5-511595
Dear Sirs:
We are writing in reply to your letter of June 7, 1991, in which you ask for technical interpretations on three matters.
First, you asked whether the phrase "investing of funds" in paragraph 132(6)(b) of the Income Tax Act (the "Act") would include the activity of buying commodity futures contracts that obligates a unit trust to either take delivery of a commodity (a "long" position) or deliver a commodity (a "short" position).
In our opinion, transactions with respect to commodities futures contracts by a mutual fund trust will be considered as investing for the purposes of paragraph 132(6)(b) of the Act.
Second, you asked whether the activities of a unit trust involved in acquisitions and dispositions of commodity futures contracts would be on capital account, in light of Interpretation Bulletin IT-346R.
In our opinion, the activities of the trust would be entirely on income account.
Third, you asked for our views on the maximum acceptable period of time for redemption in order to effect compliance with subparagraph 108(2)(A)(i) of the Act which requires a unit trust to accept surrender of the units "at the demand of the holder".
Unit trusts which comply with the conditions for redemption imposed by the applicable provincial securities commissions will generally be viewed by the Department as meeting the requirement for redemption under this provision of the Act.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The foregoing comments are, therefore, of a general nature only, and are not binding on the Department.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate