Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Will the loss, which may be realized from the disposition of a foreign property of a RRSP, subject to subsection 40(3.3) of the Act and consequently not a superficial loss due to paragraph (h) of the definition of superficial loss in section 54 of the Act result in a misuse or abuse of the provisions of the Act for the purposes of subsection 245(2) of the Act?
Position: No,
Reasons: No abuse or misuse.
XXXXXXXXXX 2003-004249
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above noted-taxpayers. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX).
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Definitions
Unless otherwise stated, in this letter the following terms and expressions have the meanings specified below:
Act means the Income Tax Act;
CCRA means the Canada Customs and Revenue Agency;
Company X means XXXXXXXXXX;
Domestic Units means the units on Fund 5, Fund 6 and Fund 7;
FMV means the Fair market value;
FMV of a unit of a particular Fund is equal to the net asset value of that Fund, divided by the total number of units issued by that particular Fund;
Foreign Units means the units on Fund 1, Fund 2, Fund 3 and Fund 4;
Fund 1 means XXXXXXXXXX;
Fund 2 means XXXXXXXXXX;
Fund 3 means XXXXXXXXXX;
Fund 4 means XXXXXXXXXX;
Fund 5 means XXXXXXXXXX;
Fund 6 means XXXXXXXXXX;
Fund 7 means XXXXXXXXXX;
Manager means XXXXXXXXXX;
RRSP means Registered Retirement Saving Plan;
Taxpayer means XXXXXXXXXX;
Trustee means XXXXXXXXXX;
Unit price of a particular fund means the FMV of a unit of that particular Fund;
Valuation Day means every day that the XXXXXXXXXX Stock Exchange is open for business.
Facts
1. The Taxpayer is an individual who is currently resident in Canada and has been resident in Canada at all times material to this advance income tax ruling request.
2. The Taxpayer is the annuitant of a particular trust governed by a RRSP within the meaning of subsection 146(1) of the Act.
3. The Trustee is the trustee of the RRSP.
4. The account number that the Trustee maintains for the RRSP is XXXXXXXXXX.
5. The Trustee is a corporation incorporated under the laws of Canada and is a resident of Canada.
6. The Trustee's business number with the CCRA is XXXXXXXXXX.
7. The Manager manages the RRSP as the agent of the Trustee, under an agency agreement dated XXXXXXXXXX.
8. At present, the RRSP holds the following assets:
(a) XXXXXXXXXX Class O units of the Fund 1;
(b) XXXXXXXXXX Class O units of the Fund 2;
(c) XXXXXXXXXX Class O units of the Fund 3;
(d) XXXXXXXXXX Class O units of the Fund 4;
(e) XXXXXXXXXX Class O units of the Fund 5;
(f) XXXXXXXXXX Class O units of the Fund 6;
(g) XXXXXXXXXX Class O units of the Fund 7.
The RRSP does not hold any other property.
9. Each of Fund 1, Fund 2, Fund 3, Fund 4, Fund 5, Fund 6 and Fund 7 (each a "Fund" and collectively "Funds") is managed by Company X.
10. Each of the Funds qualifies as a "mutual fund trust" within the meaning of subsection 132(6) of the Act.
11. Foreign Units that are held by the RRSP qualify as "foreign property" within the meaning of subsection 206(1) of the Act .
12. Domestic Units that are held by the RRSP do not qualify as "foreign property" within the meaning of subsection 206(1) of the Act .
13. In accordance with Part XI of the Act, the Trustee and the Manager monitor the assets of the RRSP so as to ensure that, as of the end of each calendar month, the cost amount of foreign property held by the RRSP (in this case the Foreign Units) does not exceed, among other, 30% of the cost amount of all property held by the RRSP (in this case the Foreign Units and the Domestic Units).
14. The cost amount (within the meaning under paragraph (b) of the definition of cost amount in subsection 248(1) of the Act) of the Foreign Units held by the RRSP is $XXXXXXXXXX. The aggregate cost amount of all Fund units (i.e. Domestic Units and Foreign Units) held by the RRSP is $XXXXXXXXXX. The cost amount of the Foreign Units currently represents XXXXXXXXXX % of the cost amount of all of the property held by the RRSP.
15. The trustee of each Fund once per day determines the net asset value of the fund for every Valuation Day. As a result, each Fund has no more than one Unit Price per Valuation Day.
16. The subscription price for each unit of a particular Fund is equal to the Unit Price for the Fund. Subscriptions received by the Fund's trustee on or before XXXXXXXXXX on a particular business day will be processed by the Fund's trustee using the Unit Price determined for that particular Valuation Day. Subscriptions received by the Fund's trustee after XXXXXXXXXX on a particular business day will be processed by the Fund's trustee using the Unit Price for the Fund on the next available Valuation Day. Subscriptions received by the Fund's trustee on a day that is not a business day will be processed by the Fund's trustee using the Unit Price for the Fund on the next available Valuation Day.
17. The redemption price for each unit of a particular Fund is equal to the Unit Price of the Fund. Redemptions received by the Fund's trustee on or before XXXXXXXXXX on a particular business day will be processed by the Fund's trustee using the Unit Price for the Fund determined for that particular Valuation Day. Redemptions received by the Fund's trustee after XXXXXXXXXX on a particular business day will be processed by the Fund's trustee using the Unit Price for the Fund for the next available Valuation Day. Redemptions received by the Fund's trustee on a day that is not a business day will be processed by the Fund's trustee using the Unit Price for the Fund for the next available Valuation Day.
18. As of XXXXXXXXXX, the aggregate FMV of the Foreign Units was $XXXXXXXXXX and the aggregate FMV of all of the Fund units held by the RRSP (i.e. Domestic Units and Foreign Units) was $XXXXXXXXXX.
Proposed Transactions
19. At the request of the Taxpayer, at a particular time ("Time 1") during a particular business day ("Day 1"), the Trustee will cause the RRSP to redeem all of its units of Fund 1. Time 1 will occur before XXXXXXXXXX on Day 1. In accordance with its rights under Fund 1's Declaration of Trust, the RRSP can require Fund 1 to redeem some or all of the Fund 1 units held by the RRSP at Time 1. In accordance with the terms of Fund 1's Declaration of Trust, the redemption price for each unit will be equal the Unit Price of the unit for the applicable Valuation Day. In accordance with Fund 1's Declaration of Trust, the applicable Valuation Day will be the same day in which Time 1 occurs.
20. As consideration for the redemption of its units, Fund 1 will become obligated to transfer to the RRSP, cash or property in an amount equal to the sum of the FMV of each unit redeemed ("Proceeds").
21. At a particular time after Time 1 that occurs during Day 1 ("Time 2"), at the request of the Taxpayer, the Trustee will cause the RRSP to subscribe to Fund 1 for the same number of units in Fund 1 that the RRSP held at the time immediately before Time 1. Time 2 will occur on or before XXXXXXXXXX. on Day 1. In accordance with Fund 1's Declaration of Trust, the subscription price for each Fund 1 unit will be equal to the Unit Price of the unit for the applicable Valuation Day. In accordance with Fund 1's Declaration of Trust, the applicable Valuation Day will be the same day in which Time 2 occurs.
22. The RRSP will complete an identical series of transactions (as described above) in respect of the units it holds immediately before Time 1 in each of Fund 2, Fund 3 and Fund 4.
Purpose of the Proposed Transactions
23. The purpose of the proposed transactions described in paragraphs 19 to 22 is to "rebalance" the proportion of foreign property holdings in the Taxpayer's RRSP. The rebalancing facilitated by the proposed transactions will be achieved by updating the proportion of the aggregate cost amount of the RRSP's property that qualifies as foreign property within the meaning of subsection 206(1) of the Act so that it reflects more recent market conditions.
24. To the best of your knowledge and that of the Trustee, none of the issues involved in this request for an advance income tax ruling is or has been:
(a) considered by a tax services office or taxation centre in connection with tax return already filed;
(b) under objection or appeal;
(c) before the courts and no judgment has been issued which may be under appeal; or
(d) the subject of a ruling previously issued by the Directorate, to Trustee or to a person related to Trustee.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and purpose of the proposed transactions, provided that the transactions are legally effective and provided that the transactions are completed as proposed, we rule as follows:
A. The redemption of the Foreign Units, as described in paragraph 19 above, will qualify as a disposition within the meaning of subsection 248(1) of the Act.
B. Subsections 40(3.3) and 40(3.4) of the Act will apply to deem that each RRSP's loss, which may be realised from the disposition of a Foreign Unit, is nil. Instead, such a loss will be deferred until the earliest of the events described in paragraph 40(3.4)(b) of the Act.
C. The loss, which may be realised from the disposition of a Foreign Unit, will not be a superficial loss and will not increase the adjusted cost base of the units acquired at Time 2, as described in paragraph 21 above.
D. The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and of themselves, to redetermine any of the tax consequences confirmed in these rulings.
These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5 dated may 17, 2002 issued by the Canada Customs and Revenue Agency, and are binding provided the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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