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 Sirs:
RE: Qualified Investment for a RRSP
This is further to your letter of February 24, 1993 wherein you requested a technical interpretation concerning the status of "instalment receipts" as qualified investment for a registered retirement savings plan ("RRSP").
In connection with an arrangement to sell shares payable on an instalment basis, the shares are sold at a predetermined price with a portion of the sale price payable at the time of the sale and the balance to be paid at some future date in two instalments. The beneficial ownership of the share is evidenced by the issue, at the time of the first payment, of an instalment receipt to the purchaser which receipt is listed on stock exchanges and may be traded. The legal title of a share is held by a custodian until payment of the final instalment is made. Upon that payment, the holder of the instalment receipt will become the registered holder of the shares. Shares represented by an instalment receipt are pledged to the seller to secure the obligation of the holder to pay the instalments in respect of the shares. Under the arrangement, the shares remain as security but may effectively be traded on a stock exchange through the instalment receipts.
Provided the shares of a corporation are listed for trading on a prescribed stock exchange of the Income Tax Regulations (including Vancouver, Toronto and Montreal stock exchanges), such shares acquired by a RRSP will constitute qualified investments within the meaning of paragraph 146(1)(g) of the Income Tax Act ("Act") for the RRSP.
Where a RRSP acquires the beneficial ownership (evidenced by an instalment receipt) of shares listed on a prescribed stock exchange, we are of the view that such shares constitute qualified investments for the RRSP and the instalment receipt is not in and by itself a qualified investment for the RRSP.
Where a taxpayer transfers an instalment receipt representing the beneficial ownership of shares as premium to a RRSP, the amount of the premium for the purposes of subsection 146(5) of the Act is equivalent to the fair market value of the instalment receipt transferred at the time of the disposition.
It is our view that paragraph 146(4)(a) and subsection 146(10) of the Act do not apply where a RRSP buys shares payable on an instalment basis because an obligation to pay instalments does not constitute a loan or borrowed money with a relationship of lender and borrower between the parties.
The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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