24 March 1988 Income Tax Severed Letter 7-2607 - [Qualified Investment for an RRSP, Regulation 4900(6)]

REVENUE CANADA TAXATION MEMORANDUM

DATE: March 24, 1988

to- VICTORIA DISTRICT OFFICE

FROM- HEAD OFFICE
               Financial Industries Division 
               Peter K. Noack
               957-8963

ATTENTION  D.J. McGrath, Manager   
           Public Affairs Division

RE: Qualified Investment for an RRSP Regulation 4900(6)

We reply to your memorandum of February 25 concerning a proposed payment by an employee of a premium in the form of shares in a privately held corporation to his RRSP. The shares were issued to the employee by his employer as a benefit from his employment. The shares had a total fair market value of XXXX at the time of issue and represent less than XXXX of the total number of shares issued by the corporation. The, corporation has now/ XXXX .

We understand that the corporation qualifies as a Canadian controlled private corporation as defined in paragraph 125(7)(b) of the Income Tax Act (Act).

You wish to know whether

A. the shares would be qualified investments for an RRSP and B. the payment could be deducted from the annuitant's income.

We have insufficient information to confirm that the shares qualify as investments for an RRSP. Regulation 4900(6) provides that shares of an eligible corporation are qualified investments for an RRSP unless the annuitant under the plan is a designated shareholder of the corporation. Regulation 4900(8) limits the application of Regulation 4900(6) in certain circumstances. Regulation 5100(1) defines the term "eligible corporation", and Regulation 4901(2) defines the term "designated shareholder".

The payment of the premium in the form of the shares expressed in terms of their fair market value would be deductible from the annuitant's income to the extent provided for in paragraphs 146(5)(a) or (b).

The fair market value of the shares at the time the employee received them will be included in the employee's income for the year in which he disposed of the shares by contributing them as a payment of a premium to his RRSP by virtue of subsection 7(1) and 7(1.1) of the Act.

If you have any questions, please contact the writer.

for Director Financial Industries Division Rulings Directorate