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 Sirs:
Re: RRSP Qualified Investments
We are writing in reply to your letter of August 8, 1991, in which you make reference to a telephone conversation of August 1, 1991 between P. Spice and a member of your staff and your previous letter of April 25, 1991. You ask if shares of your company could be made eligible as qualified investments for RRSP's.
As discussed in the aforementioned telephone conversation, shares of a public corporation are qualified investments for RRSP's and, as you note, these shares need not be listed on a stock exchange. Additionally, shares of an "eligible corporation" (as that term is defined in sections 4900 through 5103 of the Income Tax Act Regulations) can be qualified investments for an RRSP although such shares are not listed on a stock exchange.
A corporation which does not have shares listed on a stock exchange may elect to be a public corporation pursuant to clause 89(1)(g)(ii)(A) of the Income Tax Act (the "Act") by filing form T2073 ("Election To Be A Public Corporation"). To so elect it must meet the conditions of Regulation 4800(1) of the Act, namely:
- 1. A class of shares of the corporation must be qualified for distribution to the public;
- 2. Where the shares in this class are "equity shares" (as defined in the Act), there must be at least 150 shareholders (other than insiders) each holding not less than one block of shares in the class having an aggregate fair market value of at least $500;
- 3. Where the shares in this class are not "equity shares", there must be at least 300 shareholders (other than insiders) each holding not less than one block of shares in that class having an aggregate fair market value of at least $500; and 4. Insiders of the corporation must not hold more than 80 per cent of the issued and outstanding shares of this class.
Shares of a Canadian Controlled Private Corporation which is an "eligible corporation" can be qualified investments for an RRSP if the annuitant of the RRSP is not a "designated shareholder" (as that term is defined in the Regulations to the Act).
To explain further, an eligible corporation is generally a taxable Canadian corporation which uses substantially all of its property in "qualifying active business". Specifically excluded from this definition are securities dealers, financial institutions, corporations whose principal business is the lending of money or the purchasing of debt, and non-resident controlled corporations.
A "qualifying active business" is also defined and generally includes any business which is carried on in Canada except a business, the principal purpose of which is to earn income from property in the form of interest, dividends, rent, royalties or gains from dispositions of property. A qualifying active business may, however, include a business of lease property other than real property, and a retail or wholesale business.
A corporation's business will be considered to have been carried on in Canada if at least 50% of its employees are engaged in the business in Canada or at least 50% of its salaries or wages are paid for services provided in Canada in respect of the business. If the corporation is part of a group of related corporations, the combined services of their employees and the combined salaries and wages paid must be considered in making this determination.
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.
The above comments are an expression of opinion only and do not bind the Department.
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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