22 September 2005 Excise Ruling 63685 - Exemption Request - Financial Guarantee Insurance

Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.

Dear XXXXX:

Thank you for your correspondence concerning your client XXXXX and your request for an exemption with respect to the 10% tax under Part I of the Excise Tax Act (the "ETA") relating to a financial guarantee insurance policy to be issued by XXXXX (a XXXXX domiciled stock insurance corporation).

All legislative references are to the ETA and the regulations therein, unless otherwise specified.

Background

This letter is further to your facsimile XXXXX where you requested that we provide you with written confirmation that XXXXX would not be subject to the 10% tax otherwise imposed under Part I of the ETA for the XXXXX calendar year on the basis that financial guarantee insurance is not available in Canada.

You provided us with a XXXXX draft copy of the insurance and indemnity agreement, a draft copy of the trust indenture, a XXXXX draft copy of the XXXXX financial guaranty insurance policy, and a memorandum XXXXX commenting on the transaction. You advised that the transaction in question is to take place on XXXXX.

You provided us with a letter XXXXX from the Office of the Superintendent of Financial Institutions, stating that financial guarantee insurance is not available, at this time, as a class of property and casualty insurance for a federally regulated entity in Canada.

Statement of Facts

We understand that the financial guarantee insurance policy in question will be issued to a Canadian trust company on behalf of a trust that is purchasing notes in Canada. The draft insurance policy (identified as XXXXX, your document reference number XXXXX) will be issued by XXXXX.

The financial guarantee insurance policy to be issued by XXXXX will provide protection to the trust in respect of a payment flow that the trust is to receive from the notes. The notes in question are supported by a pool of residential mortgages under a residential mortgage loan securitization transaction.

The insurance policy will provide that if the amount available in certain accounts relating to the securitization mortgage loans is not sufficient to cover the interest and principal payments that are to be made under the notes, a notice of claim will be submitted to the insurer.

Ruling Requested

You would like to know whether or not XXXXX would be exempted from the 10% tax otherwise imposed under Part I of the ETA for the XXXXX calendar year with respect to the financial guarantee insurance policy in question, issued by XXXXX.

Ruling Given

Please note that an application (or advance) ruling is issued in respect of specific transactions; for example, an Excise tax ruling may be issued with respect to a specific agreement between two identified persons, and it would pertain only to that agreement.

An advance Excise tax ruling refers to specific persons, specific transactions and specific time periods within which the transactions must be completed. An application ruling generally relates to ongoing transactions and does not specify time limits. An advance ruling is therefore more appropriate in this particular situation.

Our reply to the following request concerning the application of the 10% tax under Part I of the ETA is based on the assumption that the terms of the final, executed agreements do not differ materially from the draft agreements submitted.

Based on the facts set out above, and pursuant to paragraph 4(2)(b) of the ETA, we rule that XXXXX would be exempted from the 10% tax otherwise imposed under Part I of the ETA for the XXXXX calendar year with respect to the financial guarantee insurance policy (identified as XXXXX, your document reference number XXXXX), to be issued by XXXXX on the basis that the particular class of insurance is not available from authorized insurers at this particular point in time.

This ruling is subject to the qualifications in GST/HST Memorandum 1.4, Goods and Services Tax Ruling with such modifications, as the circumstances require. We are bound by this ruling provided that none of the above issues is currently under audit, objection, or appeal, that no future change to the Excise Tax Act, regulations or our interpretative policy affect its validity, and all relevant facts and transactions have been fully disclosed.

If you require clarification with respect to any of the issues discussed in this letter, please contact me at (613) 941-2348.

Yours truly,

Douglas Wood, CGA
Rulings Officer
Other Levies Unit
Excise Duties & Taxes Division
Excise and GST/HST Rulings Directorate

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