| 19(1) | File No. 5-9229 |
| A.B. Adler | |
| (613) 957-8962 |
19(1)
January 23, 1990
Dear Sirs:
This is in reply to your letter dated December 7, 1989 concerning year end distributions of income to unitholders of mutual funds.
You requested our views whether the following distribution procedure is acceptable, presumably, for purposes of subsections 104(6) and (24) of the Income Tax Act ("Act").
24(1)
Paragraphs 8 and 9 of Interpretation Bulletin IT-286R2 (copy enclosed) set out our general position concerning the establishment of an "amount payable" for purposes of subsections 104(6) and (24) of the Act where a mutual fund trust makes an income allocation to its unitholders. Whether or not the above distribution procedure is acceptable depends on how the transaction is carried out. Since the income of the trust must be payable to the unitholders for the purposes of subsections 104(6) and (24) of the Act, the payment by issuing additional units, the reinvestment of amounts made due and payable in additional units and the subsequent consolidation of the units must be bona fide transactions that are legally effective. It therefore follows that the "net process" described in your letter would not be acceptable.
We trust that these comments will be sufficient for your purposes.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate