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 the Department would consider the issue of an "internal share certificate" as proper evidence of a transfer of share capital to a member's RRSP.
Position:
No specific comment - advised to proceed with their ruling request.
Reasons:
As noted in 9609515 we have not addressed this particular issue before and the situation presented is not hypothetical and many facts and other information is required.
XXXXXXXXXX 971658
Attention: XXXXXXXXXX
July 15, 1997
Dear Sir\Madam:
Re: Transfer of Cooperative Member Equity to
Self Directed Registered Retirement Savings Plans ("RRSPs")
This is in reply to your letter of June 18, 1997, concerning your request for our views as to whether it would be possible for a member of a cooperative corporation ("co-op") to transfer a portion of their "equity" to a RRSP in a particular fact situation.
In your letter you indicate that you are aware that in order for share capital of a co-op to be a "qualified investment" within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act") no patronage dividends may be paid by the co-op on equity held by a trust that governs the plan. You propose to "allocate" a portion of a member's equity to their RRSP by having the co-op issue an "internal share certificate" to the member's RRSP and ask us whether this is acceptable. You indicated that should a favourable opinion be received from the Department on this point it is likely that you will make a formal request for an advance income tax ruling. It also appears from your letter that some of the members may be "connected shareholders" (see definition below) of the co-op.
We are unable to address your specific situation in a general letter of opinion and suggest that you proceed with your request for an advance income tax ruling in the manner set out in the Department's Information Circular 70-6R3 dated December 30, 1996. However, should you chose to make such a request, please keep in mind that you must satisfy yourself that the share of the capital or capital stock of the co-op would otherwise meet all of the conditions outlined in the Act and the Income Tax Regulations (the "Regulations" - principally, sections 4900 and 4901 of the Regulations) at that time and the Department may request certain information or representations from you to this effect.
For example, subsection 4900(12) of the Regulations provides that share capital of a co-op may be a qualified investment for RRSP purposes, provided that such property represents a qualifying share of a specified cooperative corporation and immediately after the acquisition of the property by the RRSP, the annuitant of the RRSP was not a connected shareholder of the co-op. The expressions "qualifying share", "specified cooperative corporation" and "connected shareholder" are defined in subsection 4901(2) of the Regulations.
A "specified cooperative corporation" ("specified co-op") generally means a co-op within the meaning of subsection 136(2) of the Act, or a corporation that would be a co-op within the meaning of subsection 136(2) if the purpose described in that subsection were the purpose of providing employment to its members or customers.
A "qualifying share" of a specified co-op generally means share capital that is not otherwise required as a condition of membership, or the annuitant under the plan (or any person related to the annuitant) has not received a payment from the corporation after November 29, 1994 pursuant to an allocation in proportion to patronage in respect of consumer goods or services and can reasonably be expected not to receive such a payment after such share capital is acquired by the trust governed by the plan. The terms "allocation in proportion to patronage" and "consumer goods or services" have the meanings assigned by subsection 135(4) of the Act.
A "connected shareholder" generally means a person (other than an exempt person) who owns directly or indirectly not less than 10% of the issued shares of any class of the specified co-op (or a related corporation). For the purpose of this definition, subsection 4901(2.1) of the Regulations deems a share of the capital of a specified co-op to represent shares of a class of capital stock of the co-op where each share of the capital of the co-op and all other shares of the capital of the co-op have attributes that are identical.
An annuitant will be an "exempt person" (as defined in paragraph (b) of the definition of connected shareholder) if the annuitant deals at arm's length with the specified co-op and the cost amount of all the share capital (basically the share capital of the co-op and of any related corporations owned directly or indirectly by the RRSP annuitant or a related person, and any such shares the RRSP annuitant or a related person has a right to acquire) is, in total, less than $25,000. For this purpose, an annuitant of an RRSP is deemed to own the share capital owned by the RRSP (see the definition of "specified shareholder" in paragraph 248(1)(b) of the Act which applies for the purpose of this definition).
Further, the determination as to whether the share capital of a specified co-op is a qualified investment under subsection 4900(12) of the Regulations can only be made at the particular point in time at which the RRSP trust actually acquires the share. Therefore, the Department will generally not be able to provide any ruling on the ongoing status of such share capital as a qualified investment. For example, in accordance with subsection 4900(13) of the Regulations share capital of a specified co-op will cease to be a qualified investment if:
(i)an individual provides services to or for, acquires goods from, or is provided services by, the issuer of the share or a person related to the issuer;
(ii)an amount is received by the RRSP in respect of the share; and
(iii)the amount can reasonably be considered to be
(A)on account of, or in lieu or in satisfaction of, payment for the services to or for the issuer or the person related to the issuer, or
(B)in respect of the acquisition of the goods from, or the services provided by, the issuer or the person related to the issuer.
Finally, it is not clear to us what is actually meant by the term "internal share certificate". The specific manner and documentation required for transferring a member's share capital in a specified co-op to an RRSP is not one that we have directly considered before. In our view, there must be clear evidence that a legally effective transfer of such share capital has in fact taken place and, at the minimum, we would require sufficient evidence that the proposed method of transfer is recognized under the relevant provincial legislation that governs the particular co-op.
We trust the foregoing comments are useful.
Yours truly,
F. Lee Workman
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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