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:
1) When units of a mutual fund trust are switched (transferred) for units of another mutual fund trust, is there a disposition?
2) When units of a class or series of a mutual trust are changed (reclassified or redesignated) to another class or series of the same mutual fund trust, is there a disposition?
3) Is a T5008 Information Return required in respect of 1) or 2) above.
Position TAKEN
1) Yes
2) Question of fact
3) Yes and No
Reasons FOR POSITION TAKEN
1) To switch units of a particular mutual fund trust for units of another mutual fund trust, the original units are redeemed and the proceeds of disposition received for these units are used to purchase the new units. Since there has been a disposition of the original units a T5008 Information Return is required to be filed.
2) Whether or not there is a disposition of units when units of a class or series of a mutual trust are changed to another class or series of the same mutual fund trust is a question of fact. Where the trust agreement governing a particular mutual fund trust provides that more than one class or series of units may be issued by the fund and makes provision for changes between classes or series of units of that fund, a change of units generally will not result in a disposition. (See the following documents: 2000-004156, 2000-002298, 3-990500.) Where a change of units does not result in a disposition, a T5008 Information Return is not required.
3) See 1) & 2) above
XXXXXXXXXX 2000-004005 G. W. Keable Attention: XXXXXXXXXX (613) 957-2046
December 7, 2000
Dear Sirs:
Re: Disposition of Mutual Fund Trust Units
This is in reply to your letter of July 24, 2000, and your subsequent correspondence of August 8 and November 6, 2000, concerning the above-noted subject. As previously discussed, we are unable to provide you with an advance income tax ruling on the transactions described in your correspondence as they relate to the terms and conditions set out in the trust agreements governing a wide range of mutual fund trusts which are not a party to the requested rulings. The advance payment of $535.00 submitted with your ruling request will be returned to you under separate cover. However, we are able to provide you with the following general comments related to your enquiry.
For the purposes of the comments that follow it is our understanding that a "switch" or "transfer" of units is a transaction where units of a particular class or series of a mutual fund trust are redeemed and the proceeds are used to buy units of another class or series of units of another mutual fund trust within the same family of mutual fund trusts. Conversely, a "change" of units is a transaction where units of one class or series of units of a particular mutual fund trust are reclassified or redesignated as another class or series of units of the same mutual fund trust.
The switch or transfer of units of a mutual fund trust by a unitholder necessarily results in a disposition of those units as the unitholder has redeemed units, received proceeds of disposition and used these proceeds to buy units of another mutual fund trust. Since a unit in a mutual fund trust is a publicly traded security, the reporting requirements contained in section 230 of the Income Tax Regulations (the "Regulations") may apply. In this case, because there is a disposition of units a T5008 information return has to be filed and the unitholder would receive a T5008 slip in respect of the disposition.
On the other hand, when units of one class or series of a mutual fund trust owned by a unitholder are changed to another class or series of the same mutual fund trust, whether or not there is a disposition of units is a question of fact. In cases where the trust agreement governing a particular mutual fund trust provides that more than one class or series of units may be issued by the fund and makes provision for changes between classes or series of units of that fund, a change of units generally will not result in a disposition. In this regard, we have previously indicated in several advance income tax rulings that a redesignation or reclassification of a class or series of units to another class or series of units of the same fund will not result in a disposition of the redesignated or reclassified units. Inherent in these rulings was our understanding that the attributes of each class or series of units of a particular fund were substantially the same (even though each class or series may have different investment requirements), the unitholder would not be entitled to proceeds of disposition for the units, and the redesignated or reclassified units would not be cancelled or redeemed. Also, the fact that a unitholder may have to pay an initial sales charge or a deferred sales charge in respect of the redesignated or reclassified units did not alter our view that there was not a disposition of units. Document # 9905003(E) referenced in your letter of August 8 is a severed version of an advance income tax ruling to a specific mutual fund trust dealing with this issue.
In a situation where a change of units does not result in a disposition, the reporting requirements under section 230 of the Regulations would not apply and the unitholder would not receive a T5008 slip.
However, where a mutual fund is a mutual fund corporation different rules may apply. For example, pursuant to section 51 of the Income Tax Act, when a shareholder's shares of a mutual fund corporation are exchanged for other shares of the same corporation and no consideration other than the new shares is received by the shareholder, the exchange is deemed not to be a disposition and the reporting requirements under section 230 of the Regulations would not apply and the shareholder would not receive a T5008 slip.
The above comments represent our view of the law as it generally applies. While we hope that it is of assistance to you, please note that it is not an advance income tax ruling and, accordingly, it is not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch