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 consequences if a share listed on a prescribed stock exchange, that is held in a registered investment, is delisted?
Position: Outlined the basic consequences.
Reasons: Application of the law.
XXXXXXXXXX 2003-003358
Wayne C. Harding
January 14, 2004
Dear XXXXXXXXXX:
Re: Delisted and Demoted Shares as Qualified Investments for Registered Plans
This is in reply to your electronic message of August 6, 2003, wherein you requested clarification of whether, in certain situations, a share held in a registered plan would be a qualified investment for the plan and whether the share would be subject to Part XI.1 tax if it was found that it was not a qualified investment.
This Directorate can provide written confirmation of the tax implications inherent in particular transactions where the transactions are proposed and are the subject matter of an advance income tax ruling request. You may refer to Information Circular 70-6R5 dated May 17, 2002 for more information concerning advance tax rulings. Copies of the information circular as well as all other CCRA 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.
The following are your 4 scenarios and our comments on them. Please note that our comments are general in nature and are not binding on CCRA.
Situation 1
A corporation, which has a share listed on a prescribed stock exchange in Canada, files for bankruptcy. The share is delisted and the market value of the share that is held by the registered plan declines to nil or a nominal amount.
A share of a "public corporation" as defined in section 89(1) of the Income Tax Act (the "Act") is a qualified investment for registered plans. In basic terms, a public corporation is defined, at a particular time, to include a corporation that, at that time, is resident in Canada and has a class of shares listed on a prescribed stock exchange in Canada. A public corporation is also defined to provide that once a corporation that is resident in Canada becomes a public corporation, it will continue to be a public corporation until such time as it elects, or is designated, not to be a public corporation. Accordingly, a corporation that has all of its classes of shares delisted from a prescribed stock exchange in Canada will generally continue to be a qualified investment for a registered plan so long as it continues to be a public corporation.
If a corporation ceases to be a public corporation, there is a possibility that it may also continue to be a qualified investment under one of the remaining provisions of the Act or the Income Tax Regulations (the "Regulations") that define qualified investments. Should you wish to consider these, reference should be made to Interpretation Bulletin IT-320R3 Qualified Investments for further information.
A share will generally cease to be a qualified investment if it does not satisfy any of the above-noted criteria. However, if a share was a qualified investment pursuant to subsection 4900(12) of the Regulations at the time of its acquisition, it should be noted that the particular share would continue to be a qualified investment even if identical shares can no longer be acquired by the registered plan as qualified investments. Subsection 4900(12) of the Regulations generally pertains to shares of small business corporations, and prescribed venture capital corporations as discussed in paragraph 6 of IT-320R3.
A trust governed by a registered plan that holds a non-qualified investment that was qualified at the time of their acquisition, may be subject to tax under Part XI.1 of the Act on the non-qualified holding with the amount of the tax based on the fair market value of the non-qualified investment as determined at the time of its acquisition. Part XI.1 tax may also apply to a non-qualified investment that was a non-qualified investment at the time of its acquisition if the value of the property has not been included in the annuitant's income in accordance with subsection 146(10) of the Act.
A corporation does not generally cease to exist when it is merely placed into bankruptcy, but will continue to exist until such time as it surrenders its charter or a court, or such other competent authority, as may be applicable, makes a determination that it no longer exists. Accordingly, a share of a corporation that is placed into bankruptcy and also becomes a non-qualified investment will continue to be subject to taxation under Part XI.1 of the Act until the property is removed from the registered plan or it ceases to exist. Whether or not the registered plan can transfer the share to the annuitant or some other party is a question of fact and may depend on legislation other than the Act.
Situation 2
A corporation, which has a share listed on a prescribed stock exchange in Canada has the share delisted. However, the share is subsequently traded on the NEX or CDNX Tier 3.
When the shares of the corporation cease to trade on the prescribed stock exchange they may become non-qualified investments. The comments under 1 apply equally to this situation.
Situation 3
A corporation, which has a share listed on a prescribed stock exchange in the United States, files for bankruptcy. The share is delisted and the market value of the share held in the registered plan declines to nil or a nominal amount.
The corporation may be a public corporation if, for example, it was at some time listed on a prescribed stock exchange in Canada. The comments under 1 apply to this situation if the corporation is resident in Canada at the particular time and it is a public corporation. However, if the corporation was never a public corporation, or it was a public corporation but it is not resident in Canada at the particular time, it cannot continue to be a public corporation nor will it likely qualify under any other provision as described in IT-320R3.
Situation 4
A corporation, which has a share listed on a prescribed stock exchange in the United States, has the share delisted. However the share is subsequently traded on the Nasdaq Bulletin Board.
The comments under 3 apply equally to this situation.
We trust these comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004
Email this Content