23 October 2001 External T.I. 2001-0098565 - RRSP 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Are shares of a particular corporation that migrated from Canada foreign property?

2. If yes, is the cost amount of the shares determined at the time the shares were acquired or at the time they become foreign property?

Position:

1. It is a question of fact whether a share of a corporation is a foreign property, but in the particular case, the website of the corporation states its shares are foreign property.

2. The cost amount of a share held as a capital property is based on the ACB of the share, which is, in turn, based on the cost of the share when it was acquired.

Reasons:

1. Review of available facts. The particular corporation would have to confirm the basis of the published comments.

2. There are no provisions to adjust the cost amount when a share becomes a foreign property.

XXXXXXXXXX 2001-009856
W. C. Harding
October 23, 2001

Dear XXXXXXXXXX:

Re: Part XI tax on Excess Foreign Property held in Registered Plans

This is in reply to your letters of August 26 and September 16, 2001, in which you asked if the tax assessed under Part XI of the Income Tax Act (the "Act") on excess foreign property, should be based on the cost of shares of a corporation at the time the shares were acquired, or on the value of the shares when the corporation became a foreign corporation.

The Canada Customs and Revenue Agency (the "CCRA") 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. This bulletin 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 CCRA's views on this matter.

As indicated in the Bulletin, Part XI tax is based on the cost amount of the property held by a registered plan such as an RRSP or a RRIF. The term "cost amount" is defined in the Act and, in general, means the cost of the property for tax purposes at the time of the property's acquisition. 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. There is no provision that provides for the adjustment of the cost amount of shares held in a registered plan if the shares become foreign property after they were acquired by a registered plan. However, as explained in paragraphs 7 through 9 of the bulletin, relief from the tax may be available for a 24-month period after the shares become foreign property, or are exchanged for foreign property, if the conditions discussed in paragraph 8 of the bulletin are satisfied.

Your particular concern was with respect to shares of XXXXXXXXXX.

In its news release of XXXXXXXXXX advised that its shares would be foreign property for purposes of the calculation of the Part XI tax. Based on the information provided in the news releases, we would agree that the shares of XXXXXXXXXX are foreign property for the purposes of Part XI of the Act. On the other hand, while the continuation of the corporation in XXXXXXXXXX would not normally be sufficient to satisfy the tests for relief detailed in paragraph 8 of the bulletin, based on the information provided in the releases, we cannot determine whether that relief may be available. Ultimately, this may only be determined upon a complete review of all available information and you may wish to seek the opinion of counsel in this matter.

The Department of Finance has responsibility for tax policy and any amendments to the legislation while CCRA is responsible for administering the law in accordance with the policy prescribed by the Department of Finance. Accordingly, as the comments made in your letter of September 16, 2001 would have to be considered by that department, we will make our colleagues at the Department of Finance aware of your concerns.

We trust that these comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch