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:
Whether an LSVCC share (that is a small business property) will continue to be a "small business property" if it is transferred between a single annuitant's two RRSPs, between a single annuitant's two RRIFs, from an annuitant's RRSP to the same annuitant's RRIF or, pursuant to paragraph 146(16)(b), 146.3(14)(b) or 60(l), from an annuitant's RRSP or RRIF to the spouse's RRSP or RRIF.
Position:
Currently, only if all property of an RRSP is transferred to another RRSP of the same annuitant. Under proposed changes, also where transferred between RRIF and RRSP trusts of the same annuitant or of the spouse of the annuitant or to the spouse or the annuitant.
Reasons:
Current position that wholesale transfers between RRSPs of same annuitant do not result in disposition/acquisition and therefore meets requirement of definition of "small business property" that taxpayer who acquired the share is the original acquirer. Proposed definition of "small business property" says the various owners can be the 1) one who first acquired it (i.e. the registered plan trust) or 2) another RRSP or RRIF of the same annuitant or an RRSP or RRIF trust of the spouse of that annuitant, or 3) the annuitant or the spouse of the annuitant.
XXXXXXXXXX 990665
P. -A. Sarrazin
October 29, 1999
Dear Sirs:
Re: Labour Sponsored Venture Capital Corporations Shares
and RRSP/RRIF Foreign Property
This is in reply to your letter of March 15, 1999, with respect to various issues concerning the foreign property rules applicable to registered retirement savings plans ("RRSPs") and registered retirement income funds ("RRIFs") investing in labour sponsored venture capital corporation (LSVCC) shares.
In a letter dated December 15, 1998 (our file 9832515) we referred to a share of an LSVCC that is a "small business property", the cost of which property is used to determine the "small business investment amount" for purposes of Part XI of the Income Tax Act (the "Act"). The "small business investment amount" increases the level of foreign property which can be held in an RRSP without Part XI tax consequences. You asked us to confirm that our opinion will also apply to a RRIF.
Our interpretation of "small business property" and "small business investment amount" as it relates to the increase in the amount of foreign property that may be held by a taxpayer without tax consequences is relevant for any taxpayer subject to tax under subsection 206(2) of the Act. The tax payable under subsection 206(2) applies to taxpayers described under paragraphs 205(a) to (f). RRIFs are listed under paragraph 205(e). Therefore, our opinion is also valid for small business properties owned by a RRIF. Accordingly, a RRIF can acquire a share of an LSVCC as a qualified investment and include the value of the shares in the calculation of its "small business investment amount". [Please note that a trust governed by a RRIF is not a "qualifying trust" as defined under subsection 127.4(1). Accordingly, the annuitant of the RRIF which first acquires the share would not be eligible for the LSVCC tax credit.]
However, as you point out, we advised in our previous opinion that, in order to be a "small business property" the share must have been acquired by an RRSP (or RRIF) trust which is the first person to have acquired the share and which has owned it continuously since it was acquired.
Concerning this latter requirement you asked us to determine whether a share of an LSVCC would lose its status as a "small business property" when transferred between two trusts of the same annuitant governed by RRSPs, two trusts of the same annuitant governed by RRIFs, or from a trust of an annuitant governed by an RRSP to a trust of the same annuitant governed by a RRIF. You also ask if an LSVCC share would lose its status as a "small business property" if transferred to a spouse's RRSP (or RRIF) in accordance with subsection 146(16) (or paragraph 146.3(14)(b)) or paragraph 60(l) of the Act as, respectively, the result of a division of property on marriage breakdown or as a consequence of the death of the annuitant.
Transfers Between Plans
Paragraph 12 of Interpretation Bulletin IT-412R2 ("Foreign Property of Registered Plans") comments on transfers of property between RRSP trusts. Provided that there is no change in the annuitant, the transfer of all of the property of a trust of an unmatured self-administered RRSP from one trustee to another pursuant to subsection 146(16) of the Income Tax Act (the "Act") does not constitute a disposition or acquisition for the purposes of subsections 206(1) and (2) of the Act. If the conditions are met, the cost of all properties will remain constant and therefore the penalty tax in subsection 206(2) of the Act will not apply solely as a result of the transfer.
Please note that this paragraph applies to transfers of all the property in one self-administered RRSP trust to another self-administered RRSP trust of the same annuitant. It does not apply in situations where a partial transfer is made nor does it apply to transfers between or to RRIFs or to transfers to RRSPs or RRIFs of the annuitant's spouse.
Where shares of a labour-sponsored venture capital corporation (LSVCC) qualify as "small business property" as set out in subsection 206(1) of the Act, the RRSP may hold a specified amount of additional foreign property which will not be subject to the penalty that may be assessed under subsection 206(2) of the Act.
As currently enacted, paragraph (f) of the definition of "small business property" in subsection 206(1) of the Act requires that the property be owned by the same person (other than a broker or dealer in securities) who first acquired the property and to have continuously owned it since it was so acquired. Accordingly, under current legislation, if an RRSP trust first acquired the LSVCC share, upon its transfer to another RRSP trust of the same annuitant the share will continue to qualify as a small business property if the conditions in paragraph 12 of IT-412R2 are satisfied. As noted above, the cost of all properties including any "small business property" to the transferee RRSP will be the same as the cost to the transferor. The LSVCC share will lose its status as a small business property if only some of the RRSP's property is transferred, if the property is transferred from an RRSP to a RRIF, if it is transferred from a RRIF to another RRIF or if it is transferred to the RRSP or RRIF of the annuitant's spouse.
In September 1999, the Department of Finance released draft legislation proposing to amend subsection 206(2) of the Act (News Release 99-076). If enacted as proposed, the LSVCC shares will continue to qualify as "small business property" where throughout the period that began at the time the property was first acquired (otherwise than by a broker or dealer in securities) and ends at that particular time, the property was not owned by any person other than
(i) the taxpayer (i.e., an RRSP or RRIF trust),
(ii) a trust governed by a particular RRIF or RRSP if
(A) the taxpayer is another trust governed by a RRIF or RRSP, and
(B) the annuitant under the particular fund or plan (or the spouse or former spouse of that annuitant) is also the annuitant under the fund or plan referred to in clause (A), or
(iii) an annuitant under a RRIF or RRSP that governs the taxpayer, or a spouse or former spouse of that annuitant.
Thus, it is proposed that LSVCC shares will continue to qualify as a "small business property" where, as explained in the News Release, the first person to have acquired the shares was an RRSP or RRIF trust or the annuitant of that trust or the annuitant's spouse or former spouse, and the shares are currently owned by that trust, or by an RRSP or RRIF trust of the same annuitant or that annuitant's spouse or former spouse. The proposed legislation is applicable to months that end after 1997.
Excess Foreign Property Tax
Note that the excess foreign property tax under subsection 206(2) is payable by the RRSP/ RRIF trust. We have confirmed with Individual Returns and Payments Processing Directorate that returns may be filed in accordance with the legislation as proposed. With respect to Part XI returns that have already been filed in respect of months ending after 1997 in accordance with the existing definition of "small business property", the trustee should contact the relevant tax services office to see if the amount may be refunded.
We trust that these comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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