Section 204

Equity Share

Administrative Policy

30 November 1993 External T.I. 5-933214 -

General discussion.

qualified investment

(a)

See Also

Air Canada v. Min. of Fin. for B.C., [1981] 2 WWR 97 (BCCA)

Certificates of deposit, bearer deposit notes, swap deposit confirmations and bankers' acceptances were held to be "loans and advances to other corporations" rather than "cash on deposit with ... a savings bank" within the meaning of the definition of taxable paid-up capital in the Corporation Tax Act (B.C.). Carrothers, J.A. stated that one must contrast the characteristics of the above bank paper "with the distinctively different characteristics of a cash deposit, which has the attributes of ready availability, use in exchange (orders to pay can be made upon it in the form of a direct order or sometimes a cheque), debtor-creditor relationship in regard to simple debt, and, unlike bank paper, no documentary indicia of the debt other than a ledger or computer entry and perhaps a simple receipt." [C.R.: 212(1)(b)(iii)(D)]

Administrative Policy

S3-F10-C1 - Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Digital currency and FX contracts excluded

1.12 ... Digital currencies, such as Bitcoins, are not considered to be money issued by a government of a country and are not qualified investments. Foreign exchange contracts do not constitute money and are generally not qualified investments. ...

USD deposits must be with Canadian bank or Trustco

1.13 A deposit with a Canadian branch of a bank, a deposit with a Canadian trust company, or any other deposit within the meaning assigned by the Canada Deposit Insurance Corporation Act is a qualified investment. This accommodates guaranteed investment certificates, term deposits and other forms of deposits of money. Because the definition of deposit under that Act excludes foreign-denominated deposits and deposits with a maturity of longer than five years, such deposits will qualify only if the deposit is with a Canadian branch of a bank or a Canadian trust company.

Several day grace period for cash deposited with broker

1.15 With some transactions involving securities, a registered plan may be required to leave cash on deposit with a broker. While such a deposit is generally not a qualified investment, the CRA will not apply the adverse income tax consequences described in ¶1.69 - 1.80 if the deposit is left with the broker for no more than a few days.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 262 113
Tax Topics - Income Tax Act - Section 204 - qualified investment - (d) 320
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) 256
Tax Topics - Income Tax Act - Section 204.4 - Subsection 204.4(1) 107
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(2) 52
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j) 149
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) 53
Tax Topics - Income Tax Act - Section 204 - qualified investment - (b) 55
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(e) 173
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b) 69
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(u) 80
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(v) 50
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection (1) - Specified small business corporation 38
Tax Topics - Income Tax Regulations - Regulation 5100 - Eligible Corporation 44
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(4) 82
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) 90
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(6) 110
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(a) 118
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(b) 94
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(6) 156

12 October 2001 Ministerial Correspondence 2001-0099384 - RRSP QUALIFIED INVESTMENT

Following the amendment retroactive to June 27, 1999 "taxpayers may now approach a financial institution and request that dividends paid in the United States dollars to an RRIF be held in that currency".

27 July 1994 T.I. 941656 (C.T.O. "RRSP Entering into a Spread with Options") (see also 30 January 1995 T.I. 943068)

Where an RRSP is required to leave cash on deposit with a broker to cover the possible exercise of a call option granted by the RRSP to the option holder to purchase shares from the RRSP, such cash may or may not be a qualified investment. If the cash is left on deposit with a broker for any length of time, the deposit will not be a qualified investment under s. 204(e)(i).

19 May 1993 T.I. (Tax Window, No. 31, p. 5, ¶2512)

Cash on deposit by an RRSP with a broker to cover the possible exercise of a naked call option written by it would not be considered a qualified investment if the cash were on deposit for any length of time.

Articles

Singer, "RRSPs Can Invest in a Wide Range of Fixed Income Securities", Taxation of Executive Compensation and Retirement, May 1990, p. 286.

Where a deposit is negotiable or is not redeemable without capital penalty, it is regarded as a corporate obligation rather than as a deposit.

Related Provisions

Definition of Deposit per Canada Deposit Insurance Act and Schedule thereto (as at 2014/07)

Definition of "deposit" 2. (1) Subject to subsection (2), for the purposes of this Act and the by-laws of the Canada Deposit Insurance Corporation, "deposit" means the unpaid balance of the aggregate of moneys received or held by a federal institution, provincial institution or local cooperative credit society, from or on behalf of a person in the usual course of the deposit-taking business of the institution, for which the institution

(a) has given or is obligated to give credit to that person's account or has issued or is obligated to issue a receipt, certificate, debenture (other than a debenture issued by a bank to which the Bank Act applies), transferable instrument, draft, certified draft or cheque, traveller's cheque, prepaid letter of credit, money order or other instrument in respect of which the institution is primarily liable, and

(b) moneys held by the institution that were received by it when it was not a federal institution, a provincial institution or a local cooperative credit society.

including any interest accrued or payable to that person. [Note that para. (b) is not syntactically integrated with the preamble]

Included moneys (1.1) For greater certainty, an unpaid balance of moneys received or held by an institution from or on behalf of a mortgagor in respect of realty taxes on mortgaged property is a deposit. The moneys are considered to be repayable on the earlier of the due date of the taxes or the date the mortgage is discharged.

Excluding [sic] moneys (2) The following moneys are excluded from the moneys referred to in subsection (1):

(a) moneys received or held by the institution if the date of deposit is or was on or after April 17, 1967 unless the institution is or was obligated, or may by the demand of that person become obligated, to repay the moneys on or before the expiration of five years after the date of the deposit; and

(b) moneys held by the institution that were received by it when it was not a federal institution or provincial institution.

Where more than one repayment day (2.1) For the purposes of subsection (2), where an institution is, in respect of deposit moneys received or held by it, obligated to repay the moneys to a person on a fixed day and also is or may become obligated to repay the moneys

(a) on an earlier date by virtue of a right of withdrawal, reinvestment or other right afforded to the person by the terms under which the moneys were solicited or received or are held, only the fixed day shall be considered, or

(b) on a later date by virtue of a right afforded to any person to extend the term of the deposit at a rate or rates of interest determined at the time the moneys were solicited or received, the later date is deemed to be the fixed day

in determining whether the institution is or may become obligated to repay the moneys on or before the expiration of five years after the date of the deposit, whether or not the right is exercised.

Right to extend (2.2) For greater certainty, a right referred to in paragraph (2.1)(b) does not include a right to renew or reinvest a deposit at a rate or rates of interest prevailing on the date of renewal or reinvestment.

"federal institution"

"federal institution" means a bank, company or association referred to in section 8;

"provincial institution"

"provincial institution" means a company referred to in section 9;

[Obligation to issue instruments payable outside Canada or in foreign currency] (6) Notwithstanding subsection (1), moneys received by a member institution on or after January 1, 1977, for which the institution has issued or is obligated to issue an instrument of indebtedness, other than a draft, certified draft or cheque, traveller’s cheque, prepaid letter of credit or money order, do not constitute a deposit where the instrument is payable outside Canada or in a currency other than Canadian currency.

Federal institutions 8. For the purposes of this Act, the following are federal institutions:

(a) a bank;

(b) a company to which the Trust and Loan Companies Act applies; and

(c) a retail association within the meaning of regulations made under the Cooperative Credit Association Act.

Provincial institutions 9. For the purposes of this Act, an incorporated company that carries on, under an Act of the legislature of a province or a constating instrument under provincial jurisdiction, a business substantially similar to the business of a company to which the Trust and Loan Companies Act applies and that is authorized by or under an Act of the legislature of a province to accept deposits from the public is a provincial institution.

2. ..."bank" means a bank listed in Schedule I or II to the Bank Act;

(b)

Administrative Policy

S3-F10-C1 - Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Undivided interests in strip coupons

1.37 ... Provided the original bond is a qualified investment, both the interest-paying portion and the principal portion of the bond (often referred to as the coupon and the residual, respectively) will also be qualified investments. An undivided interest in a right to receive such coupon or residual payments will also qualify.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204 - qualified investment - (a) 208
Tax Topics - Income Tax Act - Section 262 113
Tax Topics - Income Tax Act - Section 204 - qualified investment - (d) 320
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) 256
Tax Topics - Income Tax Act - Section 204.4 - Subsection 204.4(1) 107
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(2) 52
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j) 149
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) 53
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(e) 173
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b) 69
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(u) 80
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(v) 50
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection (1) - Specified small business corporation 38
Tax Topics - Income Tax Regulations - Regulation 5100 - Eligible Corporation 44
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(4) 82
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) 90
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(6) 110
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(a) 118
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(b) 94
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(6) 156

13 May 1994 T.I. 940980 (C.T.O. "RRSP Qualified Investment - Crown Corporation")

Bonds issued by provincial crown corporations are qualified investments.

(c)

Administrative Policy

4 April 1991 T.I. (Tax Window, No. 2, p. 26, ¶1193)

A banker's acceptance is not a "similar obligation" because it is a bill of exchange and does not evidence indebtedness of the issuer.

Articles

David W. Glicksman, Kevin Kelly, "Linked Instruments Offer Investor Attractions", Corporate Finance, Vol. XII, No. 2, p. 1182.

(c.1)

Administrative Policy

31 January 2013 External T.I. 2012-0444371E5 - Section 204-Qualified Investment-Paragraph (c.1)

A rating provided by an affiliate or subsidiary of a listed rating agency may be considered a rating provided by the listed rating agency. For the purpose of para. (c.1), CRA will consider a rating assigned by an affiliate or subsidiary to have been assigned by the listed rating agency if it is clear "based on the facts and legal relationships" that the rating agency "would stand by the rating given."

The correspondent also asked about whether, under a rated debt issuance program, each series or tranche of debt must be individually rated for purposes of para. (c.1). CRA stated that individual rating is unnecessary "where it is clear, based on the facts, that all debt obligations issued under the debt issuance program will have the investment grade rating assigned to the debt issuance program."

(d)

Administrative Policy

S3-F10-C1 - Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Listing must be unconditional

1.20 In a new public issue of securities, the listing of the securities may be delayed for a short period of time pending fulfillment of certain conditions. A security that is approved for listing or that has a conditional approval for listing is not at that time considered to be listed on a designated stock exchange. In order for a security to qualify, the listing must be full and unconditional.

Delisting not inconsistent with public corp status

1.21 Shares of a corporation resident in Canada that were listed on a designated stock exchange in Canada but that have been suspended from trading or delisted will generally retain their qualified investment status on the basis that such a corporation continues to be a public corporation. ...

ADRs

1.22 An American Depositary Receipt is a qualified investment, provided that the property represented by the receipt (generally a share of a company listed on a stock exchange outside the United States) is listed on a designated stock exchange. Many American Depositary Receipts are themselves listed on a designated stock exchange and thus also qualify on the basis of being a listed security... .

Other FX contracts not qualified

1.46 Foreign currency is generally a qualified investment, as discussed in ¶1.12. Foreign exchange contracts that are listed on a designated stock exchange are also qualified investments if the holder’s risk of loss does not exceed the holder’s cost (see ¶1.16). This would include, for example, foreign currency options. Most other listed foreign exchange contracts, such as foreign currency futures contracts, are not qualified investments because the risk of loss exceeds the cost of the contract. Foreign exchange contracts that trade on the over-the-counter (OTC) markets, such as swap or forward contracts, are not qualified investments. ...

Escrow agreement

1.68 The fact that a security may be subject to an escrow agreement will not in and of itself cause it to be a non-qualified investment for a registered plan... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204 - qualified investment - (a) 208
Tax Topics - Income Tax Act - Section 262 113
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) 256
Tax Topics - Income Tax Act - Section 204.4 - Subsection 204.4(1) 107
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(2) 52
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j) 149
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) 53
Tax Topics - Income Tax Act - Section 204 - qualified investment - (b) 55
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(e) 173
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b) 69
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(u) 80
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(v) 50
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection (1) - Specified small business corporation 38
Tax Topics - Income Tax Regulations - Regulation 5100 - Eligible Corporation 44
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(4) 82
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) 90
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(6) 110
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(a) 118
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(b) 94
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(6) 156

27 March 2014 Ministerial Correspondence 2014-0518601M4 - Non-qualified investments held in registered plans

meaning of "securities"

"In our view, the term "securities" should be given a broad application and interpreted using the ordinary meaning of the term."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(2) tax triggered when qualified investment becomes non-qualified 102

4 November 1999 T.I. 992430

Prior to the amendments announced by Finance on 18 December 1998, WEBS qualified as shares listed a prescribed foreign stock exchange, whereas SPDRS and Diamonds were not qualified investments.

1997 Ruling 1 January 1997 9716083

American depositary shares would be considered to be shares for purposes of s. 7, as CRA previously had concluded that they were shares for purposes of s. 146(1).

28 February 1992 T.I. (Tax Window, No. 17, p. 17, ¶1772)

Because the Canadian Over-the-Counter Automated Trading System is not a prescribed stock exchange in Canada, shares traded on this system would not be qualified investments unless the corporation was a public corporation.

Read, "Technical Matters", 89 C.R. p. 783

A share that is "approved for listing" or that has a "conditional approval for listing" is not at that time listed on a prescribed stock exchange.

(h)

Administrative Policy

23 June 1995 T.I. 951013 (C.T.O. "RRSP Qualified Inv. U.S. Index Security")

An American Depository Receipt is a qualified investment for an RRSP because the ADR represents ownership of the underlying shares and assuming that the relationship between the RRSP and the depository does not constitute a trust.

14 September 1994 External T.I. 5-942185 -

Where the only prescribed stock exchange on which a share is listed is outside Canada, a delisting of the share will generally cause the share to cease to be RRSP eligible. However, cease trading orders or halts in trading will not, of themselves, normally cause the delisting of a share.

Articles

Allgood, Wilkie, "Pre-Release Mechanisms in American Depositary Receipt Arrangements Require Careful Review", Corporate Finance, 1992, Vol. I, No. 2, p. 28.