Canadian Agency Provides Guidance on Tax Exemption for U.S. Fund Investments

Washington, DC, September 15, 2000 - Under Canadian legislative proposals governing investments in foreign investment entities (FIEs), a Canadian taxpayer who held an investment in a FIE generally would be taxed each year on the FIE's realized income, as well as the unrealized gains in the securities held by the FIE, pursuant to a "mark-to-market" regime. Income recognition would thereby be accelerated to the taxpayer and any includible amounts would be fully taxable on an ordinary income basis.

As originally released, the FIE proposals did not preserve the exemption that exists under the current foreign investment fund rules for U.S. mutual funds treated as regulated investment companies (RICs).

The Canadian Department of Finance determined in a recent announcement that the tax policy objectives of the FIE proposals-"that of annual recognition of the FIE's income or growth"-can be met without subjecting RICs to their provisions.

The Institute submitted a letter to the Department of Finance expressing support for the proposed RIC exemption.