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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:Can a Registered Investment or pooled fund trust increase its foreign holdings under 206(2).
Position TAKEN:General explanation of provisions provided.
Reasons FOR POSITION:Routine clarification of the law.
XXXXXXXXXX 5-942168
Attention: XXXXXXXXXX
September 13, 1994
Dear Sirs:
Re: Part XI Tax in Respect of Property held by Deferred Income Plans
This is in reply to your letter of August 23, 1994, in which you requested our opinion on the application of Section 206(2) of the Income Tax Act (the "Act") in a situation where a registered investment that holds a "small business property" is in turn held by a deferred income plan described in paragraph 205(a) of the Act.
Subsection 206(2) of the Act applies taxes on certain taxpayers (described in section 205 of the Act) that hold foreign property in excess of their foreign content limit. Among others, the subsection applies to any trust or corporation that is a Registered Investment (an "RI").
In general, subsection 206(2) of the Act provides that a tax is payable on the cost amount of all foreign property held by the taxpayer to the extent the cost amount of its foreign property exceeds the taxpayer's foreign property limit in a month. The foreign property limit is generally 20% of the cost amount of all property held by the taxpayer. Although certain taxpayers may increase this limit by holding property defined in the Act as "small business property", as noted by you, an RI can not increase its foreign content limit in this manner.
A Registered Investment is defined in section 204.4(1) of the Act and, in general terms, means a trust or corporation that has applied to be, and has been accepted as, a registered investment for any RRSP, RRIF or DPSP. An RI can be held as an investment by other taxpayers such as registered pension plans but can not be registered in respect of such plans. Nevertheless if an investment is registered it is a registered investment for all purposes of the Act.
An RI is not a foreign property of a taxpayer in accordance with the provisions of paragraphs (e) and (i) of the definition of foreign property in section 206(1) of the Act. However, a registered investment might be a "small business property" as defined in subsection 206(1) of the Act if it is also a small business investment corporation or a small business investment trust. Accordingly, an RPP, RRSP, DPSP or RRIF that holds a registered investment might be able to increase its foreign property limit in respect of it under paragraph 206(2)(c) if the RI also meets one of these definitions. This would be a question of fact that would have to be determined on a case by case basis.
When a taxpayer to which paragraph 206(2)(c) applies holds an interest in a "qualifying trust" and the trust makes an election in accordance with section 259(2) of the Act, the taxpayer is considered to own a proportional interest in each property held by the electing trust for the purposes of section 206(2) of the Act. If a taxpayer is also a "prescribed person", as defined in subsection 5100(4) of the Income Tax Regulations in respect of the proportional holding, the holding may also be a small business property for the purposes of paragraph 206(2)(c). However, a trust can not make an election under 259(2) of the Act if it is a registered investment or a small business investment trust since these are both excluded from the definition of a "qualifying trust" as defined in subsection 259(3).
The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Department.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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