22 January 2009 External T.I. 2008-0299661E5 - superficial loss

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: Are trusts governed by RRSPs, RRIFs and TFSAs affiliated with the beneficiary or holder of the plans for the purposes of the superficial loss rules?

Position: Yes

Reasons: wording of the law.

2008-029966
XXXXXXXXXX Wayne Harding
(613) 957-8953
January 22, 2008

Dear XXXXXXXXXX :

Re: Definition of an affiliated person

This is in response to your email of November 5, 2008, in which you asked if an RRSP or a RRIF would be an "affiliated person" for the purposes of the definition of a "superficial loss" as defined in subsection 54 of the Income Tax Act (the "Act").

Subsection 251.1(1) of the Act sets out various situations in which certain persons are considered to be affiliated with each other and describes a number of situations in which trusts are considered to be affiliated with certain beneficiaries of the trust, persons that are affiliated with such beneficiaries and certain other trusts. Generally, trusts governed by RRSPs or RRIFs are affiliated with the annuitant of the plan while trusts governed by TFSAs are affiliated with the holder of the TFSA. Furthermore, different trusts governed by RRSPs, RRIFs or TFSAs of the same annuitant or holder are generally affiliated with each other and with other persons who are affiliated with the annuitant or holder.

Section 54 of the Act defines circumstances in which a loss from the disposition of property will be a superficial loss. Generally, a superficial loss will occur when a taxpayer disposes of capital property at a loss and:

a) during the period that begins 30 days before the disposition and ends 30 days after the disposition, the disposing taxpayer or a person affiliated with the disposing taxpayer acquires the same property or an identical property (referred to as "substituted property"); and

b) at the end of the period discussed in (a) above, the disposing taxpayer or a person affiliated with the disposing taxpayer owns or has a right to acquire the substituted property.

Subparagraph 40(2)(g)(i) of the Act provides that a taxpayer's loss from the disposition of property is nil to the extent that it is a "superficial loss". Accordingly, a taxpayer cannot normally claim a capital loss if the taxpayer sells a security which is then repurchased by a trust governed by the taxpayer's RRSP, RRIF or TFSA within the period described in (a) above.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin C.A.

for Director
Financial Sector and exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch