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: Will shares of a certain private corporation be qualified investments for an RRSP?
Position: Question of fact.
Reasons: We need to see all of the facts to determine whether the shares would meet 4900(6) or (12) of the Regulations.
XXXXXXXXXX 2000-000430
M. P. Sarazin
Attention: XXXXXXXXXX
March 8, 2000
Dear Sirs:
Re: Qualified Investment for a Registered Retirement Savings Plans
This is in response to your facsimile of January 25, 2000, wherein you requested confirmation that shares of a particular private corporation would be qualified investments for a registered retirement savings plan ("RRSP").
You have a severed copy of our letter (file #991214) (the "Letter") which deals with qualified investments for an RRSP. You would like additional clarification of the issues discussed in the Letter in order to determine whether shares of a corporation that will be incorporated to acquire and run your existing business would be qualified investments for an RRSP.
We cannot confirm whether specific shares are qualified investments for an RRSP except in the context of an advance income tax ruling. Even then, the determination of whether shares of a particular corporation are qualified investments is a question of fact that can only be determined on a case-by-case basis and after a review of all of the facts. Therefore, we can provide an advance income tax ruling on the qualification of any particular shares only where the facts can be ascertained before hand. Please refer to the current version of IC 70-6 Advance Income Tax Rulings, which was faxed to you on January 28, 2000, for instructions on how to apply for an advance income tax ruling.
Our Letter provides an overview of the rules respecting RRSP investments in shares of a corporation. We can only provide comments that are general in nature in respect of each of your questions. Specific reference should be made to the Income Tax Regulations (the "Regulations").
Question #1
Would shares of a newly formed private Canadian corporation that acquires an existing business qualify as a qualified investment for an RRSP?
As noted above, this determination can only be made after a review of all of the relevant facts. The conditions described in the Letter relating to subsection 4900(6) of the Regulations apply throughout the period that the shares are held by an RRSP and the conditions described in the Letter relating to subsection 4900(12) of the Regulations apply at the time the shares are acquired by the RRSP. Clearly, the corporation would have to satisfy the conditions described in subsection 4900(6) or (12) when the shares are acquired by the RRSP.
Question #2
Can a married couple acquire, personally and through their RRSPs, more than 10% of the shares of a private Canadian company for $30,000?
Our Letter discusses the definition of designated shareholder for purposes of shares that qualify under subsection 4900(6) of the Regulations and the definition of connected shareholder for purposes of shares that qualify under 4900(12) of the Regulations. In the Letter, we have pointed out that the number and value of shares held by related persons (including shares owned by the persons' RRSPs) will be aggregated when determining whether a shareholder is a designated shareholder or a connected shareholder, including the exemption from the 10% limit for shares where the cost amount of all of the shares is less than $25,000. Consequently, a married couple is not able to buy any shares through an RRSP in the above situation.
Question #3
Can a person who holds shares of a private Canadian company through his or her RRSP work for no salary for the company?
Our Letter discusses the application of subsection 4900(13) of the Regulations where services are provided by an individual to a company and the individual's RRSP holds shares in the company that qualify under subsection 4900(12) of the Regulations. Subsection 4900(8) applies in the same manner where shares qualify under subsection 4900(6) of the Regulations. The determination of whether either of these provisions would apply is a question of fact.
We trust these comments will be of assistance.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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