I-3 - Taxation Act

Section 1120.0.0.2 Disposition versions

2023-09-26

1120.0.0.2. The following rules apply in respect of the redemption of units of a mutual fund trust in a taxation year referred to in section 1120.0.0.1:

(a)  where all of the units offered in the taxation year by the mutual fund trust are listed on a designated stock exchange located in Canada and are in continuous distribution (in this section referred to as “exchange traded fund units”), subparagraph b of the first paragraph of section 1120.0.0.1 does not apply and no deduction may be made by the trust in computing its income for the taxation year in respect of the amount determined by the formula

A – [B/(C + B) × D]; and

(b)  where the units offered by the mutual fund trust include exchange traded fund units and units that are not exchange traded fund units (in this section referred to as “non-exchange traded fund units”), the following rules apply:

i.  in respect of redemptions of exchange traded fund units, subparagraph b of the first paragraph of section 1120.0.0.1 does not apply, subparagraph a applies and the second paragraph is to be read

(1)  as if subparagraph 2 of subparagraph ii of subparagraph b were replaced by the following subparagraph:

“(2) the portion of the net asset value of the trust at the end of the previous taxation year that relates to the exchange traded fund units;”,

(2)  as if subparagraph c were replaced by the following subparagraph:

“(c) C is the portion of the net asset value of the trust at the end of the taxation year that relates to the exchange traded fund units;”, and

(3)  as if subparagraph d were replaced by the following subparagraph:

“(d) D is the amount determined by the formula

E/C × F;”, and

ii.  in respect of redemptions of non-exchange traded fund units, in addition to the limitation provided for in subparagraph b of the first paragraph of section 1120.0.0.1, the aggregate of all amounts deductible in computing the trust’s income for the taxation year in respect of the portion of the allocated amounts determined under subparagraph a of the second paragraph of section 1120.0.0.1, in respect of non-exchange traded fund units, may not exceed the amount determined by the formula

G/C × F.

In the formulas in the first paragraph,

(a)  A is the portion of the aggregate of all allocated amounts for the taxation year in respect of redemptions of exchange traded fund units of the trust owned by beneficiaries of the trust during that taxation year that would be, but for paragraph a of section 657, amounts paid out of the trust’s taxable capital gains;

(b)  B is the lesser of

i.  the aggregate of the amounts paid for redemptions of exchange traded fund units in the taxation year, and

ii.  the greater of

(1)  the amount determined under subparagraph c, and

(2)  the net asset value of the trust at the end of the previous taxation year;

(c)  C is the net asset value of the trust at the end of the taxation year;

(d)  D is the amount that would be, but for paragraph a of section 657, the trust’s net taxable capital gains determined under section 668.3 for the taxation year;

(e)  E is the portion of the net asset value of the trust at the end of the taxation year that relates to the exchange traded fund units;

(f)  F is the amount that would be, but for paragraph a of section 657, the trust’s net taxable capital gains determined under section 668.3 for the taxation year; and

(g)  G is the portion of the net asset value of the trust at the end of the taxation year that relates to the non-exchange traded fund units.

For the purposes of this section, “net asset value” has the meaning assigned by National Instrument 81-102 Investment Funds, as amended from time to time and published by the Canadian Securities Administrators.

2023, c. 19, s. 123.