General Comments on CCPC Shares Held in an RRSP
There are many factors to consider when examining the merits of holding
shares of a Canadian Controlled Private Corporation in an RRSP:
Technical Details
- Must own less than 10% of the company
- Auditors must sign qualification letter
RRSP advantages
- Can be used as a contribution in kind - contribute existing shares to
RRSP and get tax receipt - a tax refund with no out of pocket cost
- Can be used for an asset swap, removing cash or securities from the
RRSP in exchange for the current CCPC share value
- Can use existing RRSP assets to buy CCPC shares and increase
ownership
- Dividends increase RRSP value without affecting contribution room -
cash dividends can be used to buy other investments
- Growth is tax deferred - even after shares are sold
RRSP disadvantages
- Lack of diversification - company career progress and investment eggs
all in one basket
- Requires self-directed RRSP - additional fees ($25 charge per
transaction)
- Often spouse restricted from being beneficiary (can't have
non-employee own shares)
- Tax on growth paid fully as income when RRSP collapsed
- If shares no longer qualify as a CCPC, may have to come up with a
large amount of cash quickly
Advantages of holding shares outside RRSP
- Simplification
- Interest from borrowing to invest in shares is tax deductible
- Growth counts as capital gains, only taxed at 50% and paid when
shares are sold but,
- Should qualify for $400,000 farm/CCPC capital gains exemption
It is strongly recommended that you carefully consider these factors
and consult a tax advisor or accountant before investing in CCPC shares in your
RRSP.
Return to Investor Learning Centre
|
