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.
XXXXXXXXXX 961677
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the aforementioned corporation. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Our understanding of the facts and proposed transactions is as follows:
Facts
XXXXXXXXXX is a publicly-traded company whose shares are listed on the XXXXXXXXXX.
XXXXXXXXXX is a corporation incorporated in the XXXXXXXXXX one of the United States of America, with its main business office located in XXXXXXXXXX is a wholly-owned subsidiary of XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX is a corporation incorporated in the XXXXXXXXXX with its main business office located in XXXXXXXXXX is also a wholly-owned subsidiary of XXXXXXXXXX is registered with the
XXXXXXXXXX
XXXXXXXXXX is a corporation incorporated in the XXXXXXXXXX, and is also a wholly-owned subsidiary of XXXXXXXXXX is registered with the
XXXXXXXXXX
XXXXXXXXXX
Proposed Transactions
XXXXXXXXXX will establish a XXXXXXXXXX fund (the "Fund") XXXXXXXXXX.
The Fund will be established as a unit trust, the trustee of which will be a trust company incorporated under the laws of Canada or a province (the "Trustee"). At least initially, it is not expected that the Fund will satisfy the distribution requirements of section 4801 of the Regulations, and as such it is not expected that the Fund could qualify as a "mutual fund trust" as defined in subsection 132(6) of the Act.
Units of the Fund will be sold to investors, with a minimum investment of not less than $XXXXXXXXXX per investor. After deduction of certain organizational and offering expenses, substantially all of the proceeds of issuance of the trust units (the "Units") will be invested in short-term debt obligations of the Government of Canada or a province thereof. A small portion of these debt obligations will be used as margin security for the Fund's obligations under the XXXXXXXXXX futures contracts described in the following paragraph.
The Fund intends to hold and, at maturity thereof, to reinvest the proceeds of such short-term debt obligations, and to earn interest income therefrom. In addition, XXXXXXXXXX on behalf of the Fund will invest in exchange-traded XXXXXXXXXX futures contracts (the "Investments") with a view to providing investors with a return which reflects the overall rate of XXXXXXXXXX price inflation over a broad range of XXXXXXXXXX. Such Investments will, of course, also result in the Fund (and thereby indirectly the investors) bearing the economic risk of any decline in XXXXXXXXXX prices over such range of XXXXXXXXXX. The exchange-traded futures contracts will be settled only in cash and will not give rise to any entitlement to receive the notional underlying XXXXXXXXXX.
An Investment will consist of a contractual agreement with a recognized Canadian or foreign XXXXXXXXXX exchange under which the Fund will receive (or pay, as the case may be), on a daily basis, cash in an amount reflecting any increase (or decrease) in market prices for the relevant XXXXXXXXXX. Such an exchange-traded futures contract will typically be enforceable in the jurisdiction of establishment of the relevant XXXXXXXXXX exchange.
The Fund will restrict its investing by:
(a) XXXXXXXXXX
(b) XXXXXXXXXX
(c) XXXXXXXXXX
Units of the Fund will be retractable on demand by the holder on a monthly basis on the last day of each month, subject to a commercially reasonable redemption charge to be established.
The constitution and operation of the Fund and the obligations of the Trustee to investors will be governed by a declaration of trust which will, in all material respects, be typical of declarations of trust governing mutual fund trusts and similar investments commonly available in Canada.
The Fund is intended to qualify as a "pooled fund trust" as defined in subsection 5000(7) of the Income Tax Regulations (the "Regulations"). It is further intended that the activities and assets of the Fund will be such that the Fund will not constitute "foreign property" for investors governed by Part XI of the Income Tax Act (the "Act").
Purpose of the Proposed Transactions
The proposed transactions are intended to permit investors to replicate, on a cost-efficient basis, a relatively passive investment in a broad pool of XXXXXXXXXX without the need to acquire or deal with the actual physical XXXXXXXXXX or individual instruments representing same.
To the best of your knowledge and the knowledge of XXXXXXXXXX none of the issues involved in this ruling request is being considered by a tax services office or taxation centre in connection with an income tax return already filed, and none of the issues is under objection or appeal.
Rulings Given
Provided that the statement of facts and proposed transactions are correct and constitute a complete disclosure of all the relevant facts and proposed transactions, and that the proposed transactions are carried out as described above, we rule as follows:
The exchange-traded XXXXXXXXXX futures contracts will be marketable securities for the purposes of Part L of the Regulations and the income earned by the Fund on the settlement of the exchange-traded XXXXXXXXXX futures contracts will be derived from the futures contracts for the purposes of Part L of the Regulations.
For the purposes of subsections 206(2) and 248(1) of the Act and section 5000 of the Regulations, the "cost amount" to the Fund of its investments in exchange-traded XXXXXXXXXX futures contracts will, at the time entered into or acquired by the Fund, be equal to the brokerage fees and other costs incidental to entering into the contract and will not include an amount in respect of the contract price or amounts paid, if any, as initial or variation margins.
An exchange-traded XXXXXXXXXX futures contract with an exchange outside of Canada will constitute "foreign property" within the meaning assigned by subsection 206(1) of the Act.
An exchange-traded XXXXXXXXXX futures contract with a Canadian XXXXXXXXXX exchange will not constitute "foreign property" for purposes of the Act.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, and are binding on Revenue Canada, Customs, Excise, and Taxation with respect to exchange-traded XXXXXXXXXX futures contracts entered into or acquired by the Fund XXXXXXXXXX.
The above ruling should not be construed as providing the Department's views with respect to the Fund qualifying as a unit trust, mutual fund trust or pooled fund trust for purposes of the Act.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1995
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