A mutual fund trust is a unit trust whose units are all held and circulate in accordance with the prescribed conditions governing:

• the number of units holders;
• the dispersal of ownership of the units; and
• public trading of the units.

A Mutual fund Trust (MFT) provides a way to pool funds to invest along with other unitholders (investors in the fund) in investing in certain real property, and certain activities relating to real property. The exact mix of the investment depends on the objectives of the fund, with the aim to generate income for the fund, generally in the form of interest or dividends. All of the income received by the fund (net of fund expenses) is paid out to unitholders on a monthly, quarterly or annual basis, as it’s earned.

• A Mutual Fund Trust (MFT) is a Trust formed under the rules set out in the Income Tax Act, Section 132
• A MFT pools shareholder capital and invests in real estate related products – mortgages and real estate.
• Units may be “qualified investments” for RRSPs, RRIFs, RESPs, TFSAs and other registered plans
• Exemption from Part XII.2 tax for non-residents of Canada to reduce their tax burdend,
• Capital gains refund mechanism that to limit potential double taxation on capital gains
• Exemption from alternative minimum tax which can trigger unexpected tax liability,
• Exemption from 21 year deemed disposition rule
• The MFT earns income from those real estates and mortgages on capital gains and interest charges and general fees.
• If all income earned by MFT is distributing to its unitholders, it is tax free,
• If the MFT retains earnings, the fund can use the distributed income to Unitholder as benefits to minimizing the overall taxes paid by the fund, since mutual fund trusts are taxed at a rate equivalent to the highest personal tax rate.
• Distributing income to unitholders, most of whom are taxed at a lower marginal tax rate than the mutual fund, generally results in a lower amount of total taxes paid.
• By reducing tax paid by the fund, more income can be distributed to investors, which improves the return on their investment.

To qualify as a “mutual fund trust (MFT)”, a trust must generally satisfy the following conditions on an ongoing basis:

1. The trust must be resident in Canada for the purposes of the Tax Act;
2. The trust must be a “unit trust” for the purposes of the Tax Act;
3. To qualify as a “unit trust”, the trust must generally pass one of the following tests:
   1. at least 95% of the units of the trust (based on their fair market value) have conditions attached to them requiring the trust to accept, at the demand of the unitholder and at prices determined and payable in accordance with the conditions, the surrender of the units (the “Redeemable on Demand Condition”), or
   2. the assets, activities and income of the trust satisfy a prescribed set of character and dispersal requirements.
4. The trust must restrict its undertakings to:
   1. the investing of its funds in certain property, and
   2. certain activities relating to real property; and
5. The trust must satisfy certain prescribed conditions, including the requirement that 150 separate unitholders each hold, in respect of a single qualifying class of units, not less than one “block of units”1 of the class having an aggregate fair market value of at least $500 (the “150 Unitholder Condition”).

Individuals, corporations, charitable organizations, Clubs, and Other Groups.

The Sponsors are the founders of the MFT, who must do the following:

• Issue the Declaration of Trust, Operating Trust, offering documentation, and Attract a minimum of 150 investors to the MFT,
• Arrange for Exempt Market Dealer and Mortgage Administrator companies.
• Pay for the initial legal cost of MFT offering and subscription documentation, and
• Provide monitoring and reporting to the investors.

• A simple way to start and run a profitable multi-million-dollar fund
• Add value to your membership to grow income and capital
• Boost your operating revenue from fees from managing your MIC
• Take a advantage of group economics of scale

• Mortgage Investment Corporations (MICs) are owned by the investors.
• MFT must be widely held by a minimum of 150 unitholders and there is no restriction on numbers of units that can be held by an individual or family.

•  MFT’s revenues are comprised of dividend and mortgage interest and fee income.

MFT’s Expenses are predominantly comprised of:

• Offering cost – registration, the legal cost for offering memorandum and subscription documentation,
• Management fees, audit and other professional fees, and loan interest, if the MFT is employing debt in addition to share capital.

The EMD and Mortgage Administrator help with:

• Adherence to regulatory compliance requirements
• Administering the mortgages and management of the MFT,
• Sourcing of suitable mortgage investments,
• Analysis of mortgage applications, negotiation of suitable interest rates, terms, and conditions,
• Instruction of solicitors, mortgage portfolio and general administration.

• Secured Investment: Mortgages purchased by the MFT are secured by Canadian Residential Real Estate.
• Safety through Diversification: Investors in MFT own a diversified portfolio of real estate and mortgage loans which can reduce risks.
• Capital Preservation Strategy: The MFT investment strategy has a low correlation with traditional assets that can help preserve capital invested, especially given the volatility of the traditional asset class.
• Superior Returns: Earn up to 9% per year compared with 2% on GICs. MFT investments have traditionally outperformed bonds and GICs over the long term.
• Professional Management and Regulatory Oversight: The management of the MFT has oversight from the Ontario Securities Commission (OSC) and Financial Services Regulatory Authority of Ontario (FSRA).
• Regular Dividend Distribution: Investors receive their dividends on quarterly or monthly dividend distribution dates.
• Tax Savings: Mortgage investment funds are RRSP, TFSA and RRIF eligible.
• No Double Taxation: MFT is tax-free if all dividends are distributed, only the distribution from an MFT is taxed as interest income in the hands of the investors. This is a significant advantage for MFT investors because this increases the yield as the two levels of tax applied to regular corporations and their investors are avoided.

• Unitholders: These individuals and corporations are also known as ‘Unit Holders’ or “Investors”. Such investors would subscribe to units in the MFT. Unit holders have the right to receive any form of return from the asset, according to the initial agreement entered by the unit holder and the company.
• Exempt Market Dealer (EMD): The EMD has the sole responsibility of overseeing the capital raising and compliance with the securities’ regulatory requirements of the MFT. The EMD is responsible for making sure of investor suitability, completing the subscription agreement, know your client (KYC) and know your product (KYP) forms.
• Legal Firm: The law firm prepare the initial Declaration of Trust, Operating Trust, Offering Memorandum, Subscription Agreement and guide for completing a subscription agreement, the exemption from prospectus certificates and acknowledgements, the know your client (KYC) and know your product (KYP) forms.
• Manager or Sponsor: To safeguard the interests of the investors, a Board of Trustee is appointed by the MFT Manager to act for the benefit of the shareholders.
• Mortgage Administrator: The Mortgage Administrator is responsible for managing mortgage investment – receiving mortgage payments from borrowers on behalf of the MFT, monitoring the agreement and taking steps and enforcing mortgage payments. The administrator is responsible for advising the shareholder, valuation of the fund and management of the fund.
• Mortgage Broker: In a MFT the Mortgage Broker is responsible for negotiating the best available terms and rates with lenders. They take into account a borrower’s financial history, down payment when necessary and the type of property they are interested in borrowing against and liaison between a borrower and a lender and do much of the paperwork.
• CPA Firms: The Income Tax Act requires that 100% of a MFT’s annual net income be audited by an external CPA firm to ensure the MFT’s net income is distributed to its shareholders, in the form of a dividend.