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:
Various general questions relating to conditions that have to be met in order to qualify as a pension corporation in paragraph 149(1)(o.2) of the Act?
Position: The conditions are clear.
Reasons:
No exceptions regarding requirements in Pension Benefits Standards Act, 1985 or a similar law of a province.
XXXXXXXXXX 982692
M. P. Sarazin
Attention: XXXXXXXXXX
April 19, 1999
Dear Sirs:
Re: Paragraph 149(1)(o.2) of the Income Tax Act (the “Act”)
This is in reply to your correspondence dated October 19, 1998, wherein you requested our views on issues relating permissible investments of a pension corporation described in subparagraphs 149(1)(o.2)(ii), (ii.1) or (iii) of the Act.
Question # 1
With respect to the application of clause 149(1)(o.2)(ii)(B) of the Act, is it only the investments in property, other than real property (or an interest therein), that are subject to restrictions imposed under the Pension Benefits Standards Act, 1985 or a similar law of a province (hereinafter collectively referred to as the “Pension Acts”)?
With respect to the application of clause 149(1)(o.2)(ii)(B) of the Act, it is only the investments in property, other than real property (or an interest therein), that are subject to restrictions imposed under the Pension Acts.
Question # 2
With respect to the application of subclause 149(1)(o.2)(ii.1)(B)(IV) of the Act, is it only the investments in property other than Canadian resource properties, or investments described in subclauses 149(1)(o.2)(ii.1)(B)(II) or (III), that are subject to restrictions imposed under the Pension Acts?
With respect to the application of subclause 149(1)(o.2)(ii.1)(B)(IV) of the Act, it is only the investments in property, other than Canadian resource properties, or investments described in subclauses 149(1)(o.2)(ii.1)(B)(II) or (III), that are subject to restrictions imposed under the Pension Acts.
Question # 3
Does the general reference to the Pension Acts in clauses 149(1)(o.2)(ii)(B) and 149(1)(o.2)(ii.1)(B) and subparagraph 149(1)(o.2)(iii) results in investments permitted under pension benefit legislation of any province satisfying the conditions therein?
The general reference to the Pension Acts in clauses 149(1)(o.2)(ii)(B) and 149(1)(o.2)(ii.1)(B) and subparagraph 149(1)(o.2)(iii) results in investments permitted under pension benefit legislation of any province satisfying the conditions therein.
Question # 4
All Pension Acts have a stated standard of careful or prudent investments by pension plans. Does the legislation referred to above apply in respect of any Pension Act or is it only the particular pension legislation that governs that particular plan that is only relevant? In addition, the Pension Acts require a written investment policy statement. Please confirm that a pension corporation is not required to prepare such a statement in respect of its own investments. Also confirm that the investments of a pension corporation are not restricted by the written investment policy statement.
Consistent with the comments to question 3 above, it is our view that if any pension plan is permitted to make an investment pursuant to any one of the Pension Acts, then that investment is a permissible investment for all pension corporations in respect of the above-named legislative references. No legislation in paragraph 149(1)(o.2) requires that a written investment policy is required for this purpose. The permissible investments are limited to those allowable under the Pension Acts.
Question # 5
Since sections 70, 71, 72, 73 and 74 of the PBA Regulations are intended to impose certain quantitative restrictions which are contrary to the specific purpose of paragraph 149(1)(o.2), can these sections of the PBA Regulations be ignored in determining whether one of the Pension Acts has been satisfied?
The general reference to the Pension Acts in clauses 149(1)(o.2)(ii)(B) and 149(1)(o.2)(ii.1)(B) and subparagraph 149(1)(o.2)(iii) requires that investments be permissible pursuant to a Pension Act to be so qualified in respect of these provisions. Thus, if investment restrictions are imposed by virtue of the Pension Acts, those restrictions would be equally applicable in the context of these provisions. However, other provisions in this legislation contain no similar Pension Act restrictions. For example, if a corporation wished to qualify as a pension corporation under subparagraph 149(1)(o.2)(ii) and 100% of its activities met the test in clause 149(1)(0.2)(A), then the test in subparagraph 149(1)(o.2)(ii) would, in our view, be met.
Question # 6
Will the provisions of clause 149(1)(o.2)(ii)(C) be satisfied where a corporation assumes a mortgage on real property or accepts a vendor take-back mortgage as part of the acquisition of income producing real property?
Whether money is borrowed solely for the purpose of earning income from real property or an interest therein is a question of fact. However, we are of the view that the condition in clause 149(1)(o.2)(ii)(C) would be satisfied as a result of the assumption of an existing mortgage or the acceptance of a vendor take-back mortgage when it relates to the acquisition of an income producing real property.
Question # 7
Does borrowed money have to be in the form of a mortgage to satisfy the provisions of clause 149(1)(o.2)(ii)(C) of the Act?
The provisions of clause 149(1)(o.2)(ii)(C) of the Act only refers to borrowed money and, as such, debts other than mortgages will also qualify where the purpose test has been satisfied.
We trust that our comments will be of assistance.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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