27 February 2004 External T.I. 2003-0054241E5 - Convertible shares -whether qualified investments

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.

Principal Issues: Whether convertible debentures of a company that trade on the TSX Venture Exchange are qualified investments for a trust governed by an RRSP.

Position: Question of fact. However, since the Department of Finance proposes to add the TSX Venture Exchange to the list of prescribed stock exchanges in Canada, the debentures will likely qualify as qualified investments.

Reasons: Debentures of a company whose shares are listed on a prescribed stock change are explicitly included in the definition of qualified investment pursuant to subparagraph 146(1)(b)(i).

XXXXXXXXXX 2003-005424
J. Gibbons, CGA
February 27, 2004

Dear XXXXXXXXXX:

Re: Convertible Unsecured Subordinated Debentures (the "Debentures") Issued by XXXXXXXXXX (the "Company")

This is in reply to your letter dated December 23, 2003, wherein you requested our views on whether the Debentures would be a "qualified investment" for a trust governed by a registered retirement savings plan ("RRSP") pursuant to the definition of this term in subsection 146(1) of the Income Tax Act (the "Act"). The Company's shares are listed on the TSX Venture Exchange.

Our comments

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 a request for an advanced income tax ruling submitted in the manner set out in Information Circular 70-6R5. However, we have provided some general comments below, which we hope will be of some assistance to you.

A "qualified investment" for a trust governed by an RRSP trust includes, pursuant to subparagraph (b)(i) of the definition of this term in subsection 146(1), a bond, debenture, note or similar obligation issued by a corporation the shares of which are listed on a "prescribed stock exchange in Canada." Section 3200 of the Income Tax Regulations lists the stock exchanges in Canada that are prescribed for purposes of the Act. The Department of Finance announced in News Release No. 1999-111, dated December 16, 1999, and in the Backgrounder released with News Release No. 2000-101, dated December 21, 2000, that Tiers 1 and 2 of the Canadian Venture Exchange [now known as the TSX Venture Exchange] would be added to the list of prescribed stock exchanges. The prescription is to apply as of the date the new exchange started operations, which was November 29, 1999, and will have effect for taxation years ending after that date.

If convertible debentures, which are held by an RRSP trust as qualified investments, are later converted into other securities, it would have to be determined, at the time of conversion, whether these other securities are qualified investments for the RRSP trust. In this regard, one would have to consider the rules in the Act and Regulations that apply at the time of conversion.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate

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