Principal Issues: Can the Agency provide examples of the types of property that would fall under the definition of "tracking property"?
Position: Question of fact.
Reasons: Whether the fair market value of a property is primarily determined by reference to criteria, as per 142.2(1), in respect of tracked property is a question of fact determined on a case by case basis.
CLHIA 2009 Conference
Roundtable
Question #6
QUESTION -
Question #6 posed by the CLHIA is:
"Can the CRA please provide some examples of the types of property that would fall under the definition of "tracking property"?
RESPONSE -
The Department of Finance has stated that "tracking property" was introduced to ensure that a financial institution will not be able to avoid mark-to-market treatment on properties by investing through an intermediary or through the use of another financial instrument (such as a derivative). 1
Whether a property is considered "tracking property" of a taxpayer, pursuant to the definition at subsection 142.2(1) of the Income Tax Act, will depend on whether its fair market value is determined primarily by reference to specified criteria in respect of other property, referred to as "tracked property", that would be mark-to-market property of the taxpayer if owned by that taxpayer. The specified criteria include the fair market value of the tracked property, the profits or gains from the disposition of the tracked property, the revenue, income or cash flow from the tracked property, or any other similar criteria in respect of the tracked property. Whether the fair market value of a property is primarily determined by reference to such criteria in respect of tracked property is a question of fact to be determined on a case by case basis.
In light of its relatively recent introduction to the Income Tax Act, the Canada Revenue Agency has not yet had the opportunity to consider specific cases that address the application of the definition of "tracking property". However, we anticipate that the following, which is by no means an exhaustive list, are types of investments that would constitute "tracking property":
- certain trust investments, including mutual fund trusts or unit trusts;
- equity derivatives, or similar derivative instruments; and,
- American Depository Receipts or similar instruments.
ENDNOTES
1 Department of Finance Explanatory Notes, December, 2008
2009-031668
Robert Demeter
May 1, 2009