13 March 1998 External T.I. 9727585 - INCOME FROM RRIF OR MUTUAL FUND TAXABLE?

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:

Enquiry in connection with the taxability of amounts received from a RRIF or a mutual fund.

Position TAKEN:

General comments given.

Reasons FOR POSITION TAKEN:

Owing to the ambiguity of the information provided (unable to contact as no telephone # included with the request) our response was limited to general comments.

XXXXXXXXXX 5-972758
P. Diguer

March 13, 1998

Dear Sir/Madam

Re: Investment in mutual funds

This is in reply to your letter dated October 20, 1997 in which you requested a ruling concerning a proposed investment.

An advance income tax ruling is a written statement given by the Income Tax Rulings and Interpretations Directorate to a taxpayer stating how the Department will interpret and apply specific provisions of existing Canadian income tax law to a definite transaction or transactions which the taxpayer is contemplating. The Department charges a fee for this service. As indicated in Information Circular IC-70-6R3 dated December 30, 1996 (copy enclosed) , advance income tax ruling requests must include an advance payment equal to five hours of work (currently $90.00 per hour) plus GST ($481.50), copies of all relevant documents and contain the information set out in paragraph 16. Your request does not include any of the above mentioned material. Should you wish to proceed with an advance income tax ruling request please submit a request that complies with the requirements set out in IC-70-6R3. Nevertheless, we offer the following general comments in connection with your request which we hope is of assistance to you.

Where an investor disposes of mutual fund units he or she will realise a capital gain to the extent that the proceeds of disposition exceed the aggregate of the investor’s adjusted cost base of the units and any costs of disposition. The taxable capital gain must be included in income.

All amounts received out of a RRIF must be included in income in the year received.

Interest deductibility

Briefly, paragraph 20(1)(c) of the Income Tax Act (Canada) (the “Act”) provides that there may be deducted in computing a taxpayer’s income for a taxation year from a business or property, an amount paid in the year or payable in respect of the year (depending on the method regularly followed by the taxpayer in computing the taxpayer’s income) pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property. Accordingly, interest on money borrowed to acquire mutual fund units to earn investment income (such as interest or dividends but not including capital gains) would generally be deductible.

The foregoing represents our general views with respect to the subject matter of your letter. The foregoing opinions are not rulings and in accordance with the guidelines set out in IC 70-6R3 they are not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

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

Encl.