17 October 2000 External T.I. 2000-0041415 - CCPC DEBT QUALIFIED INVESTMENT

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 debts of a CCPC be a qualified investment for an RRSP?

Position: No.

Reasons: Debts of a CCPC per se do not qualify. Since general comments were being provided, we listed the various debts that do qualify.

XXXXXXXXXX 					2000-004141
M. P. Sarazin
Attention:  XXXXXXXXXX 

October 17, 2000

Dear Sirs:

Re: Debt Instrument as Qualified Investment for RRSPs

This is in reply to your letter of August 8, 2000, requesting our views as to whether an investment certificate issued by a Canadian-controlled private corporation to raise capital to fund its operations would be a qualified investment for a registered retirement savings plan ("RRSP") within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act").

Comments

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. The determination of whether debts of a particular corporation are qualified investments is a question of fact that can only be determined on a case-by-case basis and only after a review of all of the facts. We note that an advance income tax ruling will be provided on the qualification of any particular debts only where the facts can be ascertained before hand and where there is an interpretative issue in respect of the application of the Act or the Income Tax Regulations (the "Regulations"). For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. Although we cannot provide confirmation concerning the particular investment you describe, we can provide you with the following general comments.

The kinds of property that constitute qualified investments for an RRSP are described in subsection 146(1) of the Act and section 4900 of the Regulations. The Agency's general views with respect to qualified investments are found in Interpretation Bulletin IT-320R2 titled "Registered Retirement Savings Plans - Qualified Investments". The determination of whether a particular debt instrument is a qualified investment is a question of fact.

Debts issued by the following entities would qualify as qualified investments for an RRSP:

(a) 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.

(described in paragraph 4900(1)(r) of the Regulations)

(b) bonds, debentures, notes or similar obligations of a corporation the shares of which are listed on a prescribed stock exchange in Canada (described in paragraph (b) of the definition of "qualified investment" in subsection 146(1) of the Act and prescribed stock exchanges in Canada are listed in section 3200 of the Regulations);

(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% 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;

(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 (refer to Interpretation Bulletin IT-391R,"Status of Corporations", for more information on the meaning of "public corporation") other than a mortgage investment corporation (described in paragraph 4900(1)(c.1) of the Regulations);

(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 (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 meets certain conditions (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,

S.S. 1990, c. C-16.1, The Rural Development Bonds Act, S.M.

1991-92, c. 47, the Community Economic Development Act 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 N.B. 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;

(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 (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 (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 (described in paragraph 4900(1)(p) of the Regulations and prescribed stock exchanges outside of Canada are listed in section 3201 of the Regulations); or

(n) a debt issued by privatized Crown corporations that meets certain conditions

(described in paragraph 4900(1)(q) of the Regulations).

We also note that a mortgage or an interest in a mortgage would be a qualified investment for an RRSP under paragraph 4900(1)(j) or subsection 4900(4) of the Regulations. The Canada Customs and Revenue Agency's general views with respect to mortgages and the conditions that have to be satisfied in order for the interest in the mortgage to be a qualified investment are found in paragraph 9 of Interpretation Bulletin IT-320R2.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate