# rrsp/tfsa question



## 1.5M (Apr 21, 2012)

I have a question for a trading scenario involving RRSP and TFSA. 
I buy a security in my RRSP and it drops by, let's say, 30%. I sell it in RRSP (incurring a loss in RRSP). Then I buy the same amount of it immediately in TFSA (and I wait for it to grow back in TFSA). 
Is that legal, especially from CRA perspective?


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## GoldStone (Mar 6, 2011)

Yes it's perfectly legal.


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## Young&Ambitious (Aug 11, 2010)

What advantage do you see in this? Making your account look better even though your portfolio has actually not changed?


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## cedebe (Feb 1, 2012)

My guess would be the OP is looking ahead to withdrawal time once retired...


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## humble_pie (Jun 7, 2009)

(aside to goldstone) OP has already asked this Q in another thread dated just last week & the issue has been talked to death.

it's clearly a scheme to WD from rrsp or rrif at less than 100% taxable income as will inevitably happen with a rrif. The idea of beaming up the capital into the tfsa is a nice fantasy-gaming touch don't u think :biggrin:

i'm curious, though, lately in the other thread you were opining fines & jail for All Who Pass This Way. Now u are saying it's perfectly legal. How come the change of heart.

i myself can see a strategy that might possibly beam the capital from rrsp into non-reg'd margin where it would eventually be taxed as a capital gain, ie at 50%. Let's call this Strategy B. There is, of course, a risk that strategy B might fail. But win or lose, strategy B is not going to be to the OP's taste, he obviously wants to ruminate on the impossible.

EDIT: here we go, here's the original question:

http://canadianmoneyforum.com/showt...non-registered?p=168858&viewfull=1#post168858


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## victag (Jul 12, 2012)

For sure its legal, those 2 accounts are not related to each other so neither would those transactions be.


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## humble_pie (Jun 7, 2009)

of course the accounts are intimately related, they belong to the same taxpayer who would be masterminding the scheme.

read earlier in the original thread. Principal concerns from the CRA point of view are well aired.

one thing puzzles me. A dismantle-rrif-avoid-full-taxation scheme of one sort or another - there seem to be a few - *might* have worked if the taxpayer would have kept his mouth shut.

but instead he came here & publicly flagellated himself with a wire whip. Over & over & over again. Screaming out loud the whole time.

if the CRA didn't know before, i'd say they do now each:


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## Eclectic12 (Oct 20, 2010)

victag said:


> For sure its legal, those 2 accounts are not related to each other so neither would those transactions be.


The changes to the TFSA rules in 2009 moved to close the RRSP to TFSA asset swap so CRA is paying attention to the supposedly not related accounts:


> ... when performed on a frequent basis with a view to exploiting small changes in asset value, could potentially be used to shift value from, for example, an RRSP to a TFSA without paying tax, in the absence of any real intention to dispose of the asset...


http://www.fin.gc.ca/n08/09-099-eng.asp

So I suspect that like the asset swaps, where enough people are doing this to avoid tax such that these transactions are not likely in an open market, CRA will see it as tax evasion and put into place the reporting needed to catch it (if they haven't already).


Cheers


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## GoldStone (Mar 6, 2011)

The strategy in this thread is legal. It's a tax planning strategy, as opposed to the tax avoidance scheme that OP described in the other thread.

Retirees used a slight variation of this strategy for many years, long before TFSA era. Here it is, on the reputable TaxTips site, in the broad daylight, for everyone at CRA to see:

*Making "in kind" withdrawals from an RRSP or a RRIF*
http://www.taxtips.ca/rrsp/inkindwithdrawals.htm

An aside to pie: do you understand the difference between tax planning (this thread) and tax avoidance (the other thread)?


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## humble_pie (Jun 7, 2009)

goldstone i am left wondering whether it is yourself who understands or fails to understand.

OP is not talking about tax planning or rrsp or rrif withdrawal. He does not mention the word withdrawal, whether in kind or not.

asset swapping is no longer allowed.

all the OP talks about in message numero uno upthread is deflating value in rrsp while inflating value in tfsa. Same as the other thread.


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## 1.5M (Apr 21, 2012)

Actually this is very different situation than in my other thread, although the end result would also be optimized taxes. 
I am thinking at this potential situation:
One has investments in both RRSP and TFSA. Some of the investments are in different kinds of equity (dividend paying stocks, etfs, doesn't matter), others are in cash or bonds (like xbb). Someone holds the equity in RRSP and the cash in TFSA. At some point the market drops precipitously (let's say 30%). At that point, it makes sense from a tax point of view to sell the equity in RRSP and buy it back in TFSA and wait for it to grow back in TFSA (for subsequent withdrawals of capital gains and/or dividends). 
This can be generalized. Buy in RRSP when markets are near highs, and sell when the market is near lows (hold cash, bonds before buying back) . Do the opposite in TFSA. The total equity position doesn't change, just where most profits occur. This doesn't mean that RRSP will go to zero this way, or that it will even drop in the long run.
If CRA has objections about doing it with a single instrument, one could do it with different instruments/stocks, as they are very correlated anyways (sell TD in RRSP, buy BMO in TFSA or sell XIV in RRSP, buy ZIV in TFSA).

I am not doing this (at this point my TFSA is too low compared to RRSP anyways), I am trying to figure out if it's legal or not, for possible future decisions.


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## Eclectic12 (Oct 20, 2010)

GoldStone said:


> The strategy in this thread is legal. It's a tax planning strategy, as opposed to the tax avoidance scheme that OP described in the other thread...


I don't know ... this sounds a lot like the "swap an RRSP stock that low for cash in a TFSA" that the updated TFSA summary classed as tax avoidance, where the updates TFSA rules now prevent from happening.

Then too, if the gov't decides it is tax avoidance, it's easy enough to update whatever legislation they prefer to prevent it. The superficial loss rules already require people to pay attention to the bigger picture of the non-registered plus the registered accounts.


Cheers


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## Eclectic12 (Oct 20, 2010)

Deleted duplicate post.


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## 1.5M (Apr 21, 2012)

Eclectic12 said:


> The changes to the TFSA rules in 2009 moved to close the RRSP to TFSA asset swap so CRA is paying attention to the supposedly not related accounts:
> 
> http://www.fin.gc.ca/n08/09-099-eng.asp
> 
> ...


That's a proposal, has it been approved? It looks that the proposal would effectively ban selling the same asset in RRSP, and re-purchasing in TFSA (but I am not sure 100% about it).
Also it doesn't look like doing it with different correlated assets (sell TD in RRSP and buy BMO in TFSA) would be covered by this rule.

I am pasting here the relevant paragraph from CRA's site:

_Asset Transfer Transactions
"Asset transfer transactions" (sometimes known as "swap transactions"), in this context, refer to transfers of property (other than cash) for cash or other property between accounts (for example, a Registered Retirement Savings Plan (RRSP) and another registered account) that are generally not treated as a withdrawal and re-contribution, but instead as a straightforward purchase and sale. Subject to the application of existing anti-avoidance rules in the Income Tax Act, these transfers, when performed on a frequent basis with a view to exploiting small changes in asset value, could potentially be used to shift value from, for example, an RRSP to a TFSA without paying tax, in the absence of any real intention to dispose of the asset.

The proposed amendments would effectively prohibit asset transfer transactions between registered or non-registered accounts and TFSAs. The prohibition would apply to transfers effected 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.

TFSA amounts that may reasonably be attributed to asset transfer transactions will be subject to the advantage rules in Part XI.01 of the Income Tax Act. The advantage rules are anti-avoidance rules that are applicable to transactions or events that would not have occurred in an open market in which parties deal with each other at arm's length and act prudently, knowledgeably and willingly. Where these rules apply, TFSA amounts reasonably attributable to asset transfer transactions will be taxable at 100%.

In circumstances where an asset transfer transaction were to occur inadvertently, after today, between a taxpayer's TFSA (or the TFSA of an individual with whom the taxpayer does not deal at arm's length) and another account, and the taxpayer promptly rectifies the situation by restoring each account to its position before the asset transfer transaction occurred, the Minister of National Revenue will have discretion to waive or cancel all or part of the tax payable, and the authority to adjust the taxpayer's TFSA contribution room accordingly. In such a case, the proposed amendment would provide for any investment income attributable to the asset transfer transaction to be taxed as regular income._


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## humble_pie (Jun 7, 2009)

i think a highly generalized approach might have sufficient merit that it might be worth asking a specialized CA, who in turn would need to research private cra rulings on this very issue.

i think it's beyond absurd to ask an anonymous internet forum if they think a question like this is legal or not. I would be expecting to pay the CA who would properly advise me on this issue somewhere between 5 & 10k.

the question of deflating rrsp or rrif while inflating quasi-related value in tfsa or even cash or margin accounts is a very interesting one. One could change it up even more by building the inflatable account offshore.

so far, whether in this thread or the original one, the scheme is 100% transparent. The very aspect that might make it legitimate would be an uber-long time frame. An investor could, over 10 or 20 years, buy high in rrsp & allow those stocks to slip back. Meanwhile he could, at other times, buy different but correlatable securities low in tfsa & hopefully they would grow.

i do see how it would be difficult for any tax authority to really stick a needle in this one, growing as slowly & as gracefully as it does. The grand problem, of course, is that such an investor needs to have an rrsp that is too enormous in the first place. Given all the time & effort that it takes to build an rrsp of this size, it seems to me there would be a powerful likelihood that our investor would expire while his scheme was in full expansion ...


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## Sampson (Apr 3, 2009)

humble_pie said:


> The grand problem, of course, is that such an investor needs to have an rrsp that is too enormous in the first place.


They would also need to have access to larges amounts of liquidity in a down market to repurchase in the TFSA.


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## Eclectic12 (Oct 20, 2010)

1.5M said:


> That's a proposal, has it been approved? ...


I thought I saw a CBC or other report that it had been passed. The gov't had incentive to pass it as they'd be losing a fair amount of tax revenue. The example used by one tax specialist was to over contribute to the TFSA by $100K, wait a couple of months for the stock to double, withdraw $95K, pay the 1% x $95K x # of month and end up with $105K in the TFSA tax free.

Then too, the CRA has modified they TFSA document to include the new penalties.




1.5M said:


> ... It looks that the proposal would effectively ban selling the same asset in RRSP, and re-purchasing in TFSA (but I am not sure 100% about it).


I don't think it does ... yet.

My point is that the Ministry of Finance has already noticed the swap version of this (i.e. transfer something that's down at the moment from the RRSP to the TFSA for cash). That has been declared as tax avoidance.

When enough people do what you are proposing, I suspect the same test will result in a tax avoidance ruling, with similar changes to follow. So even if it works today, I suspect there is a "best before date" that some day will change it.




1.5M said:


> ... Also it doesn't look like doing it with different correlated assets (sell TD in RRSP and buy BMO in TFSA) would be covered by this rule.


Different correlated assets should be fine such as your TD bank and BMO bank stock example. At least, it's fine for the superficial loss rules so I suspect it's fine in this case as well.


Cheers


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## GoldStone (Mar 6, 2011)

I buy 100 RY shares today, in my RRSP, at $64. My intention to invest in RY is absolutely genuine. I plan to hold it forever and enjoy the dividends stream. 

One year later markets panic for whatever reason. Germany decides to leave EU... Israel bombs Iranian nuclear facility.... S&P cuts US credit rating... make your pick. RY drops to $44. 

At this point it is perfectly legal to take advantage of a tax planning move.

Any one of the following is fine:

1. Withdraw RY in-kind from the RRSP. Pay withdrawal tax on $4400. Keep RY in the taxable account. $44 is my cost base. If RY goes back to $64, I have an unrealized capital gain.
2. Withdraw RY in-kind from the RRSP. Pay withdrawal tax on $4400. Contribute RY in-kind to the TFSA. If RY goes back to $64, I have a tax-free capital gain.
3. Sell RY in the RRSP. Keep cash in the RRSP, to be taxed later. Re-buy RY in the taxable account or TFSA.

The key difference between a tax planning move and a tax avoidance move is your intention.

Tax planning:
* I have a genuine intention to invest in the stock.
* The stock suffers a capital loss later on.

Tax avoidance:
* I execute a series of related transactions to drain RRSP, with the sole purpose of avoiding tax.


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## 1.5M (Apr 21, 2012)

humble_pie said:


> i think a highly generalized approach might have sufficient merit that it might be worth asking a specialized CA, who in turn would need to research private cra rulings on this very issue.
> 
> i think it's beyond absurd to ask an anonymous internet forum if they think a question like this is legal or not. I would be expecting to pay the CA who would properly advise me on this issue somewhere between 5 & 10k.


Actually I got pretty good answers and links to the cra site. So thanks to the forum for saving me $5k


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## humble_pie (Jun 7, 2009)

GS imho it's useless to focus on one solitary example.

the scheme calls for a large rrsp or rrif to be systematically deflated by many - possibly hundreds - of these transactions.

in order for the transactions not to scream out Tax Evasion, they'd have to be gracefully spaced out over a long, long, long period of time.

since it would also take a long, long, long period of time for our hypothetical investor to build up his giant rrsp in the first place, i still maintain there's a good chance he'd expire before success is achieved. Senile dementia if not cardiac infarction.

plus sampson is raising another good point. Who's got so much flippin room in his tfsa that he can deflate, say, 40k in his rrsp while casually loading up 40k of something related in the tax-free.


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## HaroldCrump (Jun 10, 2009)

I am totally not getting this latest version of the scam either, just as I did not get the scam posted in the other thread.
I see no benefit to stabbing your poor ol' RRSP, who has stood by you through thick and thin, in the back like Brutus.

By bleeding your RRSP as you approach retirement, you are essentially negating the tax-sheltered compounding benefit, which was the whole point of the RRSP.
You might as well have bought these losing investments in a taxable account to begin with - at least you can claim the losses along the way.
By bleeding your RRSP, you are losing the benefit of the tax deduction as well as the tax sheltered compounding.

There are far easier ways to melt your RRSP than this.

A simpler version of this scheme will be to buy this mythical security in question in a non registered account and see how it plays out.
If it loses a lot of value, sell it, claim the losses, and wait 30 days and then re-purchase inside TFSA.

All of this, of course, assumes that such a mythical security or stock exists that will move up and down in price according to your plan.
i.e. just as you approach retirement, it drops 40% like a meek lamb.
And soon after you sell, like the great Phoenix, it rises from the ashes and gains 200% in value to make this whole scheme worthwhile.


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## 1.5M (Apr 21, 2012)

humble_pie said:


> the scheme calls for a large rrsp or rrif to be systematically deflated by many - possibly hundreds - of these transactions.


Not really, in this thread I was thinking of something similar of what gs described. 
I always thought it may be a good idea to hold some part of my investments in cash or bond etfs to use it when opportunities arise. So basically I could have most of my growth/dividend investments in RRSP and the cash in TFSA. If there is a severe market drop, I could partly sell in RRSP and buy in TFSA. When the market rebounds I could do it the other way around. This way, my cash will always be parked in the most tax efficient way. And probably won't do more than one transaction every two years. The end result would not be a total deflation of the RRSP (mainly because the value in TFSA is too low).


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## humble_pie (Jun 7, 2009)

when it comes to lambs, phoenixes & easter bunnies i for one would be fond of a wasting asset.

something like a great big fat AAPL leap call with a strike price of 600 or 700, say. Low enough to still have significant premium that i'd have to pay for in rrsp. But high enough that it'll never come into the money, so i could be confident it would totally waste away into phhhhffftt. In the rrsp.

then, i'd start selling my short-term AAPL calls in my account in panama.

alas i couldn't sell them in my sweet lamblike canadian tfsa because the broker won't allow uncovered calls in registered. The best i could do would be phoenix in panama. Which - if i didn't declare it - would be as good as a tax-free, non ?

et tu, bruté ?


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## humble_pie (Jun 7, 2009)

1.5M said:


> The end result would not be a total deflation of the RRSP (mainly because the value in TFSA is too low).


how exactly big is this tfsa ? it's going to govern the amount of rrsp deflation, no ?


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## 1.5M (Apr 21, 2012)

humble_pie said:


> how exactly big is this tfsa ? it's going to govern the amount of rrsp deflation, no ?


It depends on when the market will drop first. If it drops in 2015, a TFSA will probably be around 40k. At the next market drop event, let's say 2020, I suspect it will be around 100k (the recovery from the first drop which will occur inside TFSA + additional cash).


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## HaroldCrump (Jun 10, 2009)

humble_pie said:


> alas i couldn't sell them in my sweet lamblike canadian tfsa because the broker won't allow uncovered calls in registered. The best i could do would be phoenix in panama. Which - if i didn't declare it - would be as good as a tax-free, non ?


Even if you were allowed to sell uncovered calls in TFSA, if assigned, you would have to follow a 3 step process to cover your position.
You would have to withdraw your LEAP from the RRSP in-kind.
Then contribute to TFSA in-kind (assuming there is room in this SpongeBob TFSA)
Then use your long LEAP to cover the short call.

This entire scheme sounds like an academic exercise to me.
_Something to keep the little grey cells busy_, said M. Hercule Poirot.

No one can predict and time the movements of certain securities over long periods of time.
One could have sold RIM stock in the RRSP when it fell from $150 to $100.
Then bought back in the TFSA at $100.
Now, over 3 years later, that scheme aint looking so pretty as we thought.

What is the ultimate problem we are trying to solve?
How to melt an RRSP that has become too large?
If you are going to anyway "bleed" the RRSP i.e. throw money away, might as well make large charitable contributions equal to the amount you were going to bleed, and claim some of the taxes back.


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## 1.5M (Apr 21, 2012)

HaroldCrump said:


> If you are going to anyway "bleed" the RRSP i.e. throw money away, might as well make large charitable contributions equal to the amount you were going to bleed, and claim some of the taxes back.


No, the problem that I'm trying to solve is not how to bleed an RRSP, is how to optimize the future taxes across all accounts, in a legal manner, without losing any money (except transaction costs). If the optimum would be to just withdraw from RRSP when I'll need the money, I'd do that.


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## PuckiTwo (Oct 26, 2011)

This is much more fun reading than the "Eight with Weight". Lol :encouragement:


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## humble_pie (Jun 7, 2009)

julius, said brutus, i have a great idea.

i'll deliver my interests in the sabine hills properties to you in bits & pieces so the senators won't notice but they will stop taxing me.

very nice, said julius. Then i suppose you want me to buy you farmland under a numbered company?

you got it, said brutus. MCMLXXVIII.

then after 30 years i'm rich & prosperous with everything in my name but you're a washed-up old clown in a bedsheet?

see this dagger? said brutus. I had it made for me in damascus, why do you think it says Rex Imperator.


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## Toronto.gal (Jan 8, 2010)

LOL. 

I love anything ancient, but I think the preferred transition date might be more modern even, like MMXX perhaps.


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