22 November 1993 Income Tax Severed Letter 9332957 - Home Buyers Plan & LSVCC Shares

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.

Please note that the following document, although
believed to be correct at the time of issue, may not
represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis,
peut ne pas représenter la position actuelle du
ministère.
                                       November 22, 1993

     SURREY TAXATION CENTRE (99)       HEAD OFFICE
     Marian Leonard                    Financial Industries
     TPS 3-4                             Division
                                       W.C. Harding
                                       (613) 957-8953 

                                       7-933295

Repayments under the Home Buyers' Plan

This is in reply to your Facsimile enquiry dated November 15, 1993, concerning the repayment of amounts under the Home Buyers' Plan.

You state that an individual withdrew funds from a "mutual fund RRSP" and wishes to repay them to a labour sponsored fund and receive the resulting federal and provincial tax credits.

Since your memorandum does not state why the amount is being repaid we will explain the two provisions pertaining to repayments under the Home Buyers' Plan and comment on the consequences with respect to you situation.

If the amount originally withdrawn from the mutual fund RRSP is an "eligible amount" as defined in subsection 146.01(1), it is also an "excluded withdrawal" as defined in the same subsection and does not have to be reported as income in accordance with subsection 146(8) of the Act in the year received.

If the amount withdrawn is an eligible amount, subsection 146.01(4) of the Act provides for the inclusion of the amount in an individual's income over a 15 year period. However, if the amount is repaid, the amount that must be included income each year will be reduced, to the extent a designation is made under subsection 146.01(3) of the Act, by the amount repaid in the year. For the purposes of these provisions a repayment can be made to any RRSP under which the individual is the annuitant at the end of the year. Therefore, if this is the case in your situation, a repayment could be made to any RRSP under which the individual is the annuitant at the end of any particular year and a designation could be made with respect of the repayment for that year under subsection 146.01(3).

If the withdrawal is not an eligible amount, the Act provides that it must be included in income at the time of its receipt unless it meets the definition of an excluded withdrawal. For this purpose, an amount will generally meet the definition if it is repaid to the same RRSP or to an RRSP having a common issuer as the original RRSP and if it is repaid before certain dates as specified in the subsection. If this is the case in your situation, in order to ensure the original withdrawal is not included in the individual's income, the repayment may only be made to an RRSP of the same issuer as the "mutual fund RRSP".

Please note that the term "issuer" is defined in paragraph 146(1)(c.1) of the Act.

The rules governing RRSP repayments as described above, are distinct from the rules governing tax credits under the labour sponsored venture capital corporation (LSVCC) rules. Subject to the final passage of proposed amendments to the legislation, LSVCC tax credits can generally be claimed by any individual who purchases units of a LSVCC directly or purchases them within an RRSP. There is no such thing as a LSVCC RRSP as such. However some LSVCC funds do arrange for the issue of self directed RRSPs to be used exclusively for the holding of an individual's LSVCC units.

If an individual purchases units of a LSVCC, the units can be transferred to an RRSP as part of a repayment of an eligible amount under the Home Buyers' Plan. The amount of the repayment would be equal to the fair market value of the units at the time of their transfer. The individual could also repay an eligible amount to an RRSP in cash and the RRSP could then purchase units in the LSVCC directly. In either case, the consequences with respect to the tax credits will be the same assuming currently proposed legislation is passed as drafted. If, in your situation, the repayment is being made in respect of an eligible amount, the RRSP in which the units are placed could be any RRSP under which the individual is the annuitant at the end of the year in which the contribution is made. However, if the repayment is being made in respect of an ineligible amount, the units will have to be in an RRSP issued by the same issuer of the "mutual fund RRSP."

for Director Financial Industries Division Rulings Directorate