15 May 2002 Internal T.I. 2001-0114667 - REGISTERED SECURITIES DEALERS

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 types of licenses which will be considered unrestricted for the purposes of the definition of "registered securities dealer" in subsection 248(1)

Position: See memo.

Reasons: See memo.

May 15, 2002

TORONTO NORTH TSO					HEADQUARTERS
Industry Special Services					K. Cooper
(613) 957-8984
Attention:  Doug Mitchell, Banking Specialist
								2001-011466

Registered Securities Dealers

This in reply to your request of August 29, 2001 for clarification of the interpretation of the definition of "registered securities dealer" in subsection 248(1) of the Income Tax Act ("ITA"), to which we provided a partial reply on November 29, 2001. We apologize for the delay in responding.

In our earlier response, we indicated our view that provided a taxpayer is licensed to deal in securities in one of the provinces without restriction as to the types or kinds of securities in which it may trade, it would meet the ITA's definition of a "registered securities dealer" even if its license was restricted in other provinces.

Since the ITA does not define security for the purposes of the definition of a registered securities dealer, regard must be had to the relevant provincial legislation in order to determine whether a taxpayer's license is restricted as to the types or kinds of securities in which it may trade. For instance, the definition of a security in the Ontario Securities Act, R.S.O. 1990, c. S-5, as amended, excludes commodity futures contracts and commodity futures options that are traded on a recognized commodity futures exchange. Therefore, a restriction prohibiting trading in exchange commodity futures is not a restriction as to type or kind of security for the purposes of the ITA since the Ontario legislation does not include them in the definition of security.

While it will be a question of fact to be determined in each case on the basis of the actual terms contained in or attached to the licenses in question, we have reviewed the various licenses available pursuant to the Ontario Securities Act, and believe that a taxpayer licensed as a registered broker, investment dealer, international dealer or securities dealer would generally be considered to be a registered securities dealer for the purposes of the ITA. Financial intermediary dealers, foreign dealers, limited market dealers, mutual fund dealers, scholarship plan dealers, and security issuers in Ontario are not likely to be considered to be registered securities dealers for the purposes of the ITA because all have restrictions as to the securities they may deal with.

You provided as an example XXXXXXXXXX license in Ontario which provides for registration in the categories of "investment dealer" and "equities". We have been advised by the Ontario Securities Commission that such an indication on a registration means that the taxpayer is authorized to only trade in equities. As such, this is not an unrestricted license for the purpose of the definition of registered securities dealer in the ITA.

According to the British Columbia Securities Act, R.S.B.C. 1996, c. 148, as amended, a security is defined to include any "instrument that is a futures contract or an option but is not an exchange contract" and an exchange contract is generally defined to mean futures which are traded on an exchange with standardized terms and conditions. A registered broker or investment dealer licensed in B.C. may trade in securities, exchange contracts or both. According to the B.C. Securities Act, however, a securities dealer "trades exclusively in securities, other than forward contracts." A forward contract is defined to mean a futures contract or an option on a futures contract that is not an exchange contract. Therefore, a securities dealer in B.C. may not deal in exchange contracts (which are excluded from the B.C. definition of security) and in forward contracts which are not exchange contracts (which has not been excluded from the definition of security). We consider the latter limitation to be a restriction as to the type or kind of security in which it may trade and, therefore, we do not consider a securities dealer in B.C. to be a registered securities dealer for the purpose of the ITA.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. A copy will be sent to you for delivery to the client.

If you require any additional information or assistance please contact Karen Cooper at 957-8984.

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch