XXXXXXXXXX
Dear XXXXXXXXXX
RE: Qualified Investments for an RRSP
This is in reply to your letter of January 14, 1993 wherein you requested a ruling on whether or not particular investments in a Canadian public corporation would be qualified investments for an RRSP.
As indicated in Information Circular 70-6R2, a copy of which is enclosed, a ruling can only be provided by this Directorate where a proposed acquisition of an investment by an RRSP is the subject matter of an advance ruling request submitted in the manner set out in the Circular.
While you may, if you so desire, request an advance ruling, we must note that the eligibility of debt or shares of a corporation as qualified investments for an RRSP is a question of fact which, generally, may only be determined at the time of their acquisition by an RRSP. Accordingly, a ruling can only be provided beforehand if it can be shown that the debt or shares will be qualified at the time of acquisition.
While we are unable to provide you with a ruling as requested, we provide you with general comments which may or may not be applicable to the circumstances of your particular situation.
Generally speaking, a debt owing to a trust governed by an RRSP by a Canadian corporation would represent a qualified investment of the trust only if the debt is:
(a) a bond, debenture, note, or similar obligation of a corporation the shares of which are listed on a prescribed stock exchange in Canada;
(b) a bond, debenture, note, mortgage, hypothec or similar obligation of a corporation which is controlled directly or indirectly by one or more corporations or mutual fund trusts whose shares or units are listed on a prescribed stock exchange in Canada;
(c) a bond, debenture, note, mortgage, hypothec or similar obligation of a corporation which are guaranteed by a corporation or a mutual fund trust whose shares or units are listed on a prescribed stock exchange in Canada;
(b) a bond, debenture, note or similar obligation of a Canadian corporation where the conditions described in subparagraph 4900(1)(i)(iii) of the Income Tax Regulations (the "Regulations") are met which, in part and in general terms, require the corporation to have share equity of at least twenty five million dollars or be controlled by such a corporation and have issued and outstanding debt of at least ten million dollars; or
(c) a bond, debenture, note, mortgage, hypothec or similar obligation of a corporation which are guaranteed by the Government of Canada
There are other provisions which also allow RRSPs to hold debt of Canadian corporations. However, these are directed to particular types of corporations such as mortgage investment corporations or credit unions.
An RRSP can also and in general invest in the shares of a corporation if the shares are listed on a prescribed stock exchange in Canada or in a country other than Canada or if it is a "Public Corporation" as defined in the Income Tax Act.
The Draft Amendments issued by the Minister of Finance on February 4, 1993, propose to include a bond, debenture note or similar obligation of a "Public Corporation" to the list of qualified investments for RRSP after 1992.
The definition of foreign property under paragraph 206(1)(d.1) of the Act includes any share or debt obligation of a Canadian corporation whose share value may reasonably be considered to derive, directly or indirectly, from portfolio investments in property that is foreign property. It is the Department's view that the term "portfolio" would mean all of the securities held by the corporation.
Due to the complexity of the Regulations regarding these issues, the foregoing comments are meant only to provide an overview of the relevant provisions and under no circumstances are they to be considered to be either comprehensive or all inclusive. We trust, however, that they will be of assistance to you.
The above comments are an expression of opinion only and do not bind the Department.
Yours truly,
for Director Financial Industries Division Rulings Directorate