27 September 1995 External T.I. 9520275 - DEFINITION OF PAID

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 an RRSP has "paid for" shares in the year in accordance with subsection 127.4(3) where it is awaiting funds from another issuer pursuant to paragraph 146(16)(a) and annuitant has taken all steps necessary to cause the transfer within the first 60 days of the subsequent year.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Until funds are out of control of transferor RRSP, there can be no property in transferee RRSP to pay for the shares.

XXXXXXXXXX 952027

Attention: XXXXXXXXXX

September 27, 1995

Dear Sirs:

Re: Definition of "Paid"

This is in reply to your letter of July 12, 1995, in which you ask us for a technical interpretation of the meaning of the words "paid" as used in subsection 127.4(3) of the Income Tax Act (the "Act").

The situation you describe in your letter appears to relate to an actual taxpayer and completed transaction. Confirmation of the tax consequences relating to such a situation must be provided by your local tax services office. Although we cannot address the particular facts, we can provide the following comments.

As you point out, the word "paid" is not defined in the Act and resort is made to the plain meaning of the word. The Concise Oxford Dictionary defines the word as the past tense of "pay" and lists the primary meaning of "pay" as "give (a person etc.) what is due for services done, goods received, debts incurred, etc.".

There must therefore be a recipient in receipt of the amount paid before payment can be considered to have occurred. The cases you cite deal with determining the point in time at which a premium has been "paid" to an RRSP for purposes of the deduction under subsection 146(5) of the Act. We agree that the principles enunciated in those cases may have some relevance for purposes of determining whether an amount has been "paid" to purchase shares under subsection 127.3(4) of the Act. The three principles can be summarized as follows.

Where payment is mailed and in accordance with the (then) Post Office Act, receipt occurs at the time the payment is consigned to the postal system (Egan v. MNR 80 DTC 1739); and where a post-dated cheque is handed over, receipt occurs on the first date the cheque can be negotiated regardless of physical receipt of the instrument (Vlasblom v. MNR 87 DTC 215). We are uncertain what point of law is resolved in Posen v. MNR 78 DTC 1344. The issue appeared to be that the mortgage which was purported to be the property of the RRSP was not legally assigned to the RRSP trust until after February 28. The Court found that the lawyer for the annuitant acted as agent of the RRSP trust in advancing the funds to the mortgagor even though the mortgagee on title was the annuitant. In effect it found that the debt obligation was in effect (if not legally) transferred or assigned by the annuitant to the RRSP within the period in which contributions had to be made for purposes of the subsection 146(5) deduction.

With respect to the Department's position in paragraph 5 of Information Circular 77-16R4, an amount is considered credited to the non-resident when, in accordance with the four examples provided, it is credited or deposited to the non-resident's bank account or applied (set-off) against a debt to reduce the non-resident's liability. Again, the non-resident obtains or has available the amount at the time the credit occurs. Note also that the word "credited" is not equivalent to the word "paid".

To conclude, in order for an RRSP trust to be considered to have paid for the shares as required under subsection 127.4(3) of the Act, the issuer of the shares or its agent must be in receipt of the consideration paid by the RRSP trust for those shares. Where the RRSP trust has not transferred the consideration, there can be no payment.

Where the RRSP trust is unable to pay for the shares because of the failure of another institution to transfer funds to it in accordance with the annuitant's instructions, the annuitant's remedy is not found in the Act. The plain meaning of the words in subsection 127.4(3) of the Act require the RRSP trust to pay for the shares within 60 days of the year end.

We trust this explains our position.

Yours truly,

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