A mutual fund trust (the "Fund") subscribes for Class A redeemable retractable shares of a newly-incorporated subsidiary ("MFC") and distributes the Class A shares to its unitholders as a return of capital with MFC then electing to be a public corporation, Fund transfers its common shares and notes of a subsidiary ("Holdco") which in turn holds limited partnership units in a partnership to MFC in consideration for redeemable retractable Class B shares of MFC, MFC and Holdco amalgamate, the amalgamated corporation ("Amalco MFC") merges into the Fund as described in s. 132 and the Fund transfers its partnership units to a subsidiary trust.
After noting that the taxable Canadian corporation (Holdco) that is converted to a mutual fund corporation ("MFC") is currently within a mutual fund family, so that the proposed transactions do not involve the type of conversion into an mutual fund corporation that has historically caused concern, the Directorate ruled that s. 245(2) would not apply.