30 August 2000 External T.I. 2000-0043335 - Swap and RRSP

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 a swap of securities between RRSP/RRIF and non-registered accounts is treated as a purchase and sale.

Position: Question of fact.

Reasons: Depends on intention of parties and whether equivalent consideration passes between parties.

XXXXXXXXXX 								2000-004333
M. P. Sarazin

August 30, 2000

Dear Sir\Madam:

Re: Swap Between RRSP and Non-Registered Account

This is in response to your letter of March 3, 2000, which was forwarded to us by our Bathurst Tax Services Office, requesting a ruling on the tax implications associated with the exchange or swap of property between an individual's registered retirement savings plan ("RRSP") and the individual's savings account.

You are holding mutual funds in your RRSP and you would like to buy them from your RRSP.

Comments

A request for an advance income tax ruling with respect to proposed transactions involving specific taxpayers will only be provided where the request has been submitted in accordance with the requirements established by the Canada Customs and Revenue Agency (the "Agency") as set out in Information Circular 70-6R3. Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

If an annuitant wishes to acquire an investment from his or her self-directed RRSP, the annuitant may pay cash for the investment and it will be viewed as a purchase and sale for both the RRSP and the annuitant. If the purchase and sale occurs at fair market value, there will not be any immediate tax consequences for the RRSP or the annuitant. Where the cash amount paid to acquire the property equals the fair market value of the property, the annuitant will acquire property and the adjusted cost base of the property will be the cash amount paid to acquire the property from his or her RRSP. We note that where the disposition and acquisition is not at fair market value, the provisions of subsection 146(9) of the Income Tax Act (the "Act") would apply to include the difference between the fair market value and the consideration in the annuitant's income in that taxation year.

The annuitant may also use property, other than cash, that is a qualified investment within the meaning assigned by subsection 146(1) of the Act to acquire property from his or her RRSP. If the purchase and sale occurs at fair market value and the property is capital property to the annuitant, the only immediate tax consequences will be the potential capital gain to the annuitant on the sale of the property for proceeds which exceed the "cost amount" of the property to the annuitant. We also note that, in accordance with clause 40(2)(g)(iv)(B) of the Act, a loss on the sale of capital property by the annuitant to his or her self-directed RRSP is deemed to be nil. Where the disposition and acquisition is not at fair market value, the provisions of subsection 146(9) of the Act would also apply in this situation to include the difference between the fair market value and the consideration in the annuitant's income in that taxation year.

We trust that the above comments will be of assistance.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate