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:
1) is the purchase of a unit of a partnership involved in an active business considered investment of funds for 132(6)(b)(i)?
2) Can a DPSP invest in Fund where fund holds debt of an employer participating in the DPSP?
3) Can fund hold foreign currency on temporary basis?
4)Is writing of put option and covered call options investing of funds?
Position:
1) No 2) No 3) No 4) Yes
Reasons:
1) look through partnership
2) disqualified under 4901(1)
3) Not a qualified property
4) previously determined it was investing
960628
XXXXXXXXXX M.P. SarazinAttention: XXXXXXXXXX
April 18, 1996
Dear Sirs:
Re: Registered Investments
This is in reply to your letter dated February 12, 1996, wherein you requested our comments regarding the various general issues raised with respect to a trust (the "Fund") that is a registered investment for registered retirement savings plans ("RRSPs"), registered retirement income funds ("RRIFs") and deferred profit sharing plans ("DPSPs") under paragraph 204.4(2)(d) of the Income Tax Act (the "Act").
Issue #1
Would a Fund be considered to be investing its funds in property for the purposes of subparagraph 132(6)(b)(i) of the Act if it acquired units of a limited partnership that are listed on a prescribed stock exchange and the limited partnership is carrying on an active business other than an investment business?
Position
In the situation where a Fund holds units of a limited partnership that is carrying on a business which is not an investing business, we are of the view that a Fund would not be considered to be investing in property for the purposes of subparagraphs 132(6)(b)(i), 108(2)(b)(ii) and 131(8)(b)(i) of the Act. A limited partner does not need to actively take part in the management of a limited partnership in order for him to be considered as carrying on the business of the partnership.
Issue #2
Where a DPSP acquires units of a Fund and the Fund holds notes, bonds, debentures, bankers' acceptances or similar obligations of an employer that makes contributions to the DPSP, would we interpret subsection 4901(1) of the Income Tax Regulations (the "Regulations") in such a manner that such notes, bonds, debentures, bankers' acceptances or similar obligations would no longer qualify as a prescribed investment for the Fund?
Position
Since the notes, bonds, debentures, bankers' acceptances or similar obligations would not be qualified investments for the particular DPSP, we are of the view that such investments would not be prescribed investments for a Fund as a result of the application of subsection 4901(1) of the Regulations.
Issue #3
If a Fund holds foreign currency on a temporary basis (it has not reinvested interest and dividends received in foreign currency on its securities), would the Fund be considered not to have acquired a non-qualified investment if it converted the foreign currency to Canadian currency or used it to acquire a qualified investment in a short period of time?
Position
Foreign currency is not a qualified investment for RRSPs, RRIFs and DPSPs. However, provided that the foreign currency is converted to an otherwise qualified investment within a reasonable time (for example, one month), the Department would not consider the trust to have acquired a non-qualified investment.
Issue #4
Is the writing of put options by a Fund considered to be the investing of its funds for the purposes of subparagraph 132(6)(b)(i) of the Act and, if the put options are not listed on a prescribed stock exchange, will the Fund be liable to tax under section 206.1 of the Act?
Position
We are of the view that the writing of the put options by a Fund would be considered investing of its funds for the purposes of subparagraph 132(6)(b)(i) of the Act. In addition, since Part XI of the Act applies to registered investments, we are of the view that the Fund will be liable to tax under section 206.1 of the Act if the put option is not listed in a prescribed stock exchange.
Issue #5
Is the writing of covered call options by a Fund considered to be investing of its funds for the purpose of subparagraph 132(6)(b)(i) of the Act?
Position
We are of the view that the writing of covered call options is considered to be investing of its funds for the purposes of subparagraph 132(6)(b)(i) of the Act. In general, such transactions are considered ancillary to investing or part of a wide range of investing activities.
Issue #6
Is the lending or borrowing of qualified securities by a Fund pursuant to a "securities lending arrangement" as defined in subsection 260(1) of the Act constitute investing of its funds for the purpose of subparagraph 132(6)(b)(i) of the Act? Where a Fund is a lender of qualified securities, would the application of subsection 260(2) of the Act result in section 206.1 of the Act not applying to the lending of any qualified securities?
Position
It is our position that, in general, the lending or borrowing of qualified securities by a Fund pursuant to a securities lending arrangement is considered investing of its funds for the purposes of subparagraph 132(6)(b)(i) of the Act. Since the lender is deemed to continue to hold the qualified security pursuant to subsection 260(2) of the Act, the provisions of section 206.1 of the Act will not apply because there is no acquisition of qualified property by the lender.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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