24 July 1989 Income Tax Severed Letter AC74084 - Qualified Investments for RRSPs

BELLEVILLE DISTRICT OFFICE                    HEAD OFFICE
E. Saari                                      W.C. Harding
Chief Enquiries & Office                      Financial
Industries 
Examination                                   Division
                                              (613)-957-3499

Subject: Qualified Investments for RRSP's 7-4084 This is in reply to your memorandum of April 13, 1989, which was referred to Rulings for reply on June 29.

You have been asked to determine if shares of 24(1) will be qualified investments for RRSP's of certain individuals associated with the company. From your research to date, you have concluded that additional information must be requested before this determination can be made. In particular you have noted that documentation is required to indicate that the corporation is not described in subsection 39(5) of the Income Tax Act (the Act) and to indicate that the shares would not be ineligible by virtue of either subsection 4900(6) or (8) of the Income Tax Regulations (Regulations). You have asked for our comments.

First, it is our opinion that the Department should not provide any assurances that the subject shares are qualified investments for an RRSP as this can only be determined on the basis of the facts at the time the shares are acquired by a plan. Prior to that date we should only provide general comments as to their apparent compliance or non compliance with the relevant legislation.

We would agree that additional information will be required to determine that the corporation is not described in subsection 39(5) of the Act and that it otherwise meets the requirements of subsection 4900(6) of the Regulations. With respect to the 24(1) submission to date, we would, in particular, also question whether or not the business is a "qualified active business as defined in Regulation subsection 5100(1) and whether or not the individuals interested in acquiring the shares for their RRSP's, referred to a "sales consultants" are, in fact, employees of the company. If they are, paragraph (d) of the "designated shareholder" definition in Regulation 4901(2) may be of importance to your analysis.

Subsection 4900(8) of the Regulations provides that a share held by a plan will cease to be a "qualified property" from a point in time which is immediately before an amount is received in respect of the share and it is reasonable to consider that the amount is in payment for services rendered by the plans annuitant. In our view this provision would not generally cause a share to be a non-qualified investment at the time of its acquisition by a plan.

We would also like to note that an RRSP will be subject aid taxation under the provisions of subsection 207.1(5) of the Act if more than 50% of the fair market value, at the time of acquisition, of its properties are "prescribed properties" as defined under Regulation subsection 490(1.1).

We trust these comments will be of assistance to you. for Director Financial Industries Division Rulings Directorate