RRSPs RRIFs and TFSAs -> Asset Transfer (Swap) Transactions
RRSP, RRIF, TFSA, RDSP and RESP Asset Transfer (Swap) Transactions
The Federal 2017
Budget extended 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 is considered to be a "transaction
occurring" after March 22, 2017. The exception to this effective date
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
Tax Tip: Swapping investments between registered accounts, or between registered and non-registered accounts can be costly.
Revised: July 22, 2021
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