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 a particular corporation was a "registered securities dealer" within the meaning of subsection 248(1).
Position: Yes.
Reasons: Based on the corporation's letters of registration, the relevant provincial legislation and the policy intent of the "registered securities dealer" definition in subsection 248(1).
January 3, 2007
TORONTO CENTRE TSO HEADQUARTERS
Bill Yeates, Large File Case Manager Income Tax Rulings
Large File Section Group 453-3-3 Directorate
Jenie Leigh
Attention: Larry Forget (613) 952-1505
2006-019431
XXXXXXXXXX - Registered Securities Dealer
This is in reply to your memorandum dated June 22, 2006 wherein you requested our opinion as to whether XXXXXXXXXX was a "registered securities dealer" within the meaning of subsection 248(1) of the Income Tax Act (the "Act") with respect to its XXXXXXXXXX taxation years. As discussed, we delayed providing this response to allow the Department of Finance to review their files for any documentation that might provide some additional insight as to the intended scope of the definition.
You advise that the notes to XXXXXXXXXX non-consolidated financial statements indicate that the company is primarily engaged in the provision of corporate finance services and the underwriting of corporate securities to both arm's length and non-arm's length parties. With respect to the period under review, you provided us with letters from the Ontario Securities Commission (OSC) approving XXXXXXXXXX registration under the provisions of the Securities Act (Ontario). Registration was granted by the OSC to XXXXXXXXXX as follows:
Period Category
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
XXXXXXXXXX XXXXXXXXXX
Each of the letters of registration provided the caveat that registration was subject to the restrictions and conditions noted therein. In all cases, the restrictions or conditions pertained to the identification of persons who were authorized to trade on behalf of XXXXXXXXXX.
Section 98 of the Securities Act (Ontario) sets out 10 categories of registration. While we have not reviewed all 10 categories in detail, it is our view that generally, unless there are restrictions set out in the letter of registration as to the types or kinds of securities in which the corporation may trade, corporations registered as brokers, securities dealers or investment dealers are "registered securities dealers" within the meaning of subsection 248(1) of the Act.
"Investment dealer" is defined in section 98 of the Securities Act (Ontario) as "being a person or company that is a member, branch office member or associate member of the Ontario District of the Investment Dealers' Association of Canada, which person or company engages in the business of trading securities in the capacity of an agent or principal." The Securities Act (Ontario) does not provide for any subcategories of "investment dealer" which was confirmed by an official of the OSC. We understand the Investment Dealers Association will acknowledge which types of securities a person or company may choose to trade in; however, there is no restriction imposed by the OSC under their Act as to the types or kinds of the securities in which that company may trade. In fact, the official that we spoke with at the OSC attached no particular significance to the mention of "Equities Broker" in the registration letter beyond the restriction/condition noted in the letter. As noted above, the restriction/condition related to individuals who were approved to trade on behalf of XXXXXXXXXX as opposed to types of securities the corporation could trade in. The letters of registration contained no specific restriction in this regard.
Opinion
Based on the above, it is our opinion that with respect to the XXXXXXXXXX taxation years of XXXXXXXXXX that it was a "registered securities dealer" within the meaning of subsection 248(1) of the Act. Accordingly, with regard to the specific questions posed in your memorandum, it is our opinion that:
1. By virtue of paragraph (e) of the definition of "financial institution" in subsection 181(1) of the Act, XXXXXXXXXX was a "financial institution" for purposes of Part I.3 of the Act for its XXXXXXXXXX taxation years, and
2. XXXXXXXXXX was an investment dealer for its XXXXXXXXXX taxation years and therefore pursuant to subparagraph (a)(ii) of the definition of "financial institution" in subsection 142.2(1) of the Act, a financial institution for purposes of sections 142.2 to 142.7 of the Act.
With regard to our discussion with the Department of Finance, while they were unable to find any additional documentation regarding the definition of "registered securities dealer" in subsection 248(1) of the Act, they did indicate that the above interpretation is in accord with their view of the policy intent with regard to the scope of the provision.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
F. Lee Workman
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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