3 October 1995 External T.I. 9525565 - RPP

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 RPP are exempt from tax under the Act on foreign income?

Position TAKEN:

Yes. Part XI tax is not a tax on income.

Reasons FOR POSITION TAKEN:

Provisions of the Act.

			5-952556
XXXXXXXXXX		Robert Gagnon

Attention: XXXXXXXXXX

October 3, 1995

Dear Sirs:

Re: Registered Pension Plans

This is in reply to your letter of March 29, 1995 wherein you requested a technical interpretation addressed to the Montreal Tax Services. Your request has been forwarded to the Income Tax Rulings and Interpretation Directorate for reply. We apologize for the delay in replying.

Paragraph 149(1)(o) of the Income Tax Act ("Act") provides that the income of a trust established solely for the administration of a registered pension plan ("RPP") is exempt from taxation under Part I of the Act. The income of a RPP for the purposes of the Act includes the investment incomes of the RPP, including interest, dividend, and gain from the disposition of property.

The provisions of Part XI of the Act provide rules which restrict the foreign investment decisions of trustees and plan administrators who oversee the investments of RPP. In summary, the provisions provide that a monthly penalty tax of 1% of the cost of all foreign properties held by a RPP is payable by the RPP to the extent that the cost of its foreign properties exceeds the foreign property limit. The foreign property limit is 20% of the cost of all properties held by a RPP. The tax under Part XI of the Act is not a tax on the income of RPPs. It is a penalty for RPPs which purchase foreign investments in excess of the limit of 20%. There is no Part XI tax payable by a RPP where the RPP does not purchase foreign property in excess of the limit of 20%. The purpose of the tax is to promote the investment in Canada by RPPs.

The definition of foreign property under the Act includes any share of the capital stock of a corporation other than a Canadian corporation.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

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