18 April 1995 External T.I. 9500895 - POOLED FUND TRUSTS

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:

Several issues on pooled fund trusts - only unusual one is whether "cash" includes foreign currency and deposits.

Position TAKEN:

Cash includes foreign currency if legal tender in country of origin, and deposits if depositor has right to withdraw at any time.

Reasons FOR POSITION TAKEN:

Law, previous interpretations (E9434, February 5, 1990; 5-3339, April 15, 1988).

XXXXXXXXXX					950089

Attention: XXXXXXXXXX

April 18, 1995

Dear Sirs:

This is in reply to your letter of January 11, 1995. We also acknowledge your facsimile transmission dated March 3, 1995.

You have asked several questions in respect of pooled fund trusts, which we have responded to below in the order asked.

Your first question is in respect of the cost amount of a futures contract. In our opinion, the cost amount, as defined in subsection 248(1) of the Income Tax Act (the "Act"), of a futures contract at the time it is entered into or acquired would be equal to the brokerage fees and other costs incidental to entering into or acquiring the contract, and would not include amounts paid as the initial or variation margin.

You have asked us to confirm that exchange-traded interest and currency futures contracts, and exchange-traded put and call options are "marketable securities" for the purposes of subsection 5000(7) of the Income Tax Regulations (the "Regulations"). You are aware that the Department has taken the view that the term "marketable securities" refers generally to a security that is capable of reasonably prompt conversion into cash and that is easily traded because a ready market exists and there are no legal or other impediments to its trade. In addition, the Department has stated that it is a question of fact whether or not a particular investment is a marketable security.

However, we are of the view that exchange-traded stock index futures, bond futures, interest rate futures and commodity futures would normally represent marketable securities for the purpose of subsection 5000(7) of the Regulations. Generally, the acquisition of an exchange-traded put or call option would also be the acquisition of a marketable security.

Your third question relates to the meaning of "cash" in subparagraph 5000(7)(a)(i) of the definition of pooled fund trust in the Regulations. In our opinion, cash could include foreign currency if that currency is legal tender in the country of origin.

Cash would also include a deposit with a bank or trust company, provided the depositor has the right to withdraw the money on deposit at anytime. A deposit left with a securities broker may be considered as being a cash deposit if it is left in that form for only a short period (one or two days). A margin deposit would otherwise be considered as a debt security and would not generally qualify as a security or a marketable security.

Next, you ask if a foreign currency deposit maintained in Canada with a bank or other deposit-taking institution situated in Canada will be considered foreign currency situated in Canada, and therefore not "foreign property" as defined in subsection 206(1) of the Act. Paragraph 3 of Interpretation Bulletin IT-412R2 states that deposits in a bank or similar institution outside Canada are foreign property. If the foreign currency deposit is situated in Canada, it will not be foreign property.

Your last question requests our confirmation of your understanding that the Department has taken the position that foreign currency which is acquired on a temporary basis will not be considered foreign property for the purposes of Part XI of the Act and Part L of the Regulations.

We cannot confirm your understanding. The Department has taken the following position, in response to submissions indicating that an RRSP trust trading in qualified investments denominated in a foreign currency would invariably hold foreign currency on a temporary basis:

This could occur where interest or a dividend on a particular security held by the trust is received in foreign currency or where the trust receives foreign currency on the disposition of a security denominated in the foreign currency. Technically, subsection 146(10) of the Act would apply each time the RRSP trust acquires the foreign currency and subsection 146(6) of the Act would apply each time the trust disposes of it. This was considered to be an unintentional result and we therefore agreed not to apply those provisions where the foreign currency was converted to Canadian currency or used to acquire a qualified investment within a reasonable period of time.

We have not extended this position beyond the application of subsections 146(10) and 146(9) of the Act.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department. We trust, however, that our comments will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch