Income Tax Act

Marginal note:Definitions re qualifying exchange of mutual funds

• 132.2 (1) The following definitions apply in this section.

  first post-exchange year

  première année suivant l’échange

  first post-exchange year, of a fund in respect of a qualifying exchange, means the taxation year of the fund that begins immediately after the acquisition time. (première année suivant l’échange)

  qualifying exchange

  échange admissible

  qualifying exchange means a transfer at any time (in this section referred to as the “transfer time”) of all or substantially all of the property of a mutual fund corporation (other than a SIFT wind-up corporation) or a mutual fund trust to a mutual fund trust (in this section referred to as the “transferor” and “transferee”, respectively, and as the “funds”) if

  • (a) all or substantially all of the shares issued by the transferor and outstanding immediately before the transfer time are within 60 days after the transfer time disposed of to the transferor;

  • (b) no person disposing of shares of the transferor to the transferor within that 60-day period (otherwise than pursuant to the exercise of a statutory right of dissent) receives any consideration for the shares other than units of the transferee; and

  • (c) the funds jointly so elect, by filing a prescribed form with the Minister on or before the election’s due date. (échange admissible)

  share

  action

  share means a share of the capital stock of a mutual fund corporation and a unit of a mutual fund trust. (action)

• Marginal note:Timing

  (2) In respect of a qualifying exchange, a time referred to in the following list immediately follows the time that precedes it in the list

  • (a) the transfer time;

  • (b) the first intervening time;

  • (c) the acquisition time;

  • (d) the beginning of the funds’ first post-exchange years;

  • (e) the depreciables disposition time;

  • (f) the second intervening time; and

  • (g) the depreciables acquisition time.

• Marginal note:General

  (3) In respect of a qualifying exchange,

  • (a) each property of a fund, other than property disposed of by the transferor to the transferee at the transfer time and depreciable property, is deemed to have been disposed of, and to have been reacquired by the fund, at the first intervening time, for an amount equal to the lesser of

    • (i) the fair market value of the property at the transfer time, and

    • (ii) the greater of

      • (A) its cost amount, and

      • (B) the amount that the fund designates in respect of the property in a notification to the Minister accompanying the election in respect of the qualifying exchange;

  • (b) subject to paragraph (l), the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their first post-exchange years are deemed to have begun immediately after those last taxation years ended;

  • (c) each depreciable property of a fund (other than property to which subsection (5) applies and property to which paragraph (d) would, if this Act were read without reference to this paragraph, apply) is deemed to have been disposed of, and to have been reacquired, by the fund at the second intervening time for an amount equal to the lesser of

    • (i) the fair market value of the property at the depreciables disposition time, and

    • (ii) the greater of

      • (A) the lesser of its capital cost and its cost amount to the disposing fund at the depreciables disposition time, and

      • (B) the amount that the fund designates in respect of the property in a notification to the Minister accompanying the election in respect of the qualifying exchange;

  • (d) if at the second intervening time the undepreciated capital cost to a fund of depreciable property of a prescribed class exceeds the fair market value of all the property of that class, the excess is to be deducted in computing the fund’s income for the taxation year that includes the transfer time and is deemed to have been allowed in respect of property of that class under regulations made for the purpose of paragraph 20(1)(a);

  • (e) except as provided in paragraph (m), the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property is deemed to be

    • (i) nil, if the particular property is a unit of the transferee, and

    • (ii) the particular property’s fair market value at the transfer time, in any other case;

  • (f) the transferor’s proceeds of disposition of any units of the transferee that were disposed of by the transferor at any particular time that is within 60 days after the transfer time in exchange for shares of the transferor, are deemed to be equal to the cost amount of the units to the transferor immediately before the particular time;

  • (g) if, at any particular time that is within 60 days after the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of the transferee

    • (i) the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the particular time,

    • (ii) for the purposes of applying section 116 in respect of the disposition, the shares are deemed to be excluded property of the taxpayer,

    • (iii) where the qualifying exchange occurs after 2004, for the purposes of applying section 218.3 in respect of that exchange, the payment or crediting of the units to the taxpayer by the transferor is deemed not to be an assessable distribution,

    • (iv) where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying section 39.1 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor,

    • (v) for the purpose of the definition designated beneficiary in section 210, the units are deemed not to have been held at any time by the transferor, and

    • (vi) where the taxpayer is at the particular time affiliated with one or both of the funds,

      • (A) those units are deemed not to be identical to any other units of the transferee,

      • (B) if the taxpayer is the transferee, and the units cease to exist when the taxpayer acquires them (or, for greater certainty, when the taxpayer would but for that cessation have acquired them), the taxpayer is deemed

        • (I) to have acquired those units at the particular time, and

        • (II) to have disposed of those units immediately after the particular time for proceeds of disposition equal to the cost amount to the taxpayer of those units at the particular time, and

      • (C) in any other case, for the purpose of computing any gain or loss of the taxpayer from the taxpayer’s first disposition, after the particular time, of each of those units,

        • (I) if that disposition is a renunciation or surrender of the unit by the taxpayer for no consideration, and is not in favour of any person other than the transferee, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to that unit’s cost amount to the taxpayer immediately before that disposition, and

        • (II) if subclause (I) does not apply, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to the greater of that unit’s fair market value and its cost amount to the taxpayer immediately before that disposition;

  • (h) where a share to which paragraph (g) applies would, if this Act were read without reference to this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 146(1), 146.1(1) or 146.3(1), section 204 or subsection 205(1) or 207.01(1)) as a consequence of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the day that includes the transfer time and the time at which it is disposed of in accordance with paragraph (g);

  • (i) there shall be added to the amount determined under the description of A in the definition refundable capital gains tax on hand in subsection 132(4) in respect of the transferee for its taxation years that begin after the transfer time the amount, if any, by which

    • (i) the transferor’s refundable capital gains tax on hand (within the meaning assigned by subsection 131(6) or 132(4), as the case may be) at the end of its taxation year that includes the transfer time

    exceeds

    • (ii) the transferor’s capital gains refund (within the meaning assigned by paragraph 131(2)(a) or 132(1)(a), as the case may be) for that year;

  • (j) no amount in respect of a non-capital loss, net capital loss, restricted farm loss, farm loss or limited partnership loss of a fund for a taxation year that began before the transfer time is deductible in computing the taxable income of either of the funds for a taxation year that begins after the transfer time;

  • (k) if the transferor is a mutual fund trust, for the purposes of subsections 132.1(1) and (3) to (5), the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

  • (l) if the transferor is a mutual fund corporation

    • (i) for the purpose of subsection 131(4) but, for greater certainty, without having any effect on the computation of any amount determined under this Part, the transferor is deemed in respect of any share disposed of in accordance with paragraph (g) to be a mutual fund corporation at the time of the disposition, and

    • (ii) for the purpose of Part I.3 but, for greater certainty, without having any effect on the computation of any amount determined under this Part, the transferor’s taxation year that, if this Act were read without reference to this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time;

  • (m) for the purpose of determining the funds’ capital gains redemptions (as defined in subsection 131(6) or 132(4), as the case may be), for their taxation years that include the transfer time,

    • (i) the total of the cost amounts to the transferor of all its properties at the end of the year is deemed to be the total of all amounts each of which is

      • (A) the transferor’s proceeds of disposition of a property that was transferred to a transferee on the qualifying exchange, or

      • (B) the cost amount to the transferor at the end of the year of a property that was not transferred on the qualifying exchange, and

    • (ii) the transferee is deemed not to have acquired any property that was transferred to it on the qualifying exchange; and

  • (n) except as provided in subparagraph (l)(i), the transferor is, notwithstanding subsections 131(8) and 132(6), deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years that begin after the transfer time.

• Marginal note:Qualifying exchange — non-depreciable property

  (4) If a transferor transfers a property, other than a depreciable property, to a transferee in a qualifying exchange,

  • (a) the transferee is deemed to have acquired the property at the acquisition time and not to have acquired the property at the transfer time; and

  • (b) the transferor’s proceeds of disposition of the property and the transferee’s cost of the property are deemed to be the lesser of

    • (i) the fair market value of the property at the transfer time, and

    • (ii) the greatest of

      • (A) the cost amount to the transferor of the property at the transfer time,

      • (B) the amount that the funds agree on in respect of the property in their election, and

      • (C) the fair market value at the transfer time of the consideration (other than units of the transferee) received by the transferor for the disposition of the property.

• Marginal note:Depreciable property

  (5) If a transferor transfers a depreciable property to a transferee in a qualifying exchange,

  • (a) the transferor is deemed to have disposed of the property at the depreciables disposition time, and not to have disposed of the property at the transfer time;

  • (b) the transferee is deemed to have acquired the property at the depreciables acquisition time, and not to have acquired the property at the transfer time;

  • (c) the transferor’s proceeds of disposition of the property and the transferee’s cost of the property are deemed to be the lesser of

    • (i) the fair market value of the property at the transfer time, and

    • (ii) the greatest of

      • (A) the lesser of its capital cost and its cost amount to the transferor immediately before the depreciables disposition time,

      • (B) the amount that the funds agree on in respect of the property in their election, and

      • (C) the fair market value at the transfer time of the consideration (other than units of the transferee) received by the transferor for the disposition of the property;

  • (d) where the capital cost of the property to the transferor exceeds the transferor’s proceeds of disposition of the property under paragraph (c), for the purposes of sections 13 and 20 and any regulations made for the purpose of paragraph 20(1)(a),

    • (i) the property’s capital cost to the transferee is deemed to be the amount that was its capital cost to the transferor, and

    • (ii) the excess is deemed to have been allowed to the transferee in respect of the property under regulations made for the purpose of paragraph 20(1)(a) in computing income for taxation years ending before the transfer time; and

  • (e) where two or more depreciable properties of a prescribed class are disposed of by the transferor to the transferee in the same qualifying exchange, paragraph (c) applies as if each property so disposed of had been separately disposed of in the order designated by the transferor at the time of making the election in respect of the qualifying exchange or, if the transferor does not so designate any such order, in the order designated by the Minister.

• Marginal note:Due date

  (6) The due date of an election referred to in paragraph (c) of the definition qualifying exchange in subsection (1) is

  • (a) the day that is six months after the day that includes the transfer time; and

  • (b) on joint application by the funds, any later day that the Minister accepts.

• Marginal note:Amendment or Revocation of Election

  (7) The Minister may, on joint application by the funds on or before the due date of an election referred to in paragraph (c) of the definition qualifying exchange in subsection (1), grant permission to amend or revoke the election.