Principal Issues: Whether subsection 146(10.1) and/or 207.04 of the Act would apply in two scenarios. In the first scenario, an RRSP trust holds shares of a corporation that are non-qualified investments and a stock dividend is paid on those shares; in the second scenario, an RRSP trust holds shares of a corporation that are qualified investments, and the corporation pays a dividend in-kind on those shares by distributing to the RRSP trust shares of another corporation that are not qualified investments.
Position: In both scenarios, the RRSP annuitant will be liable to pay the 50% tax under subsection 207.04(1) of the Act, subject to a possible refund of the tax pursuant to subsection 207.04(4). In the first scenario, subsection 146(10.1) of the Act will subject the RRSP trust to Part I tax on the income resulting from the stock dividend (i.e. this is income from a non-qualified investment). In the second scenario, the RRSP trust will not be subject to Part I tax on the income resulting from the in-kind dividend; however, subsection 146(10.1) of the Act will apply to the RRSP trust in respect of any income earned on the non-qualified shares received as an in-kind dividend.
Reasons: In both scenarios, the RRSP trust has acquired a non-qualified investment. In the first scenario, the non-qualified investment was received as income from a non-qualified investment. In the second scenario, the non-qualified investment was received as income from a qualified investment, thus subsection 146(10.1) of the Act does not apply.
