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:
1. What is the cost amount of the forward contract ?
2. Is Forward Contract C a foreign property ?
Position:
1. For the purposes of subsection 248(1) of the Act and section 5000 of the Regulations, the cost amount to a Fund of its investments in Forward Contracts which are substantially the same as the draft contract submitted will be equal to the brokerage fees, legal fees and other costs incurred by the Fund and incidental to entering into or acquiring the investment and will not include an amount in respect of the Forward Price or Final Price or the Settlement Amount the amount of any initial or variation margin deposit in respect of the Forward Contract.
2. A Forward Contract C described in the present letter entered into between the Fund and Counterparty C, and which is substantially similar to the draft Forward Contract C submitted will not be considered to be foreign property as defined in subsection 206(1) of the Act
Reasons:
2. The definition of foreign property in subsection 206(1) of the Act includes property which is exchangeable for, convertible to or confers a right to acquire foreign property. Since the Forward Contract C describes in the ruling is settled in Canadian dollars and does not entitle the Fund to units of the Underlying Fund, and the Contract would not otherwise be considered foreign property based on the situs of the contract and does not involve the indebtedness of a nonresident person, we can reasonably conclude that the Forward Contract C is not foreign property.
XXXXXXXXXX
XXXXXXXXXX 2000-001631
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sir/Madam:
Re: Supplementary Advance Income Tax Ruling Request:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your facsimile correspondence of XXXXXXXXXX in which you requested a supplementary advance income tax ruling on behalf of the above-noted taxpayers. Accordingly, this letter is supplemental to our advance income tax ruling number 2000-000526 dated XXXXXXXXXX, 2000 (the "Original Ruling").
All capitalized terms in this letter other than the following have the meaning specified in the Original Ruling.
"Average Forward Price" with respect to a Forward Contract C means, on any business day, an amount equal to the quotient obtained by dividing the Cumulative Forward Notional Amount on such day by the Cumulative Notional Units on such day;
"Counterparty C" means XXXXXXXXXX;
"Cumulative Forward Notional Amount" with respect to a Forward Contract C means, on any business day, an amount equal to the sum of all Forward Notional Amounts from the commencement of the Forward Contract C up to and including such day;
"Cumulative Notional Units" with respect to a Forward Contract C means, on any business day, the sum of all Notional Units from the commencement of the Forward Contract C up to and including such business day;
"Forward Contract C" has the meaning set out below in this letter;
"Forward Notional Amount" with respect to a Forward Contract C means on any business day an amount equal to the product obtained by multiplying the Notional Units on such day by the Forward Price on such day;
"Forward Price" with respect to a Forward Contract C means on any business day the amount per unit equal to the product obtained by multiplying (i) the net asset value per unit of the Underlying Fund on the preceding business day by (ii) 1 + (Rate + XXXXXXXXXX) x Term/365, where Term is the number of calendar days from and excluding that business day to and including the Maturity Date of the Forward Contract C, and Rate is a percentage rate agreed upon with Counterparty C from time to time;
"Maturity Date" with respect to a Forward Contract C means the date as of which either the Fund or Counterparty C pays the Settlement Amount to the other in respect of the Forward Contract C;
"Notional Units" with respect to a Forward Contract C means the number of units of the Underlying Fund with respect to which the Forward Contract C is entered into;
"Settlement Amount" with respect to a Forward Contract C means the amount obtained by multiplying (i) the number of Cumulative Notional Units on the Maturity Date by (ii) the closing net asset value per unit of the Underlying Fund on the business day preceding the Maturity Date minus the Average Forward Price on the Maturity Date.
All the facts and proposed transactions remain as outlined in the Original Ruling except for the following additional proposed transaction.
In addition to the Fund entering into forward contracts with Counterparty A and Counterparty B in the form of Forward Contract A and Forward Contract B, respectively, it is proposed that the Fund will also enter into Forward Contract C with Counterparty C, in the form of the draft documentation that was included in your submission.
Forward Contract C will relate to units of the Underlying Fund. Payments will be made under a Forward Contract C as of the Maturity Date. On any Maturity Date under a Forward Contract C, if the Settlement Amount is a positive amount, it will be payable by Counterparty C to the Fund, and if it is a negative amount, it will be payable by the Fund to Counterparty C.
A Forward Contract C will be settled only by cash payment. A Forward Contract C will be executed in Canada and will be governed by the laws of Canada. No Forward Contract C will be listed on any stock exchange or traded over-the-counter and no Forward Contract C will be convertible into, exchangeable for, or provide the Fund with any right to acquire property that is foreign property.
With respect to the above proposed transaction we confirm:
- that Ruling C given in the Original Ruling will apply in respect of Forward Contract C;
- our additional Ruling (after Ruling D given in the Original Ruling) which reads:
D.1 A Forward Contract C as described above entered into between the Fund and Counterparty C, and which is substantially similar to the draft Forward Contract C submitted will not be considered to be foreign property as defined in subsection 206(1).
- that the above-mentioned additional proposed transaction together with Ruling D.1 will not invalidate Rulings A to E given in the Original Ruling.
Yours truly,
XXXXXXXXXX
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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