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Qualified Investments

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RRSPs RRIFs and TFSAs
Stocks, Bonds etc. -> Qualified investments

What investments can be held in an RRSP, RRIF,  RESP or TFSA?

Income Tax Act S. 146(1), S. 204, Reg. 4900

There are many investments which can be held in an RRSP, RESP or RRIF, and Tax Free Savings Accounts (TFSA - see note at bottom) including:

bullet money that is legal tender in Canada, and deposits of such money.
bullet Foreign currencies are qualified investments, subject to certain limitations.  See Money and deposits of money in the CRA document IT320R3 - Qualified Investments.  Prior to March 31, 2006, foreign currency cash balances were not allowed under the bylaws and regulations of the Investment Dealers Association (IDA) of Canada.  See the IDA bulletin #3522 from March 2006 regarding the amendments which now allow foreign currency cash balances in RRSPs.
bullet Although foreign currencies are qualified investments, brokerages are not rushing to provide the option of holding foreign currencies in registered accounts.  This is apparently due to the restrictions of the software being used.  However, the brokerages make money every time foreign currencies are converted to Canadian funds, so there is not much incentive to provide this service.  Perhaps the only incentive is the fact that it would make their brokerage much more attractive to RRSP holders.  To reduce the cost of foreign currency transactions in registered accounts, see our article on washing trades.
bullet Brokerages which provide the option of holding foreign currencies in registered accounts, as of March 6, 2011:
bullet Questrade
bullet RBC Direct Investing
bullet Scotia iTrade offers a US friendly RRSP (not other registered accounts) where they don't charge a "spread" on currency conversions, but they have a quarterly fee for this account. See Retirement Accounts and click on the FAQ tab to find more information.
bullet Canadian federal, provincial and municipal government bonds or similar obligations
bullet bonds and similar obligations of corporations, the shares of which are listed on a prescribed stock exchange
bullet certain annuities, if purchased from a licensed annuities provider
bulletsecurities listed on a designated (formerly prescribed) stock exchange in Canada or other countries.
bullet Exception - futures contracts or other derivative instruments in respect of which the holder's risk of loss may exceed the holder's cost.
bullet Note that most Canadian and US stock exchanges are included here, but Over-the-Counter Facilities such as NASDAQ OTC Bulletin Board facility, and the Canadian OTC Automated Trading System are not included in the list of designated stock exchanges.  The regular NASDAQ system is included in the designated stock exchanges.  See the Department of Finance document Designated Stock Exchanges.
bullet guaranteed investment certificates (GICs)
bullet exchange-traded funds, i.e., funds which have the purpose of holding the securities included in a stock exchange index, in the same portions as the securities are reflected in the index, or of replicating the investment performance of a stock exchange index.  Examples of exchange-traded funds are SPDRs (Standard & Poor 500 Depository Receipts), Diamonds (Dow Jones Industrial Average units), and MSCI funds (Morgan Stanley Capital Investment Index).
bullet under certain conditions, shares of small business corporations
bullet under certain conditions, shares of venture capital corporations
bullet a mortgage in respect of real property situated in Canada
bullet an interest in a trust such as a mutual fund trust, a unit trust resident in Canada, certain foreign stock exchange trusts, and certain small business investment trusts, as long as they are registered investments
bullet annuity contracts
bullet warrants and rights that give the owner the right to acquire property that is a qualified investment
bulletcall options - may be written (sold) as long as the underlying shares are held in the RRSP (covered call option).  Call options also may be purchased inside an RRSP.
bulletput options
bullet put options may be purchased in an RRSP, RESP, RRIF or DPSP.  This was a change from the 2004 Federal Budget.  For more information see the Canada Gazette 2005-09-21 (archived) and scroll down to (b) Part XLIX:  Qualified Investments, which states:
bulletNew paragraph 4900(1)(e.01) provides that an option, warrant or similar right listed on a stock exchange referred to in section 3200 or 3201 is a qualified investment, provided that the underlying property is a qualified investment. The effect of this change is to enable RRSPs, RRIFs, RESPs and DPSPs to acquire publicly-listed put options and cash-settled index options, in addition to call options and warrants (which were already qualified investments under former paragraph 4900(1)(e)). This amendment applies after February 27, 2004.
bulletThe 2007 budget consolidated a number of provisions for listed securities.  S. 204 (qualified investments definition, paragrah (d)) of the Income Tax Act was amended to refer to any security (other than a futures contract or other derivative instruments in respect of which the holder's risk of loss may exceed the holder's cost) that are listed on a designated stock exchange.  Since s. 204 included the securities listed in 4900(1)(e.01) of the regulations, s. 4900(1)(e.01) was repealed.  See Bill C-52 (June 2007) Explanatory Notes clause 26 listed securities.
bullet put options may be written (sold) in an RRSP.  However, brokerages do not seem to allow this.
bullet royalty units listed on a prescribed Canadian stock exchange, if its value is derived solely from Canadian resource properties
bullet limited partnership units listed on a prescribed Canadian stock exchange
bullet investment-grade gold and silver bullion, coins, bars, and certificates on such investments.  These must be acquired either from the producer of the investment or from a regulated financial institution.  This change is effective for investments made on or after February 23, 2005.

For a more detailed description of qualified investments, see the CRA interpretation bulletin IT320R3 - Qualified Investments (which is out of date regarding the purchase of put options).

Tax Free Savings Accounts:  Qualified investments include all of the above, as long as they are arm's length investments.

See also:  Recommended portfolios for registered or non-registered accounts.

Tax Tip:  See our article on how to save money on foreign exchange in an RRSP, and ask your brokerage to start allowing foreign currency balances in RRSPs.

 

Revised: August 28, 2014

 

   

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