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:
Would a trust that has been accepted for registration as an RI under paragraph 204.4(2)(b) and that subsequently holds an investment that is not a prescribed investment, be subject to penalty tax under section 204.6, where at the end of a month the trust could qualify for registration under 204.4(2)(a)?
Position: No
Reasons:
The provisions of subsection 204.4(7) of the Act provide that where at the end of any month an RI could qualify for registration under subsection 204.4(2), the RI will be deemed for the purposes of section 204.6 to have been registered under the particular paragraph of subsection 204.4(2) under which it is first registrable in accordance with the ordering of paragraphs in subsection 204.4(7). Accordingly, it is deemed for the purpose of section 204.6, to have qualified under 204.4(2)(a), despite the fact it was previously registered under 204.4(2)(b).
XXXXXXXXXX 2002-015957
G. Allen
March 26, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation - Paragraph 204.4(2)(a) of the Income Tax Act (the "Act")
This letter is a reply to your letter dated August 26, 2003 wherein you requested our opinion regarding a scenario involving a registered investment ("RI"). In the particular scenario, a trust described in paragraph 204.4(2)(b) of the Act has been accepted for registration as an RI under subsection 204.4(2). The trust subsequently invests in an investment that is not a prescribed investment for the purposes of subparagraph 204.4(2)(b)(ii). However, the trust will satisfy the conditions of paragraph 204.4(2)(a) and could qualify for registration under that paragraph. You enquire whether there would be any taxes payable under subsection 204.6(1) and whether the RI would need to apply for re-registration under paragraph 204.4(2)(a).
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. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Copies of information circulars, guides and pamphlets are available at your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. 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.
The provisions of paragraph 204.4(2)(b) of the Act apply to a trust described in paragraph 204.4(2)(a), if paragraph (a) were read without reference to subparagraphs 204.4(2)(a)(i), (vi) and (vii) of the Act. A trust that qualifies as an RI under paragraph 204.4(2)(b) of the Act is restricted to holding prescribed investments for the type of plan or fund in respect of which it has applied for registration. Subsection 4901(1) of the Income Tax Regulations prescribes investments for a trust that qualifies as an RI under paragraph 204.4(2)(b) of the Act.
A trust may be registered as an RI under paragraph 204.4(2)(a) where the trust satisfies the conditions of subparagraphs 204.4(2)(a)(i) to (viii) of the Act.
Taxes under subsection 204.6(1) are payable when an RI described in paragraph 204.4(2)(b) holds property that is not a prescribed investment for that RI. However, pursuant to subsection 204.4(7) of the Act, where at the end of any month an RI could qualify to be registered under subsection 204.4(2), it is deemed for the purposes of subsection 204.6(1) to have been registered under the first of the applicable paragraphs of subsection 204.4(2), in accordance with the ordering of paragraphs in subsection 204.4(7). For example, where an RI could qualify at the end of a month to be registered under paragraph 204.4(2)(a), for the purposes of subsection 204.6(1), it will be deemed to be registered under paragraph 204.4(2)(a) regardless of the fact that it may have been accepted for registration under paragraph 204.4(2)(b) of the Act. Accordingly, tax under subsection 204.6(1) would not be payable, in respect of a particular month, in the scenario described above, where at the end of that month the RI could qualify to be registered under paragraph 204.4(2)(a).
It should be noted that, in accordance with subsection 204.4(3) of the Act, an RI that has been accepted for registration under paragraph 204.4(2)(b) of the Act, will not be subject to revocation where the only condition necessary for its registration that the RI does not satisfy is the holding of prescribed investments.
An officer of the Registered Plans Directorate of the Canada Customs and Revenue Agency has confirmed that a trust that was registered under paragraph 204.4(2)(b) of the Act and that could qualify to be registered under paragraph 204.4(2)(a), would not have to re-apply to be registered under paragraph 204.4(2)(a). Issues concerning changes to the registered status of an RI should be directed to the Registered Plans Directorate at (613) 954-0419.
We trust the above comments will be of assistance.
Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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