The Fund, which is an exchange-traded mutual fund trust, will for nominal consideration subscribe for one Trust Unit of a unit trust (the “Trust”) that was settled by a third party, and redeem the initial Trust Unit held by that third party for its cash subscription price.
The Fund will transfer all of the Partnership Units of a partnership to the Trust for one or more Trust Units. This transfer will occur in one day. The Fund will not make the election in s. 107.4(3)(a)(i) and the Trust will not make the election in s. 107.4(3)(c)(ii)(B). Following this transfer, the Fund will continue to directly own 100% of the Trust Units and will indirectly own 100% of the Partnership Units.
CRA ruled that the transfer of the Partnership Units from the Fund to the Trust will be a "qualifying disposition" pursuant to s. 107.4(1). In its summary, CRA stated:
The Fund will acquire one or more units of the Trust in exchange for the limited partnership units and 107.4(3)(m) will deem the cost of the additional units to be the Fund's tax cost of the limited partnership units so transferred. If the Fund had not acquired any additional units … the contribution to the Trust would not increase the Fund's ACB of its capital interest in the Trust, notwithstanding that it would increase the FMV of its capital interest in the Trust.