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. Will labour-sponsored funds tax credit have to be repaid if LSVCC shares held in a spousal RRSP are exchanged inside the RRSP for non-LSVCC shares?
Position:
1. Depends on the facts. In certain scenarios where the individual retires, no repayment of the tax credit is required (i.e. shares acquired before March 6, 1996 which are held for more than 2 years).
Reasons:
1. Reading of section 211.8 of the Act.
973176
XXXXXXXXXX Allan Nelson
February 2, 1998
Dear XXXXXXXXXX:
Re: Spousal Registered Retirement Savings Plan and
Labour-Sponsored Venture Capital Corporation Shares
This is in reply to your letter dated January 21, 1998, and further to our telephone conversations (Nelson/XXXXXXXXXX) on January 21 and 28, 1998, wherein you asked us to confirm that the labour-sponsored funds tax credit will not have to be repaid in the following instance.
Facts and Proposed Transactions
You contributed cash to a spousal RRSP with your wife as the annuitant (see paragraph 2 below for additional details). The qualifying trust governed by your spousal RRSP used all the contributed funds to acquire approved shares of the capital stock of registered labour-sponsored venture capital corporations ("LSVCC's"). Your 1993 to 1995 contributions were used to acquire shares in Working Ventures Canadian Fund Inc., and your 1996 contributions were used to acquire shares in XXXXXXXXXX. As a result of your contributions, you claimed RRSP deductions and you earned and claimed the applicable labour-sponsored funds tax credit ("LFC") described in section 127.4 of the Income Tax Act (Canada) (the "Act").
Contribution Date Contribution Amount Year LFC Claimed
March 1, 1993 $XXXXXXXXXX 1992
January 4, 1994 $XXXXXXXXXX 1993
February 1, 1995 $XXXXXXXXXX 1994
February 16, 1996$ $XXXXXXXXXX 1995
May 6, 1996 $XXXXXXXXXX 1996
You retired from the workforce on XXXXXXXXXX.
In 1998, the LSVCC shares held in the RRSP will be redeemed and all of the proceeds will be used to acquire and hold other qualifying investments (not LSVCC shares) in the RRSP. No cash or other property will be distributed from the RRSP.
Your View
It is your view that no repayment of the labour-sponsored funds tax credits is required, because you are retired from the workforce and the shares in the LSVCC's will have been held for greater than two years before their redemption.
Overview of the Legislation
Section 211.8 of the Act imposes a tax in respect of certain redemptions of approved shares of the capital stock of registered LSVCC's. This tax is commonly referred to as the clawback or the repayment of the labour-sponsored funds tax credit. The tax, if any, imposed by section 211.8 would be payable by the shareholder of LSVCC shares, which in your case would be the trust governed by the spousal RRSP. Of course, any such tax paid by the trust would reduce the net proceeds available to the annuitant of the RRSP.
For LSVCC shares originally acquired before March 6, 1996, the tax imposed pursuant to section 211.8 will be nil where
(a) the redemption is more than 2 years after the day on which the shares were issued and where the redemption is permitted under the articles of the corporation because an individual retires from the workforce, or
(b) the redemption is more than 5 years after the day on which the shares were issued.
In preparing our response, we have assumed the LSVCC shares held in your spousal RRSP were each purchased on the same date as you made the relevant contributions to the RRSP.
March 1, 1993 Purchase
If the LSVCC shares acquired on March 1, 1993, are redeemed in the spousal RRSP, after March 1, 1998, no tax would be payable under section 211.8 of the Act because the redemption would occur more than 5 years after the day on which the shares were issued.
Alternatively, if these LSVCC shares are redeemed in 1998, the redemptions will occur more than the required 2 years after the day on which the shares were issued. Consequently no tax would be payable under section 211.8 of the Act if the redemption is permitted under the articles of the corporation because an individual retires from the workforce. This latter determination involves a question of fact which you should clarify with your RRSP administrator or with the appropriate LSVCC.
January 4, 1994 and February 1, 1995 Purchases
If the LSVCC shares acquired on January 4, 1994, and/or February 1, 1995, are redeemed in 1998, the redemptions will occur more than the required 2 years after the day on which the shares were issued. Consequently no tax would be payable under section 211.8 of the Act if the redemption is permitted under the articles of the corporation because an individual retires from the workforce. Again, this latter determination involves a question of fact which you should clarify with your RRSP administrator or with the appropriate LSVCC.
February 16, 1996 Purchase
If the LSVCC shares acquired on February 16, 1996, are redeemed before February 16, 1998, the redemptions will be not occur more than the required 2 years after the day on which the shares were issued and consequently tax would be payable as calculated under section 211.8 of the Act. If the shares are redeemed after February 16, 1998, the redemptions will occur more than the required 2 years after the day on which the shares were issued. Consequently no tax would be payable under section 211.8 of the Act if the redemption is permitted under the articles of the corporation because an individual retires from the workforce. Again, you should clarify this point with your RRSP administrator or with the appropriate LSVCC.
May 6, 1996 Purchase
If the LSVCC shares acquired on May 6, 1996 are redeemed less than 8 years after the day on which the shares were issued (subject to certain exceptions, such as a specified shareholder becoming disabled or terminally ill or dying), tax would be payable as calculated under section 211.8 of the Act.
As discussed with you on the phone, your questions concerning the possible repayment of the Ontario tax credit in respect of shares held in a LSVCC is the responsibility of the Ontario revenue authorities. Accordingly, we suggest that you discuss this matter with the Ontario Ministry of Revenue.
Yours truly,
Manager
Partnerships Section
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
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