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. Will the units of the Fund be foreign property?
2. Is an election under subsection 259(3) applicable to all unitholders of a qualified trust?
Position:
1. No, provided that the limit in paragraph 5000(1)(e) of the Regulations is not exceeded.
2. No.
Reasons:
1. The trust is a trust described in paragraph 5000(1)(c.2) of the Regulations.
2. Pursuant to the preamble in section 259(1) of the Act, an election under subsection 259(3) only applies to taxpayers described in section 205 of the Act.
XXXXXXXXXX 2002-012442
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX (the "Company") (Account # XXXXXXXXXX)
This is in reply to your letters dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the Company.
Unless otherwise noted, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Sup.), as amended (hereinafter referred to as the "Act"), or to the Income Tax Regulations ("Regulations").
Our understanding of the relevant facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Company is a Canadian resident corporation and a taxable Canadian corporation. The Company is an indirectly wholly-owned subsidiary of XXXXXXXXXX ("Parentco"). The Company acts as investment manager of a number of investment vehicles for pension funds.
2. The Master Trust is a trust that is prescribed to be and has elected to be a master trust within the meaning of paragraph 149(1)(o.4). The trustee of the Master Trust is the XXXXXXXXXX (the "Trustee").
3. The Trustee is a corporation that is resident in Canada within the meaning of the Act.
4. The Company is the investment manager of the Master Trust. The tax account number for the Master Trust is XXXXXXXXXX and the District Taxation Office for the Master Trust is XXXXXXXXXX.
5. The Master Trust is a unit trust described in paragraph 108(2)(a). The units of the Master Trust are held by the XXXXXXXXXX, the Parentco Pension Fund and other registered pension plans the participants in which are employees of one or more corporations in the Parentco group.
6. The Master Trust holds some property that is foreign property but the Master Trust restricts its holdings in foreign property to the 30% limit described in subsection 206(2).
7. The Master Trust's property includes units in the XXXXXXXXXX (the "Overseas Fund") and the XXXXXXXXXX (the "U.S. Fund") (collectively, the "Foreign Funds"). Each of the Foreign Funds is a unit trust described in paragraph 108(2)(a). The units of each of the Foreign Funds are foreign property pursuant to paragraph (i) of the definition of "foreign property" in subsection 206(1). The Trustee is the trustee of the Foreign Funds. The Company is the investment manager of the U.S. Fund and one of the investment managers of the Overseas Fund. The units of the Foreign Funds are not listed or traded on any stock exchange.
Proposed Transactions
8. The New Fund will be established as an investment trust fund and will be called the XXXXXXXXXX. The New Fund will be a unit trust within the meaning of paragraph 108(2)(a), resident in Canada. The only undertaking of the New Fund will be:
(i) the investing of its fund in property (other than real property or an interest in real property),
(ii) the acquiring, holding, maintaining, improving, leasing or managing of any real property (or interest in real property) that is capital property of the trust, or
(iii) any combination of the activities described in subparagraphs (i) and (ii).
9. The New Fund will issue only one series of one class of units and each unit issued by the New Fund will be identical to each other unit issued by the New Fund. The trustee of the New Fund will be the Trustee. The Company will be the investment manager of the New Fund.
10. Units in the New Fund will be acquired by the Master Trust. The amount paid by the Master Trust for its units in the New Fund will represent seed capital for the New Fund. The Master Trust will not make any further investment in the New Fund beyond providing this seed capital. It is anticipated that at some future time when this seed capital is no longer required to ensure the viability of the New Fund, the Master Trust may redeem its units in the New Fund.
11. Shortly after the establishment of the New Fund and from time to time thereafter, units in the New Fund will be acquired by an insurance corporation (the "Insurance Co"). The Insurance Co will be resident in Canada and will be a public company the shares of which are listed on a prescribed stock exchange or a wholly-owned subsidiary of such a company. The Insurance Co will hold its investment in the New Fund in a segregated fund (the "Segregated Fund") established in respect of the issuance by the Insurance Co of variable annuity contracts to several defined contribution pension plans (the "DC Pension Plans") each of which is a registered pension plan within the meaning of the Act. The participants in the DC Pension Plans are employees of one or more corporations in the Parentco group. The Insurance Co may also issue variable annuity contracts to group registered retirement savings plans (the "Group RRSPs") established for the benefit of employees of one or more corporations in the Parentco group and any such contracts will also be supported by the Segregated Fund.
12. Neither the Insurance Co nor the Segregated Fund is a taxpayer described in section 205. It is not intended that the Insurance Co nor the Segregated Fund will ever become a registered investment even if such registered status were to be made available to insurance company segregated funds under any future changes to the Act.
13. At this time, it is not anticipated that any persons other than the Master Trust and the Insurance Co (collectively, the "Investors") will acquire units in the New Fund.
14. Under the current Ontario securities laws, section 2.3 of Rule 45-501 issued under the Ontario Securities Act (the "OSA") provides that a prospectus is not required in connection with an issuance of securities to an "accredited investor". The term "accredited investor" is defined in Rule 45-501 to include, among other persons, financial institutions such as insurance corporations which would include the Insurance Co. This exemption will be relied upon in issuing units to the Insurance Co. Rule 32-503 issued under the OSA provides an exemption from the requirement to issue a prospectus with respect to the distribution of securities of a mutual fund to a capital accumulation plan such as the Master Trust. This exemption will be relied upon in issuing units to the Master Trust. These two exemptions which will be relied upon by the New Fund in issuing its units to the Insurance Co and the Master Trust do not require the New Fund to file an offering memorandum in order to lawfully distribute its units to these Investors. As a result, the New Fund can lawfully distribute units to the Insurance Co and to the Master Trust without filing a prospectus or an offering memorandum. Accordingly, the New Fund will not file any prospectus or offering memorandum and the sale of units in the New Fund to the Investors will be a lawful distribution of units to the Investors under the laws of Canada and all relevant provinces.
15. The Insurance Co will provide to the participants in the DC Pension Plans, and the Group RRSPs, if any, an information document relating to the Segregated Fund which will contain information about the New Fund pursuant to certain rules relating to segregated funds. This information document will not be required to be filed under the laws of any province and will not be filed with any securities regulator.
16. At all relevant times, the New Fund will be a "qualified trust" within the meaning of that term set out in subsection 259(5).
17. With respect to the units of the New Fund acquired and held by the Master Trust, the New Fund will file an election under subsection 259(1) which will be designated pursuant to subsection 259(3) to be effective immediately before the Master Trust acquires units in the New Fund. It is not anticipated that the New Fund will revoke the election with respect to any period of time during which the Master Trust holds units in the New Fund.
18. The New Fund will acquire a portfolio of investments including units in the Foreign Funds. At all relevant times, the New Fund will restrict the amount of foreign property acquired by it to the limit referred to in paragraph 5000(1)(e) of the Regulations.
Purpose of the Proposed Transactions
19. The New Fund is being established as an investment vehicle through which the funds of the DC Pension Plans may be invested. The Master Trust will acquire units in the New Fund in order to provide seed capital for the New Fund.
To the best of your knowledge and the knowledge of the taxpayers involved, none of the issues in this request for an advance income tax ruling is:
i. in an earlier return of any of the taxpayers or of a person related to any of the taxpayers;
ii. being considered by a tax services office or tax centre in connection with a previously-filed return of any of the taxpayers or of a person related to any of the taxpayers;
iii. under objection by any of the taxpayers or by a person related to any of the taxpayers;
iv. before the courts; nor
v. the subject of a ruling previously issued by the Income Tax Rulings Directorate to any of the taxpayers.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:
A. Provided that the Master Trust is a trust described under paragraph 149(1)(o.4) of the Act, subsection 259(1) of the Act will apply with respect to the Master Trust's units in the New Fund.
B. Provided that the cost amount of foreign property held by the New Fund does not exceed the limit referred to in paragraph 5000(1)(e) of the Regulations at any time during the relevant period for a particular month, pursuant to paragraph 5000(1)(c.2) of the Regulations, the units of the New Fund will not be foreign property within the meaning of the Act for the purposes of subsection 206(2) of the Act in respect of that particular month.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed prior to XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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