8 June 1988 Income Tax Severed Letter 5-6040 - [880608]

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.

Revenue Canada Taxation Head Office

June 8, 1988

R. Nanner (613)957-3494

Dear Sirs:

This is in response to your letter of May 9, 1988 requesting our opinion on the following:

1. Whether deposits in Canadian or U.S. dollars left in a "margin account" with a corporation that is in the business of securities brokerage and whose shares or whose parent shares are listed on a prescribed stock exchange in Canada would be considered a qualified investment under paragraph 4900(l)(i) of the Income Tax Regulations (the "Regulations").

2. Whether foreign currency is a qualified property for the purposes of subsection 4900(1) of the Regulations.

3. (a) Whether foreign currency is considered to be a marketable security for the purposes of subparagraphs 108(2)(b)(iii) and 204.4(2)(a)(ii) of the Income Tax Act (the "Act") and subsection 5000(7) of the Regulations, and

(b) whether income derived from the disposition of foreign currency would be considered as "income derived from, or from disposition of marketable securities" for the purposes of the provisions mentioned in (a) above, and the income would not be considered as being derived from commodities and/or from active business.

4. Whether the cost amount of a stock index futures contract would comprise only of brokerage fees and other incidental costs related to acquiring or entering into the contract.

Opinion

1. We are of the view that deposits left with a corporation described in 1 above to satisfy the margin requirements of a stockbroker would not qualify as a qualified property under paragraph 4900(l)(i) of the Regulations as these deposits are not similar to "bonds, debentures and notes".

2. In our opinion foreign currency is not a qualified property under subsection 4900(1) of the Regulations.

3. (a) Foreign currency, in our view, is not a marketable security for the purposes of subparagraphs 108(2)(b)(iii) and 204.4(2)(a)(ii) of the Act and subsection 5000(7) of the Regulations;

(b) As foreign currency is not considered to be a marketable security, income derived therefrom, or from dispositions thereof would not be considered to be income derived from or from dispositions of marketable securities. Furthermore, this income may be considered as derived from dealing in commodities.

4. We confirm your understanding that the cost amount of a stock index futures contract would generally be comprised of brokerage fees and other incidental costs related to acquiring or entering into the contract.

We hope these comments are of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate