1993 Administrative Letter 9336656 F - Paragraph 5000(1) of the Income Tax Regulations

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.

RULINGS DIRECTORATE CORRESPONDENCE SUMMARY

PRINCIPAL ISSUES:

Will a pooled fund contravene reg 5000(1)(e) if it inadvertantly holds excess foreign property for a short period of time.

POSITION TAKEN:

Referred to assessing

REASONS FOR POSITION TAKEN:

In law it would be offside but assessing may provide administrative relief.

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

HAA NUMBER:

HAA7234-1

February 14, 1994

Paragraph 5000(1)(e) of the Income Tax Regulations

Attached is a copy of a letter dated December 8, 1993, received from XXXXXXXXXX which deals with the administration of Regulation 5000 in certain circumstances. Accordingly, we are referring it to your division for reply. We, however, offer the following comments for your consideration.

Regulation 5000(1) provides that shares of a mutual fund corporation and units of certain investment trusts will not be foreign property for the purposes of Part XI of the Income Tax Act (the "Act") in respect of a particular month provided the trust or corporation has not acquired any foreign property after June 30, 1971 or if at no time during its "relevant period for the particular month" has the cost amount of its foreign property exceeded 20% of the cost amount of all its property.

XXXXXXXXXX are concerned that a trust or corporation could inadvertently become a foreign property where it undertakes to simultaneously acquire or dispose of more than one property but has to record the transactions at different times because of the way the transactions are actually processed.

In our opinion the wording of the regulation is clear and a trust or corporation will be a foreign property if its investments in foreign property exceeds the 20% limitation at any time in a relevant period, even for a moment, and we would not agree to a general practice of recording transactions only at the close of business each day as XXXXXXXXXX has suggested.

It is our opinion that this interpretation is consistent with the intent of the Regulation in particular and of the Act in general as they apply to the acquisition and disposition of investments and we believe it is consistent with the economic reality of the investment and securities industries where the timing of transactions has always been of critical importance. On stock markets, for example, while settlement of trades may take several days, the transactions are recorded as they occur throughout each day and in the practice of security arbitrage, profits are determined on the basis of a variance in the price of a security on different exchanges at a particular moment.

While we would not agree to a general practice as suggested, we do recognize that there may be reason to provide relief where simultaneously initiated transactions are recorded at different times due solely to the application of routine procedures. In these cases we would not object if administrative relief were extended by your Division.

Would you please provide us with a copy of your reply.

for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch