6 July 1989 Ruling 58243 F - Unit Trust - Hedging Contracts Regarded as Marketable Securities

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.

July 6, 1989

Dear Sirs:

This is in reply to your letter of June 15, 1989 in which you raised two questions with respect to the application of subparagraph 108(2)(b)(iii) of the Income Tax Act (the "Act") to a proposed unit trust.

As indicated in paragraph 23 of our Information Circular No. 70-6R, we do not provide written opinions on proposed transactions. However, we are prepared to provide you with the following general comments.

We have taken the position that a unit trust may, depending upon the facts, enter into certain hedging contracts on foreign currencies in order to protect that trust from significant fluctuations in such currencies. In such cases, the hedging contracts could be regarded as marketable securities for purposes of subparagraph 108(2)(b)(iii) of the Act.

Further, in determining the percentage "of its property" for the purposes of subparagraph 108(2)(b)(iii) of the Act it is our view that "costs" should normally be used as the unit of measurement.  The trust could use "market" if it so wished provided that it can show it qualified on this basis throughout the taxation year, and that it also used "market" in respect of the determination under subparagraph 108(2)(b)(v) of the Act.

We trust that our comments will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate