24 February 2000 External T.I. 1999-0007685 - CROSS TRADES IN RRSP AND FOREIGN PROPERTY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether, for purposes of section 206 an RRSP trust can sell property in the market or to the annuitant at fair market value and immediately repurchase the property to reflect a new "cost amount";

Position: Yes, although we have not considered how GAAR might apply.

Reasons: The superficial loss rules in paragraph 53(1)(f) do not apply where the rules in subsection 40(3.4) apply ("suspended loss"). Subsection 40(3.4) applies where the disposition is by a trust, but there is no mechanism under section 53 to adjust the cost amount of the newly reacquired property where subsection 40(3.4) applies.

XXXXXXXXXX 1999-000768
S. E. Thomson
Attention: XXXXXXXXXX

February 24, 2000

Dear XXXXXXXXXX:

Re: Sale of Securities in Self-Directed RRSP Trust

This is in reply to your facsimile of November 3, 1999, in which you ask various questions regarding the sale or swap of securities at fair market value by a self-directed RRSP trust, executed with the intention of reducing the book value of the foreign property or increasing the book value of non-foreign property, for purposes of the foreign property limit.

It appears that your request for an opinion involves both specific taxpayers and completed transactions. Since the responsibility for determining the tax consequences arising from completed transactions rests with the tax services offices, the appropriate tax services office may, upon disclosure of all of the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto. Although we cannot comment directly on your situation, we are able to provide you with the following general comments.

Pursuant to subsection 206(2) of the Income Tax Act (the "Act"), an RRSP trust is subject to a tax of 1% of the amount by which the cost amount of foreign property exceeds 20% of the cost amount of all property at the end of each month.

No tax consequences will result to the RRSP trust where the RRSP trust transfers property to an annuitant of the RRSP trust at fair market value or sells the property in the market at fair market value. Where the property is reacquired from the annuitant by the RRSP transfer at fair market value, any loss incurred while the property was held by the annuitant will be denied to the annuitant by virtue of clause 40(2)(g)(iv)(B).

We point out that the Income Tax Act contains a general anti-avoidance rule (GAAR) which may apply to deny a tax benefit unless the transaction may reasonably be considered to have been undertaken or arranged primarily for bona fide purposes other than to obtain the tax benefit.

We trust our comments will be of assistance.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate