Investing in Canadian Private Corporations through RRSP, RRIF, and TFSA

Brent Penner, Stephen Zhang
Insights
| 2/1/2021

There are many investments, such as shares of Canadian private corporations, that can be held in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA) investment account.  

The current regulations provide that an RRSP/RRIF/TFSA may acquire and hold shares of a private Canadian corporation provided that the corporation meets the definition of 'specified small  business corporation' and provided that the share is not a 'prohibited investment.' 

Specified small business corporation

The term specified small business corporation (SSBC) is defined, generally, to mean a Canadian corporation that is not controlled by one or more non-resident persons and that has at least 90% of the fair market value of its assets used principally in an active business carried on primarily in Canada. These assets can include shares of connected Canadian corporations that themselves meet the 90% test. This test is required to be met at all times that the investment is in an RRSP/RRIF/TFSA account.   

Prohibited investment

As noted above, an eligible share investment must also, at all times, not be a prohibited investment. This is defined, in general terms, to be a share of a company in which a particular RRSP, RRIF, or TFSA, either alone or together with non-arm’s length parties (including the annuitant of the RRSP, RRIF, or TFSA), owns 10% or more of any class of the issued shares of the particular company, or does not deal at arm’s length with the company.   

Who's included in the non-arm’s length party?

Non-arm’s length parties include related persons. Related persons include individuals connected by a blood relationship, marriage, common-law partnership, or adoption. A blood relationship is referred to as being that of a parent and a child (or other descendants, such as a grandchild or a great-grandchild), or that of a brother and a sister.   

'Child' includes a child of a spouse, and spouse of a child i.e. a step-child, spouse of a child or a step-child. Two persons are 'connected by marriage' if one person is married to the other person or to an individual who is connected by a blood relationship to that other person. For example, an individual will be connected by marriage to the parents and any siblings of the individual's spouse. An individual's niece, nephew, aunt, or uncle is not related by blood, marriage, common-law partnership, or adoption to the individual unless such person meets one of the other scenarios described above.   

Non-arm’s length parties could also include unrelated persons. It is a question of fact whether unrelated persons are dealing with each other at arm’s length. Each situation must be evaluated in its own merits.   

Seek the advice of an expert

As the rules surrounding this area are complex and each situation may be unique to an individual investor, it is imperative that investors who are interested in investing in Canadian private corporations through an RRSP, RRIF, and TFSA to seek their own professional advice.   


Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Contact your Crowe MacKay advisor for more information.


If you are looking for Tax Services, Crowe MacKay provides personalized support. Our tax professionals will help you maximize tax-planning opportunities and ensure the minimum amount required by law is paid.

Brent is a tax partner of the Edmonton office with over 30 years of tax experience providing a wide range of tax consulting and planning services to Canadian companies and individuals, including corporate re-organizations, purchase and sale of businesses, trust and estate planning, and representation to the CRA. 
Brent Penner
Brent Penner
Partner, Incorporated
Edmonton

Stephen Zhang is a Partner in the Edmonton office. He provides tax advisory services to a wide range of clients. Stephen was a Director of Accounting and Tax with a highly regarded Real Estate Property Development and Management company.
Stephen Zhang
Stephen Zhang
Partner
Edmonton

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