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: Is the investor acquiring the mortgages in a XXXXXXXXXX held security? Does withholding apply?
Position: 1. The investor is acquiring the mortgage. 2. Exemption under 212(1)(b)(ii)(C)(i).
Reasons: 1/ Facts indicate that legally investors are acquiring ownership of the mortgages. 2/ wording of the Act
XXXXXXXXXX 2004-008193
XXXXXXXXXX, 2004
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in response to your letter of XXXXXXXXXX, wherein you requested advance income tax rulings on behalf of the above-noted taxpayer.
We understand that to the best of your knowledge and that of the taxpayer involved none of the issues involved in the requested ruling is:
(i) in an earlier return of a taxpayer identified in this document or of a related person,
(ii) being considered by any Tax Services Office or Taxation Centre in connection with a tax return already filed,
(iii) under objection by a taxpayer identified in this document or by a related person; and
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts and proposed transactions is as follows:
Facts
1. XXXXXXXXXX.
2. XXXXXXXXXX.
3. XXXXXXXXXX.
4. The Canadian income tax treatment of XXXXXXXXXX issued before XXXXXXXXXX forms the subject of a series of advance income tax rulings, including the advance ruling number 2002-017434, issued to A Co on XXXXXXXXXX, 2003.
5. The rulings requested result from, inter alia, the obligation of the issuer of XXXXXXXXXX to disclose to potential investors the principal Canadian federal income tax consequences of purchasing, holding and disposing of XXXXXXXXXX.
Proposed Transactions
6. An issuer of XXXXXXXXXX (generally, a financial institution) (the "Issuer") will accumulate a pool of mortgages, which are insured against borrower default by A Co or Insurance Co and sell an undivided interest in the mortgages to investors (the "Investors"). The mortgages will be sold, on a fully-serviced basis, by the Issuer for a single aggregate consideration, with respective undivided beneficial ownership interests in such pool represented by XXXXXXXXXX, as described in more detail below.
XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
10. XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. XXXXXXXXXX.
15. XXXXXXXXXX.
16.XXXXXXXXXX.
Purpose of the Proposed Transactions
It is anticipated that the issuance of XXXXXXXXXX will further the stated intent of the XXXXXXXXXX program, which is to XXXXXXXXXX.
Rulings Given
Provided that the above description of facts, proposed transactions and purpose of the proposed transaction are accurate and constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose thereof, and provided further that the proposed transactions are completed in the manner described above, we confirm that:
A. Amounts received or receivable, or where applicable, accrued, as, on account or in lieu of payment of, or in satisfaction of interest in respect of a XXXXXXXXXX, whether through the Issuer, the XXXXXXXXXX or by XXXXXXXXXX pursuant to its guarantee as described in paragraph 8 above will be included in the income of an Investor resident in Canada pursuant to paragraph 12(1)(c) of the Act or, where applicable, subsection 12(3) of the Act.
B. Provided that it is reasonable in amount, the servicing fee referred to in paragraphs 12 and 13 above in respect of a XXXXXXXXXX will be deductible in computing the income of the Investor pursuant to section 9 and the deduction thereof will not be limited by paragraph 18(1)(a) of the Act nor precluded by paragraph 18(1)(b) of the Act. Consequently, Investors, other than a "financial institution" within the meaning of that term as defined in subsection 142.2(1) of the Act, will be permitted to report for Canadian income tax purposes the net amount remitted or to be remitted to it by, or on behalf of, the Issuer as described in paragraph 12 above.
C. XXXXXXXXXX.
D. By virtue of the fact that the interest in respect of a XXXXXXXXXX will be paid on a monthly basis as described in paragraph 11 above and that the Investor (other than an investor to whom subsection 12(3) of the Act applies) will have included in computing income throughout each of the Investor's preceding years in which the Investor held the XXXXXXXXXX, the interest accrued thereon for the monthly periods ending in such preceding years, for the purpose of subsection 12(4) of the Act, a XXXXXXXXXX will not be an "investment contract", as that term is defined in subsection 12(11) of the Act, of such an Investor.
E. By virtue of subclause 212(1)(b)(ii)(C)(I) of the Act, interest paid or credited in respect of a XXXXXXXXXX to an Investor who is not resident in Canada will be exempt from tax pursuant to paragraph 212(1)(b) of the Act.
F. For purposes of subsections 214(6) and 214(7) of the Act, a XXXXXXXXXX is an "excluded obligation" within the meaning of paragraph 214(8)(a) of the Act by virtue of the fact that the interest paid or credited in respect thereof is exempt from tax by reason of subclause 212(1)(b)(ii)(C)(I) of the Act.
G. Provided that an Investor that is not a "financial institution" within the meaning of that term as defined in subsection 142.2(1) of the Act, holds a XXXXXXXXXX as capital property, as that term is defined in subsection 248(1) of the Act, the amount of any gain or loss realized by the Investor upon a disposition of the XXXXXXXXXX will be a "capital gain" or a "capital loss" within the meaning of those terms in subsection 39(1) of the Act.
H. A XXXXXXXXXX will be a "qualified investment" for a registered retirement savings plan pursuant to paragraph (a) of that definition in subsection 146(1) of the Act, for a registered retirement income fund pursuant to paragraph (a) of that definition in subsection 146.3(1) of the Act, for a registered education savings plan pursuant to paragraph (a) of that definition in subsection 146.1(1) of the Act and for a deferred profit sharing plan or a revoked plan pursuant to paragraph (b) of the definition of that term in section 204 of the Act.
I. For purposes of section 116 of the Act, a XXXXXXXXXX is an "excluded property" within the meaning of paragraph 116(6)(d) of the Act.
J. Pursuant to subsection 248(4) of the Act, a XXXXXXXXXX will not constitute an interest in real property for purposes of the Act.
K. Where an Investor, that is a "financial institution" within the meaning of that term as defined in subsection 142.2(1) of the Act, holds a XXXXXXXXXX that is a "mark-to market property", as that term is defined in subsection 142.2(1) of the Act, the amount of any income, gain or loss arising therefrom will be determined pursuant to section 142.5 of the Act.
L. Where an Investor, that is a "financial institution" within the meaning of that term as defined in subsection 142.2(1) of the Act, holds a XXXXXXXXXX that is a "specified debt obligation" that is not a "mark-to-market property", as those terms are defined in subsection 142.2(1) of the Act, the amount of any income, gain or loss arising therefrom will be determined pursuant to sections 142.3 and 142.4 of the Act.
These rulings are given subject to the general limitations and qualifications set out in Information Circular IC 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency in respect of XXXXXXXXXX issued from the date of this letter to XXXXXXXXXX.
These rulings are based on the Act in its present form and do not take into account amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.
Nothing in this letter should be construed as implying that the CRA has agreed to any other tax consequences relating to any facts or proposed transactions referred to herein other than those as specifically described in the rulings given above.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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© Her Majesty the Queen in Right of Canada, 2004
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