12 November 2003 Internal T.I. 2003-0032907 - RRSP AND SUBSECTION 73(1) OF THE ACT73(1)

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 CCRA.

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

PRINCIPAL ISSUE:

Must the election under subsection 73(1) of the Act be filed to ensure that a property would be transferred to a RRSP at fair market value?

Position: No, subsection 73(1) is not applicable.

REASON: Wording of the Act

									November 12, 2003

	CALGARY TSO						HEADQUARTERS
	Technical Application Team					Income Tax Rulings
									  Directorate
	Attention:  Shawna Mumert					Michel Lambert
(613) 957-8953

									2003-003290

Transfer of property to a RRSP at fair market value

This is in reply to your memorandum dated July 31, 2003 in which you request our views in regard to the application of subsection 73(1) of the Income Tax Act (the "Act") to a transfer by an individual of a property to the Registered Retiring Saving Plan ("RRSP") of his/her spouse where the RRSP is subject to a trust. More specifically you ask whether the election under subsection 73(1) of the Act must be filed to ensure that the property would be transferred to the RRSP at fair market value. The taxpayer wishes to recognize the capital gain on the particular property and so wishes to dispose of the property at the fair market value.

Written confirmation of the tax implications inherent in particular proposed transactions is given by this Directorate only where the transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. You can invite the taxpayer to present an Advance Income Tax Ruling request to this Directorate. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). To answer your question, we suppose that the Retirement Savings Plan is a trust and not just a deposit in a bank or credit union.

Under subsection 73(1) of the Act, where the property transferred is a capital property (other than a depreciable property of a prescribed class), the property is deemed to have been disposed of for the proceeds equal to the adjusted cost base of the property immediately before the time of the disposition. However, if the transferor elects not to have subsection 73(1) apply, then the proceeds of disposition of the transferred property would be deemed to be equal to the fair market value of the property at the time of the transfer in accordance with paragraph 69(1)(b) of the Act.

Subsection 73(1) of the Act is applicable only in circumstances to which subsection 73(1.01) of the Act applies. A property is transferred by an individual in circumstances to which this subsection applies where it is transferred, inter alias, to a trust created by the individual under which the individual's spouse or common-law partner of the individual (the "spouse") is entitled to receive all of the income of the trust that arises before the spouse's death and no person except the spouse's may, before the spouse's death, receive or otherwise obtain the use of any of the income or the capital of the trust.

We are of the opinion that subsection 73(1) of the Act is not applicable in the situation described above, as the property is not transferred to a trust created by the transferor.

Where an individual transfers a property to his or her spouse's RRSP, the individual will have a disposition of the property so transferred at that time for the fair market value of the property and a gain or loss may occur, as stated in paragraph 24 of Interpretation Bulletin IT-124R6. If the individual incurs a capital loss on the disposition, subparagraph 40(2)(g)(iv) of the Act will deem this loss to be nil and no amount of the denied loss is added to the "cost amount" of the property transferred to the RRSP.

We trust our comments will be of assistance to you.

For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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