Mutual fund trust

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Definition[edit]

A Mutual Fund Trust ("MFT") is a unit trust in which all holdings and transactions in the units comply 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 MFT within 90 days after the end of its first taxation year, it may make an election with the CRA to be treated as such from the beginning of that taxation year.[1]

Under Canadian Federal Legislation, a trust may elect to have its taxation year end on December 15 if it is a MFT 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.

RRSP Eligibility[edit]

A MFT is RRSP, RESP, LIRA eligible in Canada. In addition to RRSP eligibility, MFTs have certain tax advantages to standard corporations and are typically deemed to be "flow-through" vehicles. Private mutual funds trusts are gaining in popularity in Canada following the changes to tax legislation which forced many publicly traded royalty trusts to convert back into corporations. Investors seeking the high yields typically associated with the public royalty trusts are increasingly investing in private MFTs.

MFTs and Non-reporting Issuers[edit]

The MFT structure is frequently used to create investment holding vehicles for "non-reporting" issuers in Canada due to the tax efficiency and simplicity of creating eligibility for registered plans (RRSP, RESP, LIRA etc.) without having to go to the cost of creating a public company.

References[edit]

See also[edit]