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: Is a RRIF Trust that engages in securities lending practice for a fee considered to be carrying on a business?
Position: Carrying on a business is a question of fact and if the RIFF was found to be carrying on a business, the RRIF would be liable for tax on its taxable income for any year in which it is carrying on a business.
Reasons: The law is clear if a RRIF is carrying on a business.
2006-021311
XXXXXXXXXX Bruce Hartt
(613) 946-3558
January 31, 2007
Dear XXXXXXXXXX:
Re: Registered Retirement Income Fund and Securities Lending Practice.
We are writing in response to your electronic message of November 3, 2006 regarding the above-noted subject. In your message, you requested our comments on whether or not a trust governed by a registered retirement income fund ("RRIF") that engages in a securities lending practice, for a fee, would be considered to be carrying on a business under paragraph 146.3(3)(c) of the Income Tax Act (the "Act").
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.
Subsection 146.3(3) of the Act generally exempts a RRIF trust from paying tax under Part I of the Act. However, this exemption does not extend to income from a RRIF trust that is carrying on a business. Pursuant to paragraph 146.3(3)(c) of the Act, a RRIF trust will be liable for tax on its taxable income for any year in which it carried on any business or businesses. For income tax purposes, business is defined, in part, as including a profession, calling, trade, manufacture or undertaking of any kind whatever but does not include an office or employment. It is our general view that any undertaking or activity of a taxpayer that is carried on for profit or with a reasonable expectation of profit would be viewed as carrying on a business.
The determination of whether a RRIF trust would be considered to be carrying on a business is a question of fact that can only be determined after an examination of all the relevant information. However, from the limited information contained in your electronic message, it would appear that a RRIF trust that engages in a securities lending practice for a fee would likely be considered to be carrying on a business.
We trust our comments will be of assistance to you.
Yours truly,
Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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