1 March 2005 Ministerial Correspondence 2005-0110091M4 - rrsp foreign property tax calculation

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: Fairness of two year grace period when shares of a Canadian corporation are acquired by a foreign corporation.

Cost amount of shares acquired on a share for share exchange of a Canadian corporation by a foreign corporation.

Position: We must apply the law as written.

The cost amount of the new shares is not the cost amount of the old shares.

Reasons: It was a decision of Parliament to provide a grace period of two years.

There is no rollover of the cost amount of shares acquired in the circumstances described.

Signed on March 1, 2005

XXXXXXXXXX

Dear XXXXXXXXXX:

The Honourable John McCallum, Minister of National Revenue, has asked me to reply to your correspondence addressed to XXXXXXXXXX, regarding the taxation of foreign property held in your registered retirement savings plan (RRSP). XXXXXXXXXX forwarded a copy of your correspondence to Minister McCallum on December 3, 2004.

I understand that Mr. Wayne Harding, a senior rulings officer with the Income Tax Rulings Directorate, contacted you to obtain additional details relating to your situation.

The Canada Revenue Agency (CRA) is responsible for administering and enforcing the Income Tax Act and it is committed to applying the tax legislation consistently and fairly. Accordingly, the amount of tax payable must be based on the law that is in force at that time, and the CRA does not have the discretion to change the law. Your comments about changing the two-year period or the foreign content rule would be considered a change to tax policy. Any such changes are the responsibility of the Department of Finance. I assure you that Finance officials are aware of the views expressed on this matter.

Based on a review of your RRSP statements, CRA officials note that the shares acquired from the American corporation have a fair market value of $XXXXXXXXXX but were credited to your RRSP for $XXXXXXXXXX, the cost amount of the disposed Canadian shares. There is no provision in the Act that would allow the new American shares to retain the cost amount related to the former Canadian shares held by the RRSP. Accordingly, the cost amount of the excess foreign property in your RRSP appears to have been overstated by $XXXXXXXXXX.

The tax payable on excess foreign property held by an RRSP must be reported and paid by the trustee of the RRSP and not by the annuitant. Accordingly, you may wish to consider asking the trustee to verify that an error was made and, if so, to submit an amended tax return to the CRA so that any excess tax paid may be refunded to your RRSP.

Should you have any further questions, I invite you to contact Mr. Harding by writing to 17th Floor, Tower A, Place de Ville, 320 Queen Street, Ottawa ON K1A 0L5, or by calling 957-9769. He is aware of our correspondence and will be pleased to assist you.

I trust that this information will be helpful.

							Yours sincerely,

							Ed Gauthier
							Deputy Assistant Commissioner
							Tax and Regulatory Affairs
							Policy and Planning Branch

c.c.: Minister's Office
Political Assistant

W. Harding
957-9769
February 1, 2005
2005-011009