Mutual Fund Trust
A mutual fund trust is a unit trust whose units are all held and circulate in accordance with the prescribed conditions governing:
- the number of unit holders;
- the dispersal of ownership of the units; and
- public trading of the units.
If a trust becomes a mutual fund trust within 90 days after the end of its first taxation year, it may elect, under federal legislation, to be treated as such from the beginning of its first taxation year.
For the purposes of Québec legislation, no such election can be made unless it is made under federal legislation, in which case it is automatically deemed to be made. Therefore, if the trust makes this election with the Canada Revenue Agency (CRA), you must send us proof that the election was made and written notification no later than 30 days after the election was made or by the filing deadline for the income tax return (whichever is later).
Under federal legislation, a trust may elect to have its taxation year end on December 15 if it is a mutual fund trust on the 74th day after the end of a calendar year and its taxation year (the taxation year concerned) would normally end on December 31 of the calendar year.
For the purposes of Québec legislation, no such election may be made unless it is made under federal legislation, in which case it is automatically deemed to be made. Therefore, if the trust makes this election with the CRA, you must send us proof that the election was made and written notification no later than 30 days after the election was made or by the filing deadline for the income tax return (whichever is later).
This election has the following tax consequences for the trust:
- Each subsequent taxation year begins on December 16 of a calendar year and ends on December 15 of the following calendar year, unless otherwise provided for in the Taxation Act.
- For the taxation year concerned and each subsequent taxation year:
- any fiscal period of a business or of a property of the trust that begins in the taxation year must end no later than the end of said taxation year;
- if the trust is a member of a partnership or the beneficiary of another trust, and if the partnership's fiscal period or the other trust's taxation year ends in the last 16 days of the calendar year, the trust must take into account its share in the income (or losses) of the partnership for that fiscal period or in the income of the other trust for that taxation year;
- the portion of the trust's income that is paid or payable to unitholders in the last 16 days of the calendar year is deductible for the trust and taxable for the unit holders.
If the trust fails to send us a copy of any document filed with the CRA within the prescribed deadline, it will be liable to a penalty of $25 per day, up to a maximum of $2,500.
In some situations, a mutual fund trust cannot elect to have its taxation year end on December 15, such as when the trust ceases to be resident in Canada or is subject to a loss restriction event.
Under the Taxation Act, a mutual fund trust may designate, for the year, an amount in respect of a particular unit. This amount must not:
- be greater than the portion of the cost base reductions of all the units (for example, capital distributions) for previous years;
- have been similarly designated for the year (in respect of the other units), or for the previous years (in respect of all the units).
As a result of the designation, you:
- must report the designated amount on the RL-16 slip (see courtesy translation RL-16-T) of the unit's holder as income and as an adjustment that increases the unit's adjusted cost base;
- may claim a deduction in calculating the trust's income.
Since March 22, 2017, the mutual fund merger rules have been extended to facilitate the reorganization of a mutual fund corporation that is structured as a switch corporation into multiple mutual fund trusts on a tax-deferred basis. The exchange of a unit of a mutual fund trust for another unit of that trust may qualify for a tax deferral.
A switch corporation is a mutual fund corporation with multiple classes of shares. Each class of shares is usually a distinct investment fund.
To qualify for the tax deferral, with respect to each class of shares of the mutual fund corporation that is or is part of an investment fund, all or almost all of the assets allocable to that class must be transferred to a mutual fund trust after March 21, 2017. In addition, the shareholders of that class must become unitholders of that mutual fund trust.
Public trusts must provide certain information (including allocations and designations of income to beneficiaries and distributions of capital in their favour) in the prescribed form and by the prescribed deadline. Such information must be posted on the website of the Canadian Depository for Securities no later than 60 days after the end of the taxation year concerned.
However, if the trust meets the requirements to be considered a public investment trust, it must post such information no later than 67 days after the end of the calendar year in which the taxation year ended.
If the trust is a public trust, check box 22 of the return.