21 May 1998 External T.I. 9809115 - DELISTED SHARES AND QUALIFIED INVESTMENT

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: Will shares previously listed on prescribed exchange exchange continue to be qualified investment if only listed over-the-counter on NASDAQ?

Position: Probably Yes.

Reasons: The company would continue to be a public corporation unless elects not to be or Minister advises that it is not.

XXXXXXXXXX 980911
M. P. Sarazin

May 21, 1998

Dear Sir:

Re: Delisted Shares Held in an RRSP

This is in reply to your letter dated January 5, 1998, wherein you requested our views in respect of the tax consequences resulting from the delisting of shares held by your registered retirement savings plan ("RRSP") where the shares were previously listed on a prescribed stock exchange and they are now listed NASDAQ OTC-BB. In addition, you also asked whether separate accounts have to be set-up with a broker in respect of shares acquired by your wife and shares acquired by you and your wife for the benefit of a grandchild.

Comments

It appears that the opinions you seek relate to specific completed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to completed transactions is the responsibility of the relevant Tax Services Office. Nevertheless, we can provide you with the following general comments.

Paragraph 3 of the enclosed Interpretation Bulletin IT-320R2 confirms that shares of public corporation (other than a mortgage investment corporation) and shares of a corporation that are listed on a prescribed stock exchange will be qualified investments for the purposes of an RRSP. We note that the NASDAQ OTC-BB is not a prescribed stock exchange. However, when a share of a corporation is listed on a prescribed stock exchange in Canada, the corporation automatically becomes a "public corporation" for purposes of the Act and it will continue to be a public corporation until such time that it is wound up or it makes an election not to be a public corporation. Consequently, provided the corporation is not a mortgage investment corporation, the shares of the corporation will continue to be qualified investments until it is wound up or elects not to be a public corporation.

The determination of whether a share is foreign property, within the meaning assigned by subsection 206(1) of the Income Tax Act (the "Act"), will depend on whether the share derives its value, directly or indirectly, primarily from foreign property. However, we note that there is proposed legislation that will exclude shares from being foreign property where the shares derive their value, directly or indirectly, primarily from foreign property but the corporation has a substantial Canadian presence, within the meaning assigned by proposed subsection 206(1.1) of the Act.

Since the determination of whether a broker can hold shares owned by different individuals in one account is not a question on the application of the Act, we are not able to provide any comments. However, where shares are acquired by a person for his or her grandchild that is a minor, the provisions of subsection 74.1(2) of the Act will apply to have the income on such shares included in that person's income.

We trust the above general comments will be of assistance to you.

Yours truly,

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

Enclosure