Section 206

Paragraph 206(1)(c)

Administrative Policy

20 June 1996 TI 96122

A foreign currency forward contract entered into by a mutual fund with a Canadian resident person would not constitute intangible property situate outside Canada, given that both parties were resident in Canada. Similarly, put and call warrants issued by a Canadian financial institution or other Canadian contra party which would be settled for cash, and under which the settlement was determined by reference to a formula which was directly linked to foreign property, would not constitute intangible property situate outside Canada, although the provisions of paragraph (f) might apply with respect to a call warrant.

12 April 1995 External T.I. 9501555 - WARRANTS AS FOREIGN PROPERTY FOR RRSP

Except in unusual circumstances, RC would consider a warrant to be an intangible property but not a share or debt instrument. However, further information would be required in a situation where the warrants of a Canadian issuer were secured by unconditional guarantees of a U.K. parent or hedged by matching warrants issued by a U.K. parent or foreign affiliates.

30 August 1994 External T.I. 9420165 - FOREIGN PROPERTY-RPP

S.(c) does not apply to any share of the capital stock of a corporation or any bond, debenture, mortgage, hypothec, note or similar obligation. Ss.(d) to (g) cover the situations where shares or bonds can be foreign property. Accordingly, the fact that a foreign custodian acting as an agent for a trust governed by a registered pension plan holds share certificates or evidences of indebtedness outside Canada issued by a Canadian corporation is not by itself relevant for the purposes of s.(c).

22 June 1994 External T.I. 9413475 - COMMODITY FUTURES CONTRACTS

Commodity futures contracts on foreign commodities exchanges will be foreign property having a cost amount equal to the sum of the brokerage fees and other costs associated with or incidental to entering into the contracts. The amount of margin required as a deposit may also be foreign property depending on the precise nature of the deposit arrangement.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 132 - Subsection 132(6) commodity futures contracts 13

24 February 1994 External T.I. 9401775 - FOREIGN CURRENCY HELD BY REGISTERED PENSION

Although RC recognizes that registered plan receiving foreign currency can avoid the application of Part XI tax if they transfer the funds to Canada before the end of the month, an across-the-board administrative position to ignore the holding of foreign currency outside Canada would not in its view be proper.

Paragraph 206(1)(d.1)

Administrative Policy

16 March 2000 External T.I. 2000-0014105 - EXCHANGEABLE SHARE AS FOREIGN PROPERTY

In discussing whether an exchangeable share was foreign property, the Agency stated:

"Where it is determined that the shares of the Canadian corporation do not derive their value, directly or indirectly, primarily from foreign property, the exchangeable shares which are excluded by virtue of subparagraph 206(1)(f)(i) of the definition of 'foreign property' will not constitute foreign property even though the exchangeable share rights entitle the holder to certain voting rights in the foreign corporation, dividends which are based on dividends and market price changes of the foreign corporation's shares and no general voting rights in respect of the Canadian corporation."

11 October 1994 Internal T.I. 9417147 - RRSP QUALIFIED INVESTMENT IN DEBENTURES

A debenture of a Canadian corporation may be foreign property where the proceeds of the debenture are used to make real estate loans to a U.S. corporation, given that the loans to the U.S. corporation may constitute "portfolio investments".

"... the Department has decided that 'portfolio investments' as used in subsection 206(1) of the Act takes on its common dictionary meaning of 'all the securities held by an investor'. The interpretation is, perhaps, coloured by the use of this term in paragraph 94.1(1)(b) of the Act where certain properties listed as portfolio investments could be considered properties used in an active business ... . In any event, the Department has resisted restricting the term as is done in the CICA Handbook so as to include only passive investments ... although in document 900245 we state that loans made by a Canadian corporation in the course of carrying on the business of lending money would not be considered a portfolio investment ... ."

26 August 1994 External T.I. 9421335 - FOREIGN PROPERTY

"It is the Department's view that 'portfolio investments' in the context of paragraph 206(1)(d.1) of the Act means all the securities held by a taxpayer and is accordingly not confined to the investments defined as portfolio investments in section 3050 of the Canadian Institute of Chartered Accountants Handbook".

7 September 1989 TI 5-8316

"We have taken the general position that a guarantee given by a non-resident person in respect of a note, bond, or other similar obligation issued by a Canadian resident corporation would not be 'foreign property' under paragraph 206(1)(g) of the Act. However, based on your example we are unable to comment upon whether paragraph 206(1)(d.1) of the Act applies to the obligation or to the guarantee."

86 C.R. - Q.19

"Portfolio investment" generally has its meaning in commercial practice.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 94.1 - Subsection 94.1(1) 18

Paragraph 206(1)(f)

Administrative Policy

6 September 1995 External T.I. 9523295 - U.S. OPTIONS QUALIFIED PROPERTY

A call option listed on a U.S. exchange to acquire shares of a Canadian corporation listed on a prescribed stock exchange in Canada would not be foreign property.


Woods, "Dividend Access Shares", 1991 Canadian Tax Journal, p. 709.

Paragraph 206(1)(g)

Administrative Policy

2004 Ruling 2004-0060891R3 - Linked notes - foreign property rules

Ruling that the issuance of notes by the Canadian branch of a foreign bank whose principal amount was linked to the return generated on "notional investments" by the holder in foreign investment funds, in which the bank had invested, would not constitute foreign property and that s. 245(2) would not be applied to such transactions.

Paragraph 206(1)(h)

See Also

Henderson Estate v. M.N.R, 73 DTC 5471, [1973] CTC 636 (FCTD), aff'd 75 D.TC 5332, [1975] C.TC 485 (FCA)

Cattanach J. held that share purchase warrants do not confer rights in or over shares but only the right to have shares issued. The warrants were found to be situated in New York State because they were physically present there, notwithstanding that they conferred the right to acquire shares of a Quebec company.

Administrative Policy

2002 Ruling 2002-0134003 - FOREIGN PROPERTY DEBTS OF A TRUST

loan to trust not an interest in trust

Ruling that an unsubordinated unsecured interest-bearing loan made to a unit trust would not be foreign property.

2001 Ruling 2001-0076453 - Pre-paid Forward Contract - Mimic - Foreign

Mutual funds enter into cash-settled forward contracts with a counterparty under which they initially pay to the counterparty an amount equal to the value at that time of specified units of other mutual fund trusts (the "Underlying Funds") whose units are foreign property. In order to hedge itself, the counterparty enters into an agreement with the Underlying Funds. "When it is considered appropriate, the obligations of the counterparty under the Forward Contract will be guaranteed by another person who may or may not be resident in Canada ... ." The Agency ruled that the forward contracts will not be considered to be foreign property because they will be settled in Canadian dollars, and do not give a right to receive units of the Underlying Funds, would not otherwise be considered to be foreign property based on the situs of the contracts and do not involve indebtedness of a non-resident person.


A newly -established mutual fund invests in Canadian money market securities and enters into Canadian-dollar cash settled forward contracts with banks based on the net asset value at the time of settlement of a unit of existing mutual fund trusts that are invested in foreign property. RC rules that the forward contracts will not be foreign property and that their cost amount will not include the settlement price.

1999 Ruling 9918323 - XXXXXXXXXX Business of a Commercial Trust

notes of subsidiary unit trust of MFT were not foreign property - so that MFT's units also not foreign property

Mutual fund units would not be considered to be foreign property given that more than 80% of the fund's property (in terms of cost amount) was invested in interest-bearing promissory notes of a "subsidiary" unit trust ("CT") with a 25-year term, with the balance of its assets as units of CT.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(2) - Paragraph 108(2)(a) MFT's units are redeemable in cash for lesser of 90% of 10-day trading average and spot, with redemptions in excess of cash cap satisfied with pro rata units and notes of sub trust 270

30 November 1997 Ruling 982725A - DEBT OBLIGATION - FOREIGN PROPERTY

secured notes of trust not an interest in trust

Favourable ruling that where a trust that will be investing in debt instruments and engaging in swap transactions issues notes that are secured by its assets, those notes will not be foreign property.

30 November 1995 Ruling 9609943 - FORWARD CONTRACT, MARKETABLE SECURITY

Government of Canada bonds posted as initial or variation margin for futures contracts purchased on a foreign exchange will not constitute foreign property.

18 April 1995 External T.I. 9500895 - POOLED FUND TRUSTS

Foreign currency deposits with a Canadian bank or similar institution will not be foreign property. However, the foreign currency itself will be foreign property when acquired, even if on a temporary basis.

27 March 1995 External T.I. 9501185 F - QUALIFIED INVESTMENTS IN AN RRSP

The writing of a covered call option is not subject to the rules governing foreign property as it does not involve the acquisition of a property or a right by the RRSP".

10 March 1995 External T.I. 9500835 - QUALIFIED INVESTMENTS & FOREIGN PROPERTY

Canadian government bonds denominated in a foreign currency are not foreign property. Foreign currency itself would not be foreign property if it is situate in Canada.

17 June 1993 TI (Tax Window, No. 32, p. 19, ¶2618)

The writing of a call or put option has no effect on the foreign property rules in s. 206. The writing of the option does not result in the acquisition of property by the plan.

17 June 1993 TI (Tax Window, No. 32, p. 19, ¶2617)

A time share in a U.S. property would be foreign property. Accordingly, the tax under s. 206(2) would apply unless the property also was a non-qualified investment.

23 May 1991 TI (Tax Window, No. 3, p. 31, ¶1264)

A futures contract on a foreign asset acquired by a deferred income plan is foreign property, and the cost amount of the futures contract will be the brokerage fees plus other costs incidental to the acquisition of the contract, excluding the initial margin deposited with the broker.

88 CR - Q.59

A mortgage issued by a taxable Canadian corporation which is secured by foreign real property will not be foreign property if the debt obligation does not provide the holder with an interest in or right to acquire foreign property.

Paragraph 206(1)(i)

Administrative Policy


Favourable foreign property ruling where a mutual fund trust holds units of another mutual fund trust not representing more than 20% of the cost amount of all the property of the first mutual fund trust and the first mutual fund trust also uses derivative investments to mimic the return of the reference fund.


Favourable ruling respecting the establishment of mutual fund trusts that invest in forward contracts of financial institutions where the contracts mimic the return on underlying mutual funds holding foreign property.

16 August 1994 External T.I. 9418025 - SEGREGATED FUNDS AS TRUSTS FOR ALL OF ACT

A segregated fund is not a trust for purposes of Part XI. Accordingly, an interest therein would not be foreign property.

11 February 1994 Internal T.I. 9314227 - HAA 7234-1 SEG FUND IS A FROEIGN PROPERTY (TRUST)

A segregated fund policy is foreign property because it is deemed by s. 138.1(1) to be an inter vivos trust.

Paragraph 206(1.1)(d)

Administrative Policy


Also released under document number 2003-00148430.

A limited partnership ("LPII") with four limited partners that are special-purpose Canadian subsidiaries of other Canadian corporations and a general partner with a nominal partnership interest has, as its sole asset, a limited partnership interest of a second limited partnership ("LPI") that is carrying on a Canadian business and all of whose assets are Canadian. It is ruled that bonds issued by LPI will not be foreign property provided that each corporate partner's proportionate share of employment expenses for purposes of clause 206(1.1)(d)(iii)(C) exceeds the $250,000 threshold. "Given the fact that the assets of [LPI] are 100% Canadian and the terms of the limited partnership arrangement, i.e., the corporate general partner [of LPII] has no substantive economic interest in the partnership, .01%, the corporate general partner's nominal interest need not be considered when determining whether this test is met."

12 September 2002 External T.I. 2002-0140935 - FOREIGN PROPERTY - SUBSTANTIAL CDN. PRESENCE

Employees of a limited partnership will be considered to be employees of the majority interest partner for purposes of s. 206(1.1)(d)(iii)(A).

2000 Ruling 1999-0012793 - FOREIGN PROPERTY TAX

Ruling based on s. 206 (1.1)(d)(iii)(B) that a mutual fund trust was able to hold U.S. investments outside its foreign property basket by transferring Canadian operating companies to Canadian holdcos, and having the Canadian holdcos make the U.S. investments.

15 July 1997 External T.I. 9716045 - SUBSTANTIAL CANADIAN PRESENCE

"With respect to services relating to the corporation's overhead which cannot be specifically traced to its own or a non-arm's length corporation's identified investment activity, the expenses for those services may be included in the total use to satisfy the $250,000 minimum expenditure test. Overhead refers to costs such as legal, audit and directors' fees relating to the corporation's general corporate activities."


Because an amalgamated corporation is not "incorporated" by virtue of an amalgamation under the Canada Business Corporations Act or the Business Corporations Act (Ontario), it will be unable to benefit from the relief provided by s. 206(1.1)(d)(iii)(E). However, because it is a continuation of its predecessors, it will comply with s. 206(1.1)(d)(i)(A), if each predecessor was required under either such statute (or similar provincial statutes) to maintain an office in Canada.

10 April 1997 External T.I. 9703265 - SUBSTANTIAL CANADIAN PRESENCE

If shares are acquired on the date of incorporation and the $250,000 test in s. 206(1.1)(d)(iii)(E) is satisfied later in that calendar year, the shares will be considered to not be foreign property from the date of acquisition. If by December 31 the $250,000 threshold has not been exceeded, the shares will be considered to be foreign property from their date of acquisition.

13 February 1997 External T.I. 9701235 - SUBSTANTIAL CANADIAN PRESENCE

"The term 'services ' ... includes services performed under contract to or for the relevant corporation by an independent underwriting firm in the context of an offering of shares, warrants and/or debt of the relevant corporation to the public; the amount incurred for such services may include the commissions paid by the relevant corporation to the underwriters for their services rendered ... ."

Where the service provided by a law firm requires it to incur disbursements that are incidental to the services rendered, billings for such disbursements may be included in the computation of amount paid for such services.

15 October 1996 External T.I. 9634015 - SUBSTANTIAL CANADIAN PRESENCE

"Where the corporation in question (the 'relevant corporation') enters into a contract with another corporation or partnership, the expenses paid by the relevant corporation relating to the services rendered to the relevant corporation by employees of the other corporation or the partnership, or to services rendered to the relevant corporation by the partners will be considered to be expenses incurred by the relevant corporation for the services of the other individuals ... . [T]he services provided by 'other individuals' need not be of the kind which are normally provided by employees."

17 October 1996 External T.I. 9634235 - SUBSTANTIAL CANADIAN PRESENCE

A corporation that has no employees in Canada and no office in Canada other than a registered office (i.e., the office of its Canadian lawyers) that it is required to have in Canada under its articles of incorporation, will qualify as having an "office" in Canada.

15 October 1996 Administrative Letter 963382A - SERVICES OF OTHER INDIVIDUALS

"The services provided by 'other individuals' need not be of the kind which are normally provided by employees."

Subsection 206(2) - Amount of tax payable

Administrative Policy


Also released under document number 2003-00418230.

The establishment by a pension corporation of a subsidiary pension corporation for the purpose of increasing the percentage of underlying foreign property that could be held on a consolidate basis would not offend the provisions of section 206 (or 259).

7 January 2003 External T.I. 2002-0159065 - SWAP AGREEMENT FOREIGN PROPERTY

The cost amount to a pension fund of a foreign currency swap agreement entered into under ISDA standard terms would be the aggregate of any brokerage or similar fees incidental to entering into the swap agreement, and the cost amount would not include the value of the collateral that is posted from time to time.

29 January 2002 External T.I. 2001-0105795 - REGISTERED PLANS FOREIGN PROPERTY

Units and shares are considered to be acquired on the date they are delivered, which typically is the settlement date.

29 October 2001 External T.I. 2001-0099135 - RRSP FOREIGN PROPERTY TAX

As it is the position of the Agency that a share traded on a stock exchange will usually be considered to have been disposed of and acquired on the settlement date, excess foreign content will be calculated pursuant to s. 206(2) on the date the shares are delivered rather than on the record date.

31 May 1999 External T.I. 9906745 - FOREIGN PROPERTY - COST AMOUNT

Because the delisting or suspension of trading of a share does not cause the taxpayer to cease to own its share, or cause a disposition of its share, such event will not result in a reduction in the cost amount of its share.

17 February 1999 External T.I. 9832275 - RRSP, WRITE-OFF MORTGAGE

There is no provision allowing for the write-off of a mortgage held by an RRSP.


The cost amount of units of a mutual fund trust that is foreign property include the amount of dividend distributions that have been reinvested in additional units.

30 November 1995 Ruling 9609943 - FORWARD CONTRACT, MARKETABLE SECURITY

The cost amount for purposes of s. 206(2) of investments in exchange-traded futures contracts and forward currency contracts will be equal to the brokerage fees and other costs incidental to entering into the contract, and will not include an amount in respect to the contract price or amounts paid as initial or variation margin.

28 April 1995 External T.I. 9501905 - TRANSFERS TO AND FROM REGISTERED PLANS

The only exception to the rule that transfers of property between registered plans occur at fair market value applies where property in an annuitant's RRSP is transferred to another RRSP of the same annuitant. In these circumstances, the adjusted cost base of the transferred property is maintained.

10 March 1992 Memorandum (Tax Window, No. 17, p. 18, ¶1799)

Where shares of a Canadian corporation held in an RRSP are exchanged for shares of a U.S. corporation having a fair market value lower than the ACB of the shares of the Canadian corporation, the cost amount of the shares of the U.S. corporation for purposes of s. 206(2) will be their fair market value.

19 June 1990 TI (November 1990 Access Letter, ¶1533)

Example of the interrelationship of the qualified property and foreign property rules.

11 July 1989 TI (Dec. 89 Access Letter, ¶1063)

There is no provision in the Act to deem a disposition of an investment and a repurchase at the time it becomes a foreign property; therefore, its cost amount generally will be its original acquisition cost.


8 April 1999 Letter of Paul Martin to IFIC:

"Canada has been facing serious challenges of government indebtedness and foreign debt. The foreign property limit strikes a balance by ensuring that a significant portion of tax-assisted retirement savings are invested in Canada, while providing appropriate diversification opportunities for retirement savings of Canadians."

Subsection 206(2.1)

Administrative Policy

2004 Ruling 2003-0052061R3 - 259(3) Election - 149(1)(o.2) Pension Corporation

A corporation that is an agent of a Province establishes wholly-owned corporations ("Investco's") that will qualify as s. 149(1)(o.2) corporations and which invest primarily in U.S. property (so that the Investcos rather than the pension plans which have placed funds with the Corporation for investment will be subject to U.S. tax filing obligations). Each Investco will be entitled to make the election under s. 259(3), and pursuant to s. 206(2.1) each Investco will be exempt from the application of s. 206(2).

Subsection 206(4) - Payment of amount collected to RDSP

Administrative Policy

Tax Professionals Mini Round Table - Vancouver - Q. 6 (March 1993 Access Letter, p. 103)

S.206(4) does not apply to the transfer of property from one trustee of a self-administered RRSP to another trustee, as there is no disposition on such a transfer.


W. Holmes, M. Colborne, "Foreign Property Rules and Transfer of Assets", Taxation of Executive Compensation and Retirement, Vol. 9, No. 8, April 1998, p. 135

Discussion of the effect on cost amount when property is transferred from an RRSP or RRIF to another such plan.