As a result of an RRSP-stripping strategy, the RRSP of an annuitant now holds shares of a cooperative (the “Co-op”) that have a nil fair market value. What would be the consequences if the RRSP transferred the Co-op shares to the annuitant for consideration equalling the cost of the shares to the RRSP, so as to return the RRSP to it previous position? CRA responded:
[T]he annuitant and the trust governing the annuitant's RRSP generally do not deal with each other at arm's length within the meaning of paragraph 251(1)(c). …
Thus, to the extent that the annuitant acquired units of the Co-op from the trust governing his RRSP that have a nil FMV, the cost of the units to the annuitant would be deemed to be nil by virtue paragraph 69(1)(a). The excess amount paid by the annuitant to the trust governing the annuitant's RRSP would be treated as a premium, and could result in an over-contribution … .