Taxation Of Switch Fund Shares

This is article is part of a series dealing with draft legislation released for comment by the Department of Finance on July 29^th. Read the complete series:

• Sales of linked notes
• The evolving taxation of derivatives

General provisions in the ITA applicable to corporations and their shareholders provide that, in certain circumstances, an exchange of shares of a corporation by a taxpayer is deemed not to be a disposition or is deemed to be a disposition that occurs at the taxpayer's adjusted cost base of its original shares. In either case, this results in the deferral of tax under the ITA until the shares received by the taxpayer on the exchange are disposed of in a taxable transaction. Many "mutual fund corporations" or "investment corporations" (both as defined for the purposes of the ITA) have, for many years, offered multiple classes of shares to investors. Each class of shares provides exposure to distinct portfolios of investments held by