Newsgroups: can.general
Path: utzoo!lsuc!dave
From: dave@lsuc.on.ca (David Sherman)
Subject: Re: income tax tips #22: interest accrual
Date: Fri, 26-May-89 12:02:59 EDT
Summary: putting small business shares into an RRSP
Message-ID: <1989May26.120302.24950@lsuc.on.ca>
Distribution: can
References: <1989May22.195737.16996@lsuc.uucp> <672@idacom.UUCP>
Organization: Law Society of Upper Canada, Toronto

In article <672@idacom.UUCP> ianmoss@idacom.UUCP (Ian Moss) writes:
>
>A recent article in the Financial Post by Bob Saunders of Vancouver 
>suggested it is possible to hold shares in a private company in a 
>self-directed RRSP.  A little research led to an article in the 
>July-August 1988 edition of the Canadian Tax Reporter (vol 36, No.4

You mean the Canadian Tax Journal.   (There's a big difference.)

>pg. 992 ).  To my layman's view, it appears that myself and other employees
>in our company should be able to take advantage of this type of tax 
>break using shares we have bought and/or received from a profit sharing
>plan.  I have a couple of questions however that perhaps you could help
>me with.

The provisions for putting small business shares into an RRSP were
introduced in 1986 and have never been widely used, because of their
restrictions.  I used them in January 1987 for my own RRSP, and I had
some questions about the wording in the Act when I was setting it up.
When I spoke with the person at the Department of Finance who had drafted
the provision in question, he was delighted to hear that I was using
them, because I was the first person he'd heard of who was doing so!

(I also had to shop around for a long time before finding a broker
who would accept a self-directed RRSP with small business shares --
most of them didn't, and probably still don't, understand it.)

>   1.  What constitutes "dealing at arm's length"?  Do employees
>holding small amounts of voting shares in a private company qualify
>as "at arm's length"?

Usually.  "Related" (as defined) persons are deemed not to deal at
arm's length, and in other cases it's a question of fact.  (ITA s.251(1))

>
>   2.  How do we determine with reasonable confidence that our shares 
>qualify for inclusion in a self-directed RRSP?  I assume that the plan
>administrator would require some form of "authorization" before issuing 
>the necessary documentation for filing with a tax return.

In my case I got a letter from the Secretary of the corporation
setting out all of the facts required to satisfy the conditions
laid down in the Act.  The broker was happy with that.

I suggest you consult a qualified tax expert for professional
advice, to make sure you do it right.

>Additional references - Section 146, regulations 4900 and 5100

... which totals 25 pages of dense type and impenetrable
language.  Happy reading, if you try on your own...

>     Income Tax Act RSC 1952 c148 as amended by sc1970-71-72 c63
>     and as subsequently amended.

That's just legalese for "the Income Tax Act".  You only see
it in footnotes.

David Sherman
(author, forthcoming book, "Income Tax Research")
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{ uunet!attcan  att  utzoo }!lsuc!dave          dave@lsuc.on.ca