23 May 2002 External T.I. 2002-0137125 - FOREIGN PROP COST AMOUNT RESOURCE PROP

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:

Even though the CCRA has concluded that the "cost amount" of a Canadian resource property is nil, could we ignore this position in the determination of whether units of a mutual fund trust would constitute foreign property?

Position: No.

Reasons:

The determination of whether the units of a mutual fund trust would constitute foreign property depends on whether the cost amount of its foreign property exceeds 30% of the cost amount of all of its property. Without a legislative change, we can not justify using a cost amount of nil for several provisions of the Act and using another cost amount for the purposes of subsection 5000(1) of the Regulations. Our response will be copied to Finance for its consideration from a policy perspective.

XXXXXXXXXX 2002-013712
M. P. Sarazin, CA
May 23, 2002

Dear XXXXXXXXXX:

Re: Foreign Property and Cost Amount of Canadian Resource Property

This is in reply to your letter of April 18, 2002, requesting the Canada Customs and Revenue Agency ("CCRA") take an administrative position that the cost amount of Canadian resource property for the purposes of determining whether property is "foreign property", within the meaning of subsection 206(1) of the Income Tax Act (the "Act"), be an amount other than nil.

You have noted that, under CCRA's current assessing policies, the cost amount of Canadian resource property is considered to be nil for purposes of the Act. Where almost all of a mutual fund trust's holdings are Canadian resource properties and the balance of the property is foreign property, the units of the mutual fund trust will be foreign property for purposes of Part XI of the Act under subsection 5000(1) of the Income Tax Regulations (the "Regulations"). You are of the view that shares of a mutual fund trust that holds primarily Canadian resource properties should not be considered foreign property and you ask whether a different cost amount for Canadian resource properties can be used in applying subsection 5000(1) of the Regulations.

Comments

Unless a specific provision of the Act or Regulations provides for the use of a different cost amount for a property, we would use the same cost amount in applying all of the provisions of the Act and Regulations. We have no legal basis for using a different cost amount and, based on the current legislation, we could not support the use of a different cost amount. We note that a mutual fund trust in the above-noted situation could avoid foreign property issues by disposing of its nominal foreign property holdings, thereby qualifying for the exclusion under subsection 5000(1) of the Regulations. However, since your question deals with a question on tax policy, we will forward a copy your letter and our response to the Department of Finance for its consideration of the issues that you have raised.

We trust that the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

c.c. Dave Wurtele
Department of Finance