13 June 2001 External T.I. 2001-0080605 - T4RSP FOR SWAPPED 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: Should an RRSP issuer prepare a T4RSP for the value of property that was "swapped" with property held by the annuitant?

Position: Referred the issuer to the TSO.

Reasons: This is a completed transaction.

XXXXXXXXXX 		2001-008060
S. E. Thomson
June 13, 2001

Dear XXXXXXXXXX:

Re: T4RSP for swapped property

We are writing in reply to your fax of April 19, 2001 in which you ask us to confirm that you should issue a T4RSP for funds withdrawn from a locked in retirement account (a "LIRA"). The annuitant of the plan "swapped" shares of her employer into the plan in exchange for cash that was in the LIRA. However, the employer refused to reregister the shares in the name of the RRSP trust because the annuitant had not paid for the shares.

Where a particular transaction is ongoing, or has been completed, a determination of the tax consequences is the responsibility of the local tax services office. However, we are able to offer the following general comments on the relevant provision of the Income Tax Act (the "Act"), which may apply. Please note that these comments are general in nature, and may not apply in your situation. As such, the comments are not binding on the Canada Customs and Revenue Agency.

If an annuitant wishes to have his or her self-directed RRSP trust acquire an investment from the annuitant, the trust 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 investment is a qualified investment within the meaning assigned by subsection 146(1) of the Act, and the purchase and sale occurs at fair market value, the only immediate tax consequences will be a potential capital gain to the annuitant on the sale of the property for proceeds which exceed the "adjusted cost base" of the property to the annuitant (assuming the investment was capital 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.

However, where the RRSP trust acquires an investment for an amount greater than the investment's fair market value, the provisions of subsection 146(9) of the Act will apply to include the difference between the cash paid and the fair market value of the investment in the annuitant's income in that taxation year. Similarly, where the RRSP trust acquires a non-qualified investment, the provisions of subsection 146(10) of the Act will apply to include the fair market value of the investment in the annuitant's income in that taxation year. Where an annuitant receives an amount as a benefit from an RRSP trust for no consideration, the amount received must be included in the annuitant's income under subsection 146(8) of the Act.

Whether, in your situation, the RRSP trust has acquired an investment at an amount greater than its fair market value, or has simply issued cash to the annuitant for no consideration, is a question to be determined by an examination of all the relevant facts. We suggest that you contact the local tax services office to determine the correct course of action.

We trust that our comments have been helpful.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate