XXXX S. Shinerock (613) 593-6937
January 24, 1984
Dear XXXX
We refer to your letter of December 2, 1983 in which you requested our views on the tax treatment of the proceeds of disposition received by a trust company on the sale of an option written by it that gives the holder the right to purchase a share that is held in the guaranteed funds account of the trust company. The purpose of the trust company in selling the option is to increase the overall yield of the company's investment in respect of the share.
It is your view that the criteria set out in paragraph 14 of IT-466
will determine whether or not the proceeds arising from the sale will be on income or capital account, and that the proceeds will not be viewed on income account solely because the option relates to a share held in the guaranteed funds account of the trust company.
Opinions
Since, as indicated by you, the intention is to increase the yield of the trust company's investment in the particular shares covered by the option, and bearing in mind that shares held in the guaranteed funds account are usually traded quite frequently, it is quite likely that the writing of an option with respect to such a share constitutes an advance sale thereof. Therefore, it is our view that the proceeds of disposition received on the sale of the option will be on "income account" to the trust company.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch