16 May 1986 Income Tax Severed Letter 5-1447 - [Application of Regulation 4800]

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.

G. Kauppinen (613) 995-0051

May 16, 1986

Dear Sirs:

This is in reply to your letter dated April 14, 1986 concerning the application of Regulation 4800 of the Income Tax Act ("Act") in the following circumstances:

(a) A corporation which intends to qualify as a mutual fund corporation as defined in section 131 of the Act is making its first public share issue and some of the purchasers require that the shares are qualified investments for a registered retirement savings plan ("RRSP") and other deferred income plans.

(b) To avoid two closings which would enable the shares to be shares of a public corporation upon the second closing to the investors which are RRSPs the following is proposed:

    (i)  There will be one closing with all purchases held in escrow.
         The terms of the escrow would provide for the escrow to terminate
         following the filing of the election to be a public corporation.

    (ii) A director of the issuing corporation would attend at a District
         Office of Revenue Canada, make a statutory declaration on the
         basis of the distribution which would exist on the termination
         of the escrow and file the election.

It is our view that by using the above-noted method where the termination of the escrow and the time of the election are simultaneous, the corporation would adequately comply with the provisions of clause 89(1)(g)(ii)(A) and Regulation 4800 of the Act. Therefore, the corporation would be considered a public corporation as of the date of issue of the shares which, if held by an RRSP, will be considered to be qualified investments. These shares would also be considered to be qualified investments for any other deferred income plans which define shares of a public corporation as a "qualified investment" for purposes of the Act.

We trust the foregoing is of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch