Income Tax Act

Marginal note:Mutual funds — qualifying exchange

• 132.2 (1) Where a mutual fund corporation or a mutual fund trust has at any time disposed of a property to a mutual fund trust in a qualifying exchange,

  • (a) the transferee shall be deemed to have acquired the property at the time (in this subsection referred to as the “acquisition time”) that is immediately after the time that is immediately after the transfer time, and not to have acquired the property at the transfer time;

  • (b) subject to paragraph 132.2(1)(o), the last taxation years of the funds that began before the transfer time shall be deemed to have ended at the acquisition time, and their next taxation years shall be deemed to have begun immediately after those last taxation years ended;

  • (c) the transferor’s proceeds of disposition of the property and the transferee’s cost of the property shall be 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 or, where the property is depreciable property, the lesser of its capital cost and its cost amount to the transferor immediately before the transfer time,

      • (B) the amount that the funds have agreed upon in respect of the property in their election in respect of the qualifying exchange, 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 property is depreciable property and its capital cost to the transferor exceeds the transferor’s proceeds of disposition of the property under paragraph 132.2(1)(c), for the purposes of sections 13 and 20 and any regulations made for the purposes of paragraph 20(1)(a),

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

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

  • (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 132.2(1)(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;

  • (f) each property of a fund, other than

    • (i) depreciable property of a prescribed class to which paragraph 132.2(1)(g) would, but for this paragraph, apply, and

    • (ii) property disposed of by the transferor to the transferee at the transfer time

    shall be deemed to have been disposed of, and to have been reacquired by the fund, immediately before the acquisition time for an amount equal to the lesser of

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

    • (iv) the greater of

      • (A) its cost amount or, where the property is depreciable property, the lesser of its capital cost and its cost amount to the disposing fund at the transfer 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;

  • (g) where the undepreciated capital cost to a fund of depreciable property of a prescribed class immediately before the acquisition time exceeds the total of

    • (i) the fair market value of all the property of that class immediately before the acquisition time, and

    • (ii) the amount in respect of property of that class otherwise allowed under regulations made for the purposes of paragraph 20(1)(a) or deductible under subsection 20(16) in computing the fund’s income for the taxation year that includes the transfer time,

    the excess shall be deducted in computing the fund’s income for the taxation year that includes the transfer time and shall be deemed to have been allowed in respect of property of that class under regulations made for the purposes of paragraph 20(1)(a);

  • (h) except as provided in paragraph 132.2(1)(p), 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, where 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;

  • (i) the transferor’s proceeds of disposition of any units of the transferee received as consideration for the disposition of the property that were disposed of by the transferor within 60 days after the transfer time in exchange for shares of the transferor shall be deemed to be nil;

  • (j) where shares of the transferor have been disposed of by a taxpayer to the transferor in exchange for units of the transferee within 60 days after the transfer time,

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

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

  • (k) where a share to which paragraph (j) applies would, but for this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 146(1), 146.1(1) or 146.3, section 204 or subsection 205(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 transfer time and the time at which it is disposed of in accordance with paragraph (j);

  • (l) 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;

  • (m) 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 its taxable income for a taxation year that begins after the transfer time;

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

  • (o) where the transferor is a mutual fund corporation,

    • (i) for the purposes of subsection 131(4), the transferor is deemed in respect of any share disposed of in accordance with paragraph 132.2(1)(j) to be a mutual fund corporation at the time of the disposition, and

    • (ii) for the purposes of Part I.3, the transferor’s taxation year that, but for this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time (except that, for greater certainty, nothing in this paragraph shall affect the computation of any amount determined under this Part);

  • (p) for the purpose of determining the funds’ capital gains redemptions (as defined in subsection 131(6) or 132(4)), 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

  • (q) except as provided in subparagraph 132.2(1)(o)(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:Definitions

  (2) In this section,

  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 or mutual fund trust to a mutual fund trust (in this section referred to as the “transferor” and “transferee”, respectively, and as the “funds”) where

  • (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 elect, by filing a prescribed form with the Minister within 6 months after the transfer time, to have this section apply with respect to the transfer; (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)