2014-0527921E5 "EXEMPT TRUST" UNDER S. 233.2(1)

Principal Issues: Whether the Australian "ipac select superwrap personal super plan" is an "exempt trust" as defined in subsection 233.2(1)?

Position: Question of fact.

Reasons: Where the plan is a trust and exempt from tax, then it may qualify as an exempt trust.

Author: Tsang, Peky
Section: 233.2(1) "exempt trust"; 233.3(1) "specified foreign property";

XXXXXXXXXX
2014-052792
P. Tsang

August 19, 2014

Dear XXXXXXXXXX:

Re: Australian Pension Plan and Exempt Trust

This letter is in reply to your correspondences of April 13, 2014 and May 6, 2014 regarding the Australian “ipac select superwrap personal super plan” (hereinafter the “IPAC”). According to your submissions, this is an Australian pension plan and the fund is taxed depending on how amounts were contributed into the fund. You indicated that employer contributions are taxed in the fund, but voluntary contributions are not taxed in the fund. Your situation involves voluntary contributions. You have asked whether the IPAC is considered an “exempt trust” such that it is exempt from being reported on the Form T1135, Foreign Income Verification Statement.

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in information circular (IC)70-6R5, “Advance Income Tax Rulings”.

A taxpayer is required to file Form T1135 where at any time in the year the taxpayer’s total cost amount of all “specified foreign property” exceeded CAN $100,000. According to subsection 233.3(1) of the Act, the definition “specified foreign property” may include foreign pension plans. There are, however, certain properties that are excluded from being a “specified foreign property”. One of the excluded properties is an interest in a trust described in paragraph (a) or (b) of the definition “exempt trust” in subsection 233.2(1) of the Act.

Paragraph (a) of the definition of “exempt trust” refers to a trust that is governed by a foreign retirement arrangement. Foreign retirement arrangements are plans or arrangements governed by section 408(a), (b) or (h) of the U.S. Internal Revenue Code of 1986, as amended from time to time.

To qualify under paragraph (b) of the definition of “exempt trust”, there are four conditions a trust must meet. These are:

1. the trust must be resident in a country which imposes an income tax;
2. the trust must be exempt from income tax in that country;
3. the trust must be established principally in connection with, or its principal purpose must be to administer or provide benefits under, one or more superannuation, pension or retirement funds or plans or any funds or plans established to provide employee benefits; and
4. the trust must be maintained primarily for the benefit of non-resident individuals or, governed by an employees profit sharing plan.

Whether the IPAC is a trust can only be determined after a review of all the facts and relevant documents. Where the IPAC is a trust and meets all the conditions of an “exempt trust”, then it would be exempt from the Form T1135 reporting.

We trust that our comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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