Cases
Thye RRSP of James T. Grenon (552-53721) by its Trustee CIBC Trust Corporation v. Canada, 2025 FCA 129
The appellant subscribed $310 million for units of various income funds, which were intended to qualify as mutual fund trusts on the basis that each had received subscription proceeds totaling $128,250 from 171 investors, with each such investor subscribing for 100 units at $7.50 per unit. Whether they so qualified turned on whether they each satisfied the distribution condition in ITR 4801(a)(i)(A)—that there had been a lawful distribution of units of the trust to the public in circumstances in which a prospectus or similar document was not required to be filed—and that the 150-minimum beneficiary condition in ITR 4801(b) was satisfied.
(Monaghan JA stated that she was "far from convinced" (para. 169) as to whether the parties were correct in their mutual view that an offering memorandum was not a similar distribution document to a prospectus, so that the distribution condition in ITR 4801(a)(ii)—that a class of units of the trust is qualified for distribution to the public—was not relevant. However, nothing turned on this since, in light of the definition in ITR 4803(2)(a) of "qualify for distribution to the public," this alternate distribution test, like ITR 4801(a)(i)(A), required that there have been a lawful distribution of units to the public.)
Regarding the 150-minimum beneficiary condition, Monaghan JA found that such beneficiaries need not have acquired their units in a lawful distribution to the public. She stated (at para. 133) that “the minimum beneficiary condition might also be satisfied through a unitholder transferring units to others” and (at para. 145) that she was satisfied that, in the context of the ITA, "’hold’ is intended to mean ‘own’, unless the context in which it is used indicates otherwise” – which was not the case regarding Regulation 4801. Furthermore, the ITA's use of "hold" and "acquire" suggested they have different meanings (para. 147). Thus, the test of 150 beneficiaries holding units did not require that such units have been acquired from any particular persons.
Regarding the distribution condition in ITR 4801(a)(ii), Monaghan JA found (at para. 214) that the Tax Court did not err in interpreting a distribution as meaning “distribution in the collective sense,” i.e., an issuance to all those subscribing in a particular offering. Furthermore, the reference to a "lawful" distribution referred to compliance “with the exemption relied on under relevant provincial securities laws” (para. 218). Here, the exemption from a prospectus-filing requirement that had been relied on was the offering memorandum exemption (OME) coupled with a condition stipulated in the offering memorandum (OM) that a minimum of 160 investors subscribe.
She indicated (at para. 221) that, although she accepted that “not every deviation from the prospectus requirement or prospectus exemptions, or from the terms of the prospectus or OM, will necessarily lead to the conclusion that the distribution is unlawful, even if it might attract liability or enforcement action,” the appellant agreed that such 160-investors-minimum specified in the OM "was an essential term" (para. 229). The Tax Court had made a non-reversible finding that 39 of the subscribers in each fund were minors. Agreeing with the Tax Court that this thus established that such minimum had not been lawfully met, she stated (at para. 247) that, like the Tax Court, she had "difficulty accepting that provincial securities regulators envisaged minors, some as young as two years old, subscribing for units based on the OME." She also stated (at para. 250) that "it was open to the Tax Court to find that the income funds did not take any steps to waive the condition regarding legal capacity and age of majority."
Moreover, she found no reasonable error in the Tax Court's “finding regarding adults signing subscriptions and paying for units for other adults and minors” (para. 262), contrary to the representations of the investors that each investor was purchasing "as principal." This further supported the Tax Court's conclusion (at para. 288) that the income funds had not “complied with an essential term in their OMs: that they issue units to a minimum of 160 investors in compliance with the OME.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 207.1 - Subsection 207.1(1) | since FMV of non-qualified investments was required to be included in the annuitant’s income (even though such inclusion was not reported or assessed) it was excluded from Pt. XI.1 tax | 360 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(3.1) | assessment of group RRSP return focused on Pt. XI.1 tax reporting did not start the Pt. I normal reassessment period running | 279 |
| Tax Topics - Other Legislation/Constitution - Federal - Federal Courts Act - Section 27 - Subsection 27(1.3) | FCA raised the correctness of (and reversed) a TCC finding that was not challenged by the parties | 420 |
| Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) | RRSP must recognize losses on non-qualified investments but such losses, if capital losses, cannot be deducted from property income from such investments | 153 |
| Tax Topics - Statutory Interpretation - Consistency | presumption that same word has same meaning, and different words have different meanings throughout the ITA | 233 |
| Tax Topics - Statutory Interpretation - Ordinary Meaning | meaning of “distribution” informed by provincial securities law | 161 |
| Tax Topics - Statutory Interpretation - French and English Version | 2-step approach to reconciling 2 versions | 298 |
Paragraph 4801(a)
Administrative Policy
11 September 2001 External T.I. 2001-0072575 - Units of Trust - Distribution to Public
In response to a query as to "whether a mutual fund trust's status under the...ITA...would be adversely affected if the Ontario Securities Commission (the "Commission")...refused to issue a receipt for any prospectus filed with the Commission following the filing of an earlier prospectus which had been accepted by the Commission, CRA stated:
...a distribution of units of a class in accordance with the initial prospectus accepted by the Commission would satisfy the essential requirement of paragraph 4803(2)(a) of the Regulations such that the class of units so distributed would be qualified for distribution to the public. The fact that subsequent events preclude the trust from issuing any further units of that class to new or existing unitholders does not alter the fact that a lawful distribution of units of that class has previously been made in accordance with a properly receipted prospectus.
Please note that it is currently proposed that for trusts created after 1999, paragraph 4801(a) of the Regulations be amended to permit a trust that does not have a class of units which are qualified for distribution to the public to qualify as a mutual fund trust if there has been a lawful distribution in a province to the public of units of the trust and a prospectus, registration statement or similar document was not required under the laws of the province to be filed in respect of the distribution, and the other conditions necessary to qualify as a mutual fund trust are met.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 4803 - Subsection 4803(2) - Paragraph 4803(2)(a) | preliminary prospectus | 151 |
29 March 2012 External T.I. 2011-0403161E5 - Meaning of "shareholder" in 130.1(6)(d)
For the purposes of the 20-shareholder test in s. 130.1(6)(d), an individual and the individual's RRSP and TFSA trusts would each count as a separate shareholder unless s. 104(2) was applied.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6) | individual and RRSP counted separately | 32 |
Subparagraph 4801(a)(i)
Administrative Policy
12 February 2003 External T.I. 2002-0167545 - MFT - Units Issued in Series
Units of a unit trust consist of one class issued in two series, with those of the first series having a fair market value (FMV) of less than $25 per unit and the second having an FMV between $25 and $100 per unit. Given that s. 248(6) did not apply, and regarding the requirement in Reg. 4801(a)(i) that a class of units must be qualified for distribution to the public, CRA indicated that “this requirement would be met even if only one of the series of a class were qualified for distribution to the public since paragraph 4803(2)(a) … does not distinguish between series and class.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 4803 - Subsection 4803(1) - Block of Units | block size for multiple series based on FMV of least valuable unit | 102 |
| Tax Topics - Income Tax Regulations - Regulation 4801 - Paragraph 4801(b) | if 2 or more series, 150-unitholder test applied by requiring the block size to be based on the unit value of the lower-value series’ units | 171 |
Clause 4801(a)(i)(A)
See Also
Grenon v. The Queen, 2021 TCC 30, aff'd in part 2025 FCA 129
In order that the taxpayer’s RRSP could indirectly invest in operating businesses in which he and/or two business colleagues had a management role, he instigated the formation of various unit trusts (the “Income Funds”) which were intended to be mutual fund trusts on the basis of 171 individuals (the “Investors”) - being immediate and extended family members, friends, employees of businesses run by him, business associates and others - each subscribing $750 for units. This distribution of units to such individuals was intended to be exempted from the requirement to qualify the distribution through filing a prospectus, by relying on an offering memorandum exemption.
The taxpayer’s RRSP then invested a large sum (e.g., over $150 million for one of the Income Funds) in subscribing for additional units. The Income Funds invested in the underlying businesses (sometime through a multi-tier “flow-through” structure under which the Income Fund held a sub trust, which held a master limited partnership, which held individual LPs that carried on the various businesses.)
Given that there were over 150 unitholders in each Income Fund holding a qualifying block of units, whether the units of the Income Funds qualified (under Reg. 4900(1)(d)) as units of mutual fund trusts turned principally on whether there had been a “lawful distribution in a province to the public of units of the trust and a prospectus … was not, under the laws of the province, required to be filed in respect of the distribution” (Reg. 4801(a)(i)(A)). In concluding that this requirement had not been satisfied because the distribution of the units had not been lawful, Smith J found that the RRSP had not displaced the Minister’s assumptions that many (over 30) of the Investors were minors and that many of the adult subscribers did not sign their own subscription documents (e.g., acknowledgements of risk) and did not pay for their own units. In this regard, Smith J found (at para. 266) that the subscribing “minors were not legally competent to sign the Risk Acknowledgement form” required to be given by them and that “the Alberta and BC securities commission intended that this document would only be signed by adult subscribers who had legal capacity,” that the minors’ subscriptions “were … unlawful” (para. 291) and (regarding over 25 of the subscriptions by adult Investors) the Minister’s unrebutted “assumption that these adults did not pay for their own units was sufficient to indicate that they had not purchased the units as principal for their own account” (para. 313). Furthermore, although it may have been possible to rely on other exemptions to establish a lawful distribution, this did not matter because in the reporting of the distribution to the Commissions, reliance had been placed only on the offering memorandum (OM) exemption (paras. 269-271).
After rejecting the taxpayer’s submission that there had been 171 distributions to the initial investors, so that the “lawful distribution” requirement would have been satisfied if as few as one of those distributions had been lawful, and instead finding that there had been only one distribution to that group, which was not lawful, as described above, Smith J stated obiter (at para. 207) that if, for example, there had been a lawful distribution to 50 investors relying on the “Friends, Family and Business Associates Exemption” and there had been a simultaneous second distribution to at least 100 investors, relying on the OM exemption, the first distribution might be sufficient to satisfy the lawful distribution requirement.
Furthermore, the OM had stated that the offerings were to a minimum of 160 investors. In this regard, Smith J stated (at paras. 208, 348):
[I]n this instance ... “a lawful distribution …under the laws of the province” required a distribution to no fewer than 160 investors. Anything less than that would not be “a lawful distribution” since it would be contrary to the precise terms of the OM. …
The Income Funds did not qualify as a “mutual fund trust” because they failed to satisfy the prescribed condition that there be “a lawful distribution …to the public of units” under the laws of the provinces of Alberta and BC to not fewer than 160 investors as required by the OM. Even if the Court considers for a moment that “a lawful distribution” should be interpreted to refer to a distribution to “no fewer than 150 beneficiaries of the trust”, as set out in paragraph (b) of Regulation 4801, the Income Funds have not met that bright-line test.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | purported establishment of “alter ego” MFTs through which an RRSP could invest in operating businesses was an abuse engaging GAAR | 605 |
| Tax Topics - Income Tax Act - Section 204.2 - Subsection 204.2(1.1) | alleged distribution from non-qualified investment was not an over-contribution | 277 |
| Tax Topics - General Concepts - Window Dressing | window-dressing is a deception about intention | 312 |
| Tax Topics - Income Tax Act - Section 207.1 - Subsection 207.1(1) | non-qualified investments not “included” in annuitant’s income because it was never assessed | 346 |
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) | CRA’s assessing listed taxable RRSPs in a T3GR global return was not of the taxpayer’s (also listed) RRSP /inappropriate reliance in legal opinion on certificate of fact was carelessness | 441 |
| Tax Topics - Income Tax Act - Section 207.2 - Subsection 207.2(3) | CRA’s assessment of Pt. XI.1 shown on the T3GR for all RRSPs of one type did not start the normal reassessment period for the taxpayer’s RRSP since no tax shown for it | 370 |
| Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(d.2) | distribution was not lawful because the issuer had not complied with the OM exemption, which was the exemption that it had chosen to rely on | 290 |
Paragraph 4801(b)
Administrative Policy
12 August 2020 External T.I. 2019-0833841E5 - MIC Shareholder Count - Joint holders
S. 130.1(6)(d) requires inter alia that a mortgage investment corporation have at least 20 shareholders. How is this test applied where a husband and wife hold a share as joint tenants (with rights of survivorship)?
After noting that under a joint tenancy, “the joint tenants have concurrent ownership and possession of the same property,” CRA stated:
[W]here two or more joint owners of a share of a corporation are considered one shareholder under relevant corporate law or are entitled to jointly receive any dividend paid on the share by the corporation, the joint owners of the share will generally be counted as one shareholder for purposes of paragraph 130.1(6)(d) … .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6) - Paragraph 130.1(6)(d) | joint tenants holding a share may be one shareholder, not two | 199 |
8 June 2020 External T.I. 2019-0822901E5 - Mutual Fund Trusts
An individual has a non-registered account and is a holder of a TFSA and an annuitant of a RRSP. The individual is also a contributor to a spousal or common-law partner RRSP. The non-registered account and each of the registered plan trusts hold units of the same class of the mutual fund trust (“MFT”) that satisfy the requirement of being a block of units having a fair market value of at least $500.
CRA stated:
[T]here are four beneficiaries for purposes of satisfying the 150 beneficiary requirement. The individual and each registered plan trust count as a separate beneficiary.
Notwithstanding our general view described above, we note that the CRA has previously applied … GAAR … in situations where mutual fund trust status was artificially achieved to facilitate abusive tax avoidance.
The CRA summary noted:
There is no requirement to look through the registered plan trust.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) - Paragraph 132(6)(c) | individual's RRSP or TFSA counts as a separate beneficiary for 150-beneficiaries test purposes | 56 |
12 February 2003 External T.I. 2002-0167545 - MFT - Units Issued in Series
Units of a unit trust consist of one class issued in two series, with those of the first series having a fair market value (FMV) of less than $25 per unit and the second having an FMV between $25 and $100 per unit. Given that s. 248(6) did not apply, and regarding the requirement in Reg. 4801(a)(i) that there be at least 150 unitholders each of whom holds at least a block of units of a class that meets the test in Reg. 4801(a), CRA stated:
[I]f both series were issued but there were not 150 unitholders each holding at least 25 units of the second class, it is our view that, for purposes of determining block size, it would be appropriate to consider the least valuable unit in the class. Thus … the block size would be 100 and thus if there were 100 unitholders of the first series each holding at least 100 units, and there would have to be at least 50 unitholders of the second series, each holding at least 100 units.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Regulations - Regulation 4803 - Subsection 4803(1) - Block of Units | block size for multiple series based on FMV of least valuable unit | 102 |
| Tax Topics - Income Tax Regulations - Regulation 4801 - Paragraph 4801(a) - Subparagraph 4801(a)(i) | distribution requirement can be satisfied by only one of the series within a class | 104 |