Tax-filing season just ended, but here at Investor Clinic we take your tax questions (and those on other investing subjects, of course) all year round.
We're masochists that way.
But today, we're getting some help from Jamie Golombek, managing director, tax and estate planning, with CIBC Private Wealth Management, who has generously agreed to answer your questions.
So let's get straight to them.
I asked my broker if I could transfer in kind some stocks out of my registered retirement savings plan into my non-registered account, and replace them with cash in the RRSP. My broker said the Canada Revenue Agency no longer allows this. Is he correct?
Yes, he is correct.
The 2011 federal budget effectively shut down these so called "swap" transactions where property is swapped "in-kind" between registered and non-registered accounts. Note that one-way transfers in or out of the RRSP are still acceptable such that you can still make a contribution in-kind and a withdrawal in-kind, the former using RRSP contribution room and the latter being included in income as a taxable withdrawal.
While the purpose of this new anti-swap rule was to stop abusive swap transactions involving thinly traded, illiquid shares with questionable market values, it's clear that the rule catches all swap transactions, even ones which otherwise would be done in good faith using market values that are widely acceptable based on active trading volumes at the time of the swap.
A solution might be to liquidate the stocks inside the RRSP, resulting in the cash proceeds from the sale remaining in the RRSP. You would then use the cash you have outside your RRSP to buy back the stock in your non-registered account. Note that the downside, of course, is that depending on the type of brokerage account you have, you may face commissions on both the sell and the buy transactions.
I understand that in the United States, exchange-traded funds that hold physical commodities – for example, the SPDR Gold ETF – are taxed as a collectible, so you pay 28-per-cent tax on profits versus a 15-per-cent rate on long-term capital gains. Is it similar in Canada?
No. If you buy units of a Canadian physical gold fund – for example, Sprott Physical Gold Trust – the tax treatment would be similar to an investment in any mutual fund. The difference between your proceeds and your adjusted cost base would be taxable as a capital gain at 50 per cent of your marginal tax rate. You may also be taxable on any annual distributions.
Detailed tax information for this fund can be found here.