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 exchange of gold bullion for Exchange Traded Receipts (ETR), or vice versa, considered a disposition for tax purposes?
Position: Depends on the facts of the case.
Reasons: Depending on the facts of the case, there may not be a disposition at the time of exchange to result in any tax consequences to the holder of the ETR. However, when the ETRs are redeemed for cash, there is likely to be a disposition.
February 15, 2012
Dear XXXXXXXXXX :
Re: Gold Bullion and Exchange Traded Receipts
We are writing in response to your correspondence dated November 2, 2011, wherein you requested our views on the tax consequences to a taxpayer (the "Taxpayer"), when the Taxpayer exchanges gold bullion he/she owns for Exchange Traded Receipts ("ETR"), or vice-versa. Your correspondence specifically makes reference to the ETR to be issued by the Royal Canadian Mint (the "Mint").
The particular circumstances in your request appear to represent a specific factual situation. As mentioned in paragraph 22 of Information Circular IC 70-6R5, entitled 'Advance Income Tax Rulings', dated May 17, 2002, it is not this Directorate's practice to comment on specific proposed transactions other than in the form of an advance income tax ruling. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on our website at http://www.cra-arc.gc.ca. Your request was not submitted in the format required for an advance income tax ruling request, however, as stated in paragraph 22 of IC 70-6R5, we do provide written opinions on general enquiries which are not binding and we are prepared to provide you with the following comments.
Paragraph 4 of the Interpretation Bulletin IT-387R2 (Consolidated), entitled 'Meaning of "Identical Properties"', states that:
"Gold bullion and gold certificates (or bullion and certificates of the same precious metal) are considered by the [Canada Revenue Agency (CRA)] to be identical properties. Furthermore, it is the [CRA's] view that a particular certificate and the bullion to which it
relates are the same property, with the result that an exchange of a certificate for bullion or bullion for a certificate will not be considered a disposition."
The issue to be resolved in the present situation, therefore, is to determine if an ETR can be treated similarly to a gold certificate for tax purposes.
It is our understanding that the Mint is launching a Canadian Gold Reserve program (the "Program") within which they have announced a public offering of ETRs. Based on the 'Information Statement' (the "Statement") dated October 28, 2011, released by the Mint, it is our further understanding that: "[e]ach ETR represents an equal undivided direct legal and beneficial interest in physical gold bullion to be held in the custody of the Mint". As indicated in the Statement, the ETRs may be redeemed at the option of the ETR holder for physical bullion or cash. Further, according to the Statement: "[t]he ETRs will be issued in the form of one or more gold ETR certificates which will be held by CDS Clearing and Depository Services Inc. or its nominee ("CDS"), and fully registered in the book-based system in the name of CDS. There will be no physical certificates for the ETRs."
Based on this information, it appears that the ETR may have characteristics similar to a gold certificate such that our views above from paragraph 4 of IT-387R2 may be applicable, i.e., the gold bullion and the ETR may be considered to be identical properties such that when one is exchanged for the other, there is no disposition for income tax purposes. However, when the ETRs are redeemed for cash, the transaction will likely result in a disposition. Whether such a disposition is on account of income or capital will depend on the facts of the case.
We are unable to comment more specifically as all the relevant facts and documents would need to be examined to determine the tax consequences that may arise in the above-discussed exchange transactions.
We trust our comments will be of assistance to you.
R.A. Albert, CA
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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