2003 Ruling 2002-0146153 - POOLED FUND TRUST

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:

Will the establishment of a pooled fund trust and the subsequent transfer of property from a master trust to the pooled fund trust with the master trust holding all of the units of the pooled fund trust, for the purpose of increasing the percentage of underlying foreign property, be abusive for purposes of subsection 245(2) of the Act?

Position: No

Reasons:

Paragraph 5000(1)(e) of the Act provides that where a taxpayer holds an interest in a pooled fund trust, the interest in the pooled fund trust shall not be considered foreign property of the taxpayer, where the cost amount of the pooled fund trust's foreign property does not exceed 30% of the cost amount of all property held by the pooled fund trust. We have previously ruled that GAAR will not apply to similar trust arrangements.

XXXXXXXXXX 							2002-014615

XXXXXXXXXX, 2003

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation")
XXXXXXXXXX

This letter is a reply to your letter dated XXXXXXXXXX, in which you requested an advance income tax ruling on behalf of the above-referenced Corporation. We acknowledge receipt of your letter dated XXXXXXXXXX and the documentation sent by facsimile on XXXXXXXXXX.

We understand that, to the best of your knowledge and that of the above-referenced taxpayer, none of the issues involved in the ruling request is:

(i) in an earlier return of the Corporation or a related person;

(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person;

(iii) under objection by the Corporation or a related person;

(iv) before the courts; nor,

(v) the subject of a ruling previously issued by the Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Definitions

For the purposes of this ruling, the following terms have the meanings specified:

(a) "CCRA" means the Canada Customs and Revenue Agency;

(b) "cost amount" means cost amount as defined in subsection 248(1) of the Act, and applicable for the purposes of subsection 206(2) of the Act and paragraph 5000(1)(e) of the Income Tax Regulations (the "Regulations");

(c) "foreign property" means foreign property as defined in subsection 206(1) of the Act, and applicable for the purposes of subsection 206(2) of the Act;

(d) "master trust" means a trust described in section 5001 of the Regulations; and,

(e) "pooled fund trust" means a pooled fund trust as defined in subsection 5000(7) of the Regulations.

The relevant facts, proposed transactions and the purpose of the proposed transactions are as follows:

Facts

1. The Corporation, an XXXXXXXXXX non-share capital corporation controlled by the XXXXXXXXXX (the "XXXXXXXXXX"), is responsible for the management of assets held in the pension plans identified in 4. below. The XXXXXXXXXX and certain of its subsidiaries and affiliates have adopted plans for the purposes of providing pension and other benefits to their eligible employees and beneficiaries.

2. The XXXXXXXXXX entered into an agreement with the XXXXXXXXXX (the "Prior Trustee") dated XXXXXXXXXX, for the purposes of establishing a master trust fund known as the XXXXXXXXXX (the "Master Trust").

3. The Prior Trustee was terminated as a trustee effective XXXXXXXXXX, and was replaced by XXXXXXXXXX (the "Trustee") as of that date. Also on that date, the Trustee and the XXXXXXXXXX agreed to amend and restate the agreement dated XXXXXXXXXX that established the Master Trust (the Amended and Restated Master Trust Agreement, or, the "Trust Agreement").

4. The XXXXXXXXXX continued the Master Trust for the purposes of facilitating the collective investment and administration of any portion of the assets of those plans that have been approved by the XXXXXXXXXX to participate in the Master Trust. The plans are as follows:

(i) XXXXXXXXXX; and

(ii) XXXXXXXXXX

5. The membership in both plans as of XXXXXXXXXX, was as follows:

XXXXXXXX only
XXXXXXXX only
Both plans
Active members
Retired
Terminated Vested
Suspended, exempt or pending status
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX
XXXXXXXXX

6. The approximate actuarial liability of the XXXXXXXXXX and the XXXXXXXXXX is $XXXXXXXXXX and $XXXXXXXXXX, respectively.

7. The Master Trust constitutes a master trust for the purposes of paragraph 149(1)(o.4) of the Act and subsection 5000(1.2) of the Regulations, as the Master Trust has elected to be such in accordance with paragraph 149(1)(o.4) of the Act and the Master Trust satisfies the requirements prescribed in section 5001 of the Regulations.

Proposed Transactions

8. A new trust (the "New Trust") shall be created with the same general terms and conditions as the Master Trust, but with the sole beneficiary being the Master Trust.

9. Subject to obtaining all requisite approvals, the Trustee will be appointed as trustee of the New Trust which will be used as a pooled investment vehicle for XXXXXXXXXX and XXXXXXXXXX, and which will qualify as a pooled fund trust.

10. Subject to the appropriate amendments to the Trust Agreement, the Trustee will transfer certain assets (the "Property") at fair market value from the Master Trust to the New Trust. In return, the New Trust will issue to the Master Trust identical units of beneficial interest in the New Trust. The fair market value of the units of beneficial interest will be equivalent to the fair market value of the Property transferred to the New Trust.

11. Subsequent to the transfer of the Property from the Master Trust to the New Trust:

(i) the cost amount of the Master Trust's interest in the New Trust plus the cost amount of any remaining non-foreign property held by the Master Trust shall not be less than 70% of the cost amount of all assets held by the Master Trust; and,

(ii) the cost amount of foreign property held by the New Trust shall not exceed 30% of the cost amount of all assets held by the New Trust.

12. After the units of the New Trust have been issued to the Master Trust, the New Trust may increase its foreign property content to the maximum permitted under the Act for pooled fund trusts.

13. From time to time after the establishment of the New Trust, the Master Trust may purchase additional units of the New Trust, and the New Trust may redeem units held by the Master Trust. The assets of the New Trust will be segregated from those of the Master Trust and the units of each will not be transferable or convertible into units of the other.

Purpose of the Proposed Transactions

14. The purpose of the proposed transactions is to segregate certain assets of the Master Trust, to enable suitable diversification of investments including the ability to increase the percentage of underlying foreign investments.

Rulings

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, and provided that the proposed transactions are as described above, we rule as follows:

A. In the case of the Property transferred to the New Trust, as described in 10. above, the cost amount of the Property to the New Trust will be equal to the fair market value of the Property upon its acquisition by the New Trust.

B. The cost amount of the units in the New Trust received by the Master Trust, as described in 10. above, will be equal to the fair market value of the Property at the time the Property is transferred by the Master Trust to the New Trust.

C. Paragraph 5000(1)(e) of the Regulations will apply such that the interest held by the Master Trust in the New Trust will not be foreign property for the purpose of computing the tax payable by the Master Trust in respect of any particular month, provided that the New Trust is a pooled fund trust and that at no time during the relevant period for the particular month does the cost amount to the New Trust of all foreign property held by it exceed 30% of the cost amount to it of all property held by it.

D. Provided that the Master Trust constitutes a master trust as described in paragraph 149(1)(o.4) of the Act and provided that no other property of the XXXXXXXXXX and the XXXXXXXXXX is foreign property, subsection 5000(1.2) of the Regulations will apply such that the interest of each of the XXXXXXXXXX and the XXXXXXXXXX in the Master Trust will not be foreign property to them.

E. As a result of the proposed transactions, in and by themselves, the Minister will not designate, pursuant to subsection 104(2) of the Act, the Trustee an individual whose property is the property of both the Master Trust and the New Trust and whose income is the income of both the Master Trust and the New Trust.

F. The provisions of subsection 245(2) of the Act will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences of the rulings provided herein.

Terms used in the above rulings have the meaning specified in the Definitions section of the ruling. 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 by XXXXXXXXXX.

Nothing in this ruling should be construed as implying that the CCRA has reviewed or is making a determination in respect of the fair market value of any property referred to herein.

Yours truly,

XXXXXXXXXX
Manager
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch