CCPC Shares - Inside or Outside the RRSP?

Canadian Controlled Private Corporation (CCPC) shares are shares in a privately held Canadian company. Clients who purchase part of a business or receive shares in their employer as part of their compensation often ask us whether it makes sense to hold their CCPC shares inside or outside their RRSPs.

There are many factors to consider when examining the merits of holding shares of a Canadian Controlled Private Corporation in a RRSP. 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. With the 2011 Federal budget, there are new restrictions on swapping CCPC shares into and out of registered accounts that also need to be considered. (See http://www.budget.gc.ca/2011/plan/anx3a-eng.html#toc12.):

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 $750,000 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.

CCPC Share Administration: Special Benefits for Group Plan Members