Trustco (a non-resident trust company) receives contributions from investors (as settlors of respective grantor trusts (each, a “Grantor Trust”)) in its capacity of trustee of each such Grantor Trust, and then invests such assets of the Grantor Trust into one or more commingled trust funds (CTFs) of which Trustco also is the trustee. As a result, the assets of the Grantor Trust are commingled with trust property of other Grantor Trusts for which Trustco is also trustee, but for which there are different settlors. The CTF is a sub-trust of one or more master trusts of Trustco. Each of the master trusts has a number of sub-trusts, which are the actual CTFs.
Interests in the CTF are composed of (equal) units, which are attributed to the various Grantor Trusts participating in the CTF on the basis of the relative amount of the respective cash contributions to the CTF. Each settlor of a participating Grantor Trust signs a direction as to whether the quarterly income distributions are to be automatically reinvested in CTF units or distributed in cash (usually, the former). The trustee of the CTF has the discretion to make payments on units withdrawn in kind rather than in cash. The CTF trustee has discretion as to the investment of the assets of the CTF (which generally is to track the return of a specified financial index in a specified country). All Canadian residents participating in a CTF (through a Grantor Trust) are non-taxable under s. 149(1).
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Provided it complies with the conditions set out in subclause (h)(ii)(B)(I) of the definition of "exempt foreign trust" in subsection 94(1) of the November 22, 2006 Draft Amendments, and provided it does not hold "restricted property" within the meaning of subsection 94(1) of the November 22, 2006 Draft Amendments, a CTF will qualify as an "exempt foreign trust" pursuant to paragraph (h) of the definition of "exempt foreign trust" in subsection 94(1) of the November 22, 2006 Draft Amendments.