Canada: Taxation Law @ Gowlings - July 20, 2009

Last Updated: July 21 2009

Edited by Mark L. Siegel


  • Volume 9, Issue 23:
    Investing in Yourself-Certain Qualified Investments for Self-Directed RRSPs
  • Volume 9, Issue 24:
    Financial Transactions and Commodities Related to Carbon Credits

Investing In Yourself-Certain Qualified Investments For Self-Directed RRSPs
By: Laura M. G. Snell

The current economic situation has had a substantial effect on the availability of bank loans to small and medium-sized businesses. Unfortunately, this has resulted in a crippling of certain businesses and a further hit on the economy. The decreased supply of capital from traditional sources has led businesses to look elsewhere for much-needed investment.

One alternative source of funding is investment by self-directed registered retirement savings plans ("RRSPs"). A self-directed RRSP is a retirement savings plan in which the person funding the plan (the "Beneficiary") directs the investment of the fund. The Income Tax Act (the "ITA") allows investment by these self-directed RRSPs in certain "Qualified Investments".

If a Beneficiary funding the RRSP owns less than 10% of an Eligible Corporation or Small Business Corporation (or his or her shares are valued at $25,000 or less of the company or a related company, which he or she doesn't control), the Beneficiary can give a cash injection to that company by directing the self-directed RRSP to purchase shares of the same.

RRSPs can invest in any Qualified Investment, as defined in the ITA. The following are some examples of Qualified Investments: 1

  • Shares of a Small Business Corporation
  • Shares of an Eligible Corporation
  • Certain debt obligations (including a debt obligation secured by a mortgage on real property in Canada)
  • Money or Deposits
  • Shares, debt obligations or securities issued by a publicly traded corporation listed on a Canadian stock exchange or designated foreign stock exchanges
  • Certain annuities
  • A unit of a mutual fund or certain other trusts
  • A bond, debenture or debt obligation of a public corporation
  • Options, warrants or other similar rights to acquire a Qualified Investment or to receive a cash settlement.

As is shown by the list above, there are many types of Qualified Investments for RRSPs. This article will focus on investments in shares of Eligible Corporations and Small Business Corporations. First, these two types of corporations will be defined, then eligibility limitations for investment in these corporations by self-directed RRSPs will be outlined.

Eligible Corporations

Eligible Corporations ("ECs") are Qualified Investments, that is, their shares can be purchased by an RRSP as an investment. An Eligible Corporation is defined in the ITA2 as:

1. a corporation whose assets are one or both of the following:

  1. used in a business carried on within Canada and which is not just the derivation of income from property,
  2. shares of a related Eligible Corporation;3

2. a Specified Holding Company, which is a taxable Canadian Corporation whose assets are used in a qualifying active business, are shares of one or more controlled or related Eligible Corporations, are debt obligations issued by controlled corporations or related Eligible Corporations, or are a combination of these three; or

3. a Venture Capital Corporation, which is a corporation incorporated pursuant to venture capital corporation legislation.

Small Business Corporations

A Small Business Corporation4 ("SBC") is a corporation which uses all or substantially all of its assets principally in an active business carried on primarily in Canada 5 (i.e. not a business whose principal purpose is to derive income from property). A SBC cannot be controlled, even indirectly by a non-resident of Canada. A corporation, of which all or substantially all its assets are shares in a Small Business Corporation, is also a Qualified Investment for a RRSP.

The definitions of EC and SBC are similar, EC being broader to encompass holding and venture capital companies, and having fewer restrictions on residency of the person controlling the company.

Shares of These Corporations Are Qualified Investments for RRSPs

Along with the rest of the list of Qualified Investments above, RRSPs can invest in shares of ECs and SBCs. Where a Beneficiary of a RRSP owns part of one of these corporations, he or she may want to consider directing the RRSP to invest in its shares. This gives a cash infusion to the corporation and allows the Beneficiary to put money from his or her RRSP into the corporation, instead of putting the money directly into the corporation.

There are limitations on a Beneficiary's ownership for these companies to have Qualified Investment status. If the Beneficiary's ownership is past the thresholds outlined below, the investment is not a Qualified Investment for the RRSP.

Disqualification for Connected Persons

A RRSP cannot invest in the shares of an Eligible Corporation or a Small Business Corporation of a "connected person". That is, if any Beneficiary or annuitant of the RRSP exceeds the allowable thresholds of ownership in the corporation or related corporations.

A Beneficiary of the self-directed RRSP cannot own more, or have the right to own more, than 10% of the total shares of the Corporation or any related corporation.6

Exception for Certain Connected Persons

If a Beneficiary owns or has the right to own more than 10% of the shares of the corporation or any related corporation, but the total value of the taxpayer's investment in the corporation and any related corporation is less than $25,000, and he or she does not control the corporation,7 the Beneficiary is not a connected person, and shares in the corporation can still be a Qualified Investment for his or her RRSP. 8

The following are two examples determining whether ownership thresholds have been exceeded:

Example 1. A Beneficiary of a RRSP owns 7% of an Eligible Corporation, but 15% of a related corporation. The 10% ownership limit is exceeded because the Beneficiary owns more than 10% of a related corporation. The status of Qualified Investment for that Corporation is lost unless the Beneficiary's total investment is less than $25,000, and he or she does not control any of the corporations.

Example 2. Where a Beneficiary owns 20% of an Eligible corporation, and the value of those shares is $24,000, the corporation is a Qualified Investment for the self-directed RRSP of the Beneficiary as long as the Beneficiary doesn't control the corporation or any related corporation. If the Beneficiary also owns shares of a related corporation valued at $1,000 or more, the ownership threshold is exceeded and the corporation is no longer a Qualified Investment.

Timing of Qualification

The ownership conditions for an Eligible Corporation must be satisfied at the time of the acquisition of shares by the RRSP and throughout the entire period that the shares are held by the RRSP. If the shareholder later exceeds the ownership threshold, or if the corporation ceases to meet the definition of Eligible Corporation, the shares immediately cease to be a Qualified Investment and the RRSP is no longer eligible to hold them as an investment.

The ownership conditions for a Small Business Corporation must be satisfied at the time the shares are purchased by the RRSP. 9However, should these conditions cease to exist during the time the RRSP holds the shares, the shares maintain their status of Qualified Investment.


If a person with a self-directed RRSP owns part of an EC or SBC and does not exceed the ownership limitations, it is possible for his or her self-directed RRSP to invest in shares of that company. It should first be determined whether the shares fit into the Qualified Investment category of Eligible Corporation or Small Business Corporation. This will determine whether the ownership thresholds must be adhered to for the entire duration of the RRSP's investment in such shares, or simply at the time of purchase.

There are several benefits for minority owners of Eligible Corporations or Small Business Corporations in having self-directed RRSPs invest in shares of their companies. Not only is the taxpayer investing in his or her future by funding the RRSP, but he or she is also investing in the company's present. This may be one way to alleviate some of the pressure created by the current credit crunch for small and medium sized businesses in Canada.

Financial Transactions And Commodities Related To Carbon Credits
By: Simon Labrecque

In this last article of a series of three, we will address the taxation of financial transactions involving Carbon Credits and related commodities.

If a market participant is engaged in a trading business, the analysis of the tax consequences of the purchase and sale by it of Carbon Credit instruments would most likely be similar to the analysis of the tax consequences of any other commodity trading activity. The expenditures made to acquire emissions instruments would be treated as cost of goods sold and inventoried accordingly.

The distinction between a company that is a trader and dealer of emission-allowance and emission-reduction commodities and a company that is investing in these instruments for the purposes of complying with environmental regulations may be difficult to make and will depend as always on all of the relevant facts of each case.

A useful hedging instrument for companies requiring Carbon Credits is assimilated to a future commodity. Typically, these will involve a financial institution agreeing notionally to supply a given quantity of Carbon Credits at a future date and at a fixed price in return for the agreement of a Canadian GHG-emitter to notionally supply the same quantity at the same future date, but at the then market price. On settlement, the difference between the two prices is paid by one party to the other. In the above-mentioned hedge, there is no physical delivery but merely a payout based on the value difference of the notional holdings of both parties.

For income tax purposes, the Canadian emitter may be taxed as earning business income, just as is the case with most derivative products. The complex income tax considerations of commodity futures will be treated in a subsequent article.

Recent interest in Carbon Credits as an investment or as a speculative instrument from which profits can be derived has sparked the interest of financial institutions and hedge funds in the carbon market.

Sales tax on Carbon Credits Commodities

In our view, CRA's administrative policies related to commodities should apply for Carbon Credits Commodities. In summary, no sales tax should apply if the transaction is cash settled on a recognized commodity exchange. However, the sales tax would apply if the underlying commodities, the Carbon Credits, are in fact delivered.

An "option for the future supply of a commodity" includes a right, but not an obligation, to buy or sell a commodity at a specified price within a stipulated future time period. The option buyer pays a premium to the dealer for this right, in addition to the usual commission. The supply of a commodity option where sold on a recognized commodity exchange should be an exempt financial service, thus not subject to sales tax. However, if the option is exercised, because of the taxable status of the Carbon Credits, sales tax should be applicable.

A "futures contract" is an agreement to buy or sell a specific amount of a commodity at a particular price on a stipulated future date. Contrary to a commodity option, a futures contract obligates the buyer to purchase the underlying commodity and the seller to sell it, unless the contract is sold to another before the exercise date. The supply of a futures contract where sold on a recognized commodity exchange is also an exempted financial service not subject to sales tax. However, when the exercise date becomes due, sales tax should be applicable on the taxable supply of the Carbon Credits.


Admittedly there is still a great deal of uncertainty with regard to the tax treatment of the purchase and sale of emission allowances and Carbon Credits although some tendencies seem to be emerging. To date, it seems that current tax principles are being canvassed and compared against specific fact situations in order to derive a logical tax characterization for each transaction and from there to determine the applicable tax consequences.

It is therefore imperative for companies looking to engage in this market to carefully consider the possible tax planning opportunities and risks created by these uncertainties and to monitor the tax developments in this field with the help of a tax professional.


1. S.146, s.204 and s.4900 of the Regulations to the ITA

2. At Regulation 5100.

3. A related corporation is a corporation controlled by the same Epson or group of people, Section251(2)(c).

4. At Regulation 4900(12).

5. At least 90% of the business is carried on in Canada.

6. A related corporation is a corporation controlled by the same person or group of people, Section 251(2)(c).

7. Or is not a part of a group of related persons who control the corporation.

8. All the investments in the corporation or related corporations must be taken into account when determining the 10% and the $25,000 thresholds.

9. The business must meet the criteria for Small Business Corporation status at the end of the tax year before the RRSP invests in its shares

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.