Qualified investment (RRSP and TFSA)

A buyer with money in registered plans may ask whether a plan can hold shares of the private company being bought. Whether the shares are a qualified investment, and whether they are a prohibited investment, are separate questions. See using registered savings to buy a business.

Two tests under the Act

CRA’s RRSP guide describes qualified investments as including money, guaranteed investment certificates, mutual funds and most securities listed on a designated stock exchange. Section 207.01 defines a non-qualified investment as property that is not qualified. It separately defines a prohibited investment to include, other than excluded property, a share of a corporation in which the plan’s controlling individual has a significant interest. For a TFSA or FHSA, section 207.01 defines a qualified investment by reference to section 204, certain annuity contracts and prescribed investments.

What to check or ask

• Ask the plan issuer, in writing, whether the specific shares are a qualified investment.
• Ask your accountant whether the shares could also be a prohibited investment.
• CRA says there are tax implications if qualified investments held in an RRSP or RRIF become non-qualified.
• These are federal rules and apply to the plan, not to a province.