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:
Taxpayer requested: 1. Confirmation that subparagraph (a)(xiv) of section 6700 of the Regulations is a proposed addition to the Regulations. 2. A brief explanation of the process followed to make a "proposed amendment" to the Regulations law. 3. Confirmation that (a) shares of Community Economic Development Funds ("CEDIFs") would be qualified investments for RRSPs (b) the adjusted cost base of CEDIF shares would not be reduced by the amount of the Nova Scotia Equity Tax Credit (c) CEDIF shares would be considered small business investment amounts if held in an RRSP.
Position: Confirmed requests. Subparagraph 6700(a)(xiv) is now law.
Reasons: Law.
XXXXXXXXXX 2001-010867
G. Kauppinen
December 4, 2001
Dear XXXXXXXXXX:
Re: Community Economic Development Funds ("CEDIFs")
Your letter dated October 15, 2001 regarding the proposed addition of subparagraph 6700(a)(xiv) (the "CEDIF regulation") to the Income Tax Regulations (the "Regulations") has been forwarded to us for reply.
We are pleased to inform you that the CEDIF regulation is now law and was published in the Canada Gazette, Part II, Vol. 135. Number 17 on Wednesday August 15, 2001.
Section 6700 of the Regulations now reads (in part):
For the purposes of paragraph 40(2)(i), clause 53(2)(k)(i)(C), the definition "private corporation" in subsection 89(1), subsection 125(6.2), the definition "Canadian-controlled private corporation" in subsection 125(7), section 186.2 and the definition "financial intermediary corporation" in subsection 191(1) of the Act, the following are prescribed venture capital corporations:
...
(xiv) section 11 or Part II of the Equity Tax Credit Act, Statutes of Nova Scotia, 1993, c. 3;
S. 6700(a)(xiv) was added by P.C. 2001-1370, SOR/2001-289, dated August 1, 2001, applicable to the 1997 and subsequent taxation years.
Amendments to the Regulations first appear in Part I of the Canada Gazette in draft form. When a new or amended regulation becomes law, it is published in Part II of the Canada Gazette. The time necessary for a proposed amendment to the Regulations to become law cannot be predicted.
You have asked us to confirm that shares of CEDIFs are qualified investments for RRSPs. We confirm that, pursuant to paragraph 4900(1)(i.11) of the Regulations, a share of the capital stock of a Canadian corporation that is registered under section 11 of the Equity Tax Credit Act, chapter 3 of the Statutes of Nova Scotia, 1993, the registration of which has not been revoked under that Act, will be a qualified investment for an RRSP. This paragraph is applicable to property acquired after 1995.
It is our understanding that shares of CEDIFs are entitled to a Nova Scotia Tax Equity Credit (the "Credit") that is deductible from Nova Scotia provincial taxes otherwise payable pursuant to section 37 of the Nova Scotia Income Tax Act and the Nova Scotia Equity Tax Credit program.
You have asked us to confirm that the adjusted cost base of a CEDIF share will not be reduced by the amount of the related Credit. Pursuant to clause (C) of subparagraph 53(2)(k)(i) of the Income Tax Act (the "Act"), the amount of prescribed assistance that a taxpayer has received or is entitled to receive in respect of, or for the acquisition of, shares of the capital stock of a prescribed venture capital corporation is excluded from the deduction from adjusted cost base in respect of assistance from a government in respect of, or for the acquisition of a property. Paragraph (a) of section 6702 of the Regulations defines prescribed assistance for the purpose of clause (C) of subparagraph 53(2)(k)(i) and subparagraph 40(2)(i)(ii) of the Act to include "the assistance received from a province that has been provided in respect of, or for the acquisition of, a share of the capital stock of a venture capital corporation described in section 6700 of the Regulations". Therefore, we confirm that the amount of the Credit does not reduce the adjusted cost base of the share.
However, if there is a loss on the disposition of a CEDIF share, the definition of "prescribed assistance" in section 6702 of the Act also applies for the purpose of subparagraph 40(2)(i)(ii) of the Act so that the loss will be reduced by the amount of the Credit.
Finally, you ask that we confirm that the cost of a CEDIF share will be considered to be a "small business investment amount" within the meaning of subsection 206(2) of the Act. Subsection 206(2) of the Act imposes a tax when the foreign property held by an RRSP exceeds 30% (formerly 20%) of the cost of all properties held be the RRSP. However, when the RRSP holds properties which are considered to be "small business investment amounts", the limit of 30% referred to above is increased by three times the amount of the small business investment amount up to a maximum of 20% of the cost of all properties held in the RRSP. Therefore, if the cost of a CEDIF share is considered to be a "small business investment amount" and CEDIF shares are held in an RRSP, the foreign content of other properties held in the RRSP can be increased above the 30% level to a maximum of 50% of the cost of all properties held by the RRSP. (Under prior law, the basic maximum was 20% which could be increased to 40% if the RRSP held a high enough cost of small business investment amount properties.)
"Small business investment amounts" are defined by subsection 206(1) of the Act to include "the cost amount of all small business properties". Paragraph (a) of subsection 5100(2) of the Regulations states that a share of the capital stock of an eligible corporation is a "small business security" within the meaning of paragraph (a) of the definition of "small business property" in subsection 206(1) of the Act and is therefore a small business property. An "eligible corporation" is defined in paragraph (b) of subsection 5100(1) of the Regulations to include a prescribed venture capital corporation described in section 6700 of the Regulations. Accordingly, we confirm that the cost of CEDIF shares will be "small business investment amounts" within the meaning of subsection 206(2) of the Act.
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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content