Section 207.01

Subsection 207.01(1) - Definitions

Advantage

Administrative Policy

28 May 2015 External T.I. 2015-0574481E5 - Advantage tax and employee-owned securities

removal of "open market" reference does not accommodate estate freeze transactions

Have the views expressed in 2009-0320311I7 and 2009-0323391R3 changed in light of the amendment to s. (b)(i) of the definition of "advantage" that replaced the language "open market" with "normal commercial or investment context"? CRA responded:

it remains our position that the transactions that were the subject of the above-referenced files (also discussed in [ITTN, No. 44]) would give rise to an advantage under the amended language. …

…This is consistent with the June 6, 2012 comfort letter from the Department of Finance…[which] confirmed that the amendment was not intended to accommodate estate freeze transactions.

May 2013 ICAA Roundtable, Q. 10 (reported in April 2014 Member Advisory)

consistent realization of RRSP losses and TFSA gains indicative of non-arm's length dealings

What criteria apply in determining whether a transaction or event or a series of transactions or events involving a TFSA would not have occurred in an open market in which parties deal with each other at arm's length and act prudently, knowledgeably and willingly? CRA responded:

The determination of whether a transaction or event or a series of transactions or events would not have occurred in an open market in which parties deal with each other at arms-length and act prudently, knowledgeably and willingly is a question of fact… . It is the CRA's position that a TFSA trust and its holder do not deal at arm's length. Consequently, transactions between a TFSA and an RRSP held by the same holder, directly or indirectly through a third party, to consistently realize losses in the RRSP and gains within the TFSA is indicative of a non-arm's length situation.

28 May 2014 External T.I. 2013-0486111E5 F - RRSP, prohibited investment

no advantage on s. 51 exchange

The shares of an RRSP, which were prohibited investments held by it on 23 March 2011 and for which it made the transitional benefit election in s. 207.05(4), were subsequently exchanged under s. 51 for shares which were not prohibited investments as defined in s. 207.01(1). CRA stated (TaxInterpretations translation):

Since there is no disposition [under s. 51], the exchange does not produce a benefit which is income or a capital gain. Consequently, no advantage is accorded on the RRSP as per paragraph (c) of the definition of advantage… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(13) s. 51 exchange of transitional prohibited property does not trigger s. 207.04(1) tax 108
Tax Topics - Income Tax Act - Section 207.05 - Subsection 207.05(4) s. 207.05(4) status is preserved following s. 51 exchange 108

6 June 2013 External T.I. 2012-0451801E5 F - deemed dividend, advantage

dividend derived from pre-March 2011 value

An RRSP which holds shares which became a prohibited investment on March 22, 2011, and which subsequently did not appreciate in value, subsequently realizes a deemed dividend on a redemption of those shares. In finding that such dividend is an advantage, CRA stated (TaxInterpretations translation):

A dividend received after March 22, 2011 that it is reasonable to attribute directly or indirectly to a prohibited investment is an advantage. The Act does not contemplate any relieving measure to permit such a dividend to be considered to be derived from value accumulated prior to March 23, 2011.

However, s. 207.05(4) may provide transitional relief.

7 November 2012 External T.I. 2012-0437821E5 F - Registered Plan - Advantage

transfer of shares to registered plan

The transfer of a credit union share by an individual to a registered plan (i.e., a registered retirement savings plan, registered retirement income fund, or tax-free savings account) is subject to the advantage rules. The fact that the transfer of shares was made at FMV is irrelevant.

ITTN No. 44 under "Key Employee Tax-Free Savings Account," 14 April 2011

meaning of directly or indirectly

After confirming the proposition posed that "where common shares of a company are issued to a tax-free savings account (TFSA) of a key employee as part of a freeze, the CRA considers the shares' FMV increase to be an "advantage" as defined in subsection 207.01(1) ...that is, a benefit taxable to the employee," CRA went on to state:

the words "directly or indirectly" in the definition encompass not only the increase in the FMV of the TFSA resulting from the share issuance, but also all future increases in FMV that are reasonably attributable to the initial advantage. These increases include, for example, any increase in FMV of the TFSA or any other TFSA of the holder that is reasonably attributable to any dividends paid on the shares, any capital appreciation in value on the shares or on any substituted property (whether realized or not), and any income earned on income. Because the advantage tax is required to be remitted annually, it would be necessary to determine the total increases in FMV annually.

27 May 2009 Internal T.I. 2009-0320311I7 F - CELI - Notion d'avantage

accretion in common shares issued to employee's TFSA on an estate freeze was an advantage

The sole shareholder (Mr. X) of Opco engages in an estate freeze as a result of which he holds all the preferred shares and 95% of the common shares of Opco and 5% of the common shares (assumed to be qualified investments and not prohibited investments) are issued to the TFSA of an unrelated key employee of Opco. CRA stated (TaxInterpretations translation):

[I]t appears that the shares of Opco subscribed for by the TFSA of the key employee were issued by Opco by reason of the employment relationship between Opco and the key employee. Therefore, the issuance of those shares would not have occurred in an open market between arm's-length parties acting prudently, knowledgeably, and willingly, and that one of the main purposes of that issuance was to permit among other things the key employee, the TFSA holder, to benefit from the tax-exempt status under Part I of the TFSA. In such a case, it would be reasonable to consider as an advantage any increase in the total FMV of the property of the TFSA which could be attributed, directly or indirectly, to the issuance of the shares of Opco to the TFSA of the key employee.

Articles

Maureen De Lisser, Janna Krieger, "Registered Savings Plans: Investing Without Penalty", Canadian Tax Journal, (2013) 61:3, 769-96.

Illustration of value shift from RRSP to TFSA (pp. 784-5)

The following example illustrates a swap transaction and an RRSP strip that these rules are intended to prevent.

Example 1

Sara is close to retirement and has $150,000 in her RRSP and $10,000 in her TFSA at the end of the prior year. In the current year, she contributes $5,000 to her TFSA and uses the funds to acquire 500 common shares of Pubco for $10 a share. A few months later, the price of one Pubco share increases to $13, and Sarah transfers the 500 shares in her TFSA for $6,500 cash from her RRSP. There is nothing offensive about this transaction since there is no change in the FMV of either the TFSA or the RRSP.

Now assume that a few weeks later, the price of the shares goes back down to $10 and Sarah transfers the shares back to her TFSA for $5,000 cash. Her TFSA now has an FMV of $16,500 ($10,000 + $5,000 contribution + $6,500 - $5,000) and her RRSP now has an FMV of $148,500 ($150,000 – $6,500 + $5,000). Sarah has shifted $1,500 in value from her RRSP to her TFSA, which she can receive tax-free when she withdraws the funds from her TFSA. Had Sarah withdrawn the same amount directly from her RRSP, she would have been subject to part I income tax.

If such a transfer were repeated over and over again, Sarah could take advantage of the volatility of the stock market to shift value from her RRSP to her TFSA, and withdraw the extra value in her TFSA on a tax-free basis. However, under the advantage tax rules, the increase in the FMV of the TFSA resulting from the swap and the decrease in the value of the RRSP (resulting in an RRSP strip) wold both be subject to the 100 percent advantage tax. The double imposition of the tax penalizes Sarah for violating the contribution limit rules in respect of the amount shifted to her TFSA, and for avoiding part I tax on the value shifted out of her RRSP.

As indicated in the example, there is nothing offensive about simply swapping property in a TFSA for cash or other consideration of equal value in the holder's RRSP. It is the subsequent transaction that makes the first one offensive. Rather than simply targeting the second abusive transaction, the advantage tax will apply to any transfer of property from a TFSA to an RRSP or RRIF, or from an RRSP or RRIF to a TFSA. There is an expectation by the CRA that many RRSP issuers and RRIF carriers will simply stop processing swap transactions prohibited under the new rules. [fn 58: See CRA document no. 2012-04392611E5, October 16, 2012.]

Paragraph (a)

Administrative Policy

1 June 2016 External T.I. 2015-0601211E5 - Mortgage loan from RRSP to make a shareholder loan

4900(1)(j.1) insurance requirements generally arm's length/potential advantage on default

An individual, who is an RRSP annuitant, borrows the “Mortgage Loan” from the RRSP, with a principal residence mortgage granted in favour of the RRSP as security. The Mortgage Loan would be administered by an approved lender under the National Housing Act and would be insured as required by Reg. 4900(1)(j.1) by an approved private insurer. The Mortgage Loan proceeds would be used to make an interest-free shareholder loan to a corporation controlled by the individual.

After indicating that the Mortgage Loan would be a qualified investment under Reg. 4900(1)(j.1)(d), and that “the granting of the Mortgage Loan would be a benefit conditional on the existence of the subject RRSP,” so that “there would be an advantage” unless the s. (a)(ii) exception applied, CRA stated:

[T]he terms and conditions of a mortgage loan that satisfies the requirements of paragraph 4900(1)(j.1)… would, because of the underlying nature of [the mortgage insurance] requirements, usually be terms and conditions that persons dealing at arm’s length with each other would have entered into; therefore, in such a case, the exception provided by subparagraph (a)(ii) of the definition “advantage” would likely be met. However…a benefit conditional on the existence of the subject RRSP (and therefore an advantage under paragraph (a) of the definition of “advantage”) could arise…if, for example, there is a default by the borrower and he/she is enriched as a result of the default.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) money borrowed by individual from RRSP to make interest-free loan to corporation 175
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) use of qualified mortgage loan proceeds of no import 178
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - RRSP Strip 4900(1)(j.1) mortgage loan unlikely to be acquired at less than FMV 217

27 January 2014 External T.I. 2013-0504191E5 F - RRSP, qualified investment

annuitant's free use of property of corporation held by RRSP is an advantage

An RRSP annuitant uses, for no consideration, property of a corporation of which the RRSP holds shares. Is this an advantage? CRA responded that, in these circumstances “the annuitant receives a benefit which is conditional on the existence of the RRSP trust as provided in paragraph (a) of the definition of advantage,” and that “as provided in paragraph 207.05(2)(a) … where the advantage is a benefit, the tax payable in respect of that benefit is the fair market value of the benefit.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection 4901(2) - Specified small business corporation general discussion of SSBC definition 217

Subparagraph (a)(i)

Paragraph (b)

Administrative Policy

S3-F10-C1 - Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Advantage tax

1.44 The advantage tax in section 207.05 could apply if an RRSP, RRIF or TFSA trust were to engage in certain option transactions. For example, this would be the case where:

  • the counterparty to the option contract does not deal at arm's length with the annuitant or holder, or
  • the contract does not reflect commercial terms, which serves to artificially shift value into or out of the registered plan.
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204 - qualified investment - (a) 208
Tax Topics - Income Tax Act - Section 262 113
Tax Topics - Income Tax Act - Section 204 - qualified investment - (d) 320
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) 256
Tax Topics - Income Tax Act - Section 204.4 - Subsection 204.4(1) 107
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(2) 52
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j) 149
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) 53
Tax Topics - Income Tax Act - Section 204 - qualified investment - (b) 55
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(e) 173
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(u) 80
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(v) 50
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection (1) - Specified small business corporation 38
Tax Topics - Income Tax Regulations - Regulation 5100 - Eligible Corporation 44
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(4) 82
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) 90
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(6) 110
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(a) 118
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(b) 94
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(6) 156

Subparagraph (b)(i)

Administrative Policy

15 September 2017 External T.I. 2017-0722391E5 - Investment management fees

effective date for 100% advantage tax arising where RRSP or TFSA fees are paid by the annuitant or holder is extended to 2019

In 29 November 2016 CTF Roundtable Q. 5, 2016-0670801C6, 2016-0670801C6, CRA indicated that it now considered the payment of fees for investment management of an RRSP, RRIF or TFSA by the plan annuitant or holder typically will be considered to be an “advantage” for Part XI.01 purposes (i.e., giving rise to a tax equal to 100% of the fee amount) but that to give the investment industry time to make the required system changes, it would defer applying this new position until January 1, 2018. CRA now stated:

We are currently considering a number of submissions from various stakeholders and will be deferring the proposed implementation date by one year to January 1, 2019.

29 November 2016 CTF Roundtable Q. 5, 2016-0670801C6 - Investment management fees

bearing of RRSP or TFSA fees by the annuitant or holder typically will be subject to the 100% advantage tax, effective 2018

CRA considers that the payment of fees for investment management of an RRSP, RRIF or TFSA by the plan annuitant or holder typically will be considered to be an “advantage” for Part XI.01 purposes (i.e., giving rise to a tax equal to 100% of the fee amount). In particular, although there is no automatic application of the advantage rules in this situation, there is a strong inference of an advantage, especially where there is a large plan and the investment management fees are determined on a percentage basis.

However, to give the investment industry time to make the required system changes, CRA will defer applying this new position until January 1, 2018. Investment management fees that are reasonably attributable to periods ending before 2018, and are paid by the annuitant or holder will have no adverse tax consequences.

Excluded Property

Paragraph (c)

Administrative Policy

S3-F10-C2 - Prohibited Investments – RRSPs, RRIFs and TFSAs

Meaning of "regarding the governance"

2.18 ... One of the conditions [in "excluded property" - (c)(iii)] sets limits regarding the governance of the investment entity. ...[T]he phrase governance of the investment entity should be given a wide meaning. For example, where the investment entity is a corporation, the condition might not be satisfied because of the votes that could be cast at either a general meeting of shareholders or at a meeting of the board of directors.

26 November 2014 External T.I. 2014-0545041E5 - Registered plans - Excluded property

votes "regarding…governance" include board votes

The annuitant of an RRSP or RRIF or the holder of a TFSA owns 2% of the shares (being common shares only) of a corporation and together with the trust owns no more than 10% of the shares, and the conditions in para. (c) (before turning to subpara. (iii)), are otherwise satisfied. The individual is one of five directors and thereby can cast 20% of the votes at a board meeting. There is no USA. CRA stated that the individual:

…has the right to cast at least 10% of the votes that could be cast regarding the governance of the corporation and, therefore, subparagraph (c)(iii) of the "excluded property" definition would not be satisfied.

Exempt Contribution

Paragraph (b)

Administrative Policy

6 June 2017 External T.I. 2015-0617331E5 F - TFSA - Exempt Contribution

payment of family-law debt out of TFSA to surviving spouse would occur as a consequence of the deceased’s death

Would the transfer of a TFSA to the deceased's spouse as a total or partial payment of a debt owed to the spouse under the partition of the family patrimony, the dissolution of a matrimonial regime, a gift made by marriage contract, a post-mortem obligation to provide support or a spousal compensatory allowance comply with para. (b) of the definition of "exempt contribution"? Where the executors satisfied a legacy of a specific property (e.g., a residence) through the transfer of the property held in the TFSA (i.e., property other than the specific property that was the subject of the legacy), would that payment satisfy para. (b)?

After referencing the requirement for the payment to be made during the rollover period, CRA paraphrased s. 248(23.1)(a), and stated:

Consequently… the transfer or distribution of property held in the TFSA by the executors to the surviving spouse as a total or partial payment of the rights referred to in paragraph 248(23.1)(a) could constitute a survivor payment that is indirectly derived from an arrangement that ceased to be a TFSA because of the death of its last holder and is made as a consequence of the death of the individual as required under paragraph (b) of the Definition.

CRA also indicated, similarly to 2016-0679751E5 F, that, in light inter alia of s. 248(8)(a), a payment could be considered to be made to a surviving spouse directly or indirectly out of the former TFSA as a consequence of the deceased’s death where an executor in his discretion chooses to satisfy a legacy of specific property (in this case, of the residue of the estate, which included the family residence) by retaining the proceeds from the sale of the residence and instead paying an equivalent amount out of TFSA property.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(23.1) - Paragraph 248(23.1)(a) payment of family-law obligation of deceased to surviving spouse out of deceased's TFSA could qualify 79
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a) legacy of residue (which included the residence) could be satisfied with TFSA of deceased 91

11 May 2017 External T.I. 2016-0679751E5 F - TFSA - Exempt Contribution

a “survivor payment” can be made out of the deceased’s TFSA even where this occurs in the executor’s discretion

Would a transfer of funds from a deceased holder's TFSA to the holder's surviving spouse in order to pay a specific legacy satisfy para. (b) of the definition for "exempt contribution," even though under the will the executor has the discretion as to which estate property will be used to satisfy the specific legacies? CRA responded:

Taking into account the words "directly or indirectly", a particular payment may qualify as a survivor payment [as defined in para. (b) of “exempt contribution”] whether the money is paid directly to the survivor under the arrangement or it is first paid to the executor of an estate before being paid by the executor to the survivor.

After referencing s. 248(8)(a), CRA stated:

The fact that the will provides for legacy of a sum of money to the surviving spouse rather than specifically providing a legacy of all or part of the TFSA would not in itself prevent the payment from being a survivor's payment for the purposes of the definition of "exempt contribution," to the extent that the executor has the authority under the will to satisfy the legacy out of the money that was held under the TFSA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(8) - Paragraph 248(8)(a) legacy made by executor exercising discretion conferred under will occurred because of death 72

Prohibited Investment

Administrative Policy

18 February 2009 External T.I. 2008-0304051E5 - TFSA - Mutual Fund being a Prohibited Investment

Mutual fund trusts will be considered to be prohibited investments if the holder of the TFSA, either alone or with other non-arm's length parties, has a 10% or more fair market value interest in the trust.

Articles

Todd Miller, Michael Friedman, Carl Irvine, "The New RRSP/RRIF Anti-Avoidance Regime: A Roadmap and Tips for the Unwary", Taxation of Executive Compensation and Retirement, Vol. 23, No. 4, p. 1463

In light of the breadth of "significant interest" (p.1465):

It is possible that an individual could unknowingly hold a "significant interest" in an entity as a result, for example, of the holdings of other family members, family trusts, or personal holding companies.

Furthermore (pp. 1466-1467):

A key feature of the test contained in subsection 4900(14) of the Regulations is that, in order to be a "qualified investment" for a Registered Plan, the shares need only meet the criteria set out in subsection 4900(14) of the Regulations at the time they are acquired by the Registered Plan (i.e., notwithstanding that the corporation may cease to be a "specified small business corporation" at a later time).

However, new section 5001 of the Regulations deems such shares to be a "prohibited investment" at a particular time if, at that time, the corporation is not a "specified small business corporation." As a result of this change, annuitants who hold shares in their Registered Plan on the basis that they are "qualified investments" pursuant to subsection 4900(14) of the Regulations will have to also ensure that the corporation continues to qualify as a "specified small business corporation" on an ongoing basis.

RRSP Strip

Administrative Policy

1 June 2016 External T.I. 2015-0601211E5 - Mortgage loan from RRSP to make a shareholder loan

4900(1)(j.1) mortgage loan unlikely to be acquired at less than FMV

An individual, who is an RRSP annuitant, borrows the “Mortgage Loan” from the RRSP, with a principal residence mortgage granted in favour of the RRSP as security. The Mortgage Loan would be administered by an approved lender under the National Housing Act and would be insured as required by Reg. 4900(1)(j.1) by an approved private insurer. The Mortgage Loan proceeds would be used to make an interest-free shareholder loan to a corporation controlled by the individual.

After indicating that the Mortgage Loan would be a qualified investment under Reg. 4900(1)(j.1)(d), CRA stated:

[W]here a mortgage loan that satisfies the requirements of paragraph 4900(1)(j.1)…is granted by an RRSP, the underlying nature of those requirements is such that the fair market value of the property of the RRSP is not usually reduced immediately after the granting of the mortgage loan. However, an RRSP strip could arise after the granting of the Mortgage Loan if, for example, there is a default under the Mortgage Loan by the borrower, the subject RRSP sustains a loss of principal or interest under the Mortgage Loan as a result of the default, the loss or a portion of the loss is not covered by the mortgage default insurance policy, and the purpose test in the definition of “RRSP strip” is met.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(c) money borrowed by individual from RRSP to make interest-free loan to corporation 175
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) use of qualified mortgage loan proceeds of no import 178
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (a) 4900(1)(j.1) insurance requirements generally arm's length/potential advantage on default 239

16 October 2012 External T.I. 2012-0439151E5 - RRSP strips and prohibited investments

Respecting an expressed concern that the sale of a prohibited investment by an RRSP or RRIF to the annuitant for fair market value consideration may be viewed as an RRSP strip notwithstanding that the transaction is expressly excluded from the "swap transaction" definition, CRA stated:

if a prohibited investment held by an RRSP or RRIF is sold by the RRSP or RRIF to the annuitant of the RRSP or RRIF for cash consideration equal to the fair market value of the prohibited investment, the sale transaction will not be treated as an RRSP strip.

Swap Transaction

Administrative Policy

12 December 2012 External T.I. 2012-0460611E5 - swap of securities between registered plans

transfers between registered plans

[C]ontributions, distributions, and purchase and sale transactions between an individual's two plans with the same tax attributes (i.e., TFSA to TFSA or RRSP to RRSP/RRIF) are not treated as swap transactions.

24 August 2010 External T.I. 2010-0359001E5 - TFSA - Swap Transaction

contribution of security to TFSA (para. (b)

Can an individual contribute a non-maturing GIC into his or her TFSA? CRA responded:

A "swap transaction", in relation to a TFSA trust, generally means any transfer of property occurring between the trust and the holder of the TFSA or a person with whom the holder does not deal at arm's length, other than a transfer that is a distribution from, or a contribution to, a TFSA trust. This prohibition would apply to transfers between accounts of the same taxpayer or that of the taxpayer and an individual with whom the taxpayer does not deal at arm's length. However, A taxpayer would still be able to make a transfer of a GIC to or from a TFSA provided the transfer is a contribution into or a distribution out of the TFSA.

Unused contribution room

Administrative Policy

22 October 2015 Internal T.I. 2013-0486491I7 - Overdrafts in a TFSA

deemed proceeds under s. 146.2(8) are not a distribution

Where a trust ceases to be a TFSA pursuant to s. 146.2(5)(c), so that s. 146.2(8) deems the trust to have disposed of all its properties at fair market value proceeds, would this deemed disposition be considered to be a distribution under variable C of the definition of excess TFSA amount” and variable B of the definition unused TFSA contribution room in s. 207.01(1), so that the amount would be added back to the taxpayer’s TFSA contribution room in the following year? CRA stated:

Where a TFSA trust disposes of property for fair market value proceeds, the transaction would not constitute a distribution under the TFSA since the holder has received nothing in satisfaction of their interest in the arrangement. …

Accordingly, the de-registration of an individual’s TFSA would cause a permanent loss of TFSA savings room for the individual.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(2) - Paragraph 146.2(2)(f) administrative accommodation of short term inadvertent overdrafts but not of cashless warrant exercise 340
Tax Topics - Income Tax Act - Section 146 - Subsection 146(6) - Paragraph 146(4)(a) accommodation only of temporary technical breach of borrowing prohibition for registered plans 218

Subsection 207.01(4)

Administrative Policy

S3-F10-C2 - Prohibited Investments – RRSPs, RRIFs and TFSAs

Inclusion of units held in relative's RRSP

2.12 In determining whether an individual has a significant interest in a trust, any units of the trust held in registered plans of family members who are related to the individual must be counted.

Extension of beneficiary in s.248(25)

2.13 ... [A] person is beneficially interested in a trust if they have any right to receive any of the income or capital of the trust as a beneficiary of a trust either directly from the trust or indirectly through one or more trusts or partnerships.

2.14 In the context of registered plans, this means that a controlling individual who holds units of an investment trust in their registered plan would be considered to be a beneficiary of that investment trust. This is because, as the sole beneficiary of the registered plan, they have the right to receive all of the pro rata share of the income and capital of the investment trust indirectly through their registered plan. ... Consequently, those trust units will need to be counted where the plan’s controlling individual does not deal at arm’s length with the other controlling individual for whom the significant interest determination is being made.

Warrants not per se included

2.15 The significant interest test does not require one to assume that warrants or other acquisition rights have been exercised. However, these rights may still need to be taken into account when determining whether an investment is a prohibited investment. This would be the case where an individual holds a sufficient number of rights such that they would not be considered to be dealing at arm’s length with the underlying corporation, partnership or trust either as a factual matter or, in the case of a corporation, because the application of subparagraph 251(5)(b)(i) results in the individual being treated as having control of the corporation and thus related to the corporation.

Paragraph 207.01(4)(a)

Administrative Policy

20 March 2015 External T.I. 2014-0528311E5 - Mortgage Investment Corporation - RRSP

shareholdings of siblings

Would a specified shareholder of a mortgage investment corporation include a brother or sister of the RRSP annuitant? After noting that a different result occurred under s. 130.1(6)(d), CRA stated:

[I]f the annuitant, and persons not dealing at arm's length with the annuitant, of the RRSP, individually or together own directly or indirectly 10% or more of any class of shares of the MIC, the investment in the MIC will be considered a prohibited investment for the RRSP. For purposes of the above…an annuitant and a brother or sister of the annuitant are persons who do not deal with each other at arm's length.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 130.1 - Subsection 130.1(6) shareholdings of siblings not included 55

Subsection 207.01(6)

Administrative Policy

S3-F10-C1 - Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs

Effect of deemed FMV disposition

1.77 Subsection 207.01(6) provides a special rule that applies when an investment becomes or ceases to be a non-qualified investment while being held by an RRSP, RRIF or TFSA. Paragraph 206.1(2)(b) provides a similar rule for RDSPs. The rules deem the investment to have been:

  • disposed of immediately before that time for proceeds of disposition equal to its fair market value, and
  • re-acquired for the same amount at the same time.

This ensures that only the portion of the capital gain or capital loss that accrues during the period in which the investment was non-qualified is taken into account in determining the trust’s adjusted taxable income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 204 - qualified investment - (a) 208
Tax Topics - Income Tax Act - Section 262 113
Tax Topics - Income Tax Act - Section 204 - qualified investment - (d) 320
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(b) 256
Tax Topics - Income Tax Act - Section 204.4 - Subsection 204.4(1) 107
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(2) 52
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j) 149
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(j.1) 53
Tax Topics - Income Tax Act - Section 204 - qualified investment - (b) 55
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(e) 173
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage - Paragraph (b) 69
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(u) 80
Tax Topics - Income Tax Regulations - Regulation 4900 - Subsection 4900(1) - Paragraph 4900(1)(v) 50
Tax Topics - Income Tax Regulations - Regulation 4901 - Subsection (1) - Specified small business corporation 38
Tax Topics - Income Tax Regulations - Regulation 5100 - Eligible Corporation 44
Tax Topics - Income Tax Act - Section 207.04 - Subsection 207.04(4) 82
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) 90
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(a) 118
Tax Topics - Income Tax Act - Section 146 - Subsection 146(4) - Paragraph 146(4)(b) 94
Tax Topics - Income Tax Act - Section 146.2 - Subsection 146.2(6) 156

12 July 2013 External T.I. 2012-0447191E5 - RRSP trust taxation under 146(10.1)

gain due to ACB grind

An RRSP acquired shares after March 23, 2011, which were listed on a foreign designated stock exchange and were worth $43 per share, but then became delisted (and, thus, non-qualified investment for the RRSP) when they were worth $11. They then were sold for $29 per share.

In intimating that the RRSP had a gain of $18 per share which was taxable under s. 146(10.1), CRA referred to the rule in draft s. 207.01(6) deeming the shares to have been disposed of and reacquired at $11.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(10.1) gain due to ACB grind 77

Subsection 207.01(13)

Administrative Policy

28 May 2014 External T.I. 2013-0486111E5 F - RRSP, prohibited investment

s. 51 exchange of transitional prohibited property does not trigger s. 207.04(1) tax

The shares of an RRSP, which were prohibited investments held by it on 23 March 2011 and for which it made the transitional benefit election in s. 207.05(4), were subsequently exchanged under s. 51 for shares which were not prohibited investments as defined in s. 207.01(1). CRA stated (TaxInterpretations translation):

When the presumptions in subsection 207.01(13) apply to a property…:

  • Subsection 207.04(1) is not applicable.

  • The property will be a "prohibited investment" and a "transitional prohibited property" subject to the "transitional prohibited investment benefit" concept.

  • Subject to paragraphs 207.05(4)(a) and (b), the transitional rule in subsection 207.05(4) can apply to any advantage which is an amount included in the computation of a transitional prohibited investment benefit.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 207.01 - Subsection 207.01(1) - Advantage no advantage on s. 51 exchange 83
Tax Topics - Income Tax Act - Section 207.05 - Subsection 207.05(4) s. 207.05(4) status is preserved following s. 51 exchange 108