30 October 1996 External T.I. 9632485 - SUPERFICIAL LOSSES AND NON-TAXABLE ENTITIES

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:

Is it necessary for a non-taxable entity (a pension fund trust) to track cost base adjustments in view of the fact that they are non-taxable?

Position:

Yes. For an entity such as a pension fund trust, cost of properties is also relevant in determining whether foreign property limits are met and whether Part XI tax is payable.

Reasons:

Reading of the Act.

									963248

XXXXXXXXXX							J.P. Dunn

Attention: XXXXXXXXXX

October 30, 1996

Dear Sirs,

Re: Superficial Losses - Non-Taxable Entities

We are writing in response to your correspondence of September 20, 1996 concerning superficial losses, as that term is defined in section 54 of the Income Tax Act (the "Act"), and, more specifically, whether the provisions of the Act regarding such losses are applicable to a non-taxable entity such as a pension fund trust.

Paragraph 149(1)(o) of the Act states that, with respect to Part I of the Act and its application to a number of entities including a trust governed by a registered pension plan (a "pension plan trust") no tax is payable under Part I of the Act on the taxable income of that person.

Adjustments, including superficial losses, to the adjusted cost base of a property owned by a pension fund trust could affect the calculation of the taxable income of that trust in the year of the disposition of that property but, because of its non-taxable status, would never affect any tax payable by the trust. Consequently, it is your view that the calculation of any superficial losses and the consequential adjustments to cost base should not be required for these types of entities because of their non-taxable status.

Although we would agree that, insofar as Part I of the Act is concerned, such adjustments will not be of consequence to the pension fund trust, we would note that they may be consequential to the trust when considering the implications of other provisions of the Act such as the potential tax payable under Part XI of the Act respecting investments in foreign property by the pension plan trust. As the tax payable pursuant to that part of the Act is based upon the cost amount of the various properties held by the trust, an accurate determination of that cost amount would be required to determine if any Part XI tax is payable.

We trust that this is the information which you require.

Yours truly,

Section Chief
Corporate Financing Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch