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:
Are Standard and Poor Depositary Receipts (SPDRs) and World Equity Bench mark Shares (WEBS) qualified investments for registered plans?
Position:
Spdrs are not. Webs are under review
Reasons:
This file should only be read for purposes of continuity in the discussions on this matter. File 982174 was issued first. File 982248 was then provided to confirm our answer. Further representations were received and these resulted in this letter. a final resolution has subsequently been made and our position is now expressed in file 982976.
XXXXXXXXXX
October 13, 1998 982593
Dear XXXXXXXXXX:
Re: Qualified Investments - SPDRs & WEBS
Further to our recent telephone discussions (XXXXXXXXXX/Lynch) on this matter, we are writing to advise you of our current opinion as to whether or not the above-mentioned securities are “qualified investments” for Registered Retirement Savings Plans (RRSPs).
We have reviewed the prospectus for Standard and Poors Depositary Receipts (SPDRs). The prospectus states that SPDRs represent units of a fractional undivided interest in a trust, and the trust is a unit investment trust. The trust is governed by a trust agreement. Under paragraph 4900(1)(p.1) of the Income Tax Regulations, “a right to a share of the capital stock of a corporation where the right is evidenced by a depository receipt that is listed on a stock exchange referred to in section 3200 or 3201” will be a qualified investment for certain deferred income plans, including RRSPs. Since the SPDRs represent units of a trust and not a right to a share of the capital stock of a corporation, SPDRs will not be considered qualified investments pursuant to this paragraph. Further, no other provision of the Income Tax Act or Regulations appears to allow such investments to be qualified investments for RRSPs.
We have reviewed the Canadian Offering Circular and the prospectus for World Equity Benchmark Shares (WEBS) Foreign Fund, Inc. (the “Fund”). The Fund is organized as a Maryland Corporation and is an index fund consisting of separate series of funds each tracking a foreign equity market index. Shares will be issued in respect of each WEBS Index Series. The WEBS have been listed for secondary market trading on the American Stock Exchange, Inc.. However, direct ownership of the shares is not permitted and investors will acquire a beneficial ownership in WEBS through participants in the securities depositary, DTC (the Depository Trust Company). With respect to the application of paragraph 4900(1)(p.1) of the Income Tax Regulations described above to WEBS, our understanding of the term depository receipt would not allow us to conclude that WEBS are depository receipts. Our understanding of the term “depository receipt” comes from previous opinions relating to “American Depositary Receipts” (“ADR”) which we understand to be certificates of a depository (bank, trust company, etc.) certifying that it holds for the account of the named person the number and class of shares specified in the ADR, and that such person is entitled on presentation of the ADR to take delivery of the shares.
At this time we are unable to confirm that WEBS are or are not qualified investments as we do not feel we have sufficient information on the legal nature of these securities for Canadian income tax purposes. Given the importance of this determination to many individuals who may have invested in these securities we will endeavour to expedite our analysis of WEBS and will advise you as soon as we have formed a definitive opinion.
For your information, we note that the Canadian Offering Circular for WEBS contains the following statement “The WEBS will not be “qualified investments” for trusts governed by a registered retirement savings plan, registered retirement income fund or deferred profit sharing plan”. This circular was dated March 1996.
We trust these comments will be of assistance.
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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