OTC and Pink stocks in RRSP / TFSA

[beerbaron]

Anybody knows what exactly are the rules of what we can buy in our RRSP and TFSA? I'm interested in looking into the Pink sheets but it seems I can't hold those stocks in registered accounts? Any workarounds?

 

BeerBaron

[value-is-what-you-get]

The only recommendation I got was to buy the security directly on the foreign exchange however the brokerage fees were exorbitant - or so I thought.  In retrospect the fees would have been an absolute bargain compared to the taxes I'll pay on gains from partial sales of Pink Sheet version from my non-registered account.

[ubuy2wron]

The RRSP rules state that it has to be a security listed on a named exchange. The US OTC mkt does not qualify it has to be an exchange that is qualified ie on the list of exchanges that CRA says is ok. There is no easy work around that I am aware of.

[nodnub]

here is a list of the "Prescribed Stock Exchanges" from CRA

 

http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html#P261_44645

[beerbaron]

Thanks guys... that sucks that the OTC does not count in accepted investments. No Lancashire for me :)

 

BeerBaron

[bonechip1]

beerbaron - this is the only workaround that I am aware of - fellow boardmember uncommonprofits pointed this exception out to me a number of years ago and I have used it to buy shares on non-prescribed exchanges a number of times since in registered accounts. 

 

"Shares of a corporation that were listed on a prescribed stock exchange but that have been suspended from trading or de-listed continue to be qualified investments if the corporation that issued the shares was, and remains, a public corporation, and the shares do not otherwise cease to be qualified investments."

 

http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.pdf

 

I have argued with several discount brokerage reps on this, and when you call the CRA to get an interpretation, it seems that they don't have an official list of eligible stocks that are traded OTC or delisted entirely, but still qualify.  Not sure this would help with buying Lancashire, as I am not familiar with the situation.

[nodnub]

No Lancashire for me :)

 

I believe your conclusion is incorrect.  Lancashire is traded in the London Stock Exchange.  If there is any problem, you can solve this by instructing the broker that holds your RRSP account to purchase it on the LSE instead of the pink sheets.  You may have to phone in your order to make a trade on an international exchange.  You can expect the commissions to be higher than buying N.A. stocks.  This is what valueiswhatyouget was pointing out in more general terms in the post above.

 

http://finance.yahoo.com/q?s=LRE.L

 

[nodnub]

Perhaps bonechip's comment means that you can buy LRE on the pinksheets and hold them directly in your RRSP by virtue of the fact that the shares are also traded on a prescribed exchange (london).  This would save you the higher commission fees of buying on the LSE.

[beerbaron]

beerbaron - this is the only workaround that I am aware of - fellow boardmember uncommonprofits pointed this exception out to me a number of years ago and I have used it to buy shares on non-prescribed exchanges a number of times since in registered accounts.   

 

"Shares of a corporation that were listed on a prescribed stock exchange but that have been suspended from trading or de-listed continue to be qualified investments if the corporation that issued the shares was, and remains, a public corporation, and the shares do not otherwise cease to be qualified investments."

 

http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.pdf

 

I have argued with several discount brokerage reps on this, and when you call the CRA to get an interpretation, it seems that they don't have an official list of eligible stocks that are traded OTC or delisted entirely, but still qualify.  Not sure this would help with buying Lancashire, as I am not familiar with the situation.

 

Humm, did you get into any troubles with the CRA. It seems like a grey area that could apply to Lancashire...

 

BeerBaron

[bonechip1]

Haven't had any trouble yet from CRA, but my investments have been in companies that are already delisted from a prescribed exchange and trade only on a non-prescribed exchange like the pink sheets.  I have never bought a company on a non-prescribed exchange that was concurrently listed on a prescribed exchange - you may want to call CRA for an interpretation to clarify, as the penalties are steep for holding a non-qualified investment are 1% a month for RRSP, and 100% immediate penalty if bought in TFSA I believe.  

[sbalsam]

I am writing this more than 5 years after the original posting. I came across the posting with a google search re: buying OTC securities in a TFSA so others may as well and I wanted to clarify.

Bonechip 1's rule regarding de-listed securities only applies to Canadian companies that are de-listed. A U.S. company previously listed on the NYSE, for example, would not be eligible for purchase in a TFSA and would result in substantial penalties.

Steve