24 January 2005 Ministerial Correspondence 2004-0097081M4 - Qualified investments for an RRSP

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.

Principal Issues: What debts are qualified investments for an RRSP?

Position: Provided a list of the qualified debt investments.

Reasons: Standard listing of debt instruments that are qualified.

Sent on January 24, 2005

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The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your email of September 28, 2004, regarding the types of bonds and debt instruments that may be held as qualified investments by a registered retirement savings plan (RRSP).

The kinds of property that constitute qualified investments for an RRSP are described in subsection 146(1) and section 204 of the Income Tax Act and section 4900 of the Income Tax Regulations. The general views of the Canada Revenue Agency (CRA) on this topic are found in Interpretation Bulletin IT-320R3, Qualified Investments - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds. This bulletin is available on the CRA Web site at www.cra.gc.ca/E/pub/tp/it320r3/README.html.

The determination of whether a particular debt instrument is a qualified investment is a question of fact. At the time of my writing, the following types of debt instruments may be acquired by an RRSP as qualified investments:

(a) Bonds, debentures, notes or similar obligations of a corporation, the shares of which are listed on a prescribed stock exchange in Canada. This provision is described in subparagraph (b)(i) of the definition of "qualified investment" in subsection 146(1) of the Act. Prescribed stock exchanges in Canada are listed in section 3200 of the Regulations;

(b) Bonds, debentures, notes or similar obligations issued by an authorized foreign bank and payable at a branch in Canada of the bank. This provision is described in subparagraph (b)(ii) of the definition of "qualified investment" in subsection 146(1) of the Act;

(c) Bonds, debentures, notes, mortgages or similar obligations

(i) of or guaranteed by the Government of Canada,

(ii) of the government of a province or an agent thereof,

(iii) of a municipality in Canada or a municipal or public body performing a function of government in Canada,

(iv) of a corporation, commission or association not less than 90 per cent of the shares or capital of which is owned by Her Majesty in right of a province or by a Canadian municipality, or of a subsidiary wholly-owned corporation that is a subsidiary to such corporation, commission or association, or

(v) of an education institution or a hospital if repayment of the principal amount thereof and payment of the interest thereon is to be made, guaranteed, assured or otherwise specifically provided for or secured by the government of a province.

This provision is described in paragraph (b) of the definition of "qualified investment" in section 204 of the Act;

(d) A bond, debenture, note or similar obligation of a "public corporation" other than a mortgage investment corporation. This provision is described in paragraph 4900(1)(c.1) of the Regulations. Reference may be made to Interpretation Bulletin IT-391R, Status of Corporations, for more information on the meaning of "public corporation." The bulletin is also available on the Web site at www.cra.gc.ca/E/pub/tp/it391r/README.html;

(e) A bond, debenture, note or similar obligation issued by a mutual fund trust, the units of which are listed on a prescribed stock exchange in Canada, as described in paragraph 4900(1)(d.1) of the Regulations;

(f) A bond, debenture, note or similar obligation issued by a credit union that meets certain conditions described in paragraph 4900(1)(g) of the Regulations;

(g) A bond, debenture, note or similar obligation issued by a cooperative corporation that meets certain conditions described in paragraph 4900(1)(h) of the Regulations;

(h) A bond, debenture, note or similar obligation issued by a Canadian corporation that, in general terms, is issued or guaranteed by an entity that is listed on a prescribed stock exchange in Canada, or that is issued by a corporation that satisfies other conditions set out in the Regulations. This provision is described in paragraph 4900(1)(i) of the Regulations;

(i) A security of a Canadian corporation

(i) that was issued pursuant to The Community Bonds Act [of Saskatchewan], S.S. 1990, c. C-16.1, The Rural Development Bonds Act [of Manitoba], S.M. 1991-92, c. 47, the Community Economic Development Act [of Ontario] 1993, S.O. 1993, c. 26, or the New Brunswick Community Development Bond Program through which financial assistance is provided under the Economic Development Acts of New Brunswick. 1975, c. E-1.11,

and

(ii) the payment of the principal amount of which is guaranteed by Her Majesty in Right of a province.

This is described in paragraph 4900(1)(i.1) of the Regulations;

(j) Indebtedness of a Canadian corporation represented by a bankers' acceptance that meets certain conditions described in paragraph 4900(1)(i.2) of the Regulations;

(k) A bond, debenture, note or similar obligation issued or guaranteed by certain international organizations as described in paragraph 4900(1)(l) of the Regulations;

(l) A bond, debenture, note or similar obligation issued by a government of a country other than Canada that had, at the time of purchase, an investment rating with a bond rating agency that in the ordinary course of its business rates the debt obligations issued by that government. This provision is described in paragraph 4900(1)(o) of the Regulations;

(m) Bonds, debentures, notes or similar obligations of a corporation the shares of which are listed on a prescribed stock exchange outside of Canada, as described in paragraph 4900(1)(p) of the Regulations. Prescribed stock exchanges outside of Canada are listed in section 3201 of the Regulations;

(n) A debt issued by privatized Crown corporations that meets the conditions described in paragraph 4900(1)(q) of the Regulations; and

(o) As described in paragraph 4900(1)(r) of the Regulations, a debt issued by a Canadian corporation (other than a corporation with share capital or a corporation that does not deal at arm's length with a person who is an annuitant, under the RRSP trust) if

(i) the taxable income of the corporation is exempt from tax under Part I of the Act because of paragraph 149(1)(l) of the Act (a club, society or association that, in the opinion of the Minister, was not a charity within the meaning assigned by subsection 149.1(1) of the Act that meets certain conditions); and

(ii) either the debt is issued by the corporation as part of an issue of debt by the corporation for an amount of at least $25 million or, at the time of the acquisition of the debt by the plan trust, the corporation had issued debt as part of a single issue for an amount of at least $25 million.

This provision is described in paragraph 4900(1)(r) of the Regulations.

Amendments to Regulation 4900 have also been proposed to include certain debt obligations issued by Canadian corporations or trusts that are resident in Canada, (commonly referred to as asset-backed securities) and debt issued by limited partnerships, where units of the partnerships are listed on a prescribed stock exchange in Canada. These proposals, which are not yet law, are described in proposed paragraphs 4900(1)(i.3) and (n.01) of the Regulations.

A mortgage or an interest in a mortgage is also a qualified investment for an RRSP under paragraph 4900(1)(j) of the Regulations. The CRA's general views with respect to mortgages and the conditions that have to be satisfied in order for the interest in a mortgage to be a qualified investment are found in paragraph 11 of Interpretation Bulletin IT-320R3. However, additional conditions have recently been proposed to ensure such mortgages are secured and commentary on these conditions has not, as yet, been included in the bulletin.

I would also note that several provinces have programs designed to assist in the establishment of small business corporations, and that shares issued through these programs may also be qualified investments for an RRSP, as described in paragraphs 5 through 9 of Interpretation Bulletin IT-320R3. The Small Business Venture Capital Act of British Columbia is one such program that may be of interest to you. Information on the program is available through the British Columbia government Web site at www.cse.gov.gc.ca/ProgramsAndServices/BusinessServices/Investment_Capital/default.htm.

If you should require additional information, I invite you to contact Mr. Wayne Harding of the Income Tax Rulings Directorate of the Policy and Planning Branch, by calling 613-957-8953 collect, or by writing to 16th Floor, Tower A, Place de Ville, 320 Queen Street, Ottawa ON K1A 0L5.

I trust that my comments will be of assistance.

Ed Gauthier
Deputy Assistant Commissioner
Tax and Regulatory Affairs
Policy and Planning Branch
Canada Revenue Agency

W. Harding
957-9769
2004-009708
October 15, 2004