← This and That Qtrade Review →

Reader Question on In-Kind RRSP Contribution

November 19th, 2007 ·

The following question is from Charlie about in-kind RRSP contributions:

Let’s say I’ve bought a US dividend-paying security outside my RRSP with US dollars. Can I then transfer it to my RRSPs so that any subsequent dividends will not be taxed? If so, how does one track exactly how much RRSP room they have used since it is in USD? Is it on the original purchase price of the security or the current price at time of transfer?

Yes, you can contribute a US stock from your investment account into your RRSP. Subsequent dividend payments will be converted to Canadian dollars and deposited into your RRSP account. There is no withholding tax by the IRS (since the stock is now within a RRSP) and no Canadian taxes.

When you call in to contribute in-kind, the broker will use the closing price for the stock for the last trading day and use the exchange rate in effect then. For example, let’s say you are contributing 100 shares of XYZ Inc, which closed yesterday at $40 (US). Let’s assume that the 1 USD buys 0.95 CAD. The book value of your contribution will be [100 * 40 * 0.95] $3,800 and that’s the RRSP room you’ve used up.

Please note that when filing your taxes for this year, you’ll have to report the profits on XYZ Inc. as capital gains. In the above example, if you purchased XYZ Inc. at $25 at the same exchange rate, you’ll have to declare capital gains of [100 * (40 - 25) * 0.95] $1,425.

Warning: Do not contribute in-kind stock in which you have a significant capital loss because you cannot claim a capital loss on a in-kind contribution to your RRSP. When you have a capital loss, it is better to sell the stock in your investment account and purchase it immediately in your RRSP account. These transactions are not considered a “wash sale” and would allow you to claim a capital loss when filing taxes.

Bookmark:   del.icio.us Digg StumbleUpon

Related Posts:

Tags: Mailbag

7 responses so far ↓

  • 1 Canadian Capitalist // Nov 19, 2007 at 4:31 pm

    Charlie had a follow-on question on capital losses:

    Is this [the warning on contributing a stock with a capital loss to a RRSP] much of an issue if you plan to hold it for the long term and only sell it once it reaches a profit? Or is your point, that even despite this you can do even better by selling it in your non-registered account, claim the capital loss, and then buy it right away in your RRSP?

    My response:

    If you buy a stock in your investment account and contribute in-kind right away, usually you won’t have much of a capital gain / loss.

    But, consider the case where you purchased XYZ at $75 (exchange rate is same). Now, you have a capital loss of $3325. If you contribute in-kind, you cannot claim this as a capital loss. But if you do sell the stock in the investment account and buy it in the RRSP, you can claim a capital loss. You can use the loss to offset capital gains in the past three years or the current year. If you still have a loss, you can carry it forward indefinitely.

  • 2 Charlie // Nov 20, 2007 at 6:42 pm

    Canadian Capitalist,

    Regarding your advice on dealing with the capital loss, can one claim a capital loss on a non-registered investment under the following scenario?

    Buy stock at 50, it drops below 40, you sell it and claim a loss, then immediately buy it back with the hope that it will go back above 50 in the following year?

    Thanks,
    Charlie

  • 3 Canadian Capitalist // Nov 20, 2007 at 7:06 pm

    Charlie: No, you can’t. That’s called a “superficial loss” and CRA will disallow your capital loss claim. You’ll have to wait 30 days before buying back the same stock to be eligible to claim a capital loss. I’m sorry for using the term “wash sale”, which is a US term for “superficial loss”. You’ll find a complete explanation here:

    Link

  • 4 Charlie // Nov 22, 2007 at 3:19 pm

    Interesting… so it seems to be okay to do this if you plan on repurchasing the stock in your RRSP but not if it’s in the non-registered. Btw, which brokerage are you with that allows contribution in-kinds? It seems that Questrade does not have this option.

  • 5 Canadian Capitalist // Nov 22, 2007 at 6:53 pm

    Charlie: Your RRSP is considered to be arms length, so an immediate purchase of the same security within your RRSP isn’t considered a “superficial loss”.

    I’ve had my RRSPs with RBC Direct and TD Waterhouse. I’ve contributed in-kind to both. There are no fees involved.

  • 6 shannon // Oct 25, 2008 at 4:05 pm

    Hi i have no capital gains in the last 3 years. I recently sold 11700 units at 0.01$ which is 117.00 gain, but it cost me 28.95 american (I live in Canada) . Those 11700 units cost me on average .519$ which is $6072.3. How much of this 6072.3 plus 28.95 subract 117.00 can i claim as a capital loss on my tax return. I use genutax program.
    thanks
    shannon

  • 7 In-Kind Contributions and Superficial Loss Rules // Feb 24, 2009 at 8:39 am

    [...] If you hold securities in a taxable portfolio, you can contribute them in-kind to your RRSP. But, you have to keep in mind the tax implications because an in-kind transfer is considered as a deemed disposition. If you have capital gains, you’ll have to declare it in your tax return. However, you cannot claim a capital loss on an in-kind contribution. [...]

Leave a Comment