In each of its previous three budgets, the federal Liberal
Government has acted to close certain tax loopholes. The budget
released on March 19, 2019 ("Budget
2019") continues that trend by focusing on the
technical tax rules for the mutual fund industry, which has been a
focus in previous years (e.g., changes to switch funds). Here are
three things that asset managers need to know about Budget
2019:
1. Allocation to Redeeming Unitholders: Deferral
One way a mutual fund trust ("MFT")
is a tax-efficient structure is due to the capital gains refund
mechanism. This mechanism is designed to ensure there is no double
taxation when an MFT realizes a gain on a sale of investments to
fund a redemption of units. The mechanism provides a refund to the
MFT in respect of tax that the MFT has paid on its capital gains
attributable to redeeming unitholders. Generally, an MFT allocates
capital gains realized by it to a redeeming unitholder and claims a
corresponding deduction.
