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:
When determining whether a shareholder is a designated shareholder can you consider all shares with the same rights as one class of shares?
Position: No.
Reasons:
Subsection 4901(2) of the Regulations clearly states that each class of shares is looked at separately.
XXXXXXXXXX 990549
M. P. Sarazin
May 6, 1999
Dear Sir:
Re: Designated Shareholder
This is in reply to your letter dated February 8, 1999, wherein you ask for our interpretation of the expression “not less than 10% of the issued shares of any class of the capital stock of the corporation” in the definition of “designated shareholder” in subsection 4901(2) of the Income Tax Regulations (the “Regulations”).
It appears that the interpretation you seek relates to proposed transactions to be undertaken by a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.
Under subsection 4900(6) of the Regulations, a share of the capital stock of an eligible corporation is a qualified investment for a trust governed by a registered retirement savings plan (“RRSP”) or a registered retirement income fund (“RRIF”) if the annuitant under the plan or fund is not a designated shareholder of the corporation. The expression “eligible corporation” has the meaning assigned by subsection 5100(1) of the Regulations.
The expression “not less than 10% of the issued shares of any class of the capital stock of the corporation” used in the definition of designated shareholder is very clear. In determining whether a shareholder is a designated shareholder, you would look at the shareholder’s or any related person’s percentage ownership of each class of shares of the particular corporation or of any related corporation. The fact that all of the shares of the various classes of the corporation’s shares have the same rights is irrelevant. Consequently, if an individual or a related person owns more than 10% of the issued shares of any class of shares of the eligible corporation or of a corporation related to the eligible corporation, any shares of the eligible corporation will not be a qualified investment for the individual’s RRSP or RRIF unless the individual is an exempt person. An exempt person is defined in subparagraph 4901(2)(a)(ii) of the definition of designated shareholder as a person who deals at arm’s length with the eligible corporation where the total of all amounts each of which is the cost amount of any share of the corporation, or of any other corporation that is related to it, that the person owns or is deemed to own for the purposes of the definition “specified shareholder” in subsection 248(1) of the Income Tax Act, is less than $25,000.
We trust these comments will be of assistance.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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