Using RRSP to temporary hold Cdn mutual funds or etf

rafa02 · Post by **rafa02** » Sat Jun 27, 2015 1:51 pm

Situation: A family member, dual citizen living in Canada, with modest income and a substantial unused RRSP deduction limit.

In order to avoid filing the various IRS forms required for foreign mutual funds and/or an ETF, held in a non-registered account (and the questionable advisability of a TFSA), I was thinking perhaps one could use deduction limit in the RRSP to hold the funds, without claiming the deduction and carrying it forward until the funds are withdrawn from the RRSP.

Upon withdrawal from the RRSP, it seems to me one could then claim a deduction equal to the amount withdrawn, or apparently form T3012A could be used to withdraw unused contributions and providing an offsetting amount on line 232 of the Cdn tax return.

Is this workable, or am I overlooking something?

nelsona · Post by **nelsona** » Sat Jun 27, 2015 7:22 pm

Please read the regs carefully regarding such withdrawals.
The CRA has stipulations in which there must have been "reasonable" expectation that one was going to claim the deductions.
Otherwise the entire withdrawal will be included as income (it is always included as income) and none of it will be given the deduction on 3012A.

rafa02 · Post by **rafa02** » Sat Jun 27, 2015 8:52 pm

Thanks nelsona, good point, but even if T3012A is not applicable, then claiming the withdrawal as income and then claiming an equal amount from the unused deductions should make it tax neutral. Right?

nelsona · Post by **nelsona** » Sun Jun 28, 2015 7:59 am

No. Read the regs. You need T3012A to make these deductible if you claim them more than a couple of years after you made the contributions.

rafa02 · Post by **rafa02** » Sun Jun 28, 2015 12:22 pm

From my reading, apparently unused contributions can carryforward indefinitely (up to age 71), but to do it in the way I proposed is not allowed. What difference would it make to the government? If I contribute (not over contribute) and do not claim a deduction, there is no tax saving for me or loss for the government, and any revenue generated will be taxable when it is withdrawn - I do not understand the reasoning for the restriction.

So the RRSP can be a trap. I have another family member, with a modest income, who has been contributing a small amount each month, but not claiming the deduction, as their income is too low to receive a tax benefit, at the moment. We will have to be very careful with how the unused contributions are claimed in the future.

nelsona, as always, thanks for your insight.

rafa02 · Post by **rafa02** » Sun Jun 28, 2015 1:18 pm

Thinking more about this issue, if I now understand the requirements, the unused contributions may be claimed one year (or over multiple years) and receive a tax break for that year, and then withdraw funds the following year and essentialy pay back the tax benefit from the previous year.