than real property or an interest in real property or an immovable or a real right in an immovable),

    • (ii) the acquiring, holding, maintaining, improving, leasing or managing of any real property (or interest in real property) or of any immovable (or real right in immovables) that is capital property of the trust, or

    • (iii) any combination of the activities described in subparagraphs 132(6)(b)(i) and 132(6)(b)(ii), and

  • (c) it complied with prescribed conditions.

• Marginal note:Election to be mutual fund

  (6.1) Where a trust becomes a mutual fund trust at any particular time before the 91st day after the end of its first taxation year, and the trust so elects in its return of income for that year, the trust is deemed to have been a mutual fund trust from the beginning of that year until the particular time.

• Marginal note:Retention of status as mutual fund trust

  (6.2) A trust is deemed to be a mutual fund trust throughout a calendar year where

  • (a) at any time in the year, the trust would, if this section were read without reference to this subsection, have ceased to be a mutual fund trust

    • (i) because the condition described in paragraph 108(2)(a) ceased to be satisfied,

    • (ii) because of the application of paragraph (6)(c), or

    • (iii) because the trust ceased to exist;

  • (b) the trust was a mutual fund trust at the beginning of the year; and

  • (c) the trust would, throughout the portion of the year throughout which it was in existence, have been a mutual fund trust if

    • (i) in the case where the condition described in paragraph 108(2)(a) was satisfied at any time in the year, that condition were satisfied throughout the year,

    • (ii) subsection (6) were read without reference to paragraph (c) of that subsection, and

    • (iii) this section were read without reference to this subsection.

• Marginal note:Idem

  (7) Where, at any time, it can reasonably be considered that a trust, having regard to all the circumstances, including the terms and conditions of the units of the trust, was established or is maintained primarily for the benefit of non-resident persons, the trust shall be deemed not to be a mutual fund trust after that time unless

  • (a) at that time, all or substantially all of its property consisted of property other than property that would be taxable Canadian property if the definition taxable Canadian property in subsection 248(1) were read without reference to paragraph (b) of that definition; or

  • (b) it has not issued any unit (other than a unit issued to a person as a payment, or in satisfaction of the person’s right to enforce payment, of an amount out of the trust’s income determined before the application of subsection 104(6), or out of the trust’s capital gains) of the trust after February 20, 1990 and before that time to a person who, after reasonable inquiry, it had reason to believe was non-resident, except where the unit was issued to that person under an agreement in writing entered into before February 21, 1990.