Hersh Joshi, Jack Silverson, "Understanding and Doing Business with Tax-Exempt Entities", 2018 Conference Report (Canadian Tax Foundation), 29:1 – 35
10% rule (pp. 29:26-28)
“[T]he 10 percent rule” … is found in section 9 of the PBSA investment rules, and it requires the diversification of plan assets in the following terms:
9(1) The administrator of a plan shall not, directly or indirectly, lend or
invest moneys of the plan to or in any one person, any associated persons
or any affiliated corporations if
(a) 10% or more of the total market value of the plan’s assets has
already been lent or invested, in total, to or in the person, the associated
persons or the affiliated corporations; or
(b) 10% or more of the total market value of the plan’s assets would
be lent or invested, in total, to or in the person, the associated persons or
the affiliated corporations as a result of the loan or investment.
Although the terms in which the court [in … R v. Christophe, 2009 ONCJ 586] describes the intent of the 10 percent rule are broad, the court essentially echoes the statement of legislative intent by finding the purpose of the rule to be the diversification of investments and loans, such that risk is not pooled in any one person.
… In September 2000, OSFI sent a memo to all members of the Canadian Association of Pension Supervisory Authorities (which included the CRA) stating that OSFI would adopt an interpretation according to which the 10 percent rule needed to be satisfied at the plan level rather than at the level of the individual investment corporation. A similar ruling was given in…2005-0126841R3…
When it comes to interpreting two statutes with overlapping subject matter, a common-law presumption exists that the statutes should be interpreted in a coherent and consistent manner. …
[T]he CRA … confirmed that the 10 percent rule for the purposes of the preamble in subparagraph 149(1)(o.2)(iii) was to be applied at the plan level and not at the corporation level. [fn 76: 2013-050832117]
30% rule (pp. 29:28-29)
“[T] he 30 percent rule”) is found in section 11 of the PBSA investment rules, and it provides…
11(1) Subject to subsection (2), the administrator of a plan shall not, directly or indirectly, invest the moneys of the plan in the securities of a corporation to which are attached more than 30 per cent of the votes that may be cast to elect the directors of the corporation.
(2) Subsection (1) does not apply in respect of investments in securities of
(a) a real estate corporation;
(b) a resource corporation; or
(c) an investment corporation.
… [T]he 30 percent rule applies only to securities to which more than 30 percent of the voting rights to elect directors are attached … . [I]t does not prevent a pension plan from holding shares that vote on issues other than the election of directors, such as the approval of fundamental matters… .
Consequences of PBSA rules non-compliance (p. 29:29)
Regulation 8501(2)(a) of the Act provides that a plan becomes a revocable plan if it fails to comply with a number of provisions within the regulations, including regulation 8502(h), which provides that the property of the pension plan must not include, among other things, an investment that is not permitted under the PBSA or a similar law of a province.