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Contribute Securities
A self-directed RSP is the only form of plan that can accept contributions other than cash.
The dollar amount of your contribution equals the fair market value of the securities you put in. There are, however, tax considerations. You will face capital gains tax if the transfer value of the securities exceeds their cost. Unfortunately, though, you are not entitled to apply the loss against taxable capital gains if the securities are worth less than you paid. In that case, first sell the holdings so you can use the capital loss, and then make your contribution in cash.
You could use this cash you contribute
to the plan to repurchase the same
securities – but only if you wait at
least 30 days. The “superficial loss”
rules require investors to wait at
least 30 days before repurchasing a
security on which a capital loss is
claimed. There is, however, a wrinkle
for mutual fund investors. Your RSP
could immediately buy the fund you
just sold, but in a different version.
Many mutual funds are available
in separate versions as RSP “clones”
and in corporate class structures.
You might then wish to switch back
to your original choice after 30 days
because the alternative versions typically
have somewhat higher built-in
management fees. Note that the 2004
federal budget closed a loophole that
enabled investors to realize a capital
loss outside their RSPs and immediately
have their plans buy the very same
security. The thinking was that the
RSP was legally a separate “person,”
so the 30-day rule did not apply. The
2004 budget stipulated that an RSP is,
in fact, affiliated with its owner and
subject to the superficial loss rule.
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