I participate in the Employee Stock Purchase Plan (ESPP) offered by my employer. The plan allows me to contribute a percentage of my salary and buy company stock at a discount twice a year. I always sell the shares purchased under the ESPP plan immediately and use the proceeds to contribute to our RRSPs. Since our company stock is listed on the NASDAQ, I would prefer to deposit US dollars directly into the RRSP and avoid the pesky currency conversion fees.
As none of the discount brokers provide the option of keeping cash in the RRSP in US dollars, any contribution to the RRSP in US dollars would automatically be converted into Canadian funds. One easy way to get around the restriction is to buy US-listed stocks in your taxable account first and as soon as the trade is settled, call your broker and contribute the stock you just bought in-kind into your RRSP. I have done this many times in the past buying VTI or EFA in an investment account and then contributing the stock in-kind to the self-directed RRSP account.
If you contribute stock in-kind into your RRSP, you should be aware of superficial-loss rules that apply. When you contribute in-kind to the RRSP, from an income tax perspective, you are deemed to have sold the stock at the current market value. If you made a profit, you should declare and pay income tax on the gains but capital losses are disallowed under the superficial loss rules. This is not a big issue because you are contributing a few days after buying but it is something to be aware of.
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9 responses so far ↓
1 Steve Heath // Aug 9, 2007 at 7:22 am
So why wouldn’t you just take your employer’s stocks and contribute them in kind, and then do a wash trade? It seems like you’re doing an extra trade (unless you’re buying the USD stock you want to hold long term as the in-kind contribution) the way it’s described.
2 MillionDollarJourney.com // Aug 9, 2007 at 7:25 am
Great idea CC. I never thought of transferring USD stock “in-kind” to an RRSP before. So what happens to the stock once it’s in your RRSP? Is the value represented as CAD? Or does it remain in USD?
3 Canadian Capitalist // Aug 9, 2007 at 8:32 am
Steve: As a matter of policy, I don’t like to hold employer stock. I participate in the ESPP program just to make an almost risk-free return of at least 17%. I use the proceeds of the stock sale to buy ETFs like VTI or VEA.
4 telly // Aug 9, 2007 at 8:50 am
As you know, this is of great interest to me so I appreciate the informative post. And thanks for the reminder / disclaimer at the end….reminds me not to get lazy / forgetful.
5 Canadian Capitalist // Aug 9, 2007 at 10:14 am
telly: One trick you can employ in contributing in-kind is to wait till the end of the trading day before calling customer service. The market value of the disposition is calculated using the previous day’s close, so you won’t be blindsided by a sudden crash (a la 1987) in the markets.
6 Canadian Capitalist // Aug 9, 2007 at 10:19 am
FT: RRSP accounts are denominated in C$. So, the value is displayed in C$.
7 Average Joe // Aug 9, 2007 at 12:12 pm
Excellent advice CC in avoiding the exchange spread.
Is there not a cost involved in moving the securities from your taxable account into your RRSP? Brokerages don’t like to do things for free.
8 Canadian Capitalist // Aug 10, 2007 at 7:05 am
AJ: There is usually no charge for making a contribution in-kind, though you may want to check with your broker.
9 Money Relations - Finance and investment blog. » US currency exchange // Aug 14, 2007 at 8:03 am
[...] and contribute in kind to my RRSP and have the benefits of the wash trades as described by the Canadian Capitalist. This is all in an effort to reduce those pesky conversion fees. Be also aware of [...]
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