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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear XXXXXXXXXX
RE: Registered Retirement Savings Plan ("RRSP") Investment in U.S. Options
This is in response to your letter of January 29, 1993, in which you ask if a call or put option based and traded on the New York Stock Exchange is a qualified investment in a self directed RRSP.
A call option will be a qualified investment for an RRSP trust if it meets the requirements of paragraph 4900(1)(e) of the Income Tax Regulations (the "Regulations"). The call option must give the RRSP trust the right to acquire property that is itself a qualified investment and the call option must be listed on a prescribed stock exchange in Canada.
Subparagraph 204(e)(ix) of the Income Tax Act (the "Act") provides that shares listed on a prescribed stock exchange in a country other than Canada are qualified investments for an RRSP. Thus, a call option listed on a Canadian stock exchange and giving the holder the right to acquire shares listed on a U.S. stock exchange identified in section 3201 of the Regulations would represent a qualified investment for an RRSP trust. However, the option would not qualify if it is listed solely on a prescribed U.S. exchange such as the New York Stock Exchange. When an RRSP acquires a non-qualified investment, the fair market value thereof at the time it was acquired will be added to the income of the annuitant under the plan pursuant to subsection 146(10) of the Act.
RRSPs are subject to Part XI of the Act in respect of foreign property held by them which exceeds certain specified limits. In calculating Part XI tax, those foreign properties which are not qualified investments are excluded to ensure that the trust is not taxed again on amounts which are subject to tax under subsection 146(10) or Part XI.1 of the Act. If an option does not meet the requirements of paragraph 4900(1)(e) of the Regulations, it would not be a qualified investment and thus, it would not be subject to Part XI.
On February 4, 1993, the Department of Finance released Draft Amendments on qualified investments for deferred income plans. It is proposed to amend paragraph 4900(1)(e) of the Regulations to remove the requirement that a warrant or right (a call option) must be listed on a prescribed stock exchange. This will allow RRSPs, after 1992, to acquire shares that are qualified investments together with warrants with respect to such shares.
A stated in paragraph 14 of Interpretation Bulletin IT-320R2, a put option would not be a qualified investment for an RRSP. Paragraph 4900(1)(e) of the Regulations refers to "the right to acquire... property", whereas a put option, as we understand it, gives the holder the right to sell specific shares at a stated price and time at any time until the expiration of the option.
We trust the above comments will be of assistance to you. If you have any questions do not hesitate to contact us.
for DirectorFinancial Industries DivisionRulings Directorate
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