9 February 2006 External T.I. 2005-0118881E5 - Meaning of "commodities exchange"

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: Whether particular electricity exchanges can be considered "commodities exchanges" within the meaning of subsection 115.2(1).

Position: Based on the facts yes.

Reasons: In general, a commodity can include anything that is bought and sold.

XXXXXXXXXX 							2005-011888
J. Gibbons, CGA
February 9, 2006

Dear XXXXXXXXXX:

Re: Section 115.2 - Meaning of "Commodities Exchange"

This is in reply to your letter in which you enquired about the meaning of "commodities exchange" as used in the definition of "qualified investment" in subsection 115.2(1) of the Income Tax Act (the "Act"). More specifically, you wish to know whether the XXXXXXXXXX ("Exchange 1") and the XXXXXXXXXX ("Exchange 2") can be considered "commodities exchanges" for purposes of this subsection .

In your letter, you indicated that XXXXXXXXXX limited partnership (the "Limited Partnership"), having as a general partner a corporation resident in XXXXXXXXXX, will be buying and selling electricity on Exchange 1 and Exchange 2 (the "Exchanges"). Since a Canadian corporation will provide investment services to the Limited Partnership, you wish to rely on subsection 115.2(2) to ensure that the Limited Partnership will not be considered to be carrying on business in Canada at any particular time solely because of receiving such investment services.

Our understanding of the facts are as follows:

Exchange 1:

• XXXXXXXXXX;
• XXXXXXXXXX;
• XXXXXXXXXX; and
• XXXXXXXXXX.

XXXXXXXXXX

Exchange 2:

• XXXXXXXXXX;
• XXXXXXXXXX; and
• XXXXXXXXXX.

XXXXXXXXXX

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and the subject matter of a request for an advanced income tax ruling submitted in the manner set out in Information Circular 70-6R5. Nonetheless, we have provided some general comments below, which we hope will be of some assistance to you.

In general terms, subsection 115.2(2) of the Act provides that, for purposes of subsection 115(1) and Part XIV of the Act, a non-resident person is not considered to be carrying on business in Canada at any particular time solely because of the provision to the person, or to a partnership of which the person is a member, at the particular time of "designated investment services" by a Canadian service provider. In the case where the non-resident person is a member of a partnership, one of the conditions in subparagraph 115.2(2)(c)(i) or (ii) must also be satisfied. The definition of "designated financial services" in subsection 115.2(1) includes investment management and advice with respect to "qualified investments," which, pursuant to paragraph (d) of the definition of this latter term in subsection 115.2(1) of the Act, includes "commodities or commodities futures purchased or sold, directly or indirectly, in any manner whatever, on a commodities or commodities futures exchange."

Based on the facts provided and our view that electricity can be considered a commodity, it is our opinion that both Exchange 1 and Exchange 2 can be considered commodities exchanges for purpose of the definition of "qualified investment" in subsection 115.2(1) of the Act.

We trust that these comments will be of assistance.

Yours truly,

Olli Laurikainen
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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