1993 External T.I. 9336585 F - RRSP Investment in Call Options

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.

RULINGS DIRECTORATE CORRESPONDENCE SUMMARY

PRINCIPAL ISSUES:

Whether U.S. options to acquire shares (of a "Canadian corporation") listed on prescribed stock exchange in Canada are foreign property.

POSITION TAKEN:

No, but they are non-qualified investments pending the amendment to ITR 4900(1)(e).

REASONS FOR POSITION TAKEN:

Wording of 206(1)(f). (See also 930132, 930329, 921852, 921781.)

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

IT-412R, IT-320R2 (para. 14)

HAA NUMBER:

7255-7

XXXXXXXXXX

933658

Attention:  XXXXXXXXXX

January 20, 1994

Dear Sirs:

RE:  Registered Retirement Savings Plan (RRSP) Investment in Call Options

This is in reply to your letter received December 15, 1993, concerning the purchase of call options listed on a U.S. exchange where the stock underlying the option is that of a Canadian corporation. You ask whether such an option purchased outside Canada is "foreign property" within the meaning of subsection 206(1) of the Income Tax Act (the "Act").

If the share is listed on a prescribed stock exchange in Canada and the corporation is a "Canadian corporation" as defined in paragraph 89(1)(a) of the Act, the option to acquire such a share is not "foreign property" (subparagraph 206(1)(f)(i) of the Act).

We note your reference to a purchase "outside Canada". Although paragraph 206(1)(c) of the Act defines foreign property to include intangible property "situated outside Canada", the provision excludes intangible property described in paragraph 206(1)(f) of the Act.

We would point out that an option listed on a U.S. exchange is not a "qualified investment" for an RRSP within the meaning of paragraph 146(1)(g) of the Act notwithstanding that the underlying stock is that of a Canadian corporation. The Department of Finance announced on February 4, 1993, however, a proposed amendment to paragraph 4900(1)(e) of the Income Tax Regulations to the effect that a warrant or right is a qualified investment if it gives the holder the right to acquire either immediately or in future property all of which is a qualified investment for the plan trust. The amendment is proposed to take effect for years after 1992.

Although the foregoing comments are an expression of opinion only and are, therefore, not binding on the Department, we trust they are helpful.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate