30 October 1996 External T.I. 9605315 - UNIT IN A MONEY MARKET FUND AS CASH

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:

whether a unit in a money market fund can be considered cash for the purpose of 108(2)(b), 204.4(2)(a) and the def'n of pooled fund trust in ss 5000(7) of the Regs

Position:

no

Reasons:

while admittedly very liquid, this type of investment cannot be used in lieu of legal tender and does not fall within the ordinary meaning of cash - a deposit with a bank, on the other hand, will qualify as cash when no restrictions are placed on the depositor with respect to withdrawals -while a bank account may not strictly be considered cash, jurisprudence exists in which the amount left on deposit with a bank has been considered as cash

A. Humenuk
XXXXXXXXXX							960531

Attention: XXXXXXXXXX

October 30, 1996

Dear Sirs:

Re: Money Market Funds

We are replying to your letter of February 2, 1996 in which you ask whether an investment in a money market fund is considered to be "cash" for the purposes of paragraphs 108(2)(b) and 204.4(2)(a) of the Income Tax Act and for the purpose of the definition of "pooled fund trust" in subsection 5000(7) of the Regulations.

In each of these provisions, a percentage of the property of a trust described therein must consist of certain listed property, which may include cash or marketable securities. It is your view that an investment in a money market fund should be an eligible investment for this purpose. However, recognizing that a unit in a money market fund which cannot be easily traded is not a marketable security, you ask whether a unit in a money market fund trust can be considered as cash. In this regard, you note that the Department recognizes a deposit with a bank or trust company to be cash, provided the depositor has the right to withdraw the money on deposit at anytime.

In our view, a unit in a money market fund cannot be considered to be cash. The term "cash" refers to that which is accepted and used as legal tender or currency. Jurisprudence relating to the meaning of "cash" has accepted that cash may, in certain circumstances, include an amount which has been left on deposit in an account with a bank or similar financial institution. Similarly, under generally accepted accounting principles, amounts left on deposit with a financial institution will ordinarily be classified as cash provided that no restrictions exist to prevent its use for current purposes.

In Moss v. Hancock, (1899) 2 Q.B. 116, the court stated that "money as currency is that which passes freely from hand to hand throughout a community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities".

While a unit in a money market fund may be converted into cash, an investment of this type cannot be used in other transactions as payment for goods or the discharge of debts, in the same manner as one can with a cheque written on a bank account. Accordingly, it is our view that a unit in a money market fund does not fit within the ordinary meaning of cash or money.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch