29 January 2002 External T.I. 2001-0105795 - REGISTERED PLANS 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:

For purposes of calculating tax on excess foreign content pursuant to 206(2), should the cost amount of shares or units of a fund be recorded on the trade date, the settlement date or the transaction processing date?

Position:

Units and shares are considered to be acquired on the date the units and shares are delivered which is typically the settlement date.

Reasons:

The transaction should be recorded on the date when all of the attributes of ownership are acquired which normally occurs on the date the units or shares are delivered.

XXXXXXXXXX 2001-010579
W. C. Harding
January 29, 2002

Dear XXXXXXXXXX:

Re: Recording of Fund Unit Values

This is in reply to your facsimile of October 15, 2001 regarding the above-noted subject.

In your letter, you described the activities involved in the mutual fund industry, in the recording of the purchase and redemption of units, the receipt and reinvestment of dividends and the reversal of purchases when errors are made on the processing of orders. You indicated that these activities are generally initiated on certain dates identified as:

the "Trade Date" which is the date the investment product is priced or valued;

the "Settlement Date" which is the date the monies are received for settling the trade; and

the "Processing Date" which is the date the transacted units are applied to the account position.

You further indicated that the Processing Date may not be the same as either the Trade or Settlement Dates and that, in the case of reversals, the Processing Date may occur several months after the initial trade activity is recorded. You then noted that, where a number of transactions occur in an account, the order in which the transactions are processed may have an impact on the value of the units held in the account. Accordingly, you requested our clarification of when these transactions should be recorded.

Opinions concerning the proper method of recording transactions where they involve specific taxpayers may only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the CCRA"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. In addition, requests for opinions in respect of completed transactions, should be directed to your local Tax Services Office as they are responsible for resolving questions of fact. However, we can provide you with the following general comments. However, these are general in nature and may not apply in any particular situation.

Our comments:

We refer you to Interpretation Bulletin IT-133, dated November 30, 1973, entitled Stock Exchange Transactions - Date of Disposition of Share ("IT-133"). The comments provided in IT-133 continue to reflect the CCRA's position and are applicable to both shares of corporations and units of mutual funds that are traded on a stock exchange.

To summarize the comments in IT-133, units or shares are usually considered to have been disposed of, or acquired for income tax purposes, on the Settlement Date, which is the date designated by the exchange, on or before which the vendor is required to deliver the share certificates and the purchaser is required to make payment. The Settlement Date may not be the same as the "Settlement Date" referred to in your submission unless delivery of the shares as well as the payment for the shares is required to be made on that date by the relevant exchange. If a broker pays the vendor before the Settlement Date, this will only be considered an advance and the transaction will not generally be considered to be completed until the shares are delivered to the purchaser. Furthermore as noted in paragraph 6 of IT-133:

"In those cases where arrangements are made between vendor, purchaser and their brokers for a further delay prior to delivery and payment, the disposition and acquisition will be at a date subsequent to "settlement date", namely the date on which delivery and payment are effected."

Because the Settlement Date, or the date that the shares are delivered to the purchaser will generally be the date that a purchase, redemption or dividend reinvestment transaction is recognized for purposes of the Act, it is also the date that should be used for the purposes of recording these types of transactions. It will also be the date that any reversal of a purchase is recorded assuming a reversal is simply a correction of a recording error. However, because it appears that purchase reversals could involve a legal transfer of units or shares in some situations such that a new Settlement Date is involved, the recording of these should be considered on a case-by-case basis.

We trust our 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

??