Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether 132.11(1)(c) prevents a mutual fund trust that has made an election under that provision from reverting to a December 31 fiscal period and taxation year
Position: yes
Reasons: 132.11(1)(c) is structured so that the fiscal period of a mutual fund trust that has made an election is matched to its taxation year which is fixed by 132.11(1)(a) and (b). As there is no provision for cancelling the election, the election remains in force.
July 4, 2000
Toronto Centre Tax Services Office HEADQUARTERS Annemarie Humenuk Attention: Athan Margaritis 2000-003192
Change in Fiscal Period for a Mutual Fund Trust
This is in response to your memorandum of June 15, 2000, concerning a request made on behalf of the mutual fund trusts managed by the XXXXXXXXXX.
All statutory references in this memorandum are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.
The mutual fund trusts in question (the "December 15th MFTs") have made an election under subsection 132.11(1) to end their taxation year on December 15th of each year. The fiscal period of such trusts will normally end on December 15th of each taxation year by reason of paragraph 132.11(1)(c). The manager of the December 15th MFTs proposes to integrate these trusts with other mutual fund trusts which have not made an election under subsection 132.11(1) (the "December 31st MFTs"). The integration will involve a qualifying exchange as defined in subsection 132.2(2). As part of the process, it is desirable for all the mutual fund trusts involved to have the same fiscal period and the preferred choice is a fiscal period end of December 31. The manager has indicated that there are no tax savings or deferrals which will arise as a result of the proposed changes in fiscal period. You asked for our comments on how section 132.11 impacts on their request for a change in fiscal period.
A mutual fund trust has a fiscal period that ends on December 31 unless paragraph 132.11(1)(c) applies. Paragraph 132.11(1)(c) applies when a mutual fund trust has made an election under subsection 132.11(1) to have its taxation year end on December 15th. Once an election under subsection 132.11(1) is made, paragraph 132.11(1)(b) deems each taxation year that ends after the taxation year described in paragraph 132.11(1)(a) to end on December 15th unless its taxation year is deemed to end earlier by reason of either paragraph 132.2(1)(b) or subsection 142.6(1).
Unlike subsection 249(1) which deems a corporation's taxation year to match its fiscal period, paragraph 132.11(1)(c) deems a mutual fund trust that has made an election under subsection 132.11(1) to have a fiscal period that matches its taxation year. As a result, the deeming provisions of paragraph 132.11(1)(c) will override any change in fiscal period authorized by the Minister. Therefore, the taxation year (and thus the fiscal period) of the integrated mutual fund trusts will depend on whether it is the December 15th MFTs or the December 31st MFTs that acquire the property as a result of the qualifying exchange and continue to exist following the completion of the qualifying exchange.
As subsection 132.11(1) is not listed as a prescribed provision in section 600 of the Income Tax Regulations, the election under that provision cannot be revoked under subsection 220(3.2). We have contacted the representative of the December 15th MFTs and advised him of our comments.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the CCRA's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer.
T. Murphy
Manager
Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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