PART VI

AMENDMENT RELATING TO MUTUAL FUND REORGANIZATIONS

69. (1) The Act is amended by adding the following after section 132.1:

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 (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 (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 (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 (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) the transferor's cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property shall be 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) or 146.3(1) or section 204) as a consequence of the qualifying exchange, the share shall be 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 (3) to (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, for the purposes of Part I.3, the transferor's taxation year that, but for this paragraph, would have ended at the acquisition time shall be deemed to have ended immediately before the transfer time (except that, for greater certainty, nothing in this paragraph affects the computation of any amount determined under this Part); and

    (p) the transferor shall, notwithstanding subsections 131(8) and 132(6), be deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years beginning after the transfer time.

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 in the transferor to the transferor within that 60 day period receives any consideration for those 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;

``share''
« action »

``share'' means a share of the capital stock of a mutual fund corporation and a unit of a mutual fund trust.

(2) Subsection (1) applies after June 1994, except that an election referred to in paragraph (c) of the definition ``qualifying exchange'' in subsection 132.2(2) of the Act, as enacted by subsection (1), shall be deemed to have been made in a timely manner where it is made before the end of the sixth month that ends after the month in which this Act is assented to.

PART VII

AMENDMENTS RELATING TO NOTICES OF OBJECTION AND APPEALS

70. (1) Subsection 165(1.2) of the Act is replaced by the following:

Objections by large corporations

(1.11) Where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) objects to an assessment under this Part for the year, the notice of objection shall

    (a) reasonably describe each issue to be decided;

    (b) specify in respect of each issue, the relief sought, expressed as the amount of a change in a balance (within the meaning assigned by subsection 152(4.4)) or a balance of undeducted outlays, expenses or other amounts of the corporation; and

    (c) provide facts and reasons relied on by the corporation in respect of each issue.

Late compliance

(1.12) Notwithstanding subsection (1.11), where a notice of objection served by a corporation to which that subsection applies does not include the information required by paragraph (1.11)(b) or (c) in respect of an issue to be decided that is described in the notice, the Minister may in writing request the corporation to provide the information, and those paragraphs shall be deemed to be complied with in respect of the issue if, within 60 days after the request is made, the corporation submits the information in writing to a Chief of Appeals referred to in subsection (2).

Limitation on objections by large corporations

(1.13) Notwithstanding subsections (1) and (1.1), where under subsection (3) a particular assessment was made for a taxation year pursuant to a notice of objection served by a corporation that was a large corporation in the year (within the meaning assigned by subsection 225.1(8)), except where the objection was made to an earlier assessment made under any of the provisions or circumstances referred to in paragraph (1.1)(a), the corporation may object to the particular assessment in respect of an issue

    (a) only if the corporation complied with subsection (1.11) in the notice with respect to that issue; and

    (b) only with respect to the relief sought in respect of that issue as specified by the corporation in the notice.

Application of subsection (1.13)

(1.14) Where a particular assessment is made under subsection (3) pursuant to an objection made by a taxpayer to an earlier assessment, subsection (1.13) does not limit the right of the taxpayer to object to the particular assessment in respect of an issue that was part of the particular assessment and not part of the earlier assessment.

Limitation on objections

(1.2) Notwithstanding subsections (1) and (1.1), no objection may be made by a taxpayer to an assessment made under subsection 152(4.2), 169(3) or 220(3.1) nor, for greater certainty, in respect of an issue for which the right of objection has been waived in writing by the taxpayer.

(2) Subsections 165(1.11) to (1.14) of the Act, as enacted by subsection (1), apply after September 26, 1994 to notices of objection filed at any time except a notice of objection to an assessment for a taxation year where an appeal under Division J of the Act of the assessment has been instituted on or before the day this Act is assented to.

(3) Where a taxpayer submits, to a Chief of Appeals referred to in subsection 165(2) of the Act, in writing before March 1995 the information required by subsection 165(1.11) of the Act, as enacted by subsection (1), to be provided in a notice of objection served by the taxpayer before 1995, the taxpayer shall be deemed to have complied with subsection 165(1.11) of the Act with respect to that notice.

(4) Subsection 165(1.2) of the Act, as enacted by subsection (1), applies after September 26, 1994 to waivers signed at any time.

71. (1) Section 169 of the Act is amended by adding the following after subsection (2):

Limitation on appeals by large corporations

(2.1) Notwithstanding subsections (1) and (2), where a corporation that was a large corporation in a taxation year (within the meaning assigned by subsection 225.1(8)) served a notice of objection to an assessment under this Part for the year, the corporation may appeal to the Tax Court of Canada to have the assessment vacated or varied only with respect to

    (a) an issue in respect of which the corporation has complied with subsection 165(1.11) in the notice, or

    (b) an issue described in subsection 165(1.14) where the corporation did not, because of subsection 165(7), serve a notice of objection to the assessment that gave rise to the issue

and, in the case of an issue described in paragraph (a), the corporation may so appeal only with respect to the relief sought in respect of the issue as specified by the corporation in the notice.

Waived issues

(2.2) Notwithstanding subsections (1) and (2), for greater certainty a taxpayer may not appeal to the Tax Court of Canada to have an assessment under this Part vacated or varied in respect of an issue for which the right of objection or appeal has been waived in writing by the taxpayer.

(2) Subsection 169(2.1) of the Act, as enacted by subsection (1), applies to appeals instituted after the day this Act is assented to.

(3) Subsection 169(2.2) of the Act, as enacted by subsection (1), applies after the day this Act is assented to to waivers signed at any time.