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:
1)whether GICs issued by bank or credit union and denominated in foreign currency are qualified investment for RRSP;
2)why are put options not qualified investments for RRSP.
Position:
1)Yes for banks; credit unions can't issue GICs.
2)put options are not qualified investments.
Reasons:
1)Adopted position in 950632/9523157 that GICs and term deposits are similar obligations to bonds, debentures, notes or mortgages (this previous opinion was with respect to subclause 212(1)(b)(ii)(C)(II); whether denominated in Canadian or foreign currency is irrelevant - see 5-8978.
2)routine explanation of long-standing position (5-3043, 942710) - a put option is just not described anywhere in the Act or Regulations as a qualified investment.
962153
XXXXXXXXXX P. Spice
June 21, 1996
Dear XXXXXXXXXX:
Re: Guaranteed Investment Certificates and Put Options
This is in reply to your facsimile transmission of June 14, 1996, and further to our telephone conversation (Spice/XXXXXXXXXX) of the same date. You ask whether foreign-currency guaranteed investment certificates (GICs) issued by a chartered bank or credit union are qualified investments for a registered retirement savings plan ("RRSP"). You also ask us to explain the Department's position with respect to put options.
After a recent review of this issue, the Department's position is that GICs and term deposits are similar obligations to bonds, debentures, notes or mortgages. As such, if issued by a chartered bank or credit union, they may be qualified investments for an RRSP in accordance with paragraph 204(c) of the Income Tax Act (the "Act"), or paragraph 4900(1)(g) of the Income Tax Regulations (the "Regulations"). Although you have referred to GICs issued by credit unions, it is our understanding that credit unions are unable to issue such investments to their members. They may, however, offer term deposits.
A GIC or term deposit may be qualified as an investment for an RRSP under paragraph 204(c) of the definition of "qualified investment" if issued by a corporation the shares of which are listed on a prescribed stock exchange in Canada, such as a bank. Paragraph 4900(1)(g) of the Regulations prescribe term deposits of a credit union to be qualified investments for an RRSP so long as the credit union has not granted, in the year in which the RRSP acquired the term deposit, any benefit or privilege to the annuitant as a result of the RRSP's ownership of a share or obligation of, or deposit with, the credit union. For the purpose of this paragraph benefits or privileges granted in a prior year are deemed to have been granted in the year of acquisition of the term deposit if the annuitant continues to enjoy them.
As with GICs issued by a trust company incorporated under Canadian or provincial law, such instruments are qualified investments whether denominated in Canadian or foreign currency.
With respect to put options, it is the Department's long-standing position that a put option is not a "qualified investment" for an RRSP. By purchasing a put option the RRSP purchases the right to sell securities at an agreed-upon price. This right is a property which is not defined as a "qualified investment" in either the Act or the Regulations. The only right prescribed to be a "qualified investment" is as described in paragraph 4900(1)(e) of the Regulations, namely, a right to acquire a "qualified investment". Thus, an income inclusion to the annuitant of the fair market value of the put option is required by subsection 146(10) of the Act. Should you wish to make the case that a put option should be a qualified investment for an RRSP, we suggest that you contact the Tax Legislation Branch of the Department of Finance, the Department responsible for the rules prescribing "qualified investments".
Although the interpretations provided in this letter are not binding on the Department, we trust the foregoing satisfactorily explains our position.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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