Mutual Fund Trusts: A Powerful Tool for Tax-Efficient Investing in Canada

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Private equity investors and fund managers alike are increasingly turning to Mutual Fund Trusts (MFTs) as part of their investment structuring strategy — and for good reason. These trusts offer a unique blend of flexibility, tax efficiency, and investor appeal, making them an ideal tool to pool capital while minimizing tax drag.

What Is a Mutual Fund Trust?

A Mutual Fund Trust is a flow-through investment vehicle recognized under the Income Tax Act (Canada). Unlike a corporation, an MFT does not pay income tax at the trust level if it distributes all of its income to unitholders annually. Instead, the tax burden flows through to the individual investors, enabling deferral or efficient treatment of gains depending on their own tax profile.

Why Use an MFT in Private Equity?

  • Tax-Deferred Growth: Canadian investors can benefit from the capital gains treatment and other flow-through advantages.
  • Ease of Pooling Capital: MFTs allow for multiple investors to pool funds in a legally recognized trust governed by a trustee and trust declaration.
  • Professional Management: A trustee or manager oversees the trust’s investment strategy, ensuring operational and fiduciary oversight.
  • Attractive to Institutions: MFTs are familiar to many institutional investors and RIAs, making fundraising easier.
  • Eligible for RRSP/TFSA Investment (if qualified): Certain MFTs can be structured to qualify as “registered plan eligible” — a huge bonus for retail investors.


Typical Use Cases

  • Dual-structure deals where the MFT holds LP interests
  • Real estate funds
  • Private lending vehicles
  • Alternative asset strategies (e.g., private credit, venture capital)


Regulatory Considerations

To qualify as a Mutual Fund Trust under the ITA, certain conditions must be met:

  • The trust must have 150+ unitholders within 12 months of its first year-end.
  • It must be widely held and publicly distributed, subject to specific structuring techniques to achieve compliance.
  • It must restrict investments to qualified securities unless exemptions are met.

At Rabideau Law, we regularly advise clients on how to structure their investment vehicles using MFTs, whether as standalone products or paired with Limited Partnerships for added flexibility.


Want to set up a Mutual Fund Trust or learn how it can fit within your investment structure?

Contact Rabideau Law to get started with a custom legal strategy that meets your fundraising goals while staying tax-smart.