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:
Will the fact that a Co-op member does business with the Co-op result in a benefit being granted to the member thereby disqualifying any bond, debenture, note or similar obligation of the Co-op from qualifying as a qualified investment for the member's RRSP?
Position: Question of fact
Reasons:
The benefit must arise as a result of the RRSP holding the promissory note. Provided the interest rate on a promissory note held in a member's RRSP is the same as that given to other members, and provided the same commercial terms apply to dealings with the co-op, we would probably conclude that no benefit arises.
2003-000875
XXXXXXXXXX Renée Shields
(613) 948-5273
May 21, 2003
Dear XXXXXXXXXX:
Re: Qualified Investment - Obligation of a Co-operative Corporation ("Co-op")
This is in response to your letter of March 14, 2003 inquiring whether a promissory note issued by a Co-op to a member will be disqualified from being a qualified investment pursuant to paragraph 4900(1)(h) of the Income Tax Regulations (the "Regulations") because the member continues to do business with the Co-op.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
The CCRA's general views regarding qualified investments are contained in Interpretation Bulletin IT-320R3, "Qualified Investments - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds."
Pursuant to paragraph 4900(1)(h) of the Regulations, a note or obligation of a Co-op could be a qualified investment for an RRSP, at a particular time, provided certain tests are satisfied. This discussion assumes that the conditions in subparagraphs 4900(1)(h)(i) and (ii) of the Regulations are met. Subparagraph 4900(1)(h)(iii) of the Regulations requires that the Co-op not, at any time during the calendar year in which the particular time occurs, have granted any benefit or privilege to a person who is an annuitant, a beneficiary or an employer with respect to the plan trust or to any person who does not deal at arm's length with such person, as a result of the ownership by the plan trust of a share or obligation of the Co-op or ownership by a registered investment of a share or obligation of the Co-op if the plan trust has invested in that registered investment.
We are of the view that certain factors would be relevant in determining whether a benefit has been granted to a member as a result of the ownership by his or her RRSP of a promissory note of the Co-op (an "RRSP Note"). The most relevant factors include:
? the interest rate on an RRSP Note should be the same as the interest rate on promissory notes issued to other Co-op members;
? the interest rate on an RRSP Note should reflect market rates;
? a member with an RRSP Note should deal with the Co-op on the same commercial terms as all other members.
As noted previously, a complete review of the facts in the context of an Advance Income Tax Ruling would be necessary in order to determine whether any particular arrangement would satisfy paragraph 4900(1)(h) of the Regulations.
We trust that these comments will be of assistance.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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