3-911191
Dear Sirs:
This is in response to your letter of April 30, 1991, requesting an advance income tax ruling on foreign property investments by pension plans. Since your request does not deal with a specific transaction or a specific taxpayer we are unable to issue a ruling. Your deposit will be returned under separate cover. We can, however, offer the following general comments.
Your letter deals with an investment by a pension fund in a futures contract on a foreign asset and you were requesting our position on the application of the foreign property tax provisions. Tax under Part XI of the Income Tax Act (the "Act") applies to certain taxpayers listed in section 205 of the Act which includes pension trusts and corporations. Our opinion is that an investment in a futures contract in a foreign asset (such as the Standard and Poors 500 Stock Index) is an investment in a foreign property pursuant to subsection 206(1) of the Act.
For purposes of calculating the Part XI tax the cost amount referred to in subsection 206(2) of the Act for a futures contract is the brokerage fees plus other costs incidental to the acquisition of the contract. The cost amount does not include an initial margin deposited with the broker since these are considered to be security for the performance of the contract and may be returned on settlement date.
Regarding the length of time a taxpayer can hold excess foreign investments without penalty, the Part XI tax pursuant to subsection 206(2) of the Act is calculated on the aggregate of cost amounts at the end of each month.
We trust this is satisfactory.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate