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:
Liability of an RRSP trust for tax on non-qualified investments in respect of shares of a corporation that has filed for reorganization under bankruptcy laws?
Position:
General explanation of the law was provided based on information provided which was not verified for accuracy.
Reasons:
Only very brief information is available. Liability for tax will be a question of fact.
XXXXXXXXXX 2003-003861
P. Kohnen, CMA
December 18, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation - Investments held by an RRSP
This is in response to your facsimile submission of September 10, 2003 wherein you requested our comments regarding the tax charged on delisted shares held by your registered retirement savings plan ("RRSP").
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.
Based on the documentation submitted, the accuracy of which we have not verified, the relevant facts may be summarized as follows:
1. The shares of XXXXXXXXXX were delisted in XXXXXXXXXX, and at that time became a non-qualified investment for your RRSP.
2. XXXXXXXXXX is a U.S. corporation that filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code during XXXXXXXXXX.
3. Based on documentation submitted, which is available to the public on the website of the United States Securities and Exchange Commission, pursuant to confirmation by the United States District Court for the District of XXXXXXXXXX of the Second Amended Joint Plan of Reorganization of XXXXXXXXXX, all of the outstanding shares of XXXXXXXXXX were cancelled and ceased to be outstanding as of XXXXXXXXXX, which was the effective date of the Plan of Reorganization.
When a corporation files for relief under the bankruptcy laws, the shares of that corporation do not immediately cease to exist. As noted above, the court confirmed the plan of reorganization of XXXXXXXXXX and, in doing so, confirmed that the shares were, as of XXXXXXXXXX, cancelled and no longer valid securities. Based on this information, any RRSP that held the shares of XXXXXXXXXXat that date would have disposed of them through the order of the confirmation of the reorganization by the court.
Subsection 207.1(1) of the Income Tax Act generally imposes a tax at the end of each month in respect of non-qualified investments held by an RRSP trust. The amount of tax payable for each month is equal to 1% of the fair market value of the property at the time it was acquired by the trust of all such property that the trust continues to hold that constitutes a non-qualified investment.
Based on the above information, as of XXXXXXXXXX, your RRSP did not hold shares of XXXXXXXXXX (as they had been cancelled) and would no longer be liable for tax in respect of non-qualified investments in regard to the shares of XXXXXXXXXX.
We trust that the above comments will be of assistance to you. Please do not hesitate to contact Mr. Phil Kohnen at (613) 957-2093 should your require further information.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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