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.
Principal Issues: Will the distribution of units of a quasi-mutual fund trust to two RPP trusts be a lawful distribution of units to the public for purposes of subparagraph 5000(1)(c.2)(ii) of the Act?
Position: Question of fact. In this particular instance yes.
Reasons: Previous positions taken in 2002-0124423 and 2004-0094841.
XXXXXXXXXX 2004-010580
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company")
We acknowledge receipt of your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced Company. We also acknowledge receipt of XXXXXXXXXX letter dated XXXXXXXXXX and the information provided in various telephone conversations (XXXXXXXXXX).
The rulings requested by the Company relate to the funding medium of the registered pension plans established by the Company for its employees and affect the following taxpayers (collectively, the "Taxpayers"):
? the trust governed by XXXXXXXXXX (the "Salaried Plan Trust" and the "Salaried Plan", respectively),
? the trust governed by XXXXXXXXXX (the "Hourly Plan Trust" and the "Hourly Plan", respectively),
? a unitized Canadian trust (the "Salaried Foreign Trust") - XXXXXXXXXX, the assets of which are all or substantially all foreign property as defined in subsection 206(1) of the Income Tax Act ("Foreign Property") and the units of which are presently held by the Salaried Plan Trust,
? a unitized Canadian trust (the "Salaried Domestic Trust") - XXXXXXXXXX, the assets of which are primarily not Foreign Property and the units of which are presently held by the Salaried Plan Trust,
? a unitized Canadian trust (the "Hourly Foreign Trust") - XXXXXXXXXX, the assets of which are all or substantially all Foreign Property and the units of which are presently held by the Hourly Plan Trust, and
? a unitized Canadian trust (the "Hourly Domestic Trust") - XXXXXXXXXX, the assets of which are primarily not Foreign Property and the units of which are presently held by the Hourly Plan Trust.
We understand that, to the best of your knowledge and that of the above-referenced Company and Taxpayers, none of the issues involved in the ruling request is:
i) in an earlier return of a Taxpayer or a related person;
ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of a Taxpayer or a related person;
iii) under objection by the Company, a Taxpayer or a related person;
iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired; or
v) the subject of a ruling previously issued to the Company, a Taxpayer or a related person, other than rulings XXXXXXXXXX, issued by this Directorate.
In this ruling, the "Act" means the Income Tax Act, RSC 1985 (5th Supp.) c. 1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows.
Facts
1) The Salaried Plan is a registered pension plan (Registration number XXXXXXXXXX) within the meaning of subsection 248(1) of the Act. The Company and related corporations participate in the Salaried Plan (collectively, the "Participating Employers"). The Salaried Plan covers the eligible salaried employees of the Participating Employers.
2) The Hourly Plan is a registered pension plan (Registration number XXXXXXXXXX) within the meaning of subsection 248(1) of the Act and covers the eligible hourly employees of the Participating Employers.
3) XXXXXXXXXX ("TrustCo"), a Canadian resident company licensed to carry on business in Canada as a trust company, is the trustee of the Salaried Plan Trust, the Hourly Plan Trust, the Salaried Foreign Trust, the Salaried Domestic Trust, the Hourly Foreign Trust and the Hourly Domestic Trust. The 4 unitized trusts were established pursuant to advance tax ruling XXXXXXXXXX.
4) The beneficial interests in each of the Salaried Foreign Trust, the Salaried Domestic Trust, the Hourly Foreign Trust and the Hourly Domestic Trust (collectively, the "Unitized Trusts") are described with reference to units. The unitized trusts are unit trusts referred to in paragraph 108(2)(a) of the Act.
5) The Salaried Plan Trust owns all the units in the Salaried Foreign Trust and the Salaried Domestic Trust. The units in the Salaried Foreign Trust are Foreign Property of the Salaried Plan Trust, and at all relevant times the cost amount of Foreign Property held by the Salaried Plan Trust has been less than the Foreign Property limit, from time to time, under the Act. The Salaried Domestic Trust is a "pooled fund trust" within the meaning assigned by subsection 5000(7) of the Income Tax Regulations (the "Regulations"), and the cost amount of its Foreign Property has at all relevant times been less than the Foreign Property limit, from time to time, under the Act. As a result, its units are not Foreign Property of the Salaried Plan Trust. The Salaried Domestic Trust commenced investing in Foreign Property following receipt of advance income tax ruling XXXXXXXXXX .
6) The Hourly Plan Trust owns all the units in the Hourly Foreign Trust and the Hourly Domestic Trust. The units in the Hourly Foreign Trust are Foreign Property of the Hourly Plan Trust, and at all relevant times the cost amount of Foreign Property held by the Hourly Plan Trust has been less than the Foreign Property limit, from time to time, under the Act. The Hourly Domestic Trust is a "pooled fund trust" within the meaning assigned by subsection 5000(7) of the Regulations and the cost amount of its Foreign Property has at all relevant times been less than the Foreign Property limit, from time to time, under the Act. As a result, its units are not Foreign Property of the Hourly Plan Trust. As in the case of the Salaried Domestic Trust, the Hourly Domestic Trust commenced investing in Foreign Property following receipt of advance income tax ruling XXXXXXXXXX.
7) No election has been filed by any of the Unitized Trusts under paragraph 149(1)(o.4) of the Act.
8) XXXXXXXXXX.
Proposed Transactions
9) Upon receipt of a favourable advance income tax ruling, the Company and TrustCo will agree on an appropriate date (the "Effective Date") to implement the following transactions, all of which will occur in the following order, on the Effective Date.
10) The Salaried Foreign Trust will redeem all of its units held by the Salaried Plan Trust, at fair market value, by delivery of a combination of cash and assets of the Salaried Foreign Trust (collectively, the "Foreign Salaried Assets").
11) Immediately following the transaction described in 10 above, and pursuant to a direction issued by the Salaried Plan Trust, all of the Foreign Salaried Assets will be transferred to the Hourly Foreign Trust for newly-issued units in the Hourly Foreign Trust at the assets' fair market value. The number of newly-issued units issued to the Salaried Plan Trust will be equal to that fair market value divided by the fair market value per unit (i.e., the Net Asset Value Per Unit, as defined in the XXXXXXXXXX) of the Hourly Foreign Trust immediately before the transfer.
12) The Salaried Domestic Trust will redeem all of its units held by the Salaried Plan Trust, at fair market value, by delivery of a combination of cash and assets of the Salaried Domestic Trust (collectively, the "Domestic Salaried Assets").
13) Immediately following the transaction described in 12 above, and pursuant to a direction issued by the Salaried Plan Trust, the Domestic Salaried Assets will be transferred to the Hourly Domestic Trust for newly-issued units in the Hourly Domestic Trust at the assets' fair market value. The number of newly-issued units issued to the Salaried Plan Trust will be equal to that fair market value divided by the fair market value per unit (i.e., the Net Asset Value Per Unit, as defined in the XXXXXXXXXX) of the Hourly Domestic Trust immediately before the transfer.
14) Following the above transactions, the Salaried Foreign Trust and the Salaried Domestic Trust will be terminated in accordance with the terms of their respective trust agreements. The Hourly Foreign Trust and the Hourly Domestic Trust will be the sole unitized trusts used for investment by both the Salaried Plan Trust and the Hourly Plan Trust.
Purpose of the Proposed Transactions
15) The purpose of the proposed transactions is to simplify administration and reduce administrative costs by operating two unitized investment trusts instead of four. While the transfer of the assets from the Salaried Plan Trust to the Hourly Domestic Trust will occur at fair market value and will have an impact on the carrying value of the foreign property assets for purposes of determining the Hourly Domestic Trust's foreign property limit, there is no intention to utilize the Proposed Transactions as a means of manipulating the cost amount of property to impact the Hourly Domestic Trust's foreign property limit. Further, as at XXXXXXXXXX the cost amount of the foreign property held by the Hourly Domestic Trust was approximately XXXXXXXXXX% of the cost amount of the total amount of property held by the Hourly Domestic Trust.
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. By reason of subparagraph 107.4(3)(a)(ii) of the Act, no gain or loss will be realized by the Salaried Foreign Trust or the Salaried Domestic Trust as a result of the transfer, in and of itself, of the Foreign Salaried Assets or the Domestic Salaried Assets on the redemptions described in 10 and 12 above.
B. The Hourly Foreign Trust and the Hourly Domestic Trust will acquire the property distributed to them from the Salaried Plan Trust, as described in 11 and 13 above, respectively, at a cost equal to the fair market value of the property distributed. For the purposes of Part XI of the Act, the cost amount of the units of the Hourly Foreign Trust and the Hourly Domestic Trust issued to the Salaried Plan Trust will equal the fair market value of the property distributed to the Hourly Foreign Trust and the Hourly Domestic Trust to acquire those units.
C. Provided that the Hourly Domestic Trust complies with paragraph 5000(1)(e) of the Regulations, units in the Hourly Domestic Trust will not be Foreign Property if the Hourly Domestic Trust is a "pooled fund trust" as defined in subsection 5000(7) of the Regulations or a quasi-mutual fund trust described in paragraph 5000(1)(c.2) of the Regulations.
D. Provided the Hourly Domestic Trust's only undertaking is as described in paragraph 132(6)(b) of the Act, it will be a quasi-mutual fund trust described in paragraph 5000(1)(c.2) of the Regulations.
E. 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.
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 Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
Nothing in this ruling should be construed as implying that the Canada Revenue Agency has agreed to or reviewed:
(a) the determination of the fair market value of any property described herein; or
(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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