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.
Principal Issues: Will a pension corporation for the purposes of paragraph 149(1)(o.2) of the Act be entitled to make an election under subsection 259(3)?
Position: Yes, provided the pension corporation is a qualified corporation as defined in subsection 259(5) of the Act.
Reasons: Provisions of 259(1), (3) and (5).
XXXXXXXXXX 2003-005206
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation") XXXXXXXXXX
This letter is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the above-referenced Corporation. We acknowledge receipt of your letter dated XXXXXXXXXX and the information provided in our telephone conversations (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the Corporation, none of the issues involved in the ruling request is:
(i) in an earlier return of the Corporation or a related person;
(ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Corporation or a related person;
(iii) under objection by the Corporation or a related person;
(iv) before the courts; nor,
(v) the subject of a ruling previously issued by the Directorate.
For purposes of this ruling, the following terms have the following meanings:
a) "Act" means the Income Tax Act, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
b) "Province" means the Her Majesty in Right of the province of XXXXXXXXXX;
c) XXXXXXXXXX;
d) XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Corporation was established and incorporated by operation of the XXXXXXXXXX. Pursuant to XXXXXXXXXX, the Corporation is an agent of the Province.
2. The purpose and mandate of the Corporation is to provide funds management services for funds placed with the Corporation for investment. The Corporation started providing these management services on XXXXXXXXXX. XXXXXXXXXX.
3. The Corporation provides its services to various public sector pension funds, the Province, provincial government bodies (government corporations and institutions), designated institutions and trust funds, as defined in the Financial Administration Act. The public sector pension funds for which the Corporation provides its services are registered pension plans for purposes of the Act and trusts as described in paragraph 149(1)(o) (the "Pension Plans").
4. Pursuant to the XXXXXXXXXX, the Corporation has established or continued portfolios (the "Portfolios") in which the Pension Plans pool funds placed with the Corporation for investment purposes and under which the Corporation acts as trustee. Pursuant to the XXXXXXXXXX, the Portfolios are trusts established for the purpose of pooling investments, and for purposes of the Act, the Portfolios are each an inter vivos trust as defined in subsection 108(1) of the Act.
Proposed Transactions
5. The Corporation, on behalf of the Pension Plans and the Portfolios, will form one or more corporations (each, an "Investco") under the Canada Business Corporations Act that will have capital comprising of one class of common shares which shares shall, as a result of there being only one class, be identical to each other.
6. Funds and property placed by the Pension Plans with the Corporation for investment will be contributed to an Investco as share capital for common shares of the Investco. The Pension Plans will hold some common shares of the Investco directly and the balance of the shares of the Investco, representing the majority of the capital invested by the Pension Plans with the Corporation for the Investco, will be held by the Corporation through the Portfolios.
7. Each Investco will qualify as a corporation described under paragraph 149(1)(o.2).
8. Each Investco will make investments that will consist primarily of foreign property for purposes of Part XI.
9. Each Investco will make an election pursuant to subsection 259(3).
10. The Pension Plans will treat their investment in the Portfolios as foreign property for purposes of Part XI. As required under section 259 in regard to those shares of Investco held directly by the Pension Plans, the Pension Plans will include in their foreign property holdings their proportion of each property held by an Investco that is foreign property for purposes of Part XI.
Purpose of the Proposed Transactions
11. Some of the investments made by the Corporation for the Pension Plans include investments in the United States. If the Pension Plans invest directly in such investments they may become subject to United States tax filing obligations directly, which they wish, for administrative purposes, to avoid. Accordingly, it is proposed that an Investco act as an investment vehicle for the Pension Plans that would only subject the Investco to the tax filing obligations in the United States and not the Pension Plans themselves.
12. Investments by the Pension Plans have historically been made through Portfolios pursuant to the legislation and regulations governing the Portfolios and the Pension Plans, and as a result for ongoing administrative and regulatory reasons, funds placed by the Pension Plans with the Corporation are required, for the most part, to continue to be made through the Portfolios.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are as described above, we rule as follows:
A. Provided an Investco is a qualified corporation as defined in subsection 259(5) of the Act, the Investco will be entitled to make an election under subsection 259(3) of the Act.
B. Pursuant to subsection 206(2.1) of the Act, an Investco will be exempt from the application of subsection 206(2) in respect of any month that falls within a period for which the Investco is a corporation described in paragraph 149(1)(o.2) of the Act and the Investco elects in accordance with subsections 259(1) and (3) of the Act.
The above rulings, which are based on the Act in its present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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© Her Majesty the Queen in Right of Canada, 2004
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