# Moving ETF (a PFIC) into RRSP



## james4beach (Nov 15, 2012)

As part of US tax reporting requirements that I'm now subject to, any Canadian ETF, mutual fund, and certain other things (that are classified as PFICs) have become a huge pain in the behind. This includes my shares in CEF.A, which is a gold & silver fund: also a PFIC.

My accountant has advised me that the paperwork burdens and IRS's ineptitude in handling these forms makes it a bad idea to hold onto any PFIC. The accountant suggested that I either liquidate any such funds, or alternatively move them into my RRSP as there's a relatively simple way to shield the RRSP from these requirements under the Tax Treaty. I need to do this by year-end so that I don't have to report any PFICs for 2015.

Currently I hold the shares in non-reg TDDI accounts and I already have an RRSP trading account at TDDI. Are there any pros and cons between

a) selling the non-reg shares and simultaneously buying new ones inside the RRSP
b) doing a 'transfer in kind' into the RRSP

It's not immediately obvious to me what differences (a) and (b) have. Either way, I'm going to have a capital gain. Are there other differences? What will make my life easier?

I'm happy paying the extra 2x$10 commissions if (a) has other benefits. Commissions are minuscule vs the position size.


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## leslie (May 25, 2009)

Brokers differ but in my memory they charge you the about the same fee for a tsf in kind as a trade (or maybe even 2 trades). You must phone and ask.
Buying and then selling exposes you to market moves in the interim while any cash proceeds are realized and moved first.
Tfs usually allow you to pick a price within the day's trading range, giving you a marginal benefit.
You DO have the RRSP contribution room for this, eh?


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## HaroldCrump (Jun 10, 2009)

leslie said:


> Brokers differ but in my memory they charge you the about the same fee for a tsf in kind as a trade (or maybe even 2 trades). You must phone and ask.


I don't believe any brokers these days are charging for in-kind transfers.
I have done this many times now since 2009 and never got charged a cent.


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## james4beach (Nov 15, 2012)

What about the non-registered record keeping though with ACB. Whether I explicitly sell, or transfer out, are those ACB effects noted the same way? Is one of them 'cleaner' than the other?


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## HaroldCrump (Jun 10, 2009)

Yes, an in-kind transfer into a registered account like RRSP or TFSA is a deemed disposition.
You will have to pay any CG taxes from the sale, but cannot claim capital losses, if applicable.


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## james4beach (Nov 15, 2012)

HaroldCrump, I happen to have a capital gain on this one. But still intriguing: based on what you're saying, it seems that an advantage of outright selling would be that this would allow you to claim/carry a net capital loss, whereas deemed disposition won't allow that.

From what I read here, it sounds like (in the case of someone with a capital loss) they are better off selling the shares first, and then transferring cash into the RRSP. However they must wait 30 days before they re-purchase the shares inside the RRSP.


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## HaroldCrump (Jun 10, 2009)

james4beach said:


> HaroldCrump, I happen to have a capital gain on this one. But still intriguing: based on what you're saying, it seems that an advantage of outright selling would be that this would allow you to claim/carry a net capital loss, whereas deemed disposition won't allow that.


Correct - if you are doing an in-kind transfer to registered account (such as TFSA), you cannot claim/carry a capital loss.
However, in your case, you do not have a loss - you have a capital gain.
Therefore, in your case, an in-kind transfer is the same taxation impact as selling the position.
You simply save on two commissions by doing a transfer instead of sale.

Also, with a transfer you can pick your "sale" price as either the high or the low of the day.
Since you have a CG, you will probably want to pick the low of the day.



> it sounds like (in the case of someone with a capital loss) they are better off selling the shares first, and then transferring cash into the RRSP.
> However they must wait 30 days before they re-purchase the shares inside the RRSP.


No, it would be the same thing.
The loss is already done...there is no way to undo the loss.
Therefore, it makes no difference whether you sell and re-buy after 30 days, or do an in-kind transfer.
The only difference is you save on 2 commissions if you do an in-kind transfer.


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## Guban (Jul 5, 2011)

HC, when was the last time you did a transfer in kind? 

I was under the impression that they weren't too happy doing these transfers into a registered account because it leaves some room for price manipulation. For example, if you transferred a volatile stock into your TFSA, and claimed the lowest price of the day, and then pulled the same thing out the next day, but claimed highest, it strikes me that this is just a way of generating TFSA room.
Was there some sort of legislation that came in a year ago (or more?) about this? I thought I read something about this.


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## Guban (Jul 5, 2011)

James, have you thought about selling your Canadian ETFs/mutual funds outside of your RRSP? Now that you are in the States, you should be able to get access to their investment products, and I understand that they are much cheaper to own. This gets around the PFIC problem too, sort of. You should be able to buy QEF funds that don't have the huge reporting headaches.


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## HaroldCrump (Jun 10, 2009)

Guban said:


> HC, when was the last time you did a transfer in kind?


January 2012, I think.



> I was under the impression that they weren't too happy doing these transfers into a registered account because it leaves some room for price manipulation. For example, if you transferred a volatile stock into your TFSA, and claimed the lowest price of the day, and then pulled the same thing out the next day, but claimed highest, it strikes me that this is just a way of generating TFSA room.
> Was there some sort of legislation that came in a year ago (or more?) about this? I thought I read something about this.


You are perhaps thinking of *registered account swaps*, which are no longer allowed.
An in-kind transfer is not a swap, because there is nothing coming out in exchange.
As far as I know, single, one-way in-kind transfers into TFSA or RRSP are still allowed.

Admittedly, I have not done one in the last 2 years so it's possible I am not aware of any rule changes related to this.
I think it will be a very significant move for the Ministry of Finance or the CRA to outright ban in-kind transfers.


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## james4beach (Nov 15, 2012)

Thanks for the feedback everyone.

I want to keep any ETF positions in my Canadian accounts. I'm only in the US temporarily so I don't want to shift my assets to US institutions. Then I'll just be in the same irritating situation again in a year or two and will have to do the reverse.

I'd like to keep these assets somewhere I can leave them alone and it seems like the RRSP is the best place for that.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Currently I hold the shares in non-reg TDDI accounts and I already have an RRSP trading account at TDDI. Are there any pros and cons between
> 
> a) selling the non-reg shares and simultaneously buying new ones inside the RRSP
> b) doing a 'transfer in kind' into the RRSP
> ...


If there's a CG, then I'd go with b). 

Whether it's been an RRSP or TFSA in-kind transfer, I've watched for a day the stock is trading lower than normal but not low enough to wipe out the CG. I'd check between 1pm and 2pm in the afternoon for a price I wanted. If I saw it, I'd phone in the in-kind transfer. As part of wrapping up the transfer, the agent asks "what price from today's range do you want to record the transfer at".

Doing it this way, 1) saves the 2x commission, 2) keeps you in the market, 3) let's you reduce the CG somewhat, 4) saves RRSP contribution room by whatever the lower CG amount was. If the position size it large - even if there is a transfer fee, a small drop in share price can more than pay the transfer fee through a reduced CG to report.


If there is a CL, then a) is the better way to go as if you can stay out of that investment for 30 days or you can find a similar but not the same investment to buy (ex. had BNS, buy TD) - then you will be able to keep the CL for use against the CG from the other investments transferred in-kind.


Cheers

*PS*

I've been doing mainly TFSA in-kind transfers lately so I checked TDDI's commission schedule. I don't see the RRSP in-kind transfer fee I was charge many moons ago.


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## james4beach (Nov 15, 2012)

Thanks again for the notes. Transfer in kind seems like the best way to go for a few reasons, then.

The main thing I have to check now is my RRSP contribution room


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## james4beach (Nov 15, 2012)

Unfortunately I don't have enough contribution room for the whole position. But I do have enough cash & liquid things inside the RRSP that I can just purchase the thing, without any new transfer.

So what's best for me is just to purchase the shares inside the RRSP without transferring anything.

Does the timing of the non-registered sale matter? That position will have a capital gain. Once I sell the non-registered position, do I have to wait X days? Or due to the capital gain is there no reason to wait at all? (sell non-reg, buy in RRSP on same day?)


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## Eclectic12 (Oct 20, 2010)

If there is a CG ... then the superficial loss rules won't apply and there's no timing issue to worry about.

As I understand it, the only situation where timing and replacement asset selection matters - is where there is a CL that one wants to make use of.


Cheers


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## james4beach (Nov 15, 2012)

Interesting, thanks!


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## moisimplementmoi (Oct 20, 2014)

as added note, i know you are no longer doing transfer in kind, but just to confirm i did one last week at TDDI from cash to rrsp, and there was no fees.


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## moisimplementmoi (Oct 20, 2014)

HaroldCrump said:


> As far as I know, single, one-way in-kind transfers into TFSA or RRSP are still allowed.
> .


i did try to do a one-way in-kind transfer from TFSA to RRSP earlier and TDDI could not handle it, but not sure if that was a system limitation, or regulatory.


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## HaroldCrump (Jun 10, 2009)

moisimplementmoi said:


> i did try to do a one-way in-kind transfer from TFSA to RRSP earlier and TDDI could not handle it, but not sure if that was a system limitation, or regulatory.


I don't believe it should be regulatory because there are no tax implications of withdrawing from a TFSA.
But from a platform perspective, it may not be possible.
I have never done this, either.
All my in-kind contributions have been from non-reg to TFSA.


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## Eclectic12 (Oct 20, 2010)

^^^^

I agree ... though with the discussion of TFSA / RRSP swaps when the new TFSA rules were proposed ... it might be some company bureaucrat figuring it's easier to ban all transfers.

IAC, I've done non-reg to RRSP and non-reg to TFSA but never registered to registered.

I seem to recall someone posting they had done an "in kind" RRIF to non-registered and then a couple of days later, an "in kind" non-registered to TFSA transfer.


Cheers


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## james4beach (Nov 15, 2012)

Yes transfer in kind should have no fees. I did ask the broker about the process and they said no fees would be incurred. For me the problem is having the RRSP contribution room


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## moisimplementmoi (Oct 20, 2014)

HaroldCrump said:


> I don't believe it should be regulatory because there are no tax implications of withdrawing from a TFSA.
> But from a platform perspective, it may not be possible.
> I have never done this, either.
> All my in-kind contributions have been from non-reg to TFSA.



yeah i don't know. There was the impact that i was transforming RRSP room into TFSA room, but it was only $1,000 , so it would have been cool, but i didn't really bother pursuing....


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## Eclectic12 (Oct 20, 2010)

That's a strange way of looking at it.

What gives you the ability to put back the $1K into the TFSA is the TFSA withdrawal ... the RRSP just happens to be your use for the withdrawal.

For example, I withdrew money from my TFSA to pay down my mortgage, which meant the following year - I could put back the same $ into the TFSA.
Does that mean I converted mortgage money into TFSA contribution room?


Cheers


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## moisimplementmoi (Oct 20, 2014)

Eclectic12 said:


> That's a strange way of looking at it.
> 
> What gives you the ability to put back the $1K into the TFSA is the TFSA withdrawal ... the RRSP just happens to be your use for the withdrawal.
> 
> ...


yes the withdrawal, in-kind, creates it, but i wasn't touching money. what created the variance if the ability to fix price with a transfer in kind.

let see (round numbers). 

Start of day i had $0 room in TFSA, $15,000 in RRSP. and i have to money to contribute over next 3 months. 

Had a security owned 1000 shares in TFSA, price range for day $9.00-$10.00. closed at $9.00. so was worth $9000. that's what i have, nothing more nothing less. no intention of selling it. so i transfer in Kind at $10.00 ($10,000), into RRSP. now only have $5,000 RRSP room left , but my TFSA room in January is $10,000 (plus $5500) even though i only withdrew $9000, and my registered portfolio has not changed. 

so now of the $15,000 i had to invest from taxable, $14K will be to RRSP and $1,000 to TFSA even if i didn't have TFSA room left. (and i still get $15,000 tax deduction to RRSP) 

i hope this makes sense. issue is i need to be able to use the same guaranteed variability to set price out of TFSA and in RRSP. having to do it over 2 days, didn't.


in your example with mortgage, you actually changed your portfolio. i didn't change mine. (also i don't think the bank will reduce your mortgage by $10,000, but that would be nice)


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## Eclectic12 (Oct 20, 2010)

moisimplementmoi said:


> ... i hope this makes sense. issue is i need to be able to use the same guaranteed variability to set price out of TFSA and in RRSP. having to do it over 2 days, didn't.


I'm still not seeing enough of an advantage to make it worth while, IMO.

The day before the transfer you have say 100 shares in the TFSA and no RRSP contribution yet.

The day after the transfer, you have 100 shares less in the TFSA, an RRSP contribution worth $10K based on the price you set, 100 shares in the RRSP that are sitting at a $1K loss and the following Jan, you can put back $10K to the TFSA.

You may get a tax refund on the $10K ... but the shares when withdrawn from the RRSP will be taxable, regardless of what value the share prices has gone to.


If this investment is really a good long term investment ... is it really an advantage to convert it from tax free to taxable, for presumably $1K of TFSA contribution room?

Now is you are cash strapped to make the RRSP contribution ... then I can see an advantage but if you aren't, it seems a lot of work.


IAC, it's moot as TDDI probably was spooked by the late 2009 TFSA rule changes that specifically outlined TFSA to RRSP and back again swaps as an issue. "In-Kind" is not the same but they probably decided it wasn't worth the risk/reward potential.




moisimplementmoi said:


> ... in your example with mortgage, you actually changed your portfolio. i didn't change mine.


Agreed ... though after putting the TFSA money back ... is all the effort worth it compared to letting the long term investment keep growing tax free?




moisimplementmoi said:


> (also i don't think the bank will reduce your mortgage by $10,000, but that would be nice)


That's where the terms included in one's mortgage before signing matters.

Mine allowed $26K of principal to be paid off for each year the five year mortgage ran.
I maxed this out for something like four of five years to retire my mortgage at a fraction of the bank's schedule.


Cheers


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## moisimplementmoi (Oct 20, 2014)

Eclectic12 said:


> I'm still not seeing enough of an advantage to make it worth while, IMO.
> 
> 'snip'
> 
> ...


yeah, i have feeling my position is particular where this would be attractive, on career change, low income, with mom who decided to start give our inheritance while she is alive (thank you mom). i am actually likely to contribute to RRSP, but not use the deduction until 5 years from now, but still get tax free growth (doing scenario testing currently).. and yes it was just like oh neat, i wonder if this would work...



> Quote Originally Posted by moisimplementmoi View Post
> (also i don't think the bank will reduce your mortgage by $10,000, but that would be nice)
> That's where the terms included in one's mortgage before signing matters.


was more pointing out that the bank would likely only give you $9000 credit, since this is what the shares were ;-)

cheers.


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## Eclectic12 (Oct 20, 2010)

moisimplementmoi said:


> yeah, i have feeling my position is particular where this would be attractive, on career change, low income, with mom who decided to start give our inheritance while she is alive (thank you mom).


There's where one must always move from the general principal to the factors that make it a YMMV situation.




moisimplementmoi said:


> ... i am actually likely to contribute to RRSP, but not use the deduction until 5 years from now, but still get tax free growth (doing scenario testing currently)...


You probably already know that if as written, the RRSP contribution is made where the deduction is delayed ... that's tax deferred growth as the RRSP withdrawal will be taxed as income.

Using the TFSA is the only way to get tax free growth ... but unless one has the cash flow to guarantee any shortfalls in the TFSA investment ... the tax free growth might be at a lower rate.





moisimplementmoi said:


> ... was more pointing out that the bank would likely only give you $9000 credit, since this is what the shares were ;-)


Fair enough ... though if one sees it trading at $10 and are happy with the profit, hopefully one sells to convert to cash at a rate closer to $10 than the closing $9.

It is art as it's easy to think a drop is temporary when it ends up being longer than expected. That's where for the one investment I bought, it was difficult to give up the 30% cash distribution it had paid out for two years ... but with a series of drops in a short period, I figured I wasn't willing to risk the 210% share price gain dropping significantly further.


Cheers


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## ernie77 (Jul 3, 2009)

I'm in the same position, but my understanding was that as a non-resident, you could no longer add to an RRSP, even if you had contribution room. Was that your experience?


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