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: On what basis is a segregated fund a qualified investment for a deferred income plan?
Position: Question of fact.
Reasons: Segregated funds are not specifically addressed in the Act - they must qualify as annuities or annuity contracts.
XXXXXXXXXX 983229
M. P. Sarazin
Attention: XXXXXXXXXX
April 23, 1999
Dear Sirs:
Re: Registered Pension Plans and Qualified Investments
This is in reply to your letter dated October 15, 1998, wherein you requested our views as to whether a registered investment, within the meaning assigned by subsection 204.4(1) of the Income Tax Act, held by a registered pension plan (“RPP”) could invest in a segregated fund offered by your company.
Written confirmation of the tax consequences inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. Although we cannot provide specific answers to your query, we can provide the following general comments which may be of assistance to you.
Paragraph 8502(h) of the Income Tax Regulations (the “Regulations”) requires that an RPP not hold any investment prohibited under subsection 8514(1) of the Regulations or any investment not permitted by pension benefits legislation that applies to the plan (or, where no such legislation applies, the Pension Benefits Standards Act, 1985). Generally, we would expect that a registered investment would not be a prohibited investment for an RPP.
Whether or not a segregated fund can be held by a registered investment is a question of fact. Subsection 204.4(2) of the Act describes the registration requirements for an entity to be registered as a registered investment and also provides that the registration of the entity will be in respect of RRSPs, RRIFs and/or DPSPs. The registration requirements for certain trusts or corporations require that the trust or corporation to be registered hold only prescribed investments for the type of plan or fund in respect of which it has applied for registration. Prescribed investments are defined in subsection 4901(1) of the Regulations as the qualified investments applicable to that particular plan.
Segregated funds as such are not defined as being qualified investments for any particular type of plan. Rather, to be a qualified investment a segregated fund must meet one of the “qualified investment” criteria for that particular type of plan. With regard to RRSPs, a segregated fund may meet the provisions of paragraphs (c), (c.1) or (c.2) of the definition of “qualified investment” in subsection 146(1). With regard to RRIFs, a segregated fund may meet the provisions of paragraphs (b.1) or (b.2) of the definition of “qualified investment” in subsection 146.3(1). With regard to DPSPs, a segregated fund may meet the provisions of subsection 4900(3) of the Income Tax Regulations. Again, whether or not any particular segregated fund would qualify under any of the above-mentioned criteria is a question of fact.
We trust that our comments will be of assistance.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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