5 February 2001 External T.I. 2000-0061655 - Foreign Property disposal and repurchase

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:

For purposes of section 206, can an RRSP trust 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:

Reply is based on previous replies on this matter.

XXXXXXXXXX 		2000-006165
W. C. Harding
February 6, 2001

Dear XXXXXXXXXX:

Re: Sale of Securities in Self-Directed RRSP Trust

This is in reply to your facsimile of December 11, 2000, in which you asked various questions regarding the timing of the sale and repurchase 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 specific taxpayers and actual completed or proposed transactions. 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.

Written confirmation of the tax implications of proposed transactions may be provided by this Directorate where the transactions are the subject matter of an advance income tax ruling request(s) submitted in the manner set out in the Agency's Information Circular IC70-6R3 Advance Income Tax Rulings a copy of which may be obtained from your local Tax Services Office or on the Internet at http://www.ccra-adrc.gc.ca. 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 the foreign property it holds at the end of a month exceeds the limit on the foreign property it may hold at the end of the month as calculated under the subsection.

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. However, where the property is reacquired from an annuitant of the RRSP 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) of the Act.

In your request, your description of the sales and repurchases of securities, and the recording of such, was brief and unclear. We would like to note that actual dispositions and reacquisitions must, in fact, occur.

We would finally like to note that the Act contains general anti-avoidance rules (GAAR) which may apply to deny a tax benefit unless it is reasonable to consider that a transaction has 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,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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