The only assets of an inter vivos trust (the "MFT") are (as to a cost of 85%) interest-bearing promissory notes ("First Notes") with a term of 25 years owing by another inter vivos trust ("CT") carrying on a business that was purchased from a public corporation and units of CT which may be redeemed on demand for interest-bearing notes (the "Second Notes") of CT payable after one year. The MFT units are redeemable on demand for cash up to a specified aggregate amount applicable in each calendar month (at the redemption price equal to the lesser of (i) 90% of the weighted average trading price of a unit for the 10 preceding trading days and (ii) the closing price on the redemption date). However, redemptions for amounts in excess of that maximum are at a price determined by the trustees to be the redeemed units' fair market value, with payment by way of an in-specie proportionate distribution of CT units and First Notes, provided that where MFT unitholders are RRSPs or the like, Second Notes (arising on the redemption in the MFT's hands of CT units) rather than CT units are distributed in the event of an in-specie redemption.
The MFT will be considered to be an open-ended trust for purposes of s. 108(2)(a), its only undertaking will be considered to be the investing of its funds in CT units and the First Notes, the MFT units will not be considered to be foreign property (provided that the MFT continues to hold less than 20% of its property in the CT units), and GAAR will not apply.