If you hold securities in a taxable portfolio, you can contribute them in-kind to your RRSP. But, you have to keep in mind the tax implications because an in-kind transfer is considered as a deemed disposition. If you have capital gains, you’ll have to declare it in your tax return. However, you cannot claim a capital loss on an in-kind contribution.
I was under the mistaken impression that you could simply sell the security in your taxable account, claim the capital loss and then buy the same security in your RRSP account. Turns out that the Canada Revenue Agency changed the rules in March 2004 and superficial loss rules will apply if you do that. Here’s the relevant portion from the Capital Gains Guide (T4037 Rev.08):
A superficial loss can occur when you dispose of capital property for a loss and:
- you, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called “substituted property”) during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale; and
- you, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale.
Some examples of affiliated persons are:
- you and your spouse or common-law partner;
- you and a corporation that is controlled by you or your spouse or common-law partner;
- a partnership and a majority-interest partner of the partnership; and
- after March 22, 2004, a trust and its majority interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary.
Bottom line: If you hold a security in a taxable account and have a significant capital loss, you may want to sell the security, lock-in the capital loss and buy an equivalent security (that is not “same or identical”) inside the RRSP.
Thanks to Canadian Financial DIY for a detailed post on this topic.
