Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
What are the tax consequences for an RRSP trust of acquiring shares traded on the Nasdaq over-the-counter bulletin board?
Position:
Where shares were acquired by an RRSP trust prior to September 2000, they are a qualified investment until Dec. 31, 2001. After Dec. 31, 2001 the shares are a non-qualified investment and subject to the provisions of section 207.1 and subsection 146(10.1) of the Act.
Reasons: Applicable sections of the Income Tax Act.
XXXXXXXXXX 2001-010977
G. Allen
February 5, 2002
Dear XXXXXXXXXX:
Re: Registered Retirement Savings Plans (RRSP) - Non-Qualified Investments
This letter is in reply to your letter dated November 7, 2001 concerning the above-referenced topic, and in particular, shares of a corporation quoted on the over-the-counter bulletin board operated by NASDAQ Stock Market, Inc.
Paragraph 4900(1)(s) of the Income Tax Regulations (the "Regulations"), provides transitional relief in respect of certain non-qualified investments. This paragraph provides, in general, that a security of a corporation quoted on the over-the-counter bulletin board operated by NASDAQ Stock Market, Inc. or on the over-the-counter quotation service operated by Pink Sheets LLC, which was acquired by a plan trust in a transaction completed before September 2000, will be a qualified investment until December 31, 2001.
Where paragraph 4900(1)(s) of the Regulations applies to a property to prescribe it as a qualified investment until December 31, 2001, there is no acquisition on January 1, 2002 of a non-qualified investment. Therefore, the income inclusion under subsection 146(10) of the Income Tax Act (the "Act") where a trust acquires a non-qualified investment will not apply. However, if, after December 31, 2001, the RRSP trust continues to hold property, to which paragraph 4900(1)(s) of the Regulations applied, the trust will be subject to tax under subsection 207.1(1) of the Act (Part XI.1). Subsection 207.1(1) of the Act imposes a tax at the end of each month on an RRSP trust in respect of non-qualified investments held by it. The amount of tax payable for each month is equal to 1% of the fair market value of the property at the time it was acquired by the trust of all such property which the trust continues to hold that constitutes a non-qualified investment.
Consequently, in our view, if, after December 31, 2001, an RRSP trust continues to hold property to which paragraph 4900(1)(s) of the Regulations applied, the tax imposed each month on the trust, pursuant to Part XI.1 of the Act, will be 1% of the fair market value of the property at the time the property was acquired. After December 31, 2001, an RRSP trust holding a non-qualified investment to which paragraph 4900(1)(s) applied, will also be subject to subsection 146(10.1) of the Act which provides for the taxation of the income and gains from the non-qualified investments, which are held in a trust governed by an RRSP.
While the Act does not require that a non-qualified investment held in an RRSP be removed from the RRSP, the share of a corporation may be removed from an RRSP as a withdrawal from the RRSP or by sale to another party. Where shares of a corporation are simply withdrawn from an RRSP by the annuitant, an amount equal to the FMV of the property at that time must be reported on a T4RSP, and included in the annuitant's income. Where the property is sold to a person dealing with the RRSP at arm's length, the property is simply removed from the RRSP's records and the agreed-upon proceeds added to the RRSP. However, where the property is sold to the annuitant of the RRSP or to another person, who is not dealing with the RRSP or the annuitant at arm's length, the proceeds of the disposal should be equal to the FMV of the property at the time of the disposal or certain unintended consequences may arise. For example, if property is sold for less than the FMV of the property, the difference must be included in the annuitant's income for the year, in accordance with subsection 146(9) of the Act. Alternatively, if the property is sold for more than its FMV, the excess will be considered a gift or a contribution to the RRSP and could be subject to tax under Part X.1of the Act.
We trust the above comments are of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002