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: Will a property held by an RRSP, DPSP, RRIF or RESP that ceases to be a qualified investment for the plan be subjected to the various provisions of the Act that deal with the particular plan holding an investment that does not qualify as a qualified investment?
Position: Yes.
Reasons: The relevant provisions of the Act do not contain an exception for a property that ceases to be a qualified investment.
XXXXXXXXXX 2002-011737
Karen Power, CA
February 20, 2002
Dear XXXXXXXXXX:
Re: Qualified Investment Becoming a Non-Qualified Investment
This is in reply to your facsimile of January 8, 2002, requesting confirmation that qualified investments under paragraph 4900(1)(s) of the Income Tax Regulations (the "Regulations") held by a registered retirement savings plan ("RRSP"), deferred profit sharing plan ("DPSP"), registered retirement income fund ("RRIF") or a registered education savings plan ("RESP") (collectively, referred to as the "Plans") that cease to be qualified investments as of January 1, 2002 will result in the application of certain provisions of the Income Tax Act (the "Act").
Paragraph 4900(1)(s) of the Regulations provides transitional relief in respect of certain non-qualified investments. This paragraph deems securities quoted on the over-the-counter bulletin board operated by NASDAQ Stock Market, Inc. or on the over-the-counter quotation service operated by Pink Sheets, LLC, which were acquired by a deferred plan in an arm's length transaction completed before September 1, 2000, to be a qualified investment until December 31, 2001.
Where paragraph 4900(1)(s) of the Regulations applies to a property to prescribe it as a qualified investment until December 31, 2001, there is no acquisition on January 1, 2002 of a non-qualified investment. However, if, after December 31, 2001, the Plans continue to hold property, to which paragraph 4900(1)(s) of the Regulations applied, the Plans will be subject to tax under section 207.1 of the Act (Part XI.1). Subsections 207.1(1), (2), (3) and (4) of the Act, which apply to RRSPs, DPSPs, RESPs and RRIFs, respectively, impose a tax at the end of each month on the Plans in respect of non-qualified investments held by it. The amount of tax payable for each month is equal to 1% of the fair market value of the property at the time it was acquired by the Plans of all such property that the Plans continue to hold that constitutes a non-qualified investment.
Furthermore, subsections 146(10.1) and 146.3(9) of the Act, which apply to RRSPs and RRIFs, respectively, will result in the earnings for the year in respect of non-qualified investments held by the respective RRSP or RRIF trust in the year being subjected to tax under Part I of the Act. The tax is payable upon a notional taxable income calculated by reference to income or loss from non-qualified investments, and capital gains and capital losses derived from dispositions of such investments. For this purpose, income includes, interest, dividends, capital dividends and the full amount of capital gains in excess of capital losses, unreduced by the fractions set out in paragraphs 38(a) and (b) of the Act.
An RESP that continues to hold a property to which Regulation 4900(1)(s) deems to be a qualified investment up to December 31, 2001 may become revocable. In accordance with paragraph 146.1(2.1)(b) of the Act, if property held by an RESP ceases to be a qualified investment, and is not disposed of within 60 days of becoming a non-qualified investment, the RESP becomes revocable.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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