12 May 1995 External T.I. 9513105 - REGISTERED CHARITY DEBENTURES 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:

Whether debentures issued by non-profit, non-share corporation, not guaranteed by any 3rd party, can be qualified investments for RRSP.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Would not fit any of the descriptions of debt qualified for RRSP investment purposes.

XXXXXXXXXX						951310

Attention: XXXXXXXXXX

May 12, 1995

Dear Sirs:

Re: Debentures as Qualified Investments for a Registered Retirement Savings Plan (RRSP)

This is in reply to your letter of May 3, 1995, to the Charities Division which has been forwarded to us for reply, and further to our telephone conversation (XXXXXXXXXX/Spice) of May 10, 1995. You ask whether the XXXXXXXXXX a registered charity, can issue debentures which could be qualified investments for an RRSP. In our telephone conversation you indicated that the XXXXXXXXXX is incorporated under the Societies Act of XXXXXXXXXX as a non-profit, non-share corporation.

As confirmed in the telephone conversation, debentures issued by the Society are unlikely to be qualified investments for an RRSP. Our explanation follows.

Qualified investments for a trust governed by an RRSP are listed in subsection 146(1) and section 204 of the Income Tax Act (the "Act") and section 4900 of the Income Tax Regulations (the "Regulations"). Generally speaking, a debt owing by a corporation to a trust governed by an RRSP would represent a qualified investment of the RRSP only if the debt is:

(a)a bond, debenture, note, or similar obligation of a corporation the shares of which are listed on a prescribed stock exchange in Canada (definition of "qualified investment" in subsection 146(1) of the Act);

(b)a bond, debenture, note, or similar obligation of a public corporation other than a mortgage investment corporation (paragraph 4900(1)(c.1) of the Regulations); and

(c)a bond, debenture, note, or similar obligation of a Canadian corporation which is guaranteed by a corporation or a mutual fund trust whose shares or units are listed on a prescribed stock exchange in Canada (subparagraph 4900(1)(i)(i) of the Regulations);

(d)a bond, debenture, note, or similar obligation of a Canadian corporation which is controlled directly or indirectly by one or more corporations or mutual fund trusts whose shares or units are listed on a prescribed stock exchange in Canada (subparagraph 4900(1)(i)(ii) of the Regulations);

(e)a bond, debenture, note, or similar obligation of a Canadian corporation where the conditions described in subparagraph 4900(1)(i)(iii) of the Regulations are met which, in part and in general terms, require the corporation to have share equity of at least twenty five million dollars or be controlled by such a corporation and have issued and outstanding debt of at least ten million dollars;

(f)a security of a Canadian corporation

(i)that was issued pursuant to The Community Bonds Act S.S. 90, c. C-16.1, The Rural Development Bonds Act S.M. 91-92, c. 47, the Community Economic Development Act 1993 S.O. 93, c. 26, or the New Brunswick Community Development Bond Program through which financial assistance is provided under the Economic Development Act N.B. 75, c. E-1.11, and

(ii)the payment of the principal amount of which is guaranteed by Her Majesty in Right of a province

(paragraph 4900(1)(i.1) of the Regulations);

(g)indebtedness of a Canadian corporation (other than a corporation that does not deal at arm's length with a person who is an annuitant under the RRSP trust) represented by a bankers' acceptance (paragraph 4900(1)(i.2) of the Regulations);

(h)a bond, debenture, note, or similar obligation of a corporation the shares of which are listed on a stock exchange referred to in section 3201 (i.e., prescribed stock exchanges outside Canada) (paragraph 4900(1)(p) of the Regulations); or

(i)a bond, debenture, note, mortgage, or similar obligation as described in paragraph (b) of the definition of "qualified investment" in section 204 of the Act, namely:

(i)bonds of or guaranteed by Government of Canada issued on or before December 20, 1960,

(ii)bonds of or guaranteed by the Government of Canada issued after December 20, 1960, and before April 16, 1966, the interest on which is payable to another country or to a Regulation 806 or 806.1 international organization or agency, or

(iii)bonds, debentures, notes, mortgages, or similar obligations

of or guaranteed by the Government of Canada,

of the government of a province or an agent thereof,

of a Canadian municipality or municipal or public body performing a function of government in Canada,

of a body 90% or more of which is owned by a province or Canadian municipality or of a wholly-owned subsidiary of such a body, or

of an educational institution or hospital if repayment of principal and payment of interest is to be made, or is guaranteed, assured, or otherwise specifically provided for or secured, by a province.

There are other provisions which also allow RRSP's to hold debt of Canadian corporations. However, these are directed to particular types of corporations such as credit unions or cooperative corporations.

In addition, an RRSP may invest indirectly, through an interest of a limited partner in a small business investment limited partnership ("SBILP") or through an interest in a small business investment trust ("SBIT"), in certain subordinated debt obligations of "eligible corporations" (as defined in subsection 5100(1) of the Regulations) which meet the definition of a "small business security" in subsection 5100(2) of the Regulations, provided, with minor exceptions, that the SBILP or SBIT was the first person to acquire such securities and has held them continuously since their acquisition. SBILP's and SBIT's are defined in sections 5102 and 5103 of the Regulations respectively. An interest of a limited partner in an SBILP and an interest in an SBIT are prescribed to be qualified investments for the purposes of subparagraph 146(1)(g)(iv) of the Act pursuant to paragraphs 4900(6)(b) and (c) of the Regulations, subject to the rules in subsections 4900(8) and (9) of the Regulations.

We conclude that the debentures you describe do not satisfy any of the foregoing descriptions of "qualified investments" as set out in the Act and Regulations. We trust, however, that the foregoing information assists.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch