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: If a prohibited investment held by an RRSP or RRIF is sold to the annuitant of the RRSP or RRIF for cash consideration equal to the fair market value of the prohibited investment, will the transaction be treated as an RRSP strip within the meaning assigned by subsection 207.01(1)?
Position: No
Reasons: See response.
XXXXXXXXXX
2012-044585
V. Pietrow
October 16, 2012
Dear XXXXXXXXXX,
Re: RRSP strips and prohibited investments
This is in response to your email of May 1, 2012 with respect to the "RRSP strip" definition. Under the scenario that you provided in your correspondence, a prohibited investment held in a registered retirement savings plans (RRSP) or registered retirement income fund (RRIF) is sold to the annuitant of the RRSP or RRIF for fair market value consideration. You are concerned that, although the transaction is expressly excluded from the "swap transaction" definition, the transaction may be viewed as an RRSP strip in respect of the RRSP or RRIF and therefore give rise to tax on advantages under Part XI.01 of the Income Tax Act (the "Act"). The terms "advantage", "prohibited investment", "RRSP strip" and "swap transaction" are defined in subsection 207.01(1) of the Act.
In our view, 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. However, it is our position that, if such consideration were less than the fair market value of the prohibited investment, the transaction would be viewed as an RRSP strip.
We trust that these comments will be of assistance.
Yours truly,
Mary Pat Baldwin, CA
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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