Principal Issues: Will the higher interest rate offered on deposits in new FHSAs be an advantage?
Position: No.
Reasons: The proposal will meet the exception provided in subparagraph (a)(v) of the "advantage" definition in subsection 207.01(1).
XXXXXXXXXX 2023-097981
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the additional information provided in your email correspondence, as well as the information provided during our telephone conversations (XXXXXXXXXX).
We understand that to the best of your knowledge and that of the taxpayer, none of the proposed transactions or issues involved in the ruling request is the same as or substantially similar to transactions or issues that are:
i. in a previously filed tax return of the taxpayer or a related person;
ii. being considered by the Canada Revenue Agency (“CRA”) in connection with a previously filed tax return of the taxpayer or a related person;
iii. under objection by the taxpayer or a related person;
iv. the subject of a current or completed court process involving the taxpayer or a related person; or
v. the subject of a ruling request previously considered by the Income Tax Rulings Directorate.
This document is based solely on the facts and Proposed Transactions described below. The documentation submitted with your request does not form part of the facts and Proposed Transactions except as expressly referred to herein, and any references thereto are otherwise provided solely for the convenience of the reader.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended (the “Act”), or, where appropriate, the Income Tax Regulations C.R.C., c.945, as amended, (the “Regulations”), and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions. Unless otherwise indicated, all references herein to monetary amounts are in Canadian dollars.
Definitions
In this letter, unless otherwise noted, the following terms have the meanings specified below:
a) “BCo” means XXXXXXXXXX;
b) “BCo FHSA” means a XXXXXXXXXX First Home Savings Account;
c) “B Sub” means XXXXXXXXXX;
d) “Declaration of Trust” means a trust agreement entered into between the Trustee and an individual pursuant to which the Trustee will act as trustee of a BCo FHSA for the individual;
e) “FHSA” means a first home savings account as defined in subsection 146.6(1);
f) “Paragraph” refers to a numbered paragraph in this letter;
g) “Proposed Transactions” means the transactions described in Paragraphs 8 to 10 below;
h) “taxable Canadian corporation” has the meaning assigned in subsection 89(1); and
i) “Trustee” means XXXXXXXXXX.
Our understanding of the facts, Proposed Transactions and the purpose of the Proposed Transactions is as follows:
Facts
1. BCo is a Schedule I Canadian chartered bank XXXXXXXXXX. BCo and its subsidiaries provide a broad range of XXXXXXXXXX.
2. The Trustee is a trust company incorporated under the Trust and Loan Companies Act (Canada). It is a taxable Canadian corporation and a resident of Canada for purposes of the Act. It is authorized under the laws of Canada to carry on in Canada the business of offering to the public its services as trustee.
3. B Sub is a taxable Canadian corporation and a resident of Canada for purposes of the Act. B Sub is currently registered as a “mutual fund dealer” or its equivalent with securities regulators in all provinces and territories across Canada. It is also registered as an “investment fund manager” in XXXXXXXXXX.
4. The Trustee and B Sub are subsidiaries of BCo.
5. The Trustee has submitted an FHSA application package for the BCo FHSA to the Registered Plans Directorate of the CRA for approval as a specimen plan as contemplated by the policies of the Registered Plans Directorate and has received such approval. Each BCo FHSA will be an arrangement in trust with the Trustee. The Trustee will be the issuer (as defined in subsection 146.6(1)) of a BCo FHSA. The Trustee will delegate to B Sub certain functions to be performed in relation to a BCo FHSA but the Trustee will remain ultimately responsible for the administration of the BCo FHSA.
6. B Sub will offer BCo FHSAs to the public including its current customers. Each BCo FHSA will be an arrangement in trust with the Trustee and governed by a Declaration of Trust in the form approved by the Registered Plans Directorate.
7. The investments that may be held by a BCo FHSA include securities of mutual funds of which B Sub is the manager and deposits with BCo.
Proposed Transactions
8. BCo and B Sub propose to make available as investments for BCo FHSAs deposits with BCo that are entitled to a high rate of interest (“High Interest Rate”). The deposits would be subject to standard terms and the rate would be subject to change without notice. As at XXXXXXXXXX it was expected that the High Interest Rate that will be offered will be set at XXXXXXXXXX% and that if market interest rates increase it is anticipated that the rate offered will not exceed XXXXXXXXXX%.
9. The High Interest Rate will be available only on deposits held in a BCo FHSA and would be available to anyone who opens a BCo FHSA. It will not be made available to other registered plans (such as registered retirement savings plans and tax-free savings accounts) or to taxable accounts. Eligibility for the High Interest Rate will not take into account other investments that a holder of a BCo FHSA may have with BCo, B Sub or their affiliates.
10. BCo and B Sub will advertise the High Interest Rate using various types of media, with the intention that the offer will be primarily advertised on their website and in their branches.
Additional Information
11. The High Interest Rate will not be linked to any underlying reference rate, prime rate, or otherwise. The High Interest Rate will be determined based on normal pricing processes, similar to other deposit products like GICs and savings accounts. Such a determination normally takes into account competitive offers on comparable products, projected volumes, new product launches, etc.
12. There is no pre-determined duration for the High Interest Rate offer. In a similar manner to other saving account rates, the High Interest Rate will be subject to change at any time.
13. The High Interest Rate can apply to deposits held within a BCo FHSA that are acquired using the amounts a customer contributes to their BCo FHSA that do not exceed both the annual FHSA limit defined in subsection 146.6(1) and the lifetime FHSA contribution limit described in subsection 146.6(5).
Purpose of the Proposed Transactions
14. The High Interest Rate is a promotional incentive to induce individuals to open a BCo FHSA and to assist them in saving for a first home whether or not they are currently customers of BCo or B Sub.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, Proposed Transactions and the purpose of the Proposed Transactions, the Proposed Transactions are completed in the manner described above, and there are no other transactions that may be relevant to the ruling requested, our ruling is as follows:
A. The High Interest Rate paid on a deposit held by a BCo FHSA, as described in Paragraphs 8 and 9 above, will not constitute an advantage as defined in subsection 207.01(1) in relation to the BCo FHSA.
Comments
Nothing in this advance income tax ruling should be construed as implying that we are ruling on any tax consequences relating to the facts and Proposed Transactions described herein other than those specifically described in the ruling given above, or acceptance, approval or confirmation of any other income tax implications of the facts or Proposed Transactions described herein.
The above advance income tax ruling, which is based on the Act and Regulations in their present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R12 Advance Income Tax Rulings and Technical Interpretations, dated April 1, 2022, and is binding on the CRA provided that the Proposed Transactions are completed within six months of the date of this letter.
Yours truly,
XXXXXXXXXX
A/Section Manager
For Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch