5-911997 24(1)
Dear Sirs:
Re: Master Trusts
We are writing in reply to your letters of July 16 and 19, 1991, in which you ask various questions concerning master trusts. Your questions and our answers follow.
1. "Section 149(1)(o.4) of the Income Tax Act states that a prescribed master trust may elect to become a master trust. What is the form and content of such an election?"
We have confirmed with the Returns Processing Division, Assessing and Enquiries Directorate, that a letter should be attached to the prescribed trust's return of income indicating that it is electing to be a master trust under paragraph 149(1)(o.4) of the Income Tax Act (the "Act").
2. "Assuming that a pooled fund trust described in Regulation 5001(1)(c) wished to elect to become a master trust under S.149(1)(o.4) would there be a deemed disposition of assets of the pooled fund trust upon it becoming a master trust?"
The election under paragraph 149(1)(o.4) of the Act does not, in and of itself, result in a deemed disposition of the trust's assets.
3. "It is our interpretation that Regulation 5001, Regulation 5000(1.2) and S.149(1)(o.4) should be interpreted to permit trustees of master trusts to be other that a trust company incorporated under the laws of Canada. Is our interpretation correct?"
Neither paragraph 149(1)(o.4) nor the aforementioned Regulations specifically require that a master trust be a Canadian corporation. In order to elect under paragraph 149(1)(o.4), however, a trust must have been resident in Canada since it was created; and, in order to continue to be a master trust after the election, it must remain a resident of Canada (paragraph (a) of Regulation 5001 of the Act).
4. "(Are) retroactive elections...permitted under S.149(1)(o.4). For example, could a trust elect in its 1991 taxation year to be treated as a master trust for the 1989 and 1990 tax years?"
A master trust is exempt from tax "for a period" when the trust elects to be a master trust in its return "for its first taxation year ending in the period". In our opinion, the provisions of paragraph 149(1)(o.4) of the Act are clearly prospective and the status of master trust can only be obtained in an election made in the return for the year for which the status is sought, and continue only so long as the trust meets the requirements of Regulation 5001. We also point out that although the election can be made some time after the trust came into existence, the election can only be made if the trust has met all the conditions set out in Regulation 5001 since it was created.
We hope these comments assist.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate