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: What is the cost amount for Part XI tax (foreign property limits)
Position: Definition of cost amount and ACB as per the ITA and general comments.
Reasons: ITA
XXXXXXXXXX 2000-000456
M.P. Baldwin
March 29, 2000
Dear XXXXXXXXXX:
Re: Foreign property of a Registered Retirement Savings Plan ("RRSP")
This is in reply to your facsimile of January 26, 2000, requesting a technical interpretation on the definition of "cost amount" for purposes of determining the foreign property content in your RRSP.
The Income Tax Act (Canada) (the "Act") imposes a limit on how much foreign property can be held in an RRSP and applies a tax (Part XI tax) to any excess foreign property held in your RRSP. Part XI tax applies if, at the end of any month, the amount of foreign property exceeds a specified limit. The limit is generally 20% of the "cost amount" of all property held in the RRSP but can be greater if certain types of property, referred to as "small business property", are held in the plan.
The federal budget of February 28, 2000, announced that the foreign property investment limit applicable to certain deferred income plans, including an RRSP, would be increased to 25% for the year 2000 and to 30% for the year 2001 and future years. The proposed increase to the foreign property limit for the year 2000 is retroactive to January 1, 2000.
As stated in paragraph 1 of Interpretation Bulletin IT-412R2, Foreign Property of Registered Plans "cost amount" is defined in the Act. Generally, cost amount means a property's cost for tax purposes at a particular time. While there are some exceptions, in most cases property held in an RRSP is capital property and its cost amount is defined as its "adjusted cost base" to the RRSP at that time. For the purpose of the following discussion, all such capital property is presumed to be a qualified investment for an RRSP.
The term "adjusted cost base"("ACB"), is defined in the Act and can change over time . Initially, the ACB of a capital property is generally equal to the actual amount laid out to acquire the property plus any brokerage fees or other costs incurred which are incidental to the acquisition.
Earnings on a particular property held in an RRSP that are in turn reinvested will increase the aggregate cost amount of property held by an RRSP. Where income of a mutual fund is distributed in the form of additional units of the mutual fund, the receipt of these additional units will generally affect the cost amount of the units of the particular mutual fund held by an RRSP. In particular, where units of a mutual fund are acquired at different times, in accordance with section 47 of the Act, the costs of the new units and old units are aggregated and divided by the number of all units to arrive at a new ACB for each unit of that particular mutual fund held in the RRSP.
Similarly, gains or losses on the disposition of a particular property held in an RRSP that are in turn reinvested will increase or decrease the aggregate cost amount of property held by an RRSP. The cost amount of the property sold will be eliminated and the cost amount of the new property will be added.
Part XI tax payable by an RRSP on excess foreign property holdings is calculated on the basis of the cost amount of the RSP trust's property at the end of each month. Accordingly, a fluctuation in the fair market value of an investment property held by the RRSP will not by itself cause the Part XI tax to be exigible.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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