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 the shares of a corporation that is in the process of developing a parcel of land into a retirement community be qualified investments for an RRSP, RRIF or RESP under 4900(12)(a) of the Regulations?
Position: Yes.
Reasons: The shares satisfy 4900(12) because the business operations have commenced.
XXXXXXXXXX 2001-007052
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Company") (XXXXXXXXXX)
This is in reply to your letter of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Company was incorporated under the laws of XXXXXXXXXX. The Company is a Canadian-controlled private corporation and a taxable Canadian corporation. The expression "Canadian-controlled private corporation" has the meaning assigned by subsection 125(7) of the Income Tax Act (the "Act") and the expression "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act.
The Company's address is XXXXXXXXXX The Company files its tax returns with the XXXXXXXXXX Taxation Centre and is located within the area served by the XXXXXXXXXX Tax Services Office.
2. The Company's authorized share capital consists of the following:
(a) unlimited number of non-cumulative, redeemable, non-retractable, non-voting XXXXXXXXXX shares without par value;
(b) unlimited number of non-cumulative, redeemable, non-retractable, non-voting XXXXXXXXXX shares without par value; and
(c) unlimited number of common shares without nominal or par value.
3. The Company has issued XXXXXXXXXX common shares and they are held as follows:
XXXXXXXXXX
XXXXXXXXXX deal at arm's length with each other and they are all Canadian residents for purposes of the Act.
4. On XXXXXXXXXX, the Company acquired XXXXXXXXXX (the "Property") from XXXXXXXXXX. The Property is located XXXXXXXXXX.
5. Under the terms of the agreement with XXXXXXXXXX (the "Agreement"), the Company agreed to:
(a) develop the Property to provide a community geared to satisfying the needs of the elderly, recognizing the demographic shift towards an aging population and the reduced government support for such initiatives;
(b) apply for a rezoning of the Property to permit the development of a retirement community on the Property; and
(c) pay $XXXXXXXXXX for the Property plus all costs for any site environmental remediation and for the demolition of any existing building structures on the Property (not scheduled for renovation).
6. The following significant transactions have taken place in respect of the Property:
XXXXXXXXXX.
7. XXXXXXXXXX.
8. The Company's investment in the Property accounts for XXXXXXXXXX% of its assets. The investment in the Property will continue to constitute all or substantially all of the Company's assets for the foreseeable future.
Proposed Transactions
9. The Company is proceeding with the development of the retirement community on the Property. The retirement community will be known as XXXXXXXXXX. The Company currently has the XXXXXXXXXX full-time employees that have provided various services over the past XXXXXXXXXX years and the Company will hire an additional XXXXXXXXXX full-time employees in the next few months to help with the construction, project management, marketing, selling and various administrative duties associated with the development of the Property.
10. By the end of XXXXXXXXXX, the Company will enter into contracts with various contractors for the construction of XXXXXXXXXX.
11. By the end of XXXXXXXXXX, the Company will commence to sell homes and apartments to individuals that will be interested in living in the retirement community.
12. The Company will raise additional working capital to help finance the development of the retirement community on the Property through the issuance of common shares to the public and through the re-mortgaging of the Property.
13. Some shares of the Company will be sold to registered retirement savings plans ("RRSP"), registered retirement income funds ("RRIF") and registered education savings plans ("RESP"). However, a common share of the Company will not be issued to an RRSP, a RRIF or an RESP if the annuitant under the RRSP or the RRIF or the subscriber or beneficiary under the RESP is a connected shareholder within the meaning assigned by subsection 4901(2) of the Income Tax Regulations (the "Regulations").
Within the meaning assigned by subsection 4901(2) of the Regulations, a connected shareholder is a person who does not deals at arm's length with the Company or a person that directly or indirectly holds 10% or more of the shares of any class of shares of the Company or of any corporations related to the Company. Where a person owns 10% or more but less than 50% of the shares of any class of shares of the Company or of any corporations related to the Company, the person may be exempted from being a connected shareholder if the aggregate of the cost amounts to the person and related person(s) of all of the shares of the Company or related corporation totals less than $25,000. For purposes of determining whether a person would be a connected shareholder, the person is deemed to own the shares owned by non-arm's length persons (including his or her RRSPs and RRIFs and any RESPs under which he or she is the subscriber or beneficiary).
14. Where a person's RRSP, RRIF or RESP owns a share of the Company and that person provides services or sells goods to the Company or any corporation related to the Company, the Company will not pay any amount in respect of the share held by the RRSP, RRIF or RESP where it can reasonably be considered that the amount is being paid in respect of services or goods sold to the Company or to a corporation related to the Company by that person.
Purpose of the Proposed Transactions
15. The purpose of the proposed transactions is to help the Company attract investors, including RRSPs, RRIFs and RESPs, to help finance the development of the retirement community on the Property.
16. To the best of your knowledge and the knowledge of the Company, none of the issues involved in this request for an advance income tax ruling:
(a) is in an earlier return of the Company or of a person related to the Company;
(b) is being considered by a tax services office or tax centre in connection with a previously-filed return of the Company or of a person related to the Company;
(c) is under objection by the Company or by a person related to the Company;
(d) is before the courts; or
(e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate to the Company.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions and provided that the proposed transactions are carried out as described above, we rule as follows:
A. Provided that the annuitant in the case of an RRSP or RRIF and the subscriber and beneficiary in the case of an RESP are not connected shareholders and provided that, at the time the shares described in 13 above are issued, the assets of the Company are essentially as described in 8 above, a common share of the Company acquired by the RRSP, RRIF or RESP will, immediately after it is acquired, be a "qualified investment" as prescribed in paragraph 4900(12)(a) of the Regulations for purposes of paragraph (d) of the definition of "qualified investment" in subsection 146(1) of the Act.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
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© Her Majesty the Queen in Right of Canada, 2001
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