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.
Principal Issues:
Is an annuitant under a trust governed by an RRSP related to the RRSP? (in reference to definition of designated shareholder in subsection 4901(2)(b) of the Regulations)
Position TAKEN:
No.
Reasons FOR POSITION TAKEN:
Although presumption that annuitant and RRSP are dealing at non-arm's length, nothing in 251(2)(a) makes them related (trust is individual pursuant to 104(2).
XXXXXXXXXX 941182
Attention: XXXXXXXXXX
June 6, 1994
Dear Sirs:
Re: Definition of Designated Shareholder
Subsection 4901(2) of the Regulations to the Income Tax Act (Canada) (the "Act")
This is in reply to your facsimile transmission of May 3, 1993 in respect of the above-noted definition. Your concerns relate to a situation where a small business investment limited partnership ("SBILP"), within the meaning of section 5102 of the Regulations is formed, and a number of the limited partners are trusts governed by Registered Retirement Savings Plan ("RRSPs"). The SBILP would acquire control of an "eligible corporation" within the meaning of subsection 5100(1) of the Regulations. No single trust governed by an RRSP would be a "specified shareholder" of the corporation within the meaning of subsection 248(1) of the Act. You have asked if the annuitant under a trust governed by an RRSP is related to the RRSP and would thus, in this situation, be a designated shareholder within the meaning of 4901(2) of the Regulations pursuant to paragraph (b) of that definition.
In our opinion, an annuitant under a trust governed by an RRSP is not related to that RRSP, since there is no rule in subsection 251(2) of the Act which causes an annuitant to be related to the RRSP.
However, we would stress that the annuitant may be a designated shareholder under other parts of that definition in subsection 4901(2) of the Regulations. In particular, the deeming rules in the definition of "specified shareholder" in subsection 248(1) or the Act would deem a trust governed by an RRSP, and in turn would deem the annuitant of the RRSP, to own that proportion of all the shares of the corporation that are property of the SBILP that the fair market value at the time of the RRSP's interest in the partnership is of the fair market value at that time of the interests of all members of the partnership. These deeming rules may result in the annuitant being a specified shareholder of the corporation, and a designated shareholder under paragraph 4901(2)(a) of the latter definition in the Regulations, subject to the exclusion in the postamble of 4901(2)(a). As well, paragraph 4901(2)(b) of that definition may result in an annuitant being a designated shareholder where the partnership, the SBILP or the annuitant has rights to shares or to acquire shares. We would also stress that the determination of whether an annuitant and a corporation would be dealing at arm's length for the purposes of paragraph 4901(2)(e) of the definition of designated shareholder is a question of fact.
We would note that the Department of Finance proposes to expand "qualified investments" as defined in 146(1)(g) of the Act to include a limited partnership unit listed on a stock exchange referred to in section 3200 of the Regulations. This draft amendment to include paragraph 4900(1)(m) (sic) of the Regulations was announced in a Press Release on February 4, 1993 (93-005), which was replaced by a Release on August 30, 1993 (93-053).
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
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