On March 22, 2017, the federal government released its 2017 budget to mixed reviews. The Investment Industry Association of Canada (IIAC) was critical of the budget’s failure to include an investor tax credit to counter current weak economic conditions, similar to the U.K.’s Enterprise Investment Scheme program.
On a more positive note, the federal budget proposes to allow mutual funds organized as corporations to convert to trusts without a negative tax impact to investors. We reported last year on changes to the Income Tax Act (Canada) involving mutual fund corporations with multiple share classes, where typically each class is its own fund. These changes had the result of discontinuing the tax deferral for share exchanges between different share classes (see our March 2016 Bulletin). The 2017 budget proposes to extend existing mutual fund merger rules, which will allow mutual fund corporations to reorganize, on a tax-deferred basis, into separate mutual fund trusts. These rules will apply to transactions occurring on or after budget day. Similar to any mutual fund merger, these reorganizations will be subject to a myriad of rules in the Income Tax Act and remain subject to securities laws regarding fund mergers.