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: Where an RRSP is entitled to hold additional foreign property because of the "3 for 1" bump allowed in respect of small business investment amounts under paragraph 206(2)(c) of the Act, does the bump cease to exist on the disposition of the small business property or does the bump phase out over a three month period?
Position: Bump is phased out over three month period.
Reasons: This is how the provision applies which is confirmed in the example provided by the Department of Finance in its Technical Notes issued in November of 1985.
XXXXXXXXXX 2000-005571
M. P. Sarazin
Attention: XXXXXXXXXX
December 7, 2000
Dear Sirs:
Re: Foreign Property Bump for Small Business Investment Amounts
This is in reply to your facsimile of November 8, 2000, which was forwarded to us by our Specialty Publications Section, requesting an interpretation regarding the application of paragraph 206(2)(c) of the Income Tax Act (the "Act").
You want to know whether the "3 for 1" bump in foreign property allowed under paragraph 206(2)(c) of the Act ceases to exist when the small business investment property is sold or whether the bump is phased out over three months.
In subsection 206(1) of the Act, the expression "small business investment amount" is defined basically as the average cost amount of the small business properties held by the taxpayer in the previous three months. When an investment ceases to be a small business property or it is sold by the taxpayer, it may reduce the foreign property limit of the taxpayer but its effect will be phased in over three months because of the three month averaging. Consequently, where a taxpayer holds only one small business property and it disposes of that property in a particular month, the taxpayer will continue to be entitled to a bump in the month that the small business property is disposed of and in the two subsequent months. We note that, in the two subsequent months, the bump is reduced as a result of the averaging of the three previous months small business investment amounts.
We trust that our comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c. Hilde Huus - Specialty Publications Section
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