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RRSPs RRIFs TFSAs and Swap Transactions

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RRSPs RRIFs and TFSAs -> Swap Transactions

RRSP, RRIF, TFSA, RDSP and RESP Asset Transfer (Swap) Transactions

The Federal 2017 Budget proposes to extend the "swap transaction" rules to Registered Disability Savings Plans (RDSPs) and Registered Education Savings Plans (RESPs) effective for transactions occurring after Budget Day, March 22, 2017.  For this purpose, investment income generated after March 22nd on previously acquired investments will be considered to be a "transaction occurring" after March 22, 2017.  The exception to this effective date is:
        - The advantage rules will not apply to swap transactions undertaken before July 2017. However, swap transactions which are done to ensure that an RESP or RDSP complies with the new anti-avoidance rules in the 2017 budget, by removing an investment that would otherwise be considered a prohibited investment, or would give rise to an advantage under the new proposals, will be permitted until the end of 2021.

Income Tax Act s. 146.2(1), s. 207.01

Asset transfer transactions, also known as swap transactions, are transactions where property is transferred out of an account, and cash or other property is transferred into the account.  These transfers, for instance between a TFSA and another account controlled by the registered account holder, are not treated as a withdrawal and recontribution, but as a purchase and sale.

Amendments to the Income Tax Act which became law (Bill C-47) in December 2010 prohibit asset transfer transactions between TFSAs and another account controlled by the TFSA holder.  The 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.  These rules were revised by Budget 2011 to include transfers between RRSPs or RRIFs and another account controlled by the RRSP or RRIF annuitant.

The amendments apply tax at a rate of 100% of the amount of the asset transfer transaction, for transactions occurring after October 16, 2009 regarding TFSAs.  For RRSPs and RRIFs, transactions occurring after June 2011 will be subject to the 100% tax.

Where the asset transfer transaction has occurred inadvertently after October 16, 2009 (or after June 2011 for RRSPs and RRIFs), the Minister of National Revenue may waive or cancel all or part of the tax payable, if the taxpayer promptly rectifies the situation by restoring each account to its position before the asset transfer occurred.

Note:  These rules do not apply to in kind contributions or withdrawals of property to or from a registered account.  An in kind contribution or withdrawal is different from a swap transaction, because nothing is being transferred (swapped) out of or into the registered account in return for the contribution or withdrawal.

Department of Finance information

bulletOctober 16, 2009 proposal re technical changes to TFSAs
bulletRRSP Anti-avoidance rules from Budget 2011

Tax Tip:  Swapping investments between registered accounts, or between registered and non-registered accounts can be costly.

Revised: March 22, 2017

 

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