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.
Principle Issue: Whether shares of a mutual fund corporation ("MFC") are "specified foreign property" pursuant to subsection 233.3(1) because of the right to elect to surrender upon retraction the shares of the MFC for shares held by the MFC that are "specified foreign property"?
Position: The shares of the MFC are "specified foreign property".
Reasons: Subsection 233.3(1), the definition of "specified foreign property", subparagraph (i).
XXXXXXXXXX 2001-010484
Gilles L. Gosselin
November 7, 2001
Dear XXXXXXXXXX:
Re: Section 233.3 of the Income Tax Act (the "Act") - Foreign Property Reporting
We are writing in response to your letter dated October 5, 2001 wherein you request our opinion regarding foreign property reporting requirements in section 233.3 of the Act.
You have described a situation where a "mutual fund corporation" ("MFC") resident in Canada, as defined in subsection 131(8) of the Act, holds a portfolio of common shares, some of which you refer to as "capital shares", and all of which are shares of U.S. listed companies (the "Portfolio"). A holder of 10,000 or more capital shares of the MFC who surrenders upon retraction its 10,000 or more capital shares may elect to receive as a payout its pro-rata share of the Portfolio. The Portfolio is "specified foreign property" pursuant to subparagraph (c) of the definition in subsection 233.3(1) of the Act because the Portfolio is comprised entirely of shares of the capital stock of non-resident corporations.
You have asked for our opinion regarding whether a holder of 10,000 or more capital shares of the MFC must submit to the Minister Form T1135 pursuant to subsection 233.3(3) of the Act because the holder can elect upon a retraction of its shares of the MFC to surrender its shares and receive as a payout a pro-rata share of the Portfolio.
Generally, pursuant to subsection 233.3(3) of the Act, a "reporting entity" must file Form T1135 with the Minister before the entity's filing due date for the year and pursuant to subsection 233.3(1) of the Act a "reporting entity" is defined as a "specified Canadian entity" for the year where at any time in the year the total cost to the entity of "specified foreign property" exceeds $100,000. A "specified Canadian entity" is defined in subsection 233.3(1) as a taxpayer resident in Canada in the year other than, among other exceptions, a MFC, and a "specified foreign property" is also defined in subsection 233.3(1) of the Act, pursuant to subparagraphs (c) and (i), inter alia, as a share of the capital stock of a non-resident corporation or the right to exchange for or acquire such a share.
Accordingly, it is our view that the property (e.g. the shares of the MFC), the terms and conditions of which allow the holder to elect to receive a pro-rata share of the Portfolio upon retraction, is "specified foreign property" pursuant to subparagraph (i) of the definition. Subparagraph (h) would also seem to have application.
As a result, it is also our view that a holder of capital shares of the MFC that is a "specified Canadian entity" and that can elect upon the retraction of its shares to surrender its shares and receive as a payout its pro-rata share of the Portfolio, must file with the Minister Form T1135 by its filing due date for the year in which it acquired the shares of the MFC, if the total cost of all "specified foreign property" of the "specified Canadian entity" at any time in the year exceeds $100,000.
Please be aware that failure to file Form T1135 promptly pursuant to section 233.3 of the Act can result in the imposition of significant penalties under certain circumstances pursuant to the provisions of 162(7), (10), (10.1) or 163(2.4)(c) of the Act.
These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4 and we trust that they will be of assistance to you.
Yours truly,
for Director
International and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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