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:
Whether a debenture from a Canadian subsidiary to an RRSP (the proceeds of which are loaned by the subsidiary to a non-listed foreign corporation) is a 4900(1)(i) qualified investment for RRSP (if RRSP held debenture directly in foreign corporation, it would only qualify if foreign corporation listed on prescribed foreign exchange - 4900(1)(p)).
Whether the shares of the Canadian subsidiary derive their value primarily from loans made to foreign corporations and the debentures are therefore foreign property within meaning of 206(1)(d.1).
Position TAKEN:
Yes; yes.
Reasons FOR POSITION TAKEN:
See GAAR Committee Report Document 941714.
October 11, 1994
Vancouver District Office Head Office
D. M. Luciuk Rulings Directorate
Acting Director P. Spice
(613) 957-8953
Attention: Warren Campbell
941714
Paragraph 4900(1)(i) of the Income Tax Regulations
This is in reply to you memorandum received July 4, 1994, in which you ask us to review an offering memorandum for the issue of debentures of a corporation which is controlled by a corporation whose shares are listed on the Vancouver Stock Exchange. You ask if these debentures would qualify under the above-noted provision.
We asked the Financing and Leasing Section to review the offering memorandum to determine whether the debt as described would be considered a "debenture". It was their opinion that it could be so considered. Given this view and the fact that the investment otherwise meets the conditions of paragraph 4900(1)(i), the debenture would be a qualified investment for the various registered deferred income plans.
The debenture derives its value from real property situated in the United States and may be foreign property as defined in paragraph 206(d.1) of the Income Tax Act. We note the opinion of the Promoter that the shares of the subsidiary do not derive their value primarily from portfolio investments in foreign property but would advise that in our opinion a case could be made that the loan to the U.S. corporation is a "portfolio investment" and that the shares of the lender derive their value from this and other loans to U.S. entities.
XXXXXXXXXX
You may wish to pursue the matter of the liability for Part XI tax with the RRSP trusts that have invested in the debentures. By copy of this memorandum, we are informing the Assessment of Returns Directorate of this matter.
Additionally, you may wish to advise the Promoter of the Department's position and emphasize that any future prospectuses or advertising concerning such debentures or similar instruments should refer to the potential liability for Part XI tax if the instruments are purchased by taxpayers listed in section 205 of the Act.
for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch
c.c. Mr. Bill Mizuik, Chief
T3 Programs Section
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