24 August 2016 External T.I. 2016-0645471E5 - RCA transfer of property with accrued gain

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: What is the “amount” for purposes of subsection 207.6(7), where the property transferred by an RCA to another RCA consists of shares with an unrealized accrued gain?

Position: The amount is the fair market value of the shares being transferred from the transferor RCA to the transferee RCA.

Reasons: The wording of subsection 207.6(7) and the definition of “amount” in subsection 248(1).

XXXXXXXXXX						2016-064547
							Mélanie Beaulieu
August 24, 2016

Dear Ms. XXXXXXXXXX

Re : Direct Transfer from a Retirement Compensation Arrangement to Another

This is further to your email of April 26, 2016 and our telephone conversation of April 29, 2016 (XXXXXXXXXX/Beaulieu) regarding the tax consequences of a direct transfer of property from a retirement compensation arrangement (“RCA”) to another in accordance with subsection 207.6(7) of the Income Tax Act (the “Act”).

In particular, you describe a situation where the property transferred is shares, the fair market value (“FMV”) of which is higher than their cost for the transferor RCA. You ask us whether it is possible to consider that the amount transferred for purpose of the definition of “refundable tax” in subsection 207.5(1) is the shares’ cost, regardless of their FMV.

Unless otherwise noted, all statutory references herein are references to the Act.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of a particular transaction proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Subsection 207.6(7) applies where an amount is transferred directly from one RCA to another and all conditions are met. Where subsection 207.6(7) applies, paragraph 207.6(7)(c) provides that the “amount” transferred is considered to be paid as a distribution from the transferor RCA and to be a contribution to the transferee RCA for purposes of the definition of “refundable tax” in subsection 207.5(1). Moreover, paragraphs 207.6(7)(a) and (b) provide that the “amount” is not included in income or permitted as a deduction for purposes of computing a taxpayer's income under Part I of the Act. According to an administrative practice, which is outlined at page 19 of Guide T4041, Retirement Compensation Arrangements Guide 2015, where subsection 207.6(7) applies, the CRA may transfer the related refundable tax on hand from the transferor RCA’s account to the transferee RCA’s account.

The definition of “amount” in subsection 248(1) includes “the value in terms of money of the right or thing”. As a result, in our view, the “amount” being transferred for purposes of subsection 207.6(7) is the FMV of the property transferred at the time of the transfer. Accordingly, in the situation you describe, the “amount” would be the FMV of the shares being transferred. Depending on the circumstances, it is possible that the application of subsection 207.6(7) results in Part XI.3 tax being payable by the transferee RCA.

We trust these comments will be of assistance.

Yours truly,

Louise J. Roy, CPA, CGA
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch