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.
Dear XXX
Re: Venture Capital Corporations
We are writing in reply to your letter of July 15, 1991, in which you ask whether venture capital corporations are considered to be small business investments for purposes of subsection 207.1(5) of the Income Tax Act (the "Act").
Subsection 207.1(5) imposes a tax on excessive holdings of "prescribed properties". Such properties are prescribed by subsection 4901(1.1) of the Income Tax Act Regulations (the "Regulations") to be properties described in Regulation 4900(6)(a), (b) or (c), other than a share in a public corporation and a property that is not a qualified investment for an RRSP or RRIF. Regulation 4900(6)(a) provides that a share in the capital stock of an eligible corporation (within the meaning of Regulation 5100(1)) is a qualified investment for an RRSP or RRIF, unless the annuitant under the plan or fund is a designated shareholder of the corporation. An "eligible corporation" means, among other things, a prescribed venture capital corporation described in section 6700 of the Regulations, but does not include any other venture capital corporation.
A prescribed venture capital corporation includes corporations registered under various provincial statutes relating to small business development, venture capital and equity. A complete description can be obtained by referring to Regulation 6700.
A "designated shareholder" of a corporation is any person who
- (a) is, or is related to, a person who separately or together with any other related persons holds 10% or more of the shares of any class of shares of the corporation, unless the cost amount of those shares, is in total, less than $25,000. For this purpose, an annuitant of an RRSP and the RRSP itself are considered to be related persons.
- (b) is or is related to member of a partnership that controls the corporation in any manner,
- (c) is or is related to a beneficiary under a trust that controls the corporation in any manner,
- (d) is or is related to an employee of the corporation where the employees control the corporation, except where the corporation is controlled by one person or a related group of persons, or
- (e) does not deal at arm's length with the corporation.
Due to the detail and complexity of the Regulations regarding these issues, the foregoing comments are meant only to provide an overview of the relevant provisions and under no circumstances are they to be considered to be either comprehensive or all inclusive. We trust, however, that they are of assistance.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1991
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1991
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