6 July 1994 External T.I. 9415785 - QUALIFIED INVESTMENTS FOR RRSP

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:

General description of RRSP qualified investment and foreign property rules.

Position TAKEN:

N/A

Reasons FOR POSITION TAKEN:

Routine

XXXXXXXXXX		941578

July 6, 1994

Dear XXXXXXXXXX:

Re: Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of May 16, 1994, which was forwarded to us by the Registered Plans Division. You ask several questions concerning RRSP's, and the qualified investments and foreign property rules.

You ask about the "self-directed" rules. The Income Tax Act (hereinafter referred to as the "Act") restricts the investments of RRSP's that are trusts. RRSP trusts must invest in "qualified investments" as defined in the Act or the annuitant will be subject to an income inclusion in the year of the acquisition of the investment in an amount equal to the fair market value of the investment. Where an investment is qualified when it is acquired by the RRSP trust but later becomes non-qualified, the annuitant will not be subject to an income inclusion but the RRSP trust will be subject to a tax which is levied at the rate of 1% per month on the fair market value of the investment at the time it was acquired.

The term "qualified investment" is defined in paragraph 146(1)(g) and includes investments described in that paragraph and in certain subparagraphs of paragraph 204(e) of the Act and sections 4900 through 5104 of the Income Tax Regulations. You should refer to Interpretation Bulletin IT-320R2 and the related Special Release for a description of some of the more common qualified investments.

The foreign content rules also apply to RRSP trusts and limit the amount of foreign property an RRSP trust may own to 20% of the total cost amount of the property in the RRSP trust. "Cost amount" is defined in subsection 248(1) of the Act and generally means the acquisition cost of the property. Therefore, fluctuations in the fair market value of a property will not affect the values of the RRSP trust's property for purposes of calculation of the foreign property limits. The 20% limit applies separately to each of an annuitant's RRSP trusts and does not apply to other types of RRSP's which may be owned by the annuitant, such as insurance contract RRSP's and depositary RRSP's.

The trustee of the RRSP is required to determine which investments are foreign and is obliged to keep track of the cost amounts of all the properties in the RRSP trust; the trustee is also required to file a return and pay the penalty tax within 90 days of the end of the calendar year should the 20% limit be exceeded on the last day of any month in that calendar year. The tax is levied at a rate of 1% of the cost amount of the foreign property in excess of the 20% limit at the end of each month. For further information concerning the foreign property rules applicable to an RRSP trust, please refer to Interpretation Bulletin IT-412R2. (The reference to 10% in the "Summary" should be changed to 20%.)

The foregoing comments are general in nature and are not intended to be exhaustive. Although the comments are not binding on the Department, we trust they assist.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate