11 April 2003 Ministerial Correspondence 2003-0009074 - INVESTMENTS HELD IN A RRSP

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:

Taxation of corporate securities held in an RRSP after corporation is bankrupt or reorganized.

Position:

Limited explanation of the tax law was provided based on information available on the web pertaining to the particular corporation.

Reasons:

XXXXXXXXXX

Signed on April 11, 2003

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable Elinor Caplan, Minister of National Revenue, has asked me to reply to your letter of March 17, 2003, concerning the taxation of excess foreign property or non-qualified property held in a registered retirement savings plan (RRSP).

Under the Income Tax Act, the taxes assessed in respect of excess foreign property and non-qualified property are assessed to the trust governed by the RRSP and not to the annuitant of the RRSP. When it is determined that one of these taxes should be assessed, it is the responsibility of the trustee to file a T3RSP return and remit the amount of the tax to the Canada Customs and Revenue Agency (CCRA). If it is then determined that the assessment is incorrect, the trustee should submit a request for reassessment.

After reviewing the information outlined in your letter, CCRA officials of the Income Tax Rulings Directorate gathered some additional information that is available to the public from various sources on the Internet. These sources indicate that XXXXXXXXXX. We understand that as a result of the confirmation, among other things, the shares were cancelled and were no longer a valid security as of the date of the order but that certain equity holders might have limited recourse through various actions that were or might be brought before the courts.

Under the Act, there is a tax on excess foreign property held in an RRSP as well as a tax on non-qualified investments held in an RRSP that were qualified investments when acquired. When a particular property is a foreign, non-qualified investment, only the tax on the non-qualified investments will apply.

In your letter, you indicate that an income tax assessment has been made for excess foreign property in respect of shares held in your RRSP. However, your RRSP may have been liable for taxes on non-qualified investments for part of the time the shares were held. To clarify, based on the information described above, it is clear that the shares are foreign property. However, it is not clear that the shares were qualified investments throughout the period they were held in your RRSP. In particular, shares of a foreign corporation that are listed on the New York Stock Exchange are qualified investments, while shares traded through the OTC Bulletin Board would not generally be qualified investments for an RRSP after 2001. Accordingly, the shares held by your RRSP appear to have been qualified investments between XXXXXXXXXX, and XXXXXXXXXX, when they were listed on the New York Stock Exchange, but were not qualified investments thereafter. Consequently, any tax assessed for the period following XXXXXXXXXX, should have been calculated as a tax on non-qualified investments and not as a tax on excess foreign property.

When a corporation petitions for bankruptcy, the shares of the corporation do not immediately cease to exist and their value at the time is a question of fact. However, as noted above, on XXXXXXXXXX, the court confirmed the plan of reorganization of XXXXXXXXXX and, in doing so, confirmed that the shares were, as of that date, cancelled and no longer valid securities. Accordingly, based on this information, any RRSP holding the shares at that date would have disposed of them through the operation of a court order and would subsequently no longer hold such property. The RRSP, as an equity holder, may have acquired certain rights as provided in the confirmation order. However, if the RRSP did acquire any such rights, it seems that these would be separate and apart from the shares previously held and would not effect the disposition of the shares.

In summary, based on the information available to us, it is our view that:

? the shares were foreign property within your RRSP until XXXXXXXXXX, and would be subject to the tax on excess foreign property to the extent that the cost amount of all of the foreign property exceeded the foreign property limit of the RRSP;
? the shares were a non-qualified investment within your RRSP from XXXXXXXXXX, until XXXXXXXXXX, and the tax for holding non-qualified investments would be charged to your RRSP for that period; and
? as of XXXXXXXXXX, your RRSP did not hold the shares (as they had been cancelled) and, subsequently, would no longer be liable for either the excess foreign property tax or the tax on holding non-qualified investments with respect to the shares.

Should you wish further clarification of these matters, I invite you to contact Mr. Wayne Harding of the Income Tax Rulings Directorate, by writing to 16th Floor, Tower A, Place de Ville, 320 Queen Street, Ottawa ON K1A 0L5, or by calling 0-613-957-8953 collect. Mr. Harding is aware of our correspondence and will be pleased to provide assistance.

I trust these comments will be helpful.

							Yours sincerely,

							Bill McCloskey
							Assistant Commissioner
							Policy and Legislation Branch

Wayne Harding
957-9769
April 3, 2003
2003-000907