30 November 1996 Ruling 9726573 - FOREIGN PROPERTY POOLED FUND TRUST

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:

A trust governed by a pension plan will be subject to Part XI tax if it holds more than 20% foreign property. Units of a pooled fund trust will not be foreign property if the fund holds 20% or less of its assets in foreign property. Accordingly a pension trust can hold 20% of its property in foreign investments and 80% of its assets in units of pooled fund trusts which hold 20% of their assets in foreign property, and not be subject to Part XI taxation..

Can a pension which holds units in a single pooled fund cause the fund to be split into two separate funds with one fund holding entirely foreign property and the other holding 20% foreign property?

Position:

Yes.

Reasons:

The law provides for the structuring of a pension trusts holdings in the manner described and it is appropriate to allow a pension to do so even though it has not done so in the past.

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XXXXXXXXXX							972657
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Attention: XXXXXXXXXX

XXXXXXXXXX, 1997

Dear Sir:

Re: Advance Income Tax Ruling

This is in reply to your letters of XXXXXXXXXX, in which you request an advance Income Tax Ruling on behalf of the pension committees identified below.

DEFINITIONS

In this ruling:

1. Plan A means: XXXXXXXXXX;

2. Plan A Pension Committee means: the pension committee of XXXXXXXXXX;

3. Plan B means XXXXXXXXXX;

4. Plan B Pension Committee means XXXXXXXXXX;

5. Administrator means XXXXXXXXXX;

6. Employer means XXXXXXXXXX and its related companies;

7. Trustco means XXXXXXXXXX;

8. Pooled Fund Trust means the pooled fund trust as defined under subsection 5000(7) of the Regulations established by an agreement dated XXXXXXXXXX as amended on XXXXXXXXXX;

9. Act means the Income Tax Act;

10. Regulation means the Income Tax Regulations: and

11. Foreign Property means foreign property as defined by section 206(1) of the Act.

FACTS

12.The Plan A and Plan B Pension Committees are the statutory trustees of Plan A and Plan B (the “Plans”). Each of the Committees has delegated various authorities of the Committees to the Administrator of the Plans in respect of the control and management of the assets of the Plans.

13.Both Plan A and Plan B are funded through separate trust funds (“Trust Funds”) held by Trustco under agreements entered into by the Administrator of the Plans and Trustco. Both of the Trust Funds hold units of the above-noted Pooled Fund Trust.

14.The cost amount to the Pooled Fund Trust of Foreign Property has, since its inception, been less than 20 percent (or such lesser amount as has been stipulated in paragraph 5000(1)(a) of the Regulations as it read prior to 1994) of the cost amount of all property held by it.

PROPOSED TRANSACTIONS

15.By virtue of a trust agreement between the Administrator of the Plans and Trustco, a new pooled fund trust (the “Foreign Pooled Fund Trust”) as defined in subsection 5000(7) of the Regulations will be created.

16.The Administrator of the Plans will redeem an appropriate number of units of the Pooled Fund Trust for each of the Plans and the Plans will receive, as proceeds for the redemption, shares and other property that will be Foreign Property.

17.The Administrator will acquire an appropriate number of units of the Foreign Pooled Fund Trust for each of the Plans and shall pay as consideration for the acquisition, the shares and other property that were acquired as described in paragraph 16 above.

18.The Foreign Pooled Fund Trust will invest all or a substantial portion of its assets in Foreign Property.

19.The Pooled Fund Trust shall continue to invest its assets so that at no time will the cost amount of its Foreign Property exceed 20 percent of the cost amount of all property held by the Pooled Fund Trust.

PURPOSE OF THE PROPOSED TRANSACTIONS

20.The combined assets of Plan A and Plan B are XXXXXXXXXX of which between 50 percent and 60 percent are usually invested in equities. The proposed transaction is to enable suitable diversification of investments including the ability to increase the percentage of underlying foreign investments.

OTHER INFORMATION

21.To the best of your knowledge, none of the issues relevant to this ruling request are being considered by a tax services office or taxation centre in connection with a tax return already filed, and none of the issues involved are under objection or appeal.

RULINGS

Provided the above statement of facts and proposed transactions are accurate and constitute a complete disclosure of all the relevant facts and provided the transactions are implemented as proposed, we rule as follows:

A.For the purposes of determining the cost amount of Foreign Property held at any particular time by either of the Trust Funds, the property of each Trust Fund will include the units of the Pooled Fund Trust and Foreign Pooled Fund Trust held by the Trust Funds at that time and none of the property held by either the Pooled Fund Trust or the Foreign Pooled Fund Trust at that time.

B.Subsection 245(2) of the Act will not be applied to redetermine the consequences of ruling A.

The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed plan is implemented on or before XXXXXXXXXX.

Yours truly,

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