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 a non-qualified investment which was deemed by new draft paragraph 4900(1)(s) of the Regulations to be a qualified investment, be considered to be acquired by a deferred plan on
January 1, 2002 if held beyond the deeming period which ends on December 31, 2001?
Position: No.
Reasons: Factual acquisition must have occurred before September, 2000 for draft Regulation 4900(1)(s) to apply and the law does not deem an acquisition to occur at the later date.
XXXXXXXXXX 2001-007920
P. Kohnen
June 18, 2001
Dear XXXXXXXXXX:
Re: Request for Technical Interpretation - NASDAQ Over-the-Counter Shares
This is in reply to your facsimile submission of April 9, 2001, requesting our views regarding the taxation of certain non-qualified investments of a Registered Retirement Savings Plan ("RRSP") or investments that are not qualified investments of a Registered Retirement Income Fund ("RRIF"). Hereinafter, both types of investments will be collectively referred to as 'non-qualified investments' for simplicity.
New draft paragraph 4900(1)(s) of the Income Tax Regulations (the "Regulations"), which was published in Part I of the Canada Gazette on March 31, 2001, provides transitional relief in respect of certain non-qualified investments. This new paragraph deems securities quoted on the over-the-counter bulletin board operated by NASDAQ Stock Market, Inc. or on the over-the-counter quotation service operated by Pink Sheets, LLC, which were acquired by a deferred plan in an arm's length transaction completed before September 1, 2000, to be a qualified investment until December 31, 2001. Your question concerns the tax implications to your RRSP and RRIF clients who continue to hold these investments beyond the transitional relief period.
Subsection 146(10) of the Income Tax Act (the "Act") is applicable where a trust governed by an RRSP acquires a non-qualified investment in the taxation year. It provides for an inclusion in the income of the plan annuitant of an amount equal to the fair market value of the non-qualified investment at the time it was acquired. Subsection 146.3(7) provides for a similar income inclusion where an investment that is not a qualified investment is acquired in the year by a RRIF. In either case, the non-qualified investment must be acquired in the year for the income inclusion to occur.
For non-qualified investments to which draft Regulation 4900(1)(s) applies until December 31, 2001, there is no acquisition on January 1, 2002. Factual acquisition must have occurred before September 2000 for draft Regulation 4900(1)(s) to apply and the law does not deem an acquisition to occur at the later date. Accordingly, neither subsection 146(10) nor 146.3(7) will apply to cause an income inclusion to a plan annuitant if a non-qualified investment, which draft Regulation 4900(1)(s) deems to be a qualified investment up to December 31, 2001, is held in their RRSP or RRIF after that date.
Note, however, that subsections 207.1(1) and (4) of the Act, which apply to RRSPs and RRIFs, respectively, will impose tax equal to 1% of the fair market value of the non-qualified investment, at each month-end commencing with January 2002, that the trust continues to hold the investment.
Furthermore, subsections 146(10.1) and 146.3(9) of the Act, which apply to RRSPs and RRIFs, respectively, may impose a tax on the earnings for the year in respect of non-qualified investments held by the respective RRSP or RRIF trust in the year.
We trust that the above comments are of assistance.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
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