Principal Issues: [TaxInterpretations translation] Can shares, preferred shares and participating preferred shares be qualified investments for RRSPs?
Position: Yes if the conditions of the definition of qualifying share are satisfied.
Reasons: Text of 4901(2)
XXXXXXXXXX 2007-025208 Catherine Ayotte, Notary, M.Fisc.
January 18, 2008
Dear Sir,
Subject: Qualifying share of a specified cooperative
This is further to your letter of September 11, 2007 in which you asked us to confirm whether a "qualifying share" within the meaning of subsection 4901(2) of the Regulations of a specified cooperative includes:
1. a qualifying share of a cooperative within the meaning of sections 37 and 38.3 of the Cooperatives Act R.S.Q. c. C-67.2. (C.A.)?
2. a preferred share of a cooperative within the meaning of section 46 of the C.A.?
3. a participating preferred share of a cooperative within the meaning of section 49.1 of the C.A.?
Please note that, unless otherwise stated, all statutory references herein are to the provisions of the Income Tax Act (the "Act"); any reference to the "Regulations" is to the Income Tax Regulations.
It appears to us that the situation described in your letter may be an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance tax ruling. If your situation involves a specific taxpayer and transaction, you should forward all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following comments, which may be helpful to you. These comments are general in nature and the eligibility of a share as a "qualifying share" must be analyzed on a case-by-case basis.
The definition of "qualifying share" in subsection 4901(2) of the Regulations sets out two conditions that must be satisfied for a share of a specified cooperative corporation to be a "qualifying share".
First, paragraph 4901(2)(a) of the Regulations provides that ownership of the share or a share identical to the share must not be a condition of membership in the corporation. That condition excludes from the definition of "qualifying share" any share that establishes eligibility, and any share that is identical to it.
Second, paragraph 4901(2)(b) of the Regulations provides that a person who is an annuitant, a beneficiary or a subscriber under the plan or fund (or any other person related to that person) must not have received a payment from the corporation after November 29, 1994 pursuant to an allocation in proportion to patronage in respect of consumer goods or services ("Patronage Dividends"). In addition, after the acquisition of the share by the trust governed by the plan or fund, the person (or any other person related to that person) can reasonably be expected not to receive a payment from the cooperative in respect of Patronage Dividends. The term "consumer goods or services", as defined in subsection 4901(2) of the Regulations and subsection 135(4), means goods or services the cost of which was not deductible by the taxpayer in computing the income from a business or property.
The condition in paragraph 4901(2)(b) of the Regulations excludes any share that would qualify for a payment of Patronage Dividends. Consequently, a share that does not qualify for a Patronage Dividend could generally satisfy the condition set out in paragraph 4901(2)(b) of the Regulations.
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.