Principal Issues: [TaxInterpretations translation] Can a taxpayer who has acquired preferred shares issued by a cooperative under the Québec Cooperative Investment Plan, in return for an undertaking to pay for them later, transfer them to his or her RRSP and benefit from the deduction under subsection 146(5)?
Position: None.
Reasons: The question raised is based on assumptions as to how to interpret specific provisions of Quebec legislation that do not fall within the CRA's purview. Since we cannot comment on the validity of these assumptions, we are unable to comment on the question based on those assumptions.
XXXXXXXXXX 2008-029453 Mélanie Beaulieu August 20, 2009
Dear Sir,
Subject: Preferred shares in a CIP payable after issuance
This is further to your letter dated September 24, 2008, in which you requested clarification of the applicable rules regarding preferred shares issued by a cooperative, with a commitment by the Purchaser to pay at a later date for the shares, which would be transferred by the purchaser to his or her registered retirement savings plan ("RRSP").
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, Advance Income Tax Rulings, it is not the practice of the Directorate to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a transaction, you should forward all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
Our Comments
Your question is based on assumptions as to how to interpret specific provisions of Quebec legislation that are not within the purview of the Canada Revenue Agency (the "CRA"). Specifically, your question assumes that the provisions of the Cooperatives Act, R.S.Q., c. C-67.2, the Cooperative Investment Plan Act, R.S.Q., c. R-8.1.1 and the Taxation Act, R.S.Q., c. I-3, allow a cooperative to issue preferred shares in consideration for a simple commitment to pay for them in the future, and that these shares may nevertheless qualify as "qualifying securities" for the purposes of the Cooperative Investment Plan ("CIP").
We cannot comment on the validity of the assumptions on which your question is based. We are therefore unable to answer your question.
However, we would like to bring the following comments to your attention.
Paragraph 4900(12)(c) of the Income Tax Regulations defines a "qualified investment" for the purposes of section 146 as a "qualifying share" in respect of a "specified cooperative corporation" and a trust governed by an RRSP. The terms "qualifying share" and "specified cooperative corporation" are defined in subsection 4901(2) of the Regulations.
Furthermore, as discussed in paragraph 24 of Interpretation Bulletin IT-124R6, Contributions to Registered Retirement Savings Plan, a premium paid to an RRSP could include a contribution or transfer of property other than cash. In this case, the taxpayer is considered to have disposed of the property at the time the contribution or transfer of the property was made. In addition, the proceeds of disposition and the amount of premium considered to be paid are equal to the fair market value of the property transferred or contributed by the taxpayer at the time of its disposition.
With respect to the amount of the FMV, we do not provide an opinion on valuation issues or a general rule for determining the FMV of a property as these matters are the responsibility of the valuation services of the CRA Tax Services Offices and we encourage you to contact your local office if you wish to discuss the application of the valuation principles in the situation described in your letter.
Other provisions of the Act may also apply to the situation described in your letter. For example, it is possible that the preferred shares issued in the circumstances described in your letter may be a tax shelter as defined in subsection 237.1(1) and a tax shelter investment as defined in subsection 143.2(1), for example, if the commitment to pay for the shares at a later date is a limited-recourse amount as defined in subsection 143.2(7). This is a question of fact that must be resolved in light, inter alia, of statements or announcements made or proposed to be made in respect of those shares and the documentation relating to them.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.