| 19(1) | File No. 5-8195 |
| A.B. Adler | |
| (613) 957-8962 |
June 27, 1989
Dears Sirs:
This is in reply to your letter dated June 2, 1989 in which you requested our opinion as to whether "put option" are included as qualified investments for an RRSP under paragraph 4900(1)(e) of the Income Tax Regulations ("Regulations"), and raised other related questions.
Our comments follow.
It is our view that a purchased "put option" would not be a qualified investment for an RRSP under paragraph 4900(1)(e) of the Regulations. We understand that a purchased "put option" involves the right to dispose of the underlying shares rather than a "right to acquire" shares as required under that paragraph.
The writing of a put option represents an agreement to purchase shares if the person who holds the option exercises his right to sell within a specified time. The RRSP does not acquire a tight in this case. Instead, cash is received as a means of possibly reducing the cost of acquiring shares. The writing of put options is not subject to the rules governing qualified investments, and is an acceptable RRSP activity.
However, where the RRSP is required to leave cash (margin) on deposit with the broker to cover the possible exercise of an option by the option investment. If the money is left on deposit with the broker of any length of time, it would not be a qualified investment by reason of subparagraph 204(e)(i) of the Income Tax Act (the "Act"), and subsection 146(10) therein would apply to the annuitant. On the other hand, if the money is deposited with the broker and the transaction will be concluded within a few days, we take the view that this deposit is "money" within subparagraph 204(e)(i) of the Act and subsection 146(10) would not be applied.
Further, there is no other provision is Part XLIX of the Regulations or in paragraph 146(1)(g) of the Act (the relevant authorities) that includes "put options" as qualified investments for an RRSP.
We trust that our comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate