Units of a unit trust (“UT”) that does not qualify as a mutual fund trust (“MFT”) are issued for monetary consideration to subscribing unitholders (three arm’s length CCPCs) as a subscription price corresponding to the units’ fair market value. The proceeds are invested in real estate, and the income is required to be annually distributed pro rata based on the relative unitholdings, although elections may be made under ss. 104(13.1) and (13.2).
After noting that s. 75(2) “would lend itself to application” here unless the trust generated business income, CRA went on to state:
[T]he CRA would not systematically consider subsection 75(2) applicable with respect to situations involving the issuance of units of a trust that qualifies as a UT without qualifying as an MFT, particularly in situations where the following conditions are satisfied:
- the issue of units by a UT to a taxpayer is made in the context of an investment by the taxpayer in exchange for monetary consideration corresponding to the fair market value of the units issued,
- the tax elections that may be made by the trust, such as those provided for in subsections 104(13.1) and 104(13.2), must be capable of being made only in such a way as to result in uniform tax implications for all beneficiaries owning units with the same rights, privileges, conditions and restrictions; and
- there are no terms and conditions linking the units to any asset or class of assets of the trust.
However, an analysis of all the relevant facts and documents would be required … .