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 an RRSP trust can write a covered call option.
Position: Generally yes.
Reasons: The writing of a covered call option by a plan trust results only in cash being received by the trust which, if it is legal tender in Canada, is a qualified investment under the definition of this term in subsection 146(1) of the Income Tax Act
XXXXXXXXXX 2004-005625
J. Gibbons, CGA
April 22, 2004
Dear XXXXXXXXXX:
Re: Qualified Investments for a Registered Retirement Savings Plan ("RRSP")
This is in reply to your email dated January 12, 2004, wherein you requested our view whether the comments in paragraph 22 of Interpretation Bulletin IT-320R3, Qualified Investments - Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plan and Registered Retirement Income Funds, imply that covered call options can be written by an RRSP trust. In particular, you refer to the last sentence of this paragraph which states that "[a]s no property has been acquired by the plan trust, the issue of whether such an option is a qualified investment is not relevant."
Written confirmation of the tax implications inherent in particular transactions is provided by us only where the transactions are proposed and the subject matter of an advanced income tax ruling request 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.
The reason for our views in IT-320R3, as noted above, is based on our understanding that, from the perspective of the plan trust, the writing of a covered call option results only in the receipt of cash, which, if it is legal tender in Canada, is a qualified investment under the definition of this term in subsection 146(1) of the Income Tax Act (the "Act"). In return, the plan trust agrees to sell a particular property at an agreed upon price should the holder exercise the call option. Thus, on this basis, it is our view that the rules in the Act governing qualified investments do not prevent a plan trust from writing a covered call option.
We trust that these comments will be of assistance.
Yours truly,
Roxane Brazeau-LeBlond, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
??
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