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:
Debt of non-profit recreational corporation as qualified investment for RRSP.
Position:
Unlikely.
Reasons:
Provisions respecting debt as qualified investments.
962978
XXXXXXXXXX P. Spice
Attention: XXXXXXXXXX
September 19, 1996
Re: Debentures as Qualified Investment
This is in reply to your letter of September 3, 1996, in which you ask whether debentures of the XXXXXXXXXX will be qualified investments for a registered retirement savings plan ("RRSP"). XXXXXXXXXX is incorporated as a public non-profit company under The Companies Act of Alberta.
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"). In particular you refer in your letter to the definition of "qualified investment" in subsection 146(1) of the Act and paragraph 4900(1)(c.1) of the Regulations. By virtue of these provisions a bond, debenture, note, or similar obligation of a public corporation other than a mortgage investment corporation is a qualified investment for an RRSP.
Although you indicate that XXXXXXXXXX is a public company under the Alberta Companies Act, it is XXXXXXXXXX status under the Income Tax Act which is relevant. The Act defines a "public corporation" in subsection 89(1) as, generally, one whose shares are or were listed on a prescribed stock exchange in Canada, or a company that has elected in prescribed form and which meets certain minimum conditions concerning the number of shareholders and the value of their shares. For more information on this topic please refer to the enclosed Interpretation Bulletin IT-391R.
Other debt instruments which are qualified investments for an RRSP are the following:
(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 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);
(c) 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);
(d) 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;
(e) 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).
(f) 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);
(g) 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
(h) 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) of or guaranteed by the Government of Canada,
(ii) of the government of a province or an agent thereof,
(iii) of a Canadian municipality or municipal or public body performing a function of government in Canada,
(iv) 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
(v) 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 RRSPs 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 pursuant to subsection 146(1) of the Act and paragraphs 4900(6)(b) and (c) of the Regulations, subject to the rules in subsections 4900(8) and (9) of the Regulations.
We trust the foregoing comments assist.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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