23 July 1999 External T.I. 9907265 - U.K. PERSONAL EQUITY PLAN

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 Department.

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

Principal Issues: Can we exempt the income earned on investments held in a U.K. Personal Equity Plan from income taxes in Canada because the U.K. does not tax such income?

Position: No.

Reasons: The Act does not provide for this favourable treatment.

XXXXXXXXXX 990726
M. P. Sarazin
July 23, 1999

Dear Sir:

Re: U.K. Personal Equity Plan

This is in reply to your letter dated March 14, 1999, wherein you requested our comments in respect of the taxation of the income earned on your investments held in a U.K. Personal Equity Plan (“PEP”).

Based on information available over the internet, PEPs were first introduced by the U.K. Government in 1987 to promote wider share owning among the general public. PEPs allow investors to hold investments in equities, unit trusts and investment trusts. PEPs are investments that are totally tax exempt (both on the capital and income side) in the U.K. Individuals aged 18 or over that reside in the U.K. are entitled to invest up to 6,000 U.K. pounds in a General PEP and 3,000 U.K. pounds in a single share PEP in any tax year. Generally, eligible individuals invest in PEPs in order to accumulate general savings for mortgage repayment vehicles, school fees planning and retirement planning. PEPs are not pension plans for purposes of U.K. income taxes.

In 1998, you became a resident of Canada and you still hold investments in PEPs. You have advised us that some of the property accumulated in your PEPs will be used to help fund future eligible contributions to an RRSP and the balance of the property in the PEPs will be used to fund your retirement. You are of the view that, since the income earned on the investments held within the PEP is exempt from income taxes in the U.K., the income earned on such investments should not be taxed in Canada.

Comments

In your letter you have outlined what appears to be an actual fact situation related to completed transactions. We must advise you that the review of such transactions falls within the responsibility of tax services offices. However, we can provide you with the following general comments.

We enclose a copy of the Revenue Canada pamphlet titled “Newcomers to Canada” (T4055). This pamphlet introduces you to the Canadian income tax system as it relates to becoming a Canadian resident.

As a resident of Canada, you have to report your world income (inside and outside of Canada). This would include employment income, pension income and investment income. In our view, investment income would include income earned on investments held in your PEP. This is the case even though the PEP is given preferential tax treatment under U.K. income tax legislation.

In order to determine what amounts have to be included in your income under the Income Tax Act (Canada) and whether such income may be subject to special tax treatment under the Canada-U.K. Income Tax Convention, we would have to review the structure of each PEP and the particular investments held in each PEP. In this respect please contact the Winnipeg Tax Services Office at the address or phone number indicated for Revenue Canada in the Government of Canada section of your telephone book.

In your letter, you state that you intend to use property from your PEPs to fund your contributions to a registered retirement savings plan (“RRSP”). We have enclosed a copy of Interpretation Bulletin IT-124R6 and Interpretation Bulletin IT-528 (see paragraph 26 in particular) which provide the Department’s general views with respect to contributions to RRSPs and transfers between registered plans.

We trust the above comments will be of assistance.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate

ENCLOSURE

- 2 -