Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] What are the "proceeds of disposition or payment" to be reported on the T5008 form in respect of a particular 10-year Government of Canada bond futures contract listed on the Montreal Exchange ("CGB")?
Position: The "proceeds of disposition or payment" to be reported on the T5008 slip is the amount of the gain or loss (negative amount) realized on closing the position in the particular contract.
Reasons: The Regulation and Guide RC4268.
XXXXXXXXXX 2009-031921
Guy Goulet, CA, M.Fisc.
613-957-4364
July 2, 2009
Dear Sir,
Subject: T5008 and Futures contract
This is in response to your email of April 23, 2009 requesting that we confirm the amount to be reported on the T5008 Statement of Securities Transactions for trading in the 10-year Government of Canada bond futures contract (the "CGB").
You informed us that a CGB contract is an agreement traded on the Montreal Exchange that obligates the two contracting parties to buy or sell $100,000 in bonds at a future date, but at a price known in advance. A futures contract is established between two distinct parties: the seller (the "short") and the buyer (the "long"). Once a position is established in a futures contract, there are two choices. On the one hand, the position can be held until the contract expires. Second, the position can be liquidated by establishing an opposite position in the same contract. You should also note that trading in CGB contracts is carried out entirely on margin. Where one of your clients takes a position in a CGB contract (long or short), they are required to pay a minimum amount as initial margin and are responsible for the price movements in the position. Until the position is liquidated, there is daily settlement on a mark-to-market basis which may involve either the payment of maintenance margin by the client (in an unrealized loss position) or the receipt of an amount in the client's account (in an unrealized gain position). Upon liquidation of the position, the amount of the initial margin and, if applicable, of the maintenance margin are returned to the client and the gain or loss on the position is realized.
In order to illustrate how CGB contract operations work, you submitted the following Particular Situation to us:
1. On January 10 of a particular year, Mr. X entered a long position with respect to 5 CGB series 09 JN contracts at 102.73. At that time, Mr. X was required to pay an initial margin of $10,000.
2. On February 25 of the particular year, Mr. X closed his position by establishing the opposite position on the same contract, namely a short position, at 103.25.
3. Between January 10 and February 25 of the particular year, there were daily settlements in Mr. X's account on the basis of the market value of the open position. These daily settlements may have involved changes in margin (initial or maintenance), if any.
4. The closing out of his position by Mr. X allowed him to realize a gain of $2,600 calculated as follows: 5 contracts at $100,000 x (1.0325 - 1.0273).
Your Question
You are currently developing an XML file to electronically report your clients' securities transactions. As an investment dealer, you are acting on behalf of your clients as their agent and inquired as to what the term "proceeds of disposition or payments" in Box 21 of the T5008 slip should reference in the case of CGB contracts. You asked for confirmation of the amount to be reported in Box 21 of the T5008 slip in the Particular Situation.
Our Comments
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. The Canada Revenue Agency ("CRA") does not generally provide written opinions on proposed transactions otherwise than by way of an advance income tax ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received appropriate tax treatment. We can, however, offer the following general comments that may not apply in full in a particular situation.
Subsection 230(2) of the Income Tax Regulations (the "Regulations") provides, inter alia, that a trader or dealer in securities who, in a calendar year, sells securities as an agent is required to file an information return in prescribed form for the year in respect of that sale. We are of the view that a long or short position in a CGB contract, as described above, is a "security" under paragraph (f) of the definition of that term in subsection 230(1) of the Regulations. Consequently, you must complete a T5008 slip where, during a calendar year, you make a sale of such a security on behalf of one of your clients by closing out an open position in a CGB contract by establishing an opposite position in the same contract.
In the Particular Situation, we are of the view that the amount to be entered in Box 21 of the T5008 slip entitled "Proceeds of disposition or settlement amount" is $2,600 which is the total proceeds realized by your client as a result of the liquidation of his open position in the 5 CGB contracts. In addition, we are of the view that the amount to be reported in Box 21 could be a negative amount in a situation where the liquidation of a particular open position in a CGB contract would result in a loss to the holder.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
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