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: Qualified Investment in Self-Directed Registered Retirement Savings Plan ("RRSP")
This is in response to your letter of February 24, 1993, in which you ask questions on self-directed RRSPs.
On December 2, 1992, the Minister of Finance released Draft Legislation on investment in small and medium-sized business (copy enclosed). It is proposed to eliminate the 50-per-cent limit on RRSP investment in small business shares. Subsection 207.1(5) of the Income Tax Act (the "Act") imposes a 1% penalty tax on a trust governed by an RRSP or a Registered Retirement Income Fund with respect to "excessive" holdings in small business properties. It is proposed to repeal this subsection retroactively to the date of its introduction.
Our answers to your questions are as follows:
1. As mentioned in a telephone conversation (St-Amour/XXXXXXXXXX), the Department does not require that any documents be filed to support the fair market value of the stock. However, such documents as evaluation reports, must be kept in a manner as specified by section 230 of the Act and section 5800 of the Income Tax Regulations. Information Circular 78-10R2 (copy attached) provides detailed information on this issue.
2. The Department does not require any information on the financial status of the small business.
3. As specified in paragraphs 2 and 21(b) of Information Circular 78- 14R2 (copy enclosed), the T3R-IND return is required annually for every trust governed by an RRSP which is a self-directed plan.
4. As mentioned in paragraph 19 of Interpretation Bulletin IT-320R2 (copy enclosed), RRSPs are subject to Part XI of the Income Tax Act in respect of foreign property held by them which exceeds certain specified limits. The foreign content limit is 18% for 1993 and 20% for 1994 and subsequent years. However, when an RRSP holds "small business property", as defined in subsection 206(1), the RRSP may increase its holdings of foreign property in excess of the 18% limit without attracting Part XI tax. In these circumstances, the RRSP may increase its investment in foreign property by the lesser of three times the "small business investment amount" and two times the 18% limit. The "small business investment amount" of a taxpayer for a month is defined in subsection 206(1) to be the 3 month average of the total cost amounts of all small business properties to the taxpayer at the end of each of the three preceding months.
We trust this is satisfactory. If you have any further questions, do not hesitate to contact us.
Yours truly,
for the Director Financial Industries DivisionRulings Directorate
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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