Section 142.2

Generally, the following property is excluded property:

• a share of a corporation in which the financial institution has a significant interest at any time in the year;
• a property that is, at all times in the year at which the financial institution held the property, a prescribed payment card corporation share of the financial institution;
• a property that is, at all times in the year at which an investment dealer held the property, a prescribed securities exchange investment of the investment dealer;
• a share of a corporation held at any time in the year by a financial institution where, within the 24-month period hat begins immediately after the end of the year, control of the corporation is acquired by the financial institution (alone or together with persons related to the financial institution) and the financial institution elects to treat the share as not being mark-to-market property; or
• a prescribed property (see section 9002 of the Income Tax Regulations).

The determination of whether a property is fair value property "must be made in accordance with Canadian GAAP (which includes IFRS as applicable) applied on a non-consolidated basis, not on some other basis."

A new trust that is established with "seed money" contributed by a manager or sponsor that is a financial institution will itself be a financial institution until the time that investors purchase units in the trust, thereby reducing the interest of the manager or sponsor below the 50% threshold.

After noting that units of a mutual fund trust held by an insurance company (a "restricted financial institution") are not "mark-to-market property," CRA indicated that, based on Friesen having established that there were two categories of property (capital and inventory), so that if the units were held on income account, they were inventory.

Generally, a "tracking property" is defined in subsection 142.2(1) of the Act as a property the FMV of which is determined primarily by reference to specified criteria in respect of another property that, if owned by the taxpayer, would constitute a mark-to-market property. The specified criteria include the FMV of the tracked property, the profits or gains from the disposition of the tracked property, the revenue, income or cash flow from the tracked property, or any other similar criteria in respect of the tracked property. Basically, the tracking property rules provide for a "look through" to determine whether the tracked property, if held directly by the taxpayer, would be mark-to-market property. Note that the tracking property definition was added and other amendments to the mark-to-market property rules were made to better align the tax rules with accounting changes that came into effect on October 1, 2006.

The tracking property rules are anti-avoidance provisions which should be interpreted broadly. Therefore, there need not be a direct mechanism linking the value of a property to a particular tracked property, as long as the two are correlated in some way.

If the particular tracked property is corporate shares, it is necessary to determine whether the taxpayer would have a significant interest in the corporation if it held the shares directly:

[I]t is our view that the taxpayer's percentage interest in the tracking property must be applied to the tracked property to determine the percentage that would be held by the taxpayer.

[A] property does not have to meet the requirements of the definition of tracking property at the time of its disposition in order to be a mark-to-market property for the year as long as it was a tracking property and a fair value property at some point in the year, and not an excluded property at any time in the year.

Under the above interpretations, a warrant is generally considered tracking property.