Members of the public subscribe for Class A redeemable units of a mutual fund trust (the "Fund"). A holding corporation for a vendor group accomplishes an indirect sale of a business to the Fund by selling shares and limited partnership units to the subsidiary trust of the Fund (the "Trust") in consideration for Class A and Class B units of the Fund (which previously had been transferred by the Fund to the Trust in consideration for debt) and for cash. The Class B units of the Fund, for so long as subordination arrangements are in place, receive distributions of distributable cash only after stipulated amounts of distributable cash (corresponding to estimates provided to the public at the time of their subscription for Class A units) are first distributed on the Class A units, with the Class A and Class B units thereafter sharing rateably once the Class B units have received their catch-up adjustment. Adjustments to the redemption amount of the Class B units (which are exchangeable at the end of the subordination period into Class A units) also reflect the subordination arrangement.
Ruling that s. 104(7.1) did not apply to the Fund. CRA noted that it had not been asked to consider whether any subsequent elimination of the subordination feature would trigger a disposition.