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.
XXXX
R. Nanner Tel: (613) 957-8960
November 24, 1986
Dear Sirs:
Re: Paragraph 146(4)(a) of the Income Tax Act (the 'Act')
This is in reply to your letter dated October 1, 1986 wherein you requested our comments in respect of certain debit balances which may arise in a self-directed registered retirement savings plan ('RRSP').
In your letter, you described a situation in which a beneficiary intends to sell securities held in his RRSP in order to buy other securities. The order to buy securities goes out before the order to sell the securities held by the RRSP at that time. Consequently new securities are purchased before the existing securities are sold. This results in a temporary debit balance in cash account which is covered immediately after the securities that were intended to be sold are sold.
You asked whether this short term debit balance would be considered 'borrowed money' for the purposes of paragraph 146(4)(a) of the Act.
It is our view to regard this type of debit balance as a 'technical overdraft' which does not constitute 'borrowing money' for the purposes of paragraph 146(4)(a) of the Act, provided that the debit balance is temporary, covered without undue delay and does not have the character of drawing on a line of credit. On the other hand, in a situation where the facts clearly indicate that an investment dealer or broker has entered into an agreement with a plan providing for line of credit limits for more lengthy periods of time, interest charges on debit balances etc., it is our opinion that the provisions of paragraph 146(4)(a) or 146(10)(b) of the Act would be applicable.
These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case and, as stated in paragraph 24 of Information Circular 70-61, they are not binding on this Department.
We hope our comments are of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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