Principal Issues: Whether a trader or dealer of securities has to file a T5008 Statement of Securities Transactions when an individual transfers his publicly traded shares of the capital stock of a corporation to a TFSA as contribution to his TFSA?
Position: No.
Reasons: Not a sale of securities for the application of subsection 230(2) of the Regulations.
XXXXXXXXXX 2019-082216 R. Gagnon
November 12, 2019
Dear Madam,
This responds to your e-mail of July 24, 2019 (addressed to Nathalie Thibault and Laurier Shank of the Third Party Reporting Division of the Canada Revenue Agency ("CRA")) in which XXXXXXXX asked questions regarding the filing of the prescribed form T5008 Statement of Securities Transactions ("T5008 slip") with respect to the situation described below. Your request was forwarded to the Income Tax Rulings Directorate of the CRA for response.
Legislative references herein are to the provisions of the Income Tax Act (the "Act") or the Income Tax Regulations (the "Regulations"), as the case may be.
Our understanding of the situation described in your email is as follows:
Facts and Assumptions
1. An individual ("Mr. X") is resident in Canada for purposes of the Act.
2. Mr. X is an annuitant under a "registered retirement income fund" ("RRIF") as defined in subsection 146.3(1). Mr. X is a client of XXXXXXXX.
3. Mr. X is the holder (as defined in subsection 146.2(1) of the ITA) of a "tax-free savings account" ("TFSA") as defined in subsection 146.2(5). Mr. X's TFSA is a trust arrangement (including because of the application of paragraph 248(3)(c) and subsection 248(3.2)) as described in subparagraph (b)(i) of the definition "qualifying arrangement" in subsection 146.2(1).
4. During the 2019 calendar year, Mr. X withdrew the minimum amount (as defined in subsection 146.3(1)) from his RRIF, $5,000. A T4RIF slip will be issued to Mr. X for $5,000.
5. The withdrawal was effected by the transfer to Mr. X of 100 common shares of a public corporation with a fair market value at the time of transfer of $5,000 ($50 per common share). The 100 common shares of the public corporation were then transferred to Mr. X's regular brokerage account (i.e. a non-registered account for purposes of the Act). Mr. X did not own shares identical to the 100 common shares.
6. Immediately after the RRIF withdrawal, Mr. X transferred his 100 common shares of the public corporation from his regular brokerage account to his TFSA as a contribution to his TFSA in accordance with the provisions of his TFSA and his "unused TFSA contribution room" (as defined in subsection 207.01 of the Act). The fair market value of the 100 Common Shares at that time was also $5,000. There was thereby a disposition by Mr. X of his 100 Common Shares as a result of the application of paragraph (c) of the definition "disposition" in subsection 248(1).
7. The subject financial institution has filed a TFSA annual information return identifying Mr. X's TFSA contribution of $5,000.
Your Comments
Your understanding is that in the situation described above, the financial institution would be required to file a T5008 slip in respect of Mr. X's transfer of his 100 common shares to his TFSA as a result of subsection 230(6) of the Regulations because there is a disposition by Mr. X of the 100 common shares. He must enter $5,000 in Boxes 20 (cost or book value) and 21 (proceeds of disposition or settlement amount) of the T5008 slip.
Your Questions
(a) In the situation described above, does the financial institution actually have to file a T5008 slip (with a book value of $5,000 and proceeds of disposition of $5,000) in respect of Mr. X's transfer of his 100 common shares to his TFSA?
(b) Is there administrative relief for the financial institution not to report this type of transaction where there is no gain or loss?
(c) If it were possible for the financial institution to effect the transfer of the shares directly from the RRIF to the TFSA, with each transaction retaining its tax nature, i.e., a withdrawal from a RRIF generating a T4RIF slip and a reported contribution to the TFSA, the transaction would occur directly and there would be no possibility of having different fair market values. The securities would not pass through a client's regular brokerage account. In that situation, would there still be a requirement to disclose the transaction on the T5008?
Please note that for the purposes of our comments, we have assumed that your questions relate to the filing of T5008 slips by a "trader or dealer in securities" as defined in subsection 230(1) of the Regulations in respect of transactions made by a trader or dealer in securities as an agent on behalf of its clients. That definition provides that a “trader or dealer in securities” means:
(a) a person who is registered or licensed under the laws of a province to trade in securities, or
(b) a person who in the ordinary course of business makes sales of securities as agent on behalf of others.
Our Comments
This technical interpretation provides general comments on provisions contained in the Act and the Regulations. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. Our Directorate only confirms the tax treatment of particular transactions in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
Subsection 230(2) of the Regulations provides, among other things, that every trader or dealer in securities who, in a calendar year, sells a security as agent shall make an information return for the year in prescribed form in respect of the sale. The information return in prescribed form includes the T5008 slip as well as the T5008 Summary.
Subsection 230(6) of the Regulations provides that every person who, while acting as nominee or agent for another person in respect of a sale or other transaction to which subsection 230(2), 230(3) or 230(5) applies, receives the proceeds of the sale or transaction shall make an information return for the year in prescribed form in respect of the sale.
A sale (as defined in subsection 230(1) of the Regulations) for the purposes of section 230 (including subsections 230(2) and 230(6)) of the Regulations includes the granting of an option and a short sale. However, the meaning of "sale" is not exhaustively defined for the purposes of section 230 of the Regulations.
The meaning of "security" is defined in subsection 230(1) of the Regulations for the purposes of section 230 of the Regulations, and a "security" includes a publicly traded share (as defined in subsection 230(1) of the Regulations) of the capital stock of a corporation.
The transfer by an individual TFSA holder of securities to his or her TFSA as a contribution in a situation as described above is not a sale for the purposes of subsection 230(2) or subsection 230(6) of the Regulations, even if there is a disposition of the securities at their fair market value by the individual because of the application of paragraph 69(1)(b) and paragraph (c) of the definition of "disposition" in subsection 248(1). The trader or dealer in securities is not required to file a T5008 slip for this transaction.
Consequently, administrative relief as referred to in Question (b) above is not necessary. Furthermore, it appears to us that there is no need to answer Question (c) above.
We hope that our comments are of assistance.
Urszula Chalupa, LL.B, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch