CRA indicates that the transfer of a registered plan investment to the controlling individual shortly before its becoming non-qualified is a swap transaction subject to non-refundable tax

Where the controlling individual of a registered plan becomes aware that a plan investment will become a non-qualified investment or a prohibited investment (a “bad investment”), can the individual acquire that investment from the trust before it becomes bad without incurring Part XI.01 tax – or, if there is such tax, could it be refunded under s. 207.04(4)?

CRA noted that such acquisition would be a swap transaction, i.e., generally, a transfer of property between the registered plan and the controlling individual. In particular, the exception under para. (c) of the definition of swap transaction, for where the individual is entitled to a refund under s. 207.04(4), would not apply to a transfer of an investment before it becomes bad.

The s. 207.04(4) refund would not be available since, before the time of the acquisition, which would be deemed under s. 207.01(6) to be immediately before the investment becoming bad, the controlling individual had been informed that the investment would become bad.

The Minister had the discretion to waive all or part of the 50% tax under s. 207.06(2) if it was just and equitable to do so, having regard to all the circumstances, including those listed in s. 207.06(2). No comment was made on whether such relief would be provided.

Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.13 under s. 207.04(4).