13 July 1994 External T.I. 9415885 - RRSP INVESTMENT AT COST OR FMV

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:

What is the value of an RRSP investment which becomes non-qualified.

Position TAKEN:

Fair market at time of acquisition for purpose of section 207.1 and "cost amount" for purpose of section 206.

Reasons FOR POSITION TAKEN:

Words of these provisions.

XXXXXXXXXX 941588

Attention: XXXXXXXXXX

July 13, 1994

Dear Sirs:

Re: Value of Shares as Investment of
Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of June 16, 1994, in which you ask whether the value of an investment which is no longer qualified for RRSP purposes must be reflected at its "cost amount" or its book value until the RRSP disposes of it. You indicate that the investment is shares in a corporation which declared bankruptcy and is now insolvent.

The value of an RRSP investment is relevant for purposes of the taxes imposed on the acquisition or holding of a non-qualified investment and the tax imposed on excessive holdings of foreign property.

Where an investment becomes non-qualified (for example, when shares of a corporation are de-listed from a stock exchange) and the RRSP continues to own it at the end of any month, the RRSP is subject to a monthly tax equal to 1% of the investment's fair market value at the time it was acquired.

With respect to the calculation of the tax on excessive foreign property, the RRSP trustee must maintain records of the "cost amount" of each investment; the tax is imposed at a rate of 1% per month on the total of the cost amounts of all foreign property (held at the end of the month) in excess of 20% of the total cost amounts of all property held in the RRSP at the end of the month. "Cost amount" is defined in the Income Tax Act (the "Act") and, with respect to shares, means the "adjusted cost base" (generally, its cost of acquisition) which is determined in accordance with section 54 of the Act . If a property is a non-qualified investment for RRSP purposes, it's value is not included in the total of all the foreign property cost amounts in the foregoing calculation.

Although the foregoing comments are an expression of opinion only and are not binding on the Department, we trust they satisfactorily address your concerns.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate