CRA confirms that grandfathering generally will be lost if an RRSP redeems its prohibited investment shares rather than selling

The post March 22, 2011 prohibited investment rules for RRSPs effectively grandfathered the value of various prohibited investments which were held on March 22, 2011 by providing that generally only capital gains representing appreciation over the investment’s fair market value on that date would give rise to a taxable advantage.

CRA has confirmed that this grandfathering does not work where the RRSP subsequently redeems prohibited investment shares thereby giving rise to a deemed dividend – so that the full amount of the deemed dividend generally will be subject to a 100% tax.  It is now too late to access further temporary relief in s. 207.01(4).

Neal Armstrong.  Summary of 6 June 2013 T.I. 2012-0451801E5 F under s. 207.01(1) – Advantage.