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.
Principal Issues: Whether an annuitant can reduce the cost amount of the property in his RRSP by transferring all the property in the RRSP from one trustee to another for the purpose of reducing the foreign content in his RRSP.
Position: No.
Reasons: Where the conditions set out under paragraph 248(1)(g) are met, the transfer of the RRSP from one trustee to another will not result in a disposition. Consequently, the transfer will qualify for rollover and the cost amount to the transferee will be equal to the cost amount of the property before the transfer.
Where the transferee elects out of paragraph 248(1)(g) and the conditions under subsection 107.4(1) are met, the transfer will be a "qualified disposition" and will generally qualify for rollover. Any election made by the transferor under paragraph 107.4(3)(a) will not apply to determine the cost amount to the transferee for the purposes of the Part XI. Paragraph 107.4(3)(c) contains the rules to determine the cost amount to the transferee for the purposes of Part XI. The transferee may elect to have a cost amount equal to the FMV of the property provided the election is not made to avoid the Part XI tax.
XXXXXXXXXX 2004-006863
C. Lalonde
June 22, 2004
Dear XXXXXXXXXX:
Re: Determination of the Cost of Property in Registered Retirement Savings Plans ("RRSPs")
This is in reply to your e-mail of March 25, 2004 concerning the calculation of the "book value" of RRSP property transferred to another trustee for the purposes of the foreign content rules.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide the following general comments which may be of assistance.
As you are aware, the Income Tax Act (the "Act") imposes a limit on how much foreign property can be held in an RRSP and applies a tax to any excess holdings. The limit is generally 30% of the property held in the RRSP but can be greater if certain types of property, referred to as "small business property", are held in the plan.
To measure the amount of property in a plan, the Act uses each property's "cost amount" and limits the RRSP's total foreign property cost amount to a percentage of the total cost amount of all of the RRSP's holdings. A property's "cost amount" is similar to a property's "book value" for accounting purposes but may not be the same in every case. Cost amount is a term defined in the Act and in general means a property's cost for tax purposes at a particular time. While there are exceptions, in most cases, property held in an RRSP is capital property and its cost amount is defined as its "adjusted cost base" to the RRSP at that time.
With respect to transfers of property made after December 31, 1999, a transfer of all the property in one RRSP trust to another RRSP trust of the same annuitant will not be treated as a disposition where the conditions in paragraph (g) of the definition of "disposition" in subsection 248(1) are met and an election is not made to the contrary. Under these conditions, the transfer will generally occur on a rollover basis, such that the cost amount of the properties will be preserved.
If the transferee trust elects out of paragraph (g) of the definition "disposition", and provided that the conditions in subsection 107.4(1) of the Act are met, the transfer will be a "qualifying disposition".
Under paragraph 107.4(3)(a), the transferor's proceeds from a qualifying disposition are generally deemed to be the cost amount of the property. However, provision is made for the transferor to elect another amount, between the cost amount of the property and its fair market value, as proceeds. In general, the cost amount of the property would be the cost immediately before the qualifying disposition and the fair market value of the property would be the value of the property at the time of the qualifying disposition. Under paragraph 107.4(3)(b), the proceeds determined under paragraph (a) are also generally treated as the cost to the transferee trust of the property.
Paragraph 107.4(3)(b) does not, however, apply for the purpose of the foreign property limit under Part XI. For this purpose, by virtue of paragraph 107.4(3)(c), the cost amount to the transferor is the cost to the transferee of the same property unless the transferee elects that the cost be the fair market value of the property at the time of its transfer. However, if this election is made for the purpose of avoiding Part XI tax, it is invalid.
We trust that these comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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