| 24(1) | 5-901292 |
| D.S. Delorey | |
| (613) 957-3495 | |
| Attention: 19(1) | EACC9360 |
August 1, 1990
Dear Sirs:
This is in reply to your letter of June 7, 1990 asking if American Depository Receipts ("ADRs") represent a qualified investment for a trust governed by a registered retirement savings plan ("RRSP Trust") pursuant to subparagraph 204(e)(ix) of the Income Tax Act (the "Act").
Your question relates to a comment contained in the April 1990 issue of the "Taxation of Executive Compensation and Retirement" journal which you quote as follows:
"So called 'depository receipts', which are common in the United States, have been considered by Revenue Canada to constitute qualified investments to the extent that they represent actual ownership of shares listed on a prescribed US stock exchange and, holding of the deposit receipt entitles the holder to take delivery of such shares."
With respect to the above quotation, you ask
(a) if an ADR which is traded on a prescribed U.S. stock exchange would represent a qualifying investment for an RRSP Trust notwithstanding that the underlying share(s) does not trade on a prescribed U.S. stock exchange, and
(b) if an ADR representing something other than one share (e.g., multiple or fraction of one share) would represent a qualified investment for an RRSP Trust, assuming that it otherwise qualifies.
The above quotation is presumably based on a private letter issued by the Division. However, it is inaccurate in that our letter stated that an ADR evidencing ownership of a share listed on a prescribed stock exchange in a country other than Canada would represent a qualified investment for an RRSP Trust, provided the agreement between the RRSP Trust and the depositary does not constitute a trust and that our understanding set out in that letter is correct. That is, an ADR certificate of a depositary (bank, trust company, etc.) certifying that it holds for the account of the named person the number and class of shares specified in the ADR, and that such person is entitled on presentation of the ADR to take delivery of the shares.
It is therefore our view, based on the above understanding, that an ADR would represent a qualified investment for an RRSP Trust where the underlying share is listed on a stock exchange prescribed in section 3201 of the Income Tax Regulations ("Qualifying Shares") and the agreement between the RRSP Trust and the depositary does not constitute a trust.
With respect to (b) above, a "share" is defined in subsection 248(1) of the Act to include a fraction of a share. Thus, the fact that an ADR evidences ownership of only a fraction of a share would not of itself mean that the ADR would not represent a qualified investment for an RRSP Trust. An ADR that evidences ownership of a multiple of shares would generally represent a qualified investment for an RRSP Trust if the underlying shares were Qualifying Shares and the ADR does not represent an interest in a trust.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate