1 June 1999 External T.I. 9903505 - TRANSFER OF PROPERTY TO A RRIF

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: Can a person transfer LSVCC shares to an RRIF

Position: Yes but we also explained some key tax issues that should be of concern.

Reasons: Writer needed clarification of some of the tax the implications of such a transfer.

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W. C. Harding
June 1, 1999

Dear Sir:

Re: Transfer of property to a registered retirement Income Fund (“RRIF”)

This is in reply to your letter of February 10, 1999, in which you requested information with respect to the tax implications of a transfer of shares of a labour sponsored venture capital corporation (“LSVCC”) to a trust governed by a RRIF.

The annuitant of a RRIF may transfer property to a trust governed by a RRIF through a purchase and sale of the property. However, because the annuitant and the trust are not considered to be dealing with each other at arm’s length, it will be necessary to ensure the proceeds of the sale by the annuitant and the purchase cost to the trust are equal to the fair market value of the property being transferred. Otherwise unintended tax consequences may arise.

The fair market value of a property is a question of fact which can only be determined based on all the factors present at the time of the transfer of the property. A well accepted definition of fair market value is “the amount at which property would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of the relevant facts” (Blacks Law Dictionary, 6th edition).

Generally it is the responsibility of the parties to a non-arm’s length transaction to determine the fair market value of property that is being transferred. However, with respect to LSVCC shares, subject to the limit noted below, the Department will not question a determination of the fair market value as being equal to the original cost of the shares to the annuitant where they are transferred to an RRSP or RRIF within 30 days of the date of their original acquisition. However, this position is limited to the acquisition of LSVCC shares that are acquired with funds that were originally contributed to an RRSP by the individual and does not apply to shares acquired with funds derived from any income earned on those contributions either in the RRSP or in the RRIF.

Certain additional factors should be considered in respect to any transfer of LSVCC shares to a trust governed by an RRIF. In particular:

• In some situations, paragraph 40(2)(g) of the Income Tax Act provides that a loss from a disposition of property to a trust governed by an RRSP or a RRIF may be deemed to be nil;
• LSVCC tax credits for a particular purchase of shares can not be used by the annuitant of a RRIF where it is the RRIF that originally acquires the shares of the LSVCC; and
• LSVCC shares will not qualify as “small business property” for the purposes of the Part XI foreign property tax determination, if the annuitant of the RRIF first acquires the shares then transfers them to the RRIF.

We trust these comments will be of assistance to you.

Yours truly,

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