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Dear XXXXXXXXXX
RE: Qualified Investment in a Registered Retirement Savings Plan (an "RRSP")
This is in response to your letter of January 12, 1993, in which you requested an opinion on whether or not a share that you hold in a private golf course is a qualified investment for an RRSP.
As noted in Information Circular 70-6R2 dated September 28, 1990, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling. 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. The following comments are, therefore, of a general nature only, and are not binding on the Department.
Generally, an RRSP can invest in 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 "Act").
When the shares of a corporation do not qualify as investments for an RRSP as noted above, they may qualify if they are shares of a Canadian Controlled Private Corporation (CCPC) which is an "eligible corporation" and the annuitant of the RRSP is not a "designated shareholder" of that company. These latter two terms are defined terms and their meanings are provided in subsections 5100(1) and 4901(2) of the Income Tax Regulations.
In brief, an "eligible corporation" is generally a taxable Canadian corporation which uses substantially all of its property in a "qualifying active business". Specifically excluded from this definition are securities dealers, financial institutions, corporations whose principal business is the lending of money or the purchasing of debt, and non-resident controlled corporations.
A "qualifying active business" is also a defined term which generally includes any business which is carried on in Canada except one where its principal purpose is to earn income from property in the form of interest, dividends, rent, royalties or gains from dispositions of property. A qualifying business may, however, include a business of leasing property other than real property, and a retail or wholesale business.
An entity, such as a club, which was incorporated for purposes other than carrying on a trade or a business may not meet the above requirements.
When choosing investments for an RRSP, care must be taken because when an RRSP acquires a non-qualified investment, the fair market value thereof at the time it was acquired will be added to the income of the annuitant under the plan pursuant to subsection 146(10) of the Act. When an RRSP disposes of a non-qualified investment, the annuitant can deduct from income for the year of disposition, by virtue of subsection 146(6) of the Act, the lesser of the amount previously included in income under subsection 146(10) of the Act in respect of the acquisition of that non-qualified investment and the proceeds of its disposition.
We trust the above comments will be of assistance to you. If you have any other questions do not hesitate to contact us.
Yours truly,
for Director Financial Industries Division Rulings Directorate