16 March 2006 External T.I. 2005-0154871E5 - Spousal RRSP LSF tax credit

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: Who can claim the Labour Sponsored Fund Tax Credit in the two scenarios outlined below: (1) where a contributor acquires LSF shares and contributes them to a spousal RRSP? (2) where the contributor makes a contribution (other than approved LSF shares) to a spousal RRSP and then the RRSP trust acquires LSF shares?

Position: (1) Only the person acquiring the shares can claim the LSF tax credit. (2) The RRSP trust acquires the LSF shares. Either the contributor or the annuitant of the spousal RRSP shares can claim LSF tax credit but they cannot split the LSF credit.

Reasons: Position taken in previous Rulings documents.

XXXXXXXXXX
									2005-015487
March 16, 2006

Dear XXXXXXXXXX:

Re: Spousal Registered Retirement Savings Plan ("RRSP")

This is in response to your letter of October 17, 2005, inquiring about labour-sponsored venture capital corporation shares in a spousal RRSP. In particular, you have asked for our opinion on who may deduct the labour sponsored fund ("LSF") tax credit in accordance with subsection 127.4(2) of the Income Tax Act (the "Act") in situations where contributions have been made to a "qualifying trust" as defined in subsection 127.4(1) of the Act under which the individual's spouse is the annuitant.

Our Comments

The situation described in your letter refers to contributions of LSF shares made to a qualifying trust under which the individual's spouse is the annuitant. However, it is not clear to us whether you are referring to contributions of LSF shares to a spousal RRSP or contributions of cash made to a spousal RRSP and the cash is used by the RRSP trust to acquire LSF shares. Therefore, we have provided our comments with respect to the tax consequences related to two possible situations as outlined below.

In the first scenario, a taxpayer acquires shares and then contributes them to an RRSP under which his or her spouse is the annuitant. Only the taxpayer that acquires the approved shares is entitled to claim the LSF tax credit. Therefore, the annuitant of the spousal RRSP would not be entitled to claim the LSF tax credit.

In the second scenario, a taxpayer makes a contribution (other than approved shares) to an RRSP under which his or her spouse is the annuitant and then the spousal RRSP trust acquires approved shares. In this case, for 1998 and subsequent taxation years, either the taxpayer that made the contribution or his/her spouse who is the annuitant under the spousal RRSP, but not both, may claim the LSF tax credit. It is not permissible for the spouses to split the LSF tax credit.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch