Stocks, Bonds etc. -> Qualified
Investments, US Dollar Registered Accounts
Qualified Investments for an RRSP, RRIF, RESP,
RDSP or TFSA
Income Tax Act S. 146(1), S. 204, Reg. 4900
There are many investments (qualified investments) which can be held in an RRSP, RESP or
RRIF, RDSP and Tax Free Savings Accounts (TFSA - see link at bottom)
including:
money that is legal tender in Canada, and
deposits of such money.
Foreign currencies are
qualified investments, subject to certain
limitations. See Money
and deposits of money in the Canada Revenue Agency (CRA) Folio
S3-F10-C1 -
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.
Most
brokerages now provide the
option of holding foreign currencies in registered accounts.
Brokerages make money every time foreign
currencies are converted to Canadian funds, so there was not much
incentive to provide this service, other than it makes their brokerage much more
attractive to RRSP holders. To reduce the cost of foreign
currency transactions in registered accounts if your brokerage
does not provide the option of holding foreign currencies, see our article on washing
trades.
Canadian federal, provincial and municipal government
bonds or similar obligations
bonds and similar obligations of
corporations, the shares of which are listed
on a prescribed stock exchange
certain annuities, if purchased from a licensed
annuities provider
securities listed on a designated (formerly prescribed) stock exchange
in Canada or other countries. ITA s. 204, para. (d) of "qualified
investment"
Exception - futures contracts or other
derivative instruments in respect of which the holder's risk of
loss may exceed the holder's cost.
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.
See also paragraph 1.18 in Income
Tax Folio S3-F10-C1, which indicates there are exceptions to
this.
If you're not sure about the eligibility of a particular stock or
ETF, check the website of the issuer for details.
guaranteed investment certificates (GICs)
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).
under certain conditions, shares of Canadian small business
corporations
under certain conditions, shares of Canadian venture capital
corporations
a mortgage (Reg. 4900(1)(j)) in respect of real property
situated in Canada, where the debtor
is not a connected person (beneficiary, holder or subscriber) under the
governing plan of the plan trust.
an insured mortgage (Reg. 4900(1)(j.1)) - debt secured by a
mortgage or similar instrument re real or immovable property in Canada,
where the debt is
administered by an approved lender under the National Housing Act, and
insured either under the National Housing Act, or by a corporation
that offers its services to the public in Canada as an insurer of
mortgages and that is approved as such by the Superintendent of
Financial Institutions.
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
annuity contracts
warrants and rights that give the owner the
right to acquire property that is a qualified investment
call options - may be written (sold) as
long as the underlying shares are held in the RRSP (covered call option).
CRA indicates in Folio S3-F10-C1 (link at bottom) paragraph 1.41 that
the writing of an uncovered call option may result in the plan being
considered to be carrying on a business.
Call options also may be purchased inside an RRSP.
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:
New 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.
The 2007 budget consolidated a number of
provisions for listed securities. Income Tax
Act s. 204 definition of qualified investment, paragraph (d) 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.
put options
written are not subject to qualified investment rules because no
property is actually acquired at the time the option is written,
thus they theoretically may be written (sold) in an RRSP. However, brokerages do not
usually allow this, and CRA indicates in Folio S3-F10-C1 (link
at bottom) paragraph 1.41 that the
writing of a put option may result in the plan being
considered to be carrying on a business.
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. For more detail see Income
Tax Regulations 4900(t) and (u).
Non-qualified and prohibited
investments may not be held in a TFSA, RRSP, RRIF, RESP, or RDSP:
Non-qualified investments include,
for example, land and general partnership units.
Prohibited investments are specifically identified
in the Income Tax Act, and include property that
is
a debt of the registered plan holder/beneficiary
shares in, an interest in, or a debt of
a corporation, partnership or trust in which
the holder has a significant (10% or greater) interest, or
a person or partnership that does not deal at
arm's length with the holder, or with a person or partnership
described in (i)
When prohibited or non-qualified investments are
held in a registered plan, taxes will apply. Non-qualified and prohibited
investments are tax differently.
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 registered accounts, if they don't already.