As far as I can tell every RRSP plan does not allow you to hold foreign currency. Or, to put it another way, I have not seen one that will. In fact ETRADE Canada says the following:

“Canada Revenue Agency does not allow RRSP accounts to be held in a foreign currency”
(https://www.canada.etrade.com/pages/retire/rrspFAQ.shtml#CAnIHave)

That is the standard line that you will hear from most brokers. What this means is that if you buy and sell foreign stocks (including US stocks) then they will not allow you to settle in a foriegn currency so that every time you buy or sell a stock the broker will convert to and from the foreign currency. Of course, every time they convert the broker will take about 2% (the actual amount depends on the broker) spread over and above the posted exchange rate so to break even you will have to get about a 4% return (not including commisions!). This is a tough burden to overcome.

However, if one goes to the Canada Revenue Agency (CRA) website the following statement appears:

“Money and deposits of money may be qualified investments. Money denominated in any currency is a qualified investment except where the money is held for its collectible value, or the fair market value of the money exceeds its stated value as legal tender in its country of issue.“
(http://www.cra-arc.gc.ca/E/pub/tp/it320r3/it320r3-e.html#P184_28565)

So it seems that there is no government restrictions in holding foreign currencies! The problem is that the brokers just don’t let you do it. And why not? That currency spread sure looks good to them. If you have a self-directed RRSP and trade foreign stocks, then I would encourage you to contact your broker and ask for them to comply with the CRA policy — the money you save could be your own.

Categories: Finance
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