3 October 2002 External T.I. 2002-0146585 - FOREIGN PROPERTY OF REGISTERED PLANS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

1. Can the 24 month grandfathering relief in 206(2)(a)(iii) be applied by a trustee, in respect of property that was not foreign which becomes foreign property, to all of its registered plans?

2. How would tax that was incorrectly remitted by the trustee due to failure to apply the 206(2)(a)(iii) relief be claimed?

3. What are the trustee's responsibilities in applying the relief?

Position:

1. No.

2. Plan trustee must file tax return for the year in question, or if already filed, a request for reassessment.

3. Explained the usual filing and remittance requirements imposed on the plan trustee by the Act.

Reasons:

1. Wording in 206(2) is clear.

2. 164(1) and a telephone conversation with Kevin Stackhouse in the Trusts and Pension Section at IRPPD, confirming that they would not administratively provide any other faster method to claim the refund.

3. 207(1) and (2)

XXXXXXXXXX 2002-014658
P. Kohnen
October 3, 2002

Dear XXXXXXXXXX:

Re: Request for technical interpretation - Foreign Property of Registered Plans

This is in reply to your facsimile of June 13, 2002 wherein you requested our views with respect to several follow-up issues relating to our comments in document 2001-010005, dated May 3, 2002.

Our Comments:

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

As was noted in our previous letter referred to above, subsection 206(2) in Part XI of the Income Tax Act (the "Act") generally provides that, where at the end of any month after 2000 the total cost amount of foreign property held by a taxpayer described in any of paragraphs 205(a) to (f) of the Act exceeds 30% of the cost amount of all property held at that time by that taxpayer, the taxpayer is subject to a tax in respect of that month of 1% of the lesser of the excess and the total of the cost amounts of all foreign properties acquired after June 18, 1971.

For months ending after December 20, 1991, subparagraph 206(2)(a)(iii) of the Act provides an exception to the general rule above, in that where property has become foreign property after its acquisition by the taxpayer, its cost amount will not be included in calculating tax under subsection 206(2) for a period of 24 months after the time that the status of the property has changed.

It should be noted that subsection 206(2) of the Act is applied on a taxpayer specific basis, to each taxpayer described in paragraphs 205(a) to (f) of the Act. Accordingly, for the example which you submitted in which a security that was not foreign property becomes foreign property on a particular date, say May 15, 2002, the potential 24-month grandfathering relief period can not be arbitrarily applied to every registered plan taxpayer.

The 24-month grandfathering under subparagraph 206(2)(a)(iii) of the Act only applies where property becomes foreign property after it was last acquired by the taxpayer. Any taxpayer that did not last acquire the property before it became foreign property (that is before May 15, 2002 in your example), would not be eligible for the grandfathering relief. Accordingly, any taxpayer that acquired the property after May 14, 2002 would not be eligible for the grandfathering.

Where Part XI tax is exigible, it is payable by the taxpayer to which it applies. The trustee for the registered plan taxpayer, as part of their normal fiduciary duties, would typically be expected to remit the payment from trust assets, on behalf of the taxpayer.

As also noted in our previous letter, subsection 207(1) of the Act requires that a taxpayer liable for Part XI tax must file a return (a T3IND for a registered retirement savings plan or a registered retirement income fund), and pay any tax owing thereon, within 90 days after the year to which the tax is applicable. The tax year for a registered plan trust is the calendar year. In accordance with subsection 207(2) of the Act, if the trustee does not remit the tax within 90 days after the end of the tax year, then the trustee becomes personally liable to pay the tax.

In a situation in which a plan trustee has withheld and remitted tax in respect of excess foreign property held by a taxpayer that is a registered plan, pursuant to subsection 206(2) of the Act, and it is subsequently determined that subparagraph 206(2)(a)(iii) provides grandfathering relief to the taxpayer, a request for a reassessment to claim a refund of the tax remitted in respect of years for which a tax return has been filed must be made by a written request from the plan trustee, pursuant to subsection 164(1) of the Act. Where the return has not yet been filed for the years in question, the refund may be claimed by the plan trustee when filing the tax return(s) at the end of the applicable year(s).

We trust that the above comments are of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate