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: Will a royalty investment agreement constitute a qualified investment for an RRSP?
Position: No.
Reasons: A royalty agreement is not included in the definition of "qualified investments" in subsection 146(1) of the Act.
xxxxxxxxxx 991350
M. P. Sarazin
Attention: xxxxxxxxxx
August 23, 1999
Dear Sir:
Re: Royalty Offering and Qualified Investment
This is in reply to your letter dated May 10, 1999, wherein you requested confirmation that a proposed investment to be offered by a taxable Canadian corporation will be a qualified investment within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act")
The investment will consist of a Royalty Agreement whereunder the investor agrees to invest funds in the corporation for a right to royalty payments based on future sales generated by the corporation.
It appears that the opinion you seek relates to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. 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. However, we can provide you with the following general comments.
The enclosed Interpretation Bulletin IT-320R2 titled Registered Retirement Savings Plans - Qualified Investments provides the Department's general views in respect of the kinds of property that constitute qualified and non-qualified investments for a trust governed by a registered retirement savings plan ("RRSP"). It also discusses the tax consequences of an RRSP acquiring and holding non-qualified investments.
Paragraph 3 of II-320R2 identifies some of the most common types of investments that may be held by RRSPs. With respect to investments in corporations, paragraphs 3(c), (d) and (e) refer to shares of public corporations and debt obligations of corporations listed on a prescribed stock exchange in Canada. As noted in paragraph 15 of IT-320R2, shares of eligible corporations, within the meaning assigned by subsection 5100(1) of the Income Tax Regulations (the "Regulations"), may also qualify where certain conditions are satisfied.
In our view, there is no provision in the Act or Regulations that would allow a right to receive royalty payments in respect of future sales by the corporation to qualify as a qualified investment. Consequently, rights to receive amounts under a royalty agreement would not constitute a qualified investment that may be held by a trust governed by an RRSP.
We trust the above comments will be of assistance.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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