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.
A.B. Adler (613) 957-8962
19(1)
April 27, 1990
Dear Sirs:
This is in reply to your letter dated April 12, 1990 in which you requested our opinion with respect a proposed investment by an RRSP.
For your information, as indicated in paragraph 23 of Information Circular No. 70-6R (copy enclosed), we do not give written opinions on proposed transactions. Should you require an advance ruling paragraphs 15 and 16 therein outline the procedure for requesting such rulings. However, we are prepared to provide you with the following general comments.
The shares of a corporation may qualify as investments for an RRSP if they are shares of a CCPC which is an "eligible corporation" and the annuitant of the RRSP is not a "designated shareholder" of that company. These latter two terms are defined terms and their meanings are provided in sections 4900 through 5101 of the Income Tax Regulations ("Regulations").
In brief, an "eligible corporation" is generally a taxable Canadian corporation which uses substantially all of its property in a "qualifying active business". Specifically excluded from this definition are securities dealers, financial institutions, corporations whose principal business is the lending of money or the purchasing of debt, and non-resident controlled corporations.
A "qualifying active business" is also a defined term which generally includes any business which is carried on in Canada except one whose principal purpose is to earn income from property in the form of interest, dividends, rent, royalties or gains from dispositions of property. A qualifying business may, however, include a business of leasing property other than real property, and a retail or wholesale business.
A corporation's business will be considered to have been carried on in Canada if at least 50% of its employees are engaged in the business in Canada or at least 50% of its salaries or wages are paid for services provided in Canada in respect of the business. If the corporation is part of a group of related corporations, the combined services of their employees and the combined salaries and wages paid must be considered in making this determination.
A "designated shareholder" of a corporation at any time is any person who, at that time
(a) is, or is related to, a person who separately or together with any other related persons holds 10% or more of the shares of any class of shares of the corporation, unless the cost amount of those shares is, in total, less than $25,000. For this purpose, an annuitant of an RRSP and the RRSP itself are considered to be related persons,
(b) is or is related to a member of a partnership that controls the corporation in any manner,
(c) is or is related to a beneficiary under a trust that controls the corporation in any manner,
(d) is or is related to an employee of the corporation where the employees control the corporation, except where the corporation is controlled directly or indirectly by one person or a related group of persons, or
(e) does not deal at arm's length with the corporation.
It should also be noted that pursuant to subsection 207.1(5) of the Act, an RRSP that holds small business holdings with a fair market value, at the time of acquisition, in excess of 50% of the fair market value, at the time of acquisition, of all properties of the RRSP, will be subject to a tax of 1% per month on the excess amount.
Due to the detail and 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.
We trust, however, that they will be of assistance.
Yours truly,
W. Douglas for Director Financial Industries Division Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1990
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1990
Email this Content