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. Are there standards that a trustee has to meet in determining whether shares qualify under 4900(6) or 4900(12)?
2. How to evaluate such shares.
Position:
1. No;
2. Refer to Valuations Sections of TSO.
Reasons:
1. Question of fact, no set standards;
2. Question of fact.
XXXXXXXXXX 5-982346
Fouad Daaboul
Attention: XXXXXXXXXX
October 22, 1998
Dear Sirs:
Re: Eligible corporations and small business corporations
as qualified investments for RRSPs and RRIFs ("Plan")
This is in reply to your letter of June 10, 1998, to Registered Plans Division, Revenue Canada, which was forwarded to us for reply, wherein you requested our general views regarding what would be considered acceptable standards of assurance for a trustee or agent for a trustee of a self-directed Plan in determining whether shares of an eligible corporation or small business corporation are qualified investments, within the meanings assigned by subsections 146(1) and 146.3(1) of the Income Tax Act (the "Act"), and in determining the fair market value of such shares.
Under subsection 4900(6) of the Income Tax Regulations (the "Regulations"), shares of an eligible corporation, within the meaning assigned by subsection 5100(1) of the Regulations, would be a qualified investment for a Plan if the annuitant under the Plan is not a designated shareholder, within the meaning assigned by subsection 4901(2) of the Regulations. Under subsection 4900(12) of the Regulations, shares of a corporation (other than a co-operative corporation) that would, at that time or at the end of the last taxation year of the corporation ending before that time, be a small business corporation are qualified investments for a Plan if, immediately after the time the shares were acquired by the trust, the annuitant under the Plan was not a connected shareholder of the corporation. For the purposes of subsection 4900(12) of the Regulations, "small business corporation" has the meaning assigned by subsection 248(1) of the Act other than the reference to "Canadian-controlled private corporation" shall be read as "Canadian corporation (other than a corporation controlled at that time, directly or indirectly in any manner whatever, by one or more non-resident persons)" and the expression "connected shareholder" shall have the meaning assigned by subsection 4901(2) of the Regulations.
The determination of whether a particular corporation qualifies as an eligible corporation for the purposes of subsection 4900(6) of the Regulations or as a small business corporation for the purposes of subsection 4900(12) of the Regulations is a question of fact which can only be determined on a case by case basis after a review of all of the facts. A trustee or an agent for the trustee of a self-directed Plan is responsible for making such a determination. The Department does not have a set of minimum standards that, if met, would relieve a trustee or an agent for the trustee of its obligations for the taxes associated with a Plan acquiring a non-qualified investment under the Act. The Department has identified the tax ramifications associated with the acquisition of non-qualified investments by a Plan in Interpretation Bulletin IT-320R2.
The Directorate is unable to provide or confirm any method of valuation that can be used in the determination of the fair market value of property as required by any particular provision in the Act. It is the Department's position that the fair market value of shares at any particular time would be a question of fact which can only be decided on a case by case basis. However, the Department provides advice on these matters through the Valuations Sections located in various tax services offices.
We trust our 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
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