25 October 2001 External T.I. 2001-0096065 - RRSP 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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: What are the income tax implications where an RRSP holds shares of a CCPC (which is a qualified investment) and the CCPC becomes bankrupt?

Position: 1. The CCPC will continue to be a qualified investment for the RRSP unless the CCPC is legally dissolved. 2. The shares of the CCPC will continue to be carried at cost to the RRSP.3. The shares can be sold out of the RRSP at fair market value (which may be nil or nominal for a bankrupt corporation).

Reasons: 1. The change in status of the CCPC to a bankrupt corporation does not affect its status as a qualified investment for an RRSP. 2. The change in status of the CCPC will not, in and by itself, change the cost of the CCPC shares to the RRSP. 3. Subsection 146(9) will cause an income inclusion to the annuitant equal to the difference between the fair market value of the shares of the CCPC at the time they are disposed of by the RRSP and any consideration received by the RRSP on the disposition.

XXXXXXXXXX 							2001-009606
G. Kauppinen
October 25, 2001

Dear XXXXXXXXXX:

Re: Shares of a Bankrupt Corporation Held by
a Registered Retirement Savings Plan ("RRSP")

This is in reply to your facsimile transmission dated August 3, 2001 wherein you inquire about the income tax consequences of a Canadian-controlled private corporation ("CCPC") going bankrupt when its shares are being held as a qualified investment by an RRSP.

Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue 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. However, we can provide you with the following general comments.

Our Comments

The change in status of a CCPC to that of a bankrupt corporation will not cause any income tax consequence to an RRSP or to its annuitant, that is, if the corporate shares were a qualified investment to the RRSP before the corporation became bankrupt, then they will continue to be a qualified investment after the bankruptcy. Also, the shares of the bankrupt CCPC will continue to be carried on the books of the RRSP at their original cost.

The shares of a bankrupt CCPC could be transferred (sold) from the RRSP, say, to the annuitant personally, at fair market value in order to remove the cost of the shares from the RRSP. Subsection 146(9) of the Act states that if an asset is transferred from an RRSP for consideration which is less than the fair market value of the property at the time of the transfer, or for no consideration, the difference between the fair market value of the property and the consideration, if any, shall be included in computing the income of the annuitant of the RRSP. Accordingly, if consideration taken on the transfer (sale) is nil, there will be no income tax consequence as long as the fair market value of the shares of the CCPC was also nil at the time of the transfer. The value of any property at any time is a question of fact.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch