U.S. take-overs

Zoomer | January 1st, 2006

Question: Suppose a Canadian stock in your RRSP portfolio is bought by a US company via a share swap. Are the US stocks considered foreign property with a book value equal to the book value of the original Canadian stocks?

Or is the book value of the US stock its market value at the time of the share swap? If this were true it could cause the foreign content limit to be breached and subject the RRSP to penalties.

Answer:

The question of book value would hinge on whether you were deemed to have disposed of the original stock, in which case the book value would be based on the shares you received in return. However, in most such cases, Revenue Canada grants a two year grace period before the stock is re-classified as foreign content. So you have adequate time to get on-side.