28 March 1996 External T.I. 9532835 - TRANSFER OF PROPERTY TO/FROM AN RRSP

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 Department.

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

Principal Issues:

What are the income tax consequences of "swapping" (ie: transferring or exchanging properties between an RRSP annuitant and his RRSP. Do the swaps represent a deductible contribution (premium) to, and a taxable distribution (benefit) from an annuitant's RRSP, or do they represent a sale of property to and a purchase of property from the RRSP? Do the swaps take place at fair market value or cost?

Position TAKEN:

Question of fact as to whether the "swap" represents a contribution/distribution or a bona-fide sale. All swaps occur at fair market value with one exception.

Reasons FOR POSITION TAKEN:

For FMV issue, it's the law - exception is administrative position taken in IT-412R2, para. 12. See response for discussion of other issue.

									953283
XXXXXXXXXX							Michael Cooke

Attention: XXXXXXXXXX

March 28, 1996

Dear Sirs:

Re: Transfers to and from Registered Retirement Savings Plans (RRSP's)

This is in reply to your letter of December 8, 1995, in which you requested our views on the income tax consequences where an investment is transferred by an individual (the "annuitant") to the annuitant's RRSP and as consideration for the transfer an investment held by the RRSP is transferred to the annuitant. We apologize for the delay in responding.

Your question is very general in nature and the determination of the proper income tax consequences relating to any transaction between an annuitant and the annuitant's RRSP will depend on an analysis of all the facts, documentation and other information pertaining to the particular situation in relation to the requirements of the Income Tax Act (the "Act"). Written confirmation of the income tax consequences of particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992 issued by Revenue Canada. Questions concerning the proper determination of the income tax consequences of completed transactions should be addressed to the relevant Tax Services Office. However, we can provide you with the following general comments which we caution may not be applicable to the circumstances of your particular situation.

Generally, whenever amounts (property) are contributed in, purchased by, or transferred to, an RRSP, the gift, purchase, or transfer is recorded at fair market value (FMV). Where such a transfer occurs and/or the annuitant receives property from the RRSP, as noted above, a review of all the facts, documentation and other information will be required in order to determine the proper income tax consequences of such an exchange. The FMV of the properties being exchanged would be one factor to be considered in determining the nature of the transactions. Such an exchange may represent a purchase and sale of property, or a "premium" paid by the annuitant to his RRSP and a "benefit" received from his RRSP (see definition of "premium" and "benefit" in subsection 146(1) of the Act). Where the exchange represents a bona-fide purchase and sale of property the RRSP trustee would not be required to issue a T4RSP reporting slip. However, where the exchange does in fact represent a "premium" paid to the RRSP and a "benefit" received from the RRSP the taxation of these amounts will be based on the rules in section 146 of the Act and a T4RSP reporting slip would be required (see IT-124R6).

Subject to the exception described below, where an annuitant transfers property to his RRSP, either as a sale or as a premium paid to his RRSP, the annuitant will have a disposition of the property so transferred at that time for FMV and a gain or loss may occur. If the annuitant 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.

The "cost amount" (defined in subsection 248(1) of the Act) of the property acquired by the RRSP is of relevance only with respect to the Part XI tax on excessive foreign property. "Cost amount" is defined to mean, in respect of a capital property other than a depreciable property, the "adjusted cost base" (defined in subsection 248(1) of the Act) of the property. In order to calculate the Part XI tax, the trustee of the RRSP subject to the tax (i.e. those plans identified in section 205 of the Act) must keep a record of the cost amount of all foreign and non-foreign property contributed in, or purchased by, the RRSP. As mentioned above, when the RRSP disposes of the property, whether by transfer to another registered plan or by sale or payment out to a non-registered plan or to the annuitant, both the transferor and transferee will record the transfer, or disposition and acquisition of the property at its FMV.

The only exception to the FMV rule is in the circumstances where all the property in an annuitant's unmatured self-administered RRSP trust is transferred to another trustee and there is no change in the annuitant. In these circumstances, the Department does not treat the transaction as a disposition/acquisition for purposes of subsection 206(1) and (2) of the Act, and the transferor trust's adjusted cost base of the transferred capital properties becomes the transferee trust's adjusted cost base (see paragraph 12 of Interpretation Bulletin IT-412R2 entitled "Foreign Property of Registered Plans").

Although the foregoing comments are not binding on the Department, we trust they are of some assistance.

Yours truly,

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