Chapter History S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Introduction

The purpose of a Chapter History page is to highlight any amendments to the information contained in an interpretation bulletin that is now reflected in a chapter of an income tax folio as well as to identify any subsequent amendments to a folio chapter. It outlines amendments that have been made as a result of legislative changes and proposed legislative changes, precedential court decisions, as well as new or revised interpretations of the Canada Revenue Agency (CRA).

Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended.

Update October 1, 2018

General revisions have been made to the Chapter to improve readability. The following changes have also been made to the Chapter.

The Summary and ¶1.70 have been updated to include a cross-reference to new Income Tax Folio S3-F10-C3, Advantages – RRSPs, RESPs, RRIFs, RDSPs and TFSAs.

¶1.61 and 1.62 have been removed, and a number of paragraphs have been revised because of changes to the qualified investment rules that apply to RDSPs and RESPs to be consistent with those rules that apply to RRSPs, RRIFs and TFSAs (added by S.C. 2017, c. 33, generally applicable after March 22, 2017).

¶1.68 of the French version only has been updated to replace the expression “convention de blocage” with “convention d’entiercement”.

¶1.98 and 1.99 of the English version only have been updated to include a reference to the civil law concept of a mandatary.

Update September 2, 2016

General

Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs, replaces and cancels Interpretation Bulletin IT-320R3, Qualified Investments – Trusts Governed by Registered Retirement Savings Plans, Registered Education Savings Plans and Registered Retirement Income Funds. 

In addition to consolidating the content of the former interpretation bulletin, general revisions have been made to improve readability. Any substantive technical and interpretive changes to the information outlined in the former interpretation bulletin are described below. Except as otherwise noted, all statutory references herein are references to provisions of the Income Tax Act, R.S.C., 1985, c.1 (5th Supp.), as amended and all references to a Regulation are to the Income Tax Regulations, C.R.C., c. 945, as amended. 

Legislative and other changes

The Chapter reflects the extension of the qualified investment rules to registered disability savings plans (added by S.C. 2007, c. 35, s. 120, applicable to 2008 and subsequent tax years) and tax-free savings accounts (added by S.C. 2008, c. 28, s. 31, applicable to 2009 and subsequent tax years).

¶1.1 - 1.8 have been added to provide a non-technical overview of the qualified investment rules.

¶1.9 (formerly ¶1 of IT-320R3) has been expanded to describe the meaning of the terms debt obligation (added to section 204 by S.C. 2007, c. 29, ss. 26(4), applicable in determining qualified investment status after March 18, 2007) and connected person (added to subsection 4901(2) of the Regulations by S.C. 2007, c. 35, ss. 127(1), applicable to 2008 and subsequent tax years), which are used throughout the Chapter.

¶1.10 (formerly included in ¶3 of IT-320R3) has been expanded to provide additional information helpful to readers.

¶1.11 has been added to provide information on the timing of various qualification conditions.

¶1.12 (formerly included in ¶14 of IT-320R3) has been expanded to include the CRA‘s views on the ineligibility of virtual currencies and most foreign exchange contracts. 

¶1.13 (formerly included in ¶14 of IT-320R3) has been revised to remove certain transitional information about banks outside of Canada that is no longer necessary. The reference to guaranteed investment certificates issued by a Canadian trust company (formerly included in ¶10(b) of IT-320R3) has been re-worded to reflect the CRA’s view that any deposit with a Canadian trust company is a qualified investment.

¶1.16 has been added to explain the requirements of amended paragraph (d) of the definition of qualified investment in section 204 (made by S.C. 2007, c. 29, ss. 26(2), applicable in determining qualified investment status after March 18, 2007). As a result of this amendment, which provides qualified investment status for most listed securities, the commentary dealing with various listed securities in ¶5, ¶17, ¶25, ¶26 and ¶27 of IT-320R3 is redundant and has not been reproduced.

¶1.17 - 1.19 have been added to comment on designated stock exchanges (relevant to ¶1.16 and 1.30), which replaced the concept of prescribed stock exchanges (added by S.C. 2007, c. 35, s. 57 and s.67, applicable after December 13, 2007). The Chapter now also includes an explanation of the CRA’s views on over-the-counter markets and unofficial exchange-regulated markets in the European Union.

¶1.20 has been added to provide the CRA’s views on conditional listings.

¶1.21 (formerly included in ¶5 of IT-320R3) has been expanded to provide additional information on delisted securities.

¶1.22 has been added to explain the requirements of paragraph 4900(1)(w) of the Regulations (added by S.C. 2009, c. 2, ss. 105(7), applicable in determining qualified investment status after 2005), which provides that unlisted American Depositary Receipts are qualified investments.

¶1.23 - 1.24 (formerly included in ¶5 and ¶10(e) of IT-320R3) have been expanded to provide information on the retroactivity of the election to be treated as public corporation from date of incorporation. 

¶1.25 - 1.29 (formerly included in ¶5, ¶17 and ¶24 of IT-320R3) have been expanded to expressly refer to mutual fund corporations and mortgage investment corporations and to provide other clarifying information. The 2nd bullet of former ¶17 has been removed as the information is no longer of value. Amendments to the prescribed conditions for mutual fund trusts in sections 4801 and 4801.001 of the Regulations (made by S.C. 2013, c. 34, s. 398 and 399, applicable to 2004 and subsequent tax years) have significantly narrowed the scope and relevance of paragraph 4900(1)(d.2).

¶1.30 (formerly ¶10 of IT-320R3) has been revised to reflect the designated stock exchange amendment discussed in ¶1.17 and the expansion of the list of qualified investments to include most issuances of investment-grade debt (new and amended paragraph (c. 1) of the definition of qualified investment in section 204 made by S.C. 2007, c. 29, ss. 26(2) and by S.C. 2009, c. 2, s.66, both applicable in determining qualified investment status after March 18, 2007) and mortgage-backed securities (new paragraph 4900(1)(j.2) of the Regulations made by P.C. 2005-1508, ss. 6(3), August 31, 2005, Canada Gazette, Part II, September 21, 2005, applicable after 2000). Former ¶10(h) of IT-320R3 has been removed as the information is no longer relevant with the repeal of paragraph 4900(1)(o) (made by S.C. 2007, c. 2, ss. 105(5), applicable to property acquired after March 12, 2009). The debt obligation discussed in former ¶10(h) of IT-320R3 is now covered by the general rule for investment-grade debt.

¶1.31 is added to provide information about prescribed credit rating agencies, which are relevant for investment-grade debt discussed in ¶1.30 (new subsection 4900(2) added by S.C. 2007, c. 29, ss. 32(6), applicable in determining qualified investment status after March 18, 2007).

¶1.32 - 1.36 (formerly ¶11 and ¶12 of IT-320R3) have been revised to reflect amendments to paragraphs 4900(1)(j) and (j.2) of the Regulations (made by P.C. 2005-1508, ss. 6(3) and (9), August 31, 2005, Canada Gazette, Part II, September 21, 2005, applicable to property acquired after February 27, 2004 and applicable after 2006 to property acquired before February 28, 2004), the main effect of which was to add a requirement that arm’s length mortgages be fully secured. ¶1.34 and ¶1.35 have been expanded to provide additional information on situations where the registered plan trustee takes action to protect the mortgage investment and where the trustee does not. ¶1.36 has been revised to replace the reference to “insured under the National Housing Act” with a reference to “insured by the Canada Mortgage and Housing Corporation” since only CMHC is authorized to insure mortgages under that Act.

¶1.38 - 1.44 (formerly ¶21 - 23 of IT-320R3) have been revised to reflect amendments to paragraphs 4900(1)(e) and (e.01) of the Regulations (made by P.C. 2005-1508, ss. 6(5), August 31, 2005, Canada Gazette, Part II, September 21, 2005, generally applicable after February 27, 2004). These amendments expanded the qualified investment list to include listed put options and listed cash-settled index options, and added an arm’s length test for unlisted warrants and options. An example has been added to the warrants and options discussion for illustration purposes. Paragraph 4900(1)(e.01) was subsequently repealed because it became redundant with the introduction of the general rule for listed securities discussed in ¶1.16. ¶1.41 - 1.44 are expanded to provide additional information on various adverse tax consequences that apply to restrict the ability of registered plans to engage in option writing strategies.

¶1.45 and ¶1.46 have been added to clarify the tax consequences that can arise where a registered plan engages in foreign exchange trading.

¶1.51 - 1.54 have been added to explain the qualification conditions for gold and silver bullion, as reflected in paragraphs 4900(1)(t) to (v) of the Regulations (added by P.C. 2005-1508, ss. 6(1), August 31, 2005, Canada Gazette, Part II, September 21, 2005, applicable after February 2005).

¶1.55 has been added to clarify that none of the small business investments discussed in ¶1.56 - 1.66 are eligible for RDSPs and only certain are eligible for TFSAs.

¶1.56 - 1.65 (formerly ¶6 of IT-320R3) have been revised to reflect amendments to subsections 4900(12), (14) and (15) of the Regulations (made by S.C. 2011, c. 24, ss. 84(4), (6) and (7), applicable to investments acquired after March 22, 2011, and by S.C. 2009, c. 2, ss. 105(10), applicable to 2009 and subsequent tax years). The effect of the amendments is that subsection 4900(12) and (13) are applicable only to RESPs, whereas subsections 4900(14) and (15) are applicable to RRSPs, RRIFs and TFSAs. As the qualification conditions of subsections 4900(12) and (14) are very similar, the text of former ¶6 of IT-320R3 is largely unchanged other than to reflect that subsection 4900(14) uses a prohibited investment test rather than the controlling shareholder test used in subsection 4900(12). Former ¶7 of IT-320R3 has been removed because the information is now of limited relevance. ¶1.64 has been added to provide a brief explanation of the qualification conditions for cooperative investments, which were also subject to these restructuring amendments.

¶1.66 (formerly ¶8 of IT-320R3) has been revised to remove most of the information about shares of an eligible corporation because paragraph 4900(6)(a) has very limited application.

¶1.67 (formerly ¶13 of IT-320R3) has been revised to reflect the designated stock exchange amendment discussed in ¶1.17.

¶1.68 (formerly ¶5 of IT-320R3) has been expanded so that the information applies to any security, subject to an escrow agreement, not just shares.

¶1.69 and ¶1.70 have been added to provide an overview of the various tax consequences that apply when an RRSP, RRIF, TFSA or RDSP holds a non-qualified investment.

¶1.71 has been added to explain the tie-breaker rule in subsection 207.04(3) that applies when an investment is both non-qualified and prohibited.

¶1.72 - 1.75 have been added to outline the tax implications where an RRSP, RRIF, TFSA or RDSP acquires a non-qualified investment or an existing investment becomes non-qualified. This information reflects the introduction of section 206.1 for RDSPs (added by S.C. 2007, c. 35, s. 120, applicable to 2008 and subsequent tax years), the introduction of section 207.04 for TFSAs (added by S.C. 2008, c. 28, s. 31, applicable to 2009 and subsequent tax years) and the extension of section 207.04 to RRSPs and RRIFs (made by S.C. 2011, c. 24, s. 65, applicable to investments acquired after March 22, 2011 and to investments acquired on or before that date that first become non-qualified after that date). The information in former ¶28 of IT-320R3 has been condensed since it is now relevant only for RRSP and RRIF investments that were non-qualified before March 23, 2011.

¶1.76 (formerly included in ¶30 of IT-320R3) has been expanded to clarify that the notional taxable income on which an RRSP, RRIF, TFSA or RDSP is subject to Part I tax includes capital dividends.

¶1.77 has been added to explain the deemed disposition/reacquisition rule that applies when an investment becomes or ceases to be a non-qualified investment. An example has been included to demonstrate how the rule works.

¶1.78 has been added to note that an RRSP, RRIF, TFSA or RDSP that is subject to tax on non-qualified investment income must file a T3 return.

¶1.79 (formerly ¶31 of IT-320R3) relating to the 1% monthly tax on non-qualified investments has been revised to restrict its application to RESPs, which reflects the repeal of subsections 207.7(1) and (4) (made by S.C. 2011, c. 24, ss. 68(1) and (2), applicable to RRSP and RRIF investments acquired after March 22, 2011 and to investments acquired on or before that date that first become non-qualified after that date).

¶1.81 and ¶1.82 have been added to provide information on the removal of a non-qualified investment.

¶1.83 - 1.85 (formerly ¶4 of IT-320R3) have been expanded to explain the tax implications where a TFSA borrows money or other property, and to clarify certain borrowing situations in which the CRA will not apply adverse tax consequences. The comments relating to the use of property as a security for a loan have been removed as this situation will be discussed in a future Chapter on advantages.

¶1.86 - 1.91 (formerly included in ¶23 of IT-320R3) have been expanded to provide more information on the tax consequences for a registered plan that carries on a business. Comments have been added regarding the Tax Court of Canada’s decision in Prochuk v the Queen.

¶1.92 - 1.98 have been added to clarify the CRA’s views about the obligations of registered plan trustees in complying with the qualified investment rules. The information in ¶1.93 reflects the introduction of paragraph 146.4(13)(d) for RDSPs (added by S.C. 2007, c. 35, s. 115, applicable to 2008 and subsequent tax years), the introduction of subsection 207.01(5) for TFSAs (added by S.C. 2008, c. 28, s. 31, applicable to 2009 and subsequent tax years) and the extension of section 207.01(5) to RRSPs and RRIFs (made by S.C. 2011, c. 24, s. 65, in force on March 23, 2011).

¶1.99 (formerly ¶2 of IT-320R3) has been updated to replace the reference to “Canadian Depository for Securities Limited” with “CDS Clearing and Depository Services Inc.”

¶1.100 has been added to provide a table of legislative references for the various qualified investments discussed in the Chapter.

Report a problem or mistake on this page
Please select all that apply:

Thank you for your help!

You will not receive a reply. For enquiries, contact us.

Date modified: