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: Questions regarding qualified investments for RRSP and RRIF purposes and capital gains inclusion rates.
Position: Provided general comments.
Reasons: N/A
XXXXXXXXXX
2001-007773
May 31, 2001
Dear XXXXXXXXXX:
Re: Qualified Investments and Taxable Capital Gains
This is in response to your letter dated March 16, 2001 wherein you asked a number of questions. We will respond to your questions in the same order as they were asked.
Your first question relates to the types of property that do not qualify to be held in a registered retirement savings plan ("RRSP"). The enclosed Interpretation Bulletin IT-320R2, Registered Retirement Savings Plans - Qualified Investments, provides the Agency's general views in respect of the kinds of property that constitute qualified and non-qualified investments for a trust governed by an RRSP. It also discusses the tax consequences of an RRSP acquiring and holding non-qualified investments.
Your second question is whether units in a trust such as an oil sands trust constitute a qualified investment for an RRSP or a registered retirement income fund ("RRIF"). Generally, an interest in a trust will be a qualified investment for an RRSP or a RRIF at a particular time if the trust is
a) at that time, a mutual fund trust or a small business investment trust; or
b) a registered investment during the calendar year in which the particular time occurs, or the immediately preceding year.
The terms "mutual fund trust", "small business investment trust" and "registered investment" are defined in subsection 132(6) of the Income Tax Act (the "Act"), subsection 5103(1) of the Income Tax Regulations and subsection 204.4(1) of the Act, respectively. We note that a list of all registered investments is published in the Canada Gazette annually in accordance with section 204.5 of the Act.
Your third question concerns the status of the tax measures announced in the October 18, 2000 Economic Statement and Budget Update. The draft amendments to the Act to implement these tax measures were incorporated in Bill C-22 which was passed by the House of Commons on May 14, 2001 and is expected to receive Royal Assent shortly. When Bill C-22 receives Royal Assent, certain of the measures will be effective on October 18, 2000 while other measures will be phased in over time. We note that information as to the implementation date of a particular amendment in Bill C-22 is available on the Department of Finance's website at www.fin.gc.ca.
In light of the recent proposed reductions to the capital gains inclusion rate, your final question is whether there is a formula to calculate the taxable capital gain on the disposition of a property held since the 1990's. As you know, the February 28, 2000 budget proposed to reduce the capital gains inclusion rate from three-quarters to two-thirds effective February 28, 2000 and the October 18, 2000 Economic Statement and Budget Update proposed a further reduction to the rate to one-half effective October 18, 2000. As a result, for dispositions that take place after October 17, 2000, the taxable portion will be one-half of the capital gain arising on the disposition of a capital property regardless of when the property was acquired. The determination of whether a particular property is a capital property is a question of fact. In this respect, you may wish to refer to the enclosed copies of Interpretation Bulletins IT-218R, Profit, Capital Gains and Losses from the Sale of Real Estate, Including Farmland and Inherited Land and Conversion of Real Estate from Capital Property to Inventory and Vice Versa, IT-459, Adventure or Concern in the Nature of Trade, and IT-479R, Transactions in Securities, and its Special Release.
For dispositions that occurred in 2000, we note that the calculation of taxable capital gains involves three periods. As explained in the 2000 Capital Gains Guide (a copy of which can be obtained on the Agency's website at www.ccra-adrc.gc.ca), the relevant capital gains inclusion rate for dispositions in 2000 will depend on the period when you disposed of your capital property. If you disposed of property in only one period, you use the inclusion rate for that period. If you disposed of property in more than one period, there are special rules to determine your inclusion rate. The 2000 Capital Gains Guide discusses these special rules and the calculation itself is contained in Schedule 3 which is also available on our website. Should you have any further questions regarding this matter, we suggest that you contact your local tax services office.
While we hope that our comments will be of assistance to you, they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R4 and are not binding on the Agency in respect of any particular situation.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
Enclosures
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