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.
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Attention: XXXXXXXXXX
Dear Sirs:
RE: Qualified Investments
This is in reply to your letter of April 5, 1993 to the Toronto District Office which has been forwarded to this Directorate, requesting a technical interpretation on an Information bulletin released by the Department of Finance on February 4, 1993 concerning draft amendments on qualified investments for deferred income plans.
As noted in Information Circular 70-6R2 dated September 28, 1990, the Department does give opinions on draft legislation but such opinions are not binding on the Department. As a result thereof, we offer the following general comments on your questions in the order in which they were asked.
1. Subsection 147(2) of the Income Tax Act (the "Act") sets out the required conditions for a Deferred Profit Sharing Plan ("DPSP") to be accepted for registration. In the draft legislation, paragraphs 147(2)(c) and (d) of the Act are amended to add bankers' acceptances to the obligations described therein. The result of this amendment is that as a condition of registration, a DPSP provides that no part of the funds of the trust governed by the plan may be invested in notes, bonds, debentures, bankers' acceptances or similar obligations of an employer who makes payments under the plan for the benefit of beneficiaries under the plan, or a corporation with whom that employer does not deal at arm's length. Similarly, paragraph 147(2)(d) of the Act requires that a DPSP provide that no part of the funds of the trust governed by the plan may be invested in shares of a corporation, if 50% or more of the property of the corporation consists of such obligations.
Subsection 4900(1) of the Income Tax Regulations (the "Regulations") prescribes certain investments to be qualified investments for RRSPs, RRIFs and DPSPs. New paragraph 4900(1)(i.1) of the Regulations is introduced to allow indebtedness of a Canadian corporation represented by a bankers' acceptance to be a qualified investment, unless the corporation does not deal at arm's length with a person who is an annuitant, a beneficiary or an employer under the plan. Subsection 4900(2) of the Regulations is also amended to provide that notes, bonds, debentures, bankers' acceptances or similar obligations described in paragraph 147(2)(c) of the Act are not qualified investments for a trust governed by a DPSP or a revoked plan.
Therefore, provided all the conditions listed above are met, bankers' acceptances will be a qualified investments for the DPSP.
2. If you were to purchase bankers' acceptances and the draft legislation is not enacted, the Department would consider the DPSP to have acquired an unqualified investment and the applicable taxes and penalties would apply.
We trust that the above will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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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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