1 August 2001 External T.I. 2001-0090155 - COST OF PROPERTY PARTIAL RRSP TRANSFER

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Will a partial transfer of property after 1999 from an RRSP to a RRIF be made at the fair market value of the property or at its cost amount?

Position: The transfer can be made at fair market value or at cost amount, depending upon the circumstances of the transfer.

Reasons: Where a partial transfer does not result in the RRSP ceasing to exist, the transfer will be a qualifying disposition as opposed to a disposition for purposes of the Act. Under subsection 107.4(3) of the Act, the transferor's proceeds of disposition will be at cost amount unless the transferor elects an amount between cost amount and the fair market value. The transferee's cost under 107.4(3) will be the cost amount of the property to the transferor immediately before the disposition, unless the transferee elects the cost to be at fair market value.

XXXXXXXXXX 							2001-009015
G. Allen
August 1, 2001

Dear XXXXXXXXXX:

Re: Partial Transfer of Property between Registered Plans

This letter is in reply to your letter dated June 20, 2001, concerning whether a partial transfer of property made after 1999 from a registered retirement savings plan ("RRSP") to a registered retirement income fund ("RRIF") is made at the fair market value or at the cost amount of the property.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments, which may be of assistance.

Paragraph (g) under the definition of "disposition" in subsection 248(1) of the Income Tax Act (the "Act"), excludes certain trust-to-trust transfers involving RRSPs and RRIFs where certain conditions are satisfied. One of these conditions, under subparagraph (g)(iv) of the Act, requires that the transfer results, or is part of a series of transactions or events that results in the transferor ceasing to exist. Therefore, where a partial transfer of property is made after 1999 from an RRSP to a RRIF and the RRSP continues to exist, the condition under subparagraph (g)(iv) would not be satisfied.

Where the conditions of paragraph (g) are not satisfied, and the conditions of subsection 107.4(1) of the Act are satisfied, the transfer will generally be a qualifying disposition as defined under subsection 107.4(1). In accordance with subsection 107.4(1), a disposition is a qualifying disposition where there is no change in the beneficial ownership of the property and certain other conditions are satisfied. Paragraph 107.4(2)(b) of the Act deems, for the purpose of paragraph 107.4(1)(a) of the Act, there to be no change in the beneficial ownership of the property transferred from a trust governed by an RRSP or RRIF (the transferor) to another trust governed by an RRSP or RRIF (the transferee), where the annuitant is the same individual under both the transferor plan/fund and the transferee plan/fund.

In general, subsection 107.4(3) of the Act provides a rollover whenever there is a qualifying disposition of property in accordance with subsection 107.4(1). Where there is a qualifying disposition of property, paragraph 107.4(3)(a) of the Act deems the transferor's proceeds of disposition to be the cost amount of the property, unless the transferor has made an election to elect an amount between the cost amount and the fair market value of the property. In general, the cost amount of the property would be the cost immediately before the qualifying disposition and the fair market value of the property would be the value of the property at the time of the qualifying disposition.

In general, under paragraph 107.4(3)(b) of the Act, the transferee's cost of the property will be deemed to be the transferor's cost amount of the property immediately before the qualifying disposition, unless the transferor has made an election under subparagraph 107.4(3)(a)(i) of the Act. However, paragraph 107.4(3)(b) does not apply for the purpose of applying the foreign property rules under Part XI of the Act. For this purpose, and where the disposition occurs after 1999, subparagraph 147.4(3)(c)(iv) of the Act deems the cost of the property to the transferee to be the transferor's cost amount of the property immediately before the qualifying disposition. Subparagraph 107.4(3)(c)(iv) applies to dispositions occurring after 1999 for the purpose of Part XI, unless under clause 107.4(3)(c)(ii)(B) of the Act, the transferee elects the cost of the property to be the fair market value of the property at the time of the qualifying disposition. Where the election under clause 107.4(3)(c)(ii)(B) is made for the purpose of avoiding Part XI tax, the election is invalid.

In summary, where a partial transfer of property is made after 1999 from an RRSP to a RRIF, and paragraph (g) of the definition of "disposition" in subsection 248(1) of the Act does not apply, the transfer will generally be a qualifying disposition under subsection 107.4(1) of the Act. As explained above, the transferor's proceeds of disposition and the transferee's cost of the property as a result of the qualifying disposition, may either be at cost or fair market value depending upon which provisions of subsection 107.4(3) of the Act will apply.

We trust the above comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate