Revenue Canada Taxation Head Office
W.C. Harding (613) 957-3499
October 26, 1987
Dear Sirs:
Re: RRSP Qualified Investments Instalment Receipts
This is in reply to your letter of August 26, 1987 in request of our opinion on the status of "instalment receipts" as qualified investments for RRSPs and other deferred income plans.
In our opinion an Instalment Receipt will be accepted as a qualified investment under Part 4900 of the Income Tax Regulations (the Regulations) if it complies with the provisions of 4900(1)(e) thereof. That is, it is a right, listed on the Toronto Futures Exchange or a prescribed stock exchange in Canada, giving the owner thereof the right to acquire either immediately or in the future any property that, if the right were exercised at the particular time, would be a qualified investment for the plan trust.
In the case of XXXX based upon the prospectus provided, we are of the opinion that the Instalment Receipts will be qualified investments as defined under the provisions of 4900(1)(e) of the Regulations, if at the time of their purchase, they and the Exchangeable Shares of XXXX both have a full and unqualified listing on a prescribed stock exchange.
With respect to the application of section 206.1 of the Income Tax Act (the Act), it is your conclusion that that section will not apply to impose a tax upon a deferred income plan which holds the Instalment Receipts of XXXX, because, in your view, it appears reasonable the offering price is equal to fair market value. We do not concur. Section 206.1 of the Act applies when, among other things, a plan which has entered into an agreement to acquire shares may acquire those shares at a price which may differ from the fair market value of the shares at the time they may be acquired. That is, even if it appears reasonable that the offering price is equal to the fair market value of the shares, if the agreement does not provide that the price will be equal to the shares' market value then the provision will have application. In the case of XXXX, the Instalment Receipts specify a fixed price which may or may not be equal to the value of the underlying shares at the time of their acquisition. Accordingly, the provisions of 206.1 of the Act must have application.
These opinions are based on our best interpretation of the law. They are not, however, advance income tax rulings and therefore are not binding upon the Department.
We trust the foregoing is satisfactory.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs branch