10 June 1987 Income Tax Severed Letter 5-3247 - [Subparagraph 212(1)(b)(vii) of the Income Tax Act—Non-Residents]

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.

Dear Sirs:

This is in reply to your letter of April 6, 1987 and further to our telephone conversation of June 1, 1987 concerning the application of the above noted subparagraph to non-residents who invest in XXX guaranteed investment certificates (GIC's) where the certificate is renewed at the end of its initial five year term.

You indicate that you are aware of the Department's position in Interpretation Bulletin IT-361R and IT-448 with respect to renewal upon maturity, however, you feel that the nature of the obligation should be taken into account when considering the application of subparagraph 212(1)(b)(vii) to the renewal of GIC's. In your view a GIC is in the nature of a deposit. In this respect you refer to a letter from this Department dated August 2, 1979 wherein guaranteed investment certificates are considered to be funds on deposit. The implication of this letter, in your view, is that these deposits could be renewed without triggering a disposition of the foreign exchange gains or losses and thus similar treatment could be afforded GIC's under the provisions of subparagraph 212(1)(b)(vii) of the Act.

Our Comments

As suggested by you, the Department's position, set out in Interpretation Bulletin IT-448 is that a change in a repayment schedule or maturity date will generally precipitate a disposition. In your example of the GIC acquired by a non-resident in June 1, 1982 with a June 1, 1987 maturity date which is subsequently renewed for an additional one year, there la a disposition because of the change in the maturity date. From our point of view, the original GIC has matured and has been replaced by another GIC which will mature 1 year later.

This position does not conflict with the opinion expressed in our letter to you dated August 2, 1979 relating to foreign exchange gains or losses in that letter we expressed the view that foreign currency funds on deposit in the form of a GIC are not disposed of until they are converted to currency of Canada or some other country or are used to purchase a negotiable instrument or some other asset. As GIC's are not negotiable, the foreign currency funds held in this form have not been disposed of but are still considered funds on deposit, thus no foreign exchange gain or loss occurs. Where a GIC is considered exempt from withholding under the provisions of subparagraph 212(1)(b)(vii) of the Act until it matures (at the end of 5 year in your example), it will lose that exemption if renewed for a period of less than 5 years. However, as discussed with you over the telephone, it may not be considered disposed of for purposes of foreign currency gains or losses if the funds have not been converted to some other currency or used to acquire a negotiable instrument.

As we have replied in the negative to your first example we have not addressed the three other examples set out on the second page of your letter.

We trust this is the information you require.