29 July 1997 External T.I. 9713985 - DEBT OBLIGATIONS THAT MAY BE HELD BY AN RRSP

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:

Can an RRSP hold specific debentures described in the enquiry?

Position:

This would have to be determined through a ruling request. General details of various forms of debt that qualify were provided

Reasons:

More specific information may only be provided as a response to an advance ruling request.

XXXXXXXXXX 971398

July 29, 1997

Dear Sir:

Re: Qualified Investments for RRSPs

This is in reply to your letter of May 12, 1997 addressed to our Belleville Tax Services Office and referred to us for reply, in which you asked for a ruling that Class "A" debentures of XXXXXXXXXX are qualified investments for an RRSP.

Written confirmations of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in the enclosed Information Circular 70-6R3, dated December 30, 1996. Accordingly, we can not address the specific situation detailed in your letter at this time. However we can provide the following general comments which may be of assistance to you.

Debt Obligations.

Generally speaking, a debt obligation may be held by an RRSP if it is:

(a)a bond, debenture, note, or similar obligation of a corporation the shares of which are listed on a prescribed stock exchange in Canada;

(b)a bond, debenture, note, or similar obligation of a public corporation (defined in subsection 89(1) of the Income Tax Act (the "Act")) other than a mortgage investment corporation;

(c)a bond, debenture, note, or similar obligation of a Canadian corporation which is guaranteed by a corporation or a mutual fund trust whose shares or units are listed on a prescribed stock exchange in Canada;

(d)a bond, debenture, note, or similar obligation of a Canadian corporation which is controlled directly or indirectly by one or more corporations or mutual fund trusts whose shares or units are listed on a prescribed stock exchange in Canada;

(e)a bond, debenture, note, or similar obligation of a Canadian corporation where the conditions described in subparagraph 4900(1)(i)(iii) of the Income Tax Regulations (the "Regulations") are met which, in part and in general terms, require the corporation to have share equity of at least twenty five million dollars or be controlled by such a corporation, and have issued and outstanding debt of at least ten million dollars;

(f)a security of a Canadian corporation issued under Ontario's Community Economic Development Act where payment of the principal amount of the security is guaranteed by Her Majesty in Right of a province; or

(g)indebtedness of a Canadian corporation (other than a corporation that does not deal at arm's length with a person who is an annuitant under the RRSP trust) represented by a bankers' acceptance;

There are other provisions in section 4900 of the Regulations which allow RRSP's to hold various other debt obligations. However, these would not generally be relevant to your enquiry and are not listed here.

Other Investment Vehicles.

A mortgage secured by real property situated in Canada may be held by an RRSP in certain cases as discussed in paragraph 9 of the Department's Interpretation Bulletin IT-320R2 (enclosed). An interest in such a mortgage may also be held by one or more RRSPs. However, when a blanket mortgage is used, care must be taken to ensure each RRSP has an interest in the mortgage and not an interest in a trust or other administrator of the mortgage.

Indirect investments may also be held by RRSPs through the use of Small Business Limited Trusts or a Small Business Investment Limited Partnerships as defined in Part LI of the Regulations. However, these are quite complex and are not discussed here.

We trust these comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate

ENC.