19 July 2001 External T.I. 2001-0089555 - PART XI TAX ON FOREIGN PROPERTY

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:

Is there any relief from Part XI tax where property decreases in value.

Position:

No.

Reasons:

The calculation of Part XI tax is based on the cost amount of the property held by an RRSP. A decrease in the Current value of the property will not affect the calculation. The Act does not provide any relief when the value of the property decreases.

XXXXXXXXXX 		2001-008955
W. C. Harding
July 19, 2001

Dear XXXXXXXXXX:

This is in reply to your correspondence of June 20, 2001, concerning a letter of June 1, 2001, written to XXXXXXXXXX

We regret that the confidentiality provisions of the Income Tax Act (the "Act") prevent us from discussing the tax affairs of a specific taxpayer without the appropriate authorization. However, we can provide you with the following general information.

The Act imposes a limit on how much foreign property can be held in a registered retirement savings plan ("RRSP") and applies a tax under Part XI of the Act to any excess foreign property held in the RRSP. In general, Part XI tax applies if, at the end of any month, the cost amount of foreign property exceeds 25% of the cost amount of all property held in the RRSP in 2000 and 30% of the cost amount of all property held in the RRSP for 2001 and subsequent years. The Canada Customs and Revenue Agency (the "Agency") has provided its general views regarding the application of Part XI of the Act in Interpretation Bulletin IT-412R2 entitled Foreign Property of Registered Plans which is available from any tax services office or on the internet at http://www.ccra-adrc.gc.ca/E/pub/tp/i412r2et/i412r2e.txt.html. Please note that IT-412R2 does not reflect the recent increases from 20% to 25% (for 2000) and from 25% to 30% (for 2001 and subsequent years) to the foreign property limits, but otherwise explains the Agency's views on this matter.

As stated above, Part XI tax is based on the cost amount of the property held by the RRSP. The term "cost amount" is defined in the Act and, in general, means the cost of the property for tax purposes. In most cases, shares held in an RRSP have a cost amount that is equal to the actual amount laid out to acquire the shares, plus any brokerage fees or any other costs incurred that were incidental to the acquisition of the shares.

Consequently, a change in the fair market value of any shares held in an RRSP will not affect the calculation of the taxes payable under Part XI of the Act. The liability remains based on the cost amount of the shares held in the RRSP even if there is a significant decrease in the fair market value of the shares held by the RRSP.

We note that the RRSP is liable for the taxes under Part XI of the Act and there is no provision that provides the RRSP with any relief from the tax. Where the RRSP does not pay its Part XI taxes, the trustee of the RRSP becomes personally liable for the full amount of the Part XI taxes owing by the RRSP and the trustee is entitled to recover the amount it pays from the RRSP.

We trust that this information will be of assistance to you.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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