| April 4, 1990 | |
| TO - Assessing and Enquiries | FROM - Financial Industries |
| Directorate | Division |
| Returns Processing Division | A.B. Adler |
| (613) 957-8962 | |
| Attention: D.I. Wyse, Chief | |
| Trust and S.E.R. | |
| Assessing Section | File No. 7-4810 |
SUBJECT: Employee Savings Plans 24(1) Your File: HAV 9586-1
This is in reply to your memorandum dated March 14, 1990 in which you requested our views concerning a proposed non-registered portfolio of funds to be established by 24(1) for the investment of after-tax funds of certain employees.
19(1) indicated that in theory the fund operates in a manner similar to that of a mutual fund. For example, each employee's contribution would acquire one or more units in the fund at the unit value at that time, and a unitholder may cash out of the fund at any time and realize an amount equal to the number of units surrendered times the unit value at the relevant time. Further, the fund's units would increase in value through income earned by its investments or capital gains realized thereon, and would drop in value due to management fees, other administrative expenses and capital losses incurred on the disposition of its investments.
Generally, such a fund would be administered by an inter vivos trust as defined in paragraph 108(1)(f) of the Income Tax Act ("Act"). In the absence of relevant documentation, for example the proposed trust deed, we are not in a position to advise you whether any trust would qualify as a unit trust under the detailed rules in paragraphs 108(2)(a) or (b) of the Act. However, it is always a question of fact whether a trust exists for the purposes of subdivision k of Division B of Part I of the Act since the Act contains no definition of trust that may be used for purposes of establishing whether or not a trust exists.
We suggest that you contact 19(1) with the view to establishing whether or not a trust arrangement would be established under the proposed fund. Presumably, 19(1) could discuss this issue with legal counsel for 24(1) and provide you with their views.
Should the proposed fund involve an inter vivos trust or a unit trust we agree that it would be required to file a T3 return and issue T3 supplementaries annually to its unitholders. Further, the trust deed of such a trust generally would, as you have indicated, provide for amounts of income to become payable to and be allocated to its beneficiaries.
Let us know if we can be of further assistance to you.
for DirectorFinancial Industries DivisionRulings Directorate