27 October 1998 External T.I. E9822315 - COST AMOUNT, RRSP TO RRIF TRANSFER

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 property be transferred from an RRSP to a RRIF or from a RRIF to a RRIF at its cost amount for purposes of section 206?

Position: No

Reasons: Position is well established and issue has been referred to the Department of Finance.

XXXXXXXXXX 982231
M. P. Sarazin
Attention: XXXXXXXXXX

October 27, 1998

Dear Sirs:

Re: Cost Amount of Property Transferred from an RRSP to a RRIF

This is in reply to your letter dated August 24, 1998, wherein you ask whether transfers of property from a registered retirement savings plan (“RRSP”) to a registered retirement income fund (“RRIF”) for the same annuitant must be recorded at the fair market value or the adjusted cost base of the property.

Subsection 206(4) of the Income Tax Act (the “Act”) provides that where an RRSP, RRIF or other taxpayer, as noted therein, acquires a property from a person with whom the taxpayer was not dealing at arm’s length, for no consideration or for consideration that is less than the fair market value of the property at the time, the taxpayer will be deemed to have acquired the property at its fair market value. The provision also affirms that a trust shall be deemed not to deal with another trust at arm’s length if any person is beneficially interested in both trusts. Accordingly, any acquisition by a RRIF of property transferred from an RRSP where the annuitant under both plans is the same, must be recorded at the property’s fair market value.

In contrast, as described in paragraph 12 of Interpretation Bulletin IT-412R2, where an annuitant of a self-administered RRSP has all of the property held in an RRSP transferred from one trustee to another pursuant to the provisions of subsection 146(16) of the Act, the Department takes the view that the transfer does not constitute an acquisition or disposition of property for the purposes of subsections 206(1) and (2) of the Act. Therefore, all of the property is transferred at its cost amount to the transferor RRSP.

We have recently completed a review of the above noted positions. Since it is clear that the provisions of subsection 206(4) of the Act would apply to transfers between an RRSP and a RRIF, we could not support changing our position so that the treatment of such transfers could be the same as the treatment provided to a transfer of all of the property from one RRSP to another RRSP for the same annuitant. The issue of whether transfers between RRSPs and RRIFs with the same annuitant should be at cost or fair market value has been brought to the attention of the Department of Finance.

We trust the above 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