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:
1. How is a non-qualified investment removed from an RRSP or RRIF?
2. What steps are required to value an asset that has been de-listed?
Position:
1. Non-qualified investments do not have to be removed from an RRSP or RRIF.
2. CCRA does not provide valuation services or give rulings concerning the value of properties.
Reasons:
1. No section of the Act requires that a non-qualified investment be removed from an RRSP or RRIF, although the trust may be subject to Part XI.1 tax.
2. Refer to IC 89-3 and Valuations Section of the tax services office.
XXXXXXXXXX 2001-010952
G. Allen
January 8, 2002
Dear XXXXXXXXXX:
Re: Non-Qualified Investments in Registered Plans
This letter is a reply to your facsimile of November 5, 2001, concerning non-qualified investments in registered retirement savings plans ("RRSP") and registered retirement income funds ("RRIF"), collectively referred to as "Registered Plans".
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.
Notwithstanding that a corporation is no longer listed on a prescribed stock exchange, by virtue of paragraph 4900(1)(b) of the Income Tax Regulations (the "Regulations"), it is sufficient that a corporation retains its status as a public corporation (other than a mortgage investment corporation) in order for its shares to continue to be a qualified investment for a Registered Plan. Pursuant to the definition of "public corporation" in subsection 89(1) of the Income Tax Act (the "Act"), any corporation that was a public corporation after June 18, 1971, because it was resident in Canada and its shares were listed on a prescribed stock exchange in Canada, will continue to be a public corporation even if its shares cease to be so listed, as long as the corporation continues to be resident in Canada. We refer you to paragraph 3(e) of Interpretation Bulletin IT-320R2 entitled "Registered Retirement Savings Plans - Qualified Investments" and paragraph 2(d) of Interpretation Bulletin IT-391R entitled "Status of Corporations". 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. As well, the shares of a corporation may be qualified investments by virtue of paragraphs 4900(6)(a) or 4900(12)(a) of the Regulations if the corporation is an "eligible corporation" or a "small business corporation", respectively.
Information Circular 89-3 (IC 89-3), entitled, "Policy Statement on Business Equity Valuations", provides the Agency's general views regarding the valuation of shares of closely held corporations. IC 89-3 indicates that one would have to consider all of the factors related to a particular corporation in making any determination of the fair market value ("FMV") of the shares of such a corporation. It may be possible that the shares of a corporation have no value, but this conclusion would have to be supported by all of the relevant facts. The Agency does not provide valuation services or give rulings on the value of properties; however, if a trustee of a Registered Plan has concerns, the trustee can contact the Valuations Section at its tax services office to discuss the valuation procedures.
The share of a corporation may be removed from a Registered Plan as a withdrawal from the Registered Plan or by sale to another party. Where shares of a corporation are simply withdrawn from a Registered Plan by the annuitant, an amount equal to the FMV of the property at that time must be reported on the appropriate income slip, i.e., T4RSP or T4RIF, and included in the annuitant's income. Where the property is sold to a person dealing with the Registered Plan at arm's length, the property is simply removed from the Registered Plan's records and the agreed-upon proceeds added to the Registered Plan. However, where the property is sold to the annuitant of the Registered Plan or to another person, who is not dealing with the Registered Plan or the annuitant at arm's length, the proceeds of the disposal should be equal to the FMV of the property at the time of the disposal or certain unintended consequences may arise. For example, if property is sold for less than the FMV of the property, the difference must be included in the annuitant's income for the year, in the case of an RRSP under subsection 146(9) of the Act, and, in the case of an RRIF, two times the difference must be included in the annuitant's income in accordance with subsection 146.3(4). Alternatively, if the property is sold for more than its FMV, the excess will be considered to be a gift or a contribution to the Registered Plan and could be subject to tax under Part X.1of the Act in the case of an RRSP or could cause the plan's deregistration in the case of a RRIF (paragraph 146.3(2)(f) of the Act would not be satisfied and subsection 146.3(11) of the Act applies).
The Act does not require that a non-qualified investment held in a Registered Plan be removed from the Registered Plan. However, where a trust governed by a Registered Plan holds property that is a non-qualified investment at the end of any month, the trust will be subject to Part XI.1 tax equal to 1% of the FMV of the property at the time of its acquisition. The tax does not apply to the FMV of property that has been included in income by virtue of subsections 146(10) and 146.3(7), which apply to RRSPs and RRIFs respectively.
Lastly, subsections 146(10.1) and 146.3(9) of the Act provide for the taxation of the income and gains from the non-qualified investments of trusts governed by RRSPs and RRIFs, respectively.
We trust the above comments are of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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