It turns out some discount brokers are indeed discontinuing all swap transactions in RRSP accounts even though Budget 2011 proposed penalizing only those swaps that result in an “advantage”. As Preet Banerjee explained in this column in Globe & Mail, a RRSP swap transaction is one where an asset inside a RRSP (say a Canadian stock) is exchanged for an asset that is of more or less equal value held in another account (say a GIC held in a taxable account).
Unfortunately, TD Waterhouse has informed clients that as of July 1, 2011, it will be disallowing all asset exchanges with RRSP accounts, whether legitimate or not. It is a bit puzzling why TD Waterhouse chose to impose a draconian interpretation of the clampdown on RRSP swaps proposed in the Federal Budget. After all, the Budget is not prohibiting swaps entirely. The Budget is merely proposing to penalize those swaps that are intended to “unduly exploit the tax attributes of an RRSP” and slap a 100% tax on the advantage. TD Waterhouse and other brokerages could take the view that clients who are doing a swap will be doing so at their own risk. After all, that’s how every other transaction made through a discount broker is treated. If a client overcontributes to a RRSP and incurs a penalty, it is the client’s fault, not the discount broker’s. Why should RRSP swaps be any different?
Here’s the announcement from TD Waterhouse:
According to proposed legislation contained in the 2011 Federal Budget announcement, asset exchanges such as “swaps” to registered plans have been discontinued, effective July 1, 2011. As a result, TD Waterhouse has discontinued swap transactions. A “swap” is a transaction in which cash or securities are exchanged between either a registered and a non-registered account, or two registered accounts belonging to the same taxpayer.
Please note that you can continue to make in-kind contributions to your RRSP and swap assets between RRSPs held by you.
