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.
Principal Issues: Are subscription receipts that provide the holder with the right to receive a cash settlement in lieu of delivery of the underlying property, qualified investments?
Position: A subscription receipt would not be precluded from qualifying as a qualified investment under paragraph 4900(1)(e.01) solely because it provides the holder with the right to receive a cash settlement in lieu of delivery of the underlying property.
Reasons: The wording in the Regulations is clear.
2007-024729
XXXXXXXXXX Bruce Hartt
(613) 946-3558
August 1, 2007
Dear XXXXXXXXXX:
Re: Request for technical interpretation - Treatment of subscription receipts under paragraph 4900(1)(e.01) of the Income Tax Regulations
This is in reply to your letter of July 27, 2007. In your letter you asked for clarification of our views on whether or not subscription receipts that provide the holder with the right to receive a cash settlement in lieu of the underlying property, would be considered a qualified investment as defined in paragraph 4900(1)(e.01) of the Income Tax Regulations (the "Regulations").
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.html.
Whether or not a subscription receipt is considered to be a qualified investment would be a question of fact. Paragraph 4900(1)(e.01) of the Regulations states that an option, a warrant or a similar right that is listed on a stock exchange referred to in section 3200 or 3201, will be a qualified investment, provided that the underlying property is a qualified investment. Therefore, in order for a subscription receipt to be considered a qualified investment, it would need to be listed on a prescribed stock exchange and the underlying property to which the subscription receipt entitles the holder to receive would need to be a qualified investment. In your letter to us, you have asked us whether or not subscription receipts that provide the holder with the right to receive a cash settlement in lieu of the underlying property, would be considered a qualified investment. Generally, money and deposits of money will be considered to be a qualified investment provided the money is legal tender in Canada. Therefore, in our opinion, a subscription receipt would not be precluded from qualifying as a qualified investment under paragraph 4900(1)(e.01) solely because it provides the holder with the right to receive a cash settlement in lieu of delivery of the underlying property.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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