12 April 2010 External T.I. 2009-0347081E5 - Liquidating a Nil Asset 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.

Principal Issues: How to remove a cease traded security from an RRSP.

Position: A security may be removed from an RRSP as a withdrawal from the RRSP by the annuitant or by sale to another party.

Reasons: Explained options available in these circumstances.

XXXXXXXXXX                                      2009-034708
                                                Andrea Boyle, CGA
April 12, 2010

Dear XXXXXXXXXX :

Re: Liquidating a Nil Assets from an RRSP

This in reply to your email dated November 5, 2009, in which you asked how to remove a security that has ceased being traded and has no value from a trust governed by a Registered Retirement Saving Plan (RRSP).

The particular situation outlined in your facsimile appears to relate to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("Act").

A security may be removed from the RRSP as a withdrawal from the RRSP by the annuitant or by sale to another party. Where securities are simply withdrawn from an RRSP by the annuitant, an amount equal to the fair market value of the property at that time must be included in the annuitant's income. Where the property is sold to a person dealing with the RRSP at arm's length, the property is simply removed from the RRSP records and the agreed-upon proceeds added to the RRSP.

If the property is sold to the annuitant of the RRSP or to another person who is not dealing with the RRSP or annuitant at arm's length, it should be ensured that the proceeds of the disposal are equal to the fair market value of the property at the time of the disposal or certain unintended consequences may arise. For example, if a property is sold for less than the fair market value of the property, the difference must be added to the annuitant's income for the year in which the sale is made. On the other hand, if the property is sold for more than it is worth, the excess will be considered to be a gift or a contribution to the RRSP and could be subject to tax under Part X.1 of the Act.

Therefore, an investment that an annuitant wants to take out of an RRSP because it has little or no value can be withdrawn or sold from the RRSP to anyone for fair market value consideration. If the property is transferred for no consideration, there will be no tax consequences as long as the fair market value of the property was nil at the time of the transfer. The fair market value of a property at any time is a question of fact.

We trust that these comments will be of assistance.

Yours truly,

Louise J. Roy, CGA
Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch