Definition

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.

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

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 trust

Royalty trust

A royalty trust is a type of corporation, mostly in the United States or Canada, usually involved in oil and gas production or mining. However, unlike most corporations, its profits are not taxed at the corporate level provided a certain high percentage of profits are distributed to shareholders...

s 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

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. Some examples of Canadian non-reporting issuers utilizing the MFT structure are:

• Mineral Fields
• Mosaic Diversified Income Fund
• Agcapita Farmland Investment Partnership
• Petrocapita Income Trust
• Pershing Income Fund
• Walton International
• Prestigious Properties

See also

• Trust (law)
• Canada Revenue Agency
  Canada Revenue Agency
  The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...
  
  
• Mutual fund
  Mutual fund
  A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
  
  
• Income fund
  Income fund
  An income fund is a mutual fund whose goal is to provide an income from investments.Income funds are often assumed to be synonymous with bond funds, however income funds may hold stocks instead , more accurately called equity income funds, or even some combination.The point in any case is that the...
  
  
• Exchange fund
  Exchange fund
  An Exchange Fund or Swap Fund is a mechanism specific to the U.S., first introduced in late 1990s that allows holders of large amount of a single stock to diversify into a basket of other stocks without directly selling their stock....