Thursday, 22 February 2007

RRSP Contributions in Kind - Beware of the Quirks

In case this helps anyone, here is a quirk of the way the CRA treats contributions in kind to an RRSP that almost caught me unawares a few years ago. It is possible to contribute shares or other eligible investments, for example from a non-registered account, to an RRSP and count the market value as a contribution. This avoids needing to make a cash outlay to contribute.

However, one needs to be aware of two things. First, there is a deemed disposition of the shares according to CRA rules, triggering capital gains and potential tax to pay on that gain. Second, and this is what almost caught me, there is not a corresponding deemed capital loss! One must actually sell the shares and realize the loss. One can transfer the cash and repurchase the exact same shares within the RRSP, after the 30-day waiting rule.

I am so glad to have bought the KPMG Tax Planning For You and Your Family book available from the publisher Carswell, which explains this subtlety. It avoided me missing out on those juicy capital losses on Nortel stock (no, I did not repurchase the Nortel in my RRSP).


Anonymous said...

Great site! Just stopped by from Canadian Capitalist. Are you one of the contributors on financial webring?


CanadianInvestor said...

I just signed up for the webring a week or so ago, so have only made one or two minor posts. Some smart people over there worth reading, like some highly interesting posts by the Efficient Frontier guy and someone else having a debate on inflation and currencies and hedging.

Among my next topics to investigate, a big one, is portfolio rebalancing frequency - how often to do it and how to divide into asset classes. Have been rebalancing every 6 months but some academic research says every 4 years only! Hmmmm. If you have any good links on webring or elsewhere that can give me a headstart I'd be very thankful.

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