17 October 1989 Income Tax Severed Letter RCT 5-8684

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.

Dear Sirs:

This is in reply to your letter of September 14, 1989 wherein you requested a preliminary ruling on several matters relating to a proposed fund which your company is planning to market.

We wish to point out that we do not issue preliminary rulings but do provide advance income tax rulings provided the procedures for their request are complied with. A proper request entails the provision of all related documents for our review as well as an identification of all of the specific provisions of the Income Tax Act (the "Act") in respect of which the request is to be considered. A ruling request must also contain a statement as to whether any of the issues involved are to the best of the taxpayer's knowledge being considered by a District Office and/or Taxation Centre in connection with a tax return already filed, or if any of the issues are under objection.

The procedures are discussed in our Information Circular IC-70-6R [Information Circular 70-6R], a copy of which is attached for your reference. Please note that the hourly rate for rulings is now $65, the required deposit is $325, and there is no longer a minimum charge.

While we cannot, at this time, provide a ruling, we can offer the following comments.

Generally a fund of the nature contemplated is a trust and is treated as an individual for tax purposes. A fund of this nature is also generally considered to be conducting a business with the result that all gains and losses are treated as being on income account.

A private investor in the fund would be a beneficiary of a trust and thereby be subject to a number of provisions of the Act. The fund might however, also qualify as a special form of trust such as a unit trust, mutual fund trust or registered investment, with the consequence that various other provisions of the Act could have application. In our opinion, you should seek the advice of specialized tax counsel should you wish to further consider these issues.

Revenue Canada does not administer the provisions of the federal Pension Benefits Standards Act and cannot comment on its investment requirements nor on the investment requirements of any of the provincial pension acts. With respect to RRSPs, eligible investments allowed are those provided in the Act or in the Income Tax Regulations. Units in your proposed trust would only qualify as an eligible RRSP investment if it met with certain conditions. Again in our opinion you should seek specialized counsel in this respect.

In response to your third concern, while a number of provisions of the Act may have application and no general rule can be applied, in most cases, a fund will be considered to be a foreign property if it holds more than 10% of its investments in foreign securities.

We trust our comments will be of assistance to you.