A publicly-trade mutual fund trust (the "Fund") eliminated a corporate subsidiary ("Holdings") by incorporating a subsidiary ("MFC") with a modest value, distributing interests in MFC to its unitholders as a capital distribution in order that MFC would qualify as a mutual fund corporation, transferring Holdings to MFC on a s. 85(1) rollover basis in consideration for MFC shares, having MFC amalgamate with Holdings to form MFC Amalco, and then having MFC Amalco merge into the Fund in accordance with s. 132.2 so that the Fund acquired the assets of MFC Amalco, principally, units in a subsidiary LP.
Following these transactions, the Fund will transfer all of such LP units to a newly settled unit trust (the "Trust") for one or more Trust Units, so that following this transfer it will continue to own directly 100% of the Trust Units and indirectly own 100% of the LP units. The Trust will then use proceeds of a daylight loan to distribute cash proceeds to the Fund as a return of capital and the Fund will lend those proceeds to the Trust.
Ruling that the transfer of the LP units from the Fund to the Trust will be a “qualifying disposition” and that s. 245(2) will not apply. The CRA summary indicates that the refinancing of the Trust is not offensive as regards the qualifying disposition rules.