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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Can equity shares of the capital stock of a corporation held by a DPSP be issued by the corporation as a contributor to the DPSP?
2. Are equity shares held by a quasi-pooled fund trust restricted to those issued by any contributor to any DPSP that hold units of the quasi-pooled fund trust?
Position:
1. We do not know.
2. No.
Reasons: Question of fact and wording of the Act.
XXXXXXXXXX 5-982119
Fouad Daaboul
Attention: XXXXXXXXXX
February 5, 1999
Dear Sirs:
Re: Equity Shares as Qualified Investment
This is in reply to your facsimile submission of August 14, 1998, wherein you requested our confirmation that equity shares held by a deferred profit sharing plan ("DPSP") must be issued by a contributor to the DPSP. In addition you ask whether a "quasi" pooled fund trust can hold any equity shares or is it restricted to those issued by any contributor to any DPSP unitholder of the trust. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX /Daaboul).
As indicated in paragraph 22 of Information Circular 70-6R3, this Directorate will provide technical interpretations with respect to the application of specific provisions of the Income Tax Act (the "Act") and Regulations. However, technical interpretations are not provided in respect of specific proposed transactions or completed transactions. We may, however, provide the following general comments in accordance with the above-mentioned Information Circular, which are not binding on the Department.
Part X of the Act imposes a tax in respect of any non-qualified investments which are acquired by a DPSP trust. For purposes of Part X of the Act, a "qualified investment" is defined in section 204 of the Act.
Under paragraph (e) of the definition of "qualified investment" in section 204 of the Act, equity shares of the particular corporation that has contributed to the DPSP may qualify where certain conditions have been satisfied. We note that the expression "equity shares" is also defined in section 204 of the Act. Where the shares qualify as equity shares and the conditions in paragraph (e) of the definition of "qualified investment" in section 204 of the Act have been satisfied, contributions made by the particular corporation to a DPSP trust for the benefit of the beneficiaries thereunder may be used by the DPSP trust to acquire shares of the particular corporation. The DPSP trust may acquire previously issued shares or it may acquire shares that are to be issued by the particular corporation.
Where an employer acquires shares of its capital stock on the open market, such an acquisition, if any, is subject to the corporate law under which the employer has been incorporated. Furthermore, where an employer transfers shares of its capital stock to a DPSP for the benefit of its employees, such a transfer may be subject to, among others, section 7 or 147 of the Act. Such a determination would only be made after reviewing all of the relevant facts.
As indicated in paragraph 49 of the Information Circular 78-14R2, a registered investment includes a quasi pooled fund ("QPF") trust that has been accepted for registration under Part X.2 of the Act as a qualified investment for deferred income plans. A QPF trust, as defined in paragraph 204.4(2)(b) of the Act, is not a registered investment unless it holds prescribed investments for the type of plan in respect of which it has applied for registration. Subsection 4901(1) of the Regulations provides that for purposes of paragraph 204.4(2)(b) of the Act a prescribed investment for a QPF trust means a property that is a qualified investment for the type of plan in respect of which the trust is registered.
Where a trust governed by a DPSP of a particular corporation holds a unit of a QPF trust that is registered for DPSPs, it is our view that the QPF trust may hold equity shares of the particular corporation, where such shares would qualify as "qualified investments" in accordance with the definition of "qualified investment" in section 204 of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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