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:
What is the appropriate method to be used in determining the adjusted cost base of a foreign mutual fund units acquired at different times?
Position:
Average cost method where the cost of each acquisition is computed at that time in terms of its Canadian dollar equivalent.
Reasons:
Section 47 of the Act and current positions.
XXXXXXXXXX 2002-011894
Fouad Daaboul
March 4, 2002
Dear XXXXXXXXXX:
Re: Foreign Mutual Fund ACB's
This is in reply to your letter of January 9, 2002, wherein you requested our comments on the above-mentioned subject.
Question
What is the appropriate method to be used in determining the adjusted cost base of foreign mutual fund units to a taxpayer who, after making the initial investment, acquires additional units and disposes of units from time to time?
As mentioned in Paragraph 9 of Interpretation Bulletin IT-285R2, when a property is acquired using foreign currency, the cost of the property to the taxpayer is recorded at that time in terms of its Canadian dollar equivalent. If the foreign currency which the taxpayer used to carry out the transaction was purchased at a time when the exchange rate was different, there would be a gain or loss on the foreign exchange at the date of purchase of the property.
The expression "adjusted cost base" is defined in section 54 of the Income Tax Act (the Act). The adjusted cost base of a capital property is generally equal to the amount laid out to acquire the property plus any brokerage fees or other costs that are incidental to its acquisition and it may include adjustments in accordance with section 53 of the Act.
Where identical units of a particular mutual fund are acquired at different times, the identical properties provisions of section 47 of the Act apply in determining the adjusted cost base of a particular unit. Consequently, when a unitholder acquires new units that are identical to units already held, the cost of the new units and the old units are aggregated and divided by the total number of all of the identical units to arrive at a new adjusted cost base for each of the identical units held by the unitholder. Changes in the market value of units of a mutual fund will not affect the calculation of each unit's adjusted cost base. Where income of a mutual fund is distributed in the form of additional units of the mutual fund, the receipt of the additional units of the mutual fund will affect the adjusted cost base of the units of the particular mutual fund held by a unitholder as a result of the application of the identical properties rules in section 47 of the Act as discussed above. Interpretation Bulletin IT-387R2 provides the Canada Customs and Revenue Agency's general views regarding identical properties.
We trust our comments will be of assistance.
Yours truly,
Alain Godin
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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