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Making "In Kind" Withdrawals From an RRSP or a RRIF
An "in kind" withdrawal is a withdrawal of investments, instead of cash.
An in kind withdrawal can be made from a registered retirement savings plan (RRSP), or from a registered retirement income fund (RRIF), which would include LIFs and LRIFs, since they are considered to be RRIFs under the Income Tax Act. A withdrawal of investments can be transferred to a non-registered account, or they could be transferred to a tax-free savings account (TFSA), subject to the amount of contribution room available.
When investments are transferred to your TFSA, they are still considered to be transferred into your non-registered account and then out of the non-registered account to your TFSA. The TFSA or non-registered account would have to be in the same account holder name as the RRIF or RRSP in order to do the transfer.
A transfer to the TFSA of a spouse would have to first have the withdrawn investments going to a joint non-registered account. From there the investments could be transferred in kind to the TFSA of the spouse. If there were no existing shares of the same stock already in the non-registered account, there would be no capital gain unless the investments increased in value, after being withdrawn from the RRSP or RRIF, by the time they were transferred into the TFSA. If they decrease in value this would be a superficial loss which would not be deductible unless the transfer to the TFSA is done more than 30 days after the withdrawal from the RRSP or RRIF.
Existing Shares of Same Stock Already in Non-registered Account
If, in your non-registered account, you already have existing shares of the same stock you withdrew, your new ACB will be averaged using the existing shares and the newly transferred shares, in the same way it is averaged whenever you purchase additional shares. This new ACB per share will be used as the ACB on the disposition of shares into the TFSA, which may result in a capital gain or loss. If the new averaged ACB is greater than the MV per share, don't transfer them into another registered account, as you would have a superficial loss.
To avoid having a capital gain or loss on shares being transferred from your RRSP or RRIF to your TFSA if there are existing shares of the same security in your non-registered account, you could sell them in the RRSP/RRIF, withdraw the funds (taxable) which you would deposit into the TFSA. Then you can buy the shares in the TFSA.
Withdrawal Amount = New Adjusted Cost Base
When an in kind withdrawal is done, the amount of the withdrawal will be the market value of the investment in Canadian dollars at the time of the withdrawal. If the investment is traded on a US stock exchange, an exchange rate is applied by the brokerage to convert the transaction to Canadian dollars. The exchange rate will be the rate that the brokerage would have applied if you had sold the stock. If the investment is transferred directly into a US$ account, the exchange rate used by the brokerage will be shown in the transaction comments, and the Canadian $ amount will be used on the tax slip reporting the RRSP or RRIF transaction.
The amount recorded for the withdrawal (excluding the amount of any applicable withholding taxes) will become the new adjusted cost base (ACB) of the stock, to be used for determining the capital gain or loss on disposal when the stock is sold at some time in the future. If you have other shares of the same stock already in your non-registered account, then your existing shares and newly transferred shares will be combined, and the new ACB per share will be the average cost of all these shares.
When an in kind withdrawal is made from an RRSP, the RRSP lump sum withholding tax rates apply. For example, if you want to withdraw $15,000, in any province besides Quebec, the tax amount will be 20% x $15,000, or $3,000. The net amount of the withdrawal after tax is $12,000. This means you would be able to transfer out investments with a current market value of $12,000. The total amount of the withdrawal, which includes the amount of the withholding tax (a total of $15,000 in the above example), will be included in the taxpayer's taxable income for the year. The cost basis of the stock withdrawn will be $12,000, the market value at the time of withdrawal.
If you request a transfer of investments of more than $12,000, the total including tax increases to more than $15,000. This would result in a withholding tax rate increase to 30%.
In order to do the transfer out of investments, your RRSP must have sufficient cash to pay the withholding tax. You may have to sell some investments in order to have the cash on hand. The sale of investments usually takes 3 days to settle, after which you can do your "in kind" withdrawal.
No tax is withheld when the minimum amount is withdrawn from a registered retirement income fund RRIF. When withdrawals in excess of the minimum amount are made, the RRSP lump sum withholding tax rates apply, but only to the excess.
Because no cash is needed to pay tax from the RRIF when the minimum amount is withdrawn, it is not necessary to sell any investments before making the withdrawal. If an in kind withdrawal exceeds the minimum withdrawal amount, there will be withholding tax deducted based on the excess over the minimum, so there must be cash available in the RRIF to pay this tax.
The withdrawal from the RRIF is included in the taxpayer's taxable income, so depending on the individual's circumstances, tax may be payable when the tax return is filed.
See above re the new ACB of the investment.
The Minister of Finance issued a press release on November 20, 2008 indicating that he was expecting all financial institutions to accommodate in kind transfers from a RRIF, at no cost to clients, or offer another solution that achieved the same result.
Revised: October 26, 2023
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