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) Are shares acquired by an RRSP on an "Over-The-Counter" exchange qualified investments? 2) Will the penalty provisions be applied if shares are acquired on the basis that the trustee assumed that shares were qualified investments for the RRSP?
Position: 1) No. 2) Not under proposed relieving legislation.
Reasons: 1) The "Over-The-Counter" exchange is not a prescribed exchange for purposes of the Act and Regulations. 2) The Department of Finance has stated that it will recommend retroactive relief on a transitional basis.
XXXXXXXXXX 2000-003838
M. P. Sarazin
Attention: XXXXXXXXXX
August 25, 2000
Dear Sirs:
Re: Qualified Investment and "Over-the-Counter" Exchanges
This is in response to your letter of July 18, 2000, requesting our views as to whether a share of a corporation acquired on an "over-the-counter" stock exchange would be a qualified investment for a registered retirement savings plan ("RRSP").
In your letter you have outlined an actual fact situation related to completed transactions. As noted in Information Circular 70-6R3 (information circulars and interpretation bulletins are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide advance income tax rulings in respect of specific proposed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.
The Canada Customs and Revenue Agency (the "Agency") recently released a fact sheet on our internet site concerning shares acquired through an over-the-counter facility of a stock exchange. A copy is enclosed and it is available on the Agency's website at the following address: http://www.ccra-adrc.gc.ca/tax/registered/rrsp_eligibility-e.html
To summarize, shares listed on prescribed stock exchanges inside and outside of Canada will be qualified investments for an RRSP. The stock exchanges in Canada are prescribed by section 3200 of the Income Tax Regulations (the "Regulations") and those outside of Canada are prescribed by section 3201 of the Regulations. We note that there are no "over-the-counter" exchanges inside or outside of Canada which are prescribed by the Regulations. Consequently, a share will not be a qualified investment because it trades on an "over-the-counter" exchange. The determination of whether such a share would be a qualified investment under another provision of the Act or Regulations is a question of fact.
The Agency has been informed, however, that the Department of Finance will recommend retroactive transitional amendments to the qualified investment rules for RRSPs (and for registered retirement income funds) to provide temporary relief for taxpayers affected by this matter. The recommended changes will temporarily treat, as qualified investments, securities quoted on the NASDAQ Over-the-Counter Bulletin Board or on Pink Sheets or Yellow Sheets operated by Pink Sheets, LLC, that were acquired in an arm's length transaction completed before September 1, 2000. In order to provide sufficient time for taxpayers to dispose of these securities, their status as a qualified investment will continue until December 31, 2001, after which time they will cease to qualify.
We note that this transitional relief only applies to the securities described above. If your RRSP acquired shares on another "Over-the-Counter" exchange, the transitional relief will not apply and the income tax consequences of the RRSP acquiring and holding non-qualified investments, as described in the enclosed fact sheet, will apply.
We trust that the above comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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