Tax Court of Canada


Income tax
Shares of corporation were not shares of “eligible corporation” and did not qualify as investment for registered retirement savings plans

Taxpayer agreed to purchase 150,000 class B shares of corporation for $1.00 each Taxpayer opened RRSP account and transferred amount of $117,139.00 to that account Taxpayer directed RRSP to purchase 117,000 shares at $1 per share for total purchase price of $117,000 for her RRSP account. Corporation’s only activities in 2001 were purported purchase of Barbadian corporation’s shares and purchase of $200,000 in marketable securities, and only activities in 2002 were purported purchase and disposition of Barbadian corporation’s shares, and purchase of other long term investments. Minister reassessed taxpayer under Income Tax Act (Can.), finding RRSP investment was not qualified investment and including $117,000.00 in taxpayer’s income. Taxpayer appealed. Appeal dismissed. Class B shares of corporation were not qualified investment. Corporation had 91 per cent of its assets invested in shares of Barbadian corporation which was not related eligible corporation. Taxpayer did not show that fair market value of shares issued from treasury was less than what she agreed to pay for. Taxpayer recognized that she did not conduct any due diligence concerning corporation and she did not recall consulting investment advisor concerning investment. Documents showed that taxpayer’s RRSP acquired shares although exact date of acquisition was subject of disagreement -- Shares of corporation were not shares of “eligible corporation” within meaning of s. 5100(1) of Income Tax Regulations (Can.). Shares of Barbadian company represented over 93 per cent of corporation’s assets. Principal purpose of the business carried on by corporation in Canada was to derive income from property or from deriving gains from disposition of property, so that it did not use all or substantially all of its property in “qualifying active business.” As Barbadian corporation was incorporated under laws of Barbados, received International Business Licence from government of Barbados and filed its tax returns for the 2001 and 2002 taxation years reporting that it was resident of Barbados, it was not “Canadian corporation” and, therefore, was not “eligible corporation”, as defined in s. 5100(1) of Regulations, and its shares were not shares of related eligible corporation. Class B shares were not qualified investment pursuant to s. 4900(12) of Regulations as they were not shares of small business corporation. Business carried on by corporation was “specified investment business”, principal purpose of which was to derive income from property without having more than five full-time employees. Determination of whether particular investment is qualified investment for RRSPs is complex and perilous exercise out of reach for vast majority of Canadian taxpayers Impossible for taxpayer to make determination at time of acquisition of shares due to lack of information available.

Chiasson v. R. (Apr. 21, 2016, T.C.C. [Informal Procedure], Réal Favreau J., 2014-3217(IT)I) 265 A.C.W.S. (3d) 259.

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