14 August 2003 External T.I. 2003-0020305 - Cumulative Foreign Resource Expense

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) Is the deemed cost of a foreign resource property included as a foreign resource expense in the determination of a taxpayer's cumulative foreign resource expense at any particular time?

2) Is the cost of the foreign resource property determined pursuant to 128.1(1)?

Position:

1) The deemed cost under paragraph 128.1(1)(c) of the Act of a foreign resource property can not be included as a foreign resource expense in the determination of a taxpayer's cumulative foreign resource expense at any particular time.

2) The deemed cost of the foreign resource property is calculated pursuant to 128.1(1)(c).

Reasons: Specific wording in the calculation of CFRE variable "A".

XXXXXXXXXX 2003-002030

Luisa A. Majerus, C.A.

August 14, 2003

Dear XXXXXXXXXX:

Re: Cumulative Foreign Resource Expenses ("CFRE")

We are writing in response to your letter dated May 23, 2003 requesting our views regarding the calculation of a taxpayer's CFRE as defined in subsection 66.21(1) of the Income Tax Act (the "Act"). Specifically, you have asked us to confirm if an interest in foreign resource property ("FRP"), within the meaning assigned by subsection 66(15) of the Act, is included in CFRE at the time an individual becomes a resident of Canada in a taxation year.

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for its views. However, we are prepared to offer the following general comments, which may be of assistance.

An individual immigrating to Canada will, immediately prior to the date of immigration, be deemed to have disposed of each FRP owned by him for proceeds equal to its fair market value at that particular time pursuant to paragraph 128.1(1)(b) of the Act. The individual will also be deemed to have acquired each FRP, on the date of immigration, at a cost equal to the proceeds of disposition (as computed under paragraph 128.1(1)(b)) of the particular property pursuant to paragraph 128.1(1)(c) of the Act.

A foreign resource expense ("FRE") is defined in subsection 66.21(1) of the Act and includes the cost to a taxpayer of any of the taxpayer's FRP in respect of a country other than Canada. In our view, FRE includes the deemed cost, pursuant to paragraph 128.1(1)(c) of the Act, of any FRP held by an individual when he or she immigrates to Canada.

A taxpayer's CFRE at any particular time is computed by the formula (A+B+C+D)-(E+F+G+H+I+J) found in the definition of CFRE in subsection 66.21(1) of the Act.

Variable A in the formula is defined as:

the total of all FREs, in respect of a specific country, made or incurred by the taxpayer

(a) before the particular time, and

(b) at a time

i. at which the taxpayer was resident in Canada and,

ii. where the taxpayer became resident in Canada before the particular time, that is after the last time (before the particular time) that the taxpayer became resident in Canada;

In calculating a taxpayer's CFRE at any time, any FREs that were made or incurred prior to the particular time that is after the last time that the taxpayer became resident in Canada will be included in the computation of the variable A at that time. However, the cost of FREs (actual or deemed) that were made or acquired prior to the last time the taxpayer became resident in Canada will not be included in the computation of the variable A in the determination of an taxpayer's CFRE at that particular time.

We trust these comments will be of assistance.

Yours truly,

For Director
Resources and Reorganizations Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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