The Investment Funds Institute of Canada (IFIC) is asking the federal government to reconsider specific wording in a bill that it says will impose an unneccessary and unintended regulatory burden on the mutual fund industry. Costs associated with meeting the regulatory requirement, IFIC says, ultimately would have to be passed on to unitholders.

At issue is Bill C-377, an act to amend the Income Tax Act (Requirements for labour organizations), which has been referred to the Senate Standing Committee on Legal and Constitutional Affairs. In a letter Tuesday to the committee, IFIC argues that the bill’s definition of what constitutes a “labour trust” is overly broad, and imposes an inadvertent reporting requirement for all retail mutual funds, as well as other public trusts.

Over the last two years, IFIC, as well as the Canadian Life and Health Insurance Association (CLHIA), among other commenters, have raised this concern with the bill with government committees and staff. IFIC is now urging the Senate committee to make changes to the definition of a labour trust when the bill is sent back to the House of Commons.

Bill C-377 seeks the public disclosure of financial information of labour organizations, and defines “labour trust” to include “a trust or fund … maintained in whole or in part for the benefit of a labour organization, its members or the persons it represents.” IFIC argues that definition of labour trust would include any trust, or investment fund structured as a trust, offered for sale to the public if that trust had a security holder or beneficiary who is a member of a labour organization.

“A publicly distributed mutual fund with thousands of public security holders would be caught, and be subject to reporting obligations, if even one of its security holders is employed in a unionized workplace and/or is a member of the union in that workplace,” explains IFIC in its letter to the committee.

The group argues that mutual fund firms have no practical way to determine if an investor also happens to be a member of a labour organization. Further, IFIC also argues that “an investor’s union afffiliation, if any, is completely irrelevant to his/her personal decision to purchase mutual fund securities.”

IFIC is asking the government to consider removing the words “in whole or in part” from the definition of “labour trust”, so as to alter the definition in the bill to read as “wholly maintained for the benefit of a labour organization,” etc.

The amended wording would ensure that a more substantial connection existed between a particular fund and a labour organization, the advocacy group argues, “without changing in any significant way the government policy the bill seeks to fulfill.”