5 September 1990 Income Tax Severed Letter ACC9725 - Definition of Investment Property and Designated Corporation

September 5, 1990

Special Audits Division             Financial Industries Division
E.H. Gauthier                       Financial Institution Section
Director                            J.P. Dunn
                                    957-8961
Attn:  S.W. Trevor
       Insurance Industry Specialist

File 901157

EACC 9725

Subject:              24(1)
         Regulation 2405(3) - Definition of 
         "Investment Property" and "Designated Corporation"

This is in response to your memorandum of June 12, 1990 concerning the above reference taxpayer and, more specifically, 24(1) "investment property", as that term is defined in subsection 2405(3) of the Income Tax Regulations (the "Regulations"), for the purposes of determining the "Canadian Investment Fund" of the taxpayer for the 1986 and 1987 taxation years pursuant to Regulation 2400

Briefly, the facts, as we understand them, can be summarized as follows.

                           24(1)
The Kitchener District Office disagrees with this interpretation of
the term "investment property"

                              24(1)

Paragraph (d) of the definition of "investment property" in
Regulatory 2405(3) includes, inter alia, property of an insurer
that is 
          "(i) a share of ... a designated corporation other than
          a corporation that carries on a business of insurance ...
          or offering its services to the public as a trustee ... 
          if

          (iv) the aggregate value of all investment property of
          the corporation ... is not less than 75 per cent of the 
          aggregate value for the year of all its property ...    
          assuming that for the purposes of subparagraph 

          (iv) ... that ... this definition applies to a
          corporation ... as  though the corporation ... were an
          insurer."

The taxpayer contends that, when the asset test contained within
subparagraph (d)(iv) is performed, it is necessary to review the  
              24(1)        

We agree with this interpretation as only corporations which are
insurers own, by definition, "investment property" and if it were
not for the assumption that the "designated corporation" is an
insurer, subparagraph (d)(iv) and (d)(v) would be redundant as a
"designated corporation" which is, in fact, an insurer has been
eliminated from the definition by virtue of subparagraph (d)(i). 
Accordingly, subparagraph (d)(iv) and (v) can only be in respect of
"designated corporation" other than those listed in subparagraph
(d)(i).
                              24(1)

We disagree with this view. 24(1)

We trust our comments are of assistance to you.

Chief Financial Institutions Section Financial Industries Division