Tax rules are confusing at the best of times but to make matters worse, they are changed, updated and reinterpreted all the time. Take for example, my recent investigation into superficial loss rules regarding RRSPs. Last year, I purchased some foreign ETFs such as VEA and VTI in a taxable account. With the New Year rolling around, I would have liked to contribute the ETFs in-kind into my RRSP but with the recent volatility in the markets, the current value of these ETFs is about 15% lower than my purchase price. While I was aware that CRA would disallow a capital loss when contributing in-kind to a RRSP under the superficial loss rules, I was under the impression that I would be able to sell the ETFs, claim a capital loss and buy them immediately within my RRSP.
Thanks to this post on the Canadian Financial DIY blog, I found out that I was totally mistaken. After March 2004, CRA considers a loss as superficial if “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” buys (or has the right to buy) a property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale. Since the RRSP is considered to be a trust and I am the beneficiary, my little plan won’t work anymore. Instead, I’ve decided to contribute a stock that is slightly above my average cost and continue to hold the ETFs in my taxable account.