31 May 1999 External T.I. 9906745 - FOREIGN PROPERTY - COST AMOUNT

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: Whether a property (for purposes of foreign property rules) suspended from being traded or worthless can be adjusted to nil?

Position: Generally no.

Reasons: Cost amount:

1) For capital properties: ACB.

2) For inventory: FMV or the lesser of cost and FMV

XXXXXXXXXX 5-990674
Fouad Daaboul
Attention: XXXXXXXXXX

May 31, 1999

Dear Sirs:

Re: Part XI Taxes and Cost Amount of Foreign Property

We are writing in response to your letter of March 15, 1999, wherein you asked us to provide our comments as to whether the book value of a property held by a registered plan can be omitted or adjusted to nil for purposes of computing any Part XI taxes owing under subsection 206(2) of the Income Tax Act (the "Act") where the property is a share which has been suspended from being traded or is worthless.

It appears that the interpretations you seek relate to a specific taxpayer. To the extent that your queries relate to completed transactions, it is appropriate that a determination be made by the relevant Tax Services Office. Where interpretations are sought on transactions that are seriously contemplated in the near future, you may consider requesting an advance income tax ruling. The process for requesting advance rulings is described in Information Circular IC-70R3 dated December 30, 1996. Notwithstanding the foregoing, we are prepared to offer the following comments.

Whether or not Part XI tax is payable in respect of a particular month under subsection 206(2) of the Act is a question of fact. Since this determination is based on the "cost amount" of the property held by the taxpayer, described in section 205 of the Act, (the "Taxpayer") at the end of each month, it is thus necessary to determine the cost amount of each property held by the Taxpayer at that time.

A share, the trading of which has become delisted or suspended, generally continues to exist until the corporation is legally wound up. Consequently, until the corporation is wound up or the share is sold by the Taxpayer, the cost amount of the delisted, suspended or worthless share held by the Taxpayer will continue to be used in computing any Part XI taxes owing under the Act.

The term "cost amount" is defined in subsection 248(1) of the Act to mean different things depending upon whether the property in question is depreciable property, capital property, property described in an inventory, eligible capital property, a right to receive an amount, a policy loan of an insurer, or some other type of property. The cost amount of a share owned by a Taxpayer is generally the amount paid to acquire the share.

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We trust our comments will be of assistance to you.

Yours truly,

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