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:
Are "Special Warrants" qualified investments under 4900(1)(e)?
Position:
Unless shares of corporation qualify as a qualified investment, No
Reasons:
Special Warrants provide holder with right to acquire a share of a corporation after it is listed (public company) but until listed the shares may not be qualified investments.
970578
XXXXXXXXXX M.P. Sarazin
Attention: XXXXXXXXXX
March 24, 1997
Dear Sirs:
Re: Special Warrants
This is in reply to your letter dated February 28, 1997, wherein you requested our views with respect to whether or not Special Warrants would be qualified investments under paragraph 4900(1)(e) of the Income Tax Regulations.
It is our understanding that "Special Warrants" are issued for cash under a private placement exemption and entitle the purchaser to acquire equity shares or other securities of the issuer upon the exercise of the warrant and upon clearance of the prospectus. Usually no additional consideration is payable on the exercise of the Special Warrants and any Special Warrants that are not redeemed or exercised by the expiry date are deemed to have been exercised in full at that time. These Special Warrants are issued rather than shares because of certain requirements under Securities Acts. For discussion purposes, we shall assume that the shares that can be acquired under the Special Warrants will not be qualified investments, within the meaning assigned by subsection 146(1) of the Income Tax Act, for a registered retirement savings plan until the prospectus has been cleared.
We are of the view that the Special Warrant will not be a qualified investment until the prospectus has been cleared. In order for a warrant or right, referred to in paragraph 4900(1)(e) of the Regulations, to qualify as a qualified investment, the underlying property that may be acquired under the warrant or right must be a qualified investment. We do not believe that the amendment to paragraph 4900(1)(e) that was passed on June 23, 1994 effective 1992 resulted in a change in policy with respect to the underlying property having to be a qualified investment throughout the period that the warrant or right is held in the registered retirement savings plan. If the amendment was intended to change the existing policy, we believe that the change in policy would have been mentioned in the Explanatory Notes issued by the Department of Finance.
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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