16 September 1999 External T.I. 9915745 - RRSP/RRIF SWAP

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: Whether a swap of securities between RRSP/RRIF and non-registered accounts is treated as a purchase and sale

Position: Question of fact

Reasons: Depends on intention of parties and whether equivalent consideration passes between parties.

XXXXXXXXXX 					991574
S. E. Thomson
Attention:  XXXXXXXXXX 

September 16, 1999

Dear XXXXXXXXXX:

Re: RRSP/RRIF Swaps to/from Non-Registered Accounts

This is in reply to your fax of June 2, 1999 wherein you ask for our ruling regarding investment swaps between registered and non-registered accounts. You have provided some examples of securities being transferred between RRSP/RRIF accounts and non-registered accounts.

As outlined in Information Circular 70-6R3, an advance income tax ruling is given by the Directorate to a taxpayer stating how the Department will interpret and apply specific provisions of the Income Tax Act (the "Act") to a definite transaction or transactions which the taxpayer is contemplating.

Your questions appear to be more hypothetical in nature. Accordingly, we provide our technical interpretation of specific provisions relevant to your questions. Although a technical interpretation is not binding on the Department, you may find our comments helpful.

We have assumed from the examples in your letter that all of the investments are transferred at fair market value, with any difference being paid in cash. Whether the transactions are a purchase and sale or a contribution to and benefit from the plans is a question of fact, but the situation you describe supports a purchase and sale.

A transfer of property from a non-registered account to a registered account may give rise to a capital gain in the hands of the annuitant. If a capital loss arises on a transfer from a non-registered account to a registered account, the loss is denied under subparagraph 40(2)(g)(iv) of the Act.

Property transferred to a registered plan trust should be a "qualified investment" as defined in subsections146(1) and 146.3(1) of the Act, or the fair market value of the property will be taxable to the annuitant.

A registered plan trust may be subject to a tax on excess foreign property as set out in subsection 206(2) of the Act. Specifically, where, at the end of any month, the cost amount of foreign property exceeds 20% of the total cost of all properties, the RRSP/RRIF trust will pay a tax of 1% per month on the excess amount. The cost of a foreign property will be equal to its fair market value at the time it is acquired by the registered plan.

We trust that our comments are useful.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate