5-911132
Dear Sirs:
Re: Pooled Fund Trust Subparagraph 5000(7)(a)(i) of the Income Tax Regulations (the "Regulations")
This is in reply to your letter of April 22, 1991, concerning the above-mentioned subject.
It is our opinion that, in general, the lending of qualified securities by pooled fund trusts pursuant to a securities lending arrangement as defined in subsection 260(1) of the Income Tax Act will constitute an investing of funds of the trust within the meaning of paragraph 5000(7)(b) of the Regulations.
Subsection 260(2) of the Act provides that any loan of a security by a lender under a securities lending arrangement is deemed not to be a disposition of the security. The security is deemed to continue to be the property of the lender. This recognizes that the lender continues to bear the capital risk associated with the security.
It is therefore our view that amounts received in lieu of dividends and interest on the loaned securities and the fees earned for loaning the securities are amounts "derived" from the securities for the purposes of paragraph 5000(7)(b) of the Regulations.
The above comments are an expression of opinion only and are explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate