| 24(1) | 901791 |
| Maureen Shea-DesRosierss | |
| 19(1) | (613) 957-8953 |
October 31, 1990
Dear Sirs:
Re: Section 206 of the Income Tax Act (the "Act")
This is in reply to your letter of August 3, 1990 wherein you raise questions concerning the limit of foreign property that can be held by a pension plan registered in Canada.
Generally accepted accounting principles ("GAAP") should normally be applied for income tax purposes unless prohibited by some specific provision. The Department does not advise whether a method used is in accordance with GAAP since its role is to audit accounts once they have been established.
We are therefore unable to answer your questions as drafted. We will however offer the following general comments.
In our view the determination of any tax payable under subsection 206(2) of the Act contemplates the use of the "cost amount" of each relevant property. "Cost amount" is defined in subsection 248(1) of the Act to mean, where the property is capital property, its adjusted cost base ("ACB") to the taxpayer at a particular time, and accordingly the cost amount may change over time. Often, however, a capital property will have a cost amount equal to its actual acquisition cost.
Valuation of foreign content must always be done at cost amount whether it was a one time purchase or purchases and sales transacted over a period of time.
The valuation of the entire portfolio must also be done at cost amount and if the foreign content exceeds 10% of the entire portfolio during any month end of the taxation year, the appropriate amount of tax must be remitted at the time of filing the proper form.
We are of the view that an investment which is not a foreign property (within the context of subsection 206(1) of the Act) in itself would not be considered foreign property should it be denominated in U.S. dollars. Furthermore, investment income and proceeds of disposition of such investments are not considered to be foreign property provided they are immediately converted to Canadian currency or promptly used to acquire property that is not foreign property.
The provisions of section 206 of the Act restricting the ownership of foreign property by a registered pension plan are applicable to all funds governed by the plan.
For the purpose of determining the limit of foreign property holdings, the aggregate of all amounts of property of a trustee governed by a pension plan is the aggregate of all the assets owned by the trustee whether or not they are invested separately.
If you are considering a particular transaction pertaining to the above matter, we suggest you request an advance income tax ruling. A copy of Information Circular 70-6R which discusses the procedures to be followed is attached for your information.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate