1 October 1998 External T.I. E9822485 - RRSP QUALIFIED INVESTMENTS, WEBS

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.

This file should only be read for purposes of continuity in the discussions on this matter. File 982174 was issued first. File 982248 was then provided to confirm our answer. Further representations were received and these resulted in 982593. A final resolution has subsequently been made and our position is now expressed in file 982976.

Principal Issues:

Confirm our answer given in 981742 that WEBS are not qualified investments for an RRSP?

Position:

Confirmation provided.

Reasons:

Industry literature on these products indicate that investments in WEBS can not be held directly by an RRSP but must be held through intermediary investment organizations. Furthermore, the arrangements do not meet the conditions in paragraph 4900(1)(p.1) of the Income Tax Regulations. Therefore they do not qualify as investments for RRSPs.

XXXXXXXXXX 		982248
W. C. Harding
Attention:  XXXXXXXXXX 

October 1, 1998

Dear Sirs:

Re: World Equity Benchmark Shares (“WEBS”)

This is in reply to your letters of August 31, 1998, in which you requested we reconsider the opinion we expressed in our letter of August 25, 1998, (file 981742) that WEBS are not qualified investments for RRSPs.

We have again reviewed a number of financial industry documents pertaining to WEBS and based on our research remain of the view that WEBS cannot be held as qualified investments for an RRSP because of the manner in which they must be held by investors. This is explained on page 44 of the WEBS prospectus dated October 29, 1997, which is available to the public on the internet. Briefly, WEBS are represented by global securities which are registered in the name of The Depository Trust Company (“DTC”) or its nominee and are deposited with, or on behalf of, DTC. DTC in turn holds these securities on behalf of certain “DTC participants” or “Indirect Participants”. However, these participants are limited to certain businesses that operate in the investment industry. Individual investors such as RRSPs, may only hold beneficial ownership of WEBS through arrangements made with DTC Participants or Indirect Participants and can only do this through contractual agreements that would, in general, result in the creation of a trust arrangement. WEBS, therefore can not be held as a qualified investment by an RRSP. As noted in our prior letter, WEBS will not meet the requirements of 4900(1)(p.1) of the Income Tax Regulations.

We also note that the Canadian Offering Circular for WEBS dated March 6, 1996, provided with your letter, states on page 3 that WEBS will be foreign property for purposes of the tax imposed on deferred income plans under Part XI of the Act and that WEBS will not be qualified investments for trusts governed by a registered retirement savings plan, registered retirement income fund or deferred profit sharing plan.

We trust these comments will be satisfactory to your needs.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate