2014-0545181E5 ACB of shares held in RRSP

Principal Issues: Request on whether the ACB was correctly calculated.

Position: General comments provided.

Reasons: Question of fact.

Author: Tsang, Peky
Section: -

XXXXXXXXXX
                                                                                                                                                           2014-054518
                                                                                                                                                           P. Tsang

November 18, 2014

Dear XXXXXXXXXX:

Re: Book value of XXXXXXXXXX shares

This is in reply to your letter of August 25, 2014, and subsequent letter of September 14, 2014, in which you requested a technical interpretation (“TI”) regarding an investment held in your trust governed by a registered retirement savings plan (“RRSP”).

In particular, your RRSP trust held limited partnership units of XXXXXXXXXX, which were converted to shares of XXXXXXXXXX. According to the information you have provided, your financial institution stated in a letter addressed to you that the transaction was a taxable event and resulted in an adjustment to the book value of the shares. You asked whether your financial institution rightly changed the book value of the XXXXXXXXXX shares held in your RRSP trust.

Our Comments

A TI provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist the taxpayer in making that determination. While a TI does not confirm tax related calculations or to opine on accounting or commercial principles, practices or guidelines, we offer the following general comments which may be of assistance to you.

A conversion of property such as, for example, a conversion of limited partnership units for shares of a corporation, results in a disposition and may require a gain to be reported for income tax purposes. The property received on the conversion will have a cost amount for income tax purposes equal to its fair market value at the time of conversion. A property’s “cost amount” is similar to a property’s “book value” for accounting purposes but may not be the same in every case. When a conversion occurs within an RRSP, there is still a disposition of one property and an acquisition of another. Generally, however (subject to certain penalty and other anti-avoidance rules), amounts in an RRSP will be sheltered from tax until such time as they are withdrawn from the RRSP. Where property is withdrawn from an RRSP by the annuitant, an amount equal to the fair market value of the property at that time must be included in the annuitant's income.

For more information about our Directorate and TIs, please refer to our Information Circular IC 70-6R6 “Advance Income Tax Rulings and Technical Interpretations”.

We trust our comments will be of assistance. 

Yours truly,

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015