OTC systems not included
1.18 Over-the-counter (OTC) quotation systems, such as the OTC Bulletin Board and OTC Link ATS
AIM, Alternext excluded
1.19 Many stock exchanges in the European Union (EU) operate two market segments, an official EU-regulated market and an unofficial market that is regulated by the exchange itself. The latter markets include the Alternative Investment Market (AIM) of the London Stock Exchange, Alternext operated by the various stock exchanges that comprise Euronext and the Open Market of the Frankfurt Stock Exchange. ... The unofficial, exchange-regulated markets do not qualify as they are not recognized as an official market under European Union law, nor are they subject to stringent transparency requirements and investor protection regulations. ...
4 April 2014 Ministerial Correspondence 2014-0519461M4 - ETF a qualified investment if traded on BATS?
Is an exchange traded fund (ETF) listed on the Better Alternative Trading System (BATS) a qualified investment for an RRSP or a TFSA? CRA responded "The BATS is not included on the list of designated stock exchanges" and referred to the 2008 archived Finance newsletter below respecting the purpose of designating stock exchanges.
The taxpayer asked whether the NYSE MKT (formerly NYSE AMEX, LLC) is a designated stock exchange. CRA noted that it was not on the Department of Finance list of designated stock exchanges, but stated that it would consult the Department of Finance as to whether Finance will add it to the list.
The Alternative Investment Market ("AIM") of the London Stock Exchange ("LSE") is not a designated stock exchange, - but is considered a "recognized stock exchange" given that it is located in the UK (a member of the OECD which has a tax treaty with Canada), and it is a "stock exchange" in the general legal and commercial meaning of that term, i.e., "AIM is a market which allows for the organized purchase and sale of securities and it is considered to be a multilateral trading facility under UK law."
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|Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Recognized Stock Exchange||178|
"The Open Market of the Frankfurt Stock Exchange, as well as other unofficial exchange-regulated markets in the European Union, would not qualify as a designated stock exchange for Canadian income tax purposes on the basis that such markets are not recognized as official markets under European law and are not subject to stringent transparency requirements and investor protection regulations."
In finding that securities listed on the Alternative Investment Market of the London Stock Exchange are not securities that are listed on a "designated stock exchange," CRA stated:
The London Stock Exchange comprises several markets including the Alternative Investment Market. The Alternative Investment Market is regulated very differently from the main London Stock Exchange market and does not fall within the new definition of "designated stock exchange".
In indicating that a U.S. security listed on the OTC Bulletin Board operated by Nasdaq Stock Market Inc. was not a qualified investment for RRSPs unless it was a share of a public corporation, CRA stated:
The only qualified shares of foreign corporations are those issued by a corporation whose shares are listed on a prescribed foreign stock exchange. Although the NASDAQ is a prescribed stock exchange under section 3201 of the Regulations, the securities discussed herein are over-the-counter securities.
…The Minister of Finance's role is to ensure that investments, given their tax-deferred status for policy purposes, trade on well-governed, regulated and transparent markets. Designated Stock Exchanges must therefore be explicitly designated, by public notice, by the Minister of Finance. Designated Stock Exchanges are also considered to be Recognized Stock Exchanges and Stock Exchanges for the purposes of the Income Tax Act. Recognized Stock Exchanges are determined by definition under that Act. "Stock Exchange" is not defined in the tax law; it is intended that the general legal and commercial meaning of the term will apply. …
...The Minister will consider all relevant information without limitation when evaluating an exchange's application for designation status. This will include the following considerations.
For domestic and foreign-based exchanges:
- The exchange carries out the normal business of an exchange in listing securities, facilitating the trading, clearing, and settlement of these securities, monitoring and enforcing trades executed on its system, and offering transparent pricing information to the public.
- The exchange has acceptable standards for new company listings, including standards that address the number of shareholders, the dispersion of ownership, and for the maintenance of a listing.
- The exchange operates within a regulatory framework that meets acceptable standards in relation to investor protection, disclosure requirements, corporate governance, and market integrity, as may be espoused by the International Organization of Securities Commissions (IOSCO).
- The exchange has an experienced management and governance team, a successful track record of operations, and sufficient financial resources to ensure long-term viability.
- The exchange has a range of listings and adequate liquidity for investors to buy and sell securities at reasonable bid-ask spreads.
For foreign-based exchanges:
The host country of the exchange has commercial, legal and tax relations with Canada, for example, as demonstrated by having entered into a comprehensive tax information exchange agreement or a comprehensive tax treaty.
The host country is a member in good standing in the international financial community through membership in such organizations as the World Trade Organization, the International Monetary Fund, IOSCO, the Financial Action Task Force, or similar bodies.
The securities regulatory and juridical framework of the host country of the exchange provides rights and remedies to Canadian investors, including brokers acting on investors' behalf, which are comparable to those available to investors in Canada.
The exchange is recognized by the host government and other foreign governments, where applicable, for tax purposes comparable to those for designated exchanges under the Canadian Income Tax Act.
The host country of the exchange has a low risk of imposing capital restrictions or other impediments on the liquidation of investments and the repatriation of funds by foreign investors.