Don’t contribute losing securities – part 2

Question: I was looking over your Web site and was reading the article by Gordon Pape in the RRSP section entitled “Don’t Contribute Losing Securities”. The information contained in the article is WRONG according to Revenue Canada. Do you not check articles for accuracy? This is rather upsetting as your members are accepting the information in the articles as fact. – J.H.Answer:

The item in question was an RRSP tip that warned people against contributing losing securities to a registered plan because they would not be allowed to claim a deduction for a capital loss. When we received this e-mail, we responded by asking the writer to supply us with a source for his information, since we had not heard of any change in government policy on this matter and we keep pretty close tabs on such things. This was his reply:

“I have not heard of any changes in legislation but this is what I was told when I phoned Revenue Canada. I have also been told this by several different brokers. Who do I believe? I know of several people who have transferred their shares to their RRSP and then claimed the capital loss on their income tax return and it was accepted.”

then went directly to the head office of the Canada Customs and Revenue Agency (CCRA) in Ottawa to ask if there had indeed been a change in what has been a long-standing (and to our way of thinking, unfair) policy. After a few days of extensive inquiries within the department, they confirmed to us, officially, that there has been no change in policy or legislation and that the information as posted on the Web site is indeed correct.

So our response to J.H. is this: If anyone at your local CCRA office told you differently, they were wrong, not us. This happens quite often, unfortunately, and it’s why the courts have ruled repeatedly over the years that taxpayers are liable for any errors they make on their returns, even if they have been told by the tax department that what they are doing is okay. The Tax Act always overrides the opinion of a bureaucrat.

You say you have friends that have successfully claimed a capital loss after making an RRSP transfer. They were lucky; obviously it wasn’t caught when the return was assessed. But if the CCRA ever gets around to re-assessing them, they’ll be on the hook for unpaid taxes plus interest.

Individual taxpayers can decide if they want to take this chance and make a claim anyway. But we certainly can’t counsel anything that is contrary to tax law and which might end up causing our members problems with the tax department. – G.P.