Principal Issues:
Whether the units of the trust will retain their status as not being foreign property pursuant to subsection 5000(1) of the Regulations after the trust acquires units of a pooled fund?
Position:
Yes, provided that the limit in paragraph 5000(1)(e) of the Regulations is not exceeded.
Reasons:
Based on a previous position, the trust is a trust described in paragraph 5000(1)(c.2) of the Regulations.
XXXXXXXXXX 2004-007356
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is reply to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above taxpayer.
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:
(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) the subject of a ruling previously issued to the taxpayer or a related person by this Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Definitions and Abbreviations
"ABC" means the XXXXXXXXXX.
"Affiliates" means corporations that are related to ABC.
"Fund" means the XXXXXXXXXX.
"Investors" means trusts governed by registered pension plans sponsored by ABC and certain corporations that are related to ABC.
"Regulations" means Income Tax Regulations.
"XYZ" means XXXXXXXXXX.
Facts
1. ABC and each of the Affiliates are resident in Canada and are taxable Canadian corporation as defined under subsection 89(1).
ABC is located at XXXXXXXXXX. It is serviced by the XXXXXXXXXX Centre Tax Services Office and files its income tax returns at the XXXXXXXXXX Tax Centre.
2. The Fund was established in XXXXXXXXXX as a vehicle through which the Investors would pool their funds for investment purposes. The Fund is a unit trust as defined under paragraph 108(2)(a). The Fund has not elected to be a master trust within the meaning of paragraph 149(1)(o.4). The Trustee of the Fund is XYZ.
3. XYZ is a corporation that is resident in Canada and is a taxable Canadian corporation as defined under subsection 89(1).
4. The Fund XXXXXXXXXX. The Fund is serviced by the XXXXXXXXXX Tax Services Office and will file its income tax returns at the XXXXXXXXXX Tax Centre.
5. The units of the Fund are held by the Investors. The participants of these plans are employees of ABC and certain of the Affiliates.
6. The Investors of the Fund are as follows:
Name Registration Number
XXXXXXXXXX
The Investors are serviced by the XXXXXXXXXX Tax Services Office.
7. The Investors are the only unitholders of the Fund. It is not anticipated that any person other than the Investors will acquire units in the Fund.
8. The Fund holds some properties that are foreign properties but the Fund restricts its holdings in foreign properties to the 30% limit described in paragraph 5000(1)(e) of the Regulations.
9. Pursuant to Rule 32-503 under the Securities Act (Ontario) ("OSC Rule 32-503") the Fund has not been and will not be required to file with the Ontario Securities Commission (the "Commission") any offering memorandum, prospectus, registration statement or any other similar document under the laws of Ontario in respect of the distribution of its units to the Investors. The Fund therefore has not filed and will not file any such document with the Commission in connection with the issuance of the units of the Fund to the Investors. The sale of units in the Fund to the Investors has been and will continue to be a lawful distribution of units to the Investors under the laws of Ontario pursuant to a prospectus exemption set out in OSC Rule 32-503. The Fund has not and will not issue its units in any province other than Ontario.
10. The Fund is currently a pooled fund trust within the meaning assigned by subsection 5000(7) of the Regulations and for the purposes of paragraph 5000(1)(b) of the Regulations.
11. The only undertaking of the Fund is and will continue to be:
i) the investing of its funds in property (other than real property or an interest in real property)
ii) the acquiring, holding, maintaining, improving, leasing or managing of any real property (or interest in real property) that is capital property of the trust, or
iii) any combination of the activities described in subparagraphs (i) and (ii).
Proposed Transaction
12. It is proposed that the Fund will acquire units of a pooled fund that is a unit trust. These units will not be listed on any stock exchange and will not be property listed in subparagraph (a)(i) of the definition of "pooled fund trust" in subsection 5000(7) of the Regulations. Accordingly, the income associated with the acquisition of these units may cause the Fund to not qualify as a "pooled fund trust" within the meaning assigned by subsection 5000(7) of the Regulations
Purpose of the Proposed Transaction
13. The purpose of the proposed transaction is to allow the Fund to more efficiently fulfill its investment objectives while retaining the status of the units of the Fund as not being foreign property.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transaction and the purpose of the proposed transaction, we rule as follows:
A. Following the acquisition of units described in paragraph 12, the Fund will be considered to be a trust described in paragraph 5000(1)(c.2) of the Regulations. As such, each unit of the Fund will not be foreign property for the purpose of computing the tax payable under Part XI of the Act in respect of any particular month provided that at no time during the relevant period for the particular month did the cost amount to the Fund of all foreign property held by it exceed 30% of the cost amount to it of all property held by it.
The above advance income tax ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 Advance Income Tax Rulings, dated May 17, 2002, and are binding on the CRA provided the proposed transaction is implemented before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Section Manager
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch