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: 1) Required explanation of what type of financial instruments a CCPC can issue as a qualified investment for an RRSP
Position: 1) Provided basic explanations of relevant law
Reasons: Gave our standard explanatory letter on this topic, also made modifications to explain our standard position on investment in trusts and warrants and rights.
XXXXXXXXXX 991758
M. P. Baldwin
Attention: XXXXXXXXXX
November 10, 1999
Dear Sirs:
Re: Qualified Investments in an RRSP
This is in reply to your facsimile of June 23, 1999, requesting information on the type of financial instruments issued by a Canadian-controlled private corporation ("CCPC") that would be considered qualified investments for a registered retirement savings plan ("RRSP").
It appears that the fact situation in your facsimile relates to a proposed transaction to be undertaken by a specific taxpayer and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency ("CCRA" - formerly 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. If you wish to obtain an advance income tax ruling with respect to a specific proposed transaction, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide your with the following general comments which are not binding on the CCRA.
Qualified investments for a trust governed governed by an RRSP are listed in subsection 146(1) and section 204 of the Income Tax Act (the "Act") and section 4900 of the Income Tax Regulations (the "Regulations"). Generally speaking, a debt owing by a corporation to a trust governed by an RRSP would represent a qualified investment of the RRSP only if the debt is:
a) a bond, debenture, note or similar obligation of a corporation the shares of which are listed on a prescribed stock exchange in Canada ( paragraph (b) of the definition of "qualified investment" in subsection 146(1) of the Act);
b) a bond, debenture, note or similar obligation of a public corporation (defined in subsection 89(1) of the Act) other than a mortgage investment corporation (paragraph 4900(1)(c.1) of the Regulations);
c) a bond, debenture, note or similar obligation of a Canadian corporation which is guaranteed by a corporation or a mutual fund trust whose shares or units are listed on a prescribed stock exchange in Canada ( subparagraph 4900(1)(i)(i) of the Regulations);
d) a bond, debenture, note or similar obligation of a Canadian corporation which is controlled directly or indirectly by one or more corporations or mutual fund trusts whose shares or units are listed on a prescribed stock exchange in Canada (subparagraph 4900(1)(i)(ii) of the Regulations);
e) a bond, debenture, note or similar obligation of a Canadian corporation where the conditions described in subparagraph 4900(1)(i)(iii) of the Regulations are met which, in part and in general terms, require the corporation to have share equity of at least twenty five million dollars or be controlled by such a corporation and have issued and outstanding debt of at least ten million dollars;
f) a security of a Canadian corporation
(i) that was issued pursuant to The Community Bonds Act, S.S. 1990, c. C-16.1, The Rural Development Bonds Act, S.M. 1991-92, c. 47, the Community Economic Development Act 1993, S.O. 1993, c. 26, or the New Brunswick Community Development Bond Program through which financial assistance is provided under the Economic Development Acts of N.B. 1975, c. E-1.11, and
(ii) the payment of the principal amount of which is guaranteed by Her Majesty in Right of a province (paragraph 4900(1)(i.1) of the Regulations);
g) indebtedness of a Canadian corporation (other than a corporation that does not deal at arm's length with a person who is an annuitant under the RRSP plan trust) represented by a bankers' acceptance (paragraph 4900(1)(i.2) of the Regulations);
h) a bond, debenture, note, or similar obligation of a corporation the shares of which are listed on a stock exchange referred to in section 3201 of the Regulations (i.e., prescribed stock exchanges outside Canada) (paragraph 4900(1)(p) of the Regulations); or
i) a bond, debenture, note, mortgage, or similar obligation as described in paragraph (b) of the definition of "qualified investment" in section 204 of the Act, namely bonds, debentures, notes, mortgages, or similar obligations
- of or guaranteed by the Government of Canada,
- of the government of a province or an agent thereof,
- of a Canadian Municipality or municipal or public body performing a function of government in Canada,
- of a body 90% or more of which is owned by a province or Canadian municipality or of a wholly-owned subsidiary of such a body, or
- of an educational institution or hospital if repayment of principal and payment of interest is to be made, or is guaranteed, assured, or otherwise specifically provided for or secured, by a province.
There are other provisions which also allow RRSP's to hold debt of Canadian corporations. However, these are directed to particular types of corporations such as credit unions or cooperative corporations.
An interest in a trust is a qualified investment at a particular time only if the trust is
(a) at that time, a mutual fund trust or a small business investment trust, or
(b) a registered investment during the calendar year in which the particular time occurs, or the immediately preceding year.
In accordance with paragraph 4900(1)(e) of the Regulations, a warrant or right giving its owner the right or acquire property, is a qualified investment at the time of its acquisition if, at that time, the property which would be acquired by exercising the warrant or right would be a qualified investment for an RRSP.
Due to the complexity of the Regulations regarding these issues, the foregoing comments are meant only to provide an overview of the relevant provisions and under no circumstances are they to be considered to be either comprehensive or all-inclusive.
Yours truly,
P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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