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Swap transaction?

  • Last Updated:
  • Aug 25th, 2019 5:31 pm
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[OP]
Newbie
Apr 1, 2017
14 posts
1 upvote

Swap transaction?

Hello,

I recently sold off a stock that's pretty illiquid from my RRSP as I wanted to buy some more of another stock. Since it was so illiquid my wife decided to take on the shares in her margin account since she's got plenty of excess margin and she already holds the stock anyways so she believes in the company. We were told the next day that the trade wasn't allowed as it's considered a swap transaction by the CRA and we couldn't trade from a registered to non registered account like that and that the trade could be done from margin to margin. That kind of defeats the purpose of me freeing up some funds in my RRSP. Can we do an RRSP to RRSP or TFSA transaction instead? Would a registered to registered cross be allowed?

And just to be clear i'm not selling to her at a discount or anything. Stock has been trading at 52 cents for the last week and that's what we did our transaction at. I asked the gentleman at my brokerage but his out of office was on as he left early on Friday and won't be in until Monday. Was hoping I could get some clarification on here before I reached out to him Monday morning.

Thanks!
2 replies
Banned
Aug 23, 2019
899 posts
450 upvotes
I don't understand your post.
If its thinly trade you are the market maker. Put up your sell order and have your wife put up the buy order. She will get your shares at that price. Why would you go through the hassle of a swap?
Also they banned this transacrion EXACTLY for this reason. Because on thinly traded shares you can take advantage of said values as you are the market maker.




https://www.google.ca/amp/s/www.theglob ... le4420522/

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.
Member
May 2, 2019
207 posts
186 upvotes
Vancouver
BaconBro wrote: We were told the next day that the trade wasn't allowed as it's considered a swap transaction by the CRA and we couldn't trade from a registered to non registered account like that and that the trade could be done from margin to margin. That kind of defeats the purpose of me freeing up some funds in my RRSP. Can we do an RRSP to RRSP or TFSA transaction instead? Would a registered to registered cross be allowed?
Not to TFSA, not to non-registered, questionable between RRSPs. There are multiple complications with that when dealing with related accounts, which include your own and your spouse's.

1) CRA keep adding rules to prevent artificial value transfer to/from registered accounts. See CRA document on tax advantages - RSPs, RESPs, RRIFs, RDSPs and TFSAs. It's complicated, in particular see Example 10 for a prohibited scheme similar to the OP's case: using thinly-traded securities to transfer value from one of the spouses' RRSP to the other's TFSA. It could lead to heavy penalties.

2) Also from CRA perspective, don't forget the superficial loss rule (non-registered only). In particular, one cannot claim a capital loss when selling stock in a non-registered account while buying it back within 30 days in a spouse's account. ACB calculation can be challenging if trading same securities in multiple related accounts.

3) From the stock broker regulator (IIROC), there are additional rules about market manipulation, which they can easily suspect if you trade a thinly-traded stock between your account and another account of your own or the spouse. I got a letter from Questrade legal department once when a trade went through between my accounts. It was a rather liquid ETF, but I saved myself $0.02 spread in the true RFD fashion. They asked me not to do that again.

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