Just found this on Stockhouse which helps with our RRSP questions. I have lots in my RRSP too and don't want to be hurt by the change. Will comment late as I have to rush off to work.

Regards,
Goldie

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Shares delisted, RRSP, and Canadian Tax Law

Jeff_MTL 1

2/3/2009 10:41:11 PM | | 1022 reads | Post #26013463

Just a quick word for those Canadian shareholders who may have wondered if there is a fiscal impact in owning stock that is delisted in a self-directed RRSP account, from a tax perspective. As it is my situation, and because I may elect to ride a portion of my Oilexcoi nvestment after the TSX delisting, I have done some research and want to share the results with my fellow investors. This post is a little long, but probably worth checking out if you are an Oilexco investor who owns shares in a self-directed RRSP account.

As you all probably know, Canadians get a tax break when they contribute to their RRSP. Investments made in that RRSP are allowed to profit free of tax, until taken out of one's RRSP (usually at retirement). However, as per the Canadian Tax Law, one is not allowed to invest in "just anything" inside their RRSP, those investments have to meet certain qualification requirements. If an investment made in a RRSP does not meet requirements set forth by the Canada Revenue Agency, or ceases to meet them, that investment may be subject to immediate taxation by Revenue Canada, at its book value - not its market value.

To an Oilexco investor, specially one who would have bought in at higher price, and wanted to keep his Oilexco shares past TSX delisting, answering whether the investment still qualifies is crucial, as there might be a substantial fiscal impact.

I asked my broker (CIBC Investors Edge), and his immediate response was that I would have to swap my shares out of my RRSP account into anon-RRSP account, the day after delisting from the TSX because he said pink sheets on the lower NASDAQ (which is what OILXF:OTC is) do not represent a qualified investment. However, the catch to swapping them out is that if there should be any value left for those shares coming-out of the ONSL sale process, that amount would be taxable as a capital gain for that fiscal year, as it would be lying outside my RRSP. After explaining to my broker that the share were fungible on the London Stock Exchange and would (at least for a foreseeable future) continue to trade on the LSE, he hesitated, and recommended that I spoke directly to Revenue Canada.

I pursued my research and read the following document, on Canada Revenue Agency's web site, which defines a qualified investment for a RRSP:


From that document, the following excerpts appear to be of interest to Oilexco shareholders:http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html

Publicly traded shares and shares of public corporations

¶ 5. Shares of a corporation listed on a prescribed stock exchange in or outside Canada are qualified investments for a plan trust. Shares of a public corporation (other than a mortgage investment corporation) are also qualified investments for a plan trust. For comments on the meaning of “public corporation", see the current version of IT-391, Status of Corporations. Shares of a corporation that were listed on a prescribed stock exchange but that have been suspended from trading or de-listed continue to be qualified investments if the corporation that issued the shares was, and remains, a public corporation, and the shares do not otherwise cease to be qualified investments.

A share of a corporation subject to an escrow agreement may be a qualified investment if

• the share has been issued and not simply allotted to a plan trust;
• the shareholder has all the rights of ownership that every other shareholder has in relation to the issuer; and
• shares, identical to the escrowed share, that is not subject to an escrow agreement, are qualified investments.

Prescribed Stock Exchanges In and Outside Canada
as of July 1, 2002

Note: The National Association of Securities Dealers Automated Quotation System (NASDAQ) Over-the-Counter (OTC) Bulletin Board facility, as well as other over-the-counter facilities or exchanges such as the Canadian OTC Automated Trading System are not prescribed stock exchanges. Accordingly, securities listed on the NASDAQ OTC Bulletin Board are generally not qualified investments. Similarly, Tier 3 of the Canadian Venture Exchange which accommodates the transfer of stocks from the Canadian Dealing Network, Canada’s over-the-counter market, is not proposed to be added to the list of prescribed stock exchanges in Canada as indicated by the Department of Finance in its News Release No. 2000-101 dated December 21, 2000.
[In 2002, the Canadian Venture Exchange (also known as CDNX) changed its name to the TSX Venture Exchange.]

Prescribed stock exchanges in Canada

Alberta Stock Exchange
Montreal Stock Exchange
Toronto Stock Exchange
Vancouver Stock Exchange
Winnipeg Stock Exchange

Note: As announced in the Backgrounder released with the Department of Finance News Release No.2000-101, dated December 21, 2000, it is proposed that Tiers 1 and 2 of the Canadian Venture Exchange will be added to the list of prescribed stock exchanges in Canada. [As noted above, the Canadian Venture Exchange is now known as the TSX Venture Exchange.]

Prescribed stock exchanges outside Canada

in Australia, the Australian Stock Exchange
in Austria, the Vienna Stock Exchange
in Belgium, the Brussels Stock Exchange
in France, the Paris Stock Exchange
in Denmark, the Copenhagen Stock Exchange
in Finland, the Helsinki Stock Exchange
in Germany, the Frankfurt Stock Exchange
in Hong Kong, the Hong Kong Stock Exchange
in Ireland, the Irish Stock Exchange
in Israel, the Tel Aviv Stock Exchange
in Italy, the Milan Stock Exchange
in Japan, the Tokyo Stock Exchange
in Mexico, the Mexico City Stock Exchange
in the Netherlands, the Amsterdam Stock Exchange
in New Zealand, the New Zealand Stock Exchange
in Norway, the Oslo Stock Exchange
in Singapore, the Singapore Stock Exchange
in South Africa, the Johannesburg Stock Exchange
in Spain, the Madrid Stock Exchange
in Sweden, the Stockholm Stock Exchange
in Switzerland, the Zurich Stock Exchange
in the United Kingdom, the London Stock Exchange
in the United States:

• the American Stock Exchange
• the Boston Stock Exchange
• the Chicago Board of Options
• the Chicago Board of Trade
• the Cincinnati Stock Exchange
• the Intermountain Stock Exchange
• the Midwest Stock Exchange
• the National Association of Securities Dealers Automated Quotation System
• the New York Stock Exchange
• the Pacific Stock Exchange
• the Philadelphia Stock Exchange
• the Spokane Stock Exchange

The information in the document from the Canada Revenue Agency therefore seems to indicate that the shares of Oilexco will continue to meet the requirement for a RRSP, so long as they trade on the LSE. If they got delisted from the LSE, then trading on the NASDAQ pink sheets apparently would no longer suffice to meet the qualification requirement.

Because what I understood from the document was different than what my broker had told me, and because I felt there was enough information here to possibly lead to multiple interpretations, I checked with Customer Service at Revenue Canada Agency, and my question got escalated, ultimately though three levels. A few days later a Technical Advisor from the Service d'interpretation Technique de l'Impot at Revenue Canada Agency called me back and confirmed that:

1. So long as the shares trade on a prescribed public stock exchange, they remain qualified.

2. The LSE is a prescribed public stock exchange.

3. If they fell off the LSE, but remained on the NASDAQ OTC as pink sheets, that would be questionable and subject to interpretation, but they seemed to downplay the importance of that because of item number 4.below.

4. According to the last sentence in paragraph 5, "Shares of a corporation that were listed on a prescribed stock exchange but that have been suspended from trading or de-listed continue to be qualified investments if the corporation that issued the shares was, and remains, a public corporation”, the investment would remain qualified. The key is that the corporation remains public, meaning that it does not undergo bankruptcy, nor buyback all, or substantially all, of its outstanding shares and effectively become a private corporation.

5. The same qualifying conditions would apply for a Registered Retirement Income Fund (RRIF)

When I asked him why my broker would have suggested to swap the shares out to a non RRSP account, while it wasn't necessary, he speculated that most brokers may not have the competence to correctly interpret the Canadian Tax Law. Therefore, he thought they would probably simply suggest the one method with which they are familiar to reduce their client’s immediate exposure to potential liability vis a vis Revenue Canada, at least on the account for which they are responsible, which is ultimately what matters to them. In this case, that meant suggesting a swap out.

I also verified with him that, by faxing in my question, I will also receive an executive answer in writing, from Revenue Canada, which I will keep on file in case a different interpretation or something else comes up in the future when I produce my tax forms.

For those who may want to ask questions that pertain to their particular situation, the number for enquiries related to RRSPs at Canada Revenue Agency is: 1-800-959-8281.


I hope this information might prove to be useful to other investors on the forum.

Good luck to all.

______________
Jeff