I-3 - Taxation Act

Section 785.5 Disposition versions

2023-09-26

785.5. The following rules apply in respect of a qualifying exchange:

(a)  each property of a fund (other than property disposed of by the transferor to a transferee at the transfer time and depreciable property) is deemed to have been disposed of, and to have been reacquired by the fund, at the first intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  its cost amount, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(a.1)  in respect of each property transferred by the transferor to a transferee, including an exchange of a unit of a transferee for another unit of that transferee, the transferor is deemed to have disposed of the property to the transferee, and to have received units of the transferee as consideration for the disposition of the property, at the transfer time;

(b)  subject to paragraph k, the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their first post-exchange years are deemed to have begun immediately after those last taxation years ended;

(c)  each depreciable property of a fund (other than property to which section 785.5.2 applies and property to which paragraph d would, but for this paragraph, apply) is deemed to have been disposed of, and to have been reacquired, by the fund at the second intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the depreciables disposition time, and

ii.  the greater of

(1)  the lesser of the property’s capital cost and its cost amount to the disposing fund at the depreciables disposition time, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(d)  where at the second intervening time the undepreciated capital cost to a fund of depreciable property of a prescribed class exceeds the fair market value of all the property of that class, the excess is to be deducted in computing the fund’s income for the taxation year that includes the transfer time and is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(e)  the transferor’s cost of particular property received by the transferor from a transferee as consideration for the disposition of property is 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;

(f)  the transferor’s proceeds of disposition of any units of a transferee that were disposed of by the transferor at a particular time that is within 60 days after the transfer time in exchange for shares of the transferor are deemed to be equal to the cost amount of the units to the transferor immediately before the particular time;

(g)  where, at a particular time that is within 60 days after the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of a transferee,

i.  the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the particular time,

ii.  for the purpose of applying sections 1097, 1102 and 1102.1 in respect of the disposition, the shares are deemed to be excluded property of the taxpayer,

iii.  where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor, and

iv.  where the taxpayer is at the particular time affiliated with the transferor or the transferee, those units are deemed not to be identical to the other units of the transferee, and

(1)  if the taxpayer is the transferee, and the units cease to exist when the taxpayer acquires them (or when the taxpayer would but for that cessation have acquired them), the taxpayer is deemed to have acquired those units at the particular time and to have disposed of those units immediately after the particular time for proceeds of disposition equal to the cost amount to the taxpayer of those units at the particular time, or

(2)  if subparagraph 1 does not apply, for the purpose of computing any gain or loss of the taxpayer from the taxpayer’s first disposition, after the particular time, of each of those units, where that disposition is a renunciation or surrender of the unit by the taxpayer for no consideration, and is not in favour of any person other than the transferee, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to that unit’s cost amount to the taxpayer immediately before that disposition, or, in any other case, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to the greater of that unit’s fair market value and its cost amount to the taxpayer immediately before that disposition;

(h)  where a share to which paragraph g applies would, but for this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 1 of any of sections 146, 146.1, 146.3, 146.4 and 207.01 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) or by section 204 of that Act) because of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the day that includes the transfer time and the time at which it is disposed of in accordance with paragraph g;

(i)  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 begins before the transfer time is deductible in computing the taxable income of the funds for a taxation year that begins after the transfer time;

(j)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(k)  where the transferor is a mutual fund corporation, the following rules apply, and nothing in this paragraph affects the computation of any amount determined under this Part:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph g to be a mutual fund corporation at the time of the disposition, and

ii.  (subparagraph repealed);

iii.  for the purposes of section 1116, a dividend that becomes payable at a particular time after the acquisition time but within the 60-day period commencing immediately after the transfer time, and is paid before the end of that period, by the transferor to taxpayers that held shares of a class of shares of the capital stock of the transferor, that was recognized under securities legislation as or as part of an investment fund, immediately before the transfer time is deemed to have become payable at the first intervening time if the transferor made a valid election under subparagraph iii of paragraph l of subsection 3 of section 132.2 of the Income Tax Act in respect of the full amount of the dividend;

(l)  subject to subparagraph i of paragraph k, the transferor is, despite sections 1117, 1117.0.1 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for a taxation year that begins after the transfer time; and

(m)  for the purpose of applying section 1120.0.0.2 to a mutual fund trust for a taxation year that includes the transfer time, the following amounts are to be determined as if the taxation year ended immediately before the transfer time:

i.  where subparagraph a of the first paragraph of section 1120.0.0.2 applies, the amounts determined under subparagraphs b to d of the second paragraph of that section, and

ii.  where subparagraph b of the first paragraph of section 1120.0.0.2 applies,

(1)  the amounts determined under subparagraphs b and c of the second paragraph of that section, for the purposes of subparagraph i of subparagraph b of the first paragraph of that section,

(2)  the amounts determined under subparagraphs c to f of the second paragraph of that section, for the purposes of subparagraph 3 of subparagraph i of subparagraph b of the first paragraph of that section, and

(3)  the amounts determined under subparagraphs c, f and g of the second paragraph of that section, for the purposes of subparagraph ii of subparagraph b of the first paragraph of that section.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163; 2009, c. 5, s. 341; 2009, c. 15, s. 160; 2015, c. 36, s. 62; 2020, c. 16, s. 119; 2023, c. 19, s. 62.

2020-09-24

785.5. The following rules apply in respect of a qualifying exchange:

(a)  each property of a fund (other than property disposed of by the transferor to a transferee at the transfer time and depreciable property) is deemed to have been disposed of, and to have been reacquired by the fund, at the first intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  its cost amount, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(a.1)  in respect of each property transferred by the transferor to a transferee, including an exchange of a unit of a transferee for another unit of that transferee, the transferor is deemed to have disposed of the property to the transferee, and to have received units of the transferee as consideration for the disposition of the property, at the transfer time;

(b)  subject to paragraph k, the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their first post-exchange years are deemed to have begun immediately after those last taxation years ended;

(c)  each depreciable property of a fund (other than property to which section 785.5.2 applies and property to which paragraph d would, but for this paragraph, apply) is deemed to have been disposed of, and to have been reacquired, by the fund at the second intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the depreciables disposition time, and

ii.  the greater of

(1)  the lesser of the property’s capital cost and its cost amount to the disposing fund at the depreciables disposition time, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(d)  where at the second intervening time the undepreciated capital cost to a fund of depreciable property of a prescribed class exceeds the fair market value of all the property of that class, the excess is to be deducted in computing the fund’s income for the taxation year that includes the transfer time and is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(e)  the transferor’s cost of particular property received by the transferor from a transferee as consideration for the disposition of property is 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;

(f)  the transferor’s proceeds of disposition of any units of a transferee that were disposed of by the transferor at a particular time that is within 60 days after the transfer time in exchange for shares of the transferor are deemed to be equal to the cost amount of the units to the transferor immediately before the particular time;

(g)  where, at a particular time that is within 60 days after the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of a transferee,

i.  the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the particular time,

ii.  for the purpose of applying sections 1097, 1102 and 1102.1 in respect of the disposition, the shares are deemed to be excluded property of the taxpayer,

iii.  where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor, and

iv.  where the taxpayer is at the particular time affiliated with the transferor or the transferee, those units are deemed not to be identical to the other units of the transferee, and

(1)  if the taxpayer is the transferee, and the units cease to exist when the taxpayer acquires them (or when the taxpayer would but for that cessation have acquired them), the taxpayer is deemed to have acquired those units at the particular time and to have disposed of those units immediately after the particular time for proceeds of disposition equal to the cost amount to the taxpayer of those units at the particular time, or

(2)  if subparagraph 1 does not apply, for the purpose of computing any gain or loss of the taxpayer from the taxpayer’s first disposition, after the particular time, of each of those units, where that disposition is a renunciation or surrender of the unit by the taxpayer for no consideration, and is not in favour of any person other than the transferee, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to that unit’s cost amount to the taxpayer immediately before that disposition, or, in any other case, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to the greater of that unit’s fair market value and its cost amount to the taxpayer immediately before that disposition;

(h)  where a share to which paragraph g applies would, but for this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 1 of any of sections 146, 146.1, 146.3, 146.4 and 207.01 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) or by section 204 of that Act) because of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the day that includes the transfer time and the time at which it is disposed of in accordance with paragraph g;

(i)  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 begins before the transfer time is deductible in computing the taxable income of the funds for a taxation year that begins after the transfer time;

(j)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(k)  where the transferor is a mutual fund corporation, the following rules apply, and nothing in this paragraph affects the computation of any amount determined under this Part:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph g to be a mutual fund corporation at the time of the disposition, and

ii.  (subparagraph repealed);

iii.  for the purposes of section 1116, a dividend that becomes payable at a particular time after the acquisition time but within the 60-day period commencing immediately after the transfer time, and is paid before the end of that period, by the transferor to taxpayers that held shares of a class of shares of the capital stock of the transferor, that was recognized under securities legislation as or as part of an investment fund, immediately before the transfer time is deemed to have become payable at the first intervening time if the transferor made a valid election under subparagraph iii of paragraph l of subsection 3 of section 132.2 of the Income Tax Act in respect of the full amount of the dividend; and

(l)  subject to subparagraph i of paragraph k, the transferor is, despite sections 1117, 1117.0.1 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for a taxation year that begins after the transfer time.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163; 2009, c. 5, s. 341; 2009, c. 15, s. 160; 2015, c. 36, s. 62; 2020, c. 16, s. 119.

2015-12-04

785.5. The following rules apply in respect of a qualifying exchange:

(a)  each property of a fund (other than property disposed of by the transferor to the transferee at the transfer time and depreciable property) is deemed to have been disposed of, and to have been reacquired, by the fund at the first intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  its cost amount, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(b)  subject to paragraph k, the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their first post-exchange years are deemed to have begun immediately after those last taxation years ended;

(c)  each depreciable property of a fund (other than property to which section 785.5.2 applies and property to which paragraph d would, but for this paragraph, apply) is deemed to have been disposed of, and to have been reacquired, by the fund at the second intervening time, for an amount equal to the lesser of

i.  the fair market value of the property at the depreciables disposition time, and

ii.  the greater of

(1)  the lesser of the property’s capital cost and its cost amount to the disposing fund at the depreciables disposition time, and

(2)  the amount that the fund designates in respect of the property in a notification sent to the Minister and accompanied by the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(d)  where at the second intervening time the undepreciated capital cost to a fund of depreciable property of a prescribed class exceeds the fair market value of all the property of that class, the excess is to be deducted in computing the fund’s income for the taxation year that includes the transfer time and is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(e)  the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of property is 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;

(f)  the transferor’s proceeds of disposition of any units of the transferee that were disposed of by the transferor at a particular time that is within 60 days after the transfer time in exchange for shares of the transferor are deemed to be equal to the cost amount of the units to the transferor immediately before the particular time;

(g)  where, at a particular time that is within 60 days after the transfer time, a taxpayer disposes of shares of the transferor to the transferor in exchange for units of the transferee,

i.  the taxpayer’s proceeds of disposition of the shares and the cost to the taxpayer of the units are deemed to be equal to the cost amount to the taxpayer of the shares immediately before the particular time,

ii.  for the purpose of applying sections 1097, 1102 and 1102.1 in respect of the disposition, the shares are deemed to be excluded property of the taxpayer,

iii.  where all of the taxpayer’s shares of the transferor have been so disposed of, for the purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is deemed to be the same entity as the transferor, and

iv.  where the taxpayer is at the particular time affiliated with at least one of the two funds, those units are deemed not to be identical to the other units of the transferee, and

(1)  if the taxpayer is the transferee, and the units cease to exist when the taxpayer acquires them (or when the taxpayer would but for that cessation have acquired them), the taxpayer is deemed to have acquired those units at the particular time and to have disposed of those units immediately after the particular time for proceeds of disposition equal to the cost amount to the taxpayer of those units at the particular time, or

(2)  if subparagraph 1 does not apply, for the purpose of computing any gain or loss of the taxpayer from the taxpayer’s first disposition, after the particular time, of each of those units, where that disposition is a renunciation or surrender of the unit by the taxpayer for no consideration, and is not in favour of any person other than the transferee, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to that unit’s cost amount to the taxpayer immediately before that disposition, or, in any other case, the taxpayer’s proceeds of disposition of that unit are deemed to be equal to the greater of that unit’s fair market value and its cost amount to the taxpayer immediately before that disposition;

(h)  where a share to which paragraph g applies would, but for this paragraph, cease to be a qualified investment (within the meaning assigned by subsection 1 of any of sections 146, 146.1, 146.3, 205 and 207.01 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) or by section 204 of that Act) because of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the day that includes the transfer time and the time at which it is disposed of in accordance with paragraph g;

(i)  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 begins before the transfer time is deductible in computing the taxable income of either of the funds for a taxation year that begins after the transfer time;

(j)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(k)  where the transferor is a mutual fund corporation, the following rules apply, and nothing in this paragraph affects the computation of any amount determined under this Part:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph g to be a mutual fund corporation at the time of the disposition, and

ii.  for the purposes of Part IV, the transferor’s taxation year that, but for this paragraph, would include the transfer time is deemed to have ended immediately before the transfer time; and

(l)  subject to subparagraph i of paragraph k, the transferor is, despite sections 1117 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for a taxation year that begins after the transfer time.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163; 2009, c. 5, s. 341; 2009, c. 15, s. 160; 2015, c. 36, s. 62.

2009-06-04

785.5. 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 is deemed to have acquired the property at the time, in this section 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)  funds are deemed to have a taxation year that begins immediately after the acquisition time and the last taxation year of funds that are trusts, begun before the transfer time, is deemed to end at the acquisition time;

(c)  the proceeds of disposition of the property to the transferor and the cost of the property to the transferee are deemed to be equal to the amount described in the first paragraph of section 785.6;

(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 93 to 104, 130 and 130.1 and any regulations made under paragraph a of section 130 or section 130.1,

i.  the property’s capital cost to the transferee is deemed to be the amount that was its capital cost to the transferor, and

ii.  the excess is deemed to have been allowed to the transferee as depreciation in respect of the property for taxation years ending before the transfer time;

(e)  (paragraph repealed);

(f)  each property of a fund, other than depreciable property of a prescribed class to which paragraph g would, but for this paragraph, apply, and property disposed of by the transferor to the transferee at the transfer time, is 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

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  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

(2)  the amount that the fund designates in respect of the property in a notification to the Minister filed with the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(g)  where the undepreciated capital cost to a fund of depreciable property of a prescribed class immediately before the acquisition time exceeds the aggregate of the fair market value of all the property of that class immediately before the acquisition time, and the amount in respect of property of that class otherwise allowed as depreciation under paragraph a of section 130 or deductible under the second paragraph of section 130.1 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 is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(h)  the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property is 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 are 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 are 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 purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is 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 1 of any of sections 146, 146.1, 146.3, 205 and 207.01 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) or by section 204 of that Act as a consequence of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the transfer time and the day on which it is disposed of in accordance with paragraph j;

(l)  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;

(m)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(m.1)  where the transferor is a mutual fund corporation, the following rules apply:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph j to be a mutual fund corporation at the time of the disposition, and

ii.  for the purposes of Part IV, the transferor’s taxation year that, but for this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time and nothing in this paragraph shall affect the computation of any amount determined under this Part;

(n)  subject to subparagraph i of paragraph m.1, the transferor is, notwithstanding sections 1117 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years beginning after the transfer time.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163; 2009, c. 5, s. 341; 2009, c. 15, s. 160.

2009-05-15

785.5. 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 is deemed to have acquired the property at the time, in this section 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)  funds are deemed to have a taxation year that begins immediately after the acquisition time and the last taxation year of funds that are trusts, begun before the transfer time, is deemed to end at the acquisition time;

(c)  the proceeds of disposition of the property to the transferor and the cost of the property to the transferee are deemed to be equal to the amount described in the first paragraph of section 785.6;

(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 93 to 104, 130 and 130.1 and any regulations made under paragraph a of section 130 or section 130.1,

i.  the property’s capital cost to the transferee is deemed to be the amount that was its capital cost to the transferor, and

ii.  the excess is deemed to have been allowed to the transferee as depreciation in respect of the property for taxation years ending before the transfer time;

(e)  (paragraph repealed);

(f)  each property of a fund, other than depreciable property of a prescribed class to which paragraph g would, but for this paragraph, apply, and property disposed of by the transferor to the transferee at the transfer time, is 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

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  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

(2)  the amount that the fund designates in respect of the property in a notification to the Minister filed with the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(g)  where the undepreciated capital cost to a fund of depreciable property of a prescribed class immediately before the acquisition time exceeds the aggregate of the fair market value of all the property of that class immediately before the acquisition time, and the amount in respect of property of that class otherwise allowed as depreciation under paragraph a of section 130 or deductible under the second paragraph of section 130.1 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 is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(h)  the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property is 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 are 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 are 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 purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is 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 1 of section 146, 146.1 or 146.3 or section 204 of the Income Tax Act (R.S.C. 1985, c. 1 (5th Suppl.)) as a consequence of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the transfer time and the day on which it is disposed of in accordance with paragraph j;

(l)  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;

(m)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(m.1)  where the transferor is a mutual fund corporation, the following rules apply:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph j to be a mutual fund corporation at the time of the disposition, and

ii.  for the purposes of Part IV, the transferor’s taxation year that, but for this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time and nothing in this paragraph shall affect the computation of any amount determined under this Part;

(n)  subject to subparagraph i of paragraph m.1, the transferor is, notwithstanding sections 1117 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years beginning after the transfer time.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163; 2009, c. 5, s. 341.

2006-03-01

785.5. 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 is deemed to have acquired the property at the time, in this section 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)  the last taxation years of the funds that began before the transfer time are deemed to have ended at the acquisition time, and their next taxation years are deemed to have begun immediately after those last taxation years ended;

(c)  the proceeds of disposition of the property to the transferor and the cost of the property to the transferee are deemed to be equal to the amount described in the first paragraph of section 785.6;

(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 93 to 104, 130 and 130.1 and any regulations made under paragraph a of section 130 or section 130.1,

i.  the property’s capital cost to the transferee is deemed to be the amount that was its capital cost to the transferor, and

ii.  the excess is deemed to have been allowed to the transferee as depreciation in respect of the property for taxation years ending before the transfer time;

(e)  (paragraph repealed);

(f)  each property of a fund, other than depreciable property of a prescribed class to which paragraph g would, but for this paragraph, apply, and property disposed of by the transferor to the transferee at the transfer time, is 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

i.  the fair market value of the property at the transfer time, and

ii.  the greater of

(1)  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

(2)  the amount that the fund designates in respect of the property in a notification to the Minister filed with the prescribed form relating to the qualifying exchange filed pursuant to the second paragraph of section 785.4;

(g)  where the undepreciated capital cost to a fund of depreciable property of a prescribed class immediately before the acquisition time exceeds the aggregate of the fair market value of all the property of that class immediately before the acquisition time, and the amount in respect of property of that class otherwise allowed as depreciation under paragraph a of section 130 or deductible under the second paragraph of section 130.1 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 is deemed to have been allowed as depreciation in respect of property of that class under paragraph a of section 130;

(h)  the transferor’s cost of any particular property received by the transferor from the transferee as consideration for the disposition of the property is 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 are 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 are 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 purpose of applying sections 251.1 to 251.7 in respect of the taxpayer after that disposition, the transferee is 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 1 of section 146, 146.1 or 146.3 or section 204 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) as a consequence of the qualifying exchange, the share is deemed to be a qualified investment until the earlier of the day that is 60 days after the transfer time and the day on which it is disposed of in accordance with paragraph j;

(l)  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;

(m)  where the transferor is a mutual fund trust, for the purposes of sections 1121.1, 1121.2 and 1121.4 to 1121.6, the transferee is deemed after the transfer time to be the same mutual fund trust as, and a continuation of, the transferor;

(m.1)  where the transferor is a mutual fund corporation, the following rules apply:

i.  for the purposes of section 1118, the transferor is deemed in respect of any share disposed of in accordance with paragraph j to be a mutual fund corporation at the time of the disposition, and

ii.  for the purposes of Part IV, the transferor’s taxation year that, but for this paragraph, would have included the transfer time is deemed to have ended immediately before the transfer time and nothing in this paragraph shall affect the computation of any amount determined under this Part;

(n)  subject to subparagraph i of paragraph m.1, the transferor is, notwithstanding sections 1117 and 1120, deemed to be neither a mutual fund corporation nor a mutual fund trust for taxation years beginning after the transfer time.

1996, c. 39, s. 220; 1997, c. 85, s. 194; 2001, c. 7, s. 114; 2001, c. 53, s. 163.