22 June 1994 External T.I. 9413475 - COMMODITY FUTURES CONTRACTS

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.

Principal Issues:

Position TAKEN:

commodity futures contracts are foreign property with acost amount equal to brokerage fees and incidental costs

Reasons FOR POSITION TAKEN:

see 940378

941347
XXXXXXXXXX D. Watson

Attention: XXXXXXXXXX

June 22, 1994

Dear Sirs:

Re: Commodity Futures Contracts

This is in response to your letter of May 19, 1994 in which you asked several questions with respect to commodity futures contracts held by a mutual fund trust.

The situation described in your letter appears to involve actual proposed transactions with identifiable taxpayers. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. However, we can offer the following comments in response to your questions.

1.In general, commodity futures contracts on a foreign commodities exchange are foreign property within the meaning of subsection 206(1) of the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

2.A mutual fund trust which invests in commodity futures contracts will not itself be foreign property if the aggregate cost amount of its investment in such contracts and other foreign property does not exceed 20% of the cost amount of all property held by the mutual fund trust. If the mutual fund trust is subject to National Policy 39 or some other regulatory requirement, there may be additional limits on its investment in futures contracts.

3.The cost amount of a commodity futures contract is the sum of the brokerage fees and other costs associated with or incidental to entering into the contract. This position is applicable on the assumption that the mutual fund trust would never acquire the underlying commodity.

4.The amount of the initial margin required as a deposit pursuant to a commodity futures contract may also be foreign property, depending on the precise nature on the deposit arrangement.

5.An investment in commodity futures contracts constitutes the investing of funds within the meaning of paragraph 132(6)(b) of the Act.

These comments represent our general views with respect to the subject matter of your letter. They are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch