5-911005
Dear Madam:
This is in reply to your letter of April 11, 1991 concerning a corporation that makes a contribution to a registered pension plan in the form of treasury shares.
It is our view that where a corporation's contribution to a registered pension plan is in the form of treasury shares, an amount equal to the fair market value of those shares would normally be deductible by the corporation under section 147.2 of the Income Tax Act to the extent provided in that section. We say "normally" because all the facts peculiar to a particular arrangement would first have to be examined to determine if the treasury shares were in fact contributed to the pension plan rather than to an employee; i.e., to determine if section 7 of the Act should apply such that a deduction to the corporation would be denied by virtue of subsection 7(3) of the income Tax Act.
Where a registered pension plan acquires shares of an employer that participates in the plan, the shares would represent a prohibited investment by virtue of paragraph 8502(1)(a) of the draft Income Tax Regulations if they are not of a type described in paragraph 8512(2)(b) of those draft Regulations; i.e., if they are not listed on a stock exchange referred to in section 3200 or 3201 of the Regulations. If the shares are a prohibited investment, the pension plan registration is subject to being revoked by virtue of paragraph 8501(2)(a) of the draft Regulations.
The above comments are an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust however that they are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate