3 May 1993 Income Tax Severed Letter 9305105 - Cost Amount—Foreign Property—Registered Pension Plan

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                   5-930510
XXXXXXXXXX                                         D. S. Delorey
                                                   (613) 957-8953

Attention: XXXXXXXXXX

May 3, 1993

Dear Sirs:

This is in reply to your letter of February 11, 1993 concerning the computation under subsection 206(2) of the Income Tax Act (the "Act") for the purposes of determining whether or not a registered pension plan ("RPP") is subject to Part X1 tax.

Whether or not Part X1 tax is exigible in respect of a particular month under subsection 206(2) of the Act is determined based on the "cost amount" of each property held in the particular plan at the end of the month. It is thus necessary to determine at that time the cost amount of each such property.

As you mention in your letter, "cost amount" is defined in subsection 248(1) of the Act to mean different things depending upon whether the property in question is

      (a)    depreciable property,

      (b)    capital property,

      (c)    property described in an inventory,

      (d)    eligible capital property,

      (e)    a debt owing to the taxpayer,

      (f)    a policy loan of an insurer, or

      (g)    some other type of property.

Where a pension plan is exempt under subsection 149(1) of the Act, it is exempt on its taxable income. In computing that taxable income, the RPP could claim those deductions normally allowable under the Act in computing income from a business or property and would compute its cost of sales in the normal manner. Accordingly, it is possible for an RPP's property to be depreciable property or inventory depending on the type of investment and whether or not it carries on a business. These are questions of fact.

Because of the exclusion in subparagraph 14(5)(b)(ii) of the Act, an RPP would normally not have property that is an eligible capital property.

An RPP's property can be "capital property", as defined in paragraph 54(b) of the Act, notwithstanding that the RPP might not have to compute any capital gains or capital losses for reporting purposes. In fact, we would expect that an RPP's property would normally consist of capital property. The cost amount of a capital property is defined in subsection 248(1) of the Act to mean its "adjusted cost base" at the particular time. Because of the meaning given to "adjusted cost base" in paragraph 54(a) of the Act, the cost amount of a capital property could change over time although, in general, the cost amount would be equal to its acquisition cost. Such acquisition cost would presumably be equal to the fair market value of the capital property at the time of its acquisition and, accordingly, the cost amount of a capital property at the end of a particular amount would normally be equal to its fair market value on the date of its acquisition.

The cost amount to a taxpayer of an inventory item at a particular time is defined in subsection 248(1) of the Act to mean "its value at that time as determined for the purpose of computing his income". Consequently, because of the wording of subsection 10(1) of the Act and section 1801 of the Income Tax Regulations, there is nothing we can add to your comments indicating that determining the cost amount of an inventory item could involve a valuation procedure. Your concern in this regard and the remaining issues raised in your letter primarily involve non-technical issues such as procedures, practical applications of the law and questions of fact. These are matters normally dealt with by district office or taxation centre staff and we therefore suggest that you address them to the relevant District Taxation Office or Taxation Centre.

We regret that we could not be of further assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate