Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether a particular corporation fell within the definition of "registered securities dealer" in subsection 248(1).
Position: Yes.
Reasons: The corporation's letters of registration permitted the corporation to trade in securities without any restriction as to the types or kinds of securities in which the corporation could trade.
January 21, 2008
TORONTO CENTRE TSO HEADQUARTERS
Susan Mallory, Large File Case Manager Income Tax Rulings
Large File Section Group 453-3-2 Directorate
Jenie Leigh
Attention: Larry Forget (613) 952-1505
2007-025693
XXXXXXXXXX - Registered Securities Dealer
This is in reply to your facsimile of October 23, 2007 wherein you attached a copy of a submission dated October 3, 2007 from XXXXXXXXXX concerning our memorandum to you dated January 3, 2007 (our file #2006-019431). In that memorandum, we expressed the opinion that XXXXXXXXXX was a "registered securities dealer" within the meaning of subsection 248(1) of the Income Tax Act (the "Act").
XXXXXXXXXX does not agree with our opinion. It is XXXXXXXXXX's view that registration of an entity to trade in securities should not in itself be enough to make the entity a registered securities dealer for purposes of the Act. XXXXXXXXXX notes that an entity must comply with provincial law in order for it to carry on its business as an investment dealer. XXXXXXXXXX provides the example of an entity that is registered to trade in securities is under provincial suspension with respect to its trading activities. In such a case, the entity cannot operate as an investment dealer notwithstanding that it is registered under the laws of a province to trade in securities without restriction as to the types or kinds of securities in which it can trade.
Additionally, XXXXXXXXXX maintains that it did not meet all the requirements in the definition of "registered securities dealer" in the Act for the years under audit. In particular, XXXXXXXXXX interprets the words "in the capacity of an agent or principal" in the definition to mean that the entity must have the capacity to act as an agent or as a principal for its customers. XXXXXXXXXX notes that provincial law requires that in order to act as an agent or principal with respect to trading activities, the entity must have qualified personnel who are capable of and have been qualified by the provincial regulators as being capable. XXXXXXXXXX claims that it did not have the relevant personnel and therefore did not have the ability to act as agent or principal. Accordingly, in XXXXXXXXXX's view, it was not a registered securities dealer and should not be considered a "financial institution" for purposes of Part I.3 and sections 142.2 to 142.7 of the Act.
We have considered XXXXXXXXXX's October 3, 2007 submission. In our view, the key requirement in the definition of "registered securities dealer" in subsection 248(1) of the Act is that the taxpayer be registered or licensed under the relevant provincial law to trade in securities, in the capacity of agent or principal, without any restriction as to the types or kinds of securities in which the taxpayer may trade. For the years under audit, the Ontario Securities Commission approved XXXXXXXXXX's registration under the provisions of the Securities Act (Ontario). While the letters of registration did set out some restrictions and conditions, they pertained to the individuals approved to trade on behalf of XXXXXXXXXX and not to the types of securities XXXXXXXXXX could trade in. With regard to XXXXXXXXXX's example, provided the suspension did not result in a revocation or amendment of the entity's registration such that it continues to be registered to trade without restriction as to the types or kinds of securities in which it can trade, it is our view that the entity would be a registered securities dealer for purposes of the Act.
With regard to XXXXXXXXXX's point that it did not have qualified personnel capable of trading in securities in the capacity of an agent or principal, the definition of "registered securities dealer" contains no requirement that a taxpayer employ qualified personnel in order to carry out its activities as an agent or principal. Rather, the requirement in the definition is that the taxpayer be registered to trade in securities in the capacity as an agent or principal. As noted in our previous memorandum to you, we were advised by the Department of Finance that our interpretation is consistent with the policy intent of this definition.
In summary, we remain of the view that XXXXXXXXXX was a "registered securities dealer" within the meaning of subsection 248(1) of the Act.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819)994-2898. A copy will be sent to you for delivery to the client.
F. Lee Workman
Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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