MUTUAL FUND TRUST

What is a Mutual Fund Trust?

  • In a Limited Partnership, the General Partner is responsible for the operations of the Limited Partnership and the Limited Partners only risk their original investment.

  • In a Mutual Fund Trust, the Trustee is responsible for the operations of the Mutual Fund Trust, and the Unit Holders only risk their original investment.

Mutual Fund Trusts Are Tax Efficient

  • Unlike a Limited Partnership, Mutual Fund Trusts can accept investments from registered accounts, like RRSPs and TFSAs.

  • This makes a Mutual Fund Trust the most tax-efficient way to flow income and capital gains to an investor.’

  • Widely used for real estate and similar situations where capital gains are anticipated.

Mutual Fund Trusts 150+ Requirement

  • CRA requires that an MFT have at least 150 Unit Holders in one Class of Units by March 31st, and maintain it thereafter.

  • If the MFT doesn't, then the funds from registered accounts, like RRSPs, are deemed to have been withdrawn and are subject to tax – not a good situation!

Mutual Fund Trust Initial Setup

Mutual Fund Trust First Offering

  • Frost Financial Mutual Fund Trust creates the Mutual Fund Trust with 150+ investors and

  • Each Class of Units has its own Limited Partnership (LP).

  • Limited Partnership A has its own General Partner.

  • The other Limited Partnerships can share a General Partner or each have their own General Partner.

  • The Trustee is a corporate shell, with the officer(s) acting as the Trustee.

  • Frost Financial Mutual Fund Trust ensures compliance by creating the MFT with the 150+ investors

  • Class B Units and the corresponding Limited Partnership and General Partner are set up by Frost Financial Mutual Fund Trust for the "first" offering.

  • Frost Financial Mutual Fund Trust will assist in setting up the structure at the Project Level, but typically, each project should be in its own Limited Partnership – this is a very tax-efficient structure for flowing income and gains through to the investor.

  • Corporations that own project assets (like ABC Properties) can transfer the assets to the project-limited partnerships on a tax-free basis.

Mutual Fund Trust Cash Flow

  • Cash flows from the Investor into the MFT, into the corresponding LP and then into the Project LP.

  • Income and capital gains flow in the reverse.

  • The General Partner of the project (Townhouse Limited Partnership) can receive compensation, such as a carry fee or project fee.

  • Frost Financial Mutual Fund Trust creates the MFT and first level of Limited Partnerships and can assist in the creation of the project-level Limited Partnerships if needed.

Mutual Fund Trust Unlimited Classes

  • An unlimited number of Unit Classes can be created in the MFT, each with its own LP.

  • Compliance with security regulations is needed for each Class of Units: Term Sheet or Offering Memorandum and exemptions for investors if non- accredited.

  • Frost Financial Mutual Fund Trust is uniquely created so that each Class of Units does not affect another Class of Units – if a project has a loss, it will not affect another Class, providing that each Class of Units only invests in a single Limited Partnership.

  • This is different from other MFTs. It is like owning several MFTs, for the cost of one.

Mutual Fund Trust Flexible Structure – Example 1

  • The Unit Classes and the Projects can be structured in many ways to fit the needs of the business.

  • Different terms and offerings can be created for multiple classes that feed into one project.

  • Example: Class B is interest only, while Class C offers a low interest rate and a % of the profit. Both can invest in the same project.


    Mutual Fund Trust Flexible Structure – Example 2

  • Class B is a Bridge Fund that provides start up funds which will be replaced later by funds from another Class.

  • Frost Financial Mutual Fund Trust will assist in creating the right structure for the business.

  • The MFT can be used indefinitely – you own it.

Frost Financial’s Mutual Fund Trust Advantages

Four advantages of Frost Financial’s MFT:

  1. Turnkey – We do the work by providing the MFT and the limited partnerships required to move your project forward.

  2. 150+ investors are provided at no extra cost to ensure compliance with CRA.

  3. Uniquely constructed to ensure that issues in one class will not affect another class. This allows the MFT to be used for multiple, unrelated projects. No need to purchase multiple MFTs.

  4. Registered investment (RRSP, TFSA, etc.) can be used to invest in the MFT, greatly increasing the pool of available capital.